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Executives

Jeffrey Jagid - Chairman and CEO

Ned Mavrommatis - CFO and Treasurer

Peter Fausel - EVP - Sales, Marketing and Customer Support

Ken Ehrman - President and COO

Analysts

Brian Ruttenbur - Morgan Keegan

Morris Ajzenman - Griffin Securities

Walter Schenker - Titan Capital

Michael Ciarmoli - Boenning & Scattergood

I.D. Systems, Inc. (IDSY) Q3 2009 Earnings Call November 3, 2009 4:45 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the I.D. Systems’ Q3 2009 Conference Call. Today’s call is being recorded.

At this time, I would like to turn the call over to Jeffrey Jagid. Please go ahead, sir.

Jeffrey Jagid

Thank you. Welcome to I.D. Systems’ fiscal 2009 third quarter conference call. Thank you for joining us today. I’m Jeff Jagid, the Chairman and CEO of I.D. Systems. With me are Ned Mavrommatis, our CFO; Peter Fausel, our EVP of Sales and Marketing; and Ken Ehrman, our President and Chief Operating Officer.

I have some opening comments; Ned will review our financial results; Pete will discuss recent sales activities and Ken will update you on some key developments of this quarter. We will then all be pleased to answer any questions you may have.

Before we begin, let me reiterate the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The following discussion contains forward-looking statements that are subject to risks and uncertainties, including but not limited to, the impact of competitive products, product demand and market acceptance risks, fluctuations in operating results and other risks detailed from time-to-time in I.D. Systems’ filings with the Securities and Exchange Commission. These risks could cause the company’s actual results for the current fiscal year and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of the company.

During the third quarter of 2009, cautionary technology spending in the industrial marketplace continued to impact our timing in closing business over the short term. I.D. Systems’ revenues for the three months ended September 30th were $1.8 million compared to $9.3 million for the three months ended September 30, 2008.

Our results for the third quarter a year ago were driven by a large rollout order for our wireless industrial vehicle management system by Wal-Mart. Wal-Mart have continued to expand their use of our technology most notably in Canada, but we clearly need to transition more of our many other Fortune 500 customers into similar enterprise scale deployments. We did not meet our goal of closing such large scale rollout orders in the third quarter of 2009. However, we do continue to see many positive signs for our business.

We continue to diversify our customer base, winning initial orders in the third quarter from leading global businesses including Procter & Gamble, Nestle Beverage and Chevron Global Lubricants. We also successfully pursue the strategic acquisition of didBOX Ltd., a privately held manufacturer and marketer of vehicle operator identification systems based in the United Kingdom which we closed on October 19, 2009. This acquisition expands I.D. Systems’ base of operations in Europe, gives us immediate access to a broader base of European customers and provides us with a wider array of solution options for prospects in the industrial vehicle management market.

In addition, our efforts to expand two key applications of our wireless technology, managing airport vehicles and rental car fleets continued to progress in the third quarter. Ken will talk more about the exciting developments in these areas.

While the economic climate continues to be harsh for capital spending in our target markets, we are taking the appropriate steps to position I.D. Systems to capitalize on growth opportunities as an economic conditions improve. Our mission remains to maintain our technological and market leadership, diversify our customer base by adding more Fortune 500 customers and convert more initial system deployments into enterprise roll outs. We are confident this strategy will ultimately generate a more predictable revenue stream and deliver superior shareholder value. Thank you for your time today. I look forward to reporting on our continued progress during the future.

Now, let me turn the call over to Ned Mavrommatis, our CFO, to review the company’s financial results for the period in more detail.

Ned Mavrommatis

Thank you, Jeff, and hello to everyone on the call today. As Jeff noted, for the three months ended September 30, 2009, I.D. Systems’ revenues were $1.8 million compared to $9.3 million for the third quarter of 2008. The decrease was attributable primarily to a reduction in revenue from Wal-Mart of $6.6 million and a reduction in revenue from the United States Postal Service of $1.3 million, partially offset by an increase in revenue from new customers.

Gross margins for Q3 were 48.8% compared to 51% for Q3 in 2008. Net loss for the quarter was $3 million or $0.27 per basic and diluted share compared to net income of $619,000 or $0.06 per basic and diluted share for the third quarter of 2008. Excluding stock-based compensation our non-GAAP net loss for the quarter was $2.5 million or $0.22 per basic and diluted share compared to non-GAAP net income of $1.3 million or $0.12 per basic share and $0.11 per diluted share for the third quarter of 2008.

