OMNIQ Corp.

Q3 2021 Earnings Conference Call

11/16/2021

spk02: Good morning, ladies and gentlemen, and thank you for your patience. The conference will begin shortly. Once again, thank you for your patience. Your conference will begin shortly. Thank you. Good morning and thank you for joining us for the Omnic Financial Results and Corporate Update call for the third quarter ending September 30th, 2021. Joining us today are Shai Lustgarten, CEO of Omnic, who will provide an operational overview, and Niamh Niesensen, Chief Financial Officer, who will discuss financial results. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. I will now take a brief moment to read the Safe Harbor Statement. During the course of this conference call, we will make certain forward-looking statements. All statements that address expectations, opinions, or predictions about the future are forward-looking statements. Although they reflect our current expectations and are based on our best view of the industry and our current expectations and our business as we see them today, they are not guarantees of future performance. These statements involve a number of risks and uncertainties, and since these elements can change and in certain cases are not within our control, we would ask that you consider that and interpret them in that light. We urge you to review the company's Form 10-K and other SEC filings for a discussion of principal risks and uncertainties that affect the company's business and performance and the factors that could cause actual results to differ materially. Omnic undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law. I'll now turn the call over to Shai Lustgarten. Please go ahead.
spk01: Thank you, Operator, and thanks to everyone joining us on the call today. During 2021, in the third quarter, we achieved milestone highs for all of us. We listed on NASDAQ, Our share liquidity substantially grew. We closed the rates of $15 million in equity, strengthening our balance sheet. We have $10 million in cash. We received $13 million worth of new orders in October. We were selected by a number of cities for long-term installment of AI machine vision systems for public safety and law enforcement. we closed the acquisition of 51% of Vanguard computers, creating many new opportunities that I'll discuss later. With this acquisition, we created a $91 million revenue company based on the 2020 pro forma basis. The acquisitions create powerhouse of AI, object identification, and automation company that is well-placed to drive growth and stronger financial results. Furthermore, During the quarter, we executed another major milestone with successful uplifts to NASDAQ. Turning to the results, third quarter revenue reached $20.5 million, up 30% year-over-year. While we are not immune to supply chain disruption, demand remains high, as evidenced by more than $30 million in orders announced in October alone. Based on that, in our firm customer base, we expect growth to continue. Before I go further, let me now turn this over to Niamh to take a deeper look at our financial results. Niamh?
spk03: Yes. Hello, everybody. As Shai highlighted, we reported revenue of $20.5 million for the quarter ended September 30, 2021, which is an increase of 30% from $15.8 million in the third quarter of 2020. The revenue increase reflects the combined strength of our consolidation with Dangot, as well as continued traction in our markets. Total operating expenses for the quarter were $8.8 million compared to $5.8 million in the third quarter of 2020. Again, the increase reflects the consolidation with Dangot, as well as certain non-recurring expenses related to the acquisition. Net loss for the quarter was $5.1 million, or a loss of $0.73 per share compared to a loss of $3.8 million or a loss of $0.83 per share for the third quarter of last year. Adjusted EBITDA, meaning adjusted earnings before interest, taxes, depreciation, and amortization for the third quarter of 2021 amounted to a loss of $1.9 million compared to an adjusted EBITDA loss of $905,000 in the third quarter of 2020. Cash balances was $10 million for the period ending September 30, 2021. Let me now turn the call over back to Shai to talk more about operational achievements and outlook. Shai?
