OMNIQ Corp.
Q4 2020 Earnings Call Transcript

Published: 1 Apr 2021

[Operator:]

Good morning, and thank you for joining us for the OMNIQ Corp's Financial Results and Corporate Update Call for the Fourth Quarter, ending December 31st, 2020. Joining us today are Shai Lustgarten, CEO of OMNIQ, who will provide an operational overview and Neev Nissenson, Chief Financial Officer, who will discuss financial results. The prepared remarks will be followed by a question-and-answer session. I will now take a brief moment to read the Safe Harbor statement. During the course of this conference call, we will make certain forward-looking statements. All statements that address expectations, opinions or predictions about the future are forwarding statements. Although they reflect our current expectations and are based on our best view of the industry and our current expectations and our business as we see them today, these are not guarantees of future performance.

[Shai Lustgarten:]

Thank you operator, and thanks to everyone joining us on the call today. I appreciate you taking the time to listen in and I hope this finds you and your loved ones safe and healthy. We are pleased and thankful to discuss our successful 2020 fiscal year results. While many companies fell into one-digit annual sales, we managed to grow in Q4 by 12% and achieved $12.9 million sales, while maintaining annual revenue of almost $56 million

[Neev Nissenson:]

Yes. Hello everybody. As Shai highlighted, we reported revenue of $12.9 million for the quarter ended December 31, 2020, which is an increase of almost 14% from $11.4 million in the fourth quarter of 2019. The revenue increase reflects what we feel is higher demand from seven customers coming out of the COVID-19 pandemic as well as continued traction in our markets. Total operating expenses for the quarter were $5.1 million compared with $4.3 million in the fourth quarter of 2019. Net loss for the quarter was $2.9 million or a loss of $0.61 per basic share compared to a loss of $2.8 million or a loss of 7.1 per share for the fourth quarter of last year. Adjusted EBITDA, meaning adjusted earnings before interest, taxes, depreciation and amortization for the fourth quarter of 2020 amounted to a loss of $772,000 compared with an adjusted EBITDA loss of $877,000 in the fourth quarter of 2019.

[Shai Lustgarten:]

Thank you, Neev. Looking back on 2020, we saw what was happening with the pandemic and we had to readjust ourselves to that reality, and we did two things. First, we leveraged the fact that we are so well penetrated into the segments that we could during pandemic times. Those include food and drug and e-commerce. We are very well penetrated in and working a lot with those customers who were working to run their supply chain or distribution centers and managing e-commerce instead of retailers. For years, we managed distribution centers, and those relationships allowed us to have the end of the year revenue very slightly less than 2019 despite parking projects being postponed. That was a great move that we did. Talking to existing multi-billion-dollar customers so much that were growing during the pandemic, we were getting so much work beating our competition on every deal, doing a lot of work on the medical side, e-commerce, and distribution centers. So, I'm very pleased with 2020 because of the diversification of our business. Everyone is hyped on AI for good reason. But I also love the legacy business which we call the AIDC. Without increasing $1 of expense, we see growth already happening that can double the legacy business through diversification and growing our existing supply chain business with our legacy technology. We're doing very well. And I think, well, that shows in the nice numbers and will show in the nice numbers of 2021. The second thing we did in 2020 was productizing the AI business. As a result of investing in R&D, we had time in 2020 to complete a lot of work, infrastructure and architecture on new products that today we are selling. We were able to do that in 2020 because of a lot of time we had to focus on it, and that was very positive. 2020 supported our current growth of AI by productizing everything in 2020 for AI, the awards that are happening today because we had a lot of time to invest in AI. We were able to finish the architecture and infrastructure. That was 2020.

[Operator:]

And our first question is from Howard Halpern from Taglich Brothers.

[Howard Halpern:]

Congratulations on navigating a very tough 2020. I just wanted to -- I've been getting feedback from other companies out there. Was there any kind of hesitation in the middle of the first quarter in terms of maybe the number of deployments that you were able to actually accomplish that would be recognized as revenue or was it a pretty steady quarter all the way through?

