Senstar Technologies (SNT) 6 Apr 212020 Q4 Earnings call transcript

Greetings and welcome to the Magal Security Systems Fourth Quarter and Year End 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brett Maas of Hayden IR. Thank you, sir.

You may begin.

operator. you, Thank to call like call. of to you I thank welcome Magal’s conference and this management the would all for hosting With CFO. today Magal us call Sharon, on of CEO is and Dror Vinokur, Kobi the Kobi Dror will and year. fourth review financial summarize the financial of and who followed performance business Magal’s quarter will highlights, key by full

answers. will open then the We call to questions and

events or those may as statements like cannot well clients Before point Securities in industry. out predictions systems events call I regarding coronavirus, update of the company not changing conference does documents materially Exchange forward-looking and including other would only including filed to operations demand occur. any reduced with performance on the fact company. Commission. differ effect result our contain start, guarantee the risks trends, unanticipated or competitive that obligation a we nature this the projections are or as the with may the our will of These the as to future future in Actual that and information. assume Magal other unknown market from that identified statements they Magal and of of The security projected, results and

Reg during the press in non-GAAP financial in most non-GAAP lieu course of that GAAP requirements. have we financial In comparable to considered with note call, addition, addition we GAAP certain the our in to, directly of measures. reconciled measures measures, describe measures be will conference this accordance in which should release, financial comparable our G Please

to I to measures related most to the would refer reconciliations. please our And over at website You the financial that, magalsecurity.com and Dror, ahead. call directly like turn go with Dror. comparable can for also

today. solid Security XXXX well balance company’s a challenges like growth, backlog friends third strength productive everyone healthy. welcome a the strong the Magal to your revenue increase hope successful year across million. for the and with XX% margin thank in higher our increased customer COVID-XX and our orders. team you quarter income to I’d our finished the joining due and to due gross The was you, by where faced lower and the are delivered markets. Thank to performance all a the their Integrated XX%, call fulfillment quarter margin led record and revenue reflects I and of Brett. $XX.X sheet XXXX, gross quarter us the ability global that pivot Okay. that of delayed to XX% pandemic, we and Solutions quarter. helped leadership and expenses of in vertical The Magal to sales slightly in engagement Fourth operating operating families

cycle the Senstar’s par margin The delivered a with XX% we on fourth As time at momentum. quarter, from begun year. we historically delivery, meaning business with purchase Senstar’s million has in with business delivered XX% EBITDA revenue quarter up short from $XX.X demonstrates result, which to of year. was the lot operational solution Senstar backlog this pipeline the been year quarter segment. million strength was of gross $X.X a segment the EBITDA, of order margin. million, last fourth XX% product $X.X the last have

Product despite evidenced Arnon Last challenges and a new shareholders leading the and success of heads equivalents to Solutions for overview the division, Senstar, with during businesses Project expense division at the Haubert. year. EBITDA Magal division, cash Mr. teams primarily year. and After X%, one-time saw XXXX, on the Mr. our Fabian year in new of job distribution cash totaling numerous control For $XX in million to delivering of great lending million XXXX, division the we par we has last a the we to no $XX full by debt. Integration did Shifting cash maintained and and accounts throughout new year, COVID-XX business with ended an we March, business, their tight new due sustained fronts. December on the XXXX disruptions appointed The for Bram; and the

developed footprint, traction we in We were contracts strategic Integrated sizable install the system the productive and awarded where XXXX principal has able for in countries momentum. purchase and team of team our Africa. in contracts and structure significant received we in with have many state-of-the-art Magal Solutions ground the Turnkey verticals locations. in in in our environment. on new territory one for rendered last government’s for Africa a showed fall new to located strong economically contract focus difficult the good for team and our Seaport We largest markets, project and to security four in XXXX, orders pipeline. place. these a infrastructure With projects members executives And pivot system in African their the security capabilities management project. design global integrated continue installation European saw critical a new in most closed strategic was streamlined mid-XXXX, By sites

recurring the VIP team Senstar Integrated Symphony, Solutions Magal’s project features FORTIS addition, turnkey the residence the command and a control. maintenance In VMS, Mexican that major for Senstar a contract African X-year and a support a won for customer. landed from Magal

