Kenny Green - GK Investor & Public Relations Saar Koursh - CEO Kobi Vinokur - CFO.

Sam Rebotsky - SER Asset Management Dan Weston - Westcap Management Ken Liddy - Oppenheimer.

Ladies and gentlemen, thank you for standing by. Welcome to Magal’s Fourth Quarter 2017 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 and Public Relations at 1646-688-3559 or view it in the News Section of the Company’s website www.magal-s3.com. I would now like to handover the call to Mr. Kenny Green of GK Investor Relations. Mr.

Green, would you like to begin..

Thank you, operator. I would like to welcome to Magal’s fourth quarter and full year 2017 conference call. I would like to welcome all of you to this call and thank Magal’s management for hosting this call.

I first want to apologize that we late we release that we normally do as well as the late start of the conference call, this was due to the our Board of Directors meeting later than they normally do in the day due to the availability of some of the board members. With us on the call today are Mr. Saar Koursh, CEO and Mr. Kobi Vinokur, CFO.

Saar will summarize the key highlights followed by Kobi who will 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 this information.

Actual events or results may differ materially from those projected, including as a result of changing market trends, reduced demands 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.

In addition during the course of this conference call, we will describe certain non-GAAP financial measures which should be considered in addition to and not in lieu of comparable GAAP financial measures.

Please note, in our press release we’ve re-consult a non-GAAP financial measures to the most already comparable GAAP measures with accordance with regulations requirement. You can also refer to our website at www.megalsecurity.com for the most directly comparable financial measures and related reconciliations.

And you can also find it on our recent press release on the website. And with that, I would now like to hand over the call to Saar. Saar, please go ahead..

Thank you, Kenny. I would like to welcome all of you to our conference call and thank you for joining us today. We’re very pleased with the result of the quarter, which represent a vast improvement over the previous few quarters and it's also a solid year-over-year improvement.

The most important improvement, however, is our exceptionally strong backlog and what it represents for the future. At the year end, our backlog was one of the highest quarter and levels that we ever had and today giving the orders we have already announced in the first quarter, our backlog is grown even further and is the highest ever for Magal.

This solid backlog provides us with a strong revenue visibility for the coming few quarters and gives me confidence for 2018 will be an improved year for Magal. Looking at the fourth quarter, we reported revenue of 23 million up 14% year-over-year and EBITDA of 2.3 million, up 20% year-over-year.

Furthermore, we had a solid cash flow in fourth quarter generating 4.6 million of operating cash flow in the quarter. We ended the year with 52.4 million in cash and zero debt.

This strong level of cash provide us with the working capital to continue to grow our business organically and at the same time, it enabled us to take advantage of the many potential opportunities we see in our end markets to complement our organic growth. We are indeed actively looking and we aim to complete another acquisition in 2018.

We’re also very pleased with the progress that our video solution have made throughout 2017. Our fourth quarter revenue from the video and cyber segment were up 32% over Q4 last year and 20% in 2017 as a whole, and we are pleased to say that the segment is now finally passed into operating profitability.

We are seeing a strong and growing interest from existing as well as new potential customer for our new -- for our video and analytics product as well as our ability to provide broad end to end suites of security solution. Last week, we inaugurated a new 8,500 square-foot facility for our state-of-the-art Video Management Software Division.

While remaining in Waterloo, Ontario, the heart of Canada's Technology Triangle, the new facility will support future growth as we continue to expand our footprint in the global VMS market.

Looking ahead over the coming year, I expect our video and cyber segment to become one of our main growth engine, driving our business to new heights and we intend to continue to invest in this segment. Video, however, is not only one of our growth engine, which is beginning to run as we hoped.

Since the beginning of 2018, we have received a record number of orders for our fiber-optic based sensor product, FiberPatrol. In fact, we’ve received more orders in the first quarter than for the whole 2017 for this product like.

Recent order for this product are being used to protect critical infrastructure in Western Europe and North America including chemical facility, public utility site, transportation depots in the military base in Southeast Asia.

In parallel, we’re pursuing several opportunities for border protection with our fiber solution including the U.S.-Mexico border. Bulk of the attractiveness to follow the system is new technologies we have added to the product line.

We have used the latest artificial intelligence technique allowing the buried sensor to classify and differentiate between human and animal targets vehicle excavations and even tunneling with manually or by machine.

