Senstar Technologies Corporation

Ladies and gentlemen, thank you for standing by. Your conference will begin in approximately two to three minutes. Again, please continue to hold. Your conference will begin shortly. Thank you. Thank you. Thank you. © transcript Emily Beynon Greetings, and welcome to the CENSTAR Technologies third quarter 2023 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow a 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. It is now my pleasure to introduce your host, Brett Moss of Hayden IR. Thank you, sir. You may begin.

Thank you. Welcome, and thank you for joining us today. I want to thank the management of Sunstar Technologies for hosting today's call. With us on the call today from the company are Fabian Halbert, Interim CEO, Tomer Hay, CFO, and Ms. Alicia Kelly, Vice President of Finance. Before we start, I'd like to point out that this conference call may contain projections and other forward-looking statements regarding future events or the company's future performance. These statements are only projections, 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, as well as other risks identified in the 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-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 sendstarttechnologies.com for the most directly comparable financial measures and related reconciliations. With that, I will now hand the call over to SendStart Technologies CEO, Fabian Haber. Fabian, please go ahead.

Thank you, Brad. Thank you for joining the call today to review our third quarter financial results. Starting with an overview of the result this quarter, we booked revenue of $9 million, underscoring our sustained strength in Europe and LATAM, which have been areas of investment over the past few years. This growth was tempered by the absence of one-off projects in Canada and the U.S., completed in the third quarter of last year but did not repeat this year. Additionally, our revenue declined in the APAC region, primarily due to challenging economic conditions in China. Our gross profit was affected by the delivery of a lower-margin legacy project. We're working to have our growth margin returning to more normalized levels in the coming quarters. Despite the deepened revenue and growth margin in the quarter, we maintain positive operating income and positive EBITDA. Switching to our performance per region, we continue to deliver strong growth in Europe, where revenue increased by over 20% year-over-year for the second quarter in a row. Thanks to our significant investments in countries like Germany, France, Spain, Eastern Europe, and the Netherlands, we're harvesting the fruits of that focus and taking market share. We believe we can continue to gain market share in Europe and anticipate that this large and productive region will be a steady growth engine for us over the next few years. As a person of the German revenue, the U.S. is our largest markets. This year, we have experienced a recovery in correction business, our largest vertical in the US market. Federal budget restriction and relocation impacted this segment in the prior year. Year to date, revenue in the US is at 8%. To further expand our market position, we have added a senior executive in the third quarter to continue rebuilding in this critical region and accelerate our market share gains in our verticals. The LATAM region was also a standout performer regionally, delivering 10% growth year-over-year. Year-to-date, this region has grown almost 20%. Looking at our home markets, Canada stands at Raymond Wells' position. Last year, we had a one-off project that closed in the third quarter, which did not reoccur this year with the same magnitude. Lastly, APAC has been a challenging market this year, primarily due to the weak Chinese economy. The decline in this market year-to-date has been a headwind for our top-line growth. Now, let me turn to something I'm very excited about. We recently introduced our latest breakthrough, the sensor-motor-sensor intrusion detection system, a disruptive AI-powered sensor unit that seamlessly integrates five intrusion detection capabilities into a single powerful device. The multi-sensor offers unparalleled situational awareness, effectively neutralizing false alarms, and, as a versatile standalone solution, expands its potential application beyond the conventional perimeter intrusion detection use cases. The remarkable feature of our innovation lies in its ability to streamline multiple technologies, into a single intelligent unit, simplifying intrusion detection installation and significantly enhancing overall performance. The device is worth the occurrence of false alarms next to zero. Additionally, this innovative solution reduces the need of numerous sensors and camera installations. While this provides substantial advantages for our customers in reducing system complexity, It also benefits sensors considerably. It will also decrease sensor field costs related to installation, management, and support. The motor sensor, by encapsulating all these capabilities within a single unit, will enable us to decrease our product portfolio range and realize improved operating scale. Furthermore, this product extends our strategy vision beyond our current pitch market focus. With Emotisensor, we aim to penetrate broad markets by offering the product as standalone units. These markets may possess critical security vulnerabilities, but do not constitute critical infrastructure. Our investment in this project is already paying off since Emotisensor received the Platinum Award for the Best Intrusion Detection and Prevention Solution from American Security Today's Annual Astor's Homeland Security 2023 Awards. I'm excited to officially announce that we will unveil the multisensory ISTS West in April 24, followed by a full scale of launch later in the year. In summary, our solutions protect essential assets and facilities crucial to the global economy. Each of our key verticals are benefiting from macro trends. As a result, our products are increasingly deployed in critical infrastructure, logistics, correction, and energy side worldwide. Sensar remains committed to delivering product innovation, improving regional performance, and driving growth in key verticals. Now, I will pass the call to our CFO, Tomer Haim.

