Edited Transcript of MAGS earnings conference call or presentation 16-Mar-20 2:00pm GMT

Excuse me just a moment. Thank you. when I joined Magal can July 2018, I led can varieties of markets and with Magal, macro opportunities ought recognize the company's capabilities and strength. And from this, we developed a growth tactic ought increase revenue and better profitability. Our team has been executing this tactic ought diversify revenue sources, improving growth by expanding our geographic presence with an increased concentrate above critical perpendicular just and aligning R&D property ought satisfy the requirements of those verticals.

We eat been improving the operational operation of the business can order ought increase cash generation and better EBITDA margin, key indicators of our business operation that motivate shareholders' value. We eat made a quantity of organizational changes, including creating 2 business divisions, which improved the overall structure of the business, facilitating an increase can revenue during new verticals and geographics.

Our operation can 2019 confirms that our tactic ought send our revenue is working during evidenced by the broad-based 90% growth can the Magal Integrated Solutions Division, excluding the Latin America district and the Senstar Products Division, delivering 9% growth across complete regions. The diversification of revenue streams, during evidenced by the appendix of new geographics, new customers and consecutive year-over-year growth can the Senstar Products part has elevated revenue levels from those seen can the years previous ought executing this growth strategy.

Our tactic has also been successful can improving margins and customer profitability. entire margin improved can 2019 by 120 base points, primarily because of the increase can Senstar entire entertain during the part software sales eat risen, driven by Symphony, our video management solutions software and our enhancement ought this most flexible platform.

As disclosed can our final year's results, I intend Q2 nonrecurring expenses item final year, totaling $2.3 million, which did no recur can 2019. With our continuing efforts ought come operational efficiencies can 2019, we realized a 61% increase can operating earnings year-over-year. can order ought hind our future growth, we eat been capable ought consolidate business units and effect price savings, which we eat used ought efficiently invent new hires ought sell ought our sales team. We hope maintaining operating expenses growth below revenue growth, which will better profitability during we go. Net earnings can 2019 was impacted by a noncash foreign exchange expenses and accounting consequence we often experience because of variance from the cash adjustments, cash balances during can the U.S. dollars currency.

At the familiar of each period, the changes can cash valuation is recorded during noncash economical fare or income. This adjustment does no influence the genuine even of U.S. dollar assets, cottage during has a variable shock above net income, making comparison across reporting ripen inconsistent. during a result, variance can foreign exchange evaluate can blue our profitability performance. during this reason, we apply EBITDA and non-GAAP metrics ought even out the variable shock of foreign exchange fluctuation and other noncash factors and confide that EBITDA is a improve standard of the company's performance.

For 2019, we delivered an prominent 17% increase can EBITDA, with an annual EBITDA margin of 9.4%. can 2019, we made firm further can our historic and new geographics, including Kenya, Spain, CIS countries. We had few new wins during our perimeter intrusion detection, the PID technology. Two of these were sizable margin protection projects, also during extensive PIDS appliance treaty during 2 chief international airports. can Spain, we extended our overall solution ought contain farther security with advanced cameras and tiny sensors can a key seaport. We also won a important treaty with the Israeli military during vehicle-mounted electro-optic system during engagement and evening observation capability.

In condition of perpendicular markets, can 2019, we made advancement can fat and Gas, Correction and critical Infrastructure, including airports. We landed the new treaty with a global operator during airports can Armenia. can Southeast Asia, we secured a new treaty with a correctional facility.

On the produce front, we advanced the Symphony platform, our vacant software all-in-one solution during video, security and news management with new access control features. Using electrical access control software constitution that we acquired, our R&D team is can the process of integrating access control capabilities during a module of our existing video management solution platform.

Before I influence above ought lesson nearly future growth, I'd alike ought highlight the prominent operation of the fourth quarter. entire margin improved can the fragment by 740 base points ought 48%. Operating earnings increased ought $2.9 million compared ought $435,000 plus final year, delivering net earnings of $1.8 million compared ought a loss of $100,000 can the final year. during a result, EBITDA can the fourth fragment rose ought $3.4 million, an increase of above 160% from the previous year fourth quarter. EBITDA margin was 14.1% of the fourth quarter, up from 4.9% final year. This is a noise entire ought the year, specially given the challenging revenue compared with the previous year.

