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Executives

Jeffrey M. Jagid – Chairman of the Board, Chief Executive Officer, and Director

Ned Mavrommatis – Chief Financial Officer

Darryl Miller – Chief Operating Officer

Kenneth S. Ehrman – President

Analysts

Matthew Hoffman – Cowen & Co.

Walter Schenker – MAZ Partners

George Melas – MKH Management

I.D. Systems, Inc. (IDSY) Q1 2011 Earnings Call May 9, 2011 4:45 PM ET

Operator

Good day, ladies and gentlemen. Welcome to the I.D. Systems Inc., Q1 2011 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions) As a reminder, this conference call is being recorded.

I’d now like to turn the conference over to Jeffery Jagid. You may begin.

Jeffrey Jagid

Thank you. Welcome to I.D. Systems fiscal 2011 first quarter conference all. Thank you for joining us today. I’m Jeffrey Jagid, the Chairman and CEO of I.D. Systems. With me are Ned Mavrommatis, our CFO; Darryl Miller, our Chief Operating Officer; and Ken Ehrman, the President of I.D. Systems.

I will provide a brief overview of the quarter, Ned will detail our financials, Darryl will update you on our operations and the performance of our Asset Intelligence subsidiary, and Ken will discuss additional highlights. We will then open the call to your questions.

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.

The momentum we built in the second half of 2010 continued into the first quarter of 2011. Revenues for the first quarter grew to $7.8 million, a 28% increase over the first quarter of 2010 and an 8% sequential increase over the fourth quarter of 2010.

In addition to a solid foundation of recurring service contract revenue from our Asset Intelligence business, we saw sales of our core wireless industrial vehicle management systems increase during the fist quarter as improving conditions in the supply chain technology market reflected the overall global economic turnaround.

Our customers continued to drive significant benefit from our wireless solutions. During the first quarter, we received orders from existing customers for both system expansions and long-term maintenance renewals.

We also won new customers during the quarter particularly though our lift-truck dealer channel partners, which we see as a positive indication that industrial vehicle management is increasingly considered a best practice in corporate supply chains. Our strategy of introducing a simplified version of our vehicle management system, which we call PowerBox, seems to be paying off.

This system provides customers with a highly defined set of core vehicle management functions making its value proposition easy to understand. It is packaged as a relatively low cost subscription service making it easier for customers to acquire and quicker to generate positive cash flow and return on investment.

PowerBox is also extensively pre-configured and being mostly hosted by I.D. Systems, so it’s easy to implement without costly services. It essentially works out of the box which as far we know is unique among industrial vehicle management systems.

In addition to helping us win new customers, we may not have otherwise, the introduction of PowerBox has served as a catalyst for sales of our full-featured PowerFleet vehicle management system. Some customers initially focused on the core functions and competitive pricing of PowerBox, but after analyzing the cost benefit proposition of all of our offerings they end up upgrading to the more flexible option-rich PowerFleet solution.

We are executing on other aspects of our growth strategy as well. We are sustaining a healthy gross profit margin, continuing to control operating costs and maintaining a strong balance sheet, with no debt.

Excluding stock-based compensation and depreciation and amortization of intangible assets, our non-GAAP net loss for the first quarter of 2011 improved to $852,000 compared to a non-GAAP net loss of $3.2 million for the first quarter a year ago. We’re encouraged by our first quarter results and the direction of our business. We remain on track to achieve our primary goals, the preeminent position in the field of wireless asset management and net profitability in 2011.

Thank you for you time this afternoon. I look forward to your questions later on the call. Now, let me turn it over to our CFO, Ned Mavrommatis, to detail our financial results.

Ned Mavrommatis

Thank you, Jeff, and hello to everyone on the call today. The company’s financial results continued to improve in the first quarter of 2011. The first quarter of 2011 is the third quarter in a row where the company had sequential revenue growth.

Revenue for the first quarter was $7.8 million, approximately 28% higher than the prior year first quarter revenue of $6.1 million and 8% higher than the fourth quarter revenue of $7.2 million.

Recurring service contract revenue for the quarter was $3.5 million or 45% of the overall first quarter revenue. As of March 31, we had approximately $29 million of revenue backlog to be recognized over the next few years.

