Mti Wireless Edge (LSE:MWE) — Q1 Results

0:01 Good morning, and welcome to the MTI WIRELESS EDGE investor presentation. Throughout the recorded presentation, investors will be in listen only mode. Questions are encouraged to be submitted at any time via the Q and A tab situated in the top right hand corner of your screen. Please just simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives in the meeting itself. However, the company will review all questions submitted today and published responses as appropriate to do so. Before we begin, I'd like to make the following poll. And I'd now like to hand over to Moni Borovitz, CEO from MTI WIRELESS. Good morning.

0:34 Good morning. Thank you, Zach, and good morning, everybody, to joining us on this call today. In today's presentation, I assume people already know about us, and I will try to focus mainly on the q one results and update situation. Just as a brief reminder, we are a technology company providing communication, wireless, radio frequency, and microwave solutions. We operate via three division, water controllers for water management, antennas, and distribution and special consulting services in the RF and Mangrove field. We had a good 2021 with revenue and profit growth and generated a good cash flow.

1:25 Our customer base is fairly long term. As you can see, most of our customers or most of the revenue is generated from customers that have been working with us for over ten ten years. And the new ones are coming from new solution that we bring to the market, the new geographical expansion. We work globally. You can see that the half of our revenue is generated from Israel, but half of this is going as an indirect export.

1:58 As a short reminder of what we do in the wireless controllers for water management, we provide wireless solution based mostly on the Motorola hardware, and we bring the software that manages those controller. This is our IP. In this segment of the business, we have a recurring revenue model based on the software licensing, service, maintenance. It is about 20% of this segment's revenue. And we work mainly with a in large municipalities for landscape or large agricultural firms for managing their fields. In the antenna business, we do both military and commercial. Military is about 30% of our business.

2:44 And in commercial, we focus today mainly on five g paper solution that I will elaborate more later on. And in the distribution and special consulting services, we represent about 40 companies from overseas, bringing their technology into the Israeli market. We work in the Israeli market mainly in the high-tech and the defense business, and we do the design win of the components into their solution. If we look at the macro level of what we offer and where the world is headed, I think we are positioned very well. And no doubt that the water scarcity and global warming is an issue. Everybody manages water. I must admit that if you look at those three picture, if we added the fourth one of Lake Oval this year, it would look a little bit better. They had heavy rains, but still we all understand that the water consumption and water scarcity is a big issue.

3:41 And threat and on defense budget, I think that it is very clear right now, unfortunately, to everybody about the world that this is something that increasing, and we are involved in it. And last but not least is the demand for cellular backhaul capacity is big. They have a big issue with capacity as we all use more and more wireless solutions. I'll jump into the q one results to discuss more about what we achieved in the first quarter of this year. First of all, we had a good start for the year with good revenue growth, double digit, falling all the way down to the EBITA and earnings per shares. In the cash generation, we made a good cash generation. We usually convert 80% to 100% of the EBIT into cash flow from operation, and this was the case in the quarter as well.

4:39 In the EBIT margin, we had a slight decrease caused out of three factors. One of them is the mix of products that we sold. Second is the increased cost and inflation. We are able to mitigate it to some extent, and we will see the benefit of this mitigation in the near future because we're able to increase some of the prices to our customers. And the third factor is the acquisition or the transaction with BSK. As part of this transaction, we wrote in the balance sheet accounting wise intangible assets that we need to depreciate over time. It is a little bit more dramatic this year, I would say, and more moderate from next year onwards.

5:25 And this is why you see that although the EBIT margin was slightly down, the EBITDA profit is much higher year on year. Due to the integration of Pessec within the distribution and consulting business, the diverse of the business changed a little bit, and this division became a big one, a bigger part of our business. I can say that the integration is going fairly well. We moved their head office into our head offices, so some cost saving will come when we continue. And it gives us better control, and we see a good pipeline of opportunities with BSK. Discussing the antenna business and progress in the first quarter, I will start with the dual band antenna solution that we sell.

6:11 We see very good demand for the products. But, unfortunately, our customers suffer from the supply chain problem. They have problem receiving the microchips that they need for the radio. And, of course, with the long lockdown in China, they could not deliver or manufacture the radios. And, therefore, they asked us also to hold on shipments. So we have good orders, but no not enough shipments in the quarter in this area, but I'm sure that this will be resolved. On the antenna beam steering solution that we developed, we made a very big progress in in this year. First of all, we are happy to say that the solution is valid and working, and we are shipping the samples to the first customer that wanted them.