Stock-based compensation was $559,000 for Q3 in 2009 and $665,000 for Q3 in 2008. We continue to focus on cost controls without diminishing investment in growth opportunities. Excluding stock-based compensation, selling, general and administrative expenses for the third quarter were $3.2 million, down sequentially from $3.4 million in the second quarter $3.8 million in the first quarter of 2009. Excluding stock-based compensation, research and development expenses for the third quarter were $530,000, down from $594,000 on the second quarter of 2009.

For the nine-month period ended September 30, 2009, revenues were $7.5 million compared to $19.1 million for the nine months ended September 30, 2008. The decrease was primarily attributable to a $7.5 million decrease in revenues from the United States Postal Service due to their spending freeze, and a $5.9 million decrease in revenues from Wal-Mart. Revenues from other customers increased by $1.8 million in the nine-month period ended September 30, 2009, compared to the prior year nine-month period.

Our balance sheet remained strong. As of September 30th, we had cash, cash equivalents and investments of $51.7 million which equates to $4.66 per share outstanding on September 30th.

With that, I’ll turn the call over to Peter Fausel, our Executive VP of Sales and Marketing to discuss the sales highlights of the quarter.

Peter Fausel

Thanks, Ned, and thanks everyone for joining us on the call today. The I.D. Systems’ sales and marketing team has been working hard in facing very challenging buying environment. Despite the frustration we feel about the unpredictability of when we close business, we nevertheless feel that we’re making progress on many fronts.

In the third quarter of 2009, we continued to add new Fortune 500 customers. In the deals that did close our win/loss ratio continue to be high versus our competitors. Following our success deploying two initial sites for Nestle Waters North America in Q2 2009, our PowerFleet Vehicle Management System was selected by another Nestle division, Nestle Beverage in Q3. The Nestle corporate parent of these divisions is a largest food conglomerates in the world and represents an outstanding opportunity for us to win further expansion on a large scale.

Our Nestle business also illustrates how our strategic marketing relationship with NACCO Material Handling Group, one of the largest industrial truck manufacturers in the world continues to pay dividends, as do our cooperative efforts with other industrial vehicle makers like Raymond and Toyota in the United States and Linde and [Steel] in Europe.

In Europe, we are in two important pieces of business in the third quarter of 2009. Procter & Gamble Manufacturing GmbH were at the initial deployment of our PowerFleet system at a major production and distribution facility in Germany. We believe this is an important entrée to the much broader opportunity at Cincinnati-based Procter & Gamble which is number 20 on the Fortune 500 list.

Procter & Gamble selected I.D. systems’ after a detailed comparative review. We were not only – we are not only to be able to demonstrate the significant value of our technology, but also favorite to precisely meet P&G’s needs, including leveraging their existing employee identification system and high security Wi-Fi wireless network.

We also won an order to launch our PowerFleet system for Ford Motor Company in Europe. We’re optimistic that this initiative will replicate the success that Ford has had with our technology in North America where we continue to expand our business in the third quarter of 2009 with the implementation of a PowerFleet system at a Ford plant in Mexico.

The acquisition of didBOX, as both Jeff and Ned noted, should further strengthen our base of operations in Europe, especially, in the United Kingdom complementing our existing European business office in Germany. We look forward to pursuing many additional opportunities for growth in Europe.

In North America, we were able to bring a number of high quality new customers into the fold in Q3, including Chevron Global Lubricants, a division of Chevron Corporation; Lamb Weston, a division of ConAgra Foods, one of the world’s largest food processing companies and Fortune 100 grocery retailer and distributor which has dozens of distribution centers and thousands of industrial vehicles across the United States.

We also took important steps toward expanding the use of our technology in the aviation and rental car markets which Ken will discuss momentarily. With the high level of activity on many fronts and our ongoing commitment to aggressively pursue growth opportunities, we remain confident in the company’s competitive position and mid to long-term prospects. I look forward to reporting to you on our progress in the future.

With that, I’d like to turn the call over Ken Ehrman, our President and Chief Operating Officer.

Ken Ehrman

Thanks, Pete, and thanks again to everyone calling in today. As Pete said, I’d like to provide a little more detail on developments in the aviation and rental fleet segment of the market for our wireless vehicle management technology.