Gross margin for the first quarter of 2011 was 53%, reflecting price stability, the high margin recurring service contract revenue from Asset Intelligence and our continued focus on product cost controls which Darryl will talk about in a little while.

Our SG&A and R&D expenses decreased 21% compared to the first quarter a year ago. The decrease reflects our continued efforts to reduce operating cost primarily by integrating the operations of Asset Intelligence.

Excluding stock based compensation and depreciation and amortization, operating expenses for the first quarter of 2011 were $5.1 million. We expect to maintain our operating expenses at this rate throughout 2011, so we’re looking at a break even revenue level of approximately $9.6 million per quarter. We believe that with this expense structure, I.D. Systems can support $50 million in annual revenue and therefore approximately $6 million in annual earnings before interest, taxes, depreciation, amortization, and stock-based compensation.

Our net loss for the first quarter of 2011 improved to $1.8 million or $0.16 per basic and diluted share from a net loss of $4.1 million or $0.36 per basic and diluted share for the first quarter of 2010.

However, as Jeff mentioned, excluding stock-based compensation, and depreciation and amortization, our non-GAAP net loss for the first quarter improved to $852,000 or $0.08 per basic and diluted share from a non-GAAP net loss of $3.2 million or $0.28 per basic and diluted share for the first quarter last year.

Our balance sheet also remained strong. As of March 31, 2011, we had $26 million in cash, cash equivalents and marketable securities or $2.32 per share outstanding. Further, we have more than $24 million of working capital. We’re optimistic that we’ll be able to continue improving financial results in 2011.

As a reflection of our confidence, I. D. Systems’ Board of Directors initiated a stock repurchase program in the fourth quarter of 2010, authorizing the repurchase of issued and outstanding shares of the company’s common stock up to an aggregate value of $3 million.

As of March 31, 2011, we purchased 125,000 shares of stock at an aggregate purchase price of $511,000 and as of today, we acquired a 154,000 shares of stock for $642,000 or $4.17 per share, at an average price of $4.17 per share. I look forward to continue reporting our financial progress to you in 2011.

With that, I’d like to turn the call over to Darryl Miller, our COO, to briefly review our operations and discuss the Q1 2011 highlights of our Asset Intelligence business.

Darryl Miller

Thanks, Ned, and thanks to everyone joining us on the call today. The primary focus of I.D. Systems operations in the first quarter of 2011 continued to be cost reductions and service efficiency improvements that stimulate sales growth and deliver quality customer experience.

I’m very happy to report that we completed the consolidation of our contract manufacturing resources in the first quarter. This effort along with incorporation to Lean Six Sigma methodology in our operating processes has produced the desired results, a reduction in manufacturing cost, improved quality and improved fulfillment time.

On Asset Intelligence side of the business, we had another strong quarter as orders increased by approximately 15% compared to the first quarter of 2010. We currently hold approximately 22% to 25% of the market for cargo trailer tracking, competing closely with Qualcomm and SkyBitz which hold similar market shares.

Our growth has been driven by long-term customer partnerships including Wal-Mart, the largest private trailers owner in the world and an ongoing commitment to expand and enhance our suite of VeriWise branded solutions including VeriWise Track & Trace, VeriWise dry van and VeriWise refer, the refrigerated trailer management. It was this breadth of product offerings and superior functionality that helped to secure a major contract to deploy a combination of VeriWise Systems on Knight trailer fleet in the first quarter of 2011.

Knight is one of the largest most respected truckload carriers in North America and one of our best customers. We are the only company that offers a solution for each of Knight’s trailer asset types.

Further differentiating our solution for Knight was our ability to integrate the information from each of our product into Knight’s dispatch system providing seamless control of their fleet.

Another big win for Asset Intelligence during the first quarter was Estenson Logistics, a provider of custom freight transportation services, which was recognized as Carrier of the Year in 2010 by Home Depot. Estenson implemented our VeriWise Track & Trace Trailer Tracking System on its fleet of [drive] bands with a five-year service contract. Track & Trace has helped Estenson improve its customer service and asset utilization as well as make its rental trailer return process much easier and more manageable.

