Mti Wireless Edge (LSE:MWE) — Results for the twelve month period ended 31 December 2020

0:02 Good morning, ladies and gentlemen, and welcome to the MTI WIRELESS EDGE LTD investor presentation relating to the results for the twelve month period ended 12/31/2020. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted any time via the q and a tab situated in the right hand corner of your screen. Simply type in your question and press send. The company may not be in a position to answer every question received during the meeting itself. Have the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your

0:33 Investor Me company dashboard. We'll also notify you via email when these are ready for your review. 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'd now like to hand you over to Moli Bouravitz, CEO of MTI WIRELESS EDGE. Want say good morning. Good morning. Thank you, Paul, and good morning, everybody. Thank you for joining me today. We will discuss today the 2020 results and provide some updates on the business in 2020 and the outlook. We had a fairly good year, I would say, in 2020, given the pandemic. Our revenue growth was modest 2%.

1:22 In Q4, it continued the same pace as it was in the beginning of the year. And but we were able to convert this to a very strong profit growth from the operating profit down to the net profit. As you can see, we generated about $4,100,000 in operating profit this year. And as we generally do and did in the past, we convert most of the operating profit into operating cash flow. And that gave us the nice increase in cash balance at the end of the year. My key take out from this challenging year was the success of our diverse business model.

2:07 We've seen some of the segments in the business that were hit by the pandemic. We've seen some that navigated very smoothly and they were able to compensate. So all in all, we are very happy with the positioning and where the business is headed. As always, we pay dividend and given the good profitability and nice increase in cash, the Board decided to increase the dividend payment, which will be paid at the end of this month. If I'll go a little bit deeper into the profitability and the performance of the business, I'm happy, as I said, that we were able to convert the small growth in revenue into nice profitability.

2:56 It is true that some of it was caused by cost saving that were forced on us by the pandemic, like traveling and exhibition that did not occur. But being very careful in this year and checking ourselves, we found few efficiencies. And I can say that probably half of the savings that we made this year are here for today, for sure for the midterm and also for the long term. If we take a wider view on the business and how it progressed over a few years, you can see that we are able to increase revenue year on year. And more importantly, we're able to double the earnings per share in four year time, which is a good news and we are very happy with.

3:49 I remind you that our business model is talking about 15% to 20% operating profit on each additional dollar of revenue we generate and this is the key acceleration of the earnings per share. Being a solid conservative company, we have a solid and conservative balance sheet. As you can see in the right hand corner, the net assets of the company, more than half of it is in cash and in the real estate from which we operate. Actually, in January this year, twenty twenty one, we paid the last installment on the mortgage on this building. So we are now completely finance debt free. There are minor debts on cars that we use for employees.

4:40 So we have a very strong balance sheet that can support the acquisition plans and the external growth that we expect to have. As you can see, we have small intangible assets on the balance that is from those acquisitions that we did in the past. Just to remind you that we have very, I would say strict materials for doing an acquisition. It has to be an adding value acquisition. It has to be a profit enhancing from day one. And we are looking thoroughly on those and this is one of the reason to maintain the cash on the balance. Our shareholder base is also quite solid and stable. We have Harold and Maiton supporting us for many years and we are very happy with that.

5:31 We continue with the dividend, as I mentioned. And it's nice to see that in the past four years, we even were able to accelerate and increase it. Of course, my family is the major shareholders and also some of the PDMR has the same interest as other shareholders in receiving the dividend. The buyback program was perfect for us. We launched it two years ago. And I'm happy to see that now in 2020, the average volume trading was nearly 3% of the company shares. And this is the key reason that the Board decided to continue with this revolving plan. If I'll give some more indication about the business itself by the segment and what we did, I'll start actually with the bottom division, the Distribution and Professional Services, which was the jewel of the crown this year, with 18%, one-eight percent growth in revenue year on year. And this is after 33% growth in 2019.

6:40 So overall, a perfect year for this business, and we are very optimistic about it going forward. In the Water Management, we had a decline of about 2% in revenue, which was mainly due to COVID-nineteen, but we're able to increase operation profit by 23%, and this was due to the saving and the efficiencies I've talked about. In the Antenna division, we had a slow year in RFID, and I will elaborate it in a second. But we had a very good year in five gs backhaul. We were also able to register patent on some of the solution. So overall, we are happy with the performance. As you can see the revenue split between the different division on the right hand top chart, we are still quite stable between the three division.

7:34 And geographically wise, we did not have any major change from 2019. If we speak about the antenna business, no doubt that the most fascinating opportunity is the five g back on antenna for us. To give you a glimpse of what we are doing, we will now show you a short clip on that. Today, cellular communication is essential for our day to day activities, which means, just like electricity, we expect our communication networks to be available and up and running anytime, anywhere.

