MICT, Inc.
Q3 2018 Earnings Call Transcript

Published: 27 Nov 2018

[Dilek Mir:]

Ladies and gentlemen, thank you for standing by. Good morning and thank you for calling in to review MICT Incorporated Third Quarter 2018 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 on the Investor Relations section of the Company website at www.mict-inc.com under Events and Presentations. You may also access a PDF copy of the presentation by clicking the link in the Company’s press release regarding these financial results issued this morning and the clicking the second link, labeled Q3 2018 Results. Callers accessing the PDF copy of the presentation will need to manually scroll through the presentation 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 and implied forward-looking statements within the Private Securities Litigation Reform Act of 1995 and other U.S. Federal Securities laws. These forward-looking statements include but are not limited to those statements regarding the proposed series of transactions and timing of certain events associated therewith, with BNN Technology PLC, or BNN, those statements regarding our believe that with an increasing number of companies having met their electronic lodging device or ELD mandate requirements, we are seeing a drop in demand and changes in the customers need. Our belief that we expect to deliver on our backlog in the fourth quarter of 2018, the timing of the release and success of new market initiatives, projects and product offerings and the potential for the second phase of additional trucks that may require compliance with the ELD mandate. Such forward-looking statements and/or implications involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially from those projected. The forward-looking statements contained in this presentation are subject to other risks and uncertainties, including those discussed in the Risk Factors section and elsewhere in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, and in subsequent filings with the Securities and Exchange Commission, 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. Please note that the date of this conference call is November 27, 2018 and any forward-looking statements that management made 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 an express the disclaims any obligation to update or alter its forward-looking statements whether as a result of new information, future events or otherwise. In connection with the proposed transaction with BNN, if an agreement is consummated, MICT and BNN will prepare a proxy statement plus prospectus for MICT’s stockholders and a registration statement on Form S-4 to be filed with the Securities and Exchange Commission, or the SEC. MICT’s proxy statements/prospectus will be mailed to MICT's stockholders and that do not opt to receive the document electronically. MICT and BNN urge investors, stockholders and other interested persons to read when available the proxy statement/prospectus as well as other documents filed with the SEC, because these documents will contain important information. Such persons can also read MICT’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 for a description of the security holdings of its Officers and Directors and their respective interests as security holders in the consummation of the transaction described herein. MICT’s definitive proxy statement/prospectus which will also be included in the registration statement, if a definitive agreement is reached, will be mailed to stockholders of MICT as of a record date to be established for voting on the transaction described in this report. MICT's stockholders will also be able to obtain a copy of such documents without charge by directing a request to MICT Incorporate, 28 West Grand Avenue, Suite 3, Montvale, New Jersey 07645. These documents once available also can be obtained without charge at the SEC’s website, www.sec.gov. MICT and its directors and executive officers may be deemed to be participants in the solicitation of proxies for the special meeting of MICT's stockholders to be held to approve the transactions, if a definitive agreement is reached. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of MICT stockholders in connection with the proposed transactions will be set forth in the proxy statement/prospectus when it is filed with the SEC. You can find information about MICT’s executive officers and directors in its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on April 13, 2018. After such filing, you can obtain free copies of these documents from MICT using the contact information above. This call is not a proxy statement or solicitation of a proxy, consent or authorization with respect to any securities or in respect of the proposed transaction, and shall not constitute an offer to sell or a solicitation of an offer to buy the securities of MICT or BNN, nor shall there be any sale of any such securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state or jurisdiction. No offer or securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended. The tender offer referred to in this script has not yet commenced. This call is for information purposes only and does not constitute an offer to sell or purchase, or the solicitation of tenders with respect to the shares of MICT. No offer, solicitation, purchase or sale will be made in any jurisdiction in which such an offer, solicitation, purchase or sale would be unlawful. The offer will be made solely pursuant to the offering documents. These documents will contain important information about the tender offer, and shareholders are strongly encouraged to evaluate carefully all information in the offering documents and to consult their investment and tax advisors before making any decision regarding the tender of their shares. If the tender offer is commenced, a tender offer statement on Schedule T-O will be filed with the SEC. In addition, following definitive documentation, MICT intends to file with the SEC a solicitation/recommendation statement on Schedule 14D-9 with respect to the tender offer. The tender offer statement, including the offer to purchase, the letter of transmittal, and other related materials and the solicitation/recommendation statement of MICT on Schedule 14D-9 will also be available on MICT stockholders at no charge on the SEC’s website at www.sec.gov. During this call, in addition to the GAAP financial measures, management will discuss non-GAAP financial measures as defined by SEC Regulation G, including non-GAAP net loss income. These non-GAAP measures exclude share-based compensation expenses and the amortization of intangible assets. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results, and we encourage you to consider all measures when analyzing MICT’s performance. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in today’s press release regarding our quarterly results, and can be found in the Investor Relations section of our website at www.mict-inc.com/ir-company. The slides containing the third quarter results reconciliation can also be found in the Investor Relations section of our website at www.mict-inc.com/ir-company. On the call this morning, we have David Lucatz, Chairman, President and Chief Executive Officer of MICT; Tali Dinar, Chief Financial Officer of MICT, and Dudy Markus, Chief Executive Officer of Micronet Ltd. Again as a reminder, management will be referring to a slide presentation that can be accessed via the Investor Relations section of the Company’s site or the link in the press release. We will start with an opening message from David, who will give an overview of the business developments for the quarter ended September 30, 2018, then we will move to review the numbers with Tali and we will wrap up with Q&A. I will now turn the call over to David, who will begin the presentation on Slide 3. Please go ahead, David.

