Kenny Green - IR, GK Investor and Public Relations Eitan Livneh - President and CEO Ilan Ovadia - CFO.

Fred Ehrman - BMI Capital Craig Samuels - Samuels Capital Management Sam Rebotsky - SER Asset Management Ken Liddy - Wells Fargo Advisors, LLC.

Ladies and gentlemen thank you for standing by. Welcome to the Magal’s Third Quarter 2014 Results Conference Call. All participants are at present in a listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded.

You should have all received by now the company’s press release. If you have not received it, please contact Magal’s Investor Relations team at GK Investor Relations or view it in the news section of the company’s website, www.magal-s3.com. I’d now like to hand over the call to Mr. Kenny Green of GK Investor Relations. Mr.

Green, would you like to begin please?.

Thank you, operator. Welcome all to Magal’s third quarter 2014 conference call. I’d like to welcome all of you to this call and would like to thank management for hosting this call. With us on the call today are Mr. Eitan Livneh, President and CEO, and Mr. Ilan Ovadia, CFO.

Eitan will summarize the key highlights followed by Ilan who will review Magal’s financial performance for the quarter. We will then open the call for the question-and-answer session.

Before we start, I’d like to point out that this conference call may contain projections and other forward-looking statements regarding future events or the future performance of the company. These statements are only predictions and Magal cannot guarantee that they will in fact occur. Magal does not assume any obligation to update that information.

Actual events or results may differ materially from those projected, including as a result of changing market trends, reduced demand, and the competitive nature of the security systems industry, as well as other risks identified in the documents filed by the company with the Securities and Exchange Commission.

With that, I would like to hand the call over to Eitan. Eitan, please go ahead..

Thank you, Kenny. I would like to welcome you all and thank you for joining us today. We are very pleased with the results of the third quarter. We showed a very solid improvement in our revenue in the third quarter amounting to an increase of 67% over last year and 32% over the prior quarter.

This was due to an improvement in many of our geographies including Israel, Africa, Mexico and North America. As well as strong topline growth, we also showed a high level of profit this quarter because of a number of factors, one of our gross margin strength due to the product mix and mix between product sold and projects.

Another factor was the strengthening of U.S. dollar over the quarter versus the Israeli Shekel and Canadian Dollar. This provides us with a high level financial income. In addition a stronger dollar versus last year meant our local operating expenses in Israel and Canada were reduced in the U.S. dollar terms.

I said last quarter call that I expected the second half of the year to be better and as you can see by the results we delivered today, it has been indeed significantly stronger both on top and bottom line.

As part of the reason for our growth is that of the third quarter we have a number of new products in market, some of which has begun to generate revenue. Over the past few months, we have released new products with significant market potential.

We believe that these products have the potential to guarantee long-term leadership in its respective markets. I do note so that while this effort have led to increased R&D expenses over the past few quarters, now we are in the phase of the sale they are leading to increase also marketing expenses.

We are now actively marketing our new product to customers as well as showing them of at the various industry trade shows and conference. In February, we announced an award of $5.2 million contract for duress systems for prisons located in the United States.

This is a new version of all product used in correctional facilities to provide a safe working environment for the prison staff. Most of this contract has always been delivered with the rest to be shipped in later this year and early next year.

Two of our products -- new products, RoboGuard and Tungsten, our Cyber Security Internet switch won the security best security product awards at the ASIS international show at Atlanta, Georgia last month. This led to tremendous potential customer interest in these two particular products.

Earlier this month we participated in the well-attended international event The Third Homeland Security Israel Event. CyberSeal (inaudible) product with its innovative cellular security capabilities won a prestigious second place for innovation from the Chief Scientist Office in Israel and again RoboGuard show a lot of interest and gained traction.

As you may remember, RoboGuard which we introduced last quarter is an age old surveillance robot that travel on the monorail along the perimeter fence constantly patrolling a secured perimeter to ensure the integrity of the fence. RoboGuard is the ideal solution for remotely monitored unmanned, but critical sites.