Tomer, please go ahead and review the financial results.

Thank you, Fabian. Our revenues for the third quarter of 2023 was $9 million, which a decrease of 7.9% compared with revenues of $9.7 million in the third quarter of 2022. As Fabian discussed, the decrease was mainly due to a challenging comparison in Canada and in the U.S. due to one of projects in the third quarter of last year that were not repeated this year and the continued weakness in China. Those declines were partially offset by growth in Europe and in Latin America. The geography breakdown as a percentage of revenues for the third quarter of 2023 compared to the year-ago quarter is as follows. North America, 43%, compared to 50%. Europe, 34%, compared to 25%. APAC, 16%, compared to 19%. And Latin America, 7%, compared to 6%. The third quarter reported gross margin was 56.5% of revenues, down compared with 61.1% in the year-ago quarter. The change was mainly due to the delivery of lower margin legacy projects. As Fabian discussed, we are working to have our gross margin returning to a more normalized level in the coming quarters. Our operating expenses were $4.9 million. up a modest 2.7% compared to $4.8 million in the prior year's quarter. On a year-to-date basis, our operating expenses are essentially flat compared to the prior year period. Our operating income for the third quarter was $123,000 compared to $1.1 million in the year-ago period. Financial expenses were $64,000 in the third quarter of this year compared to financial income of $212,000 in the third quarter of last year. This is mainly a non-cash accounting effect we regularly report due to adjustments to the valuation of our monetary assets and liabilities denominated in currencies other than the functional currency of the operational entities in the group in accordance with GAAP. Our loss from continuing operation was $122,000 in the third quarter of 2023 compared to income from continuing operation of $1.2 million in the year-ago quarter. The company's EBITDA from continuing operation for the third quarter was $322,000 compared to $1.5 million in the third quarter of last year. Net loss attributed to Senstar Technology shareholders in the third quarter was $122,000, or negative $0.01 per share, compared to net income attributed to Senstar Technologies' shareholder of $1.3 million, or $0.06 per share in the third quarter of last year. The reported net income in the third quarter of last year includes net income of $66,000 from this continued operation. Added to Senstar's operational contribution are the public platform expenses, and amortization of intangible assets from historical acquisitions. The corporate expenses for the third quarter were approximately $0.6 million. Cash and cash equivalent and short-term bank deposits as of September 30, 2023, were $12.7 million or 55 cents per share. That concludes my prepared remark. Operator, we would like to open the call to questions now.

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 questions.

Thank you.

Our first question comes from the line of Mike Dissler with AMX. Please proceed with your question.

Yes, thank you. Good afternoon, gentlemen. Just regarding the re-domiciling of the company from Israel to Canada, is that, I assume it's proceeding on time, and will that affect the corporate taxes going forward?

Good morning. Yeah, thanks for the question. So yeah, it's going according to schedule. It's not going forward. Operational is the same operational entities. So each legal entity has its own taxes. So we don't see an ongoing impact.

Okay, thank you very much. And just a second question. I was wondering how the backlog looks going forward the next three to 12 months.

So, you know, from past calls, this is not the data that we are giving regarding our backlog, but we can say that, you know, our backlog is stable and is okay.

Okay. Thank you very much. I'll remain in the queue. Thank you.

As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from Jeremy Levine with Levco. Please proceed with your question.

Two questions. How many years have you been in operation?

The company has been 40 years. We have 42 years exactly.

How many years? 42 years. And your revenue for the quarter is $9 million. Yes, indeed. Don't you consider that to be an astonishingly puny sales revenue for a company that's been around that long?

Sorry. I'm sorry. There's some connection.

Don't you consider that to be an astonishingly puny revenue for a company that's been in business for 40 years?

We're working hard to create some growth engine to make sure it's

is getting better.

I've asked all my questions.

Thank you. We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

So on behalf of Tencent Management, I would like to thank you for your continued interest and long-term support of our business, and I look forward to updating you next quarter. Have a good day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.