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Micronet Enertec Technologies, Inc. (NASDAQ:MICT)

Q2 2014 Earnings Conference Call

August 14, 2014 9:00 AM ET

Executives

John Nesbett - IMS

David Lucatz - President and CEO

Tali Dinar - CFO

Shai Lustgarten - CEO, Micronet Limited

Analysts

Hamed Khorsand - BWS Financial

Tristan Thomas - Sidoti & Company

Zachary Prensky - Little Bear Investments

Katie Paris - Northwest Management

Yi Chen - Aegis Capital

George Melas - MKH Management

Operator

Ladies and gentlemen thank you for standing by. Welcome to the Micronet Enertec Second Quarter 2014 Financial Results Conference Call. All participants are in present in listen-only mode. Following managements formal presentation instructions will be given for the question-and-answer session. As a reminder this conference is being recorded.

I would now like to handover the call to John Nesbett of IMS. John, please go ahead.

John Nesbett

Good morning and welcome to the Micronet Enertec Technologies’ second quarter 2014 financial results conference call. On the call this morning we have David Lucatz, President and Chief Executive Officer; Tali Dinar, Chief Financial Officer as well as Shai Lustgarten CEO of Micronet Limited. David will provide an overview of the operations and Tali will review the numbers followed by a question-and-answer session.

I will now take a quick moment to read the Safe Harbor statement. During the course of this call management will make expressed and implied forward-looking statements within the Private Securities Litigation Reform Act of 1995 and other U.S. Federal Securities laws. These forward-looking statements include but are not limited to those statements regarding successful integration of the Company and Beijer’s MRM division, potential growth of the Company’s MRM business, increasing revenues, effective revenues from Beijer operations on the Company’s future results, presence and levels of backlog and demand in our Aerospace and Defense segment. Such forward-looking statements and their implications involve known and unknown risks, uncertainties and other factors that may cause results or performance to differ materially from those projected. The forward-looking statements made in this call are subject to risks and uncertainties including those discussed in the Risk Factors section and elsewhere in the Company’s annual report on Form 10-K for the year ended December 31, 2013 and subsequent filings with the Securities and Exchange Commission. Expect as otherwise required by law the Company is under no obligation to and express disclaim any obligation to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

During this call management will present both GAAP and non-GAAP financial measures. These non-GAAP measures include both share-based compensation expansions and the amortization of intangible assets, as well as non-recurring items. These non-GAAP measures are not intended to be considered in isolated form a substitute for or superior to the GAAP results. And I encourage you to consider all measures when analyzing Micronet Enertec’s performance. A reconciliation of GAAP to non-GAAP measures is included in today’s press release regarding the second quarter results.

In addition please note the date of this call and any forward-looking statements that management makes today are based on assumptions that are reasonable as of this date. Management undertakes no obligation to update these statements as a result of new information of future events.

Okay, with that concluded, I’ll now turn the call over to David Lucatz, Micronet Enertec, CEO. Go ahead David.

David Lucatz

Good morning and thank you for joining us today. Our Company is at an exciting point of growth and we’re very encouraged by our momentum in the sale environment we’ve been experiencing. We’re in a stronger position today than we were three months ago as evidenced by sequential revenue growth of 18% since the first quarter. The business is moving in the right direction that said because of the timing of certain events, much of our progress is not reflected in the second quarter. But our progress has and we continue to become increasingly evident as we progress through the year.

We project revenue during the second half of 2014 to grow by more than 35% as compared to the first six months of fiscal year 2014. As you know in June we completed our acquisition of the MRM division of Beijer Electronics establishing ourselves as a leader in the MRM marketplace. Because this transaction was completed in June we recorded only month of revenue in the current quarter. Additionally, during the quarter we saw -- can continue pattern of reduced sales to one of our large legacy customer.

Despite including only one month of the Beijer acquisition we saw a healthy growth in our MRM business and made excellent progress transitioning our revenue to a more diversified customer base and increasing our market share in the higher growth local fleet vehicle vertical. The MRM opportunity includes local fleet, long haul tracking and heavy equipment and while we have opportunities across all these markets our focus is on local fleet which are the fastest growing portion of the MRM segment. We believe the combined offering of our rugged computers and tablets are ideally suited for the rapidly growing MRM provided marketplace. We’re pleased to have centralized our MRM operation and sales team in the U.S. which we believe will allow us to more effectively gain a significant turn in the local fleet vertical.