spk01: Thank you, Niamh. U3 was not just another good quarter for us. It's a quarter of a stronger and better positioned company for further growth and success. Our success is driven by our AI solutions, supply chain automation solutions, and our new DanGuard offerings. I'll now provide an update, starting with AI, and we'll share a few Q3 and post-Q3 highlights. First, during the third quarter, we received an order to deploy QShield, our AI-based machine vision solution at Port of Ashdod in Israel in the field of security, the core of the security system, which includes 15 servers and end accessories designed and assembled in our facilities and integrated with our patented AI algorithm. The system includes OmniQ's external and internal sensors, vehicle recognition system complexes, electronic sense and hacking alert systems. For context, Port of Ashdod is the largest seaport in Israel with an annual cargo tonnage of more than 20 million tons. This order is part of a comprehensive plan by the State of Israel authorities to address maritime trade needs, faster ship's flow process from start to finish, increase ship size, and strengthen Israel's economy. Also during the quarter, we received an order to deploy our AI-based machine vision solution at the border checkpoint between Israel and Jordan. This order to deploy our AI technology in a sensitive spot between Israel and Jordan is an additional vote of confidence from one of the most demanding authorities in the world. This passage, which opened after signing the peace agreement between Israel and Jordan in 1994, is the main passage point between Israel and Jordan. Additionally, we received a 10-year contract from La Sierra University to deploy our PERC software for campus management. The contract includes an upgrade to OmniQ's new eSight Pro VRS system, enabling vehicle identification with PERT's newest digital tracking functionality for time-based parking enforcement. Furthermore, we announced our AI-based OmniQ vision solution will be deployed at Miami International Airport. OmniQ was selected by Dizigna Access Corporation to deploy the OmniQ Vision solution, our advanced AI-based vehicle recognition technology. OmniQ Vision is now deployed at more than 40 airports, including 50% of the top 20 hub airports in the U.S., including Atlanta, Dallas-Fort Worth, Los Angeles International Airport, and John F. Kennedy Airport in New York. On top of that, after the third quarter ended, we announced QShield was selected in Adrian, Georgia to crack down on crime and enforce traffic violations. Additionally, we entered into a partnership with 911 Inform to expand our offerings and sales channels for AI-based object identification and location discovery solutions. After the quarter ended, we announced more than $13 million in purchase orders in October alone. The $13-plus million includes a purchase order with a total value of approximately $1.8 million from a Fortune 500-leading IT supply chain provider with more than 100,000 customers in over 100 countries, generating more than $20 billion in annual revenue. The seven-figure order comes from a long-term customer for the implementation of OmniQ's solution, including Zebra data collection hardware. Implementation of these devices will complete OmniQ's task in migrating the customer from Windows to an Android platform. We also received a $7.8 million purchase agreement from one of the largest food distributors in the U.S., and in North America for the supply of mobile computerized IoT equipment designed to collect, identify, track, and trace assets, as well as share, connect as part of the supply chain system of the customer. Since February 2021, OmniQ has now received over $13 million in orders from the same leading food distributor. The new project will roll out across distribution centers in the U.S. and Canada starting in December and continuing into the first half of 2022. Additionally, we received an approximately $4 million purchase agreement from a top Midwest-based company logistics 3PL client, Omnicu will supply Android-based rugged data collection, computing, and communication equipment to the 3PL customers' distribution centers across the United States. The 3PL customer has annual revenues of over $400 million and more than 3,000 employees. The multi-year deployment is valued approximately $4 million, which includes an immediate 400,000 opening delivery order, and has announced only recently this customer placed with us additional $3 million purchase agreements, which now totals to $7 million. Turning to Dangot, during the quarter, we announced that Aroma Espresso Bar, the largest coffee chain in Israel with 200 branches in the U.S., Canada, and other countries, has selected Dangot to provide its self-service kiosks. According to Forbes article titled, Self-Order Kiosks Are Finally Having Moment in the Fast Food Space, driven by Alicia Kelso, it is predicted that the self-service kiosk market will reach $30.8 billion by 2024. We will install 120 self-ordering kiosks by the end of 2021 at the Aroma Israeli branches with the expectation to install 250 of the kiosks in total by the end of 2022. Dengot self-order kiosks are integrated with advanced computing as well as EMV smart payment systems EMV, developed and managed by American Express, Discover, JCB, MasterCard, UnionPay, and Visa, is a global standard for credit cards that uses computer chips to authenticate cheap card transactions. Our software house incorporates smart software at the kiosk that enhances the customer experience and enables fast ordering. Dengot's innovative product offerings continue to be adopted in its home market in Israel and are also a fit for Omnicuse target markets. Also recently, it was announced that a major healthcare organization serving over 4.7 million individuals has selected our intelligent healthcare cards to be used in the customer's 14 hospitals and in over 2,000 clinics. Again, another great award for one of Dangot's products. Today, OmniQ offers a total solution under one roof, combining all three of our offerings into a combination solution that includes our AI solutions, supply chain automation solutions, and our new Dangot products. Not only this way customers find a huge strength in understanding the added value of OmniQ's total offering, but it supports our roadmap to become a metadata analytics provider through object identification that creates unique automation and efficiencies. In closing, during this transformative quarter, we strengthened our balance sheet, we closed on our acquisition of Vanguard computers, We successfully outlisted to NASDAQ and we grew. With third quarter revenue reaching $20.5 million, up 30% year over year, and demand remains high as illustrated by more than $13 million in orders announced in October alone. We thus expect growth to continue and lead the company to new spheres. Operator, I'll now turn over the call for questions.
