Saar Koursh - Chief Executive Officer Ilan Ovadia - Chief Financial Officer Kenny Green - IR, GK Investor Relations.

Sam Rebotsky - SER Asset Management Beverly Machtinger - Grace and White Mike Dissler - Private Investor Saul Didris - Private Investor.

Ladies and gentlemen, thank you for standing by. Welcome to Magal’s second quarter 2015 results conference call. All participants are at present in 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 would 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. I’d like to welcome all of you to Magal’s second quarter 2015 conference call. I would like to welcome all of you thank Magal’s management for hosting this call. With us on the call today are Mr. Saar Koursh, CEO; Mr. Ilan Ovadia, CFO, and Mr. Brian Rich, the company’s CTO and Deputy CEO.

Saar will summarize the key highlights, followed by Ilan who will review of 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 or 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 now like to hand the call over to Saar. Saar, please go ahead..

Thank you, Kenny. I would like to welcome all of you and thank you for joining us today. Second quarter marks my first full quarter with Magal, and I am pleased with our performance. In particular, we show a good level of profit margins with reported revenue of $15.7 million, which our operating profit was $1.4 million.

This is compared to a loss of $600,000 which was reported in the second quarter of last year and a slightly higher level of revenue at $16.2 million which was reported in the second quarter of last year.

Our success in bringing more of our income down to the bottom line was due to the continuous improvement made to the cost structure as well as the efficiency measures implemented within Magal over the past few months. Additionally, the strengthening of the U.S. dollar versus operating local currencies of our subsidiaries also benefited us somewhat.

2015 marks a year in which we are focusing on both expanding and addressing the needs of our customer base as well as improving our internal processes, efficiencies and effectiveness. As you see from our results, we are already seeing the initial fruits of our success in this regard.

Looking ahead to the second half of 2015, I expect to continue to show revenue improvement and overall I believe the second half of the year will be better than the first half at both of the top and the bottom line. In terms of some of our recent events, I am pleased that we are seeing good traction amongst customers for our new technologies.

A few weeks ago, we announced a breakthrough first order for our new fiber optic sensor technology protecting more than 200 kilometers of buried pipeline. Our system will detect any attempt to interface with the pipe, providing an early pinpointed alert to the control room.

Our RoboGuard, which has generated a lot of interest amongst potential customers, is currently working at a pilot site with the Israel Ministry of Defense. We hope this trial will lead to orders in the upcoming months. Our CyberSeal solution continues to gather increasing interest from potential customers.

We are starting a trial for one of our CyberSeal solution with a key U.S. customer and will update you with the progress in the upcoming months.

We do believe that our efforts along with the growing awareness of cyber threats to industrial control systems, the security of network itself and to the Internet of Things will aid in improving the results for our cyber effort next year. I would like now to briefly summarize the performance in our various regions.

In Latin America and particularly in Mexico, we are seeing a solid improvement. Projects are moving ahead and progressing well. In Europe, we continue to see general and steady recovery and some growth. With regard to Africa, last year was strong overall and we completed some major projects there.

The new projects we received in the past few months have been on a smaller scale and more diversified between the different customers and different countries. We continue to deliver on this. We have a lot of solid references in the region and we are competing in a number of tenders.

Our North American subsidiaries recovered after a weak first quarter because of a particularly harsh winter there, and we hope to see continuing growth this year. In Israel, we completed some major projects in the past few months and we are waiting for some new ones to come in the pipeline. In particular, the southern border tender has started.

We are participating in the trials and we think we have a good chance of winning at least a big portion of this tender. At the moment, the tender has been delayed due to the unapproved budget of the State of Israel. We will update you as this develops. In summary, I am pleased with the improvements made this quarter.

We continue to make improvements to the overall expense structure of Magal, and I look forward to updating you on the progress of the upcoming quarters. I will now hand the call over to Ilan for the financial review.

Ilan?.

Israel 24%, North America 32%, Africa 6%, Europe 14%, South and Latin America 17%, and the rest of the world amounted to 7%. Gross profit in the quarter was $7.3 million or 46.4% of revenues, an increase of 3% compared to the gross profit of $7.1 million or 43.6% of the revenues in the second quarter of 2014.

The higher level of the gross margin in the second quarter of this year was a function of revenue mix in the quarter. Our operating expenses in the quarter amounted to $5.9 million in the quarter, significantly below the $7.7 million in the second quarter of last year. Operating income in the quarter was $1.4 million.

This is compared to an operating loss of $601,000 in the second quarter of 2014. Financial expenses in the quarter amounted to $929,000 compared to financial income of $641,000 in the second quarter of 2014, mainly due to the devaluation of the shekel and the Canadian dollar versus the U.S. dollar.

Net income in the quarter was $190,000 or $4.01 per share. This is compared with a net loss of $1.1 million or $4.07 per share in the second quarter of 2014.

Cash, short term deposits and restricted deposits net of bank debt as of June 30, 2015 was $32.8 million or $2.00 per share compared with cash, short term deposits and restricted deposits net of bank debt of $28 million or $1.73 per share on December 31, 2014. That concludes my remarks. We would be happy to take your questions now.

Operator?.

[Operator instructions] The first question is from Sam Rebotsky of SER Asset Management. Please go ahead..

Tell me, the devaluation, what kind of dollars would you say the impact was on the devaluation in the current quarter compared to the quarter previously?.

You’re asking on the number?.

Yes, yes.

Dollar amount, or -- is it $100,000, is it $200,000? You know, what kind of number?.

I don’t have the exact number here with me, but it was more than tens of thousands of dollars..

