Senstar Technologies Ltd. (NASDAQ:SNT) Q2 2023 Earnings Call Transcript September 6, 2023
Operator: Hello, and welcome to the Senstar Technologies Second Quarter 2023 Financial Results Conference Call and Webcast. [Operator Instructions]. It’s now my pleasure to turn the call over to Kim Rogers of Hayden IR. Please go ahead, Kim.
Kimberly Rogers: Thank you, Kevin. Welcome, and thank you for joining us today. I would like to thank the management of Senstar Technologies for hosting today’s call. With us on the call today from the company are Mr. Fabien Haubert, Interim CEO; Mr. Tomer Hay, CFO; and Ms. Alicia Kelly, Vice President of Finance. 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 documents filed by the company with the Securities and Exchange Commission.
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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 will now hand the call over to Senstar Technology’s CEO, Fabien Haubert. Fabien, please go ahead.
Fabien Haubert: Thank you, Kim. Good morning, everyone, and thank you for joining today’s earnings call. I’m delighted to provide an update on the company’s performance. Starting with the second quarter of 2023. Revenue was largely in line with our expectation showing accelerated growth in 2 key geographies. Q2 2023 revenue was $8.4 million, a 7% decline from the same period last year. Year-to-date revenue for 2023 totaled $14.9 million compared to $15.9 million, reflecting a decrease of 6%. Our gross margin for Q2 stood at 60.7%, up 70 basis points year-over-year and 500 basis points sequentially. The improvement resulted primarily from a shift in product mix. We achieved positive operating income and EBITDA in the second quarter despite lower revenue, helped by lower operating expenses.
Notably, robust growth emerged from focus on the EMEA and U.S. region in Q2, counterbalanced by the absence of the onetime project in Asia that boosted last year’s Q2 results. Although the challenging year-over-year comparison obscured our original progress, we’re making headway in pivotal markets like Europe and the U.S. The Asia projects follow-on orders have been slower than expected, posing some variability in APAC sales. Looking at our performance regionally, the U.S. and European regions were the best-performing geographies representing about 80% of our total revenue in Q2 2023, up from about 63% from the same period last year. Diving into the numbers a little bit deeper. EMEA shown an increase of 30% versus Q2 last year. Year-to-date, the region grew by 2% versus the first half of 2022.
The outstanding growth in the second quarter was primarily due to a few military projects across Europe and a direct result of our past year’s investments in DACH, Iberia, Eastern Europe, France and the Netherlands. Senstar will keep investing in Europe to develop its market share, mainly in the targeted verticals which have overcome the COVID challenges and show high potential to steady growth. The U.S. displayed notable growth of 8% in Q2 and an impressive 22% year-to-date driven by correction business expansion and large demand in the targeted verticals through the whole region. Senstar is taking steps to reinforce its presence in the correction industry and to strengthen the U.S. sales team to further boost its presence in our largest territory and improve our market shares in utilities, energy, logistics and military projects in the region.
The U.S. remains a major market where Senstar expects long-term growth as our high-technology offering matches the demand in the whole region. The APAC region helped us last year when we had a slowdown of correction orders in the U.S., which was impacted by low government funding for projects. Senstar is looking closely in the current situation and is looking forward to reinforcing its efforts towards parts of Asia where the demand is currently well sustained. Shifting to our performance in the 4 key verticals. Collectively, our 4 key verticals delivered a 22% increase in billings year-over-year and represented about 60% of total billings. Senstar has aligned its resource to focus on the energy, utilities, correction and logistics verticals, leveraging our advanced solution and brand recognition.
These markets require technologically advanced solutions and, as a result, are a good fit for Senstar’s sensors and information management software. Let me comment on Senstar’s industry-leading product portfolio. We manufacture, customize and service our offerings delivering multilayer security solutions. Senstar products, synergized for comprehensive facility-level solutions, enhanced by AI and cutting-edge data visualization and video analytics. To this extent, Senstar will communicate shortly and introducing to the market this new generation of sensor technology. This unique and extremely innovative solution is taking a step forward in solving challenges in intrusion detection. Senstar team remains committed to expanding operational capacity, growing market share in key verticals, enriching our product line and boosting sales to existing and future customers.
In conclusion, we remain confident in our strategic direction and the steps we’re taking to expand our market share and drive growth. By focusing on high-value vertical markets, offering comprehensive vertical solutions and investing in research and development, we’re positioning ourselves for success. We appreciate your ongoing support. Now I will pass the call to our CFO, Tomer Hay, to review the financial results. Tomer, please go ahead.
Tomer Hay: Thank you, Fabien. Our reported revenues for the second quarter of 2023 was $8.4 million, a decrease of 7.5% compared with reported revenues of $9.1 million in the second quarter of 2022. As Fabien mentioned, the decline was mainly due to onetime project in the APAC region in Q2 2022. The geographic breakdown as a percentage of revenues for the second quarter of 2023 compared to the year ago quarter is as follows: North America including LatAm, 50% compared to 43%; Europe, 40% compared to 28%; and APAC, 10% compared to 29%. Second quarter reported gross margin was 60.7% of revenues compared to 60% last year. Our reported operating expenses were $5 million, a decrease of 6.1% from the prior year second quarter operating expenses of $5.4 million.
The year-over-year decrease in operating expenses was due primarily to a decrease in general and administrative expenses, which was partially offset by an increase in selling and marketing expenses compared to the year ago quarter. Our reported operating income for the second quarter was $83,000 compared to $107,000 in the year ago period. Financial expenses were $74,000 in the second quarter this year compared with $109,000 in the second quarter last year. Net loss attributed to Senstar Technologies shareholders in the quarter was $211,000 or $0.01 per share compared to net income of $164,000 or $0.01 per share in the second quarter of last year. The company’s reported EBITDA for the second quarter of 2023 was $290,000 compared to $460,000 in the second quarter of last year.
Cash and cash equivalents and short-term bank and restricted deposits were $11.9 million or $0.51 per share as of June 30, 2023. That concludes my remarks. Operator, we’d like to open the call to questions now.
Fabien Haubert: So on behalf of the management of Senstar, I’d like to thank you for your continued interest and long-term support of our business. I look forward to updating you next quarter. Have a good day.
Operator: Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
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