Q3 2021 Senstar Technologies Ltd Earnings Call

Hello, and welcome to the sensor technologies third quarter 2021 earnings call and webcast at this time, all participants will be listen only mode.

It shouldn't answer session will follow the formal presentation. As a reminder, this conference is being recorded its now my pleasure to turn the call over to Kim Rogers with Hayden IR. Please go ahead Kim.

Thank you Kevin.

Welcome to Sun <unk> third quarter, 2021 earnings conference call.

Like to welcome all of you to the conference call and thank some stars technologies management for hosting today's call on the call today with us are Dror Sharon.

Yeah, let's start technology and.

My high CFO Dror will summarize key financial and business highlights followed by Tomer, who will review <unk> financial results for the third 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 sunstar cannot guarantee that they will in fact occur sunstar does not assume any obligation to update that information actual events or results may differ materially from those projected including as a <unk>.

<unk> of changing market trends reduced demand and the competitive nature of the security systems industry.

Anticipated an unknown effect of the Corona virus, including other 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 shouldn't start technologies dot com for the most directly comparable financial measures and related reconciliation.

Nations.

And with that I'd like to hand, the call over to Dror Dror. Please go ahead.

Thank you Kim.

You pulled one yesterday to reveal sensor technology third quarter 2021 financial results.

As a reminder, certain self developed using the company's name for them to deliver to I'll say my best to go with this.

Oh, that's the particulars know SMT.

Year to date financial statements, which led to the mobile contribution towards what's wrong as net income from discontinued operations.

So what I'm going full board since with a full integrated solution division will be included.

A new type of third party customers.

In the third quarter of sensor revenues increased by 11%.

They all the vehicles, primarily due to our solid performance, especially in the APAC region for Milan.

I'll start to contract with a major AGM airports on integrated starting with a security system announced in the second quarter.

The strength in this region was modestly offset by complete complications in the U S market for premium customers older due to supply chain each niche.

And government contract delays due to COVID-19.

This is all those are mainly milk Q.

Q continues as this familiar was mainly timing shift.

Gross profits rose modestly in the third quarter to $5 6 million, but gross profit declined to 61% down from last year, a 54%. So it's all of those impacted gross margin this quarter, including higher material cost component of component availability and labor costs, which are seen.

Across the board in many industries.

In our second quarter call I stated that supply chain dynamics really impacting dangerous play retire components pool.

So the shortage of components and materials.

For the remainder of 2021, we anticipate an increase in some material costs, particularly in semiconductors.

Working to secure the necessary components and mitigate further plus inclusive asics.

As expected supply chain challenges affects gross margin this quarter.

We anticipate this to continue into the fourth quarter 2020.

Ron.

Early into the first half of 'twenty.

That said, we expect the sensors gross margin to remain above 60% for the full year and in 2022.

The year to date gross margin, 65% flat with last year for the same period.

In many regions around the world, we see some business activity starting to return to pre COVID-19 levels travel rather than switch sensor being lifted in some regions locals.

Turning to the officers and three children in Louisiana.

In the third quarter, we attended several excellent thresholds in the U S Europe and the U K.

Delighted to be hosting in person meetings again.

These events facility Tesco spokesman globe, because we engage with new customers and increase the enrollment success and industry leading technology.

While positive development on killing.

There are still some photo constraining us in several regions, including numerous collections in EMEA limitation in the U S and the remaining prevalent.

In April we will incur.

Intel's, but remain cautious.

So the human Tradeshows increased marketing expenses and ministerial caused operating expenses to increase from the low COVID-19 related levels last year, we did north of 10, Tradeshows and could not travel to meet the new customers. We view the related marketing spend increase this quarter is the growth.

Is the growth spending.

And productivity investments for the future of our business.

Based on our pipeline the outlook for 2022 looks positive showing growth compared to Q1.

We remain optimistic that the coffee volume.

Over the winter will not disrupt the recovery of the global business conditions.

This quarter, we enhanced our DSP offerings with our new thermal cameras.

Its unique powerful payment solution complements intrusion detection system and integrate integrate with <unk>.

Since the Symphony comb on abortion platform. We also released our game changing fusion hardware software engine.

Would you anticipate an increase of software sales.

Benefit gross margin overtime.

The main value of that to the end user because that might be close along with reduction we expect the positive impact of the fusion engine will begin in 2024.

Net income in the third quarter declined by $800000 and that'd be the Muslim world, 12% below the third quarter 2022.

Margin of 15% once the one factor contributing to the lower EBITDA margin was the slightly higher operating expenses, primarily related to our growth in spending.

Our public company expenses and amortization are expected to be stable and marketing expenses are anticipated to be flat to down.

Sequentially.

We anticipate Q4 operating income to be positive.

Okay.

We will remain focused on growth we've been.

On gross revenue from our coking because with the two new highly innovative products launched in time for the business third quarter thankful Susan.

Being sensitive industry spending to drive future business.

In addition, wherever strategies in place to cross sell and upsell products and solutions to our existing customer base.

Lastly, we are adding new distribution channels and by leveraging Oems and system integrators and well.

This quarterly increase revenue for key verticals energy collection logistics include becoming unstuck.

And growth is an outcome of a pole strategy to continuously enhancing our technology and the software offering.

To provide a high value solution to thousands of sensor customers under the policy.

To maximize all benefit from the improving business environment in APAC region and sustained.

Oh I meant momentum overdue, we announced a new original Derek.

I am pleased to welcome Russ.

John.

And also in greater China.

Once again, we pick some extensive experience and a successful track record.

