Omniq Corp (OMQS) 2022 Q1 法說會逐字稿

Good morning, and thank you for joining us for the OMNIQ corporate update call for the first quarter ending March 31, 2022. Joining us today, we have Shai Lustgarten, CEO of OMNIQ, who will provide an operational overview; and Neev Nissenson, Chief Financial Officer, who will discuss financial results.

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 for 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 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 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.

I will now turn the floor over to Shai Lustgarten. Please go ahead.

Thank you, operator, and thanks to everyone joining us on the call today. We're very pleased to share with you our Q1 2022 financial results, combined with some recent achievements. Here is what we defined as the OMNIQ momentum: 33% growth in Q1 revenue compared to Q1 of 2021, 132% increase in gross profit compared to Q1 2021, 6% sequential revenue increase over a previous revenue record on Q4 of 2021, gross margin of 23.3% compared to 13.3% in Q1 2021.

Along with improvement of gross profit, the company has taken measures to further improve profitability in the near future. Trailing six months revenue exceeds $51 million and annual run rate of over $100 million. On April 5, 2022, the company completed the acquisition of 100% of Dangot Computers. This synergy with Dangot generated immediate joint projects with OMNIQ's AI solutions for the US market.

OMNIQ's Q Shield, AI-based law enforcement solution offered to municipalities, is experiencing positive momentum, as seven cities in the U.S. have already contracted, and more are in the pipeline. Revenue model is based on recurring revenue sharing. The company signed an agreement with a reputable reseller, aiming to accelerate sales of Q Shield to many more cities.

OMNIQ's AI solutions that operate in critical spots in the Middle East and South America are contributing significant impact on public safety and terror prevention. OMNIQ's cutting-edge AI technology performance result in recognition, such as the Uber award to OMNIQ with a coveted innovator award for contributing to traffic flow in the Philadelphia International Airport.

We're experiencing a great start of 2022. Our focus remains on Q Shield's deployment in the public safety sector, growing sales of OMNIQ's AI parking solutions; increasing sales of OMNIQ supply chain automation product; and, in parallel, making our financial infrastructure stronger. We are facing increased demand for our products in multiple verticals and markets.

Our mission is to improve efficiencies, help to secure public safety, and enable better quality of life for people using our systems. Our customer base includes some of the most demanding customers in the world, including governments, hospitals, major supermarket chains, security agencies, and municipalities, among others.

Following the success of the first installations of our Q Shield turnkey AI-based systems, we continued our focus on indirect sales channels, partnering with VARs, value-added resellers. And we recently signed agreement with a repeatable VAR, whom we believe will accelerate the sales of Q Shield that we consider as an important growth engine with an endless market potential.

In addition to the strong revenue and gross profit in our Q1 results, we note improvement in all financial parameters. These efforts will continue to be in our focus for further improvements in the near future, achieving trailing six months sales of over $51 million, resulting into annual revenue run rate of $102 million. We feel stronger and confident while fulfilling our plan to elevate OMNIQ to new spheres.

Before I go further, let me now turn this over to Neev to take a deeper look at our financial results. Neev?

Yes. Hello, everybody. As Shai highlighted, OMNIQ reported revenue of $26.3 million for the quarter ended March 31, 2022, an increase of 33% from $19.8 million in the first quarter of '21. The revenue increase reflects the consolidation of our financial statements with Dangot Computers Ltd., which we acquired in July 2021. We also see a higher demand from certain customers during the quarter as well as continued traction in our markets.

Total operating expenses for the quarter was $7.5 million compared with $5.5 million in the first quarter of 2021. Net loss for the quarter was $2.6 million, or a loss of for $0.34 per basic share compared with a loss of $3.3 million, or a loss of $0.70 per basic share for the first quarter of last year. Adjusted EBITDA, meaning adjusted earnings before interest, taxes, depreciation, and amortization, for the first quarter of 2022 amounted to a loss of $189,000 compared with an adjusted EBITDA loss of $1.2 million in the first quarter of 2021, which showed a modest improvement towards Q2 profitability.

