Senstar Technologies Corporation

Greetings and welcome to the Sunstar Technologies first quarter 2024 financial results. At this time, all participants are in listen-only mode. A brief 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. It is now my pleasure to introduce your host, Kim Rogers with Hayden IR. Thank you, Kim. You may begin.

Thank you, Camilla. I'd like to welcome everyone to the conference call and thank SemStar Technologies Management for hosting today's call. With us on the call today are Mr. Fabian Haubert, CEO of SemStar Technologies, and Ms. Alicia Kelly, CFO. Fabian will summarize key financial and business highlights, followed by Alicia, who will review SemStar's financial results for the first quarter of 2024. We will then open the call for question and answer sessions. 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 Sunstar cannot guarantee that they will, in fact, occur. Sunstar 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 effects 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 non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to the company's website at www.sunstartechnologies.com for the most directly comparable financial measures and related reconciliations. And with that, I'd now like to hand the call over to Fabian. Fabian, please go ahead.

Thank you, Kim. Thank you for joining us today to review Senstop Technology first quarter 2024 financial results. We're off to a strong start in 2024 with first quarter results that improve year over year across major financial metrics. we delivered revenue growth of 17% compared to the first quarter of last year. And importantly, our profitability from operation improved significantly. Before diving into our financial and business highlights, I'd like to highlight a major accomplishment for the first quarter. In March, we issued a press release announcing Senstar's successful rhythm of filing to Canada, which streamlined the organization and reduced operating costs. Additionally, I had the honor of being confirmed that the CEO and Alicia was promoted to CFO. These steps positioned Alicia and me to effectively achieve our strategic objectives. Revenue in the first quarter was derived from higher margin products and price adjustments compared to last year, driving our growth margin to nearly 60% of revenue in line with our target growth margin goal. Operating expenses decreased 15% and represented 60.6% of revenue compared to 80.6% in the year-ago quarter. In terms of profitability, our operating loss improved significantly from a loss of 1.7 million in the year-ago quarter to a loss of 73,000 approaching break-even from operation. Cost control measures and price adjustments that we implemented over the course of 2023 have taken hold and are more apparent in our financial results. Notably, for the first quarter, we delivered growth in most of our geographic regions with notable strength in Asia-Pacific and Latin America. In the U.S., largest market as a percent of revenue revenue increased by 6% in the first quarter mainly due to great achievement in the correction and utility markets under our recently appointed new leadership the US team is making fantastic progress in developing our position with strong business development activity especially in the data centers and utility segments in Europe one of our largest markets, revenue increased by 8% in the first quarter. Market demand in Europe remained strong, especially in the utilities, energy, and transport sectors. Sensar has invested in Europe in previous years, developing promising opportunities in markets where we were underrepresented. In addition, Sensar has improved its market share in established territories, which also contributed to a growth on Q1. To sustain focus on key accounts in targeted verticals has been the key to our success. In Asia Pacific, our revenue grew by 150% compared to the previous year's first quarter under the drive of new leadership. Growth was mainly generated from the utilities and transport verticals with a concentrated effort on existing territories from north to south APAC. In the LATAM region, We sustained the higher growth rate we experienced in late 2023 again this quarter. Primarily due to wins in the correction verticals, we delivered 39% growth in Q1. Looking at the revenue contribution from our key four verticals, utilities, correction, energy, and logistics, revenue increased by 30% in this key market segment. We remain committed to our business development strategy with key accounts in these verticals to drive our growth. Looking ahead, we're most excited about the official launch of MultiSensor this quarter. MultiSensor is our new AI-based intrusion detection system that uses an embedded sensor fusion engine to intelligently synthesize data from multiple sensing technologies, providing full intrusion situational awareness and reducing false alarm rate close to 0%. The system includes short-range radar, PIR, accelerometer, high-frequency vibration, and image sensor. The multi-sensor is being extremely well received by major players in our industry and recognized as an advanced and versatile solution unlike anything else on the market. We are building a vetted pipeline of new sales opportunities, and we expect to begin recording sales in the second half of the year. In summary, the first quarter delivered solid results across key metrics, with growth in important geographies and gains in target verticals, resulting in year-over-year revenue growth and improved profitability. We remain focused on achieving continued growth and improvements on these metrics as we progress through 2024. I will now turn the call over to Alicia for a review of the financial results in more detail.

