Mar 1, 2018
Executives
Chris Wolfe - Chief Executive Officer Ned Mavrommatis - Chief Financial Officer
Analysts
Jaeson Schmidt - Lake Street Capital Markets Josh Nichols - B. Riley Financial Dan Weston - West Capital Management Shawn Boyd - Next Mark Capital
Operator
Good afternoon. And welcome to the I.D.
Systems Fourth Quarter and Full Year 2017 Conference Call. My name is Tiffany, and I will be your operator for today’s call.
Joining us for today’s presentation are the company’s CEO, Chris Wolfe; and CFO, Ned Mavrommatis. Following their remarks we will open the call for your questions.
Before we begin the call, I would like to provide I.D. Systems’ Safe Harbor statements that includes cautions regarding forward-looking statements that made during this call.
During the call there will be forward-looking statements made regarding future events, including I.D. Systems’ future financial performance.
All statements other than present and historical facts, which include any statements regarding the company’s plans for future operations, anticipated future financial positions, anticipated results of operation, business strategy, competitive position, company’s expectations regarding opportunities for growth, demand for the company’s product offering and other industry trends are considered forward-looking statements. Such statements include, but are not limited to, the company’s financial expectations for 2018 and beyond.
All such forward-looking statements imply the presence of risks, uncertainties and contingencies, many of which are beyond the company’s control. The company’s actual results, performance or achievements may differ materially from those projected or assumed in any forward-looking statements.
Factors that could cause actual results to differ materially could include amongst others, SEC filings, overall economics and business conditions, demand for the company’s products and services, competitive factors, emergence of new technologies and the company’s cash position. The company does not intend to undertake any duty to update any forward-looking statements to reflect few event -- future events or circumstances.
Finally, I would like to remind everyone that this call will be made available for replay in the Investor Relations section of the company’s website at www.id-systems.com. Now I’d like to turn the call over to I.D.
Systems CEO, Mr. Chris Wolfe.
Sir, please proceed.
Chris Wolfe
Thank you, Tiffany. Good afternoon, everyone, and thank you for joining us today.
After the market closed, we issued our financial results for the fourth quarter and fiscal year ended December 31, 2017, in a press release a copy of which is available on the Investors section of our website. As you can see from our earnings release, our financial performance in the fourth quarter represented a continuation of the strong growth and operational momentum we have achieved over the last three quarters.
More specifically, the fourth quarter marked our third consecutive quarter of topline growth, improved profitability and operating cash flow. These encouraging results have been consistently driven by contributions across our entire business, particularly in Rental Fleet as well as our optimize cost structure and our enhanced business processes.
Operationally during the fourth quarter we continue to strengthen our overall business as well as diversified our offerings in the marker. In our Industrial Truck division or what we refer to historically as a Vehicle Management System business, we saw healthy growth in OEM and independent dealer channel sales.
On top of this we also had successfully expansion -- successful expansion of relationships with several key enterprise accounts. In addition to our increasing traction in the Industrial Truck side of our business, our transportation asset management or our TAM business continued to be stable and a profitable contributor to our P&L.
We also had active and productive quarter advancing our partnership with Avis where we completed system development and production readiness of our multi OEM telematics solution, the unified telematics product or what we call the UTP. I will talk more about these and other highlight shortly, but I would like to turn the call over to our CFO, Ned Mavrommatis, who will provide more details and insights into our financials for the quarter and the full year ahead.
Afterwards, I will return to talk more about our growth strategy, operational execution, as well as our outlook. Ned?
Ned Mavrommatis
Thank you, Chris, and good afternoon, everyone. Before I turn to the fourth quarter results, I want to point out some highlights for the full year ended December 31, 2017.
For the full year our total revenue increased 11% to $41 million, up from $36.8 million in 2016. Gross margins improved to 51.1% from 49.7% in 2016 and non-GAAP net loss was reduced from $2.9 million in 2016 to $356,000 in 2017.
During 2017 we improved our balance sheet ending the year with $16.9 million in cash and cash equivalents and investments and no debt compared to net cash of -- used of $3.9 million at the beginning of the year. During the 12-month period ended December 31, 2017, we generated $3.9 million in cash from operations, which was an improvement from net cash used in operations of $2.5 million in 2016.
