Safe-T Group Ltd.
Q3 2021 Earnings Call Transcript

Published:

  • Operator:
    Greetings and welcome to the Safe-T Group's Third Quarter 2021 Earnings Results Conference Call. At this time all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder this conference is being recorded. I would now like to turn the call over to Steve Gersten, Director of Investor Relations. Thank you. You may begin.
  • Steve Gersten:
    Thank you, operator. Good morning, ladies and gentlemen and welcome to Safe-T Group’s third quarter 2021 earnings results conference call. I am Steve Gersten, Director of Investor Relations for Safe-T Group. Joining us on the call today is Shachar Daniel, CEO; and Shai Avnit, CFO of Safe-T Group. Before we get started, I will read the disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, and other Federal securities laws. Forward-looking statements include statements about plans, objectives, goals, strategies, future events of performance and underlying assumptions, and other statements that are different than historical fact. These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that may result in expectations not being realized, and may cause actual outcomes to differ materially from expectations reflected in these forward-looking statements. Potential risks and uncertainties include those discussed under the heading Risk Factors in Safe-T's annual report on Form 20-F filed with the Securities and Exchange Commission on March 22, 2021, and in any subsequent filings with the SEC. All such forward-looking statements, whether written or oral, made on behalf of the company are expressly qualified by these cautionary statements, and such forward-looking statements are subject to risks and uncertainties, and we caution you not to place undue reliance on these. At this time, I'd like to turn the call over to Shachar Daniel, the company's CEO. The floor is yours.
  • Shachar Daniel:
    Thank you, Steve. And welcome everyone to Safe-T Group’s 2021 third quarter earnings results conference call. To discuss summary with me is Shai Avnit, our Chief Financial Officer. I would like to provide a short overview of our business operations, summarize our accomplishments, and then turn the call over to Shai who will briefly discuss the financial results of the third quarter before we open the call to questions. We are very excited to present a truly significant quarter which I believe begins to represent the company's outlook and transformation we look towards for the past year and a half with the key word of execution. Over the third quarter of 2021 we are focused on extending our value proposition to the privacy and cybersecurity market for consumers and enterprise. During the last quarter we witnessed the huge potential of the market we are operating as confirmed by a surge of M&A deals around the world. More than $1 billion in acquisition in the last few months strengthened our confidence in the opportunities ahead of us and reconfirms the unpacked value of our innovative portfolio of privacy and cybersecurity technologies. Entering the consumer sector with a variety of solutions built on a recurring revenue business model, the acquisition of CyberKick has proven to be a strong catalyst for us as demonstrated by our impressive revenue growth recorded in the third quarter. Our consumer solution includes privacy product and new innovative cyber security tools with unique feature for our users. We were very proud to launch our iShield at the end of the quarter and more recently augmented its capabilities with the addition of advanced anti-ransomware protection layer. I believe this product can be a game changer for users as more than 495 million ransomware attacks have been logged in this year according to SonicWall, a leading publisher of ransomware threat intelligence, making 2021 the most costly and dangerous year on record. While our industry tends to focus on ransomware’s highly damaging consequences to large organizations, we are differentiating ourselves by bringing advance ransomware solution to mediums of consumers and small and medium business who typically don't have access to tools to deal with those attacks. As consumer security software spending continues to grow, reaching approximately $7 billion, according to Statista, we remain committed to investing additionally sources in this side of the business in the upcoming quarters because of the large untapped potential we see. In the enterprise segment, we continue to make progress as well. With the launch of our new web data service solution, we have expanded our enterprise product portfolio. We have already seen significant interest in our web wide data service solution by enterprise customers who are seeking highly scalable and efficient way to collect publicly available data pools that can be used to aid in the data analysis and decision-making. Furthermore, our enterprise cyber security solution, ZoneZero, a Zero Trust Network Access, ZTNA product, also gained any important recognition this quarter, as Quadrant Knowledge Solutions has named Safe-T as the 2021 emerging leader in the SPARK Matrix analysis for the global ZTNA security market. Overall, our team continues to make significant progress in our reorganization process that we started two years ago with the goal of building Safe-T Group in the world-leading cybersecurity and Privacy Company serving both consumers and enterprises. Early evidence of this progress can be seen in our revenue for the quarter, which a record-wide of approximately $3.4 million, an increase of 137% compared to the equivalent quarter in 2020, exceeding our own $3.2 million estimate, which we pre-announce in October. But before going further, I would like to turn the call over to Shai to discuss the financials for the quarter in more detail. Shai?
