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spk00: Hello, and welcome to the OmniQ Corp's second quarter 2023 earnings conference call. My name is Holly, and I will be coordinating your call today. With us on the call are Mr. Shai Lustgarten, Chief Executive Officer, and Niamh Nissinson, Chief Financial Officer. Today's call is being recorded, and you should have access to the company's second quarter 2023 earnings press release issued after the market closed yesterday. This information is available on the Investor Relations section of OmniQ's website at www.omniq.com. During the course of this 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, 10-Q, and other SEC filings for a discussion of the principal risks and uncertainties that affect the company's business and performance and the factors that could cause actual results to differ materially. OmniQ 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. Following the prepared remarks, the company will be taking questions as time permits. Now I will turn the call over to Shai Lustgarten, CEO. Mr. Lustgarten, please go ahead.
spk05: Thank you, operator, and good morning, everybody. Thank you for joining us today to discuss our Q2 2023 financial results. First, I would like to take a second and to send our deepest condolences to the family of our esteemed colleague and valued board member, Andrew J. McMillan, who sadly passed away earlier this week. Andrew joined our board of directors in April 2017, bringing with him a wealth of experience and expertise in the corporate communications and investment banking domains. With over two decades of experience in the global securities industry and 18 years of investment banking, Andrew's influence and insight have been instrumental in shaping our company's strategic direction. Beyond his professional accomplishments, Andrew was known for his warmth, humility, and strong sense of integrity. His commitment to mentoring and nurturing talent was a testament to his character and his belief in the power of collaboration. We will greatly miss him. To start, I'd like to first thank each one of our employees across the entire company for their continued hard work and dedication to our vision and strategic plan. During today's call, I'll share with you our financials as well as give you an update on our recent achievements. Our core legacy business services the needs of many of the world's largest companies. While we remain confident in our continued success and the opportunities ahead, we saw a push out in orders The temporary delay resulted in $4 million decrease in quarter two of revenue of $20.4 million versus 2022. Despite the challenges in the quarter, we continue to make significant advancements, which provide us the ability to reach our yearly objectives and long-term growth plans. Our dedicated team worked tirelessly throughout the quarter to provide excellent customer service and actively pursue numerous substantial new contracts. We're confident that these efforts will yield positive results soon, more than compensating for the $4 million decrease. I'm excited to report that we have continued to see an increase in demand in our AI-based products, which grew by 91%, continuing its strong performance that we have been building upon over the last several quarters. This is exciting as we extend this higher margin business, which has been met with enthusiasm from both current and potential new customers. As mentioned last quarter, we have begun to take steps to decrease cost and increase profitability, which I will speak about in further detail later on the call. During the quarter, we made several significant announcements, including the following. We announced several purchase orders for our AI-based parking and security solution, adding an additional three airports, bringing our total airports to 60 in the U.S. These airports include some of the largest in the country, such as JFK, LaGuardia Newark, San Francisco, Los Angeles, and many more. Our AI machine vision systems is being deployed in South America in partnership with a multi-billion dollar publicly traded high-tech defense and Homeland Security Company. We also announced our AI-based border safety system has been enhanced with real-time anomaly detection. This new technology allows for identification of unusual acceleration of vehicles and the speeds of the vehicles in high-risk areas, enabling authorities to respond immediately to potential threats. We partnered with Eagle Technology to offer shot detection as an important add-on to our AI-based solution with additional unique features such as the vehicle color, model, and manufacturer, essential features for crime and terror prevention. We added new cities to our safe city system, QShield, for a total of 19 under contract. We successfully navigated through regulatory requirements and are experiencing positive momentum and expect an acceleration in Q3. I was featured as a guest on the Wall Street Resource webcast. We recently entered a definitive agreement to acquire Tidy Run, a significant development which I'm excited to discuss further. And finally, just this morning, we announced a significant $50 million project to modernize the supply chain for one of the largest food and drug chains in the US. As mentioned on our previous call, as we move through 2023, we continue to have three focus company initiatives, as well as three areas of growth that we believe will drive our company to continued success. First, we continue to sell deeper and wider to our existing Fortune 100 and 500 customers in all three business lines. We're focused on the momentum in our deployments of our AI products to existing and newly penetrating markets. And third, an increased focus on generating cash and profitability by taking proactive measures to increase efficiency and drive profitability in our operations. We have taken and continue to take additional cost-cutting measures. As mentioned in our quarterly press release, we continued this process and improved efficiencies initiated this year, resulting in an approximate $1.7 million reduction in SG&A, maintaining our efforts to reach positive EBITDA. And we continue our focus on sales growth of our higher margin business lines, driven by machine vision, our patented technology. Before I go further, Let me turn the call over to Niamh Niesensen, our Chief Financial Officer, who will go over our financial results in more detail. Niamh.
