Kenny Green - IR Saar Koursh - CEO Ilan Ovadia - CFO.

Thurman Willis - Private Investor Sam Rebotsky - SER Beverly Machtinger - Grace and White Mark Miller - Private Investor Mike Dissler - Private Investor.

Ladies and gentlemen, thank you for standing by. Welcome to Magal’s Third Quarter 2015 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 would now like to hand over the call to Mr. Kenny Green of GK Investor Relations. Mr.

Green, would you like to begin?.

Thank you, operator. I’d like to welcome all of you to Magal's third quarter 2015 conference call and I'd like to thank management of Magal for hosting this call. With us on the line today are Mr. Saar Koursh, CEO, and Mr. Ilan Ovadia, CFO.

Saar 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.

And 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. I am pleased with the third quarter results, in particular it represent an additional quarter of sequential growth this year in revenues and improving the margins.

We reported revenues of $17 million with the gross margin at 49.6% which is our highest ever gross margin. Our revenues are 8% greater than those of the second quarter and 45% greater than those of the first quarter of this year.

2015 is the year in which we are focusing on both extending and addressing the needs of our customer base as well as improving our internal processes, efficiency and effectiveness. As you can see from our generally increasing level of margin, we are already seeing the fruits of our success in that regard.

We have also recently signed an increasing number of maintenance contracts with our customers. Those efforts provide us with an ongoing base of recurring revenue stream. Currently these type of contracts makes up around 10% of our revenues and we look to increase this portion in the future.

Another positive trend we are seeing is the increased traction among customers and potential customers for our new technologies. During the quarter, we announced a breakthrough order for our new fiber optic sensor technology protecting more than 200 kilometer of buried pipeline.

Our system would detect any attempt to interfere with the pipe providing an early pinpointed alert to the control room. Our Roboguard has generated a lot of interest among potential customers.

Behind the pilot site with the Israeli Ministry of Defense we discussed last quarter, we also started our first pilot outside of Israel with the foreign government which we hope will lead to orders in the coming months.

Our cyber security solution continues to gather increasing interest from potential customers, especially in the US where we recently booked a major order for one of the world’s largest chemical manufacturer. This order covers four sites and included our fence mounted fiber product as well as the Tungsten switch.

We do believe that our efforts along with the growing awareness of cyber threats to the industrial control system, the security network itself and to Internet of Things will [indiscernible] result for our cyber efforts in the coming months. I would like now to briefly summarize the performance in our various regions.

In Latin America, especially in Mexico, we are seeing a solid improvement in that region. We are seeing project moving ahead that were delayed last year and progressing well. In Europe, throughout the quarter we continued to see general recovery and growth in sales.

In particular, now the security has come to front of people mind in Europe, we do expect these eventually translate into increased orders from that region. With regard to Africa, last year was particularly strong overall and we have completed some major projects out there in the second half of 2014.

The new projects received in the past few months has been of the smallest scale and more diversified between different customer and different countries and we continue to deliver on these. 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 and we have seen a solid growth in both the second and the third quarter. In particular, we see interest in our cyber solution and we look forward to cyber orders in the coming quarters. In Israel there was a delayed national budget, so some of the potential projects was pushed off.

However, we are participating in the southern border tender process. While the process is delayed, it’s progressing and we think we will have the good chance of winning at least a portion of the tender soon. In summary, I am pleased with the progress and I will now hand over the call to Ilan for the financial review.

Ilan?.

Israel 14%, North America 24%, Africa 6%, Europe 8%, South and Latin America 42%, and the rest of the world amounting to 6%. Gross profit in the quarter was $8.4 million or 9.6% of the revenues. This is compared with $7.3 million or 46.4% of the revenues in the third quarter and $7.4 million or 48.3% of the revenues in the third quarter of last year.

The higher level in the gross margin in the third quarter of last year was a function of revenue mix in the quarter. Our operating expenses in the quarter amounted to $7.2 million in the quarter compared with $5.9 million in the first quarter and $7.7 million in the third quarter of last year.

The increase in the third quarter is mainly attributed to reported revenue. Operating income in the quarter was $1.3 million. Operating income in the prior quarter was $1.4 million and in the third quarter of last year was $2.6 million. Financial income in the quarter amounted to $768,000.