[David Lucatz:]

Thank you. Good morning everyone. We believe that with an increasing number of companies have met the year demand requirement. We are now seeing a drop in demand and change in customers NIM. As a result, MICT experienced a decrease in revenue and gross margin in Q3, 2018 as compared to Q3, 2017. Q3, 2018, revenue decreased by 60% to $2.2 million over Q3, 2017 revenue of $5.5 million. Gross profit decreased by 96% to $0.05 million in Q3, 2018, as compared to $1.5 million in Q3, 2017. Gross margin decreased to 2% in Q3, 2018 from 27% in Q3, 2017. Our backlog was $0.6 million as of September 30, 2018. We believe we will be able to deliver on this backlog in Q4, 2018. Our results for the first nine months of 2018 were more provable revenue increased by 8% to $12.9 million for the first nine months of 2018 compared to $12 million in the first nine months of 2017. Gross profit increased 22% to $3.3 million, the first nine months of 2018 compared to $2.7 million in the first nine months of 2017. Gross profit margin was 26% in the first nine months of 2018 as compared to 22% in the first nine months of 2017. Now moving to Slide number 5. On Slide 4, we present our market status and business development. New orders were stronger than expected during the third quarter and we believe this will be the result of most MRM companies having spread the magic experience AMD mandate requirement. We are gaining traction with the new market base initiative that includes co-marketing sub-constructing and distribution agreement. We are also working our long-term customer acquisition projects with larger fleet in the U.S. and Europe. We are also seeing strong interest for the market for our Smart Connected Camera, that is due to be sold commercially during 2019 and we will enable service such as ADAS, Driver Awareness and other application as part of this management. Our next-generation LTE certification is now in the process to be completed. Strategic partnership agreement with establish ASP in the space to launch Android-based Smart dual camera for ADAS and real-time vision analytics. Additionally, while we are focusing our efforts in improving our business performance, we are also continuing to negotiate a definitive agreement for the transaction contemplated by the letter of intent entered into with BNN Technology PLC announced on July 2, 2018. I am moving to Slide 6. On the Slide 6, we have outlined our research and development and new product and service development initiatives and potentially drive future revenues. We are building the back-end system for commercial website that will serve MRM markets. It will launch with 5 to 6 applications that we intend to sell to the MRM market. Our TAB8 is under development and we expect the prototype to be ready to Q3, 2019, and production by the end of -- by the second half of 2019. The Micronet Smart Camera that we are developing is expected to be in production during the second half of 2019. We expect another bulk of $1 million to 1 million to 2 million trucks to be required to meet the ELD mandate by the December 2019. The second phase expects to include bigger fleet than in phase one which are more suitable for Micronet's product. I will now turn the call to Tali for financial review. Tali?

[Tali Dinar:]

Thank you, David, and good morning everyone. Slide 7 shows our revenues for the third quarter of 2018, as compared to second quarter of 2018 and the third quarter of 2017. Revenues were $2.2 million in third quarter of 2018, a 58% decrease from $5.5 million in the third quarter of 2017. Revenues declined by 53% from $4.7 million on a quarter-over-quarter basis. Slide 8 shows our revenue for the nine month ended September 30, 2018, as compared to the nine months ended September 30, 2017. Revenues were $7.9 million in the first nine months of 2018 and 8% increase from $11.9 million in the first nine months of 2017. Slide 9 gives a detailed breakdown of the numbers. Gross profit margins decrease to 2% in third quarter of 2018, as compared to 27% in the third quarter of 2017 R&D expenses for the third quarter of 2018 were $425,000 or 19% of sales compared to $526,000 or 10% of sales in the third quarter of 2017. Selling and G&A expenses were at $2.9 million or 123% of sales as compared to $1.5 million or 27% of sales in the third quarter of 2017. Net loss from continued operation for the third quarter of 2018 was $4.1 million, our net loss of $0.28 per basic and diluted share, a 343% increase compared to net loss of $943,000 or net loss of $0.09 per basic and diluted share for the third quarter of 2017. On Slide 10, we present our non-GAAP numbers. Our total non-GAAP net loss attributed to initiatives for the third quarter of 2018 was $2 million, an increase of 283% of a $530,000 non-GAAP loss into third quarter of 2017. On Slide 11, non-GAAP net loss attributed to MICT for the nine months ended September 30, 2018 was $3.9 million and 93% increase as compared to non-GAAP net loss of $2 million for the first nine months of 2017. Turning to Slide 12 on our balance sheet, we have $2.5 million in cash and cash equivalents, $3.2 million in net working capital, and $4.9 million in stockholders' equity as of September 30, 2018. I will now turn the call back over to the operator.