On a final note, another great customer of ours, Marten Transport, which is one of the leading refrigerated trailers or reefer carriers in North America, won the Commercial Carrier Journal’s Innovator of the Year award in the first quarter of 2011.

Our VeriWise Reefer management system was a key factor. It enabled Marten to significantly reduce fuel consumption by optimizing the reefer pre-cooling process, enabling higher average shipping temperatures without compromising food quality. This optimization of shipping temperatures and pre-cooling process alone generated cost savings over $2 million annually from Martin after system deployment with a commensurate reduction in the volume of greenhouse gas emissions.

Thank you for your time and attention today. I look forward to bringing you further updates in the future.

With that, I’d like to turn the call over to Ken Ehrman, our President, to review additional I.D. Systems highlights for the quarter.

Kenneth S. Ehrman

Thank you, Darryl, and thanks again to everyone joining us on the call today. I’d like to focus on sales highlights of the first quarter of 2011, which encompassed existing and new customers, deployments in new sites and maneuver of key maintenance contracts of existing sites with the mix of existing and new products.

Among the many customers we continue to provide value for, as reflected in our ongoing business in Q1, were 3M, Audi, American Airlines, American Eagle, Caterpillar, Ford, Nestlé, U.S. Postal Service, Walgreens and Wal-Mart to name the most common.

We estimated that for all industrial trucks in North America with vehicle management systems installed, I.D. Systems has a market share of at least 50% with only a tiny fraction of the roughly $2 million fork trucks in North America having any sort of system installed today. This is one of the reasons we continue to be [feel] optimistic about our prospects in this market as it matures and vehicle management systems are adopted as a best practice for safety, maintenance and productivity.

We also want our share of new customers in the first quarter of 2011, most notably to our channel partners, particular the Raymond Corporation, a leading lift truck manufacturer and provider of material-handling or optimization systems. Leveraging the lift truck dealer and OEM channels, we sold our wireless vehicle management systems to new customers in the apparel, electronics, mass retail, grocery and package delivery industries.

In the supply chain market, our key product development was, as Jeff highlighted, our PowerBox industrial vehicle management system. This pre-configured remotely hosted subscription based system is helping us compete for business with customers seeking the simplest way to deploy the five core vehicle management functions, access control, safely check list, impact, maintenance, and fleet utilization analysis.

We shipped our first PowerBox ship order units during the first quarter of 2011 and now already with customer reaction positive, the PowerBox prove to an effective complement to our full featured PowerFleet system. PowerFleet has many more options than PowerBox, such as location tracking, load sensing, Wi-Fi communications to name some of the most prominent, but it is also more sophisticated to implement and benefit from. These two offerings enable us to compete for virtually every type of customer, from smaller fleets, service by dealers to mid-size fleets on a tight budget to enterprise scale corporate fleets that have driven our business to date. The ability for our sales force to upgrade customers from PowerBox to PowerFleet has been an effective tool and in our view has led to shorter sales cycles and a higher rate of closed sales.

In the aviation market, we continue to expand our system deployments with American Airlines and American Eagle at several major U.S. airports. Despite the sensitivity of this market to economic conditions especially with the current price of jet fuel we see it as another significant growth opportunity for I.D. Systems.

We hope to also expand our opportunities in the aviation space with the SafeNav product, an on-vehicle GPS based navigation and alert system powered by Garmin which provides airport vehicle operators with real-time situational awareness help them avoid accidental runway incursions. We made our initial shipments of SafeNav during the first quarter of 2011.

On a final product note, our rental fleet management system continued to provide unique benefits in the rental car industry. We are aggressively marketing and selling this technology to the major rental brands and remain very optimistic about our prospects.

We see the recent IPO of Zipcar as a reflection of the technological changes taking place in this market and we believe our patented rental car management systems are uniquely positioned to take advantage of the opportunity for growth that the rental car market promises.

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

Jeffrey M. Jagid

Thank you, Ken. Now we’re pleased to open the call whatever questions you may have. Thank you. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from Matthew Hoffman of Cowen. Your line is open.

Matthew Hoffman – Cowen & Co.

