MICT, Inc.
Q1 2017 Earnings Call Transcript

Published: 22 May 2017

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome the Micronet and Enertec First Quarter 2017 Results Conference Call. All participants are present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded. I would like to hand the call over to Delec Mire [ph] of Corporate Profile. Please go ahead.

[Unidentified Company Representative:]

Thank you. Good morning and thank you for calling in to review Micronet Enertec's first quarter 2017 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 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 then clicking a second link labelled May 22, 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 an 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 our future revenue growth, our expectation that we will have more favourable revenue levels for the balance of 2017 as we deliver on the purchase orders received during the first quarter and book the associated sales. Our pipeline and backlog, increased volumes and demand in the markets in which we operate, our product offerings and future market opportunities, expected new opportunities and anticipated orders and growth resulting from the ELD mandate. Enertec being positioned for growth based on its strong reputation and an expected increase in military spending and the timing and expected benefits from our spinoff of the aerospace and defense division including whether such spinoff will be completed. Such forward looking statements and their 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 factor section and elsewhere in the company's annual report on Form 10-K for the year ended December 31, 2016 filed with the SEC. Please note that the date of this conference call is May 22, 2017 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 non-GAAP financial measures as defined by SEC Regulation G, including non-GAAP net loss and 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 a substitute for or superior to our GAAP results and we encourage you to consider all measures when analyzing Micronet Enertec's performance. A reconciliation of these non-GAAP measures to the applicable GAAP measures is included in today's press release regarding our quarterly results and can also be found in the Investor Relations section of our website at www.micronet-enertec.com/ir-company. The slides containing the first quarter reconciliation can also be found in the Investor Relations section of the website at www.micronet-enertec.com/ir-company. On the call this morning, we have David Lucatz, Chairman, President and CEO of Micronet Enertec; Oren Harari, Chief Financial Officer of Micronet Enertec and Ran Mayroz, Chief Product and Strategy Officer of Micronet Ltd. And 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. With that, I will now turn the call over to David who will begin the presentation on Slide 4. Please go ahead David.

[David Lucatz:]

Thank you. And good morning, everyone. During the first quarter we experienced continued demand for our products, resulting in awarded contracts for our combined businesses totalling $5.6 million. Revenue [ph] of EBIT line in the first quarter, as compared to same period in 2016. The decrease in sales and revenue and decrease in Micronet revenue caused by the decrease in supply of Micronet’s new product line, we expect more favourable revenue levels for the balance of 2017 as we deliver on the purchase orders received during the first quarter and book the associated sales. Micronet has a backlog of $7.3 million as of quarter one, and significant increase of 179% in the backlog and $3 million at the end of the first quarter of 2016. Backlog on Micronet grew to $9.3 million by May 15, 2017. We are seeing strong interest in and demand for Micronet product as an ELD mandate requirement deadline nears. We are diversifying our customer base and strengthening our reputation as a provider of reliable rugged solutions. Enertec is positioned for growth base on its strong reputation and an expected increase in military spending. Our combined backlog remains strong at $15.4 million end of Q1. On slide 4, we present business order of our TREQ-317 and relatively [ph] large TREQ-r 5. And TREQ-317 is an all-in-one rugged platform. The Android based fixed mount and tablet offer a vast functional at competitor’s choice. During the first quarter we received $800,000 order for the TREQ-317 from a leading American school bus fleet management solutions provider. We also received $2.1 million order from a current customer for the TREQ-317. TREQr-5 expands market opportunity particularly with a smaller TREQ size customers. We have a strong pipeline which are growing upward with customer evaluating our product in the field. Following the end of the first quarter on May 1 we received an order worth $1,060,000 million for the TREQr-5 and as of May 15 we have received order for a total of 16,000 units of TREQr-5. Turning to slide 5. We look at significant order we received in our aerospace and defense business. Our backlog at Enertec on end of Q1 grew by 139% to 7.3 as compared to third quarter of 2106. The Enertec orders announced during the first quarter were missile critical system to be delivered to large multi national defense contractor who are looking to outsource more work to reliable partner like Enertec. Total order received during the first quarter amounted to $2.7 billion. At slide 6, we highlight the trends of our benefits to our business. The local fleet vertical which represent the majority of mobile resource management or MRM revenue is subject to the ELD mandate and is expected to grow significantly over the next several years. Our unique solutions are compliant and compatible and we believe we are well positioned to benefit from this growth [indiscernible] change. As previously reported, on March 20, 2017, the company’s Board of Directors approved a spinoff of aerospace and defense division of MICT in with Standalone Company. The spinoff will be subject to certain customer conditions, the company Board of Directors still considering whether and when to move forward with spinoff. There is no guarantee that the company would proceed with the benefits [ph] of spinoff or will they be successful in doing so. I will turn the call to Oren for financial review. Oren?

