Chris Wolfe - CEO Ned Mavrommatis - CFO

Jaeson Schmidt - Lake Street Capital Josh Nichols - B. Riley FBR William Gibson - Roth Capital Partners Glenn Mattson - Ladenburg Thalmann Dan Weston - Westcap Management

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

After the market closed, we issued our financial results for the second quarter of 2018 and a press release a copy of which is available in the investor section of our website. The second quarter marked another strong quarter for I.D.

Systems building up the momentum we generated in Q1. Our performance is highlighted by solid top line growth 11% sequentially and 38% year-over-year to $14.8 million.

Much of the growth in the quarter was generated by our ongoing deployment with the Avis Budget Group but also supplemented by steady contributions from our core Industrial Truck Management or ITM section and Logistics Visibility Solutions group. In addition to our strong top line of the quarter, we also delivered a solid improvement in our non-GAAP net income, which was up both sequentially and year-over-year to $294,000.

There were clearly a lot of positive developments in this quarter, both financial and operational. But before we dive in more detail on our operational progress, I’d like to turn the call over to our CFO, Ned Mavrommatis to provide more details and insights our financials for the quarter.

Ned?

Thank you, Chris, and good afternoon everyone. Turning to our financial results for the second quarter ended June 30, 2018.

As Chris mentioned, our revenue for the second quarter increased 38% to 14.8 million from 10.7 million in Q2 of last year. The year-over-year increase was primarily due to higher Connected Vehicle Solutions revenue.

Breaking down our total revenue by source, Industrial Truck Management revenue was $6.4 million, Logistics Visibility Solutions revenue was $3.5 million and Connected Vehicle Solutions revenue totaled $5 million. Recurring revenue for the second quarter of 2018 increased 6% to $5 million from $4.7 million in Q2 of last year.

This increase does not reflect the additional Avis units as their recurring revenue will ramp up in the back half of the year. Our gross margin decreased to 43.3% from 51.8% in the same period a year ago.

The decrease in gross margin was due to higher deliveries of Connected Vehicle Solutions hardware, which have lower upfront margins, but margins improved over time as recurring revenues to kick in making for high lifecycle profitability over the contract term. Selling, general and administrative expenses for the second quarter of 2018 were $6 million compared to $5 million in Q2 of last year.

The increase in SG&A was primarily due to inclusion of expenses from controller which were absent in Q2 of last year. R&D expenses for the second quarter of 2018 were $1.5 million up from $997,000 in the same year ago quarter.

The increase in R&D expenses was primarily due to reallocation of internal product development resources to cost of services in 2017 for the development program for Avis Budget Group. Turning to our profitability measures, GAAP net loss for second quarter of 2018 totaled $1.1 million or $0.07 per basic and diluted share.

This was an increase from a net loss of $524,000 or $0.04 per basic and diluted share in Q2 of last year, excluding stock based compensation, depreciation and amortization foreign currency translation losses and acquisitions related expenses our non-GAAP net income for the second quarter of 2018 totaled $294,000 or $0.02 per basic and diluted share. This was an improvement from the non-GAAP net income of 83,000 or $0.01 per basic and diluted share in Q2 of last year.

And finally, our balance sheet remains strong with $13.1 million in cash and cash equivalents and marketable securities and no debt. This concludes my prepared remarks.

Chris?

Thanks, Ned. Not only did that the second quarter reflect our ability to profitably grow our business, but it also proves that we can execute on large program deployments simultaneously.

In addition to the 28,000 unified telematics platform units we delivered for Avis in the quarter, we also successfully manage large-scale rollouts with two keys global Industrial Truck customers. Our track record for rolling out multiple tens of thousands of unit program will help us with signing large contracts, as we launch our new Logistics Visibility products targeting the top 100 fleets later this year.

Looking first at our ITM business, Industrial Truck, we received large follow on orders from one major automotive manufacturer, numerous orders from one of the world's largest food producers. Our previously discussed next generation telematics product targeting small and midsize fleets is called PowerFleet essence entered system test and is in early field trials.

We are extremely optimistic about the products commercial launch which is slated for October. And our Logistics Visibility Solutions business we continue to generate strong sales through our container and chassis customers.

Overall, we continue to realize steady contribution from the segment as we gear up for our new product launches in October at the American Trucking Association in Austin. We’ll be introducing several major telemetry platforms and several innovative additional products at the show.

