OMNIQ Corp. (NASDAQ:OMQS) Q3 2023 Earnings Call Transcript

OMNIQ Corp. (NASDAQ:OMQS) Q3 2023 Earnings Call Transcript November 14, 2023

Operator: Hello, and welcome to the OMNIQ Corp’s Third Quarter 2023 Earnings Conference Call. My name is Paul, and I will be coordinating your call today. With us on the call are Mr. Shai Lustgarten, Chief Executive Officer; and Neev Nissenson, Chief Financial Officer. Today’s call is being recorded, and you should have access to the company’s second quarter 2023 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. 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 guarantees 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 that and interpret them in that light. We urge you to review the company’s Forms 10-K, 10-Q 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. Now, I will turn the call over to Shai Lustgarten, CEO. Mr. Lustgarten, please go ahead.

Shai Lustgarten: Thank you, operator, and good morning, everybody. Thank you for joining us today to discuss our Q3 2023 financial results. 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 especially want to thank our Israeli employees, who are working hard despite the difficulties. And I also wanted to express my support and admiration to our employees who have been called up to the reserves to fight in the ward. During today’s call, I will share with you our financials as well as give you an update on our business. For the benefit of our new investors and followers, I’d like to quickly give a brief overview. OMNIQ creates efficiencies by automating processes and actions using IoT and AI technology-based solutions.

We provide multiple products, including state-of-the-art IoT equipment to complex companies in the US and internationally in several industries, including hospitals, foot and drop chains, logistics centers, governmental agencies and many others. We have a large and strong loyal customer base, including many Fortune 100 and 500 ones that have been partnered with OMNIQ for 20 years. We play an important role in the AI sector, offering pretensive [ph] machine vision technology-based products, which enhanced automation of parking, public safety, border control and crime inter prevention. To give you a better sense of our products and how they’re utilized, there are a few examples. Our system has continually and consistently been selected time-after-time by mid-terms and government, one of is the Israeli security authorities and we’re proud to say that our deployed AI product helps to save lives on a daily basis.

Our systems are currently installed in the San Diego-Mexico border, the Texas-Mexico border, as well as other sensitive locations to automatically detect drug dealers, stolen vehicles, criminals of any sort and prevent their exit and entry to the US. In addition, our systems are used in over 60 airports in the United States, including locations like JFK, LaGuardia, Newark, Miami, Los Angeles Airport and the Chicago Airport. Just to name a few. In Israel, we are focusing on providing automation and efficiencies in different industries with our products, such as point-of-sale and payment processing to the government, hospitals, logistics centers, food and drug, convenience stores and retailers to name a few. Now let’s look at our recent third quarter and nine-month results.

We had a drop in revenue, which was mainly attributed to the macro economy situation affecting mainly consumer spending. Specifically, the revenue drop came from our US IoT operations, selling to many of the world’s largest companies, our Fortune 100 and 500 customers, who were affected by the drop in consumer spending. While we remain confident in our mid- and long-term success, the opportunities ahead, the third quarter results of $17.5 million, representing a 35% decrease from Q3 2022 were negatively impacted by a delay in receiving large purchase orders for projects that we have already been awarded. Some turned with the drop in sales and as we have discussed in our previous calls, we are in the process of cutting costs that are already noticed by an approximately $2 million decrease in SG&A expenses for Q3 and $3.5 million decrease for the nine months ended September 30, 2023, as compared to the same period of 2022.

We have also taken and continue to take additional cost-cutting measures, and this is something that we started already since January of 2023 and also our number of employees decreased from 216 to 181 today, a total decrease of 35 employees, which is part of the cost cuts plant. This was done by consolidating operations and cutting R&D and operations expenses related to product stabilization now that our product already deployed in thousands of locations. Our internal efficiency efforts should improve profitability soon. While seeing the quarters top line revenue decrease, OMNIQ continues its focus and advancement in achieving our 2023 objectives, focusing on increasing our AI product, sales and market footprint and executing our internal efficiency plans.

