OMNIQ Corp. (NASDAQ:OMQS) Q4 2022 Earnings Call Transcript

OMNIQ Corp. (NASDAQ:OMQS) Q4 2022 Earnings Call Transcript April 1, 2023

Operator: Hello, and welcome to the OMNIQ Corporation’s Third Quarter (sic) and 2022 Earnings Conference Call. My name is Halley, 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 fourth quarter and year-end 2022 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 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 that 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. Now I will turn the call over to Mr. 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 Q4 and year-end 2022 financial results. To start, I’d like to thank each one of our employees across the entire company for their continued hard work and dedication to our vision and strategic plan. During today’s call, I am pleased to share with you our financials as well as give you an update on our recent achievements, and a clearer understanding of our future focus and potential opportunities. I’m proud to announce that we experienced record breaking revenues of $102.5 million for 2022, growing from $78 million in 2021 and $55 million in 2020. In addition, we recognize the record gross profit of $22.1 million, an increase of $5 million, or 33% over last year, and 100% over 2020.

Also, we recorded positive cash flow from operations totaling $1.2 million, another strong milestone. This growth came from a diverse group of customers in a wide variety of sectors including safe city, supply chain, hospitals, restaurants and retail. This diversity proves once again that our platform designed offering has demand and success from multiple large verticals will depend on our technology and services to improve their operations and increase safety. It is also important to note that our AI revenue increased over 100% from 2021 to 2022, as our higher margin products gained momentum. While we have incurred upfront expenses related to our AI product and sales, our revenue share model will allow for higher margins going forward. As we look to 2023 and beyond, we see ongoing strength across verticals and are excited about both the progress and opportunities ahead.

During the year, we made several significant announcements, including 14 contracted cities for Q Shield or Safe City products completed the closing of 100% of Dangot Computers, formalized the banking relationship increasing the strength of our balance sheets, named a total solution partner for one of the largest global leaders in enterprise asset intelligence for robotics, supply chain management, deployed our AI and machine vision solutions to our 50th Airport and many more achievements, which you can see from the numerous press releases throughout the year. As we look into 2023, we have three company initiatives as well as three areas of growth that we believe will drive our company to continuous success. I will start with the company’s initiatives.

First, selling deeper and wider to our existing Fortune 100 and 500 customers in all three business lines. Second, increased focus on generating cash and profitability by further efficiencies in operations, and continued focus on sales growth. And third, focusing on the momentum in our deployments of our AI products to existing and newly penetrated markets. Before I go further, let me turn the call over to Neev Nissenson, our Chief Financial Officer who will go over our financial results in more detail. Neev?

Neev Nissenson: Yes, thank you, Shai. Hello, everybody. In the year ended December 31 2022, OMNIQ reported records revenue of $102 million, which is an increase of 31% from $78 million at year ended December 31, 2021. We also reported record gross profit of $22.1 million in 2022 compared to $16.7 million in 2021. Our gross margin for 2022 also slightly improved to 22%. Total operating expenses for the year was $31.7 million compared with $27 million for last year – for a year before last 2021. Net loss for 2022 was $13.6 million or a loss of $1.82 per share, compared with a loss of $13.1 million or loss of $2.20 per share in 2021. This loss includes one-time expenses incurred from the implementation of our ERP system company wide.

Adjusted EBITDA or adjusted earnings before interest, taxes, depreciation, amortization and non-recurring loss events for the year ended 2022 amounted to an adjusted EBITDA loss of $2.9 million compared with an adjusted EBITDA loss of $4.1 million in the year that ended December 31, 2021, an improvement of $1.2 million in our adjusted EBITDA profitability. Let me turn the call back to Shai to talk more about our operational achievements and focused goals. Shai?

Shai Lustgarten: Thank you, Neev. Now that we have discussed what we have accomplished last year, let’s now shift focus on our plan, and what our shareholders can expect. While we continue our efforts on all sectors, we are specifically enthusiastic and focused on three verticals including safe city, supply chain and traffic management. As we look at our entire businesses and with these three verticals in mind, we expect to see accelerated growth and strong results. I’d like to take a few minutes now to expand on each of these three key verticals so you have a better understanding of the opportunity ahead. First, safe cities. Safe City is driven by Q Shield our proprietary AI offering that has been labelled by our first customer as the force multiplier.

In addition, this solution removes the need for a physical officer by utilizing our proprietary vehicle recognition system and our cloud based citation management technology. The technology operates 24/7 while providing an unbiased approach eliminating the potential for conflict that has traditional report. Our solution is unique in both the patented technology as well as the revenue share model that we created and has resulted in both the safety benefit as well as the revenue generator for the cities we serve. The system identifies any vehicle driving through the city, which is our National Crime Information Centre database, NCIC or on the city’s local Bureau of Investigations database. Within 20 milliseconds, our system alerts the authorities of potential criminals, and if any vehicles are driven, unregistered or uninsured, as well as a full menu of other violations that the individual city can choose from.

Our strategies to target small and medium and medium sized cities who see immediate impact from Q Shield with over 16,000 small and medium cities across the country, our potential is that while gaining rapid momentum in 2022, we continue to believe this represents a significant opportunity of growth and margin expansion for the company. Our current backlog of cities continues to grow as our exposure expands and have targeted an additional 35 to 40 cities to potentially be contracted this year. Next supply chain. OMNIQ continues to enjoy solid sales from our long standing customers, many of whom have relied on the company for over 20 years to handle their logistics and supply chain challenges. This segment represents a foundational business for us servicing some of the largest companies in the world, including many Fortune 100 and 500 companies.

