Senstar Technologies Ltd. (SNT) Q1 2022 Earnings Report, Transcript and Summary

Greetings, and welcome to Senstar Technologies’ First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kim Rogers with Hayden IR. Thank you. You may begin.

Thank you, Doug and welcome to the call. I want to thank Senstar Technologies’ management for hosting the call today. On the call from the company are the CEO, Mr. Dror Sharon, and the CFO, Mr. Tomer Hay. We will begin with Dror who will summarize the key financial and business highlights followed by Tomer who will review Senstar’s financial results for the first quarter of 2022. We will then open the call for question-and-answer. 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, the unanticipated and unknown effect 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 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.senstartechnologies.com for the most directly comparable financial measures and related reconciliations. And with that, I'd now like to hand the call over to Dror. Dror, please go ahead.

Hi everyone. Thank you, Kim. Thank you for joining us today to review Senstar Technologies’ first quarter 2022 financial results. It's only been a month since we last spoke with you. Today's comment will be brief, just hitting on a few highlights from the past few weeks and the Q1 results. We have closed large contract in EMEA in the quarter and delivered year-over-year revenue growth, despite the first quarter typically being seasonally weaker quarter for our business. In the first quarter, revenue grew by 4% to $6.8 million and gross profit was $4.5 million, which produced a gross margin of 65.8%. The improvement in gross margin was due to the sales mix. The increase in Q1 gross margin was due to the higher fiber and software revenues. Operating expense increased by 8% year-over-year, mainly due to our renewed marketing activities. Business travel, marketing activities and trade shows did not occur due to COVID related shutdowns in the first quarter of 2021. These expenses resumed in the second half of 2021. So you will see it in the next quarter, year-over-year comparison. In March, I attended the ISC West trade show in Las Vegas, where we had a booth and most of our U.S. team in attendance. ISC West is the largest security industry trade show in the U.S. with over 30,000 security professionals in attendance and new products and technology exhibits ranging from access control to unmanned vehicles. At ISC West, Senstar Corporation received its third award for the Senstar Symphony Common Operation platform. Our team also had a strong presence at the Intersec show in Dubai during January, the booth was busy. We made many new contacts and leads at the show. Trade shows and marketing activities are essential to build Senstar Corporation’s pipeline. This year, there were several trade shows and exhibitions that look promising for developing new leads. The ability to meet face to face with people is a huge benefit and a much more efficient way to exchange ideas and promote our technology. Overall, markets starting to open, excluding the U.S. and some parts of APAC, all other regions increased. We have seen a recovery in EMEA and Canada and except those regions – and expect those regions to continue to deliver growth. The U.S. is recovering more slowly than other regions due to the overhang of COVID restrictions that are still delaying the return of regular business routines. The Chinese market is still uncertain. The many regions in – and many regions in China are not open for travel. Of course, there are also the current COVID lockdowns that are increasing the uncertainty of the outlook for the region this year. The rest of APAC is recovering and we anticipate the region to be productive area for new business at June 2022. Global supply chain remains stressed due to several factors, including the lockdowns in China and the shortage of material, labor that are increasing cost. Importantly, we are managing through the supply chain situation and have increased inventory to assure continued customer order fulfilment and maintain our gross margins. Issues with material are ongoing and changing, but with increasing inventory and swapping out components in few products, we have been able to keep shipping. Supply remains tight, but so far the action we have taken should support our sales pipeline for 2022. Currently with careful planning and in some cases the redesign of product we do not anticipate a significant impact on our 2022 revenue due to the lack of materials. In Q1 2022 product development remains on track. We plan to release a new FiberPatrol later this year. We also have several products and solutions in development, which we will launch in a better version this year. Importantly, looking into our growing pipeline, demand for our product remains robust and new businesses is progressing. Like so many industries business is taking slightly longer to close. We are navigating the mismatch between the supply and demand. In the first quarter, a major sale opportunity in the U.S. was delayed to our customers COVID supply chain disruption. This sale was targeted to close in the first quarter, but it is now planned for the second one. We have another large opportunity in Africa through EMEA, which is anticipated to close in the second or third quarter. We are watching this closely and they are still subjected to shifting to a future quarter. On a standalone basis Senstar Corporation is performing well when the corporate overhead of the parent company Senstar Technologies is stripped away, the performance is impressive. For the first quarter again, our seasonally weakest one, Senstar Corporation EBITDA margins was 9% and will potentially produce EBITDA margin in the range of high teens to low 20s on an annual basis. Looking ahead, Senstar Corporation is targeting market share, expansion and increased goals focusing on key verticals with sales pipeline increasing in all our principle geographies. We have put necessary components for growth, advanced product and software streamlined sales team and expanded distribution and increased marketing support with trade shows attendance. Senstar Corporation is industry-leading product and solution meet the global need for more sophisticated high tech security. In addition, we are cross-selling and up-selling products and solution to our existing customers based in our full key verticals. We are still on track for revenue and pipeline growth this year compared to 2021. To summarize, Senstar Corporation’s global team is working out to leverage the company’s industry-leading reputation with technology rich PIDs platform, and now Common Operating platform software. We see applications for sophisticated security solution in oil fields, ports and manufacturing and distribution facilities all around the world. I want to recognize our worldwide team for their commitment to excellence in product and services. Senstar’s balance sheet with no debt and high cash balance position, position the company for growth profitability and ultimately improving shareholders value. And now I would like to pass the call to our CFO, Mr. Tomer Hay. Tomer, please go ahead and review the financial results.