spk02: Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Hila Pinienski. Your line is live.
spk07: Hello. Hi, Shai. Great quarter and encouraging beginning with the new acquired dungos. Do you intend to buy a bigger ownership than 51%?
spk01: Yes, absolutely. And hello again, Hila. Yeah, we announced that we are going to execute, of course, on the option we have for the 49% acquisition. and we're looking to do that, and we'll announce very soon how we're doing it sooner than what is also being publicly provided, the data. It's going to be shorter than the 12 months we said we're going to do this at. So it's definitely a target for us, and we're going to do it immediately.
spk07: Great. And can you explain the recently announced DANGOT-related orders? like the self-ordering kiosk and health care cards, any potential in the U.S.?
spk01: Of course. We're actually working on this as we speak, and in the next room right here are one of the largest customers in this field waiting for me to finish this call so I can join them for exactly that, the self-ordering kiosk. So this is something that definitely, as we mentioned, is very applicable to the targeted market here in North America. And now with these products that are well proven in Israel and two other countries as well, we can now go and explode and provide this, expand our product offering to North America to our existing customers as well.
spk07: That's excellent. And so we read about few cities installing their AI solution. You mentioned it also in your talk. Can you explain the application and if we can expect more cities soon?
spk01: You were saying cities?
spk07: The AI solution that you're speaking to.
spk01: To the safe cities?
spk07: Yeah, safe cities.
spk01: Yeah, yeah, yeah, definitely. As we also discussed before, the solution is putting our sensors in the field and detecting vehicles in real time. doing the identification in 20 milliseconds and cross-checking the data with different databases and providing those notifications and alerts to police, to other agencies, authorities that are licensed to use our service. And we have been awarded with three cities already in Georgia. We aimed to do these first three cities. We do have eight more cities waiting in line to sign the agreement with us. Once we are finishing the deployment in these cities, we are then providing that service of alerts, notifications to the customers, as well as doing the revenue share with them on the citations that we provide online in real time for uninsured and unregistered vehicles. So it's a win-win solution where we provide service to law enforcement, to the users, to different agencies and authorities, and at the same time enlarging every city, every municipality's budgets and creating more money for them, more resources for And actually, as we expand in these same cities more and more, we're putting more eyes on the street and creating better service to the residents as well as we create safer streets for our kids, for ourselves to walk on and to enjoy our life in.
spk07: Wow, that's very important and excellent. It sounds good. Thank you very much. And keep on doing a good job. Thank you.
spk01: Thank you for your support. Appreciate it.
spk02: Thank you. Your next question is coming from Amut Israel. Your line is live.
spk04: Hello. I'm a new investor in the company. First, great results, Shai. I know your AI technology in Israel. I see it all over the parking lots here in Tel Aviv. Can you explain your AI technology is deployed in the U.S. and outside of Israel?
spk01: Absolutely, absolutely, and welcome to the family. Our AI solution, actually, what it does is we're in parking where you see it in many parking lots in Israel. What we do there is we detect vehicles that are coming close to the gate, to the entrance of the parking lot. We create a ticket list. real-time scenario where a real-life situation where you don't need to take any tickets we create a virtual ticket by identifying your vehicle and creating a virtual digital ticket and then when you enter to the parking lot and once you're done with your arrangement, whatever you do at the parking lot, the shopping mall, anywhere, and you are getting ready to exit, you either make your payment on an app or you make a payment on a payment machine out there in the parking lot. It doesn't matter how you do that. We immediately get that data, and we cross-check it with the digital ticket that we created. We match it, and then we know that this vehicle had paid and when you come closer to the exit of the parking lot the gate will lift in less than a second because we already know you paid we identify you at the exit so we can raise the gate and you can exit we can actually do that today without even gates so and that's our next product and that's what we do a lot in Israel in the US we do this today in 40 airports and And we do this in many parking lots and many parks. And, of course, the market potential is huge.
spk04: Okay. I've got one more question. I know Dundalk in Israel where they have a very strong customer base. What are the steps taken to sell Dundalk system also in the U.S.? ?
