Omniq - Q1 2024

Transcript

Operator (participant)

Hello, and welcome to the OMNIQ Corp.'s first quarter 2024 earnings conference call. My name is Holly, and I will be coordinating your call today. With us on the call are Mr. Shai Lustgarten, Chief Executive Officer and Acting Chief Financial Officer. Today's call is being recorded, and you should have access to the company's first quarter 2024 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 8-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 (CEO and CFO)

Thank you so much, operator. Good morning, and thank you for joining us today. On behalf of the entire team at OMNIQ, I extend a warm welcome to all our investors, analysts, and guests. We appreciate the time you've taken to be with us as we discuss our recent performance, the progress of our strategic initiatives, and our vision for the future. Your continued support and interest in OMNIQ are invaluable to us as we strive to enhance shareholder value and achieve new milestones together. We look forward to sharing our updates and insights with you today. First, I'll discuss some key developments over the first quarter.

We're excited to announce the continued enhancement of our AI machine vision business with the upgrade of DFW Airport, which is using our technology for access control and also a new homeland security project integrating our advanced AI machine vision solutions for public safety in a highly sensitive area. The next development in this area is enhancing our capabilities to win new areas of business from existing customers and also enhance our suite of capabilities to attract new customers. We did this by developing our new SaaS product we call SeeQ. We developed this to remotely manage the operation, performance, and health of our systems deployed in the field. We intend to continue to develop this product so that it can be hardware-agnostic. Essentially, consumers, consumers, or customers, will have one place to track and manage all their devices and receive analytics on the device performance and function and functionality.

Now, let's move to fintech. In the first quarter, OMNIQ's self-service consumer management kiosks were successfully deployed by Israel's largest energy company. Additionally, we have secured a contract with two major US-based restaurant chains to implement our self-ordering platform, along with a new fintech solution deployed at the Ben Gurion Airport, enhancing traveler experience with self-ordering convenience, further expanding our footprint in the global markets. We are also happy to announce the acquisition of CodeBlocks Ltd, a leader in fintech software development, marking a significant milestone in our expansion strategy into the fintech sector. Now, we'll discuss our IoT and mobile computing business. We have won significant contracts in this area.

Some recent notable business was the $5 million purchase order from one of the largest US food and drug chains, a contract to supply the new Nestlé International Logistics Center, and a device upgrade in 450 sporting goods stores for a major US retailer. These purchase orders help us to drive our business forward and reinforce our market leadership. Next, I have a few updates to share with you. First, we have submitted an application to list the trading of our common stock on the OTCQX and OTCQB marketplace. The listing of the company's common shares on OTCQX remains subject to approval as of now. OTCQX is the top tier of three markets organized by OTC Markets Group, Incorporated, for trading over-the-counter securities and is designed to establish investor-focused US and international companies.

We view the current situation as a temporary phase in our ongoing strategy, focused on profitability and operational efficiency. We're actively executing our strategic plan and exploring every avenue to ensure a swift return to a national exchange listing. In the interim, OMNIQ will continue trading on the OTC market, and we have taken steps to be listed on the OTCQX, the premier tier of the OTC markets, reflecting our commitment to high standards and transparency. Please be assured that OMNIQ remains diligent in fulfilling all the SEC requirements and filings. Our commitment is unwavering, as evidenced by our consistent acquisition of new customers and the expansion of our business with existing Fortune 100 customers.

We're confident in the strength of our partnerships and our proven business model, which we believe will drive our return to profitability and sustain our long-term success. Next, we will discuss our strategic plan for operational efficiency. Our management team is deeply committed to enhancing operational efficiency. We have implemented strategic measures aimed at reducing costs and increasing revenues. These initiatives are designed to streamline our operations and optimize our resource allocation, setting a robust path towards sustained profitability. This includes measures such as concentrating our sales efforts toward higher profit products, reducing operational costs without reducing operational efficiency, expanding product lines in large growing markets, utilizing existing partnerships, and coming out with products that add value to those customers on subscription basis, and more.

This plan is showing results when looking at the Q1 results, financial results numbers, and we're expecting to see further improvements in Q2 and beyond until we regain profitability. Now we'll talk about fintech. The fintech market is experiencing rapid growth, driven by increasing demand for technology-driven financial solutions. This expansion presents significant opportunities for OMNIQ, as our innovative solutions are well aligned with the current market needs, and we believe that we are in a good position to provide these solutions to both new and existing customers. Across the industries we operate in, trends such as digital transformation, AI integration, and automated solutions are influencing market dynamics, where we are actively leveraging these trends to enhance our product offerings and add value to our customers so that we can stay ahead in the competitive markets.

OMNIQ continues to distinguish itself from competitors through advanced technology solutions and strategic partnerships. We believe that our focus on customer-centric innovations and operational excellence positions us strongly against competitors in all our markets. Next, let's talk about financials. In the first quarter of 2024, we experienced strong financial improvements. Revenues rose by 14% from the previous quarter, reaching $18.3 million. Our gross margin hit a record high of 28%, up significantly from 21% in the same quarter last year, and up 13% from the last quarter of 2023. Gross profit soared by 142%, reaching $5 million. We also successfully reduced our expenses, with SG&A expenses decreasing by 18%, leading to an overall 18% reduction in total operating expenses compared to the first quarter of last year.

