Q2 2020 Magal Security Systems Ltd Earnings Call
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Oh, sorry, if I go this conference is being recorded.
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Last with Hayden IR. Thank you you may begin.
Thank you operator walk into Mccall second quarter 2020 earnings conference call I would like to welcome you to all of the conference call and take Muggles manager for hosting this call which is on the call today is drawer, Sharon CEO Mccall and Koby Benicar CFO.
Droll summarize key financial and business highlights followed by Koby, who will review a golf financial results for the second quarter, well then open the call for questions and answers session before we start like to point out that this conference call may contain projections and other forward looking statements regarding future events, where the future performance of the company. These statements are only predictions and Mccall cannot go.
On T. that they will in fact occur Mccall does not assume any obligation to update that information actual events or results may differ materially from those projected including as a result of changing market trends reduced demand and the competitive nature of the security systems industry. The unanticipated no effect of the krona virus, including on our operations and our clients as well as other risk.
Identify the documents filed by the company with the Securities Exchange Commission. In addition, during the conference call will describe certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, we've reconciled our non-GAAP financial measures for the most directly comparable GAAP measures in accordance with Reg G requirement.
It also refer to our web site at Mccall security Dot com for the most directly comparable financial measures and related reconciliation with that I'd like to how how the call over to drawer for please go ahead.
Thank you, but I'd like to work on one of your Htwo calls. Thank you all for joining us today.
Having them on some of these unsigned safe and a healthy.
In my comments all compose.
Yes over you were saying to the second both all but one Nike.
I'm pleased that during this time.
Let me come something because you got to achieve all strategic goals, while managing costs and maintaining profitability well the second quarter Twentytwenty when they leave it wasn't even an incumbent go it'd be dealt by 78% on the revenue decreased 17%.
Gross margin rose to 47%.
Reported revenue due to the increasing so still says and cost reduction in the world.
We the onset of <unk> called <unk>, which shifted all focused on managing go cost with the goal to maintaining aneel profitability what.
Positioning the company filled a covering both phone good though.
It's actually but what does pick somebody at the management to manage operational expenses.
For the medical deal without jeopardizing, the whole says in R&D capabilities in default.
In the second quartile reduced operating expenses, but what's your 2% to cost management delaying the Ohio, and then in Q Inc. lower sales and marketing expenses.
The result, operating income increased to $796000 for $195000 the second quarter sales last year.
We've proven that it'll be pulled nothing come to a $154000 from a net loss so well see how to 2000, <unk> and delivered an EBITDA margin of 7.8%.
<unk>, 8%, increasing that'd be though.
They also had another quarter <unk> positive cash flow generating 1.1 medium.
In cash from operations.
Oh, two business segment.
Got it integration so my gun conditions solution and the synced up one of the division had been impacted quite differently in the quarter by the Colby.
Project delays along with the Savi limitation, the six I'm going to face to face me think we're supposed to become the clients cushion to closing your business.
Affected though division did.
Definitely well done integrated solution division was more effective than the since then the since the positive division. This quarter closing large project deals. It is dependent on face to face many things on the repeated.
In personal interaction with the various Dan.
Although government and large entity is let's pick willing cell phone because oh delaying you project.
To conserve cash in.
Oh I'm sorry.
As a result.
<unk>.
Kills me as a result from a gun to additional solutions second <unk> revenue is used by 26% he will vary.
The coping 19 impact, though since the product division to list. So degrees due to the high geographic and product line that vessel.
As a result since the revenue declined only 40% you over you.
Okay until the Densifying go live video streams of course, it up because then there is always the doing the global Colby I would like as a result smuggled project opinion was more transactional coming from the smaller can talk than detail other than last one book as a follow up as it probably will you.
In the second quartile, we landed several donkey project, including the VIP resident in Mexico, and then African or people to an extension to all turnkey project with the <unk> are going up in Spain.
Shifting <unk> shifting to an update on though full keep up because the oil and God Correctional facility. It's good to go to talk shows and logistics.
In the second quarter, the oil and gas they still continues to be affected by all twice the fluctuation relate to put that on even global economic recovery in <unk> for the remaining on hold.
We expect this will pick up to begin to improve next deal and remain engaged with the those customers very closely.
The Fortunately they'll pick up particularly in Canada, it's still delays in project execution due to the Cobiz 19 related.
Mutation on supposed to be the access we do expect.
So let's talk to a covenant cannot dying.
