Alarum Technologies - Earnings Call - Q4 2024

Transcript

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Shai Avnit (CFO)

77% from 74.3% in 2023. The change in these gross margin metrics is related to our strategic decision to enhance our IT network so we can address our customers' demand for stability, responsiveness, and speed. Operating expenses in the fourth quarter of 2024 were $5 million compared to $3.6 million in the fourth quarter of 2023. The quarterly change was driven mainly by the increase in operations, primarily employee salary-related costs. On an annual basis, 2024 operating expenses were down to $17.2 million from $24.3 million in 2023. This was mainly due to last year's impairment costs of goodwill and intangible assets and the strategic decision to scale down of the company's consumer internet access business operations. In the fourth quarter of 2024, we recorded financial income of $200,000 compared to an expense of $100,000 in the fourth quarter of 2023.

For the full year 2024, we recorded financial income of $300,000 compared to a financial expense of $300,000 last year. The shift to financial income in the fourth quarter and full year 2024 was mainly driven by the higher interest income from cash deposits and lower financial expenses related to short and long-term loans. IFRS net profit was $400,000 for the fourth quarter of 2024 compared to a net profit of $1.7 million in the fourth quarter of 2023, mainly correlated to the increase in operating expenses. 2024 IFRS net profit increased to a record of $5.8 million from a net loss of $5.6 million in 2023, mainly the result of revenue growth and last year's impairment cost of goodwill and intangible assets, partially offset by the increase in operating expenses.

Adjusted EBITDA in the fourth quarter of 2024 was $1.5 million compared to $2.2 million in the corresponding quarter last year. 2024 annual adjusted EBITDA was a record $9.4 million, up from $5.2 million in 2023. Our current share count is 69.3 million ordinary shares, or 6.9 million ADSs. On a fully diluted basis, the count is 80 million ordinary shares, or 8 million ADSs. The fourth quarter of 2024 basic earnings per share were $0.20 per ADS on non-IFRS basis, compared to $0.38 in the fourth quarter of 2023. On an annual basis, the 2024 basic earnings per ADS rose to $1.26 on non-IFRS basis, up from a loss of $1.14 in 2023. As of December 31st, 2024, the company's shareholders' equity doubled to a record of $26.4 million from $13.2 million on December 31st, 2023.

The annual net profit, together with warrants and options exercises, contributed to this $13.2 million increase. The company's cash equivalents and cash investments balance, including accrued interest at the end of December 2024, were up to $25 million from $10.9 million on December 31st, 2023. Our solid cash position allows us to sustain strategic investments and drive responsible business growth. Now to our guidance for the first quarter of 2025. As we look ahead, our revenue guidance reflects the ongoing shifts in our market. We anticipate that the first quarter of 2025 revenue to range at $7.3 million, ±3%. The first quarter of 2025 adjusted EBITDA is expected to range from $0.8 million-$1.2 million.

We are navigating a period of adjustment as the industry evolves and while short-term revenue growth may be lower than in previous quarters, we remain focused on the bigger picture and on generating long-term and sustainable value for the company's stakeholders. With that, I'll hand the call back over to Shachar.

Shachar Daniel (CEO)

Thank you, Shai. AI opportunity is unfolding, and we are strategically positioning Alarum to be at the heart of this new world. As demand for data and scale increases, and as AI continues to evolve, those who choose the right path, those who look beyond the immediate horizon, will emerge the industry thought leaders, and we are determined to be among them. Success will require bold, long-term strategic decisions, and we are channeling our resources toward the development of cutting-edge solutions as we aim to analyze and anticipate the industry's needs. With a clear vision, stamina, solid execution, and a talented driving team, we are building a company poised for long-term success. We will now open the call for the Q&A session. Operator.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Brian Kinstlinger with Alliance Global Partners. Please proceed with your question.

Brian Kinstlinger (Director of Research and Senior Technology Analyst)

Hi, good morning. Thanks for taking my questions. You mentioned you are navigating a period of adjustment as the industry evolves and so revenue growth may be slower. Can you describe what you're referring to? I guess I'm trying to reconcile that with comments such as once-in-a-generation opportunity and a spike in demand that we've seen in the fourth quarter for large-scale data extraction.

Shachar Daniel (CEO)

Okay. Hi, Brian. I will divide my answer for two parts. The first, by the way, both are connected. As I said, we now see or starting now at the stage where companies or huge companies that are getting into the AI game are approaching us in order to cooperate because, as you know, our solution can be a data enabler and can solve these challenges. As I mentioned also, I talked a lot about it in the past, in the last few quarters, we see a kind of huge, let's call it, competition between the AI platforms and the websites. Why? Because basically, the AI platform can replace the traffic that is coming into the website instead of it sustaining the AI to get all the customer needs.