[Shai Lustgarten:]

I would say very steady quarter. Of course, once we are finding ourselves as you can imagine in many blue oceans with this technology and its applications and services that did not exist before in many situations, so there’s always -- I wouldn't call it a hesitation, but I would call it more of a learning period where you deploy the system, and there's no, I mean, no hesitation, no worries about the technology running. It is more of how the total application or solution really needs to play, and that's where first deployments always face sometimes difficulties. But basically, so far very steady, very nicely done and actually gives us a lot of good feedback to support what we said is going to be right products to go forward to expose it to the whole world.

[Howard Halpern:]

But I know you're talking about company specific and technology, but was there any kind of COVID hesitation from end users, maybe postponing a couple of things during the quarter, or you didn't see any of that?

[Shai Lustgarten:]

No. These are things we did see in 2020, and that's why the less revenues there from the business. But basically, this quarter was really, I would say, a very exciting one, giving us the feedback that the world is opening up. And yes, people are traveling. We've been all the time in meetings with customers coming to visit our Salt Lake headquarters talking to us and planning out for 2021, which makes us very hyped and excited.

[Howard Halpern:]

You had talked about just earlier a little bit of what I imagine is that the sales cycle with some of your bigger legacy customers, but when we're talking about some of the new customers in parking and safe city, what are you seeing as the sales cycle and how do you go about getting the actual order and the the deployment. If you could just describe that going forward?

[Shai Lustgarten:]

The sales cycle of -- today, I'll be back up for a second. But today, our several -- we had nine software packages that responds to different markets in the safe city, which you've reflected to. In the safe city, when we before worked with only governments, we had then productized better and we work with municipalities. When we offer that to municipalities, we then went even further and productized our products to public safety in K-12 schools in synagogues, in churches, in mosques, community centers, et cetera. So, the sales cycle when you sell to a government where we started from, is long. The sales cycle then to municipalities becomes shorter. And then we brought it to the level of selling it -- we can take an order today from a K-12 school or university and deploy it after a week. So, we brought the sales cycle to be very short by investing a lot in 2020 to productize and make our government, if you will, bullet proof solutions, be relevant to Mr. and Mrs. John sending their kids to the school.

[Howard Halpern:]

And in terms of -- you talked about the legacy business that is evolving, too. On those two orders, maybe just in general, that $6.1 million and the $6.8 million to the food distributor and retailer, what kind of margins or gross margins are you getting on those type of deals compared to deals that you got in past years?

[Shai Lustgarten:]

It varies. Specifically -- I'm responding to you specifically to these two deals, but it varies. One of them does deploy even in our legacy business, what we call legacy business, I would call it, more supply chain, automation, through other technologies that does object identification, but through other -- remember, we deal with object identification for many years. We got a lot of experience, but we just use different technologies before and are now exposing the world to the most recent ones, which is the image processing. And the margins, they vary. It depends what type of technology we're going to use for that customer, even the customer that already is one that works with us on the higher, on the recent more technologies, more services, more software that we sell to them, then the margins would go higher and even get up with our legacy business to 45% GP, which is huge for us. But the typical orders, the other one that you mentioned is one that would go for the average 20% that we've seen for many years.

[Howard Halpern:]

And in terms of going forward with the AI-based technologies that you're offering, are there going to be multiple ways that you generate revenue from them, monthly revenues? I think, before you said sharing of revenues. Are those types of deals that you're going to do, I guess, customize the deals as they come one-by-one?

[Shai Lustgarten:]

Absolutely. The different products, like I mentioned different software products we have for different markets, they come with different revenue models, either revenue share or per transaction or that it comes in the user license per month or user license per year, so they vary and their GP accordingly ranges from 65%, up to 87% gross profitability.

[Howard Halpern:]

And in terms of what you're seeing in the growth potential, right now you have about $20 million in operating expenses and probably will stay around there, give or take a little bit, but what kind of sales can you support without having to do a major hiring, major changes to that cost structure that you have?

