Senstar Technologies Corporation

second quarter 2024 financial results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you 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 you to your host, Kim Rogers with Hayden IR. Thank you, Kim. You may begin.

Thank you, operator. I'd like to welcome everyone to the conference call and thank Senstar's management for hosting today's call. With us on the call today are Mr. Fabian Haubert, CEO of Senstar Technologies, and Ms. Alicia Kelly, CFO. Fabian will summarize key financial and business highlights, followed by Alicia, who will review Senstar's financial results for the second quarter of 2024. We will then open the call for a question and answer session. Before we begin, 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 changes in market trends, reduced demand, and the competitive nature of the security systems industry, the unanticipated and unknown effects of COVID-19, 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 that 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.sensartechnologies.com for the most directly comparable financial measures and related reconciliations. With that, I'd now like to hand the call over to Senstar's CEO, Fabian Hobert. Please go ahead.

Thank you, Kim. Thank you for joining us today to review Senstar Technologies' second quarter 2024 financial results. Our second quarter revenue of $8.3 million was nearly on par with the same quarter last year, just down 1.6%. One highlight from this quarter is the continued improvements in our profitability performance. Our gross margin reached 63.2%, the best we have delivered in the last eight quarters. This improvement was mostly due to a shift in product mix, the improvements of supply chain challenges, and cost realignments we established last year. Operating expenses decreased by 9%, and represented 55.2% of revenue compared to 59.7% in the year-ago quarter. The higher gross margin and lower operating expenses combined to lift our operating margin to 8% of revenue from 1% in Q2 2023. As a result, our net income climbed to $493,000, and our EBITDA margin increased to 10.2% of revenue. In the second quarter, our balance sheet strained and further, with higher cash reserve and a million reduction in inventory since the end of Q1, thanks to diligent inventory management. Our incremental cash flow gives us the flexibility to continue driving growth in our key areas and investing in new product innovation. Now, let's dive into the specifics of our performance across various regions and sectors. In the US, we saw modest increase in revenue of 2% in Q2 compared to last year, and revenue in this important region remained steady with a strong correctional market and growing demand in the utilities sector. APAC was a standard performer in Q2, with revenue surging 135% versus Q2 2023, driven primarily by major wins in the utilities and transport sectors throughout the whole region and several projects. Europe, however, faced some challenges with revenue down 33% in Q2, mainly due to customer delays in projects. However, we believe this project will catch up in Q3 and Q4. Despite these delays, we anticipate substantial activity in the utility, energy and transport sectors throughout the region. Our four key verticals deliver solid growth, rising 5% in Q2 year-over-year and 14% year-to-date. This growth was driven by major increases in sales and demand in the utilities sector worldwide, particularly in solar farms, power stations, nuclear plants, and data centers. Additionally, we've seen significant growth in the airport environments with interest reinforcing on a global scale. In terms of new product development, we're thrilled with the successful launch of our latest innovation the sensor multi-sensor. Sensor commitment to delivering innovation solution to the market is paying off. Security industry professionals are dealing with increasingly complex and frequent security events and need solutions to enhance operational efficiency. One of their biggest challenges is news and alarms. All alarms triggered by non-interested events like someone standing too close to a fence or debris blowing against it. These alarms waste time and resources. The multi-sensor stands out in the market with advanced capability, allows us to tackle one of the industry's most pressing issues, reducing news and salon to zero. The multi-sensor's probability of detection vastly exceeds traditional sensors, and its unique ability to synthesize data from multiple sensing technologies provides full situational awareness and decreases nuisance alarms next to zero. These are key metrics for the security industry, and we're proud to be the first to market with a device that can deliver these outcomes. With the multi-sensor now available for sale, we are already seeing significant market interest. We believe this product will be a key growth driver for Senstar as we build our momentum in core vertical and expand into new markets. The multi-sensor versatility makes it ideal for securing critical areas within non-critical infrastructure, in addition to our traditional market. which opens up exciting opportunities for us to address higher market volumes. In closing, I'd like to thank you for your continued support of SenSat Technologies. Our performance in the first half of 2024 underscores the strength of our strategy and the dedication of our team. We're encouraged by the solid momentum we've built across our key verticals and we're excited about the opportunities that lie ahead, particularly with the launch of the multi-sensor. As we move forward, we remain committed to driving growth, enhancing profitability, and delivering innovative solutions that meet the evolving needs of our customers. We believe that the investment we've made in our product portfolio, alongside our improved operational efficiencies, position us well for continued success. I will now turn the call over to Alicia for a review of the financial results in more details.