We’re seeing strong demand for our product in our target markets and during the quarter we announced several significant orders including a $2.7 million of order from a customer working with the transit industry, for the TREQ-VMx mobile rugged tablet, a $800,000 follow-on order for a client working with a heavy construction market, for the TREQ-VMI, a tablet developed for both in-cab and out-of-cab operations. Moreover, we sold development tool kits to over 24 new potential customers and we strongly believe that this should become a powerful growth engine.

Our Aerospace and Defense business has a solid customer base and is a consistent source of revenue. In the second quarter, we announced $3 million cumulative follow-on order to support a missile defense system. With the current global environment and sustained tension in many areas of the world, we anticipate continued steady demand for our Aerospace and Defense products.

We have a strong backlog growth of 42% compared to our backlog at December 2013, which is strange we’re seeing our backlog we expect revenue in the second half of 2014 to exceed first half revenue by more than 35%. We continue to invest in R&D to develop products that meet the needs of our customers across all markets driving revenue growth with addition of the Beijer product our portfolio of rugged computers and tablets is more comprehensive than ever been. And by the end of 2014, we will have a portfolio of seven different devices compared to a portfolio of three devices at the end of 2013.

All-in-all, we strongly believe that as the acquisition is truly integrated our ability to grow the business in the second half of 2014 in the following years is significantly stronger.

Now, I would like to turn over the call to Tali Dinar our CFO to review our financial results, Tali?

Tali Dinar

Thank you, David and good morning everybody. In this second quarter, total revenues were $6.6 million compared to $7.8 million in the second quarter last year. Sequentially, revenues grew 18% as compared to the first quarter of 2014. MRM generated $4 million in revenues and the Aerospace and Defense generated $2.6 million. Our revenues breakdown by geography in the quarter was as follows; the U.S., 49%, Israel, 40%, Europe and other 11%. The decline in revenue is mainly attributed to a decrease in sales to our largest MRM customer. Gross profit in the second quarter was $1.9 million compared to $2.9 million for the second quarter last year. Gross margin was 28% compared to 37% in the second quarter last year. The decrease in gross margin is mainly attributed to a reduction of parcels to our major client and changes in product mix.

In the second quarter, we invested $874,000 in R&D compared with $680,000 in the second quarter of 2013. Most of the investment in R&D was attributed to Micronet as part of our strategy to enhance our MRM product offering. In the second quarter, operating growth was $1.1 million as compared to operating income of $865,000 in the second quarter last year. GAAP net loss attributed to Micronet Enertec was $1.3 million or a loss of $0.22 per share in the second quarter of 2014 compared to GAAP net loss attributed to Micronet Enertec of $227,000 or loss of $0.04 a share in the second quarter last year. During the quarter, the Company includes one-time acquisition expenses.

In second quarter, non-GAAP adjustment was $828,000 non-GAAP net loss was $446,000 for the second quarter compared to a non-GAAP net income of $372,000 in the second quarter of 2013. Non-GAAP diluted net loss attributed to Micronet Enertec was $0.08 per share based on $5.8 million diluted shares compared to $0.07 income per share based on 5.2 million diluted shares last year.

For the six months ended June 30, 2014, total revenues were $12.2 million compared to $18.1 million in the first six months of 2013. MRM generated $3.7 million in revenues and the Aerospace and Defense generated $4.9 million. The decline in revenues is mainly attributed to a decrease in revenues from our largest MRM customer.

Gross profit in the first half of the year was $3.9 million compared to $6.5 million for the first half last year. Gross margin was 32% compared to 36% last year. The decrease in gross margin is mainly attributed to a reduction of parcels to our major client. In the first half of 2014, we invested $1.6 million in R&D compared with $1.4 million in the first half of 2013. Most of the investment in R&D was attributed to Micronet as part of our strategy to enhance our MRM product offering.

