Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

I.D. Systems, Inc. (NASDAQ:IDSY)

Q2 2011 Earnings Call

August 10, 2011 4:45 pm ET

Executives

Jeffery Jagid - Chairman and CEO

Ned Mavrommatis - CFO

Darryl Miller - COO

Analysts

Matthew Hoffman - Cowen

Morris Ajzenman - Griffin Securities

Orin Hirschman - AIGH Investment Partners

Dan Weston - WestCap Management

Mike Wagner - Private Investor

Operator

Good day, ladies and gentlemen, and welcome to the I.D. Systems second quarter 2011 conference call. (Operator Instructions) I’d like to turn the call over to your host, Mr. Jeffery Jagid.

Jeffrey Jagid

Thank you. Welcome to I.D. Systems fiscal 2011 second quarter conference call. Thank you for joining us today. I’m Jeffrey Jagid, the Chairman and CEO of I.D. Systems. With me today are Ned Mavrommatis, our CFO; and Darryl Miller, our COO.

I will provide a brief overview of the quarter and then update on our vehicle management business. Ned will detail our financials, and Darryl will update you on our operations and the performance of our AI subsidiary. Then 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 & 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 second quarter of 2011 was encouraging for I.D. Systems. We made progress toward our goals of growing revenue, controlling costs and achieving net profitability by the end of the year. Compared to the second quarter a year ago, revenues were up 39% to $8.3 million, SG&A and R&D expenses decreased 14% and 22% respectively, while gross margins remained strong and stable at 54%, and our GAAP net loss was cut in half.

On a non-GAAP basis, excluding stock-based compensation and depreciation and amortization of intangible assets, our net loss for the second quarter of 2011 was reduced by almost two-thirds compared to the second quarter of 2010.

Our strong revenue growth in the second quarter was driven by increased sales of our wireless industrial vehicle management systems to both new and existing customers, while recurring service contract revenue from Asset Intelligence remained stable and predictable.

Overall, revenue contribution was roughly equal between our vehicle management and transportation asset management businesses. We also had a relatively balanced mix of product and service revenue.

In our vehicle management business, our channel partners continued to make significant revenue contributions during the quarter, which is one of the keys to our growth. Our strategy of offering multiple tiers of vehicle management solutions also continued to be successful in the second quarter with customers often expressing initial interest in our simplified remotely-hosted subscription-based PowerBox system, then ultimately upgrading to our full feature, full service PowerFleet system.

Having more flexible options in functionality, support requirements, pricing and financing has helped increase the number of deals we win, resulting in an expanding customer base.

Further, roughly 150 organizations have deployed our technology at well over 500 sites. Including our transportation asset management business, we now have close to 600 customers at roughly 2,000 deployment sites. Our expanding growth result in more diversified sources of revenue for I.D. Systems, which is also one of our primary strategic goals.

As a testament to the ongoing value that our wireless technology provides to our existing customers, we continued to generate repeat business from core customers like Alcoa, American Airlines, Ford, Kellogg, Nestle, Procter & Gamble and Wal-Mart.

Ford Motor Company is worth special note, as it commenced a major upgrade to our technology on its material handling equipment across 38 manufacturing plants in North America. As part of this upgrade, we will implement our latest generation of hardware and software, including expanded on-vehicle memory for data processing, enhanced functionality for vehicle control and new capabilities for managing and analyzing the performance of vehicle batteries and battery-charging systems.

We also won our share of new customers in the second quarter of 2011. A Fortune 100 retailer, a Fortune 100 manufacturer, an S&P 500 consumer products producer, and one of the world's largest specialty apparel retailers, among others, all ordered I.D. Systems' hosted subscription-based PowerBox vehicle management system in the second quarter.

Another Fortune 100 retailer ordered our PowerFleet system for its lift truck fleet in multiple distribution centers following a successful pilot implementation. This order was facilitated by the Raymond Corporation, which between its lift truck dealer network and national account sales team has proven to be a very effective channel marketing partner for us.

We won a number of other new PowerFleet customers during the quarter as well which are deploying our technology for the first time at initial sites.

In the airport vehicle vertical market, we continued to expand our system deployment with American Airlines and American Eagle Airlines at the several major U.S. airports during the second quarter.

