Q1 2021 Magal Security Systems Ltd Earnings Call
Okay.
Greetings and welcome to the my Golf Security Systems Ltd, first quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As reminder, this conference is being recorded I would now like to turn the call over to your host Mr. Brett Maas with Hayden IR. Thank you you may begin.
Thank you operator, I would like to welcome all of you to the conference call and thank him for golf management for hosting this call with US today on the call is Roche loans, CEO mogul and Kobe have intercourse CFO drove summarize key financial and business highlights followed by Coby, who will review the goals financial results for the quarter for the first quarter. We will then open the call for questions and answer session before we.
I'd like to point out that this conference call may contain projections and other forward looking statements regarding future events or future performance of the company. These statements are only predictions and the golf cannot guarantee that they will in fact occur regardless not assume any obligation to update that information and the actual events or results to differ materially from those projected including as a result.
Changing market trends reduced demand and the competitive nature of the security systems industry, the unanticipated and unknown effect on the <unk>.
Corona virus, including on our operations and our clients and as well as other risks identified and the documents filed by the company with the SEC and the security didn't change Commission and addition dirt.
And of course of the conference call, we will describe certain non-GAAP financial measures, which should be considered and addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, we have a reconciled our non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements and also refer to our website and our golf security Dot com.
For the most directly comparable financial measures and related reconciliations and with that and turn the call over to draw a draw on the floor is yours.
Thank you Brett. Thank you all for joining US today. This is the first quarter of results from it.
Book to Bill given that many regions and we hopefully can continue to be impacted by COVID-19 restrictions that limit business activities.
Despite those limitations the bulge twenty-twenty, Paul and quarters performance on the revenue and gross margin.
This growth this quarter with both of them have gone to what the solution is the discontinued and the fruition seems the company still controlled and mogul segment. It is considered and related policy and that's it.
On the reported revenue of $6.5 million.
Since those sales to them are gone and integrate the solution on the other point $6 million.
After completion of the Divesture just I Wouldnt include and my gosh ongoing sales and opposed to live in.
For this session my comments to follow will speak to the company those on including citizen and will go on this basis same store sales sales and the first quarter, including and magadan and integrate those and.
Revenue was $7.5 million.
The decrease of 9 percentage from the first quarter of sensor revenue and and the Q1 'twenty and question.
The decline is due to the impact of Covid on our target vertical.
And the U S APAC and Lucky and America in the first quarter of 'twenty 'twenty..1 we started to see business activities begin returning to normal and particularly in Europe, but we are still low come up with something called the.
And also for Q2 and the remainder on deal based on our pipeline and the closing ratio looks very positive hopefully increased vaccination on reducing incidence of COVID-19, and infection with resort and the reporting and the opening of borders and then and there is day 1 of people to places for it will be used.
And we'll do more money on the limitation on that impacted our results for the past 14 months.
Just on gross margin in the first quarter was 65% on par with last year's first quarter, including the gross profit from sales from a girl and integrated solution. This year, we have increased so hardware sales.
And relative to software and hardware tends to have a low margins compare with software license sales.
And what's the old World is an important and they blow for setting softer so more so on mobile, but there always be a balance between the 2 components.
For the first bucket for for.
For the for the reminder of expenses monthly once we see the cost of summit on increasing particularly with semiconductors. We are working on long term procurements agreement to secure supply and mitigate some of the price increase however, we anticipate a supply chain issue to pressure gross margins in 2020, 1 modestly and maybe even.
And for the first half of 'twenty to 'twenty 2.
For the mine and Bill do you we are targeting sales per gross margin for the year and the low 60% range.
That's the EBITDA margin and the first quarter was 12% slightly higher than Q1, 2020 tipping.
The first quarter he sits.
It's on the weakest weak weakest quarter looking now and seem to line reminder, last quarter was supposed to 'twenty 1 when dissipate on normal revenue came down and you want to deal with high revenue in Q2 Q3 and.
