Senstar Technologies Corp (SNT) 2025 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Senstar Technologies third-quarter 2025 results conference call. (Operator Instructions) Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded.

I would now like to turn the call over to Corbin Woodhall of Hayden IR.

Corbin, would you like to begin?

Thanks, Senstar Technologies management for hosting today's call. With us on the call today are Mr. Fabien Halbert, Chief Executive Officer of Senstar Technologies; and Ms. Alicia Kelly, the Chief Financial Officer.

Fabien will summarize key financial and business highlights, followed by Alicia, who will review Senstar's financial results for the third quarter of 2025. We will then open the call for a question-and-answer session.

I would like to remind participants that all financial figures discussed today are in US dollars and all comparisons are on a year-over-year basis, unless otherwise indicated.

Before we start, I'd like to point out 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 results or events may differ materially from those projected including as a result of changing market trends, reduced demand, 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.

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 the company's website at www.senstar.com for the most directly comparable financial measures and related reconciliations.

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

Thank you, Corbin, and thank you to those joining us today to review Senstar Technologies third-quarter 2025 financial results.

We continue to deliver on our strategic objectives throughout the first nine months of 2025, while balancing targeted investments to drive long-term market share gains across our key verticals and geographies. Revenue from our four core verticals increased by 12% in aggregate year over year and 23% on a year-to-date basis with notable strength from the correction and energy verticals.

In parallel, our disciplined operating models generated gross margin above our targets as well as continued profitability and a growing cash balance with no debt. Those results reflect our differentiated technology and strong execution in addressing the needs of our customers. Our performance is driven by an unwavering focus on generating sustainable growth across our core and emerging verticals.

Now moving on to a review of quarterly highlights. Revenue in the third quarter was relatively flat compared to the same quarter last year, reflecting the impact of the [QLAS] contract in the prior year that did not reoccur. On a year-to-date basis, revenue increased by 8%. We are prioritizing repeatable deployments and scalable account growth and experiencing increasing market demands were advanced differentiated solutions as well as tailwinds from growing legislation around the security of critical infrastructure.

Our gross margin of over 67% reflects the differentiation power of Senstar Technology in the competitive markets and underscores the team's success in meeting the growing global demand for security modernization. We continue to invest in technological innovation to boost our competitive strength and gain market share in scalable verticals.

Consistent with prior quarters, we maintain rigorous in our margin objectives aimed at generating sustained profitability going forward. Operational leverage, combined with stable revenue generation, drove third-quarter net income to $1 million and $3.2 million year-to-date, a significant improvement versus the comparable nine-month period in 2024.

In terms of core geographic markets, Senstar diversified footprint continues to strengthen with North America delivering broad-based, double-digit gains across our key verticals. North America remains our largest market as a percentage of our sales, with revenue increasing by 17% in the third quarter, mainly due to continued momentum in the correction and utilities verticals as was the case in the prior quarter.

Revenue from the USA was particularly strong increasing by 22% in the third quarter, driven by the successful efforts of our business development team to gain market share across multiple high-growth verticals. Sales from Canada increased by 7% on a year-to-date basis, sustained by utilities and correction.

Our methodical investments in the EMEA region over the last several years, are positioning Senstar to capture new opportunities with key accounts in targeted verticals, transports, utilities, solar farms, logistics, and data centers are continuing to show momentum and robust customer adoption, leading to 15% revenue growth year-to-date.

The Asia Pacific region is stabilizing, following a decline in the second quarter of 2025. Our business development and key accounts strategy is starting to deliver new wins across data centers, utilities, correction, and logistics verticals. APAC remains a key market for Senstar and the achievements of our business development team are positioning the company for long-term gains in the region.

Moving on to product updates. Technological innovation is the cornerstone of our playbook to advance our competitive positioning and capture market share. Our advanced proprietary technology translated to impactful wins for our AI-powered intrusion detection systems, MultiSensor Cascade Plus, leveraging the first-generation Senstar MultiSensor Cascade Plus add support for daisy chaining up to 16 devices as well as power of Ethernet support for third-party devices, covering 100 meters distance for a single POE connection.

Our industry-leading technology virtually eliminates new nuisance alarm rates, optimizes total cost of ownership, and reduces installation and maintenance expenses, opening the door to significantly larger market opportunities. The momentum generated from MultiSensor is in full alignment with our focus on delivering disruptive security solution and the targeting of highly scalable projects and customers alike.

Turning to other strategic initiatives. As discussed on the prior earnings conference call, Senstar is actively working to broaden this addressable market by targeting the security of critical points within non-critical infrastructure, such as hospitals, museums, and educational institution and logistic facilities.

Our business development team is successfully expanding into new key accounts while deepening existing customer relationship through cross-selling. The team is fully ramped and increasingly converting pipeline opportunities into incremental sales across our target verticals and geographies.