Well at timely first response by manned guards would be impractical or expensive. We are now speaking with Airports, Seaports, prisons, military basis, nuclear power station and other sites, potential critical assets and we are seeing strong interest from this type of customer.

The first customer installation for RoboGuard are planned for the first half of 2015. CyberSeal product line also remains very promising. However, it has taken longer than we originally anticipated to penetrate the markets. This is because CyberSeal is introducing a new concept for many of our customers.

We expect that this effort along with the growing awareness of Cyber threats to industrial control system and internet of things will lead growing results. Another new product FlexZone is our latest generation ranging fence mounted sensor.

We with a strong ability to detect and acutely locate an attempt to cut, climb, or otherwise disturb a perimeter fence. This is one of the most advanced fence-mounted sensors out there in the market today optimized for small to medium size. We are already managing to compete successfully in a high-end bids and our skews.

Finally our FiberOptic perimeter security solution are progressing well and we are seeing increasing sales. I would like to now briefly summarize the performance in our various regions. In Latin America and particular in Mexico we are now seeing strong improvement in business.

Projects, which have been delayed earlier this year are finally going ahead and progressing as we had hoped. We expect our momentum to continue for foreseeable future in the region.

With regard to Africa, the continent continues to provide us a good level of business and the third quarter was strong, but during 2012 and 2013, we completed some major product in the region. The new projects received in past few months are smaller and diverse and we continue to deliver on these.

In addition we are competing in number of tenders to be awarded later the year in 2015. Earlier this year, we announced $6.4 million turnkey contract with the Kenyan Airport Authority to secure critical areas of the international airport in Nairobi and we expect to complete the project in the first half of 2015.

Kenya is a classic example of a country in which we have successfully delivered a number of security projects for critical national assets, which have subsequently led to significant further business. Our North American subsidiaries are also performing well.

Earlier this year, we announced a number of orders for installing system in correctional facilities and prisons in the U.S. and Canada. In addition, we recently announced order of our fiber-sensing technology to protect industrial and seaports in the United States.

In Israel if the business performs well and towards the end of the year, we will deliver on the some short term homeland security projects. In summary, Magal continues to invest in future and our new product release are ranging again strong customer traction.

While focusing on the future we are also delivering revenue growth and improved profitability. I expect the fourth quarter to also be good as we deliver on our current project. I’ll now hand the call over to Ilan for financial review.

Ilan?.

Thank Eitan. Revenues for the third quarter of 2013-14 increased 67% to $21.5 million from $12.8 million for the third quarter of 2013 and increased 32% from $16.2 million in the second quarter of 2014.

Sales by geography in the quarter were as follows; North America 31%; Israel 21%; Africa 12%; Europe 8%; South and Latin America, 19% and the rest of the world amounted to 9%.

Gross profit in the quarter was $10.4 million or 48.3% of revenues, an increase of 68% compared to gross profit of $6.2 million or 47.9% of revenue in the third quarter of 2013. The high level of gross margin in both third quarter of this year as well as last year was function of revenue mix and in particular the higher revenue level this quarter.

Operating expenses in the quarter amounted to $7.7 million compared to $6.3 million in the third quarter of last year. Our marketing and sales expenses were $4.9 million versus $3.4 million in the third quarter of last year.

The increase was due to high level of revenue during the quarter in part due to the acquisition of an optical fiber sensing border security business. It was also due to the recent launch of a number of new products and the associated thresholds which were presented them during the quarter.

Operating income in the quarter was $2.6 million compared to an operating loss of $0.1 million in the third quarter of 2013. Financial income in the quarter amounted to $1.3 million compared to financial expense of $4.3 million in the third quarter of 2013 because of the strong appreciation of the U.S.

dollar versus the Israeli Shekel and the Canadian dollar between the end of the second quarter and the end of third quarter of 2014. Magal reported a financial income in quarter on the income statement.

Net income in the quarter was $3.6 million of $0.22 per share, compared with a net loss of $0.4 million of $0.02 per share in the third quarter of 2013. Cash and bank deposits net of bank debt as of September 30, 2014, were $25.2 million, or $1.55 per share, compared with cash and bank deposits net of bank debt of $27 million or $1.69 per share.