We're also exploring new opportunities with strategic marketing partners as well as through our SafeNav product on an on-vehicle Runway Incursion Avoidance System powered by Garmin GPS location mapping technology.

In the overall industrial vehicle management space, I.D. Systems continues to hold a dominant market share and win a majority of the opportunities when up against direct competitors. Although precise market share data is hard to verify, because most of our direct competitors are small private companies and our larger competitors do not breakout their relatively small vehicle management sales numbers, we estimate that more than 50% of installed wireless industrial truck management systems are from I.D. Systems.

Only a small portion of the roughly 2 million industrial trucks in North America plus another 3 million in Europe have any sort of management systems installed today. That is one of the reasons we continue to be 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.

Another new customer for I.D. Systems in the second quarter was the U.S. Army's Aviation Applied Technology Directorate, which contracted with our partner, Spectro, Inc., to integrate our wireless technology and software into a machine health management application. Spectro was the division of QinetiQ North America and one of the world's leading defense and security technology companies and a global leader in delivering machine monitoring solutions to the United States Department of Defense. The goal of this project is to provide real-time intelligent information on mission-critical oil condition of United States Army helicopters.

On a final note, in the rental car vertical market, our proprietary rental fleet management system continues to deliver unique benefits for a leading U.S. rental car company. We're providing two types of wireless systems for this customer, a virtual car sharing system in which reservations, vehicle access and billings are executed remotely and automatically via smartphone, and an automated vehicle data collection system for more traditional airport car rental environments which streamlines billing and has demonstrated the ability to routinely increase rental fuel revenue.

We're excited about the prospects for the virtual rental system for decentralized car sharing, which is the fastest growing segment of the car rental industry. I.D. Systems' virtual rental technology has been deployed successfully for thousands of vehicles on the corporate campuses of several of our Fortune 500 customers, and Auto Rental News has estimated the overall market for car sharing will exceed $1 billion market by the end of the decade.

In summary, we're satisfied with our second quarter results and the direction of our business. We remain committed to continued growth in cost management, and we remain focused on achieving net profitability for our shareholders by the end of the year.

Thank you for your time today. 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. As Jeff noted, revenue for the quarter ended June 30, 2011, increased 39% to $8.3 million from the same quarter in 2010. For the six-month period, revenue was up 33% to $16.2 million from the corresponding period in 2010. Our revenue mix during the second quarter consisted of just under $4 million from products and nearly $4.4 million from services.

Our vehicle management business contributed $4.3 million in revenue for the quarter, while our transportation asset management business contributed just over $4 million. Recurring revenue was $4.1 million or 50% of overall second quarter revenue. We currently have approximately $26 million of recurring revenue backlog that we will recognize over the next few years.

Our gross margins for the three and six-month periods in 2011 were a healthy 54% and 53% respectively, reflecting continued price stability for our products and services, a high margin recurring revenue stream primarily from the transportation asset management systems over Asset Intelligence subsidiary and reduced operating cost.

As a reflection of our continued efforts to maintain discipline cost controls, our operating expenses decreased 15% in the second quarter to $6.6 million from $7.8 million in the same period a year ago. Our net loss for the quarter was $2 million or $0.19 per basic and diluted share, which was an improvement from $4 million or $0.36 per basic and diluted share in the same year-ago quarter. For the first half of 2011, net loss improved to $3.8 million or $0.35 per basic and diluted share compared to $8.1 million or $0.72 per basic and diluted share for the first half of 2010.

However, as Jeff mentioned, excluding stock-based compensation and depreciation and amortization of intangible assets, our non-GAAP net loss for the quarter improved to $1.1 million or $0.10 per basic and diluted share as compared to $3 million or $0.27 per basic and diluted share for the same year-ago period.

For the first six months, our non-GAAP net loss was $2 million or $0.18 per basic and diluted share compared to $6.2 million or $0.56 per basic and diluted share in the first half of 2010.

Excluding stock-based compensation and depreciation and amortization, operating expenses for the quarter were $5.7 million. We expect operating expenses, if you exclude depreciation and amortization and stock based compensation, to be approximately between $5 million and $5.5 million per quarter throughout 2011. This would allow us to get to non-GAAP breakeven at approximately $10 million in quarterly revenue.

