Q4 2020 Magal Security Systems Ltd Earnings Call
presentation
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It is now my pleasure to introduce your host Brett Maas and Hayden IR. Thank you, sir. You may begin. Thank you operator. I'd like to welcome all of you to the conference call and thank you for calling management for hosting this month with us on the call. Today is dror Sharon CEO magal and Kobe vinegar. CFO tour will summarize key financial and business highlights followed by Kobe who will review with galles financial performance of the the quarter and full-year will then open the call to questions and answers before we start like to point out this conference call may contain projections or other forward-looking statements regarding future events or future performance of the company. These statements are open in the Gulf cannot guarantee that they will in fact occur McCall does not assume any obligation to update that information actual results or events May differ materially from those projected including as a result of changing Trends reduced demand and the competitive nature of the security systems industry, the unanticipated an unknown effect of the coronavirus including on our operations and our clients as well as other risks identified the. Yep.
How the company with the Securities Exchange Commission in addition during the course of this 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 choice. We have reconciled our non-gaap financial measures to the most directly comparable gaap measures in accordance with Reggie requirements can also refer to our website at magal security, for the most directly comparable Financial measures in related reconciliations with that. I like to turn the call over dror for please. Go ahead. Okay. Thank you Brett. I'd like to welcome everyone to a call and thank you for joining us. I hope that you families and and friends or all well and healthy magalsecurity fish twenty-twenty with a solid fourth-quarter that deliver 26% living growth strong balance sheet and record backlog of 64.3 million and the company's performance in 2028. You will be faced challenges due to the wage.
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Swing so far Global Leadership team and their ability to to People Too productive and successful customer engagement because of vertical Market the model integration Solutions sales led the revolution increasing the quota in the in the quarter due to the Fulfillment of delayed orders. Fourth quarter gross margin was 40% interpreting income increased 22% Health by the higher go back in and slightly lower operating expenses in the quarter as a result. We delivered 14% epidemiology on file with the fourth water last year since the saltwater took $26 with 63% gross. Margin, the segments delivered 22% epidural which demonstrates
The personal strength of this business segment since I was fourteen point two million in the quarter up from eight point six million at the time last year since Thursday is historically been a short cycle from purchase order to put to productive solution delivery meaning whether we have began the year with a lot of momentum.
For the fully will maintain Debbie Dowell on par with last year at 9% primarily due to the tight expense control throughout the year after a one-time cash distribution to shareholders totaling $25 million in December 2020. We ended 2020 with 27 million of cash and cash equivalent and no depth.
Shifting to an overview of the business despite the COVID-19 challenges and disruptions in twenty-twenty. We saw success in on numerous forms last March. We took the new new division heads for the McGann integration Solutions or project division Mister Alan Brahm and force in style of product division Mister Fabian who built the New Jersey has did a great job leading the teams and delivering new businesses evidence by the sustained business and new accounts lending during the
With a strong team in place and in 2020 this executive show the capabilities in difficult environment with our Global footprint streamlined mass destruction and team members on the ground in strategic Market. We were able to Pivot and continue our momentum. We saw good Traction in our Ford Focus verticals will be received many new-age soldiers in the pipelines by me twenty twenty the project team and closed new sizable contract for European and African TurnKey support. Africa was a productive territory for project in 2020 with new critical infrastructure contracts awarded for security system design and installation in strategic locations wage magal integrated solution landed significant contract last fall to install a state-of-the-art Integrated Security system for the government principal side located in one of the largest and most. Yep.
Lee developed countries in Africa
In addition the team landed the three years maintenance contract for a major African support from the current customer.
Sensor integrated solution wanted to project for and Mexican VIP residence that features since the symphony the VMS.
And the McDonald's Focus command control our system was chosen for the technical capabilities and flexibility to provide a robust solutions that allow security Personnel to to make effective decisions. Last August senstar was awarded a large military contract to provide equipment to secure deploy. The Deployable military assets used throughout the world key to winning. This contract was senstar technology differentiation and the scope of censored offering and the scope of center of Technology was a key differentiator that allowed to continue winning new transactional business with high-profile customers in the logistics energy and critical infrastructure and cultural sectors throughout wage twenty.