spk04: Thank you, Shai. OmniQ reported revenue of $20.4 million for the quarter that ended June 30, 2023, which is a decrease of 16% from $24.2 million in the second quarter of 2022. A gross margin in the second quarter was 19% compared to a gross margin of 25% in the same period of 2022. A decrease in gross margin is due to the fixed cost of goods sold combined with a decrease in revenue. Margin on the direct cost of material is actually higher by 2% in the second quarter of this year compared to the second quarter of last year. Total operating expenses for the quarter were $6.4 million to decrease from $8 million in the second quarter of 2022. Net loss for the quarter was $3.9 million, or a loss of $0.49 per basic share, compared with a loss of $3.2 million, or a loss of $0.44 per basic share for the second quarter of last year. Adjusted EBITDA, meaning adjusted earnings for interest, taxes, depreciation, and motivation, for the second quarter of 2023 amounted to a loss of $1.5 million compared with an adjusted loss of $777,000 in the second quarter of 2022. Cash balance at June 30, 2022 was $2 million compared with $1.3 million at December 31, 2022. For the six months ending June 30, 2023 financial results on which you reported revenue of $48 million, a decrease of 4% from $50 million in the first six months of 2022. Our gross margin for the first half of 2023 was 20% compared to a gross margin of 24% for the same period last year. Total operating expenses for the six months ended June 30, 2023 were $14.1 million, compared with $15.5 million for the same period of 2022, a decrease of 9%. Net loss for the six months ended June 30th, 2023 with $7.4 million or a loss of $0.95 per basic share compared with the loss of $5.8 million or a loss of $0.79 per basic share for the first six months of last year. Adjusted EBITDA, again, adjusted earnings before interest, taxing, depreciation, and motivation for the six-month end of June 30, 2023 amounted to a loss of $2.4 million compared with an adjusted EBITDA loss of $1 million in the same period of 2022. Back to you, Shay.
spk05: Thank you, Niv. Now let me shift gears and share more on our plan and what our shareholders can expect as we move throughout the year. While we continue our efforts on all sectors, We remain specifically enthusiastic and focused on three verticals, including safe cities, supply chain, and traffic management. As we look at our entire business and with these three verticals in mind, we expect to see accelerated growth and continued strong results as our new orders and backlog remain strong. I will now take a few minutes to expand on each of these three key verticals to allow you to better to a better understanding of the opportunity ahead. First, safe cities. This vertical continues to show impressive progress during this quarter. We announced several awards in the safe city deployment in South America. We also introduced the new speed functionality, which allows for identification of unusual acceleration of vehicle speeds in high-risk areas. enabling authorities to respond immediately to potential threats, without QShield further differentiating itself as one-of-a-kind public safety AI solution. QShield is proven to be a major force multiplier operating 24-7 while providing an unbiased approach, eliminating the potential of conflict that has traditionally occurred. In addition, this solution removes the need for a physical officer by utilizing our proprietary vehicle recognition system and our cloud-based citation management technology. Our solution is unique in both the patenting technology as well as the revenue share model that we created and has resulted in both safety benefit as well as revenue generator for the cities we serve. QShield identifies any vehicle driving through a city which is on the National Crime Information Center database or on the city's local bureau investigation database. Within milliseconds, QShield alerts authorities of potential criminals and if any vehicles are driven unregistered or uninsured. Our initial four deployments have already shown significant benefits to the public, the cities, and to OmniQ. Being an innovative product, OmniQ is literally inventing the manual for both the deployment and use of our products. As we ventured into a new industry with groundbreaking technology, we encountered several learning curves and navigated unexpected regulatory demands, which caused a delay in our deployment. I'm pleased to tell you that these challenges are being successfully addressed, and we anticipate a swifter pace of deployment for the additional 15 cities waiting for their assistance. In addition, we see a continued positive pace of new contracts moving forward as many success stories are