On Track Innovations Limited (NASDAQ:OTIV) Q2 2019 Earnings Conference Call August 12, 2019 9:00 AM ET
On Track Innovations Limited（纳斯达克股票代码：[OTIV]）2019年第二季度收益电话会议2019年8月12日美国东部时间上午9:00
Assaf Cohen - Chief Executive Officer (interim), Chief Financial Officer
Ehud Helft - GK Investor Relations
- Assaf Cohen - 首席执行官（临时），首席财务官
- Ehud Helft - GK投资者关系
Welcome everyone to the On Track Innovations second quarter 2019 corporate update call. At this time, all participants are in a listen-only mode. A recorded question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded.
You should have all received by now the company’s results press release. If you have not received it, please contact On Track Innovations’ Investor Relations team at GK Investor and Public Relations at 1-646-688-3559, or view it in the News section of the company’s website.
I would now like to hand over the call to Mr. Ehud Helft of GK Investor Relations.
- 欢迎大家参加On Track Innovations 2019年第二季度企业更新电话会议。 此时，所有参与者都处于只听模式。 记录的问答环节将遵循正式的介绍。 如果有人在会议期间需要操作员帮助，请按电话键盘上的星号，零。 提醒一下，这次会议正在录制中。
- 你应该已经收到所有公司的结果新闻稿。 如果您还没有收到，请致电1-646-688-3559联系GK投资者和公共关系部的On Track Innovations投资者关系团队，或者在公司网站的新闻部分查看。
- 我现在想把这个电话交给GK投资者关系部的Ehud Helft先生。
Thank you, Operator. Welcome to On Track Innovations’ 2019 second quarter conference call. I would like also to thank management for hosting this call. With us on the call today from OTI is Mr. Assaf Cohen, interim CEO and company CFO. Assaf will provide a summary with recent key highlights and review OTI’s financial performance for the 2019 second quarter. Following the prepared remarks, we will go to investors’ submitted questions and Assaf will provide the answers to those questions.
Please be advised that certain information discussed on this call will contain forward-looking statements. They can be identified by the use of terms such as may, will, expect, believe, intend, plan, and other comparable terms. While forward-looking statements reflect good faith belief and best judgment based upon current information, there are no guarantees of future performance. They are subject to known and unknown uncertainties and risk factors, including those detailed from time to time in the company’s filings with the SEC. OTI assumes no obligation to update any forward-looking statements or information which speaks as of their respective dates. The full Safe Harbor provisions are set forward in the press release we issued earlier.
With that, I would now like to hand over the call to the company’s interim CEO and continuing CFO, Assaf Cohen. Assaf, go ahead please.
谢谢运营商。欢迎参加On Track Innovations 2019年第二季度电话会议。我还要感谢管理层主办此次电话会议。 OTI今天致电我们的是临时首席执行官兼公司首席财务官Assaf Cohen先生。 Assaf将提供最新主要亮点的摘要，并审查OTI 2019年第二季度的财务业绩。在准备好的评论之后，我们将转到投资者提交的问题，Assaf将提供这些问题的答案。
Thank you Ehud. Welcome all and thank you for joining us today. As you all know, OTI is currently undergoing a leadership transition. While the board is working to bring on a new CEO and has appointed an interim CEO, we have temporarily changed the format of the conference call during this interim period whereby my prepared remarks have been prerecorded and we took questions from investors via email. Following my prepared remarks, I will provide the answers to your submitted questions. This is a temporary situation. Once we have a permanent CEO, we will go back to our normal format of the live conference call.
I would like to start by summarizing some of the key events of the quarter. Overall, we are pleased with the strong improvement in our results in the second quarter. Our strong growth in revenues, amounting to $4.1 million, up 37% over the prior quarter, gives us confidence that the issue we faced in the U.S. from the impact of the U.S. tariffs on Chinese manufactured products is now behind us, and we have begun to regain our positive momentum in the region.
Another positive aspect in our results and in line with our long term strategy is that the recurring portion of our revenues continues its growth trend, and this has allowed us to see a solid improvement in our gross margin, over 700 basis points above where it was in Q2 last year. Looking ahead, we expect to continue our [indiscernible] revenue growth in the coming quarters, and given the positive trends I expect [indiscernible] breakeven in 2020 and return to profitability.
