Senstar Technologies Corporation

Greetings and welcome to the FinStar third quarter 2024 financial results 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, please signal by pressing star and then zero. As a reminder, this conference is being recorded. It is now my pleasure to hand over to Kim Rogers of Investor Relations. Thank you, and you may proceed, Kim.

Thank you, Claudia. 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 from the company are Mr. Fabian Hobert, CEO, and Ms. Alicia Kelly, CFO. 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, as well as other risks identified in the document 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 www.sunstartechnologies.com for the most directly comparable financial measures and related reconciliations. With that, I'll now hand the call over to Sunstar Technologies CEO, Fabian Haubert. Fabian, please go ahead.

Thank you, Kim. Thank you for joining us today to review our third quarter 2024 financial results. Starting with an overview of this quarter performance, our revenue increased by 8% compared to Q3 2023 and is up 7% year-to-date compared to the same period last year. Gross margin was exceptionally strong at 68%, representing an 11.4% point increase over Q3 2023. The improvement in the quarter was primarily driven by our ongoing streamlining activities, recent price adjustments, normalization in the component markets, and a favorable product mix. Year-to-date, our growth margin of 63.9% aligns with our expectation to deliver a growth margin of 60% or better. Due to diligent expense controls, operating expenses decreased by 3.6% from Q3 2023, and 9.2% year-to-date. Our revenue growth and growth margin expansions combined with decrease in operating expenses led to a significant increase in our profitability. We experienced encouraging growth trends in the U.S. and EMEA, along with a 2% increase in revenue in our core verticals in Q3 2024 and a 9.8% increase year-to-date Our growth this quarter reflects both our strategic focus and high potential sectors and the success of our tailored solutions. Correctional facilities. Demand in this sector is growing for enhanced security, driven by the increasing emphasis on advanced security technology for public safety. Our integrated solution continues to resonate well in this sector, especially in the U.S., where correctional facilities are investing in modernization. Our offerings have helped strengthen our position as a trusted partner leading to an increase in contract wins. Utilities. This vertical continues to be one of our strongest, with broad-based demand across data centers, solar farms, energy generation, as well as telecom infrastructure. The security sector is increasingly focused on integrating security and monitoring for critical infrastructure, and our solution addresses these needs with precision. In particular, data centers and solar farms have increasingly integrated our offerings, underscoring the reliability and scalability of our technology in protecting vital assets. This growth also reflects our expanded reach in the MEA, U.S. and APAC regions where utilities and large infrastructure projects prioritize improved security solutions. Transports. Our growth in the transport sector has been driven by a mix of established customers and new market engines, particularly in EMEA, where transport infrastructure development is advancing rapidly. We've seen strong adoption of our solution in the airport sector, which recognizes the need for secure monitoring systems. The market remains a priority as our technology aligns well with the demands of modern transplantation security, particularly in Yemen and Asia. Logistics and oil and gas. While revenue in logistics and oil and gas declined slightly, we continue to see opportunities in these sectors as companies explore ways to enhance operational efficiency and protect critical assets. We're seeing positive trends in the oil and gas industry, particularly North America and EMEA, and we're hoping this will contribute positively in future orders. Focusing on core verticals in these critical sectors and fine-tuning our solution to meet their unique needs with new products like the multi-sensor, we're enhancing customer value and positioning ourselves for sustained growth. I'm happy to share that initial sales from Meldo Center are promising, highlighting the product's innovative impact in the market. The future enhances our positions and builds on this initial momentum. We appointed a new VP of product management and marketing with a solid background and proven track record in video technology to help expand our market presence beyond our traditional perimeter-focused solutions. Our strategy remains focused on business development to expand global market share across key verticals. We aim to bring on new end users and existing markets while also gaining customers in new regions. The investments we made in established markets are already yielding results, driving growth in the second half of 2024. Likewise, our investments in new territories are beginning to pay off with identified projects now being rolled out. We're seeing strong sustainable demand growth and are scaling our effort to meet it. In conclusion, we are encouraged by our financial progress this quarter and the strides we've made in Key Verticals. The SAMSR team remains dedicated to executing our growth strategy and driving operational efficiency. We're excited to build on these successes as we continue delivering value to our shareholders and advancing our long-term goals. Now, I will pass the call to our CFO, Alicia Kelly. Alicia, please go ahead and review the financial results.

