Earnings call transcript: MTI Wireless Edge reports stable Q4 2023, focuses on innovation

MTI Wireless Edge Limited (MTIE), with a market capitalization of $65.18M, reported stable financial performance for Q4 2023, maintaining revenue levels of $45.57M despite a challenging market environment. According to InvestingPro analysis, the company has demonstrated strong momentum with a 36.47% YTD return. The company highlighted its focus on earnings per share and cash generation, alongside strategic innovations and operational adjustments. The stock price remained unchanged following the earnings announcement.

Key Takeaways

• Revenue remained stable in a challenging market.
• Dividend increased by 6%, payable in April.
• New product launches in water management and antenna technology.
• Closed underperforming operations in China.
• Strong growth expected in defense and 5G markets.

Company Performance

MTI Wireless Edge managed to maintain its revenue levels during Q4 2023 despite facing a challenging market environment. InvestingPro data shows the company maintains a healthy financial position with a "GOOD" overall health score and a strong current ratio of 2.65. The company emphasized its strategic focus on earnings per share and cash generation, with EBITDA reaching $5.82M. The year was described as financially flat, but with encouraging underlying metrics. The decision to increase the dividend by 6% reflects confidence in future performance, with the current dividend yield standing at an attractive 4.37%.

Financial Highlights

• Revenue: Stable compared to the previous year.
• Earnings per share: Focused on growth.
• Dividend: Increased by 6%, to be paid in April.
• Share buyback: Active program with 2.3 million shares owned.

Outlook & Guidance

MTI Wireless Edge enters 2025 with a robust order backlog of over 25–26 million dollars. The company is concentrating on three primary growth engines: increased defense budgets, rising demand for 5G antennas, and the need for efficient water management solutions. A cautious approach to mergers and acquisitions is planned, with a focus on opportunities that enhance profitability.

Executive Commentary

CEO Moni emphasized the company’s strategic focus, stating, "We are not trying to compete on the last 10, but we are trying to bring added value." He highlighted the importance of the company’s three growth engines: defense budgets, 5G antenna demand, and water management efficiency. Moni also reiterated the focus on earnings per share growth.

Risks and Challenges

• Supply chain disruptions could impact product delivery timelines.
• Market saturation in certain segments may limit growth.
• Macroeconomic pressures could affect consumer spending and investment.
• Regulatory changes in key markets could pose compliance challenges.
• Competition from larger players in the antenna and water management sectors.

MTI Wireless Edge’s strategic focus on innovation and operational efficiency, alongside its robust order backlog, positions the company well for future growth. The emphasis on defense and 5G markets, coupled with a cautious approach to expansion, reflects a balanced strategy aimed at sustainable development. InvestingPro analysis indicates the stock is currently undervalued, trading at a P/E ratio of 15.01. Discover more insights and exclusive ProTips about MTIE’s growth potential with an InvestingPro subscription, including access to comprehensive Pro Research Reports covering 1,400+ top stocks.

Full transcript - MarkWest Energy Partners LP (MWE) Q4 2024:

Moni, CEO/Company Representative, MTI Wireless Edge Limited: in the attack. A lot of equipment was either destroyed or stalled, and we need to replace it. Only now it is more safer to get there and replace the unit, so we expect some nice orders from this area as well. Last but not least, in our distribution business, we have a division that is doing 20 fourseven support for government installing different type of communication systems. As you can imagine, most of the communication system will hit during the war, both in the South and the Northern part of Israel.

We just started to fix some of them, and there is a lot of work going forward. If I’ll focus about ’24 and see what was the key events in the business, So I think that overall, the result were very resilient. We were able to maintain the revenue in very difficult environment and continue to focus on the earning per share and generating the cash. The defense business is growing very fast, as I explained, and this is the main reason for the big backlog that we have reported so far. And I can say also that the number of opportunities ahead of us that we already quoted is significant larger than in the past.