Financial expenses in prior quarter was $929,000 and financial income in the third quarter of last year was $1.2 million. With the higher level of such expenses amounting $1.2 million in this quarter due to the performance in strategic territories. Net income in the quarter was $0.9 million, or $0.05 per share.

Net income in the prior quarter was $0.2 million or $0.01 per share and net income in the third of last year was $3.6 million or $0.22 per share.

Cash, short-term deposits and restricted deposits, net of bank debt, as of September 30, 2015, were $30.7 million, or $1.88 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 will be happy to take your questions now.

Operator?.

Thank you. [Operator Instructions] The first question is from Thurman Willis. Please go ahead..

Congratulations on a good quarter. Thank you for taking my call. My question was pertaining to the present environment that we are in and you did allude to the fact that we are seeing more interest in our product.

Can you expand on that a little bit as far as about the additional interest of [indiscernible]?.

The recent event in Paris and the increased awareness of risk comparison in Europe and around the world is translating into increased interest. But it’s too early to translate to firm orders. We feel that we will - it will be coming, but it will take some time like it did during the 9/11 events..

And a follow-up, can you answer you got this large contract with a US company, have you released information on how - what the size of that contract is?.

Are you talking about the contract that we announced during this press release with the chemical company?.

Yes..

Okay. Unfortunately, we are not allowed due to customer sensitivity to give you more information related to the customer name and the size of their business..

Thank you for taking my call..

Thank you..

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

Yes, good afternoon. Good morning, Saar. Unfortunately, the terrorists and everything that’s going on, should be beneficial to you although it’s not good for other people.

So we’re trying to get a handle, we expect significant orders going forward and what is the time generally from discussions to something happening and projects, do they seem to be possibly bigger than before based on this larger efforts that are going on?.

So as you said, first, it’s not a good news to anyone, which is citizens of the world, either in Europe, Israel, or the US. Related to the business, since we are in the business of providing technological security solutions, it’s not an immediate - the requirement doesn’t translate to immediate business. It takes some time.

There are procurement process that for sure our progress can get faster than usual, but still it takes some months until the requirements are translating to a firm orders..

Okay.

Now, the improvement in the profitability over the prior quarter, I don’t know what we expect in the fourth quarter ending December, do we expect greater profits and improvement that will be significantly more profitable going forward?.

Related to the fourth quarter, it’s too early to say. I believe that for the next quarter, it would be in the same number like this quarter, which our profit level are much better than it’s used to be.

But looking forward for the next year and beyond that it’s for sure too early to say, depends on the mix of the projects and the mix of the products to be sold..

I see.

Have you been going around telling your story in investor conferences and do you expect to do more of that?.

Up to now, we didn’t do firm plan for this year. We are planning next year to come up and to do a road show in the US. But up to now, we are focusing and managing the business and approaching our customers, and no doubt that you’re right, that we need to do it, and we will do it early next year..

Okay. Good luck. Hopefully that your equipment and your abilities could maybe make the rest of the world a little more secure and create more profit for you at the same time. Good luck..

Thank you very much..

[Operator Instructions] The next question is from Beverly Machtinger of Grace and White. Please go ahead..

Hi, good morning or good evening few. I was wondering if you could expand a little bit, you mentioned improvement on internal processes and efficiencies. I know that gross margins are really going to be a function of projects and product sales.

But can you maybe expand a little bit about what you’re doing to improve operationally?.

From operational point of view, we are taking the approach for one company. As you may know that the Magal Group is divided to several companies worldwide in North America, Europe and Latin America, et cetera. In the past, we used work mostly separated. In recent months, we combined several activities together.

For example, we created a joint R&D group, which still has different development sites.

Actually we have three development sites, one in the Israel, one in the US and one in Canada, but at this base, we are working on one company and with one deal [ph] translating the effort in R&D and we see a lot of efficiencies and better processes and better time to market with all products for these changes and from others..

Great. And I was wondering, now that you’re at the helm, I know in the past, the company sort of targeted four geographies that was sort of the strategic plan.

