MICT, Inc.
Q2 2017 Earnings Call Transcript

Published: 16 Aug 2017

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome the Micronet Enertec Second 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 Dilek Mir of Corporate Profile. Dilek, please go ahead.

[Dilek Mir:]

Thank you. Good morning and thank you for calling in to review Micronet Enertec's second 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 August 16, Presentation. Callers accessing the PDF copy of the presentation will need to manually scroll through the slides as the 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 imply 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 belief that Enertec is positioned for growth based on its strong reputation and an expected increase in military spending. Our future revenue growth and pipeline, our expectation for more favourable topline numbers in the second half of 2017, our expected gross margin improvement beginning in 2018, our reduced margins for Enertec, our expectation relating to the receipt of contracts resulting from the teaming agreement with an Indian Aerospace and Defense Company, increased volumes and demand at the markets in which we operate, our product offerings and future market opportunities, expected new opportunities in anticipated orders and growth resulting from local fleet market and ELD mandate. 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 August 16, 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 or income, these non-GAAP measures exclude both 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 Micronet Enertec'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 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 our 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 three. Please go ahead David.

[David Lucatz:]

Thank you. And good morning, everyone. During the second quarter we build our revenue pipeline to $16.5 million, which grew to a record of $22.5 million as of August 10, 2017. It was mostly driven by demand for Micronet’s new mobile resource management product. Micronet achieved a record backlog of $13.5 million at August 10, 2017 which is higher than Micronet’s 2016 full year revenue of $13.25 million. We see demand continuing to grow for Micronet product as electronic logging device or ELD mandate nears. Micronet is diversifying its customer base in enhanced [indiscernible] as a provider of reliable rugged solutions. Technology is our core competence and as we enhance our top management team, we are pleased to welcome Mr. David Markus as the new CEO of Micronet, Israel. David previously served as the Chief Technology Officer at Pointer Telocation - a global MRM company, where he built and managed the company's R&D group and was also responsible for the company's products strategy, customer support and IT. He brings deep knowledge in technology, strategy and business development in the MRM space and will lead the fast-paced growth at Micronet. Enertec continued to consistently deliver on constructive Aerospace & Defense or A&D services. Enertec is positioned for growth based on its strong reputation and an expected increase in military spending. Revenue declined in the second quarter in the first six months to 2017 as compared to the same period in 2016. The decrease in sales is mainly due to decrease in supply of Micronet’s new product line. As Micronet works to product - to use increasing quantities of its new product and delivers on its purchase orders we expect more favourable top line numbers in the second half of 2017. Now moving to slide four, we present business order of our TREQ-317 and recently launched TREQ-r5 product. The TREQ-317 is an all-in-one rugged platform. The Android based fixed mount tablet offer advanced functionality at competitive price. During the quarter, we received [$2,100,000] million order for the TREQ-317 from a current customer. We also received an order worth $1.06 million for the TREQ-r5[S] [ph], an ELD compliant TREQr-5 expands Micronet’s market opportunity particularly with a smaller fleet size customers. In addition, during August 2017, Micronet received an additional $4.3 million order for the TREQr-5[S] [ph] from a leading Telematics provider. This order is the largest purchase order received at Micronet since 2012. We have a strong pipeline with growing number of customers evaluating our product in this field. I’m turning now to slide five, slide five, Enertec entered in a strategic teaming agreement with the leading Indian Aerospace & Defense company. Both companies are jointly pursuing a significant A&D off-set procurement opportunity. The opportunity arises from a trade agreement between the government of Israel and India, whereby any Indian purchase of Israeli military equipment of a certain amount required an off-set of 30% by the Israeli government. India and Israel have strong trade ties with the value of Aerospace & Defense contract between the countries currently estimated at over $2 billion per year. Enertec and the Indian defense company are now actively bidding on joint A&D contract under the Indo-Israeli Aerospace & Defense procurement agreement. Now moving to slide number six, slide number six we have an overview of the positive trending in both our business. The [two] [ph] $10 billion MRM business we are seeking Micronet received purchase order of increasing value from both new and current customers, pointing to strong customer satisfaction with the Micronet product. Micronet’s new rugged on-board computing products are experiencing increasing demand because we believe they create a strong value for the customers. The connected rugged device optimizes consultation planning and performance for our customers through a network of electronic link that transacts bulk material purchase just-in-time. Micronet rugged mobile device offers instant demand visibility for our customers. This cuts down on-site wait time and provides proof of delivery. A very important feature which improved cash flow for our customer is our devices’ ability to create faster payment processing for the goods and services. The local fleet market and the ELD mandate are the two main growth engines for the companies at this time. The government ELD mandate require all truck drivers in the U.S. to report their work hours electronically. 2.6 million drivers are now required to have a device that fits the ELD mandate by the end of 2017. Micronet continue to broaden its product portfolio and to target the additional segment in the MRM market. In Aerospace & Defense, Enertec is positioned for potential [growth] [ph] as most advanced militaries continue to rely on missile defense system. This creates more demand for our missile defense offerings. We expect continued demand for our Mobile Command & Control Centers. In the coming quarters, we also expect contract resulting from the Teaming Agreement with the Indian aerospace & defense company. I will now turn the call to Oren for financial review. Oren?

