Mti Wireless Edge (LSE:MWE) — Final Results for the year ended 31 December 2021

0:00 Good morning and welcome to the MTI WIRELESS EDGE Final Results Investor Presentation. Throughout the recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated in the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it sees during the meeting itself. Have the company review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand over to Moni Borowicz, CEO from MTI WIRELESS. Good morning.

0:31 Good morning. Thank you, Zach. Good morning, everybody, and thank you for joining the call. We will cover throughout the call our 2021 results as well as the strategic overview of the company. 2021 was a good year for MTI, and we're very happy with what we have progressed. We had a good revenue and profit growth all the way down to the earning per share, and we outperformed our cash flow from operation. We were hit a little bit by foreign currency exchange in the EBIT and financial costs mainly due to the strengthening of our local currency, the shekel. But this is something that is not under our control, and at least currently, it looks much better towards our favorite.

1:23 We are a global RF and technology leader. We are working via three different divisions, as you are all aware, the antenna, the water management, and distributions. We have a very loyal customer base as you can see here in the middle. Most of our customers are working with us for many years and like what we do. But at the same time, we developed a lot of new customers in the last five years. It is generated from new new geographies that we're working and from new areas that we penetrated like the five g backhaul antennas. We are selling worldwide, very strong global reach. I must say that about half of the revenue generated directly in Israel at the end of the day goes outside of Israel as indirect export.

2:14 And looking at EMEA, part of it is, of course, Russia. Russia represents about 6% of our revenue in '21. And as we announced this morning, we decided to exit the activities there. A little bit about the segments and what we do. I'll start with the wireless water management. It is mainly for large infrastructure to control full cities irrigation of large agricultural conglomerates. Had a very good year, both on revenue growth and profit growth. Continuing to the antenna business where we focus today on five g backhaul antenna and military antennas, it was a very interesting year for the antenna business, and it returned to revenue growth after several years. So we are very happy with that and, of course, with profit goals.

3:07 And our distribution and consulting services division continued very well. Most of the businesses here in Israel continued to grow both revenue and profits. If we look more into each of the segment and what's the key advantages and what we do, I'll start again with the largest division, the water management. We collaborate with Motorola for many years. We get hardware and put our software on top of it. We work all over the world, and we are working either via our own subsidiaries or offices, like, just like the one that we opened in '21 in Canada or via value added resellers. And I can say that at least this year, we were able to add one more in Mexico, which is very important.

3:54 At the end of the day, the goal in this company is to help save on water. This is what we do. This is the advantage that we bring to the market. And the key competitive advantage lies with the communication technology that that we have. We are the only one that can combine many different communication into one system and solution. So if you are very far remote, we can give you a satellite communication. When you are getting closer to less population area, but still someone that you can work with Motorola communication proprietary networks. And then when you get into the urban area via cellular, Internet, or IP connectivity. We are the only one that offers such a solution.

4:42 Here, our IP is mainly in the software that manages those controllers, and we have a recurring revenue model that we always emphasize to try and grow together with the business. And I'm happy to say that it is still 20% of the revenues generated from licensing services and maintenance that we give. This has three subsegments, this business, in irrigation in agriculture irrigation, of course, where we don't only save on water and power. We also make sure that at the end of the day, you get better crop yields. We just announced another solution here with Viridix that I will discuss later on. And going all the way to water distribution where we are the only one that can help you today to have reallocation of the water and bill it at the end of the day via the that is continuing to perform very well.

5:40 In our antenna business, we do both commercial and military antennas. Military is about 30% of our business. And due to the latest developments in the world, I would like to emphasize that in Israel, every export of military device is going under strict export control of our government. It's really order by order, so we know who is the end user. We get the license to do it. So we are very well aware of what is going on here. We are doing, as I said, military from airborne to submarine, and we see a lot of opportunities in this market. Again, here, we also work globally with two manufacturing sites, one in Israel and one in India.

6:27 Going into the commercial market, one of our uniqueness is the coverage of spectrum that we have, and we are working in both five g backhaul, RFID, and fixed broadband. Some of the technology here is patented, and I will elaborate about it more later as we go. Our distribution business, again, very solid, growing very nicely year on year. The core is in Israel to represent over 90% of this business. We represent here about four company 40 companies from all over the world bringing their technology into the Israeli market. And we have the subsegment of the tethered balloon of project that, we run both in Israel and outside. So where are we headed and what is the strategy?

