OMNIQ Corp. (NASDAQ:OMQS) Q3 2022 Earnings Call Transcript

OMNIQ Corp. (NASDAQ:OMQS) Q3 2022 Earnings Call Transcript November 15, 2022

OMNIQ Corp. misses on earnings expectations. Reported EPS is $-0.52 EPS, expectations were $-0.31.

Operator: Hello and welcome to the OMNIQ Corporation’s Third Quarter 2022 Earnings Conference Call. My name is Ali, and I will be coordinating your call today. With us on the call are Mr. Shai Lustgarten, Chief Executive Officer, who will provide an operational overview; and Neev Nissenson, Chief Financial Officer, who will discuss financial results. Today’s call is being recorded and you should have access to the company’s third quarter earnings press release issued after the market closed yesterday. This information is available on the Investor Relations section of OMNIQ’s website at www.omniq.com. 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 forward-looking 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, they are not guarantee of future performance. These statements involve a number of risks and uncertainties and since these elements can change and in certain cases are not within our control, we would ask that you consider and interpret them in that light. We urge you to review the Company’s Form 10-K and other SEC filings for a discussion of the principal risks and uncertainties that affect the Company’s business and performance and the factors that could cause actual results to differ materially.

OMNIQ undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. Following the prepared remarks, the company will be taking questions as time permits. And now I will turn the call over to Shai Lustgarten, CEO. Mr. Lustgarten, please go ahead.

Shai Lustgarten: Thank you, operator, and good morning, everyone. Thank you for joining us today to discuss our Q3 and nine months 2022 financial results. I will begin today’s call with a brief discussion of the Q3 results and then give you an update on the key achievements we recognized during the quarter. I’ll then turn the call over to Neev Nissenson, our Chief Financial Officer, and he will provide details of both the Q3 and nine months ended 2022. We will finish by giving you a clear understanding of our future focus and potential opportunities across the globe. It is my hope that after today’s call, you will have an even better idea of why we are so excited about our business fundamentals going forward. To start, I’d like to thank each one of our employees across our entire company for their continued hard work and dedication to our vision and strategic plan.

I’m proud to report that Q3 revenue came in at $27 million, a record high sales number for the company bolstered by organic growth of 32%. Our gross profit saw a 28% increase, compared to the third quarter of 2021. Importantly, our AI revenue saw an increase of 50%, compared to the third quarter of 2021. This led to a $1.5 million improvement of adjusted EBITDA for the quarter. This growth was driven by strong customer demand across all our segments, which resulted in improved bottom line in the path to profitability. During the quarter, we also announced several positive achievements including OMNIQ named Total Solution Partner for one of the largest global leaders in enterprise asset intelligence for robotic supply chain management. We announced the follow-on order for our AI-based machine vision system for a major U.S. fast food chain with more than 800 locations and for an automotive related retailer with over 1,000 stores in the U.S. We announced the receipt of an approximately $10 million purchase agreement for intelligent healthcare cards from Israel Ministry of Health.

We further announced the receipt of a purchase order to deploy our AI-Machine Vision Solution in what is now the 50th North American major Airport using ONMIQ’s AI product. ONMIQ’s healthcare product penetration success continues with having our self-service patient management kiosks featured in Israel’s newest State-of-the-Art emergency medical hospital. I would like now to focus on this breakthrough into the QSR and retail sector as we consider it as a potential game changer. Our proprietary patented AI-based Machine Vision Technology provides accurate, human less object identification in this case identifying cards, including the color, make, and license plates. Historically, this information is vital for security law enforcement, automation of parking and traffic management.

However, we identified that the QSR retail sector, which have thousands of locations lacking information about their customers and their consuming habits is a significant potential market opportunity for us. By installing our AI products in drive throughs or the entrance of the business, the system immediately identifies and presents invaluable information about the customer. Once the customer profile is built, the business owner will know things such as when the customer last visited, what they usually order, how many times they visited in the past, are they eligible for any discounts or rewards and so on. For the first time, we enabled the largest companies to collect and use information about customer habits that have never been able to be effectively collected until now.