All our AI products bring significant higher profitability. As we sell more AI products, this brings with it immediate higher profitability We are further encouraged as our international sales of our AI and IoT products substantially grew for the nine months of 2023, as compared to 2022. We hope that we will bring to see — we will begin to see the uptick in large purchase orders during the fourth quarter and going forward. Our focus continues to be on building sales in our higher-margin AI products, growing our core business and executing on our cost-cutting plans to lead the company to profitability. During the quarter, we made several significant announcements including, we received a purchase order from the Israel train company to deploy our AI-based machine vision system creating smarter and safer stations.

This marks a great R&D and marketing achievements. Our systems will be used for cloud management, enabling safer and quicker train subway experience. We extended our partnership with TripShot to provide AI-based unique frictionless parking solution with a major technology company. We were selected for an approximate $50 million project to modernize the supply chain for one of the largest US food and drug chains. Our AI-based machine vision equipment was selected to be deployed at the El Salvador International Airport, it’s our first installation in Central America — in the Central American airport, and we hope to receive new orders soon. We announced the technological breakthrough winning MOD, Ministry of Defense performance competition for in-car Face Detection, adding to our machine vision AI solution.

This — the new feature is being requested by major security authorities and attracted immediate interest. We were awarded a multiyear IoT equipment supply contract for Israel’s largest and newest logistics center. We announced the termination of the definitive agreement to acquire Tadiran Telecom. The cancellation was due to ind not being satisfied with the covenant that were not met at the closing date. And we announced the closing of a public offering raising approximately $3 million, strengthening our financial profile. Now, let me turn over the call to Neev, our Chief Financial Officer, who will go over the financial results in more detail. Neev?

Neev Nissenson: Thank you, Shai. OMNIQ reported revenue of $17.5 million for the quarter ended September 30, 2023, a decrease of 35% from $27 million in the third quarter of 2022. Our gross margin in the third quarter was 23% compared to a gross margin of 22% in Q3 2022. Total operating expenses for the quarter was $6.6 million, a decrease of 23% from $8.6 million in the same period of last year. Net loss for the quarter was $4.3 million or a loss of $0.55 per basic share compared with a loss of $3.8 million or a loss of €0.52 million per basic share for the third quarter of last year. Adjusted EBITDA, meaning adjusted earnings before interest, taxes, depreciation and amortization for the third quarter of 2023 amounted to a loss of €1.5 million compared with an adjusted EBITDA loss of $516,000 for the third quarter of 2022.

Cash balance at September 30, 2022, was $408,000 — ’23 was $408,000 compared with $1.3 million at December 31, 2022. OMNIQ reported revenue of $65.7 million for the nine months ended September 30, 2023, a decrease of 15% from $77.5 million in the first nine months of 2022. Our gross margin for the first nine months of 2023 was 21%, compared to a gross margin of 23% for the same period in 2022. Total operating expenses for the nine months ended September 30, 2023 were $20.8 million compared to $24.2 million for the same period of 2022, a decrease of 14%. Net loss for the nine months ended September 30, 2023 was $11.7 million or a loss of $1.50 per basic share compared with a loss of $9.6 million or a loss of $1.29 per basic share for the first nine months of last year.

Now back to Shai.

Shai Lustgarten: Thank you, Neev. To conclude, I would like to assure you that our technology offerings continue to be acquired by the most demanding customers in the world, and we are committed to achieving profitability, while positioning the company for long-term growth. Operator, I would like now to turn the call over for questions.

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Q&A Session

Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And the first question today is coming from Hela Pinkowski [ph]. Hela is a Private Investor. Your line is live.

Unidentified Analyst: Hi. Thank you, Shai and Neev. I know that you as all Israeli’s are facing tough times, and I would like to join you for your wishes to the soldiers and the people of Israel.

Shai Lustgarten: Thank you, Hela.

Unidentified Analyst: And first, I would like to also express my trust in the company and its management. This temporary drop is an opportunity to get out of it stronger. And I’m sure you are aware. Okay. So now for my questions. Can you please explain if the war has an impact on the company’s results?