7:15 We, of course, aim to grow the revenue, but based on value added solution and innovation, we will continue to expand the margins, the EBIT margin, and falling all the way to EPS. We strong believe in m and a's. We have very nice organic growth engine, but we are a believer in m and a's. And we always

7:37 are able to generate cash mainly equal to the EBIT levels. So on the macro level, there is no doubt that MTI is today positioned very, very well. Water scarcity is around the world. Everybody understand that we need to manage water. The use of cellular and data we consume is huge. The backhaul is having a capacity problem to support it, and five g is the solution for that, and we are very well located there as well. And, unfortunately, as we all see, the threats are here now, and connectivity is part of the war and the solutions, and we are here as part of this as well. On the MQL level and what MTI was able to achieve this year, I will start with the antenna with the five g backhaul solution that we have. It's the key growth engine at the moment. It grew 46% year on year, and it represents now 20% of our antenna business.

8:40 We were able to penetrate to new customers, and we were able to maintain our customers. It is true that the supply chain, mainly to our customers, is a bit difficult. So we see sometimes shipments delay and sometime request to expedite because they got the chips that they need. So it's a bumpy road, but we are we're able to manage it. We came to a conclusion after discussing with some of our customers that because the beamwidth of the signal in the high frequency range is so narrow, any small movement in the mass or in the antenna causes the the link to be less efficient.

9:27 And, therefore, we developed what we call ABS antenna. It's automatic beam steering antenna solution. We have a patent pending on this solution. And in this case, we get signal when the link is getting lost, and we auto focus the antenna. It's not selling an antenna as a stand alone anymore. It's selling a solution that is with a software connecting to the customer radio. We already got a new tier one customer for trial for this solution. It's still under development. We are in final stages of development. And we have many others, both existing and new customers that are looking into this solution. So all in all, we see a very good potential in the five g market.

10:14 In the military antenna, we gained five or six new customers in 2021. It's a lot in the defense business, if you take into consideration the pandemic. And some of them are in Israel, some outside of Israel, and we are seeing now, I would say, larger number of bigger potential orders, and the pipeline of opportunity is very, very big. We opened the office in Canada, not revealed in those days of pandemic. It was a very successful opening, and we are very happy with the the result of that. We announced back in September a very strategic agreement with our key customer for the distribution business in Israel.

11:00 The idea was to smooth the operation, and I'm happy to say that it succeeds, and it looks very smooth at the moment. And early this year, we acquired PSK, 51% of PSK. They are in the Israeli defense business. They're doing a solution in communication and in support of test range. And this combines very well and helps us to sell more antennas, but even more the distribution channel that we have and let us go up the food chain to sell a complete solution. Part of their test services is under recurring revenue model. So, again, we increased here the recurring revenue model.

11:45 So overall, we made great achievement in 2021. We did face and are still facing shipment cost rising. Everybody knows about it. And the supply chain, which is difficult to manage, but we were able to do that. When we talk about innovation and bringing new ideas to the market, you need to understand what we are very unique. We have our own r and d investment like the ABS antenna or five g backhaul antenna. We then get paid for some of the r and d but keep the IP ourselves. This is mainly in the military antenna business, and then we can convert it to commercial. We have, the support of our principles and partners, whether it's Motorola for the irrigation business or the principles in the distribution business. They are all building a lot of new solution, enabling us to bring innovation solution into the market.

12:45 As an example, I can say here that we, together one of our principal and a key customer, we're working in the last year and a half of development of a new component that replaces two. It reduces the cost for the customer to one third, so 67% discount on the unit. And we are talking about a lot of units that this customer needs. I'm happy to say that the development was completed, and now we are in the stage of testing it. And assuming it works okay, we have here generated again a new revenue stream from innovation. And last but not least is partnering with third parties.

13:31 We did it with the Motive Decoder system, which is the wired extension that, we launched last year and was accepted very well. And we do it now with Viridix, where we bring to the market the first agro irrigation solution. It is based on really what what the root feels. We know how much water it sees. And per agronomic decision, we make real time decision making on irrigation. Throughout the last year, we were able to expand our EBIT margin, and we always said that our goal was to have 15 to 20% EBIT margin on the marginal revenue that we generate from organic growth, of course.

14:16 And I'm happy to say that even this year that we had the difficulties with the shipment cost, with the exchange rate that also affects the g and a or sales and marketing because we pay salaries and shekels. We're able to meet the minimum 50% goals. And as long as we continue to grow the revenue, we should see higher growth in profits. And of course, it goes all the way down to the earning per share, as you can see. We have very strong organic growth engines, but we always look, for accelerating it with external, with the mergers and acquisitions. We made so far six. Five of them are success. PSA, we still need to prove that it is a success.

