Mti Wireless Edge (LSE:MWE) — Results for the three month period ended 31 March 2021

0:01 Good morning, ladies and gentlemen, and welcome to the MTI WIRELESS investor presentation relating to the, results for the three months for the period ending 03/31/2021. Throughout this presentation, investors will be in listen only mode. The

0:24 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 your Investor Meet company dashboard, and we'll send you an email to notify you when they're ready for your review. I'd also like to remind you that this presentation is being recorded.

0:44 Before we begin, we would like to submit the following poll. And if you would be so kind to give that your attention, we'd be most grateful. And I'd now like to hand over to Moni Borovitz, CEO from MTI WIRELESS. Good morning.

1:02 In we technology company the And operating pleased in three business with divisions. The antenna division, which is responsible for about 30% of our revenue, where we do both commercial and military type of antennas. Commercial is about 70% out of the antenna business, and we are looking here specifically on the five g backhaul antenna solution. We've had a very good start for this year, and I'll elaborate about this later on. We had some soft revenue in our legacy fixed broadband wireless access mainly due to COVID nineteen and the inability of our customer travel and install systems around the world.

1:58 We also had some slowness in the military antenna segment, and this is again due to COVID and the slow processes in the military business as part of them not being able to work completely from home because of classification issue. So processes are taking longer, but we do have a very nice pipeline of opportunity, and I I'm quite positive that it will regain. The second segment of the business is the water management, wireless controllers for water management, who had a very strong start for the year with 13% growth year on year in revenue. We do here use the Motorola hardware as you are all familiar with and putting on top of it our software. This is our IP.

2:47 We serve large municipalities and large agricultural firms all over the world, and the need for water management is still here. And, of course, in this segment, we have a very strong recurring revenue model from service and maintenance that was even strongly, contributed in the first quarter. Last but not least is our distribution professional consulting service business, again, representing about 30% of our revenue, very solid growing business, and I will talk about it later on.

3:22 A good quarter as far as we consider. Profit was up 4% year on year, with very strong profit before tax growth. And if I look at the insight of what happened in this quarter, and I will discuss first the water management solution. We opened a facility and office in Canada to support this market. We used to support this market by a local value added reseller that decided to retire, and we took over. It looks very promising, and revenue from this office will, begin only in the second quarter of this year as the first quarter was more, getting around the company setting it up, and now we expect revenue to start.

4:07 We also gained some new contracts and new customers around the globes. One that I would like to mention is the Sydney Olympic Park in Australia. It is important part of our strategy to expand worldwide. And if you remember, we acquired 50% of our distributor in Australia about two years ago, and the idea was to expand both within Australia and in services in Australia. So I'm happy to say that we are moving in the right direction there. On top of that, we renewed and announced one of our largest service contracts here in Israel in the first quarter. It's a contract with a very large municipality. Legally wise, it's for two years with the option for them to extend it.

4:55 As they usually tend to do this, we consider this as a four year agreement with nearly $2,500,000 potential, so we are happy that this continues. And and last but not least, we launched a new solution, which we call the Motek Decoder System. It's a wired extension, to our wireless solution. It is required in several markets, and I'm happy to say that within several months, we already see that it is well accepted, and we think it has a very good potential going forward. If I move to the antenna business and mainly on the five g backhaul antenna solution, we had a very good start of the year. As you may recall, we work with four out of the seven key radio manufacturer in this area in the world.

5:44 All of them put nice quantity of orders, and we actually finished the first quarter with over doubling our revenue if I compare it to the first quarter of last year. So we are very happy with the progress here. As always, we're able to convert the profitability into cash flow, a very strong cash from operation in the quarter exceeding $2,500,000, and the cash balance increased. One should note that this year, we paid the dividend at the end of March compared to last year that we paid it in April. So if we try to compare apple to apple, the increase in net cash was much higher. If I look at the profitability and the operation that we did in the quarter, So gross in in revenue was 4%, as I mentioned, a little less in the gross margin as we had some impact of product mix, foreign exchange, and some transportation costs that are an issue.

6:47 But we're able to maintain our long term business model that the additional dollar of revenue that we make, we should make 20% operational profit. It was even higher this quarter, and this enable us to finish with a net profit exceeding 25% over the previous quarter, the comparing quarter, and also the earning per share. We decided to take the opportunity on this presentation and give some more spotlight on MTI Summit and explain what we do in this business. So we are working based out of Israel. We represent about 40, companies from around the world and sell their technology into the Israeli market. It's important to remember that most of the high-tech companies in the world have their development centers in Israel.

7:39 And once we succeed in the design win that I'll talk about it in a second, with those company, we get rewarded worldwide. The macroeconomics that are supporting this business are both the increased defense budget because we work here also in the defense industry and the global adoption of wireless technology. What we do on the day to day is we are getting involved in project at the early stage of development. We try to help the customer when they think about the solution that they wanna develop by our sales technical team to provide them with the piece part that they need for the solution. And assuming that we offer the right piece part, they will adopt it. This is what we call the design win. And then it would take two to three years until they develop the product and do a launch of the product, and we will start to see a revenue stream.

