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ID Systems Inc. (NASDAQ:IDSY)

Q4 2011 Earnings Call

March 01, 2012 04:45 pm ET

Executives

Jeff Jagid - Chairman & CEO

Ned Mavrommatis - CFO

Darryl Miller - COO

Kenneth Ehrman - President

Analysts

Morris Ajzenman - Griffin Securities

Orin Hirschman - AIGH Investment Partners

Michael Cikos - Sidoti & Company

Walter Schenker - MAZ Partners

Operator

Good day ladies and gentlemen and welcome to the ID Systems’ fourth quarter and full-year 2011 conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions following at that time. (Operator Instructions) As a reminder this conference call is being recorded. And now I will turn the conference over to your host Jeff Jagid. Please begin.

Jeff Jagid

Thank you. Thank you everyone for joining us today. I am Jeffrey Jagid, the Chairman and CEO of ID Systems. Joining me today on the call are CFO Ned Mavrommatis; our Chief Operating Officer Darryl Miller; and Ken Ehrman, the President of the company. I will provide a brief overview of our results for the fourth quarter and full year. Ned will detail our financials. Darryl will update you on our operations and the performance of our asset intelligence business and Ken will review the highlights of our vehicle management business. 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 result and other risks detailed from time to time in ID 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 fourth quarter of 2011 continued the positive momentum we reported at the end of Q3. Our Q4 revenue of $11.8 million is our highest quarterly revenue achievement to date, a 64% year-over-year improvement from Q4 2010 and a 5% sequential increase over Q3, 2011. The fourth quarter 2011 also marks our sixth consecutive quarter of sequential revenue growth.

Our performance was driven by increased sales across all of our wireless asset management product segments including continued expansion of our rental car management system for Avis, the continued strong resurgence of our material handling and fleet management business and robust growth from our trailer and container tracking solutions.

In addition to achieving record revenue, we maintained a strong stable gross margin north of 50% for the quarter and continue to adhere to the cost reduction plan we put in place at the end of 2010.

As a result, we broke even on a GAAP basis for Q4 and increased our non-GAAP net income to $0.07 per share from $0.06 in the prior quarter. For the full year, I am very pleased to report that we achieved essentially all of the goals we set out to accomplish.

We increased revenue to 52% to a record 39.3 million with success in every strategic area including expansion of business with core customers, new product and market developments and new customer wins through both direct and indirect sales channels. We continue to book a substantial volume of recurring revenue, $16.4 million or 42% of total revenue in 2011.

We maintained a healthy 52% gross margin for the year, exceeding our historical target of 50%. We reduced overhead expenses by $2.3 million or 8% overall which is a particularly notable achievement when you consider it side by side with our 52% revenue increase. And we significantly reduced our net loss by more than two-thirds on a GAAP basis and by 94% on a non-GAAP basis as Ned will discuss in a moment.

Needless to say, we are gratified by the success of our growth strategy in 2011 and very happy to meet so many goals for our shareholders. We look forward to carrying the positive momentum of 2011 forward in to 2012 and continuing our efforts to grow top line revenue, increase predictable recurring revenue, extend our technical market leadership, expand in vertical and international markets, maintain our cost discipline and increase shareholder value.

Thank you for your time today. I’ll look forward to your questions later on the call. Now let me turn the discussion over to Ned Mavrommatis, our CFO to detail our financial results for the fourth quarter and full year 2011.

Ned Mavrommatis

Thank you Jeff and hello to everyone on the call today. As Jeff noted, our revenue for the fourth quarter ended December 31 2011 increased 64% to a record $11.8 million from $7.2 million for the fourth quarter of 2010. For the full year, revenue increased 52% to $39.3 million another record compared to $25.9 million in 2010.

Recurring revenues for the quarter and year were $4.1 million and $16.4 million respectively or a 35% and 42% of total revenues respectively. Our Vehicle Management Business including rental fleet management contributed $6.7 million in revenue for the quarter while our transportation asset management business contributed $5.2 million.

