Chris Wolfe – Chief Executive Officer Ned Mavrommatis – Chief Financial Officer

Jason Smith – Lake Street Capital Sameet Sinha – B. Riley Will Gibson – Roth Capital Partners Dan Weston – West Capital Management

Thank you, Towanda. Good afternoon everyone and thank you for joining us today.

After the market closed, we issued our results for the second quarter ended June 30, 2017 and a press release, a copy of which is available at the Investors section of our website. As you can see, the second quarter was strong across the board for I.D.

Systems. We were able to deliver double-digit top-line growth both sequentially and year-over-year.

In fact the $10.7 million we generated in the period marked the highest revenue level for the company in two years. This achievement was driven by solid contributions across all our business segments, but particularly our industrial truck management segment or vehicle management systems as we referred to this historically where we received significant orders from two leading motive manufacturers.

Also contributing to our growth during the period was the initial revenue from our new agreement with Avis Budget Group in which we recognized revenue from the development and production ramp up portion of the engagement. Q2 was also highlighted by our ability to maintain our reduced level of operating expenses, which enable us to achieve non-GAAP profitability for the period.

On top of our financial success, we recently acquired substantially all the assets of Keytroller, a manufacturer and marketer of electronic products for managing forklifts and construction vehicles. I will talk more about this important acquisition and how it augments our organic growth strategy in a few minutes.

But first, I will turn the call over to our CFO, Ned Mavrommatis, who will provide more details and insights into our numbers for the quarter. Ned?

Thank you, Chris, and good afternoon everyone. Turning to our financial results for the second quarter ended June 30, 2017, our revenue increased 34% to $10.7 million from $8 million in the prior quarter and increased 20% from $8.9 million in Q2 of last year.

As Chris mentioned, the increase was primarily due to higher VMS revenue and the initial contribution from our agreement with Avis Budget Group. Recurring revenue for the quarter was up 9% to $4.7 million from $4.3 million in Q2 last year.

VMS revenue for the second quarter was $6.2 million, which was up 30% from $4.7 million in the second quarter of last year. TAM revenue was $3.6 million down slightly from $3.9 million in Q2 of last year.

Revenue from rental car was $921,000, up from $229,000 in Q2 of last year. Our gross margins remain strong of 51.8%.

Our selling, general and administrative expenses for the second quarter were $5.2 million compared to $5 million in Q2 of last year. This slight increase was due to the professional fees related to our acquisition of Keytroller.

Our R&D expenses for Q2 of 2017 were $854,000 down from $1.2 million in the same quarter a year ago. GAAP net loss for the second quarter of 2017 totaled $524,000, or $0.04 per basic share.

This was a significant improvement from a net loss of $1.5 million, or $0.12 per share in Q2 of last year. Excluding stock-based compensation, depreciation and amortization and foreign currency translations, our non-GAAP net income totaled $83,000, or $0.01 per share.

This was a significant improvement from our non-GAAP net loss of $623,000, or $0.05 per share, in Q2 of last year. For more detail on our non-GAAP results, please see the reconciliation to GAAP terms including the supplementary tables of our earnings release.

Now turning to our balance sheet. At quarter-end, we had $10.3 million in cash, cash equivalents and marketable securities.

This was an improvement from $8.6 million at the end of the prior quarter. On a pro forma basis including the net proceeds from the sale of our common stock in a fully underwritten public offering last month and the acquisition of Keytroller, we had $19.5 million in cash, cash equivalents and marketable securities, which equates to approximately $1.12 per shares.

At quarter end, we have zero drawn on our $7.5 million credit facility, which compares to $1.3 million outstanding at the end of the prior quarter. And lastly for the six month period ended June 30, 2017, net cash provided by operating activities was $5.7 million compared to net cash used in operating activities of $17,000 in the same period of 2016.

This completes my financial summary. For more detailed analysis on our financial results, please reference our Form 10-Q, which we plan to file by August 15.

Chris?

Thanks, Ned. The second quarter is punctuated by robust sales in our industrial truck management segment and stable sales in our TAM segment or trailer asset management segment.

