Safe-T Group Ltd.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Safety Group Second Quarter 2021 Corporate Update Conference Call. During today's presentation, all parties will be in listen-only mode. Following the presentation, the conference will be open for questions. If you have a question, please press the star key followed by 1 on your touchtone phone. If you would like to withdraw your question, please press star followed by 2. If you're using speaker equipment, please lift the handset before making your selections. This conference is being recorded today. August 26, 2021. Before we get started, I will read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Forward-looking statements include statements about plans, objectives, goals, strategies, future events of performance and underlying assumptions, and other statements that are different than historical fact. These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that may result in expectations not being realized and may cause actual outcomes to differ materially from expectations reflected in these forward-looking statements. Potential risks and uncertainties include those discussed under the heading Risk Factors in Safety's annual report on Form 20F filed with the Securities and Exchange Commission, on March 22, 2021, and in any subsequent filings with the SEC. All such forward-looking statements, whether written or oral, made on behalf of the company are expressly qualified by these cautionary statements, and such forward-looking statements are subject to risks and uncertainties, and we caution you not to place undue reliance on these. At this time, I'd like to turn the call over to Shakara Daniel, the company's CEO. The floor is yours.

Thank you and welcome everyone to today's 2021 Second Closet Corporate Update Conference called for Safety Group. With me is Shah Ravneet, our Chief Financial Officer. The first half of 2021 centered around the execution of key milestones in our mission to continue growth and the realization of a focused reorganization process that we started two years ago to become a world-leading company in the global cybersecurity and privacy industry for both enterprises and consumers. I would like to provide a short review of our business segment, summarize our accomplishments in the second quarter, and an outlook for the near future. Our business today focuses on two sectors for two audiences, cybersecurity and privacy solutions to the enterprises and consumer markets. Our enterprise privacy solution is based on a business IP proxy platform, which we incorporated into our group in the second half of 2019 NetNet. Our privacy solution for our organization is the world's fastest and the most advanced and secure business network that provides its clients accurate, transparent, and increasingly personal data from public online sources. In just two years since the acquisition, revenues generated by this platform increased from half a million dollars to a range of between $1.5 to $2 million per quarter by the end of this year. I'm especially proud with the substantial organic goals for our enterprise privacy solutions, not only for its consistent goals, but also for the affirmation of our ability to identify business activities with a great potential. Our privacy solution for consumers includes thousands of paying users that utilize our IP proxy platform today. Our latest acquisition of Cyberpeak will top that with the integration of the thousands of Cyberpeak customers. Our privacy solutions are keeping online users' information private and secure, adding an encrypted secure layer for online privacy. Our consumers' privacy business possesses well-established online marketing capabilities and knowledge, as well as high online performances. Based on preliminary results we achieved during the first half of the third quarter of 2021, I believe that we will continue to enjoy growth from the privacy sector. Moving on to the second part of our business, enterprise cybersecurity. The world and our business has changed considerably during the last 18 months, as we continue to witness large-scale cyberattacks alongside the changes businesses face in light of the COVID-19 pandemic. Cyberattacks and vulnerabilities continue to be a massive global problem, which regularly make headline news. In the first half of 2021 alone, Cyberattacks have impacted almost every sector, ranging from small, mid-sized businesses to banking institutions and Microsoft Exchange, including the critical infrastructure attack on the Colonial Pipeline. Ransomware and cyberattacks activities have reached new heights since the beginning of the COVID-19 pandemic, further highlighting the alarming lack of cybersecurity and safety measures for protecting important and confidential digital transformation and infrastructure. Our enterprise cybersecurity solution is at the forefront of secure access technologies. Our VinZero, a zero-cost network access solution, provides secure access for on-premises and hybrid cloud environments. It is the only secure access platform that can easily replace an organization's legacy or existing VPN infrastructure and allow secure access across any type of usage. In the past year, we partnered and connected with industry leaders worldwide, including Fujitsu, Elka, Accenture, and more, and we were added as an approved vendor for the natural solution for enterprise-wide procurement contract vehicles. As we live and breathe the market, we see that the need for secure access solutions become more and more imperative. Having said that, the market is still in its own stage Onset stage and demands are expected to grow rapidly, hitting $70 billion by 2026. With our advanced technology and solutions and our already established distribution infrastructure and leading partners around the globe, TAPE is well positioned to size any opportunity as market and organizations evolve. Last but not least is our cybersecurity business for consumers. As part of CyberKick acquisition, we are getting ready to launch a new subscription-based protective cyber product that identifies, eliminates, and helps avoid security and data breaches threats. Utilizing CyberKick's effective online marketing and sales platform, we believe that the company will be able to create traction for its new release. With the integration of CyberKick, in addition to our revenues, we finished the month of July 2021 with more than $1 million monthly revenues. representing a run rate on an annual basis which may lead to a significant annual growth compared to 2020 revenues. Our financials have continued to improve along with a strong cash position to support our growth plan. Looking ahead, we have a well-defined roadmap for execution, innovative technology, and established expansion plan for the remainder of the year. As we are enjoying the fruits of our hard labor, we plan to continue investing in each of our segments to encourage further growth as well as to explore potential integration and migration of our existing technologies to any of our segments. But before going further, I would like to turn the call over to Shai to discuss the financials for the quarter. Shai?

