Omniq Corp

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.

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.

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.