Mti Wireless Edge (LSE:MWE) — Results for the six month period ended 30 June 2021

0:02 Good morning, ladies and gentlemen. Welcome to the MTI WIRELESS EDGE LTD. Results Investor Presentation for the Six Months Ended 06/30/2021. Throughout this presentation, investors will be in listen only mode. Questions are encouraged, can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Just click Q and A, go to the bottom of the screen, type in 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 review all questions submitted today and publish responses where it's appropriate to do so. These will be available via our Investor Me

0:34 company dashboard, and you'll be notified once they're ready for your review. I'd also like to remind you this presentation is being recorded. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Moni Borowicz, CEO of MTI WIRELESS EDGE. Moni, good morning. Good morning, Paul. Thank you. Thank you, everybody, for joining us today. I will present the six months results ended June 30, and I will take into assumption that people already know the company. So I'll run through what we did in the six months and what are the prospects of the business ahead of us. Just as a quick reminder, we are a technology company focused on wireless, radio frequency and microwave solutions.

1:22 We are operating via three division, the antenna, which represent about 27% of our revenue the wireless controller for water management, which is about 40% of the revenue and the distribution and professional services, which is about 33% of our revenue. If I compare the revenue split between the different segment and the geographical split of the revenues to last year, you would see that there was not a huge significant. It shows that even though the COVID continue, we continue to perform as usual. I think that the result for the six months are very strong. We are very happy with them. Revenue was up 9% and falling all the way down to the earnings per share grew by 14%.

2:13 The pandemic is still here. It still affects some parts of our business. But overall, I can say that the demand for water management, the five g rollout, and the increased defense budget that helps our distribution business are still pushing the business forward. Like always, we make a lot of effort and are able to transfer most of the profits into cash flow. This was the case in the six months as well, and our net cash increased 20% year on year. Going a little bit into the numbers themselves, you can see that both in the first half and in the second quarter, we had nice revenue growth. And as I indicated, it fell all the way down to the earnings per share.

3:01 It's important to remind that our long term business model is to add 15% to the operational profit on any additional dollar of revenue that we generate. This was the case in the six months, and we are happy to meet this goal. We have a strong balance sheet, solid one. If you can see that the real estate from which we operate and the net cash represent over 50% of our net assets. We like to have this nice cash balance on the balance sheet. It help us to continue with the buyback program that we have in place to pay the dividends and to continue and look for acquisitions. As you have heard me before, it is always on a better safe than sorry mode.

3:50 It means that we will do an acquisition only when we find the suitable acquisition, value added profit enhancing from day one and so Getting into details of about what we did and what we see in the business itself, I will start with the antenna division. We are experiencing some kind of a transition period in the antenna business where the legacy fixed broadband access is declining, while the five gs and RFID are the growth engine in the commercial antenna division. I'm happy to say that this is the first time that we see that the revenue from the five gs together with the revenue from RFID is exceeding the legacy part of the business.

4:37 And this means that if those two growth engine continue to grow, we should start seeing the growth in the antenna business. Going into the five gs, we had a very nice first year, a growth of over 50% year on year comparing to last year. And not only that, we continue to strengthen our relation with the existing customers that we have, developing a new solution for what they need. So we think we are in a very well position for that. Regarding RFID, if you remember, last year when we discussed, it was fairly slow due to COVID, and now it's the third consecutive quarter that you see that we see that it is returning to the level of pre COVID-nineteen.

5:24 I hope it's a trend. I hope that the pandemic or the new variant will not kill it again, but we are very optimistic about the future of this segment. Several weeks ago, we announced about a project that we started in the space area doing antennas for satellites. It's a new area for MTI, and we see ourselves as a technology company. And if we can adopt the existing technology to new application, it's something we should try, especially if we are getting grants for most of the part of the development and taking minimal rates to explore new areas. Beside that, we have the military division of the antennas. This was going quite well for us in the six months. Although military is a bit slower due to the pandemic, it is less suitable for Zoom and Teams meeting.

6:20 Everything is more classified and confidential, so you need a lot of face to face meeting. So we did slow a little bit. But having said that, we just announced last week a very important contract win, a new customer for us. It's for a naval application, and we are very satisfied with this progress as well. A little more focused on five gs, which is the biggest growth engine for us in this market. This is a new research that was published earlier this year. And my key takeaway is, first of all, that they explicitly talk about the event where our dual band antenna lies. And it's important to see that they forecast a nice growth rate. On top of it, our technology, flat antenna technology for the small cell backhaul is again something that everybody predicts like a very high growth potential.