Airport vehicles and aircraft ground support equipment or GSE represent a large population of assets that are essentially untapped in terms of wireless fleet management. Earlier this year, we reported to you that American Eagle, the commuter division of American Airlines became the first major U.S. airline to deploy wireless vehicle management technology, when they implemented our AvRamp system at the Dallas-Fort Worth International Airport.

American Eagle invested in AvRamp to improve the safety of the airport ramp area where GSE and aircraft operate together, reduce the operational and maintenance costs associated with GSE fleets and direct GSE to load and unload aircraft more efficiently for the benefit of the airlines passengers.

AvRamp provides many functions for airport vehicles including driver authorization, for security, speed management for safety, wireless messaging, fleet right-sizing to name some of the most prominent. But in addition, the system automatically shuts down vehicles when they idle for a five-minute period, both saving fuel and reducing emissions for the airline. Based on the initial successful results of our AvRamp deployment at DFW we are working closely with American Eagle to expand their use of our technology at both DFW and other U.S. airports. We hope to be able to report to you with more details on these expansion efforts as they come to fruition.

In the rental car market, I am very happy to report that in the third quarter of 2009 I.D. Systems was awarded a multi-year seven-figure contract to develop and deploy a new generation of rental fleet management technology for a major vehicle services company. There are two projects covered under this effort. The first is to provide software and wireless technology for car sharing, a charged by the hour vehicle rental model that is increasingly popular in urban areas and corporate settings.

In the other I.D. Systems will automate the rental and return processes in a traditional airport car rental environment. Car sharing customers typically pay a membership fee to gain access to a network of vehicles positioned strategically around cities, universities and corporate campuses. Members can reserve cars online or by phone and access them at anytime using our I.D. System’s RFID tag. The entire process from remotely controlling the car door locks, to tracking car mileage and fuel consumption, to billing for the transaction is automatically conducted by the integration of our wireless vehicle management technology and the rental company’s fleet management software.

This is a very exciting opportunity for I.D. Systems. According to Auto Rental News, the market for car sharing has tripled over the past three years and is expected to exceed $1 billion in the next decade with one study putting global market potential at more than $10 billion.

For more traditional airport car rental sites our patented wireless fleet management technology provides the rental company with more automated and accurate tracking of vehicle data, including fuel consumption, odometer readings, online vehicle location and readiness status. Our system also helps to improve customer service by expediting check out and return processes at the start and end of rentals.

We have developed, refined and patented our wireless technology for managing rental fleets over the past decade and we have worked diligently with a number of different companies over the years to channel our system to meet the requirements of the market. It is most gratifying for our efforts the pay off for this contract which establishes a significant new market for our products and services.

On that note, I’d like to turn the call back over to Jeff to open it for the questions you may have.

Jeffrey Jagid

Thank you, Ken. That concludes the formal portion of our call. I would now like to invite our listeners to participate in an open Q&A session.

Question-and-Answer Session

Operator

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions). We’ll take the first question from Brian Ruttenbur with Morgan Keegan. Please go ahead.

Brian Ruttenbur - Morgan Keegan

Great. Thank you very much. First question I have is the didBOX acquisition. I hope I pronounced that correctly. What is that going to contribute in terms of revenue in ‘09 and in 2010? I was just trying to figure out their annual run rate, if any.

Jeffrey Jagid

The annual run rate historically has been about 1 million, Brian.

Brian Ruttenbur - Morgan Keegan

Okay.

Jeffrey Jagid

Our forecast for 2010 although obviously in conducting our due diligence and looking at the forecast, it was a bit higher than that. But we justified the transaction based on a $1 million run rate for 2010.

Brian Ruttenbur - Morgan Keegan

Okay. So is that evenly spaced?

Jeffrey Jagid

Yes.

Brian Ruttenbur - Morgan Keegan

Okay.

Jeffrey Jagid

We spaced primarily sold through a channel. It’s actually very interesting opportunity for us in the U.K. and we hope to grow the business obviously beyond that.

Brian Ruttenbur - Morgan Keegan

Okay. Then revenue in Q4 should it be up from these levels?

Ned Mavrommatis

I am a little hesitant to comment on the specifics relating to Q4. What I will tell you is that we’re obviously not satisfied with 1.8 million. 2009 has been a very challenging year for us. It’s been challenging as we’ve said primarily as it relates to not only the economy, but the drop off in revenue contribution from Wal-Mart and Postal. If we I will tell you obviously that if we announce in Q4 revenue of short of $2 million, we’re not going to be satisfied. But that’s not I think what excites us about the business. We still remain extremely excited about the business. There’s a lot of prospecting activity that continues despite the economic climate, and again, we’re enthusiastic. It’s just – it’s been tough for us to comment on the timing. That’s what killing us in 2009.

