Senstar Technologies Q2 2024 Earnings Call Transcript

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August 26, 2024

There are 5 speakers on the call.

Operator

Greetings, and welcome to the Senstar Second Quarter 20 24 Financial Results. 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 introduce you to your host, Kim Rogers with Hayden IR.

Operator

Thank you, Kim. You may begin.

Speaker 1

Thank you, operator. I'd like to welcome everyone to the conference call and thank Senstar's management for hosting today's call. With us on the call today are Mr. Fabienne Hobert, CEO of Senstar Technologies and Ms. Alicia Kelly, CFO.

Speaker 1

Fabian will summarize key financial and business highlights followed by Alicia, who will review Senstar's financial results for the Q2 of 2024. We will then open the call for a question and answer session. Before we begin, 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.

Speaker 1

Actual events or results may differ materially from those projected, including as a result of changes in market trends, reduced demand and the competitive nature of the security systems industry, the unanticipated and unknown effects of COVID-nineteen, 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 that 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 non GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to the company's website at www.senstarttechnologies.com for the most directly comparable financial measures and related reconciliations. With that, I'd now like to hand the call over to Senstar's CEO, Fabienne Hubert.

Speaker 1

Please go ahead.

Speaker 2

Thank you, Kim.

Speaker 3

Thank

Speaker 2

you for joining us today to review Senstar Technologies' Q2 2024 financial results. Our Q2 revenue of $8,300,000 was nearly on par with the same quarter last year, just down 1.6%. One highlight from this quarter is the continued improvement in our profitability performance. Our gross margin reached 63.2%, the best we have delivered in the last 8 quarters. This improvement was mostly due to a shift in product mix, the improvements of supply chain challenges and cost realignments we established last year.

Speaker 2

Operating expenses decreased by 9% and represented 55.2% of revenue compared to 59.7 percent in the year ago quarter. The higher gross margin and lower operating expenses combined to lift our operating margin to 8% of revenue from 1% in Q2 2023. As a result, our net income climbed to US493000 dollars and our EBITDA margin increased to 10.2% of revenue. In the Q2, our balance sheet strengthened further with higher cash reserve and a $1,000,000 reduction in inventory since the end of Q1, thanks to diligent inventory management. Our incremental cash flow gives us the flexibility to continue driving growth in our key areas and investing in new product innovation.

Speaker 2

Now let's dive into the specifics of our performance across various regions and sectors. In the U. S, we saw a modest increase in revenue of 2% in Q2 compared to last year, and revenue in this important region remained steady with a strong correctional market and growing demand in the utilities sector. APAC was a standard performer in Q2, with revenue surging 135% versus Q2 2023, driven primarily by major wins in the utilities and transport sectors throughout the whole region and several projects. Europe, however, faced some challenges with revenue down 33% in Q2, mainly due to customer delays in project.

Speaker 2

However, we believe this project will catch up in Q3 and Q4. Despite these delays, we anticipate substantial activity in the utility, energy and transport sectors throughout the region. Our 4 key verticals delivered solid growth, rising 5% in Q2 year over year and 14% year to date. This growth was driven by major increases in sales and demand in the utility sector worldwide, particularly in solar farms, power stations, nuclear plants and data centers. Additionally, we've seen significant growth in the airport environments with interest reinforcing on a global scale.

Speaker 2

In terms of new product development, we are thrilled with the successful launch of our latest innovation, the Senstar Multi Sensor. Senstar commitment to delivering innovation solution to the market is paying off. Security industry professionals are dealing with increasingly complex and frequent security events and need solutions to enhance operational efficiency. One of their biggest challenges is news and alarms. False alarms triggered by non intrusive events like someone standing too close to a fence or debris blowing against it.

Speaker 2

These alarms waste time and resources. The multi sensor stands out in the market with advanced capability, allows us to tackle 1 of the industry's most pressing issues, reducing nuisance alarm to 0. The multi sensor's probability of detection vastly exceeds DRASMUN's traditional sensors and its unique ability to sensitize data from multiple sensing technology provide full situational awareness and decreases nuisance alarms next to 0. These are key metrics for the security industry, and we're proud to be the 1st to market with a device that can deliver these outcomes. With the multi sensor now available for sale, we are already seeing significant market interest.