Thank you, Fabian. Our revenue for the third quarter of 2024 was $9.7 million, an increase of 8.2% compared with the revenue of $9 million in the third quarter of 2023. We saw sales growth in the U.S. of 12%, Growth was experienced in all four of our key verticals, but the most significant growth was reported from correctional sales as facilities invest in modernization. EMEA reported an increase in sales of 26% in Q3 versus the same period last year. Incremental sales were reported in oil and gas, utility, and the transportation segments. Other regions saw slight declines this quarter, but nothing material in nature. The geographical breakdown of the percentage of revenues for the third quarter of 2024 compared to the year-ago quarter is as follows. North America, 44% versus 43%. EMEA, 39% versus 34%. APAC, 14% versus 16%. Latin America, 3% versus 7%. And all other regions had a change of less than 1% in both periods. The third quarter reported gross margins of 68% of revenue, up compared to 56.5% in the year-ago period. The increase in gross margin was primarily due to product mix and price increases in the fourth quarter of 2023. Our operating expenses were $4.8 million, down 3.6% compared to $4.9 million in the prior year's third quarter. The decrease is a result of the street lighting, of our corporate structure and realignment of our resources that we implemented in 2023. A strong gross margin and lower operating expenses drove an increase in our operating income for the third quarter to $1.8 million, a significant increase compared to $123,000 in a year-ago period. Financial income was $111,000 in the third period of this year compared to a financial expense of $64,000 in the third quarter of 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 our operating entities in the group, in accordance with GAAP. Net income attributable to Sunstar Technology shareholders in the third quarter was $1.3 million, or $0.06 per share, compared to a net loss attributable to Senstar Technology shareholders of $122,000 or negative $0.01 per share in the third quarter of last year. The company's EBITDA for the third quarter was $2 million, compared to $322,000 in the third quarter of last year. 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 $100,000 Oh, sorry, $1.5 million. Cash and cash equivalents and short-term bank deposits as of September 30, 2024, were $19.5 million, or $0.84 per share. That concludes my remarks. Operator, we would like to open the call to questions now.

Thank you very much. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. You may press start and then two if you would like to remove your question from the queue. Please hold while we poll for questions. The first question comes from Danny Levine from . Please proceed with your questions, Danny.

I'm happy to see that you are getting a new marketing person in there because because the stock is under the radar. Do you know what the updated book value per share is on the stock?

The book value you mean? The bookings?

No, the book value per share at this point.

No, we don't have that information in front of us at this moment.

Well, it seems like you're probably trading about even with what I believe is based on the new figures book value. And you only have a 50 million share float, so It would probably take one or two fairly exciting announcements to send your stock through the roof. There's just no float there. One question I have is, are you targeting the AI sector? Is there any demand for AI companies for your products at all? Are there any synergies at all with AI?

So basically AI is a generic word for intelligence. And like every sensor manufacturers in the industry, we're developing, we're working on improving basically the intelligence of our devices. So we already have some video intelligence. We're analyzing those at the company.

Smartphone disconnected. Smartphone connected.

And we're working basically, my apologies. And we're working basically on strengthening our knowledge and performance in AI in general. Yes.

In terms of AI companies, is there any demand for your products for security purposes in terms of their facilities and so forth?

I'm sure I'm getting your question properly. The need for AI is requested a bit everywhere from our customers who want solutions more and more intelligent. And to this extent, we're improving, we're working, striving at least, on increasing the intelligence of our solutions by using available technologies.

Right, and what I'm trying to ask, basically, is that the AI sector itself, the corporations, do they have a demand for your product in terms of securing their facilities and so forth?

So, I'm not sure I'm getting fully your question. I do apologize. So, we're focusing basically on four to six verticals. The main verticals we're focusing on are utilities, correction, oil and gas, logistics, and we're very high attention as well on transport airports. and military and border control. And these are the verticals we're serving mostly. And yes, those verticals are asking us basically to, they're expecting us to provide solutions which provide more and more intelligence on the way they're using it.

Thank you very much. The next question comes from Ted Liddy from Oppenheimer Info. Please proceed with your questions, Ted.

Hi, this is Ken Liddy. I just wanted to know, as far as the multi-sensor, you seem to be very optimistic. Do you see a material impact on growth in revenue in 2025 from the multi-sensor?

So, we're not providing forward-looking statements, but we can say that the market is reacting extremely positively. in the sense of the number of, we had some interesting, basically, first sales, and we have generated a lot of interest to different type of customers, which we're now addressing. So that is where we are now, but we're, it's really, first of all, we're not providing any forward-looking statement, and secondly, it's too early to portion ourselves in terms of how much we think it's going to generate.

As far as profitability, given the the low expenses, are you comfortable in saying that you expect to be profitable in the fourth quarter?

So we're not giving basically forward-looking statements on where we're going to be at in the year.

Okay. And you mentioned some new areas of markets for your verticals. Could you talk a little bit more about solar farms?

Yeah, it's a vertical we're currently addressing already, which is part of the verticals. We classify it within the utilities. And basically, we see a lot of basically a big race in pretty much everywhere in the world of solar farm build. And we see as well oil and gas company investing in this green energy. And we're seeing basically a high demand to protect solar farm plants. Absolutely. And we're addressing these demands and we see some progress in ourselves there.