[noise].
[noise] Hello Cobi.
Yes.
Want to continue reading for him.
Yes, so now.
Apologies for technical issue, we do expect collections to recoveries guide that you Twentytwenty wedges medical has grown nicely over the last few years.
And you solution developed for collections is a recently launched.
System.
This system can be lives for the detection tracking and neutralizing go drones that bring he said oh prohibited materials into the city.
We also said the Saudis homeland security.
And public safety with digital system.
System operates in a unique distributed solutions based on our proprietary Mcgovern 40 command and control capabilities and flexible solution.
The critical infrastructure very cold has been access for our teams this quarter, but outcomes vary depending on the region.
And mentioned and yeah, we closed several infrastructure flux up in Europe and Africa during the quarter.
We continue to invest in their logistics radical.
So I would like.
Cool.
Okay.
Yeah.
Excuse me reconnecting draw Charlotte.
[laughter], Okay yep okay.
So certainly both inside and us well disconnected.
Oh yeah.
Probably what would you just stop.
So we just started discussing the logistics vertical.
Logistics.
Oh, okay, but not filtering besting the logistics vertical well just to close logistics logistic a little comments on boarding worldwide used vehicle we couldn't do.
This has generated and the opposite opposite surgeon the online shopping and.
Increased focus on improving the expanding distribution capability.
Just larger more complex logistics that'd be.
Great, though security on the pushing it.
So spend those couple of somebody says and what they call will be all leveraging opioid yes. The bids the Vms software on the syndicated analytics to provide specialized solution for securing disposal as one of the trucking and managing positive movement.
Another new innovation innovative product, we just launched at the same spaces in response to the coupled with a requirement. This new video analytics solution is kenwyne Vms Buffalo Lustig to enable the businesses. We opened why do you mean pending cobiz relate the public safety requirement.
Space to be done I mean, it's identified any bids was not willing.
<unk> and money tolls, social distancing occupancy limited and then said 70 patients. Thanks.
In public so silly views on building.
Currently we have distribution channel partners them that potential clients testing the system.
They also closing new business with bio custom most notably the new concept announced yesterday to secure military is it going.
Intergovernmentalism highlighting the six months I've been on construct will provide physical security detrimental detection of video surveillance I just want all public I've listened associated command and control equipment.
And starts to fall off the globally.
This key contract awards uncle glide technology differentiation and the scope of since the product offering for deployable security solution.
The other people, it's very competitive equality <unk>.
Requiring to both module equipment, but technological sophistication, Kevin real being mounted connected to this amount dismounted rapidly in is it integrated with existing gossip.
This win is in the endorsements <unk> technology experience and customizable.
Shifting to an overview of our performance by region North America. So go to know pulled up the operation during the second <unk>.
Deliveries of mostly continues in this region that security for critical sites and see the it's considered the and the essential services. The Canadian territory was Blair minimally affected by the slow down into <unk> sector. We have a backlog of all those which we will fulfill <unk> endlessly actions in the country.
<unk>.
In the EMEA region regional most people think on C. the alcohol see the essential services spend has been active antennas with only four we've been doing.
And he's mundane, but over the course isn't mix would easily NIM will do see lucky while others take those have slowed down Africa is also mix, but a well, meaning winning new business there as well.
Well under the sea Port Security system design and installation you would be.
And you don't always well, we see fit you'll put there would be.
Hey, packaging is being impacted.
The longest by the Corbett.
We've locked down and the distinction that began in the Italy 919.
Gives me early Twentys when he and his team continue in many regions that are we still are there to be similar into.
We began to see some activity in datebook region in July, but clouds areas, including the Philippines, Indonesia stealing the under look down and not division still managing good coping outbreak that though separately severely impacted the economy connectivity is Latin America.
Got it allows countries in south.
Since all of <unk>, Oh fighting the once all the <unk> the weight of <unk> outbreak.
This dynamic because impacted all businesses in a this region, though we have some smaller can talk to me the recently.
My goal the sound financial standing with the net cash in the relate to guess, but I'll give that gives me confidence nothing confidence you know ability to response to the challenges and opportunities ahead, we will prioritize I'll use the use of copy doesn't do so yes.
Investing in R&D to increase okay competitive advantages.
We intend to go pool of talented experienced people critical to all future glow and M&A, specifically will put specific opportunities stood <unk> female Jews well ducting them, both market them the village existing thoughtful.