For this reason, there is a kind of a technology war, let's call it a war, just as a metaphor, between the websites and the AI platforms. For this reason, we see spikes and we feel volatility due to the fact that websites are implementing kind of products that are supposed to stop or to halt AI engines from coming in. Websites are increasingly changing their structure in order to make the life of the AI platforms more challenging. For this, now companies and the AI platforms and websites are basically now restructuring their paths in this new world. This is the reason why the market, and also us as part of it, for the short term, experiencing volatility and fluctuation in the demand.

The main reason is that we see that for the long term, when I talked about data and scale, these huge players need data in huge scale in order to train their AI models and in order to stay up to date. We see that for the short term, it might be a spike. By the way, here and there, as I mentioned, sometimes it can come in favor of revenues. Sometimes it can take the revenues a little bit down. For the long term, we see that this trend basically is something that is in the favor of us because we are the data enabler and our purpose and our target and the usage of our product is exactly for this need.

Brian Kinstlinger (Director of Research and Senior Technology Analyst)

If I say it another way, your customer set is essentially in a period of determining their strategy given these changes with websites. They are not necessarily purchasing your product as quickly because they have to figure out where the landscape is headed. Is that right?

Shachar Daniel (CEO)

Yes. Yes. Sorry for interrupting. Sometimes they are—not that they are not purchasing our kind of products. Sometimes they are going down for a limited period in order to restructure their business opportunity, to restructure the direction that they are going to. We see that they might decrease usage, might stop, or others might increase because they find their pattern direction, and with our products, they can basically go over these challenges. It goes here and there.

Brian Kinstlinger (Director of Research and Senior Technology Analyst)

Got it. The net retention rate decline for the third straight quarter, is that a function of your customers, like you're saying here, may have some less usage essentially?

Shachar Daniel (CEO)

Absolutely. Still, by the way, same thing, that is a very good NRR, but yes, you see also the volatility in the NRR. Basically, it comes direct from what we discussed now.

Brian Kinstlinger (Director of Research and Senior Technology Analyst)

Okay. In December, you highlighted a Fortune 200 company began to use your Website Unblocker for almost six months, maybe more. I can't remember from that announcement. Can you tell us the evolution of the volume of that? I'm curious, did it start small? Did it get bigger? Has it remained small? Just kind of understand how a big customer is thinking about using this.

Shachar Daniel (CEO)

Okay. So basically, they are very satisfied. They increase usage. And small or big, it's an individual—I don't know how you see it, but at this point of time, let's say it's in six digits in U.S. dollars and ARR, meaning the run rate, the annual run rate, it comes to more than $500,000 a year, the run rate of this customer at this point.

Brian Kinstlinger (Director of Research and Senior Technology Analyst)

I guess where do you see the opportunity 18, 24 months out with a large customer like this? Can you get twice that? Can you get 5x that? I mean, what is the opportunity for a large customer like that?

Shachar Daniel (CEO)

Okay. Also here, I will divide the opportunity into two parts. One is a regular—no, regular can be huge, but still a regular customer that is using our product exactly for the needs that I just described. Of course, we can get much more than this. It can come also to express in revenues and also in retention and sustainability because these customers are long-term customers, and here is a huge opportunity for us. The second part, which is—I do not know if it is more interesting, but it is more strategic—it is the cooperation with those players or giants that are aiming to become a significant player in the AI game.

For this, they need a kind of strategic cooperation with a company with our products for the long term and to become basically part of their product, meaning to be the data enabler in this panel of the AI solutions and platforms they will provide to their customers. This can be huge. This also can be big. Both these two opportunities are the most exciting opportunities in this stage. Of course, as I mentioned, Brian, just to add also something related to the previous question, as you know, this customer takes more time than regular customers, although it goes faster than expected. Second, it's the focus.

In my eyes, and in our eyes, the management of the company, of course, we allocate most of the resources, the talent of the company, and the focus of the company in this future amazing, maybe really once-in-a-lifetime opportunity for us.

Brian Kinstlinger (Director of Research and Senior Technology Analyst)

Great. Last question I have is if you can update us on any planned product launches. As you've built up the balance sheet, how do you think about M&A versus developing your own new products?

Shachar Daniel (CEO)

Okay. The first part of your question is about—can you repeat for a second? You talked about M&A and.

Brian Kinstlinger (Director of Research and Senior Technology Analyst)

Yeah. I'm curious about planned new products. Then.

Shachar Daniel (CEO)

New products.

Brian Kinstlinger (Director of Research and Senior Technology Analyst)

Are you going to develop your own, or how do you think about that versus acquiring companies that have complementary products?

Shachar Daniel (CEO)

Okay. New products in the space of data collection, the AI scrapers, the unblockers, all these very unique products at this point of time, the plan as we do it just in these days is internal development. We hired really talent from the Israeli ecosystem, tech companies, and intelligence units, and we build our own products. By the way, the reaction that we are getting from the market is amazing after they test our product. Here, if we see a new opportunity that we can buy, acquire an asset or a small company that can take us further, we will do it. At this point of time, it's not the main plan.