15:02 And I think that the key methodology here for us is making sure that we are working on a better safe than sorry. We learn the business before we do the acquisition. We want it to be profit enhancing from day one, and we try to find businesses that we can accelerate. And this is where we are headed also here. We convert cash quite nicely from the EBIT, as I said. This year, it was a very strong conversion. Part of it was because or due to the large order we received in Russia in December. We announced it. It was with a prepayment. And as we are closing the business there, we will probably have to repay. It's about $2,000,000 But even without it, we had a very nice growth in cash, and we are continuing to see a good conversion rate.

15:55 Therefore, we raised also the dividend for this year. So if you look in the past three years, we had a very nice growth in dividend, and we're able to pay, and everybody is happy. As you all know, my family also owns majority of the shares, so we are part of joining those dividend. We really care about the environment here in MTI. Motech is all about it, but also in our other businesses, we are looking to reduce our footprint. Social work is really part, I would say, of the culture of in MTI. It's not that we only contribute money. We also make the employees involved, and they like it. It creates a lot of good environment to the company itself and, of course, to the less fortunate one.

16:43 And the corporate governments, of course, is strict without any changes that can be done. If I may summarize, I think we had a very good year. We have a very strong organic growth engines going forward, and we have a very strong balance sheet to continue to support the growth by M and A as well. I'll be happy to take any question at this point. That's perfect. Thank you very much for your presentation today. Ladies and gentlemen, please continue to submit your questions using the Q and A tab situated in the right hand

17:16 corner of your screen. We just want to come and take a few moments for you those in questions. I'd to remind you that recording of this presentation along with a copy of the slides and the published Q and A could be accessed via your investor dashboard. As you can see, received a number of questions today, and thank you to all investors for submitting their questions. Could I please ask that you read out the question and give a response where it is appropriate to do so? And I'll pick up from you at the end. Thank you. Okay. Thank you. Simon asked what is the strategy with growing cash? And also, have you seen increasing defense spend come through already? What visibility you have on this? So as I mentioned, the cash is, a, we pay dividend, b, we are looking for more in m and a's, but always on a better safe than sorry. Regarding the defense, we see larger pipeline of opportunities, but I still do not think it is from the latest involve the latest issues that we see. It's not from from what we've seen in the last few weeks. It takes time, but no doubt that for the longer run, we should see more opportunities.

18:22 Michael asked about sale process and time range for the water management offering. What is causing growth here? So the growth is coming from both expansion of existing installation. You know, if an agriculture company is building more and more fields, are there. If municipalities develop, we are there. And, of course, we get more and more customer. As I mentioned, we opened the new valve in Mexico, so we expect this to grow. And, usually, it is quite fast. Paul asked, do you have any revenues from Belarus or Serbia? No. We don't. Vincent has net profits took a hit this year as a result of adverse currency movement.

19:10 What is your position on currency hedging? We usually don't hedge because it is very difficult to hedge for the long term, and we are working with many, many currencies. And this year was extraordinary that the dollar was strengthening against the Australian dollar that we operate against the UN, against the euro, only against the shekel, it lost a lot. I don't see it coming again. The only new hedge that we have, and it was not the intention when we invested in PSK, is that PSK is making money in Israel in shekel, so it gives some kind of a hedging. But this was not the reason for investing. It just came afterward. Can you clarify cost to exit rest Russia?

19:56 Will it be any bad debt? I don't think there are any bad debt because we work always with prepayment in Russia. The cost, I think, is almost meaningless, maybe tens of thousands of dollar. The only thing is, as I mentioned, is that we will need to repay the prepayment, which is, again, a balance between the cash and the other liabilities that we have on balance sheet. Malcolm asked again, will we introduce an interim dividend this year? No. We don't. As I always explain, the dividend calculation and the withholding tax of it is very, very complicated in Israel, so we do it once a year. And this actually remind me that this year, the withholding tax will be 15% and not 20 because of those sophisticated calculation.

20:54 I think I've answered it all. Thank you. I think you've addressed all those questions you can from investors today. And, of course, the company review all questions submitted today. Before redirecting investors to provide you with their feedback, which I know is particularly important to the company, if possible, please, can I just ask for a few closing comments? Yes. I would like to thank thank everybody that joined us today. We are looking at 2022 as an exciting year. Lots of challenges, but lots of opportunities, and we are hoping to deliver at least as good as results. Good morning. Thanks for updating investors today. Is asking investors not to close this session as you now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations.

21:39 It's only gonna take a few minutes to complete. I'm sure it'll be greatly valued by the company. On behalf of the management team at MTI WIRELESS EDGE, we'd like to thank you for attending today's presentation, and good morning to you all.