Its ability to accurately classify the type of intrusion event significantly lowers costs -- costly nuisance alarms which required manpower in remote border regions. The sensor can stretch for up to 82 kilometer between substation, making it simple and quick to install.

It provides a highly sensitive covert protection over long distances and is particularly suited for border security. Despite its ability to monitor very long distances it’s also a very IP point event location accuracy with a few feets. As we can see, we are very proud of our recent technical accomplishment.

FiberPatrol capabilities are clearly in demand giving the sharp increase in older received since release. Only a few weeks ago, I was honored to be part of a panel discussing U.S. and international border security at the Homeland and Defense Security Summit in the United States. On the panel, I was joined by top representative from the U.S.

Army, the U.S. Department of Homeland Security and Airbus Defense. As you might imagine, there was significant interest in our discussion on the most effective ways to provide border security and to prevent infiltration.

Behind the panel and through other conference, I met with many senior officials and there was clearly a very strong interest in Magal Solution to today's border and perimeter security challenges.

I do believe that market is moving in our direction towards more intelligent and creative ways of thinking about border security using the most advanced RAFs sensors such as those which Magal is already providing throughout the world. I would like to spend a few minutes discussing our recent order wins.

This assigned of the increased market interest in our product. Since the start of the fourth quarter, we’ve publicly announced more than 50 million worth of orders. I invite you to check out our new website at wwwmagalsecurity.com to find our recent press release as well as further information about our company.

I would briefly highlight those recent wins. In September, we announced 5 million in orders for North American correctional facility.

A few weeks later, in November, we announced 3.5 million for our integrated security solution and maintenance for several major international airports including Barcelona Airport and Indira Gandhi International Airport in New Delhi.

And later that month, we signed $8 million contract to provide integrated security solution for several critical energy infrastructure sites. In December, we were awarded a 30 million contract to provide integrated security solution as a subcontractor for Toyota Corporation.

Magal would provide Toyota and its end customer major international Seaport in East Africa and fully integrated turnkey security solution. We are obviously proud and honored to team up with the global leader such as Toyota for such a major security project.

In January, we announced $20 million in contracts for integrated security solution including 15.5 million order for the protection of critical energy infrastructure in the Americas. While we delivered on part of this order, this order as well as others we have won and all contributed to our record backlog.

I would like to spend a minute talking about our acquisition strategy. As you know, we recently signed an agreement to acquire control of the Company called ESC BAZ in Israel. The acquisition in particular broadened our video product portfolio with the military grade and high security terminal.

The BAZ product portfolio includes the wide range of modular and customized medium and long range surveillance system for distance of 500 meters to up to 25 kilometers.

BAZ system has been used successfully for over 20 years and our field program with customers including the Israeli defense forces, police and security services, as well as other government and civilian customer worldwide.

Our roadmap is to combine our strong video analytics and GIS command and control with BAZ surveillance system to also mark a unique geospatial surveillance command designed to detect freight scenarios by analyzing video inputs from cameras and manage coordinated response. We expect the BAZ - the ESC BAZ acquisition to close in the coming weeks.

In summary I’m very encouraged by our strong fourth quarter result and strong backlog that we have. We’re in a strong position for 2018 and beyond and over to you Kobi. Please go ahead..

Thanks Saar. Revenues for the fourth quarter of 17 were $23 million, up 14% year-over-year. The geographic revenue breakdown for the quarter was as follows, North America, 25%, Latin America 31%, Africa 13%, Europe 19%, Israel 9%, Asia and the rest of the world 3%. Fourth quarter gross margin was 46.6% of revenues versus 49.6% last year.

The balance was due to the sales mix in the quarter and is within our expected range. Operating income in the quarter was $1.8 million compared with 1.5 million last year.

I know that our operating expenses were affected, an increase in USD terms due to the stress of the local currencies in the areas we operate primarily the Canadian dollar and the Israeli shekel versus the U.S dollar. This of set real efficiency steps we took during the second and third quarters of the year.

During the fourth quarter we recorded a financial expense of 0.5 million versus financial income of $0.5 million in the fourth quarter last year. The financial income and expenses mostly relate to the non-cash financial charges generated through foreign exposure primarily by our Israel based U.S dollar denominated deposits.