For the full year, the corresponding contributions were $22.1 million and $17.2 million respectively. Our gross margins for the fourth quarter and full year were 51% and 52% respectively in line with expectations and past performance. Our consistent strong margins reflect continued price stability for our systems, high margins on recurring revenue from our Asset Intelligence Business and controlled operating cost.

As Jeff noted our SG&A and R&D expenses for the fourth quarter and full year decreased 5% and 8% respectively compared to the corresponding periods in 2010. Q4 SG&A was $5.5 million in 2011 down from $5.7 million a year ago while full year SG&A expense was $22 million in 2011 compared to $23.3 million in 2010.

One of our major goals for 2011 was to achieve profitability on a non-GAAP basis by the end of the year. We achieved that goal in the third quarter and built on it in the fourth quarter. Excluding stock-based compensation, depreciation expense and amortization of intangible assets, our non GAAP net income for Q4 was $830,000 or $0.07 per basic and diluted shares compared to non-GAAP net loss of $1.3 million or $0.12 per basic and diluted share in the fourth quarter a year ago.

For the full year non-GAAP net loss was $485,000 in 2011 or $0.04 per basic and diluted share a 94% improvement from the non-GAAP net loss of $8.6 million or $0.77 per basic and diluted shares in 2010. We believe that considering this non-GAAP financial information is relevant to an evaluation of our overall growth operating performance.

Our net loss for the fourth quarter and full year 2011 also improved significantly. For the quarter, net loss was $18,000 essentially breakeven on a per share basis compared to a loss of $2.7 million or $0.17 per basic and diluted share for the fourth quarter of 2010. For the year net loss improved to $4 million or $0.36 per basic and diluted share compared to $12.6 million or $1.12 per basic and diluted share in 2010.

Results for both the fourth quarter and the full year include net proceeds of $390,000 from the sale of a portion of our New Jersey net operating losses under the state’s Technology Business Tax Certificate Transfer Program, which allows qualified New Jersey base technology businesses to sell and use them out of net operating loss carried forwards and research and development tax credits for cash.

Our balance sheet remained strong. As of December 31, 2011 ID systems had $25.4 million in cash, cash equivalents and marketable securities equating to $2.10 per share outstanding. And note that, with this financial strength we are well-positioned to consider further strategic acquisitions in addition to funding organic growth to achieve the next milestone in our growth plan.

We are obviously pleased that our financial results continued to improve significantly in the second half of 2011. We are optimistic that if we maintain our fundamental strategies, extending our customer base, diversifying revenues and managing cost, we will continue to trend towards sustained profitability.

I look forward to continue reporting our financial progress to you in 2012 and beyond. With that I will like to turn the call over to Darryl Miller.

Darryl Miller

Thanks Ned, and greetings to everyone on the call today. In the fourth quarter of 2011 our operations team continue to focus on the fundamentals, order fulfillment, system implementation and customer satisfaction. As Jeff and Ned pointed out even as we achieved record revenues for both quarter and full year, we continued to maintain discipline on our core overhead cost. Our 8% reduction of SG&A and R&D expenses for the full year made a $2.3 million contribution to our bottom line.

We remain confident that we can drive the company’s revenue up to $50 million with the overhead structure we currently have in place. Our channel partner is a key in this equation as they performed significant portion of the sales effort, implementation and support services for the deals they win which enables our project management team and other resources to work with a large number of end users simultaneously.

The evolution of our PowerBox System, which Ken will describe further will also support increased sales volume without a commensurate increase in our support resources because of its simplified acquisition and implementation model.

On the Asset Intelligence side of the business, we operate in a more mature market than on the VMS side but we still have a tremendous upside potential with a net adjustable market of about 1.8 million assets, including dry van trailers, flat bed trailers, refrigerated trailers or reefers, intermodal containers and container chassis.

Asset Intelligence is one of the world’s top three providers of fleet management solutions for these types of transportation assets. Our suite of ROS product ranges from the basic, low cost, high value Track & Trace system to industries most advanced cargo monitors and reefer management systems, for which we have significant patent protection and competitive advantages.

In addition, the transportation industry, like the material handling industry continues to rebound strongly from the great recession. So, our prospects for continued growth in the trailer and container management market remains strong.