[Oren Harari:]

Thank you, David. And good morning, everyone. The next slide, slide seven, illustrates our revenue breakdown by segment for the second quarter of 2017, as compared to the year ago period, as well as on a quarter-over-quarter comparison with the first quarter of 2017. MRM revenues were $3.8 million in the second quarter of 2017, a 14% decline from $4.4 million in the second quarter of 2016. In the second quarter of 2017 we saw a 41% increase from $2.7 million in revenue in the first quarter of 2017. For the Aerospace and Defense business segment, revenues were $2.15 million in the second quarter of 2017, a 7% decline from $2.3 million in the second quarter of 2016. On a quarter-over-quarter basis, revenues declined by 17% from $2.6 million in the first quarter of 2017. Moving to slide eight, on slide eight we have revenue breakdown by segment for the first six months of 2017, as compared to a year ago period. MRM revenues were $6.5 million in the first six months of 2017, a 22% decline from $8.3 million in the same period of 2016. For the Aerospace & Defense business segments, revenues were $4.7 million in the first six months of 2017 more or less consistent with the same period last year. Moving to slide nine, on slide nine you will see consolidated revenue decline by 12% to $5.9 million in the second quarter of 2017, as compared to $6.7 million in the second quarter of 2016, however on a quarter-over-quarter basis, revenue increased by 12% from the first quarter of 2017. On a year-over-year basis lower sales were mainly due to a decrease in the delivery of Micronet’s new product line. Gross profit margins were 14% in the second quarter of 2017 as compared to 23% in the same period of the prior year. The decreases in 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 contracts with lower profitability at Enertec. We expect gross profit margins to gradually improve towards the beginning of 2018. R&D expenses came down on a dollar basis and remained relatively consistent on a percentage basis, as compared to the prior year. Selling, general and administrative expenses or SG&A decreased in the second quarter of 2017 to $1.75 million or 29% of sales compared to $2 million or 30% of sales in the year ago period. Net loss in the second quarter of 2017 was $1.3 million or a loss of $0.20 per basic and diluted share as compared to net loss of $1.2 million or a loss of $0.21 per basic and diluted share in the second quarter 2016. Moving to slide 10. On slide 10 you will see that on a non-GAAP basis, loss for the second quarter of 2017 was $1.2 million or $0.18 per basic and diluted share as compared to $0.97 million or $0.16 per basic and diluted share on a non-GAAP loss in the second quarter of 2016. Turning to slide 11, you can see that our balance sheet remained strong with $7.8 million in cash and cash equivalents, $6.4 million in working capital and $10.1 million in shareholders equity as of June 30, 2017. I will now turn the call back over to the operator for Q&A. Operator?

