Omniq Corp (OMQS) 2019 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Quest Solutions -- to OMNIQ 2019 year review. (Operator Instructions)

It is now my pleasure to introduce your host, John Nesbett of IMS Investor Relations. Please go ahead, sir.

Good morning, and thank you for calling in. On the call today, we have Shai Lustgarten, the CEO of OMNIQ; as well as Neev Nissenson, Chief Financial Officer. Management will provide an operational overview, followed by a question-and-answer session. Let me 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 businesses as we see them today, they are not guarantees of future performance.

Please understand that these statements involve a number of risks and uncertainties. And since those elements can change and in certain cases, are not within our control, we would ask that you consider and interpret them in that light. We urge you to review OMNIQ's 10-Q and other SEC filings for a discussion of the principal risks and uncertainties that affect our business and our performance and other 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 otherwise required by law. Okay, with that out of the way, I'll now turn the call over to Shai. Go ahead, Shai.

Thank you, John, and thanks to everyone joining us on the call today. What a different world we're all currently in since our last update call in early November. I hope this call finds you all safe and remaining healthy. A bit later in the call, I will update on the update -- I'll provide an update on how we are positioned to relatedly positively as we all move through this COVID-19 epidemic. First, let me review some 2019 highlights.

OMNIQ made tremendous progress during 2019, successfully executing our plan to establish our company as an innovative leader in the AI-Machine Vision space. I'm proud to present some significant major achievements that have transformed OMNIQ into an AI-Machine Vision object recognition leader. We launched our SeeCube solution, which is a comprehensive patented vehicle make and color classification. Our solution is currently deployed by security authorities in the Middle East for terror prevention and serves as the base for the Quest Shield package for schools, religious centers, cultural centers and public safety.

I would like to explain the big difference between our total solution and just license plate reading that other companies offer. First is the accuracy, but not only our make and color identification capabilities are critical features for all homeland security, public safety and terror prevention tasks. This solution was patented, tested and selected by probably the most demanding government in the world.

We launched an automatic machine identification of containers for logistics yard management, joining forces with a multibillion-dollar company. We implemented our unique SeeTire solution for tire identification, which facilitates more efficient inventory management and assists the collection of point-of-sales data developed in conjunction with one of the world's largest tire manufacturers.

We recently acquired the IP and certain other assets of Eyepax USA, a provider of customizable software and hardware packages for cloud-based parking management solutions. This acquisition establishes OMNIQ as a prime contractor, offering an innovative, comprehensive solution and to capture whole project and recurring revenue.

We launched Hands Free object recognition integrating into Google Glass. This enables workers to machine read objects and characters while keeping their hands free.

We achieved $57.2 million in revenue for the year, with gross profit improving by $1 million. Importantly, we reduced non-R&D operating expenses by $1.3 million, while increasing our investment in R&D by $1.5 million. We believe there is a significant opportunity to further penetrate the multibillion-dollar market or solutions address and our ongoing research and development of new technologies resulted in bringing several new AI solutions to market that should become our growth engine and profit generators for 2020 and on.

We enjoy a reputation of delivering cutting-edge technology to our Fortune 500 customers in the large and growing supply chain market. And we are also partnering with our customers to provide the technology that imitates the human neural network in a machine vision engine with industry-leading accuracy and shortened machine learning process.

AI, that according to research by McKenzie is expected to annually add approximately $3.5 trillion of value to the supply chain operations. This is the growth engine for our company, and we're focusing and investing in this in order to become pioneers and leaders in implementing AI in the supply chain industry, public safety, automation of parking and smart city. Concurrent with our rollout of our innovative product offerings, we have also substantially increased our sales team and improved our finance team and its infrastructure allows us to maintain real-time financial analysis and control. With the team we currently have in place, we are well positioned to more efficiently capitalize on the marketplace interest and demand for our solutions.

Now let me address, for a minute, the COVID-19 situation. First, we are in a relatively good situation in terms of the end markets that we serve. On the supply chain side of the business, our largest sector is food and food-related distribution, which accounts for about 50% of revenues.