We believe considering this non-GAAP financial information is relevant to an evaluation of our overall operating performance. Please see our second quarter press release issued today and available on our website for a further discussion about our use of non-GAAP metrics and reconciliation of non-GAAP to GAAP.

Our balance sheet remained strong. As of June 30, we had $23.9 million in cash, cash equivalents and marketable securities and $22.3 million of working capital and no debt. With this financial strength, we will continue to consider new growth opportunities both organic and through acquisitions. We continue to be confident that our financial results in 2011 will significantly surpass our performance in 2010 as we focus on advancing towards profitability by yearend.

As a demonstration of this confidence, our 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 June 30, we had acquired 195,316 shares of common stock at an aggregate purchase price of $823,900 or $4.22 per share.

This completes the financial portion of our presentation. I look forward to continue reporting on our progress next quarter.

With that, I'd like to turn the call to Darryl, our Chief Operating Officer, for a review of our operations.

Darryl Miller

Thanks, Ned. Thanks everyone for joining us on the call today. In the second quarter of 2011, operations team to continued to focus on order fulfillment and system implementation for our new customers as well as expanding our solutions with current customers.

As our sales continue to expand, it is critical that we exceed our customers' post-sell expectations. To that end, we closely monitor both internal service metrics and external customer satisfaction. We survey a representative sample of customers each quarter, and that's when they raise the likelihood of recommending I.D. Systems to other companies.

Our primary service metric in this area is called NPS for a Net Promoter Score. We implemented this system last year as a best practice that is used by many Fortune 500 companies, including many of our customers. I am pleased to report that in the second quarter of 2011, we improved our customer service levels as shown by our improved NPS scores.

On the Asset Intelligence side of the business, our VeriWise Track & Trace product, which launched in July of 2010, has been very well received by the marketplace. We attribute customer adoption of this product to a strong price value equation and to the fact that it can be installed in flexible locations in a wide variety of assets, including dry vans, flatbed trailers, chassis and containers. In fact, Track & Trace is the only product with the kind that can be attached underneath an asset for a truly convert installation.

Track & Trace is also unique in the way it addresses the core challenge of managing remote assets without access to a power source. It incorporates the patented power management system that provides exceptional five-year battery life for maintenance-free operations.

By way of an example, Alan Ritchey, trucking company of Gainesville, Texas, purchased our Track & Trace product in the second quarter. They valuated their current vendor and others and chose VeriWise Track & Trace. We won their business based on product's ease of installation, long battery life and overall reliability.

We continue to enhance the capabilities of Track & Trace, most recently by getting the product certified for tracking shipments of hazardous goods. This certification called UL913 is the highest qualification available related to the transportation of highly flammable materials. We've already received our first Track & Trace order that resulted directly from this certification.

With a current addressable market opportunity of approximately $1.8 million freight transportation assets, we are well positioned to capture improved market share and increased revenue as this market continues to expand.

With that, we thank you for your time and attention today. I look forward to bringing any further updates in the future. And on that note, I'd like to turn the call back to Jeff to open the call to your questions.

Jeffrey Jagid

Thank you, Darryl. Now we’d like to open the call to questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Matthew Hoffman from Cowen.

Matthew Hoffman - Cowen

Jeff, your guidance for the back half, it doesn’t sound like the environment is impacting you too much. You're showing a lot of progress elsewhere in the business. And then Ned, you said that $10 million, you expected that you would be net income positive. So talk me through that, should we anticipate you'll hit that breakeven with an average run rate over the next two quarters of $10 million, or are you looking at perhaps reducing OpEx? So just take us through the components there.

Ned Mavrommatis

I said our breakeven point, if you exclude depreciation, amortization and stock-based compensation, it will be $10 million. And as we said before, our goal is to get to that revenue level by the end of this year during the fourth quarter.

Matthew Hoffman - Cowen

And is EPS positive or I mean is there something else, some other component there that we should remind obviously as we bring it straight to the bottomline?

Ned Mavrommatis

I am sorry, can you repeat the question Matt, you broke up?