[Operator:]

Thank you. [Operator Instructions]. The first question is from Mike Vermut of Newland Capital. Please go ahead.

[Mike Vermut:]

Hi, there. Good morning.

[David Lucatz:]

Hi, Good morning, Mike.

[Mike Vermut:]

Few questions for you here. I guess, starting off with the most important aspect of this is, its great to see your backlog increasing. We’ve had a tough first half in getting, I guess, the product out there. Where is our --- the key to all this is turning into profitability positive cash flow. When you look at it what is your breakeven? I assume we should be crossing over that in the second half of the year with the backlog and the deliveries that we’re expecting, but can you kind of give us a help into what that looks like, and whether we should be crossing into positive earnings in cash flow in the back half of the year with these revenue numbers?

[David Lucatz:]

Oren, would you like to handle this.

[Oren Harari:]

Yes. Basically on the Micronet side, the revenue breakdown for Micronet is approximately 25 million unit revenue; that’s based on current spendings now. Both Micronet and Enertec has started to do some costs savings measures. So we probably estimate that revenue on yearly basis [11.25 million] will be breakeven for the company. It’s very hard to anticipate how on quarter-over-quarter basis whether will be breakeven, but you can assume that early quarters of 2018 we’ll probably get it.

[Mike Vermut:]

Oren, I’m sorry. Can you just back on it. Oren, did you say 25 million is a breakeven for the combined company or…?

[Oren Harari:]

Not for the combined company. For Micronet we’re looking at -- by current spending 45 million will be probably breakeven of the company. For Enertec its basically $10 million of revenues, so on a combined revenues its $35 million is breakeven for the company based on current spending. So, as I mentioned before currently the company is starting to do some cost measure for both entities, so we assume there’s probably less than 25 – less than 35 consultant revenues breakeven.

[Mike Vermut:]

Okay. So now then, let me – so then the back half of the year should we close to a breakeven cash flow where we’re looking at on the combined revenue basis for getting these orders out?

[Oren Harari:]

Again, assuming we will get most of the orders out, and you can assume either Q4 or Q1 of 2018 we will get to breakeven.

[Mike Vermut:]

Okay. When we look from now in our backlog and then we kind of look out into 2018 with the discussions we’re having with current customers that the ELD implementation coming. And then, can you just kind of give us a look as to should 2018 with the new products launching should we be expecting nice growth into 2018 off of all this? And then, as an add-on to that, how are we doing, getting into the large service providers now, so that our recurring predictable revenue increases significantly going forward; whether it’s the PeopleNet, Omnitracs, Verizon. How we’re doing on the partnering with those guys, so that 2018, 2019, 2020 become much more predictable for this company?

[David Lucatz:]

So, I’ll handle half of your question regarding the focus, expectation for growth. So, based on the trend that we see right and we’re experiencing last couple of months and by the way we see it moving forward with the current customers we see as I said, strong trend to continue take orders and increase orders. So this will pretty much give you the idea where we believe the company is heading to. So 2018 base on that, provided that we will stay in the same trend, we should see a growth. Okay. Again, anything can happen, but right now we have a very strong not only backlog, but we have a strong trend in the market. And I think it’s a great sign that also our current customers give us repeated orders more and more. So based on that and what we see right now we see a strong trend in a market that like our product technology, believe that the product and technology is suitable for the market. And it’s a great solution and we believe this trend will certainly continue. As for the second part, if I understand you correctly, our potential corporation with a large service providers, I’ll ask, Ran, our VP of Product and Technology, maybe you want to – Ran, you want to add few words about it.

[Ran Mayroz:]

Sure. Hi, everybody. So, we don’t have at the moment any specific news to announce. There are discussions with some of the bigger players in the market without naming them, and that are interested in our new coming, upcoming products. And we hope for news, but there’s nothing concrete at the moment. But we do see our new products carving and reaching the market that is unique and that of even the bigger players can benefit from it.

