On Track Innovations' (OTIV) CEO Shlomi Cohen on Q4 2015 Results - Earnings Call Transcript

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On Track Innovations Ltd (NASDAQ:OTIV)

Q4 2015 Earnings Conference Call

March 23, 2016 10:30 A.M. ET

Executives

Shlomi Cohen - CEO

Yishay Curelaru - CFO

Tamir Ben-Yoseph - General Counsel and Corporate Secretary

Analysts

Joshua Elving - Feltl and Company

Jim Fitzgerald - Northland Capital

Ashok Kumar - Aegis Capital

Kurt King - Harvest Capital

Sherli Looi - Garrison Bradford

Operator

Good morning and welcome to OTI’s Fourth Quarter and Full Year 2015 Conference Call. My name is Melissa and I will be your operator this morning. Joining us today is the company's CEO, Shlomi Cohen; CFO, Yishay Curelaru; and General Counsel, Tamir Ben-Yoseph. Following their remarks and before we conclude today's call I will provide the necessary cautions regarding the forward-looking statements made during this call as well as information about the company's use of non-GAAP financial information.

I would like to remind everyone that this call is being recorded and will be made available for replay via a link available on the investor relations section of the company's website at www.otiglobal.com. Now I would like to turn the call over to Mr. Shlomi Cohen. Sir, please proceed.

Shlomi Cohen

Thank you and good morning everyone. Thank you for joining us today to discuss our fourth quarter and full year 2015 results. For OTI 2015 was really a tale of two halves. During the first half this year before I came on as the CEO, OTI was focused on making important internal changes. While OTI has tremendous technology to sell into a large and growing market, the company was still focused on restructuring and R&D.

When I was asked to join the company in August of last year, I could see all of this immediately and it was clear the company had not benefited as much it could have from the tremendous growth in the global NFC market. I realized that as the CEO and Head of Sales I had to focus on transitioning the company into a more capable and effective sales organization and clearly one that is more customer focused. I identified that the key customer element to our new approach was the further realign our internal organization and cost structure in order to make our operations more efficient and focused.

I also saw an opportunity to redeploy the related cost saving and the efficiencies towards trending our sales organization in terms of both personnel and geographic reach. So, in the second half of 2015 we re-embarked on transformational period in our financial and operational development. I am proud to say that our entire organization worked seriously to execute key initiatives that will strengthen our competitiveness in the market place. This included broadening our product offering, realigning our internal organization and cost structure, and expanding our sales marketing resources.

Now as you could see in our financial results reported today, we have dramatically lowered our operating expenses and improved gross margins in both the fourth quarter and for the full year, reflecting a much leaner and more flexible organization. In fact our total operating expenses for 2015 decreased 15% year-over-year and we achieved 53% year-over-year reduction in cash yields by our operations.

Before I go into further details about operational progress and outlook for the remainder of the year, I would like to turn the call over to our new CFO, Yishay Curelaru who will take us through the financials for the quarter. Yishay, please.

Yishay Curelaru

Thank you Shlomi and good morning everyone. Before the market opened today we issued the results for our fourth quarter and fiscal year ended December 31, 2015 in our press release. A copy of the release is available in the investor relations section of our website. As we reported in the press release, our total revenues for the quarter increased 52% to $5.7 million from $3.8 million in the prior quarter and 5% or $5.5 million in the fourth quarter of 2014. The increase was primarily due to the licensing of our intellectual property rights to third parties in the U.S. market as well as an increase in sales from our MediSmart and petroleum products.

For the full year total revenues decreased 14% to 19.9 million from 23.1 million in 2014. The decrease was primarily due to lower retail segment sales in the U.S. market and lower parking segment sales in Europe and in Asia. The decrease in revenues was partially offset by an increase in sales from our MediSmart and petroleum product.

Now breaking down the fourth quarter of revenues by source and their percent of total revenue. Retail and mass transit ticketing revenue was $3.2 million or 56%. Petroleum revenue was $1.3 million or 22%. MediSmart and access control product revenues was $940,000 or 17% and finally parking revenues was $290,000 or 5%.

Looking at the fourth quarter by geographic region and the portion of each region contribution to the total revenue. North America accounted for $1.8 million or 31%, Europe accounted for $1.7 million or 30%, Africa accounting for $1.4 million or 24%, Asia and Israel accounting for $300,000 or 5%, and South America accounted for $540,000 or 10%.