The most significant win in our industrial truck management, I mentioned earlier, in Q2 was $2.4 million follow on order from a leading global automaker. The orders in Q2 followed a successful implementation of our product PowerFleet at four of their U.S.

facilities late last year. As I talked about on our last call while our direct sales efforts over the years have primarily been focused on large enterprise accounts.

Markets reveals there's a considerable opportunity at the mid-tier level, which is a smaller than less than 50 vehicles per customer site. To supplement our organic growth and direct sales efforts in this attractive market, we acquired substantially all the assets of Keytroller.

Keytroller has earned a reputation in the industry as an innovative provider of forklift access control/monitoring systems, speed controllers, forklift scales, truck-mounted cameras, impact sensors, and safety systems. By adding Keytroller’s mid-range and diverse product mix to I.D.

Systems’ market leading PowerFleet industrial truck management system, we now can offer the perfect solution to any customer, no matter how large or how small their fleet is, whatever the problem is they're trying to solve and whatever budget they have to work with. This allows us to offer the customer the best option as an OEM neutral, OEM independent provider of forklift technology.

The acquisition also provides us with opportunities to cross-sell into each other's customers and consolidate and streamline both marketing and product development efforts. In addition to the product synergies, our market positions and distribution channels are highly complimentary.

As most of you know, we sell our flagship product to the large global enterprises and also through the lift truck OEM such as Toyota. Whereas Keytroller market these products through large network of dealers to small and medium sized end users.

They have well over 450 dealer network. Last year, Keytroller generated $6.6 million in revenue and a net income of $1.5 million.

Beginning in Q3, Keytroller’s results will be included as part of our industrial truck management product line. Giving Keytroller’s success and operating momentum, we do not anticipate making any significant changes to the business.

We plan to run Keytroller as an independent division of I.D. Systems with Keytroller’s former President, Terry Wickman staying on as EVP and General Manager of the new division.

We look forward to integrating Keytroller’s operation smoothly into our corporate family, leveraging operational benefits of this acquisition and accelerating Keytroller’s already exceptional growth rate. Now, I’d like to shift gears quickly to our rental fleet segment and our partnership with Avis Budget Group.

As I mentioned earlier, Q2 commence the initial work under our new multi-million dollar purchase agreement, we secured with Avis Budget Group in Q1. During the second quarter, we began development and a production of ramp up portion of the agreement to support the deployment of our technology in 50,000 Avis Budget vehicles.

Today, we have successfully achieved all milestones associated with this program. While it’s been a very busy and productive start of the year, we have entered the second half with significant financial and operational momentum, putting us on track to achieve our financial goal of achieving non-GAAP profitability.

Our acquisition of Keytroller has better positioned us to achieve a more predictable, profitable revenue stream from a more diverse and expansive customer base. And with that we're ready to open the call up for your questions.

Operator, please provide the appropriate instructions.

Hey, guys. Thanks for taking my questions.

I just want to start with a quick housekeeping one. How much recurring revenue was in the VMS segment in Q2?

Approximately $1 million, Jason.

Okay. And then just shifting gears to the Keytroller business, how should we expect that to impact the ASPN gross margin profile of the VMS business?

The Keytroller gross margins are approximately 52%, so very similar to our company wide gross margins. So that business should not have any impact to the overall company gross margins.

Okay, that's helpful. And just curious if you could provide an update on the opportunity at the Postal Service.

Yeah, this is Chris. Hi, Jason.

We're still waiting on the national DAR of the RFP. It’s expected any day now.

It was anticipated to be out on the 17th of July and it's just been delayed a couple of weeks, which is not abnormal, but we're expecting that to be out any day.

Okay. And then just the last one and I'll pass it along.

How should we think about OpEx going forward obviously with Keytroller layering on expected to uptick a little bit, but bigger picture how should we think about trending the rest of this year and next?

If you do not include the additional expenses from Keytroller, we do not expect any significant changes in operating expenses for the rest of the year.

Okay, thanks a lot guys.

Thank you.

Hey, guys. This is actually Sameet on for Josh.

How are you?

Great. How are you doing today?

Good, thanks for taking our questions. So just a quick follow up on the growth in the VMS segment.

So, I think, on the last call you mentioned having great engagement in the customer base and that clearly kind of handout this quarter with these two new wins. But if you talk about post these new wins what the pipelines looking right now for the [indiscernible] product?