[Shai Lustgarten:]

Again, it depends on the type of -- like I mentioned, we have two business lines. So, we’ve got the legacy if you will and we've got the AI. So, any type of growth even 100% growth immediately today on the AIDC business will not -- we don't need even to put $1 of additional expense into it. We got a complete infrastructure that can support $200 million business on the AIDC. On the AI, since we're going into blue ocean star, I would say, again, we got a good infrastructure today that would probably allow us, if I need to like put my hand on a number, I would say a growth of 50% without even no significance, but But later on, yes, I mean, you've got to -- we’re working on two sales channels, one direct and one indirect. So you have to invest a lot in the indirect sales channel that is going to -- is the one that is going to bring in the huge scalability of the growth engines we created, so that's going to be -- there's going to be some investment, but you're not looking at something that is out of the ordinary at all in that business line.

[Howard Halpern:]

And one final one, I'll let someone else jump in, is over the next three to five years and based on what you're seeing in your growth potential with the AI. What percentage of revenue do you hope that the AI-based software out there will be part of your total, if you're able to get it up to $100 million, $200 million in annual revenue, what percentage of that should be the AI-based?

[Shai Lustgarten:]

So a three year term, we did start in 2020 -- in 2019, we started exposing the AI. In 2020, we came up with a three year plan and not going to use 2020 pandemic as an excuse for anything because I don't think it should be used as an excuse. We needed, like I mentioned, to readjust, we did and we ended the year fairly well. We expected much better. I'll take this opportunity to say that indeed, of course, we did expect that year to be better. But given the fact, given the reality, I'm very proud of the team achieving what we did achieve. And add the same analogy, if I can do need the same analogy, I'm not going to erase 2020 out of this three year plan. So we did start already a year ago. Our three year plan to achieve in three years in 2022, between 50% to 60% of our revenue to come from the software AI business, the more higher margin one.

[Operator:]

And our next question is from with a private investor.

[Unidentified Analyst:]

And of course, congratulations on the very good results and the impressive and interesting update. And so I have a few questions, please. So I follow some comparable companies. Can you comment on companies with less than $10 million in annual sales that have over $500,000 market cap? Do they have any special technologies or competed on the highly important Homeland security contract?

[Shai Lustgarten:]

So first of all, good to hear you again, and thank you for continuing to follow us and supporting us. Appreciate that. Yes, indeed, we compare ourselves every day, not only us doing that ourselves but of course, the customers that getting us the awards, they do it for us as well. And I wouldn't start -- I'd prefer to rely on our customers and the projects we get awarded with to actually provide the answer itself because basically once they do compare us and we get awarded, that means that we were better in many ways, not only the technology. A lot of it, by the way, is service. Our customers rely on service, rely on companies that are here for the long run, companies that invest not only in the technology but also in the support, in the service, every day service, picking up that there is someone at the other end of the line, that is someone that it can be there flying in. Even in pandemic times our support team, I just salute them because they were traveling steel whenever possible. They were instead of traveling through with flying to a customer, they drove for 20 hours to a customer, if there was an issue. So a lot of it relies on that as well. And I'm happy that it does because we do shine this way as well. On the technology side, we did release in 2020 our newer engine, the newest algorithms that do image processing, machine learning, et cetera, which we call CNN and that technology, that infrastructure gave us such a boost in our performance where we were before competing today, we're exceeding. And we got 69s -- I mean, only a few days after the deployment in the field, you will see 69s as performance with an engine that was not operating in that area, not only in the US but internationally as well. And we mentioned countries that we're getting awarded with. We're mentioning penetration into markets we've never been exposed to before geographically. And that is possible only because of the strength of our technology. And I would say that this is approved by itself of our superiority.

[Unidentified Analyst:]

And I have another question. There's a good article in the Wall Street Journal regarding AI for supply chain. You spoke about it a few times and also . Can you explain your vision?