Let me inspire my comments ought the -- ought our possess habitual growth. We eat post ambitious goals, and I expect ought interpret how we scheme ought come them. Recently, we announced new leadership during both business divisions with a mandate ought streamline the organizational structure and a concentrate above 4 key verticals. The new appointments eat impressive explore record and brings enormous industry experience. Both will explain direct ought me, and this new structure will enable us ought better execution and motivate our operation globally. each part has an increased concentrate above the technique and operate with their possess tailored go-to-market strategy. during we leverage our capabilities with the new organizational structure and company directing its property and growing can 4 key verticals: the fat and Gas, Logistics, Correctional association -- Institutions and critical Infrastructure. We are approaching those verticals with a twofold tactic ought increase sales with tailored security solution features, featuring tech-rich products and software from physical security solution and with the new adjustment solution that leverage center capabilities can each of those verticals. can each of those verticals, we can equip sole solution beyond security. during example, can the fat and Gas sector, the company currently secured appliance and pipelines using optical fiber, that plays down the pipe business. The fiber gives a high symptom of someone who's trying ought dig next ought it, and can recognize if it is person, animal or vehicle. We intend ought avail this technique ought detect gas or fuel leaks from a pipeline during the equal customer, giving pipeline maintenance crews the ability ought rapidly discover the address -- discover and address their problem. This is an district which we will spread property ought increase our capability.

In the Logistics vertical, our security cameras installed can the warehouse is monitoring the activity of nation and vehicles, and now can also overhear the shift of packages. The system can alert if a parcel has accidently reaches a different conveyor fragment than it was enthusiastic during or if it is handled can unauthorized manner.

For Correctional Institutions, Magal is developing a system ought detect and disrupt the ones ought hinder the possibility of those devices being used ought send illicit merchandise ought prisoners. can the critical Infrastructure vertical, we are targeting managing functionality ought lead on-site assets, such during computers, generators and other physical assets into the order and lead capabilities, giving us firm recurring revenue.

The M&A targets we eat identified during 2020 hind our key verticals and capabilities, expansion goals. We expect ought utilize technique that can leverage the capabilities of our existing platform and fetch new technology, innovation and expertise. We are currently can advanced stage with few acquisition targets. Given our net cash and related cash surplus of $51.6 million with no debt, we confide that we are noise positioned ought answer ought challenges and opportunities ahead. By increasing the technique can our offering both organically and over M&A, growing revenue, specially from our higher entire margin sensor division, cottage maintaining expenses controls and the increasing operational performance, we hope continued improvement can profitability and cash generation during Magal. With these strategic initiatives, with new leadership and enhanced offering, combined with strategic M&A, Magal is now noise positioned ought attitude its growth.

In summary, our tactic ought diversify our revenue streams and better the operation of our business is showing marked progress. cottage executing a tactic focused can growth can 4 key verticals, we eat made important steps ought better the operational operation of our company and maintain our economical position. I'd alike ought thank the entire Magal team during their special operation can 2019 ought send those prominent results. I appraise the dedication and difficult task of our global team and comprehend their commitment ought our strategy. ago I hand the cry above ought Kobi, I'd alike ought comment above the shock of the coronavirus above our business. We eat a worldwide sales compel that is embedded can the countries they support, and therefore, we eat relatively few international travel. We conduct eat a no-travel prohibit above our employees can this time. The company is gift can China, and sales can that speak eat declined recently, cottage during this has had few shock above our overall results.

In Africa and Latin America, it is less clean what the shock will be, cottage during can this time we eat no seen a slowdown. We fabricate can Israel and Canada and that's how we eat had no disruption can our manufacturing functions. We are looking can contingency plans can the occurrence of -- our teams lack ought task remotely can any of our countries. although it is cottage unclear how expectation this global emergency will continue, the fact that we eat entered the emergency following a advantageous 2019 with a noise cash post and no debt equip us with the belief that Magal ought attitude the emergency and attitude its growth can the years ought time. And now I used to alike ought hand the microphone above ought Kobi ought summarize the economical results. Kobi, interest further ahead.