Our operating loss decreased by 37% from $2 million in the first quarter of 2023 to $1.3 million in 2024. Similarly, our net loss saw a drastic reduction of 40%. Additionally, the basic loss per share from continuing operations improved to $0.20 from $0.45 loss per share in the same period last year. The total comprehensive loss for the quarter was $1.9 million, a reduction of 39%. The remaining loss was partly due to the effects from foreign currency exchange. These financial achievements reflect our effective cost management strategy. These efforts not only demonstrate our commitment to operational excellence, but also reflect our focus on enhancing shareholder value, which has shown 37% reduction in operational losses year-over-year. This quarter, OMNIQ has made significant strides towards financial stability.

We've successfully streamlined operations and controlled and managed costs effectively, leading to a noticeable decrease in losses. Our focused efforts are not only improving our bottom line, but also driving sales. This progress is a clear indicator of our commitment to operational excellence and value creation for our, for our shareholders. Operator, now I'll turn the time back over to the for Q&A. Thank you.

Operator (participant)

Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Your first question for today is from Moran Pober with Acquisitions.com.

Moran Pober (Founder)

Hey.

Shai Lustgarten (CEO and CFO)

Hello?

Moran Pober (Founder)

Can you hear me?

Shai Lustgarten (CEO and CFO)

Yes, we can hear you.

Moran Pober (Founder)

Hey, thank you, Shai. Yeah, thank you, Shai, and good job on the improved results. I have three questions, please. First one is, what is the plan for the next quarters? Like, will you continue with the cost cuts, so OMNIQ achieves profitability? My second question is, can you please explain the higher gross margin? Is it the product mix? Is it expected to continue at this level? What do you think? And my third question, please, is, can you please tell us more about the fintech business segment? Like, do you see it as an important growth engine, or how do you see it? Thank you.

Shai Lustgarten (CEO and CFO)

Thank you, Moran. Appreciate the questions. Regarding the first question, our plan for the next quarter, not only for the next quarter, but the additional quarters this year and of course, going forward, is very simple. We are focused on profitability. We've reached nice revenues. We have very clear visibility towards our revenue growth this year, and thus, that gives us the ability to continue our focus on profitability and continue our cost cuts. We've already very quickly, as we demonstrated, shown the fruits of these efforts, and that's – it's a very simple, and not simple to execute, of course, but as a $100 million company becoming profitable in a year, that's something that is, I think, going to be noticed by our shareholders.

And of course, that's the best thing for the company, and that's our simple strategy: continue growth and continue profit and continue getting profitability. Regarding the second question on the higher margins, it is mainly due to two factors. One, yes, we have introduced to the market our AI machine vision products and continued to develop these products and continued to increase our footprint in the different markets that we serve, and this allows us to grow that revenue pie of the machine vision product, AI product, grow that revenue pie, revenue portion in the, in the total pie. And that, of course, comes with higher margins. The other factor is the cost cuts, right? We're working per our plan on cutting the cost of goods sold, and thus, this allows us to continue increasing our margins.

Again, all of this is part of our plan that we've discussed in many calls before, and we said that 2024 is gonna be that year, and that is exactly what we're experiencing now. Regarding the fintech, fintech is a market that is significantly growing year-over-year. It's a market that we already provide solutions that we call point-of-sale solutions, that go to retailers, that go to different other customers in the different markets we serve. We already today are providing our solutions, total solutions, total systems, to Fortune 500, Fortune 100 customers. We decided to invest in the fintech software and hardware as a complete system because it is part of the many products we already serve our existing Fortune 500, Fortune 100 customers.

Today, we already manage 30,000, approximately 30,000 businesses and their financial transactions. That is a very nice footprint and one that we see as a growth engine, of course, aimed on our existing customers we already serve, which buy our total solutions, and that is how we see the fintech gonna grow, to continue exposing it and selling it to our existing customers and of course, bringing in new customers as well. The one last thing about fintech, it allows us, as our vision supports, of course, the data-driven markets we are providing today, IoT systems, AI products, to our consumers, which these products are, if you will, you can imagine it as sensors that pick up data. Same thing with fintech.

This is another very solid path in letting us get even better data much more precise, I would say, that allows us to identify trends and thus bring us to the next-gen products of OMNIQ. I hope that answers the questions.

Moran Pober (Founder)

Yes, thank you.

Operator (participant)

Your next question for today is from Pavlina Silikiotou. Your line is live.

Speaker 3

Hello, Shai. A few months ago, the company announced-

Shai Lustgarten (CEO and CFO)

Thank you for your-

Speaker 3

I'm fine, thank you. How are you?

Shai Lustgarten (CEO and CFO)

Good.

Speaker 3

So, I have two questions for you. The first one is, a few months ago, the company announced that it has been selected for a project of approximately $50 million. Can you update us on the project? Does the revenue already announced include the execution of part of the project?

