Safe-T Group Ltd.

Greetings and welcome to the Safety Group third quarter and 2021 earnings results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Steve Gersten, Director of Investor Relations. Thank you. You may begin.

Thank you, Operator. Good morning, ladies and gentlemen, and welcome to Safety Group's third quarter 2021 earnings results conference call. I'm Steve Gersten, Director of Investor Relations for Safety Group. Joining us on the call today is Shakar Daniel, CEO and Shai Avneet, CFO of Safety Group. 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 statement 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 from expectations reflected in these forward-looking statements. Potential risks and uncertainties include those discussed under the heading Risk Factors and Safeties 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 Shakar Daniel, the company's CEO.

The floor is yours. Thank you, Steve, and welcome everyone to Safety Group's 2021 Third Quarter Earnings Results Conference Calls. As is customary, with me is Shai Avnit, our Chief Financial Officer. I would like to provide a short review of our business operations, summarize our accomplishments, and then turn the call over to Shai, who will briefly discuss the financial results of the third quarter before we open the call to questions. We are very excited to present a truly significant quarter that I believe begins to represent the company's hard work and transformation we wrote towards for the past year and a half, with the key world of execution. Over the third quarter of 2021, we have focused on expanding our value proposition to the privacy and cybersecurity markets for consumers and enterprise. During the last quarter, we witnessed the huge potential of the market we're operating as confirmed by a surge of M&A deals around the world. More than $1 billion in acquisition in the last few months straightened our confidence in the opportunities ahead of us and reconfirms the impact value of our innovative portfolio of privacy and cybersecurity technologies. Entering the consumer sector with a variety of solutions built on a recurring revenue business model, the acquisition of CyberKick has proven to be a strong catalyst for us, as demonstrated by our impressive revenue growth recorded in the third quarter. Our consumer solutions include privacy products and new innovative cybersecurity tools with unique features for our users. We were very proud to launch our iShield at the end of the quarter and more recently augmented its capabilities with the addition of advanced anti-ransomware protection layer. I believe this product can be a game changer for users as more than 495 million ransomware attacks have been logged in this year according to SonicWorks. a leading publisher of ransomware threat intelligence, making 2021 the most costly and dangerous year on record. While our industry tends to focus on ransomware's highly damaging consequences to large organizations, we are differentiating ourselves by bringing advanced ransomware solutions to millions of consumers and small and medium business who typically don't have access to tools to deal with those attacks. As consumer security software spending continues to grow, reaching approximately $7 billion, according to Statista, we remain committed to investing additional resources in this side of the business in the upcoming quarters because of the large antep potential we see. In the enterprise segment, we continue to make progress as well. With the launch of our new web data service solution, we have expanded our enterprise product portfolio. We have already seen significant interest in our web-wide data service solution by enterprise customers who are seeking highly scalable and efficient ways to collect publicly available data pools that can be used to aid in their data analysis and decision-making. Furthermore, our enterprise cybersecurity solution, Zone Zero, a Zero Trust Metro Access VTNA product, also gained an important recognition this quarter A squadron knowledge solution has named safety as the 2021 emerging leader in the Spark Matrix analysis for the global VTNA security market. Overall, our team continues to make significant progress in our reorganization process that we started two years ago with the goal of building a safety group in their world-leading cybersecurity and privacy company serving both consumers and enterprises. Early evidence of this progress can be seen in our revenue for the quarter, which reached a record high of approximately $3.4 million, an increase of 137% compared to the equivalent quarter in 2020, exceeding our own $3.2 million estimate, which we preannounced in October. But before going further, I would like to turn the call over to Shai to discuss the financials for the quarter in more detail. Shai?

Thank you, Shachar.