And the last 1 Q for being the strongest quarter over to you.
We also expect operating expense expenses will remain stable for the U S and as a result every industrial and fourth quarter.
We expect public any public company expense and amortization to be stable or lower for the cobalt the NTT each quarter, resulting in improving and reported.
Operating performance for the second half of the 20th once you want with positive net income and by you and.
Let's shift gears to talk about just the goal for Scott.
For 2020, 1 we did all the drivers for growth or increasing sales from all key verticals.
Establishing sales and service solution.
First of all on the investment into sales.
Technology acquisition to bring differentiated product and social.
First on increasing sales from key vertical and we intend to keep increasing gold percentage of revenue from all key verticals energy coach and logistics and critical infrastructure for 2020, 1 and we implemented Kpis of course, the entire company to a landfill and outcome to increased revenue from the full vertical.
<unk> management team will installed and in all our origin point for increased focus on customers and support especially in key geographics.
The ultimate uses their own 50% of all employees are now facing customer.
Next expanding expanding our presence and adding new sales distribution to drive growth.
We see the opportunity to make our current sales posted a small efficient and they have several initiatives to grow on pipeline.
Post Divesture desktop led to expand into new geographic regions. We are currently evaluating territory and we could book.
Let's wait and how we would enter those regions you're also considering adding additional distribution channel like resellers.
Good for both us and areas, where we do not have a preference for connect us with the customer relationship.
It would be difficult for us to accept.
Security is a large global and fragmenting market, adding distribution partners and it is.
The logical way to grow sales and increased illness obsessed on capability.
Yes.
The mining to growth survived those R&D and M&A diabetics are on capital allocation priorities.
We remain very mindful about how we allocate and invest all cash well first 1 to bolt on to have a strong balance sheet and.
And the business that generates free cash flow.
The boy always has all uses of cash 1 income on investments the R&D that can future growth towards target technology acquisition, and 3.7 and cash to shareholders. When we have excess cash after investments and number 1 and 2.
Let me talk about how we plan to convert on the investment into sales.
We invested over $10 million and R&D on new Pea idea bids and software product and solution and the bus tour.
And so are you introducing a hardware offering and is 1 <unk>.
Come on this investment.
In the past deal when produced several new products, including a new version of our perpetual and the safe spaces solution to easily sell on a combined company school normal life after the Covid.
With respect to at least for the type of for more moving kind of support.
And by the end of this year and that'll be 2020..2 we plan for released a new poker tour flow trends and optimization that solution.
Well, we all frame tend to increase sales.
For software, which is a critical part of our plan to improve gross margin and the long term.
We are releasing those on April for Symphony common operating platform and Q2 will continue at least okay.
During the day.
And from the eighties, and estimate, meaning a security and management system, providing functionality beyond beyond the traditional on Vms platform.
And from the age will include analytics asset after control video integration and input from all the ideas for them.
That's a fusion is a critical part of the system and we anticipate delivering debt, but that's what the market and the next few months.
And so purely on combine inputs from our conditional on Pete's products into a solution that brings the end user and it.
And and increase intelligence from the perimeter staples.
We intend to deliver do simple platform to move up the food chain for a solution provider by combining the SMS capabilities with first line clock speeds for system integrators and end users. This.
And this strategy will bring new customers higher contract value and higher revenue streams.
Our whole blood drives other M&A, he's focused on adding differentiated technology.
And so you'll have to look for additional technology or product, we can acquire to increase our offering and the key vertical ideally.
Position that would allow us to expand into an adjacent capabilities to increase sales with existing clients and attract new ones.
Closing out the conversation on capital allocation and a comment on the dividend policy.
And anticipate completing the vessel from a guy on integrated solution before the end of June.
The other transition while the transaction is completed we will we will have a boxing and $60 million and cash we have.
Earmarked funds for R&D investment and M&A.
He was a board decided that the dividend policy makes sense for sense, though we will share the decision with the shareholders.
We anticipate.
