Magal Security Systems Ltd. Reports Second Quarter 2017 Financial Results

YEHUD, ISRAEL, August 31, 2017 /PRNewswire/ --

Magal Security Systems, Ltd. (NASDAQ: MAGS) today announced its financial results for the three and six month period ended June 30, 2017. Management will hold an investors' conference call later today (at 9:30am Eastern Time) to discuss the results.

SECOND QUARTER RESULTS SUMMARY

    --  Revenue of $13.3 million with gross margin of 50.2%;
    --  Incurred non-cash financial-expense of $1.3 million;
    --  Net loss of $3.3 million in the quarter, EBITDA loss of $1.2 million;
    --  Net cash and equivalents of $47.9 million at quarter-end;
    --  Completed amalgamation of Aimetis and Senstar subsidiaries in Canada,
        leading to lower ongoing operating and tax expenses starting in the
        second half of 2017

SECOND QUARTER 2017 RESULTS

Revenues for the second quarter of 2017 were $13.3 million, a decrease of 3% compared with revenues of $13.6 million in the second quarter of 2016.

Gross profit for the second quarter of 2017 was $6.7 million, or 50.2% of revenues, an increase of 10%, compared with a gross profit of $6.1 million or 44.5% of revenues, in the second quarter of 2016. The improvement in gross margin between quarters is due to the higher margins achieved on projects during the quarter.

Operating loss for the second quarter of 2017 was $1.7 million compared to an operating loss of $2.2 million in the second quarter of 2016.

Financial expenses, net, for the second quarter of 2017 were $1.4 million compared with financial income of $0.3 million in the second quarter of 2016. In Israel, Magal's functional currency is the Israeli Shekel and the vast majority of Magal's cash deposits are held in US dollars. Because the US dollar declined in value by 4.0%, between the end of the first quarter and the end of the second quarter of 2017, similar to the decline experienced in the prior quarter, the Company recorded a non-cash financial expense due to the reduction in the Israeli shekel value of its US dollar deposits, leading to the high level of financial expense in the current quarter.

Net loss in the second quarter of 2017 was $3.3 million, or $0.14 per share, compared with a net loss of $2.0 million, or $0.12 per share in the second quarter of 2016.

EBITDA in the second quarter of 2017 was a negative $1.2 million, compared to a negative EBITDA of $1.7 million in the second quarter of 2016.

Cash, short term deposits and restricted deposits, as of June 30, 2017, were $47.9 million, or $2.08 per share, compared with cash, short term deposits and restricted deposits of $50.7 million, or $2.21 per share, as of March 31, 2017.

MANAGEMENT COMMENT

Commenting on the results, Mr. Saar Koursh, CEO of Magal, said, "From a revenue standpoint, our second quarter was slightly weaker than the same quarter of last year. The increase in revenues from geographies outside of North America, partially offset the current weakness we are experiencing in the North American market. Our North American operations, which last year represented almost half of our global business, were significantly impacted this quarter by delays in critical infrastructure security spending which await clarity about the federal budget. In the interim, the cost efficiency actions we implemented in the quarter position us well for profitable growth upon the anticipated recovery in the US high-end security market in the second half of 2017."

Continued Mr. Koursh, "Since last year, we have put much effort in improving our profitability on both the operational and gross margin levels. Additionally, in the second quarter, we amalgamated Aimetis and our North American subsidiary, Senstar. This will enable additional synergies as well as lower operating expenses and ultimately higher margins, in upcoming quarters."

INVESTORS' CONFERENCE CALL INFORMATION:

The Company will host a conference call later today, August 31, 2016, at 9:30 a.m. Eastern Time and 4:30 p.m. Israel time.

To participate, please call one of the following teleconferencing numbers:
US: 1-888-407-2553; Israel: 03-918-0687; UK: 0-800-917-9141; Intl.: +972-3-918-0687

If you are unable to connect using the toll-free numbers, please try the international dial-in number.

A replay link of the call will be available from the day after the call from Magal's website.

ABOUT MAGAL

Magal is a leading international provider of solutions and products for physical and video security solutions, as well as site management. Over the past 45 years, Magal has delivered its products as well as tailor-made security solutions and turnkey projects to hundreds of satisfied customers in over 80 countries - under some of the most challenging conditions.