We have very little exposure to the industries most damaged by the crisis like airline and travel. This is a relatively good place to be right now, and we recently announced the receipt of 2 large purchase orders, one from a Fortune 500 supermarket chain and one from a logistic trucking company. These were both follow-on orders from companies who are continuing to prosper during the COVID-19 situation. The current situation highlights the importance of hands-free, automated solutions to public safety, both from the perspective of protecting employees and from the vantage point of protecting end customers. The less hand-to-hand transport dividing such as produce from warehouse to point-of-sale, the safer everyone in the supply chain will be.

Our AI-Machine Vision Solutions that provides platform for automation, not only drive efficiencies, but promote safe handling. And we're finding that our capabilities are a competitive advantage and are in high demand as the world continues to battle this pervasive pandemic. That said, we're prioritizing the safety of our employees, partners and customers and have implemented protocols to minimize risk in these difficult times.

Looking forward, our goal is to continue to bring the most innovative AI-based machine vision offerings to the market. This is a very exciting time for OMNIQ. While we remain mindful of the current world situation, we're nonetheless intent to capitalizing on the capabilities of our AI-Machine Vision technology to further grow in the multibillion-dollar market where the goals we serve.

As we move through 2020, we remain focused on leveraging our AI technology solutions to provide value-added capabilities to customers in 3 rapidly growing verticals: supply chain, public safety and parking automation. Our technology is ideal for customers in the supply chain and inventory management segment as they increasingly move toward automated systems, and we believe we have a solid growth opportunity as that industry continues to evolve.

Additionally, our state-of-the-art, real-time identification capabilities for enhancing security operations in cities and school campuses and religious facilities remain a competitive advantage that is generating new opportunities every day. Our CPO, Yoram Hoffman, recently published a study analyzing publicly available information and provides the company's view of the near-term market potential for our SeeCube vehicle recognition, license plate reading market, specifically the security, traffic management, enforcement, secure access and parking verticals, which is available on our website, and I encourage you to review it.

He estimates the addressable market to be $1.5 billion for the 2021-2022 time period. I'd like to thank you all for your support here in 2019. Our valuation in the public market remains well below our revenue and is not reflective of the opportunity in front of us, combining state-of-the-art solutions that 100 of loyal top of the line customers, including Fortune 500 companies, government, homeland security authorities and over 30 airports in the U.S.A.

We are confident that our strategy of driving growth in the AI side of our business and continuing to improve the financial strength of the company is the best way to drive returns for shareholders.

Now we'll open the call for questions. Go ahead, operator.

(Operator Instructions)

Our first question comes from the line of [Pamela Carter] with [Carter Management].

The -- you did a really nice job reducing your notes table over the past year, does this remain a priority to continue to pay this down and improve your balance sheet? That's my first question and then I have a second one as well.

Sure. Yes, of course. Thank you. Yes, that remains our strategy going forward to better our balance sheet. We are focusing on reducing the debt. We are aggressively executing our plan to do that. And what allows us to continue executing our plan is, of course, the increase in our margins and penetrating more and more with our AI solution. So we'll continue doing that going forward this year and, of course, going forward in next year. But we're hoping to make the same improvements we've done in 2019, also in 2020.

And then in the next call, we'll probably be able to show a much better balance sheet. So that continues to be our strategy going forward. Thank you.

Wonderful. Could you also give a little bit more insight into the end market breakdown, such as parking security schools, supply chain for your current pipeline on the AI HTS side of the business?

Yes. Sure. So the pipeline -- yes, the pipeline is much different than it was several years ago, where now it's focusing on a lot of -- we see a much higher mix of software sales and the increasing recurring revenue that remains our focus as well and the pipeline shows that. It comes from, of course, the sectors that we serve, the public safety, which combines schools and also from the Safe City, we see much larger projects today that we're focusing on. We see many more bids that we are relevant today to respond to. It happens. It's amazing how this grew and became a huge growth engine for us. We planned on it, but it's showing. So Safe City is growing very, very much, in the pipeline as well.

And of course, we're continuing. We're the -- we're focusing on the supply chain mobility with our touchless AI solutions. And the same goes for parking automation. The main, I would say, color that we see today, like I said, is increasingly compatibility to larger and more valued Safe City projects within the U.S. and also outside, internationally. And a lot of additional color comes from the software and recurring revenue.

Our next question comes from the line of [Hula Panary].

Shai, very impressive results. I have a few questions, please. And the first, encouraging to hear about the new products. Can you tell more about the way you plan to sell them? Are you cooperating with other companies?