  • Shai Avnit:
    Thank you, Shachar. I will begin with the summary of our third quarter 2021 financial results, which are compared to our third quarter 2020 results unless otherwise stated. All figures in the summary were rounded up for simplicity. Revenue for the third quarter of 2021 totaled $3.4 million, the 137% increase compared to revenues of $1.4 million for the third quarter of 2020. The increase in revenues is due to the stress time consolidation of CyberKick's revenues for the third quarter, the acquisition of which was completed in July 2021. As well as an increase in enterprises privacy revenues generated by NetNut, our Enterprise Privacy business. Gross profit for the third quarter of 2021 was $1.8 million representing 108% increase compared to gross profit for the corresponding period in 2020 of $0.86 million. The increase in gross profit was primarily driven by increased revenues. Operating expenses in the third quarter of 2021 excluding the unique expenses such as continued consideration resulting from our acquisition totaled $6.2 million compared to $3.2 million in the equivalent quarter of 2020. The increase is mainly due to CyberKick's first-time consideration as well as the increased Enterprise Privacy operation. Overall, we believe that operating expenses in the third quarter were higher than average due to a number of one-time events which are not expected to reoccur, which level expected to decline as a percentage of sales going forward. As of September 30, 2021 the company's cash and cash equivalent and short-term investment balances were almost $13 million, down from $19.3 million reported at the end of the previous quarter, primarily due to a $3.7 million cash payment for the acquisition of CyberKick. Based upon our internal plans, ongoing cost reduction efforts and expected level of capital investments into new products and technologies. We believe we have adequate cash on hand to fund operations through 2022 and into early 2023. The international financial reporting standard net loss in Q3 2021 totaled $3.7 million or $0.12 per share or ADS as compared to a net of $1.3 million or $0.08 per share or ADS. Non-IFRS net loss in Q3 2021 totaled $3.2 million or $0.10 per share or ADS compared to a loss of $5.6 million or $0.10 per share or ADS same as in Q3 2021. With that I'll turn the call back over to Shachar.
  • Shachar Daniel:
    Thank you, Shai. In summary, during the second quarter this year, we made significant progress through our implementation of our vision; including delivering significant consecutive quarterly growth acquiring the innovative technologies and adding talented entrepreneur to our team. On a personal note, we are not indifferent to the shared price and capital market. Although the broader capital markets are reaching new highs, we do not believe this trend has translated to the micro cap and small cap companies like Safe-T. As our financial results indicate we are building a high growth company with high growth margins, while the company's currency is currently investing in its growth in the short-run over the coming quarter, we believe our full score will stabilize and revenues will continue to grow significantly producing a higher level of profitability. Our Board and Team are committed to building the value of our business as a top priority and believe it'll become greater because of the decisions being made now. Alongside our commitment to improving our business operations we also committed to expanding awareness of Safe-T with new investors through more frequent contact and participation at investment conferences as part of this and our desire to be more engaged and transparent within the launch a new corporate and investor website. This will provide investors with a better understanding of our business, focus, financials and our corporate governance and the enables investors to better communicate with us. I invite you to check it out. Looking ahead we have a well-defined roadmap of execution, technology, innovation and extension plans for the new-term. Established a cybersecurity and privacy markets are growing into a global multi-billion-dollar opportunity in response to the incredible surging cyber attack on organization individuals. We will continue to develop our position as a leading provider of privacy and cybersecurity solution, and we are well positioned to capitalize on the hyper growth our sector is experiencing. With that I would like to open the call for any question. Operator, please go ahead.
  • Operator:
    Thank you. Our first questions come from the line of Michael Shaw with Shaw Family Office. Please proceed with your question.
  • Michael Shaw:
    Good morning. Thanks for taking my call. Shachar, can you give us an update on status of ZTNA market or your Zero Trust product?