Brian Ruttenbur - Morgan Keegan

Okay. So you anticipate a pickup in revenue in 2010 from your sales efforts?

Ned Mavrommatis

In 2010?

Brian Ruttenbur - Morgan Keegan

Yes.

Ned Mavrommatis

Absolutely.

Brian Ruttenbur - Morgan Keegan

Okay. Now that you’ve looked at your structure at these lower revenue levels what kind of revenue do you need to generate in order to breakeven?

Ned Mavrommatis

At the current expense structure Brian, we’re looking about at $7.5 million in quarterly revenue to breakeven.

Brian Ruttenbur - Morgan Keegan

Okay. On a cash basis or a GAAP basis?

Ned Mavrommatis

All of. If you look at our P&L, it really mirrors the cash flow. So I am excluding stock-based compensation from those numbers.

Brian Ruttenbur - Morgan Keegan

Okay. Then kind of a macro question. Is there any pressure on management or from the Board or from outside investors about this year and the financial performance?

Jeffrey Jagid

There is tremendous pressure at every level. There is significant pressure from the Board, but there is also significant pressure that we put on ourselves. This pressure then I am putting on the executives as well as the employees of the company. But it’s definitely the tone at the top is that we need to – obviously it’s a result driven business and obviously you don’t see it everyday, but there is a accountability behavior in the organization. So there is tremendous pressure.

Brian Ruttenbur - Morgan Keegan

Okay. Over what timeframe is do you expect improvements or some kind of catalyst event happening?

Jeffrey Jagid

I think that we’ve been tasked with making significant change to the business. The big issue is at what point you see that reflect in the financial performance. I mean at the end of the day that’s what we’re measured on. The Board is in a position where they’re very much involved in determining the strategy and the directions of business. It’s a very active Board. So they get to see the behavior. But from your perspective, it’s tricky to comment on specifically when you would see those changes reflected in the financials. The easiest things to see are below the gross margin line and we’ve commented in the past about changes we’ve made at the end of the first quarter. We’re contemplating additional changes, which you would ultimately see. But the Board and management is very focused on top line and that’s what we’re tasked with. We see some opportunity that obviously you don’t necessarily see, so we – that’s how we maintain our level of enthusiasm. But again, starting with me, the expectation is one of accountability.

Brian Ruttenbur - Morgan Keegan

Great. Thank you very much.

Jeffrey Jagid

Thank you, Brian.

Operator

The next question comes from Morris Ajzenman with Griffin Securities. Please go ahead.

Morris Ajzenman - Griffin Securities

Hi, guys. First question, in the most recent quarter, looking at the service revenues, 623,000, I’m a little perplexed there. It looks like it was down sequentially also for 930,000 in the second quarter. My understanding is that services like recurring revenues sort of item considering existing client base and correct me if I’m wrong, but that’s the case. Why is it under so much pressure? The cost which you put on the year or two, they don’t have to continue spending, maintaining and getting dated that they need from you on an ongoing basis?

Ned Mavrommatis

Sure. Hey, Morris, it’s Ned. The service revenue line item has a couple of components. One of them, it’s maintenance and support which is a recurring fees, that’s approximately $150,000 per month currently that we get in recurring revenue. Also included in that line item is other services where there will training or implementation. The big drop-off that you see year-over-year, it relates purely to the work with the Postal Service. The Postal Service contract required us to do installation and implementation of our system and that higher percent of that revenue were in services and that’s why you’re seeing a drop year-over-year.

Morris Ajzenman - Griffin Securities

Now you said maintenance is 150,000 per month or per quarter?

Ned Mavrommatis

Per month.

Morris Ajzenman - Griffin Securities

Per month?

Ned Mavrommatis

Yeah.

Morris Ajzenman - Griffin Securities

Okay. So I get it, but on the maintenance – okay, so it’s $150,000 [to 623]. All right. Okay, I got you. One other – let’s talk about though – I don’t know what you can comment on Postal and Wal-Mart, but my assumption was what Postal we understand there is freeze implemented by government [and that affects all] government agencies including Postal but Wal-Mart – my understanding is there still a number of distribution centers you can rollout to. What’s happening there and why revenues are declining that much? I mean, is that a real mature customer, there isn’t that much more to come out from Wal-Mart?