All right. Thank you for the question. So the first thing that we're doing to penetrate with our new product that are all relying on the AI solution, recurring revenue business model, object recognition, what we discussed. These products are -- the sales like you mentioned, the first thing that we did is, we grew the sales team. We're focusing on 2 things by doing that. The first, of course, is to establish and conduct direct sales. These are more strategic sales with enterprises and that require much more experience and personal attention to these enterprises. So this is what is done, and we're focusing on.

But concurrent to that, we're also establishing our sales channels, and we do that by attracting and webinaring and talking to resellers in the sectors that we are penetrating with our new products, and they are educated and starting to resell our products. It's more showing today in the pipeline. This is an ongoing process, we started recently. The other thing that we do is, we are partnering with our -- with companies. And these could be both enterprises that are our vendors and also some of that could be our customers. But mainly, the vendors, multi-billion-dollar vendors that, together with them, with our unique AI solutions, Machine Vision solutions, we actually, today, complete their broad solutions to enterprises. So together, we partner to do that. I hope that answers the question.

Yes. Great. Another question, can you please explain about the Tire project? What is it, why it's important, who and where will be used?

Sure. The importance of object identification from our point of view in the market, the segment of supply chain is, of course, to create automation and efficiencies. And the Tire product exactly is penetrating and applicable to the manufacturing processes of tire manufacturers, these are huge enterprises, and also into their supply chain. And then going forward, it is introduced to their resellers and to their stores. There are thousands of resellers of tires. There are thousands of stores and the data that we provide by reading the object, for example, expiration date on the tire, which is today not provided, and if someone wants to enforce it, it's actually done manually with thousands of tires arriving in containers to be resold and put on vehicles, this is tough to do manually, but we do this. We automated the process, and we're doing it automatically with our Machine Vision, but we black and black, which is very difficult, and we provide such data likely, for example, while I mentioned the expiration date, which allows to price the product differently, allows also at the point-of-sale to attach and create a much stickiness, much more stickiness relationship between the reseller or the manufacturer to the end customer and that allows much higher sales and potential sales to the same resellers or manufacturers that they didn't have before.

Within the process of the supply chain, of course, this automation done by our Machine Vision is creating the automation of processes, efficiency and creates a machine-to-machine process without a touch of a man, reducing costs and, of course, creating the efficiencies our customers are looking for.

Wonderful. One last question, please. Living in the Middle East, safety and homeland security are very important. Can you explain what is it special in your solution?

Accuracy and speed. That's the bottom line. What we do with our Machine Vision in -- especially in places like the Middle East, where terrorism and threats and -- are an ongoing everyday issue, what we do is we create a situation, a proactive approach, a machine-to-machine solution that is in real time connected across different platforms of security, and this creates an automatic process where we identify a threat, a risk and treat -- and allow our customers to treat it before it becomes an event and that is a proactive approach, and it is done only because we're very accurate in what we are identifying, and we are very quick in providing that information across different platforms. And our customers enjoy that.

This way, they are able to better protect the environment, the public and also are able later on from the big data that we provide and the analytics, they're then able to basically be -- forecast the future because you're using machine learning here and you're creating proactive approaches, which learn all the time from events. And then this way, we can really forecast and predict how to better perform the next time around. So that's how unique these solutions are to different governments.

Our next question comes from the line of [George Guttman] with [Jericho Partners].

You've mentioned a couple of times that you partnered with a multibillion-dollar company on yard management, are you able to say the name?

Unfortunately, not yet. This is in the process of approval. These type of enterprises have their own processes, and it takes a long time to do that. To the industry, it was actually announced by them, not us, but still we're working according to their terms. And we've requested to announce that, and it's in the process. Unfortunately, also the current situation doesn't help that to move forward quicker. So we're hoping that will be resolved in the near term.

When you say partnering with, does that mean that they are using things that they have and incorporating your software? Or is it a different type of partnership?