In terms of taxes, we saw a tax expense of $1 million versus a tax rebate of $0.9 million in the fourth quarter of the last year. The higher level of tax in the fourth quarter was primarily due to a recent change in the U.S tax regulations whereby there was a one-time reduction in all differed tax assets. I know that this is also a non-cash expense.

Net income in the quarter was $291,000 or $0.01 per share. Net income in the fourth quarter of the last year was $2.9 million or $0.13 per share. The EBITDA which is more representative for performance of our business in the quarter was $2.3 million and increase of 20%. This is compared with EBITDA of $1.9 million in the fourth quarter of last year.

To summarize our full year 2017 results, we reported revenue of $64.3 million, which decreased by 5% year-over-year. Sales by geography in 2017 were as follows. North America, 24%, Israel 15%, Latin America 20% Europe17%, Africa 16%, Asia and the rest of the world amounted to 9%.

In our annual reports which will be file later today will publish our segment breakdown. Sales of products including cyber and video were 47% 2017 revenues and project sales were 53% of revenues. Last year, the breakdown was 54% products, including video and cyber and 46% projects. Gross margin was 48.7% versus 49% last year.

Operating loss in 2017 was $1.2 million compared with operating income of 1.5 million in 2016. During 2017 financial expenses were $4 million. This was primarily due to the non-cash financial charges due to the weakening of the U.S dollar versus the Israeli shekel generated by the foreign currency exposure to U.S dollar denominated deposits.

In terms of taxes in 2017, we had tax expense of 1.7 million well in 2016, we had net tax income of $0.1 million. As I mentioned before, a large portion of the tax expense was non-cash due to a one-time reduction in our deferred tax assets in the U.S as a result of the recent US tax reform.

Our full year 2017 net loss was $6.9 million versus a net income of $1 million last year. EBITDA for 2017 was $0.6 million versus EBITDA of 3.2 million last year. Cash short term deposits and restricted deposits, as of December 31, 2017, were $52.7 million, or $2.27 per share, that’s almost the same level as December 31, 2016.

We have no bank debt in Magal. Overall that concludes my remarks We would be happy to take your questions now.

Operator?.

Thank you. Ladies and gentlemen, at this time we’ll begin the question-and-answer session. [Operator Instructions] The first question is from Sam Rebotsky of SER Asset Management. Please go ahead..

Tell me the March 22nd press release with the 20 sites, is that included in backlog, is there a quantification of that number?.

It's the announcement that we made last week related to the 20 new sites it’s included in our backlog, yes it is, as of today….

So, the 50 million that you sort of -- the 20 million was January 2018.

So of the 30 million say how much of that went into the December 31st, or any event and what is for 2018?.

As we -- as you know, we usually don't publish specific numbers for because, but as we can sum up all of the recent announcement that we made over the last few months and as I mentioned already we finalized the backlog with very strong backlog by the end of the year and right now it's actually at the highest point ever.

So without putting numbers, you can understand where we are..

Now the acquisition you're looking to make, what kind of cost for the 55%, and what kind of sales would that produce going forward?.

We haven’t published the amount of money of the acquisition because it's insignificantly in the amount. The main motivation of buying ESC BAZ for the technology and for the product portfolio and therefore the amount that we are spending is non-significant and therefore we’re not publishing it..

And as far as the acquisitions that you're looking at other than this particular one, is there a range of size of the acquisitions you're looking at?.

As I mentioned in the past we are looking in two directions. One direction is for technology acquisitions, very similar to the ESC BAZ to broaden our portfolio, both in the hardware and the software. And in parallel channel, we’re looking also to acquire a much bigger organization, leveraging the cash positive there that we have.

We’re looking on both directions at this point..

Now, with all this backlog I assume we would be profitable, which quarter we expect to be profitable?.

We’re not – we’re not going into quarters, because we are talking all of this backlog is related –or most of it is related to our project business and there’s still lumpiness in the project business but definitely we’re looking to be profitable throughout 2018 and beyond..

And this -- all these projects will be completed by the end of 2018?.

No, not all of them would be completed in 2018. And most of it or vast majority of it will be accomplished in 2018 but still some of the projects are big projects that would take us – would take us also for 2019 as well..

The next question is from Dan Weston of Westcap Management. Please go ahead..

I had a first question relating to the acquisition of the ESZ BAZ. Saar, is there any indication or color you can give us relating to what kind of accretion of revenues this will bring in and any difference in the margin profile on that business to what would you tracking at right now..