The sales strategy of our business development team is centered on high-growth verticals, and appetite for complexity, opportunities for scalability worldwide, and leveraging our preexisting footprint. These efforts will be sustained as we build upon the development of large key accounts aimed at accelerating market share gains across high-potential sectors.

In summary, our third-quarter results demonstrate the resilience of our business model. Execution of our disciplined strategy is expanding our market presence, strengthening competitiveness in core verticals, and accelerating growth in high-value solutions while upholding our 60%-plus gross margin profile.

With the momentum generated throughout the first nine months of this year, and a growing pipeline of opportunities to capture, we reiterate our commitment to sustainable business and profitability. We remain dedicated to innovation, investing in next-generation security solutions that enhance our competitive position, and support customers worldwide.

Before turning the call to Alicia, I want to express my gratitude to our employees for the strong execution of our strategy to grow market share across key global verticals, to our valued customers for their continuous partnerships, and to our shareholders for their ongoing support.

Thank you for your attention. I will now turn the call over to Alicia for a review of the financial results in --

Thank you, Fabien. Our revenue for the third quarter of 2025 was $9.5 million, declining modestly by 2% compared to $9.7 million in the third quarter of 2024. On a year-to-date basis, revenue increased by 8%, driven by corrections, rapid gains in energy, coupled with growing momentum from utilities and data centers.

The US was the strongest performing geographic market in the quarter with revenue increasing by 22% year over year and 19% on a year-to-date basis versus the prior year period. Growth in the region was fueled by steady demand in corrections and energy verticals, along with new customer wins resulting from our business development team's efforts to grow market share.

Revenue from the EMEA region declined by 10% in the quarter, though increasing by 15% on a year-to-date basis. In the year ago quarter -- in the year was awarded multiple large contract wins, leading to challenging comparisons in the third quarter of this year. New customer wins and increased cross-selling with existing customers drove the performance in the first nine months of the year, most notable, the transport, utilities, renewable energy, and data center verticals.

Asia Pacific experienced continued pressure in the quarter, with sales declining by 14% primarily resulting from the phase out of a customer contract that did not contribute revenue in the current quarter. As Fabien discussed previously, the rate of decline improved as our business developed and focused on key account initiatives helped to secure strategic wins in data center, utilities, corrections, and logistics.

Similarly, revenue from Canada declined 21% in the quarter due to the normal quarterly fluctuations in the timing of contract awards. However, Canada's revenue increased 7% on a year-to-date basis on sustained traction with utility and correction verticals.

LATAM continues to represent a growth opportunity for Senstar. So the region remains smaller in terms of revenue contributions. As we have stated in prior quarters, demand for security modernization in LATAM remains and we continue to be well positioned to capitalize on opportunities in the region.

The geographical breakdown as a percentage of revenue for the third quarter of 2025 compared to the prior year quarter is as follows: North America, 51% versus 43%; EMEA, 36% versus 39%; APAC, 12% versus 14%; and all other regions were immaterial for both periods.

Third-quarter gross margin of 67.3% compared to 68% in the year ago quarter. The stability in gross margin is primarily the result of favorable product mix, diligent expense controls, and components and design optimization. Our operating expenses were $5.2 million, up 10% compared to $4.8 million in the prior year third quarter, and represented 55% of revenue versus 49.1% in a year-ago period.

The increase was primarily driven by G&A expense growth of 47% due to an exceptional cost association with the consulting engagement in support of strategic growth, in addition to targeted selling expense in core and emerging vertical end markets.

As a positive offset to research and development investments, we were awarded a one-time government subsidy for an AI development and initiative, validating our innovative technology solutions.

Relatively flat revenue and gross margin drove our operating income for the third quarter to $1.1 million, down 37% compared to $1.8 million in the year-ago period. Operating margin of 12.1% in the third quarter of 2025 compared to 18.8% in the year-ago period.

On a year-to-date basis, operating income increased by 31% to $3.1 million, reflecting the value of our platform, solid execution in a competitive market, and disciplined operating model. The company's EBITDA for the third quarter was $1.3 million compared to $2 million in the third quarter of last year, with EBITDA margins contracting to 13.9% from 20.7% in the year-ago quarter.

Financial income was $282,000 in the third quarter of this year compared to financial income of $111,000 in the third quarter of last year. This is mainly a non-cash accounting effect we regularly report on due to adjustments to the valuation of our monetary assets and liabilities, denominating currencies other than the functional currency of the operating entities in the group in accordance with GAAP.

Net income contributed to Senstar Technologies shareholders in the third quarter was $1 million or $0.04 per share compared to net income of $1.3 million or $0.06 per share in the third quarter of last year. Added to Senstar's operational contribution are the public platform expenses and amortization of intangible assets from historical acquisitions. The corporate expenses for the third quarter were approximately $890,000 compared to roughly $470,000 in a year-ago period.