Now breaking down our revenue for the full year of 2015 by source and their percent of total revenue. Retail and mass transit ticketing revenues was $11.5 million or 58%, petroleum revenues were $4.4 million or 22%, MediSmart and access control product revenues was $2.6 million or 30%, and finally parking revenues was $1.4 million or 7%.

Looking at 2015 revenues by geographic region and the portion of each region’s contribution to the total revenues. North America accounted for $6.8 million or 34%, Europe accounted for $6.1 million or 31%, Africa accounted for $4 million or 20%, Asia and Israel accounted for $1.8 million or 9%, and South America accounted for $1.2 million or 6% of our total revenues.

Gross profit for the fourth quarter of 2015 increased by 39% to $2.9 million or 51% of revenues compared to $2.1 million or 55% of revenues in the prior quarter and increased 15% from $2.5 million or 46% of revenues in the fourth quarter of 2014. The increase in gross margin was mainly attributed to a more favorable revenue mix. For the full year of 2016, gross profit was $10.1 million or 51% of revenue compared to $11.1 million or 48% of revenue in 2014. The decrease in gross profit was primarily due to lower revenues.

Now turning to our expenses, for the fourth quarter of 2015, operating expenses decreased 6% to $4.1 million from $4.4 million in the third quarter of 2015, and decreased 19% for $5 million in the same year ago period. The year-over-year decrease was attributed to a decrease both in SG&A and R&D and to the parting expenses. For the full year our operating expenses decreased $3.2 million or 15% to $17.4 million from $20.6 million last year. The significant improvement was primarily due to the cost reduction measure we implemented in the second half of 2015. This improvement was offset by charges related to management changes and to other non-recurring expenses. In fact our cost-cutting measures were instrumental in reducing our cash use in continuing operation activity for 2015 by $5.1 million or 53% to $4.5 million compared to $9.6 million in the same year ago period.

While we completed the major phase of the cost reduction program earlier this month, we continued to evaluate opportunities to further optimize our expense faction. Our net loss for continued operation for the fourth quarter of 2015 totaled $1.4 million or $0.03 per share. This compared to our net loss from continuing operation of $2.6 million or $0.08 per share in the same year. For the full year, our net loss from continuing operation totaled $8 million or $0.20 per share. This was an improvement from a net loss from continuing operation of $10.2 million or $0.30 per share in 2014.

Turning on to our non-GAAP results, we use adjusted EBITDA from continuing operation, a non-GAAP metric, as we believe it provides a clear indication of our operating results. For the fourth quarter of 2015 our adjusted EBITDA loss from continuing operation totaled $789,000, an improvement from a loss of $1.6 million in the same year ago. The improvement was primarily due to higher revenues and significant reduction in our operating expenses.

For the full year, our adjusted EBITDA loss improved to $3.8 million from a loss of $5.8 million in 2014. The improvement was due to our higher gross margin as well as significant decrease in operating expenses, partially offset by lower revenues. Please refer in today’s earnings release for further detail about this non-GAAP metric, including reconciliation of adjusted EBITDA to other comparable GAAP results.

Now turning to the balance sheet, cash, cash equivalents, and short-term investment at December 31, 2016, totaled $10.9 million compared to $11.5 million at the end of prior quarter. We continue to believe our cash position provides us with sufficient capital and runway to execute our growth plans.

This completes my financial summary. For more detailed analysis on our financial results, please refer in our Form 10K, which we plan to file by March 31, 2016. I would like to turn back the call to Shlomi for additional comments on our operational progress and outlook for 2016. Shlomi?

Shlomi Cohen

Thank you Yishay. Our improving financial performance reveal the positive near-term impact that our efficiency program has made on our business. We expect these changes will significantly reduce our operating expenses in 2016 along with announcing our gross margins. We have reappointed some of the cost saving generated by the program towards strengthening our sales organization in terms of quarters met and geographic reach. In fact our sales and marketing team has increased over the last six months reflecting a transition to a more capable and extended sales organization that can make -- that can take better advantage of the strong growth and tailwinds in the cashless payment market.