Turning to our financial results for the fourth quarter ended December 31, 2017, our revenue for the fourth quarter increased to 21% to $11.2 million from $9.2 million in Q4 of last year. The year-over-year increase was primarily due to higher Rental Fleet revenue and Industrial Truck revenue.
Breaking down revenue by source, Industrial Truck revenue totaled $6.8 million, compared to $5.3 million in Q4 of last year, TAM revenue totaled $3.5 million, compared to $3.8 million in Q4 of last year, and lastly, Rental Fleet revenue totaled $922,000, compared to $193,000 in Q4 of 2016. Our gross margins remained strong at 50.2%, which was an improvement from 47.3% in the same period a year ago.
Selling, general and administrative expenses for the fourth quarter of 2017 were $5.9 million, which was up from $5.3 million in Q4 of last year. Research and development expenses for the fourth quarter of 2017 were $915,000, down from $1.1 million in the same year ago quarter.
GAAP net loss for Q4 2017 totaled $874,000 or $0.05 per basic and diluted share. This was an improvement from a net loss of $2.1 million or $0.16 per basic and diluted share in Q4 of last year.
Excluding stock-based compensation, depreciation and amortization, foreign currency translation losses and acquisition-related expenses our non-GAAP net income for the fourth quarter of 2017 was $200,000 or $0.01 per basic and diluted share. This was an improvement from a non-GAAP net loss of $832,000 or $0.06 per basic and diluted share in Q4 of last year.
As Chris mentioned, Q4 marked our third consecutive quarter of non-GAAP profitability. Obviously, our full year performance for 2017 was impacted by weak Q1 and the implementation runway of our operational improvements took effect in the second quarter.
I will now turn the call over back to Chris to talk more about our growth strategy. Chris?
Chris Wolfe
Thanks, Ned. As many of you are aware, we hit the ground running last year, seeing our operational and product improvements took effect in Q2 and continue to show benefits through Q4.
2017 was a year we improved the foundation of our business and we improved our blocking and tackling, a boring necessity. As I mentioned at the beginning of the call, during Q4 we continue to strengthen our Industrial Truck business, as well as diversify our offerings in the market.
The integration of the Keytroller business we acquired last August is progressing ahead of plan. In fact, we’ve already begun realizing meaningful sales and product synergies from the acquisition.
Along that line we’re working with Keytroller team on a new product design for the mid and smaller site market and we plan to introduce this product at LogiMAT in Stuttgart in two weeks, with general availability scheduled for late spring. This product features, pricing and use of implementation will allow us to access a new untapped untargeted market of more than 5 million industrial trucks worldwide.
In step with this, we are radically improving our marketing to make it more impactful, more modern and more cost effective. We have started to increase our marketing spend and were to expand the pipeline for both strategic and mid-tier opportunities.
While it’s still early we’re encouraged by the initial success of this program but expect the full impact on our topline to be seen starting in Q3. Turning to our TAM segment, during the fourth quarter we secured a $1.3 million order for 2,000 new chassis tracking units from American Intermodal Management.
As I mentioned in my opening remarks, the TAM segment continues to be a stable contributor to the business with subscriber churns slightly better than planned in 2017. For 2018 we have several new product developments that will be commercially released later in the year.
These will transform our competitive position in the space and enable us to aggressively pursue the top 100 carriers. Due to the cellular networks, migrations from 3G to LTE, these major fleets will be reevaluating their technology choices and I.D.
Systems will be well-positioned to win these opportunities. Shifting gears to our Rental Fleet segment, the fourth quarter was highlighted by the completion of the system development product readiness for Avis.
I’m also happy to report that we receive system acceptance of our universal telematics platform in January. Considering we signed this deal last March, this was a major accomplishment by our two teams.
We are now actively working with the Avis team to successfully deploy the first 50,000 units this year, which is in line with their initial phase which they have stated they want to fully connected fleet by 2020. While 2017 was a foundation setting year with many fundamental business achievements.
What I’m really excited about is our innovative product deployments will be coming in 2018. As stated above, we have already started deploying our Avis Budget Group product.