8:19 The technology to support our online activities has also advanced. Five g provides faster connections and faster speeds, but requires greater bandwidth between the cellular network and the Internet. Greater bandwidth means networks run faster and our devices run better, so everybody's happy. To provide higher bandwidths between the cellular sites and the Internet, cellular providers use higher frequencies to connect between the cell sites and the Internet. These higher frequencies, however, aren't always that stable. They're affected by weather, specifically rain, causing disruptions and disconnections. MTI introduces the multiband antenna, the first of its kind antenna that operates in both low microwave and high millimeter wave frequencies simultaneously on the same antenna.

9:09 With our unique multiband antenna, less is more due to reduced installation and operating costs, site rental costs, maintenance, and equipment costs. Our patented multiband antenna is the first product of its kind and has already been deployed by leading cellular providers worldwide. Delivering multi gigabits per second for cell sites has become key in five gs network development. Ceragon solutions delivering the maximum capacity over millimeter wave frequencies in combination with the maximum capacity that's achievable in dual core multi core solutions from microwave and in combination with MTI's multiband antenna provides our customers with the lowest TCO solution and the fastest deployment capability they need for five gs network development.

9:58 Available in multiple frequencies and sizes, this game changing technology creates a new industry benchmark. MTI's responsiveness enabled Aviat to get our groundbreaking multiband solution to market quickly and to start

10:12 generating sales. We have now successfully deployed our multiband solution around the world with great results, largely thanks to having the only solution on the market that incorporates a single radio unit with a direct mounted antenna. The multiband antenna delivers stable connections without disruptions in all types of weather. So let it rain. Thank you, Paul. I would like to remind that in five gs, we are working with four out of the key seven radio manufacturer. Two of them you have seen on this movie.

10:59 We're able during 2020 to strengthen the relationship with them. We're working very closely and collaborating with them. And actually, our key goal or key target is to make sure that they are happy with the performance and service they get from us and wait with them for the market to depart. I can say that on top of that, we were able to secure a new customer in Russia, which was very good and was led actually by our distribution office in Russia, just giving you another insight of the synergy between the different divisions. And overall in 2020, we're able to ship 65% more units, antennas, than 2019 for this five gs backhaul.

11:50 So I think that we start to see the growth. In RFID, we had a slow year, as I mentioned before. RFID is Radio Frequency Identification, and we do the reader part mainly to toll roads application and airport efficiency for luggage tracking. So one can understand that there was no real business in 2020. The good sign we start to see is that from Q4 and also entering to this year, we see some recovery in RFID. But being conservative, I want to say that it is a trend and not just a peak. But currently the sign is looking good. And last but not least is the military segment for the antenna business, which is about 30% of the antenna business.

12:40 And we had some delays again due to COVID, But at the same time, we made a lot of progress in conformal antennas and won several bids, one of which we announced with a North European customer. And I think we are positioned very well for the future in this part of the business. If we go to the water management and control systems, we had a very good year, as I mentioned, especially in profitability. And we continue to see that the global climate change is forcing more and more areas in the world to manage water. This year, we started to work even in Russia again, which was something that we did not anticipated in the past.

13:30 I remind you that here we are working with the Motorola controllers and put our software on top of it and this is the IP of the company. We have seen here the pandemic, how it goes globally from area to area. We started with China with a very slow start to the year, but from April, the return to market and we have had a good year in in the Chinese market. We had a very successful launch of our Tethys system for the French vineyard. I remind you that for them, we developed a water allocation, distribution and management solution. And we already been engaged with five water consortium and over 500 vineyards have installed the system.

14:19 It is the early stage and most of them are trying the system, but we are very optimistic about the prospect of this opportunity. In the water management, we have 20% of the business coming from recurring revenue and services. And in the past twelve months, we were able to renew two of our largest service contracts in Israel. So it bodes well for the future. On top of it, we won in the fourth quarter of twenty twenty, a contract win for service in Australia. I remind you that we acquired 50% of our distributor in Australia nearly two years ago with the aim to pursue contract and we are happy to see that it is starting to show the fruits.

15:10 And last but not least is that we opened just recently an office in Canada. We had a long term reseller in Canada that decided to retire. And as the Canadian market is an important market for us, we decided again to put our foot on the ground and push for more service and expansion products. We launched about a month ago, what we call Mottek Decoder System, which is a wired extension to the wireless solution. It is required in some areas of the world. And we are sure that by showing new and more product offering to the customer, we will increase this business going forward.