  • Shachar Daniel:
    Okay. Good question, thank you. So basically, we believe that Zero Trust Network Access as we call it ZTNA is a security architecture is certainly gaining acceptance though in the enterprise market because of its many advantages over traditional VPN approaches. I don't know if you are aware, but basically this solution is come to replace the old legacy VPN. I should note, however, that is a new architecture as everybody can imagine, customers are taking a careful approach to implementing the technology as they are facing the challenge of replacing a legacy infrastructure, not only in the ZTNA it happens in all markets. Due to this we started to push last quarter and accelerate over the last few months, our Zero Trust Network Access to internal users, with an identity based Zero Trust Solution that offers seamless integration to multifactor authentication, MSA formats, and secure access control supporting both non-web protocol and legacy infrastructures. We believe that this approach touching so the pain points of our customers layering it on top of all account forms of MFA would be easier and faster to adopt via our customers since they get the benefit of end access security while addressing the immediate challenges. This is also an easier first step for adopting our full solution. In short, I can assure you and us that the move to ZTNA is happening and will happen as noted in the multiple industry experts and research reports by published by films like Gartner, Forrester, and more recently Quadrant Knowledge System, but we are still early in the deployment process.
  • Michael Shaw:
    Great. Thank you very much.
  • Operator:
    Our next questions come from the line of Brian Kinstlinger with Alliance Global Partners. Please proceed with your questions.
  • Brian Kinstlinger:
    Great. Thanks. In terms of Zero Trust, can you talk about what the contribution roughly as a percentage-wise is to revenue and as you said its early stages for your company? How long do you think before it becomes a meaningful catalyst to revenue?
  • Shachar Daniel:
    Okay. Thank you, Brian. Good question. By the way it's more or less the same answer as the previous one, but I will elaborate. So basically, we built the platform in the last one, one-and-a-half years. We are engaging with customers as partners all over the world, trying to be the first that will come into this market together with some giants and some other competitors. At this stage of contribution is to the revenues, to the revenues of the company is low. We fully believe that our new approach of providing ZTNA for internal users allowing allow organization to be connected – to connect legacy infrastructure to MFA will give us a boost this quarter or the next quarters. And we will start to see in 2022, a significant value or benefit or contribution to the revenues from our ZTNA solution.
  • Brian Kinstlinger:
    Great. Okay. So, 2020 we should start to see a little bit more. And then can you talk about the early discussions around the iShield launch? What's the go-to-market strategy is direct or you using partners and how do you see this impacting 2022 revenue also. What's the pricing for this for this solution?
  • Shachar Daniel:
    Okay. So, we launched this solution a few weeks ago. The go-to-market in the consumer business is a little bit different than the enterprise business. The go-to-market first of all in the first stages is only direct. I think that one of our big upsides an advantage is the fact that we have, I can assume the best digital sales and marketing guys, maybe globally, that knows how to push consumer product. We started with the first bulk of around 1,000 users. We stopped; we are reviewing the feedbacks from these first consumers. Then we push another bike and another bike and it looks, and according to the procedure in the first quarter or the second quarter of 2022, we will take it to, as we call it to mass production or to GA status. We see a huge value, a huge contribution of this iShield to our portfolio, and hopefully to our revenues next year. We consider to consolidate this product with some other consumer products, as we have our portfolio to everyone – that leads to one full solution, but we will take a decision over the way, but the go-to-market strategy is only direct to your question.
  • Brian Kinstlinger:
    Great. And then at this stage, yeah, when you say direct, is that phone calls, is that emails, texts all the above. How do you reach consumers?
  • Shachar Daniel:
    Digital advertising mainly.
  • Brian Kinstlinger:
    Right. Got it. Okay. And then can you maybe at a high-level breakdown, Safe-T legacy NetNut, CyberKick, Chi Cooked in, then as you think about those different businesses, which will grow the fastest in 2022 and why do you think?