Operating loss in the first six months of the year was $1.2 million as compared to operating income of $2.3 million in the first six months of 2013. GAAP net loss attributed to Micronet Enertec was $1.6 million or a loss of $0.28 per share in the first half of 2014 compared to GAAP net loss attributed to Micronet Enertec of $689,000 or a loss of $0.18 per share in the first half of 2013.

In the first half of 2014 non-GAAP adjustment was 890,000. Non-GAAP net loss was 716,000 for the first six months of the year compared to non-GAAP net income of $1.1 million in the first six months of 2013. Non-GAAP diluted net loss was $0.12 per share based on 5.8 million diluted shares compared to earnings of $0.29 per share based on 3.7 million diluted shares last year. As of June 30, 2014 we have cash and cash equivalent and marketable securities of approximately $16.3 million and working capital of $19.5 million.

I’ll now turn the call back to David for his closing remarks. David?

David Lucatz

Yes. Thank you Tali, this is a affirmative time for our Company with tremendous opportunities for our product within the growing MRM market, particularly for local fleet management, the fastest growing segment. In fact we’re already starting to see some market effectiveness, our acquisition of the Beijer MRM division diversified our customer base, expands our geographical reach, fortifies our U.S. sales first presence and strengthened our R&D efforts, position us well to aggressively drive revenue growth in the second half of 2014 from the successful penetration of high growth MRM marketplace.

I’ll now turn the call over to the operator for our question-and-answer session, operator?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, at this time we’ll begin the question-and-answer session. (Operator Instructions) The first question is from Hamed Khorsand of BWS Financial. Please go ahead.

Hamed Khorsand - BWS Financial

My first question is the, your commentary about the second half looking better than the first half. How much of that outlook is based upon organic demand and not Beijer, the acquisition that you made?

David Lucatz

Well I would say probably 60%-70%.

Hamed Khorsand - BWS Financial

And then what was the basis that the operating loss increased this quarter even though revenue was up?

David Lucatz

Could you repeat the question, it is hard to hear you?

Hamed Khorsand - BWS Financial

Yes, so the operating loss in Q2 was much more significant than Q1. What was the reason behind that?

David Lucatz

Well there are several reasons but few major reasons. First of all we have an increase in the G&A which is part of it due to the acquisition. We put all kinds of expenses as a result of the acquisition into it. So this contributes to some of the increasing cost. Other than that the gross margin and the gross profit went down. So these are basically the two major reasons.

Hamed Khorsand - BWS Financial

Yes, you are bringing up so I also wanted to ask about -- but first off how much of that goes away, how much of those expenses go away related to the acquisition?

David Lucatz

If I started correcting you are talking looking forward, right?

Hamed Khorsand - BWS Financial

Yes, so I would imagine there would be some expenses that go away.

David Lucatz

So let’s separate between the two types of expenses there are expenses which are related to the acquisition such as the amortization and all kind of one-time expenses, but this will probably continue to go towards the next, in the near future. As for real G&A immediately we are going to see, I mean going to be we meant the same but we think the next half year we’ll work on the synergy between the two companies and we want to cut expenses so I would say most probably half a year and further we’ll see a reduction in G&A as compared to what it is at the moment.

Hamed Khorsand - BWS Financial

Okay. And my last question is on that gross margin decline. I would have thought that product mix would be more beneficial now that you are going to near newer MRM products, so what’s driving the gross margins right now?

David Lucatz

Yes you’re absolutely right, the new -- what you see in the second quarter the majority of it is [indiscernible] all product and the reduction in sales/gross margin is due to the fact that our major customer have reduced -- we have been reduced the projects significantly and we have discussed it before and we still see a major affect of it on the in second quarter financials. Saying that however, looking forward this will be changed because bear in mind that in the second quarter we included only one month of sales from the new acquisition whereas the third and the fourth quarter we’re going to see a much more effect of the new product from the new acquisition, as well as more and more sales of the new product which we introduced to the market lately. So, all-in-all we’re going to see a better gross margin in the third and fourth quarter.

Hamed Khorsand - BWS Financial

Okay, great. Thank you.

Operator

The next question is from Tristan Thomas of Sidoti. Please go ahead.

Tristan Thomas - Sidoti & Company

Two questions, one follow-on question did you say that you expect G&A expenses to remain elevated in the third quarter from the acquisition?