15:59 The distribution business, as I mentioned at the beginning, was excellent this year, both in growth in revenue and accelerating the profits. I can say that it was good both in Israel and in Russia. And I would like to focus on the EROstat system, a consulting business that we have. As you can see on the right hand picture, there are the tethered balloons that are manufactured by TCOM that we consult

16:27 them. We just won a fairly large contract together with them for the deployment of such a project. It was delayed and delayed due to COVID. And from the second half of twenty twenty, we start to see it catching up. We know that there is a lot of work to do here. Again, we're a little bit dependent on COVID, but given situation in Israel, I hope that it will fairly soon be over and we can return to full production there. And we anticipate some nice growth from that as well. So I think that we made quite well navigating through the pandemic. As I mentioned, some of our markets vertical markets were hit and the other were able to compensate.

17:13 We started 2021 fairly good. We believe we have good prospects going forward. Each of our division has its own growth engine and we are continuing to work and look for M and A opportunities. And again, all in a better safe and sorry mode and making sure that we know what would be in the day after. Thank you very much, and I'll be happy to answer any question you may have. Moni, thank you very much for the presentation. Ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated in the right hand corner of your screen. But just want the company to take a few moments to review those investor questions submitted already. I'd like 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 on the investor.me company platform.

18:04 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 order the company can better understand your views and expectations. Monu, we've had a number of questions that were presubmitted, ahead of today by investors, and perhaps I could start off the q and a session with these if that's okay.

18:25 Okay. Great. The first question we've got here is how do you see the diversity of the different business divisions going forward? Okay. As I mentioned, I think the diversity proved itself, this year, And we had a good balance of antennas, communication application, I mean, Motech and the integration business. Our objective is to build more depth into the three divisions and in particular, try to develop more recurring revenue. I think that each of them has a very good growth engine. And the best thing that I can say that it doesn't really matter which of them is going faster as long as we are able to maintain our business model of 15% to 20% operational profit on the margin and revenue that we make.

19:22 And if they are all at the same gross margin level, I think that we are well placed for that. Thank you, Moni. Next one we've got here is, if you can't find an acquisition, would you consider handing some of the cash back to shareholders?

19:40 We are a growth business, and I believe that we can use the capital. I believe we should have capital on the balance sheet, and I think it proved himself during the year. Our focus was always to find quality acquisition, not to jump into them. And we are patient, we are looking as I said to a profit enhancing acquisition. But at the same time, as a major shareholder that enjoys the dividend, for sure, if we see for a long period of time that the cash is piling up and up and we find nothing, we will look into because a it to to larger dividends. Thanks, Moli. And the final presubmitted question we have here is margins improved as a result of COVID. To what extent do you expect to maintain some of those cost savings?

20:35 So as I mentioned, it is true that part of the increase in profitability this year was due to COVID. You know, we did not go to exhibition. We did not travel to customers. But part of it also affected the growth of the business. So all in all, I think that about half of the savings that we had this year are here to stay, as I mentioned, because we found the efficiencies. And I believe and hope that the acceleration in revenue will cover for the other costs that will come back in the mid to long term because I don't see all of them returning too fast, especially not this year.

21:22 That's great. That concludes the pre submitted questions. So, Moni, perhaps if I could just direct you over to the Q and A tab. We've had a number of questions from investors submitted today. If I could just hand back to you, and where appropriate to do so, if I could just ask you to read out the question and who it's from, that'd be fantastic. Okay. Mayan asked, hi, Moni. Do you see any shortages in material and parts? How do you see the impact of transportation cost or any other inflation cost? So we do not see a shortage in material. At the beginning of COVID, we were a little bit afraid and increased inventory to prevent this. I can say that at the beginning, we had a very sharp increase in transportation costs, and we have decided to mitigate it again by trying and moving the stock, even increasing it and leverage the cash that we have on the balance sheet.

22:23 And I don't see currently any issue with the inflation cost. Richard asked, what type of companies are you looking to acquire? And is the location a factor when when you are looking at acquisition? So as I mentioned, we need something in the wireless area that we can understand. Most importantly, that we can add value to it or it can add value to us. We don't care about the location, usually. But under the current circumstances, it has to be somewhere that we can travel easily and see and visit because I believe that you must see it in your own eyes.

23:09 So these are the acquisition criteria at the moment. Mayan has another question. How do you see the future growth prospect of each segment? So as I said, the key growth engine for the antenna is the five gs backhaul. In the water management solution, I can say that the global warming is doing part of the work for us. We see more and more demands for many areas of the world. And I also see that the TETi solution is very well accepted, so I hope we can duplicate it to other markets. In the Distribution business, we continue to do design win. It is our day to day job and as long as we continue to do so, it will increase.