In addition to becoming more sales and marketing oriented, during the fourth quarter we introduced an innovative new product line and future announcements for our existing products. This new product was specifically developed to support our entrance into a new geographic regions and growth markets like ATM and kiosks. In addition to generating revenue from the sale of our certain new product like the CONNECT 3000, telemetry controller is expected to provide an important new recurring revenue stream for OTI.

Our recent wins and strategic partnership demonstrate the success of our new product and future roll outs which have allowed us to enter into new vertical and geographic regions. This early success also revealed the effectiveness of our go to market strategy and extended sales and marketing capabilities. One of the major new vertical markets we entered was the ATM market through our partnership with the leading global provider of magnetic card readers. Our partner selected us after performing an extensive evaluation process which involved testing hundreds of our UNO NFC Reader. We believe these key agreements reflects the fact that our NFC Reader have the most advance design and highest liability in the industry. We see this also representing the beginning of a new wave of NFC applications made possible by OTI innovative NFC technology.

Financial institutes can now finally leverage the power of NFC to enhance the customer experience at the ATM while also improving security and lowering operational cost. We have hit the ground running with our partner and are actively co-marketing our UNO NFC Reader to our partner's existing global customer base. While we are initially targeting the retrofit of more than 200,000 ATM terminals, we estimate the total addressable market to be more than 3 million terminals globally.

We expect reader deployments to begin ramping starting in the second half of this year. Another new vertical market we entered in 2016 is the emerging kiosk market. In mid February we formed strategic partnership with Apriva, a leading provider of secure end-to-end wireless transaction solution to address an unmet need in the global kiosk market. We will offer joint solution that integrates our industry leading NFC technology with a previous gateway which securely connect wireless devices to more than 30 payment processors.

The integrated solution provides both vendors and their customers with one of the most comprehensive payment solution available today. Our off the shelf solutions simplifies the complexity of an Euro Pay Master Card and Visa or EMV payment processed by unifying a certified reader and processor into integrated system. These provide a simple user interface to address a previously complicated portion of the market where developers had struggled to add mobile payments functionality to the kiosk application.

In addition to securing strategic partnership, we also entered to five major new territories earlier this year including Spain, Portugal, Italy, Slovakia, Czech Republic, and the Netherlands. Through our partnership with leading regional vending distributor like Nexus Machine and MDS Electronics, we plan to market and resale our readers and CONNECT 300 telemetry controllers into the distributor installed base of vending machine as well as into future manufacturer of vending machine. These distributorships demonstrate our approach to build primely within distributor network with an intelligent solution for the unattended market. This a key element of our strategic plan to cost effectively accelerate our growth by leveraging global partnership and world-wide distribution channels to further penetrate existing market and enter into new ones.

In fact OTI Solution are now distributed in two of the top six vending markets in Europe, including Spain and Italy, which accounts for approximately 1 million machines. Collectively, these new regions and territory represent an incremental 2 million vending machines opportunity for OTI. In order to more fully capitalize on these opportunities in Europe, we recently received the green light to support payment processing services for vending and kiosk operator in the European Union.

In February we formed collaboration with a multi-national bank and leading payment processor who extensively tested our readers and telemetry solution ensuring they met the highest security and reliability standards. The integrated solution combines our otiMetry telemetry software with our CONNECT 3000 and line of NFC Readers, allowing vending machine and kiosk operators to accept cashless payment at low transaction rates. This is another potential important in new and current revenue stream for OTI.

It is important to understand that many vending machines and kiosk operators currently do not accept electronic payments because deployment has been too complex. Expensive and fragmented across vendors with high transaction fee system, maintenance costs stressing [ph] to cut into profits. Altogether, the new solution adds another recurring revenue component to our business as well as further establishes OTI leadership in the cashless payment and Internet of Things space.

We plan to leverage our extended internal sales capabilities and our distributable relationships to market solution. A key measure of our success with the vending and kiosk markets over the next year will be our ability to penetrate new region and secure new customers. We plan to achieve this by leveraging our extended sales and marketing resources, as well as specific channel partners to sell our new product in three key regions; North America, Japan, and Europe. We currently anticipate the North American market to be the primary contributor for revenue growth in 2016, driven by new readers’ sales to the vending machine markets. In fact we secured a series of purchase order during Q1 from existing U.S. based customer totaling more than 40,000 readers to be delivered during 2016. We expect to ship approximately 25,000 readers during the first quarter with balance expected to ship over the coming quarters.