Hi, good afternoon gentlemen. So it sounds like you’re putting a $50 million a year bogey out there, $9.6 million quarter run rate kind of $13 million a quarter to generate and it was an annualized $6 million number. So I got these numbers right. So the question is your orders were up 22% year-on-year, first, what was the order rates sequentially on the AI side on a sequential basis and then maybe give us the order rate for the PowerFleet business on a sequential basis also? Thanks.

Ned Mavrommatis

Sure, I’ll give you the revenue break down and then compare it to the sequential, Matt. The revenue in the quarter was split evenly between the two product lines, $3.9 million came from the core business and $3.9 million came from Assets Intelligence. The $3.9 million in the core business was up from $3.5 million in the fourth quarter and the AI revenue was up from $3.7 million in the fourth quarter.

Matthew Hoffman – Cowen & Co.

Okay. Can you give me the AI splits between hardware and services?

Ned Mavrommatis

Sure. Just bear with me for a second. The AI revenue $747,000 came from product and $3.1 million came from services.

Matthew Hoffman – Cowen & Co.

Okay. So looks like services number is kind of flat based on where it was in the fourth quarter, what are the prospects of growing their services business, it sounds like you’re bringing more units on, but we’re not quite seeing that on services, is that ASP pressure or are you guys – is there more in that order number that Darryl was talking about, the 22% instead a lot of services revenue are coming up? Thanks.

Jeffrey M. Jagid

Yes. The way we’re going to increase the service revenue in the air, our product is to continue to add new units, Matt. And as we move forward, we’ll continue to add new units, you should see that number continue to increase on a quarter-to-quarter basis. Also, the product revenue is going to increase as we continue to amortize the deferred.

Matthew Hoffman – Cowen & Co.

And so as you talk about the $50 million number, going to back to the original question, you’ve got 9.6 break even point, and the 12.5 mid point to generate or just call it as substantial kind of double digit EBITDA margin if I heard you right, what does it take, did your backlog support that, are you hoping that that’s kind of a fiscal ‘12 goal, help us bracket the ramp or how much visibility you have into reaching those levels?

Jeffrey M. Jagid

Matt, it’s Jeff. Let me try to respond to that. So I think your observation is right. We did mention the $50 million is kind of target and the reason we did that was really a testimony to the strength of the pipeline. It’s certainly not in the backlog today, but the pipeline continues to grow, we see the body language of the customer base become a little more positive, sales of PowerFleet and PowerBox continue to increase. We have a lot of work to do to continue to add customers on the AI side, but things were moving in the right direction.

We’re really kind of hesitant today to give you a time period, but internally that’s really the next logical revenue milestone for us. So that we’re working toward, that’s how we’re driving the business, it’s really that next milestone of getting to $50 million because of the leverage in the model, as Ned mentioned, we should be able to generate significant earnings based on our cost structure today at that type of our revenue run rate. I just can’t today answer the key question which is when will that be?

Matthew Hoffman – Cowen & Co.

I appreciate the framework and I’m sure the investors out there do as well, but have to ask. The second question, second data question is on the cash flow and balance sheet. So coming back to you, Ned, probably. Your CSR, here in the quarter down a couple of million dollars I think it’s pretty well spread across the inventory and payables everything kind of used cash in the quarter. How quickly will that return or is that really a sign that you’re using cash to build the business and I’ll let you comment on that. Thanks.

Ned Mavrommatis

Sure. Actually, Matt, there was really two primary reasons of that. The first is, during the quarter we made a payment of approximately $900,000 on behalf of GE to the AI employees. And that is something that we paid out in the first quarter, and we are going to get reimbursed by GE in the second quarter. So that had an effect on cash.

And the other reason is, during the quarter we moved subcontract manufacturers for the GE product we actually consolidated all of our manufacturing with Flextronics. And since we’re moving subcontract manufacturers, some of the shipments we made during the first quarter we didn’t get any terms, we have to pay a COD, and we also build some extra inventory during the transition period to make sure by that time the other manufacturer is up and running that we’d have enough product to ship. So really those were the two primary reasons for the cash flow.

Matthew Hoffman – Cowen & Co.