In 2011, the sales volume of Asset Intelligence Solution increased 41% over 2010, with substantial contributions from our entire range of products deployed on every conceivable type of asset. For example, in the fourth quarter, we won our most significant installation on trailer chassis to date. This unprecedented diversity of systems sales were the key to helping us build our revenue stream.

The significant value of our [Track & Trace] solution helped grow revenue as well. We provide, reliable, high quality products that give our customers real-time, web-based visibility of in-transit freight and increase the velocity of materials through their supply chain. This value is illustrated clearly by the fact that we increased a winning percentage of our competition in 2011 without sacrificing price and margin.

In fact, the gross margin on Asset Intelligence product in 2011 actually improved two basis points over 2010. In Q4 2011 we received a significant volume of orders from satisfied repeat customers including Forward Air, Koch Companies, Marten Transportation, Star Leasing and Wal-Mart.

We also won significant new customers during the quarter most notably Fab Express and C.H. Robinson Worldwide. Fab express is a fourth generation family owned US trucking company that has built a large transportation services business with over 100 years of success.

After an expensive evaluation of several computing solutions they choose our VeriWise satellite drive-end on product to manage a fleet of over 1000 trailers. Our system not only satisfied Fab’s customers service requirements for real time asset visibility, it enabled them to dispatch their fleet more efficiently and cost effective.

CH Robinson is a Fortune 500 company and one of the largest providers of multimodal logistics services. We executed a five-year contract to install our track and trade solution on large fleet of CH Robinson’s intermodal trailers. The key factors in that win included our patented Power Management Technology for monitoring non-powered assets.

The product’s flexible installation options and our proven track record for reliability, with a broad range of time-tested solutions, price competitiveness and important functional advantages over competitors, Asset Intelligence is well-positioned to continue making important contribution to ID systems bottom line.

Thank you for your time and attention to day. I look forward to bringing you further updates in the future and on that note I will turn the discussion over to the President and Co-Founder of ID system Kenneth Ehrman.

Kenneth Ehrman

Thank you Darryl and thanks again to our listeners for joining us on the call today. As Jeff noted we continued to achieve strong growth across all major product categories in the fourth quarter, with a healthy mix of core and new customers and sales through both direct and partner channels.

On the Vehicle Management side of our business core customers that expanded business with us during the fourth quarter included Avis Budget Group which I will talk about more in a moment, Caterpillar, John Deere, Kellogg’s, Nestlé, Procter & Gamble, the U.S. Postal Service, Wal-Mart, Walgreens and Ford Motor Company which continued its comprehensive upgrade and expansion program for our systems in both North America and Europe.

Our channel partners also continue to drive strong growth by winning new business for us. Among the many new customers we added in Q4 through our dealer and OEM partners were a leading US brewer, a US sporting good retailer, a major UK key supplier, one of North America’s largest third party logistics providers, one of the world’s largest book publishers, one of the world’s leading providers of medical products and services, a Fortune 100 food and drug retailer and a Global 500 appliance manufacturer.

Our direct sales team won several new customers in the quarter as well, including a UK based Global 500 CPG manufacturer, a leading North American logistics service provider and a US based Fortune 500 food producer.

We also continue to target special verticals within the industrial vehicle market such as airport equipment and defense vehicles. American Airlines and American Eagle continue to utilize our AvRamp Airport Vehicle Management System with great success and we are actively pursuing other significant opportunities in that space.

For the DoD, we are working on two project and they are tailoring our technology for the military’s unique wireless security requirement. We recently hired a new director of government sales to help monetize these product developments.

Our diverse offerings enable us to compete for the business of virtually every type of industrial truck user with any fleet size. Our sales force has found PowerBox to be in a specialty compelling, cost competitive solution that wins us a place at the perspective customers’ table during the buying process.

What’s interesting is that, at the end of the day a high percentage of customers choose to upgrade from PowerBox to PowerFleet. We think this result in a much shorter sales cycle and a higher closing rate than we only have the PowerFleet system to offer.