On June 30, 2014, the decrease in the cash level was primarily due to the increase investment in working capital. That concludes my remarks. We will be happy to take your questions now.

Operator?.

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] The first question is from Mr. Fred Ehrman. Please go ahead..

Yeah hi, great quarter guys. I missed the last part of that, the cash and the debt that the company has.

Can you repeat that last part of what you said?.

Yes, just a second, we will..

The cash and bank deposit net of bank debt as of September 30, 2014, was $25.2 million, compared to the cash and bank deposit net of bank debt was $27 million in June 30, 2014..

So the cash minus the debt is about $25 million?.

Correct..

Okay, how much debt do you have?.

About $6 million….

Okay..

Short term and $2 million long term..

And there are how many shares outstanding approximately?.

16.3 million, something like that..

Okay great. Okay, thank you very much..

Thank you..

The next question is from Craig Samuels of Samuels Capital Management. Please go ahead..

Hey guys, how are you?.

Good..

Yeah, can you just comment on CyberSeal and how that product is positioned in the market, some of the differentiating characteristics and whether or not you guys have any kind of pilot installs to date?.

The answer is there on the two slides of the question, but I'll go into detail.

The CyberSeal switch is cyber protected switch, its internet field switch which has some unique features, it's in the process of applying for patent and it's introduced to the market in different ways via different channels, using our sales force in North America at this point and of course in Israel.

And yes, we do have installation in pilot in few installations here in country as well some tests abroad..

Great, thank you very much..

Thank you..

The next question is from Sam Rebotsky of SER Management. Please go ahead..

Yeah, good morning, good afternoon Eitan and Ilan.

The quarter seemed to be pretty good, was that it didn’t meet your expectations for this quarter?.

If I will answer no, you will be suspicious, if I'll answer yes, you will think that I have that in mind. So, basically we expected as I told, as I said in the last conference call that the next half will be better. So it's better this quarter and there are some factors like the financial which is beyond our control of course, so it's a combination..

Okay, now the backlog, the backlog is higher now than it was the previous quarter?.

It is in the same level..

Same level, okay.

And do we have expectation of the fourth quarter to be similar to the third quarter or do we have any kind of understanding the comparatives?.

Well, as you know we are dealing with projects and it's too early to give you an idea about how this fourth quarter will end. Generally speaking, we think that the, as we said in the last conference that the second half will be better than the first half..

That's good, that's good.

And are you bidding on a lot more so your backlog eventually will be higher, are there more projects that you are bidding on?.

We are bidding on projects, but the cycle of signing contracts after a bid is a long process, sometimes takes months or even more than that. So whether we will be in the same level of backlog at the year-end or little bit less or little bit higher, I don’t know yet..

Okay, okay. Well, keep doing what you're doing and hopefully it will increase. Good luck..

Thank you very much..

The next question from [Jason] [ph]. Please go ahead..

Hey guys, how are you?.

Good, thank you..

Good, yeah a couple of questions I had answered -- I was going to ask you about CyberSeal and you know the tenders.

I guess my next question I guess with the relationship with those refunds, the 30%-40% equity stakes FIMI?.

Actually we are in the process of learning each other only four weeks by now, so we are at the stage of fine-tuning the expectation learning for them, learning the company, understand the business and other than that we are working there together..

Yeah, I just assume that they had that much money on their equity that they would have good connections and I don’t know the relationship with the security that they might have, but to work together I don’t know what they brought to the table to help you guys forward? I mean, obviously they like something in your company that they are going to put up that much money they eventually stake..

Look, FIMI Fund is a very experienced fund. I’m sure you know about them..

Yeah..

They bring a lot of supplements from different industries and they bring into the board experienced people, some of them from the industry, some of them with the relevant security background. So altogether that works good..

Okay, and I didn’t look too much into it, but what did, I guess your previous holder was the first Ki, why did they decide to sell to FIMI?.

That's a question you have to address to them, not to me. I’m not the selling side. I’m here to run the business the best way we can..