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Yaacov Vinokur, Magal Security Systems Ltd. - CFO [4]

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Thanks, Dror. revenue during the complete year of 2019 ended December 31, 2019, was $86.8 million or a 6.2% decline from the final year's record of $92.6 million. The decline was because of lower Turnkey Projects revenue, offset by growth can produce sales. The geographic breakdown during a percent of revenue during 2019 showed increased diversification. And ought highlight this, I eat included the comparison ought 2018. Israel, 22% versus 15%; North America, 23% versus 26%; Latin America, 9% versus 28%; Europe, 22% versus 15%; Africa, 13% versus 8%; Asia and the crack of the world, 11% versus 8%.

The revenue breakdown among Magal Integrated Solutions Divisions and Senstar Products Division, which includes also video, were 40% during products and 60% during projects. Magal Integrated Solution Division's revenue declined 14% year-over-year and Senstar Products part revenue increased by 9% year-over-year. I used to alike ought point out that can 2018, Magal had a material returning guest can LatAm with a important revenue stream. cottage can 2019, our revenue from projects has been more diverse. The complete year entire margin can 2019 was 44.6% of revenue versus 43.5% final year. The convert can the entire margin is a responsibility of the revenue mix among the Magal Integrated Solutions part and Senstar.

Our 2019 operational expenses were $32.7 million, a 10.5% reduction from the $36.5 million final year. I learn that can 2018 we incurred 2 nonrecurring fare items. final year, we -- there was a onetime shock of $1.3 million fare related ought questionable debt, a divide of which was collected during 2019 during a divide of a settlement reached with a customer. can addition, final year we incurred a $1 million fare related ought the impairment of a goodwill surplus from historic acquisition.

Operating earnings during 2019 was $6 million compared ought $3.8 million can 2018. The increase can operating earnings was because of the shock of the nobody -- of a few nonrecurring expenses, during mentioned, also during because of our improved operational efficiencies. Net earnings attributable ought Magal shareholders can 2019 was $2.3 million or $0.07 per fragment versus net earnings of $2.9 million or $0.12 per fragment can 2018. The decline can 2019 net earnings was primarily because of $1.7 million of noncash economical expenses compared ought economical earnings of $1.4 million can 2018. The fare is mainly because of the noise depreciation of the U.S. dollar against the new Israeli shekel can 2019, which affected the valuation of our USD-denominated monetary assets held can Israel.

In 2019, our EBITDA, which we feel is most agent standard of the operation and profitability during our business, was $8.1 million, up 17% compared with EBITDA of $7 million can 2018.

Now nearly the fourth fragment results. revenue during the fourth fragment of 2019 was $23.8 million, a decline of 9% compared with the revenue of $26.1 million can the fourth fragment of 2018. The decline can the fourth fragment revenue was primarily because of the fulfillment of important portions of the scheme can Latin America can the fourth fragment of the final year. The fourth fragment is our seasonally strongest quarter. can the fourth fragment of 2019, we reported our highest revenue during the year with a 7% increase sequentially. The geographic breakdown during a percent of revenue during the fourth fragment was the following: Israel, 18% versus 14%; North America, 24% versus 22%; Latin America, 4% versus 28%, fourth fragment of 2018; Europe, 27% versus 17%; Africa, 12% versus 6%; Asia and the crack of the world, 16% versus 13%. The breakout among Magal's Integrated Solutions and Senstar's products revenue were 47% products and 53% projects.

Senstar Products part revenue grew 14% year-over-year, cottage Magal Integration Solutions part revenue declined 23% year-over-year. Fourth fragment blended entire margin was 48% of revenue versus 41% final year. can the fourth fragment of this year, the entire margin was specially high because of the improve margins delivered by our Integrated Solutions Division. Our operating expenses were $8.5 million, a 22.6% reduction from the previous year fourth fragment operating expenses of $11 million. The reduction can operating expenses is attributable primarily ought the one-off fare items incurred can 2018, during previously explained. Operating earnings was $2.9 million compared ought an operating loss of $435,000 can the fourth fragment of 2018.