Turning to the balance sheet. Cash and cash equivalents and short-term bank deposits as of September 30, 2020, were $21.7 million, or $0.93 per share. This compares to $20.6 million, or $0.88 per share as of December 31, 2024. The company had zero debt as of September 30, 2025.

Before opening the lines for Q&A, I'd like to remind those listening that we will be attending the 22nd Annual Security Investor Conference on December 17 and 18, posted by Raymond James in New York City. We encourage those who are interested to register with your Raymond James sales representative.

That concludes my remarks. Operator, we would like to open the call for questions now.

(Operator Instructions) Mike Disler, AMX Holdings.

Yes. Good afternoon, folks. Thanks for taking my quick question and comment. The only question I had on the financials was just on the corporate expense side. You went from, I don't know, $430,000, I think, to $980,000. I was just wondering why those -- why there was such a tremendous jump over 100% is the simple question.

Yes. So the corporate expenses went from $470,000 to $890,000 this quarter, and that would be the cost -- the abnormal costs that we were speaking about in terms of the consulting fees.

Okay. And the only other thing, I understand the consulting fee having been and I've been almost 30-year member of the collection of shareholders. Just quickly, the interesting part about the AI development, and I'm not on the bandwagon necessarily, but I think you guys already pursuing this in terms of not just sales -- this more a comment than a question, not just sales but partnerships.

I know that your business development sales folks are already directed this way and whether it's the protection of actual facilities or energy behind those facilities. I just know that your legacy utility companies, your current 20-year relationships, those folks are also dipping their toes into providing that energy, not just all these new new fangled [coil leaves], et cetera. So I know you're on this, and I just thought you had any comments. I'd be happy to it.

So related to AI in particular?

Yeah.

And the energy involved right, both of them.

Okay. So I'm not sure I'm going to try to -- I understand you're going to okay. We use today, there are three ways which AI crosses our world. The first way is that we have sensors which analyzes data coming from the sensors on fences buried.

And we're developing, of course, we're working with AI models who are helping, having 100% detection reducing next to zero the false alarm rate and helping us not only to classify the information to provide not only alarms, but what we call situational awareness. That's the number one.

The number two use of AI, like every company, we're taking steps ahead to use AI to smoothen our process to be quicker, faster, more efficient. And, of course, we're working and implementing, of course, following the compliance of all data protection or whatever to improve our performance.

On the third way, AI is translating into the building of a lot of new data centers. And those data centers that you refer need power. So yes, indeed, the development of AI worldwide does translate as we see it in a multiplication of the data centers in the complex signification of the data centers, which lead themselves to the multiplication of new power generation solar, it could be the small and modular reactors. It could be a different source of generation, which we intend to ensure the protection of both the data centers themselves and their use of power. Does it answer your question?

Yes, sir. Thank you, Fabien. Just one more comment is just that your business development group I'm sure is already doing this, is working in tandem in partnership with like-in-kind, meaning not only in using AI to improve Senstar's products, but to actually integrate the construction of these facilities with you folks at the desk helping them out and they helping you out. And I just think that kind of partnership would benefit both.

I'm not -- obviously, I'm a long-term player here. And I just wanted to -- I'm sure your people are doing this and I just thought I'd stress that some of those like-in-kind sit downs before shovels hit the ground are super helpful.

That's it. And I thank you for your continued success, and that's -- that's my comment.

Thank you very much. Thank you for your support and trust in our company.

Absolutely. Thank you.

Ken Liddy, Oppenheimer.

Hi. You mentioned in the call that the MultiSensor is showing some progress. I wanted to see what customers, what verticals are most interested in deploying the MultiSensor in their solution, the security solution.

Thank you for your question. So we have -- I can answer it -- we're not giving typically names of customers or whatever. But what I can tell is that -- we have two data MultiSensor. The first MultiSensor is the first generation is used as a stand-alone product.

And we have been basically mainly broadening a lot of POCs in many verticals to secure sallyports of prison to secure, I would say, sallyport entrances of, I would say, utilities, power generation, whatever. We have deployed it as well into to secure some logistic premises, and we're pushing it via distribution. So it's a bit hard to say everywhere has been going because we have been starting to push it for distribution.

So we have the water is starting to boil, generating more and more interest. And the product is broadly currently tested to be evaluated as a standard or whatsoever. And that is happening in a lot of verticals. Some we have access because we know of, some we do not see.

So yes, we see a movement happening here, which is very encouraging. On top of it, we have the MultiSensor daisy chains and that you can use as a vertical fense using different technology video, radar, PIR, accelerometer with all process with intelligence used in daisy chain like to secure a perimeter. And we have basically had some very interesting first wins. The product [mantra] is not long back, and we had some very interesting first wind in the data center world with this solution.