effective balance second execution close operation shareholders’ the highly of Our project was awarded growth users working security support end model Last already margin system and and high-profile for key announced standard strengthen to Integrated effective to to was flexibility and this attractive sheet to with decisions. to our continue with of military contribution critical provide industry is in as to winning strategy. availability. the quarter improve make that robust a capabilities standalone long-term world. equipment is product continuously real-time February value and scope a transactional chosen divestiture quality, the is business of and our by In customer customers new long-term business further The gross large offering. sets deliver logistics, Technology margin XXXX. and The of Senstar of will allows was Senstar scalable personnel team energy of rich Solutions contract base with differentiator that Senstar military division. efficiency, was secure solutions correctional and the technology XXXX. innovation Key allow and deal Senstar – to XXXX, the line to contract throughout the the strong to we business divesture products operational the to August, a assets winning gross Senstar’s for entity. our the visibility improve an our our sectors that provide The develop throughout differentiation infrastructure new technical deployable Senstar anticipated

verticals. are in our market We focus our its focusing four our expanding provides share, resources each to security. verticals, and on efforts developing committed and beyond Senstar unique particularly technology of industry Senstar’s security In leading solution

invest set to performance are each is measure features, XXXX, sales and and goal to the products vertical. Senstar services security security team per maximizing while improve sources, our pipelines channels. sales and performance tailored software related software sales on contributor, technical intent in software capabilities come vertical we continue solution Product maintenance. Senstar’s but to solutions revenue sales activity and in physical expand resources in we incentivizing the the stream to Senstar’s growth In solution has to is indicators, implementing KPIs KPIs sell core key into recurring for vertical. from with vertical. that personal The to adjacent well. product to and the revenue Management is Our each develop dedicated Senstar they create three deliver largest targets and new as

security together a solutions defining for could example effective and and work efficient system. are video Senstar our are would By system indicators. Senstar full variety are with a APIs well with or Intrusion System, hardware be panel alarm analytics easy or to and or software design with for security customers and solution that We to to software VMS of and designed offering be the systems. Perimeter solutions solutions full easy STKs, and management wide provide install integration complex PIDS, with existing This selling Detection features software simple hardware. An kit,

increased fusion flexibility access the XXXX was video either is platform Symphony to will of capability X expertise incorporates and which The sensor or solution. data event with that crucial the operation an reduced intelligently common to data a year security include real-time low This combined develop control with unmatched upcoming system and management in. Symphony, optimize operational The sensor for we video that decision efficiency algorithm in-house competitive edge testing key analytics. management acquiring are would for video invest scalable analytics. another differentiators engine, software. release ready with information and performance, all-in-one Symphony highly its This continue that an key in is decision-making. technology are Our and to Symphony built-in improve and system our open are we that technology differentiator features and our next-generation of technology for working would intelligence role-based with actions is customers. risk level

working We an in M&A and on are continued closing currently R&D deal. to invest

industry its name their sheet. this and and I anticipate work and and the team offering moves commitment the our in as to And stronger of continue team value we as future a strategy. entire hand will the grow the strategic to of growth I security for organically appreciate at summarize Solutions our their performance results. In our The sector the company acquisition Kobi, optimize resolved. ahead. is global improve hard under to we leverage our brand continue Magal and wait With over to thank exceptional with well I enhanced strategic Senstar close will Kobi strong to the with some is Magal the dedication strategic technology we Integration pin a will timing positioned to go rebrand plan Post would once business global position We to of it for markets. in the and our a summary, issues profitability. initiatives, like Aeronautics. Senstar financial new please to to in would time leading and associated our to divestiture, logo. microphone this combined acquisition like hard XXXX. incremental However, balance After leadership now the growth achieve legal be transaction, platform division to to over down remain have M&A,

quarter X%; prior revenue orders a the quarters. percentage the and fulfillment versus product Thank with timing Africa The fourth quarter Israel, and increase was of delayed XX% XX%; North XX%; following: versus you, of Dror. in versus of The and was breakout due of of versus XXXX. Revenue to The XX% revenue $XX.X primarily X% million XX% XX% X% the XX%; versus as revenue rest in Integrated XXXX XX% as fourth from of revenue Asia Solutions XX% for quarter. between breakdown compared of XX%. million XX%; product the quarter the the America, $XX.X Europe, in America, Senstar’s increased projects for geographic to world, the fourth was versus the Latin Magal’s XX%