And I was wondering if you’ve sort of expanded on that plan to maybe make it more global or you’re sticking with the sort of four geographies or if you see I guess different opportunities out there than maybe the prior management had targeted?.

Basically, the geographies that we are located is the growing business for security. We are working as you know in Africa as an integrator, a large-scale project, and at the same way, we are working in Eastern Europe and in North America and in Europe, till now, we operated mainly as a solution provider and sensors provider.

Two other locations that we are working and there is huge market potential, both in India and China, in both places, we have companies and we are operating, but we are just starting to see - just starting the potential in these two territories and for sure in 2016 and on, we believe that we will be able to do much more business in that regions..

Do you actually have people on the ground in those two regions or how are you?.

Yes. We have joint-venture that Magal holds 51% and other 49% is with local investor. And in China, we have a sales office in China, in Beijing..

Great, thank you..

Thank you..

There is a follow-up question from Thurman Willis. Please go ahead..

Can you respond somewhat to our backlog as to how that's looking versus prior years?.

Yes. At the moment, we are on the same levels of the previous quarter. Comparing to last year, for example, we are in a much higher level of backlog than the one that we concluded last year. Unfortunately, I cannot go into the numbers themselves..

So there is good backlog with revenue for Q4, plus all the potential prospects of the world environment?.

As I said, comparing to the last year, we are in a much better position to the end of last year when we started this year and we pretty much in the same levels that we have been in the previous quarter..

Let me just encourage you to do some roadshows, investor conferences. You have $1.88 of share in cash, your stock is trading around 5 bucks.

It's just not fairly valued in my opinion and should be quite a bit higher and I think the main reason is that investors really just don't know about the company and so I would encourage you that you’re going be doing some investor conferences..

Thank you. And as we said, I'm planning to do it early next year and definitely, I think, as you said, it's a very important task..

The next question is from Mark Miller. Please go ahead..

Gentlemen, how many approximate installations do you have on your RoboGuard product?.

We have several installations and several demos currently. We are focusing to mature the product with our partner and you may know, the Ministry of Defense is our partner during the development and we are in the process of certifying the product currently in Israel.

As I mentioned already, this quarter we did our first installation and demo outside of Israel, a very successful one, and that hopefully will lead to business in the coming months..

The next question is from Mike Dissler. Please go ahead..

Yes. Congratulations, gentlemen. How are you? Just quickly in terms of the how the sales force lines up, I was just question you as to do we set up systems for sales people to reach out within regions or do you also have them by industry.

In other words, for example, a gentleman mentioned India, you had mentioned India, that 51-49, is that so there I suspect there, they have the India Pakistan region as theirs and you help out and support them.

Do we then in Israel have people who would support particular industries, say utilities, et cetera, power plants and utilities, transmission lines, gas, railroads as separate entities in terms of a cog and a wheel or are they just done entirely geographically, one geographic region such as India will handle every single type of order in that region?.

Thank you for the question. It's a very important question. Actually, it's a mix, it's a mix between the sales managers, but they are specialized in the country and in the region. And of course, we are trying to have the local guys, so we will mention India. So we have native Indians in India and same thing in China.

The guys that are sitting, we don't have any experts doing sales, we believe that Chinese are much better to sell to Chinese than any Israeli or Canadians and Americans. Having said that, we have vertical market specialists.

So, for example, for the oil and gas for the correctional facility, we have a specialized pre sales guys that supports them on a case to case basis..

Okay. That's what I thought I just wanted to make sure I had it right. Keep up the good work. Thank you very much..

There is a follow-up question from Thurman Willis. Please go ahead..

It will be a short question, your RoboGuard uses tear gas or Mace spray, is that not correct that it is set to use teargas in case that's needed?.

It's actually an optional payload, that payload is defined by customer, not by us. We are offering several payloads including the one that you mentioned, but at the end of the day, it's the customer decision which payload to put on the RoboGuard..

Thank you. I have encouraged you before to take a look at Mace, which is the best-known and I would just think that Magal and Mace combined would make an outstanding company. Thank you for taking my question..

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

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

On behalf of the management of Magal, I would like to thank you for your interest and long-term support of our business. I look forward to talking with you next quarter. Have a good day. Thank you..

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