7:02 And we see a lot of excitement and requirement from both existing dual band antennas that we have customers and from new customer that did not work with us and looking to work with us. So we are fairly sure that we'll lead in this area at the moment, and we have good excitement from tier one customers that are looking to work with us. On the military antenna business, we see a lot of opportunities. Some of them are very big, but unfortunately, the order cycle is slower.

7:39 So we had a lower revenue level in the antenna military business this quarter. This was actually the main effect on the antenna segment. But we are quite positive with the large opportunities that we see that we will recap and go as we wanted to go. In terms of the wireless controller business, as you can see to the left, very solid quarter, continued to grow the business, continued to make profits. I can say that in this quarter, in the second quarter, we expect to start selling our aggregation solution, the real time agronomic database irrigation solution on the collaboration that we had with Veridix that we announced, and we see a lot of excitement about this as well.

8:29 In the distribution and consulting, it was an exceptional quarter, very high growth in both revenues and profits. Some of it relates to the legacy part of the business, and some relates, of course, to the PSA acquisition. We are very happy with this performance. And it is important to remind you, that the cash cash balance reduced quite dramatically in the quarter, but this was due to the payment of the dividend, the transaction with PSK, and, of course, the exit from Russia. I remind you that we had an office in Russia. Due to the circumstances, we decided to leave it, and we sold it. At the time when we announced the results for the full year, we said that there is a large cash balance in this company against accounts payable as prepayment from vendors.

9:22 So both are not consolidated anymore, and therefore, we see the reduction. Our strategy has not changed. We continue to look to grow revenue on value added solutions, whether it's the aggregation in the water business or the new antenna like the automatic beam steering antenna. We will expand margins by both doing the work we need to do on costs and on prices to customers. I'm probably sure that we can continue with our business model that the growth should fall dramatically dramatically into the operation margin. I remind you that we have approximately 30% gross margin across all the divisions, and we expect that on the marginal revenue of dollar, we should see 15 to 20% operational profit.

10:14 We continue to search for external growth as well, and we are strongly delivering that. But as I always mentioned, it's on a better safe than sorry mode. It means that we will not jump into a transaction unless we know or believe that we are not for 100% how to manage it the day after. And, of course, we will continue to maximize the cash and the benefits of all shareholders.

10:42 Talking about shareholders. So we have a solid shareholder base, including my family, of course. And with the support of Premier Milton and Heron Investment for many years, we feel comfortable with a good, solid shareholder base. Everybody enjoys the dividends, so this is something that we'll continue. And we will continue with the buyback program. As you are probably aware, we extended it in last March until the end of March twenty twenty three, and we maximized the value under it for £200,000. It was 150 before because we see the importance of supporting the liquidity and the ability to get more and more institutional investors into the company.

11:29 So I'll try to summarize. I think we have a good proposition going forward. We had a good start for 2022. We see our internal growth engine in a good position. I think that the diversity of the business has proven itself dramatically in this quarter. We see good progress in the five g antenna business, still not in the revenue level, and we can support it and maintain the good relation with the customers, with the other division of the business. And we will, of course, continue to work towards more m and a's and, again, on a better safe than so. I would like to thank you for attending the call, and be happy to take any question right now. Morning. Thank you very much for your presentation today. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab that's just situated on the top right hand corner of your screen. But just while the company takes a few moments to view those questions submitted today, I'd like to remind you that a recording of this presentation along with a copy of slides and a published Q and A can be accessed via your investor dashboard.

12:32 Mone, as you can see, we received a number of pre submitted questions from investors, and I wanted to start the q and a session with these. The first one reads as follows. To what extent has the Russian slash Ukrainian situation impacted the business? Okay. So as I mentioned, we had an office in Russia, and we decided to leave it. So it, of course, impacted the business. But as you can see, overall, it was not too significant to our business. I think that the defense business will increase globally as part of it, and we, for sure, will enjoy part of it. Thank you. The next one reads as follows. Are your contracts contracts generally generally in in USD, and how does currency swings affect your results? Okay. So most of our business is in dollars, of course, but as we work as while the world with subsidiaries, they work with local currencies.

13:26 I think that the major impact on us is the relation between the US dollars and the Israeli shekel where we pay most of the salaries. Right now, it's in our favor. If you remember in the last quarter of last year, it went against us. This year, in the second quarter, we will start to see a a big increase in the dollar against the shekel and will support our business. Thank you. The next one relates to drones and reads as follows. Do you use drone technology?

13:58 We do not use drone technology, but we do some antennas for military drones, if this was the question. We are very strong in unmanned aircraft antennas for unmanned aircraft for military use. Thank you. The next one reads as follows. The risk of food shortage must make your agricultural offering more attractive. Have you approached the big grain companies, e g cargill, to see if you can encourage the grain suppliers to use your technology? Okay. So we sell mostly indirect via our distributor or via our subsidiaries around the world to the farmers themselves. I think that those big companies that you mentioned are doing some kind of a partnership with the farmers and buy from them the growings, the crops.

