Senstar Technologies Q4 2022 Earnings Call Transcript

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April 20, 2023

There are 4 speakers on the call.

Operator

Greetings, and welcome to Senstar Technologies 4th Quarter and Year End 2022 Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kim Rogers.

Operator

Thank you. You may begin.

Speaker 1

Thank you, Robert. I would like to welcome all of you to the conference call and thank Senstar Technologies Management for hosting today's call. With us on the call today are Mr. Dror Sharon, CEO of Senstar Technologies Mr. Fabienne Hobert, Managing Director of Senstar and Interim CEO of Senstar Technologies and Mr.

Speaker 1

Tomer Hay, CFO. Dror will summarize the key financial and business highlights followed by Tomer, who will review Senstar's financial results in detail for the full year and the 4th quarter. We will then open the call for question and answer session. 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.

Speaker 1

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 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 atwww.senstarttechnologies.com for the most directly comparable financial measures and related reconciliations.

Speaker 1

And with that, I would now hand the call over to Dror. Dror, please go ahead.

Speaker 2

Thank you, Kim. Thank you for joining us today to review Sensa Technologies' 4th quarter and full year 2022 financial results. As announced in our first releases earlier this year, I'm stepping down as a CEO and today we announced that the Board of Directors has appointed Mr. Fabienne Hubert as Interim CEO. Fabienne has a deep understanding of our operations and our corporate strategy.

Speaker 2

It was appointed as a Managing Director of CEMSA more than 3 years ago back. And yes, it was the architect Behind the changes to our strategy during the COVID-nineteen pandemic. Fabienne first joined the company more than 5 years ago As the Vice President of Sales for our EMEA region. In that role, we streamlined the sales and support organizations and delivered significant growth in revenues in the region. I'm confident that Fabienne will serve the company in the best way possible.

Speaker 2

Fabienne joined me in that call and will resume Possibility as of tomorrow, April 21, 2022. Turning to our results for the Q4 in 2022. Our strategic decision to divest Magal integration solution for $35,000,000 in cash in 2021 enabled us to concentrate On our core strengths and investing areas with the greatest potential of growth, we delivered significant returns for our shareholders in 2022. We achieved an increase in operating income to $1,500,000 for the full year of 2022 compared to $1,100,000 in 2021, resulting in a 13% rise in EBITDA to $2,900,000 While supply chain headwinds were less problematic compared to 2021, we still face extended lead times and related price increases. We successfully passed most of the price increases on to our customers, which allowed us to maintain a strong gross margin of over 60% in 2022.

Speaker 2

We finished 2022 on a high note with 4th quarter revenue growth of 10% and maintained a strong stable gross margin. Our continued diligent management of expenses resulted in an increase of 37% in operating income And the 32.2 percent increase in EBITDA year over year. We reduced our full year Operating expense by more than 4% year over year. Sensor Technology exited the year with a strong backlog while stabilizing our cash burn. Overall, we are pleased with our annual results for 2022, especially the increase in our operating income and EBITDA.

Speaker 2

We want to express our gratitude to our customers, employees and stakeholders for their unwavering support throughout the year. During my tenure at Senstar, I have had the privilege to working alongside the remarkable team of professionals Dedicated to driving success and delivering value to our stakeholders. Together, we have navigated significant challenges and achieved important milestones That have solidified the company's position as a leader in our industry. My primary accomplishment during my Tahir has been the strategic divestiture of Magal's Integration Solutions for $35,000,000 in cash And now rebranding of Sensa Technologies. This allowed us to leverage our core strength in perimeter intrusion and focus on our 4 growing Verticals as well as the post merger integration of the Waterloo site previously Ametis and the deep consolidation of our U.

Speaker 2

S. Site previously of Telus To Semstar Ottawa, through careful analysis and planning, we executed the divestiture efficiency, which not only streamed our operation, but also delivered significant return to our shareholders. In September 2021, We returned $40,000,000 to our shareholders in the form of a cash distribution following the previous distribution when we returned $25,000,000 in cash. I would also like to acknowledge the exceptional work done by our team in navigating the COVID-nineteen pandemic. As the world face These challenges, our team remains steadfast in its commitment to serving our customers while ensuring our employees' safety and well-being.

Speaker 2

Through the CTV and the strategic action, we adapted to the Changing the landscape during COVID and the supply chain challenges, which allows us to continue providing essential products and services to our customers. Although COVID impacted our top line in 2021 2022, we managed operating expenses and cash With an eye towards positioning the company for long term sustainable growth, we exit 2022 with solid bookings Despite the longer sales cycle, I'm happy to say we have not experienced any order cancellations and we continue to execute the opportunities in the pipeline. As I mentioned, we have a strong backlog of revenue and the company expected to deliver a portion of this backlog over the next 12 months. Several large orders currently in the final stage of negotiations are expected to close in the coming months. We plan to replenishing our backlog at a steady rate.

Speaker 2

In addition to those achievements, I aligned the company's resources along 4 key verticals to focus our sales efforts. By doing so, we better understand our customers' industries and provide them with solutions Specifically designed to meet their needs, this position Sensstar for continued growth. Advancing our product has been a top priority during my time at SensTel and I'm proud of the strides we had made. By investing in research and development and fostering culture of innovation, we introduced new solutions that have helped to differentiate us in the marketplace. The product and software sensor release in 2022 received industry recognition and awards.