These additions to our portfolio will greatly help our customers do with the industry wide capacity crunch, and from a financial standpoint this will translate into contract renewals new business improved recurring revenue and overall stickiness of our solutions. In our Rental Fleet business, we continue to rollout our unified telematics platform with Avis as we set shipping 20,000 units in Q2 for a total of 41,000 in the first half of the year.

As I mention in the last call, we see the remaining units shipping in Q3 having shipped 47,000 as of today. While we are successfully executing on our current work order with Avis we are also in active negotiations concerning additional development work and a follow-on unit order.

The rest of the year looks to be just as exciting as the first half as we continue to showcase our creativity launch innovative new products and hone our ability to market, sell, execute and deliver. Looking ahead our operational momentum, our strong balance sheet, expanding technology platform and growing customer demand has established us a strong foundation to leverage not only this year but in the years ahead.

And with that we’re ready to open the call up for your questions. Operator, please provide the appropriate instructions.

Just a quick housekeeping one question first, wondering how much our recurring revenue came from the VMS segment in Q2?

Hi, Jaeson, this is Ned. 1.4 million of the recurring revenue came from the VMS segment.

And then, Chris, wondering if you could talk about what you're seeing from kind of a deal size standpoint? Have you seen an increase in the size of the deals you guys have been winning over the past few months here?

Or has the deal price remained relatively unchanged?

I think it relatively unchanged. The good thing about our purchase and acquisition of Keytroller here was smoothing out the lumpiness of our historical VMS sales for strategic accounts and I think you see it in the numbers.

Obviously, the deals at Keytroller although typically are lower size are not enterprise scale for the most part, but their sales have held steady and also the size of their deals have held steady as well as the VMS side. So, I’d say no change but what’s nice is we’re kind of seeing good traction across all strata of the market.

And then assuming kind of the big push of the shipment status regarding Q2 should we expect gross margin to snap back here in Q3?

Yes, Jaeson, and we do have some additional shipments for Avis in the third quarter. But obviously then as many units as the second quarter, so we expect to see an improvement of the gross margins in third quarter.

And the last one and then I'll jump back in the queue. Just want to clarify the exclusivity with Avis is technically over at this point, so theoretically you could be talking with other rental car vendors?

Yes, this is Chris. I stated earlier we're in active negotiations and diligently trying to hammer out an agreement what’s making it somewhat longer than what we like to see additional development work is being done for some competitive differentiation for Avis.

So again, while that's in process, you know it's like were out of exclusivity period and we’re in active negotiations right now. So I think were focused 100% on Avis.

Any updates you can provide for how things have been going regarding Keytroller that was integrated into the operations? And also again at high level the Company's outlook and thoughts about M&A as you release business?

Really, we’re seeing is -- last year and this is actually done on purpose, we kept the two organizations somewhat separated to make sure that we could fire on all cylinders and we would not impacted Keytroller success. That being said is we did quickly move to put the technology leader of Keytroller in charge of our whole VMS platform group and that kind help bring the two groups together from a technology and product perspective.

And right now, we see next year being rolling the actual sales organizations together. And what's nice about is the two groups got to know each other got to know products, and it's actually workouts phenomenally better than we expected.

So the next year, you will see its actually role out a whole branding platform as we launch the whole suite of PowerFleet -- what we call suite of PowerFleet products, all the way from enterprise down to the entry level.

And then, so you have few new offerings coming to market in October in the Industrial Truck and also some long-range tracking solutions. How quickly do you think that those could potentially ramp and start having a material impact on the Company's financials?

Right now, let’s talk about industrial truck first and the power essence platform, that's primarily a channel of product. So we’re going after the mid to small tier fleets which I get through the dealer channel and that's actually what was behind the acquisition Keytroller, as the Keytroller brought with them 500 dealers.

So, we’re actively engaging with dealers as we speak will actually also signing up industrial distributors for this product and platform, internationally. So you’ll see in Q3 and basically signing up dealers, getting them educated on the product getting the market literature out and then when the product hits the streets will be a because of the basically education the market, but we actually see some traction in Q4, but primarily 2019 impact.

On the LVS side, we will be in fuel active field trials through Q4 on many of those platforms and we also have the product some of those products today. So again, I would say large-scale up take would be in 2019.