Okay. That's helpful. And if customers try to secure a prison, are they ordering one MultiSensor or several MultiSensors? How does that work?

So you have two cases. When a lot of critical infrastructure business are rather conservative and evaluating and standardizing some technologies because before it becomes authorized to bid with because you go through lots of public tenders and then so on. So in this case, they order typically one and two, to put in place to stage for several months. That's one thing.

When we work, it depends on the nature. Some are sold. It depends on the nature of the presence of the place. In some cases, you will have many sallyport to be guarded. And depending on the size and the configuration and what you want to use it for, you might do two, three, four, five multiply the number of site. Or very often what happens is that people use it to secure a spot which is showing some problems today and to replace different technologies.

In other words, to make it simple, when people build something from scratch, they will design it to run the product. That can take several weeks or months before it happens. The way it's been used so far if these products solve problems with other technology have difficulty to solve other than using in combination. They buy basically one, two of those to basically fix their current issue before redesigning their systems.

So when it's a fireman, firefighter use, it's going to be a couple of units. When they think long term, then the units can be higher.

Understood. And then one other question. Typically, the fourth quarter tends to be one of your two biggest quarters of the year. Do you see that being playing out that way this year?

I'm sorry, we're not giving forward-looking statements. I do regret there. It's not something we can share. What I can tell you is that the whole team is working as hard as they can to deliver the best result possible.

Is there a particular region or a vertical that is looking stronger than others at this point? The future, not for the quarter, I'm saying overall in your business.

Okay. Let's put it this way. I cannot give forward-looking statements. That being said, we have two strong areas which are North America, USA mainly, and Europe, which we want to keep boosting and investing a lot.

So we're working hard to develop those. On the verticals, our core verticals are heavily growing, and we want to keep basically investing on those. Some areas, we show some verticals more than the other. So it's hard to give you an answer per globally. But what we see is that, overall, those four verticals keep growing two digits even when the turnover is rather stable, which is really proving that we're adopting the right strategy.

Okay. Thank you.

Noam Nakash, IMA Value Fund.

Yeah. Hi, Fabien. Thank you for taking my question. The question is without the ending of the Asia Pacific contracts, what is the calculated growth for the company in the quarter?

It's hard to say. I'm afraid I cannot comment it. Let's put it this way. We had one very large one this last year, which did not reoccur. It's hard to provide a comment, and we're not getting into this level of details.

So let's put it this way, it was sufficiently material last year that it has been hard to compensate with the growth associated by other verticals.

And just another follow-up. Looking forward, you wrote about the operating model of 10% organic growth, do you think it's still the run rate going forward?

We are striving and fighting for it, Noam. That's the one thing I can tell you.

Okay. Thank you.

Thank you, Noam. Please, apologies, but we're not authorized to provide some of the forward statements. But what I can tell you is that the whole team has been and keep being extremely involved to work on developing a sustainable growth. Thank you, Noam,

Another follow-up, if I may.

Sure.

The consulting fees, do you believe they will support future growth?

At least, it's what we hope. We have invested substantial money to work on -- to work on different ways to grow. And absolutely, we're -- at least this investment we made -- how to build our growth is -- we hope is it will translate into some future growth. It's a hope, it's a wish, and we work hard on it.

Okay. Thank you.

Ken Liddy, Oppenheimer.

Hi. In your operating expenses, your general and administrative are up considerably in the quarter and for the year. Is that from hiring new people to develop your business?

So the major increase in our expenses has been in a large consulting fee to work on our future growth. On top of it, there are some investments being made, of course, to be able to sustain the growth. I will quote business development, where we have invested some, but I want to insist that most of this increase in operation came from G&A around this consultant fee around the growth focus.

And where -- Is there a specific region that is directed that you try to grow? Like is there a specific reason or specific vertical that you're trying to grow?

We want to keep growing globally. We believe that -- our goal is to grow globally by gaining market share in our verticals globally by basically increasing our footprint in our verticals, of course, working on cross-selling our solution by adding -- by combining technologies because we have a very ample portfolio. And on top of it, developing what we said, securing noncritical -- critical spots, excuse me, of noncritical infrastructure. But yes, globally, we want to address this growth globally.

Understood. And the consulting fee about how much was that in the quarter?

I'm afraid we cannot disclose in detail, but it was a substantial part of it -- vast majority of this expense rate.

And should we expect that in future quarters? Or is this more of a one time?

sS it's only what you call exceptional. We cannot comment whether there will be further expenses like that so far.

Okay. Thanks.

But it's not something which -- it is not something which we want to make structural, okay? It's exceptional, sometimes exceptional could reoccur.

Understood. Thanks for the clarification.

Thank you. There are no further questions at this time. Mr. Haubert, would you like to make your concluding statement?

Thank you. On behalf of Senstar's management, I would like to thank our investors for their interest and long-term support of our business. Have a good day.

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