Thank you, Dror. Our reported revenue for the first quarter of 2022 was $6.8 million an increase of 3.7% compared with reported revenues of $6.5 million in the first quarter of 2021. The increase was primarily due to the improvement in some of our largest markets including EMEA, Canada, and part of APAC. The geography breakdown as a percentage of revenues for the first quarter of 2022 compared to the year ago quarter is as follows: North America 41% versus 50%, EMEA 38% versus 35%, APAC 16% versus 13%, Latin America 4% versus 2%, and others 1% versus 0%. First quarter reported gross margin was 65.8% of revenues versus 62.1% last year. The increase in gross margin was primarily due to a shift in the mix of products sold during the quarter. Our reported operating expenses were $5.1 million, an increase of 8.3% from the prior year’s first quarter operating expenses of $4.7 million. The year-over-year increase in operating expenses is due primarily to an increase in marketing and selling expenses related to travel, trade shows and other customer engagements. Our reported operating loss for the first quarter was $0.7 million, relatively unchanged compared to the year ago period. Our reported loss from continuing operation was $1.1 million in the first quarter of 2022, compared to a loss from continuing operation of $0.7 million in the year ago quarter. The company’s reported EBITDA from continuing operation for the first quarter was negative $0.3 million versus negative $0.4 million in the first quarter of last year. Net loss attributed to Senstar Technologies shareholder in the quarter was $1.1 million or $0.05 per share versus a net loss of $2 million or $0.09 per share in the first quarter of last year. The reported net loss in the first quarter of last year includes a net loss of $1.2 million from discontinued operation. There was no impact from discontinued operation in the first quarter of 2022. Added to Senstar’s operational contribution of the public platform expenses and amortization of intangible assets from historical acquisitions. The corporate and amortization expenses for the first quarter in both 2022 and 2021 were $1 million. Cash and cash equivalent as of March 31, 2022 were $24.2 million or $1.04 per share. That concludes my remarks. Operator, we would like to open the call to questions now.

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There are no questions in the queue at this time. I’d like to hand the call back to management for closing remarks.

Okay. Thank you, Doug. On behalf of the management of Senstar, I would like to thank you for your continued interest and long-term support of our business. I look forward to updating you next quarter. Thank you, everyone.

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