  • Shachar Daniel:
    I think it's a little bit a tricky question because we did not talk yet about projection, so other for next year, but I can tell you in high level that and to be totally honest with you, we push the all business, the privacy, the security, the consumers and the enterprise. And we really believe that each one of them can bring us a huge value next year. I can tell you that according to this quarter and the start of the fourth quarter, we see a nice growth; we see a nice result in each one of them. So, I don't have enough data now in order to provide a kind of breakdown of the revenues for next year, but we trust all of our products at this stage, of course, that if we see something that is that that like we have a lot of confidence in our offering and Safe-T, because we build a variety of solution to a variety of markets and segments. And then if we see that something is going very well, then we can push it and we can prioritize it or vice versa, the opposite. If something is breaking, then we can stop it a little bit, hold it, fix it and in parallel push the others. So – but I don't have an accurate information to provide at this stage, Brian, sorry.
  • Brian Kinstlinger:
    Okay. Okay. And then I may have missed it. Can you quantify the total one-time expenses in the quarter or non-recurring expenses? And can you talk about what these expenses were for?
  • Shachar Daniel:
    Most of the expenses in this quarter were for the acquisition of CyberKick.
  • Brian Kinstlinger:
    And what were the total that ran to the income state that won't reoccur?
  • Shachar Daniel:
    Okay. Shai, you want to answer here?
  • Shai Avnit:
    Yes. Hi, Brian.
  • Brian Kinstlinger:
    Hi, Shai.
  • Shai Avnit:
    Yes. Obviously, these are fair numbers that we releasing the PR but there were some expenses related to the acquisition and there are also some expenses related to an IP issue we are dealing with. We believe that these two costs will not repeat themselves in the same level, cost acquisitions at one-time, and the IP will not repeat itself in the same level going forward three quarters.
  • Brian Kinstlinger:
    Right, that doesn't really help actually. We like to know, as investors, how much your cash burn looks like an EBIDA is not recurring. So, is it a $1 million in acquisition in IT issues? Is it less, is it more, and are the IT issues complete, are they fixed?
  • Shachar Daniel:
    Shai.
  • Shai Avnit:
    Regarding the IT issues Shachar you answer it, the acquisition costs are basically .
  • Shachar Daniel:
    Yes, I will summarize. So, we are having two issues this quarter, one-time expenses related to cash with the burn rate. One of them as Shai mentioned and I mentioned before, we had the one-time peak expense, which was related to the acquisition. If we not have another acquisition and we don't have something – planned for them near term, so this is behind us. Of course, the second is the IT issue. So, we really believe that the mass, the big part is behind us. We are now negotiating on kind of two settlements with a third-party company that we had the issue. So basically, it looks like that it's going to reduce dramatically, but of course, if something will change, we will announce.
  • Brian Kinstlinger:
    Okay. And lastly, can you share what the average share count was in the third quarter?
  • Shachar Daniel:
    The average, what? Sorry. Share count.
  • Brian Kinstlinger:
    The common share account outstanding ADS.
  • Shachar Daniel:
    Okay, Shai.
  • Shai Avnit:
    Yes, we had pretty steady throughout the whole quarter, we had 30 million ADSs or shares now it's the same number, steady over the quarter, 30 million.
  • Brian Kinstlinger:
    13 million, one three.
  • Shai Avnit:
    No, 30, 30.
  • Brian Kinstlinger:
    Three zero.
  • Shai Avnit:
    Three zero, exactly.
  • Brian Kinstlinger:
    Got it. Okay. Thank you.
  • Shai Avnit:
    Just now in the beginning of the quarter we issued some shares to the CyberKick’s Founder, it was founded in July and since then, we are steady over the quarter.
  • Brian Kinstlinger:
    Okay. Thank you.
  • Shachar Daniel:
    You are welcome.
  • Operator:
    Thank you. Our next question is coming from the line of Lee Alper with Hammock Investors. Please proceed with your questions.
  • Lee Alper:
    Thanks for taking the time. Can you give us some idea whether we might be able to see some insider or management buying stock as the prices really come down?
  • Shachar Daniel:
    Okay. So, this is an important topic. And our – sorry, again, this is an important topic and the one entire team is focused on, okay. At this stage, all I can say is that we have review this matter with our lawyers, and we're currently exploring options for management to buy shares in the open market, of course, subjects should be allowed to adding windows. You know we have been adding windows according to our policy. So yes, it's on the table, we are discussing about it and of course, as it happens, I guess, you will know.