Matthew Hoffman – Cowen

So the question is, is there something below the line that we should be worried about too. So when you bring it to EPS, should we have this in EPS positive by the fourth quarter as you look at the model?

Jeffrey Jagid

Yes. But if you exclude stock-based compensation, and depreciation and amortization, those are the two items I am excluding from our operating expense, and we call that non-GAAP. And on a non-GAAP basis that breakeven is approximately $10 million. And that’s what we expect to be there approximately in the fourth quarter.

Matthew Hoffman - Cowen

I just wanted to make sure, we had it correct. So the services you made of this, both the backlog and the $4.1 million in the quarter. It looks like that backlog number is growing, if I'm not mistaken, on sequential basis, I think it’s up certainly year-on-year. So can you take us through the revenue splits, are you growing the asset intelligence side of the business, or is it more in the industrial vehicle side of the point? And could you give us the absolute numbers depreciated?

Ned Mavrommatis

Sure if you look at the revenue for the quarter. It was $8.3 million or $4.3 million came from the vehicle management business and approximately $4 million came from the AI side of business. If you look at both of those revenue numbers they were up sequentially from the first quarter.

Matthew Hoffman - Cowen

So your exposure to the U.S. coastal, they have been making the wrong kind of headlines of late. Can you just talk us through any sort of accounts receivable you guys have to balance sheet right now what sort of exposure and it sounds like it is not affecting the outlook. But anything on the balance sheet side?

Ned Mavrommatis

Minimal from a postal standpoint. They were not a big customer from revenue perspective, and they're not big in our accounts receivable.

Operator

Our next question comes from Morris Ajzenman from Griffin Securities.

Morris Ajzenman - Griffin Securities

As a follow-up to that previous question. This past quarter $1.1 million stock-based compensation, so basically during the last year, presume $11 million revenue run rate to be breakeven on a GAAP basis or thereabouts?

Ned Mavrommatis

Morris, if you look at the depreciation and amortization it was about $600,000 for this quarter and the stock-based compensation was $300,000. So we had about $900,000 between those two items and up to 50% gross margins, you're looking about an additional $1.8 million to $2 million for a GAAP breakeven. So that will be pretty closer to $12 million.

Morris Ajzenman - Griffin Securities

And just a question on SG&A in this quarter here on a reported GAAP basis. Sequentially in the first quarter $5.1 million, $5.7 million in the second quarter, I understand revenues were up, but I thought there was some sort of ability to keep that number stable quarter-to-quarter. In fact, you're looking at that number coming down in third and fourth quarter. And I presume based on your statements and when the curtains are up, what is the sequential from the first to second quarter that SG&A rising approximately $600,000?

Ned Mavrommatis

During this quarter, we had higher legal expenses. They were incurred primarily in connection to a patent litigation. So we incurred legal expenses this quarter in connection with our patent litigation. We're paying for that expense today, but we expect to get some benefit in the future.

Also during the quarter, we incurred some legal expenses for a contract that has not yet to be finalized and that would also have a positive impact on revenue in the future. These legal expenses are one-time in nature. They hit this quarter. And as I mentioned before in my prepared remarks, we expect the expenses to get to back to normal levels in the future quarters.

Morris Ajzenman - Griffin Securities

Can you just give us some sort of idea of what that was in this quarter? Was it $400,000 was it $500,000? Just give us some ballpark for total legal expenses that were one-time in nature?

Ned Mavrommatis

Approximately $0.5 million.

Morris Ajzenman - Griffin Securities

Just touching again, Wal-Mart was a very large customer of yours in the past and we're trying to get traction again. And can you say how that potentially plays out over the next few quarters, whatever you can say?

Jeffery Jagid

Hesitant to comment on any specific customer or prospecting activity beyond those remarks, I made in my opening comments. But Wal-Mart, you're absolutely right, Wal-Mart continues to be a very important part of our business. They continue to derive meaningful economic benefit from our product. And we believe that that will continue to translate to revenue growth in the coming periods.