How close have you been to CF positive without this one-time or I mean, I can take up the $900,000, I see that sitting there, but how about the other million or so, how close for you to – would you have been on a pro forma basis to break even to CF?

Ned Mavrommatis

I think we’d have been right there between those two.

Matthew Hoffman – Cowen & Co.

Okay, I appreciate the visibility. All right, guys, thanks and nice to see things heading up, thanks.

Ned Mavrommatis

Thanks, Matt.

Operator

Thank you. Our next question comes from Walter Schenker of MAZ Partners. Your line is open.

Walter Schenker – MAZ Partners

Thank you. Hi, guys. We’re now on a macro basis or an I.D. Systems’ basis a year and half or whatever time frame into a recovery, it is nice to think about finally break even or making money, it still seems as if the major driver of revenues is going to be the I.D. Systems’ ability to sell new product, the AI moves up steadily but plus spectacularly just given the base and the service nature of the revenue, when do we start to see, can you give us any color when we start to see larger contracts in the once announced which will make a more significant different in moving the company toward $10 million quarters or even $9.6 million quarters I suppose $12 million and breakeven, until 20 somewhat present above where we are?

Jeffrey Jagid

Right. So I think that's a good question. Let me start off by saying obviously we’re proud of what we’ve done year-over-year. It is a 20% revenue growth. Our costs are down 21% year-over-year, so I think those are not easy accomplishments and those are accomplishments that and I'm sure some of our employees are listening that our team should be very proud of. Having said that, you are also the right. The goal is to use the company to make money. And as we’ve commented in the past, we expect to exit 2011 on a profitable run rate. We have, I think, a very good base now of recurring revenue. 45% of the overall revenue in Q1 was recurring. So things are starting to come together what used to be much more lumpy, unpredictable, concentrated in one or two customers as now diverse. It’s becoming more and more recurring and the business is certainly moving in the right direction. We like to see things happen faster absolutely. But we are ahead our internal budget and we expect that trend to continue and we’re not far obviously. We are pretty close to the numbers that you mentioned in your question. So we do believe that we’re on pace to achieve the goal for 2011. So that’s really the time period in direct response to your question.

Walter Schenker – MAZ Partners

And I apologize because I had something going on in the background. The goals, could you just restate, I’m sure you did at the call, the goal for 2011 financially?

Jeffrey M. Jagid

Yes, profitable run rate. So what we mean by that is annualized. They maybe depending on lumpiness in specific quarters. We may show a loss, but the run rate, as we exit the year, would be profitable. It just may not be. I’m not saying it won’t be, but there is still some unpredictability. The profitability may not be enough in the latter part of the year to offset some of the earlier losses, but it will be close. I think more importantly what it said to us about the business, is really the opportunity on the topline and the leverage that created through the controls below the gross margin line. So I think we really have to look at the size of the market, the fact that we believe that the low watermark is behind us, and the fact that the customers are really starting to drive benefit through the use of our product, reduce cost, become more efficient and continue the adoption rate, we hope to increase the adoption rate of the product.

Walter Schenker – MAZ Partners

And again just to summarize what you just said or to put it in different words or not summarize, given that you lost money in the first quarter and may lose money in the second quarter, you’d expect to be profitable at some point in the second half which would at least put you close to offsetting the losses in the first half. Is that what we’re talking about, just meaning the fourth quarter will be profitable?

Jeffrey M. Jagid

I did say that Walter.

Walter Schenker – MAZ Partners

Okay.

Jeffrey M. Jagid

And I appreciate the effort to pin me down, but I think the guidance, just to be clear on guidance, I’m not suggesting that we are going to show a profit for the year because that will be a function of the extensive profitability in the later part of the year. But we are saying that we do expect to exit the year on a profitable run rate.

Walter Schenker – MAZ Partners

Okay, I understood that. Thank you.

Jeffrey Jagid

Thank you, Walter.

Operator

Thank you. (Operator Instructions) Our next question is from Mike Leitner of private investor. Your line is open.

Unidentified Analyst

Thanks guys. Hey couple easy way of questions, longer questions. Was business stronger or weaker in the last two weeks of the quarter compared to the rest of the quarter?