In the water management business, we introduced some new solution. Some of them are ours, and I will elaborate about it later on. And in the five gs backhaul, we started to see some ramp up. We doubled our revenue in this segment in 2024, and we are very happy with the way it continues. Also with our automatic beam steering antenna solution, and I remind that in this case, what we do is we rotate the feed of the antenna in order to reestablish the link if it loses.

We see some nice progress, and I will elaborate it. So focusing on the water management business, just as a reminder, we are a master distributor of Motorola. We sell Zelle controllers worldwide. Most of the IP is coming from the software on our side. And at the end of the day, the idea is to save water.

In this area, we also have a recurring revenue model that is coming from a service and maintenance that we give to municipalities in the places where we have our own subsidiaries, mainly in Israel, Australia and South Africa. And if I focus about the key advances that we did in 2024 is, first of all, that the increased pricing of the service to municipalities that I have spoken about in the past kicked in. We already see that the revenue from service is 25% of a Motec’s business. It should continue and grow because some of the pricing increase were incremental year on year, so we should expect more growth in ’twenty five. Another very nice vertical market that we entered into is what we call management of fountains.

There is one city in Israel that had over 40 fountains, each managed locally. And they wanted a full control solution, so we offered them an end to end encrypted solution against, for cyber safety. The reason that they need it is that it’s considered as a public pool, in Israel because they want to maintain the level of the fresh water. Israel is a hot country. Many times, the kids are getting into the fountains.

And we completed the project in ’24. We engaged at the end of twenty four with another city in Israel, and we are now in process of implementing it. And there is a third city that we are now in the final discussion about receiving another solution to be offered. The nice thing about it, it’s the following year, the second year after installations, they go also into service and maintenance agreements, so it will contribute to the service and maintenance. And it’s a fairly nice amount.

It’s tens of thousands of dollars for each municipality for the service. And I believe that after we can do three, four or five systems in Israel, we can take it elsewhere in the world wherever we operate. In 2024, selling of equipment in Israel was a bit slow, given the circumstances and it’s understandable, But also in Europe, especially in Italy, we had a slow year. We have a lot of bids in Italy. It was only delays, nothing that we have lost, and we expect this to recover in the near term future.

As you can see in the picture, you can see the new controller that we have launched. This is our controller. It is a low level entry type of controller that allow us to go to the small farms and offer our solution into the farmers in the lower end. And then when they grow up and increase the demand, we can use the Motorola one. We see that as an important step in increasing the technology that the motor offer and the entire offering for the customers.

Going into the antenna business, the start of 2024 for us. So first of all, we had an excellent year, 16% growth in revenue and 56% growth in operational profit. We do antenna for both military and commercial use. In military, we do everything from airborne, weather, man, or armament, all the way down to submarine antennas, and we do it with different technologies. It can be communication, a jamming, anti jamming, beamforming and other solutions.

In commercial, we play in three markets. The most important one right now for us is the five gs backhaul, but we have two legacy ones. One is the fixed broadband access, which is connecting homes and offices into the Internet and the second one is RFID, radio frequency identification. If I focused on the two gross engine of the company, the military antenna and the five gs. So first of all, it was an excellent year for the five gs doubling the revenue and it became the biggest commercial part of the antenna.

We are very well positioned working with all key OEMs in the market. Our ABS automatic beam steering antenna solution moved from trials with the customer to trial with the end customers, with the cellular provider. And the first response that we say we see is that they are very happy with the solution, so we just now need to wait and see when they start full deployment. If you remember, we mentioned it quite some time that we have a manufacturing facility in India since 02/2008. This gave us a big opportunity in the Indian market for five gs backhaul, which is now pushing very strongly and was the key part of the growth of the five gs in 2024.

We are very well positioned there. We have very good relation with both the radio manufacturer and some of the cellular operator, and we see good business, although it is still very sporadic. So orders come and then they disappear for a few months and then they come again. On the military side of the business, we have seen a very nice increase already in ’twenty three, and it continued in ’twenty four. It is because of the increase of defense budget and the higher level of technology that we offer to the customer.