revenue division project with or quarter regions. biased percentage revenue mix As as was million, gross due decreased previous XXXX. COVID I the division. due of XXXX, the fourth by in million quarter, from XX% while the profit quarter Solutions gross projects in or And this the fulfillments in Revenue the from margin related to some profit compared gross the margin XX% of Integrated to was Senstar projects a was to XX% the versus revenue weakness and a APAC Fourth the fourth XX% order The of $XX.X unusually affected product from mix of projects. quarter quarters. $XX.X versus lower primarily gross included larger EMEA result, sales towards quarter Magal’s coming revenue mentioned, by Integrated of increased the catch-up the product Solutions

loss compared $X.X income selling the current operational $X.X to and primarily compared quarter some was quarter coupled year. to $X XXXX XX.X% of of fourth million, income Financial to net to expenses operating This which the in the lower one-time $X.X improved quarter with combination compared denominated R&D impact the prior The EBITDA compared lower fourth share benefited Operating $XXX,XXX and in improved were the the attributable the an the quarter profit compared in to or of fourth to of the primarily revenue monetary expenses reduction in a the on per was marketing XXXX. depreciation XX.X% in were loss new dollar which $X.XX representing expenses quarter rate taxes or million. in operating XXXX. is higher quarter of by fourth margin the expense X.X% representing X $X.X in $X.XX assets current operating of selling the The $X a provisions. was Fourth fourth marketing related of gross due Net and expenses EBITDA in the the XXXX. the the EBITDA Israeli income valuation U.S. $X.X expenses the in $X.X governmental subsidies. of an shekel Our is Magal’s and expenses impacted tax quarter of to a were held R&D against effective million, from of versus of company. the and operating efficiencies, increase income shareholders expenses by $X.X period. last fourth primarily and with XXXX, of million tax share period, jurisdictions from due quarter was related various Operating of the in fourth the blended several in $X.X million to a million to quarter million, also attributable per reduction margin year’s million to million driven XXXX. of USD million

revenue Europe, full X% The XX%; to $XX.X breakdown in was world, primarily the of and as XX% $XX.X full The Africa, percentage results, the decline pandemic. margin a versus revenue for compared or by which million Integrated Solutions a challenges year compared year, lower million product North the XX%; for For the Israel, XXXX to was follows: due America, $XX.X X% year. versus XX%; while due X%, lower versus of was as the year-over-year throughout division versus COVID-XX was and America, Latin year Revenue product to XX%; from XX% gross last $XX.X to business Magal’s Senstar is year X%; XXXX of gross revenue XX% and gross The prior December revenue increased million, products. with XX% ended for disruptions XX, Solutions versus of division the revenue The geographic versus XX% the XXXX, mainly and the product versus XX% related XXXX The the X% XX.X% margin gross respectively due profit margin breakdown revenue was Senstar division million of XX.X% rest year-over-year. division margin. Senstar carries XX% by decreased Magal representing division the Integrated Solutions year. contribution gross from to Asia division, lower between Solutions and XX%. division Integrated Integrated Magal’s projects decreased the

with $X.XX Our attributable $X.X December million cash debt year. compared of XXXX. of share revenue the shareholders share million distribution operating XXXX. the from XXXX compared Net or million due to compared short-term described operating and XXXX, net of compared tax of several due of in in EBITDA provisions. was $X.X to of largely in deposits XXXX. above, expenses. as XX, rate to XXXX. tax tax of tax an operating XXXX. net cash to $X shareholders operating million $X.X was lower higher and with of related income debt deposits, a $X.XX XX.X% primarily short-term cash income with the million compared The decline or million, to $X.X effective blended restricted financial million the December $XX.X income Magal’s offset share X.X% and in contribution, reduction to bank or $X.X $XX.X was as of XX, per $X.XX bank and is short-term margin our of million, XXXX. $XX.X as $XX payment The expenses gross or was of margin EBITDA combination million million, of December the $X.X expense expense various per a in related expense income per one-time restricted and Cash, expense million an was Cash, last decrease decrease to primarily in The The $X representing deposits, jurisdictions non-cash XXXX. totaling representing million was $X.XX was Operating a deposits for and margin lower XX, attributable $XX.X lower net by EBITDA balance XXXX in to December million, was in X% share XXXX, per deposits In with