Our readers’ sales momentum demonstrates the demand for our industry leading product. It also reveals the growing adoption of our NFC Reader by major technology suppliers to the North American self-serve and unattended markets, although the last two years we have sold more than 250,000 readers to this bargaining market. Overall we are encouraged by the increasing demand for our readers and are working to build on our momentum throughout 2016. Additionally we anticipate that our partnership with Apriva and with the leading magnetic card reader provider to the ATM market, we began to contribute half year [ph] sales in the second half of this year.

For Japan, in June of last year, we collaborated with Billing Systems, a leading Japanese payment service provider. We are actively co-developing and certifying Felica-compatible, NFC-based cashless payment readers and devices for the Japanese unattended market. With nearly 5 million vending machines nationwide, the Japanese market represents the second largest opportunity globally for cashless payment solution behind North America. NFC has clearly emerged as a technology of the choice for all the major payment schemes and it is perfect time to enter the markets with our Felica-compatible and certified product offering. We are currently co-marketing prototype products to Japan’s vending machine operators, manufacturers, and ATM companies, and we expect to introduce a full line of products to the market by the third quarter.

The positive response to our products at the Retailtech Japan tradeshow earlier this month reaffirms our belief that Japan will be a major market for us in the years to come where in once discussions with several leading Japanese companies with expressed interest in adopting our technology. Then for the Turkey region of Europe, we are actively marketing our new product line to the vending, ATM, kiosk, and Internet of Things market. We currently expect our direct and indirect sales initiative to be accelerated during 2016. Everywhere -- we have seen in 2015 increased revenue compared to past [ph]. This profitable segment has taken efforts to our existing customers and extend and seek new customers and we will expect this effort to continue in 2016.

Therefore in summary our strategic plan involve accelerating our growth, generating recurring revenue, and reducing expenses. We are confident that successful execution of this plan will position OTI as a growing technology leader for the Internet of Things, represent the second largest opportunity globally for cashless payment solutions in North America. NFC has clearly emerged, sorry for that, we are currently co-marketing prototype, sorry for that, I apologize for these mistake. While there is more work we are in a strong position to capitalize on the global multi-billion dollar cashless payment market. We believe this factor will help us achieve our new and long-term objectives which will deliver long-term shareholder value. We are now ready to open the call for your questions. Operator, please provide the appropriate instructions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of Joshua Elving with Feltl and Company. Please proceed with your question.

Joshua Elving

Hi, good afternoon and congratulations on a nice quarter.

Shlomi Cohen

Thank you.

Joshua Elving

My first question has to do with the licensing and transaction fees line. Obviously very strong in the quarter, I was wondering if you could talk about what exactly is in that line or that component of revenue and if there were any one time items in there that you could call out and if you would consider this line largely recurring or how to think about that line on a go forward basis?

Yishay Curelaru

Okay, Yishay here. The licensing and transaction fees line mainly it is from transaction fees like charging fees in the parking segment, it is from projecting for each liter in the petroleum segment, and it is also from licensing our intellectual property and maybe some Tamir can…

Tamir Ben-Yoseph

It includes rather news from licensing IP in North America. As for future revenues I believe we are not going to be providing any guidance at this point.

Joshua Elving

Okay and so the 2.6 million compared to about 1.4 million to 1.5 million over the last seven or eight quarters, was there a onetime large license fee in there?

Shlomi Cohen

Yes it was.

Joshua Elving

And that would be considered one time I am sorry?

Yishay Curelaru

Yes, there was a one time licensing fee.

Joshua Elving

Okay and then I guess my follow up question would be looking into the back half of 2016, obviously the new team in place has done a tremendous job of opening up new markets and developing new relationships and I think investors are really anxious to get a sense for if you can turn the corner to profitability with your existing liquidity position, hoping perhaps you could talk about your comfort level with your existing liquidity position and if you have any thoughts about whether or not you can get to a cash flow breakeven in the back half of 2016?

Yishay Curelaru

Basically….

Shlomi Cohen

Yes, go ahead.

Yishay Curelaru

Basically, we don’t give any guidance going forward. I can tell you as I told in my presentation, and we are positive regarding our liquidity as it is today to bring us to profitability in the future, and I think this will answer your question.

Joshua Elving

Thank you

Operator

Thank you. Our next question comes from the line of Mike Latimore with Northland Capital Market. Please proceed with your question.

