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MAGAL SECURITY SYSTEMS
Focused Solutions for the World’s Security Needs Kobi Vinokur, CFO
March 20201
/ SAFE HARBOR/
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Statements concerning Magal Security’s business outlook or future economic performance, product introductions and plans and objectives related thereto, and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters, are "forward-looking statements'' as that term is defined under U.S. federal securities laws. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements.
These risks, uncertainties and factors include, but are not limited to: the effect of global economic conditions in general and conditions affecting Magal Security’s industry and target markets in particular; shifts in supply and demand; market acceptance of new products and continuing products' demand; the impact of competitive products and pricing on Magal Security’s and its customers' products and markets; timely product and technology development/upgrades and the ability to manage changes in market conditions as needed; the integration of acquired companies, their products and operations into Magal Security’s business; and other factors detailed in Magal Security’s filings with the Securities and Exchange Commission. Magal Security assumes no obligation to update the information in this release.
Estimated growth rates and other predictive statements represent Magal Security’s assumptions and expectations in light of currently available information. Estimated growth rates and other predictive statements, are based on industry trends, circumstances involving clients and other factors, and they involve risks, variables and uncertainties. Magal Security’s actual performance results may differ from those indicated in this presentation. Consequently, no guarantee is presented or implied as to the accuracy of specific forecasts, projections or predictive statements contained herein.
In addition, there is uncertainty about the spread of the COVID19 virus and the impact it will have on the Company’s operations, the demand for Company’s products, global supply chains and economic activity in general.
/ MAGAL AT A GLANCE /
• Leader in customized security products and turnkey solutions with decades of experience
• Growing presence with focus on key vertical markets
• Two operating divisions
• Magal Security global provider of turnkey projects
• Senstar recognized tech-rich product brand
• Scalable model – near-term goal to increase revenue by 50% and increase EBITDA margin from 9% to 14%
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* Financial metrics reflect calendar year as of 12/31/2019
2019 Total Revenue: $86.8M
Projects60%
Products40%
Recurring Revenue
~20%
Market Cap: $58M
Net Cash$51m
EnterpriseValue$11m
7% of revenues spent on R&D
R&D & Technicians
175
TotalEmployees
420
Technology Focus
22%
22%
23%
9%
13%
11%
Global PresenceIsrael
Europe
North America
South and Latin America
Africa
Others
/ MAGAL DELIVERS SOLUTIONS IN HIGHEST GROWTH SEGMENT /
Security is a Global Problem Projected to Grow at a CAGR of 10% to Over $526 Billion by 2026*
Industry Growth Drivers
• Increasing security threats to infrastructure and populations
• Increasing government regulation to fight terrorism
• Rising labor costs driving tech-based solutions
Magal operates in one of the highest growth market segments - physical security to safeguard people, places and materials
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Remote Monitoring
VMS Video Surveillance
System Integration
Electronic Access Control
* Source: Verified Market Research, Global Security Solutions Market report October 2018
Perimeter Intrusion Detection Systems
VMSVideo Analytics
Symphony
Volumetric SensorXField
Covert SensorOmniTrax
Fence Mounted Sensor
FlexZone / FiberPatrol
Microwave Sensor
UIltraWave
Intelligent Lighting / Fence Sensor
Senstar LM100
/ CORE MAGAL MARKET - PERIMETER INTRUSION PROTECTION /
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VMSVideo Analytics
Symphony
Protecting Critical Infrastructure While Meeting Operational and Regulatory Requirements
Command and Control FORTIS
Electronic Access Control
EAC
// TARGETING KEY VERTICAL MARKETS
SEAPORTSVIP SITESMILITARY FACILITIES SMART CITY
REGULATED CANNABIS
BORDERSAIRPORT
SAFE CITY
OIL & GAS
LOGISTICS
CORRECTIONS
CRITICALINFRASTRUCTURE
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Characteristics
Have unique security requirements suited to Magal’s capabilities
• Vulnerable - readily accessible to public
• Increasingly use tech-centric products
• Require tailored solutions
/ MAGAL’S TWO OPERATING DIVISIONS/
Product division – tech-rich, proprietary • Perimeter intrusion detection systems (PIDS)• Advanced Video Management Software (VMS)• Intelligent Video Analytics (IVA)• Electronic Access Control (EACS)• Symphony - security and information
management platform
• Sells to system integrators and distribution channels
• Fastest growing division with highest contribution margins
Project division - turnkey security projects globally• Perimeter intrusion protection for critical
infrastructure security• Comprehensive solutions offering• Leverages Magal/Senstar’s full suite of products • Features proprietary Fortis 4G Command &
Control platform
• Global sales directly to end users or to large-scale contractors
• Large, variable sales to defined customer base with high barriers to entry
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~40% of Revenues