Magal offers comprehensive integrated solutions for critical sites, managed by Fortis4G - our 4th generation, cutting-edge PSIM (Physical Security Information Management system). The solutions leverage our broad portfolio of homegrown PIDS (Perimeter Intrusion Detection Systems), advanced VMS (Video Management Software) with native IVA (Intelligent Video Analytics) Security solutions.

Forward Looking Statements

This press release contains forward-looking statements, which are subject to risks and uncertainties. Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements. A number of these risks and other factors that might cause differences, some of which could be material, along with additional discussion of forward-looking statements, are set forth in the Company's Annual Report on Form 20-F filed with the Securities and Exchange Commission.

Information with Regard to non-GAAP Financial Measures

The Company presents its financial statements in accordance with U.S. GAAP. Magal's management regularly uses supplemental non-GAAP financial measures internally to understand, manage and evaluate its business and make operating decisions. EBITDA is provided in this press release and the accompanying supplemental information because management believes this non-GAAP measure is useful for investors and financial institutions as it facilitates operating performance comparisons from period to period. As presented in this release, the term EBITDA consists of net profit (loss) according to U.S. GAAP, excluding net financing expenses, taxes, depreciation and amortization. EBITDA should not be considered in isolation or as a substitute for net profit (loss) or other statement of operations data prepared in accordance with GAAP as a measure of profitability. A reconciliation between the Company's results on a GAAP and non-GAAP basis is provided in a table below.

MAGAL SECURITY SYSTEMS LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(All numbers except EPS expressed in thousands of US$)



                                                                             Three Months              Six Months

                                                                             Ended June 30,           Ended June 30,

                                                                                                 2016                 2017   % change                2016        2017  % change
                                                                                                 ----                 ----   --------                ----        ----  --------

    Revenue                                                                                    13,629               13,254           (3)           26,232      27,589         5

    Cost of revenue                                                                             7,562               6 ,602                        13,919      13,526
                                                                                                -----               ------                        ------      ------


    Gross profit                                                                                6,067                6,652            10            12,313      14,063        14

    Operating expenses:

      Research and development, net                                                             1,980                1,682          (15)            3,256       3,287         1

      Selling and marketing                                                                     4,435                4,564             3             7,041       9,362        33

      General and administrative                                                                1,879                2,073            10             3,620       3,933         9

    Total operating expenses                                                                    8,294                8,319             -           13,917      16,582        19
                                                                                                -----                -----                         ------      ------


    Operating loss                                                                            (2,227)             (1,667)                       (1,604)    (2,519)

    Financial income (expenses), net                                                              303              (1,374)                         (556)    (4,010)
                                                                                                  ---               ------                           ----      ------


    Loss before income taxes                                                                  (1,924)             (3,041)                       (2,160)    (6,529)


    Taxes on income                                                                               122                  264                            349         469
                                                                                                  ---                  ---                            ---         ---


    Net loss                                                                                  (2,046)             (3,305)                       (2,509)    (6,998)
                                                                                               ======               ======                         ======      ======


    Income (loss) attributable to non-controlling interests                                      (34)                   9                           (21)         14
                                                                                                  ---                  ---                            ---         ---


    Net loss attributable to Magal shareholders'                                              (2,012)             (3,314)                       (2,488)    (7,012)
                                                                                               ======               ======                         ======      ======


    Basic and diluted net loss per share                                                      $(0.12)             $(0.14)                       $(0.15)    $(0.31)
                                                                                               ======               ======                         ======      ======




    Weighted average number of shares used in computing basic
     and diluted net loss per share                                                        16,398,872           23,000,580                     16,398,872  22,958,689
                                                                                           ==========           ==========                     ==========  ==========




                                                                            Three Months                                                    Six Months

                                                                             Ended June 30,                                               Ended June 30,
                                                              --------------                                               --------------

                                                                                                 2016                 2017                           2016        2017

                                                                                                    %                   %                             %          %
                                                                                                  ---                 ---                           ---        ---


    Gross margin                                                                                 44.5                 50.2                           46.9          51

    Research and development, net as a % of revenues                                             14.5                 12.7                           12.4        11.9

    Selling and marketing as a % of revenues                                                     32.5                 34.4                           26.8        33.9

    General and administrative  as a % of revenues                                               13.8                 15.6                           13.8        14.3

    Operating margin                                                                                -                   -                             -          -

    Net margin                                                                                      -                   -                             -          -

MAGAL SECURITY SYSTEMS LTD.
RECONCILLATION OF EBITDA TO NET LOSS
(All numbers expressed in thousands of US$)


