Shachar

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 28, 2025

Financials Results

• Revenue: $8.8M, down ~1% YOY (vs $8.9M in Q2 2024)
• EPS: $0.04 per ADS (non-IFRS), vs ($0.05) loss in Q2 2024
• Gross Margin: 63% (non-IFRS), compared to 78% in Q2 2024

Guidance:

• Q3 2025 revenue expected at ~$12.8M (±7%), ~78% YOY growth.
• Q3 adjusted EBITDA expected around $1.1M (±$0.5M).
• Newly ramping large AI data project to contribute ~+$3M revenue in Q3; customer expected to add ~$3M per quarter.
• Near-term profitability from the new project limited; company expects further gross margin decline in Q3.
• Actively optimizing infrastructure and cost structure during ramp; visibility beyond Q3 remains uncertain due to market volatility.

Business Commentary:

* Market Demand for AI Data: - Alarum Technologies reported second quarter revenue of $8.8 million, with a net profit of $0.3 million and adjusted EBITDA of $1 million. - The strong performance was driven by high sales from large-scale data collection projects for foundational AI models, indicating a growing demand for data in the AI market.

• Customer Base Shift and Expansion:
• The company witnessed a shift in its customer base, with major tech giants and e-commerce companies becoming more prominent.

• This shift is attributed to increased data value, where customers are turning to Alarum for data access solutions, such as compliance, geographical distribution, and traffic unblocking.

• Infrastructure Investment and Optimization:

• Alarum increased its investment in infrastructure to support new demand and meet the extensive needs of major customers.

• This strategy aims to optimize network infrastructure and product delivery, resulting in lower margins in the short term but positioning Alarum for long-term growth and profitability.

• Strategic Customer Ramp-up:

• Alarum announced a new large-scale AI data project with a strategic customer, expected to contribute approximately $3 million of revenues during the third quarter.
• The project's initial lower profitability margins are due to infrastructure scaling costs, but long-term benefits are anticipated as it allows for strategic penetration and increased cross-selling opportunities.

Sentiment Analysis:

• Management beat prior expectations and guided Q3 revenue to ~$12.8M (~78% YOY). They began work with a “highly strategic customer” expected to add ~$3M per quarter. Non-IFRS net profit was $0.3M vs a loss last year, and cash and liquid investments were ~$25M. While margins will decline near term due to infrastructure ramp, management emphasized strong AI-driven demand and continued profitability focus.

Q&A:

• Question from Brian David Kinstlinger (Alliance Global Partners): Why won't the large customer ramp drive incremental EBITDA and why are gross margins low? Is it a discounted POC, and can margins improve over time?
  Response: Margins are initially low due to heavy technology infrastructure (servers/network/cloud) costs for a massive-scale dataset project; as cost structure is optimized and volumes/cross-sell grow, margin contribution should improve.

• Question from Brian David Kinstlinger (Alliance Global Partners): Is the elevated COGS driven by technology or headcount?
  Response: Technology infrastructure—servers, bandwidth, and cloud computing—drives the higher COGS.

• Question from Brian David Kinstlinger (Alliance Global Partners): To generate incremental profit, do you need significantly more volume or other higher-margin projects?
  Response: Yes; profitability improves as infrastructure costs are optimized and as additional projects with standard margins and cross-sells scale alongside the large project.

• Question from Brian David Kinstlinger (Alliance Global Partners): What is this product and how does it differ from existing offerings?
  Response: It uses existing offerings but at extraordinary scale with massive bandwidth, which materially raises network/server/cloud costs at this stage.

• Question from William Kingsley Crane (Canaccord Genuity): Does the customer-base shift (lower NRR) ultimately imply higher LTV and more stability?
  Response: NRR calculation lags due to 4-quarter averaging; underlying Q/Q retention from current customers is growing strongly, and AI-driven customers are expected to be more durable over time.

• Question from William Kingsley Crane (Canaccord Genuity): Has the large customer been long-standing, and how impactful were they in Q2?
  Response: Engagement began ~1.5 quarters ago; it contributed a meaningful but not top share in Q2, uses multiple products, and is scaling across departments; the new project is exceptional in size.

• Question from William Kingsley Crane (Canaccord Genuity): How certain is the ~$3M Q3 contribution and how variable could it be?
  Response: With two-thirds of Q3 completed, confidence in the ~$3M is high; visibility beyond Q3 is less certain given the volatile, evolving AI market.

• Question from William Kingsley Crane (Canaccord Genuity): How should we think about gross margins into Q4/Q1—stabilization or continued pressure?
  Response: If growth is from existing products, margins should normalize; new large-scale projects can pressure margins. The company is investing aggressively in network capacity to capture demand.