In this market, the wireless industrial Vehicle Management Systems or VMS as we call it, we continue to win a majority of the opportunities we encounter against competitors and maintain a dominant share which we estimate to be in excess of 50%. Even better, there are still only a small portion of the roughly 5 million industrial trucks in North America and Europe equipped with any sort of management system.

As this market continues to mature and VMS is increasingly viewed as the best practice in supply chain management, we expect to leverage of leadership position and blue chip customer base to ride a long wave of growth.

Another VMS application where we hold a unique market position protected by multiple pattern is Rental Car Management. If you have followed I.D. Systems progress over the past year, you know that we have begun to rollout Nano Fleet Management systems for Avis Budget Group at both traditional airport lot and new virtual lot called Avis On Location.

Our technology enabled Avis Budget to offer decentralized, charged by the hour car rentals via their smartphone without any on lot staff and our system allows this service to be deployed quickly as demand dictates without requiring customer subscriptions or ID card as Avis’s competitors in this space do.

In the fourth quarter of 2011, we expanded our deployment with the Avis Budget by approximately 5,000 vehicles adding significantly to our recurring revenue stream. Our contract with Avis Budget covers VMS deployment on about 25,000 vehicles primarily in the Northeastern United States. But Avis Budget has highly incentivized options for its rental system across its global rental fleet. So there is a significant opportunity for future growth in this market as well.

As a testament to this growth potential, Avis Budget purchased a 9% equity stake in I.D. Systems as part of our contract, plus warrant to acquire additional shares of our stock in the future as we reported in the third quarter of 2011. I look forward to keeping you informed about further rental system expansion and development in our other wireless asset management applications on future calls.

On that note, let me turn the call back over to Jeff for the Q&A segment of the call.

Jeff Jagid

Thank you, Ken. That concludes our prepared remarks. We are now pleased to open the call for your questions. Thanks again for participating on our call today.

Question-and-Answer Session

Operator

(Operator Instructions) First question is from Morris Ajzenman of Griffin Securities. Your line is open.

Morris Ajzenman - Griffin Securities

You know, the numbers were very, very impressive. Just I wanted to speak on one thing here to start off, your recurring revenues came in at $4.1 million and I think that compares to approximately $4.2 million sequencing the previous quarter. I am not sure part of that has to with the way you book the revenues for Asset Intelligence, but can you help us understand why that is not taking further or is it more accounting recognition?

Ned Mavrommatis

And then I’ll also have Darryl add to it. But, during 2011, we did have a few units that came off service from GE, because they sold their fleet leasing business, so that affected our recurring revenue. The good thing is that’s behind us so as we move towards 2012 and we continue to add new units under our Asset Intelligence business, we should see the recurring revenue continue to grow; I am not sure Darryl if you want to add anything regarding the GE business.

Darryl Miller

That’s correct Ned, basically they were a leasing company that we were parented with when we were there and they had liquidated all their assets and some of the deactivations went. The good thing is, some of those were non-revenue assets and we’ve been able to turn some non-recurring revenue. So in total our revenue from Asset Intelligence standpoint was about $2 million higher in 2011 than 2010.

So that is an answer and then also for the strong sales we had in the third quarter, there is traditionally about the 30 to 45 days sometimes as high as 60 days of time there before those units get installed and get turned on and get activated and start generating revenue. So there is a little time lag there too, so you should see quarter-by-quarter some increasing revenue each quarter from a recurring standpoint from Asset Intelligence as we go forward.

Morris Ajzenman - Griffin Securities

Can you just give us some sort of help and then what would the current revenues have been year-over-year if you ex out those units from GE that came to service; what’s the percent growth of leasing in recurring revenues?

Darryl Miller

We have probably seen a nice increase of about 15% to 20% year-over-year on just the recurring piece.

Morris Ajzenman - Griffin Securities

Thank you. And last question I’ll get in queue, can you just help us walk through – I mean you have numbers presented here, cash generated from operations in the fourth quarter and some sort of (inaudible) you see for 2012 with (inaudible) guidance or earnings just cash flow.