Jim Fitzgerald

Hi, guys. This is Jim Fitzgerald standing in for Mike Latimore. So my first question, I know you guys aren’t providing guidance, but assuming we would be able to get some growth at some point this year, would that be largely tied to current North American customers that are growing or would it be more closely tied to the multitude of new partnerships your guys have added?

Shlomi Cohen

I think it’s actually based on both of them. We are strongly proceeding with the existing accounts as we are adding any parallel to that. We are also trying to develop and honestly saying we are also successful in doing that, in bringing new accounts to OTI. So actually it will be balanced with both activities.

Jim Fitzgerald

Okay, great. And then my follow up would be, you guys have announced at least seven partnerships and I assume they’re all important, but are there a couple that hold maybe the biggest potential and then separately the most near term opportunity?

Shlomi Cohen

I think that without getting into details I think that one of the most important verticals that we identify on top of course on the vending is the ATM. And we are now, as we mentioned previously, we signed on a contract with ATM machines provider, a global one, and we will continue to chase after a new one as well and I think that during the coming quarters we will be able to update about this vertical with more details. But this is definitely the ATM verticals are going to be one of our strategic one in the coming years.

Jim Fitzgerald

Okay, great, thank you.

Shlomi Cohen

We mention also of course the kiosks that we –- that the partnership that we have with Apriva, this is also something that it’s going to be significant I believe in the coming years as well, but those are the three major verticals that will event for OTI at the moment.

Jim Fitzgerald

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Ashok Kumar with Aegis Capital. Please proceed with your question. Mr. Kumar, your line is live.

Ashok Kumar

Yes, hello, yes. Congratulations, Shlomi and Yishay. Just following up on some earlier questions. In terms of revenue splits, Shlomi, what do you see as steady state split between productizing sales as well as IP licensing, do you see it as a 70-30 split there? And Shlomi, you had also talked about redeploying some of the cost savings, to expanding the sales footprint, at what point, at what quarterly run rate do you see that you hit sustainable breakeven level? And you also briefly talked about share of wallet versus new customer engagements, and given the backlog and the pipeline you have right now, how do you see that play out, I think you briefly addressed that as well? Thank you very much and congratulations.

Shlomi Cohen

So, basically as we mentioned before, both Yishay and myself, we are not giving any kind of guidance, not directly or indirectly. But I will say the following, regarding the IP, we will continue to maximize the IP asset that we having. We have a significant IP asset and this is something that definitely we will continue to maximize as much as possible. So I'm not going to elaborate regarding the split between the IP and the rest of the revenues that we are generating. Regarding the cost saving, as a strategic decision when I step in last August, I decided actually that the cost saving or what I call the efficiency program, it will be implemented on a constant basis and this is something that we are always looking to see where we can implement efficiency into our activities. And we will continue to do so. And I am not sure that I remember the entire questions but those are the main two topics that I remember for your question.

Ashok Kumar

Alright, thank you very much. Again I think you briefly talked about share of wallet within existing customers and new customer engagement so I assume it is going to be more balanced growth driving forward with emphasis on North America and Japanese geographies?

Shlomi Cohen

Its North America, Japan, and Europe, that’s correct.

Ashok Kumar

Thank you congratulations.

Shlomi Cohen

Thank you.

Operator

Thank you, our next question comes from the line of Kurt King with Harvest Capital. Please proceed with your question.

Kurt King

Congratulations to you on all the recent progress, very impressive. First question concerns the licensing component of your revenues in the fourth quarter, Joshua was able to elicit that some of that was non-recurring, can you give us some more color on the size of the non-recurring amount and also the source of it, for example was the source of it some of the litigation you have been involved in recently?

Tamir Ben-Yoseph

This is Tamir, we are not able to comment on litigation and I don’t think we can elaborate any further on the breakdown of that licensing revenue.

Kurt King

Okay, but you should be able to say whether the sort of the delta between what you have been reporting otherwise in recent quarters was due to litigation?

Tamir Ben-Yoseph

The revenues as reported include the revenues collected through licensing as a result of legal actions to enforce license and patent rights.

Kurt King

Okay and is it safe to conclude that, that amount was in the neighborhood of a million dollars in other words looking at the difference from what the run rate has been in prior quarters in that line item?

Tamir Ben-Yoseph

We cannot comment.

