Kenny Green - GK Investor Relations Saar Koursh - CEO Ilan Ovadia - CFO.

Sam Rebotsky - SER.

Ladies and gentlemen thank you for standing by. Welcome to Magal's first quarter 2016 results conference call. All participants are 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 Buick in the news section of the company's website www.magal-s3.com. I would now like to hand the call over to Mr. Kenny Green of GK Investor Relations. Mr. Green please go ahead..

Thank you operator. I'd like to welcome all of you to Magal's first quarter 2016 conference call. I'd like to thank here everybody for joining this call and thank Magal's management 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'll review Magal's financial performance of the quarter. We'll 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.

And with that I'd now like to hand the call over to Saar. Saar please go ahead..

Thank you Kenny. I would like to thank you, I would like to welcome you all of you and thank you for joining us today. We reported a good first quarter which is always seasonally, the weakest for us.

We are pleased with the year-over-year revenue growth at 7% to 12.6 million, but we are especially happy with the operating profitability up 1,623,000 [ph] a solid improvement compared with a loss of 1.2 million in the first quarter of the last year.

Our flat level of operating expense compared with last year, as well with our high level of gross margins contributed to this improvement in operating income. The financial expense were high in this quarter, which led to a net loss, this was mainly due to a change in both Israeli shekel and the Canadian dollar exchange rate against the U.S.

dollar at the end of the quarter. The gross margin adjusted of 50% was primarily because of a revenue mix in the quarter, favored product in services sales of a projects, as this tends to have better margins.

As you may remember, it is our long term strategy to strengthen our products and services sales, while this is an ongoing process and will indeed take time, the goal is that our product revenue will become a larger portion of our overall mix, which will up our profitability and lower the volatility in our revenue due to the reliance on projects.

In near [ph] term, the typical gross margin range should be expected in the mid-40s, which is slightly ahead although what we have seen in the past three years. Looking more broadly at our strategy as you know just after the close of the quarter, Senstar our fully on subsidiary acquired a Canadian video measurement software company called Aimetis.

The acquisition marks an important step in our long term strategy of an evolving into increasingly product and services focused company. The acquisition as extended our product portfolio range and significantly strengthen our video product offering.

We are now offering customer a truly world leading video surveillance with unmatched solution for outdoor and critical sights. It also launched us into a new market such as education, healthcare and retail. Aimetis’ result will be fully consolidated starting from the second quarter and then UBMS sale will further wait our results to the product side.

Our goal is that the VMS division will become a creative to our result in 2017. In 2016, we will be looking how to integrate this business and seeking out the product and self-synergy.

This process as you know, it's not short and while our revenue will get contribution in the coming quarters, we will see higher level of investment going forward until we leverage the synergy on the cost side as well.

Another effort we are making to enable increased revenue visibility and stability is increasing a number of ongoing maintenance contract we have signed with customers. Currently these types of contracts make up a nice portion of our revenue and provide us with an ongoing a long term base recurring revenue.

It is our strategy to increase this portion throughout the year and beyond. In terms of cash, we ended the quarter with 37.5 million in cash on deposit and zero debt, generating a strong 5 million in positive operating cash flow during the quarter.

I know that on April 1st, we purchase Aimetis for enterprise value of 14 million which will be reflected in our second quarter financials. In terms of our CyberSeal performance, our solution continued to gain increasing interest from potential customer. We have already seen orders with a U.S.

electric company, in Latin America power sight as well as of our first cyber order that we announced a few months ago with the U.S. best chemical manufacture. This order has since been expected to covering additional site and we expect to receive orders for further sites later this year.

We believe that our effort in this field along with the growing awareness of cyber threats to industrial control systems and security of security network itself will yield the proving results of our cyber security business in the coming years. I would like to brief you summarize what we are seeing in some of the key regions in which we operate.

In Latin America business is robust, as you saw a few weeks ago we announced 10 million in orders to secure and maintain critical Power Utility site belonging to a major national power supplier in Latin America. We expect this region to continue to grow as an overall share of the revenue pie in the upcoming quarters.

I would like to mention that Aimetis is a strong presence in this region, having supplied a video system to Brazilian Campinas airport in Brazil in the past. With regard to Africa we recently announced $9 million in order for a complete security solution for two newly built prisons in the western part of the continent.

The business we are seeing in the region so far this year tend to quite diversified towards different countries. Looking ahead combined with our solid references we feel good with regard to our ongoing potential from the African region. I would like also to highlight Asia.

China in particular has shown a significant improvement for us over the last year and we delivered a full security solution for newly built prison in this first quarter. India is really showing growing interest in our solution and we expect to win some important and strategic business there in the coming quarters.

In summary 2016, is shaping up to be an important potential year for Magal. We've taken some solid step in evolving Magal from a company focusing on projects to one that is increasingly focused on products and services. One of this step was our recent acquisition of Aimetis.