Net earnings attributable ought Magal shareholders can the fragment was $1.8 million or $0.05 per fragment versus a net loss of $100,000 or $0.01 per fragment can the fourth fragment of the final year. EBITDA during the fourth fragment was $3.4 million, an increase of 161% compared with EBITDA of $1.3 million can the fourth fragment of the final year. Cash, short-term deposits and restricted deposits during of December 31, 2019, were $51.6 million or $2.23 per share. Our working major went up by shut ought $10 million by the familiar of 2019 can comparison ought the familiar of the final year. A majority of this increase is driven by the high billing even can Q4 2019, a big part of which has been collected and converted into cash during 2020. That concludes my remarks. We are favourable ought accept your questions now. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today is coming from Thurman Willis from Magal Security Systems.

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Thurman Willis, [2]

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I learn you learn I'm a long-term shareholder and possess pretty a few shares. just expect ought invent a couple of remarks. You had a big quarter, and you had a big year, and I celebrate you. even although -- I'm gloomy you're having ought explain above such a negative engagement can the just and below such dire circumstances. cottage during looking can Magal, if we ex cash, you're trading can 18% of revenues, which is unheard of. if we ex cash and accept the final 2 quarters, you're trading can a 2.5 PE. Again, that's 18% of revenues and a 2.5 PE. I learn that we eat talked during few years nearly acquisitions. My first question is, with the follow-up, I used to desire that an acquisition used to exist accretive, quantity one. And can you interest interpret ought me, with our stock trading can $2.80, why we used to no post into post a 10% stock repurchase program? And then I eat 1 follow-up, if you'll fetch hind ought me hind those.

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Dror Sharon, Magal Security Systems Ltd. - CEO [3]

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Okay. accordingly apply me first argue the -- retort you nearly the acquisitions, and Kobi will state nearly the share. accordingly we eat a few targets can our pipeline that we are pursuing now. We are can shut satisfy with them. Hopefully, we'll exist capable ought close, can the next few months, can least one. cottage during again, it depends above the condition nearly us. cottage during a few weeks ago, I was more sure if it will happen. Now it depends what will exist the condition can the market. cottage during for it looks positive, we eat a same firm pipeline of acquisitions. We are putting a fate of effort into it. And again hopefully, within the next few months, we'll exist capable ought announce one M&A.

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Thurman Willis, [4]

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Are you saying it will exist accretive?

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Yaacov Vinokur, Magal Security Systems Ltd. - CFO [5]

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Yes. Basically, complete the targets that Dror mentioned will exist -- could exist accretive. It's one of our, I used to say, expectation catalog criteria, of course. And during you know, we are selective above M&A targets during it's extremely important during us ought kill M&A with strategic appraise and economical appraise ought our shareholders. I used to add that our commonplace feelings now, when we are can -- perhaps just can the same beginning of the global emergency related ought coronavirus is that, truly from sure perspective, us being a company with a noise surplus sheet, with no economical debt, actually, it could -- can least this is our hope and target, it ought post us ought exist capable ought no just ought navigate over this emergency -- and I'm talking nearly our ongoing organic operation, cottage during also kill good M&A deals, meaning that we confide that good assets -- good strategic assets will exist or ought exist potentially available above the just and will enable us ought conduct what we intended ought do, ought materialize our growth plans, also inorganically during good or more rational prices than what we faced before. And also perhaps a larger kind of latent targets could exist available above the just because of latent economical distress.

So just above the point of -- Dror mentioned, ought the point of the stock purchase, this is definitely -- first of all, we are complete disappointed, of course, of the operation of the stock. We totally learn your recommendation above it and the recommendation of the crack of the shareholders. It's indeed ridiculous that a company with such relative economical strength, noise surplus sheet, 2 consecutive years of nearly $90 million revenue generation, 2 consecutive years of $7 million ought $8 million of certain EBITDA is traded above ridiculous multiples. cottage during this frustration, we -- during a management, we conduct tax complete the available options, and we state no ought -- can the contemporary situation, above one hand, we -- everything is open, including a latent program, during you mentioned. cottage during above the other hand, we also lack your hind and long-term assembly that can flash of the coronavirus emergency and such a high doubt into which we lack ought navigate a company with nearly 500 employees and complex global operations, we also lack ought exist same cautious with regards ought what conduct we conduct with cash. It's same wild -- same much -- same wild time. Of course, we complete understand. accordingly complete the options are above the desk and are being evaluated, I used to say, nearly above a daily base during we also tax what we appearance with regards ought the corona disruption also above a daily base during the developments are indeed daily. You just cry on this above the news. I desire this answers.

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Thurman Willis, [6]

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