Ned Mavrommatis

Yeah if you look at cash flow, Morris, we don't expect cash flow from operations to be positive and the reason being we made a conscious decision to sell more of our systems under the per revenue per month service where a customers finds a long-term contract and pay us a monthly fee per asset. Under that model, we basically pay for the cash today and then you collect it over time. So this is a new model that we began, it’s been very successful with Avis as well as a lot of the customers, both on the VMS side as well as on the Asset Intelligence side and what happens at the first few years you are going to have a negative cash flow but then after that the cash flow becomes very positive from those contracts.

So we made a strategic decision to use some of our cash on the balance sheet to provide that revenue model. So we should not see an increase in cash, if anything we should see a small decrease on a year-over-year basis.

Operator

Thank you. Our next question is from Brian (inaudible) Cowen & Company. Your line is open.

Unidentified Analyst

I am in for [Matt] today, he is heading back from Barcelona. I have a handful of questions in no particular order. First to you Jeffrey, so you guys have stated in your prepared remarks today that growth prospects remained strong and you generally referenced next milestones, I think we alluded to this last quarter. Should we be calibrating our revenue and our models towards a quarterly run rate north in the $12 million to $12.5 million range that gets us to a $50 million revenue target for 2012.

Jeff Jagid

Brian I appreciate your observation of our enthusiasm for where we are as well as the prospects, the strength of the prospects and the strength of the pipeline leaving 2011. I am not really in a position on this call to provide a guidance for 2012 or a specific guidance, what I can tell you as I mentioned in my opening remarks and I know unfortunately it’s a little more qualitative that you may like is that our pipeline is extremely strong as we left the year and began 2012 and while there may still be some lumpiness quarter over quarter for a number of reasons, we remain fairly optimistic about the prospects for 2012 and we do expect to see significant growth in the annual period.

Unidentified Analyst

Okay. Fair enough. Second, were you able to build and/or deliver all the initial 5000 Avis budget units in the fourth quarter for the agreement?

Jeff Jagid

Yes. And that’s an important point you make. So to refresh everyone’s recollection, the way the program is structured is there is 25,000 units that are currently ordered by Avis. I think we had commented that the delivery window so to speak under that contract brings us into the early part of 2013 to underscore so Ken’s opening remarks, there are a number of incentives in place for Avis to expand, but I am very pleased with how it’s going. There is certainly a lot work to be done on the $5000 which we delivered as far as installing and getting them up and running. But we are I think well positioned to deliver the 20,000 units in calendar year 2012. So it should not, if things go smoothly, it should not move into 2013. So we’re excited about that as well.

Unidentified Analyst

Okay. Third, could you quickly go through the revenue breakdown for the quarter by Asset Intelligence and tell us the hardware and service breakouts?

Ned Mavrommatis

Sure. If you look at the quarterly revenues, $6.7 million came from VMS and 5.2 million came from Asset Intelligence. Asset Intelligence product was $2.3 million and $2.8 million in service. VMS was $5.4 million in product, 1.2 million in service.

Unidentified Analyst

Thanks, Ned, and last one for you too. What's the fully diluted share count at the end of the quarter?

Ned Mavrommatis

There is a 12.1 million shares outstanding.

Operator

Our next question is from Orin Hirschman of AIGH Investment Partners. Your line is open.

Orin Hirschman - AIGH Investment Partners

In terms of the actual activation from that 5000 Avis systems and in terms of them beginning to hit up into the recurring revenue because it is a substantial monthly recurring revenue for you. When does that, when should those be commissioned and actually begin and how should we view potentially, the other 20,000 coming online as well in terms of laid out throughout the year et cetera?

Ned Mavrommatis

The first 5000 of the 25000 were delivered during the fourth quarter. So, we’re not going to see the recurring portion of our revenue starts hitting until the beginning of 2012. The remaining 20000 are expected to be delivered starting in the second quarter of 2012 and after they get delivered their recurrent revenue piece of that we’ll start to also act accordingly.

And mentioned that the lease, that’s what you were alluding to in the comment in terms of the PowerBox trying to get in more customers on the current revenue setup. It sounds like you are having some success there. Did I read that accurately and if so when does that actually begin to have meaningful impact on the recurring.