                           Three Months                   Six Months

                           Ended June 30,               Ended June 30,
                     --------------                --------------

                         2016                 2017                 2016       2017
                         ----                 ----                 ----       ----


    GAAP
     Net
     loss             (2,046)             (3,305)             (2,509)   (6,998)

       Less:

        Financial
        income
        (expenses),
        net               303              (1,374)               (556)   (4,010)

       Taxes
        on
        income          (122)               (264)               (349)     (469)

        Depreciation
        and
        amortization    (528)               (462)               (816)     (912)
                         ----                 ----                 ----       ----

    EBITDA            (1,699)             (1,205)               (788)   (1,607)
                       ------               ------                 ----     ------

MAGAL SECURITY SYSTEMS LTD.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(All numbers expressed in thousands of US$)


                                  December 31,          June 30,

                                                   2016              2017
                                                   ----              ----

    CURRENT ASSETS:

    Cash and cash equivalents                   $19,692           $15,656

    Short-term bank deposits                     31,036            32,024

    Restricted deposits                           1,809               193

    Trade receivables, net                       13,702            11,697

    Unbilled accounts receivable                  4,232             4,324

    Other accounts receivable and
     prepaid expenses                             2,751             2,802

    Inventories                                   6,818             7,357


    Total current assets                         80,040            74,053
                                                 ------            ------


    LONG TERM INVESTMENTS AND
     RECEIVABLES:


    Long-term trade receivables                     308               128

    Long-term deposits and
     restricted bank deposits                       126               149

    Severance pay fund                            1,321             1,471

    Deferred income taxes                         2,114             2,198
                                                  -----             -----


    Total long-term investments
     and receivables                              3,869             3,946
                                                  -----             -----


    PROPERTY AND EQUIPMENT, NET                   5,301             5,530
                                                  -----             -----


    INTANGIBLE ASSETS, NET                        4,933             4,635
                                                  -----             -----


    GOODWILL                                     11,850            12,328


    Total assets                               $105,993          $100,492
                                               ========          ========

MAGAL SECURITY SYSTEMS LTD.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(All numbers expressed in thousands of US$)


                                   December 31,                                   June 30,

                                                                           2016                 2017
                                                                           ----                 ----


    CURRENT LIABILITIES:


    Trade payables                                                       $4,040               $2,311

    Customer advances                                                     5,602                3,023

    Other accounts payable and
     accrued expenses                                                    11,646               10,557
                                                                         ------               ------


    Total current liabilities                                            21,288               15,891
                                                                         ------               ------


    LONG-TERM LIABILITIES:

    Deferred revenues                                                       472                  479

    Deferred income taxes                                                   167                  181

    Accrued severance pay                                                 2,089                2,285

    Other long-term liabilities                                              59                   62


    Total long-term liabilities                                           2,787                3,007
                                                                          -----                -----


    SHAREHOLDERS' EQUITY

    Share Capital: Ordinary shares
     of NIS 1 par value -

                                   Authorized: 39,748,000 shares at
                                    December 31, 2016 and June 30,
                                    2017; Issued and outstanding:
                                    22,894,348 shares at December 31,
                                    2016 and 23,012,448 shares at June
                                    30, 2017                                6,679                6,711

    Additional paid-in capital                                           93,441               93,996

    Accumulated other
     comprehensive loss                                                 (1,923)               (749)

    Foreign currency translation
     adjustments (stand alone
     financial statements)                                                  412                5,325

    Accumulated deficit                                                (16,600)            (23,612)
                                                                        -------              -------


    Total shareholders' equity                                           82,009               81,671

    Non-controlling interest                                               (91)                (77)
                                                                            ---                  ---


    TOTAL SHAREHOLDERS' EQUITY                                           81,918               81,594
                                                                         ------               ------


    TOTAL LIABILITIES AND
     SHAREHOLDERS' EQUITY                                              $105,993             $100,492
                                                                       ========             ========

For more information:
Magal Security Systems Ltd.

Saar Koursh, CEO
Tel: +972-3-539-1421
E-mail: elishevaa@magal-s3.com
Web: http://www.magal-s3.com

GK Investor Relations
Ehud Helft / Gavriel Frohwein

Tel: (US) +1-646-688-3559
E-mail: magal@gkir.com

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SOURCE Magal Security Systems, Ltd.