MICT, Inc.
Q4 2017 Earnings Call Transcript

Published: 13 Apr 2018

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Micronet Enertec Fourth Quarter and Full-Year 2017 Results Conference Call. All participants are at 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 now like to hand over the call 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 fourth quarter and 2017 year-end 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 the – during their overview. This presentation can be found on the Investor Relations section of the company website under Events & 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 labeled Q4 and year-end 2017 results. 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 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 expected sale of our aerospace and defense business Enertec that we believe the sale of Enertec will fortify our balance sheet and enable us to invest and focus on growing our MRM business, both organically and through acquisition. I believe that increasing stream of orders from our current and new customers will drive sustainable growth for Micronet during the coming quarters that we see demand continuing to grow for Micronet’s products as the Electronic Logging Service or ELD mandate nears. Our plans for new MRM products in 2018, including Software-as-a-Service or SaaS products, our expectation that Enertec’s revenues and gross margins will improve in 2018 that as Micronet works to produce increasing quantities of its new products and as it delivers on its purchase order, we expect even more favorable top line results during the following quarters. I believe that the ELD compliant Smart Hub/TREQ-r5 expands Micronet’s market opportunity, particularly with the smaller fleet size customers and that we are broadening our portfolio products to address additional target market segments in the MRM market to drive our expansion. 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 Securities and Exchange Commission and the company’s Annual Report on Form 10-K for the year ended December 31, 2017 to file the Securities and Exchange Commission. Please note that the date of this conference call is April 13, 2018 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 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 and loss of income. These non-GAAP measures exclude share-based compensation expenses, the amortization of intangible assets and the amortization of note discount. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to 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 and annual results and can also be found on our Investor Relations section of our website at www.micronet-enertec.com/ir-company. The slides containing the fourth quarter and annual results reconciliation can also be found on the Investor Relations section of our website at www.micronet-enertec.com/ir-company. On our call this morning, we have David Lucatz, Chairman, President and Chief Executive Officer of Micronet Enertec; Tali Dinar, Chief Financial Officer of Micronet Enertec; and Dudy Markus, Chief Executive 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 website or the link in the press release. We will start with an opening message from David, who will give an overview of business developments for the fourth quarter and 12 months ended December 31, 2017, 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, and good morning, everyone. We are very pleased to report that 2017 was a good year for Micronet as marked by improvement in key indicators, including exceptional year-over-year increase in revenues, gross margin and backlog. We believe that these improvements are direct result of the value and strength of Micronet expanding MRM product line relative to competitor in the growing markets. We are seeing a growing number of purchase orders of increasing value from current and new customers. In 2018, we plan to launch additional MRM products and services, which we currently have in development. We intend to increase the number of high margin recurring revenue Software-as-a-Service, SaaS product offers and to increase SaaS revenue at Micronet. Now turning to Enertec. During 2017, Enertec experienced a decrease in order from a leading defense contractor in Israel, as well as delays in delivering on certain ongoing contracts, which resulted in Enertec’s yearly loss. Enertec’s management expect improvement across a number of measures in 2018, including revenue and gross margins. Management strongly believe that these improvements will be driven by a significant increase in orders on the medical device space. To date, Enertec has received orders valued at over $3 million in the medical device space, including two orders totaling $2.25 million from a Fortune 15 medical device company. We believe that Enertec’s expertise in mission critical system application for the military is directly transferrable into the medical device industry, where precision is a key factor. As previously announced and according with our roadmap to increase the value of our company by focusing our resources on the MRM space, we have entered into sales agreement with Coolisys Technologies, Inc. to sell Enertec. Further terms of this agreement, Coolisys will pay the company $5.25 million in cash upon closing subject to adjustment and assume $4 million in Enertec bank debt, reflective an effective total value of $9.25 million for all of Enertec’s assets and liability. We believe this potential transaction if and when it will occur will fortify our balance sheet by increasing our cash position and significantly reducing debt. In addition, we believe our improved cash position will enable us to expand our MRM offering. Moving to Slide #4. Moving to our ongoing operations, we’re pleased to inform that Micronet is delivering in line with our expectations. During 2017, Micronet fortified its management team with industry experts, increased its sales force and has shown a continuous increase in sales order, while increasing and diversifying its product and offering. Revenue for the 12 months ended December 31, 2017 reached $18.5 million, which represented 38% [ph] increase in revenue over 2016. Gross margin increased from 20% in 2016 to 23% in 2017. We believe that we will continue to see a stream of orders for our – from our existing and new product and technology. During the fourth quarter of 2017, revenues for our MRM division increased to $6.4 million from $1.3 million in revenues during the fourth quarter of 2016. This includes an annual renewables Software-as-a-Service license for $100,000. We will consolidate revenue backlog to $17.4 million for the year ended December 31, 2017, an increase of 93% over $9 million for the same period in 2016. This increase was driven and based on Micronet’s new MRM products. We expect demand will continue to grow for Micronet’s product after ELD mandate nears. Micronet is diversifying its customer base and enlarge its reputation as a provider of reliable rugged solutions. As Micronet works to produce increasing quantities of its new product and has delivered on its purchase order, we expect even more favorable top line numbers during the following quarters. Slide #5. On Slide 5, we present business orders for our TREQ-317 and recently launched Smart Hub/TREQ-5 product. During the fourth quarter, we achieved a 3.1 million order for the Smart Hub also known as a TREQ-r5 from a current customer and leading ELD compliance telematics provider. This sale include [$100,000] Software-as-a-Service and a renewable license and it’s in line with Micronet’s strategy to combine additional such features into its offering. We believe that ELD Compliance Smart Hub expand Micronet’s market opportunities, particularly with the smaller fleet size customers. For our TREQ-317 and Android-based rugged All-In-One fix-mounted tablet with functionality at a competitive price, we received the 1.9 million order from a current strategic customer that is a leading U.S. Telematics service provider. We have strong pipeline and our revenue backlog for the MRM was $9 million as of December 31, 2017, with the growing number of customers evaluating our products in the field. We believe that our MRM products and solutions very well received last month in Paris at the SITL exhibition, an important international trade show for the MRM business, [indiscernible] SITL is in line with our strategy to increase market share in Europe. On Slide 6, we present an overview of positive trend in our MRM business, which serves over $10 billion market. Orders during 2017 had significantly increased our new line of products, we’re further expanding our offering by adding service such as recurring revenues, SaaS solutions, and developing application, both internally or via third-party application provider and value-added resellers, VARs. We believe the solution we deliver to the customers are comprehensive, reliable, and price competitive. We believe that growth in our pipeline and revenue backlog is a direct result of Micronet’s power to design and deliver MRM technology that optimally serve customers leads by delivering strong value, optimizing delivery times and improving cash flow. The local fleet market and the ELD mandate continue to be the two main growth engine for Micronet at this time. December 2019 is a deadline for the carrier and driver, who currently use an automotive on-board recorded device to become compliant with the ELD mandate. We are also broadening our portfolio of products to address additional target market segments in the MRM markets, as well as our expansion. I will now turn the call to Tali for a financial review. Tali?