Jeff Jagid

So this is Jeff speaking. Yeah, we are pleased with how things are progressing with PowerBox. It is very much applicable to indirect sales, which is helping us a lot in our relationship with OEMs and dealer networks, primarily applicable to smaller fleets that we wouldn’t otherwise be pursuing with our PowerFleet our sophisticated product offering. Obviously that does impact cash flow in the immediate period negatively because we have to fund the manufacture of those units but then it does help to build our recurring revenue.

In addition and I think commented on this on the last call. One of the unanticipated benefits of PowerBox is that we are seeing an increase in PowerFleet sales because our account executives if you will lead with PowerBox and then be in a position when they can up sell the additional benefits of PowerFleet. So that has been very nice for as well.

Operator

Our next question is from Michael Cikos of Sidoti & Company.

Michael Cikos - Sidoti & Company

Just had a couple of question for you on the quarter. Regarding the gross margin contraction we saw on a sequential and year-over-year basis if you could just talk about that real quick?

Ned Mavrommatis

I could say I don't think we saw significant gross margins contraction. In fact we said, we expect our gross margins to be a bit above 50% and we came in at 52% right in line.

Michael Cikos - Sidoti & Company

But the, I guess for the fourth quarter and I mean you did 50.7 coming in from 52.5, is it because of this PowerBox, you get your foot in the door and then you can come in with your higher capability products like the PowerFleet or is it because more revenue now is coming from the products rather than services.

Ned Mavrommatis

No, not at all, if you look at the gross margins for the full year, and the fourth quarter were 51% and 52%. We price all our deals to yield a 50% gross margin. So we feel very good where we are from a gross margin standpoint.

Michael Cikos - Sidoti & Company

Okay and is it fair to say then that you guys will probably stay right around where you are right now or is that…?

Ned Mavrommatis

Yes, our gross margins, as we said before our model assumes a 50% gross margin and the fourth quarter gross margins are in 51% and the full year was around 52% and we expect to stay around those levels.

Michael Cikos - Sidoti & Company

Okay. I guess the delivery to Avis, the 5000 units you delivered this past quarter, you are saying that the next 20,000 units, you are going to start delivering that in the second quarter of this year or are you doing that in the first quarter as well?

Jeffery Jagid

No. The, and I think its important to make the point so I am glad you are asking the question, the net tranche of units will be delivered during the second quarter of 2012 and will continue throughout the summer and they should be completed, installed well in advance of the contract period.

Michael Cikos - Sidoti & Company

Okay. I guess this break that you are seeing in the first quarter, is that just a result of you guys needing to manufacture these units so that we can deploy them or…?

Jeffery Jagid

Yes. It’s a number of issues, really Avis digesting and implementing the 5000, really, it’s a fairly complex project that has installation. So I mean there is a lot of work taking place during Q1 but the actual delivery of units, the next tranche would be in Q2. So I don’t want to send the wrong messages, a lot of work taking place on that project by both companies during Q1 but from a delivery standpoint the next tranche of units would be in Q2.

Michael Cikos - Sidoti & Company

Okay. And another question was with the Asset Intelligence, the products that they had, it’s a more mature market and I know that when you first acquired that business, the products were, the technology is simpler comparative to what you had internally developed yourself with the VMS, correct?

Darryl Miller

Yes. I don’t know, we call it simpler for say and just completely different application. So if you were to compare, let’s say PowerFleet with a one of our Track and Trace unit out of AI, they just perform completely different functions, so that makes sense.

Michael Cikos - Sidoti & Company

I see. Okay, I figure that you are definitely working to develop a technology on both sides, but is there the chance that you could integrate the two in someway or is that something that customers will be interested in.

Jeff Jagid

The technologies, they definitely complement each other and you are right in your observation as far as technology differentiation. That really is why people buy from us on both sides of the business. So we absolutely intend to maintain our leadership role from a technology standpoint. And there are certain customers that could benefit from buying both solutions from I.D. Systems and then having us integrate the two solutions and we are actively pursuing those opportunities. So the answer to that question is yes.