Shai Lustgarten (CEO and CFO)

Can you repeat the second question, please?

Speaker 3

Would you like to answer this one first? Mm-hmm. This is the first question, actually, two parts. Yeah.

Shai Lustgarten (CEO and CFO)

Mm-hmm.

Speaker 3

Does the revenue already announced include the execution of part of the project?

Shai Lustgarten (CEO and CFO)

Okay. Yeah, we've been awarded with the project. We can call it a project, but these are already items, products, the IoT products we have been providing to the customer, a leading food chain customer, Fortune 100 company. We've been providing them these equipment already in the past, and now they have selected us—last year, they have selected us to really expand it across the board, our footprint over there. It involved a lot of pilots, not because, like I mentioned, these are products we already provided, but expand such a across board to all their operations, all their warehouses, distribution centers, stores, et cetera, that is a larger scale project.

And, that came with pilots that we conducted and ended successfully, and we are currently at the stage of, pending the first orders to come in. That same customer have already provided us purchase orders, not from this specific project budget, but actually, from other budgets and smaller ones, which, use the same product. And that was an amazing sign for us because that shows us that they are trusting our product, that we passed all pilots, and even further increased our potential business with them because the purchase orders we currently receive for the same product from the same customer, are ones that are not even from the budget of the $50 million one. So we are, seeing very positive feedback.

We are already providing the customer with this technology, and, we are expecting the first orders from this specific $50 million budget to come every day now.

Speaker 3

Understood. Thank you. And, the second question is, there were a few announcements regarding new AI unique features, like in-car face recognition, crowd management, and here I'm referring to the Israeli train company project announced in September 2023, HOV and others. Can you please update us on these issues?

Shai Lustgarten (CEO and CFO)

Certainly. Yeah, we have done a lot of work, R&D work. One of our biggest expenses are the R&D, to research and development. And one of the infrastructures that we invested it in is to manage our solutions over the cloud, to complete cloud management, for our clients, for our customers. This allows us to, you know, more rapidly expand and deploy systems. We have more than 10,000 deployments now, only in the U.S., 10,000 lanes, 10,000 AI systems working. So being on the cloud to do that, having that infrastructure, and that is done. We've been also able, through that, to increase our computing power with the AI products.

This allows us to really use virtual servers much stronger and allow us to do things like the machine vision identification of objects quicker, much faster, of course, but also with much higher accuracy because of the computing power that we use over the cloud with virtual servers.

And, and one of these outcomes from this infrastructure is the ability to work on different projects, expand our reach to additional industries, such as the train market, where we provided, signed, and already concluded a pilot, where we are providing a system, a product, AI product, that allows to identify crowd and the, and the number of people that can, you know, the, the computer. What we do is we provide- we look at the platform where the trains come in and, or go out from, and there we can identify risks. One of the biggest risks these customers specifically wanted us to identify is-...

Crowd, the people that increase and create kind of a risky crowd situation where it could, you know, end up in an accident where we are—when that happens, before that happens, before this, we can identify the risks this way on every platform that we are deployed at. We can identify the crowds, increasing numbers of people there, and we can then alert the authorities or the customer, anyone that he wants us to alert. We can alert them before this risk becomes an event. That's a life threatening situation where we're doing life-saving. We're creating life-saving situation out of it due to the notifications and alerts that we provide.

So that's regarding that specific project, and of course, this is a product that is relevant for many other customers. And the fact we did it with this specific customer, which is national train company, that allows us to really have a great reference going out to the whole market. The other... what you mentioned, the HOV, what we do, we trained our engine. We call the algorithms, the patented algorithms that we have, we call it the engine. We trained our engine to identify the number of passengers in a vehicle. That immediately brought interest from two specific industries. The first is the military one, the defense one, and the second is, of course, the commercial one.

In the defense one, there, we already are deploying this product in Prime Minister's residence, and that was a significant milestone we achieved and other ministers in different governments to identify also not only the vehicles, but also identify the people that are in the vehicle. And on the commercial side, we're currently conducting pilots with one of the largest hotel integrator in the U.S., to actually then go after the commercial market, the HOV lanes, and be able to enforce HOV regulations, which are not today enforceable, but with our product are. Again, it's a huge growth engine and something that we're focusing on as well. Thank you. Thank you, Pavlina.

Operator (participant)

Once again, if you would like to ask a question, please press star one. We have reached the end of the question and answer session, and I will now turn the call over to Shai for closing remarks.

Shai Lustgarten (CEO and CFO)

Thank you, Operator. Thank you all for your participation today. As we close this call, I want to express my deep gratitude for your ongoing interest and belief in Omniq. Your support fuels our commitment to innovation and excellence. We are excited about the road ahead and look forward to continuing this journey with you. Together, we are driving OMNIQ towards a brighter, more profitable future. Thank you once again for joining us today. We thank also our team, the employees of OMNIQ, and the amazing achievements that we are achieving daily. We appreciate your trust and partnerships as we move forward into an exciting era of achievement. Have a wonderful day. Thank you so much.

Operator (participant)

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.