[Tali Dinar:]

Thank you, David, and good morning, everyone. The next slide illustrates our revenues for the 2017 fiscal year, as compared to 2016. Revenues were $18.4 million in 2017, a 38% increase from $13.3 million in 2016. For the three months ended December 31, 2017, our revenues increased to $6.4 million, from $1.3 million in revenues during the fourth quarter of 2016. The increase in revenues is mainly due to increased demand and orders for Micronet’s MRM products and services. Slide 8 provides a detailed breakdown of the numbers. Gross profit margins were 23% in full-year 2017, as compared to 20% in the prior year. The increase in overall gross margin was related to Micronet increasing sales volume. R&D expenses were up on a dollar basis, but down 3% on a percentage of sale basis, as compared to prior year. In 2017, selling and G&A expenses were relatively consistent on a dollar basis compared to 2016, and was significantly lower as a percentage of sale as compared to the year-ago period. Net loss from continued operation for the 12 months ended December 31, 2017 was $5.1 million, as compared to $6.3 million for the 12 months ended December 2016. On a per basic and diluted share, net loss from continued operations was $0.7 in 2017 fiscal year, as compared to $0.76 in the year of 2016. On Slide 9, you will see that non-GAAP net loss from continued operations for the 12 months ended December 31, 2017 was $4.3 million, or $0.60 per basic and diluted share, as compared to $5.4 million, or $0.91 per basic and diluted share in the 12 months ended December 31, 2016. Turning to Slide 10 on our balance sheet, we had $2.4 million in cash and cash equivalents, $3 million in working capital, and $6 million in shareholders’ equity as of December 31, 2017. 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 [Demetrius Flint] [ph]. Please go ahead.

[Unidentified Analyst:]

Yes, I was just curious about the sale of Enertec DPW. I was just curious if you guys had a timeframe on when the sale would be completed?

[David Lucatz:]

Yes. Hi, this is David. We are now discussing the closing date. It’s based on the information we have, it should be in the next couple of weeks. There are some technical formality we need to accomplish first, which are not something, which are very trivial. So we don’t see any issue on our side. Yet, we do have – it’s not everything, it’s up to us. But as it looks right now in the next couple of weeks.

[Unidentified Analyst:]

Thank you.

[Operator:]

[Operator Instructions] There are no further questions at this time. Before I ask David to make his concluding statement, I’d like to remind participants that a replay of this call be available within two hours. In the U.S., please dial 1800-888 – sorry, one more time. In the U.S., please dial 1-888-326-9310. In Israel, please dial 03-925-5904. Internationally, please dial 972-3-925-5904. David, would you like to make your concluding remarks.

[David Lucatz:]

Yes, thank you. We were pleased to see such a significant increase in revenue for Micronet during the year, as well as improvement in gross margin. Our backlog remains strong and stand at over $17 million as of December 31, 2017. We believe this is the key indicator of the strength of our products and services in the MRM market relative to our competitors. We believe it supports our expectation for stronger revenue results in the coming quarters. As our MRM revenue continue to increase this quarter, we aim to use this momentum and further invest all our focus and efforts to become a leader in the MRM space. I would like to thank our dedicated employees and welcome the new management, which joined us during the year. Thank you, and I look forward to speaking with you next.

[Operator:]

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