Thank you, Shaha. I will summarize our second quarter 2021 financial results, which are compared to our second quarter 2020 results unless otherwise stated. All figures in this summary were rounded up for simplicity. Revenue for the first quarter of 2021 totaled $1.8 million, and revenue for the first six months ended June 30, 2021, was $3.1 million. This compared to revenues of $1.1 million and $2.2 million, respectively, for the equivalent period in 2020. The increase in revenues is due to an increase in enterprise privacy business revenues. This increase was partially offset by a reduction in sales of the Secure Data Exchange, SDE product, as part of our strategic decision to focus on the privacy and zero-trust solutions. Gross profit for the second quarter of 2021 was $0.7 million, compared to a gross profit for the corresponding period in 2020 of $0.5 million. The increase in gross profit was primarily driven by the increased revenues. Operating expenses, excluding unique expenses such as contingent consideration adjustment resulting from our acquisitions, totaled $3.1 million compared to $2.2 million in the equivalent quarter of 2020. The increase is mainly due to, one, higher enterprise privacy business development costs, due to an extension of the privacy solutions activity. Two, higher subcontractors' development costs and marketing and sales costs, all related to the zero-trust solutions. Three, higher G&A professional fees, mainly legal. And four, higher employees' share-based compensation costs. Net loss was $2.4 million, which really means a loss of close to zero cents per share, as compared to a net loss of $2.2 million, or a loss of one cent per share in the second quarter of 2020. Net loss on a non-IFRS basis, which reconciled the effect of some non-cash expenses or income and certain other expenses, was $2.2 million, as compared to a non-IFRS net loss of $1.3 million in the second quarter of 2020. Cash use in operating activities for the six months ended June 30, 2021, totaled $3.4 million, compared to $3.2 million for the year-ago period. As of June 30, 2021, the company's cash and cash equivalents balance and short-term investment balance totaled approximately $19.3 million, compared to $11 million on December 31, 2020. The increase resulted mainly from cash rates in February 2021 through a registered direct offering, as well as cash rates through exercises to foreign, summing the company's cash levels in 2021 to the highest levels to date. And lastly, I wanted to touch base on our share count as it stands today. On an outstanding basis, we have around 1.2 billion ordinary shares, which equal to around 30 million ADSs. On a fully diluted basis, we currently have around 1.6 billion shares outstanding, which equal to approximately 40 million ADSs. In order to simplify share-based instruments, and subject to shareholders' approval in our coming annual meeting in September, our ordinary shares will be aligned soon after, such that it will have a one-to-one ratio with the ADSs. establishing the same share capital basis for both ordinary shares and ADSs. With that, I'll turn the call back over to Shachar.

Thanks, Shai. In summary, during the second quarter this year, we made significant progress toward implementation of our vision. We delivered on our role of consecutive and significant growth in acquiring innovative technologies and enrolling talented entrepreneurs. Looking ahead, We will continue to develop our position as a leading provider of privacy and cybersecurity solutions. The cybersecurity and privacy protection sectors are experiencing hyper growth in the global multi-billion dollar market due to the incredible volume of cyber attacks on organizations and individuals. In response, we are leveraging our expertise to extend sales through the current partnerships and grow into new markets. We look forward to the continued growth and innovation of our products and services and to a strong second half of 2021. With that, I would like to open up the call for any questions. Operator, please go ahead.

Thank you, sir. We'll now begin the question and answer session. As a reminder, if you have a question, please press the star followed by one on your touchtone phone. If you'd like to withdraw your question, press the star followed by two. And if you're using speaker equipment, you will need to lift the handset before making your selection.

One moment while we assemble the queue. Thank you. Our first question comes from the line of Jacob Silverman with Alliance Global.

Please proceed with your questions.

Hi, everyone. Thanks for taking my questions. You mentioned the prepared remarks that you expect NetNet to grow to 1.5 to 2 million per quarter. Can you tell us what's driving the growth there? Is it companies realizing

the necessity of IP proxy? Thank you. This is Shahar.

Thank you for this question. So the privacy, as we mentioned in our presentation and also in my quote just a few minutes ago, the privacy exposure and the fact that organizations and even consumers cannot serve securely over the internet is growing dramatically. We invested a lot in the first six months in our IP proxy infrastructure, product, and technology. We brought to the team the right people, and now we are identifying that we are even better in the competition than we have been before. We've seen our product and our infrastructure as leaders, maybe in the first two or three places in the world in this space, and the space is growing dramatically. It's the IP proxy, it's the anonymous surfing and data collection tools in order to get accurate data on the Internet and in order to get transparent data on the Internet. So that's what we see in the beginning of this quarter. That's what we see in the last two years. As I mentioned, we are very proud in the fact that we bought a company in something like half a million dollars per quarter, and now we are identifying a huge growth using data the synergy and the capital and the right management of safety group.