I will then discuss some example of investment in a lot and be holding up and that you inhibition that does the live the another element that session for the company post watches recoveries employee retention believed that keeping the old team on board will provide support to our customer flows new business and.
Continued to improve all product solutions and software only the competitive advantage that enable us to preserve the strategic direction of Morgan.
The M&A targets, you know pipeline with the <unk> technology to leverage all existing capabilities and bringing innovation to expose you.
We hope to close the at least tomorrow. So two deals in Twentytwenty wherever it is you dialogue with the target put on hold at the end of the fit well doing just a week ago. We submitted the non binding go like the one of the interesting targets that we are working on.
I want to thank the global Mughal team for their dedication and spirit in dealing with all the various challenges we're facing both it all comes up with some personal lives I call can that that's with our strong balance sheet, all bets logo business and those skewed team, we will emerge from the twice as long as opposed to position for.
And now I would like to have all but well be to somebody that's not to lose on.
Probably please go ahead.
Thank you drawer.
Revenue for the second quarter, 2020 was $16.4 million and declined 17%.
Yeah.
He was $7 million into second quarter ill say 29.
The geographic breakdown as a percentage of revenue for the second quarter was as follows Israel, 24% versus 23% North America.
The census is 23%.
In America, 3% versus 9% Europe, 17% versus 19% Africa 15 cents a 16%.
Asia and the rest of the World [laughter].
The breakout between Mcgarvey integrated solution and that does product revenue was 47% products and 53% projects.
Regarding integration.
Division revenue declined by 26% year over year and stuff that's grown division revenue declined by 4% year over year.
Second quarter blended gross margin was 44.2% to say this is 42.6% last year.
Gross margin increase was primarily due to the high gross profit contribution related to the increase of Censtar sensor product sales as well as well savings in the quarter.
Oh operating expenses with $6.4 million.
22 cents reduction from the prior year second quarter operating expenses, Oh, he's going to make them.
The reduction in operating expenses.
Pathway to payroll related actions such as delays in hiring going to reduction indication liability as well as a reduction in expenses such as travel and marketing.
We delivered these reductions while maintaining a continuous investment R&D and sales personnel.
Operating income was $796000 in second quarter, upswing 20, compared to 195000 doors in second quarter 2019.
<unk> expense was $467000.
Just a national expense of $363000 in the second quarter last year. This is a non cash expenses. The results of the end of period, but Asia myself.
And last.
At the end of each period the change in currency valuation of monetary assets and let me just is recorded as a non cash financial expense or income therefore, we use.
Yes metric teasing out the that you talked a foreign exchange fluctuations and I didn't catch sectors.
I believe the EBITDA is it better I agree with the Companys performance.
EBITDA for the second quarter was $1.3 billion versus.
716000.
Yeah, Bill that's in the second within the last year.
Net income attributable to my God shareholder in the quarter was 163000 gold.
All while Centsper share this is and that's lost over $236000.
Wow, that's a share in second quarter.
Right here.
Cash and cash equivalents short term deposits at adjusted cash in deposits net short term bad debt credit at June 30, Twentytwenty were 56.1.
Or two and daus and 44 cents per share compared with cash and short term deposit Oh.
$1.6 million or $2.23 per share assets at December 31st to solve the magazine and $64.4 billion or $2 and they fight.
As of March 31st 22.
Oh working capital decreased by almost $5 billion. It's at June 30, Twentytwenty comparisons to the end of the last year.
Joining me on the degree is driven by the trade receivable collections.
Hey, it's too high ceilings levels in Q4 2090.
We delivered positive cash flow for operations, I'll say $1.1 billion.
We are pleased with the company's ability to generate cash and gotcha gotcha environments.
That concludes my remarks, we're happy to take your questions now operator please.
Thank you, ladies and gentlemen at this time it won't be conducting a question and answer session.
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Our first question comes from the line Oh, Sam Rebotsky with SCR asset management. Please proceed with your question Yeah. Good morning draw or good morning, Colby or afternoon, Israel or the second half million contract in the <unk> language. It says.
The contract has a value on 600 million with final.
Acceptance expected in second half of 2021 does that mean, you started working on that contract and they won't completely when do you start working on it and when do you get the money.
The idea you got two weeks I mean, there's just a last week. So we won't get last weekend no no backlog stopping to walk away the immediately.
Assumed that let's say a after a bunch of <unk> said.