[Shai Lustgarten:]

Our vision is very -- again, I can talk about it until tomorrow, but to try to keep it in one sentence is that our vision is where everyone else would see a project done to us, that is only the starting point. That is only putting a flag. For example, if you talk about municipalities. So if our competitors would be happy about getting a municipality deploying their systems in intersection and call it a project done and deliverable, we see this as the first flag in that municipality because then we do think that we invested in 2020 the productization that we spoke about that are relevant for K-12 in community centers, for example. So if we go there, because if we are awarded with the municipality because the Chief of Police really wanted our solution to catch the bad guys and we do so very well for the US government and other governments in the world then to us, that is only the starting point now to go to the K-12 schools, to go to the neighborhood, to go to the community centers to the churches, to the mosques to any other community center in that municipality and start deploying our sensors in the field because the endgame is getting the big data, the analytics, the next-gen products that are not coming from just one deployment. These products are going to come from the analytics of the big data that will create the ability for our customers in all the markets to be proactive and predict.

[Unidentified Analyst:]

So now I'm getting for my last question. Can you tell more about revenue sharing projects with municipalities and states?

[Shai Lustgarten:]

So in order to leverage and be scalable, of course, we created the growth engines that come out of the product, which is the first layer to the vision that we spoke about a second ago. The ability to be relevant and create that exposure deployments in the field, needs to come and be supported with different revenue models. The revenue share model is a very interesting one, which actually we found ourselves loving because it gives us a much larger opportunity than we've been ever were exposed to before. If we thought that licensing our product for, I don't know, $1,000 a month, let's call it, for example, or $2,000 per year, depending on the use case. If we thought that's going to be good with minimum 65%, 70% GP. Now we understood that the needs of many municipalities is to be able to get the services they need so desperately to provide to the residents but a lot of the times the investment funds are not there. And we found ourselves needing to come in and invest, if you will, put the systems on our own cost and conduct a revenue model that is a revenue share per transaction or any other -- there are different criterias for that. And then the challenge we faced, I'll probably save your next question, but then the challenge we faced was okay, how do we deal with the investment? So we found a great way where we grow together with the city. We grow together with their needs. And we put our system there in even one intersection for a second. For example is a good use case to show the city that immediately they can create revenue as a machine-to-machine solution that they never had before. And for us, it is in our capability to support financially because the investment is very low. The return on investment for us in the city is actually one day, not even more than that. And that allows us to start learning together with the city, what are the needs and grow together with them to the next deployment throughout the city. And that revenue share can come from for example, getting uninsured vehicles, detecting them as a machine-to-machine solutions, 24/7, detecting them and getting a portion of the citation collected, the funds for it collected, a portion of it goes to OMNIQ. By the way, all the fronts and everything and all the process, payment process, user interface, et cetera, all done by us as well.

[Operator:]

And our next question is from Calvin Hori with Hori Capital.

[Calvin Hori:]

Can you update us on your potential NASDAQ listing?

[Shai Lustgarten:]

We are still in the process of doing so. We've done a lot of work in getting us closer to getting the objective done. It looks like it's going to happen this year. We've been talking about it for two years now. Of course, 2020 being good for anyone in that sense, again, not using this as an excuse, just reality. And now we're closer than ever we were before, the objective is to get it done immediately. And I think you'll hear a lot of news on that, discussions on it in even weeks from now.

[Calvin Hori:]

And then on your AI side, one of your competitors on the big uninsured vehicle enforcement contract in Oklahoma, and I guess Florida is coming up next in some other states. Will you be bidding on some of those as well?

[Shai Lustgarten:]

Of course, because the -- I don't know if to call it an award. Again, you got to read the small letters as well. Very good job by all of our competitors, of course. But as you know, federal or municipalities, they got to go through bids and that is exactly where we'd like to get measured by our performance. So yes, of course, we are offering in Oklahoma, we're offering in Florida, and we get in worded as well, and we're getting advancements in these places as well. So the answer is absolutely yes.

[Calvin Hori:]

In many of these states, they won't go with just one provider they go with several. Is that correct?

[Shai Lustgarten:]

Yes. Of course, yes, it depends on the way they're organized. Some states would like their municipalities to follow one order. Some states give it to the municipalities to determine. I can't tell you what is larger than the other. But I can tell you this, all of them go through a process where you got approved by performance. And that's exactly like I mentioned, that's exactly where we'd like to get measured because by performance, we definitely are superior.

