Tingo Group Inc (TIO) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Micronet Enertec fourth-quarter and full-year 2015 results conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to hand the call over to John Nesbett of IMS. John, please go ahead.

Good morning and thank you for calling in to review Micronet Enertec's fourth-quarter 2015 results. Management will provide an overview of the results followed by a question-and-answer session.

Importantly, there is a slide presentation which management will use during their overview. This presentation can be found in the Investor Relations section of the Company website under events and presentations. You may also access a PDF copy of the presentation by clicking the link on the Company's press release regarding the financial results issued this morning and then clicking a second link labeled presentation -- labeled April 14 presentation. Callers accessing the PDF copy of the presentation will need to manually scroll through the slides as management goes through the presentation.

I will now take a brief moment to read the Safe Harbor statement. During the course of this call, management will make, express, or imply forward-looking statements within the Private Securities Litigation Reform Act of 1995 and other US federal securities laws. These forward-looking statements include but are not limited to those statements regarding our future growth in revenues, increased volume and demand in markets in which we operate, the rollout of our new All-In-One wireless platforms, our ability to penetrate local fleet vertical market, our ability to diversify and expand our customer base, continued demand in our defense and aerospace business, the ability to meet the needs of our existing customers, market interests, and acceptance of our products, the future revenue profitability, the introduction of new products, our ability to provide our solution to different applications, timing of pending US federal rule making, its implementation, the impact of the proposed rules on our business and our future, the New York Taxi and Limousine Commission's Vision Zero vehicle safety technology pilot program and its potential, our new mobile command and control center, and our ability to drive the future growth of new business, and the competitive advantage of our A-317 product and the status of our carriers' certification, including the one with AT&T. Much forward-looking statements and their implications involve known and unknown risks, uncertainties, and other factors which may cause actual results and our performance to differ materially from those projected. Forward-looking statements contained in this presentation are subject of other risks and uncertainties, including those discussed in the risk factors section and elsewhere in the Company's annually report on Form 10-K following the year ended December 31, 2015 filed with the SEC.

Please note that the date of this conference call is April 14, 2016 and any forward-looking statements that management makes today are based on assumptions that are reasonable as of this date. Except as otherwise required by law, the Company is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.

During this call, in addition to the GAAP financial measures, management will discuss not GAAP financial measures as defined by SEC Reg G, including non-GAAP net loss income. These non-GAAP measures include both share-based compensation expenses, the amortization of intangible assets, as well as additional items. These non-GAAP measures are not intended to be considered in isolation from or substitute for superior GAAP results. We encourage you to consider all measures when analyzing Micronet's performance, Micronet Enertec's performance. A reconciliation of these non-GAAP measures to the applicable GAAP measures are included in today's press release regarding our quarterly results and can be also found in the Investor Relations section of our website, www.micronet-intertec.com/ircompany. The slides containing the first-quarter reconciliation can also be found in the Investor Relations section of the website.

On the call this morning we have David Lucatz, Chairman, President, and CEO, Shai Lustgarten, CEO of Micronet Ltd. And again, as a reminder, management will refer to a slide presentation that can be accessed via the Investor Relations section of the site under the link press releases.

With that, I will now turn the call over to David, who will begin the presentation on Slide 4. Please go ahead David.

Thank you John and good morning everyone. Q4 marks a milestone for us with our achievement of net profitability. Throughout 2015, we worked to streamline our efforts by consolidating Micronet's operation in Salt Lake City, which resulted in cost savings and increasing efficiencies and profitabilities.

Gross margin was 39% as compared to 31% in the fourth quarter of last year, and we are pleased to have recorded net income of $89,000, or $0.02 per basic and diluted share, as compared to a net loss of $28,000 in the fourth quarter of last year.

It is important to note that we achieved profitability despite lower-than-expected sequential revenue growth. Our 18% revenue growth in the fourth quarter was negatively impacted by delays in receipt of certain MRM components, which in turn delayed our production in shipping of final products. We expect the delayed products to ship over the next few quarters.