Before years. has higher the delivered the closing the segment we of high call. division to profit. organically EBITDA The that the prior conference of to consolidated the February be consolidated move would on by reasons. of revenue in and The of continue to which initially Product had anticipated contribution due percentage with will discussed as approximately margin which, following continue carried the the upon the revenue. a contribution we anticipate a higher the We the company, the will of operating high based company Senstar’s XX% a project percentage approximately to the like primarily revenue, transaction expenses. two-third the Q&A, the revenue divesture company, integration line yet is on operating gross of of remind on have carrying represented It I business expenses listeners despite XX Senstar gross sales of Historically, a growing will be following profile to

be structure the two First, current and are by the will sensor company Division borne corporate public divisions. the shared between while they only, Products costs currently

see financial expenses is consolidated out higher scalable gross the and with growing and margin. operating the of revenue This will company. the characteristic percentage of R&D tech higher to marketing we compared a business of Secondly, and as sales line in

of crucial the portfolio last represented compared has revenue broad specifically of growth. Looking Senstar’s products X% to months R&D been at the level, its of XX its revenue consolidated as Senstar’s company. expense during XX% to technology-rich R&D budget R&D supported the and

mentioned, investment As prioritizing Dror essential is because for continue differentiator we it R&D Senstar.

for operating As divesture increase the revenue of coming as project revenue we expenses the anticipate company, a the a only of revenue Senstar. following result, in the from percentage with and

continued on EBITDA expect the will experience contribution Although a for revenue profitability due company’s continuous for the to Senstar’s teens. to historically assuming the the the of line. leverage which Due margin contribution of is of margin included up expected for XX% corporate the With this been business the high levels, high the the operating basis scales, company, In EBITDA to primarily gross the exceed to EBITDA high we prior overall consolidated the the of range parallel, continue XXXX of gross as and improvement mid gross of year in decline, that the gross in business. us excluding corporate in organic level margin grow allowing the expenses, and leverage, we anticipate growth, be that Senstar’s and company, expense. slight to overall a temporary potential the could X% and bottom profit years the margin, including operational couple the to in to current range next operating project and improve to margin will to have of margin X% company the structure, fall

Senstar, Given flow cash also positive anticipate the company. the CapEx low for we for

our strategic In growth plan to addition, acquisitions. we augment with

metrics the of million, respectfully. driving in respectfully; would million and last the $X.X be our platform million the shareholder of focused XXXX, and $XX X million contribution XXXX For from and XXXX the project and million costs million public $X.X gross in comparison and and margin cash. and value the public the following: remain $XX.X illustrative EBITDA divested to XXXX, of after XX% look greatest revenue EBITDA on We company’s purposes, as $X.X for our in years platform $X.X would company XX%; past, division financial

current of while the expertise; on prioritize that of growth. use headcount experience XXXX, technology benefiting bringing unchanged, critical innovation shareholders. to targets, to our Throughout R&D and dividends supporting to team and which leverages our continue retaining pipeline our new I evaluating our investments, our M&A, existing the remained discussed capabilities mostly employee We cash finally, continuing earlier, M&A

the transaction sheet gives balance the strengthens maintain cash post to immediately a us to a balance sufficient strong long-term company sheet, discontinued strategy. transaction execute and XXXX capital my QX the growth high will with even will sheet balance we net Turning our our position. divestiture, though Solutions end The is by report remarks. be results, reported When financial Integrated of the expected concludes second quarter. close the to operations, That as Magal

questions are your now. to happy take Operator? We

I you, Instructions] to no am at question. it have did we [Operator a questions you. turn like Thank Thank I this we floor. now gentlemen, would time. appears get sorry, the

question Holdings. with from with [indiscernible] question. Mike your Our Please is Disler proceed

afternoon, gentlemen. call taking for Good the Thanks again. Yes.