[Calvin Hori:]

And do you expect to be profitable for this year?

[Shai Lustgarten:]

Yes, sir.

[Calvin Hori:]

And then I have a question, I guess it's more for your CFO. I show in your last filed 10-K, you got like 1.36 million warrants outstanding and an exercise price of $8.12. Is that correct?

[Neev Nissenson:]

I think it's a weighted pricing, at least some warrants -- a lot of the warrants came from a pipe that was done in April 2019.

[Calvin Hori:]

Is it the correct amount though $1.36 million outstanding?

[Neev Nissenson:]

I believe so.

[Calvin Hori:]

Then since you exercise price is $8, have you begun to see any people exercising and bringing money into the company?

[Neev Nissenson:]

Actually, we've had a lot of inquiries coming in from many investors, and we have seen a lot of interest in that, especially with the stock being so high.

[Calvin Hori:]

So if I were to -- you show in your statements like 4.5 million shares outstanding. So I guess the fully diluted will be closer to 5.9 million or 6 million, is that correct, including the warrants?

[Neev Nissenson:]

So there's warrants and there's options. I think we've also seen some employees also exercise some stock options. So definitely there's a lot of interest. Obviously, there's a lot of warrants and options in the money. So I expect to see more shares being issued.

[Calvin Hori:]

So it's a fully diluted number, 6 million shares, is that a good number to use?

[Neev Nissenson:]

Yes. We think so, whatever appears on the statement. And I don't remember everything off the top of my head.

[Operator:]

Our next question is from with Jericho Partners. Please proceed with your question. George, your line is open, please make sure you're not on mute. George, are you there?

[Unidentified Analyst:]

I heard you said we will be profitable this year. That's great. Are we going to see any benefit from the infrastructure bill that is being proposed?

[Shai Lustgarten:]

I think that, that would generate a lot -- first of all, thank you, and good to talk to you again, George. I think that's going to be opening up different opportunities. I can't exactly state or know, or we're trying to learn this further, but it looks like it's going to open up a lot of opportunities, especially because of the technology and the fact you probably read the recent PRs as well on our HOV enforcement, and we spoke about that here today as well. And that is, of course, going exactly in line with what this alludes to but we're still in learning process to see how this is going to be affecting us.

[Unidentified Analyst:]

The first conference call you had when you acquired HTS, I asked you how you, a small company to market this technology to not only throughout the United States but outside. I asked you if you were looking open to the idea of joint ventures or licensing of it. So I was very happy to see that you now have a partner in South Africa, exposing us to a huge potential market. You mentioned that you deployed some security devices in the Middle East. With the Abraham Accords, an easier travel becoming Israel and some other middle eastern countries that have a lot of money. Is there a possibility that you will have a joint venture partner in that area of the world that could open us there to mega deals?

[Shai Lustgarten:]

Like we spoke about before, as you mentioned in the other calls, we are always looking at two strategies to grow our business. One is, of course, organic growth and the other one is M&A. Within the organic growth, you would see partnerships such as the one in South Africa. By the way, a lot of the M&A opportunities for an entity and for us as well, would come from -- beginning from such phases of partnerships established and success in different areas in the world, generating different projects and getting exposed to make projects like you mentioned. So the answer, of course, is yes. And furthermore, we're on the other side, on the M&A strategy that we always are open to as today, we have many more tools than we ever had in the company to conduct such skills and make this more realistic opportunities for the company. We are working on that with the same energy and efforts because once you got an M&A opportunity that can actually drive you forward a couple of years than trying to do everything yourself. So that is very applicable, that is very relevant. And definitely, that is something that we're conducting, advancing with and hopefully, we'll be able to deliver even important news about this soon.