David Lucatz

What I said that the G&A separating the two types of G&A, one is related to the acquisition all kind of accounting issues that -- so if you remember we have the same issues with the acquisition of Micronet a year and a half ago. So this G&A are more accounting issues principle. So on that sense we’re going to continue to see higher G&A as compared to the average. On the operation level, we are going to see a higher G&A for the next probably half a year during which we’re going to integrate and get the benefit of synergy between the two companies. So I would say most probably beginning of 2015 we’ll see a reduction of G&A.

Tristan Thomas - Sidoti & Company

Okay, got you. And then could you just restate the size of your MRM portfolio right now? I know you said it’s compared to three at the end of 2013. What was the current one?

David Lucatz

Seven.

Tristan Thomas - Sidoti & Company

Seven, okay. And then how the product you’re working on in conjunction with PeopleNet, is that still on-track to be released at the end of the year?

David Lucatz

Absolutely.

Tristan Thomas - Sidoti & Company

Okay. Any update on that or any new products?

David Lucatz

We continue according to the plan, it should towards the end of the year and beginning of next year going to be commercial type and yes we are pretty much in, online in plan.

Operator

The next question is from Zachary Prensky of Little Bear Investments. Please go ahead.

Zachary Prensky - Little Bear Investments

Thank you very much. I just have a handful of questions, number one, when you look at your portfolio of existing businesses post acquisition where do you see the inflection point of profitability from a revenue standpoint? And like the profitability let’s push aside GAAP for a moment and just focus on generating cash. What sort of level of core sustainable revenues you need to see given our elevated R&D budget and given where the G&A is going to be after you do some cost cuttings. Where do you see an inflection point of revenue that starts to generate cash?

David Lucatz

Well, I am not sure I understand you correctly but let me address the question which I understand and please correct me if I am going towards the wrong question, okay. My understating is you asked when we would be able to get the benefit of the acquisition, synergy and to -- for the Company and create cash, right?

Zachary Prensky - Little Bear Investments

Well, not really meaning that obviously you have an elevated R&D and G&A budget for a Company of our size and that’s fantastic given our cutting edge technology. I guess what I am asking at, is if you had an incremental $10 million of revenue on the existing MRM portfolio, let’s take that for example. What would be the underlying profit ability of the Company given the gross margin of an additional sale when would that inflection point meet such that the Company would start to generate sales that are profitable to shareholders on our existing customer base and profile line?

David Lucatz

Okay, now I believe I understand the question. So, to cover you where we just completed the acquisition, we do have seen the channel we’re going to make all the necessary synergy and get -- put all sanction together and make sure that the Company is going to be one company, which is by the way it’s working extremely well and it’s going in the right track forward. I want to just elaborate more about the issue of acquisition once you do an acquisition you have all issues of accounting issues which affect your net profit. But I would put it aside for a moment and just look at let us say that operational profit. So we should, once we finish the acquisition and synergy, and I would say beginning of next year we should see the effect also on the profit side. So, operation wise we should have been more and more profitable on the operations side. We most probably see the major effect of it beginning of next year.

Another aspect of it is you’re absolutely right I mean once we have such a portfolio and we know now that once we finish the acquisition we already get the input and the feedback from the market, from our customers and many-many additional new customers, which are both what we call an development kit during the last two-three months we have a very high confidence that the majority of this customers will join us either towards the end of this year, beginning next year. So we’re going to see growth of the company which will probably -- not probably I am sure will affect the profitability also.

Zachary Prensky - Little Bear Investments

Okay. When I look at the size of the R&D budget relative to revenue extremely elevated, in your mind going forward what sort of internal goal you set for the R&D budget and so far as a return of investment for shareholders. When you have these kinds of investment what kind of revenue are you looking to generate a few years out from your R&D expense?

David Lucatz

Okay let me again separate into two questions. The one thing that’s a very good question about the R&D, the R&D if you are aware of it, despite the fact that our revenue went down as was expected during the third cut year we still maintain our R&D dollar wise at the same level. So percentage wise as compared to revenue it went high. However seeing that I would say that we maintain our R&D budget, we most probably see the same rate of R&D more of less plus minus 2% by the end of the year based on the revenue as well.

