Senstar Technologies Corporation (SNT) Earnings Call Transcript & Summary

Good day, and welcome to the second Annual Winter Wonderland Best Ideas Conference. The first presenting company is Senstar Technologies. [Operator Instructions] I'd now like to turn the floor over to today's host, Dror Sharon, CEO of Senstar Technologies. Sir, the floor is yours.

Thank you very much. So good morning, everyone, from Sensor Technologies. I'll run quick through the slides, so we'll have time for questions if you have some. So Senstar Technologies, it's a well-known company in the perimeter intrusion detection arena, more than 40 years in the market, started PIDS, perimeter intrusion detection systems provider. And 6, 7 years ago, we acquired also a software company. And today, we are providing our different customers, which I'll elaborate in a moment, a full suite of solutions, protecting technology, protecting perimeter, including the combination of sensors and software together. Earning in very nice margins and EBITDA with 50% market in -- of our revenue comes from the North America. And the second biggest market is EMEA, Europe and the Middle East. And the last one is APAC. We started also looking into Latin America as a market for us. So as you can see from this slide, the company is spreaded all over the world. It supported us a lot during the last 2 years with the pandemic around us. Since we have so many people as feet on the ground, it made our life very easier, very easy because we were close to the customers, close to the installations. We have 50% of our force is facing customers through the sales, through the marketing and technical support. Our main location today is a company in Canada called Senstar. Senstar has 2 locations in Canada. The main one is in Ottawa. Over there, we are developing our hardware solutions, manufacturing it over there, marketing sits in Ottawa. The -- and all the operation is over there. We have another software house with more than 40 developers in Toronto. And the rest of the company is all over the world with an office in Germany, in the Philippines, in China, people in the U.K., in Dubai, Malaysia, Singapore and, of course, all over the U.S. with sales and technical support guys. Last year, during -- actually, in June 2021, we divest our -- let me start differently. The company used to call Magal. Magal was a NASDAQ-traded company managed from Israel. Under Magal, we had 2 divisions. One division did turnkey solutions, mainly for the homeland security market in different verticals and the Senstar dealt with the sensors and the software. We managed those 2 divisions as a stand-alone companies. And in June 2021, we sold the project division to one of the big integrators in Israel. And currently, Senstar Technologies, which is the NASDAQ-traded company owns Senstar in Canada, which is the main asset. And we are looking to increase our offering through M&A and through other ways that we'll elaborate in a moment. You can see briefly from the numbers that we have a very strong balance sheet after distributing in the last year or so, something like $65 million in dividends, part of it from profit, part of it, what we got from the sales of the Magal division. We still have close to $25 million in cash for -- to support our growth in the future. The margins that we are -- the gross margins of the company is above 60%. And Senstar Technologies EBITDA is around 13%, but if you are taking only Senstar as the company in Canada, we are touching the 20 already. So it's a very strong company also financial-wise. Leadership team is on top of me and Tomer, which is our CFO. In this call, we have our Legal Counsel in Israel, all 2 of us are sitting in Israel, managing the public company. And the main team that you see below, Fabien is our Managing Director for the Senstar Corporation. Alicia is our VP Finance; and Jeremy, our CTO and COO of the company. Well known, well organized, and they are managing Senstar itself on the day-to-day from Ottawa. The company is selling to different verticals, but we are focusing our marketing and R&D efforts in those 4 highlighted verticals: the energy, correction, utilities and logistics. We found over the years that those are the places where we are very strong in. We have a very nice customer base over there, well known in the market with our brand, and we keep developing our solutions and the technology towards those 4 verticals, although we are selling too many others that you see around us. But the idea is to focus the sales team in those 4 verticals because we see that we are -- we have our main added value in those areas. The next slide shows -- just give me a moment. Okay. This is actually in one slide, you see what is our offering. We have almost all the technologies that related to perimeter protection. Actually, Senstar is the biggest supplier today in the world for those kind of sensors. And from vibration sensors, microwave, unique solutions based on magnetic fields, fiber optics that can detect vibration on the fence or on the ground. And everything is combined into our software, which is a software itself. It's an SMS, security management solution, that combines the VMS, video management software, managing all the cameras in the site and access control, again, managing the entrance to the site. And on top of it, we have analytics, everything is being developed in-house. And as I said previously, we are focusing the development towards the 4 verticals that we described earlier. Moving slow. So again, the company is a 40 years old company established in early '90s in Ottawa. Since then, we acquired more and more technologies and more companies worldwide. And Senstar became the leader of the -- first, the PIDS, and lately also the leader in combining -- or I think we are the only one that can combine those software capabilities with Senstar's capabilities as well. And you'll see later, but we are today providing our -- part of our offering is a combination of sensors and software. It's [indiscernible] solution that we are selling to our either end users or system integrators. So as the leader in this market, one of the leaders in this market, we invest a lot of money into -- back into the company for R&D. Only in the last 3 years, we put more than $10 million back into the R&D department. Again, innovative solutions that brings new sensors, unique sensors that combines video, radars, vibration, sound, everything. We are doing it in-house. And of course, everything is combined and presented and analyzed through our SMS, our software solution to the end users. We talked about it. So this is the first line of protection of any facility. It's the fence itself. So we are not providing the fence, but we are providing all the technology that is -- that sits on the fence itself. So as I said earlier, all the sensors that are available today in the market, we are developing in-house, manufacturing it in-house, and selling it to our system integrators and our end users. And everything is combined with the common operation platform, which is our SMS, security management solution, which is an open platform. You can attach to it, any camera, any radar, access control with our team, which does the integration of those sensors into the software. And lately, end of 2021, we added also what we call the fusion capabilities where we combine and analyze the inputs that are coming from different sensors, either it's PIDS, the perimeter intrusion detection systems or cameras or radars or any other sensors that you have on the fence or new perimeter, whether it's virtual fence or real fence. And by analyzing it and combining the different inputs from different sensors, we are reducing dramatically the false alarms in those areas, which make the system very reliable one. Of course, people are not jumping to any alarm that they get from their perimeter unless the systems did this combination of at least 2 different alarms and know that it is a real threat. So those are the markets where we are playing. The video management and access control are huge markets, although they are red oceans, they are very big, there is place for everyone. And the PIDS is a smaller one, a little bit less than $1 billion market. But where we see ourselves or where we see our main lucrative solution is the combination of those 3 circles over there. We are -- no, only a few companies. I think we are the main one that provides the combination under one platform of the access control, the video management, of course, the system -- the sensors on the fence. Presenting it to the end user in a very professional way, very easy to use way. Our growth drivers are 4 of those. Again, first, we are focusing on our 4 verticals. The second one, we continue to invest in our products, software and solutions. Again, it's a product separately, software separately and of course, the combination of both of them, what we call the solution. And the third one is we are continuously increasing our distribution channels in different areas, already a nice portion of the -- of our revenue comes from distributors. And the last one, we are looking to add more and more technologies either by internal development or through different acquisitions. We talked about those 4 different markets. But on top of this security that we are providing to those markets, we are now increasing our offering to be involved with operation as well. Logistics, for example, which we all know that this market is booming. We invest lots of money and gives -- already, we gave already some solutions to different major logistics suppliers worldwide, where we are managing with our software, not only the cameras that secure the perimeter, but we are also taking the inputs from the cameras inside the warehouses, and we know how to manage parcel movement. So it's totally not security, but the platform is the same. We are already combining the inputs from the video cameras. We know how to get inputs from the different conveyors. We know how to read barcodes and license plates of containers -- is being managed through our security management solution. And basically, it's now -- it became now not only security, it became also the main tool for logistics providers. And we already did it for 2 main logistics providers in Europe, pretty -- we cannot share the names, unfortunately, but it's a very nice solution working since 2020 very smoothly. I'll run with the slides since we don't have too much time. We discussed that 50% of the customers are facing -- 50% of our employees are facing customers. So sales, marketing, technical support, working with different partners. You see the names on the right side, but there are many, many others that we cannot share yet because of a different agreement that we have with them. We talked about our future lines. And again, the way we see the video and the way the software and sensors, this is where we are going. Again, increasing our offering dramatically by combining the 2 capabilities that we have in-house and the way we develop our sensors is to meet the software and customers' requirements. Moving on, our strategy to go -- to increase our revenue and profit is, again, by increasing our offering on different software, different hardware. Looking into new geographies, we discussed that we open now in Latin America. We have a team in Mexico that now is increasing the revenues from this area. And of course, we keep continuing for the right acquisitions to acquire more technology and more market share. Midterm goals that we have in the company. So we keep pushing everyone to increase the revenue organically in at least 10%. During the pandemic, it was a little bit more challenging, but we -- the company didn't shrink, we just grew, but not in 10%, a little bit less, but it's still growing. Gross margins are -- we're keeping it above 60%, which is excellent and the EBITDA margin, you can look in our data. It's a public company. So its EBITDA margin are very nice and high and growing. This is very important. I said already we are investing lots of money in R&D. Distributed in the last year or 2 years, $65 million in dividend. So the shareholders already lots of money. And to summarize everything before moving to your questions, if any. So the company is a technology-driven company with a different -- with the differentiating technology because we are combining the sensors and the software together, very high scalable business model. Because with the current sales teams and the R&D teams, we can increase the revenues without adding more and more employees to it. EBITDA in high teens, nice cash equating and very low CapEx that we have to do in the coming today. So I'm done, and I'll move to Q&A if you have one.

