Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Alarum Technologies First Quarter 2023 Corporate Update Conference Call. [Operator Instructions]. This conference is being recorded today, May 30, 2023. Before we get started, I will read a disclaimer about forward-looking statements.

This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.

Forward-looking statements include statements about plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are different than historical fact.

These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that may result in expectations not being realized and may cause actual outcomes to differ materially from expectations reflected in these forward-looking statements.

Potential risks and uncertainties include those discussed under the heading Risk Factors in Alarum's annual report on Form 20-F filed with the Securities and Exchange Commission on March 31, 2023, and any subsequent filings with the SEC.

All such forward-looking statements, whether written or oral, made on behalf of the company are expressly qualified by these cautionary statements, and such forward-looking statements are subject to risks and uncertainties that we caution you not to place undue reliance on these.

At this time, I'd like to turn the call over to Shachar Daniel, the company's CEO. The floor is yours..

Thank you very much, and welcome, everyone, to Alarum Technologies' First Quarter 2023 Earnings Results Conference Call. As is customary, with me is Shai Avnit, our Chief Financial Officer.

Today, I will provide a brief review of our business operations; summarize our accomplishments, including the pivotal milestone of achieving positive adjusted EBITDA for the first time in our history. And then I will turn the call over to Shai, who will discuss our first quarter financial results before we open the call to questions.

Before we begin, I want to quickly note, a reconciliations tables for any non-GAAP or non-IFRS metrics referenced on these calls are available in the press release we published earlier today.

With that said, I would like to start by saying, I'm incredibly proud of the entire Alarum team for their contributions to our first-ever positive cash flow from operating activities and positive adjusted EBITDA quarter, alongside our ninth consecutive quarter for revenue growth.

Reaching positive cash flow from operating activities and adjusted EBITDA for the first time is a major milestone for Alarum and achieving it while sustaining substantial growth in an extraordinary achievement.

A key driver for this performance was our enterprise Internet access or NetNut, which operates in the fast-growing data access market and become a profitable on an IFRS basis for the first time during the first quarter.

After doubling NetNut network infrastructure last year, we now have the capacity to support and process billions of clients requests, which helps us drive rapid growth in the first quarter. Our expanding global presence is being met with surging demand and rapid adoption, which helped drive monthly subscriptions.

We are proud to see NetNut becoming one of the strongest and best known brands in its field in North America and Europe, and we are thrilled to witness similar access in the Asian market.

To support our scaling efforts, we have expanded our regional sales team and developed meaningful partnerships, investments that have already yielded new large customers. NetNut's performance can be further attributed to the high level of customer satisfactions with our network performance and offerings.

As a result, we have seen increased customer retention, a spike in new directed traffic to our network and a rise in our customer spending. As the data and Internet access solution market continues to develop and expand, we feel well positioned to capitalize on this growing interest.

One such development that we are capitalizing on can be seen in our first quarter entrants into the end-to-end retail AI market.

Retail intelligence data vendors play a crucial role in providing retailers, brand owners and e-commerce businesses with the ability to track and analyze the entire retail forces from product sourcing to to consumer purchasing.

These platforms offer valuable insight into pricing and availability, product reviews, inventory analytics, competitor pricing intelligence to analytics and more. By analyzing this data, businesses can uncover hidden opportunities and make better informed decisions, ultimately leading to the development of effective retail strategies.

NetNut's cloud services empower retail intelligence vendors to collect retail data at scale from multiple websites and data sources worldwide. By utilizing our service, vendor can access essential business-related data without the need to develop complex data collection solutions, allowing them to focus on their core business.

In today's data-driven world, accessing large amounts of data is imperative for businesses across various sectors, providing a wealth opportunity for us.

NetNut's innovative platform, which combines data collection scale and anonymously, enable us to provide targeted data for retailers that help business make data-driven decisions, such as understanding customer behavior; optimizing supply chain management; gaining insight into the competition; identifying new opportunities; and ultimately, enhancing their business functions and profitability.

On the consumer side, where we employ a more flexible business model, we launched a new white-label Internet access privacy solution after the quarter's end.

Part of a multi-month effort to enhance our service portfolio, we believe the launch of our new white-label Internet access privacy solution for consumers is opening up new opportunities for us outside our traditional customer base and will further drive our growth in the quarters ahead.

In addition to our marketing efforts, we are already in discussions with several vendors interested in offering this solution to their consumers under their own brands. Overall, we remain on a clear path to profitability and our results showcase our ability to drive revenue growth while maintaining operational efficiency.

Revenues increased to a record high of $5.7 million in the first quarter, up approximately 41% year-over-year and up nearly 10% sequentially.

In addition to significantly growing revenues, as mentioned earlier, we generated our first-ever positive adjusted EBITDA during the first quarter, a major milestone for us and a tremendous improvement over the adjusted EBITDA loss of $3.2 million in the year-ago period.

We believe that our ability to successfully manage our resources, while maintaining growth positions, are from the right path to accelerate journey to net profitability.

We recognize that reaching profitability is a critical milestone for our company, and we remain focused on achieving this goal while continuing to invest in our products and services.

We also believe that our efforts to optimize our resources have contributed to our financial position and will facilitate our substantial growth in the future, as we continue to deliver exceptional value to our customers while balancing our goals with financial stability.

I would now like to turn the call over to Shai to discuss the financials for the quarter in more detail.

Shai?.

Thank you, Shachar, and hello, everyone. As I discuss our first quarter 2023 financial results, I will be making comparisons to the first quarter of 2022 as well as for the fourth quarter of 2022. Revenue for the first quarter of 2023 totaled $5.7 million, up approximately 41% over the $4 million generated in the first quarter of 2022.

Compared to the fourth quarter of 2022, which saw revenues of $5.2 million, revenues were up nearly 10%. The 2023 first quarter revenues were driven primarily by organic growth in the enterprise access business revenues.

Gross profit increased to $3.8 million, up 77% from $2.1 million in the year-ago period, driven primarily by increased efficiency of resources in the enterprise Internet access business and lower user acquisition costs in the consumer Internet access business, all resulting in minimal increase in our cost of revenues relative to our strong revenue growth.

This resulted in gross margins as a percentage of revenue of 66% compared to 53% in the first quarter of 2022. Our Q1 2023 operating expenses decreased 36% year-over-year to $4.2 million, down from $6.7 million in the first quarter of 2022.

This tremendous improvement was driven primarily by a 56% drop in general and administrative expenses as a result of the resource patent proceeding in May 2022, a 28% decrease in sales and marketing expenses and lower R&D expenses.

As a result of the above changes in revenues and expenses, net loss for the first quarter of 2023 was $0.7 million or $0.02 per share, down significantly from a net loss of $4.7 million or $0.16 per share in the first quarter of 2022.

As of March 31, 2023, shareholders' equity totaled $12.9 million or approximately $3.93 per outstanding American depository share compared to shareholders' equity of $13.3 million on December 31, 2022. The reduction is due mainly to the company's net loss during the quarter of -- on IFRS basis.

As of March 31, 2023, the company's cash and cash equivalents balance totaled $3.7 million compared to $3.3 million on December 31, 2022. The company's cash balance does not account for up to an additional $2.2 million in funds available under its credit facility and investment financing.

And lastly, I wanted to touch base on our share count as it stands today. On an outstanding basis, we have around 33 million ordinary shares representing 3.3 million ADSs. On a fully diluted basis, we currently have around 50 million shares or 5 million ADSs outstanding. With that, I'll turn the call back over to Shachar..

Thanks, Shai. I would like to take a moment to reflect on Alarum's accomplishments and share our aspirations for the future. Today, Alarum stands as a testament to the ambitious goals we set for ourselves in recent years. Our key growth engines have been realized, and our significant competitive advantages have been crystallized.

Both our financial and nonfinancial key metrics are moving in the right direction and aligned perfectly with our strategic vision. Not only did we achieve record revenue in the first quarter, but we also marked our ninth consecutive quarter of revenue growth.

And achieving our first-ever quarter of positive adjusted EBITDA is an important milestone on our path to profitability. We remain agile and committed to paving our way to profitability in the quarters ahead while maximizing our long-term business potential to focus growth initiatives.

Regarding our share price, we acknowledge that there is a gap between the company's true performance and the market's perception of our business and achievements. Bridging this gap is on one of our primary goals for 2023, and we are dedicated to raising awareness about our sustainable growth and development, both in the U.S. and beyond.

I also want to reiterate an important point made by Shai a moment ago. Our cash balance increased to $3.7 million during the first quarter, up from $3.3 million at the year-end of 2022. And this does not account for up an additional $2.2 million in non-dilutive financing we have available to us.

As such, we are in great position to continue executing and see no new term scenario requiring us to raise additional funds. I would like to take this opportunity to express my gratitude to our shareholders for their trust, confidence and ongoing support.

As we look ahead, we have a well-defined strategic road map that encompasses technological innovation, continuous growth and near-term profitability. We are optimistic about the future of Alarum and are diligently building our business plan to support our efforts for improved financial results.

In closing, thank you for joining us today, and we look forward to updating you on our progress in the coming quarters. Now I would like to open the call for any questions. Operator, please go ahead..

[Operator Instructions]. Our first question comes from the line of Brian Kinstlinger with Alliance Global Partners..

Nice numbers. Can you quantify roughly what percentage of revenue comes from consumer versus enterprise and the year-over-year growth rates you saw during the first quarter? Interested in what drove also the best sequential quarter in revenue dollars in quite some time..

All right. Brian, thank you. So regarding the split of the revenues, so around 60% for NetNut and 40% for all -- our CyberKick. Meaning, around 60% for the enterprise business and around 40% for the consumer business.

Brian, if you can repeat the other questions?.

Yes, I'm curious kind of the year-over-year growth rate. It sounds like NetNut's growing faster. Maybe if you can roughly give us kind of year-over-year how these 2 businesses are growing..

Year-over-year, meaning the split between the enterprise and the consumer?.

Yes, yes.

The NetNut grow 50%, the CyberKick grew 30%, something like that?.

Yes, yes, yes. No problem. Shai, you want to take it? Shai? Shai, you are muted..

Yes.

Brian, do you mean the ratio that we experienced during 2022?.

No, no. Shai, he -- the first quarter..

I mean, in the first quarter of 2023, what were the year-over-year growth rates of enterprise versus consumer..

The growth of enterprise vs consumer or each one of the....

No, Shai. Shai, Shai, if you will take only the enterprise in the first quarter of 2022 versus the enterprise in the first quarter 2023, yes..

Okay. Okay. So it's not one against the other, but....

No, not against the other, against [indiscernible]..

Of course. So with respect to the enterprise, the consumer business, it was basically stable without a growth. And the enterprise access for businesses or enterprises, it was almost double. It was about 90% growth, year-over-year or....

Yes. And then as you think about the macro, you certainly did fantastic sequentially.

Can you talk about the impact, if any, on both businesses, enterprise, consumer? And how these growth rates might change or not change?.

Okay.

The impact of what brand?.

The challenging macro..

I think we discussed about it a few times in the last year because the challenging macro is here with us, I think that at least a year. So at this point of time, we don't see any significant impact on the current situation. If the situation will become worse, so we can never know.

But if it will stay stable or even better, for sure, so we don't see -- we didn't experience any real impact on the business.

Unless from the positive aspect, if things will start to get better in the world, and we will see that the growth has become better and better, then we know that the potential is even higher and due to the economic -- the market situation, it was in this situation till now..

Okay. And then I think it would be helpful, now that NetNut's doubling, and it's all organic, maybe remind investors the benefit that enterprises get from choosing NetNut over other solutions..

Okay. So I will split my answer for 2, in general and over other solutions. So in general, in today world, especially due to the penetration of the AI to our life, data is the blood -- is everything. Everybody needs data. Everybody needs to collect data.

Due to the competitive environment, everybody needs to know every minute, every hour what's going on in each and every -- I'm inviting everybody, by the way, to watch our presentation in the website, so you'll see the amount of use cases and the industries that are using these kinds of solutions.

So in order to collect data and scale anonymously and to get one and real data, companies are using set of products. We are one of the layer in this world of the world of the data collection. We are the infrastructures layer, meaning without the infrastructure, you cannot collect data.

Next stage is the collectors, the data collection tools and the scrapers. And next stage is the AI tools that can analyze the data and get you more accurate data. So this is the layer that we are now.

We have plans and we are always starting to think how we are going to get into the next layers, meaning next layers in the space of -- in our industry, in the data industry.

Regarding the competition, as I mentioned, we are one of the biggest brands, and I think our biggest competitive advantage in this space is the fact that we have a very solid network. We are -- we have a global coverage, more than 1,000 locations. And it gives our customers a very good success rate when they are trying to collect data.

And this is the most -- besides of the features and the support and everything, this is what makes our customers to be very satisfied. This is what increase the retention. This is what makes our brand to be one of the best brands in this space, and this is our biggest competitive advantage about most of the players in this space..

Great. That's helpful. And then you mentioned in your prepared remarks a stronger retention rate for NetNut. Is there any way to quantify today what it is versus a year ago? If you can't give numbers, kind of is it -- has it improved maybe how much? Just trying to get a little bit of wrap my arms around what we're talking about..

Okay. So Brian, to be totally transparent and honest with you, we just started a few months ago to use third-party kind of products in order to start and have an accurate and very clear KPIs for our retention, churn, lifetime value, et cetera. So I don't have the accurate numbers yet.

We are still in process, but I can tell you that at least it's -- the retention at least double themselves..

Got it. And you recently launched a new white-label enabled privacy application. So how do you expect it's going to open new opportunities? And is your -- if I read the press release right, is your primary target channel partners or resellers? Or are you selling....

No..

Or is this a direct white label? Just help me understand..

No, no. Okay. So it's not a strategy change, meaning our main target is our direct approach, meaning we are selling directly to our consumers. We just opened a new opportunity for -- not resellers, but other consumer vendors to white label our products.

And we believe we are still checking the economics behind, but we believe that if it goes well and the economics make sense, it can be a very nice revenue channel additional, very nice revenue channel for our product..

Okay. The last question I have is -- well done on expenses.

So lastly, as revenue grows from the first quarter, should we expect adjusted EBITDA will increase? Or will management choose to increase expenses for customer acquisition?.

You mean, in this quarter?.

No, I'm talking about in general. Management teams have different strategies on capital deployment. Do you hope that as revenue grows 20%, EBITDA will grow 20%? Or will it grow much slower as you increase your expenses on capital -- I'm sorry, on customer acquisition..

Yes, I understand. I understand your question. Okay. So if you remember, we are already talking -- I'm always talking with audience for years. And I said all the time that, at the end of the day, it's a game -- kind of a game between EBITDA and growth, okay? So as we said or we stated already last year, we started our journey to profitability.

But from the other side, we don't want to hit our growth with our innovation and our customers. So we are -- let's say, we are in a -- we will stay in this mode as you see these reports and these financials in this quarter.

We are not looking only to be profitable because, to be honest, if it was our only target, we can see even better numbers this quarter and the next quarters.

But as I mentioned, for example, a few minutes ago, for your question, we want to penetrate and to leverage the fact that we have already hundreds of customers that are using our platform and to start and release new products to get into a new markets and to cross-sell our customers, which is the most beneficial consumer acquisition.

So we will try to keep on the balance and on the ratio between revenues and profitability. I cannot be very clear about if you will see 20% growth in revenues, we will see growth in the adjusted EBITDA. But more or less, this is the target..

[Operator Instructions]. Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Daniel for any final comments..

Okay. So thank you very much for joining us today. We look forward to continuing to update you on our progress. Thanks..

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