shared between the different chief of police in several states. With over 22,000 cities across the country, our potential is vast. We have witnessed amazing performance of QShield in assisting police departments with several of their challenges, for example, QShield recently was utilized to thwart a robbery by identifying a vehicle that was registered to an elderly woman while the car was identified by our sensors being driven by young men with several others in the vehicle, immediately identifying an anomaly. With the speed and accuracy our system provides, the police were already en route when the potential suspects entered the parking lot of a local gun store and the men were apprehended without incident. In another story, one of our cities utilizing our system was able to identify the location of an FBI most wanted fugitive, a significant action. While the police on duty were unable to take the fugitive into custody, QShield was successful in the identification process and worked precisely as designed. This success has further emphasized the significance of our technology capabilities and has resulted in further interest in our product offering. In addition to growing revenue, we're seeing more of these type of success stories, which are a clear sign that QShield's real-time platform solution would benefit every city within every intersection. Next, supply chain. Our core legacy business service is the needs of many of the world's largest companies and remains strong. We remain confident in our continued success and the opportunities ahead, despite the push-out of orders we saw this quarter. We continue to make significant advancements, which provide us the ability to... Sorry about that. We continue to make significant advancements which provide us the ability to reach our yearly objectives and long-term growth plans. Our dedicated team worked tirelessly throughout the quarter and provide excellent customer service and actively pursue numerous substantial new contracts. We're confident that our efforts will yield positive results more than compensating for the current revenue decrease. In fact, as you saw in our significant announcement earlier this morning, we have been selected for a $50 million project to modernize the supply chain for one of the largest food and drug chains in the United States. This project aims to modernize and enlarge the logistics system of this multi-billion long-standing customer. The project is for Android-based handheld IoT devices used in managing the customer's total supply chain level operations within its warehouses, distribution centers, and up to the point of delivery to their end customer. This application ensures proper timing, routing, and proof of delivery, ensuring customer success. The order includes specialized services and support under Omnicu's responsibility. Our team has diligently worked over the last six months on many fronts, including this project, where we focused on design and seamless integration within our customers' logistics system. Our efforts have culminated in success and take pride in once again receiving a strong vote of confidence from one of the largest and most prestigious corporations worldwide. The unwavering dedication of our entire company-wide team to meet the ever-evolving demands of our long-standing customers has played a pivotal role in nurturing enduring partnerships. This project, coupled with our robust pipeline and backlog, will undoubtedly have positive impact on the company's performance throughout 2023 and beyond. It is important to emphasize that this segment not only provides stable revenue generation, but also presents a significant opportunity for us to introduce our AI-related products to these advantages customer base.
spk02: As we further gradually... Shai, are you getting back on? Shai, if your line is on mute, please unmute it. I'm texting him to let him know that he dropped off the call.
spk01: I'm showing the line is still connected. Ladies and gentlemen, please remain on the line while we reconnect the speaker line. Shai, if your line is on mute, please unmute it. We're unable to hear you. Ladies and gentlemen, please remain on the line. The conference call will resume momentarily. Ladies and gentlemen, please remain on the line. The OmniQ event will resume shortly. Ladies and gentlemen, please remain on the line. The OmniQ event will resume shortly. Thank you for your patience.
spk05: Yeah, I'm sorry. I apologize for that. I don't know. I was reading to myself, actually. But where did we leave off?
spk04: I don't actually remember. I think it was before the Tadjian agreement.
spk05: Oh, okay. No problem.
spk04: It's been a while. It's been a few minutes.
spk05: Yep, okay.
spk04: About seven minutes.