Peter Fausel

Morris, hi. This is Peter Fausel. Let me comment on the Wal-Mart. They are – where it currently in 50 of their distribution centers in the United States. To answer the question on the expansion possibilities, there’s roughly 100 distribution centers in the U.S., give or take with the thing on the smaller ones, how you count them. So we estimate we’re about 50% deployed at Wal-Mart. We also have had some expansion this year. We have had the first order in their international group that was up in Canada. We expect continued growth in our international operations as well which wasn’t inclusive in those numbers. So we’re actually quite bullish because Wal-Mart continues to enjoy the benefits that our product provides and really maybe an absorption of the large investments they made last year in the technology in 2009 more than reflection on their plan to expand.

Morris Ajzenman - Griffin Securities

So from your perspective 2010, 2011 whatever the date is you don’t see any reason they won’t step up again and rollout forever.

Jeffrey Jagid

I would have to agree with that. Correct. We absolutely keep them very close. We absolutely work close enough with them, we understand how they drive benefit of the product and it’s our expectation that they will continue to roll the technology up across entire enterprise.

Morris Ajzenman - Griffin Securities

Last question and let other chance to ask. Long-term investments you should put up a big part into short-term. I presume a part of that the auction rate security but I think there’s still some more was – some more of those dollars that the [auction rate] securities, was it just maturities of investments that are now under a year or that was a big move up [into that book] short-term line?

Ned Mavrommatis

Sure, Morris. It’s Ned again. Yeah. If you look at what was transferred from long-term to short-term during this quarter was 20 million in option rate securities. Those securities will be put back to the UBS at par in June 30, 2010 and because now their maturity is less than a year they are classified on short-term. What’s included in the long-term right now? Is government agencies, they have maturity of longer than 12 months.

Morris Ajzenman - Griffin Securities

So a [difference] of another 5 million was agency bonds and that maturity is less than 12 months is presumably different?

Jeffrey Jagid

Exactly.

Morris Ajzenman - Griffin Securities

All right I’ll get back in queue.

Operator

[Walter Schenker with Titan Capital] has our next question. Please go ahead.

Walter Schenker - Titan Capital

Yes, I just got two. Hi, guys.

Jeffrey Jagid

Hi.

Walter Schenker - Titan Capital

First question and clearly, Jeffrey, you expressed a degree of frustration which – about the sequential revenues. The company has talked about round numbers 30 new customers, yet if we look through the 2009 year, the absence of – all of which suffered from absence of Wal-Mart largely in post office, we don’t see any ramping of the business whatsoever. How do we as outsiders look at a model where we add lots of customers and the total revenue number remains relatively static?

Jeffrey Jagid

Let me comment on your remarks. I’m not exactly sure how to answer this specific question. But maybe I’ll get there. Your observation is right on. We added – in fact at the end of the last quarter I think we said 32 or so. I think we’ve added a couple or more so that number is increasing, which is I think very positive. What we haven’t been able to do and you sense the frustration, I believe, we will be able to do it for a number of reasons, but what we haven’t been able to do and I’m underscoring your remarks is convert those into further adoption. Even if it’s – I think we have been able to go from one to maybe couple of facilities, but we haven’t been able to go much beyond that and we certainly haven’t been able to take any of those new ones and convert them into enterprise-wide type orders. But as I said, I do believe we will be able to do that.

So now to get to your question, which was how as an outsider are you supposed to look at our business; that’s a little more difficult. I think it’s very challenging for you to look at the business from a – on a quarter-to-quarter to basis. I think I would look at all a bit more on a – from an annual standpoint. I think in this environment we continue to be somewhat event driven. I would look at 2009 as a difficult year. I’m hesitant to blame it solely on the economy; that certainly played a role, but I think it was a difficult year from many vantage points, and I believe we’re taking action to correct that. So again [today] we do expect to be measured quarterly like everyone else, and as I mentioned in response to a question earlier, there is an element of accountability, so there is tremendous pressure on us. We’re taking significant action. The board is engaged. I think we’re moving in the right direction.

Walter Schenker - Titan Capital

Okay. Then my second point, which is more a speech than a question, but I’ll throw a question at the end. As I have discussed on prior calls and we’ve discussed individually, I continue to like – continue to like further clarification as to why with the stock selling roughly at $1 under cash and $2 under book and the fact that while we’re burning cash, it will be many, many years until we run into any sort of financial pressure, why the company has not committed to buying back stock?