Okay, I understand and are there new markets that you are looking to get into besides the strong market that you have penetration at this point?.

We are expecting to improve our activity in Africa as we did, but and it entered into additional countries. Africa is a big continent as you know, we are active in some of the countries we plan, so we have some opportunities in others and we are looking to do better and as we do good in these three quarters in the far East..

Okay, alright and then I guess this is my last question. With the CyberSeal you know I was pretty interested in that because I know there are a lot of issues with cyber security and protecting systems.

Are people just hesitant for a new system, is that why you find it hard to get the penetration that you would hope for originally or it just takes a little time with something so important if someone is going to install it?.

I'm happy to think it’s important. We see that the same way, but to turn that into customers that are ready to pay the bill it will take time, because the NGOs or the integrators that we are selling to is working with NGOs that release specifications not necessarily the last month.

And there is not yet any regulation that force them to put cyber protection systems. So it’s a question of how the regulation will come and how the understanding of those customers will help us to grow the business and yes we have work to do. We have to educate the market.

We have to grow with our product via different shows and different events and you know building the market..

Yeah, yeah, no unfortunately people don’t take action until something bad happens and so that’s, I guess that's reality sometimes, but you know I guess that you said you’re spreading the word is probably the biggest hurdle..

Yes, it’s a process..

Okay, all right great, great quarter I’m glad to see you guys tend to profit, hopefully keep the direction..

We’ll do our bit, thank you very much..

Thank you..

Okay..

The next question is from Ken Liddy of Wells Fargo. Please go ahead..

Hi, congratulations on this solid quarter..

Thanks Ken..

Just wanted to find out if RoboGuard can be modified for specific solutions as much?.

What do you mean by specific solution, I’m not sure I follow?.

I mean specific projects you know can be modified for more complex facility?.

It’s flexible, it can carry different payload, it depends on what the customer will define. At this point we put on it some sensors that we believe are essential like cameras, small RADAR, so if there will be a request from a specific customer to put, it can carry limited, but still can carry additional payloads..

And on what you might consider a medium-to-small project, how long is the installation estimated to take?.

It’s part of the project, sometimes it takes six months and sometimes it takes a year, I would say that on average we are between six months to a year..

What about modifications to existing fences and stuff that you’ve already installed, will they take less time presumably?.

Yes, of course. It’s a question of weeks, not of months..

Okay, that’s kind of what I was getting at and is there a specific you’ve mentioned there’s quite a few almost every possible thing you could take up with tailor-made security if there is an interest is there any area that you expect to see the first orders every Airports or prison?.

Prison business is relatively stable by its size, even though the complexity and the requirements or the needs of growing. I don’t know if in the United States; they are building now any prison. But when you speak about Airports and when speak about Seaports we see those as a potential growing market for us.

There are a lot of constructions all around the world..

Okay, what’s your software cyber part? Are there any other type of software solutions you’re looking at to develop at this point?.

On cyber switch you mean?.

Yes, cyber switch, I'm sorry..

At this point were improving this switch to be more robust on flexible, but at the same time our cyber company is dealing also with cellular cyber in which we are developing new products and the field of cellular cyber is much more towards governmental institutions and we are also approaching them..

How much of your G&A in the year so far is from the acquisition?.

How much of our G&A is from the acquisition, what I’m not sure I understand the question what….

How much have your costs gone up per quarter just from the acquisition?.

Okay, one second Ken..

For the, you mean for the cyber company that we required in the United States?.

Yes, yes..

It’s not significant, it’s a small number..

Okay, as far as Israel, do you have any type of updates on what might be happening as far as the Egyptian computer security and when that might be, contracts must be awarded?.

As I reported in the last conference call we are there and as of the Ministry of Defense point of view we are qualified and as for the projects to come it has to do with budget allocation, but once it will come, we will be there. Not necessarily by ourselves, but we'll be there..

And, I guess, one more question.

Are you working with any larger companies in the United States or in Egypt right now, defense companies, security companies to offer your solutions?.