14:51 So we are involved not directly with those company, but we are very much involved in the agriculture market and in the demand for agriculture. As I've just mentioned, we are bringing now a new solution for the agriculture market with the Viretic sensor that will give an autonomic real time database irrigation. Thank you. The next one reads as follows. Do you anticipate further sales of the new water fountain management application this year? What do you believe the global potential for this product might be? And will it material to group sales over the next year or two? Who are the MTI MTI WIRELESS WIRELESS Okay. Lots of question one.

15:38 We just started to implement the solution for the fountains. It's the the first, I would say, municipality in Israel that asked us to do so. So we need to learn how the project works, what's the benefits, and only then we can really assess where else to go. This is will be a step by step, and I believe that there is a big market for it. But we still don't know. We need to first complete the first project, do it successfully, and then we know. In terms of competitors for the wireless controllers, so there are a number of large American competitors like Rain Bird, Hunter Hunter, and Toro. And there are local ones in each area that we play that we play in. But overall, I think that we are pretty good provider of a solution. And as I mentioned before, our key competitive advantage is that we are the only one that can combine in one solution and many communication solutions. So if you need a proprietary network, have it by Matohollas, then we can go to cellular, go to IP connectivity, and even satellite connectivity.

16:53 And we can combine all of them in one solution that we offer for large agriculture firms usually. So this is, I think, our key competitive advantage. Thank you very much. That does now conclude the pre submitted questions. As you can see, we received a number of live questions throughout today's presentation, and thank you to all investors for submitting their questions. Can I please ask that you read out the questions and give a response where it's appropriate to do so? And I'll pick up from you at the end. Okay. Thank you. Mark asked, I know that you look to grow and expand through a mix of organic and acquisition and in the near term via m and a. So as I mentioned, we always look for growing by m and a as well. Once we have anything to announce, we will, of course, announce.

17:41 Simon asked, are you seeing any new technologies for markets participant entering any of the markets you operate? Not really. I think that we are trying to lead the market. As I mentioned, we came first with the automatic beam steering antenna solution for the backhaul, We came with the agronomic solution for the water management solution. And in the distribution, we work very closely with our customers in Israel, seize their needs, and go back to the principles that we represent to bring a new technology all the time. This is what I mean by growing revenue by innovation.

18:29 Any catalyst to look out for in the near term? I think that we are growing quite nicely. We prefer to grow step by step and not by jumps. Of course, that if the microchip shortage will be solved, then if the COVID nineteen lockdown in China is solved, it will push the antenna business. But right now, our main goal is to continue and support our customer. We have a very good customer base there. And once the market is ready, we will gain a lot out of it. You have seen Roger asked. You have seen to have agreed a quite high price, but out of the rest of the PSK and 8x EBITDA.

19:15 Can you expand on the value that PSK brings? Okay. So I don't think that we have bought the PSK at a high price. I think it was the right price. They bring us a lot of ability to sell, I would say, a more complete solution in the defense business in Israel. We set a lot of components on the distribution business into the into the customers. And with them, we can scale up and bring full solution. They also have some recurring revenue level from services that we love and we like, and we know that it is doing good for us in the wireless irrigation business. So this would be the case here as well. And I think that, overall, this business coming together, will lead us to be in a better position in the Israeli market.

20:13 Malcolm asked, what is the business weighting across each quarter? Is it changing, or do you expect it to change as you grow? In real terms, I don't understand why, and I don't see the reason for volatility between the quarters. But at the end of the day, every year, we see that the second quarter is good in a wireless irrigation because people in the summer irrigate more and do more jobs. And usually, at the end of the year, we also have a good quarter because maybe defense budget are being used more. But overall, I don't see any reason that any quarter should be much better than the other. And as long as we go go from quarter to quarter and to comparison one, we are happy.

21:05 Thank you. You've addressed all those questions you can from investors day. And, of course, guys, company will review all questions from your state and publishers responses on the investment company platform. Just before redirecting investors to provide you their feedback, which I know is particularly important to the company, can I please ask for a few closing comments? Yes. I want to thank everybody that showed to the presentation today. I believe we're positioned very well. It is true that we are going through challenging supply chain time, but our diversification is proving very, very strong, and I strongly believe in what we do and hope to continue and grow the business as it is going. Good morning. Thank you for updating investors today. Please ask investors not to close this session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations.

21:58 It's only take a few minutes to complete, but I'm sure it'd be great you've had you 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.