7:15 And our key target at the moment is to stick to the key customers that we have. I remind you that we work with four out of the seven key radio manufacturers in this area. And as long as we make them happy to work with us, we will grow when the market is growing. Moving to the wireless controllers for water management. Again, this is our largest division revenue wise at the moment. I think that we have all seen in the last several weeks the global climate change effects, floods in many places, fires in many places. And on a macro level, people understand that the sweet water are critical and something that we should manage.

8:04 If I look into the micro progress that we made in the business, I'll start with our new subsidiary in Canada. As a reminder, we opened it in February this year. We were already able to secure a key service agreement with a large municipality that is running one of the biggest landscape system in the world.

8:28 On top of it, we retained all the existing customer that our value added reseller heads there, and we see nice volume of business. Most of it will come in as revenue in the second half of the year as it took some time paperwork wise to open our as a vendor to those municipalities, so we see a very good progress in this area. I've spoken in the past quite a lot on the French vineyards, and I'm still very happy with the prospect that this shows. We continue to develop the markets there. Actually, technician traveled there not too long ago. It's the only place when we send a technician in this pandemic area because we understood that they need the support, the local support there. He came back very enthusiastic, lots of installation, lots of requirements for new development, and it looks like a very nice opportunity

9:25 for us. We also announced during the six months on some of the big contract renewals we have for services. It's important to remember that about 20% of this division revenue is coming from service and maintenance. And it's not only in Israel that we signed with our largest service customer for several years. We also increased the service level we do in Australia, and the service is continuing to generate more and more work for us. I talked about the our wired extension in the last presentation that I gave that it was only coming out into the market, and we are very happy with that. The Motte Decoder system is very well accepted. We see nice backlog of orders.

10:12 And again, like the Canadian office, we would see the impact on revenue in the second half of the year. Again, on a more macro level, you can see at the bottom of the slide a new research that was published about smart irrigation and the growth it is supposed to bring into the market. One must understand that the numbers themselves, the absolute dollars, do include hydraulic and pipes where we are not part of. But for me, it is very encouraging to see the expected growth in smart irrigation because smart mean controller, and you need controllers in order to continue with the smart irrigation. Moving to the third division, I think I said it before, but this is the jewel of the crown in the last couple of years.

11:03 Just as a reminder, the distribution business did an entire twenty eighteen dollars eight point five million in revenue, and we finished the six months of this year with $7,000,000 So we are getting closer to double the business. It looks very nice, and this is in the pandemic period of area. We continue to have very strong design wins and solution that are both in the Israeli and the Russian market. Just to give some idea, so in these six months, we grew this business by over 20% year on year. We have here a segment of the tethered balloon project, where we do consulting for governments on installing a tethered balloon for intelligence use. There is a big project that is running right now in Israel. It had some delays in the second quarter.

11:53 We assume that it will resume towards the end of this quarter or entering into the fourth quarter and allow us again to expand the services into 2022 and onwards. So if I conclude, I think it was a positive performance for the first half. I think that all of our growth drivers are in place, whether it's the five gs, the water management all the design wins that we continue to do. We have the strong balance sheet to continue and pay the dividends, do the buybacks and look for acquisition. And I'm happy to take any question at this point of time. That's fantastic. Thank you very much indeed, Moni, for the presentation. Ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. To click Q and A, type your question and press 10. But just while it takes a few moments just to review those questions submitted already, I'd like to remind you that recording of the presentation along with a copy of the slides and the published Q and A can be accessed via investor dashboard on the Investor Meet company platform.

13:01 I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide your feedback in order that the company can better understand your views and expectations. Bonnie, we did have a pre submitted question that came through, and perhaps I can just address this to you to start with. And it's around drones. Are these drones for crop and water management something you're willing to consider? Yeah. Sure. For us, drone is a par is a sensor at the end of the day. It's a flying sensor, but it is a sensor. And our system is already suitable to connect as a direct at the controller level or as an API at the cloud. So drones are part of something that is used today to collect data, and we are ready to integrate with it.

13:55 Thank you, Moni. That's fantastic. And if I may, just if you could just click on the q and a tab just to see what we've got coming through there. And where appropriate, just read out the question and give the response. That'd be great. Thank you. I have a question from Andy. What areas don't you see the most growth in the business? So as I mentioned in the legacy antenna business, which is fixed wireless access, We see some decline. Part of it is due to the pandemic that are less installation, and some is I suspect that people are waiting for five g to take over. I have a question from Jiso. Do you expect profit margin improvement in antenna with sales growth in five gs?