[Mike Vermut:]

Okay. So, we should stay tune there. So we are in, I guess, in trials or somewhere within the large players?

[Ran Mayroz:]

We are at the moment – the trial we’re doing with our new devices, new two devices, they are actually not with that top five or six players, they are with our biggest customers which are close to them, but there are some initial talks also with some of bigger players, the biggest players.

[Mike Vermut:]

Okay.

[David Lucatz:]

Mike, let me add one more thing regarding this. This is of course what you see right now. We do have some players in the new future to go into some new areas and then which this area will certainly give it great potential to corporate and collaborate with top five or six. So as Ran mentioned, and again I just want to emphasize this, right now we focused more on the second two or the first two. But in the new future and I’m talking in the next couple of months we’ll probably have some new direction in technology that will be very induces to top players.

[Mike Vermut:]

Okay. I got a couple more questions guys. Attacking and addressing the small and medium-size fleet, I think this where a lot of the ELP pushes is going to coming. How their distribution on that front? It’s one thing going up to the large fleet to the big players. How do we make sure we have the right distribution to the small owner operators and medium-size fleets that are going to be a lot of the [demand pool] coming in the end of 2017, 2018 and 2019?

[David Lucatz:]

Ran?

[Ran Mayroz:]

Yes. So, we at the moment exploring relationship with the value-added resellers and also with providers of ELD software. These two channels are channel that typically work with the long sale with smaller [TSBs] and the first one value-added resellers that sell typically tablets and handhelds directly to the fleets. These channels are channels that we haven't worked with. At the moment we are with initial exploration working to get. That's one channel. The second channel that I mentioned, ELD providers. So, there are quite a few providers there in the market that work on what’s call Bring Your Own Device! where we could introduce our new upcoming devices with and we already starting to work with them on using their channel to directly into their smaller fleet. So these are the two main channels we’re looking at.

[Mike Vermut:]

Okay. And from everything I follow, competition is leaving the market in our space, right, for the actual hardware device, most companies they are exiting the market. Are you seeing that out there the most, I guess, you have [Indiscernible]. You have some foreign competitors. You have -- maybe an HP, but most are moving out of our space. Is the competitive market becoming more favorable for us or has it not changed?

[David Lucatz:]

I will address part of the question. Well, practically speaking just based on the demand – growing demands and the growing orders, I would say, there’s either competition where we are one of the best or the competition is getting less, but still the bottom line is we see an increasing demand for our technology and product. And this is by the way not convention of the new technology and product that we expect to get shortly, what Ran said, we here we actually don’t see really a strong competition. Okay. We strongly believe that our technology and product especially with the new product line is something which we don’t really see real competition at this moment. Again, anything can happen in the next couple of months. But right now, I would say that based on what we see and result of the on-going and continuing demand for our product, I would say, its in our favor. Ran, if you want to add overall perspective what you see.

[Ran Mayroz:]

Yes. I think that we covered, I think we see – so, in our market there is relative small number of players and as you mentioned some of the players that used to do hardware on their own are looking at moving out of hardware, doing hardware its quite complicated and when you a business that is focused on software and services to also do hardware at the same time quite difficult. So we do see a trend, a general trend in the market of exploring options of the outsourcing the hardware. And like David mentioned we have new product, two product lines that are coming out, one already out and other one will come out in the second half of this year that are unique. And we don’t see a direct competition to these devices, some overlap with other technologies but we do think we have hard niche in the market that is quite be much bigger than our current sales and where we could play in a favorable terms.

[Mike Vermut:]

Okay. And then two more guys and then I’ll let you go. I don’t think we mentioned or maybe I miss it, splitting the company between the division is that still going forward or [we shelf] that idea?

[David Lucatz:]

No. We still stick to the original plan which is working of spin-off. However to that we expose some other options that you know the bottom would be that MICT will focus on the MRM. This is a strategy which we are kind of declared couple of months ago. This is original reason behind the spin-off to -- so this contribute to -- going to be happen this way or the other. But right now we stick to the strategy, I mean, the strategy and the plan and ultimately in the bottom line we want to focus MICT on the MRM.