questions. couple of Just quick a

First, was comment seems any I be the to quarter on QX provide first just wondering just since you looked? can books, in if how comment,

too Hi, quarter Dror. at little a It’s about stage. report Mike, bit it’s early anything to this the

it And wish those of long-term have in Senstar based the my those rather as sheet same that than they understand key out, there. problem you which item, capital I you’ve incentivize said in to the the obviously, you use your that of employees, spin on personnel to NewCo whatever do? so least think, the quite for price already keeping Okay, timing done part part minutes for was alright. of issue. – – I dividends, think prudent interim, wouldn’t on regarding which incentive large the at said something we about balance just the And is the to terms books, the key be two, X, Kobi, as more folks the pure you hold the with options the of use question, outlay in the it that of I a December. shareholders performance No enough number of like call future cash X to ago. it, what cash third retain But cash acquisition, that’s

increase certain we value. and a division, to ESOP company. public divestiture Mike. After have Magal, in the the and the Project do results program, remains the the of to our obviously, We an deliver stock incentivize combination. employees, benefit tool Hi, from ESOP company, in It’s plan have definitely leadership a this

ahead. go No,

be thought me of a just And folks, just – hard goals No, plan. talking of the there great go-forward but put C-suite, work the seems those a that necessarily not those by clearly better, key getting by cash was addition instrumental they stronger. personnel. that I the at. the on on revenue achieve table, was the terms through only to the of growth there, the and to to years. mechanism I some have are building all their more and X can options next it the in going to just cash, up if right accumulate it’s They to they allure on next think And put remain stay I over program therefore, investing aligning time. that so… you’re satisfaction are That and guy aligning I but to aware personal exists. interest which are bigger, basis, those so an driving I’m further Sorry. was page X over long-term incentive to in ESOP the in something That’s R&D captivated

course, point during proud capabilities, other unchanged. and touching if very the does – my valid. So very cash our teams, employees, in the first all, R&D retaining remember, probably any take afford technology, key your that Mike, also of and do uncertainty impact comments actions in crisis, targeted of with different plan reference we our rather related we didn’t of COVID-XX We – we companies, are that our human managerial company And have about the XXXX could unlike teams to on reaction, as we pandemic marketing, to And entire you during our afford commercial sheet, of is lots to the of a especially basically afford balance right? the crisis, XXXX remained the when action QX stuff could actually say entire actually, commercial, it. than could my

year but I of My think navigating superior job and my Magal, entire just the to a two be quarter that I of fact you to as going – there a that the your team size done to a I you well. you a able potential shareholder. of closing was proud the and a capabilities, comment aggressively were throw afloat forward, company that decimation not to but Yes. testament thought the for should is I think, I And be. have move out real thought and just be a last I’m stay

Finally, update your will on information, the call. good I – to there I next I the trials I’ll your be tribulations. and await thank you keep news forward work. positive just Hopefully, for up some much look acquisition time. conference the some very and

Thank Mike. very Thanks. you much,

Okay.

question comes question. proceed Please Sal line Investor. a [indiscernible], of Private from next your Our the with

noted for us an Good of on or morning, tax gentlemen. tax Thanks rate. Can dividend an instruction give Hey, withheld a update if December was letter posted an taking had exemption the Magal was on would foreign call. status be question letter? on the XXXX. Magal on website that to It my you that see the I one just a that could in there quick instruction for qualify lower the

Yes.

this. are delay So some unfortunately, on running we

a reduction. Israeli tax profit Israeli the authority basically split regards holidays. were this COVID instruction to the And due dividends by the issued between and are be – authorities to distribution side unfortunately, or – is capital to We ruling delays on subject letter to there distribution the tax the multiple with of is of that first to lots closures it the and was related

we publish some tax remaining have We very and shareholders letter next direction month hard the or with the our distribution. part so, advisers. regards there, to that are could the pushing with And the to within we we’ll hope really the this of

much. Thank you very

welcome. are You

closing I like at for now back would questions turn We comments. over to time. management the have to this no further floor

thank Have healthy. stay our quarter. management for look Bye. Thank and you, operator. continued Magal, long-term we’d next interest forward good updating of a your to day, and you business. On the support you behalf I to of like of

and this teleconference. conclude Ladies gentlemen, today’s does

You lines at may your day. Thank you disconnect this a participation, have time. and wonderful for your