We also have that new Industrial Truck products scheduled for the summer and several products with a nominal wow factor scheduled for our TAM segment in the fall. 2018 will be a year of I.D.
Systems innovation, product launches and continued financial success. We know many of you are curious about our progress with United States Postal Service and our next steps with the Avis Budget Group.
So let me address these. The United States Postal Service is currently performing their technical assessment of the RFP response they received.
We are currently in a question answering clarification phase. We have -- they have not set a definitive date for making their final selection, but we do know they’re working toward that goal based upon the activity we see.
For Avis Budget Group, while our top priority is filling the initial 50,000 units and verifying overall product performance, we are exploring several next steps and opportunities and these include, we are currently discussing how to bring our solution to their licensees and to their Australian and European operations. We are looking at development programs to expand functionality of the current platform.
We are in discussions on the additional U.S. orders beyond the initial 50,000 and what we have recently embarked on is developing an OEM jump starter kit, a work with Avis how to kit for OEMs who do or want to have fleet sales with Avis.
Lastly, since our press release, we have received serious inbound -- many serious inbound request for information about a solution and this interest level tells us that the general market there is a huge demand for our capabilities. And with that, we are ready to open the call to your questions.
Operator, please provide the appropriate instructions.
Operator
Thank you. [Operator Instructions] Now our first question will come from Jaeson Schmidt from Lake Street Capital Markets.
Please proceed.
Jaeson Schmidt
Hey, guys. Thanks for taking my questions.
Just the first housekeeping, wondering how much recurring revenue came from the VMS segment in Q4?
Ned Mavrommatis
Sure. Jaeson, this is Ned.
It was great to see the increase in recurring revenue from VMS. It actually grew by 35% from $800,000 to $1.2 million in the fourth quarter, compared to the previous fourth quarter.
Jaeson Schmidt
Okay. Thank you.
And then just shifting gears to the Avis rollout. Is there a timetable on when you expect to be completed on that initial 50,000, I know originally the plan was about 2,500 per week, but going through the evaluation process that obviously got pushed out a little bit, so just curious if there is kind of a new end date for that initial 50,000?
Chris Wolfe
Yeah. Jaeson, that’s a good question and helps clarify something.
The 2,500 units a week is actually our production ramp built. It is not necessarily their implementation.
So they -- Avis will be taking shipments based on when they get new cars delivered and they basically have a huge what we call in fleeting starting in Q1 and it actually goes through Q2. So we actually estimate the large portion of the units will go in starting this quarter and actually be done in Q2.
But it really depends on their in fleeting schedule when the cars they receive.
Jaeson Schmidt
Okay. That’s helpful.
And the last one for me and I’ll jump back into queue. Just curious if you could help us potentially size the VMS pipeline.
I know you guys have shown a tremendous progress throughout 2017. Just curious if you could help us think about some of the deals in -- currently in the pipeline?
Chris Wolfe
Yeah. I think what, while we have mentioned earlier about our marketing spend increases, that specifically to enhance our pipeline.
Yeah, we all realize actually after doing market research last year. The company externally that we needed really attack the mid and smaller size of the market for that we went and got Keytroller and the Keytroller products.
Keytroller has actually seen an ups well in their business, because now they are part of a bigger family offering and more credible. At the same time we have another product suite that we can offer to the market.
So we did realize last year that we were woefully under spending on marketing and we are going to correct that this year while we bring out new products to market. So we have a wow factor coming out with this new what we call mid-tier solution and ones we launch that at Stuttgart that’s kind of going in line with our marketing book build up.
But again we don’t go into specific like prospects that we have in the pipeline. But again we have our enterprise accounts and we have some significant opportunity to land there.
Jaeson Schmidt
All right. Thanks a lot guys.
Ned Mavrommatis
Thank you.
Chris Wolfe
Thanks, Jaeson.
Operator
Thank you. [Operator Instructions] And our next question will come from Josh Nichols from B.
Riley Financial. Please proceed.
Josh Nichols
Yeah. Thanks for taking my question.
So you talk a little bit about some new transportation asset management products that are going to be coming out for 2018. How should we think about the TAM business going forward?