Secondly, on a related basis, at what point or what commitment are we ever going to go get from outside directors to have some commitments to the stock as opposed to the shares they’ve gotten in conjunction with their being directors of the company?

Peter Fausel

Appreciate the questions. The enquiry about the share buyback, we take extremely seriously. We consider it periodically. The last time it was raised, I believe, Walter you raised it, we did have a detailed discussion around it. We concluded at that time that it was not really in the best interest of our shareholders to engage in a share buyback program and again today for a number of reasons that I can’t really get into detail on, on this particular call. But it was certainly left on the table for further discussion. I mean I think you’ve made, on behalf of the shareholder community, some very valid observations, ones that are difficult to challenge without disclosing material non-public information. So it is something on the table and it’s something that we would continue to consider.

As far as directors owning shares and buying shares, I think in our next – and Ned you can correct me if I’m wrong – but I believe that in our next proxy you will see – I am sorry, it was in the previous proxy that we filed, there are some requirements and guidelines for outside director ownership. So we did also – we do also believe in that. I think our directors are extremely bullish. They are spending an extraordinarily large amount of time with me. That’s greatly appreciated. I think that you’ll start to see that reflected in changes as well as performance.

Walter Schenker - Titan Capital

Okay. Thank you, Jeff.

Jeffrey Jagid

Thank you.

Operator

(Operator Instructions). We’ll take the next question from Michael Ciarmoli with Boenning & Scattergood. Please go ahead.

Michael Ciarmoli - Boenning & Scattergood

Hey, guys. Thanks for taking my questions. I don’t know if it’s Jeff or Peter who wants to handle this – to elaborate on the converting of maybe pilots into enterprise-wide orders. This is something that’s really plagued the organization at least since I’ve been following it.

The economy does make for a nice excuse I think, but that only goes so far and what do you think has to really change to convert some of these orders? I mean, I look at some of the customers going back to March of ‘07 where Nucor was added and we’re just not seeing this follow through. I think, Peter, you’ve probably been around for maybe that specific customer. What is it that from my point of view, why should I have confidence that when this economy turns all of a sudden customers are going to start converting these enterprise-wide orders? I mean, the economy will help but is there anything else you guys are doing or anything you’re sensing from customers that this can happen in the near term?

Peter Fausel

Yes. Michael. It’s Peter. Let me respond to your enquiry. Obviously, as you would imagine, there is quite a bit of discussion in this area on a daily basis. There’s discussions with our customers, many of which, we mentioned earlier, have been added in the last 12 to 18 months, about the prospects for expansion, what type items would have to take place – what performance would have to take place and move this beyond the initial installations. I can tell you there’s a myriad of reasons and I’ll try to highlight a couple.

First of all, I mean if you look at those accounts that we highlight Wal-Mart and Postal Service and Ford, if you look at the time from the initial purchase until the time of the eventual [enterprise] there are several years involved. Obviously, our goal and our mission is to find a way to expedite that, to move it from an initial, we call it, pilot. It might be a single site deployment to an enterprise wide deployment.

So naturally there’s a little bit of process involved. I certainly thinks that there’s things that we can do to continue to improve on that process. Clearly the results would indicate that we haven’t performed in area up to level of our own expectations, much less your expectations, but that we – I have mentioned at the beginning of the comment, we spend everyday looking at how to get a customer up, running live, and get the results exposed at a corporate level to move to an expansion. We are seeing progress in that area. Unfortunately, the progress doesn’t replace some of the lost revenues, so it’s hard to see that in the numbers. Our expectations are that you’re going start to see those – that type of an impact certainly in the coming quarters.

Michael Ciarmoli - Boenning & Scattergood

Is the performance services group still a vital part of that process? I mean, are you getting confidence? Are you seeing results from that group working with your, kind of, customers or monitoring those facilities for them, do you get a sense that that has been kind of – for you there is a real value-added services that’s helping to shorten lead cycles?

Peter Fausel

Michael, it’s a great question. I know we’ve talked about on previous calls that absolutely the huge component and moving from the initial site to the full enterprise or even expansion within an enterprise. I can’t tell you that the performance services group also has a role that they play in the selection of our company for certain projects. In many cases ends up being a differentiator. As we look at some of the hardware functionality and features, of course, we feel like we’ve got the best-in-class technology but the people and largely the performance services group is clearly a differentiator on the market. But those resources are very active. They are with our customers every week. They are in front of the customer and they’re driving improvement and utilization of system that can impact the customer’s bottom line.