The partnership is -- they have an enterprise solution to very large projects that oversight the whole supply chain of enterprises, huge -- small and huge, but mainly the bigger projects come from enterprises that have like 50 nationwide distribution centers, stores, et cetera, warehouses, et cetera, and their solution manages everything. Now what we did is we brought in our Machine Vision and AI -- and artificial intelligence solution, and we've introduced it and showed how better it is than existing pieces of technologies that they're using today with -- to provide their total solution. And with ours, it was like it's characterized. It is a machine-to-machine, computer vision solution that performs quicker, connected cross-platform and provides input in real time. And the other technology deals today to provide their total solution doesn't allow that, actually is very much limited compared to the Machine Vision that we introduced. And thus, they had integrated ours into their total solution. And together, we're partnering to provide the total solution for the enterprises.

Did I understand you correctly that they -- whether they are actually announced it, this to their customer base?

They announced it -- I don't know if they announced it to their total customer base. I know that at least internally in trade show, annual one, they have done, there was a specific announcement of that partnership.

So my guess then would be that since they are a multibillion-dollar company, their reach would be significantly more than your reach, so somewhere along the line, this will yield us significant revenue growth.

Which ties exactly to the previous question of how we are strategically planning ourselves and establishing our sales approach, which is one of the approaches and plan is to partner with our vendors, and that's exactly what I meant.

So if I were to ask you regarding your tire technology that you also introduced jointly with a tire company that you announced, as you mentioned, you would not be able to name the name, correct?

Not yet. Hopefully, we can in the near future.

Has that project taken off yet? Or is it still in the testing phase?

Still in the testing phase, but it's progressing very nicely.

You have competition in that business?

As far as I know, we have one competitor. And I don't want to mention the name, but I'm very proud to be -- to compete with them because it's a $9.5 billion company that did it as well. And anyway, yes, the answer is yes. And one main one, and we're proud to compete with them.

You mentioned that your security's AI technology is used in a prominent Middle Eastern countries, I'm going to guess what it is, but are you in several countries or just one?

Several country.

Are you selling it directly or do you have resellers?

In some cases, we -- in most of the cases, we are selling this as -- through an integrator that sells to the government. But in also most cases, we are exclusively mentioned to be used for that solution. So the integrator has the users.

Did you drop off?

No. Could you hear me?

Now I can. So let me ask...

Yes. What I said is that in most cases, we're selling through an integrator. But also in these most cases, we are mentioned as an exclusive provider that the integrator has to select and work with us because of our solution being tested already, proved already and of the advantage of our accuracy and speed.

So let me ask you the obvious question. If you're selling over there and over there, they request really, really significant and stringent requirements for obvious reasons, can we expect to get some stuff here in the U.S. Department of Defense, States, et cetera, et cetera?

I didn't hear the question, George.

Okay. If you're selling your security stuff in the Middle East, where the requirements are very, very rigorous, when can we expect that, that will translate to contracts here in the U.S. with Department of Defense or with some States or with some law enforcement agencies?

So this started already. And like I mentioned in one of the first questions, but I would add, I specifically said that we see the mix, the color, the new color that we see in our pipeline are projects that we are weekly responding to, and this grew only recently of so many more projects within the U.S. that are government projects. So it is happening already.

Okay. As you know, probably one of the next stimulus phases or 2 is going to be $1 trillion or $2 trillion for infrastructure. Do we have anything that could take advantage of infrastructure, infrastructure spendings?

The answer is yes, George. And that is why we selected to develop and invest in Machine Vision. When you say infrastructure, everybody needs to understand that infrastructure changes. It's no longer only roads, no longer only bridges or infrastructure of that sort. The infrastructure today includes fiber, includes high-tech solutions and includes machine vision as well. And that is exactly why we are so well positioned to introduce that and working so hard with our investments towards R&D and sales in order for people to see us and make ourselves visible and attractive to these infrastructure work and investments.

Well, in one of the first conference calls, you mentioned that one of your goals is to become the Uber of parking. When you took over Eyepax, you mentioned that, again, that you are now very close or now have completed the circle to become the Uber of parking. Two-pronged question. One, what exactly is the Uber of parking? And b -- and two, where -- what is the status of that project?

I'll start from the latter. Status is that we're starting to introduce it to the market, and we are starting to sell it. So this is starting. And hopefully, we'll continue executing our plan and be able to show that the pipeline mix includes these solutions as well. And the first part of your question of what is the Uber of parking? Basically, that's a cloud-based, automatic, ticketless, gateless solution that is connected across platform.