Historically, it’s been a relatively like steady elite type business. Do you think that this is maybe going to be a growing business with some of the new product releases or could you help us frame that?
Chris Wolfe
Interesting question because a year ago when I took over I would have given you a different answer, but I think, this is Chris and with my background of transportation logistics, as well as prior workings I know the space fairly well and I think right there has probably never been a better time for us to have an opportunity to go after what I call the top 10 accounts. And if you look at top 100 carriers, just to give you an idea of the size.
The top five largest carriers have 200,000 trailers. That’s basically double what we have on here today.
The top 100 almost have a million. So we typically other than great customers like Walmart and Swift, with Swift is a huge customer.
We haven’t had the product portfolio that really attract them and that’s where we are going to come out within the fall.
Josh Nichols
Yeah. And could you help frame a little bit the Post Offices in evaluation right now.
It is a competitive contract, are you competing with other people at the moment and could you help kind of frame the size of the opportunity little bit better?
Chris Wolfe
Yeah. This is Chris.
I think in the past we have said it’s basically TBD on the pricing aspects. But it’s 7,000 industrial truck units and the price varies depending on the sensors they want and the configurations and that’s actually part of the RFP complexity is to trying to get everybody’s responses to an apples-to-apples.
Because implementing somebody like United States Postal Service at 100 X locations that -- 100 units per location that’s a logistical puzzle and we have the background and capability to do that and that’s I guess what we are up against is and who else can match us in the function feature set, the quality and the rollout plan, and that’s what USPS is doing. But it’s basically 7,000 units, which is the opportunity.
Josh Nichols
Thank you. Then last question for me, just thinking about Avis.
Is it being currently deployed just in like one or two strategic cities or location or is that something that you are seeing kind of broad base throughout the U.S. How are they approaching the deployment?
Chris Wolfe
Yeah. It is a great question because we had not only ramp up production but ramp up our ability to distribute.
They in fleeted a variety of locations. So right now we are shifting to 14 locations.
We actually are having weekly calls with their installers to answer questions, verify, again, it’s a fairly simple install, but it’s being installed by people out in the field that, so again, we are on a weekly call basis. So things are progressing, maybe a little slower as getting them installed than we want mainly from logistics perspective and training and people availability, but it’s ramping and that’s what’s good so.
Josh Nichols
Thanks, Chris. Appreciate it.
Chris Wolfe
Thank you.
Operator
Thank you. And our next question comes from Dan Weston from West Capital Management.
Please proceed.
Dan Weston
Yeah. Hi, guys.
Thanks for taking the questions. Congrats on the progress.
Some questions have been answered. Maybe I can step back from a couple months ago when you guys announced the winning of a contract with a top three auto manufacturer and I am wondering if you can provide any color, was that a new customer for you or was that an add-on from an existing top three?
Chris Wolfe
It’s a interesting question, because the customer is so huge. They have many what we call divisions, right.
So one of the divisions was an existing division, several of the other ones are brand new. And matter of fact it was a broad swath of the company, so instead of just being a manufacturing or parts it was actually Q&A and the lab, I mean, so it’s a fairly broad uptake of our units across the corporation.
Dan Weston
So, if I’m understanding you, right, Chris, you had some existing business with this particular customer, not necessarily in the automotive production side and you have moved into the auto production side with this particular customer?
Chris Wolfe
Actually it could be reverse of what you said. But the answer is we did not have all their business and matter of fact we -- right now we are expanding into the preponderance of what they offer in the United States which is -- it’s amazing opportunity for us so.
Dan Weston
Yeah. That sounds great.
Congratulations on the win. Is there any way that you can help us size that potential market for you, whether it would be plans or number of trucks, et cetera?
Chris Wolfe
I would probably say, what we’ve signed to-date is probably like it depends when you say global or not with our deployments, some of our customers go global, obviously they goes global, there is a lot of -- phenomenally more opportunity. But if they just go with more plant rollout, it’s probably at least double what we have today.
Dan Weston
Double of what you have…
Chris Wolfe
On for this guy…
Dan Weston
… company-wide today?
Chris Wolfe
No. No.
Dan Weston
With this company. Thank you.
Okay. Thank you.
