OMNIQ Corp. (NASDAQ:OMQS) Q4 2021 Results Conference Call April 1, 2022 11:00 AM ET
Shai Lustgarten - CEO
Neev Nissenson - CFO
Conference Call Participants
Jason Schmidt - Lake Street
Howard Halpern - Taglich Brothers
George Guttman - Jericho Partners
Good morning, and thank you for joining us for the OMNIQ Financial Results and Corporate Update Call for the Fourth Quarter and Full Year ending December 31, 2021.
Joining us today are Shai Lustgarten, CEO of OMNIQ, who will provide an operational overview; and Neev Nissenson, Chief Financial Officer, who will discuss financial results. At this time, all participants are placed in a listen-only mode. After managements' prepared remarks, there will be a question-and-answer session.
I will now take a brief moment to read the Safe Harbor statement. During the course of this conference call, we will make certain forward-looking statements. All statements that address expectations, opinions or predictions about the future are forward-looking statements. Although, they reflect our current expectations and are based on our best view of the industry and our current expectations and our business as we see them today, they are not guarantees of future performance.
These statements involve a number of risks and uncertainties and since these elements can change and in certain cases are not within our control, we would ask that you consider and interpret them in that light. We urge you to review the Company's Form 10-K and other SEC filings for a discussion of the principal risks and uncertainties that affect the Company's business and performance and the factors that could cause actual results to differ materially. OMNIQ undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.
I will now turn the call over to Shai Lustgarten. Please go ahead.
Thank you, operator, and thanks to everyone joining us on the call today. We're very pleased to share with you our 2021 financial results combined with some recent achievements. We defined it as the OMNIQ momentum. We marked a milestone of annual revenue run rate of a $100 million, and we hope to exceed that exponentially soon. As projected and desired, we've up listed to NASDAQ in September 2021. Our Q4 revenue grew by 93% to nearly $25 million.
Our annual revenue grew by 42% to $78.3 million. We exceeded Lake Street and Think Equity's analyst revenue projections and equal tag reach for Q4 and full year 2021. In Q4, we had a gross margin of 24% compared to 19% in 2020, mainly due to the growth in so service agreements in our product mix. We achieved 21% sequential increase in Q4 sales over Q3 of 2021. Our year-over year gross profit increased by 53%.
Our balance sheet is stronger and our cash position grew by 39% since December 31, 2020 to approximately $7.1 million. Another important event is the acquisition of 77% of Dangot Computers, a leader in providing sophisticated solutions of automation for hospitals, restaurant, supermarkets, government institutions, and others. Synergy with Dangot generated immediate joint projects with OMNIQ's AI solutions.
Acquisition started only several months ago. Integration of both activities is healthy and fruitful. Soon, we shall see more projects resulting from the combination of the two companies' product offering. A good example is the inclusion of Dangot smart kiosks with our AI-based sensors, providing a comprehensive solution for automation of parking and access control systems. We believe that many joint projects will follow.
Now, we're fully focused on 2022, as we're experiencing a robust start with a record backlog of orders and a strong pipeline of borders coming in from all our divisions. In particular, the demand of our AI machine vision for safe-city, smart-city and automation of parking is experiencing growth in demand in the U.S., Israel, and South America, as well as our smart kiosks solution which saves time and money by eliminating long lines and reducing interactions with cashiers and service staff, lowering the chances of spreading COVID 19.
Another very important 2022 focus is our initiative to develop and install Q Shield our turnkey AI-based system in many locations in cities in the U.S. Five cities are already under contract with us with many more projected to sign soon. I would like to explain the system to you and the recurring revenue sharing model. Q Shield is our police force multiplier, an unbiased AI approach to law enforcement that offers 24x7 visibility and identification of possible risks, which increases safety, revenue, and enforcement efficiency.
Our dynamic revenue share model empowers cities with the option to deploy Q Shield with real upfront costs and repayment through a percentage of citation collection. Today, Q Shield is already affecting the everyday lives of residents by making our streets safer and creating more resources that are invested back into the community, responding to needs that prior Q Shield were harder or not possible to respond to.
And I'd like to reiterate that Q4 and full year 2021 was a huge leap forward for OMNIQ. As we move ahead in 2022, we’re well positioned to show significant top- and bottom-line momentum. Our confidence stems in part from tremendous backlog of greenfield revenue opportunities with AI and Smart City applications for our technology targeting both new clientele as well as our existing Fortune 500 customer but by our supply chain automation solutions. We expect our financial profile to transform as our AI revenue stream grows and we unleash the earnings leverage potential in our business model.