Okay. So the first question, maybe, Tomer, you can answer it. And do you break down the revenue mix of your vertical market?

So thanks, Dror. We do have the data. We do break revenue mix between the verticals. It's not a public information; however, we do measuring ourselves, and we do aim to increase it year-over-year between management and as putting those goals to the sales team.

Thanks. And today, we get something like almost 50% now of the revenue comes from those 4 verticals. Because again, we're increasing and measuring ourselves on those -- on our achievements in those verticals. The next question that I have is, do you have a direct sales force? How much goes for the channels today? So of course, we have, as I said, 50% of the company is facing customers. So around 40 to 50 people are dealing only with sales. On top of it, we have another nice technical team that again spreaded all over the world. So it's also some kind of sales team. They are doing this -- they are doing the presales and the post-sales support. And of course, selling themselves because once the technical guy is sitting with the customer, they are creating sales as well. The next question that we have, the market has been very volatile. In the last few months, Senstar has lost roughly half its market value. Is there any particular reason for the down performance? Contract losses, bad earning or any downgrades? Are there any majority shareholders? So first, the major shareholder is private equity in Israel called FIMI, First Israeli Mezzanine Investor. The biggest private equity in Israel. They own something like 43% of our shares. And of course, they are the main shareholders. We lost some market, but -- we lost some market value, but I think it's not because of -- we didn't lose any major projects. Things are moving pretty much as expected. The company is growing profitable. There's no major issue that or major reason why the market value went down. It looks like the company today is undervalued.