Mti Wireless Edge (LSE:MWE) — Results for the nine month period ended 30 September 2020

0:03 Good morning, ladies and gentlemen, and welcome to the short update presentation for MTI WIRELESS EDGE for its nine months financial results for the period ended 09/30/2020. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet company dashboard. I'd also like to remind you that this presentation is being recorded. Before we begin, we'd like to submit the following poll. I would now like to hand you over to Moni Borowicz, CEO of MTI WIRELESS EDGE. Good morning, Moni.

0:50 Good morning, Paul. Thank you. Good morning, everybody, and thank you for joining this call. We will focus this call on updates on the company, so I will give some brief explanation on the company for people who hear us for this first time.

1:08 Overall, I can say that they we're pretty happy with the result for the first nine months of the year. We show the modest revenue growth and a much stronger profit growth, both operational up 20% and net profit up 18% year on year. What's nice to see about our operating profit, which was $3,000,000, is that most of it was converted also into cash. As you may remember, during the past years, we are able to convert the operation profit into operational cash flow. And in the nine months, we ended with a cash cash from operation of $2,800,000. This brought our cash position to a a record high of $8,200,000 net cash, and we are very happy with this situation.

2:01 Overall, I can say that, of course, that the COVID nineteen pandemic is hitting us as well as everybody else, but maybe we are less affected, and we are on track to meet our goals. If you look at the revenue growth, as I said, it's a bit modest. It's 2% year on year, and the earning per share grew 12% year on year. Our EBITDA for the last twelve months has reached $5,000,000, which we are very happy about this as well. I've been asked several time about the cost saving that we see, and this was one of the key factors for the profit we receive we we gain this year.

2:46 And I must say that part of the cost saving is not only due to COVID and is here to stay for at least the midterm. I would like to remind you again, and this is at the bottom of this slide, that in the past years, we were able to show that on the additional or incremental dollar of revenue, we generate 20% operational profit. This is our business model. It does not matter from which division the revenue comes, and I'm happy to say that we will continue with this business model. If we look at the balance sheet, and if you look at the pie, you would see that this the balance sheet is pretty solid and strong. But the pie to the right, you would see that about half of our net assets are in cash and in the real estates from which we operate. We are a debt free company.

3:40 We have minor debt, I would say, only on car that we buy for the employees. Our intangible asset is minimal. It's about $1,000,000, and it is mainly goodwill from the acquisition we did in the past years. I remind you that we completed five successful acquisition over the last seven years because we believe that acquisition is part of the growth and, of course, that our balance sheet allows us to continue and look for acquisition. When we look to acquisition, we are looking for business that will add value to us so that we can add value to them, and, of course, that it would be a profit enhancing acquisition from day one. We are not looking for start ups on new technologies and not for turnaround.

4:28 The remainder of the net assets of the company are mainly the inventory and trade receivables over trade payable. So overall, a very solid balance. To describe a little bit what we do and give a reminder, we are working in three different division in three, I would say, vertical markets all around wireless communication. The first one is the antennas, which is about 30% of our revenue, where we do antenna both flat and dish antennas for military and commercial use. We have several, patents on the antennas, and I'm happy to say that this year, we fight for several patent mainly on the five g backhaul antenna solution.

5:14 One was already approved. Some are pending, and some are still in filing position. The second division is what we call machine to machine or wireless water management. I remind you that we are the sole distributor of Motorola hardware for this market, and we use our software to manage it. It has some recurring revenue, and we are very happy with the way it proceed, and I'll elaborate later on. It's about 40% of our revenue today. And the third division, which is 30% of the revenue, is the distribution and professional consulting services. Again, I remind, we represent about 40 companies from outside of Israel, bringing their technology into the Israeli market. We are specializing in design winning the components into the customer product, and then we gain when the product is launched. We have a satellite office for the same activity in Russia.

6:12 In terms of the revenue split, as I've said, we are almost quite equal between the three division, and it's good especially in times like that to have three strong legs in different vertical markets. It helps you to pass, difficult times. In terms of the geographical split, if you will compare it to 2019, you would see that it's a very similar split. We are working internationally. The only growth area that we see currently pushing ahead of the others is Asia Pacific, mainly due to the success we are having in China with Motek, with the water management solution. If we'll discuss in a bit more details about each of the segment, I will start with the antennas.

6:59 No doubt that the five g backhaul is the gross engine for this segment of the business. I'm very happy to report that we are meeting our internal goals for this year. We see nice growth. I remind you that in this market, we are already working with four out of seven key radio manufacturers, the Nokias of the world. We are very happy that we are able to tighten the connection with them by bringing them more product and more ideas for more solutions. I can say that we expect to finish this year, 2020, with 60% more unit shipped than the one we shipped in 2019, and I think that this shows the growth that we see in this area.