Leadership position.

And between the logistics industry as well.

Once you located in Hong Kong and will be in charge of China, Hong Kong, Taiwan, and Macau market.

Wherever we haven't well promoted Alex call a very successful.

The amount of urine based in Malaysia to the position of senior sales director of.

South Asia, and Japan, four minutes local team and further accelerate our growth in this region, where we do have great success.

Finally, I'm glad to announce that Sean Thompson I join us as a.

Joined us.

Senior Thursday, I still kind of up the global market and footprint.

Domestic market.

Some is coming with a strong track record as a sales executive for the Canadian market.

Legal vision charm, ADT and they tell us.

Robust sales team is successfully growing loan pipeline in all regions, where we have built a president.

Well, not really convert new opportunities into bookings.

This quarter showcases.

Productivity of R&D investment and gives <unk> a competitive advantage in the market.

The thermal camera on the sensor fusion engine follow on the heels of those areas.

Symphony cover operating system platform.

This platform.

Either through SMS security management system. It also.

And it takes office component video integration on the inputs from our paid products.

The data intelligence and functionality of the Symphony platform combined with video surveillance with analytics and security sensors and data from when they first joined us logistics system dysfunction.

This functionality is a tiered by linking input from our paid products into solutions that enhance the intelligence gathering for him for the end users.

The result is an enhanced surveillance system to provide.

Valuable operational intelligence, thereby increasing the customer ROI.

This improved platform of lasers as to the to the solution provider category and the opens new customer targets higher contract values and stickier revenue streams.

Looking down the road or product roadmap includes expanding and completing the performance of our current offering.

In early 2022 we plan to release, a new short range type of funnel proposed solutions.

Our cash balance at the end of the quarter was $24 million after making the potent minimum cash distributions to shareholders in September.

Well, we have not yet closed a deal M&A remains part of our growth strategy.

Few opportunities that could bring innovative technology is essential experience to support our blended.

However, we remain prudent in balancing the allocation of our.

Capital between investments in R&D.

To drive the future growth strategic and strategic technology acquisition, if there is a reasonable valuation.

In closing I'd like to thank all of our employees around the world for the ongoing commitment to our strategy to deliver growth improve our profitability and ultimately deliver shareholder value.

And now I will.

Pass the call to our CFO.

Please go ahead and review our financial results.

Thank you Dror.

Our reported revenues for the third quarter of 2021 was $9 3 million.

An increase of 10, 6% compared with reported revenues of $8 4 million in the third.

Third quarter of 2020.

The increase.

That's primarily due to increased sales in APAC, which was partially offset by a modest decline in North America and European teams.

The geographic breakdown as a percentage.

Each of revenues for the third quarter of 2021 comparable to the year ago quarter as follows.

North America, 46%.

51%.

Europe, 24%. This is 22% APAC 26 perfect perfect.

Perfect and Latin America, 4% versus pre Covid.

Third quarter reported gross margin was 67% revenues versus $64 one.

Pro forma plus team.

The decrease in gross margin was primarily due to the shift in.

The mix of products sold during the quarter and macro level business condition related to higher material cost.

Conant availability and labor cost is broadly correct.

Our reported operating expenses were $4 8 million.

The 10% increase on the part of the year.

Water operation expenses of $4 4 million.

And in line with the prior quarter.

The year over year increase in operating expenses due primarily to an increase in marketing and selling expenses relating to broaden tradeshow and other engagement with customers.

It was important to operating income for the third quarter was <unk> 8 million.

Compared to 1 million.

It will go period.

Our reported income from continuing operations was $44000 in the third quarter of 2021 compared to half a million in the year ago quarter.

The company reported EBITDA from continuing operations for the third quarter was $1 1 million.

Roughly one 3 million in the third quarter of last year.

Financial expenses were <unk> 1 million compared to zero point.

So <unk> 4 million compared to <unk> dollars 1 million.

The third quarter of last year.

This is a noncash accounting effects.

Regularly experience due to the adjustments of our monetary assets and liabilities denominated in currencies other than their functional currency of the <unk>.

Operating entities in the group.

It's all mentioned, thanks to our operating leverage and with the anticipated ramp up in quarterly revenues. We expect to report positive operating income from continuing operation for the upcoming fourth quarter.

Net loss attributed defensible technology shareholders in the quarter was <unk> 2 million.

Or negative <unk> 10 per share versus net income of <unk> 6 million.

One four cents per share in the fourth quarter of last year.

The reported net loss includes a net loss of <unk> 3 million from discontinued operation.

Net income from discontinued operation.

Zero point $5 million in the same period last year.

I had two first of operation contribution.

Tablet platform expenses and amortization of intangible assets for historical acquisitions.

For both the third quarter of 2021 and 2020.

Corporate expenses and amortization expenses were about $1 million.

Cash and cash equivalents as of September 32021 $24 million.

Well, one golar and Precancer detection.

At September 32021 upwards upward due to discontinued operations was $2 million.

Liabilities attributed to discontinued operation of $4 3 million.

To us it's attributed to discontinued operation of $49 6 million and liabilities due to discontinued operation of $25 2 million.

December 31st 2020.

That concludes my remarks.

Happy to take your questions now.

Great.

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If there are no questions at this time do you have any further or closing comments.

Okay.

Okay.

I'd like to turn the floor back over to management for any further closing comments as there are no questions at this time.

Okay. Thank you operator.

On behalf of the management when it's not the first 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.

Good day, everyone. Thanks.

Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day.

Thank you for your participation today.