So as you can see, we are investing in our R&D platform. And from that, which is cloud-based and Machine Vision, connected machine-to-machine solutions in real time. And that is the platform. From that, we are actually designing products that use that platform technology to have products with added value of -- that is applicable to where the world is going to in parking, the automation of parking, that's exactly what we mean and imagine a chain of 100 parking lots that you could actually, of course -- take it 20 parking lots, if you can actually now manage 20 parking lots from your cell phone as the parking operator, and you have also people that are regular customers that pay, and they have subscription, monthly subscriptions to parking. Now take it nationwide, and you can do the same thing through your cell phone when everything is connected. That's exactly what we mean. That's exactly what we provide by our real-time solution and cross-platform through the Machine Vision.

Our next question comes from the line of Calvin Hori with Hori Capital.

A couple of financial questions. Can you go over your cash earnings position, would you be looking to raise some cash in the capital markets?

The answer is no. We are -- we have what we need to continue and support ourselves according to our budget and plans. And so the answer is no.

Great. And what is your fully diluted shares outstanding, including warrants and options?

I'm not sure the number after...

Well shares outstanding assuming warrant conversions and option conversions. How many warrants and options do you have outstanding?

Yes. I'm just trying to get the precise number. If I'm not mistaken, this could be 7.5 million, 8 million, but I don't know if new CFO, if he has that ready or not, but if not, we can, of course, get back to you with the specific number.

Yes. I kind of -- my connection is a little choppy. What was the question again, sir, about the options?

Fully diluted shares outstanding, including options and warrants.

Yes, I think it's mentioned in the 10-K.

From what I gather, I did a quick glance. It's like roughly 4 million shares out and 2 million-something options and warrants.

4 million authorized issued and 3.6 million issued and outstanding and fully diluted. It should be mentioned in the...

6 million -- 6 million or 7 million, a good guess?

I think so.

Because that's what I remember. Yes.

Yes. You can take a look at that. It's all disclosed, obviously, but I can pull it up.

But yes, maybe you can look at it. And of course, we can move on to the next question, and we come to it later on.

Okay. Then if you get it before the call is over, that will be great. And one final question is you came to visit our group in Boston in November, and you're talking about going to somewhere around a $100 million this year. Is that still in the range of possibility?

So there is --there are 2 -- I think we discussed it, and that's where the $100 million came from. There to 2 revenue lines that we are measuring, of course. One is the recognized revenue, which is the accounting-regulated revenue, which is what you see today, $57.2 million, $57.199 million to be precise. And the other one that we discussed is what we used to report before the 606 ASC regulation came through -- came to effect in January of 2018.

So till the end of 2017, we used to report. Our revenue back then was about $54 million, and it included all the service contracts that today we cannot recognize as 100% revenue in our top line. And still, we show the growth in that sense.

In the revenue recognized, we show growth as well from 2017. But if you match apples-to-apples, and it's important to explain, but if you match apples-to-apples to the revenue, we could recognize in 2017, then today -- that then actually OMNIQ grew -- quite grew to approximately $65 million from $54 million in 2017. We discussed to the -- of course, when we discussed the $100 -- getting to the $100 million, we discussed several projects that still are in our pipeline, and we're hoping to get, but we never know with the current situation how things will advance.

But -- and also, we don't give or provide in forward-looking statements, but that's what we discussed before. The potential projects we have today in our pipeline due to the new technology, due to the penetration can support the numbers we've discussed, if you match it apples-to-apples to 2017.

Thank you. Ladies and gentlemen, at this time, I would like to turn the floor back to management for closing comments.

Just a comment on the options. There's a 100 -- 1.1 million of exercisable options and 1.2 million of exercisable warrants for December 31, 2019. So 2.3 million warrants and options together.

Thanks, Neev. Appreciate that.

So for closing, I would like again to thank everyone for your support. I would like especially to continue thanking our employees, especially at these times that are difficult. They're not only exercising, but we are using these time to find the opportunity in it. And we are moving forward with our heads high, and we are approaching our customers. We are initiating what -- initiating our code and contact with all of our customers. And we are -- I would say, our employees make us shine, especially at these times. Together with our employees and you, the investors and your support, we are able to show these results and going forward even more.

Very proud of the team, very thankful to you and hoping to -- that everybody will continue to stay safe, stay home, and we'll go through this together. So thank you very much.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.