And what’s your expectations are for sales in the second half?

I think we're actually looking at the second half as being a continuation of Q2. Right now the pipeline is looking full.

Again, it’s just like we have to work for every deal. So, again, these are very big enterprise accounts, but right now we're very optimistic and we have momentum going into Q3 and Q4.

Got it. And how much of the cross-sales would you say as the opportunity for you guys near-term with the Keytroller acquisition of selling those products to the Keytroller client base?

That's one interesting thing about when we look at this opportunity was kind of stand on its own right, on its own merits and does it make sense. We didn't really initially look at it from the cross-selling opportunity knowing it was there, but if we just try not to factor it into the value.

That being said ever since we've announced it internally and externally we're kind of getting a better picture on that and right now there's a lot of excitement about the potential there. I just did not – we don't have the numbers yet to be able to share with you.

Got it. It makes sense.

And a couple other kind of quick questions on our end. So for the SaaS based offering that you guys have been talking about, I think $1 million recurring revenue in VMS for this quarter, could you talk about like your thoughts on a going forward basis and selling the on the SaaS offering and like any kind of traction with existing and new customers that offering?

Well, I think, first of all the VisionPro product that we currently have 60 customers on that and it’s actually pretty phenomenal given that we just released it in Q1. So the uptake on it, the acceptance of the product by the existing customer base, again it’s a 90-day changeover.

So we see good momentum for that and actually in our strategic plan and actually as we execute right now that's a huge part of our refresh potential. So, again, a lot of our accounts are running on very old equipment.

And there are refresh opportunities with VisionPro and we actually see that continuing into the rest of the year and into next year.

Got it. It makes sense.

And I think you already kind of mentioned the Post Office in your previous comments, but I love to hear any updates on the aviation opportunities you talked about in the last call or is there any kind of traction there and when we can kind of expect to hear something?

It’s interesting on aviation because we did some market research on aviation. We have a great product or solution set for that market space.

We are currently having a few pilots at various other customers besides the ones that we currently have, which is United and American Airlines and we just recently completed an RFP with American Airlines and we've been down selected. But other than that I mean it's just – we're going to have to wait and see how we pan out and – like the RFP process with American Airlines.

Okay, sounds good. That’s all and I will turn it over.

Yeah, the gross margin came out about where expected, but the cost of products was lower than normal and cost of service higher than normal. What’s behind that?

Hey, Bill. This is Ned.

Two reasons included in service revenue in the second quarter is the development work that we are doing Avis and that development work has much lower gross margin than our typical service revenues, so that affected the service margins for the quarter. On the product side, the products that we sold, during the second quarter, had much stronger ASPs than our standard pricing.

So we have higher margins on the product side there.

And on the product side is that a trend we see going forward with a lower cost of product serves, is that going to swing around?

No, I think it's going to – as we go forward it’s going to go towards the typical product margins. I think during this quarter we have some sales that has some pretty strong ASPs.

And I think this may have been addressed in earlier questions and in the presentation, Chris, but I know you’d talked about building internal sales effort to go after the mid-tier market when you talked about cross-selling with Keytroller. Did you just acquire yourself sales force?

Or are you still going to add some people?

Very good catch on that. Yes, we do.

We were looking at standing that up ourselves and basically Keytroller gives us a huge capability there. That being said we are looking at more of the business development – inside business development rep organization to help funnel and feed the Keytroller as well as the VMS side, right now.

So what we want to do is put both of those groups on steroids and we need to do that with a better lead generation process.

Thank you.

Yeah, hi. Thanks for taking the questions.

Congrats on a great quarter. I have a few.

Ned, in the second quarter could you quantify as close as you can in terms of what contribution the orders that were pushed out in Q1 contributed into the Q2?

I actually love that. This is Chris.

I love that question because those orders did not come in Q2. I get to ask that a lot.

And those orders are not lost by the way. There's other issues going on with that customer just on a postponement basis, but – so they did not contribute to Q2.

That’s interesting. Does that holds you for both customer or you’re talking about the auto parts manufacturer?

Those auto parts manufacturer order.