I am interested in the new product that you were talking about relating to, I guess, the Keytroller and some of the small and midsized customers out there and did you say that that product will launch in the summer time?
Chris Wolfe
Yeah. We are introducing at Stuttgart at the LogiMAT Conference in basically two weeks and that’s kind of an interesting strategy shift for us in Europe, because we are -- right now we do direct sales in Europe and with the VMS are powerfully product and we are successful there with many, many large accounts and one major online retailer.
But there’s a huge opportunity to take the Keytroller model that we do in the States and turn our European operations into a distribution model like Keytroller does. And so what we are doing right now is that’s kind of the launch and that’s what is to Stuttgart is to basically open up distribution channels throughout Europe and have our team over their via distribution management organization.
Dan Weston
Yeah. That’s sounds exciting.
The product launch that you are referring to, let me ask it this way. Do you think that there’s a possibility that there will be some type of a recurring revenue stream to any of the -- that product that you are selling for this specific small midmarket?
Chris Wolfe
All of our products have a recurring revenue stream whether not they have a SaaS component or not. So this product was great about.
It’s kind of a crawl walk run upward migration capability. You can go in without any IT support, operate your trucks, get your checklist, do your impact assessment, get all the value that you can out of a small operation and then if your corporate safety people want to see the data like as a consolidated warehouse, that’s an add-on to us.
But every one of those at the various levels will have what we call application rental fee, right. So whether or not you want to call it software licensing fee, but it’s a application usage fee regardless of what size fleet.
Dan Weston
Very good. And back to Avis, we have seen the announcements from Avis as well as you guys about the fully connected fleet being deployed by 2020 and I am wondering you guys obviously have only announced the 50,000 starter order, is there any way that you can give any color on what you see is the real serviceable addressable market pertaining to the global connected fleet for Avis for you guys.
Chris Wolfe
It’s actually a function of two things. Number one is OEMs that can connect into the Avis platform, which right now it’s only one, which is General Motors.
The other function is certifying vehicle used the UTP device, which is a universal telematics platform. Certifying vehicles is not an easy task.
It’s actually one of our differentiators, because it’s not just plugging it in and it works. I mean we have to actually work with the OEMs, work with our engineers, get this thing to work on a variety of platforms and that’s actually one of our differentiators and that we do things like characterize, fuel tanks, record fuel and odometer.
So bottomline is, we are working every day to certify vehicles and as we got those certified that just opens up more of the opportunity to us.
Dan Weston
Yeah.
Chris Wolfe
That’s about Europe and that’s why they are asking us about Australia.
Dan Weston
Yeah. Let me ask it another way, like, let’s start with what is Avis’ total global fleet size right now?
Chris Wolfe
It’s over 500,000 units.
Dan Weston
Okay. And then if you subtract out the GM capable units, what would be left as a balance there?
Chris Wolfe
They don’t really share their mix, but I’m estimating it’s 60,000 units, 80,000 units for GM.
Dan Weston
I see. Okay.
Okay.
Chris Wolfe
That’s best estimate by the way so.
Dan Weston
Okay. Great.
Ned, if you don’t mind, who were the 10% customers in the quarter, please?
Ned Mavrommatis
We only had one customer with 10% which was Walmart at 14%. What’s great to see about the business as we diversify the pipeline, the customers are getting a lot more diverse, so we only have that one 10% customer.
Dan Weston
Got it. And then lastly, Chris, you touched on in the European operations you mentioned that the retailer that you won last quarter.
Chris Wolfe
Yeah.
Dan Weston
I just wanted to know if you could give any color on any -- how is that going first of all, has those three plans been implemented and do you anticipate the company will be making announcements on a plant by plant basis when you get those contracts?
Chris Wolfe
The answer is, the implementations are going very well. They are actually, I think, we have one more to do and we are in conversation with them about other plants as we speak, so especially U.K.
Dan Weston
Anything in United States?
Chris Wolfe
I am not at liberty to say.
Dan Weston
That’s all I have for now. I really appreciated it guys.
Thanks.
Chris Wolfe
All right. Thank you.
Operator
Thank you. And our next question will come from Shawn Boyd from Next Mark Capital.
Please proceed.