Thank you very much. Ladies and gentlemen, just a reminder, if you'd like to ask a question, please press star and then one. If you'd like to ask a question, please press star and then one. We will pause to see if we have any further questions. The next question is a follow-up question from Ted Liddy from Oppenheimer. Please proceed with your question.

Yes, I wanted to have you expand on what you categorize as data centers.

Oh, interesting. So basically, data centers is basically all basically what is a data center, you know, where places which host hard disk for storage for utilities and distribution for video on demand, storage data. So they're the ones that work. I think it's hard to be very... I think data is everywhere. So the main category we're foreseeing is the big internet provider who basically provides storage or basically video on demand or any clouded services. Then you have a lot of banking and financial institutions which basically build their own data centers to provide services, it's a bit limitless. I would say everywhere where hard disk is storing basically data for different type of customers where confidentiality requires a high level of protection. These are the data centers we're protecting. We're not addressing small company data centers for their own needs. It's only large providers providing service to third parties. That's where we're focusing today. Hope I answered your question.

Yes, you did. I have a follow-up. Have you looked at markets for the Bitcoin miners and the data centers, the mining they do there for... Yeah, some of the critical infrastructure for some of the companies like Intel and NVIDIA.

So we're trying to follow the request of everywhere people are building data centers. We didn't focus on those in particular, but among others on those as well.

Okay, great. Thanks for your comment.

Thank you. Thank you. The next question comes from Joseph Judge, who is a private investor. Please proceed with your questions, Joseph.

Yes. Hi, sir. I was wondering, do you think that your technology will play any role with deporting some illegal immigrants and helping track them down?

Never directly. We're trying to strive on making people safer in the world. And what we're doing, basically... Same with Israel, I guess.

I'm hoping that you get, like, some, you know, really big contracts with the Israel border, too, and hopefully you can help secure their border, including ours, you know? Because I know you got border security in Canada, right? Canada, but not the southern border yet.

So we're a Canadian entity, and we're trying worldwide on the whole planet to try to make people safer. And we're working basically on making sure that when there's separation between two countries, two areas, to make sure we can detect intrusion attempts. And indeed, borders is one of the markets we're covering. And we're striving to make the world stable in this direction. So the more we can help, the more we'll be happy and the more we contribute to it.

Yeah, because I believe you also have the technology to, say, look at some people's tags. And will you be possibly helping the law enforcement and federal government to track down certain people? by being able to zoom in with their tags, and are you going to play any part of that?

So not directly. What we're doing today is we're securing our first mission basically to try to detect intrusion wherever it is, mainly in our verticals, and to report it. When we provide this information, we'll leave it basically to the authorities or the players, the duty to track them and to take any action there. Our job today is to basically try to understand the situation, provide a situational awareness, whether there is an intrusion or not, or which nature. Our sensor basically works together to try to find, with the best accuracy, identify where an intrusion attempt is happening, and then it goes to other parties who do the follow-up of the work.

Thank you. The next question comes from Mike Dissler from AMX Holdings. Please proceed with your questions, Mike.

Yes, good afternoon, gentlemen. As a longer than two-decade holder and shareholder, I've been following the trajectory of the company for a very long time. I'm gratified with the results, so well done. My question really is to just more direct your focus rather than an answer. and that is you already have the utility vertical as one of your three primary verticals, and these data centers that you spoke of just two questions ago to Ken, et cetera, but that you are pursuing, it seems you have an automatic entree through the utilities who will be providing the power, and therefore you could be working hand-in-hand as they try to garner data center business, you would be providing the security for both the utility as well as the data center themselves. I just want to point that out. I don't mean to sound patronizing in any way. I'm just a shareholder trying to help out. But I think the opportunity is vast and substantial, and I think you guys have the ability now to execute. And I wish you luck on that. And if you have any comments, I'd appreciate it. Thank you very much.

Thank you so much for this really great comment. It's exactly why we love data centers, because on top of protecting the data centers themselves, they give indeed the possibility to secure as well the infrastructure aiming to transmit the data and to power them. So we're totally aligned with this strategy, and that's where we're putting our efforts.

I had no doubt.

Thank you for your time. And thank you for your 20 years' investment and trust in us.

Oh, yes. No, thank you. You guys are doing great. Appreciate it.

Thank you.

Thank you very much. Ladies and gentlemen, we have reached the end of the question and answer session. I'd now like to turn the call back to Fabian Hobert for closing remarks. Thank you, sir.

So on behalf of the management of Sensor, I'd like to thank you for your continued interest. and long-term support of our business. We look forward to sharing more updates with you in the coming quarters. Have a good day.

Thank you very much. Ladies and gentlemen, that does conclude today's conference. Thank you so much for joining us. You may now disconnect your lines.