So outside of Avis just trying to frame as far as were some of the Company's biggest near-term opportunities. Whether that's the partnership with Toyota or one of these large auto OEMs that keeps coming back and ordering more and more product from you guys just you could help frame that a little bit that’d be helpful?

Yes, I think Ned mentioned that we had in those prior call that we’re ramping up our marketing spend primarily for the product launches that we have coming out. But also just to have a broader awareness in the market of our solutions, so the biggest opportunity we have on the ITM side, literally where we have refreshed opportunities with our current customer base and that includes some of the biggest names, in the Fortune 50 which we’re actively working on as we speak.

The deployments of the automotive companies that we did last year they're significant potential remaining with the automotive companies. So just in the near term those are like to me what we -- if we execute that’s our quick growth path in ITM followed quickly by the ramp up of the mid tier to small tier, stellar distributor channel and that would be the ITM side.

We’re also seeing some traction in some of the ancillary products as well. But again those ancillary products really just garner dealer attention, so that we can sell telemetry products.

So on the LVS side and just keep in mind that the top-1 areas represent 2 million trailers and we’re not just launching after trailer tracking or container tracking, some of our platforms go beyond that. But that being said as many of those carriers have to -- will have to have a technology transfer from 3G to LTE -- all of our platforms that are coming out are LTE.

They also have some other capabilities, I am not going to talk about today, but out of those 2 million trailers our target is to garner just -- we want five of those carriers of the top 100 that's our initial target. Any one of those and I’ve done before in my past, if we’re successful could be 20,000, 30,000 units and that’s our target on the LVS side.

I just want to clarify, if I heard correctly. In terms of the new telematics solution, you’re out recruiting talking to dealers, recruiting distributors, but not actually selling at this point?

No, we’re not actually selling. It is currently in the system test in early field trials.

So, again once it gets through that by the end of August and September, we will be deploying in October timeframe for active selling.

And in terms of connected car could you put a percentage of confidence like 70% or 90% of Avis giving you a second order this year?

I really can't go there but I can only say we have a great relationship with Avis. They’ve put a lot of faith in us, and we’re in active negotiations on a daily basis so stay tuned.

The unit pricing on those Avis UTP products, that’s fixed right about the same rate. So I guess by my calculation it would be just under 5 million for this 28,000 units, is that right.

That’s correct. The revenue was 5 million for Connected Vehicle Solutions.

And so just trying to get at the core growth and remind me, the Keytroller acquisition that was in July so that was in the first part of the third quarter last year, correct?

It closed on August 1st.

August 1st, right. So I guess where we're trying to get back is, excluding the Avis contracts, the product revenue was down year-over-year, but then this quarter you had Keytroller was last quarter didn't.

So can just kind of square that away for me and give me some color as to how that played out?

Yes, I mean it's -- we really don't break out Keytroller separately just because we look at as one segment. But if you look at our Industrial Truck business for the second quarter of this year, it was about $6.4 million were compared to last year which was approximately 6.2.

So, we saw defiantly some growth in the business. Now, this did increase Keytroller but like I said, we don't really break it out as one segment of our business.

Okay, so I guess maybe, was there any delay and purchases from people because they waiting maybe for new products on the hardware side coming in the third quarter? Or was anything like that going on?

Or is it just this is kind in line with what you expected?

Obviously, this quarter we saw some nice business from General Motors. However, if you compare that number two to last year's second quarter, it was a bigger order that we had from General motors.

So I think it's just timing of orders coming, but when you specifically look at the Industrial Truck business in the second quarter of this year we did see some nice win from GM as well as continued expansion by Toyota. And as Chris mentioned, with the diversification of the Keytroller dealers is smooth out the revenue a lot better.

Appreciate that and I guess the quick comment that Chris made on the Avis deal that you kind still hammering out some details as far I guess sound like features that you can put in that would make some differentiation of the product for Avis. So is that to say the exclusivity deadline pass, you would have maybe one sort of product would be exclusive then Avis going forward based on this new contract, but you also be able to sell the other vendors as well as that kind of how to think about?

Or is that you're still looking to get second contract Avis and role forward the exclusivity as far those terms?

Yes, I think right now because of where we are with the negotiations with Avis and where we see the work being with the activities, the development activity that has to happen and also to deploy another large order in the foreseeable future. It's probably better that we hold the line with Avis we negotiate in good faith and we try and get this deal done versus spin out right now other rental car opportunities and they have to shut them down if we in short order with exclusivity with Avis.