Shai Lustgarten: So we did naturally have as it started, we saw kind of delay in order intake, but that was natural, of course, because the businesses were adjusting to the new reality to the new situation. We are seeing actually now a ramp up not only in the overall operations and order intake, but also we are seeing additional markets or industries that we are involved in, like hospitals and the medical industry, health and care. We see actually increased demand, which is very similar to what happened in COVID during COVID years , where there were some industries dropped. But actually, once that not only remained strong, but grow and that’s how we were — during COVID years, we were able to show growth in revenue at the end. So, we are not — we are affected, but we’re not worried about it.

Unidentified Analyst: Okay. And I also saw the Libra [ph] results, and realized that they had a weak quarter as well. And do you have other suppliers?

Shai Lustgarten: Yes, absolutely. As we discussed on the call when I read — when I was discussing earlier, the macroeconomic situation, we see the — in the US, of course, over the world, we saw the global inflation and everything, which affected immediate consumer spending, which our customers naturally are effected first, but also get out of it even first and very strong. So, Libra, one of the, I would say, larger OEMs in the market, they suffered as well as others. We do have, of course, and work with many other vendors, but the results you saw them dropping similar percentages to what we sell and others in the IoT space in the US, that is something that everyone saw and felt. These were two difficult quarters in that sense. But we do — and as we discussed, not only we use other vendors as well, but we also are seeing the ramp-up now during the fourth quarter.

Unidentified Analyst: Okay. That’s good. And then for my last question, please. When do you think that we shall see the full impact of the cost cuts so far?

Shai Lustgarten: We had already been showing the impact of it starting last quarter in the immediate SG&A. As we discussed, that was done by — mainly by the employee cuts that we’ve started, which, of course, we were able to do due to the fact that these employees were more related to product stabilization now that we are deployed in thousands of locations and the product is more stable. We need less resources to support that. And that’s how we were able to create these cuts immediate cuts, which already started showing effect in Q2, continuing in Q3. And of course, that’s going to continue in Q4 as well and allow us to show profitability very soon.

Unidentified Analyst: Okay. Okay, that sounds great. Thank you so much Shai.

Shai Lustgarten: Thank you so much, Ela [ph], for your support. Appreciate the concern.

Unidentified Analyst:

Operator: Thank you. [Operator Instructions] The next question is coming from Richard Molinsky from Max Ventures. Richard, your line is live.

Richard Molinsky: Hey Shai. How are you doing?

Shai Lustgarten: Hey Richard. Good how are you?

Richard Molinsky: Not too bad. A quick question. The orders that were delayed, you do expect in the fourth quarter to see those orders come through in the fourth quarter?

Shai Lustgarten: Yes. Yes. We are seeing these orders are now coming back for delivery. And we are waiting for even more significant ones and that is work in process, but we still, as we said, we’re not concerned about our [indiscernible].

Richard Molinsky: Okay. I’ve also noticed you exercised warrants in the company from $4, I’ve noticed, down to like $1.20 $1.40 I think it was. How much money have you put into the company on exercising the warrant and have you sold any of those shares at the dollar amount approximately?

Shai Lustgarten: Yeah. No, no. I haven’t sold even one single share. I don’t even have my shares registered anywhere to be able to do that. As you know, I’m fully invested in this for the long-term and believe in the company and as you mentioned, I’ve been exercising a lot and continue to do that. And we’re talking about a lot of millions of dollars which have already been taken.

Richard Molinsky: Right. And the average price of those shares, do you know the average price approximately, so the investors know?

Shai Lustgarten: Yeah. It ranges between the $1 to the $6.

Neev Nissenson: We have disclosure of a recent essays and in all disclosures there are places which mentioned the option.

Richard Molinsky: Yeah. No, I saw that. I thought the average was like almost like $2.50 a share, and we’re trading at $0.58 a share. So…

Neev Nissenson: All of the options are…