Senstar Technologies Corporation

Greetings. Welcome to SendStar Technologies second quarter 2022 earnings 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. Please note this conference is being recorded. I will now turn the conference over to Warren Kerbel, SendStar Technologies Company Secretary. Thank you. You may begin.

Thank you, operator, and welcome to our second quarter earnings conference call. With me today are Mr. Dror Shalon, CEO of Senstas Technologies, and Tomer Hai, CFO. Dror will summarize key financial and business highlights, followed by Tomer, who will review Senstas' financial results for the second quarter. We will then open the call for the question and answer session. Before we start, I'd like to point out that this conference call may contain projections or other forward-looking statements regarding future events or the company's future performance. These statements are only predictions, and SAMHSA cannot guarantee that they will, in fact, occur. SAMHSA does not assume any obligation to update information. Actual events or results may differ materially from those projected. including as a result of changing market trends, reduced demands, and competitive nature of the security system industry, the unanticipated and unknown effects of the coronavirus, including on our operations and our clients, as well as other risks identified in our documents filed by the company with the Securities and Exchange Commission. In addition, during the course of the conference call, we will describe certain non-GAF financial measures, which should be considered in addition to a nothing new of comparable gap financial measures. Please note that in our press release, we have reconciled our non-gap financial measures to the most directly comparable gap measures in accordance with Regulation G requirements. You can also refer to our website at www.sensatechnologies.com for the most directly comparable financial measures and related reconciliations. And with that, I would now hand over the call to Doron. Go ahead, please.

Thank you, Doron. Thank you for joining us today to review Senstar Technologies' second quarter financial results. In 2022, we have closed several large projects in our key verticals. We have successfully landed significant recent customers' wins that we cannot announce since our customers requested us to keep it confidential. In the Americas, we have closed wind with new customers, including critical infrastructure sites such as ports, airports, and power plants. In EMEA, we have also been successful in critical infrastructure, vertical costs, several countries, and have secured winds with a large logistics facility and a high-profile government site. APAC has been a productive region as well. A large airport has deployed our PIDs and software solution in two terminals. We will be rolling out to an additional terminal and upgrading equipment purchased over five years ago with our updated product. We will also close the power company project and have long-standing corrections facility customers upgrading its systems with new Senstar products. However, in the second quarter, we experienced delays due to several factors that caused new business to take longer to close, particularly in the U.S., where many projects are tied to federal funding. As a result, second quarter revenue declined by 10% to $9.1 million. Notably, we have not lost business, and we continue to expect a reward in our favor in the coming month. Last year, we received subsidies from the Canadian Emergency Wages Subsidy Program to approximately $0.6 million in the second quarter, which expired in the third quarter of 2021. This has impacted the year-over-year comparison to cost of goods sold and operating expenses. Additionally, higher prices impacted the cost of goods sold, despite mitigating some of the increase by raising our prices. On a prior call, we stated that we expected supply chain challenges to continue into the first half of 2022. As a result of having secured the necessary components and built inventory to meet anticipated demand, we have been able to manufacture products for customers' order and mitigate further cost increases. This, combined with raising our prices, has allowed us to maintain a gross margin above 60% in 2022. With price increase taking effect and absence of subsidies payment after Q3 2021, we expect a more normalized run rate of expenses going forward. One vertical we are particularly excited about is the energy sector. Securing energy production and storage facilities is a global concern, and we are experiencing increased interest in our advanced solutions. Currently, we are in final contract negotiations with international energy companies or several opportunities across multiple countries to help to protect facilities, reserves, pipelines, and oil fields. One project is a blanket agreement with a large multinational energy company, and the other is for an African oil field facility to secure its oil pipeline and pumps. The blanket agreement deal would significantly boost our brand power and raise awareness of Senstar within the energy sector globally. In logistics, we are in advanced discussion with the global logistics and fulfillment network to provide a solution that will secure communication fiber with its facility and enable the testing of fiber optics with our fiber patrol solution. We anticipate this deal to close in the second half of 2022. Senstar has embodied a cultural continuous improvement, leading to a string of new products over the past year. Our new solution like our sensor fusion engine and travel patrol sensor detection, are gaining industry attention and are significant growth drivers. The latest products and software launched in 2021 and year-to-date, along with increased awareness created by winning industry awards and prizes for our innovation in perimeter security technology, are working together to improve our 2022 sales pipeline in Europe, North America, and APOC. We anticipate releasing two new products later this year. We entered Q3 with good business momentum and several new contracts expected to be closed. The Senstar pipeline is growing with deals from all verticals and geographics. For the remainder of 2022, our pipeline is robust with several large orders in the process of closing. We continue to win significant contracts in the energy vertical, critical infrastructure, and logistics. EMEA and APAC are strong regions where we have closed new business in the critical infrastructure, energy, and logistics. New solutions like our sensor fusion engine and fire patrol sensor detection are gaining industry attention and will be future growth rivals. In addition, we are cross-selling and up-selling products and solutions to our existing customers based on our four key verticals. We see good business momentum for the remainder of 2022 and anticipate high revenue and EBITDA margins in 2022. We ended the second quarter with a cash and cash equivalence of $17.9 million. The decline in cash in the first six months of 2022 was primarily for working capital purposes, specifically investment in inventories and increase around accounts receivable in addition to significant reduction in other accounts payable. In addition, we continue to invest in research and development. Our customers and industry analysts are recognizing our product innovation. This use of capital is working, and our innovative solution will be our most significant growth lever in the future. As a result of this investment, we have built a comprehensive, extremely innovative offering. Another vital growth lever for Senstar is our brand, and our brand is getting stronger, enabling us to close deals with large global companies in our key verticals, we believe that our brand will get stronger in the future. Our third growth lever is our distribution, and we have also invested here. This year we have expanded and enhanced our sales team and built new relationships with partners and customers in regions where we did not have an establishment presence. As we look at Senstar's three growth levels, product, brand, and distribution, we have investments and expanded our capabilities. We are activating each of the levels to achieve our long-term objectives for growth and profitability. As we continue to close deals in our pipeline, we lead with product performance and innovation. Senstar Key Verticals play a critical role in global and regional economics. As we have seen in the past two years, disruption in the delivery of goods, energy production, and the supply or the destruction of disruption in critical infrastructure have a tremendous ripple effect on the economy. As a result, there is an increased sense of urgency to protect those valuable assets from intruders and potential harms. We also provide innovative and robust border security solutions that have become increasingly relevant in recent geographical disruptions. SENSELS plays an essential role in protecting high-risk assets in high-security markets by providing a comprehensive suite of proven integrated technology solutions. We have been doing this for over 40 years. Our products can be found in thousands of critical infrastructure, logistics, correction and energy sites worldwide. In summary, Sunstar has a strong balance sheet with no debt and high cash balance. We are using our cash to create value with a focus on growth. Our team is excited by the success we are having with our product suits and the increasing credibility of our brand. All those factors position the company for continued success and growth. In closing, I would like to thank our global team for their commitment to excellence in products and services, and for the hard work in advancing our business. Sensta remains committed to leveraging our product innovation, brand strength, and the global footprint, and ultimately increasing shareholders' value. And now I would like to pass the call to our CFO, Mr. Tomer Hai. Tomer, please go ahead and review the financial results.