Jeffrey Jagid

We don’t really give that level of guidance. The demands during the quarter was positive and we don’t really break it down by which we have the most demand. The orders came in throughout the quarter. So some specific concern that you may have. We would be happy to try to address it.

Unidentified Analyst

Let me move onto one other question. I know there is other people in the queue. Actually very commentary part in my next question. So thanks a lot for this conference call. There’s been a significant amount of activity in the rental car and car sharing space. Specifically, Ken mentioned Zipcar went public several weeks ago. And two leading rental car companies, publicly owned rental car companies recently discussed their car sharing and technology plans in the prepared remarks in their earnings call and during the Q&A sessions of these earnings call. There were several questions about the car sharing or virtual rental technology business model. Given all this activity I was hoping that you guys have had a little bit more to share about that. And one of the questions I have and maybe Ned will have an insight into this. In Note 6 of your recently filed 10-K, you’ve outlined a contract which I believe is with the rental fleet management company, and it says that you guys can invoice 60 monthly invoices of up to $57,000 in a month. And my question is, has this contract been modified or could be modified in near future to allow for a monthly billing amount that is higher than $57,000 a month?

Jeffrey M. Jagid

Let me, I know you’ve directed an important question at Ned, but let me take a stab at it. It’s Jeff again. We have a very compelling technology that fits very nicely into car sharing, automated rental and return of automobiles, as well as something that the car rental industry calls virtual rentals. In our internal budget, we have not included any significant contribution from the car rental industry. So in order to achieve our goals, we do not need any real revenue coming from the car rental industry.

Having said that, it is an area that excites us, we believe we have the best technical solution for that application and it is something that we have patent protection on. So it’s something that we are in a good spot for that, but the industry is not moving very rapidly, believe it or not, so there is a lot of hype around the Zipcar, I feel, Ken mentioned it, it is an area within which we are working. But even Zipcar, they have a few thousand cars with technology on it. It’s not big numbers, as I said, it’s not built into our financial.

As far as Note 6 in our 10-K is concerned, to the extent that we were able to disclose information about that specific contract, we disclosed it in the Note in the K and we’re really not able to comment on it beyond that.

Unidentified Analyst

Okay. So I mean will there be an expanding, what mode are you guys in right now with your client, any exclusive relationship, are they expanding the pilot, are they expanding it in the car sharing or in the fuel savings aspect or is it just kind of holding pattern right now?

Jeffrey M. Jagid

Regretfully, Mike, I can’t give you a lot more information on, I know in the past we’ve spoken about our efforts in the car rental industry, they continue to gain momentum, but I certainly wouldn’t want to create their own level of exception, that’s why I’m being very cautious in my comments.

We have not included significant revenue contribution in our internal modeling, but it’s a pretty big market and we have great technology for it. But I can’t really unfortunately, I can’t really disclose where we are on any specific program. But we’re selling into that industry, as Ken mentioned.

Kenneth S. Ehrman

Okay, well, it’s definitely a game changer from my perspective. So hopefully we will hear more soon. Thank you.

Unidentified Analyst

Thank you very much.

Operator

Thank you. Our next question is from George Melas of MKH Management. Your line is open.

George Melas – MKH Management

Thank you, good afternoon. I have two questions. First one for Ned, and I think the second one is for Darryl. Ned, I’m not sure you talked about the operating cost, they went up sequentially quite a bit and I just wanted to see if that’s the new run rate which as you referred back to the December levels?

Ned Mavrommatis

They went down, the operating cost, right, George?

George Melas – MKH Management

No, sequentially they went up, didn’t they?

Ned Mavrommatis

No, the operating cost in the fourth quarter, the GAAP numbers are $6.8 million and they were down to $6 million in the first quarter and the non-GAAP number was $5.5 million in the fourth quarter and even down to $5.1 million in the first.

George Melas – MKH Management

Okay. So, I missed something. So if we go back to December 2010, then the SG&A was quite a bit lower, that was the after the big restructuring that you did and since then they basically crept back up. Right now, on the SG&A, is it a good run rate or is it roughly $20 million a year?

