Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Alarum Technologies Second Quarter 2024 Corporate Update Conference Call. During today's presentation, all parties will be in listen-only mode. Following management's presentation, the conference will be open to questions. [Operator Instructions] This conference is being recorded today, August 26, 2024. Before we get started, I'll read a forward-looking statements disclaimer. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the 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 or 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 Alarum's annual report on Form 20-F, filed with the Securities and Exchange Commission on March 14, 2024, and 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. On the call, the company will also present non-IFRS key business metrics. The non-IFRS key business metrics the company uses are EBITDA and adjusted EBITDA, non-IFRS gross margin, non-IFRS net profit or loss, and non-IFRS basic earnings or loss per share or ADS. The exact definitions of these non-IFRS key business metrics are described in the company's second quarter of 2024 financial results press release. I'll now turn the call over to Shachar Daniel, Alarum Technologies’ CEO. Mr. Daniel, the floor is now yours.

Thank you very much and welcome everyone to Alarum Technologies' second quarter 2024 results conference call. With me here is Shai Avnit, our Chief Financial Officer. I will be covering Alarum’s performance, recent development, the trends we are seeing in the market, our strategy for long-term vision. Today, for the first time, we provided quarterly guidance and are providing additional KPIs as we constantly strive to enhance transparency. Shai will review the financials and our Q2-2024 guidance. I will then conclude the prepared remarks part with a short summary before opening the call for your questions. Starting with a review of our Q2 2024 key achievements. The end of Q2 marked the first full year since we announced our shift to focusing on Enterprise Internet Access. Total revenues for Q2 increased to $8.9 million, of which $8.7 million were attributed to NetNut, our Enterprise Internet Access arm. Adjusted EBITDA in Q2 reached to a record of $3.4 million, more than three times higher than in the same quarter last year. Revenues for the first six months of 2024 increased to $17.3 million, of which $16.8 million was attributed to NetNut, and 98% year-over-year increase from the $8.4 million NetNut revenues in the first six months of 2023. I'm also very pleased with our continued progress in cash flow generation. Q2 marked our first consecutive quarter of positive cash flow, a significant achievement for a company of our size and stage. We ended the quarter with more than $21 million in cash and cash equivalents. Our cash balance well positions us to invest in opportunities that will drive long-term success and provide the foundation for sustained growth. In line with our strategy and long-term vision, we are on track with our three growth engines. First, increasing our market share in the…

Thank you, Shachar, and hello, everyone. Over the past quarter, the company has achieved impressive growth, improved its margins, and has become a profitable cash-generating company. This gives us the flexibility and resources to invest in the areas that will drive our future growth. I will summarize the main financial results of the second quarter and first half of 2024, comparing them to our second quarter and first half 2023 results respectively, unless otherwise stated. All figures were rounded for simplicity. Also, today is the first time that we are providing quarterly guidance in parallel to the quarterly results announcements. I will provide guidance for Q3 2024 as we aim to enhance transparency for investors. Let's move on to the numbers. Revenue for the second quarter of 2024 increased to $8.9 million, up 27.2% from the $7 million in the second quarter of 2023. The NetNut portion rose to $8.7 million in Q2 2024, up 72% from $5 million in Q2 2023, while reaching a six-month record of $16.8 million, almost double the $8.4 million NetNut revenues recorded in the first half of 2023. Non-IFRS gross margin for the second quarter of 2024 increased to 78.5%, up from 71% in Q2 2023. The year-over-year increase in gross profit and gross margins was primarily driven by the increase in revenues. We've structured our network in a way that allows us to generate higher revenues while maintaining essentially the same level of fixed costs. This enables us to achieve higher gross margins as revenues increase. Operating expenses in Q2 2024 were down to $4.2 million from $12.8 million in Q2 2023. The Q2 2023 operating expenses included $8.5 million attributed to goodwill and intangible assets impairment from CyberKick, our consumer internet access business, which we have been scaling down since Q3 last…

Thank you, Shai. In Q2, 2024, Alarum has once again delivered solid results. As a long-runner, Alarum is focused on expanding its customer base and investing in technological innovation. We are confident that these investments will yield benefits for the company and its various stakeholders. The expansion of our network enables us to serve more and more customers, drive scalable and profitable growth across various verticals today and in the future. We intend to continue and release new products designed to meet evolving market requirements. We will continue to embark on our strategy by adding data insights and AI capabilities to our existing products, ensuring that we stay at the forefront of the industry. We have a clear vision of where we want to go, and we are executing our plan with discipline and focus. We are laying the foundation for future success as a leader in the global data collection market through innovation, strategic investments, and a determined focus on execution. We will now open the call for Q&A session. Operator?