7:48 The second segment in this business is what we call fixed broadband access, and it appears here under LTE and TV white space. This is the legacy part of be giving broadband into the arms and offices. I think that this market actually was influenced positively from COVID nineteen as everybody looked for working proven solution to bring broadband, and we saw a small increase in revenue in this area. Where we were hit mostly as a company, from COVID nineteen is with RFID. If you remember, we do RFID antennas for the reader part, mainly for the application of toll roads and airport efficiency to locate lost luggage. As one can imagine, this market suffered a lot from COVID nineteen. Everything that relates to the airline industry suffers a lot, and we lost 30% comparing year on year '30 in this segment, and this is the main reason or the only reason that the antenna division did not grow in revenue this year.

8:53 In the military side of the business, which is usually about 30% of the antenna business, we had the mixed influence of COVID nineteen. We have an offset manufacturing solution in India to help the Indian government to spend money more in India. This suffered because of, again, a customer that that is mainly in the airline industry and stop some of the work. On the other hand, in the military side that we do outside of Israel, we've seen nice order taking, and now when we see more nice opportunities, I would like to focus on one key area that we see now developing in this area, and this is conformal antenna. We announced last week a contact win in North Europe for a conformal antenna.

9:41 It is the first contact that we win. Some of them were with existing customer in Israel, and another one is with a new customer in Israel that build us like a new product line of conformal antenna. So all in all, I think that the antenna segment met our expectation. Of course, RFID and COVID nineteen pull it a little bit down, but overall, we are very happy with the way it progresses. If we talk the machine to machine or Mottek, the wireless water distribution solution we provide, first of all, it's an international company, and we have subsidiaries in certain areas of the world. And we work in other area via value added resellers.

10:27 We see more and more demand for the solution as more government become more environmental concern due to the global climate change, And we recently just received another request from a new country, and it's coming, from areas that I would not imagine previously. As I mentioned before, we are working on the Motorola hardware, which give us a robust communication solution. And on top of it, we have our own IP that manages the software. The software is our IP that manages the solution. A part of this business is with recurring revenue from services, and I'm happy to say that this goes very well for us. If you may remember, we acquired a year ago, Parkland in Australia.

11:14 It was our value added reseller in Australia. And by doing that, we wanted to increase the level of service contract that we win. I'm happy to say that we won several new contracts for service in Australia. Some of them will come into effect only from this October, so we would seize them in the future, and we are very happy with the success. Earliest this year, we launched a new product, the tethysystem, for the French wine wine yard market. It was very well accepted, and I can say that when we started to plan this product in our internal business plan, we assumed that within two years, our partner in France for this market, Aquadoc, will take certain amount of controllers, and he will take them less than one year. So we are beating our expectation, and it looks very well for us. Last but not least is the Chinese market. As I mentioned before, it is going very nice for us. We see more and more demand in China.

12:23 It is true that the the Chinese market is a bit bumpy at the moment. It started with the first lockdown due to COVID nineteen. Zenzi came all up, and now they're doing closures here and there in different areas of the country. But overall, we see very nice progress, and we are very happy with the progress in China. The third division, the distribution and consulting services, is the jewel of the crown this year. It grew 10% year on year in revenue. We made the operational profit in the nine months, which is equal to the full year last year, so we are very happy with the performance. It's not only that, but we also received a very nice order from Russia that we announced last week. So we are also entering twenty twenty one with very nice backlog, and we see a lot of more design win in this area.

13:18 I would like to focus a little bit about the aerostat system that is part of the consulting business in this segment. You can see on the right hand picture, the tethered balloons, which are the aerostat systems. We represent Ticom, the company that manufacture this balloon, for over thirty years now, and, usually, we team up with them when we provide them with the implementation of the electronic welfare that they take from a third party, and we teach the end customer how to operate those system. We had a nice, project coming at the beginning of the year here in Israel. It was delayed and delayed because of the COVID and the need of isolation of American people coming into Israel, and I'm happy to report that now in October, the project actually start.

14:10 So, again, here we see for the next twelve to eighteen months another nice stream of revenue from consulting services. And together with the design wins that we have, we are optimistic about this division. Our shareholder base is quite solid, relatively close to the company itself. We have a 10% held by two UK institutional, Maitland and Herald, who support us for many years. We pay dividend.