Kurt King

Alright and then secondly can you comment on status of the Felica certification in Japan, I think you may have mentioned it earlier in your comments but I didn’t pick-up on what you said?

Shlomi Cohen

I think we are in a very positive progress with the Felica standout. As I mentioned before I think that during Q3 we will present the first prototype with the Felica implementation. Just to remind everyone Felica is the Japanese standard for payments and we need to implement this standard in our readers in order to be able to sell and marketing our readers in the Japanese market. So during Q3 we are planning to present the first prototype of our readers with the Felica standard.

Kurt King

Okay, so does that mean that you will have received the certification for Felica at that point or is that a separate event?

Shlomi Cohen

This is a separate event but I believe that it will not be far away from Q3.

Kurt King

Okay, alright and then next you mentioned a number of times the recurring revenue opportunity for you in the future. Can you give us a bit more color on what that opportunity is actually constituted of and what the size of the opportunity would be relative to your traditional business?

Shlomi Cohen

Okay, the current revenue is actually based on full solution that we are actually presenting to the vending vertical. It means that we are not presenting only the reader but we also connecting to it the telemetry unit. The telemetry unit is actually an element that we are putting inside a vending machine and its giving you the ability to connect the entire vending network that you are having to the network, either via Wi-Fi or via 3G. This is actually giving you the ability to control your inventory remotely and you are able to do an update in real time for your vending network. In order to do something like that and in order to make sure that you are able to give a full solution, we got the approval from a company, from a bank in the European market and we are planning by the way to expand also outside of Europe as well. And the recurring revenue is actually based on a monthly basis per vending machine.

Kurt King

Okay. So the source of the recurring revenue, is it simply you providing the telemeter or is it separate from what I assume would be the hardware sale of the telemeter?

Shlomi Cohen

The entire solution is based on our reader, our telemetry unit, our software that is actually activating the entire telemetry system, and of course, the ability to do payment processing.

Kurt King

Alright, thank you again, and congratulations.

Shlomi Cohen

Thank you.

Operator

Thank you. Our next question comes from the line of Sherli Looi with Garrison Bradford. Please proceed with your question.

Sherli Looi

Thank you. Congratulations to a very much improved quarter. My question is partly answered, again is recurring revenue. I'm trying to gauge going forward, what are your prospects of increasing other products to be a recurring revenue model? Hello?

Shlomi Cohen

Okay, yes, at this point of time the recurring revenue it’s based on the telemetry solution that we presented and we start to sell the solution by the way this quarter and we are expecting to see the recurring revenue from the second quarter. This is going to be the first quarter – actually the second quarter will be the first quarter that we will -– we are planning to see our recurring revenue. On top of it, we mentioned the fact that we are also entering the IoT and we are also over there presenting a solution, Internet of Things and based on where there is, what we call, the Pay Capsule and the Pay Flex. And eventually this solution will also generate for us our recurring revenue as well in the future.

Sherli Looi

Okay, thank you very much.

Shlomi Cohen

Welcome.

Operator

Thank you. [Operator Instructions]. Our next question is a follow-up from the line of Josh Elving with Feltl and Company. Please proceed with your question.

Joshua Elving

Hi, thanks, just a couple of quick ones. Just want to make sure I understood that correctly regarding Japan. So in a couple of your press releases you’ve referenced a certified product, is that a certified reader from an NFC perspective but you're still working on certification from the Felica side or is that a certified product for both NFC and Felica and are you just working on getting from prototype to developing your full suite of products that you will be able to offer in the third quarter in Japan?

Shlomi Cohen

No, we only need the certification related to the Felica.

Joshua Elving

Okay. And so the certified product that you’ve referenced in previous press releases had to do with the non-Felica piece of that solution?

Shlomi Cohen

I'm not sure that I understand the question.

Joshua Elving

So in previous press releases when you talked about Japan, you suggested we plan on taking our certified prototype, just start marketing that around mid-year. And so I guess that I was…?

Shlomi Cohen

Wait. The idea is that when we are going to have the first prototype and we are able to move to mass production, even before we are having the certification, we can start working with potential vendors over there until we will have a full certification.

Joshua Elving

Okay. I mean – I get it.

Shlomi Cohen

That’s the meaning of it.

Joshua Elving

And so do you think we’ll see revenue from Japan in our third quarter or that’s too hard to say?