spk05: I'll start from, I'll read again the supply chain traffic management and then go into the Tadiran agreement. And again, I apologize for that. Don't know what happened that our line got disconnected. Okay, so to discuss further our supply chain vertical. This is our core legacy business services that services the needs of many of the world's largest companies and that business vertical remains very strong. We remain confident in our continued success and the opportunities ahead despite the push out of orders this quarter. We continue to make significant which provide us the ability to reach our yearly objectives and long-term growth plans. Our dedicated team worked tirelessly throughout the quarter to provide excellent customer service and actively pursue numerous substantial new contracts. We're confident that our efforts will yield positive results more than compensating for the current revenue decrease. In fact, as you saw earlier this morning in the significant announcement that we released, We have been selected for a $50 million project to modernize the supply chain for one of the largest food and drug industry companies in the United States. This project aims to modernize and enlarge the logistics systems of this multi-billion long-standing customer. The project is for Android-based handheld IoT devices used in managing the customer's total supply chain level operations within its warehouses, distribution centers, and up to the point of delivery to their end customers. This application ensures proper timing, routing, and proof of delivery, ensuring customer success. The order includes specialized services and support under Omnicube's responsibility. Our team has diligently worked over the last six months on many fronts, including these where we focused on design and seamless integration within our customers' logistic systems. Our efforts have culminated in success, and we take pride in once again receiving a strong vote of confidence from one of the largest and most prestigious corporations worldwide. The unwavering dedication of our entire company-wide team to meet the ever-evolving demands of our longstanding customers has played a pivotal role in nurturing and enduring partnerships. This project, coupled with our robust pipeline and backlog, will undoubtedly have positive impact on our company's performance throughout 2023 and beyond. It is important to emphasize that this segment not only provides stable revenue generation, but also presents significant opportunity for us to introduce our AI-related products to these advantages customer-based. As we further gradually penetrate this market, we anticipate a substantial increase in both our revenue and margins over time. And finally, traffic management. The traffic management vertical encompasses our AI solution tailored for airports, commercial, and public parking. As previously mentioned, we have successfully deployed our solution in additional airports, bringing our total to an impressive 60 airports nationwide. This achievement solidifies and viable position in market. This vertical relies on our many channel partners whom we focus on and continue to grow. In Q2, we saw the growth expand. Our product provides a precise, user-friendly, and scalable solution which automates previously manual or non-automated actions. This is significant as it creates efficiencies, a better customer experience, and reduces expenses of our customers' operations. As evidenced by our 91% growth this quarter, our AI products show continued interest by both existing and new customers, and we look forward to further success in our AI products going forward. Before I conclude and turn this call over to questions, I'd like to discuss our recently definitive agreement for Tadiran. As reported in our July 10th press release, we have entered into a definitive agreement with Tadiran Telecom. Based on reported segment results from AFCON 2022 annual financial statements, Tadiran had revenues of $26 million in 2022 and $1.7 million in operating profit. Tadiran's revenue also includes a significant portion of recurring revenue. For 100% of Tadiran's shares, Omnicu will pay total consideration of $15.25 million, of which $12.5 million will be paid in cash, which is expected to be financed with traditional debt. In addition, $2.75 million of the consideration will be paid in the form of restricted, non-discounted common stock. With the addition of Tadiran, we will possess a comprehensive proprietary communication solution that enables us to better serve our customers and complete our solution. Our platform technology utilizes three steps. We sense, identify, and act. With the addition of Taddy Run, we can now add audio, cellular, and Wi-Fi signals to our current sensors, which today include cameras, scanners, RFID, and Bluetooth technologies, allowing us to analyze the digital data in greater detail and at a faster speed. This significantly enhances our ability to manage events and mitigate risks at all levels. The new smart automation is a unique solution into our supply chain, traffic management, retail, and hospitality customers, allowing us to provide a superior service with more accurate and faster sensing, identification, and action. As OmniQ continues to drive automation for our customers, This acquisition not only allows us to meet the existing organizational communication needs of our current customers, but also enables us to create automation through real-time AI communication sensing. This is important as it provides us the capability to identify and respond faster and with greater accuracy. By leveraging the sensing and digitization