I will begin with the summary of our third quarter 2021 financial results, which are compared to our third quarter 2020 results, unless otherwise stated. All figures in this summary were rounded up for simplicity. Revenue for the third quarter of 2021 totaled $3.4 million, a 137% increase compared to revenues of $1.4 million for the third quarter of 2020. The increase in revenues is due to the first-time consolidation of CyberClicks revenues for the third quarter, the acquisition of which was completed in July 2021, as well as an increase in enterprises' privacy revenues generated by NetNut, our enterprise privacy business. Gross profit for the third quarter of 2021 was $1.8 million, representing 108% increase compared to gross profit for the corresponding period in 2020 of $0.86 million. The increase in gross profit was primarily driven by increased revenues. Operating expenses in the third quarter of 2021, excluding unique expenses such as continued consideration resulting from our acquisition, totaled $6.2 million, compared to $3.2 million in the equivalent quarter of 2020. The increase is mainly due to CyberCreek's first-time consolidation as well as the increased enterprise privacy operation. Overall, we believe that operating expenses in the third quarter were higher than average due to a number of one-time events which are not expected to reoccur with levels expected to decline as a percentage of sales going forward. As of September 30, 2021, the company's cash and cash equivalents and short-term investment balances were almost $13 million, down from $19.3 million reported at the end of the previous quarter, primarily due to a $3.7 million cash payment for the acquisition of CyberKick. Based upon our internal plans, ongoing cost reduction efforts, and expected level of capital investments into new products and technologies, we believe we have adequate cash on hand to fund operations through 2022 and into early 2023. The International Financial Reporting Standard net loss in Q3 2021 totaled $3.7 million, or 12 cents per share or ADS, as compared to a net loss of $1.3 million, or 8 cents per share or ADS. NANA-SRF net loss in Q3 2021 total $3.2 million, or $0.10 per share, or ADS, compared to a loss of $1.6 million, or $0.10 per share, or ADS, same as in Q3 2021. With that, I'll turn the call back over to Shaha.

Thank you, Shai. In summary, during the last quarter this year, we made significant progress towards implementation of our vision. including delivering significant consecutive quarterly revenue growth, acquiring innovative technologies, and adding talented entrepreneurs to our team. On a personal note, we are not indifferent to the share price and capital markets. Although the broader capital markets are reaching new highs, we do not believe this trend has translated to the micro-cap and small-cap companies like Safety. As our financial results indicate, we are building a high-growth company with high-growth margins. While the company is currently investing in its growth in the short term over the coming quarter, we believe our food scores will stabilize and revenues will continue to grow significantly, producing a higher level of profitability. Our board and team are committed to building the value of our business as a top priority and believe it will become greater because of the decisions being made now. Alongside our commitment to improving our business operations, We're also committed to expanding awareness of safety with new investors through more frequent contact and participation at investment conferences. As part of this and our desire to be more engaged and transparent, we recently launched a new corporate and investor website. This will provide investors with a better understanding of our business focus, financials, and our corporate governance and enables investors to better communicate with us. I invite you to check it out. Looking ahead, we have a well-defined roadmap of execution, technology innovation, and extension plans for the near term. The cybersecurity and privacy markets are growing into a global multi-billion dollar opportunity in response to the incredible surge in cyber attacks on organization individuals. We will continue to develop our position as a leading provider of privacy and cybersecurity solutions, and we are well positioned to capitalize on the hyper-growth our sector is experiencing. With that, I would like to open the call for any questions. Operator, please go ahead.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first questions come from the line of Michael Shaw with Shaw Family Office. Please proceed with your questions.

Good morning. Thanks for taking my call. Shakar, can you give us an update on the status of the ZTNA market or your Zero Trust product?

Okay, good question. Thank you. So basically we believe that Zero Trust Network Actors, as we call it ZTNA, as a security architecture is certainly gaining expectancy acceptance in the enterprise market because of its many advantages over traditional VPN approaches. I don't know if you are aware, but basically this solution has come to replace the old and legacy VPN. I should note, however, that as a new architecture, as everybody can imagine, customers are taking a careful approach to implementing the technology as they are facing the challenge of replacing a legacy infrastructure. not only in the VTNA, it happens in all markets. Due to this, we started to push last quarter and accelerate over the last few months our Zero Trust Network access for internal users with an identity-based Zero Trust solution that offers seamless integration to multi-factor authentication, MSA formats, and secure access control, supporting both non-web protocols and legacy infrastructures. We believe that this approach, touching the pain points of our customers, layering it on top of all current forms of MFA, would be easier and faster to adopt by our customers since they get the benefit of enhanced access security while addressing their immediate challenges. This is also an easier first step for adopting our full solution. In short, I can assure you and us that the move to 3DNA It's happening and will happen. As noted in the multiple industry experts and research reports published by firms like Gartner, Forrester, and more recently, Quadrant Knowledge Systems. But we are still early in the deployment process.

Great. Thank you very much.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next questions come from the line of Brian Kitzlinger with Alliance Global Partners. Please proceed with your questions.

Great, thanks. In terms of Zero Trust, can you talk about what the contribution roughly is, percentage-wise, is to revenue? And as you said, it's early stages for your company. How long do you think before it becomes a meaningful catalyst to revenue? Okay, thanks, Brian. Good question.

