Q3 2020 Magal Security Systems Ltd Earnings Call
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Terry.
<unk> third quarter 2020 earnings call.
At this time all participants are in listen only mode of course, you. That's for suffered will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded it is now my pleasure to introduce your host Kim Rogers with Hayden IR. Thank you you may begin.
Thank you operator, welcome to Macaus third quarter 2020, <unk> earnings conference call other.
I'd like to welcome all of you to the conference call in fact, Mcgols management for hosting this call.
With us on the call today.
[music] Mr torture on CEO.
And Mr. Cobiz on okay. So yeah. So.
Sure well some other I keep.
Key financial and business highlights followed by Koby, who will review the GAAP financial results for the people.
Well then open the call for questions and answers session be.
Before we start I'd like to point out that this conference call may contain projections or other forward looking statements regarding future events or the future performance of the company. These statements are only predictions and look all cannot guarantee that they will in fact occur.
God 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 on the competitive nature of the security systems industry. The unanticipated an unknown effect of the right on the fire.
Yes, including on our operations and our clients as well as other risks identified in the documents filed by the company with the Securities and Exchange Commission.
In addition, during the conference call, we 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 have reconciled our non-GAAP financial measures to the most directly comparable GAAP net.
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You can also refer to our website at Www My golf security Dot com for the most directly comparable financial measures and related reconciliations.
And with that I would now hand, the call over to draw for George. Please go ahead.
Thank you Kim Lucky Thanks, everyone for joining Bastille day to reveal what the results.
My comments on the computers on on a year over year. Thank for the so well talk to 19.
Globally, the mcginness they are executing well despite the impact of current this big change, we'll continue to develop new business relationships beat the pipeline and close sales.
Clothing sales in both of those divisions.
On an integrated solution, Oh Plugging Division I know since day, one of the vision.
Somebody's dog backlog index, so what the rose to a record net where we get the operating expenses by over learned for such as opposed to there'd be no for 1.2 million going on.
Year to date, we have lowered the operating expense by $3.2 million.
Non-GAAP has maintained profitability we thought it was fixed income investments. These sales are not Andy on by moving growth.
In Austin and losses Cusco too.
It's a goal for school be ongoing investments in new products and upgrades to all or something and then for the company for them and then go because he was encouraging wall business.
As a percentage of total consolidated revenue my guidance Your records for little trend was 54 per se.
One censtar was for the 6% inline we believe this quarterly performance to date from Twentytwenty, both business segments continuously.
Be impacted by called <unk>, and Nike net so nothing to talk with them on.
Deposits, even though we announced two key construction work in August we issued a press release, they think that the global organization. There was a sense, though its expense I've been on U.S. dollar growth.
Why did we plan to secure mobile military on.
These awards recognize technological differentiation and the school books since the offering by yet we'd love to security solutions.
In October we announced a lot depends on to secure government on body, what's the bonuses in the volume Africa's largest GAAP it does well.
Oh, I see we can share of interest borderfree $10.5 million.
And we anticipate increasing the revenues during the course on the project.
The optical components and that's something that for a poll both from a GAAP divisional Goldberg from delivering competitive advantage.
The strength of the up acuity system includes combined comprehensive learn from from Augusta bulky products I'd love for them.
And the project cool.
As for Peace Kumar from told you My God for Bobby Bobby Physical security for motion management system on the yes I am this.
This new generation MPS I am support them on their youre doing with their lives inspection system the idea.
So starting from the bigger management software on the Vms Vms includes intelligent video on the basics dive Yankee moving to get the project also feature will take place on like.
On his console hardware on the software on the secure communication that's on the supposed to systems integration of operation.
These are for bar they solution that Oh softer on technology.
Shipley, great using all my my body pencil.
That's that was the revenue declined by <unk> percent for Buffalo, just wondering like yourself water well why do you have a down year over year I still believe it's almost 5% sequential growth.
The divisions loved it sounds like some other revenues along with it good luck.
Lucky calling for that line they built a deep and there isn't a division of the men.
Okay stable enjoy good Wendy.