Shawn Boyd
Good afternoon. Thanks for taking the question.
You guys hear me okay?
Chris Wolfe
Yeah, Shawn.
Shawn Boyd
And just a couple here, in Keytroller, congratulations on that working out better than planned, how much was that in the fourth quarter?
Ned Mavrommatis
Hi, Shawn. This is Ned.
We don’t break out the revenue by Keytroller. We integrated it in one division which we called Industrial Truck.
And if you look at the revenue from the Industrial Truck division for the quarter was $6.8 million.
Shawn Boyd
Right. Yeah.
I just remember that you did break that out in the third quarter, so at this point we are not breaking that anymore. Maybe we can look at it in a different way and business is doing a little over $6.5 million, I understand, back in 2016.
You indicated it’s growing faster than you had anticipated. So can you talk about maybe a rough rate that is growing now and maybe what are the things that are allowing that, is that performing ahead of plan?
Ned Mavrommatis
As Chris mentioned, it’s -- the business performing better, I think, they have got in a lot more credibility as being a part of the larger company, as well as we are -- as we going on we are integrating into one division, so a lot of the marketing leads that are coming in, if they fit the Keytroller product and then the core I.D. Systems product, we are passing on the leads.
We also hired some additional resources in the sales area for Keytroller. So it’s a combination of reasons.
But so far the acquisition is doing very well not only from a sales perspective but how we are integrating it into one division that’s going to grow combined.
Shawn Boyd
Got it. Okay.
And Chris the product, you mentioned that you are going to be announcing in two weeks, that’s specifically for Keytroller or that -- is that of a broader category there?
Chris Wolfe
Yeah. I think it actually has a much broader category, if you look at some of like our largest customer is Walmart like on the VMS PowerFleet side.
Other customers that we are looking at like Home Depot and others, Home Depot was sold through a channel partner of ours. What part of their business don’t we have which is the largest part.
We don’t have retail. They have more forklifts out in the retail operation then they have in the RDC’s.
This product is -- internally I classify as a retail killer and it’s literally something that we can package up and now instead of just addressing 8,000 units you have in your regional distribution centers, you basically have a corporate-wide product and you can put the Lexus at the RDC and you can put the Camry out at the retail outlet. And I think the great thing about both of those is that informational flow the same.
So, again, if you are the corporate safety person, you’re the corporate asset controller fleet manager you can have that global visibility, but at the same time you have the simplicity at the site level of operation and the simplicity have installation and implementation, that’s what this new product gives us. So I think it’s now like that its white label.
So we can white label it for our other channel partners, so they can have a lower tier product offering.
Shawn Boyd
Got it. Okay.
And with did I hear correctly that we should think about that impacting revenues potentially key to earliest Q3?
Chris Wolfe
Yeah. I think you will start -- we get it done by the end of Q2 on marketing and ramp up.
The distributions outlets in Europe will be ramping up. But it’s really going to be Q3, Q4 for that product specifically.
Shawn Boyd
Got it. Okay.
Okay. Just one other for me for now and that is on the marketing we have kind of hit that a couple times in the conversations this evening.
Should we be thinking about a step up in SG&A as we go in to ‘18, looks like you guys have been pretty consistent around $20 million, $21 million, no actually, excuse me, with Keytroller that’s probably around $6 million a quarter. So help me on what would that should look like into ‘18?
Chris Wolfe
The SG&A expenses for the 2018 should not be any different than the fourth quarter expenses that we just reported.
Shawn Boyd
Okay. So just $6 million a quarter is sufficient.
Chris Wolfe
Correct.
Shawn Boyd
Okay. Good enough for now.
Thanks gentlemen.
Chris Wolfe
Yeah. Thanks.
Operator
Thank you. At this time this concludes our Q&A session.
I would like to turn the call back over to Mr. Chris Wolfe for his closing remarks.
Chris Wolfe
Thank you, Tiffany. First of all I just want to thank -- first of all our investors, our customers, our employees and even our suppliers and everyone that’s helped us be successful this past year and I look forward to an exciting 2018 ahead.
And with that, Ned and I will sign-off and we appreciate your participation.
Operator
Thank you for joining us today for our presentation. You may now disconnect.