It’s a tough question because we haven’t give this information but what I can say its less than 10% in revenue but not much less than that..

And gross margin profile..

Very similar to our solution business..

And just to follow up on your previous callers question relating to backlog, I know you don’t give the actual number, but could you just refresh us, may be you could give us what the Delta was between your backlog at the end of the year to where it stands today..

I think you can actually do them yourself because as we mentioned already, the announcement, just the announcement on the project business that was about $50 million in the fourth quarter and on and you know that this quarter was $23 million. So I think you can do the math, its relatively easy..

Okay very good. I appreciate that. Let me see, I think last quarter you had mentioned, I think may be one of your previous callers asked a question relating to the critical sites for the regulation of the medical marijuana industry.

Is there any updates you can give us their it sounded like you were pretty excited on that opportunity?.

Yes, I am actually it looks even better and better every day and opportunity is huge, I can tell you that I think I mention it that just in Canada, we are looking or the Canadian are looking to have more than the 1,000 sites over the next day 3 to 4 years.

We’re looking to take to some portion of the pie, of course not everything, but we have very good at positive request, and we’re a part of a group that was awarded to a nice potion of sites and we’re planning to go to the execution phase in the next few months..

In the 1,000 sites that you're speaking of how many different owners does that represent?.

Tell you the truth. I don't know the answer for that but this is less important. The more importantly may be parameter is the ability to duplicate solutions from site over site.

Nobody wants to start designing every site from scratch and everyone wants to take advantage of site that’s already done and just duplicate it and since we have a proven solution I mentioned already, that we were awarded on several sites already and now for us is just a middle of matter of lot of course for the design phase..

That's great and then I know it's early because it was just fine, but is there any indication relating to the omnibus bill that was signed last week on may be benefit to your North American business?.

I'm not sure when which one are you referring to.

Are you referring to the $5 that we reported last week?.

No, the omnibus bill that was signed out of Washington last week just relating to your North American border security critical infrastructure any color that you give us there?.

As I mention I think in their previous calls, CBP is running several processes that we take part of them. We’re expecting some news in the upcoming weeks, and once we will have some news we will be happy to share it with you..

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

I just have one question regarding your recurring revenue, you’ve talked about in the past that you’re looking to try to grow that, what was there recurring revenue in the quarter and for the year?.

So, indeed we continue improving our recurring revenue portion. We do publish this information in 20-F that is going to be filed later today and you’ll see a continuous improvement in this ratio for us..

And what type of avenues are you trying to boost that number through -- with service contracts?.

Yes, so actually we operate in all of our three segments of operations, turnkey projects, products and video and cyber. All of them are a good basis for improvement of recurring revenue. So when we’re talking about the video segment, then the maintenance and support contract that we’re selling is basically are major kind of revenue in this segment.

And for products we are basically we are selling also product maintenance,, sensor care program, which provides with recurring revenue on debt. And projects of course this is the post project maintenance contract.

So, overall currently, we’re talking about around 26% of our revenue being recurring and our goal is to continue and gradually increase this percentage..

And related to some of your efforts with security at airports, I saw that recently you installed at the North American Airport.

Is this something that you look for other similar subcontracts in the United States?.

Yes, we do, actually we -- our subsidiary Senstar just announced I think yesterday it was that we successfully completed the Memphis International Airport security solution and we’re looking on many other airport as well. Later this year in May there’s going to be a big conference here in England by the way in many major U.S.

security officers from the major airports, they’re coming to Israel to learn more about airport security and as you may know that Israel Airport are secured with very high standards and many security officers from around the globe are coming here to see newer technology and we are going to be part of this conference as well..

And just one more question with regards to some of the security at the border, in Israel.

Do you expect to have any project wins in the coming year?.

Yes, we do. Yes we do. Israel is planning to continue investing in the border security -- in our border security, as we understand from the Minister of Defense, there’s budget allocated for this year, for 2018, and we are definitely working to take a nice portion of that..

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Koursh to go ahead, with his closing statement, I would like to remind participants that the replay of this call will be available 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 your continued interest and long-term support of our business. I look forward to an active 2018 and to updating you in next quarter. Have a good day and happy holidays for Easter and Passover. Thank you..

Thank you. This concludes the Magal Security Systems Fourth Quarter 2017 Results Conference Call. Thank you for your participation. You may go ahead and disconnect..