Towards what -- towards what country you mean?.

In the United States and also in Israel..

To do what?.

As far as larger projects like….

Yeah. We are working towards larger projects with many other companies in Israel, of course. In the United States we are working with many integrators as we are supplying integrators, we are not doing projects, as you know, in the United States..

Right.

And as far as your pipeline, is it better today than it was a year ago?.

As we speak about pipeline, the answer is yes. Pipeline, in my words, is the long list of potential businesses that we are looking after. And it’s a long process you have to understand or you have know I'm sure you know that the time it takes is very long. And if you refer to backlog which is order in hand, it’s a different story.

Orders then as I referred to earlier, that we are on the same level..

Between the last quarter of last year and the first three quarters of this year you've had a nice flow of orders.

Do you think that the company has convincingly turned the corner for the long-haul?.

I think that our sales force is doing better. I think that we've improved our competitive position and that helps a lot..

Okay, great. Well, congratulations. Look forward to the fourth quarter..

Thank you very much, Ken..

Thanks..

Your next question is from [Greg Beck with Market Edge] [ph]. Please go ahead..

Hi gentlemen, nice quarter. We just had a couple of questions here for you. One of the questions was related to this. You had stated that this Q was impacted significantly by a large project.

How much of the revenue in this quarter could be attributed to that large project?.

We don't have any large project that we have reported about, so this quarter is a combination of many projects. None of them is large as we understand it..

Okay. So, all right, we were under an impression that it was a larger project. Regarding one of the things that we look at when we look at companies is do they have the ability to consistently report growing revenue.

One of the things that we'd had to say, characterize is your company up to this point is that you've had choppy revenues as well as choppy earnings in the past.

Would you feel as that you have enough in the pipeline that you're beyond the choppiness of your revenues and earnings, or would you say that would still characterize this company as you guys move forward?.

It's a tricky question and I'll try to answer you carefully. We are in the business of projects, at least in part of our business. Project is fluctuating and the time to bigger projects or major projects that you're working helps to grow the business and from time-to-time you have them and sometimes you don't.

So generally speaking, the business of project is not stable. So, whether we will keep ourselves more stable, I'd hope we will, because we are facing more opportunities and we are doing better. Other than that, it's something that I cannot forecast for..

Okay.

So just to understand you correctly that you stated the nature of your business because it's projected oriented, depending on the completion of a projects that's going to create some lumpiness in your revenues as well as your earnings, but maybe how we could look at your company as opposed to maybe on a quarter-to-quarter or year-over-year basis, we could look at it maybe on an annual basis now the little bit better picture of how you guys are moving into the future..

Yeah. I can say that early is, of course much to look into because it includes four quarters and one of them we might be slow, in the other one, we might be in the high, because we recognize revenue along the line..

Okay. All right, guys. Well, just -- we look forward to you guys keeping the momentum moving forward. Thank you very much for taking my call..

Thank you..

The next question [indiscernible]. Please go ahead..

Good afternoon or good evening, gentlemen.

How are you?.

Good..

Yes. As you know, as a long-term holder of shares I look at the multiyear picture, not even the multi-quarter picture, so congratulations. In terms of -- my question is much more broad than the preceding gentleman. Although, one alluded to the rise of terrorism and the other alluded to other markets, the gentlemen from Wells Fargo.

My question is, is the RoboGuard product adaptable to the pipeline industry? Not the backlog of your company pipeline, but in terms of oil-gas/water resources, both sub-Saharan in Africa as well as anti-terrorism in Ukraine. Of course, I could throw out Petrobras in Brazil, but you know my opinion on Brazil already.

But my point being, is there a commercial, less formidable, more commodity-like product that you could introduce RoboGuard as, which would have a lesser payload, not requiring the higher tech that you can put on it for pipeline intrusions in the interest of water and oil or natural gas movement via pipelines? And is it -- one, that's question one.

And two, could you make it, commoditize it enough -- and I don't mean within the next quarter or within the next year, but in the next three to five years do you see that that's a possibility where you would -- could come in, whether it's the building of the Keystone pipeline in America or some other pipeline elsewhere, looking at it as a potential protector versus sending out first responders to any sort of intrusion that may occur, whether it'd be natural or terrorism..