By the way, it's more or less the same answer as the previous one, but I will elaborate. So basically, we built the platform in the last one, one and a half years. We are engaging with customers and partners all over the world, trying to be the first that will come into this market together with some giants and some other competitors. At this stage, a contribution is to the revenues the revenues of the company, is low. We truly believe that our new approach of providing ZTNA for internal users, allowing organizations to connect legacy infrastructure to MFA, will give us a boost this quarter or the next quarters, and we will start to see in 2022 a significant value or benefit or contribution to the revenues from our ZTNA solution. Great.

Okay, so 2022, we should start to see a little bit more. And then can you talk about the early discussions around the ICO launch? What's the go-to-market strategy? Is it direct? Are you using partners? And how do you see this impacting 2022 revenue? Also, what's the pricing for this solution?

Okay.

So we launched this solution a few weeks ago. The go-to market in the consumer business is a little bit different than the enterprise business. The go-to market, first of all, in the first stages is only direct. I think that one of our big upsides and advantages is the fact that we have, I can assume, the best digital sales and marketing guys, maybe globally, that knows how to push consumer products. We started with the first bulk. of around 1,000 users, we stopped. We are reviewing the feedbacks from these first consumers, then we push another bulk and another bulk, and according to the procedure, in the first quarter or the second quarter of 2022, we will take it to, as we call it, to mass production or to GA status. We see a huge value, a huge contribution of this iSheet to our portfolio and hopefully to our revenues next year. We consider to consolidate this product with some other consumer products that we have in our portfolio to have one full solution. But we will take a decision over the way. But the go-to-market strategy is only direct, to your question. Great.

And then this is very direct. Yeah, when you say direct, is that phone calls, is that emails, texts, all the above? How do you reach consumers? Digital advertising, mainly. Right. Got it. Okay. And then can you maybe at a high level break down safety, legacy, net-nut, cyber-kick, chai-cooked, and then as you think about those different businesses, which will grow the fastest in 2022 and why do you think?

I think it's a little bit tricky question because we did not talk yet about projections or other for next year, but I can tell you in high level that, and to be totally honest with you, we push the whole business, the privacy, the security, the consumers and the enterprises And we truly believe that each one of them can bring us a huge value next year. I can tell you that according to this quarter and the start of the fourth quarter, we see a nice growth. We see nice results in each one of them. So I don't have enough data now in order to provide a kind of breakdown of the revenues for next year. But we trust all of our products at this stage, of course, that if we see something that is, that's why we have a lot of confidence in our offering and safety because we build a variety of solutions to a variety of markets and segments. And then if we see that something is going very well, then we can push it and we can prioritize it or vice versa, the opposite. If something you know, it's breaking, then we can stop it a little bit, hold it, fix it, and in parallel, push the others. But I don't have an accurate information to provide at this stage. Sorry.

Okay. And then I may have missed it. Can you quantify the total one-time expenses in the quarter or non-recurring expenses? And can you talk about what these expenses were for?

Most of the expenses for this quarter were for the acquisition of cyber-chips.

And what were the total that ran through the income statement that won't reoccur?

Okay. Shai, you want to answer here? Yes. Hi, Brian. Obviously, yes.

Obviously, these are numbers that we didn't release in the PR. but there were some expenses related to the acquisition, and there are also some expenses related to an IP issue we are dealing with. We believe that these two costs will not repeat themselves in the same level. Of course, the acquisition is the one time, and the IP will not repeat itself in the same level going forward the quarters.

Right, but that doesn't really help us. We'd like to know, as investors, how much your cash burn looks like an EBITDA is not recurring. So is it a million dollars in acquisition and IT issues? Is it less? Is it more? And are the IT issues complete? Are they fixed?

Sorry?

Regarding the IT issues, Regarding the IP issues, Shachar, you answered it.

The acquisition costs are basically over.

So, Brian, for your question, yes, I will summarize. So we have two main issues this quarter, one-time expenses related to cash to the burn rate, One of them, as Shai mentioned and I mentioned before, we had a one-time big expense which was related to the acquisition. If we will not have another acquisition and we don't have something planned for the new term, so this is behind us, of course. The second is the IT issue. So we truly believe that the mass or the big part is behind us. We are now negotiating on kind of two settlements with a third-party company that we had the issue. So basically, it looks like that it's going to reduce dramatically, but of course, if something will change, we will announce.

Okay. And lastly, can you share what the average share count was in the third quarter? The average what, sorry?

The common share count outstanding, ADS. Okay. Shai?

Yes, we had pretty steady throughout the whole quarter. We have 30 million ADSs or shares. Now it's the same number, steady over the quarter.