On the sales front, we are also making progress. In early June, we announced an order for 2,000 advanced payment systems for use in Russian ticketing. We won this order based on our leading technological capabilities, and this is a demonstration of the highest level of security. This important customer has become another key reference for us in Russia. This additional order builds on our previous success in significant Russian markets, having delivered to date almost 20,000 cashless payment systems. Russia remains a long term growth market for us.
In middle June, we received a purchase order for 1,000 cashless payment systems from Japan via our partner, Billing System Corporation, a leading regional payment service provider. This new order gives us a substantial runway to continue our growth together with our strategic partner. We continue to broaden our footprint in the vast Japanese [indiscernible] retail market and we already have more than 10,000 OTI systems operational in the Japanese market. With a potential of 6 million units country-wide, the total size of the Japanese electronic vending machine market is very significant to us and we look forward to further growth in this market.
Last week, we announced an order for 10,000 of OTI’s UNO-8 advanced secure contactless NFC reader for the global smart ATM market to be delivered before the end of 2019. In this new order, we have already received orders for over 50,000 advanced reader systems which are being used throughout the world to provide smart ATMs with contactless NFC capabilities.
6月中旬，我们通过我们的合作伙伴Billing System Corporation（一家领先的区域支付服务提供商）收到了来自日本的1,000个无现金支付系统的采购订单。这一新订单为我们与战略合作伙伴共同继续发展奠定了坚实的基础。我们继续扩大在日本[音频不清晰]零售市场的业务范围，我们已经在日本市场上运营了超过10,000个OTI系统。在全国范围内拥有600万台潜力，日本电子自动售货机市场的总体规模对我们来说非常重要，我们期待这个市场的进一步增长。
Now I would like to cover the financial results. Last Wednesday, we issued the results from the second quarter of 2019 in a press release. A copy of the release is available in the Investor Relations section of our website. As usual, I’ll be covering some non-GAAP metrics, including adjusted EBITDA from continuing operations. We believe this provides a good understanding of our ongoing performance. Please see the earnings release on our website for further details about these non-GAAP metrics, including a reconciliation of adjusted EBITDA to our comparable GAAP results.
In addition, as you know, we announced the sale of MediSmart in December 2018. The results of MediSmart are therefore included as discontinued operations and all the prior period information has been reclassified to conform with the current period presentation.
Revenues in the second quarter of 2019 were $4.1 million. This is compared with $5.7 million in the second quarter of last year and $3 million in the prior quarter. In terms of breaking down of where revenues were derived in the second quarter of 2019, retail and mass transit ticketing revenues were $3.5 million or 84% of sales, and petroleum revenues were $0.6 million or 16% of sales.
Looking at geographic breakdown in the second quarter of 2019, the Americas accounted for $0.8 million or 21%, Europe was $2.3 million or 55%, Africa was $0.5 million or 12%, and APAC was $0.5 million or 12%. Recurring revenues in the second quarter of the year were $1.2 million or 29% of revenue versus 24% last year.
Gross margin in the second quarter was 58%, a solid improvement over the 60% recorded in Q2 last year and 55% in the prior quarter.
In the second quarter, operating expenses were $3.2 million versus $3.3 million in the second quarter of last year and $3.1 million in the prior quarter.
Net loss in the quarter was $0.9 million. This is compared to a $278,000 loss in the second quarter of last year and $1.7 million loss in the prior quarter.
Now turning to our non-GAAP results, adjusted EBITDA in the second quarter of 2019 was a loss of $442,000 compared with an adjusted EBITDA of $32,000 in the second quarter of last year and an adjusted EBITDA loss of $1.1 million in the prior quarter.
Looking at our balance sheet, OTI remains in a good position. At June 30, 2019, cash, cash equivalents and short term investments was $5.7 million and short and long term debt was $2.8 million. At year end 2018, we had $5.9 million in cash and equivalents and $0.4 million in debt.