So definitely want the Avis like I said before we’re in active daily negotiations with them trying to finalize the next order.

Most of the questions have been answered by now, but a couple more. Chris maybe for you first the Visibility Solutions business, the -- I am just trying to get understanding of the overall customer demand, if you will or increased RFP activity you're seeing and what is the primary driver behind that if that’s the case?

Basically, if you heard my -- when I was talking, I’d mentioned the capacity crunch and the ELD mandate which is somewhat behind us, but yet the ELD mandate actually caused drivers now to drive legally, but also it curtailed the total number of hours of drivers on the road. So now you can't have drivers waiting for trailers.

And one of the biggest problems if you know there’s a trailer to tractor ratio typically 3 to 1 in industry and you have long queue times for shippers long queue times at companies, you’re dropping trailers, you’re seeing drivers who pickup trailers that are not available. And what you're seeing is the whole velocity and if you had an Amazon in the last mile, it is all about capacity.

Do I have capacity and kind of speed of my velocity? And the only way you can do that is with really integrated IoT and analytics like basically predictive analytics and decision support analytics.

And the new platforms we come out and with their sensor community around them give customers, and I said this before without going into too much detail, both literal and figurative visibility. So figurative being in the level of information coming back and literal and I'll just leave there, but the bottom line is, customers are feeling the capacity crunch, they have to utilize their equipment, they have to make sure the trailer gets there, get’s them loaded and get’s to be available a lot faster than in the past.

And right now, you're seeing customers RFP activity I won’t mention the names but there were like couple of large RFPs that just came out and we’re actively engaged in those even though our products are currently in field trials.

And just if I could dig a little more on that, like for the customers or potential customers that are evaluating the products now as they look at yours vis-à-vis -- other competitors to you what’s the feedback been based on what you're promising to deliver here what they're seeing? And do you feel like you are positioned competitively to capture this some of this market?

I would like to give you that answer, and I will the next call because I think when we announced the product at the ATA then our competitive differentiation will be known, right. So if I started out early, you I kind of miss the -- I’d kind of do us all a service here.

I come from the logistics background, that’s my background historically. I think we have a game changer too in our pockets again, we have to execute we have to deliver, but, this to me, there's some opportunities there for our innovative processes change the way people manage the business to get the velocity up and I’d all I can say I’ll tell you in November.

A couple of more quick ones, the just an update on -- you had initial traction with the world's largest online retailer couple of quarters ago, and I think you said on your last call that you have completed those three initial plant rollout. Is there any update or status you can give us on that particular customer?

Yes, actually in Europe, we’re actually in active bidding for a few other sites. So, they're rolling out also in the France and the UK and Italy, some additional sites, so that’s act of negotiations as we speak.

Some of that depends on truck orders because we actually offered our units at the OEM the actual Industrial Truck manufacturer. So that's going on in Europe and we have negotiations going on right now and in the U.S as well for a couple of sites.

That’s actually interesting and then also international as it pertaining to Avis. Is there any further discussion going on that front?

Say that again, sorry.

Just update on any other developments going on internationally with Avis?

I’m glad you asked that, so part of the development work that we’re talking about is taking our products to Europe and again the product just minor engineering changes that have to happen but it's not just whatever intend to use it’s also a certified of the network over there, so all that’s part of this what we call statement of work. So actually modifying our platforms can find in the EU.

Okay good color. Do anticipate the development work that’s needed specific to the international business will be completed in this calendar year?

Not in this calendar year, but will be available in 2019 for the large second following orders of the rollout.

I just want to make sure I’m clear on that. Is the completion of the development work related to some of the international opportunities you have with them contingent on them placing the next 50,000 unit order?

No, it's just all part of the bundle, it's not a contingent, it’s just -- that is only one of numerous feature functionality changes and additions. Again, those are spread.

And Ned for you, just if you could 10% customers in the quarter besides Avis obviously?

Yes, Avis was the big customer in the fourth quarter with the 33% of revenue. Wal-Mart was 10% of revenue and then the two below that was GM with 8% and then Toyota with 5% of revenue.

Thank you for joining us in today's call. And I specially want to thank Avis for their trust in us, our customers, employees, partners and investors for their continued support.

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