In February 20-21 we announced that they will follow integrated solution division. The deal is anticipated to close by the end of the second quarter of 2021 the project repetition the ratio will improve the visibility for business and further strength strengthen our already strong balance sheet to support the execution of our long-term strategy since the rich customers based on business model with affective gross margin with the tactic gross margin contribution and operational efficiency is highly scheduled to deliver a long-term shareholders value as a stand-alone entity.
The central theme is working continuously to improve our product line and develop new products that set and Industry standard for Quality Innovation and availability. We are committed to focusing our efforts and resources on developing sensors industry-leading security technology and expanding and expanding its marketshare particularly in our fall Focus verticals.
In each of of our vertical system provides unique solution Beyond security. Our goal is to expand says with Taylor security solution features since birth products and software for physical security solution and sell new adjacent solution that deliver exceptional capabilities into each vertical in 2021. We are implementing a thank-you performance indicators kpi and incentivizing our central theme on performance in each vertical management set. Kpi took measure says activity / vertical to develop the sales pipelines and the great personal Targets in the vertical.
the intended to improve sales growth while maximizing resources dedicated to the
the channels
that's not having your screen come from three sources both the soft water software and recurring Revenue related to services and maintenance both of these the largest contributor, but we continue to invest in South as well. We are defined. We are defining solutions to to selling hardware and software together with to get together to provide effective and efficient solution for our customers system integrators an example would be a perimeter intrusion detection system on p i d s which sensor that are designed for easy integration with a wide variety of security systems. This could be something simple alarm panel or complex Full Features VMS with video software analytics or full security management system by offering apis and sdks the software design kit sense of solution of easy to install and work well with existing Solutions and Hardwell
Auto technology and the flexibility our key differentiators and Competitive Edge, we will continue to invest in
2020 was a crucial year for the upcoming release of our next generation of symphony symphony 8, and platforms access control. That is an all in one video security information management page symphony is an open scalable video management system with built-in Analytics.
The key differentiator for symphony is is it sensors Fusion engine which intelligence Li combine low-level sensor data with video analytics the system incorporates home with him and the whole base action data and unmatched in capability and performance.
And are they spoke to you this week walking to either developing house or inquiries technology that would improve wait time intelligence to optimize decision-making wage, which was reduced risk increase operational efficiency with decision ready data for our customers. This would include sensing technology and software on we continue to invest in R&D n.com concrete walking and closing and m&a do however, the timing of this position is how to pin down at this time as we wait for legal issues to be resolved plus the best show we anticipate our business will continue to go organically and they have a stronger balance sheet. We plan to leverage sense to invest industry-leading position in the Securities life. Is it technology platform to optimize future strategic acquisition and achieve in incremental incremental growth in our Global markets?
Demagogue Brands will remain associated with integration Solutions division. Once it moves over to analytics after the close of the transaction. We will Rebrand our company and they're a new name and number.
In summary, I would like to think the entire magal team for the exceptional performance in 2020 evaluate dedication and hard work of our Global team and appreciate the commitment. Without strategic initiatives strong leadership and enhanced altering combined with some strategic emanate sensor is well-positioned to continuous growth and improve ability. And now I would like to hand the microphone over to copy to summarize the financial results, please go ahead. Thank you for the fourth quarter of 2020 increased 23% to 29.2 million dollars compared with the revenue of 23.8 a million dollars in the fourth quarter of 2019. The increase in Revenue was primarily due to the timing of the Fulfillment of delay orders from prior quarters.
the geographic breakdown
Is it the centage of revenue for the fourth quarter or this following Israel? 31% versus 18% North America 18% versus 24% off Latin America 6% vs. 4% Euro 23% vs. 27% Africa 15% vs. 12% off and the rest of the world 7% vs. 15%
the break out between magal Integrated Solutions and sense of product Revenue was 33% product and 67% projects in the quarter. As I mentioned disco the project Revenue included some ketchup order fulfillment from previous quarters. And as a result the product versus project Revenue mix was unusually biased towards project living in from magal Integrated Solutions projects increased by 57% related while the sense of product division decreased by 15% compared to the fourth quarter of 2019 primarily due to the weakness in COVID-19 Coba defected APAC and Amir regions fourth quarter gross profit wage was 11:00 to 7 million dollars or 40% gross margin versus gross profit of $11 for a million dollars or Forty-Eight.