Michael Ciarmoli - Boenning & Scattergood

Okay. Then just shifting topics, what can you tell us about the competitive landscape. Are you seeing new competitors, the same, what’s kind of taking place in some of these bids that you’re going after?

Peter Fausel

Michael, it’s still Peter. We – honestly, the competitive landscape is roughly the same as it’s been for the last year and a half.

Michael Ciarmoli - Boenning & Scattergood

Okay.

Peter Fausel

Certainly the competitors have tried to look at some of our success particularly as it relates to driving productivity improvement with the technology. hey are trying to emulate some of our value proposition in the market but what we find is in the end of the day we’re able to win. As I mentioned in my prepared remarks, we continue to win a high percent of the business that we compete for.

Michael Ciarmoli - Boenning & Scattergood

Okay. Great, that’s helpful.

Jeffrey Jagid

Michael if I can just to...

Michael Ciarmoli - Boenning & Scattergood

Yes, sure.

Jeffrey Jagid

Just to add to that. I want to make it very clear that we’re not losing market share. So it’s not like organizations are spending the money and they’re spending with someone else. They’re just, unfortunately, not spending the money right now.

Michael Ciarmoli - Boenning & Scattergood

Right, right.

Peter Fausel

I must point in the aviation market and that this American Eagle win that we’ve talked about is really the first and only major deployment in an airport or an airline in the United States this year and represents a real lighthouse account for our company with tremendous upside opportunity.

Michael Ciarmoli - Boenning & Scattergood

Okay. Is there anything happening on the defense side of the business? I know you had a couple of good opportunities. Does that just fall under kind of the existing umbrella of not converting pilots into enterprise or is there something deeper going on there given the kind of scrutiny around the funding environment, potential budgetary reform, and what have you?

Peter Fausel

Yes. Michael, I think the issues are slightly different as you would imagine in the defense side as they are in the commercial world, but we very much have foothold. We have a effort going on to parlay the success that we’ve had into (inaudible) roll out. There is tremendous interest, but the conversion of that is complicated with funding mechanisms and some of the things going on in the – you mentioned. So although the details are slightly different, I think the ability to parlay that are – we still remain very bullish and optimistic about the tremendous potential in the governments space, but the ability to convert that has been frustratingly slow.

Michael Ciarmoli - Boenning & Scattergood

Okay. Perfect. Thanks a lot guys.

Jeffrey Jagid

Thanks.

Operator

We’ll take a follow-up question from Morris Ajzenman. Please go ahead.

Morris Ajzenman - Griffin Securities

Hi, guys. Just a follow-up to Walter’s question on the share repurchase. You responded at the board review that there’s a myriad of issues which you cannot discuss on why you decide not to go forward but I guess when I look at it, my interpretation would be that you need that much ammunition that you’re looking (inaudible) interest in a large acquisition. Is that something that is on the [front-burner] to use a big chunk of the cash and to expand your horizons?

Jeffrey Jagid

The board – I think it’s a good point, and I think the board considered the best use of the capital and concluded today that it’s not to buyback the shares and it’s to pursue other opportunities. So I think it’s a good observation. We are actively engaged in evaluating potential acquisitions. You saw the small one that we announced regarding didBOX, but we are actively pursuing others as well. But we do understand the value of having that cash on the balance sheet. So an organization would have to really meet some very rigorous criteria in order for us to pursue it.

Morris Ajzenman - Griffin Securities

Would you use cash only – you wouldn’t use equity in this environment, would you?

Jeffrey Jagid

I mean I want to say it depends, but I must think our interests are aligned. It probably does make a lot of sense to use stock at these levels when you have the type of balance sheet that we currently have.

Morris Ajzenman - Griffin Securities

Okay. Thank you.

Jeffrey Jagid

Thank you.

Operator

We have no further questions in queue. I would now like to turn the call back over to Jeff Jagid for any additional or closing remarks.

Jeffrey Jagid

Thank you, very much everyone. Thank you for your time today. I look forward to reporting to you on our continued progress in the future. Thank you.

Operator

Once again, this does conclude today’s conference call. We do thank you for joining us.

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Source: I.D. Systems, Inc. Q3 2009 Earnings Call Transcript
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