of communication data and identifying trends at the communication AI level, we can take prompt and precise actions. This capability is crucial in our commitment to delivering predictive and proactive actions. Our acquisition of Taduran is a pivotal moment for Omnicube, as it aligns perfectly with our strategic goals of increasing recurring revenue and enhancing profitability. By expanding our portfolio with Taduran's robust business model, customer-based UCNC solutions and enhanced safe city offering, we strengthen our market position and unlock new revenue streams. The synergies create opportunities for growth, market expansion, and increased shareholder value. As I have explained, during the quarter, our company continued to see many success despite the near-term challenges that we face. We believe we are in a solid position to continue with our plans and expectations for the year. As we continue to ramp sales while continuing to further reduce costs, we are confident in the future of our company and look forward to further success. Our focus remains crystal clear and our approach remains disciplined. We remain dedicated to the initiatives and segments that have been outlined ensuring that we allocate our resources effectively and capitalize on the opportunities before us. By adhering to our strategic roadmap, we are confident in our ability to drive continued success and maximize shareholder value. As we turn the call over to the questions, I would also like to extend my sincere thanks to our loyal customers and suppliers, our professional team, and other strong supporters. Finally, we would like to thank our shareholders for their trust in us, as well as wish you all continued success. Operator, I'll now turn this call over for questions.
spk00: Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
spk01: One moment, please, while we poll for questions. Your first question for today is coming from Jason Schmidt at Lake Street Capital.
spk03: Hey, guys, thanks for taking my questions. I just want to start with today's announcement on that $50 million contract. It sounds like this is an existing customer, but can you help us kind of understand how many locations this covers and if there's an opportunity to expand further from this level?
spk05: This is actually an expansion. You're absolutely correct, Jason, that this is an existing customer, that we have very good relationships. relationship with for probably, I would say, 20 years now. And we actually expanded with this contract into additional divisions that we have not yet automated with our IoT devices. It does have a more global expansion opportunity that we will continue discussing with them and understand further Currently, it is nationwide, and of course, as this being a global customer with a global footprint, then the opportunities that once we get more details, we'll understand better the opportunity.
spk03: Okay, that's helpful. And you mentioned that there's going to be some services and support along with this, but how should we think about any sort of gross margin profile for this contract?
spk05: That's part of our statement that we discussed where we say that as we grow further into this supply chain market and penetrate further with more services, thus we will grow also our gross margins. And that is a good example of that because we're adding different services and we're adding different devices, again, being experts in these solutions. that allows us to do so, and we are increasing our margin this way. Now, the most important thing is that once we are successful, like this success this morning, with high volume or high scale contracts, enlarging even with one point, we did with more, but even with one point on the gross margin, this really is affecting the bottom line significantly because these are high dollar values.
spk03: Okay, got it. And then just the last one from me, and I'll jump back into queue. Just curious if you could provide an update for us on the restaurant or retail opportunities you had. I know you're rolling out at that fast food chain. Just curious where you are in that trajectory.
spk05: Right. So we were, last time we spoke, we said that we are rolling out slowly with one of the customers. And we also discussed the fact that we have successfully approached additional two customers at least in that area of drive-thrus. We are currently advancing with one of the customers that we've discussed on our last call and waiting for deployment. We've concluded the pilot. We were notified that they are interested to start the deployment, and we are waiting. We came into kind of what they call a quiet period until they can issue the orders, which is part of their internal policy as a company. We're waiting now, impatiently actually, to start to receive the information of how many locations they'd like us to deploy. That's the most, I would say, exciting news or advancement in that area.
spk03: Okay, perfect. Thanks a lot, guys.
spk05: Thank you.
spk01: Once again, if there are any questions or comments, please press star 1 on your touchtone phone.
spk00: There are no further questions in queue. I will now turn the call over to Shai for any closing remarks.
spk05: Thank you, operator, and thank you all again for your participation in today's quarterly update. We appreciate you taking the time out of your schedule to better understand Omnicue's current and future opportunities. I look forward to speaking to you all on our next call and hope you have a great day. Thank you very much.
spk00: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
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