I mentioned about the build to print, the build, the production that we do for the antenna division of the defense companies. And we also are doing quite well in the international markets, mostly in Europe, where we sell to different defense companies in Europe. In Israel, as I said, we see a lot of demand right now. We got a very significant order in ’twenty four. It was about $2,000,000 for production, and we were happy with it.

And then immediately in the beginning of ’twenty five, we received an order for the same product for another $4,000,000 So it shows that this is part of a very advanced system that has a demand, and we are very happy with the progress here. Moving to the distribution and special consulting services, I would say that we had a mixed deal. In the traditional part of distribution where we buy and sell components into the Israeli market, everything was as expected and the business was doing well. I remind you that here we are the biggest one in Israel and have the biggest offering to the customers. And on the operation with PSK, we had some problems.

Again, PSK is offering two kind of services. One is the 20 fourseven support for our government, which is doing well and will continue to do well as there is a lot of work. Where we did suffer is in the shelter build up, as you can see the picture to the right. We had a miscalculation on one of the project that was very harmful. And at the same time, some of the project that we expected were delayed or canceled because of the war.

What we decided to do is that in August, we changed a little bit the business model. We laid off about 25% of the employees in this area of PSK, and we will work more on consulting basis, subcontractors, in order to give us the flexibility. I can say that currently, the backlog that PSK has for this year is larger than the revenue we had in 2024. We have some very interesting quotes on shelter buildups outside in the market that we are expecting to receive really any day or in the next coming weeks. And as the number of quotation is fairly large, I’m quite confident that we will win at least some of them.

At the end of the day, MTI is focused on innovation. We are not trying to compete on the last 10, but we are trying to bring added value. You can see on the right the list of the added value that we just brought to the market in the last few years. Some of it is Patent Technologies. But and I think that our unique position is that we are not only using the in house R and D, but we also get support from the principal we represent, whether it’s Motorola in the water irrigation business or other in the distribution business.

And we are also getting paid for some of the R and D from the customer, but we always try to keep the IP to ourself. So we are very strong in offering new technologies. Regarding ESG, I think that this year is the best time to focus on our employees and what we did for them. As you can imagine, the environment in Israel was very tough. Nevertheless, we were able to nearly double the time invested in education, learning and giving them more capabilities.

It starts with Eran, who is going to be the next general manager of the antenna division. He was sent to strategic management course in the Tel Aviv University, going all the way down to all of the technician and the lot of hours of technical studies in order to make the company more professional. M and As, as you can imagine, in the first nine months of the year, we did nothing to even look at M and As. We were only focused on stabilizing the business. But at the same time, when we saw that Motech in China is not operating well and it’s just bleeding more and more, we decided to cut off and we closed the company.

All the costs were already in occurred in 2024. Since September, we returned to look for few M and A’s possibilities. I always say that it will be on a better safe than sorry mode. We look thoroughly. We check a lot.

We are not jumping into acquisition. And the key criteria is that it’s going to be a profit enhancing acquisition. And once we have something that is mature enough, we will, of course, announce. If we go back a little bit to the numbers and what we have did, so I have spoken about the double of the revenue in 2024 in the five gs backhaul. Defense is about 42% of the entire revenue, which is more or less the same as last year.

We had a strong performance with all division being profitable even though we had some loss in PSK, which is part of the distribution division. We have a very loyal customer base as you can see on the left. People like to work with us for very long period of time. And the business is very diversitized, both between the different markets that we play, but also globally. If you look at the global pie, you can see that Asia rose a little bit.

It’s because of the business in India right now. And if you take Israel, Israel about onethree from what we do there is an indirect export. At the end, we are always focused on the earning per share growth. And as you can see, we continue to grow. If we look at the financials, it’s look like more or less a flat year.

But I think that digging into the numbers, you can see some encouragement. I will start with the antenna business. As I said, the business model is working. Our long term business model is that on any incremental dollar of revenue, we should expect 20% operational profit. So we showed it in the antennas that we grew revenue by 16% and operational profit grew by 56%.

If I look at Motech, Motech had very good results. The gross margin has improved. The main reason is the increase in services. And also the operational profit came to a record high, and this is again due to the growth in the operational in the gross margin. Where we did have the problem is the PSK, and without it, the results would have looked much better.