Before concluding, I would like to take a moment to thank Shlomi Cohen, our former CEO, and wish him the best of luck in future with all endeavors. On behalf of the employees, management and the board, I would like to thank him for the years invested in OTI, stabilizing the business and advancing the strategy. As I mentioned earlier, the board is working to find a suitable replacement which we hope will be concluded in the coming months.
In summary, over the past few quarters, OTI has gone through a difficult period, but as the improvements in our results this quarter show, from a financial perspective we believe the issues we faced are now behind us. Apart from the strong sequential revenue growth, we have made strong progress in building recurring revenues as well as improvement to the gross margin, better positioning us going forward.
Now we will respond to your questions. Ehud, please go ahead.
Thank you. Our first question is from Robert Helft [ph], a private investor. He asks the following question. The new TRIO-IQ was already presented in detail in June 2018. At the same time, since then global orders except for Russia and ATMs have fallen. Is there a connection? Do customers prefer to wait for serial production of the IQ instead of ordering the old TRIO? When will the TRIO-IQ come onto the market?
谢谢。 我们的第一个问题来自私人投资者Robert Helft [ph]。 他问下面的问题。 新的TRIO-IQ已于2018年6月详细介绍。与此同时，从那时起，除俄罗斯和ATM之外的全球订单已经下降。 有连接吗？ 客户是否更愿意等待IQ的批量生产而不是订购旧的TRIO？ TRIO-IQ什么时候上市？
We presented our latest cashless automatic payment solution, the TRIO-IQ in the second quarter at the NAMA Show in Las Vegas. In the past few months, we did find that some of our customers had held off purchase until the new release was launched, and this was especially true in Japanese markets where our customers want to use the latest and best technology. We believe that from the end of this year and beginning of 2020, we will start to see purchase orders are coming in. Japan and U.S. markets will be our major markets for the TRIO-IQ in the coming years.
我们在拉斯维加斯的NAMA展会上展示了我们最新的无现金自动付款解决方案，即第二季度的TRIO-IQ。 在过去的几个月里，我们确实发现我们的一些客户在新版本推出之前就已经暂停购买，在我们的客户希望使用最新和最好的技术的日本市场尤其如此。 我们相信，从今年年底到2020年初，我们将开始看到采购订单正在进入。日本和美国市场将成为我们未来几年TRIO-IQ的主要市场。
Same question from Robert. Please discuss OTI’s PetroSmart and when do you expect to see more revenue?
As you know, OTI PetroSmart is our solution for integrated fuel and fleet management vehicle identification. Escalating costs of managing fleets is the driver for the customer to introduce more stringent controls when refueling. We do see demand and interest--sorry. In the first half of 2019, our revenue in this business was $1.4 million, down about 45% versus the first half of last year primarily due to lower revenues in the Americas, which in part was due to import tariffs placed on Chinese manufactured products into the United States. I do expect our revenues in the second half of the year in this business will be better than that of the first half.
Longer term, bringing OTI PetroSmart to the next stage of its potential will be something the new CEO will work on.
如您所知，OTI PetroSmart是我们的综合燃料和车队管理车辆识别解决方案。 管理车队的成本不断上升是客户在加油时引入更严格控制的动力。 我们确实看到需求和兴趣 - 抱歉。 在2019年上半年，我们的业务收入为140万美元，比去年上半年下降约45％，主要原因是美洲收入减少，部分原因是中国制造产品的进口关税降至 美国。 我确实预计今年下半年这项业务的收入将好于上半年的收入。
Another question from Robert. Cubic successfully implemented a new fare payment technology for New York’s MTA rollout of their Omni system. Cubic is an old partner of OTI. Is OTI involved here?
罗伯特的另一个问题。 Cubic成功实施了新的票价支付技术，用于纽约的MTA部署Omni系统。 Cubic是OTI的老搭档。 OTI是否涉及这里？
No, OTI is not involved here.
A follow-on question from Robert. Billing System Japan wanted to expand its relationship with OTI. [Indiscernible] company as founded especially for this purpose in September 2018; however, the orders of OTI to Japan have disappeared. Was there a dispute?