spk01: Yeah, Dango solutions are very unique. The products are very unique in the sense that they provide great user experience and, again, sensors, beautiful sensors for us to gather, collect data, and provide analytics through this. The target market in the U.S., the first ones that we are looking at is the parking and also health care. We're going to use the healthcare carts, doctors' stations, doctors' carts, nurses' carts, et cetera. We're going to take that and we're in the process of exposing that to different distributors and resellers in the U.S. and our existing customers and sell these products here in the U.S. And at the same time in parking, the kiosks, are going to be something and just another solution that our parking customers in the U.S. are going to get from us. And there is a huge market for that. And these are the two cross-sale targets that we're looking at. Later on, it's going to be going into the with the self-ordering kiosks into fast food chains that we started talking to and additional restaurants and with the additional products will expand slowly, slowly into these targeted markets.
spk04: Thank you, Shai, and good luck.
spk02: Thank you. Appreciate it. Thank you. Your next question is coming from Howard Halpern from Taglit Brothers. Your line is live.
spk06: Congratulations on all the good work that you've been doing, guys.
spk01: Thank you. Appreciate it, sir.
spk06: In terms of Dengot, what was the revenue contribution during the quarter?
spk01: Revenue was about $9 million. Okay.
spk06: And were there any one-time costs that were embedded in G&A for, you know, doing that transaction that will eventually come out?
spk01: Yeah, absolutely. There are significant one-time costs that are not going to recur in the next quarter that all relate to the acquisition, of course. Okay.
spk06: And in terms of have you begun a streamlining process already to, you know, improve operating leverage for the combined entity?
spk01: Of course. We started that first on the um, you know, low hanging fruits. Uh, but, uh, We are going to focus on it, continue focusing on it, and we'll see the results, I believe, in about probably three to six months. That's when we'll see the more significant results as we are also deploying the NetSuite, Oracle, ERP system across the Hangout as well in these months and allow better automation of operation. Okay.
spk06: And could you discuss a little bit about the gross margin profile for like your smart city projects, the kiosks from Dangot and then some of the more meat and potatoes like from the food distributor. Can you just go over that margin profile again?
spk01: The margin profile that we see, if I understand the question correctly, If I can take like an average for the product now and the technology now that we have in-house and the combined solution to safe cities and parking, et cetera, like you mentioned, we should see the margins ranging. It depends, again, on how expanded is the solution to that same customer, but we should see – expanding or growing the margins from the 20% or above 20% that we see on average today, 24% today, to actually 35% to 55% margins and more if it's more software-oriented only. Okay.
spk06: And can you just talk a little bit about it? I know you've just really deployed some of the smart city projects, especially in Georgia, but What kind of recurring revenue ramp are you beginning to see and what do you expect to generate hopefully over the next two to three years?
spk01: From the – specifically from the Safe City project, we expect to see margins of coming from these solutions to be on the higher end of it, the 70% margins. And we're looking – I don't know if to call it – it depends on how you would provide, you know, what term you would prefer. But it's more a revenue share. Okay. It's a revenue share with these cities because that's the unique, actually, business case that we presented. And if you define it under recurring, then we expect that to be about 10% going forward. Okay.
spk06: Okay. In terms of, I guess, you know, you talked a little bit about what happened in October with the pipeline, and I think you touched on a couple of other, you know, like there are eight safe cities sort of behind in the pipeline, but are there any other projects that were maybe pilots in past years that are coming to fruition within the next six months or so?
spk01: Yeah, definitely the safe cities. We are moving fast with that. That's what we started from. We're moving fast. And also in supply chain, we'll see the pilots finishing with a new product offering we have and new ones coming in, like we've discussed on the parking, now having the kiosks and having the total solution in-house. That is something that we are moving from pilot stages to actually executing already this year. So on the parking, certainly supply chain will move faster. We'll probably see this like we discussed before in the next six months. But definitely on safe cities, that's going to be starting from pilot to actual, I would say, revenue stream this year already. Okay. Okay.
spk06: Keep up the good work, guys.
spk01: Thank you, sir. I appreciate your support.
spk02: Thank you. Your next question is coming from Alvin Horry from Horry Capital. Your line is live.
spk05: Good morning, Sean.
spk02: Good morning.
spk05: The last call, Q2 call, you mentioned that your AI revenue grew 100% sequentially. What did it grow this quarter versus the last quarter?
spk01: We did grow this quarter as well. The percentage, I would say, wasn't 100%, but was close to that. And the backlog certainly grew more than 100% of what we had last quarter. So I would say about 80% growth or, yeah, close to 80% growth in AI.
spk05: And you said the backlog grew close to that as well?
spk01: Even more, yes, sir.
spk05: Even more, okay. You see that trend continuing going forward?