So all-in-all we proved in a way we invested lot of money in R&D, this is a growth engine one of the growth engines for the company I truly believe that this will create more customer base and more and more orders and we’ll really contribute to the growth of the company and we see it with a new product we’re going to bring into the market beginning of 2015. We already see a very good reception from the market to our existing product which is we just launched two months ago the 317. So all-in-all I mean if I look at the R&D despite the fact although we invest a lot of money roughly speaking in R&D we do see a very good return on it in the future, in the near future.

Zachary Prensky - Little Bear Investments

Okay. Just one more quick question and then I’ll return the call back to the operator. When I look just from a macro perspective at the Defense spend in Asia Pacific and the greater Asia area. You see countries like Philippines and Japan increasing spending very significantly given their growing they see threat from China. Now we have Aerospace and Defense section, that’s more in line of course with ballistic missiles and when you look out three, four, five years at our portfolio of Aerospace and Defense. So you see any potential for significant revenues from that part of the world or you don’t see the types of spending that they’re doing that will be conducive for our portfolio, and if you do see an opportunity in Greater Asia, what opportunities does the company needs to put in place now in order to start generating revenue those areas?

David Lucatz

First of all generally speaking I do see -- unfortunately I do see a high potential from there and of course the major thought is that tension in the world is getting higher and higher which directly contributes or affect our sales potential. I would again separate between the Far Eastern market and European and the U.S. market. At the moment we see an immediate potential in the U.S. market, I didn’t elaborate about it but we already started to dialoging with the Tier 1 customers in U.S. all the big names, we get a lot of attention as a matter of fact we start to go for bids and we believe that sooner or later we’ll try also to penetrate this market and this is a huge market also, okay so before going to the Far East four, five years from now it we’ll be able in the near future to start to get all those big orders from the U.S. As for the Far East I agree it will depend on it is a case-by-case because not all the countries that have a same requirements, same situation, it’s a little -- it’s more -- we need to be more cautious about it but generally speaking as I said we see a potential in the Far Eastern markets.

Operator

The next is from Katie Paris of Northwest Management. Please go ahead.

Katie Paris - Northwest Management

Do you mind elaborating on how you plan to leverage the U.S. sales team to drive revenue growth and retain the Beijer customer base?

David Lucatz

Happy to do it and I will ask Mr. Shai Lustgarten the CEO of Micronet Limited and the Micronet Inc. the former Beijer to handle it, Shai please go ahead.

Shai Lustgarten

So the -- being local in our new location in Salt Lake, being local there actually allows us to really be close to our customers being their backyard and really present ourselves in the manner that we plan to. And we actually see already business coming in from our regular customers to our local facility and this like by itself creates a much faster sales cycle than what we witnessed before. So the communication, the physical communication and physical presence in the U.S., really allows us to do and implement our strategy and our plans that we put in the agenda prior the acquisition.

Operator

The next question is from Yi Chen of Aegis Capital. Please go ahead.

Yi Chen - Aegis Capital

Thank you for taking my question. Could you give us an idea how much revenue forecast of the second quarter is generated by the Beijer division?

David Lucatz

Yes, it is I would say in terms of its percentage it will probably around roughly 10%.

Yi Chen - Aegis Capital

10%, okay and also in terms of your revenue category how much is from MRM, how much is from the Defense and Aerospace?

David Lucatz

In the second quarter or in the first half?

Yi Chen - Aegis Capital

Do we have both numbers, that’s even better?

David Lucatz

We I am taking to you we can figure it, but anyways an immediate reaction to the second quarter would be roughly, I would say, 40% Aerospace, 60% MRM.

Yi Chen - Aegis Capital

Okay, thank you.

David Lucatz

And for the first half it’s probably more in the same ratio. Okay?

Yi Chen - Aegis Capital

Okay, got it. Thank you.

Operator

The next question is from George Melas of MKH Management. Please go ahead.

George Melas - MKH Management

Good morning guys. Just a few quick financial questions, on the cash and on the debt side how much sits at the Micronet subsidiary?

Tali Dinar

Out of the total cash and cash equivalent, including marketable securities, we have $16.3 million out of which Micronet includes $11.5 million and the Aerospace $4.8 million.