Thank you, Fabian. Our reported revenue for the second quarter of 2024 was $8.3 million, a modest decrease of 1.6% compared with reported revenues of $8.4 million in the second quarter of 2023. The decrease was primarily due to delays in projects in EMEA. The geographical breakdown as a percentage of revenue for the second quarter of 2024 compared with the prior year quarter is as follows. North America, 47% in each period. EU, 27% versus 40%. APAC, 23% versus 10%. Latin America, 1% versus 3%. And all other regions, less than 1% in both periods. Reported gross margin was 63.2% of revenue for the second quarter of 2024, compared to 60.7% of revenue for the second quarter of 2023. This margin improvement was primarily the result of a shift in our product mix to higher margin products in the product in the quarter and price adjustments taken in 2023. Our reported operating expenses were $4.6 million, a decrease of 9.1%, from the prior year's quarter's operating expenses of $5 million. The year-over-year decrease in operating expenses is due primarily to lower G&A expense, lower sales and marketing expense, as a result of our efforts to streamline operations and diligently manage our overhead cost. Our operating income improved in the second quarter to $666,000 compared to $83,000 in the year-ago period. The year-over-year improvement was due to higher gross margins on higher sales and a lower operating cost. Financial income was $103,000 compared to financial expense of $74,000 in the second quarter of last year. This is mainly a non-cash accounting effect we regularly report due to the adjustment to the evaluation 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 income attributable to Sunstar Technology shareholders in the quarter was $493,000 or $0.02 per share versus $275,000 or less than $0.01 per share in the second quarter of last year. The company reported EBITDA for the second quarter of $846,000 versus $290,000 in the second quarter of last year. Taxes on income were $276,000 compared to a tax benefit of $266,000 in the second quarter of last year. Then started operating expenses include public platform and amortization of intangible assets from historical acquisition. The corporate expense and amortization expense for the second quarter were $400,000, the same as in the previous year's quarter. Cash and cash equivalents as of June 30th, 2024 for $15.2 million, or $0.65 per share, as compared to $14.9 million, or $0.64 per share, as of December 31, 2023. That concludes my remarks. I'll break. 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 Ted Liddy with Oppenheimer. Please proceed with your question.

Hi, I was wondering when you would expect the multi-sensor to have a material impact on revenue or revenue growth?

Thank you very much for your question. So the product just got released for sale. So the first delivery are to happen in the next coming week. It's a bit early to say. We hope to provide more information next release. That is the products just got officially released for selling and the first order has come already, but not significant at this stage because it's less than a couple of weeks ago.

And does the company currently have a backlog of orders expected in the next 12 months?

So yes, unfortunately we're not commenting that. I can only mention that we had a good trend of booking in the first part of the year, but unfortunately, we're not commenting the backlog or further expectations.

Do you expect to increase revenue in the second half of the year compared to the $18 million you did roughly last year for the second half of 2023?

Unfortunately, we're not providing forward-looking statements, but we're striving and working hard on it.

Okay. Thanks for taking my questions.

Thank you. There are no further questions at this time. I'd like to pass the call back over to Fabian for any closing remarks.

Thank you again.

And we look forward to updating you on our progress in the coming quarters. Please feel free to contact our IR firm for further follow-up on this call or to learn more about sensor technologies.

The contact information is at the bottom of today's press release. Have a good day.

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