We anticipate updating shareholders on this topic sometime in the second half of.
'twenty 'twenty 1.
First on opposed to divest show.
And what do you want to achieve as I mentioned, we will have a laser focus on growth and the key vertical and they have developed.
And tactical plan to achieve this.
The plan includes a streamlining the ranger for.
The social and with a deep focus on selling and we will also look to reset the company's image and to leverage our leadership position within the health technology offering.
In addition, we plan to cross sell and upsell to our existing customer base.
Lastly, we plan to increase the business pipeline and with new channel.
Submission by leveraging OEM system integrators, and the and the world.
We will continue to be innovators on the products for them than ever all net and.
And vision to execute this plan.
And then to use our products technologies, and scalable cross platform analytics and <unk>.
Building blocks block with and with engine that the Liberals database on now and when it come on in place and classroom and a solid foundation.
Currently we are developing products to increase our differentiation..1 example is the multi sensor this device collapse and formations to a different central these devices targeted tools and greenfield or existing sites and with infrastructure and it.
Another innovative product, we are bringing into the market based upon the fiber for control for long and short distances.
We will have a unique advantage and the market with the disposal of trunk line capability.
This volume deliver performance above and beyond the current offering.
Also doing some work with data fusion too cold.
Correlate activity activities between sensors for a comprehensive security solution.
That's a brand is tied to differentiation and innovation, we plan to design and vertical solution and to increase our offering I for outside of security, we want to be a leader and we leverage our technology on people and no bad book.
And our business.
The foundation of our offering which we are very excited on the bulk and symphony H B.
And this improvement has to come on and has.
From an operating platform should be should open doors and could bring new business and has Oh boy.
And essentially I'll answer for KRYSTEXXA.
And our people.
And 2020 during the global pandemic retained almost our entire global employee base for big and while delivering positive EBITDA every quarter.
Keeping most of our employee base on board and allows us to support customers and all our regions with sales and technical support staff.
We also kept the R&D team in place and remain committed to delivering on the R&D goals. Despite the business slowed down last year.
As a result, we will look at it every day.
COVID-19 environment stronger than we entered it and sell it and do it on.
And well positioned to accelerate our growth and profitability.
We remain confident that we can achieve the revenue goals, we have set for Cessna in 2020.1 to support a wall to wall. We have bids on the employee base that is now 50% customer base facing.
Dedicated to sales marketing and technical support and 26% dedicated to R&D and.
And although and other world.
I hope all of our employee base is committed to delivering and supporting concept with 1 quarter.
A lot of book off all employers of low basis toward developing future sales.
In closing I'd like to thank all of our employees worldwide for their commitment and excellent work call. It collectively.
Collectively we are working to deliver growth and pull vault profitability and ultimately the Liberals shareholders' value and.
And I would like to hand, the call over to Koby to summarize the financial results cover. Please go ahead.
Thank you Dror.
As Joe mentioned, we are reporting this quarter the results of continuing operations based primarily on sense does stand alone revenue and on the corporate entity containing cost of public platform.
In addition, we show in a separate line on our P&L. The net results of mogul integrated solutions defined as net loss from discontinued operations.
Until a day that's true it's formally completed which is aimed for the end of Q2 day integrated solutions or project Division is still in control of the operation and therefore is considered and related party.
This means that the sensed a sales from a golf project Division and the total project Division sales.
Eliminated from the top line in this quarter.
This will how sensitive revenue will be reported until the closing of the divestiture transaction.
Following the completion of the sale of the project Division and for the remaining period of 2021.
<unk> sales to mogul and unrelated party external customer.
And will be included in the reported revenue and gross margin.
For clarity and consistency I will cover the reported first quarter results and then provide an explanation on sense does revenue gross profit gross margin and EBITDA, including the portion of sales from a gas projects.
Since we expect Mcgough integration division to continue his sense to us customer and similar volumes also after the diverse share the pro forma revenues and profitability debt include the sales to the project division better represent the potential revenue levels of the company post Divesture.