spk01: Absolutely. What we see, I mean, we see the growth. We see the backlog growth at the same time, and thus we expect the growth to continue.
spk05: Still off of a relatively small number, though, right?
spk01: Meaning... Percentage of revenues. You're talking about the AI only?
spk05: AI, because you're running at about 80 or 90 million annual run rates now.
spk01: So, yeah. We... Well, it depends, right? I mean, the total pie grows. The AI grows as well. So, maybe it always remains 10%, but if it's 10% over a billion, it's still growing a lot, right? So, basically, our total pie grows, which is a good thing, and we do grow with the AI. Yes, we want it to grow faster, and that's why we invest in more technology and we invest in more product offering to be more attractive, if you will, and it shows because we do grow there. I believe that you will see the pace of growth even stronger and higher as we advance forward because we do see how the market reacts to certain places we do piloting and also other places that, you know, we are measured compared to competitors on performance. And that's why we keep getting selected by airports, et cetera. So I think that the pace and traction will be much higher and tighter.
spk05: There isn't any AI associated with these orders. You announced a $13 million order in some of the other factory floor orders. Absolutely.
spk01: Yeah, absolutely. Yeah, there's very nice orders there as well.
spk05: Okay, great. Thanks. I'll get back to you.
spk01: Thank you. Thank you for your support.
spk02: Thank you. Your next question is coming from Matt Williams from Fress Associates. Your line is live.
spk00: Hey, Shai. Matt Williams with Freese Associates. I appreciate the opportunity to ask a question or a couple questions. Let me start with just the percentage or the – can you quantify the recurring revenues perhaps in this quarter and talk about what you think it might look like as we move out maybe the next six or 12 months, the recurring revenue stream?
spk01: Yeah, that's a good question, Matt, and thank you for jumping on the call and listening to us. As I mentioned a couple of times, we are consolidating all the data and, you know, to create gap number, precise gap number is something that I still don't have in my hand, precise one. But we're looking at, you know, going forward, the target is still 10% recurring and we're the exact numbers will be generated, consolidated ones with the Dangata acquisition as well that has recurring factor there as well. So once I have that, I'll be able to provide a precise number, but certainly we see a higher number in recurring revenue today already. And again, our objective is to get it to be 10% of the total revenue.
spk00: Okay, thank you. And then When I, you know, just listening to some of these opportunities, right, you've got safe cities, you've got, you know, parking across many different sorts of end markets, airports, parks, et cetera. You've got these kiosks. And I'm sort of thinking about your go-to-market strategy. How much of, you know, the sales effort is a direct sales or an internal effort versus, you know, using some channel partners?
spk01: Right. So, yeah, we do. Our strategy, as you mentioned, consists of direct sales and indirect. Direct sales will more focus on the safe city projects and government projects and supply chain customers because the supply chain customers that we have are Fortune 500 enterprises, so we've got senior account managers on them. for years now. So these are more direct, and the indirect would go in the parking space and where we use resellers. In some of the public safety projects as well, K-12 schools, universities, et cetera, we can't reach alone 142,000 K-12 schools in the U.S. only. So there we are using resellers. As well, of course, parking lots all over the country. There are hundreds of thousands, if not more. So that's a huge market, and we work with resellers. What we see, you mentioned the kiosks. What we see, and again, some people think when we say kiosk, they think about hardware. There is so much software and analytics there. That's the point where you touch the customer. That's the point where we could actually even deploy more AI, added value, put in our systems nearer to the customer and provide better analytics. And that's why we did that. And basically, it gives us the ability now actually to even move up the food chain, sometimes above our resellers, because the biggest companies in Europe, Like you mentioned, I've got one in the next room right now waiting for me to finish this call. The biggest parking customer in the U.S. today because of the kiosk that now we have in-house. And this allows us to work, to your question, not only through resellers, but now we see the end users coming to us and creates huge, significant opportunities for the company.
spk00: Excellent. Well, congratulations on the progress to date, and I appreciate the time.
spk01: Thank you, sir.
spk02: Appreciate your support. Thank you. There are no further questions in the queue. I will now hand the conference back to Shai Luskarten for closing remarks. Please go ahead.
spk01: Thank you, Operator. I would like to thank again the Omnicue team for yet again delivering great performance. OmniQ continues our advancement with our roadmap in being a leading image identification company, creating automation and efficiencies in the markets we serve. I thank you all for your continuing support, and I'm looking forward to talking to you soon. Thank you.
spk02: Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
Disclaimer

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