[Mike Vermut:]

Right. Okay. So either it’s a monetization of the Enertec or splitting of the companies or something to isolate the value and the MRM and let that kind of fly on its own. Is that the idea?

[David Lucatz:]

Yes. Definitely, 100%

[Mike Vermut:]

And then, last question, did I assume the board is on this call and all the management were sitting here. We have phenomenal outlook going into 2018. The numbers could be huge for this company with what’s coming down the road. We’re trading at a market cap a fraction of our revenues, at a fraction of our tangible book value. No one kind of believes that it’s coming, but management has a good idea. Why is it that we have seen and David I know you own a lot of stock? But from the board, from other management we’ve seen absolutely zero insider buying at these levels. I would think that if board members are committed to this company and they see the value ahead that we would see significant insider buying when the stock is at $0.80 and we’re trading at a fraction of revenues, the fraction of book value and everything positive is one the horizon for us. That’s surprising to me. And I know it surprising to quite a lot of investors that we have not seen. That you would think that management and board would be buying all the stocks that they could at these levels? Is that something that we could expect from you down the road?

[David Lucatz:]

Michael, I prefer to separate your question into two sub question, if you don’t mind. Okay. So, first question it’s not a question, it’s a kind of a declaration which I truly agree with. My personal view I strongly believe that the company is significantly under valuated in any by the way in any measure that you measure, even if you just take the holding -- just you take the holding of Micronet, I believe 60% of Micronet which is right now traded around little less than $8 million. So this by itself is really I think show that the market – I think to my subjective opinion that market don’t evaluate the company properly. As to second question, I cannot represent the Board. I can just represent myself and I think it would be irresponsible to react personally under this call. But everything can happen and it can happen in the near future or whatever. That’s why I prefer not to refer to your question and even answer, okay. Unless you want me call all the Board of Directors and management and agree on an answer and come back to you.

[Oren Harari:]

Yes. I did – I actually think that would be a wise idea for – if the Board wants to remain the Board, so then they should be putting their money into the company otherwise you should consider finding other Board members that’s what I actually believe at these values. If they are committed to it they should put their money into the company, otherwise find other Board members. That’s my answer to this. So, something to think about and I think the Board should about it as well, because we have seen zero buying from the Board or management. And we have a great feature ahead of us and it will be nice to see that.

[Oren Harari:]

Definitely, okay.

[Operator:]

The next question is from [Craig Boots] [ph]. Please go ahead.

[Unidentified Analyst:]

Yes. I guess, my question was sort of touched upon here by the last person. He was asking in regards to the spin-off and I guess my follow-up on that would be, do you have a time line as to when we may expect a spin-off to occur?

[David Lucatz:]

I cannot give you time line right now, because it’s really subject to few legal processes, accounting processes and tax and this kind of stuff. So I wouldn’t commit to time line, but I just want to say in general that we -- as I said that we are going to execute on our strategy which is separate the two businesses.

[Unidentified Analyst:]

I guess on the last conference call I had sort of asked the same question and I think at that time you have said it would be in three to six months and now of course three months has went by. Would I be right to conclude that it should happen in the next three months or is that not accurate?

[David Lucatz:]

Again, I – what I say is basically based on all the input I’m getting from the people who handle this process, which is mainly the legal and this kind of stuff. We are subject to few processes that need to happen. I don’t have control unfortunately over the time line so I cannot commit anything. I can say in general it’s – my previous answer is a correct one, but it probably can vary and can move and I don’t want to make any commitment on the time line, okay. But I would like to say that you know in general by the end of 2018 we definitely want to see – during 2018 hope by then we want to see the two, the two division separate and to emphasize once again that we – our strategy right now on the MICT level is to focus purely on the MRM Telematics, because we strongly believe that the potential only in the MRM is quite huge. So seeing the strategy of the company the decision is to separate the two operations, two businesses and to focus separately on each one of them.