Thus create automation as we replace manual processes with machine to machine ones, which result in significant efficiencies. According to a study conducted by Quantum Advisors, there are approximately 200,000 quick service restaurants in the U.S. alone. Most are blind in knowing their customers. You can imagine now what type of potential impact this could have in the retail and restaurant sector, as well as on OMNIQ. In addition to the QSR, other orders came from automotive retailer with over 1,000 sites similar to the QSR any car that drives into the retailer’s premises is identified and immediately alerts the service provider allowing them to know essential information on each individual customer ahead of time. This instantly shortens the turnaround and increased throughput.

There 1,000s of additional automotive service provider locations in the U.S. that we have targeted. OMNIQ continues to enjoy significant growth with our long standing Fortune 500 customers, many of whom have relied on the company for 20-plus years to handle their logistics and supply chain challenges. These longstanding relationships with a solid stability of our legacy products is the basis for one of our most significant growth engines, upgrading our Fortune 500 customer base to our AI product. Q3 was characterized by the addition of new customers within the traffic management, public safety, retail and restaurant sectors. Our safe city product Q Shield announced only nine months ago, he is continuing to show success. Q Shield is becoming a law enforcement platform as a crime investigation tool and real time crime prevention tool.

As we aim to do, it helps municipalities keep the resident safe, reduce time and through our creative business model, Q Shield is offered, it increases the talent’s income that is now invested back into the communities. This new initiative already has 12 cities in the U.S. and we continue to see growing pipeline of cities interested in deploying Q Shield. While we do not provide guidance, demand is stronger than we had anticipated and our team is busy executing. As noted Q Shield’s business model is based on recurring revenue sharing with significantly higher margins than the current corporate average. Thus, we expect this strength to result in a positive impact to both the top and bottom lines. Before I go further, let me now turn this over to Neev to take a deeper look into our financial results.

Neev?

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Neev Nissenson: Yes, hello, everybody. As Shai highlighted in Q3 OMNIQ reported revenue of $27 million for the quarter ended September 30, 2022, an increase of 32% from $20.5 million in the third quarter of ’21. The revenue growth is organic as we already consolidated our financial statements with Dangot Computers for Q3 of 2021 as we acquired Dangot in the beginning of July. Total operating expenses for the quarter were down 3% to $8.6 million, compared with $8.9 million in the third quarter of 2021. Net loss for the quarter was $3.8 million or a loss of $0.52 per basic share, compared with a loss of $5.1 million or a loss of $0.73 per basic share for the third quarter of last year, an improvement of $1.3 million in our profitability.

Adjusted EBITDA, which means adjusted earnings before interest, taxes, depreciation and amortization, for the third quarter of 2022 amounted to a loss of $516,000, compared with the adjusted EBITDA loss $2 million in the third quarter of 2021. improvement of $4.5 million in our adjusted EBITDA profitability. Our nine month results are impressive as well. OMNIQ reported revenue of $77.5 million for the nine months ended September 30, 2022, an increase of 45% from $53.4 million in the first nine months of 2021. The revenue increase reflects the consolidation of our financial statements with Dangot Computers, which we acquired in July of 2021, as well as organic growth. Total operating expenses for the nine months ended September 30, 2022 or $24.2 million, compared with $19.5 million in the same period of 2021.

spending from the consolidation with Dangot. The class for the nine months ended September 30, 2022 $9.6 million or a loss of $1.29 per basic share, compared with a loss of $10.8 million or a loss of $1.86 per basic share for the first nine months of last year. Adjusted EBITDA for the nine months ended September 30, 2022 amounted to a loss of $1.5 million, compared with an adjusted EBITDA loss of $3.6 million in the same period of 2021. Cash balance at September 30, 2022 was $3.8 million, compared with $7 million at December 31, 2021. I would like to note that the cash reported from $2.9 million at the end of the second quarter to $3.8 million that we have for September 30, 2022. Now back to Shai for further highlights on the strength of the business and the opportunities ahead.

Shai?