Speaker 2

And 2023 looks to be also productive year on the top innovation. I would also like to highlight the successful advancement of our award winning solution, the Sensor Synchrony common operating platform With the recent release of version 8.4, through close collaboration with our talented team, we developed the cutting edge product that has been recognized for its innovation and impact. Our Fusion solution, which linked to our PEAT devices with our software, And the strong reception in the market. We remain on track to release 2 new products early this year and we continue to upgrade the software common operating platform And the fusion. I'm incredibly proud of the progress we have made together and I'm Confident that the company is well positioned for continued success.

Speaker 2

It has been an honor to lead such a talented and dedicated And I will always be grateful for the experience. In closing, I want to thank all of our employees worldwide With the ongoing commitment to our strategy to deliver excellence in products and services, improve our profitability and ultimately deliver shareholders value. Now I will pass the call to our CFO, Mr. Thomas Hain. Thomas, please go ahead and review the financial results.

Speaker 3

Thank you, Dror. Before I begin my financial review, I would like to express my gratitude To Dror for his long and valuable contribution to the SensTarma Gal Group and extend my best wishes for his success in his new position. On a more personal note, working alongside Rohr for those years, first as VP of Finance And later as his CFO, it has been an extremely fulfilling experience. I have learned a great deal from him both professionally and personally. And I want to thank him for his support and unwaveringness presence whenever I needed it.

Speaker 3

You're welcome. Our reported revenue for the Q4 of 2022 was $9,900,000 An increase of 10% compared with reported revenues of $9,000,000 in the Q4 of 2021. The increase was primarily due to a recovery in some of our markets as well as our sales effort in the 4 key Verticus. The geographic breakdown as a percentage of revenues for the Q4 of 2022 Compared to the year ago quarter, it is as follows: North America, 47% versus 41% Europe 27% versus 25% impact 10% versus 24% Latin America 4% Versus 5%, others 12% versus 5%. 4th quarter reported gross margin was 56.6% of revenues versus 58.1 percent last year.

Speaker 3

The decrease in gross margin was primarily due to a shift in The mix of products sold during the quarter and macro level business condition related to high material costs, Components availability and labor costs. Our reported operating expenses were $4,700,000 A decrease of 27.6 percent from the prior year 4th quarter operating expenses of $6,500,000 The year over year decrease in operating expenses is due primarily to lower generating general and administrative Expenses as well as decrease in selling expenses. Our reported operating income for the Q4 was $900,000 compared to an operating loss of $1,200,000 in the year ago period. Financial income was $300,000 Compared to financial expenses of $400,000 in the Q4 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 the operational entity in the group in accordance with GAAP.

Speaker 3

Our reported income for the continuing operation was $3,500,000 in the Q4 of 2022, compared to a loss from continuing operations of $2,200,000 in the year ago quarter. The company's EBITDA from continuing operation for the 4th quarter was $1,200,000 versus an EBITDA loss from continuing operation Negative $700,000 in the Q4 of last year. Net income attributed to Sensor Technology shareholders In the quarter was $3,500,000 or $0.15 per share versus a net loss of $3,200,000 For a negative $0.14 per share in the Q4 of last year. The reported net income in the Q4 of 2022 Includes 0 from discontinued operation versus a net loss from discontinued operation of $1,000,000 in the same period last year. Added to Sensa operational contribution is the public platform expenses and amortization of intangible assets from historical acquisitions.

Speaker 3

The corporate expenses and amortization expenses for the Q4 were $1,200,000 versus $1,400,000 in the Q4 of year before. Revenues for the year ended December 31, 2022 was $35,600,000 compared to revenues of $34,900,000 in the The year over year increase of 1.8% relates to some recovery in our business which has been impacted by COVID pandemic. The geography breakdown as a percentage of revenues For 2022 compared to 2021 is as follows: North America, 45% versus 46% Europe, 29% versus 26% APAC 18% versus 23% Latin America 4% in both periods and others 4% versus 1%. The full year gross profit was $21,500,000 representing gross margin of 16.5 percent versus $22,000,000 or gross margin of 63% last year. The lower gross margin is primarily due to our revenue mix and some increases in material costs.

Speaker 3

Our 2022 operating expenses was $20,000,000 a decrease of 4.2% compared to $20,900,000 last year. Operating income was $1,500,000 compared with $1,100,000 in the 2021. The increase in operating income was primarily due to a high revenues as well as lower operating expenses. Net income attributed to Senstar Technologies shareholder for 2022 was $3,800,000 or $0.16 per share versus $6,400,000 or $0.28 per share in the 2021. The reported net income in 2021 includes net income of $8,600,000 from discontinued operations.

Speaker 3

In 2022, our EBITDA was $2,900,000 representing an EBITDA margin of 8.2% Compared with $2,600,000 representing an EBITDA margin of 7.4% in the 2021. The corporate expenses and amortization expenses for the public platform were $4,450,000 in the same level as in 2021. Cash and cash equivalents as of December 31, 2022 We're $15,000,000 or $0.65 per share. That concludes my remarks. Operator, we would like to open the call to questions now.

Operator

Thank you. At this time, we'll be conducting a One moment please while we poll for questions. There are no questions at this time. I'd like to turn the call back over to management for brief closing remarks.

Speaker 2

Thank you, Oleg. Thank you very much. On behalf of the management of Senstar, I would like to thank our investors For the interest and long term support of our business, I would also like to express my deepest gratitude to the team at Sunstar for their hard work, Dedication and unwavering commitment to excellence. It has been an honor to work alongside such driven individuals, I'm confident that Sensstar will continue to thrive and achieve great success. I wish everyone the best of luck in their future endeavors.

Speaker 2

Thank you again for the opportunity to serve as the CEO of this marketable company and lots of luck and success to my friend Sabian in his new role as the interim CEO of the company and have a good day everyone. Thank you.

Operator

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

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