I remind you that our results from continuing operations include 2 components first and the result of <unk> operations on a standalone basis.
Second on the operating costs of the public platform, which include corporate HQ costs legal and financial advisory fees related to the public activity.
The NASDAQ listing fees and expenses.
I will review later on the split of both components of the results from continuing operations.
Our reported revenue for the first quarter of 2021 was $6.5 million a decline of 14% compared with reported revenue of $7.6 million and the first quarter of 2020.
The decline in first quarter revenue was primarily due to the impact of COVID-19, and regions that still have strict limitations on traveling gathering and groups and social distancing, while the first quarter of 2020 was not materially impacted by the pandemic yet.
I would also remind you that the first quarter is our seasonally weakest quarter.
The geographic breakdown as a percentage of reported revenue for the first quarter or this following and.
North America, 50% versus 54%, Europe, 35% versus 23% APAC, 13% versus 20% Latin America, 2%, 3%.
First quarter reported gross margin was 62.1% of revenue versus 64, 8% last year.
The decline in gross margin was primarily due to the mix of <unk> hardware and software products sold during the quarter.
Our reported operating expenses were $4.7 million and 8% reduction from the prior year's first quarter operating expenses of $5.2 million.
The reduction in operating expenses is attributable primarily to the reduction and business and sales expenses, such as travel and marketing as well as due to a contribution of the payroll subsidies granted by the Canadian government.
Our reported operating loss for the first quarter was $681000 compared to an operating loss of $214000 in the year ago period.
The overall company's reported EBITDA loss for continuing operations for the first quarter was 369000 versus EBITDA of $80000 in the first quarter of the last year.
Financial income was $19000 compared to financial income of $744000 in the first quarter last year.
This is an accounting effect, we regularly experience due to adjustment of our monetary assets and liabilities denominated in currencies other than the functional currency of the operational entities in the group.
As Dror mentioned, thanks to our operating leverage with the anticipated ramp in quarterly revenue, we expect to report improving operating performance for each quarter, we anticipate producing positive net income from continuing operations for the year ends.
Net loss attributable to mogul shareholders in the quarter was 2 million on 9 cent per share versus net income of $438000 or <unk> <unk> per share in the first quarter of last year.
The reported net loss includes $1.2 million loss from discontinued operations.
$35000 of income in the same period last year.
The net results from discontinued operations include the net loss of the integration division in the quarter as well as certain transactional expenses.
And I mentioned earlier, the 2 components that contribute to the results of operations.
And stars Standalone contribution and corporate expenses I will refer to this result as pro forma.
Since the first quarter pro forma revenue include sales from Nogales Project Division was $7.1 million versus $7.8 million in the first quarter of 2020 the.
And the decline in revenue of 9% was primarily due to COVID-19 related business restrictions in all key geographies.
Pro forma gross margin gross profit was $4.6 million on gross margin of 65 per cent for Q1.2021 versus <unk>.
And $5.1 million or gross margin of 66% for the prior year period.
<unk> pro forma Q1, 'twenty, 1 operating income was $705000 compared to $689000 last year.
<unk> pro forma Q1, 2021, EBITDA was $822000 versus $789000 in the same period last year, 12% versus 10% of revenue respectively.
The second component added to sensors operational contribution is the public platform expenses and amortization of intangible assets for.
Historical acquisitions.
Hey.
The corporate expenses in the first quarter of 2021 were zero point $8 million and amortization expenses was zero point $2 million as compared to zero point $7 million and <unk> 2 million, respectively in the parallel quarter of 2020.
As a result, the pro forma operating loss from continued operations for the first quarter of 2021.
Was zero point $3 million as compared to an operating loss of zero point $2 million in the prior year period.
This resulted in group EBITDA of the first quarter of 2021 and $2000.
On $125000.
In the same quarter last year.
Looking ahead for the impact of the morale and integrated solutions Division sales transaction on our P&L and balance sheet.