We are proud of several awards were received including the $4 million contract from a multinational transportation logistics company, and $29 million order from a large supermarket chain and the $4 million order for advanced supply chain equipment from a Fortune 50 company. It is important to note that not only this is stable generated revenue, it also have a significant opportunity to sell our AI related products into these corporative customer base, which over time brings an opportunity to both increase our revenues, as well as our margins significantly. And finally, traffic management. This vertical includes our AI solution for airports, commercial and public parking, and our newly introduced HOV solution with over 50 airports deploying and using our solution we have a solid presence across the nation and continue to add many new locations.

We’re currently servicing thousands of parking lots and are introducing our latest technology that utilizes both ticketless and gateless parking solutions, which allow for both a better customer experience, as well as increased efficiencies for the parking facilities. Our HOV product now not counts passengers driving down the highway, it also is currently being utilized by a large public company with a green initiative utilizing our passenger counting technology, which is tied into their CRM and HR department the company is able to collect habits by their thousands of employees. This dynamic solution ensures they reach their green goals as they are now able to efficiently and accurately incentivize and reward their staff. As you can see, we have disciplined focus on three key areas of growth, as well as three company initiatives.

Before I turn the call over for questions, I’d like also to quickly discuss one of our newest verticals, the restaurants and retail sector, which we feel offers additional growth potential. As you may have seen, we have already announced several contracts this year including an initial order for our Q-post integrated AI machine vision solution from a major retailer for up to 5,000 units. We also received both an initial order as well as a follow on order from U.S. based fast food chain with over 800 locations. Both contracts represent growth groundbreaking achievement, as retailers and restaurants are looking for ways to stay ahead of their competitors, as well as growth. Utilizing OMNIQ technology will provide tools to better understand consumers consumption habits, while improving each unique customer’s interaction.

This technology will be part of the CRM system, allowing for dynamic decisions based on each unique customer visits. Together with Q Shield security enforcement in each location, our total solution is unparalleled in a unique offering. This first of a kind integration will also include vital data collection services, providing a more complete solution and offer additional revenue opportunities for both OMNIQ and our customers. In conclusion, our business saw significant improvement in 2022 with record revenues and positive cash flow from operations. Additionally, and we are starting up 2023 with continued momentum, a clear focus and a disciplined approach on the initiatives and segments that I have shared with you. As we turn over the call for questions, I would like to extend my sincere thanks to our loyal customers and suppliers, our professional team and other strong supporters.

Last but not least, we would like to thank our shareholders for their trust in us, as well as wish you all continued success. Operator, I’ll now turn this call over for questions.

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Q&A Session

Operator: Certainly. Your first question for today is coming from Jaeson Schmidt at Lake Street.

Jaeson Schmidt: Hi guys, thanks for your taking my questions. Shai not looking for specific guidance but just curious if you could comment what you’ve seen from an order pattern perspective year-to-date here?

Shai Lustgarten: Hi, Jaeson. Thanks for the question. Yes, we still continue to see – we discussed that in the previous quarters as well, the backlog of stability growth and then continue to be firm at high levels. And we still actually continue to see that as we started 2023 as well, it is solid, and at a much higher level than we’ve seen before, and remains that way with the additional growth in sales.

Jaeson Schmidt: Okay. And I’m sorry if I missed it, but did you say 35 to 40 cities to be contracted this year for the Safe Cities?

Shai Lustgarten: Yes, sir.

Jaeson Schmidt: Okay. And how should we think about the number to actually be rolled out?

Shai Lustgarten: So the number to be rolled out varies from state to state depending on the certifications required for the deployments, some states and cities? It’s worth very quick, much quicker than others. But certainly, we should see at least half, or I should say between the third to half of that amount getting deployed.

Jaeson Schmidt: Okay, that’s helpful. And then just the last one from me, and I’ll jump back into queue. Obviously, Q4 gross margin was pretty depressed but how should we think about gross margin trending here this year?

Shai Lustgarten: Yes. Unfortunately Q4, we did see lower margin there but the good news is that it was due to one-time events that had to be recorded in Q4. And that is, to your question, that is not carried on to Q1 or into 2023. These were a one-time events accounting wise, that had to be considered in Q4 and not repeated going forward.

Jaeson Schmidt: Okay, perfect. Thanks a lot, guys.

Shai Lustgarten: Thank you.

Operator: Your next question for today is coming from , a private investor.

Unidentified Analyst: Hi Shai. Congratulations, hope to see doubling to $200 million again within three years.

Shai Lustgarten: Hi, hello. Thank you very much.

Unidentified Analyst: Thank you. So I had a few questions, please. First, can you explain the deployment of the Q Shield and the Cities? The revenue model? What is the status now? And if there are more cities in the pipeline?

Shai Lustgarten: Yes. So first of all, absolutely there are more cities as we discussed in this call today. We have a growing backlog, a very solid one and we expect to more than double what we did in 2022. Regarding the revenue model, that is one of our unique offering that comes with Q Shield to the Safe City to provide safety to the cities we serve. And that is a revenue share model where out of the citations issued by Q Shield through it’s cloud based technology, we are able to send out dissertations electronically and do a revenue share with the city basically there is a split depending on the agreement with the city, the percentage from the citation that remains with the OMNIQ and the percentage that goes further and gets paid to the city.

All that payments of the citation go through OMNIQ’s bank account and we’re the ones actually writing the checks to the cities. The cities this way, get a revenue stream that they’ve never had before, never could have achieved before as well. And we’re very proud of the different use cases used actually to be – when they use these funds, for example, to schools, buying laptops to students, doing some community events, et cetera, et cetera, very exciting stories coming out of the cities, using the capital, using the money that OMNIQ generates to them. At the same time, enforcing regulations. And, like I said, the whole platform is a game changer. It is something that we see spreading very nicely. Going now into different other states, we started from the first state and now it’s going into three additional states.