We believe the MRM market represents a strategic opportunity as our state-of-the-art technology can meet the needs of a wide variety of MRM customers. Our backlog is up substantially from last year and also up from the third quarter.

We are seeking considerable new opportunities for our products related to the recent federal ELD mandate requiring an electronic lodging device for truck and bus fleets. We just announced a $2 million order, and I'll provide specific details on that order later in the call. We remain focused on diversifying our customer base and have been encouraged by the increasing interest from new customers.

I am moving to Slide number 5. On Slide 5, we you will find the ELD mandate opportunity. This mandate represents important growth potential for our Company as it requires fleet operator and private truck owners to use ELD rather than paper logbooks to log driver hours and other safety data. In early December 2015, the Department of Transportation Federal Motor Carrier Safety Administration, or FMCSA, issued its final rule and implementation schedule for the ELD mandate. Full enforcement of the regulation will begin in 2017 and fleet operators have already begun their compliance effort.

With full implementation of the rules, industry analysts anticipate that the number of ELD equipped trucks will increase from 1 million today to approximately 2.7 million in 2017. We are working with our customers as they prepare for the law's impending enforcement and we believe that our competitive solutions are among the competitive in the market.

I am moving to Slide number 6. Following the close of the quarter, we announced that we have received a $2 million order from a major telematics company for our A-317 rugged Android tablet for use as part of the solution for local and long-haul fleet ELD compliance. We developed solutions that enable the tablet to be removed from the cab for DoT, Department of Transportation, review, if necessary. That capability, in addition to its processing power, makes our durable, reliable A-317 an effective device for ELD compliance and we look forward to capitalize on new opportunities as the marketplace begins to feel a greater sense of urgency to put ELD solutions in place.

In Slide number 7, in another development, I would like to provide an update on our February announcement of a definitive agreement to acquire the telematics business from Novatel Wireless. After further due diligence, the asset purchase agreement was terminated. Most important is that the terms of any acquisition we make are in the best interest of our shareholders. We continue to focus on the effort to drive organic revenue growth and profit going forward while exploring additional potential acquisitions.

With Slide number 8, we highlighted trends that are beneficial to our business as I discussed previously. The local fleet vertical, which represents the majority of our MRM revenue, is expected to grow significantly over the next several years. We strongly believe that we have created a unique and all-inclusive solution that will benefit from this growth and legislative change.

In our A&D, aerospace and defense business, the demand for our critical missile-defense systems continue to provide a consistent stream of business that remain a key component of our core offering. Hence we are positioned well to drive considerable growth going forward and have demonstrated an ability to drive efficiency that should result in enhanced profitability.

Slide number 9. The next slide illustrated our revenue breakdown for the quarter. As I mentioned at the beginning of the call, revenue went down compared to the fourth -- revenue of last year increased 18% on a sequential basis. Given the market interest we are seeing, we are optimistic about the potential opportunities for our A-317 product since it's complied with the ELD mandate. The aerospace and defense segment came in at $3.3 million, an 8% decrease compared to last year for the quarter, but an 83% increase sequentially as compared to the third quarter of 2015. We continue to see solid demand from our customers seeking missile aerospace solutions.

On Slide number 10, we express the benefits of our next-generation product line. The A-317 is a breakthrough product for us in the industry. And during the quarter, we saw very strong interest from the marketplace. The new product is rugged and fillable and it has transformed our offering into a wholly connected solution offering capabilities such as 4G, LTE, Bluetooth, and Wi-Fi applications to provide total connectivity.

Our tablet package is driving interface, operational and connectivity features, and the Android operation system into one streamlined, cost-effective system for fleet management and several other mobile logistic enterprise needs. In our view, it is one of the most competitive solutions in the marketplace, and our initial orders and customer feedback reaffirm the effectiveness and potential growth this product represents for us.

Slide number 11, give you an overview of the rollout of our new phone connectivity products line. R&D for the new product line is complete, although we continue to refine and keep the technology as current as possible. We are currently in the next phase of carrier certification. It is important for this product launch that we are certified with the wireless carriers. And as we reported last year, the Verizon certification is complete. AT&T is currently evaluating the product, and we hope to receive certification soon.

In addition, we are in discussion with other carriers to move along certification. We have been marketing our new product to existing and new customers and backlog grew to $12.4 million at the end of the fourth quarter. As of today, we see continued growth of the backlog and today the backlog is approximately around $15 million.

I will now turn the call over to Tali, the CFO, for the financial review.

Thank you David. Revenue in the fourth quarter decreased compared to the same quarter last year, and increased 18% compared to the third quarter of 2015. Gross margin was 39% as compared to 31%.

As David mentioned, overall revenue was impacted by the delayed delivery of certain MRM companies and by the timing of receipts of orders in our aerospace and defense business.

R&D was down for the quarter partly as a result of efficiency tests, and partly as a consequence of completing various development phases of our new All-In-One platform. We expect a continued decline in R&D expenses as a percentage of sales and sales growth. Sales and marketing expenses, and general and administrative expenses decreased on a dollar basis as compared to the same quarter last year.

Net income attributed to Micronet Enertec in the fourth quarter was $89,000, or $0.02 per basic and diluted share, as compared to a net loss of $28,000 in the fourth quarter last year.

Now, turning to the year-end results, revenues decreased to $23.6 million compared to $34.2 million in 2014. Lower sales reflects the transition stage between the new product introduction and rollout as well as operational challenges in the fourth quarter. Gross margin improved to 31% as compared to 29% in 2014. R&D expenses came down on a dollar basis while G&A expenses decreased on a dollar basis, but increased as a percentage of sales.

On Slide 13, you will see that, on a non-GAAP basis, net income for the fourth quarter was $330,000, or $0.05 per basic and diluted share. For 2015, we recorded a $1.5 million non-GAAP loss as compared to a loss of $542,000 in prior year.

Turning to Slide 14, you can see that our balance sheet remains strong with $12.1 million in cash and cash equivalents, $13.3 million in working capital, and $17.5 million in shareholders equity. We feel confident in the health of our balance sheet going forward.

I will now turn the call back over to the operator.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. (Operator Instructions). [Katie Page], Northwest Management.

Would you be able to elaborate in a bit more detail on the composition of the deal pipeline?

I can hardly hear you. Could you repeat the question? Composition of what?

Of the deal pipeline.

Okay. Are you referring to the pipeline or the backlog?

You could elaborate on both.

Okay. Thank you. First, so we -- in addition to what I mentioned about the strong and the trend of the backlog, which grew from $12 million to around $15 million today, we see also a strong trend in the pipeline. We -- meaning that in both divisions, in aerospace and in the MRM, we are seeing more and more potential customers. And as a matter of fact, on the MRM side, there are a few major customers who are right now -- we have a dialogue -- are dialoguing with us on some major deals. Again, nothing in our hand at the moment, but certainly we see a trend of more and more potential customers. And we believe that it's attributed to, one, the fact that we have a great technology and products, and two, the effect of the ELD mandate.

Okay, great. Thank you.

Hamed Khorsand, BWS Financial.

Hi, good morning. Could you elaborate a little bit about your component shortfall and how that -- you are able to source enough components in first quarter to meet your bullish commentary about the backlog and so forth? And just talk about the bottleneck there.

Yes. Shai, would you like to address it?

Sure. So, we had several basically components that in Q4 were -- the POs came in, that's the good news, but the problem was that some components that are significant to the assembly of the products and to get them ready for testing and everything, we have received them with some defects. We couldn't release it to our customers.

What we've done in 2015 aside from the technology, also we've also done some new faces to the product which was also something that was received very well by the customers. That means that we went into the manufacturing with our suppliers of new molds in China, and we needed to do immediate fixing to the molds. Our suppliers needed to fix the molds because the injections, the plastic injections that came out were not very -- not in the quality that we will release the product to the customer. That is basically the main reasons.

Okay. So I guess all of the problems were solved for the first quarter?

Yes, sir. And not only that, we also had established at the same time additional suppliers to back us up, and we are working with them on forecasting to make sure that they have enough components on the shelf should we come to this situation again.

So given that we are on April 14, why isn't management comfortable enough to give out what the first quarter looks like?

For several reasons. First of all, it's not our policy. Secondly, we don't have the final numbers yet. It still needs to be audited and we don't know -- we are in this confirmation which apparently will be changed. So we are definitely subject to get the audit first before we give any numbers.

Okay. My last question is, until this call, I didn't see any 8-Ks or disclosures that you walked away from that acquisition. Did it happen just recently? Why wasn't there any disclosure before this? And what was the reason?

The real question is why didn't you see it because we announced it a few days ago.

Okay. Okay. All right. Thank you.

Mike Vermut, Newland Capital.

I actually hopped on, so I'm not sure if these have been answered yet. Can you give us a general idea of where you are talking to the large telematics players, whether we are reengaged with the people in that, Omnitracs, Fleetcor, Fleetmatics? And also looking at the OEMs, a lot of recent statements by providers have gone towards the OEM providing the boxes and the connectivity in the trunks. Is there anything going on there talking to the OEMs trying to get us at the point-of-sale as a standard?

Thank you for the question. Shai, would you like to address it please?

Sure. Hi Michael. How are you?

Good. How are you doing?

Good, thank you. So, yes, first of all, regarding the OEM -- regarding the major -- let me defer part of the question on the major players, yes, yes, the definitive answer to your question is yes. We are in constant talks to I wouldn't say all of them -- we are trying to talk to all of them, but to the major ones, yes we are. Not only that, we were able to penetrate some of them already. Some of them are trying our products. Some of them already had tested our -- in the status -- in the stages after the testing of our products and we entered into some commercial negotiations with them which -- and agreements I would say. And I think that I am optimistic of course, but like David said, we will announce when the time comes.

So basically, to answer your question, the answer is yes. And what allows us to be in that position is the new product offering that we put on the table. It is applicable to the ELD mandate. All of them are looking into the ELD mandate. It is pushing up the interest in Micronet, and allows us actually to start establishing very strategic relations with these major players. So the facts are that we penetrated some of them, that we started testing with some of them as well, and that we are advancing with them into commercial agreements, and they really hope to advance this way.

The second part of the question is of course -- by the way, the $2 million announcement is something -- maybe I can elaborate a little about that. One of the major players in the market in providing ELD services is the one that provided us the PO. Now, that is huge for Micronet. The very basic reason why is because a lot of the major players, almost all of them, are using these Japanese software solutions for their ELD tracking and software solutions. So, when they talk to them and they ask them what type of hardware are you guys recommending and they say with Micronet, this already had started and initiated another discussion with another major player. So this is great for Micronet. We went right to the roots of the tree to be able to be applicable to the ELD mandate, and I think we were very successful there.

Regarding the OEMs, that's an interesting discussion. So, the OEMs are looking to provide hardware solutions that will be applicable to software services, SaaS providers. And as you can see in the consumer vehicle segment today, you can see that a lot of them already come with a lot of hardware that allows them to talk to smart phones, tablets, etc., but this is mainly on the consumer level. It is also starting in the long-hauls, short-hauls, but in the professional segments as well, and we are talking today -- we are doing two things. One, we are talking to the OEMs and we already finished testing with one major OEM in the field. So I hope that the Micronet solution will become a solution that is integrated together with an OEM into their platform. That's one.

And the other thing of course is that we are continuing to invest a lot in our strengths, which is customization. As you know, a lot of our customers and SaaS providers out there, they require -- a lot of them require -- all the ones that you mentioned, Michael, require customized hardware. And this is one of the strengths that we were able to demonstrate to the market in the last year. And also shorten our R&D cycles. So this is something that we continue to put effort in and I believe, at the end of the day, you will see Micronet integrated into OEM solutions plus Micronet completing OEM solutions that provide our products to be fit for purpose to our customers. I hope I answered your question.

You did. That was great. Okay, a couple more questions. What is the target for simplifying our corporate structure? I'm sure there's a lot of ways to having a listing in Israel, a listing in the US. You have duplicate costs involved. It just complicates the whole situation here. Is there an effort going on to simplify the structure and is there a time frame on that?

Yes, we mentioned it in the past several times. Of course, we are subject to market conditions, but basically our goal is -- and it's not a long-term goal. It's a short-term goal to simplify the structure and have just one public company. As you mentioned, it doesn't make any sense to us to have two public companies. But we do all of this, but it's not -- not everything is in our hands, I say. But as a goal, as a I would say other -- a plan -- yes, definitely.

Excellent. And then another question for you. When looking at margins, revenue, you did a fantastic job on the cost side. Should we assume increased -- I know you are not going to give exact numbers, but increased profitability throughout the year?

I just want to go back and make -- and clarify things. The fourth quarter was a great quarter in terms of margin. If you look at 2016, we don't expect the margin to remain in the area of 39%. Our expectation and plan is to be in the range between 30% to 35% but closer to 35%. So we do see better and better gross margin as a result of reported become more and more seal production and we managed to cut expenses. Also we need also to bear in mind that the aerospace/defense effect sometimes can shift the gross margin. But as a general, I would say our target is 35% and we are getting closer and closer to that.

Great. But then I assume your -- our revenues off of this quarter should be increasing quarter to quarter as we get closer to the ELD mandate and you start penetrating the OEMs that are larger telematics players?

Well, you know, sooner or later, you are right. I cannot of course tell you that the first quarter or second quarter, but as a trend, yes. We believe that the more we get ordered from them, from customers who are in an ELD mandate, we get better revenue and of course better profitability.

Great. Now the last question. Does it make sense for the two businesses to remain together or should we be looking to focus on the telematics business?

You know, it's more -- it's really kind of a personal perspective. Any investor can have his own opinion about it. I can tell you one thing, that we -- as it looks like right now, 2016 is going to be good for the two divisions. So perhaps in the long run or sometime in the future, we need to consider what we sell, but at this very moment, I think we have reason to -- we have several reasons to focus on the telematics, but you have also some reason where people who are interested in difference in LSAT to see the business there. So I wouldn't go further.

Our duty is to make sure that the Company is running and makes money. And perhaps strategic-wise, we should look forward long-term. But as I said, in 2016, we don't expect at this moment see any changes though we do our best to make sure that the two divisions or two companies will make money.

Excellent, okay. And last question, has there been any decision on the breakup fee? It seems to me that if the due diligence didn't yield what you expected, that the breakout for you would be a moot point.

Well, still it's -- you know, we just got the termination notice a few days ago. It's still under examination of our legal advisor and we will make our decision shortly.

Okay, excellent. Okay, great job on this revenue getting to profitability guys. And hopefully 2016 is even better.

[Carlos Burnice].

Hello, hi guys. I'm from Burnice Partners. Can you tell us please about your EBITDA in the fourth quarter and what you think it could be during 2016?

Yes, sure. Thank you for asking the question. We feel very good about EBITDA in the fourth quarter. As a matter of fact, the EBITDA was over $600,000 positive. We believe 2016 will represent the same trend. EBITDA in the fourth quarter was a positive as compared to the first three quarters, which were negative. So for us, it's a very strong and good sign.

Okay, thank you very much. Can you elaborate a little bit more about your, if you can, your discussions, the potential with the ELD, with local fleet that you talked about plenty of times. Any negotiations, any discussions with the big companies for potential big let's say businesses or potential big transactions that you can have?

Yes, sure. Thank you. Shai, could you address it please?

Yes. So related to Michael's question as well, the discussions are becoming -- our penetration actually is becoming more and more successful as we advance forward marketing and sales efforts in presenting the solutions that Micronet provides.

You have to understand the ELD mandate is like a catalyst. It's like something that is pushing all the companies out there to move forward in our space, and it creates a lot of opportunities to them. Now, what is assisting Micronet very well in that aspect is that, in April of 2015, 2015 for us was a year that we introduced new technology, new product offerings, and one that now we are happy to say that a lot of customers understand its value. And it's moving very fast for us. That's why you see the significant growth in the backlog.

The technology that Micronet is offering is unique, is a unique technology that is not only applicable to the ELD mandate, but is applicable to the technological trend in the market in the space today. It's before only black boxes or I would say other means of hardware that are enabling to transmit data was enough. Today everybody is looking for much more sophisticated solutions. That is exactly what we saw, that is exactly what we invested our efforts in, and that's what we introduced in 2015.

Now, luckily, well, we thought about it, but we didn't know when the mandate would be issued, but luckily it was issued and now it's also applicable to that, and that's exactly why, regarding your question, that's exactly why we see the penetration into new players very significant. So it's not only coming in the means of the growth in the backlog, but also coming in customer concentration. Before we worked with one customer. Today we are working with 15 major ones. And it's growing. And the backlog is increasing. We are making our operational -- I would say tweaking it to making sure that we don't suffer things that we suffered in Q4 2015. And we are moving that way as well very fast and it is solved already. So all the means are there to make Micronet a game-changer in the space.

I see. One more question. Is the ELD mandate already only for large fleets or also forecast every truck, every long-haul truck, or every truck from a size (multiple speakers)? And how do you -- if so, how do you intend to approach this let's say small fleet or this truck owner?

So, the ELD mandate is related to everybody, and not only to large (technical difficulty) all the moms and pops and smaller ones as well. What -- the way we are approaching that is by (technical difficulty) talking to all of our customers, the low-hanging fruits, all of them. The second thing -- because they are selling to large fleets and they are selling also to small fleets and even sometimes (technical difficulty) but we are also talking to distributors. We are also making sure that our products are -- they are on the shelf in places that one truck might go and say -- to an installer and ask them to find a solution for them to be compatible to the market. So we are trying to talk to large distributors in the US so we can approach that market as well. Actually, we see a very significant -- a significant role. The small fleets out there has a potential market to Micronet and to our customers. So we are moving in all directions to make sure that these people know we exist and can use our products.

Thank you very much. Great job with the EBITDA. Thank you and we will follow you.

At this point, there no further questions. Before I ask David to go ahead with his concluding statement, I would like to remind participants that a replay of this call will be available within two hours. In the US, please dial 1-888-269-0005. In Israel, please dial 03-925-5929. Internationally, please dial 972-3-925-5929.

David, would you like to make your closing remarks?

Yes, thank you. We are very excited about the progress we are making and particularly encouraged to have achieved profitability in the fourth quarter of 2015. We are seeking tremendous marketplace interest in our products and believe the ELD mandate provides opportunity to drive growth in our MRM business. Our project with the major telematics companies gives potentially significant growth engine for Micronet and supports market acceptance of our new All-In-One technology. We look forward to providing our technology to meet the compliance needs of new and existing customers. Our Salt Lake facility is fully integrated, and our MRM business is positioned as a US-based operation with a US-based sales team.

I would like to take this opportunity to thank our dedicated team of employees and managers, and I look forward to speaking with you next quarter. Thank you.

Thank you. This concludes Micronet Enertec Technologies' fourth-quarter 2015 results conference call. Thank you for your participation. You may go ahead and disconnect.