Senstar Technologies Corporation

Greetings and welcome to SendStar Technology's fourth quarter and year-end 2022 results conference call. At this time, all participants are on the 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 conference over to your host, Kim Rogers. Thank you. You may begin.

Thank you, Robert. I would like to welcome all of you to the conference call and thank CENSTAR Technologies Management for hosting today's call. With us on the call today are Mr. Drora Sharon, CEO of CENSTAR Technologies, Mr. Fabien Robert, Managing Director of CENSTAR and Interim CEO of CENSTAR Technologies, and Mr. Tomer Hay, CFO. Dror will summarize the key financial and business highlights, followed by Tomer, who will review SendStar's financial results in detail for the full year and the fourth quarter. We will then open the call for 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 Senstar cannot guarantee that they will, in fact, occur. Senstar does not assume any obligation to update that information. Actual events or results may differ materially from those projected, including as a result of changing market trends, reduced demand, and the competitive nature of the security systems industry, the unanticipated and unknown effect of the coronavirus including on our operations and our clients, as well as other risks identified in the documents filed by the company with the Security and Exchange Commission. In addition, during the course of the conference call, we will describe certain non-GAAP financial measures which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, We have reconciled our non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to our website at www.sendstartechnologies.com for the most directly comparable financial measures and related reconciliations. And with that, I would now hand the call over to Dror. Dror, please go ahead.

Thank you, Kim.

Thank you for joining us today to review Senstar Technologies' fourth quarter and full year 2022 financial results. As announced in our press releases earlier this year, I'm stepping down as the CEO, and today we announced that the Board of Directors has appointed Mr. Fabian Huber as the interim CEO. Fabian has a deep understanding of our operations and our corporate strategy. He was appointed as the Managing Director of Senstar more than three years ago, back and he was the architect behind the changes to our strategy during the COVID-19 pandemic. Fabian first joined the company more than five years ago as the vice president of sales for our EMEA region. In that role, he streamlined the sales and support organizations and delivered significant growth in revenues in the region. I am confident that Fabian will serve the company in the best way possible. Fabian joined me in that call and will resume responsibility as of tomorrow, April 21, 2023. Turning to our results for the fourth quarter in 2022, our strategic decision to divest Magal integration solution for $35 million in cash in 2021 enabled us to concentrate on our core strengths and invest in areas with the greatest potential of growth. which delivered significant returns for our shareholders in 2022. We achieved an increase in operating income to $1.5 billion for the whole year of 2022, compared to $1.1 million in 2021, resulting in a 13% rise in EBITDA to $2.9 million. While supply chain headwinds were less problematic compared to 2021, we still faced extended lead times and related price increases. We successfully passed most of the price increases onto our customers, which allowed us to maintain a strong gross margin of over 60% in 2022. We finished 2022 on a high note with fourth quarter revenue growth of 10% and maintained a strong, stable gross margin. Our continued diligent management of expenses resulted in an increase of 37% in operating income and a 32.2% increase in EBITDA year-over-year. We reduced our full-year operating expense by more than 4% year-over-year. Sensta Technology exited the year with a strong backlog while stabilizing our cash burn. Overall, we are pleased with our annual results for 2022, especially the increase in our operating income in EBITDA. We want to express our gratitude to our customers, employees, and stakeholders for their unwavering support throughout the year. During my tenure at Senstar, I have had the privilege of working alongside a remarkable team of professionals dedicated to driving success and delivering value to our stakeholders. Together, we have navigated significant challenges, and achieved important milestones that have solidified the company's position as a leader in our industry. My primary accomplishment during my time here has been the strategic divestiture of Magal's integration solution for $35 million in cash and our rebranding and sensor technologies. This allowed us to leverage our core strengths in perimeter intrusion and focus on our foregoing verticals as well as the post-merger integration of the Waterloo site, previously Emetis, and the deep consolidation of our U.S. site, previously Octelius, to Senstar Ottawa. Through careful analysis and planning, we executed the venture efficiency. We not only streamlined our operation, but also delivered a significant return to our shareholders. In September 2021, We returned $40 million to our shareholders in the form of a cash distribution, following the previous distribution when we returned $25 million in cash. I would also like to acknowledge the exceptional work done by our team in navigating the COVID-19 pandemic. As the world faced these challenges, our team remained steadfast in its commitment to serving our customers while ensuring our employees' safety and well-being. Through the decisive and strategic action, we adapted to the changing landscape during COVID and the supply chain challenges, which allows us to continue providing essential products and services to our customers. Although COVID impacted our top line in 2021 and 2022, we managed operating expenses and cash with an eye towards positioning the company for long-term sustainable growth. We exited 2022 with solid booking despite the longer sales cycle. I'm happy to say we have not experienced any order cancellation and we continue to execute the opportunities in the pipeline. As I mentioned, we have a strong backlog of revenue and the company expected to deliver a portion of this backlog over the next 12 months. Several large orders currently in the final stage of negotiations are expected to close in the coming months. We are We are replenishing our backlog at a steady rate. In addition to those achievements, I aligned the company's resources along four key verticals to focus our sales efforts. By doing so, we better understand our customers' industries and provide them with solutions specifically designed to meet their needs. This position sends staff for continual growth. Advancing our product offering has been a top priority during my time at Senstar, and I'm proud of the strides we have made. By investing in research and development and fostering a culture of innovation, we introduced new solutions that have helped to differentiate us in the marketplace. The product and software Senstar released in 2022 received industry recognition and awards, and 2023 looks amazing. look to be also a productive vehicle of innovation. I would also like to highlight the successful advancement of our award-winning solution, the Central Symfony Common Operating Platform, with the recent release of version 8.4. Through close collaboration with our talented team, we developed a cutting-edge product that has been recognized for its innovation and impact. Our fusion solution, which links to our PID devices with our software, and a strong reception in the market. We remain on track to release two new products early this year, and we continue to upgrade the software common operating platform and the fusion. I'm incredibly proud of the progress we have made together, and I'm confident that the company is well positioned for continued success. It has been an honor to lead such a talented and dedicated team, and I will always be grateful for the experience. In closing, I want to thank all of our employees worldwide for the ongoing commitment to our strategy to deliver excellence in products and services, improve our profitability, and ultimately deliver shareholder value. Now I will pass the call to our CFO, Mr. Tomer Hine. Tomer, please go ahead and review the financial results.

