Senstar Technologies Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 30, 2023

There are 6 speakers on the call.

Operator

Greetings, and welcome to the Senstar 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 the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brett Mas of Hayden IR.

Operator

Thank you, sir. You may begin.

Speaker 1

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 Hobert, Interim CEO Tomer Hay, CFO and Ms. Alicia Kelly, Vice President of Finance.

Speaker 1

Before we start, I'd like to point out that this conference call may contain projections and other forward looking statements regarding future events for 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 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.

Speaker 1

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 sunstarttechnologies.com for the most directly comparable financial measures and related reconciliation. With that, I will now hand the call over to SunStar Technologies' CEO, Fabian Haber. Fabian, please go ahead.

Speaker 2

Thank you, Brad. Thank you for joining the call today to review our Q3 financial results. Starting with an overview of the results this quarter, We booked revenue of $9,000,000 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 1 off project in Canada and the U. S.

Speaker 2

Completed in the Q3 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 gross margin returning to more normalized levels in the coming quarters. Despite the deepened revenue and gross margin in the quarter, We maintain positive operating income and positive EBITDA.

Speaker 2

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 Q2 in a row. Thanks to our significant investments in the countries like Germany, France, Spain, Eastern Europe and the Netherlands, we're harvesting the fruits 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 percentage of revenue, the U. S.

Speaker 2

Is our largest market. This year, we have experienced a recovery in the correction business, our largest vertical in the U. S. Market. Federal budget restriction and reallocation impacted this segment in the prior year.

Speaker 2

Year to date, revenue in the U. S. Is up 8%. To further expand our market position, We have added a senior executive in the 3rd 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.

Speaker 2

Year to date, this region was has grown almost 20%. Looking at our home markets, Canada, Sensa remain well positioned. Last year, we had a one off project that closed in the Q3, which is not reoccurred 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.

Speaker 2

Now let me turn to something I'm very excited about. We recently introduced our latest breakthrough, the Sensor Multi Sensor Intrusion Detection System, A disruptive AI powered sensor unit that seamlessly integrates 5 intrusion detection capabilities into a single powerful device. The MultiSensor 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 0.

Speaker 2

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 Sensaar considerably. It will also decrease sensor field costs related to installation, management and supports. The multi sensor, by encapsulating all 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 pit market focus.

Speaker 2

Within MultiSensor, we aim to penetrate broad markets by offering the product as standalone units. This market may possess critical security vulnerabilities, but do not constitute critical infrastructure. Our investment in this project is already paying off since MultiSensor received the Platinum Award for the best field intrusion detection and prevention solution From American Security, today's Annual Aster's Homeland Security 2023 Awards. I'm excited to officially announce that we will unveil the IFCS West in April 24, followed by a full scale of launch later in the year. In summary, our solution protects essential assets and facilities crucial to the global economy.

Speaker 2

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 site worldwide. Centaur 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 Heine. Tomer, please go ahead and review the financial results.

Speaker 3

Thank you, Fabian. Our revenues for the Q3 of 2023 was $9,000,000 A decrease of 7.9% compared with revenues of $9,700,000 in the Q3 of 2022. As Fabian discussed, the decrease was mainly due to a challenging comparison in Canada and in the U. S. Due to one off projects in the Q3 of last year that were not repeated this year And the continued weakness in China.

Speaker 3

Those declines were partially offset by growth In Europe and in Latin America, the geography breakdown as a percentage of revenues for the Q3 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% In Latin America, 7% compared to 6%. The 3rd quarter reported gross margin With 66.5 percent 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 more normalized level in the coming quarters. Our operating expenses We're $4,900,000 up a modest 2.7% compared to $4,800,000 in the prior year Quarter.

Speaker 3

On a year to date basis, our operating expenses are essentially flat compared to the prior year period. Our operating income for the Q3 was $123,000 compared to $1,100,000 in the year ago period. Financial expenses was $64,000 in the Q3 of this year compared to financial income of $212,000 in the Q3 of last year. This is mainly a non cash accounting effect we regularly report due to adjustments to the valuation for 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 Q3 of 2023 compared to income from continuing operation of $1,200,000 in the year ago quarter.

Speaker 3

The company's EBITDA from continued operation for the Q3 was $322,000 compared to $1,500,000 in the Q3 of last year. Net loss attributed to Senstar Technologies shareholders in the 3rd quarter It was $122,000 or negative $0.01 per share compared to net income attributed to Sensstar Technologies shareholder $1,300,000 or $0.06 per share in the Q3 of last year. The reported net income in the Q3 of last year Includes net income of $66,000 from discontinued operations. Added to Senstar operational contribution The public platform expenses and amortization of intangible assets from historical acquisitions. The corporate expenses for the Q3 were approximately $600,000 Cash and cash equivalents and short term bank deposits As of September 30, 2023, were $12,700,000 or $0.55 per share.

Speaker 3

That concludes my prepared remarks. Operator, we would like to open the call to questions now.

Operator

Thank you. We will now be conducting a question and answer session. One moment please while we poll for questions. Thank you. Our first question comes from the line of Mike Disler with AMX.

Operator

Please proceed with your question.

Speaker 4

Yes. Thank you. Good afternoon, gentlemen. Just regarding the redomiciling 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?

Speaker 3

Yes. Thanks for the question. So yes, it's going according to schedule. It's such a going forward operational is the same operational entities. So each Legal entity has its own taxes, so we don't see an ongoing impact.

Speaker 4

Okay. Thank you very much. And just the second question, I was wondering how the backlog looks going forward the next 3 to 12 months?

Speaker 3

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

Speaker 4

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

Speaker 2

Thank you.

Operator

Our next question comes from Jeremy Levine with Levco. Please proceed with your question.

Speaker 5

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

Speaker 2

The company has been 4 years. We have 42 years exactly.

Speaker 5

How many years? 42. 42 years. And your revenue for the quarter is $9,000,000

Speaker 2

Yes, indeed.

Speaker 5

Don't you consider that to be an astonishingly unusual sales revenue for a company that's been around that long?

Speaker 2

Sorry, I'm sorry, the sound connection is not

Speaker 3

too bad. No, it's

Speaker 5

too bad. Majorly, CUNY Revenue for a company that's been in business for 40 years?

Speaker 2

We're working hard to create some growth engine to make sure it is getting better.

Speaker 5

You've asked all my questions.

Operator

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.

Speaker 2

So on behalf of SunTrust 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.

Operator

Ladies and gentlemen, this does conclude today's teleconference.

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Key Takeaways

  • Revenue for Q3 2023 declined 7.9% year-over-year to $9.0 million, driven by the absence of one-off projects in North America and weakness in APAC, but bolstered by double-digit growth in Europe (+20%) and LATAM (+10%).
  • Gross margin compressed due to a lower-margin legacy project, though management maintained positive operating income of $123 K and EBITDA of $322 K and expects margins to normalize in upcoming quarters.
  • Senstar debuted its MultiSensor AI-powered intrusion detection system—combining five sensing technologies in one unit with near-zero false alarms—garnered a Platinum Award and will have its full launch at IFCS West in April 2024.
  • Year-to-date U.S. revenue is up 8% as the correction-business segment recovers; the company also hired a senior executive in Q3 to accelerate market share gains across key verticals.
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Earnings Conference Call
Senstar Technologies Q3 2023
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