Sensor of Revenue in the fourth quarter of 2019 the lower gross margin in the quarter was due to the sales mix with the larger percentage of Revenue coming from the integrated solution operating expenses were 8.2 million dollars at 3. 6% reduction from the prior Year's fourth quarter operating a census of 8.5 billion dollars. The reduction in operating expenses is attributable primarily to a lower and R&D and selling and marketing experts in the column. Which also benefited from governmental subsidies.
Operating income was 3.5 million compared to 2.9 Million Dollars in the fourth quarter of 2019 operating income improved compared to the fourth quarter of 2019 due to the impact of the higher revenue and gross profit coupled with some improved operational efficiencies primarily related to lower wage selling in marketing expenses in the current.
Financial expenses where 1.5 million dollars compared to zero in the fourth quarter of 2019. This extends is primarily due to the depreciation of the u.s. Dollar against the new Israeli Shekel in the fourth quarter of 2020 which impacted the evaluation of the denominated military assets held by the company.
fourth quarter
The taxes on income where two million dollars compared to zero point six million dollars in 2019. The increase in tax expenses is driven by combination of effectively wage tax rate related to the various operating jurisdictions and several one-time provisions.
Net loss attributable to Miguel shareholders in the quarter was $648,000 or $0.02 loss per share versus a net income a 1.8 million dollars or five cents per share in the fourth quarter of the last year either that was four million dollars representing a needed imagine of choice of 6% compared with a 3.4 million dollars representing them if you'd imagine of 14. 1% in the fourth quarter of 2019.
For the full year 2020 results the revenue for the year and the December 31st. 2020 was eighty six million dollars compared with rep 6. Just eight million dollars in the prior-year the 7% decline year-over-year was primarily due to the law integrated solution Division and sense of product division Revenue off of the Year. Mainly related to business disruptions and challenges due to the COVID-19 pandemic the geographic breakdown as a percentage of revenue for 2012 compared to 2019 is as follows Israel, 26% versus 22% North America 23% versus 23% Latin America by 6% vs. 9% Europe 19% vs. 22% Africa, 16% vs. 30% Asia and the rest of the world 10% off.
That's 11% The revenue breakdown between magal Integrated Solutions Division and sends the product division was 59% projects and 41 the same products from magal Integrated Solutions division decreased by 5% while they sent the product division decreased by 8% respectively here overnight the full year gross profit was 34. Six million dollars representing gross. Margin of 42. 5% versus thirty eight the eight million dollars or gross margin of 40 for the 6% last year.
The lower gross margin was due to the increased Revenue contribution from magal Integrated Solutions division, which carries a lower gross margin bought our 2020 operating expense was 29.2 million dollars at 10. 8% reduction from the 32. 7 million last year off operating income was 5.4 million compared with six million dollars in 2019. The decrease in operating income was due to lower revenue office gross margin contribution largely offset by lower operating expenses.
Income attributable to My Girl My Girl's shareholders for 2020 was 0.6 million or 6 cents per share compared with two. $3,000 or $0.07 per share in 2019. The decline in the net income was primarily attributable to the non-cash financial expenses described above and tax expense of three million dollars compared to a tax expense of 1.6 million dollars in 2019. The higher taxes State spends is related to a combination of effects of Blended tax rates related to various operating jurisdictions and several one-time Provisions in 2020. Ibadah was 7 months. Three million dollars representing an ebitda margin of 9% compared with 8, + 1 million dollars representing an even imagine of nine. 4% off.
2019 cash short-term deposits and restricted deposits Network execs as of December 31st 2026 was 27. 1 million dollars for one. A $18 per share compared with cash and short-term deposits 51,000 six million dollars or two doors $23 per share as of December 31st, 2019. The decrease in the cash balance was primarily due to the fact of cash distribution to shareholders totaling 25 million dollars in December 2020.