~60% ofrevenues
/ GLOBAL FOOTPRINT TO SUPPORT OPERATIONS /
Israel / Yehud
Corporate HQ & Magal Israel Projects
Canada / Ottawa & Waterloo
PIDS & VMS R&D Centers
Manufacturing
Mexico / Cuernavaca
Projects and Products
United States / Philadelphia
Fiber Optic Technologies R&D Center
Philippines / Clark
Technical support center
Germany/ Ravensburg and Hanau
Product distribution - Europe
/MAIN FACILITIES/
TWO OPERATING DIVISIONS SUPPORTED GLOBALLY
Security products under the Senstar brand
Security solutions and turnkey projects under the Magal brand
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/ PROJECT DIVISION - CORE COMPETENCIES /
Turnkey Security Projects For Governments And Enterprises
• Comprehensive offering
• Recurring revenue from maintenance, support and training
• Customized solutions capabilities
Consulting
Design
Integration
Project Management & Supervision
Installation
Maintenance, Support & Training
Analyze and identify security concerns
New projects or existing system upgrades or
replacements
Full-service systems integrator
Manage every stage through completion
Over 50 years installation experience
Full suite of support options
Core Project Division
Competencies
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/ PROJECT DIVISION – PROPRIETARY INTERGATED SOLUTIONS/
External Data
Cyber Security
Public Address
IVA & LPR
Robots & Balloons
CCTV/Cameras
Facial Recognition
Thermal Imaging
Perimeter Systems
Mobile Forces
Smart Gates
Access Control
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FORTIS Proprietary Command and Control
• Centralized proprietary Physical Security Information Management (PSIM) monitoring
• Holistic integrations for all security and operational systems
• Vendor agnostic
• Effective decision making on real-time events
• Future delivery as cloud solution
Drones and Anti-drone
Integrated by FORTIS 4G
Project division executes construction and installation
using sensors and tech-rich products
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/ PROJECT DIVISON DELIVERS COMPREHENSIVE EFFECTIVE SOLUTIONS /
/ SENSTAR PRODUCTS LEVERAGING CORE EXPERTISE TO NEW MARKETS /
Recognized Brand Leader in Security Products
• Ranked one of 2019’s top 10 growth brands in global physical security sector *
Competitive advantages – performance, reliability and quality
IP-rich Proprietary Technology
• 24 issued patents and 8 patents pending
• Annual R&D investment of ~$5.5 million
Expanded addressable market with ESC and VMS acquisitions (2018, 2016)
Cross-selling drives growth
EACSElectronic
Access Control
$7.5B
VMSVideo
Management
$3.7B
Source: Markets & Markets, June 2018
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* ASMAG.com 2019 a&s Security 50 December 2019
PIDS$550 M
/ SENSTAR’S INTRUSION DETECTION FOR UNIQUE SECURITY NEEDS /
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Challenge – Secure a five-mile airport perimeter subject to harsh weather conditions and surrounded by busy roads, pedestrian traffic and public transportation
Solution – Multilayered Perimeter Intrusion Detection
Technology
• Fiber optic fence-mounted and buried intrusion detection systems
• Senstar’s Network Manager software to manage alarms from the multiple systems
Outcome – High praise for Senstar’s solution with improved security through improved system management and lower cost with reduced nuisance alarm rate (NAR)
Perimeter security requirements for a critical cargo airport in North American …
…where traditional PIDS and video surveillance proved ineffective, expensive and unmanageable
Case Study
/ PRIORITIZING RESOURCES ON FOUR KEY VERTICALS FOR 2020/
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• Rapid growth of security needs in these verticals benefit Product and Project divisions
• Able to leverage core capabilities, market leadership, new products and high standards
• Investing in BD and Sales; targeting for M&A opportunities
CRITICALINFRASTRUCTURE
Core vertical for product division with PIDS
CORRECTIONS
Market leader in the U.S. with momentum to increase market share
LOGISTICS
High growth industry for new operational needs - VMS analytics for logistics to track damaged good, and reduce lost items
OIL & GAS
Magal’s differentiated capabilities and high standards of quality for security align with this capital-intensive sector’s unique needs
/ EXECUTING A STRATEGY TO DRIVE GROWTH /
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Growth Drivers• 2020 focus on growth in key verticals
• Selling core security solutions and products
• Augmenting with adjacent solutions and products
• Continued focus on increasing Senstarrevenue as a percentage of total revenue
• Division has delivered consecutive annual growth past three years
• Scalable revenue with higher margin contribution
• Higher level of investment in R&D• Driver of corporate EBITDA growth
Divisional Revenue and Margin Breakdown
$28.5 $34.9 $36.6$38.2 $61.0
$52.4
2017 2018 2019
Divisional Revenue2017 - 2019($ in millions)
Not including divisional eliminations
Senstar Product Division Magal Integration Division
2019 Combined Senstar (*) Magal (*)
R&D 7% 14% 2%
Gross Margin 45% 63% 32%
EBITDA Margin 9% 14% 8%
(*) Divisional Contribution
$0.6
$7.0
$8.1
2017 2018 2019
EBITDA & EBITDA Margin1
($ in millions)
7.5%
1.0%
9.4%
$32.6 $36.5 $32.7
$64.3
$92.6$86.8
2017 2018 2019
Revenues & Operating Expense($ in millions)
/ OPERATING LEVERAGE DRIVES CASH FLOW TO SUPPORT GROWTH /
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OPEX($ in millions)
• Revenue growing faster than expenses