Morris Ajzenman - Griffin Securities

Let's just go back to PowerBox, my last question. You referenced it early in the call how new customers are taking PowerBox and upgrading with the PowerFleet, which obviously is a good profit proposition for you guys. But wasn't the PowerBox supposed to be something that was really supposed to take on life of its own? And what you'd have very little incremental costs in operating the system and highly leveragable? How is that playing out as far as PowerBox itself, really gaining a legacy and becoming a are much more prolific and much more ingrained product for you guys with your customers?

Jeff Jagid

So when we conducted our market research that went into the new product introduction process that we deployed, and made the decision to proceed with PowerBox. There was a unanticipated, there was a benefit that we've achieved that we didn't really anticipate. And that is that our account executives in many instances, and the channel in many instances would lead with PowerBox. And that's resulting in increased PowerFleet sales.

I wouldn't say that it's cannibalizing the sales that we anticipated for PowerBox, but it's just simply having a positive impact on PowerFleet. So we have conservative projections, unit projections internally for PowerBox. And we are pretty much on schedule in the achievement of those numbers. But we are a bit ahead on PowerFleet as a result.

Morris Ajzenman - Griffin Securities

Could you, as the time unfolds, just share with us units sold, PowerBox and PowerFleet over time in those two categories? Is that something you would be willing to share with us over time?

Jeff Jagid

I mean we like to be as transparent as possible. But we also want to make sure that we're giving you the right metrics to get a good understanding of the business. And in many instances, because we're not really selling a commodity, we are selling a complete solution, a particular delivery of units in a specific quarter may not be really the best indication of the business's performance.

I don't know if that makes sense, if that changes, so let's say there's a period where you know, adding, delivering new units in a specific quarter becomes a very important metric. Then we would probably move toward disclosing that data.

Morris Ajzenman - Griffin Securities

And I said last question, but let me squeeze one more in. Just kind of a previously asked question, I just want to make sure you understand. The $10 million revenue breakeven on non-GAAP basis, is that basically a projection and we're going to be there exiting the fourth quarter of this year?

Jeffrey Jagid

Yes. That's the guidance that we've given.

Operator

Our next question comes from Orin Hirschman from AIGH Investment Partners.

Orin Hirschman - AIGH Investment Partners

In terms of the question on the SG&A the kick up of the $600,000 or so that sounds like that's primarily a one-time kick up, right?

Ned Mavrommatis

That's correct, Orin. And as I mentioned before, it had to do with some legal expenses incurred in the quarter.

Orin Hirschman - AIGH Investment Partners

That's helpful, because it would have lowered your GAAP and non-GAAP loss notably to come in line with the revenue increase on a sequential basis, which I think is why people were noting it.

Ned Mavrommatis

Absolutely.

Orin Hirschman - AIGH Investment Partners

Clearly although there's definitely huge customer wins coming on the commercial side into the vehicles, clearly a pie in the sky possibility for geometric revenue growth comes from that rent a car business. Would you give us some color on earlier?

And the color that you gave included some of the progress there, in terms of what the customer is seeing from the first multi-thousands of installations, which is really the test bed for them. Any additional thoughts in terms with full deployment? And is there anything else you have to do from a technical perspective to achieve in order for them to consider full deployment and now it's a waiting game. Give us whatever color you can?

Jeffrey Jagid

At this stage, I'm not really in a position to give, make any specific comments regarding the activity in the car rental space, beyond what I made in may own opening remarks. But what I can tell from a general standpoint is that we have a great technology for that application. It's a technology that we've been awarded patent protection on. It's ready to be deployed. So there is no development work or development expenses need to be incurred to deploy it. And as I mentioned in my remarks, we continued to make progress with a leading rental car of company.

Orin Hirschman - AIGH Investment Partners

Any towards, in term of additional deployment there?

Jeffrey Jagid

No, and we try to look at that opportunity somewhat conservatively, because we've been working on it for some time. And I can tell you that internally, we have not built into our internal forecasts revenue contribution coming from the car rental industry in the balance of this year, nor do we need revenue contribution in the balance of this year from the car rental industry, in order to achieve the level of guidance that we've conveyed earlier.

So again, just to summarize any revenue contribution that would come from that industry that market would obviously have a very positive impact. And would be sort of supplementary to what it is that we already have in our pipeline.

Operator

Our next question comes from Dan Weston with WestCap Management.