Michael Cikos - Sidoti & Company

And with the – I think other thing that have been discussed on previous calls was the sales team. You were going to start getting some cross-selling between your two sales teams?

Jeff Jagid

Yes.

Michael Cikos - Sidoti & Company

Is that, I guess, when is the training and when you’re going to start seeing the cross-selling take place?

Jeff Jagid

So, I didn’t comment on that in my opening remarks. But we are absolutely right on-track with integrating the sales functions. So as you recall, we did not do that immediately when we integrated the two businesses. We have held off for a brief period of time. But that’s well underway.

The training has been completed and now our current executives are carrying the full diverse line of product offerings and it seems to be gaining some nice momentum and some traction. And that also helps, again, to your earlier point, Mike, about integration. There is a lot of integration that can take place on the data side.

I mean, ultimately what we want to be able to do is provide our customers with full supply chain visibility from the distribution facility to the retail outlet, to the customer and we have the ability to do that by managing the equipment that moves those goods and we’re starting to see some real benefits from that and as I alluded to a moment ago, there are some customers who are actively engaged with on that data integration. So it is gaining ground and I think a lot of that is attributed to the fact that we have integrated the sales function.

Operator

(Operator Instructions) Next question is from Walter Schenker of MAZ Partners. Your line is open.

Walter Schenker - MAZ Partners

If we look at the Avis installation where you have installed 5,000 units in a quarter, clearly the first step is getting the 25,000 units installed and having the infrastructure to utilize it. As per the contract, Avis has 300,000 odd vehicles, so there is much bigger potential than 25,000; is there any thing structural, what would be involved if you get to the next level and instead of doing 5,000 a quarter, I mean can you do or could they do 25,000 to 30000 a quarter or more just to get up for a reasonable number, the reasonable percentage of their fleet?

Jeff Jagid

Right, so this is Jeff, and let me first make a clarifying point and then I’ll respond to your question. The 5,000 units that we delivered last quarter are not (inaudible) now. That does not necessarily mean that they cannot – that we can’t or they can’t deploy 5,000 a specific quarter, but those units were delivered towards the latter part of the year and because of the start-up phase we need to implement the infrastructure in a number of airports, there is a lot of data migration from a hosting standpoint taking place, so there is a lot of start-up items in the critical path.

Once those are completed the system is completely designed for scalability, it interfaces would be on board diagnostic port of vehicles and you are absolutely right, the goal is to go enterprise wide and the technology is designed in a way to accommodate that. I think that the very limiting factor is going to be plugging the units in during the in fleeting process, but it should be, we should be able to do well above 5,000 units in a specific quarter.

That is again after we completely deal with all of these, what I would characterize as start-up issues like installation, like firmware upgrades, there is a lot going on to ensure that once we go to the next phase which is 20,000 units that that will go much more smoothly than the first 5,000 and then that we would be very well positioned for what we call Statement of Work number two which is their full fleet.

Walter Schenker - MAZ Partners

And what would be in conjunction with the full fleet and they on their end would have to have rears that will be in all their locations really get the best efficiency out of the system as far as to set up some of the campus programs that they even talk about on their, and they did on their conference call?

Jeff Jagid

Absolutely, but the rate at which those would be deployed would be faster than the initial as expected than the initial deployment. I don’t know -- you know I don't really think that that will be the big issue. I think that making sure that we do everything which is necessary for smooth 25,000 unit deployment that’s what’s going to determine whether or not they do their whole fleet.

Once they make that decision, the logistics associated with deploying those units, building and deploying those units is something that we think we have well under control. Now I don’t even know if they think there won’t be hurdles and issues that we deal with, but I do think from a high level, we have it well in hand.

Operator

Thank you. This concludes Q&A portion of today’s conference. I would like to turn the call over to management for any closing remarks.

Jeff Jagid

Thank you very much. Again I hope everyone could hear and sense our enthusiasm as we exited 2011. And again, we are very pleased with the momentum that’s building, the traction that’s building in many diverse areas of the business heading into 2012. And I just want to thank everyone again for participating on today’s call and we look forward to continuing to report on the progress of the business. Thank you very much.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Have a wonderful day.

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