Okay. And then in Q3, as we move forward pertaining to Avis, do you expect any additional development type revenue to hit in Q3?

Yes. We expect approximately $600,000 in development revenue to be recognized in the third quarter.

Got it, great. And keeping on the Avis team, as you guys move forward through development, I know the original contract called for, I think it was 2,500 units per week to be shipped when you start based on conversations that you have with Avis’ management.

Is there any need or talking about adjusting net per unit shipment volume?

Yeah, this is Chris. I think right now there – you know you got to look at the logistics of rolling in out through their organization.

Again, it’s a huge organization, 1000s of employees, 100s of 1000s of vehicles to be installed. And so, they're going to use the Q4 time period on a little – a slower uptake mainly to get their processes down and then we're currently working with them, just had conversations actually today just on by what time we need to schedule.

They have to give us a 60-day advance notice for shipment. And so, probably in the next two months, we'll have a lot clearer picture on that.

That's a great, Chris. And then from a manufacturing standpoint, have you kind of completed all hurdles in terms of being able to deliver on the technology that they need for all makes and models of the vehicles they're going to be rolling out with at this point?

To date we've hit the milestones. We're contractually obligated to do.

We still have some milestones coming up in the future that – we have to – right now we're on track to deliver on those. But to date we're on target.

Like every program, the caution is it always comes down to the end, right. Everything has to come together.

It's like an orchestra. And the good thing is Avis is happy with our progress.

We don't see any major significant hurdles to date, but again I've been in program development long enough to know you know let's just keep executing and make sure everything comes together at the end. And that's what we're marching to.

So we have hopefully delivering units to them actually and by the end of this month for another pilot out of that first batch. So that tells you how far along we are.

Very good. Maybe a couple more if I could.

In terms of the new company, Keytroller, is there any one, two or three specific products that they sell that represent the lion's share of the revenue stream?

Yeah, it’s a good question. They actually have a product called the 601, which is a telematics product.

So it’s probably 70% of their revenue, which is a 601, 602 platform. And basically that would compete with our PowerFleet product, but it's a – at a different tier in the market.

So, our PowerFleet products definitely enterprise class and scale. The 601 and 602 is perfect for the mid-tier market space.

Very good. And then lastly, just in terms of the last completed offering and your recapitalized balance sheet.

Do you anticipate because of this stronger balance sheet that you have now that you'll be able to penetrate maybe some customers that you may have lost out on in the past because your balance sheet may not have been strong enough and the same might be asked for the business at Keytroller as well?

That – you know that's great that you asked that because – the simpler answer is yes. The fact that we have a strong balance sheet.

Our investors put their faith in us. That goes a long way when you’re out there trying to make the sale.

The second part of it what you mentioned is huge as well. Terry Wickman and I have talked about this in the past.

He has a very successful company that's growing at 20%, 25% a year. The problem is he's always running into that hurdle as he's only $6.6 million and he's a private company and so there's the risk factor of customers that maybe wanting to signup for him because of the risk.

And I think we – what's great is we've kind of nullified both of those with this acquisition and the raise.

That's great. That’s great, Chris.

I appreciate. Let me just close the loop on the answer you gave me before relating to that auto parts manufacturer because I think on the last call you made out a point to say that was a significant win for you.

So maybe you can get a little deeper in terms of what’s delay there? Why do you think it may start contributing and how they could potentially be?

There is two things going on there. One is they’re purchasing in their administrative offices from a certain area of the country to another.

And so, they did that actually at the end of Q1. Then secondarily, we do other work as far as reselling with the customer.

And we're trying to restructure it. So their reseller arm is actually the front versus us.

Again it's mechanics and logistics. It's not necessarily an issue of when – it's more like when.

And we're coming to closure on that.

Ned, could you tell us what 10% customers you have in the quarter, please?

Sure, there is two customers that were over 10%: GM and Wal-Mart. GM was 17% of revenue and Wal-Mart was 16% of revenue.

That's great. That’s it from me.

I appreciate you’re taking the time. Congrats.

Thank you.

Thank you.

Yeah, thank you joining us today on today's call. I especially want to thank our employees, our customers, partners and our investors for their continued support.

We look forward to updating you on our next call. Operator?

Thank you.