Our RoboGuard is running on a monorail..

Right..

So if you speak about pipelines and water reservoirs in the limited size of sites, the answer is yes. The RoboGuard is suitable to protect or to be part of the perimeter protection replacing guards in those kinds of sites.

I hardly can see this RoboGuard helps to protect thousands of kilometers of pipeline along the lines, because I don’t see monorail to be installed in that long lines. So now coming to your second point….

Yes..

Yes. I can see in four and five years this concept, not necessarily this RoboGuard, but this concept to be developed and to become a more commoditized and fast response kind of the robot.

But that needs, as you mentioned, four-five years, some better experience to be coming from the market, but it's entering into this world of unmanned vehicles, I would call them, to protect sites, built for us a completely new future..

Right. And I fully understand and I agree. My only point to that -- counterpoint would be, in those pipelines that are not -- have not yet been built where you present -- where you could possibly conceivably, over the next one to three years, present a value proposition for protection.

For example, the remaining portion of Keystone is fewer than 1,000 miles; and in fact, much of the infrastructure is already laid, so you would have to go back.

But in terms of smaller distribution areas, as opposed to the confined areas you just described, but in small just meaning end point to terminal distribution, meaning at the bottom of the Keystone pipeline the last five miles to Louisiana's ports, or the last five miles to the refining facilities in Texas.

We are -- there's no man power to handle it and yet that would be unfortunately a well-respected and highly priced target of those seeing to destroy those areas.

That -- it seems to me that the RoboGuard product line would be adaptable, cost effective, and if it can be done at the original installation dollar versus a reinstall of a monorail done in conjunction with the laying of those last five miles per se, it becomes cost effective overall. That was my point.

Not to go back and just rewire 200 million miles worth of pipeline in United States.

So I just -- I wanted to point it out, just as a potential, for the next, one to three to five-year period, because I do believe that in conjunction with your penetration in the marketplace with a product line of CyberSeal’s quality I realize you must educate the market in that regard.

But the RoboGuard product clearly can be -- I hate to say that -- but can be dummied down enough to make it cost effective and yet still highly effective in terms of perimeter alert, intrusion alert and preventative nature by alerting people to any possible attack or -- and/or natural cause of a pipeline breach.

So I'm just pointing it out and that's all. I [yield] [ph] the floor to you, I wish I will speak to you next quarter and congratulations on this one..

Thank you, Mike..

Thank you very much..

Thank you..

[Operator Instructions] The next question [David Kreimer] [ph]. Please go ahead..

Hi. Congratulations on the great quarter. Just a question, last month we saw a terrorist activity in Canada at the parliament. I was wondering if you could just touch on your position in Canada, and whether such events create opportunities for you in that area..

Well, definitely the -- unfortunately these events create some demand on -- better security for this size or in Canada in general, but turn that into a real business, this will goes back to budget allocation processes, approvals, tenders, winning tenders, supplying, this will be a long shot, but yes, it will happen..

But you do, do a nice amount of business in Canada currently.

So if some tenders came out of that you would have an opportunity for those type of things, correct?.

Yes. We hope so..

Okay. Okay, congratulations. Thank you..

Thank you..

There are no further questions at this time. Before I ask Mr. Livneh to go ahead with his closing statement, I would like to remind participants that a replay of this call will begin in three hours on Magal’s website, www.magal-s3.com. Mr.

Livneh, would you like to make your concluding statement?.

Thank you very much. Thank you all for joining us. On behalf of management of Magal, I would like to thank you for your continued interest, and there are names that are recognized from call to call, it's okay, and long term support for our business.

If you have any questions, please feel free to call me or my IR team whose contact details are on the press release. I do look forward to speaking with you and updating you again next quarter. Have a good day. Thank you all..

Thank you. This concludes the Magal Security Systems third quarter 2014 results conference call. Thank you for your participation. You may go ahead and disconnect..