30 million. 13 million? No, 30. 3-0. 3-0, exactly. Got it. Okay, thank you.

It's just, you know, in the beginning of the quarter, we issued some shares to the CyberTix founders. It was on 4th of July, and since then, we are steady over the quarter.

Okay. Thank you. You're welcome.

Thank you. Our next questions come from the line of Lee Alper with Hammock Investors. Please proceed with your questions.

Thanks for taking the time. Can you give us some idea whether we might be able to see some insider or management buying the stock as the price has really come down?

Okay, so this is an important topic. Sorry, again. This is an important topic and the one entire thing is focused on. At this stage, all I can say is is that we have pursued this matter with our lawyers, and we're currently exploring options for management to buy shares in the open market. Of course, subject to the allowed trading windows, that, you know, we have trading windows according to our policy. So, yes, it's on the table. We are discussing about it. And, of course, as it happens, I guess you will know.

Okay, thank you. You're welcome. Thank you.

Our next questions come from the line of Robbie Johnson. Please proceed with your questions.

Yes, my question is, how do you see the balance between your burn rate and growth?

Okay, thank you. It's a strategic question. I will touch it a little bit. I guess it's strategic not only for safety, but for most of the companies. But as we noted in the PR and in my remarks today, we plan to continue to invest in our growth. This will drive revenues and give us the scale we need to build our business. We produce strong margins, currently over 50% in the current quarter, with the potential to go higher. And top-line growth will drive improvements in operating income as well as cash flow. We are focusing... on the management of cash and believe that growth in revenues will significantly outpace any growth in operating expenses and will take the company to the place and to think that it needs to be. And this is how we will execute our vision.

And I wish you a happy Hanukkah.

Happy Hanukkah. Thank you. Our next questions come from the line of Matthew Jennings with Landmark Financial.

Please proceed with your questions.

Hey, guys. Let me just say fantastic quarter and probably one of the better growth stories I currently see in this marketplace.

Thank you very much.

So obviously you guys are having record sales right now, record revenues. I'm curious to know why the company hasn't provided more updates or press releases around the deals it's making with these customers. You've been relatively quiet with actual contracts. I know that you've had a number of press releases about partnerships, but I'm more interested in the updates provided on deals.

Okay.

Yes, it's a question that I'm facing with investors all over the quarter. So it's a great opportunity to explain a little bit. First of all, we understand the need to communicate the progress we are making in the business. And we are committed to improving our transparency in this regard. For example, however, in the enterprise, our customers are interested in privacy and security. And by the very nature of our products, they do not want to share with the world the approaches and the technologies they are deploying.

In the consumer business,

although there is a lot of activity, we think that in these stages we just started, it is too early in the process to provide metrics that investors will value as we need some time to further establish our track record. So just to summarize, we are touching a very sensitive area for our customers. The privacy products that are protecting their privacy products and the cybersecurity products that are protecting their facility and infrastructure. Most of the customers don't want to expose nothing related to this. They prefer to stay behind the scenes, and they prefer that nobody will have even a clue what kind of products are protecting their infrastructure. And this is something that we are facing with. We totally understand your need as an investor to get this PR announcement, but I'm sure that the numbers are talking on themselves, and hopefully as we will grow, we will have more opportunities to announce.

Hope it answers your question. Yes, it does. Thanks. Thank you.

Thank you. Our next questions come from the line of Dan Pivnik. Please proceed with your question.

Hello, Shachar. Can you explain more about the situation now with the lawsuit of NetNut with Illuminati or Bright Data?

I think that I can elaborate only on the items that we announced. And we have a kind of process with Bright Data slash Luminati. It's a kind of, I cannot, I think that, you know, not related to the tech rules or the public company rules, but related to the process itself, it's totally under confidentiality. But it's very interesting for you. You can take a look. Some of the information is public, but I cannot expose more than this.

And what do you expect? Do you think that NetNut will go out straight from it or there are going to be some problems?

No, I totally believe, as we announced, I think that we are facing with a company that has a very weak patent. We have a lot of evidence for this, and I think that this process will make us stronger, not the opposite.

Okay. I hope also. Thank you very much. You're welcome.

Thank you. There are no further questions at this time. I'd like to turn the call back over to Shakar Daniel for any closing comments.

Okay, everybody, so thanks for joining us today. Happy Hanukkah and Chag Sameach for everybody. We look forward to continue to update you on our progress, and we really appreciate your trust and belief in our company. Thank you very much.

This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.