George Melas - MKH Management

Okay. So, the $11.5 million is on Micronet’s balance sheet?

Tali Dinar

Yes.

George Melas - MKH Management

Okay. And on the debt side, how much is on Micronet’s balance sheet?

Tali Dinar

Out of total debt of $15 million about $5 million is contributed by Micronet this was related to a loan the Company took regarding the acquisition of Beijer.

George Melas - MKH Management

Okay, very good can you give us the operating income by division you do that in your filings I think you should do that on your call as well?

Tali Dinar

For half year, the income distribution per division?

George Melas - MKH Management

Yes.

Tali Dinar

Out of 12.1 million half year 7.3 million was contributed by Micronet and the Aerospace 4.8 million and for the quarter, out of 6.5…

George Melas - MKH Management

No, no I am referring to the operating income. I think you’ve give us the revenue already.

Tali Dinar

Okay, I understand. Micronet, the MRM, showed a loss, operational loss of 5% and mainly due to the acquisition of Beijer we have many one-time expenses and consolidation for the first half of the Beijer detailed operation in the U.S. Enertec, the Aerospace and Defense division, we have 23% gross operating income from story we have loss there for half year.

David Lucatz

George let me simplify about…

George Melas - MKH Management

Give us numbers don’t give us percentages because we have to think about numbers.

David Lucatz

Okay, George, out of 1.2 loss, roughly 400,000 is on the Micronet and 800,000 is on the Aerospace, and rest of the group.

George Melas - MKH Management

So Enertec had a loss of, an operating loss of, $800,000?

David Lucatz

Not necessarily. Enertec by itself has a loss of close to 200,000 and the remaining is the operating expenses of the corporate.

George Melas - MKH Management

And are we talking for the quarter or for the half year?

David Lucatz

Half year.

George Melas - MKH Management

For the half year. So for the half year, MRM has a loss of 400,000, Enertec had a loss of 200,000 and then corporate expenses were roughly 600,000?

David Lucatz

Yes, you are right.

George Melas - MKH Management

Okay. Can we talk a little bit about the Enertec why would that show a loss at that revenue level?

David Lucatz

The total loss, the major reason for the loss is projects which began in the first quarter. So second quarter was much better than -- the way the project in this Aerospace division works is to start normally you start a project by the beginning of the year and you end it towards the end of the year. So the majority of the revenue and the profit you gain in third and fourth quarter. So historically if you look back four or five years we have the same phenomenon, same cycle every year. So that’s nothing surprising, it also does not reflect on the entire year if you understand me.

George Melas - MKH Management

So you expect on the Enertec division you expect an operating profit in for the calendar year.

David Lucatz

Yes.

George Melas - MKH Management

And then what percent of Micronet do you actually own at this moment?

David Lucatz

62.5, roughly.

George Melas - MKH Management

And can you try to explain to us the purchasing patterns of your largest customer of PeopleNet. They have only a sort of limited number of offering for their customers. So I am trying to understand, if their purchases from you guys go down, does that mean that they were emphasized, there were other offerings. What’s the dynamic there?

David Lucatz

First of all they have their own policy and dynamic and I don’t believe, first of all of course we don’t know everything, it’s another customer, although it’s a big customer it’s a customer. Secondly I think we should share the internal issues with everyone. Basically we don’t -- from what we saw we don’t see a decline or any issue with sales, more than that I believe I mentioned in the past we do have corporation, we’re working towards the future together jointly on other technology and products. So from what we can judge, we don’t see any real issue or problem and again we’re not in a position to judge or to having it. And we would have been in such a place I wouldn’t still not share rest of the work.

George Melas - MKH Management

And the product that you’re selling to them right now is primarily the 317 or is it still the 517?

David Lucatz

Neither 317 nor the 517, its product by the name 307 which is a new generation of the old 547.

George Melas - MKH Management

And the product that you’re jointly developing would complement the 307 or would it replace it?

David Lucatz

First of all again we develop it, of course we get lot of inputs on there. But it’s our own development, as to your question it’s going to complement it.

George Melas - MKH Management

And just a question on the gross margin, on the MRM side do we go back to historical gross margin or are they going to somewhat lower than they have been in the past.