Before we move on we move on to the Q&A. I would like to remind listeners of the profile of the company which we discuss on the February 10th conference call Thursday. We anticipate that the company which upon closing of the integration business sale transaction will be based primarily on sensors. Revenue will continue to have a high gross margin contribution and is anticipated to continue growing organically in line with prior years the product division represented approximately 41% of the Consolidated Revenue agent get the segments delivered approximately two-thirds of the Consolidated gross profit.
Senstar has had high with the contribution despite carrying a higher percentage of the operating expenses.
The operating expenses as a percentage of Revenue carried by the company following the direction of the project. Revenue will be initially hired due to the following reasons first the current call log structure and the public company costs will be borne by sense of product division only while currently they are shared between the two divisions. Secondly, we will see a higher percentage of Handy and sales is not getting expensive out of Revenue as compared to the Consolidated company. This is in line with the financial characteristic of the growing and scalable Tech business operating. Hi Grog looking specifically at the expense level sensors on the budget supports its broad portfolio of technology, which product and has been crucial box Revenue growth sent us during the last twelve months represented 11% of its Revenue as compared to 70% of the Consolidated company.
His droll mentioned we continue.
Toyota sizing and investment because it is essential differentiated for send stuff as a result when dissipate increase in operating expenses as a percentage of revenue for the company that following the direction of the project Revenue with the end with the revenue coming only from Santa. Although it'd be the margin for 20 21 could experience a potential slight and temporary. 10:30 be the margin sensors. If the margin excluding the corporate expenses will continue to be in the range of mid-to-high teens wage in pollen has the business skills. We expect a continuous Improvement in the overall company's profitability primarily due to sensors high gross margin contribution and they took your leverage of the Company allow allowing us to grow revenue and gross profit on the basis of the current operating expenses.
Due to the high gross margin and assuming continued organic growth up to 55% of the gross margin contribution is expected to fall to the bottom line with them with this level of operating leverage when dissipates in the next couple of years that it'd be the margin for the overall company including the corporate structure will improve and exceeds the prior-year levels, which have historically been in the range of 8 to 9% for the Consolidated company that included the project basis. Even the low Catholics 4. We also anticipate for this cash flow for the company in addition. We plan to augment our growth with strategic acquisitions.
For administrative illustrative comparison purposes with the project division be divested in the past our financial metrics for the last two years would look as following Revenue age thirty-five million dollars and thirty seven. Seven million dollars in 2020 and 2019 respectfully gross margin of 66% and 62% off to the public platform of 7.6 million dollars and 5.7 million dollars and companies ibadah after public company that phone costs for those four million dollars and 2.8 million dollars in 2020 and 2019, respectfully.
On deriving the greatest shareholder value from all cash you continue to prioritize the use of cash on retaining. Our experience is pretty close to supporting our growth throughout twenty-twenty our employee headcount remained mostly unchanged continuing our R&D Investments, which are discussed earlier account and plan targets technology that leverages existing capabilities while bringing Innovation and new expertise and finally evaluating the benefiting a dividend to shareholders.
Getting to the balance sheet.
Media people Direction the company will maintain a strong balance sheet with the highest cash position.
The transaction strengthens our balance sheet and gives us sufficient Capital to execute our long-term growth strategy.
When will report q1 20-21 Financial results magal Integrated Solutions will be reported as discontinued operations, even though the transaction is expected to close by the end of the second quarter that concludes my remarks. We are happy to take your questions now operator. Thank you. We will now be doing a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad a confirmation tone will indicate your lines in the question queue. You may press two. If you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Keys. Once again, if you would like to ask a question about five star one on your telephone keypad, one moment, please while we pull for questions.
Has a reminder if you would like to ask a question, press star one on your telephone keypad. One moment, please while we pulled for questions.
Thank you. Gentlemen, it appears we have no questions at this time. I would now like to turn the floor. I'm sorry. We did get a question or question is from Mike distler with Holdings. Please proceed with your question. Yes. Good afternoon. Gentlemen, thanks for taking the call again. Just a couple of quick questions first since q1 seems to be in the book. So I was just wondering if you can just comment provide any comment on how first quarter looked.