[Unidentified Analyst:]

I'm glad to have heard you say that. I'll tell you why. A couple of people actually mentioned our competitor, none of them there to mention the name. It is to me, astonishing not to be believed that a company has -- that has less revenue than the corner candy store could trade at $800 million. It defies logic. Worse is that we trade at, I don't know, $40 million, $50 million in market cap. Having said that, I believe that we need some big external event and now that you mentioned that, hopefully, we may hear something new on the M&A front or joint venture front fairly soon, that may be the event that gives us significant new eyes and catapult as to where we should be. So hopefully, we'll see it very soon. Thank you very much in continued success.

[Operator:]

And our next question is from Mitch with Advisory.

[Unidentified Analyst:]

I'm wondering as someone very new to the story. At a high level, can you help us understand the transformation that the company is undergoing in terms of when did it start, for instance, with higher margin business in AI? Where are you now on that? I think you're not disclosing what percent of revenue it is. But if you can give us a feel on your math towards what you want to be with 50% to 60% coming from AI within three years? And what has to happen also in terms of your -- slightly separate question. But when you said you expect to be profitable for this year, did you mean exiting the year, or did you mean for the entire year as a whole? And can you just walk us through the cost structure and the ramp to get there?

[Shai Lustgarten:]

So to answer your question, two questions. First of all, on the margins and profitability, yes, we do have the plan and it's going to come basically from selling more -- it's an easy answer but of course, you're looking for the details of how to get there selling the AI or software, higher margin solutions more as quickly as possible. The way to get there is by using the indirect channel, sales channel that we had created where we are training and hiring, if you will, resellers in the different markets that we're now relevant to public safety and other markets as well, that with the new products that we established in 2020 and which we, by the way, the direct sales channel already had brought into references. We have the good reference if we got everything, but now to leverage and get scalability, that's going to come from the indirect channel. So immediately, the solution, of course, is getting more sales. And that is exactly what we're focusing on right now. And for 2021 to be a significant year in that sense where the indirect channel, sales channels immediately brings us opportunities to be able to scalable and expose our product to the relevant markets, products that are higher margins in 2021 already. Now having said that, I also want to emphasize that and give you some more input. Yes, we did see a great Q1 in 2021, which is of course a lot of work that was done in 2020. But we do see as well, I mean, the opportunities created from that good quarter from that business momentum that was created, a lot of it comes from this indirect channel that we created. And we expect Q2, we work in, I would say, better on Q2 to be a quarter that would show us the start of the -- more significant start of the trend that we expect to see in 2021, which at the end of the day that would bring us to the profitability that we've discussed. I hope that answers the question.

[Unidentified Analyst:]

Yes, I think that was super helpful. Just for maybe a little bit of color on this. So if I understand correctly, you're kind of more on a low margin business for a long time. You came up with the AI. Did you develop the AI product internally or acquire it or…

[Shai Lustgarten:]

The AI business was -- let's not say, not the machine vision technology. So the AI business is a lot of things but the machine business technology was acquired in 2018. And what we acquired was a basic or, I would say, an infrastructure of that we saw would be able to bring us to the places or the vision to execute the vision that we've discussed earlier. We brought it to a totally different infrastructure than what it is today, than what we started from in 2018. The investments in R&D, millions of dollars of investments in creating new algorithms, in making this neural network technology be relevant to everything that you see today that we are applicable for the different markets we are penetrating to execute the vision. That's a totally different infrastructure today than we have when we started from before. So to answer question, yes, of course, the baseline was acquired which today is very different than what we started from and successfully, I would say.

[Unidentified Analyst:]

So it sounds almost like I'm wondering, so what's leading most of your sales at this point, or the deals in the pipeline. Is it being lead by the AI business and then you’re driving along the lower margin businesses with it, or is the lower margin business more separate entirely from this?