Ned Mavrommatis

That’s exactly right. We expect to stay at this run rate both from a GAAP and a non-GAAP standpoint. And I also just want to point out if you’re comparing for the fourth quarter of 2010, they went down both on a GAAP and a non-GAAP standpoint.

George Melas – MKH Management

Okay. Very good. And the second one is on the AI result, can you maybe give us a few more metrics in terms of units sold sort of unit installed right now, and what’s your sense of how you’re doing in the marketplace?

Jeffrey Jagid

Yeah, George. Let me give a little idea of the AI market and then I’ll give you a little more color on then involvement of our units and our increase.

George Melas – MKH Management

Okay.

Darryl Miller

First of all from a market standpoint, March posted the 16 consecutive month of increase in truck tonnage followed by the trial of backlog which approach 300,000 which foreshadows a very strong 2011 for the trailer industry. February trailers orders claim to 22,000 which is up 105,000. 105% over February 2010 and what that meant for us in our business is we see our orders increasing as well where strong second quarter and third quarter in 2010, we had a record fourth quarter in 2010 where we shipped more units in AI than any other time period in the AI history, now we follow it up with the first quarter that was 15% above the last year at this time. So along with our new products we introduced in the market primarily are low-cost market, which focuses on attracting trace product has opened up some new opportunities for us that’s been 50% of our sales. We see big things of that in 2011 along with our repair control product.

We’ve always had a product that could monitor temperatures in this industry, and now we’re releasing a product that controls temperature and set points as well that Martin and I, Frank, Miller and several other customers are introduced to along with some new customers. So we feel pretty good about our sales pipeline. We’re currently working about 330,000 units of pipeline that contributes to our bottom-line as well and our sales people are very busy at there in the marketplace.

George Melas – MKH Management

You said your pipeline is 330,000 units?

Darryl Miller

Yes.

George Melas – MKH Management

Okay, that’s double the units that you have installed is it right or?

Darryl Miller

Yes. Currently, what we are currently working is Salesforce.com in various stages. We monitor them in various stages of everything from initial contacts to contract negotiations and the stages along the way and each of those units are assigned to our sales team.

George Melas – MKH Management

Okay. From a sales perspective or I think from an order perspective, is the first quarter typically seasonally weak or is there more seasonality in this business?

Jeffrey M. Jagid

There is seasonality in business. I mean, traditionally in the first quarter, our customers are preparing their assets and preparing what they are doing for the year. And typically we see our strong sales coming in the early third and early fourth quarter, but it varies in this business. And I think from right now standpoint, I think that you’re getting some opportunity for a lot of the trucking industries to free up some cash with same time period. You have the fuel prices and diesel prices rising. So some of them are kind of holding back a little bit waiting on that, but this solution, this market really prepares you to do both, to save trailers and save the modern trailers you need and also to utilize fuel savings. So we like our opportunities and we like the position the market is in and we think we got the right product position for it to be successful in 2011.

George Melas – MKH Management

Great. And are you surprised yourself by the success of the Truck & Trails and that it is such a large share of your orders?

Ned Mavrommatis

From my perspective, I am surprised. I think I mentioned this to you guys, when I first took over the business and it was back at GE, our focus in this business was really on a differentiator providing full solutions, which includes various sensors, cargo sensors, tire pressure sensors and the extent of providing a full solution was where our core competency was positioned.

The market we did play in was simple basic Track & Trace. And from that standpoint, we have several customers electing just to do that. So yes, I have been surprised at the amount of customers especially in today’s environment. My mindset was about customers progressing on to use more sensors and features and functions as they go forward. But there is still a niche out there, where a lot of customers are wanting the basic Track & Trace. Even our customers utilize full solution, will compliment their trailers with a mix of basic Track & Trace on some of their older assets and also their full solution on their newer assets.

George Melas – MKH Management

Okay. Great. Thank you very much.

Jeffrey M. Jagid

Thank you.

Operator

Thank you. I’m showing no further questions at this time. I’ll turn the call back over to Jeff Jagid.

Jeffrey M. Jagid

Thank you. And thank you everyone for your time today. We look forward to bring you further updates in the future. Thank you very much.

Operator

Ladies and gentlemen, this concludes today’s conference. You may now disconnect. Good day.

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