Interest so well do my brother, because it's the only thing continued day book you find your revenue stream with an increasing sizable and kick off the wall Keegan transaction on business from smaller from something deal because you started doing such as Lisa losses. Both on the we went we want in the Africa.
Compared to the same period last year from a gun integrated solution was down 36% inline we told the division for.
On seems that told me the outbreak.
Shifting to an update on all for kids, not because energy costs on facilities goods on infrastructure and logistics and.
Energy continued to be impacted by this on.
Even recovering global economy does decreased demand for oil and gas on depressed commodity.
Commodity prices.
This is causing delays in both losses for the new investment into effect on that we're going to walk before we.
We began to see improvement in the energy book on the last few months for.
Well, just so stopping to come back on the table.
It was only supposed to anticipate closing new deals interest will pick up a year on all the fiscal total threat Donkey 21.
Collection in the U.S. continues to be strong vertical for us well anticipated strength.
So continuing to fold for them and you aren't good on solution is being tested for taking second industrialize long to enter the aerospace overcapacity volume and New York, suggesting it's also to books on associated with it.
We expect that the expense, we expect to expand our offering in that goes on locally based innovation.
Yes, the guidance Patrick what they could be a measurable pickup for us we see Boston airports in Latin America.
Asia Pacific I'll pick on you will we have other recent green thing these and other people.
Logistic facilities worldwide the wrong to meet increased demand for related to the other good in online shopping day.
These large complex logistics so for you.
Thank you with no published on the domain business. We are launching an updated doesn't seem for me Oh Vms software.
Okay, and the dedicated Selectica on Vms.
We have agreed to sell for those to provide a comprehensive solution for you mean logistics facilities on for specifically for Bush think it would be a good shot such.
Such as Becca, just picking checking and movements management.
Based on hand solution improved Oh, why on all just picked up from a security investments.
On page two logistics providers are using on your solution for the second project and you will be is being finalized the adoring day for bumping moving to using all new Vms softer in the Ivig.
And other innovative products. We recently launched you say spaces. These new video analytics solution, which is inline vms, but some other nostix allows businesses to ensure they are maintaining corvisa related public safety requirements.
Expenses tricare they'd be for individuals not willing Moscow and <unk> million total social distancing occupancy limits on the sanitation expense in public spaces and building we have shipped units to several upside for testing and see on encourage encouraging interest from where the market potential for this solution.
Got someone like say spaces integrate with any vms on on the market they can be rapidly golden bid flow.
The stakes spaces hardware and software on the whole development don't maybe by sometime in the very short on ship.
Shifting now shifting to an overview of our performance by region North America on many of the U.S. continues to be there had been a new checking to own teleflex.
You mean are you starting to recover but a buck is mixed.
Depending on the in the on the concrete Latin America for the region continues to struggle.
My God maintains a strong balance sheet with the net cash on the religious cash position on $53.4 million and you have remained well for them than you do they despite the decline on revenue.
Focused on use of capital on one is retaining go it's been deemed interest because the booking on growth to continue on the R&D investment and it's free and keep looking for M&A.
Well I always thought your investment investing at the commodity because he is essential differentiator from a volume to global security industry. My guidance a good solution is more than a system integrator, we develop on stopped doing house and Oh, no launching a new personal focus on our PC I have come on from tool.
Which is the big Baller follow on integrated solutions blood for my God developed technology for its customers like optic on that so for the Israeli Ministry of Defense, which we have income whats been going Oh argued on system for filled up for us.
Early Oh.
Oh, Thank you don't see stimulated and definitely you know development solution.
It does not mean was obligation of course oki vertical.
I mean, the only at sense, though we'd like you know to investing in enhancements to since the Symphony Vms software, adding new features and your capabilities and also I'm getting opioid yes, Lauren for them.
And other uses copied done by all these I mean, they got on M&A opportunities in all parts on the targeting technology that leverages, our existing capabilities on bringing innovation a new expense is your commentary on discussion a few competitive bidding processes.
Well this isn't the hope to close it wont be for sure.
It's total MGM to day, when it seems shareholders' approval for flame <unk> to.
Also the cash dividend up to funky from you know the dollar.