[Operator Instructions] Our first question is from the line of Brian Kinstlinger with Alliance Global Partners. Please proceed with your questions.

Thanks so much for taking my questions. With your revenue being all subscriptions for the most part and therefore recurring, the net retention revenue was 1.66 in the first quarter and 1.59 in the second quarter. Reconcile those if you could with the major drop in revenue sequentially.

So, Brian, can you repeat the last part of the question?

I'm curious with revenues recurring and your retention rate has been suggesting your existing customer's usage is much higher. Why in the third quarter would revenue drop so steeply? What's causing that?

Okay. So just to refresh the audience and our -- and your memory, so the NRR indicator that we're using, and not only us, it's an industry standard, is basically make four measurements. It compares four quarters to the previous four quarters, then moving one quarter back, doing the same, and another two times, meaning it takes the big data into the calculations. So till now, you remember it, Brian?

Yeah.

So, okay, so even if you see a drop or a dip of sequential quarters or quarter-over-quarter, it doesn't say that you will see the impact directly in the NRR because the NRR is, as I mentioned, measuring four times, and four quarters versus four quarters, four times. Now for the second part of your question, so as I mentioned in my pitch just a few minutes ago, in the third quarter, we experienced a kind of slowdown for some of our customers which basically made, as we just mentioned, made the revenues to go a little bit back from Q2 to Q3, but from the other side, after we saw this slowdown in May, so in June, we started to see the positive growth trends of the company going back directly on track and in July we see a growth versus June and we projected August -- we see that August is going, and we're about to finish August in a few days, is going to show also a growth comparing to July. But it didn't come back to the same point that May was. Hope it answered your question.

A little bit. So I want to make sure I understand, first, have you lost any customers? And second, if I'm understanding what you're saying is, several of your existing customers are expecting to have significantly less usage so they're going to be paying less, is that what you're saying?

No, no, okay. So for your question if we lost customers, so I cannot -- formally I cannot say that we lost customers because losing a customer meaning he announced or let you know that he's terminating the agreement and stop the usage going back -- leaving you for a competitor or something like this. It's not the case here. If you remember, our model is based on duration and consumption. So in the middle of Q3 some of our customers slow down their usage and that's what we call a drop or a kind of a dip that made them to renew or not to renew in the next month, meaning in June, for example, or in July. Even if they renewed, they bought a much smaller packages from bandwidth perspective. And this is why you see these revenues are going back. From the other side, the other customer which is the major portion of our customers continue to show consistency and growth and that's why we see a growth from July to June and then from August to [July] (ph).

Okay. I'm wondering if you could share any customer concentration metrics. For example, what percentage of the total revenue in the first half of the year came from the top 5, 10 or 20 customers?

Okay, so basically, Brian, I don't have this data now, these calculations in front of my eyes, but I want to be more specific. So if we will talk about May versus June, so in May versus June, you can see that, it's not MRR, it's MR, let's call it the monthly revenues and due to this slowdown or scale down of their usage, you can see around 20% of the monthly revenues decreased from May to June, or sorry, from -- in June comparing to May. And then we start to go back from this 20% level going back to grow up and to grow again to July and August.

Okay, just to follow up, is your top 20 customers more than half of your revenue?

Top 20 customers?

Top 20. Are they more than half of your monthly revenue or quarterly revenue?

Okay, so we also discussed about it. I can tell you what we see now, okay, for the first half of 2024, okay? So what we see now, this is the -- one second, okay. So for the first half of 2024 and we have the pyramid, okay, that in this pyramid we have around a little bit more than 400 customers that we took at the same -- we are measuring only the customers that are performing more than $100. And from this pyramid, you can see that five customers generated more than $500,000 in the first half of 2024. The aggregate number of $6.8 million, meaning an average of 8.3% per each customer for these five customers. The next level, I will give you just the next level, is 38 customers that generated between $50,000 to $500,000, aggregate number of $7.2 million, and each customer generated, in average, 1.15% of the revenues of the company in the first two quarters of 2024. So an aggregate number of $14 million in the first half of 2024 generated by total amount of 43 customers of the company. Hope it give you some light on the split.

That's helpful, very helpful. Last question for me -- that's very helpful. The last question for me, you made a comment, I didn't quite get it. What would be over $2 million of expenses on other expenses? You said something about finance. And are those cash costs all of it?

Brian, you mean the finance expenses?

Yeah below the line you have over $2 million of expenses.

Yes, $2.5 million of finance expenses. These are actually -- we discussed it probably you will remember on the first quarter. These are expenses that are related to the evaluation of old warrants from 2019 and 2020 that according to accounting startups are classified as a liability and therefore we need to evaluate them each quarter-end and it is based on the share price. The higher the share price…

They're not in cash. It's not a cash expense.