14:43 As long as we make profit, we said we will pay, and we will continue to pay dividend. I'm especially delighted with the share buyback program that we launched nearly two years ago As this year, we already see 130,000 shares on average daily trading. It represent about just over 3% from the companies being traded every month, so this is something that we are very proud and very happy. So if I'll try and summarize before taking question, I think that the business is very well balanced and diversified and help us navigate successfully through COVID nineteen. I see that each of the, different division and its has its own growth engine, which are very compelling.

15:31 And I think that as long as we continue to generate cash and have a solid balance sheet, we can continue to look in acquisition. As I mentioned before, it's on a better safe and sorry mode, so we might take time. On one hand, COVID brings some opportunities, but on the other hand, it is less easy to travel or almost impossible to travel and check the companies, and we will not do any acquisition outside of Israel without visiting it. So it might take a while. And overall, we are very happy with the result. Thank you, and I'll be happy to take any questions. That's great. Thank you very much indeed, Moni. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated in the right hand corner of your screen. But I just want to come and take a few moments to review those questions that have been submitted already. I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Dashboard on the Investor Meet company platform.

16:32 Lastly, before I do hand back to Moni, I'd like to remind you feedback is important to the company. Immediately after the presentation has ended, you will be redirected for the opportunity to provide feedback in order the company can better understand your views and expectations. Bonnie, before we perhaps look at some of the questions we've had in during the presentation itself, I wanted to ask you a number of questions we've had pre submitted by investors ahead of today's presentation. If there are any areas that we haven't covered off, we can go through those in through the live q and a that we've had in. Perhaps I could start with the first question that we had here is, what is your view of the speed of the rollout of five gs infrastructure over the next twelve to eighteen months? When will MTI start to benefit significantly?

17:15 Okay. I think, first of all, that the industry itself and the entire worldwide is very excited about five g. I think that you see that the phone manufacturer, Apple, Samsung, and those are introducing the the phones. The radio manufacturer, the Nokia and Ericsson, are announcing a lot of contact wins, and the service provider are starting to say that they give five g service, which is good because it means that five g is getting into play. Everybody stand, especially now with the pandemic, that the high bandwidth connectivity is something that we need and something that we will need more and more. But at the same time, I think that one should not expect that this will happen in the next quarter.

18:04 It's an infrastructure investment. It usually takes some time, and I always say that those things are project of evolution and not of revolution, I would say.

18:15 So we see progress. Our job is to continue and stick to the customer we have, maybe gain one or two more. And as long as we do that, we will enjoy the growth that we have already started to see, and we'll see much farther going ahead. Thank you. Thank you very much. Next question we've got here, Moni. How much of the 20% increase in operating profit was due to improved margin? And how much was due to lower costs? And of these lowest costs, how much, if any, will be ongoing reductions?

18:48 Okay. It's a bit tricky question because, you know, in sometimes, we had good margin, but then we had because of lack of transportation due to COVID, we had to pay more for the transportation. So I don't know if this is part of the lower margin because it was just an occasion. But I would say generally that I would expect half of the cost savings that we had now due to COVID will remain for at least the midterm. From my conversation with colleagues, I don't see anyone looking at the running into exhibition immediately. So there are a lot of cost saving that will stay also some work for remote. And what most importantly is the long term business model that we have, and I've before, in each of the divisions, we have over 30% gross margin.

19:44 And going forward, I don't see it falling below 30. And this means that on any additional revenue of dollar, we should see 20% operational profit, and this is the more important thing. Thank you very much. Next question we've got here. What do you expect to be the main growth drivers in 2021? Okay. For sure, five g is one of the growth engine. No doubt about it. The second one, you know, is the global warming and the push for more solution in water management. We are also about to launch another product that I will not reveal at the moment for this segment of the business. So this will also be incremental next year. And as I said, the design wins that we have in the Aerostat solution that I've just mentioned project are for sure will drive the growth next year.

20:40 That's great. Thank you. Next one we've got here, do you expect to pay a dividend for this year? And can can you give an indication on the level? Obviously, under the rules and regulations, you've got to adhere to, if you can answer that question as as especially Yeah. Great. So first of we do not have a written policy of dividend payment, but on the other hand, we did pay each and every year since coming to aim this side one year. We are making good profits, so my recommendation to the board will be to pay dividend. Of course, it's a board decision at the end of the day. I believe we will pay, and the exact amount, we still have some time to think about it and see how we operate. But seeing the previous year, you can imagine more or less what will be the the payment.

21:26 That's great. Thank you. And the last submitted question we've got here, and I think you've touched on it somewhat already. Do you see any opportunities for M and A activity? So as I mentioned, we invest a lot of time seeing a lot of companies. From one hand, I think that we will have better opportunities, due to COVID and some companies running into some cash flow difficulties, etcetera. On the other, as as I mentioned, it is much more difficult to travel and visit outside of Israel to see companies at the moment. And once we will have something to announce, we will, of course, but we are looking for an external growth engine in parallel to our internal ones. That's great. Thank you very much.