[Unidentified Analyst:]

Okay. That sounds good to me and I guess one other question. We’ve been doing some share offerings lately that you know to raise money and I don’t know if we are having problems with our capital if that’s why we are raising money and I guess what my question is, it just doesn’t seem good for the share price when we are raising money at roughly $1 a share and I think the last offering was even less than that and I’m just wondering if there is any more of that in the near future or are we now looking good as far as our capital is concerned where maybe we are not going to have to do this anymore?

[David Lucatz:]

This really depends on the performance of the company. I don’t have to explain to you, so far in the first half year the company saw some losses and we need the financing for the working capital and to continue to push company moving forward. So it really will be subject to situations. I believe that as we see the company, two separate companies getting more and more profitable we need to lessen this additional funds on this, we go to some either an acquisition or any transaction which needs additional capital. And we do have plans to do so. I mean, we do have plans to continue as a growth of the company also based on not only organically.

[Unidentified Analyst:]

Okay, and I guess my last question. I heard you mention on shareholder equity, I believe you had stated it was just over $10 million. How does that compare to where our shareholder equity was a quarter ago, I’m just curious on that comparison between the numbers?

[David Lucatz:]

I didn’t mention this number, probably our CFO Oren mentioned, the only number which I mentioned in this regard was that the holding of MICT in Micronet by itself is a little less than $8 million today. It’s not the equity, it’s just – it is purely the holding, okay, because Micronet as you are probably aware is a public company, it’s traded in Tel Aviv, so it has its market value. So if you ask about this number, this was – what I refer to and if you want specific on the equity I can ask Oren to address the question.

[Unidentified Analyst:]

Yes, I guess I would because I know it had been stated, I thought it was stated at 10 point, maybe 10.6 million. And I don’t know how that compares to recent quarters if we are going up in shareholder equity or if we decrease I just kind of like a comparison I guess on where we sit compared to where we used to sit.

[David Lucatz:]

Okay, Oren are you on the line.

[Unidentified Analyst:]

Shareholder’s equity basically on the last quarter for the yearly was 11, and then for this quarter was 10 - between Q1 – somewhere in the middle, so 10.5 as far as I recall, I don’t have the numbers in front of me, but I know for the year it was 11.

[David Lucatz:]

So, it’s pretty much the same. Maybe went maybe 0.5 million under, but pretty much…

[Unidentified Analyst:]

So it’s equity has decreased by $0.5 million, is that what I understood.

[Oren Harari:]

That’s correct.

[Unidentified Analyst:]

Okay. Okay, thanks a lot.

[David Lucatz:]

Thank you.

[Operator:]

[Operator Instructions] At this point there are no further questions. Before I ask David to make his concluding statements, I would like to remind participants that a replay of this call will be available within two hours in the U.S. please dial 1888-269-0005, in Israel please dial 03925-5927. Internationally, please dial 972-392-55927. David, would you like to make closing remarks.

[David Lucatz:]

Yes. Thank you. Our revenue backlog of over $22 million as August 10, 2017 is a strong indicator of the strength of our products and services in the market relative to competitors. It also points to our expectations stronger revenue results in the coming quarter as we estimate that the combined revenue for the 12 months ending December 2017 will range between $25 million to $28 million. Micronet is focused on delivering product to mid increasing yielded related demand as we continue to experience quarter-over-quarter revenue growth. Micronet is increasing its portfolio of industry leading rugged mobile resource management offering, position itself as a trusted leader in the market. In our A&D business, increasing military budget combined with a trend for large multinational defense contractors through outsource have a potential benefit to Enertec. Enertec has been actively bidding on joint defense contract with the Indian Aerospace Defense company as soon as the large opportunity present at the Indo-Israeli Aerospace & Defense procurement agreement. We are very excited about the potential for both our Enertec and Micronet business. Thanks and look forward to speaking with you next quarter. Thank you.

[Operator:]

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