Now it's only non-cash expenses. It has nothing to do to our operating cash flow. It's only [Technical Difficulty] and it goes both ways and because the share price goes up, this would be okay.

Yeah, not material. Thank you so much.

Thank you, Brian.

Our next question is from the line of Kingsley Crane with Canaccord Genuity. Please proceed with your questions.

Hi, and congrats on the strong results. So, I would like to dive just a bit deeper into the ADCL market opportunity. I'm curious how you're thinking about your data collection capabilities and feature set outside of text-based web scraping and just more on the product roadmap in that regard. Thank you.

Okay, just to clarify your question, and you are talking about outside of data scraping. What do you mean outside of data scraping?

Or rather, just the total picture of data collection, whether that includes text or images or video or other forms of alternative data as well.

Okay. So I'll do it in a very short way. So the market -- the stake of the market is basically is assembled from three pillars. One is the infrastructure for data collection, which is the IP proxy network, which basically is our product. And it allows you to collect data, not to be blocked, to get a transparent, real, and accurate data. This is our major product. This is the IP proxy network. The next stage in the stack is the data collection and labeling, meaning data collectors, scrapers, and other products that allows you basically to collect data and basically to convert data from unstructured to structured data. And we are working now, as I mentioned, we are progressing tremendously in our AI collector, which according to now and according to our best knowledge should be one of -- maybe the most innovative product in the market. The second product that will be released even before the AI Data Collector is our Web Unblocker. As I mentioned, this product basically is fighting against websites that are trying to block you, of course, trying to block you technology perspective, trying to block you from coming in and transparent and public available data. So this product is tested by a few experts and they found it as the most innovative and proven product in the market and as we see now the demand is amazing because companies and customers cannot find a suitable solution and hopefully as it goes out, we are now in the scale stage of this product and hopefully if it goes out to production mode, it can be a huge success. The next stage which also I mentioned is the stage, so I let you come in, now you collect the data, now you have the data structured but now you want the insights and the recommendations and the projections. So basically this is which some of our customers, basically AI companies that with their AI algorithms knows how to analyze to get a data in a JSON file, for example, and it is the input and the output, is the analyzing and provide recommendations in each and every space, it can be in e-commerce, it can be in many, many other verticals and this basically is closing the loop. I will let you come in, you will collect the data, you will get the insight story and you close the loop. So this is how we see the market. As I mentioned, we are just now in the stage of data collection and labeling. We established an internal committee and we are now investigating deep the next stage of the insight and AI stage. And hopefully in 2025, it will be our major task and innovative solution.

Okay. Thank you, Shachar. That was really helpful. And so this one is probably more for Shai, but -- and again, I really appreciate some of the additional metrics you provided and also understand that this is the first quarter that you provided quarterly guidance. So I think the market's still figuring out some of that philosophy. But with respect to that, I'm curious on the $7 million target with plus or minus 3%, should we think of that as something like a 95% confidence interval, or how much certainty would you say is around that range of guidance? I'm just kind of curious how much revenue could come in in the final months of the quarter? Just trying to get a sense of the upside here. Thank you.

Well, we quoted the number $7 million because we feel this is the most likely number we are aiming for. And the plus/minus 3% gives you the range that we are positive that we will be in probably 90% or more.

Okay, that's simple, that's helpful. Okay, that's it for me. Thank you.

Thank you very much.

Our next question is from the line of Yi Fu Lee with Cantor Fitzgerald. Please proceed with your question.

Thank you for taking my question. Good morning, Shachar and Shai. Great set of results. In terms of like moving up market, we see some wins on a Fortune 100 and you guys landing larger with customers spending $400,000 and more. Was wondering if you could discuss any changes in the go-to-market sales strategy to help Alarum penetrate the upper market and in landing larger?

Yeah, okay, hi. So it was part -- if you go back and you will see our presentations and the statements in the last one year. As we felt that we built the network, it's all about performance and network. As we felt that we built the network that can serve the quality level and the scalability level of these customers, we target our team and ourselves that it's going to be one of our special strategic vision or targets for this year and for the future, to scale up for this huge customer, a Fortune or other huge customers, because we have the level of confidence that we will go into a POC, a proof of concept, and we will meet all the requirements also from financial perspective, not only technology-wise. So yes, now we are aiming some of our sales reps that basically have more skills or experience in enterprise sales, which is a little bit different skills than online sales, and we're starting to target these customers. And I can say -- very proud and I’m happy to say that some of them even, and we won them by inbound, meaning they approached us. So it shows us the level of awareness and the level of awareness of our brand and the place that we are now.

Okay, and then a follow-up to, Shai, like on the AI data collection from the last question is, I understand it's probably more of a next year opportunity. What are some of the enhancements you're thinking of making here, and what are the M&A targets do you guys have an interest in?

