Senstar Technologies Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 12, 2024

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Senstar Third Quarter 20 24 Financial Results 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. It is now my pleasure to hand over to Kim Rogers of Investor Relations.

Operator

Thank you. And you may proceed, Kim.

Speaker 1

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. Fabienne Hobert, CEO and Ms.

Speaker 1

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.

Speaker 1

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.senstarttechnologies.com for the most directly comparable financial measures and related reconciliations. With that, I'll now hand the call over to Sunstar Technologies' CEO, Fabienne Hobert. Fabienne, please go ahead.

Speaker 2

Thank you, Kim. Thank you for joining us today to review our Q3 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 percent 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.

Speaker 2

Year to date, our growth margin of 63.9% aligns with our expectation to deliver a gross margin of 60% or better. Due to diligent expense control, operating expenses decreased by 3.6% from Q3 2023 and 9.2% year to date. Our revenue growth and gross margin expansions, combined with the decrease in operating expenses, led to a significant increase in our profitability. We experienced encouraging growth trends in the U. S.

Speaker 2

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 reflect 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.

Speaker 2

S, where correctional facilities are investing in modernization. Our offering 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.

Speaker 2

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 EMEA, U. S. And APAC regions where utilities and large infrastructure projects prioritize improved security solutions. Transports.

Speaker 2

Our growth in the transport sector has been driven by a mix of established customers and new market entrants, particularly in EMEA, where transport infrastructure development is advancing rapidly. We have seen strong adoption of our solution in the AirPod sector, which recognizes the need to secure monitoring systems. The market remains a priority as our technology aligns well with the demands of modern transplantation security, particularly in EMEA 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 for ways to enhance operational efficiency and protect critical assets.

Speaker 2

We are seeing positive trends in the oil and gas industry, particularly in North America and EMEA, and we're hoping this will contribute positively in future quarters. Focusing on core verticals in these critical sectors and fine tuning our solution to meet their unique needs with new products like the MultiSensor, we are enhancing customer value and positioning ourselves for sustained growth. I am happy to share that initial sales from MultiSensor are promising, highlighting the product's innovative impact in the market. The future enhance our positions and build 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.

Speaker 2

Our strategy remains focused on business development to expand global market share for growth 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 twenty twenty four. Likewise, our investments in new territories are beginning to pay off, with identified projects now being rolled out. We are seeing strong sustainable demand growth and are scaling our effort to meet it.

Speaker 2

In conclusion, we are encouraged by our financial progress this quarter and the strides we have made in key verticals. The Sensors 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.

Speaker 3

Thank you, Fabian. Our revenue for the Q3 of 2024 was $9,700,000 an increase of 8.2% compared with the revenue of $9,000,000 in the Q3 of 2023. We saw sales growth in the U. S. Of 12%.

Speaker 3

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 the oil and gas, utility and the transportation segments. Other regions saw slight declines this quarter, but nothing material in nature. The geographical breakdown as a percentage of revenue for the Q3 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.

Speaker 3

The 3rd 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 Q4 of 2023. Our operating expenses were $4,800,000 down 3.6% compared to $4,900,000 in the prior year's Q3. The decrease is a result of the streamlining of our corporate structure and realignment of our resources that we implemented in 2023. The strong gross margin and lower operating expenses drove an increase in our operating income for the Q3 to $1,800,000 a significant increase compared to $123,000 in the year ago period.

Speaker 3

Financial income was $111,000 in the 3rd period of this year compared to a financial expense of $64,000 in the Q3 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 Technologies shareholders in the Q3 was $1,300,000 or $0.06 per share compared to a net loss attributable to Sunstar Technologies shareholders of 122,000 dollars or negative $0.01 per share in the Q3 of last year. The company's EBITDA for the Q3 was $2,000,000 compared to $322,000 in the Q3 of last year. Added to Sensors' operational contribution are the public platform expenses and amortization of intangible assets from historical acquisitions.

Speaker 3

The corporate expenses for the Q3 were approximately 100 dollars sorry, dollars 1,500,000 Cash and cash equivalents and short term bank deposits as of September 30, 2024 were $19,500,000 or $0.84 per share. That concludes my remarks. Operator, we would like to open the call to questions now.

Operator

Thank you very much. The first question comes from Danny Levine from Levico. Please proceed with your questions, Danny.