We'll be done viewing gets monkey plenty and do it shouldn't be finished by the end of two I think when do you want.
Well well that that sounds very good you properly or they even though the sales went down for the quarter you managed to.
Show, a small profit I assume you win win or would the additional contract. If you increase sales your profit will increase proportionately going forward.
<unk>.
In this I said, there's a scope in this respect we should remember that.
Yeah No currently in this quarter, we're not at our a quarterly Opex run rate. So at the reduction in operational expenses is there is a is that a reaction or.
Yeah.
Reaction basically to their specific.
Situation related to Colby 19.
But yeah, obviously, a elements like a travel app.
And our there I am no other expenses or will that gets back at least partially as they overall situation and the economy is ER is getting back to normal so.
Yeah. So it's no I wouldn't say so it will be a pure increase or improvement he due dates a bit more.
Complex than that but definitely a this contract is a accretive to our profitability.
Oh, Okay, I, I'm going to say something which.
Do you recall Thurman Willis, who wishes on look cool and had always asked for activity in Investor Relations. Unfortunately.
He passed.
And I would appreciate in his name is that you would do as much as you can in Investor relations in memory of Thurman Willis.
And Oh Boy you have a your story improves and your earnings improve and he would appreciate knowing that much Gol has improved.
And.
Thank you.
Thank you.
Thank you, Sam where everyone did that believe very much in the company and Uh Huh.
[noise] join Youre a wishes.
Thank you.
As a reminder, ladies and gentlemen, it is star one to ask your question.
<unk>.
Our next question comes on line of Ken living with Oppenheimer. Please proceed with your question.
Hi, good afternoon.
Just two questions.
First have you had any additional feedback on your.
Stated.
Our video analytics at this point yet.
Some of the same spaces, we all know to losing it will serve to several customers and individual.
No no evaluating the solution.
I assume that in the next few weeks or months and what do you sell to secure all those but again or something but to see and a them, but then we see lots of ER.
It's Russia enthusiasm bonuses solution.
And given.
He.
You see any new verticals that will provide growth or.
As the things change at this point that you can discuss.
As I mentioned in my script, the logistics looks very promising.
The amount of logistics.
The houses and sensors is growing it below buying more and more showing the online and.
Six oh by the supply of though looking for them.
Solutions a into loved ones one is to secure the logistics center themselves.
And are we start to the will buy them also with a.
Well to the management, Yeah, we did already the first project in a renewal and the customers, we believe and Ah, but using goal of Vms and so well.
We are managing the movements on the Boston.
By a unique analytics or.
Susan difficulties the police systems logistics looks very promising.
Yeah.
Assemblies and also the critical facilities, especially in North America is the growing market.
Good to hear and just one last question what was your cash flow for the quarter.
So we had a positive cash flow from operations of Sam just above $1 million.
Okay great.
Basins and that it'd be the profit I appreciate it take care.
Thank you again, thank you.
As a reminder, ladies and gentlemen it.
Hello.
Huh.
[noise] as a reminder, ladies and gentlemen, it is star one to ask a question [noise].
Our next question comes from the line of Bruce Tuchman, a private Investor. Please proceed with your question.
Good.
Both aware at least Colby I know, where its been a disappointing run and I know that in the past people have said to emphasize a investor relations and get the word out but.
It's really a matter of increasing sales. If you guys can get either a better sales force or or a kick into but to the current sales force a in this environment in the past a 10 years with terrorism with everything else going on in the World. A you folks should be doing a much better job of gas.
During your product out there and I keep hearing the good news on this contract and that contract, but the stock at $3.35. This morning is not a reflecting a growing company and I had hoped that you folks would be growing a lot better and increasing sales. So it's really not a question.
That's a comment and a I've been a dedicated shareholder and hope to be longer because I believe in the product I believe in the company and I believe in the need for the product. So if you could comment a that would be great, but otherwise Ah you know I wish you all a great day.
Well why maybe a one comment was the company for the last three years 18 19.
Go very nice.
We go the says in the between ability to fix it but.
You will be you and the plentiful tools when she was the most to keep it well.
In positive imported we have to speak more with investors about the.
Revenue wise at both the pumping providing the company go very nice and those two you context. When he started very promising a unfortunately because people are the most of the world and.
We will deal with the goal the situation. So those those slows, though so so little or no.
Yeah, hopefully in the next within six months or so what I'm going to be a controlled in a bit amended worldwide. You gave it to go becomes reckon go the company.