Probably the paid dividends to share one does it suggest that subject to the approval of the Israeli district called the final amount of any dividend payment, we would be would be decided by being regarded border for that.
I also think that little on my does team for their contribution or something like that John just to be on one facing inovios various wall. If my daughter and appreciate everyone on the indication on its performance as well.
For the strong balance sheet and industry, leading for college. It go but these are local debt load, but I. Suppose this is positioned for recovery on the goalpost go for it.
You make on conducting own ability to execute on our long term strategy to go live in and pull for profitability and closed M&A.
Okay.
And now I would like to hand, the call on well look to Colby for summarize the financial results, Let me let bullet.
Thank you George.
Revenue for the third quarter reported 20.
For the 18 zone three.
$3 million declined 18% compared with its weighted to doug's $2 million in the third quarter 29 seats.
The geographical breakdown as a percentage of revenue for the first quarter for the third quarter was as follows Israel, 24% versus 23% North America, 25% interest [laughter], 3%.
Latin America, 7% growth is 3% Europe, 21% versus 24% Africa, 16%, 17% Asia and the rest of the World Hey, Barry.
10%.
The breakout between my got integrated solutions, and that's the sort of revenue was 44% products and 56% projects.
Oh, My God integration solution Division revenue declined by 26% year over year and sets us broader division revenue declined by 5% year over year.
This quarter, our blended gross margin was 41 zone eight percentof revenue versus 45 day, one per cent last year. The gross margin decrease was primarily due to the increase in project revenue. This carried lower gross margin, partially offset by higher gross profit contribution from tends to sales.
And cost savings in the quarter.
Oh operating expenses were $68 million, a 9% reduction from the prior year third quarter operating expenses of $7.5 million. The reduction in operating expenses is attributable primarily to payroll related actions such as delays in hiring a reduction in the case.
On liability as well as debt reduction in other expenses such as traveling on marketing and subsidies received from the Canadian government.
Again, I want to emphasize that we deliver these reductions while maintaining our continuous investments in R&D and sales personnel are most important to us.
Our employee headcount remained mostly unchanged.
Operating income was zero point $9 million in third quarter of Twentytwenty compared to to the $5 million in the third quarter on 29.
Financial income was $6000 compared to financial expense.
Zero point $6 million in the third quarter last year. This.
This quarter due to relative stability isn't there for this market, we did not record and non cash expenses. The results of the end of period valuation of monetary assets and liabilities.
EBITDA for the third quarter was $1.3 million versus EBITDA of.
$3.1 million in the third quarter of the last year.
Net income attributable to non-GAAP shareholders in the quarter was zero point $6 million or one cents per share versus a net income of $1.3 million or six cents per share in the third quarter of the prior year.
Cash and cash cash equivalents short term deposits and restricted cash on deposits as of September 30, Twentytwenty increased to 53 dogs for million dollars or $2.31 per share compared with cash and short term deposit 61 for the 6 million for $2.
23 cents per share as I say at the end of 29.
Oh for working capital decreased by Zero point Fourmillion builders as a September 30, Twentytwenty in comparison to the end of the last year and majority on the degrees is driven by the trade receivable collection.
We're happy to take your questions now operator to your grades.
Thank you, ladies and gentlemen at this time well be conducting a question and answer session. If you'd like to ask a question for May Press Star one on your telephone accounts.
A confirmation on total indicate your line is other question too you May press Star two if it was like for moved here a question from the Q.
For participants using speaker equipment. It may be that started to pick up your handset for for pressing the star key on.
While we poll for questions.
Yes.
Once again, ladies and gentlemen, it is star one to ask a question.
Our first question comes from the line of Mike just where were having sex holdings. Please proceed with your question.
Good morning, gentlemen.
Thank you for providing the information regarding the continued.
R&D investment.
Investment I think that's critical for the future the compression on the very long term shareholder.
Just a quick item you said that a I guess a resolution number three was approved this morning, That's your board meeting and in light of the.
The investment expense R&D overtime, and any potential acquisitions down the road for.