The company for a long time is focused on shareholders’ return. My family owns about one third of the company, so we have interest aligned with shareholders. We have the buyback program in place. We used most of the money in the fund so far, and we own in the buyback about 2,300,000.0 shares. We continue with the dividend policy.

We believe that good businesses that generate cash should pay dividends. So we increased it again by 6% this year, and this will be paid in April. So if I may summarize, I think that the business has a very strong positioning. We have three good internal growth engine. It’s the defense budgets.

It’s the demand for five gs antenna and the need to manage water more efficiently. We entered ’25 with very strong position with a big backlog, much bigger than last year, over $25,000,000 of backlog for $25,000,000 and a little more for $26,000,000 but also the pipeline of opportunities that we see ahead of us is much bigger. We will continue to search for acquisition, but as I mentioned, in a better than safe than sorry mode, and we have a strong balance sheet to help others. With this, I’ll be happy to start and answer any question you may have.

Moderator/Investor Relations, MTI Wireless Edge Limited: Perfect. Mani, if I may just jump back in there. And thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that’s situated on the right hand corner of your screen. Just while Monique takes a few moments just to review those questions that have come in already, I’d just like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can all be accessed via your investor dashboard.

Monet, as you can see there, we have received a number of questions throughout your presentation this afternoon. And thank you to all of those on the call for taking the time to submit their questions. But, Monet, at this point, sir, if I may just hand back to you just to read out those questions and give your responses where it’s appropriate to do so. And if I pick up from you at the end, that’d be great. Thank you.

Moni, CEO/Company Representative, MTI Wireless Edge Limited: Okay. Sure. The first question was how extensively is Smotek being market worldwide. So I think we are pretty well positioned. We have our own subsidiaries in South Africa, Australia and Canada.

We have a marketing office in The U. S. That is operating via 13 different value added resellers that focus on selling our products. We have a guy in Italy that’s responsible for the Italian market, and we have in many other countries value added resellers that we support them and they support the local market. There is no limitation to how much marketing you can put on the table, but I think that we are positioned quite well.

Second question is what rate of withholding task will be applied to the dividend paid to UK Shareholders in April 25? I assume that it will be somewhere between 20% to 23%. It really difficult calculation that it based on where we put the profit from and we will finalize it in the next few days. And the next question is how much do you spend on R and D in total? How much is paid for by the customer?

So this is really varies from a year to year and a project to a project, but I would say, first of all, that we expense all the R and D. We don’t capitalize any R and D that we invest. And on top of that, I think that there is probably about doing 500,000 to 1,250,000.00 every year that is being paid by the customer for different project we do. I have another question. You mentioned a healthy order backlog driven by increased government defense spending.

Can you provide more details on the size and visibility of this order? Yes. So as I mentioned and we mentioned it also in the R and S, the order backlog at the moment is above $25,000,000 for this year and with some more left for next year. And we see a lot of opportunities, much bigger number, but again, these are not our contract yet, and we will win some, we will lose some. But overall, we see a very good prospects ahead of us.

I think that we have answered all the questions.

Moderator/Investor Relations, MTI Wireless Edge Limited: Absolutely. Yeah. Mon, if I may just jump back in there. Thank you very much indeed for addressing all of those questions that came in this afternoon. And, of course, if there are any further questions that do come through, we’ll make these available to you immediately after the presentation has ended.

But, Monnie, perhaps before really now just looking to redirect those, on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

Moni, CEO/Company Representative, MTI Wireless Edge Limited: Yes. Thank you, everyone, for joining the call today. We are in a good position, I believe, for 2025 onwards, And we have a very good internal growth engine, and I hope that we materialize it.

Moderator/Investor Relations, MTI Wireless Edge Limited: Perfect. Money, that’s great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you’ll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I’m sure be greatly valued by the company.

On behalf of management team of MTI Wireless Edge Limited, we would like to thank you for attending today’s presentation. That now concludes today’s session, so good after

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