Shlomi Cohen

At the moment I believe that it’s too early to say, but we are doing a lot of efforts by the way that until the end of the year we will see the first, let’s say, the first transaction from this market. We are doing it together of course with Billing System, our partner in Tokyo.

Joshua Elving

Okay, and then just another question on one of your large U.S. customers that it sounded as if some work had to be done to kind of reestablish yourself with this particular partner in the U.S., would you characterize that relationship as back to normal or a work in progress or how would you describe that relationship?

Shlomi Cohen

Look with all our customers not only in North America but also outside of North America I think we are very good in business relations and we’ll continue to keep it like that. Without getting into a specific details about this account or on another account I think that all in all we have a very positive relations with all of our customers.

Joshua Elving

Thank you, very much.

Shlomi Cohen

You are welcome.

Operator

Thank you, at this time ladies and gentlemen this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Shlomi Cohen for his closing remarks.

Shlomi Cohen

Thank you, for joining us today. I would like to thank our employees, partner, investors, and customers for their continued support. We look forward to updating you on our next call. Operator, please.

Operator

Thank you, Before we conclude today's call, I would like to provide OTI's Safe Harbor statements that include some important cautions regarding forward-looking statements made during today’s call, as well as information regarding the Company’s use of non-GAAP financial information.

All statements made by management during this call that are not based on historical fact are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and the provisions of Section 27(a) of the Securities Act of 1933, as amended, and Section 21(e) of the Security Exchange Act of 1934, as amended. Whenever OTI management uses the words such as believe, expect, anticipate, intend, plan, estimate, or similar expressions, they are making forward-looking statements. Because such statements deal with future events and are based on OTI’s current expectations, they are subject to certain risks and uncertainties, and actual performances or achievements of OTI could differ materially from those described in or implied by the statements on this call.

For example, forward-looking statements include statements regarding the company’s anticipated growth and development including timing thereof in general, and with respect to certain products, segments, territories and markets, interest in NFC solutions generally and across certain regions, demand for existing and new OTI’s products, and a change in such demand in various territories, entry into transactions with potential customers in various regions, entry into certain markets or across various regions, and the timing thereof, successful execution of new and existing transactions, implementation, timing and successful execution of existing or new strategies or plans, cooperation with third parties, partners and others, and implementations marketing and the sale of OTI solutions, OTI leadership position in certain markets, the rate of production of our products, the timing of the placement and supply of orders of our products, expansion, development and launching of new products, future revenues, future gross margins, and levels of expense cost cutting efforts, redeployment of cost savings, exploring additional opportunities, expansion of sales initiatives and the prospect of adding a marketing executive in the near future, accelerating our efforts in various regions future revenues in 2016, the sufficiency of capital resources, our position to capitalize on the global cashless payment market, and our commitment to improve our shareholder communications.

Forward-looking statements could be impacted by the effects of protracted evaluation, validation periods in the U.S. and other markets for contactless payment cards, market acceptance of new and existing products, and our ability to execute production on our orders, as well as other risks and uncertainties, including those discussed in the Risk Factors section elsewhere in the company's annual report on Form 10-K for the year-ended December 31, 2014 and in subsequent filings with the Securities and Exchange Commission.

Although the company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the company can give no assurance that its expectations will be achieved. Except as otherwise required by law, OTI disclaims any intention or obligation to update or revise any forward-looking statements which speak only as of the date hereof, whether because of new information, future events or circumstances, or otherwise.

This call contains certain non-GAAP measurements, namely adjusted EBITDA from the continuing operations. Adjusted EBITDA from continuing operations represents earnings before interest, income tax, depreciation and amortization, and further eliminates the effect of share-based compensation expense and patent litigation and maintenance. The company believes that adjusted EBITDA from continuing operations should be considered in evaluating the company’s operations since they provide a clear indication of the company’s operating results. This measure should be considered in addition to results prepared in accordance with U.S. GAAP and should not be considered a substitute for U.S. GAAP results. The non-GAAP measures included in this call have been reconciled to the U.S. GAAP results in the company’s press release which appears in the Investor Relations section of our website.

Finally, I would like to remind everyone that a recording of today’s call would be available for replay via a link available on the Investor Relations section of the company’s website at www.otiglobal.com. Thank you for joining us for today’s call. You may now disconnect.

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