Robert的后续问题。 计费系统日本希望扩大与OTI的关系。 [Indiscernible]公司于2018年9月特别为此目的成立; 然而，OTI对日本的订单已经消失。 有争议吗？
No. As I mentioned earlier, the Japanese market likes to use the latest and best technologies. When we started discussion on our new release of the TRIO-IQ, they held off new orders. We presented the TRIO-IQ at the end of April and interest from the Japanese market is quite significant.
没有。正如我前面提到的，日本市场喜欢使用最新最好的技术。 当我们开始讨论我们新发布的TRIO-IQ时，他们推迟了新的订单。 我们在4月底推出了TRIO-IQ，日本市场的兴趣非常大。
The last question from Robert, finally, what do you expect in terms of sales and order development through year end?
As I said earlier, we do expect to see annual sales growth from this point until year end 2019.
Okay, our next question is from George Berberus [ph], private investor. It might be time that OTI should cease as an independent company and look to merge to create a company of scale that has better chances of success. Is this in the plan?
好的，我们的下一个问题来自私人投资者George Berberus [ph]。 OTI可能应该停止作为一家独立公司，并寻求合并，以创建一个具有更大成功机会的规模公司。 这是计划中的吗？
The board and the management are always looking how shareholder value can best be achieved, though their short term goal is to grow sales and [indiscernible] breakeven in the coming quarters. A new CEO, when they join, will consider the longer term strategy of OTI together with the board.
Our next question is from Ailon Grushkin from AZG Tangible Assets Fund. His first is as follows. What are the differences between Shlomi’s strategy and the board’s?
我们的下一个问题来自AZG有形资产基金的Ailon Grushkin。 他的第一个如下。 Shlomi的战略和董事会之间有什么区别？
Unfortunately I can’t go into the specific points of this agreement other than what we already publicly announced to the market. We announced publicly that this related to a difference in opinions between Shlomi and the board with regard to the current strategy and operation of the company.
Another question from Ailon, is there a reason the board does not just hire a banker to sell the company and salvage some value?
The board considers OTI to be very undervalued in the market, therefore our immediate goal with the most direct impact on our valuation and creation of shareholder value is growing sales, which should lead to return of profitability. When the new CEO arrives, we will evaluate together with the board the longer term strategy for maximizing shareholder value.
A follow-on question, is there a strategy in place to keep expenses under control to avoid another capital raise that dilutes the current shareholder base?
Our expenses are under full control. It will continue to be like that. I would like to point out a few things. We have guided that we expect that revenues for the remainder of the year will continue to grow consistently. Our operating expenses in the first half of this year were $6.3 million versus $6.7 million in the first half of last year, so we are doing a good job on keeping a cap on lowering expenses. Our gross margin has increased 500 basis points from 51.3% in the first half of last year to 56.3% in the first half of this year, which effectively has lowered our revenue breakeven point.
With regard to the second point about raising capital, I don’t know what the growth strategy will be with a CEO who has not yet arrived. What I can say is that the immediate term, we have $5.7 million in cash on the balance sheet, which is enough for our short term working capital needs.
我们的开支完全受控制。 它会继续像那样。 我想指出一些事情。 我们已指导我们预计今年剩余时间的收入将继续保持增长。 我们今年上半年的营业费用为630万美元，去年上半年为670万美元，因此我们在降低费用方面做得很好。 我们的毛利率从去年上半年的51.3％增加500个基点至今年上半年的56.3％，这实际上降低了我们的收入盈亏平衡点。
Thank you. That concludes the question and answer session. Assaf, please make your concluding statements.
谢谢。 问答环节结束了。 阿萨夫，请做出结论性陈述。
On behalf of OTI, I would like to thank you for your continued interest and long term support of our business. I look forward to speaking with you next quarter and updating you on our progress. Thank you for your attendance. Have a good day.
我谨代表OTI，感谢您对我们业务的持续关注和长期支持。 我期待下个季度与您交谈并向您介绍我们的进展情况。 感谢您的出席。 祝你有美好的一天。
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
会议现已结束。 感谢您参加今天的演讲。 您现在可以断开连接。
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