We see lots absorption or I assume the acuity one of the goal even that more than a lucky to go into that they are you.
So I still believe to the security is a good place to be Uh huh.
Some kind of slowdown during 2020 because of that.
Globally, but other than that the company, we're very nice indefinitely just do it.
Okay.
Okay. Thank you.
Oh, that's question as a follow up question from a lot of Sam Rebotsky with I see our asset management. Please proceed with your question.
Yes, our drawer what do you spoke of acquisitions is had been previously or not.
What that is what is the status of the acquisitions, we're looking at and as prices come down on a potential acquisition.
Looking at.
Through the actions, we have a few or what have been wonder well.
Yeah, we also.
Actually tool belt.
Otherwise Oh God.
I cannot say the prices went down but at least the the though I wouldn't want somebody there although.
And you know, we'll we'll see.
The only those the those the those companies.
And hopefully it won't be able to move out of it wasn't meet the face to face will be able to.
I'm trying to blow this wasnt going to during the last <unk> during the next few months.
Oh, okay.
And can you sort of comment relative to the.
Tender offer for stock, which was unsuccessful by the office Oh by the major stockholder that owns the about 40% and what is the companys position all that there remember the board of directors and what it's been the recommended.
They shouldn't this type of procedure and what did that accomplish and you know it this way.
Not successful, but the stock managed to move up.
After that.
And based on this contract Sorta would you comment that something on that.
Oh, yeah that this tender offer is basically between the shareholder so from that perspective agent with this company management, where kind of say.
Outside of this ER transaction of course.
Yeah, which eventually did not happen at the board of directors are due to convene twice or as a as required by the wall and to wear to discuss and ER and provide their recommendation eventually I decided to.
Yeah.
Just to be a neutral tens of the a recommendation.
And.
This is.
How we see ER.
From that from the management team perspective.
Well <unk> from my point of view the stock is undervalued.
And a new entirely new IR firm and and they will do whatever they think and recommend to you to get exposure as best they can or would the coal bid, but there is all the.
ER security needs and hopefully the contracts that you just signed it is decently profitable and ER and that we could get to start to trade on a regular basis at a higher price good luck.
Thank you very much.
Okay. Thank you Sam just to add that Oh, we are going to attend or from the IR perspective, we worked very closely with they didnt.
Brad can vary a piece or would that says its going to attend a LD micro beginning in September.
To to Tomorrow can successfully to so and we also have a schedule calls.
Almost every week when there is a new potential investors. We also extended some are at very nicely.
Our work in Israel, and our Oh.
Oh country.
And we also are.
And docs here almost a weekly meetings with the potential investors. They so we hope that ER, we've actually almost totally I guess I'll dad, yes, understood or we'll see some traction in the school bus.
Once again it is star one to ask a question.
Our next question comes on the line of Craig Rossman Private Investor. Please proceed with your question.
Hi, Good afternoon, <unk> I just had a question about a cash just to confirm that cash per shares $2.44 U.S. and.
Regarding the changes in expenses.
Paul on the proportional comment earlier as business increases again, and your expenses rise do you anticipate using.
Cash there the reason I had the question is that even with this you increase your cash on hand, so how should I understand that going forward.
Yeah.
Oh man yeah. So.
So the a calculation it's a indeed.
The number that side you mentioned, we have the 56 million erosnow.
Cash.
Around $23 million, I'll say, a shares or Oh, yes. So last for me so it isn't it.
So a this is the situation Oh, we do generates you know we show positive.
Generally cash we generated cash from operations and a this is a they themselves. So say cash increase we yeah, we had.
You know, where we need to south we finished basically 2018 and 19 with that let me give the easy job and ER and.
It's been a cash increased doing 20 to 20, Yeah, obviously also related to the collection Oh.
Income and this was a and in.
In Q4.
2019.
From our perspective.
You know where the cash.
The use of the cash is is for M&A activity and as we mentioned our <unk>.
Target list or gets longer.
During the last a few months and.
In that quite intense stages.
That would that used to targets.
And.
Oh, that's you know there is a working capital operational use of cash.
I hope I addressed your question.
Yes, I I think so thank you.
Hi, congratulations.
Well.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Okay. Thank you bill on doubled the mechanism.
We'd like to thank you.
You know interests and long term support to our business.
I want to updating you on that well as it would be Olivia. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Yeah.