  • Lee Alper:
    Okay. Thank you.
  • Shachar Daniel:
    You are welcome.
  • Operator:
    Thank you. Our next question is coming from the line of Robbie Johnson . Please proceed with your questions.
  • Unidentified Analyst:
    Yes. My question is how do you see the balance between your burn rate and growth?
  • Shachar Daniel:
    Okay, thank you. It's a strategic question. I will touch it a little bit. I guess it's strategic, not only for Safe-T, but most of the companies. But as we noted in the PR and in my remarks today, we plan to continue to invest in our growth. This will drive revenues and give us the scale we need to build our business. We produce strong margins currently over 50% in the current quarter with the potential to go higher. And topline growth will drive improvements in operating income, as well as cash flow. We are focusing on the management of cash and belief that growth in revenues will significantly outpace any growth in operating expenses and will take the company to the place we think that it needs to be. And this is how we will execute our vision.
  • Unidentified Analyst:
    And I wish you a happy .
  • Shachar Daniel:
    thank you.
  • Operator:
    Our next question is coming from the line of Matthew Jennings with Landmark Financial . Please proceed with your questions.
  • Unidentified Analyst:
    Hey guys let me just say fantastic quarter and probably one of the better growth stories I currently see in this marketplace.
  • Shachar Daniel:
    Thank you very much.
  • Unidentified Analyst:
    So obviously you guys are having record right now, record revenues. I'm curious to know why the company hasn't provided more updates or press releases around the deals it's making with these customers. You've been relatively quiet with actual contracts. I know that you've had a number of press releases about partnerships, but I'm more interested in the update provided on deals.
  • Shai Avnit:
    Okay. Yes, it's a question that I'm facing with the investors all over the quarter. So, it's a great opportunity to explain a little bit. First of all, we understand we need to communicate the progress we are making in the business, and we are committed to improving out transparency in this regard. For example, however, in the enterprise, our customers are interested in privacy and security and by the very nature of our products, they do not want to share with the world approaches and the technologies they are deploying. In the consumer business, although there is a lot of activity, we think that in these stages we just started it is too early in the process to provide metrics that investors will value as we need some time to further establish our track record. So just to summarize, we are touching very sensitive areas for our customer, their privacy, we are protecting their private privacy products that are protecting their privacy and the cybersecurity products that are protecting their facility and infrastructure. Most of the customers don't want to expose nothing related to this. They prefer to stay behind the scenes and they prefer that nobody will have even a clue what kind of products are protecting their infrastructure. And this is something that we're facing with. We totally understand you need as an investor to get these PRs and announcements, but I'm sure that the numbers are talking on themselves and hopefully we will go as more opportunities to announce. I hope that answers your question.
  • Unidentified Analyst:
    Yes, it does. Thanks.
  • Shai Avnit:
    Thank you.
  • Operator:
    Thank you. Our next question is coming from the line of . Please proceed with your question.
  • Unidentified Analyst:
    Hello Shachar can you expand more about the situation now with the loss of NetNut with Luminati or Bright Data?
  • Shachar Daniel:
    I think that I can elaborate only on the items that we announced. We have a kind of process with Bright Data/Luminati. It's kind of – I cannot – I think that it’s not related to the spec rules or to the public company rules, but related to the process itself, it totally under confidential. But if it's very interesting for you, you can take a look. Some of the information is public, but I cannot expand more than this.
  • Unidentified Analyst:
    And what you expect, do you think that NetNut will go out straight for it or there is going to be some problems?
  • Shachar Daniel:
    No, I totally believe as we announced, I think, that we are facing with a company that has a very weak patent. We have a lot of evidence for this, and I think, that this process will make us stronger, not the opposite.
  • Unidentified Analyst:
    Okay. I hope also to thank you very much.
  • Shachar Daniel:
    You are welcome.
  • Operator:
    Thank you. There are no further questions at this time. I'd like to turn the call back over to Shachar Daniel for any closing comments.
  • Shachar Daniel:
    Okay, everybody, so thanks for joining us today and happy for everybody. We look forward to continue to update you on our progress, and we really appreciate your trust and belief in our company. Thank you very much.
  • Operator:
    This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

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