Cash balances at March 31, 2022 were $6.9 million compared to $7.1 million on December 31, 2021. Let met turn the call back over to Shai to talk more about operational achievements and outlook. Shai?

Thank you, Neev. Q1 was a great start to 2022, another step forward to better position OMNIQ for executing our targets for the year. I'll now provide an update, starting with the announcement that OMNIQ had increased its ownership in Dangot to 100%. This concludes Dangot's acquisition process earlier than we planned and letting us to execute quicker on our objectives.

Dangot Computers was a significant acquisition for OMNIQ, allowing us to have a firm infrastructure of products and services that complement OMNIQ's existing solutions. This is now implemented with cross-selling Dangot's products to OMNIQ's existing customers as we expand our product offering in the US market. It further gives OMNIQ a broader customer base to offer our AI products to, thus creates a quicker and larger footprint in addition to what we've done before.

Also, Dangot's exceptional customer support strengthened OMNIQ's existing infrastructure and, combined, is a significant differentiator in the industry, creating a stronger relationship and stickiness with existing and new customers. In Q1, Q Shield, our turnkey AI-based system that offers 24/7 visibility in identification of possible risks which increases safety, revenue, and enforcement and efficiencies, continued to make progress.

As you might recall, Q Shield is a product offered to our public safety market, to municipalities, universities, schools, community centers, and places of worship. We specifically focused on municipalities. And with the unique dynamic revenue share model, we empower cities to become safe cities by deploying Q Shield with a little upfront cost and repayment through a percentage of citations collection.

I'm happy to announce that we had added two more cities to our list of cities under contract, totaling now seven cities since our starting point only few months ago. We are even more happy to see how indeed Q Shield delivers even more than it promised and started affecting very quickly on the everyday lives of residents, people; making street safer for us, our children, our families and friends; and making municipalities a safer place to live in.

Q Shield turns out indeed to be a major force multiplier, a significant investigation tool for law enforcement, already assisting in solving tens of crimes starting from the first day of its deployment. But furthermore, we learned that Q Shield is a game changer in an additional aspect. It takes care of many years of untreated problems.

For years, the federal and local governments are trying to fight unlawful behavior of unregistered, uninsured vehicles and drivers. Billions of dollars are spent on enforcement programs that are not effective. Q Shield, in only a short time of a month, made these unlawful individuals visible. Q Shield's actions in only a month make a significant change in the behavior of such individuals.

Q Shield, a machine-to-machine, unbiased product, make all traffic violators visible. It is a local and nation-wide problem that Q Shield takes care of from the first second it is turned on. Furthermore, as it's designed Q Shield also notifies of possible risks, criminals, Amber Alert, and anyone on the lookout by the police or other agencies.

Q Shield creates a proactive capability utilized by law enforcement to solve crime in real-time and proactive analytics as a tool for law enforcement investigation solving. We continued our Q Shield deployment with an additional city in Q1. Our pipeline of cities to deploy Q Shield is large, and we will continue with this growth engine as we had planned to.

Now, a word about our products, focusing on the parking industry. We see growth as well in the demand for our product in the parking industry. As the world exits from the pandemic, the markets are starting to rebound. We see this as evidenced in the growth in sales and the backlog for our parking product. Specifically, we continue to see growth in sales and demand for OMNIQ's airport solutions and in the sales to our current customers in the parking industry. The opportunities grow as well due to our unique AI offering to the parking industry. Thus, we believe we will continue to see annual growth in this business line.

Our investments in technology brings results in offering advanced products to the market. OMNIQ's Q Post is one good example, a one of its kind product that introduces our night and day sensor together with our vehicle recognition server, assembled in a rugged board-like product. To the parking industry and the access control industry, Q Post is a fresh, one-of-a-kind, cutting-edge solution that provide a vehicle recognition system of plate, state, jurisdiction, and make and color used for ticketless, gateless, and better flow of traffic.

It reduces significant installation costs. It is remote control over the year, offering cloud services, and easy to install as a plug-and-play product. We had already received preorders for our newest Q Post, which proves to us that the need for Q Post is significant. And we expect more orders to follow.