[Shai Lustgarten:]

First of all, I'll try to answer it this way. And again, stop me if I'm not focusing on exactly what you wanted to hear. The company is in the transformation mode. The transformation mode is planned out. The infrastructure, the technology, the references exist in all the markets we approach. So the transformation mode is one that works in two directions. The first, getting the new markets, deployments from the indirect direct mix channel. And the second approach is with our existing customers, creating more sales and existing sales to rely more on AI-based solutions. This is the transformation that is happening right now. And what we're seeing is that, yes, the references are great, we can really create a significant scalability in executing the growth engines we created for the new markets, like the public safety and parking, et cetera. And with our existing customers, again, yes, I mean, we spoke about it on the call earlier, where we said there are two sides. So there is a good size and the lesser good side, not a bad side, I wouldn't call it the bad side, where things take time with enterprises with Fortune 500 customers, but each one single customer there that we penetrate with can double our revenues. And the investment there to do that is $1, like we mentioned. So we see supply chain market as a huge market for us, where we have the largest companies in the world we serve them with our AIDC products or legacy technology, if you will, which we're now in the process of transforming them and upgrading them into the newer one. It's not going to happen overnight, that's like the less . But once it does and we are advancing there, each one of them is a huge game changer for the company. Each one of these largest enterprises of the world is a huge game changer for us and they rely on us to do this. And the same thing is going to happen from the other markets not the supply chain but there, it's going to come from many customers needing to be deploying our solutions. And that's why working in 2020 and productizing, stabilizing and creating a very firm base, very firm infrastructure was so important.

[Unidentified Analyst:]

If I could ask one more question. And you tell me know if this is too much for you, but I think it would be helpful for a lot of people who are new to the story. Can you help me understand how you're paid by your customers? So in particular, is there a recurring component to the AI revenue and is it a SaaS model, subscription or is it more of an old school maintenance kind of component? How does that work?

[Shai Lustgarten:]

So on the first, the AIDC business, the more legacy technology that we sell today to our customers, the business revenue model there is that 85% -- I would say 90% is a onetime sale. The old model where 10% would be recurring. But the recurring would be more reliant on support services, warranty services, et cetera, not like licensing, software and other things like we do in the other business line. The other business line what we call the AI business line, which will be transforming into the supply chain as well. But today already generates revenue, which is through different revenue models if we go to municipalities, we can do revenue share on citations, for example. And they don't put a dime on the investment, and we take a share of the unregistered vehicle that we issued and collect. So that's one revenue model. The other one that is typical is the license recurring model, where we go, for example, to university or we go to a K-12 school or any other community center and we tell them, okay, that's going to be between $250 to $1,500, it depends on the use case fee per month. And the third one is an annual one. So it's either going to be per month or it's going to be an annual one, and that's mainly today happening in the AI business line rather than the legacy business line.

[Unidentified Analyst:]

So the annual, is that like a SaaS model, is it off…

[Shai Lustgarten:]

Yes, everything is a SaaS model. It's a SaaS model. I mean, not everything, excluding the first AIDC business line where it's more traditional, the SaaS model in the AI business works were yes, it's going to be -- the charging is it's always SaaS, but it's either charging per month or per year.

[Unidentified Analyst:]

And so can you give us a feel for what part of the business today in the AI business as opposed to legacy is recurring?

[Shai Lustgarten:]

In the AI business, it's like you said, we started that recently. So in the AI business, I would call it today about 5% is recurring. Remember, we are supporting ourselves financially. So to go out there and do a recurring, you probably know very well, you got to have a very firm financial backing for it. And as we grow, as we need to be profitable, at the same time, continue to invest in millions in our R&D, stabilizing products, et cetera, et cetera, that needs when you do it yourself as a small company, you need to support yourself and to go recur and you can't do it overnight. You have to do it when you're ready for it and make it a good experience, not a one that can actually drown you. So we've seen companies that did recurring all day long, and it's great and nice but they're not operating anymore, because they didn't have the financial support. So we went through that -- we went into it cautiously. We went into that business model with the right planning and support and now we started to get exposed. We moved up the level. We tried the water, if you will, about two quarters ago and then we exposed it much more this quarter and next quarter. So 2021, like I mentioned, profitability is going to come from a lot of things, but definitely from the recurring revenue model as well, where, as I mentioned, we want to see the trend already in Q2, the more significant trend.

[Operator:]

And there appear to be no further questions. Therefore, we do thank you for joining us today. You may now disconnect your lines.