Speaker 2

We believe this product will be a key growth driver for Senstar as we build our momentum in core vertical and expand into new markets. The multi sensor versatility makes it ideal for securing critical areas within non critical infrastructure, in addition to our traditional markets, which opens up exciting opportunities for us to address higher market volumes. In closing, I'd like to thank you for your continued support of Sensa Technologies. Our performance in the first half of twenty twenty four underscores the strength of our strategy and the dedication of our team. We're encouraged by the solid momentum we've built across our key verticals, and we're excited about the opportunities that lie ahead, particularly with the launch of the MultiSensor.

Speaker 2

As we move forward, we remain committed to driving growth, enhancing profitability and delivering innovative solution that meet the evolving needs of our customers. We believe that the investments we've made in our product portfolio alongside our improved operational efficiencies position us well for continued success. I will now turn the call over to Alicia for a review of the financial results in more details.

Speaker 4

Thank you, Fabian. Our reported revenue for the Q2 of 2024 was 8 $300,000 a modest decrease of 1.6 percent compared with reported revenues of $8,400,000 in the Q2 of 2023. The decrease was primarily due to delays in projects in EMEA. The geographical breakdown as a percentage of revenue for the Q2 of 2024 compared with the prior year quarter is as follows: North America, 47% in each period EU, 27% versus 40% APAC 23% versus 10% Latin America 1% versus 3% and all other regions less than 1% in both periods. Reported gross margin was 63.2% of revenue for the Q2 of 2024 compared to 60.7 percent of revenue for the Q2 of 2023.

Speaker 4

This margin improvement was primarily the result of a shift in our product mix to higher margin products in the product in the quarter and price adjustments taken in 2023. Our reported operating expenses were $4,600,000 a decrease of 9.1% from the prior year's quarter's operating expenses of $5,000,000 The year over year decrease in operating expenses is due primarily to lower G and A expense, lower sales and marketing expense as a result of our efforts to streamline operations and diligently manage our overhead costs. Our operating income improved in the Q2 to $666,000 compared to $83,000 in the year ago period. The year over year improvement was due to higher gross margins on higher sales and a lower operating cost. Financial income was $103,000 compared to financial expense of $74,000 in the Q2 of last year.

Speaker 4

This is mainly a non cash accounting effect we regularly report due to the adjustment to the evaluation of our monetary assets and liabilities denominated in currencies other than the functional currency of the operating entities in the group in accordance with GAAP. Net income attributable to SunStar Technologies shareholders in the quarter was $493,000 or $0.02 per share versus $275,000 or less than $0.01 per share in the Q2 of last year. The company reported EBITDA for the Q2 of $846,000 versus $290,000 in the Q2 of last year. Taxes on income were $276,000 compared to a tax benefit of $266,000 in the Q2 of last year. Senstar's operating expenses include public platform and amortization of intangible assets from historical acquisition.

Speaker 4

The corporate expense and amortization expense for the Q2 were $400,000 the same as in the previous year's quarter. Cash and cash equivalents as of June 30, 2024 were $15,200,000 or $0.65 per share as compared to $14,900,000 or $0.64 per share as of December 31, 2023. That concludes my remarks. Operator, we would like to open the call to questions now.

Operator

Thank you. We will now be conducting a question and answer

Speaker 3

Thank

Operator

you. Our first question comes from the line of Ted Liddy with Oppenheimer. Please proceed with your question.

Speaker 3

Hi. I was wondering when you would expect the MultiSensor to have a material impact on revenue or revenue growth?

Speaker 2

Thank you very much for your question. So the product just got released for sales. So the first delivery to happen in the next coming weeks. It's a bit early to say. We hope to provide more information to next release.

Speaker 2

But since the product just got officially released for selling and the first order has come already, but not significant at this stage. It's less than for a couple of weeks ago.

Speaker 3

And does the company currently have a backlog of orders expected in the next 12 months?

Speaker 2

So yes, unfortunately, we're not commenting that. I can only mention that we had a good trend of booking in the 1st part of the year, but unfortunately, we're not commenting the backlog or further expectations.

Speaker 3

Do you expect to increase revenue in the second half of the year compared to the $18,000,000 you did roughly last year for the second half of 2023?

Speaker 2

Unfortunately, we're not providing forward looking statements, but we're striving and working hard on

Speaker 3

it. Okay. Thanks for taking my questions.

Operator

Thank you. There are no further questions at this time. I'd like to pass the call back over to Fabian for any closing remarks.

Speaker 2

Thank you again. And we look forward to updating you on our progress in the coming quarters. Please feel free to contact our IR firm for further follow-up on this call or to learn more about Sensa Technologies. Their contact information is at the bottom of today's press release. Have a good day.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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