For the last several years or on the cash funds had been sitting on the books well gathering some dust has always been there for basically R&D an acquisition and my question is and I suspect. The board did this but I just thought I'd ask for both of you is in light.
Of the fact that we've had that cash hoard sitting there for R&D and for potential acquisitions wouldn't it be a more prudent use a instead of just returning it in the form of a dividend whereby the funds will have been taxed twice, meaning at the corporate level by my girl is paying for the tax on earnings.
As well as the.
Share holders, who would then receive those distributions at least from the United States I would have to pay a tax would it be slightly more prudent to use some of this a small portion of those funds and I've mentioned this before to repurchase shares which does two things one you're able to buy them at a substantial discount to probably fair market value.
Certainly book value.
Two, thereby reducing the outstanding share count, which would drive earnings and free or not subject the shareholders, receiving a dividend to any sort of taxation by whatever government would.
We're taxed on I'm, just pointing that out and I know that we've been you on you guys have been careful stewards of the of the that cash and in fact during the last two quarters, it's remarkable or that you didn't really have to dip into it at all on remain profitable throughout this the 2020 period. So.
My hats off to you there I just want you to consider the alternative use for that cash in light of what I've just laid out thank you.
Yes, Hi, Mike I, I would think that and the question so and yeah. So.
So basically at this point of time that the board of Directors is a is Joe are you know discussing the different ways.
Oh.
It's different it's a.
Potential there as well.
Weighs on designation I'll say using the capital.
In light of Sam as we mentioned before the M&A opportunities that are on the table as well as an investment in there.
In continuous investment in them in the in the company and executing the strategic strategic goals for the company the <unk>.
From the incorporates a low perspective at both for the air repurchase of shares or dividend distribution.
I I regarded essentially as the same it's a reduction of sat on the say, Oh say and shareholders' equity and a debt for ads based on the share.
Israeli corporate law, we are required we are required to say that.
An approval of the Israeli court since.
Since the company doesn't have and significant retained earnings to lab and to distribute. So currently we are in this area I would say preliminary stage of removing this.
Net limitation and once we get the approval from the add from these ready for the board of directors will that will have to add we convene and consider all the all the different components Brent.
And <unk> options, both you know were what.
Should stay on and what should be a.
It should be a you know.
Should should get back to share to the shareholders and in which are.
Manner.
Okay. That's cool. Thank you very much I was very thorough finally I just wanted to say you know keep up the good work I do understand that by purchasing shares back.
You are actually also reducing some of the liquidity in the market place, which is not necessarily a good thing with on me I say 23 million plus or minus a million shares available not including the from the whole thing. So the total outstanding and therefore that would probably limit.
The number of shares available in the marketplace, which which is not necessarily a good thing in terms of the size of institutions that can then seek to purchase should stay if they need a certain amount of liquidity as you are aware so I fully understand the tight rope. The balancing act that you are doing and I. Appreciate your full explanation. Thank you very much.
I look forward to hearing from you next quarter.
Well thank.
Thank you Mike.
As a reminder, it is star one to ask a question on.
Next question comes from the line other Sam Rebotsky with SCR asset management. Please proceed with your question, yes. Good morning draw from Colby Good afternoon, or the backlog you say is the highest ever what percentage did increase from the prior or prior quarter.
[noise] [noise] certain high standard goal.
Yeah well.
Well to you for simple so.
[noise] pardon even.
Even close.
[noise], so how much did it increase.
Close to 50%.
30%, that's wonderful that's wonderful and you expect to close on an acquisition, presumably be a cash acquisition and shortly is is that in the 10 $10 million range.
[noise] Oh for we are looking on net fuel.
Right I.
Got to be green pins on selling immuno don't other than revenue.
Oh, that's wonderful all right hopefully you have.
That is colvin will end soon as they keep discovering vaccines and when you could get on wood business. Good luck guys.
Thank you Sir thank you.
There are no further questions in the queue I'd like to hand, the call back for management for closing remarks.
<unk>.
Okay. Thank you for when they go on.
On the.
No we'd like to thank you for your continued interest in non them supposed to call we look.
I look forward to updating you on next quarter, if it was the day and the cash.
He say thanks.
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.