Okay, okay. As far as your backlog, the most recent announcement, that’s just a trial.

Do we have any dollar amount of what we might expect from this type of trial, the market size or what you may bid on for this most recent, with the pipeline, et cetera?.

We are talking about the price range of hundreds of thousands of dollars for each similar transaction. .

So in other words, when will we know how the trial goes and where you might get additional contracts on that?.

The order that we announced a few weeks ago, it was not a trial, it was a firm order. .

Okay. How much is that contract, and how long does that contract last? You could give a range if you’re uncomfortable with giving a specific amount..

As I said, the contract value is around hundreds of thousands of dollars, upper limits, and we are expecting to deliver the orders this year..

Okay.

You speak of -- I mean, the rest of the six months, are there any contracts that you had expected to come in, in the first six months that were delayed and will come in the second six months, or is the fact that you expect the second six months to be significantly higher is because that’s when they begin--let me understand what’s going to happen in the second half compared to the first half.

.

As we said, we are forecasting the second half to be better than the first, and this is our expectation right now..

Yes, but are we able to -- I mean, the first half is not too great, so it’s not a big deal to get better than the first half.

Do we expect an increase of $5 million to $10 million, or a number on sales per quarter based -- what is our backlog right now?.

Basically, we do expect, as Saar said, that the second half of the year will be better than the first one.

Yes, there were some delays in projects in the first half of the year, which we believe that we’ll be able to overcome in the second half of the year, plus the activity that usually, based upon our experience, in the second half of the year is higher than the first half of the year..

The $13 million contract that you won in May, how many more contracts do you have as part of your backlog? Has any of that $13 million been delivered so far?.

Some of it was delivered, and we are expecting to complete most of it this year..

Okay.

So is there any way to give any color more than just better than the first half at this point, or when might you be able to give better color as far as what the rest of the second half will look like?.

I believe that in the third quarter, we’ll have better visibility how the year will look like..

Okay. Well, good luck. Hopefully we can improve it and everybody will be a little happier. Thank you. .

Thank you..

The next question comes from Beverly Machtinger of Grace and White. Please go ahead..

Hi, I was wondering if you could possibly further explain the reduction in your operating expenses. I mean, clearly all of it cannot be from reduced sales commissions.

Maybe if you can just give us a little bit more color on what’s actually been going on at the company?.

Well, the reduction in the operating expenses is a result of a combination of two things. One of them is the impact of the devaluation of the U.S. dollar compared to the local currencies, which contributes some to the decrease in the operating expenses.

The other is some operational from an efficiency point of view that we took in the last few months--.

Is that like a headcount reduction of facility consolidations, or --?.

Some of it are headcount reductions, some of it are cutting some expenses that we thought that at this stage we will defer or we’ll not execute these kind of expenses..

Okay, and going forward, would there be further reductions or do you sort of feel that this is kind of the steady state going forward?.

We believe that we will save in the third quarter and mainly in the fourth quarter additional reductions in our fixed costs, partially as I said in the third quarter, more in the fourth quarter..

Okay. Then also, if you could just again clarify from the previous questioner about the buried pipeline sensors. You sort of indicated that each project would be hundreds of thousands of dollars.

Is that correct?.

That’s correct, yes..

Okay, so then the project that you signed is somewhere in that category?.

Yes, it is. .

Okay, so then I guess my next question is, can you give us some idea how long a project like that takes from start to finish?.

As we said, we are expecting to finish the project still this year. It means it’s three to six months. It depends on the project..

Okay, great. All right, thank you..

Thank you very much..

The next question is from Mike Dissler [ph]. Please go ahead. .

Yes, good morning or good afternoon, gentlemen. Mr. Koursh, congratulations on completing your first complete quarter. You answered most of the questions I had listening to those previous two questioners, the time frame on this three to six months.

The only question I have, without being specific, on that 200 kilometer order, I was just wondering what continent it was on. You don’t have to define any further than that, if you would, please..

We are talking in Europe..

Okay, that’s pretty much. You know, I never try to pin you guys down because a lot of this is proprietary. Continued good luck. Thank you very much..

Thank you..

[Operator Instructions] Please stand by while we poll for more questions. The next question is from Saul Didris [ph]. Please go ahead. .

Hello and thank you again for taking my call. I’d just like to clarify some of the comments that you directed on the first batch of questions backlog and the improvement expected in the second half of 2015.

I know you said you expected a better second half, but if you think about the first half’s revenue, they were really not even as good as the prior year.

So as you look at the prior year’s third quarter and fourth quarter, in the third quarter you had $21.5 million of revenue with a $3.6 million of net income before impairments, and in the fourth quarter you had $27.3 million of revenue with $5.3 million of net income before impairments.

Can we expect those kinds of quarters and can we expect improvement over those quarters, not just over the first and second quarter? Thank you. .

I think that at this stage, it’s too early to say exactly if the second half of the year will be better or worse than the second half of last year. We do have projects, we are performing.

There were some delays in the first half of the year, so we are still in execution and, as Saar said before, I believe that once we will complete the third quarter, it will be much more clear, the picture will be more clear regarding the outlook for the rest of the year..

Okay, thank you..

You’re welcome..

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

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

Yes, thank you. On behalf of the management of Magal, I would like to thank you for the continued interest and long-term support for our business. If you have any questions, please feel free to call our IR team, whose contact details are in the press release. I look forward to talking with you next quarter. Have a good day. Thank you..

Thank you. This concludes the Magal Security Systems second quarter 2015 results conference call. Thank you for your participation. You may go ahead and disconnect..