• $51.6 million in net cash on balance sheet as of December 31, 2019
• $24 million raised in 2016; currently generating cash
• Primary targeted use of cash to acquire new technology, expand geographic presence, gain expertise and/or relationships from M&A
Disclaimer: This is not guidance or a forecast. This information is meant as a representation of the Company operating model targets only. 1. Refer to EBITDA reconciliation table found on Appendix slide 26
+44%
+12%
-6%
-10%
M&A Strategy• Add synergistic products in growth markets
• Leverage existing platform
• Complete at least one acquisition by year-end 2020
• Support growth goals
• Augment organic low to mid single digit revenue growth with inorganic growth adding additional revenue and
• Increase EBITDA growth and expand EBITDA margin with operating leverage
/ M&A STRATEGY TO BOOST REVENUE AND EBITDA /
~$15 M Revenue Adjacent To Existing Solutions
Synergistic Geographies
NewGeographies
ProjectOriented
Revenue$30m
RevenueLow
ProductOriented
Magal Acquisition Sweet Spot
ExistingGeographies
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Continued growth from SenstarProduct Division, revenue upside from Magal Integrated Solutions
and strategic M&A
/ MID-TERM OPERATING MODEL /
Operating Metric Targets*
2019 Versus Target
EBITDA Margin
$86.8 M ~40%-45%
Gross Margin
45%
14%9%
$150 M+
Revenue
73%
+56%
Higher margin contribution from Senstar Product Division, acquisition synergies and operating expense control
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* Reference Magal’s safe harbor statement regarding estimated growth rates and predictive statements
Revenue mix from SenstarProduct Division and Magal
Integrated Solutions
• Serving global industry growth with strong macro backdrop in one of fastest growing segments – physical security
• Management team executing a strategy to grow revenue, improve margins and increase profitability
• New focus for 2020 on key high growth verticals leveraging core capabilities and benefiting both business divisions
• Profitable with strong balance sheet and generating cash to fund M&A and investment
/ INVESTOR TAKEAWAYS /
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APPENDIX
20
21
16.7
/ SUMMARY BALANCE SHEET/
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16.7
/ SUMMARY BALANCE SHEET/
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16.7
/ SUMMARY INCOME STATEMENT/
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/ EBITDA RECONCILIATION/
/ COMPANY HISTORY /
/ 1969 / 1984 / 1993 / 1997 / 2013 / 2014 / 2016 / 2018 /
FoundedwithinIsraeliAircraft Industries
Magal’s IPO on the NASDAQ
Acquisition of CYBERSEAL & OPTELLIOS
Acquisition of AIMETIS
Magalbecomesa privatecompany
Acquisition of SENSTAR
FIMI acquires controlling stake of Magal
Acquisition of control of ESC BAZ
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Kobi Vinokur – Chief Financial OfficerJoined Magal in 2016.Previously chief financial officer of Miya (ArisonGroup), a global provider of comprehensive water efficiency solutions and a water utilities operator. Prior to that, he served in several key leadership positions at Brink's Company; as an executive director at Shapira Films, one of the leading film distribution and production companies in Israel; and as head of treasury at the Ministry of Defence of Israel.Received CFO Excellence award.Certified public accountant in the United States and Israel.
Dror Sharon - CEOJoined Magal in June 2018.Previously president and CEO at ContropPrecision Technology Ltd., a company specializing in developing, manufacturing and selling Electro Optical and Precision Motion Control Systems for the global defense and homeland security markets. Controp’s revenue grew significantly while maintaining high profit margins. Prior to that, served in various positions including president & CEO at OpgalOptronics Ltd.
Fabien Haubert – Senstar Managing Director Joined Magal in 2018Previously Regional Director at a major UK-based video security solution providerPrior to that, worked with several companies in the areas of video management, IP video surveillance, intrusion detection, access control and system integration. Extensive experience in sales management with many years of responsibility for the EMEA region. He speaks French, English, Spanish, and Italian, and has a working knowledge of Dutch.
Doron Kerbel – Vice President, General Counsel & Company SecretaryJoined Magal in July 2015.Previously, served for more than eight years as legal counsel at Elbit Systems Ltd. Aerospace Division. Extensive experience in advising on variety of commercial legal issues, M&A, and PFI and BOM projects, both locally and internationally. Prior to that, associate lawyer in M. Firon& Co. and as senior legal counsel for International Law at the Israeli Embassy to the Netherlands.
/ MANAGEMENT TEAM PROFILES/
Arnon Bram – General Manager MagalIntegrated SolutionsJoined Magal in February 2020.Previously, served as DIRCM (Directional Infrared Counter Measures) Business Unit Manager at Elbit Systems.Prior to that, CEO of UAV Tactical Systems, a JV between Elbit Systems and Thales in the UK. Extensive experience in international sales, multi-year strategy setting and execution, international customers management, multi-disciplinary engineering development, programs, production and large scale supply chain management.
THANK YOUInvestor Relations Contact:Brett MaasHayden IR(646) 536-7331brett@haydenir.com
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