22:14 I know I haven't given perhaps a great amount of time to to have a review of the questions we've had come in during the meeting itself there, Manu. But perhaps if I could hand back you to you and ask you just to sort of start at the top and go through the questions. If I could ask you to please read out the question who it's from, that would be really helpful. Thank you. Okay. First one is great presentation. Thank you. What do you see as the great risk to MTI WIRELESS moving forward? I don't see a specific risk. I think that we are positioned very well in each of the market, and our key target is to keep the position. And for sure, with the five g is to make sure that the customers that we already have in hand are happy with us.

23:00 And next question, why share buybacks over larger dividend payments instead? Liquidity seems an issue. I've seen spread increase. When buying your company share from lows of one and a half percent to 10%, I believe this liquidity is having impact on the share price. Today, for example, it's four 7.4. This movement discourage investors. Okay. So first of all, we have no influence whatsoever on the spread and on the market, but we are not doing a buyback to delist the shares. We are doing buybacks to treasury

23:38 to help people that wanna build a bigger block or buy a builder block. By building the block and then selling it back to them, we all we made a small fund of £150,000 that was that the broker is buying and selling, so it is not a replacement for dividend.

23:58 And what we are trying to do with the cash that we build in the company is, as I mentioned, is to go pay for acquisition, which I think is a better return. Margin trends in each of the division, I think I've answered it. It's more or less the same. Each of them is in the mid thirties, and I don't see it really change, I mean, the gross margins.

24:25 In which of the three division you would prefer to make an acquisition? I'm quite agnostic about it. I think that it has to add value either to the company that we buy by using our production capabilities, marketing capabilities, leverage of scale, or that it can bring something to us, but we are very open. I think that in each of them, there are some places to go. Could you expand on how you see Chinese water market in the next year? Again, it's hard for me to say what would happen exactly next year, but I see the overall trend in China. They are trying to fight the pollution within the cities, So they are building a lot of parks, and those need irrigation.

25:14 And they are investing a lot in technology for agriculture to grow more food, and we see more and more projects. Some of them take long to mature until we get the order. It can be even years, and some are faster. So overall, we see a nice progress, and we are happy with that. The company is involved in many different markets with different type of products. Hardware, software consultancy. How does the company prioritize management time and capital allocation? Okay. So one of the, I think, only real common resources on business development is me talking to you. Each of the division has its own, I would say, management, for sure, a general manager that runs in his day to day, fully occupied with his business. We have one hour a week of meeting of all the managers to make sure that we utilize the synergies the best we can.

26:16 I think that so far, it is working quite well for us, and we are happy with the way it is. Please, can you disclose who the investor are that you are doing the buyback for? Are they related parties to the company? First of all, I don't know. We cannot disclose who they are because we are not operating for someone specific. What we have learned is that many time after presentations like this, institutional in The UK that are not related party for sure, are looking to buy a bigger block, and they will not buy small piece parts in the market. And they usually do not approach us as the company. We have a broker who is working in trust.

27:01 He does not get any instruction from us not to buy, neither to sell. The only thing it it checks that there is no inside information, and he builds the block and then sells the to those who want who wants the block. Usually, it will be institutional in The UK. Liquidity is an issue for those wishing to build a smaller block, question mark. What can be done to help those who understand this technical market? So this is exactly the reason why we added the the share buyback plan. Is there a price range when considering an acquisition? Of course, there is. We are always looking, to pay the right price. We are not looking to to find something that is extremely cheap.

27:49 As I mentioned, we are not looking for a turnaround. We are looking for a growing profitable company that we can accelerate the profit. And again, it has to make an economic value. Thank you, Moni. I think you've pretty much addressed all the questions you can from investors there. And, of course, the company will review any additional questions submitted by investors today, we'll publish those answered on the Investor Me company platform. Moni, thank you for updating investors. Perhaps I could just ask you to wrap up, and then we can redirect investors to give you some feedback. Okay. So thank you very much again for your time and for voting confidence for those who are holding shares of the company, and I look forward to meet again soon. That's great. Thank you very much indeed. Thank you, Moni, for updating investors today. Could I ask investors not to close the session as you'll be automatically redirected for the opportunity to provide your feedback?

28:45 If you've accessed the meeting from our website, the feedback page will appear in front of you. If you've accessed the meeting via the link sent to in an email, you'll be asked to log in and submit your feedback from there. On behalf of MTI WIRELESS EDGE, we thank you for attending today's presentation. That concludes today's event. Good morning.