The main plan in the other side is to add the additional layer of the analysis, the AI, the analysis, the data insights, which here we are still considering in these days, what is the right direction. By the way, we met in the last one year with a lot of companies, and there are many opportunities now in the market. We still consider if we go this or that direction. For this point of time, nothing specific that is on the table, meaning there is not any specific company that we see as an immediate opportunity. I still think that the preferred direction in the insights and AI is to acquire a company that basically can take us further very fast and to help us close the loop of data collection, data scraping, and then data analysis, all in one big solution.

Brian Kinstlinger (Director of Research and Senior Technology Analyst)

Okay. Thank you.

Shachar Daniel (CEO)

Thank you very much, Brian.

Operator (participant)

Thank you. Our next question comes from the line of Kingsley Crane with Canaccord Genuity. Please proceed with your question.

Kingsley Crane (Director and Senior Analyst)

Hey, thank you. A couple of questions. I think that on paper, it makes sense that data collection should become more important, lower-cost model services, more models using domain-specific data. It also seems that a lot of the new growth in data collection and labeling could be indexed to data types like audio and video. I just want to dive a bit deeper into what you're hearing from these AI-driven customer conversations. How important are alternative data types to their model-building strategy? How do you feel like your position there?

Shachar Daniel (CEO)

Okay. Hi. How are you? Basically, a very good question because it's just, as I said, that we feel that we are now in the period that everybody now is restructuring and restructuring their paths in this AI world. We see that these, especially big players, that are coming all into the AI, basically, instead of being, for example, a huge retail or marketplace company, in a few years wants to call an AI company. They need data in scale, video, audio, and other kinds of data. They cannot do it.

Maybe they can do it by themselves with internal development, but they must have solutions like our scrapers, like Website Unblocker, and of course, our IP proxy network in order not to be blocked, in order to get them qualified and transparent data, and in order to train their models in huge scales of data. They need a huge scale of data in order to stay up to date. We see our industry or our sector and ourselves, of course, as a significant player, as the one that's enabling them to collect the data and to focus on their business or on their technology or on their intellectual property, which is the intelligence itself, the insights and the algorithm that can analyze data and provide insights or others.

Kingsley Crane (Director and Senior Analyst)

Thank you, Shachar. That's really helpful. Just to dive a bit deeper on that, just regarding some of the fluctuations in demand in the near term. It seems like if websites are making it more difficult to gather data based on some of the tactics they're employing and customers need more data, it seems like that would actually, if you're better at circumventing those tactics than your competitors, it seems like that would give you better positioning and potentially bring more customers. I guess I'm just trying to get more clarity on what customers are saying when they're pulling back in the near term and reevaluating their strategy.

Shachar Daniel (CEO)

Okay. Here, when we are talking about the short term, let's differ for a second from the AI players, and let's go back to the regular customers themselves that are scraping and need to scrape data, to collect data for many, many purposes. If a website is investing much more these days in order to block or in order to sort those that are coming in, for these websites, sometimes it becomes more challenging than in the past, and they need to halt in order to understand how they are going to do it now. Of course, with our product, for us, it's a dream. Yeah, that's what we need. We need because we are a solution that can help this. You need a solution. If you don't have a problem, you don't need a solution.

If the problem is increasing, of course, for us, it's great. For the short term, we see that customers are basically getting, for example, from a website that is their popular website for scraping, a massive or huge change. They need to stop, and now they need to redesign their product. They need to redesign their business opportunity because it's also a question from their side, of course, of profitability. If they needed now to invest that amount in IP proxy or in other solutions in order to enable them to collect the data, now they need to spend more. They need to stop and rethink and restructure their business plan, their prices. We see that this period, when I'm saying fluctuation, it can go up and down, but it's a period that companies don't know exactly what will happen tomorrow.

They are trying to tap and to find the best direction for them in order to stay a player in this huge game because the world is going there definitely, as we see it all over. The data is really the new oil. Everybody needs the data. Without data, you owe nothing in this world. That's the issue.

Kingsley Crane (Director and Senior Analyst)

That helps. I appreciate that. Last, I just want to confirm. The AI-related customer engagements, that was largely conversations in Q4, right? That was not materially impacting Q4 revenue, or how much did that impact Q4?

Shachar Daniel (CEO)

No. Okay. So materially impacted Q4 revenue, no. It is not just discussions, meaning we are working together. It is something that is progressing quite well. Okay? I want to keep it for this point. For this point, I want to keep it at this stage, but it is more than discussions.

Kingsley Crane (Director and Senior Analyst)

Perfect. Okay. That's it for me. Thanks for taking the questions.

Shachar Daniel (CEO)

Thank you very much.

Operator (participant)

Thank you. We have reached the end of the question-and-answer session. I will now turn the call back over to Shachar Daniel for closing comments.

Shachar Daniel (CEO)

Thank you for your time today. We look forward to hosting you on Alarum Technologies' first quarter of 2025 results call. Thanks.

Operator (participant)

Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.