Okay, so M&A target is something that as you get into the process, you are starting to be more specific in M&A. But I will tell you exactly what I told last time and it will not change, but basically it will stay the same. M&A, yes, for sure it's something positive for each and every company and also for Alarum. It's a great way to scale. We can leverage the fact that we are generating cash and we can leverage our brand and we can go into the panel very fast, basically to accelerate our progress. On the other side, so what we are, in case we will go deep and we found ourselves looking specifically for M&A targets here. So yes, it should be the next stages in our spec, as I mentioned before. It's going to the data collection and labeling, or jumping to the next stage, which is data insight, which is basically AI companies, ventures, that are analyzing data. It's all your own data, yes? Analyzing data and providing insights, recommendations, and projections. So in high level, as we will start to be more aggressive about M&A, we will take the decision that M&A is really the next stage, that will be our target. For now, we established a committee, as I mentioned, we mentioned to the market a few quarters ago, we brought one of the leaders in Israel to lead our committee, and we are investigating all the opportunities, including internal development, potential M&As, potential combination of permanent internal development. Everything is on the table. Everything looks good, but we would like to take the best decisions for the company.

Thanks for the color, Shachar. Shai, just one last question. It's more macro in general. Understood like there were some slowdowns in consumption during the end of quarter, but it sounds like the commentary in July, it starts to pick up back again in terms of the consumption. I understand you guys don't have a crystal ball, but in terms of the rest of the year, how should we think about the, I guess, volatility in the consumption aspect of the usage in this market? And that's it for me. Thank you very much.

Okay, good. So, just to make sure I understand your question, you are asking if you're looking a little bit more to the future for Q4, for example?

Correct, for the rest of this year. For the rest of this year, if there's any slowdowns you're expecting, like, what would trigger the slowdown? Like, what are you seeing in the pipe I guess?

Okay. So, to be honest, we did not release a guidance for Q4. We are growing and every time we are increasing the level of transparency, but we did not release guidance for Q4, but on the other side, by the way, that's what we do internally all the time, we are measuring indicators that are showing us the trend. Of course, it's not 100%, everything is not 100% for the future, but it shows the trends. So as I mentioned in the call, few indicators are very positive. First, and very important, is after there was a kind of a one-time drop in May through June, then in June we get back on track for growth, meaning the current customers plus new customers showed a great retention and new customers that came in and the growth went back and came back after he left us for one month and then he came back and then we kept the growth from June to July and then to August. Second is the indicator of new customers. Our business basically is built from the retention of current but from new customers that are coming in and starting to generate revenue. So first of all, we see a very strong growth between Q2 to Q1 and this Q2 new customers that generate in their first month $400,000 supports according to our model to generate in the next 2.5 years, 15 times, meaning around between $6 million to $7 million in the next quarter. So the combination of the retention and the growth that came back from June to July, July to August, and the greater retention, sorry, the growth of the current cut of the new customers from Q2 to Q1 increases and give us the level of confidence that we are growing, we are in a growth trend. But -- and you can take a look by yourself and make your own calculations, but this is something that I can now talk free and exposed. Hope it gives you some light.

Yeah, thank you very much for that. Very good color.

Thank you.

Our next question is from the line of Shahar Cohen with Lucid Capital. Please proceed with your question.

Hi guys. A few things. A, what was the main cause to publish the focus right now? Why now? A. B, some people say that you have some business related to the US election.

Can you say it out loud? Sorry, I didn't hear you. Can you repeat the second question? Sound [deep] (ph) and say?

You have some revenue, maybe not negligible revenue, from the US election. Maybe they don't portray themselves as parties. They can come undercover. But can you say loud and clear that you have no business related to the US election?

Who is talking?

Shahar from Lucid Capital.

Okay. So for your first question, if you track our company in the last two years or 1.5 years, we took a decision that as part of our maturity and growth, we will start to expose more and more indicators, KPIs, and data to the market in order to increase transparency. So we did it in the last quarters. This time we decided to release a few more indicators. Few of them are the KPIs. One of them is the projection for the coming quarter. And then, for the quick transparency, I think it's a good sign. And the second, to the US election, to be honest, it's the first time I hear about it from someone. So the answer is no.

So you don't have business related to the US election as far as you know?

The answer is, from my best knowledge, I don't have any business related to the US election. Maybe, but you can tell us.

Okay, thank you.

Thank you. At this time, I will hand the call back to management for further remarks.

Okay, thank you, operator. Thank you all of you for your time today. We look forward to hosting you on Alarum Technologies Q3 2024 results call. Thank you.

Thank you. This will conclude today's call. You may disconnect your lines at this time. Thank you for your participation.