14:43 So first of all, if you look at the antenna segments in the six months, and you can find it in our financial, although revenue declined a little bit, the operation margin was better. I think that this is due to the mix of products. And at the end of the day, what's important to me is that on the consolidated basis, as I said, on any additional of dollar of revenue, our target is to make $0.15 to $0.20 operational profit. I'm going to Mijael. For the consulting division, can you advise how many projects have resulted in launched product and hence continuing revenue stream for the company?

15:29 Is the value significant? I'm not sure I fully understand the question. I will try to give an example, and we did so in the last quarter. We are involved in tens, if not hundreds of projects in the consulting business. We are designing more we represent more than 40 companies from overseas, and they have thousands of components that we sell into the Israeli market. And each and one of them is a design win. So some can be relatively small amount, some can be bigger amounts. And usually, when we design, when it's in the early stage of development, in two to three years later, the production will start and will run for several years. So it's and most of the revenue is from that.

16:23 So I think it is significant in value when we consolidate it. Simon asked if can you give a little detail of what you look for in acquisition and in your areas of in that interest you? We are specializing in wireless communication. So we need something that will be wireless that we can add value to it or it can add value for us. We don't limit ourself. Our limitation is added value and profit enhancing from day one. These are the main key issue. Do you have any seasonality in earnings between h one and h two? I think we do. If you look at the past, you see that generally the second half is better in revenues and profits.

17:14 So this is it. Another question from Philip. Have Israel recent territories with Arab countries open up new markets for your company? Yes and no, and I'll explain. We are not politician. We are trying to build business, and I can tell you a secret that everybody knows, a known secret, that Israel is working with the Gulf countries on many areas for many years. In many cases, it was indirect. Now it is more possible to work direct. It saves costs. So we continue to do that, and we will continue to do that. Peter, I ask, please remind me what percentage of your business is your biggest customer has.

18:06 I think it is about 10% to 12, and it lies between the distribution business and the antenna business. It's a one large defense company that buys antennas and buys a lot of equipment from us. Do you run your business as a US company to maximize US earnings? Yes. We are budgeted in dollar. We work in dollars. And, actually, sometimes, like now when the dollar is weak, we are, heated by the dollar. Nick asked, what do you directly who do you directly compete with, And at which point level do you sell into? And what visibility do you have in revenue? Okay. So it varies from each and every division.

18:54 Again, in the antenna division, we have the military that we compete with many companies like European Microwave, like Shelton, some division of the big companies, the system companies like Smiths and Cobhams, they have their own antenna division. In the commercial market, we compete with a company like Andrew or Comscope, so it varies. And in this business, we have a fairly short order book, but better, I would say, understanding of what is going on because we are tied with the same customers for many years. It's not easy to replace an antenna manufacturer. So although it's not a firm view, we fairly know where we will be.

19:43 In the wireless irrigation business, we compete with company like Hunter, like Toro. These are a huge company that sell the entire equipment, only the controller. Our advantage here is the Motorola system that is the base of our hardware. And here again, we ship within six to eight weeks, but we work around the globe. There's a lot of value added resellers, so we know to estimate where we are. And in terms of the consulting business, we are the largest one in Israel today in RFM Microwave. We have a lot of other representative companies that compete with us, but we have a fair good amount of solution that we offer.

20:30 And again, here, view of visibility is a bit longer because even if it's not all there, so we know that we are in a project. And as long as the project run, it will not be replaced. How do you manage the risk of key employees leaving? So first of all, we had until not too long ago an option plan for employees for key employees. I'm happy to say that most of them were able to exercise and make money on those option, and we will consider to do maybe another option plan. But in parallel, we do give them a they have a profit enhancing agreement that they share some of the profits of the company, and we try to make them happy.

21:23 If you got protection to prevent takeover by a larger competitor, according to the Israeli law, which the company is still under it, if somebody wants to become an owner of over 45% of the company, as right now, no one owns over 45%, it needs to go through a public offering for everybody. So I think this is a good system to prevent it. And, also, I think that since we are so diverse, it will be less interesting to one specific candidate to take over everything. We will probably approach to try and buy a division. Moni, fantastic. That's fantastic indeed. You've covered literally all the questions. So thank you very much indeed. If there are any further questions submitted by investors, course, Moni will be able to review those and post responses where appropriate to do so.

22:20 Moni, perhaps if I may just ask you just for a few final words just to wrap up, please. Yes. I'd like to thank everybody for joining us today, and thank you for the all those for their support. And we look forward for meeting again. That's fantastic, Moni. Thank you indeed for updating investors today. Could I please ask investors not to close this session? It should be automatically redirected for the opportunity to provide your feedback in order that Moni and the team can better understand your views and expectations. This will only take a few minutes to complete and is greatly valued by the company. On behalf of the management team of MTI WIRELESS EDGE LTD, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you, and good morning.