24:01 Paul say no question, just to say thanks for all the hard work. Well done. Thank you, Paul. Look, how do how are we looking on revenue visibility year ahead versus year ago? So we started the year fairly good this year. I will remind you that we announced several contracts towards the end of the year. As I told you, we secured some of the service contract that we need to and in RFID, as I mentioned, we started the year good. I can say that in Motech also in some areas, we started the year even very good. But I'm less favorable of staying one or two months. I prefer to see the trend and I hope that it goes well.

24:54 I have a question from Philippe that I don't really understand. Will Abraham Accord open any new markets for the company? I don't understand the question, sorry. Please explain the large increase in receivable outstanding. So I don't think that there was a big increase in receivable as far as I remember. In some areas of the business, we do give some longer terms to the customer. But I'm happy to say that first of all, we work very closely with credit insurance and credit companies to make sure that we collect everything. And the average of write offs of debt from customer is very minimal in our case.

25:45 David m asked, do you see any opportunities for integration of MTI sensor for blockchain application as part of the global growth in Internet of Things IoT? So we are not doing sensor for blockchain application. What we do is antennas. And in the Motech business, we actually combine third party sensors to our system. In terms of going into the IoT, no doubt that the Mottek solution is a part of IoT in the agriculture and in the urban water management.

26:31 Luke asked on key project, how much of MWE? What's the name? I don't know. Story is about patent patents versus know how and what is the life of key patents. The life of patents, it depends whether you write it. It can be up to twenty years. I think that more important is the know how and the relationship with the customer,

26:59 and we work very diligently and very openly with those customers to give them the support they need. What proportion of manufacturing takes place in India versus production plant in India? What is the trend there? So on our commercial staff, we do today, I would say about 85 to 90% of manufacturing in India. One of the key success that we did this year was in 2020 was to move and have the ability to manufacture also the five gs backhaul solution in India. And you need to understand that we do all the development in Israel. We manufacture it in Israel and then we move it to India only when it's fully stable.

27:45 Then we check it for quality again in Israel. And I think that India is a very important factor in our manufacturing. Do you expect a big growth in five gs revenue this year? Or will this year be a consolidation before larger revenues in 2022? A very good question. I think that in 2020, we already showed a very good increase, 65% in the number of unit chips. I do not state the dollar value growth because it's a bit misleading. In 2019, we still registered some NRE engineering revenue on five gs. So for me, 5% growth is good, even very good. I do not know what the future does. I know that what we need to do is to focus on keeping the relationship. We have the good customer and when the market grows, which if we do the right work and continue to stick to those customer, we will go with them.

28:51 Does MWE have a green economy mark yet? It might put it on the radar of ESD funds. We are green economy for sure in Motech. I'm not sure what does it mean the mark, I can check if it adds anything. Water management has already had one large regional implementation in China. Do you expect to win further implementation in this potentially huge market? First of all, we did not complete the project that we won in China. So we have still a way to go there. And secondly, we have our own office and subsidiary that ongoing day to day job is to go and find more work. As you say, it's a huge area, huge potential, and we are investing and so far it's rewarding.

29:48 Richard asked, if large orders come through, could you easily fulfill them or would you need to turn business away? I'm just trying to understand your production capabilities. We actually do not do real manufacturing in house. We do mostly final assembly and testing. This means that we buy the piece parts in the antenna business worldwide. We ship them either to Israel or in India, do the final assembly and testing, fairly easy work. So we have no limitation here. And in the controller business, as we buy the controllers out for of Motorola, I don't see any problem with those. I think I've answered everything. You you have indeed, Moni. Thank you very much. Yeah. And you have addressed all of the questions we've received from investors. And, of course, the company, if any further questions come through, will view, all the questions submitted as well.

30:47 Moni, perhaps if I could just ask for a final few words just to wrap up, please, before I invest direct investors to give you some feedback. Yeah. I think we came into 2020, which was no doubt a very challenging year, very strong, and we come out of it even stronger. We were able to strengthen the relationship with the customer. We showed that we are a very diverse and resilient business. We have good prospects going forward, and we are looking for 2021 to be back to normal at some point for the sake of all of us. Moni, thank you very much for updating investors today. Could I please ask investors not to close this session as you're now automatically redirected to the opportunity to provide your feedback?

31:38 If you access the meeting from our website, the feedback page will appear in front of you. If you've accessed it via the link sent to you in the email, you'll simply ask to log in and supply a fee. But it only takes a couple of seconds to be much appreciated by the company. On behalf 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.