[Oren Harari:]

Thank you, David. And good morning, everyone. The next slide illustrates our revenue breakdown by segment for the first quarter of 2017, as compared to the year ago period, as well as on a quarter-to-quarter basis comparisons with Q4 of 2016. MRM revenues were $2.7 million in the first quarter of 2017, a 31% decline from $3.9 million in the first quarter of 2016. In the first quarter of 2017 we saw a 108% increase from $1.3 million in revenue in the fourth quarter of 2016. For the Aerospace and Defense business segment, revenues were unchanged to $2.6 million in both the first quarter of 2016 and ’17. On a quarter-over-quarter basis, revenues declined by 10% from $2.9 million in the first quarter of 2016. Moving to slide 8, consolidated revenues declined by 90% - 19% to $5.3 million in the first quarter of 2017, as compared to $6.5 million in the first quarter of 2016. However, on a quarter-over-quarter basis revenues increased by 25% from Q4, 2016. On a year-over -year basis lower sales were mainly due to a decrease in the supply of Micronet’s new product line. Micronet’s had a backlog of $7.3 million on March 31, 2017 and $9.3 million on May 15, 2017. Gross profit margins were 13% in the first quarter of 2017, compared to 32% in the same period of the prior year. The decrease in the overall gross margin was related to an increase in cost associated with the introduction of the new line of products at Micronet and engaging in the strategic contracts with low profitability in Enertec. R&D expenses came down on a dollar basis and remained relatively consistent on a percentage basis, as compared to the prior year. Selling and general administrative expenses or SG&A increased in the first quarter of 2017 to $2 million or 38% of sales compared to $1.5 million or 23% of sales in the year ago period. The increase in SG&A is primarily due to an increase in professional expenses related to the previously announced an contemplated spinoff of our Aerospace and Defense division and increases in sales and sale support. Net loss for the first quarter of 2017 was $1.6 million or a loss of $0.25 per basic and diluted share, as compared to a net loss of $340,000 or a net loss of $0.06 per basic and diluted share on the first quarter of 2016. On slide 9 you will see that on a non-GAAP basis not for the first quarter of 2017 was $1.4 million or $0.23 per basic and diluted share, as compared to 216,000 [ph] or $0.02 per basic and diluted share on a non-GAAP loss in the first quarter of 2016. Turning to slide 10, you can see that our balance sheet remained strong with $7.1 million in cash, cash equivalents, $6.6 million in working capital and $11.4 million in shareholders equity as of March 31, 2017. I will now turn the call back over to the operator for Q&A.

[Operator:]

Thank you. [Operator Instructions] The first question is by Craig Watts, a Private Investor. Please go ahead.

[Craig Watts:]

Yes. My question is in relation to the spinoff, I know you said that there is still uncertainties involved with that. I guess, what I am wondering would be, if you have a timeline as to when you think it may occur assuming everything gets approved?

[David Lucatz:]

Hi. We right now - we are working on the form [ph] to be submitted to the SEC. We are working basically own a legal form. I can estimate based on our [indiscernible] that we’re going to have probably take between 3 to 6 months, but it really depends on all the feedback and inputs we’re going to get.

[Craig Watts:]

Okay. That sounds good to me. And I guess my last question would have to do with - you have any projections for the current quarter that we're in right now if we're going to narrow our loss you know substantially I would hope by just $0.25 a share that we lost this quarter it seems a little higher to me and I'm just wondering if we can expect to do better here in this current quarter?

[David Lucatz:]

Right now we don't have sort of information reported because the quarter is not end yet.

[Craig Watts:]

Okay. I know sometimes companies as long as it's a public call like this is would sometimes give projections you know, I don't think it's illegal to do so and that's why I was asking if you were able to elaborate, either share that. What about for the coming quarter. Are we expecting maybe to breakeven during third quarter do you think?

[David Lucatz:]

Again, we – the only thing we can really at this moment say that we have a very strong backlog to be delivered, okay. So this should affect the performance and the result MICTs [ph] shareholders. There is always a question of delegate [ph] but yes, our starting point right now is much stronger than in the past. I think as far as I recall that means [indiscernible] the company.

[Craig Watts:]

Okay. All right. Thanks a lot.

[Operator:]

[Operator Instructions] At this point there are no further questions. Before I ask David to make concluding statement, I would like to remind participant the replay of this call will be available within two hours in the US please dial 1888-782-4291, in Israel please dial 03925-5921. Internationally please dial 972-392-55921. David would you like to make concluding statement.

[David Lucatz:]

Thank you. I am very excited about the potential for both our Enertec and Micronet business. In the MRM business the quarter-over- quarter revenue growth numbers combined with the backlog indicates increasing yielded rate in demand we anticipated is indeed unfolding. As Micronet increased its portfolio of industry leading mobile resource management offering, it's extremely well positioned as a trusted leader in that market. In our Aerospace and Defense business increasing [indiscernible] combined with the trend for large multinational defense contractor to outsource Enertec [ph] Looking forward to the balance of 2017, I would like to thank our dedicated team of employees and manager and we look forward to speaking with you in next quarter. Thank you.

[Operator:]

Thank you. This concludes the Micronet and Enertec Technologies' first quarter 2017 results conference call. Thank you for participation. You may go ahead and disconnect.