Thank you, Dror. Before I begin my financial review, I would like to express my gratitude to Dror for his long and valuable contribution to the Sunstar Magal Group and extend my best wishes for his success in his new position. On a more personal note, working alongside Dror for those years, first as VP of Finance and later as his CFO, has been an extremely fulfilling experience. I have learned a great deal from him, both professionally and personally. And I want to thank him for his support and unwavering presence whenever I needed it. Our reported revenues for the fourth quarter of 2022 was $9.9 million, an increase of 10% compared with reported revenues of $9 million in the fourth quarter of 2021. The increase was primarily due to a recovery in some of our markets, as well as our sales effort in the four key verticals. The geography breakdown as a percentage of revenues for the fourth quarter of 2022 compared to the year-ago quarter is as follows. North America, 47% versus 41%. Europe, 27% versus 25%. Impact, 10% versus 24%. Latin America, 4% versus 5%. Other, 12% versus 5%. Fourth quarter reported gross margin was 56.6% of revenues versus 58.1% last year. The decrease in gross margin was primarily due to a shift in the mix of products sold during the quarter and macro-level business condition related to high material costs components availability, and labor costs. Our reported operating expenses were $4.7 million, a decrease of 27.6% from the prior year fourth quarter operating expenses of $6.5 million. The year-over-year decrease in operating expenses is due primarily to lower general and administrative expenses as well as decrease in selling expenses. Our reported operating income for the fourth quarter was $0.9 million compared to an operating loss of $1.2 million in the year-ago period. Financial income was $0.3 million compared to financial expenses of $0.4 million in the fourth quarter last year. This is mainly a non-cash accounting effect we regularly report due to the adjustments of the valuation of our monetary assets and liabilities denominated in currencies other than the functional currency of the operational entity in the group in accordance with GAAP. Our reported income for the continuing operation was $3.5 million in the fourth quarter of 2022 compared to a loss from continuing operation of $2.2 million in the year-ago quarter. The company's EBITDA from continuing operation for the fourth quarter was $1.2 million versus an EBITDA loss from continuing operation of negative $0.7 million in the fourth quarter of last year. Net income attributed to sensor technology shareholders in the quarter was $3.5 million or 15 cents per share versus a net loss of $3.2 million or a negative 14 cents per share in the fourth quarter of last year. The reported net income in the fourth quarter of 2022 includes zero from discontinued operation versus a net loss from discontinued operation of $1 million in the same period last year. Added to Senstar operational contribution is the public platform expenses and amortization of intangible assets from historical acquisitions. The corporate expenses and amortization expenses for the fourth quarter were $1.2 million versus $1.4 million in the fourth quarter of the year before. Revenues for the year ended December 31, 2022, was $35.6 million compared to revenues of $34.9 million in the prior year. The year-over-year increase of 1.8% relates to some recovery in our business, which has been impacted by COVID pandemic. The geography breakdown as a percentage of revenues for 2022 compared to 2021 is as follows. North America, 45% versus 46%. Europe, 29% versus 26%. APAC, 18% versus 23%. Latin America, 4% in both periods. and others 4% versus 1%. The full-year gross profit was $21.5 million, representing gross margin of 16.5% versus $22 million for gross margin of 63% last year. The lower gross margin is primarily due to our revenue mix and some increases in material costs. Our 2022 operating expenses was $20 million, a decrease of 4.2% compared to $20.9 million last year. Operating income was $1.5 million compared with $1.1 million in 2021. The increase in operating income was primarily due to high revenues as well as lower operating expenses. Net income attributed to SunStar Technology shareholders for 2022 was $3.8 million, or $0.16 per share, versus $6.4 million, or $0.28 per share, in 2021. The reported net income in 2021 includes net income of $8.6 million from discontinued operations. In 2022, our EBITDA was $2.9 million, representing an EBITDA margin of 8.2%, compared with $2.6 million representing an EBITDA margin of 7.4% in 2021. The corporate expenses and amortization expenses for the public platform were $4.5 million, at the same level as in 2021. Cash and cash equivalents as of December 31, 2022, were $15 million, or $0.65 per share. That concludes my remarks. Operator, we would like to open the call to questions now.

Thank you. At this time, we'll be conducting a question and answer session. If you'd 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'd 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 questions.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions.

There are no questions at this time.

I'd like to turn the call back over to management for brief closing remarks.

Thank you. Thank you very much. On behalf of the management of Senstar, I would like to thank our investors for their interest and long-term support of our business. I would also like to express my deepest gratitude to the team at Senstar for their hard work, dedication, and unwavering commitment to excellence. It has been an honor to work alongside such talented and driven individuals, and I'm confident that Senstar will continue to thrive and achieve great success. I wish everyone the best of luck in their future endeavors. Thank you again for the opportunity to serve as the CEO of this remarkable company, and lots of luck and success to my friend Sabian in his new role as the interim CEO of the company. And have a good day, everyone.

Thank you.

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.