I'd like to point out that the sale will result in capital gains.
<unk> cash and cash equivalents and short term deposits and restricted cash and deposits as of March 31st 2021 were $25.9 million or $1.12 per share.
Our working capital increased by zero point $7 million at March 31st 2021 in comparison to the end of the last year.
In the first quarter asset attributed to discontinued operations were $42.6 million with liabilities attributed to discontinued operations of $21.1 million as compared to assets attributed to discontinued operations of $55 million and liabilities.
Attributed to discontinued operations of <unk> 25 point $41 million as of December 31st 2020.
We delivered positive cash flow from operations of <unk> $3 million for the quarter.
That concludes my remarks, we are happy to take your questions now.
Operator.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telecom Keith.
A confirmation tone will indicate your line is and the question queue.
You May press star 2 if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, 1 moment, please while we poll for questions.
Yeah.
Thank you. Our first question comes from the line of Mike does start with IMAX Holdings. Please proceed with your question.
Yes. Good afternoon, gentlemen, how are you as you know I'm, a longtime shareholder football as well I appreciate the depth.
Of your conversation.
Conversation with our shareholders. This morning, and I know it was not easy to get through all that my only question just.
Regarding the go forward is the is there and exploration date or a time limit Wynn Macau and no longer seek to purchase same store and material sensor and software a sensor products and start products et cetera and related to that do you think the.
Going concern will be renamed sensor and seems appropriate and enough, but I was just you may have some update on that so it's really a 2 part question and thank you very much for your time.
Okay.
Mike Thank you.
First mortgage.
And my girl.
Hopefully will remain and.
On a custom will send stuff for them and needs to come so there's no reason to.
And as long as the product for them.
And good quality and the and.
For a good price for a few mogul will continue to purchase those are solutions from central and so there's no nothing and the agreement that the stop for prohibit them from using expense.
For the supplier.
And both your second question.
We left to update the name and we.
And currently discussing it internally and Boston.
And once it will be approved by the board of directors and will.
And we'll share it with the market.
Okay Alright.
And I assume you're on board with all of that I just.
Finally, just and closing the I just want to make sure that you bring along all of your many sure I don't mean, the 44% holder.
That you bring along all of the shareholders who've been with you for a very long time.
And just keep them in the loop as you did today and as you have been doing both of you for the last couple of years kind of thing and just make sure cause.
Communication is the bond because information from <unk>.
Sure. So thank you for updating us today and I look forward to 3 months from now.
For cash.
Thank you and Mike.
Yes.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star 1 on your telephone keypad. Our next question comes from the line of Sal Deterrence private Investor. Please proceed with your question.
Good afternoon, gentlemen, yes, I had a question last conference call and I had the same question again on the foreign tax withheld on the Mcdonald dividend in December of 2020.
It was noted that there would be and instruction letter posted on the mcgarr website to see if 1 could qualify for an exemption or a lower tax rate can you give me an update to the status of that instruction letter.
Yes, all that unfortunately, being delayed and delayed it's beyond our control in a way because.
The entire and activity is done with the Israeli tax authorities.
Were assisted by and.
And by our tax consultants in this matter.
And the tax authorities and our Israel. Unfortunately, they have they're on pace and there were a M.
And the delays due to the Covid, a low bid downs and the limitations and.
And recently, we also had some man and some their political issues and.
And and in Israel. So, we really we get a promise to on and daily and weekly basis to finalize this it's a.
Very extraordinary given the.
And I would say relative non complex city of the matter. So I hope debt for the next during the next months or so where we will be able to issue. This letter we are on on X.
Okay. Thank you very much.
Thank you.
Thank you ladies and gentlemen, there are no further questions at this time I'll turn the floor back Fisher on for any final comments.
Okay. Thank you operator on behalf of the management of mogul and we'd like to thank you for your continued interest and long term support of all of our business.
And I look forward to updating you next quarter ever.
And if it's safe and good day.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.