David Lucatz

If you recall our discussion during the last few year, whenever I was asked about the gross margin I always say that this regard the fluctuation in the gross margin on a quarterly basis, basically we’re looking in average of 35% and perhaps a little more. But basically it’s going around these numbers. So you really need to judge it on an annual basis and we still believe that one year we might go down 1% or 2% but basically this is a range this is the area where we play. We’re playing in the area of 33%, 34% up to 37%, 38%.

George Melas - MKH Management

And that applies to both segments actually to completely different dynamics but they both would be in the same range?

David Lucatz

Yes, but I would say that funny as it sound MRM is more steady since the Aerospace sometimes we have projects which is characterized by very high gross profit and then from time-to-time you’re taking a project which is a mix. So the fluctuation income the Aerospace would be little higher, still if you judge it on an RO especially aerospace as I mentioned that normally you see a lifecycle of, life cycle meaning development and selling of year, perhaps 1.5 years at most, so basically going around on a yearly basis going to be in the same area or same territory of the range which I mentioned.

George Melas - MKH Management

And then just one final question David, on those 24 sort of development kit that you shipped or you sold to customers. Can you tell us little bit what kind of players are those? Are they operators? Are they people like PeopleNet who are vendors and software companies to the industry what makes up these 24 potential customers?

David Lucatz

Well, let me ask Shai to address it. Although I do have the answer, but I’ll give him a chance, okay? Shai, go ahead.

Shai Lustgarten

So, actually it is most of these are going to be I would say most of them are companies that are service providers and they were similar to PeopleNet.

George Melas - MKH Management

So, most of it to companies that service fleets, not to fleets themselves or to upper two, fleet operators, but to people who service fleets?

Shai Lustgarten

Yes because basically…

George Melas - MKH Management

So would then broker would then put their own software on top of it?

David Lucatz

They have their own software services that are connected to all the major carriers it’s a mix of different verticals and these are the good news because we really expanded our offering to many additional verticals and we’re much less concentrated on one vertical and one customer today. And these are the very exciting and good news we discussed earlier. And today we’ve even see, I mean we see much larger of this development kit different push in the month and half.

George Melas - MKH Management

And those 24 are some of them are repeat customers some of them are new customers?

David Lucatz

Most of it are new customers.

George Melas - MKH Management

And then just one more are they asking for development kit for the Beijer product of are they asking it for the legacy Micronet products?

David Lucatz

The majority is for the Micronet products and some of it are for the Beijer product.

George Melas - MKH Management

Okay. So you think that the combination with Beijer makes the legacy products more attractive because you have sort of a locally based sales force, you have local based service and support and so you get a boost from that?

David Lucatz

We get a boost from -- we get a huge boost from that. And we really see this in the last month and half.

George Melas - MKH Management

Okay.

David Lucatz

Plus George let me add one more thing with the Beijer product today we offer a variety and portfolio of more different product because the Beijer product interest their base from when to see, one, secondly they have some technology which we didn’t have in our legacy in Micronet and thirdly they are at the moment selling in verticals which we never thought about even they sold what the Windows CE very minor quantity. So one, we have a much more diversified product to-date. I mean if you take the Windows CE Beijer product if you add our twist and turn to an Android and the next generation also is going to be in Android so all in all we have a portfolio which I believe we don’t find the similar company in the market today that have such an offering.

George Melas - MKH Management

Okay, great. Best of luck, Shai, with your new position.

Shai Lustgarten

Thank you.

Operator

(Operator Instructions) At this point, there are no further questions. Before I ask David to make his concluding statement I’d like to remind participants that a replay of this call will be available within two hours. In the U.S. please dial 1877-456-0009, in Israel please dial 03-9255-925. Internationally please dial 9723-9255-925. David, would you like to make your closing remarks.

David Lucatz

Thank you, Operator. We are excited about the future and believe that MICT is a stronger company than it was a year ago. We believe that the second half of the 2014 year promise for the company and we look forward to attending you in November. Thank you all for joining us today.

Operator

Thank you. This concludes Micronet Enertec Technologies’ second quarter 2014 results conference call. Thank you for your participation. You may go ahead and disconnect.

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