Dan Weston - WestCap Management

Just a follow-up on the couple of prior colors questions. The guidance you gave for exiting the year that $10 million breakeven level. I'd written down some notes from your last quarter, I thought that the guidance was somewhere in the $9.6 million level to get to non-GAAP breakeven. Did I write that down wrong from last quarter or is something changed there?

Jeffrey Jagid

I want to be very clear. We've been very hesitant historically to give guidance. In light of the strength in the pipeline we have made the decision to give a bit more information, and the information just to be clear, have been that we intend to exit the year on the profitable run rate. So we really haven’t given, obviously we helped the investment community do the math to determine what the revenue would have to be. But we are very much focused on exiting the year profitably from a non-GAAP standpoint.

So today if you look at the financials you would have to achieve about $10.0 million quarter from a revenue standpoint to achieve that. You saw that the SG&A increased slightly in the quarter. But you are talking about $9.6 million to $10 million, I think you probably have your numbers right. But again, the guidance is on the bottomline not really on the revenue line.

Dan Weston - WestCap Management

A couple more questions, in terms of the Ford upgrade, did the business in terms of revenue generation from the upgrade, did you receive any revenues during the second quarter?

Jeffrey Jagid

Yes.

Dan Weston - WestCap Management

Is there any detail or color you can give us on how big in aggregate that order is how long it last?

Jeffrey Jagid

Yes, its not one order. They've been ordering the system for various facilities of different types. So it continues. During the second quarter we recognized revenue from Ford of approximately $992,000. And we already have orders booked for the third quarter and we're in the process of delivering.

Dan Weston - WestCap Management

So $992,000 was total revenue generated from Ford in Q2?

Jeffrey Jagid

That's correct.

Dan Weston - WestCap Management

And the upgrade contract was signed when?

Jeffrey Jagid

It's not an upgrade contract Dan. They are upgrading their plants and they're giving us numerous purchase orders to operate the plants.

Dan Weston - WestCap Management

Ned, can you tell us what the Ford contribution was in Q1?

Ned Mavrommatis

I don’t have the number in front of me, but it was approximately $750,000 I believe.

Dan Weston - WestCap Management

To the new customer sign-ups that you had, it sounded like in your commentary that you signed a bunch of new blue chip type customers for your hosted services. But I noticed that sequentially your deferred revenue remained relatively flat. Is there any correlation between the two or is there a lag between, when orders are signed and when we see the benefit hit the deferred revenue line?

Ned Mavrommatis

No, when you look at PowerBox sales, they wouldn't affect your deferred revenue, because we build them and we get paid over time. So they do not have any effect on your deferred revenue, PowerBox sales.

Dan Weston - WestCap Management

Did you collect all the money upfront at the time the order was signed?

Darryl Miller

No, not for PowerBox. It's almost a SaaS model, subscription model. And they pay monthly, and we bill and then collect it monthly.

Dan Weston - WestCap Management

So in the future, PowerBox orders do not hit the deferred revenue line?

Darryl Miller

That's correct, unless company decides to pay upfront, but our model is to bill and collect monthly.

Dan Weston - WestCap Management

Last quarter, I think you mentioned that due to some contract machinations with General Electric that you were due to be reimbursed about $900,000 in the second quarter. Did you receive that reimbursement?

Darryl Miller

Yes.

Dan Weston - WestCap Management

The last question is on the increased legal expense that you spoke of I guess relating to some patent-related issues. Was that somebody coming to you guys claiming that you've infringed on a patent or was it the other way around or any color that you can give there?

Jeffery Jagid

Obviously in the quarter, it had an adverse impact on the SG&A. On an ongoing basis, we don't expect it to have a material adverse effect on the business. We do expect a positive outcome, but the answer to your question is that we proactively on the vehicle management side of the business commenced an action against the competitor, but you're talking about small numbers.

It feels pretty strongly about our patent portfolio and protecting our IP. So we had a good safe belief that there was an infringement. And thus, we commenced an action, and we believe pretty strongly in its merit. We don't expect to continue to incur the legal expense that we incurred in the second quarter.