In the education field, OMNIQ continues to grow with adding more universities to our portfolio, offering our security and parking revenue control product, PERCS. In addition, we see growing need from enterprises whom we offer to our access control solutions powered by OMNIQ's machine vision. Our access control system manages enterprises, employees, visitors, and vendors' parking lots, offering and machine-to-machine solutions with a security proactive solution. It automates many manual processes, such as the visitor management done with our Omni-Q's visitor app.

It manages vendors entrance and exits with automatic scheduling module, eliminating the manual processes involved and provide better user experience with real-time analytics and reports. Our enterprise access control system will become one of the company's growth engines. Today's growing global threats are facing organizations as well. And OMNIQ's access control is a game changer relevant in today's challenging reality. It is an enterprise, modern security, and management product powered by real-time technology that is the solution to answer these growing threats. It is a scalable AI management system for enterprises.

Now to update on our supply chain business line, as we started seeing in the last two years, our product offering continues to get growing demand by our Fortune 500 customers. We expanded our services by offering more and vast complementary services to our existing ones, creating better stickiness with our customers and realize growth in all parameters: revenue, profit, margins, and backlog. We're excited with the continued trust our Fortune 500 customers have in us and the fact that this business line, once considered to be a legacy business line of OMNIQ, now has taken the new and differentiated shape of one with unique and new offerings and core strengths, creating growth in all parameters.

All our Fortune 500 customers are in need to our AI solution. Powered by our machine vision patented technology, we will start to focus in replacing the most used item identification method, through barcode scanning used today, with our machine vision patented technology. It's significant, scalable product, which will become, as well, a growth engine, continuing the exciting reshaping of our supply chain automation business line.

A brief update related to our sales channel: we continue to invest in our sales channels, in the direct and indirect sales channels. From when we first started offering our first AI product, we started realizing the huge scalability potential and opportunity each one of our solutions brings with it. Thus, our strategy became to invest in our direct sales team and to establish a VAR sales channel, a value-added reseller sales channel. Our partners, the VARs, are a significant ingredient in the OMNIQ sauce today that will let us scale and realize the significant market potential. We recently signed an agreement with a partner, a VAR we believe will bring forward a significant market need and accelerate our Q Shield sales.

Ladies and gentlemen, OMNIQ continues to demonstrate investments in our pillars, our team, product and technology, and sales. Continued growth performance in these pillars is what will continue to unveil OMNIQ's still unrealized potential.

We started 2022 strong. We continue to see increasing demand to our products by our record-breaking backlog and revenue growth. We continue firming our financial infrastructure, hand-in-hand with continuous investments in OMNIQ's pillars. Combined, that is what will deliver our success. This focus brings us today to a better clarity towards 2022 and in achieving our annual objective.

Before turning over to questions, I'd like to thank our devoted and talented employees at both OMNIQ and Dangot. Thanks as well to our loyal customers and suppliers, to our professional team, and other strong supporters, and last but not least, our shareholders for your continuing support.

Operator, I'll now turn over the call for questions.

Certainly. The floor is now open for questions. (Operator Instructions) Jaeson Schmidt, Lake Street.

Hey, guys. Thanks for taking my questions. I just wanted to start with your comments on adding two new cities. Now, that number is up to seven. When would you expect all of those to be fully rolled out?

Hey, Jason, thank you for your question. So we expect -- I mean, all seven cities, there are different, of course, processes. But we expect, probably, in the next three months, at the most, for them all to get deployed. If I'm wrong, it could be two weeks earlier or two weeks later.

Okay, that's helpful. And would you mind sharing how much AI revenue you recognized in Q1?

Yeah, it is growing. And it is getting to be more than the 15% that we saw before. So basically, if you remember, we spoke last call about our objective to get to the 20%. We see that trend happening in Q1. We're happy about it.

And again, that was the first quarter. So naturally, it will be better going forward as we -- I mean, that's our plan, of course, if nothing changes. And we feel good about reaching our objective.

Okay, perfect. And then just the last one for me and I'll jump back in the queue. Just want to follow up on your comments in your prepared remarks regarding taking steps to improve profitability. Would you mind expanding on that? Is that cost cuts? Or how should we think about that?

Well, we were able to accomplish many important -- well, two main important objectives that we had for the last four years actually. One was a note that we had on the balance sheet, which we paid down. We said we're going to do that in Q1. And right there in April, we've done that. And I mean, really, the beginning -- right after the end of Q1, we were able to pay it down to zero. So that's one thing that betters our assets and cash flow.

Another thing is that we were able to get away from another objective we had of a factoring company that we used, which we had high interest. That is something we inherited from previous management. And we've worked on that. And we've paid that down to zero as well. We placed it with the relationship with a commercial bank that gives us much more reasonable interest rates on any financing that we need.

So basically, these were the main two cuts we've done. Of course, we are, all the time, working on efficiencies, operational efficiencies. The focus is more on not like cuts of people. We actually grew in personnel, but we're growing more in the revenues, of course, and margins, as you can see. But you will see more focus on operational cuts, focusing on procurement.

Okay. That makes sense. Thanks a lot, guys.

Thank you, Jaeson, and appreciate your support.

[Hella Pinisque], Private Investor.

Thank you. Hello, Shai, and excellent quarter.

Thank you. Appreciate that.

Thank you. A few question, please. Can you explain more about the Q Shield system, how it works, the potential market, and the revenue model?

Absolutely. So first of all, what Q Shield does is we deploy our system in an intersection in the city. We select an intersection; we can do it. But we don't have a limit to the places to, of course, deploy that. We select, with the city, one, two, three, or four intersections at first. That's typically the first, the initial process. Then, we deploy the system that is consisted from our sensors, night and day sensors, that identify the -- that actually target and the locate vehicles, all the vehicles, doesn't matter the speed and the time of day or weather conditions.

So we identify all the vehicles that pass through that intersection. And once we do that, our AI allows the law enforcement officers to receive notifications, for example, if that vehicle is involved in an Amber Alert; if that vehicle is a stolen vehicle; if that vehicle is of risk or on the lookout by the police or any other agency, federal local agency, for whatever reason. If it exists on whatever database out there on the cloud, then we match it up in 20 milliseconds and provide notification, security notifications, to allow law enforcement to know what's happening in real time.

In addition to these security alerts that we provide, notifications, we also are identifying if a vehicle is unregistered or uninsured. And there are 12 violations that we can work on and notify, but these are the two that -- actually unregistered is what we started with. And now, we're adding the uninsured. That is starting now as well.

And any type of vehicle that is unregistered or uninsured, for example, gets a citation from our system automatically. There is a process to do that. That, of course, stands in court and works through the regulator procedures.

And basically, that citation goes out to that person we identify. We know who that vehicle belongs to. And we send, automatically, a citation that is getting paid through us, actually. We are the ones that the payments go through, and we take a revenue share out of the citation that ranges between 20% to 40%. And anything above that goes to the city.

So basically, what Q Shield does is not only keeping our streets safe, but also helping communities by generating resources, generating money, that go back to communities and, of course, is a major force multiplier for law enforcement. Because they don't have enough officers to do this, and they need their officers to be dealing with real things. So we not only tell them and assist them how to solve investigations, missing persons, et cetera, but we also provide resources that go back to the community.

That's amazing. But how do you plan period to grow in this market?

So we are -- we started with our direct sales, our sales team that is going out there and getting these seven cities and, of course, many more that are in the pipeline. A lot of it -- actually, the first several, I would say, more than 40 in the pipeline that we have right now came from -- a lot of it came from word to mouth, which is great. Because these chiefs of police in these towns are talking to each other. So it makes a good slide when they're getting on board with us.

But definitely, reaching 16,000 municipalities in the US would need us to get -- to partner with VARs, value-added resellers. These are the indirect sales channel that we started establishing. And we have several already that work and provide opportunities for us, that provide to us the additional cities, and reaching out to the whole market nationwide, especially recently.

We signed a very significant value-added reseller, which they have a lot of cities already that they serve, many cities. I don't want to just say number because it's a really significant number. And they signed exclusive agreements with us to offer Q Shield to all of their customers.

Great. And one last thing, what is the South American project? Can you tell me more about it?

Yeah. South American project is a safe city project we did in Uruguay. It started from one city and now expanding to additional several cities. We see the continuing orders coming in for that. And that is a nice development in South America from an effort we did with a partner there about a year ago, year and a half ago, and actually taking now more of the expansion into additional cities over there.

So we would continue working with the South American market and partner with local partners there, value-added resellers there as well. And that reference in Uruguay serves as a very good foundation to increase ourself there in that region.

Excellent. Thank you very much.

Thank you for your support, Hella.

Howard Halpern, Taglich Brothers.

Hi. Congratulations, guys.

Thank you. Appreciate it.

Now, you talked about, in streamlining, I guess, cost procurement. Is that -- have you just begun that process? And will we see the results of that process in the reduction or slowing of the cost of sales?

Yeah. We didn't start it now, obviously. It's something that we're working since the first day of operation, right, for the last four years. But it's something that we now see more opportunities in getting more efficient in. Procurement at OMNIQ is large, a significant number. Every single penny we reduce will go down to the bottom line of course.

And what we've seen recently that is different than what we saw before is due to the many more partners that we have today to select from. Dangot Computers acquisition assisted that as well, which happened recently. So that assisted us as well, because they have, also, many similar vendors in that same space. Now crossing checking all of the databases and information that we have together lets us really utilize different directions here.

So that is basically where we will see -- yeah. And to answer your question, the second portion of your question, yeah. You'll see that happening this year.

Okay. And in terms of, I guess, looking at gross margin, which is probably one of the best ways to move yourself towards profitability, once the Q Shield deployments occur in three months and are actually generating that revenue, is that when we're going to start to see above 25% gross margins and, hopefully, even closer to 30% in the second half of the year?

As I mentioned, there are different directions that we're going after in tandem. These directions are revenue streams the company is focusing on. We've just started with Q Shield, but already see almost the 24%. So to answer your question about the 25%, it comes from -- today, actually. that comes from the other revenue stream. Actually, what we -- the supply chain product, as I mentioned on this call, that product line, the business line, of supply chain is very exciting.

This business line that we all used to refer to as legacy actually is reshaping and becoming very attractive with additional services and software services that we provide our customers with, which enlarge our margins there. Not only that, the reshaping, the focus that we're going to put on it in offering AI products to, our AI, powered by our patented machine vision that will replace scanning technology, that is a huge game changer that will probably even, the most, affect anything, all the parameters.

So yeah, it will come from Q Shield. And Q Shield is growing. And we will see that effect this year, of course. But it's already happening from the other business lines.

Okay. And how has -- the deployment into the cafes of the Dangot product, how is that going and how is that being received?

Very well, actually. I mean, we've really expanded into additional stores. There are -- we didn't yet -- I can't say fully that you can see the team working 100% focused only on that. Because we generated and established different business lines, and we go by prioritization. But yes, you see these kiosks that -- I mean, we already received an order for 1,000 kiosks. So that is it from a US customer.

So that is growing and creating immediate significant effect, but will be even much more. Again, there is a plan. It is received very well. It is something that we are well -- very, very professional at that, which is great. Because it gives us a lot of added values over competition. In many places, also, something that doesn't exist where we come in and really give a good suitable solution that affects their operation the first minute they work with it.

So it is received very well. And I do know that it will create even so much more positive change in the profitability in all parameters to the company and already started. But it's not yet even 100% full steam ahead. So to your question, it's really received well. And we're looking forward to making this a game changer as well.

Okay. And one final question, how much training do you have to do for the VARs? And how long do you think it'll take, at least the one that you signed up, for them to get up and running and develop a pipeline of opportunities?

It depends on the VAR. Like the recent one we did, very quickly. We just signed them about a week and a half ago. And this week already, we're [receiving] seven sites -- we're visiting seven sites with. So it depends again on the value-added reseller that we work with. In average, a value-added reseller is -- some of that will take probably a month at the most to start providing opportunities for us.

Okay. Well, thanks and keep up the great work, guys.

Thank you, sir. Appreciate your support.

Moran Pober, Acquisitions.com.

Hey, Shai. To start with, congrats on your great job. So my first question is, can you explain the size of the markets you currently sell to?

The markets that we sell to, like what is applicable to us, their size is about $25 billion, $28 billion, I mean, just the technologies and very low, I would say, measurement. Because it's really hard, like, for example, Q Shield, 16,000 cities. That by itself is changing that number as well significantly. But we just started that. So I don't want to give you the values there.

But it is actually something that we view as at least $70 billion, especially with the growth analysis that we see from reports that expect these markets to grow to these numbers in the next three years.

Okay, cool. And do you have any plan to raise capital in the near future?

No. We have sufficient funds. Even after the acquisition, we still, as you can see, have about $7 million in cash and equivalent. And that is, like I said, post the acquisition. And definitely, we have sufficient funds to support our growth and plans for the year.

Sounds good, cool. Appreciate it. Keep up the great work.

Thank you, sir. Appreciate that support.

(Operator Instructions) Matt Williams, Friess Associates.

Thank you. Hey, Shai, I wanted to -- I got a couple of questions here. But the first one is, this reseller on Q Shield, is their role sales? Or will they help in the installation process of the equipment?

Yeah. So their main role is in sales. But yes, they have their installation teams as well that -- they will take care of that.

Okay, great. And then a nice sequential growth in the quarter as well. And I wondered if you could just share some color as it relates to your view on sequential growth as we go through the rest of the calendar year and, in particular, the opportunity for sequential growth in Q2, which has historically been a seasonally down quarter.

I don't think that -- I think we moved away from seasonality or getting there, to move away from that, because of the different business lines that operate and bring in the money to the company. So I think that we are at least in the process of getting away from seasonality.

And like I mentioned also on this call, we are measuring several parameters to look at our sensitivity projections for the year. And currently, not only we see the sequential growth in revenues from quarter over quarter, we also see the growth in backlogs as well. And that gives us a good understanding of how to look at 2022 and a good feeling in achieving our objectives for the year, which is like we spoke many times before, to continue the growth for the year.

Regarding the quarter, again, we just started Q2. There are, of course, continuous challenges, supply chain challenges, that we've discussed in previous calls as well. So far, we're able to meet these challenges and overcome them within the quarter.

And we think that is going to continue going forward as well, but you never know. But in any case, from all the parameters we measure, it looks like we're going to -- we feel very good about achieving our objectives. And I'll provide more color on Q2 as we continue forward.

Excellent. And then just one final question, just looking at the OpEx line. Your SG&A line's up about $2 million year over year. I know you touched upon some of your investments in sales, both internal and external. But could you -- maybe this is better for Neev, I don't know. But give us some color on that $2 million year-over-year increase, anything one-time related, and then, also, how we might think about the continued progression of OpEx as we move through the year.

Yeah. Remember that we added a new -- yeah. Remember, we added a new company, right? I mean, we didn't have that in our SG&A last year. So that that's basically the increase. Yes, we did have one-time expenses as well, but that was the main reason.

Got it. And so, should we think that maybe this is a decent run rate as we go through the year? Or where will be the incremental spend as we continue to grow?

I would say yes. But I would say also that it's not something we're not looking at now to even be more efficient in. And we will find the expense lines that are relevant for cuts, like we always do, and to make sure that this is something that contributes, of course, to the growth in our margins.

All right. Great quarter, guys. Appreciate the time.

Okay. Thank you, Matt. Thank you. Thanks for your support.

Just to add some color to it. So of course, we've added Dangot, so a whole new company, a big company, that joined our financial statements. But just as an example, operating expenses in Q3 were $8.9 million; Q4, $7.6 million; in this Q, $7.5 million. And obviously, there was some one-time expenses in Q3 relating to the acquisition -- in Q4. So the actual -- the operating expenses have been trending down since Q3.

There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Shai Lustgarten for any closing remarks.

So again, thank you all for participating on this call. I hope you will all be well going forward. I, very much, thank you for your support. And I'm looking forward to talk to you in the next quarter. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.