Our long term goal is to structure Magal for improved profitability with a more stable long term growth profile. This process is ongoing. In the midterm we’ll continue to invest in our R&D and sales effort to bring the leading security product and solution to the market.

With regard to Aimetis we expect to increase the benefit from the synergy in the coming quarters and we expect Aimetis to be accretive and positive contributor to our results starting in 2017. I will now hand the call over to Ilan for the financial review.

Ilan?.

Thanks. Revenues for the first quarter of 2016 was $12.6 million, this was 7% above those of the first quarter last year. Sales by geography in the quarter were as follows. Israel 19%, North America 34%, Africa 9%, Europe 10%, South and Latin America 3% and the rest of the world amounted to 25%.

Gross profit in the quarter was $6.2 million or 49.6% of revenues. These grew 40% compared with $4.4 million or 37.7% of revenues in the first quarter of last year. The gross margin is a function of revenue mix in the quarter with several products and services of our project in the first quarter of 2016.

Our operating expenses in the quarter amounted to $5.6 million in the quarter almost flat compared with the $5.6 million reported in the first quarter of last year. Operating income in the quarter was $0.6 million compared with operating loss of $1.2 million in the first quarter of last year.

Financial expenses in the quarter amounted to $0.9 million compared with a financial income of $0.7 million in the first quarter of last year. As I explained earlier the financial expenses reflect mainly the change in both Israeli shekel and Canadian dollar exchange rates against the US dollar at the end of the quarter.

Net loss in the quarter was $0.5 million or $0.03 per share at the same level as the first quarter last year at $0.5 million and $0.03 per share. We reported a positive operating cash flow of $5 million in the quarter.

Cash, short term depositor, sleeper [ph] deposits, net of bank debt as of March 31st 2016 were $37.5 million or $2.30 per share, compared with a cash and short term deposit net of current bank debt was $31.1 million or $1.90 per share at December 31, 2016. That concludes my remarks, we would 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 Instruction] The first question is from Sam Rebotsky of SER. Please go ahead..

So at the backlog, what is the backlog compared to the same time last year and the previous quarter? And with these additional contracts, is this approved and do this contracts expected to be include -- completed during this current calendar year?.

The backlog is indeed is better than the same period last year. Related to your second question, as we already mentioned I think in our last press release on the presence, we are expecting execution of the projects that will last both in 2016 and 2017..

Are we able to quantify the dollar amounts of these backlogs?.

For this specific project or you are talking --..

No just your total backlog, in other words, what it is compared to the backlog at the end of December compared to what it is now and what it was last year?.

As you know we are not giving backlog information, basically due to the different wait between project and product. Backlog is indeed an extremely important factor when talking on the project side of the business. But it's almost irrelevant related to the product side of the business.

So I don’t want to give a number since our portion of the product versus projects is changing as wee just discussed over the call..

Okay, are we bidding on more jobs, could you sort of indicate on its quantity or the extent of our bids or how much higher -- how many more bids there are today compared to the previous quarter and the same time last year?.

I think the most important question is if we are selective in our bidding and we are trying to be selective and to win as much projects as we can. And when we are bidding, as you know some of the bidding are very costly process and you don’t want to bid on this one that you are going to lose.

So once again if I think that we will able to gain more business than last year, defiantly this is the goal, but it's too early to say if it's -- that will be reflected in the financial of the 2016..

And the success, are you 90% successful on what you bid, could you sort of give a percentage?.

No, no it's a -- I think as far as I know and maybe the only company worldwide that is have something in the ratio of 90% in project is Lockheed Martin..

Okay..

Usually 90% of no bids of the entire projects that they are bidding. So no company in the security business is even close to that..

So is there a range on your success rates?.

Of course..

Say 50 to 75..

It's less than that..

Okay, okay. And then one thing you are impacted with the currency where last year they were increased, there was a gain, now the way the currency is today would your numbers be for both U.S. and Canada, would the numbers be more of a loss, less of loss I don’t know what the numbers are, I mean I'm not good at this currency change.

Where are they today compared to the end of March..

Do you mean last year results with the --..

No just till March of the current year, in other words the current quarter that you just reported, you reported a loss on the currency compared to the currency gain last year at the same time.

But what I'm -- has the currency gone where there are smaller losses or gains now as of today or are they still -- are the losses increasing, if you were to do transactions..

That depends of course in the trend of the currencies, compared to last year the currencies are not in favor of us..

Alright, hopefully with these new businesses that you're involved you can get more business and report some better profits. Your operating margins improved considering your sales were up and your costs were down hopefully that will continue. Okay, good luck..

Thank you very much..

[Operator Instructions] There are no more further questions at this time. Before I ask Mr. Koursh to go ahead with the closing 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..

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

Thank you, this concludes the Magal Security Systems first quarter 2016 results conference call, thank you for your participation you may go ahead and disconnect..