Thank you, Fabian. Our reported revenue for the first quarter of 2024 was $7.5 million, an increase of 17% compared with reported revenue of $6.4 million in the first quarter of 2023. As Fabian discussed, the increase was primarily due to revenue growth of 30% in our key vertical market. The geographical breakdown as a percentage of revenue for the first quarter of 2024 compared with the prior year quarter is as follows. North America, 52% versus 58%. Europe, 28% versus 31%. APAC, 14% versus 6%. Latin America, 5% versus 4%. And others remained flat at 1%. Reported gross margin was 59.6% of revenue for the first quarter of 2024, compared to 55.7% of revenue for the first quarter of 2023. This revenue improvement was primarily the result of a shift in our product mix to higher margin product in the quarter and price adjustments taken in 2023. Our reported operating expenses were $4.6 million, a decrease of 15% from the prior year's quarter's operating expenses of $5.3 million. The year-over-year decrease in operating expenses is due primarily to lower G&A expense, and lower selling and marketing expense as a result of our efforts to streamline operations and diligently manage our overhead costs. Our operating loss narrowed significantly in the first quarter to a loss of $73,000 compared to a loss of $1.7 million in the year-ago period. The year-over-year improvement was due to higher gross margins on higher sales and lower operating costs. Financial income was $54,000 compared to $40,000 in the first quarter of last year. This is mainly a non-cash accounting effect we regularly report due to the adjustment to the valuation of our monetary assets and liabilities denominated in currencies other than the functional currency of the operating entities in the group in accordance with GAAP. Net loss attributable to Sunstar Technology shareholders in the quarter was $746,000 or $0.03 per share. versus a net loss of $1.9 million or $0.08 per share in the first quarter of last year. The company reported positive EBITDA for the first quarter of $114,000 versus an EBITDA loss of $1.4 million in the first quarter of last year. Taxes on income were $700K compared to $200K in the first quarter of last year. The exceptional increase was primarily due to a tax revision related to the reorganizing the group structure, and a reduction in tax assets, which was offset by the recovery provision for an uncertain tax position due to this statute of limitations. Censor's operational expenses included public platform and amortization of intangible assets from historical acquisition. The corporate expenses and amortization expenses for the first quarter were $600,000 versus $1.1 million in the first quarter of the year before. Cash and cash equivalents as of March 31st, 2024 were $15.8 million, $4.68 per share, as compared to $14.9 million as of December 31st, 2023. That concludes my remarks. 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 keypads. a confirmation tone will indicate that your line is in the question queue. And 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. Thank you. Our first question comes from the line of Ken Liddy with Please proceed with your question.

Hi. Congratulations on the solid quarter. Just wanted to know, in the first quarter, was there any significant cost or savings from your redouble selling in Canada?

Okay, thank you for your question.

Yes, there was some savings attributable to the redone affiliation. As we mentioned, we have restructured and we've restructured to Canada. And in doing so, essentially, there are some headcount that were eliminated naturally from the headquarter level. And then there was also some savings that were less significant in the operating entities as well.

Was there any one-time charges in the quarter from the change that are significant or material?

No, no one-time charges this quarter.

Okay. And you were, it looks like you had some strong positive cash flow in the quarter. What was that attributable to?

That was just the natural effect of us completing Q4. So a large portion of our cash came from the collections of our Q4 sales, which were higher during Q4 of 2023. Okay.

And one last question. With regards to the launch of the multi-sensor, I'm just trying to gauge how significant this launch is. Is this something that you can compare to another product in Sunstar's history? Or is it a big deal? Or is it a very big deal? Or is it expected to be a solid contributor?

So it is expected to be a major change where we're going to for many reasons. The first thing is we... The multi-sensor basically is a technology which is totally new. Most sensors today in the perimeter detection segment are focusing on one technology. And we believe that we've touched the limit of every one of those technologies. The multi-sensor has as a target to reduce the pulse alarm to zero. So to give you an analogy of human body, The best site will never replace the site, the hearing, the smelling, the sensing, and the brain to compile all this information to have a clear situational awareness of what's going to happen. Today, perimeter is doing it, and it's going to be combined eventually with another technology like video to check whether an alarm has occurred or not. It's going to be combined with another technology on top of it. We like to give the analogy the mobile phone, the iPhone, typically. 15 years back, we all had our flipping phones together with an MPEG-3, together to listen to music, together with the GPS, together with a PDA and digital camera. Today, it's one device. We believe that to improve the performance in parameter detection, to reduce it to zero, the only way to do it is to use the conversion of technology to combine it in the device and to use intelligence to be able to translate the data into situational awareness and then the right decisions. So we believe to be ahead of the market by proposing that. So it's a step which is not only adding another technology, which we have been doing in the past, but using different technologies to provide basically a single device, an intelligent device, able to provide a decision, an understanding, which is better than anything you think today. So that's in terms of why we did it. So where do we expect growth? First of all, we're going to put it on the high end of our solution portfolio and buy one of the best solutions and so on. But on top of it, we expect to take market shares to other technologies like video cameras and so on, by having a system able to do many things at once. And finally, the product, we expect to be targeting not only the critical infrastructure, but as well the critical points of non-critical infrastructure, which is heavily broadening our targeted markets. I hope to have answered your question by this long, but I hope... No, yeah, yeah.

That's a lot of color. I really appreciate it. Is there any type of groundswell of interest from your customer base or outside of your customer base?

Today, we have a huge positive reaction from the market of the first introduction. Translated in a lot of desire to test it, to do proof of concept and whatsoever. So we're extremely excited by the release. which will happen in two weeks' time.

And will you be – are you at the point of pilot testing it, and will you be announcing any pilot tests?

We're not going to communicate on that so far. Okay.

Okay, and then one last question. I'm sorry. Has the company thought about – or does the company have any discussion regarding a stock buyback? given the low value of company shares? It is not planned on short-term, sir. Understood.

Thanks for taking my question. You're welcome.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. We have reached the end of our question and answer session. And with that, I would like to turn the floor back over to Mr. Fabian Halpert for any closing comments.

On behalf of SenseUp Management, I would like to thank our investors for their interest and long-term support of our business. Have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.