Speaker 4

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

Speaker 2

The book value you mean? The bookings or?

Speaker 4

No, the book value per share at this point.

Speaker 3

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

Speaker 4

Okay. 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 50,000,000 share float. So it would not take much of a it would probably take 1 or 2 fairly exciting announcements to send your stock through the roof. There's just no float there.

Speaker 4

And so it's good to see that. One question I have is, are you targeting the AI sector as far as your is there any demand for AI companies for what your products at all? Are there any synergies at all with AI?

Speaker 2

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 our the intelligence of our devices. So we already have video intelligence. We're analyzing those of the company.

Speaker 1

Smartphone disconnected.

Operator

And we're

Speaker 2

working basically my apologies, it was on strengthening our knowledge and performance in AI in general, yes.

Speaker 4

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

Speaker 2

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

Speaker 4

Right. And what I'm trying to ask, Basi, 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?

Speaker 2

So we're I'm not sure I'm getting fully your question. I do apologize. So we're focusing basically on 4 to 6 verticals. The main verticals we're focusing on are utilities, correction, oil and gas, logistics, and we have very high attention as well on transport, airports and military and border control. And these are the verticals we're serving mostly.

Speaker 2

And yes, those verticals are asking us basically to they're expecting us to provide intelligence solutions which provide more and more intelligence on the way they're using it.

Operator

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

Speaker 5

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 Balchai sensor?

Speaker 2

So we're not providing forward looking statements. What we can say is that the market is reacting extremely positively in the sense of the number of we had some interesting basically for 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 too early First of all, we're not providing any forward looking statement.

Speaker 2

And secondly, it's too early to push in ourselves in terms of how much we think it's going to generate.

Speaker 5

As far as profitability, given the low expenses, are you comfortable in saying that you expect to be profitable in the Q4?

Speaker 2

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

Speaker 5

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

Speaker 2

So solar farms, yes, it's a vertical we're currently addressing already, which is part of the verticals. It's okay. 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, plant, absolutely.

Speaker 2

And we're addressing these demands, and we see some progress in ourselves there.

Operator

Thank you very much. The next question is a follow-up question from Ted Liddy from Oppenheimer. Please proceed with your question.

Speaker 5

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

Speaker 2

Interesting. So basically data centers is basically all basically what is the data center where places which host hard disk for storage for utilities and distribution, for video on demand, storage data. So they are the one that work. I think this 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.

Speaker 2

Then you have a lot of banking and in financial institution, 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 where for their own needs.

Speaker 2

It's only large provider providing service to third party. That's where we're focusing today. Hope I answered your question.

Speaker 5

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

Speaker 2

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.

Speaker 5

Okay, great. Thanks for your comment.

Speaker 6

Thank you.

Operator

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

Speaker 7

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

Speaker 2

Never directly. We're trying to strive on making people safer in the world. And once we're doing basically

Speaker 7

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

Speaker 2

So we're a Canadian entity and we're trying worldwide in every on the whole planet to try to make people safer. And we're working basically on making sure that when there's separation between 2 countries, 2 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 we are the more we can help, the more we'll be happy and the more it will contribute to our business.

Speaker 7

Yes. Because I believe you also have the technology to say look at some people's tags and will you be possibly helping the like 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?

Speaker 2

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 the situational awareness, whether there is an intrusion or not of which nature. Our sensor basically work together to try to find with the best accuracy, identify where an attrition attempt is happening and then it goes to other parties who do the follow-up of the work.

Operator

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

Speaker 6

Yes. Good afternoon, gentlemen. As a longer than 2 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 2 questions ago to 10 etcetera, 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 to 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.

Speaker 6

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.

Speaker 6

And I wish you luck on that. And if you have any comments, I'd appreciate it. Thank you very much.

Speaker 2

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 the strategy and that's where we're putting our efforts.

Speaker 6

I had no doubt.

Speaker 2

Thank you

Speaker 5

for your time and

Speaker 2

thank you for your 12 years investment and trust in us.

Speaker 6

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

Speaker 2

Thank you.

Operator

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 Fabienne Hobert for closing remarks. Thank you, sir.

Speaker 2

So on behalf of the management of SensaR, 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.

Operator

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.

Powered by Quartr
Earnings Conference Call
Senstar Technologies Q3 2024
00:00 / 00:00