Hi, Mike. It's a little bit too early to to report anything about water this stage. Okay, no problem. I understand the timing issue and number two. I think Kobe said something about keeping the large cash on the books part of part of it as a a wage obviously for acquisition part for dividends, which the third item which that's you've already done quite enough in December but regarding the use of cash to hold your key employees wage. I think that was what you said like two or three minutes ago and my question would be wouldn't it be at least more prudent use of choice capital in terms of the balance sheet to incentivize those long-term Key Personnel that you wish to retain with options based on the performance of birth.
the price of the
Senstar spin out, whatever we call it. New Co in the in the interim rather than just a pure cash outlay to those folks so that they have the same incentive as the chef others do.
I'm like, it's a combination. We do have an excellent program is of the plan in the company that yeah after the diversity of the project division magar, obviously remains a public company and we definitely have this tool. Okay. I am too sensitive eyes, you know a certain certain employees our leadership to deliver results and benefits from the increase in wage in the in the stock value.
But no good. Sorry.
Yeah, no, I was aware of the of the plan. I just on a go-forward basis. It seems to me that just further aligning those Key Personnel not talking necessarily see sweet but the R&D folks which are clearly going to be instrumental in driving, you know Revenue growth over the next three to five years. They are aligning with their interests so that they remain and are captivated by the Allure of make building something bigger better stronger. That was that was the only you know, thoughts in terms of you know, it's great to put some cash on the table, but the next guy can just put up more cash and if they have incentive to stay by vesting those options over time and therefore off work hard to achieve those goals and accumulate, you know, personal satisfaction through a long-term mechanism in addition.
To the ESOP program that exists. That's all I was getting at and I think you're you're on the right page though. So and like your point is very valid and actually my reference page in my comments also related to twenty-twenty when you know as a company that does have cash on the balance sheet, you know, we could totally afford to plan our actions in you know, during the pandemic and during the you know, the entire, you know, the entire crisis, especially if I'm a member, of course, you know, Q12020 with lots of uncertainty about the impact of the COVID-19 crisis, you know, we could afford a reaction reaction that first of all targeted retaining our, you know keep Technologies.
commercial marketing
Human capabilities, right so, you know unlike a probably other companies are in DC in commercial films basically remained unchanged. We you know, we didn't take any, you know, we could afford to to to do different stuff rather than you know, how long will take touching our employees and we are very proud of it. And I think you should be I my left my closing comment was going to be that I thought the two of you end the entire team have done a superior job navigating, you know, a year and a quarter of you know, potential decimation for a a company the size of magal but the fact that you were able to not just stay afloat, but aggressively move forward I think is a Real Testament to your your capabilities and I'm proud to be a shareholder. I just thought I'd throw that out there as well.
Finally, I just I look forward to some information the update on your acquisition trials and tribulations. I'll wait the next call conference call. Hopefully they'll be some positive news and keep up the good work. Thank you very much for your time. Thank you. Thank you very much, Mike, okay.
Our next question comes to the line of Sal de Tores a private investor. Please proceed with your question. Good morning gentlemen, thanks for taking my call. I just had a quick question on the page is held on the dividend in December 2020. It was noted that that would be an instruction letter posted on the Maga website to see if one could qualify for an exemption or a lower tax. Can you give us an update on the status of that instruction letter?
Yes, so unfortunately we are running some delay on this we are basically this instruction letter is subject to Thursday. We're a ruling that is to be issued by the Israeli tax authorities with regards to the plate of the distribution between dividends or proper distribution and capital reduction. And unfortunately, there were lots of delays on on the Israeli tax Authority side you to the office first pitch was multiple closures related to COVID-19 and the holidays we are pushing this very hard with r e y off at tucks advisors, and I we really hope that within the next month or so, we'll have some some direction there and we close.
The publish the the letter to the shareholders with regards to the remaining part of the distribution, or thank you very much.
You're welcome. We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.
Hey.
Q Pollito on behalf of the management of magala. We'd like to thank you for your continued interesting and long-term support of our business. I look forward to updating your next photo. Have a good day and stay healthy by
ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.