Thank you. How do you see the GSA approval playing into your U.S. strategy for Zone Zero with the recent public sector interest in Zero Trust solutions?

The GSA approval is the gateway or is the key to become a provider or a vendor of the U.S. government. It's a key that not everybody is getting. It took us significant time to achieve and to meet the criteria in order to be an approval vendor of the U.S. government. Now, as you know, these processes are taking time. It's huge enterprises, it's huge organizations that are now considering to move from legacy solutions for secure remote access to our new solution or to the VTNA market. And we are one of the players for us. It's a huge crowd. to be one of the players that are competing head-to-head with the big players of the world in order to achieve and to become a vendor and to sell our products and technologies to the U.S. government.

And how are your reseller partnerships progressing in the U.S. and Europe? When do you believe you'll begin to see some significant process there for Zone Zero?

Okay, thank you. It's a good question.

So I will give you a short brief about this market. As you know, I guess, and if not, I will explain, to move from legacy technologies like VPNs, like other technologies in the past, it's a process that takes time. But when it happens, it happens only to the players that have been there, have experienced the market, chose the right partners, put the right foot in the right places, And then you can bear fruits from this for years. The VTNA market is still very young. Huge potential. You can read and identify in all the big analysts of the world, like Gartner, like Forster, like IDC, that identify this potential. A lot of investors, VCs, private equities are coming in because the potential to become secure, the new secure remote access tools is huge, especially due to the COVID. Now everybody understands the importance of secure remote access tools to the fact that the world becomes digital and everybody is working from home and maybe it will last forever. So we are there. We are incorporating and finding the right partners. We have the best partners. I think some of them are the best in Europe. We are now working on a common solution like MSSP, which is Managed Secure Service Providers, and others in Europe and in the U.S. and in other places in the world. And we think that in the next period, as time will come and the organizations will be ready to move to the next stage with the secure remote access technology, safety will be there big time because we are now working on the sales and marketing infrastructure on our technologies and on the best offerings.

With the acquisition of Cyberkick, are you considering any further M&A?

Okay, so we already announced in 2018, even today, that part of our strategy is M&A. So I can tell you that for now we don't have something. We just finished the last acquisition. For us, it was a huge success because we found, I think, the best entrepreneurs in the consumer's market in Israel and maybe globally. Now we are integrating, implementing, and working very hard on the synergy between the systems and the companies. So for the coming period, we don't have something that I can say that we are going to buy tomorrow morning. But yes, the strategy of safety is M&A's. And I guess that over the time, if we find the best or good alternatives, we'll keep the growth hand-in-hand with unorganic like M&As and organically. But just to summarize, I think that after this acquisition, we bring our vision to the reality. In 2018, we said and we put ourselves a target to become a leader in consumer and enterprise privacy and security markets. and now we are the full platform. We have the consumer, we have the enterprise, we have privacy, and we have cybersecurity. So we finished one step in our vision and dream, and now we are starting to plan the next steps for the next year for safety.

All right. Thanks, Shachar. Thank you. Thank you. As a reminder, you may press the star followed by one on your touch-tone phone if you'd like to ask a question. Thank you. Our next question is from Brian Kintzlinger with Alliance Global Partners.

Please proceed with your question.

Hi, Shakar. One question on zero trust network access. How do you differentiate when that becomes a huge market? How do you differentiate your product with the competition out there? Thank you.

Okay, thank you.

So the main differentiation is the fact that we are the only solution that can come to an organization and say, okay, if for you it's a huge challenge to replace your current solution, which is mainly the VPN, Don't replace. Don't rip and replace now. We will augment your solution. We will protect your network. We will make you zero network access customer without replacing at this stage your current VPN. As you know, VPN is a technology of 20 years. Consumers or the end customer in the customer get used to work with this technology for the last 20 years. it's very challenging to replace it in one day. So we build and we develop a unique solution that can come and not to replace, but to augment and secure your current infrastructure. And this is our main differentiation, besides of some others, but they are less significant. And this is our main pitch with our partners and to the customers all over the world.

Great. Thank you. You're welcome. Thank you. At this time, we have no additional questions. I'll turn the floor back to Shakar or Daniel for any further remarks.

Thank you very much, everybody, for trusting us and for being shareholders of safety. We totally appreciate your huge belief and trust in our company, and we are working very hard in order to make you a satisfied investor and to be proud in the fact that you trusted and believed in safety in our first days. Thank you.

Thank you. This will conclude today's conference. Let me disconnect your lines at this time. Thank you for your participation.