8:34 Giving an example with the case study, this is an area that a company a customer decided to develop a phased array radar, to defend a land based armored vehicles. The idea is that if somebody shoots a a missile or a rocket at this armored vehicle, it has milliseconds to understand that something happened, to find the direction from which the missile is coming, and then put a decoy to safeguard itself. We came with several components, several filters for the application that they needed here back in 2018. As they chose several of those component and started testing them. In 2020, they finished the first, I would say, prototype of the system and were happy with the piece part that we offered for this solution.

9:25 This is what we call the first design in stage. Then we entered now into a preproduction, which is usually small quantities, just to building some prototypes,

9:37 small early stage production, and helping them going into market the system, to others. We then found out that they need few more filters, so we added another seven filters to the test that they will do going forward. And if they succeed and start selling the system worldwide, we will then get rewarded for many years with significant order for high volume manufacturer. This is the day to day business.

10:05 As you can see, this segment grew very nice in both growth and profitability over the last three years, and it's reconciled with our long term model that on the additional revenue, we should see 20% operational profit. Another interesting point to see here that is that we sell over 1,000 different types of piece parts every year to all of our customers, so it gives a lot of stability and a lot of diversity in this business. If I try to conclude before getting into answers, I think that we have a good had a good quarter. We are well positioned. All of our three growth engines are operating well. We have increased our cash balance as we tend to do, and we are continuously looking to grow by emerging and acquisition.

10:58 As an as I all always say, it would be on a better safe than sorry mode, only profit enhancing and only when we are sure of what we are doing. Thank you much for joining me today.

11:11 Moni, thank you very much indeed for updating investors today. Thank you once again. Could I please ask investors to continue to submit their questions using the Q and A tab that's situated on the right hand corner of your screen? If I may only take a few moments to review those questions submitted already, I'd like to remind you that a recording of this presentation, along with a copy of slides and the published Q and A will be available via your Investor Meet company dashboard, and we will send you an email to notify you when it's ready for you to review. 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 feedback in order the

11:49 And then And we'll Slightly open, but let's see where we go. Where do you see the company in five years' time? Well, let's not explain. We have three different division each with its own, I would say, growth engine. I expect us to grow in the high single digit number to the low mid teens one, year on year, and, of course, much faster in profitability as I explained the business model. On top of that, we are always looking on the merger mergers and acquisition. So I think that combined with this, we should be going to the next level and see very nice growth in both revenue and profits.

12:43 Thank you. The next question, I think if I may, I'll end with a question that's coming from Peter Ray. Thank you, Peter, who asks if the turmoil, with the Palestinian stroke Israel is causing, issues, alongside the question that was pre received, which was what impact, if any, is the current fighting Gaza causing to MTI the commercial activity or more generally? We are a business company. We are looking only at business. Right now, it has no impact on us. The atmosphere is a bit tense, but, unfortunately, we are used to work under tense circumstances, and it has no effect at the moment.

13:27 That's great. Thank you very much indeed, Moni. But there were the two presubmitted questions. Could I just ask you to open up that q and a tab on the right hand side of your screen? And and perhaps if I could ask you to read out the questions, who it's from, and give a response, where it's appropriate to do so, and I will pick up from you at the bottom.

13:47 Okay. John, may I ask what are the plans to expand more outside of Israel? So first of all, we are opening offices and branches and using distributor all over the world. We are we have looked at potential m and a's outside of Israel as well due to COVID and my belief that you need to touch and feel a business before doing an acquisition. We put the m and a opportunity outside of Israel a little bit on hold. I hope that the travel restriction are coming to an end, and then we can resume it. But at the same time, we are pushing for more offices and more value added reseller around the world. Going forward, how long do you see the company benefiting from the five g antenna market, and what do you see replacing it?

14:40 Well, I think that we have not even started to enjoy the five g antenna market. It's only starting now. I am sure that it is for a quite long time. I would assume at least five to ten years until deployment will end. So we have a lot of time to develop new solution and at that same time enjoy the ride. Although it is up on twenty q one, the twenty one q one EBITDA is below the number of twenty q two to q four. Is it just seasonality, or is it '21 is the whole likely to be the below the 2020 level? No. I think it is partly seasonality.

15:27 We are happy, and we are going quarter over quarter with the compared one, and I'm sure that we are looking to grow EBITDA in the full year.

15:41 Can you link your water management to AI? I mean, I I guess you mean, artificial intelligence. Yes. Of course. And it's already as part of our solution, that some criterias are met, and we can combine the system to many other systems. If you become more or less confident in the addressable market size for five g backhaul, what is your listed estimated of the addressable market potential for MTI solution in antennas? I'm not more or not less. I think that the numbers are still the same. We are looking at several hundreds of millions of dollar for the point to point antenna market.

16:27 From that, the numbers talk are somewhere between 20 to 40% in the high end capacity where we play. So I think it's a fairly large market, and I don't see it changing.