[Operator:]

Thank you, ladies and gentlemen. At this time, we’ll begin the question-and-answer session. [Operator Instructions] The first question is from Joe Tracy of Lakeview Capital Partners. Please go ahead.

[Joe Tracy:]

I know you’re not allowed to discuss a whole lot on this as far as the BNN tender offer, but can you tell me whether or not management or insiders will be allow to participate if and when the tender offer happens?

[David Lucatz:]

Well, I cannot of course disclose any information as you mentioned and part of the non-disclosure is also mentioned in management or officer, but I suggest that you go back to the filing what you did a couple of months ago and I believe all information is there.

[Joe Tracy:]

And then one other question, in your proxy statement that came out a couple of weeks ago, you’re asking shareholders to vote to increase the number of shares in the Company in order to pay incentive fees to management when the stock price is decreased 65% from where you sold your big chunk of shares and I’m sure all the shareholder would love to participate it in that sale. I mean why would you expect any shareholder to vote on that proxy?

[David Lucatz:]

Well, you have a couple of questions in one question, but let me just answer exactly the decision is the decision of the board, and the board decided that this is the right thing to do for the Company. Mentioning by the way the third, you also mentioned a couple of minutes ago, the tender offers. So tender offer is also open for the public, so I don’t see any reason why you cannot participate in tender offers as well.

[Joe Tracy:]

Given the stock price right now down in the $0.40 range and the tender was mentioned at $1.65 minimum. I mean it certainly didn't look like to anybody out here that the $1.65 minimum would be the tender price is that -- can that be negotiated down?

[David Lucatz:]

Well again, you ask me to disclose information about negotiations, so I cannot disclose any information, and I can also not in charge of whoever looked at it the way look at it. I just simply can direct you back to the finding which we did. And as we mentioned in this call, we are still negotiating with BNN transaction. Other than that I cannot add anything else.

[Joe Tracy:]

Okay. Well, then from the MICT side business, I mean surely you can disclose this because in your press release on July 2nd, you said that you hope to close the seal within three months. Is there a cut off time where MICT says, we’re tire to negotiating we’re out here. I mean can this go on for another six months or a year? Or do you all have a set timeframe of saying we either going to get it done by now or we’re out of here?

[David Lucatz:]

Well, I can just tell you that we are negotiating right now, if there would have been a deadline I would told you, okay. But right now, we’re in middle of negotiation. Just it remind me a similar question which you had a year ago about the Enertec transaction, and we simply final the transaction, five times later despite this question. So, I strongly suggest that you take information and think for it so.

[Operator:]

[Operator Instructions] We have a follow-up question from Joe Tracy. Please go ahead.

[Joe Tracy:]

Okay. So, we don't know whether or not management can participate in the tender, but right now as management restricted from buying share from the open market of MICT?

[David Lucatz:]

Well, the management is going according to the -- actually what the name into trade policy, we are working according to that so I cannot be stored if you can sell, buy or anything else. We just grew what level we have to do and we work according to -- you can find everything in the public disclosure. Yes, we're working according to the policy of the Company.

[Operator:]

There are no further questions at this time. Before I ask David to make his concluding statement, I would like to remind participants that a replay of this call will be available within two hours. In the U.S., please dial 1-866-276-1485, in Israel please dial 03-925-5936, internationally please dial 972-3-925-5936. David, would you like to make your concluding remarks?

[David Lucatz:]

Yes, thank you. Thanks to all of our shareholder and our dedicated employees and management while our third quarter results were less than we expected. We are working hard to improve our results. Thank you and I'm looking forward to speaking to you early next year with our 2018 year-end results.

[Operator:]

This concludes Micronet Enertech Technologies third quarter 2018 results conference call. Thank you for your participation. You may go ahead and disconnect.