Shai Lustgarten: Thank you, Neev. To help you better understand the path of the company, I would like to remind you that 2020 was a year we focused on taking our AI Machine Vision Technology and making it the foundation of our next generation AI product. In 2021, we invested in making our company stronger to support our markets penetration plan. We focused more on our balance sheet performance and spend time successfully uplisting to the NASDAQ a significant milestone. This ensured our plan for execution for the next years ahead. In 2022, as we continued our focus on profitability, we started executing on the significant scalability our AI products bring. This is shown by the various achievements we discussed earlier in the call.

To you, I say, this is just the beginning. These achievements show the potential for what lies ahead. In addition to the obvious significance of the many wins they are equally important as reference points. These references are what potentially allow us to capture more of the market opportunities, which we expect to focus on during the course of the next year. With these achievements, we penetrated many new markets with our AI products. These products are all based on our single AI Machine Vision Technology platform. Our platform allows us to produce products that are relevant and answer the needs for many markets. OMNIQ’s Technology and products makes the invisible visible, creates automation by eliminating the touch of a human from any process, allowing countries, cities, schools, airports, hospitals, parking lots, and enterprises to be proactive and achieve unparalleled increased productivity, security, efficiency and stronger customer satisfaction.

OMNIQ’s team is indeed focused in concluding 2022 as a growth year and building the path to a successful 2023. It is important to note that technology and references that we have created so far is much more than looking a year ahead. We have a clear focus and strategic roadmap of continuing our penetration into the fastest growing markets, which we will continue to execute on and we look forward to reporting back to you in the next quarters ahead. Operator, I’ll now turn over the call for questions.

Q&A Session

Operator: Thank you. Ladies and gentlemen, the floor is now open for questions. Thank you. Our first question is coming from Jaeson Schmidt – Lake Street. Please go ahead.

Jaeson Schmidt: Hi, guys. Thanks for taking my questions. Shai, I just want to follow-up on your prepared remarks, you mentioned that demand is stronger than anticipated. I just want to clarify, was that just in regards to Q Shield or across the whole company’s product portfolio?

Shai Lustgarten: Thank you for the question, Jaeson. On the prepared remarks, yes, it was related to Q Shield on the really strong demand that we see. But to answer your question or elaborating further, we do see this as well increase — the increased demand also in all of our other products and sectors we serve. So it’s the continued growth in backlog is still happening, and I would say it’s across the board.

Jaeson Schmidt: Okay. That’s really helpful. And then just following up on that, 12 cities under contract in the law enforcement space. Can you talk about, sort of, how that pipeline is growing where that pipeline sits at today?

Shai Lustgarten: Yes. We’ve — I think we spoke about it before that in the previous call, we had about 30 something cities in the pipeline. We’re seeing more than 60 cities today. Important to mention that we could have reported for Q3 even a larger amount of cities under contract, the only reason why this did not happen is because of elections and city council decided to wait, kind of, all of them to wait until that end, so they can sign the contracts right after the election. So we are expecting that continued growth in the cities to be under contract.

Jaeson Schmidt: Okay, great. And then just the last one from me and I’ll jump back in the queue. How should we think about gross margin going forward? Obviously, the continued contribution or growing contribution of AI portfolio shouldn’t lift that up, but I have to imagine supply chain and some of those dynamics inflation et cetera are creating some headwinds. So any color you can provide on how we should think about gross margin here in Q4?

Shai Lustgarten: Yes. Obviously, I mean, we started talking about it. We had several discussions about that in the previous calls as well. We explain how as designers, how as original equipment manufacturers, we can provide or seek for alternatives in case we have challenges in different components. We’re still doing that and we’re still able to provide the response required in order to continue showing growth quarter-over-quarter. And the gross margin trend is going to continue picking up, going to continue growing as we discussed before as well with the objectives that we stated as well. And it’s assured, I would say, or secured because of again the increased backlog and demand that we see in the AI product. So just to give you an illustration, in 2021, we had about $2 million at this time in backlog, while right now we have about a little bit over $5 million already in backlog still for this year.