16:43 Can you give better understanding on the competition in the market? Can you also provide detail of the time it takes from tendering from new contracts to receiving payments?

16:55 Again, I'm not sure of which market you are addressing, Simon, because in each of them, we have different competition. In Israel, in the distribution as our other distribution company, but we are the largest one in RF and microwave. In the antenna, it's different competition in military, which is sometimes division of large system houses. And in the five g antenna arena, we have several competitor. One of them is very big, while the other are about our size. In the wireless water management, there are several competitors around the world. In many cases, we compete locally with local companies. But, again, our advantage here of giving the full solution, very strong communications based on the Motorola hardware.

17:47 In terms of the time takes for tendering for new contracts to receiving payments, again, it depends on the market. Roughly, I would say that our payment term with customer are up to end of months plus ninety days, in many cases less. And as you can see, it's while the gross period, we are able to convert the cash positive and make cash out of the profitability. What revenue do you see achievable from MTI Summit, and what resource do you need to support this? MTI Summit is growing at a very high pace. It's all about making more design wins. So I think it should grow in line with what I mentioned at the beginning of the single digits to low teens in revenue, and we don't need a lot to support it.

18:41 Most of the investment is done by the companies that we represent, I mean, research and development, and we might need to add one more salesperson or that's it. Are there any problems providing com competing military forces, e g Russia versus The US?

19:00 Yes. Of course, we are, we need to apply both these early export license for any military application that we sell outside of Israel. And in many cases, it's also dominated by The US export license. So we are working per the guidelines and per the authorization that we get.

19:26 If an m and a opportunity was to be executed, would you utilize your full cash position? I do not believe so. Usually, and in the past, when we did an acquisition, if we needed to have a larger cash pile to do that, We would take a bank facility, to help financing about 50% of the acquisition, and the idea was that the company that we acquire should be able to generate enough cash to return such long. Why do you think the share price has been dropping recently? Well, I'm not an expert in the market. I'm an expert in the business, and I focus on developing the business. Shares tend to go up and down. I think that what's important is the long term trend, and this is for sure positive.

20:15 What is the market opportunity for five g Pico and Tencent, and who are the main competitors? So as I answered, Andrew, it's a huge antenna company. It's one of our biggest competitors. There are other that are about our size, and I think I've answered regarding the opportunity. Conflict in the region we've discussed. Is the top line growth likely to be in the low single digits going forward, or will we see a ramp up at some point? So as I mentioned, if we look five years down the road, we expect to be higher single digit to low mid things.

21:04 USA would be a huge market for water management, work with big companies, ADM, Bundle, Cargill. Any thoughts? Yeah. The US market is a very big market for us, for the water management. We have a a business development manager that is working there and working via 10 of value added resellers. We invest a lot in this market, and I agree it's a big market. And we have now maybe even a bigger opportunity there because of the investment that they have just decided to put in infrastructure, and we will, be part of it. Why do you continue with such diverse businesses rather than focusing on one? I I think that the diversity is not as big as you think in terms of the synergy between the division.

21:55 We know how to manage them. I see some synergy, and I think that the diversification give us a lot of stability. And as all of them have very good cross engine, we are happy with utilizing all of them. Could you give few more details on the tethered balloon contract and opportunity? Yeah. I did not mention it. We are in the middle of the program of the tethered balloon that is now being inflated here in Israel. It's a good opportunity for us. It continues well. It is part of the distribution, and we are now working with the customer on seeing a long term service contract, and I think that it is progressing quite well.

22:43 What have you identified as the biggest risk to the business in the next few years? We see the inflation. We see price erosion in some areas, and we see the issue of transportation. So I think this is a general risk to all businesses. I think that our advantage is that we are so globally and so diverse. So if something goes wrong in one of the businesses, the other could make up to it, and and this is part of the reason that we love the diversity. To what extent are you using software in built in the antenna system, I. E, smart antennas? Smart antenna is the solution as you wrote.

23:31 It's not the antenna itself. Most of our antenna are not smart antenna. We are in process early stage of study development of some kind of, I would say, a more sophisticated antenna. Is your equipment using iron dome system? I prefer not to answer a question regarding where you we utilize our military antenna because it is completely confidential. Moni, I think you've gone through those questions from top to bottom, making my life very easy. So thank you very much indeed for taking the the time to to answer and address all of those questions. Of course, if any questions now come in, Moni, I I will provide those to you after the event has ended.

24:17 Perhaps before redirecting investors to give you feedback, which I know is important to you, perhaps I could just ask you for a few closing comments, and then done with investors. Yes. I would like to thank everybody again for joining us. I think that, I hope that I convinced you that we had a solid quarter, and we look forward for exciting year. Moni, thank you once again. Could I please ask investors now not to close this session? They shall be automatically redirected for the opportunity to provide your feedback in order that management can better understand your views and expectations. This will only take a few moments for you to complete, and I'm sure it's greatly appreciated by the company. On behalf of the management team of MTI WIRELESS EDGE, I'd like to thank you very much for attending today's presentation.

25:03 That now concludes today's session, and good morning to you all. Thank you.