Dan Weston - WestCap Management

Ned, I think you gave a recurring revenue number during the quarter of $4.1 million. Is that correct?

Ned Mavrommatis

That's correct.

Dan Weston - WestCap Management

Could you just refresh us what was that number in Q1?

Ned Mavrommatis

In Q1, it was about 45% of revenue, and it increased to 50% of revenue this quarter.

Operator

Our next question comes from Matt Hoffman from Cowen & Company.

Matt Hoffman - Cowen & Company

It's actually Brian. A couple of housekeeping questions on some numbers. Ned, you talked about Ford's revenue contribution. Could you go over the top customers? It looks like Ford is over 10% this quarter.

Ned Mavrommatis

Brian, the two customers that are over 10% were Ford and Wal-Mart. Wal-Mart was 22% of revenue and Ford was 12% of revenue. Then the Raymond Corporation was 6% of revenue, and GE Trailer Fleet Services was 4% of revenue.

Matt Hoffman - Cowen & Company

And then more on revenue breakouts, could you review one more time the hardware and services splits between AI and core business?

Ned Mavrommatis

AI hardware revenue was $811,000, services was $3.2 million; for a total of $4 million. Both products and services were sequentially up from the first quarter. Core business hardware was $3.1 million, services $1.1 million, for a total of $4.3 million. And both product and services were sequentially up in comparison to the first quarter.

Matt Hoffman - Cowen & Company

As you approach the yearend and a run rate that takes towards net profit, can you comment a little bit on cash flow and where you see that coming out in the back half of the year?

Ned Mavrommatis

Yes, if you look at our cash flow statement, obviously there is some working capital items. But the majority of the cash is due to the net loss. Over time, the working capital items tend to even themselves out. So as the non-GAAP net loss gets positive, the cash flow will get positive as well.

Operator

(Operator Instructions) Our next question comes from Mike Wagner, a private investor.

Mike Wagner - Private Investor

Just have a question about the VMS pipeline. What does that pipeline look like, and what is your methodology for issuing a pres release on VMS win?

Jeffery Jagid

The pipeline looks pretty strong. The concern is the economic turmoil that we find ourselves in and the fear that that creates when customers need to make buying decisions. So companies have cash. Companies are reporting record results. But if the market turmoil continues, we all know what impact that can have on businesses. So that’s our fear regarding the pipeline.

As far as our methodology for issuing press releases, we start with a materiality test. As I said earlier, we want to be transparent. So we'd like to air on the side of issuing the release, but it really turns on whether the impact on the business of the order is material. Once it's material, then we want to include as much information as possible in the release. But as you've seen if you follow our news flow and our information flow, our customer base does not typically allow that.

So then we make a decision as to whether we want to include the name of the customer or financial information. Many times, we can include both. Sometimes we can't include either. It's not driven by the fact that we want to be mysterious. It's driven by the relationships we have with our customers and not wanting to do anything to jeopardize those relationships in the form of disclosing information that they believe to be confidential.

So I don’t know if that answers the question. The pipeline looks good. We’re reaffirming our guidance that we gave earlier as far as ending the year on a profitable run rate, and our revenue results have definitely exceeded even our own internal expectations over the last few quarters.

Mike Wagner - Private Investor

A few minutes ago, you talked about legal costs associated with contract creation. Can you tell us if the contract is associated with PowerFleet, PowerBox, AI, AvRamp or rental car?

Jeffery Jagid

Unfortunately I can’t, but what I can tell you just to be clear is that we obviously have professional fees and legal expenses in every quarter. There was definitely an anomaly in this past quarter, but there is nothing that has been consummated and there is nothing that we are prepared to disclose at this point.

We don’t even believe that the financial impact of the patent litigation is material enough to give rise to a disclosure. But again, we wanted to be transparent about it. But no, I really can’t make any comments or clarifying any of Ned's remarks that he made earlier.

Operator

(Operator Instructions) I'll turn the call over to Jeffrey Jagid for closing remarks.

Jeffrey Jagid

Thank you. As always, I want to thank each of you for joining us today, and I especially want to thank you for your questions and comments. We look forward to talking to you again in the near future. Thank you very much.

Operator

Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: I.D. Systems CEO Discusses Q2 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts