Greetings. Welcome to the Senstar Technologies Fourth Quarter and Full Year 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

I'll now turn the conference over to your host, Kim Rogers of Hayden IR. You may begin..

Thank you, Shemali. 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. Fabien Haubert, CEO of Senstar Technologies; Ms. Alicia Kelly, CFO; and Mr. Tomer Hay, prior CFO of Senstar Technologies.

Fabien will summarize key financial and business highlights, followed by Alicia, who will review Senstar's financial results for the fourth quarter and full year 2023. 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. 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 Security 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.senstartechnologies.com for the most directly comparable financial measures and related reconciliations.

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

Thank you, Kim. Thank you for joining us today to review Senstar Technology fourth quarter and full year 2023 financial results. As outlined in our press release last month, Sensar successfully completed this process of redomiciling from Israel to Canada, marking a pivotal moment for the company.

This strategic move enables us to streamline our corporate structure and empower our Canadian team to lead Senstar forward.

With this transition, I assume the role of CEO and Alicia Kelly stepped into the position of CFO, succeeding Tomer Hay, who will report in an advisory -- who will remain in an advisory role, continuing to support and close out the final activities of the redomiciliation. I extend my heartfelt gratitude to Tomer for his dedication to Senstar.

Tomer has been instrumental in the successful completion of the redomiciliation. His contribution over many years of service has positioned Senstar for growth. We're energized to embark on this new phase of Senstar journey, and I'm eager to guide our team towards sustained growth and profitability.

I would like to begin my review of 2023 and the fourth quarter by drawing your attention to a few key messages about our financial results. First, while full year and Q4 revenue declined year-over-year, mostly due to a non-recurring African project, quarterly revenue and profitability improved throughout 2023.

From Q1 to Q4, revenue rose from $6.4 million to almost $9 million. Operating expenses as a percent of revenue fell from almost 83% to 54% and profitability improved from a net loss of $1.9 million in Q1 to net income of $0.4 million Q4.

Second, the decline in 2023 revenue was mostly due to large projects in Asia and Africa which did not renew in 2023, and weakness in the Canadian market while the US was flat year-over-year. On the positive note, we experienced strong growth in Europe and Latin America in 2023.

And lastly, in the fourth quarter, we made notable progress in several regions. In Europe, one of our largest markets, revenue rose by 20% in the fourth quarter due to investments in Germany, France, Iberia, Eastern Europe and Benelux.

Market demand in Europe is strong, especially in the utilities and energy sector, particularly for renewable energy production sites. We will continue investing to reinforce our position in these high growth segments in the coming years, since we believe they are highly scalable and aligned with Senstar's capacity to differentiate.

Furthermore, APAC, our third largest market, demonstrated a commendable 18% growth in Q4 2023, compared to the previous year's fourth quarter, primarily driven by transportation, utilities and energy project. In the prior quarters of 2023, APAC year-over-year comparisons were negatively impacted by a large one-time project that did not reach Europe.

Going forward, we expect to see this region's true performance without this headwind. Lastly, South and Latin America, a smaller portion of our business, reported tremendous growth, primarily as a result of our efforts to re-position the region, driven by wins in the correction and utilities verticals.

These successes strengthen our position in these verticals where we're driving -- where we're driven to increase our market share. Looking at the revenue contribution from our four key verticals, revenue increased with major wins from correction, one of our strongest categories.

Going forward, we intend to increase market share in these high growth verticals globally with a keen focus on our international key accounts.

To better achieve this goal, we executed a strategic reevaluation of our overall investment and global present at year end 2023 to optimize our organization and footprint to best match our growth strategy and improve our profitability.

In addition, in Canada and in the United States, regions where we faced challenges in 2023, we made changes to the team and in the case of the US, added new leadership. As we exit 2023, we expect improvement in these regions bolstered by strong demand from our key verticals in these important markets.

Switching to margin performance, gross margin was 58% for the full year compared to 61% in 2022 due to unfavorable product mix and post-COVID company cost increases, particularly in the first quarter. Better cost control and price adjustments occurred throughout 2023.

And in Q4, enabled a gross margin that was roughly on par with the previous year Q4 gross margin. We plan to manage gross margins closely with the goal of achieving the target 60% gross margin.

Looking ahead, we will continue investing and maximizing our resources to grow our market share across key regions while intensifying efforts to excel in the utilities, correction, energy, and logistics verticals.

Our strategic focus on business development will be instrumental to achieving these objectives and driving sustained success in the coming year. In the US, our recently appointed VP of sales is focused on setting and implementing a growth strategy in the region, mainly focused on the verticals we're targeting.

In Europe and Africa, we're committed to continue growing our market share by actively deploying our resources. In APAC, without the headwind that hurt us in 2023 and the realignment of our focus in the region, we're targeting growth in our targeted verticals.

The appointment of a new local leader in Q4 2023 will assist us in completing our repositioning in the region and developing a sustainable growth strategy. Switching now to look at product and solution. During my time at Senstar, improving our solution has been a top priority. And with our sustained investments in R&D, we have made big strides.

Last year, we introduced an exciting new product, the MultiSensor, a product that will further differentiate Senstar in the marketplace. The MultiSensor is to be launched in Q2 2024.

The MultiSensor is our new AI-based intrusion detection system that uses an embedded sensor fusion engine to intelligently synthesize data from multiple sensing technology, providing full intrusion situational awareness and reducing false alarms rates close to 0%.

The system includes short range radar, PIR, accelerometer, high frequency vibration and image sensor. I'm delighted with the reception of the MultiSensor by customers and the industry.

The MultiSensor received the Astros Homeland Security 2023 Platinum Awards for the best intrusion detection and prevention solution, and discovering our opinion that this groundbreaking new system is unlike anything else on the market.

In 2024, we will focus on improving our bottom line results with the intention of returning to top line growth, increasing gross margin, and now with better cost optimization, improving our business efficiently and scale.

Senstar solutions protect important assets and installation around the world in a wide range of application and we aim to strengthen our global presence in our key region. Our newest product, the MultiSensor, supports this long-term goal.

The market reception is extremely encouraging, and as we approach the general market release of MultiSensor later this year, we anticipate building a pipeline of orders. Longer term, we see the MultiSensor playing an important role in expanding our addressable markets.

In closing, I want to express my gratitude to the staffs and employees for their ongoing commitment to deliver excellence in our product and services. Now, I will pass the call to our CFO, Alicia Kelly. Alicia, please go ahead..

Thank you, Fabien. Before I begin my financial review, I too would like to join Fabien in wishing Tomer success on the next leg of his journey. Working alongside Tomer for nearly the last five years as VP of Finance has been an extremely fulfilling experience.

Tomer's dedication, expertise, and strategic guidance has been invaluable in steering our financial operations. I have benefited greatly from his -- I have benefited professionally and personally from his experience and guidance, and I extend my deepest gratitude for his contributions and wish him all the best in his future endeavors.

In the fourth quarter results, our reported revenue was $8.9 million, a decrease of 9.8%, compared with reported revenues of $9.9 million in the fourth quarter of 2022. As Fabien discussed, the decrease was primarily due to softness in the US and Canada, due to large non-recurring energy and utility projects generated in Q4 of 2022.

A decline was also seen from a large project in Africa that was sold in partnership with Magal Israel in Q4 of 2022. The geographic breakdown as the percentage of revenue for the fourth quarter of 2023 compared to the year before is as follows.

North America 36% versus 47%, Europe 36% versus 27%, APAC 14% versus 10%, Latin America 11% versus 4%, and others made up 3% versus 12% in the prior year. Our reported operating expenses were $4.8 million, an increase of 2.2% compared to prior year's fourth quarter operating expenses of $4.7 million.

The increase in operating expenses is primarily due to one-time exceptional expenses necessary to streamline the business for future business requirements and are redomiciled to Canada, partially offset by a decrease in general and administration expenses compared to 2022.

Reported operating income for the fourth quarter was $262,000 compared to $917,000 in a year ago period. The decline in operating income was primarily due to lower revenue. Financial income was $34,000 compared to $277,000 in the fourth quarter of last year.

This is mainly a non-cash accounting effect we regularly report due to the adjustment to the valuation 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 Senstar Technology shareholders in the quarter was $433,000 or $0.02 per share versus $3.5 million or $0.15 per share in the fourth quarter of last year. The company's reported EBITDA for the fourth quarter was $450,000 versus $1.2 million in the fourth quarter of last year.

Added to Senstar’s operational contribution is the public platform expenses and amortization of intangible assets from historical acquisitions. The corporate expenses and amortization expenses for the fourth quarter were $700,000 versus $1.2 million in the fourth quarter the year before.

For the full year results, revenue for the year ended December 31, 2023, was $32.8 million, compared to $35.6 million in the prior year. The year-over-year decrease of 7.8% relates primarily to a decline in the APAC region, where overall sales declined by $2.7 million, or 41%, due to lower sales from transportation and utility projects.

North America revenue declined slightly due to a 37% decline in Canada with a large utility sale not repeating in 2023 and flat year-on-year sales in the US. These declines were partially offset by an 11% growth in Europe with sales expanding in all of our key verticals.

In South and Latin America, which grew 65% year-over-year, as Senstar benefited from sales in corrections, logistics, and energy projects. The geographical breakdown as a percentage of revenue for 2023, compared to 2022, is as follows. North America, 45% in both periods. Europe, 35% versus 29%. APAC, 12% versus 18%. Latin America, 7% versus 4%.

And others made up 1% versus 4% in the prior year. Gross profit in 2023 was $18.8 million or 57.5% of revenue, compared with $21.5 million or 60.5% of revenue in 2022. The decrease in gross margin was primarily due to revenue mix in the first quarter of 2023 and some increases in material cost.

We have taken the appropriate measures to improve gross margin going forward. Operating expenses in 2023 were $20.1 million, an increase of 0.5% compared to the prior year's operating expenses of $20 million.

The increase in operating expenses is primarily due to one-time exceptional expenses, necessary to streamline the business for our future business requirements, and our redomicile to Canada, partially offset by a decrease in G&A expenses compared to the 2022 period.

Operating loss was $1.3 million compared with operating income of $1.5 million in 2022. The operating loss was primarily due to lower gross margin on lower revenues. Net loss attributable to Senstar Technology shareholders for 2023 was $1.3 million or negative $0.06 per share versus net income of $3.8 million or $0.16 per share in 2022.

The reported net income in 2022 includes a net loss of $198,000 from discontinued operations. In 2023, our EBITDA was a loss of $348,000 compared with positive EBITDA of $2.9 million in 2022. Corporate expenses and amortization expenses for the public platform were $2.9 million versus $4.5 million in 2022.

The year-over-year change is attributable to a decline of $1.1 million in corporate expenses and a decline of $0.5 million in intangible assets amortization from purchase accounting assets. Cash and cash equivalents as of December 31, 2023, remain healthy with $14.9 million or $0.64 per share, the same level as last year. That concludes my remarks.

Operator, we would like to open the call to questions now..

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of [Ted Liddy] (ph) with Oppenheimer. Please proceed with your question..

Hi. Good morning.

I just wanted to know with the MultiSensor, are you expecting that to be a substantial growth driver in 2024-2025?.

Okay, hi, thank you for your question. It's clearly the intention. The MultiSensor has two basically goals. One is to provide a higher range technological solution in our key verticals, so basically provide an advanced solution and provide further value.

And number two, to expand our addressable market by addressing it as a single unit to secure critical spots of non-critical infrastructure. So yes, in a word, it's our intention and we'll do our best efforts to that in 2024 but mainly 2025 and future years..

As far as the first half of the year, are you seeing likely growth of the top line in the first half of 2024?.

So we're not providing forward-looking statement in terms of the expectations, especially for such short term, but clearly we hope that the MultiSensor will be a major driver to help us getting growth in the second part, and mainly second part of the 2024, but mainly 2025..

And what verticals is the MultiSensor most suitable for?.

So without getting into too many details, the solution basically is manage to provide a higher-end situational awareness and reducing totally false alarms.

So the first place we're going to use it is our existing vertical markets, which are the four one we're targeting, correction, utilities, energy, and logistics, on top of which we work a lot as well on airports and military and borders.

But on top of it, we expect to address much broader verticals like industrial, like cell towers, like critical spots within typically universities why not, hospitals why not, logistics, retail and so on because it would be sold as a single unit and industrial application.

So the goal will be to broaden the verticals we're going to search outside of our existing verticals. So within the verticals, but to gain market shares outside of it..

Would you say that the MultiSensor -- I've been involved with your company for many years and it seems you've had great success with technology, not such a great success with growing revenue.

Would you say that the MultiSensor is something that sets itself apart from other innovative products that you've had in the past?.

Yes, we believe that -- we've put a lot of efforts to come with a strong evolution, something that the market didn't have. We've been searching for what would be the next technology that could replace some others and bring in something more.

So we will keep trying to secure parameters per se, number one in critical infrastructure, but where we [foresee as well] (ph) growth is sold as a single unit to basically secure spots which are not in full perimeter detection, where today we're not selling our gears.

So we hope and we strive to have the MultiSensor securing some spots, replacing other additional technology today. And it's indeed expanding tremendously our addressable market..

In the past, you've had some optimism in the energy markets and some wins here and there over the last five years.

Is that a market that looks promising currently?.

So, the energy market was split between the different production of energy. Basically, traditionally it was oil and gas and this depends a lot on the international situation on the barrel. We see now heavier growth in sustainable energy plants, solar farms and others.

And indeed, we're working hard to take market share in [seven] (ph) growing market, which has already occurred in Europe. And we're going to work very hard to getting market share in North America and Americas in general there that could sustain indeed our growth..

Given the geopolitical turmoil for the world right now, are military uses and -- or bases and borders looking like areas of growth for the company?.

Yes it is. Cannot comment or mention that because we're working on some project which indeed we have confidentiality, but yes it might provide some opportunities..

And as far as your move from Israel to Canada, how much of an expense was that in the fourth quarter approximately?.

So we're not providing a specific answer to that at this point in time..

Do you expect to save money ongoing from the move?.

Yes, absolutely. And that was one of the things that we considered in making the move. And -- but most importantly, it provides the nucleus of our business in the place that we currently reside, which is mostly in Canada and where most of senior management resides at the moment..

Thank you. [Operator Instructions] And it appears there are no further questions at this time. I'll now turn the call back over to Fabien Haubert for closing remarks..

On behalf of Senstar’s management, I would like to thank our investor for the interest and long-term support of our business. Have a great day..

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

Thank you..

Thank you..