Before I go further, let me now turn this over to Neev to take a deeper look at our financial results. Neev.
Hello everyone. As Shai highlighted, we reported revenue of $24.9 million at the end of four quarter 2021. This is an increase of 93% from $12.9 million in the fourth quarter of 2020. For consolidation with Dangot as well as continuing increase our presence in the marketplace, we are doing solidly well and trending for continued growth.
Total operating expenses for the quarter were $7.6 million compared to $5.1 million in the fourth quarter of 2020. And the increase reflects the consolidation of Dangot as well as certain non-recurring expenses related to the acquisition. Net loss for the quarter was $2.2 million or a loss of $0.36 per share, compared to a loss of $2.9 million for a loss of $0.56 per share for the fourth quarter last year.
Adjusted EBITDA, meaning earnings before interest, taxes, depreciation, and amortization, and the fourth quarter of 2021 amounted to a loss of 548,000 compared to adjusted EBITDA loss of 771,000 for the fourth quarter of 2020. Cash balance was $7.1 million at the period ended December 31, 2021.
Turning to full-year results. OMNIQ reported revenue of $78.3 million for the year that ended December 31, 2021, an increase of 42% from $55 million in the same period of 2020. Our gross profit grew to $16.7 million in the year that end of December 31, 2021, compared to $10.9 million in the same period in 2020.
Total operating expenses for the year end of December 31, 2021 was $7.6 million compared with $5.1 million in same period in 2020. However, those significant monetary [indiscernible] related to the acquisition in Q4 this year.
Net loss for the year ended December 31, 2021 was $13.1 million or a loss of $2.20 per basic share compare with the loss of $11.7 million or loss of $2.49 per basic share for the same period of last year. Adjusted EBITDA for the year ended December 31, 2021 amounted to a loss of $4.1 million compared with an adjusted EBITDA loss of $3.1 million for the same period of 2020.
I do wish to point out that we’re securing a new $8.5 million lending facility with Bridge Bank, a division of Western Alliance Bank which replaced our old high interest $6 million limit facility we had with different financial. As part of the new facility, our interest rates have been cut significantly.
Let now turn the call over back to Shai to talk more about operational achievements and outlook. Shai?
Thank you, Neev. Q4 was another step forward to better position the Company for further growth and success. Our success is fueled by our AI solutions, supply chain automation solutions and our new Dangot offerings. I'll now provide an update starting with supply chain.
In Q4, we've received $7 million in aggregate purchase agreement from a Midwest based third-party logistics client to deploy Android-based rugged data collection computing and communication equipment to the 3PL customer's distribution centers across the United States to be used by its 3,000 employees.
We also announced a lucrative deal to provide the latest technology in asset tracking for one of the most successful food distributor suppliers in North America. They invested $7.8 million in our high-tech IoT equipment, designed to increase efficiency and extend reach for its distribution network through collecting, identifying, tracking and trading assets, as well as sharing and connecting as part of the supply chain system.
As the world of food distribution continues to change with automation and efficiencies, OMNIQ's customer continues to invest in new technologies, as food distribution requires the highest standards of freshness, accuracy and care. As our customer supplies food and related products to more than a 100,000 including healthcare entities, educational facilities, restaurants, hotels, convenience stores, cruise ship, amusing park, stadiums, recreation centers and more, they are always on the forefront of technology.
In addition, we've released information regarding the purchase order with a total value of approximately $1.8 million from a Fortune 500 leading IT supply chain provider with more than a 100,000 customers in over 100 countries, generating more than $20 billion in annual revenue. The seven figure order comes from a long-term customer for the implementation of Zebra data collection hardware and software.
The application of these devices will complete the remove and migration from Windows to Android, which OMNIQ manages. These are important wins for our supply chain solutions division and represent a tremendous install base that we can cross-sell our higher margin AI offerings to.
Turning to Dangot. I'd like to remind everyone that in November, we acquired an additional 26% of the Company increasing our ownership of Dangot Computers to 77%. Dangot is profitable, prominent player in the field of automation and frictionless equipment. It systems have gained an excellent reputation, significant market share in the demanding Israeli market, offering worldwide innovations to multiple verticals like healthcare, retail, restaurants and warehouse automation.
Based on several months of working together, we strongly believe that, Dangot's innovative product offering fit our target markets. And as such, will be leveraged by our strong sales team in the U.S. market. At the same time, we believe we can accelerate, merging our AI products into supply chain customers served by both companies.
I'd like to mention just a couple of operational highlights. During the quarter, we announced, for example, the award by Israel's largest health maintenance organization, serving over 4.7 million citizens. The entity has chosen Dangot to provide its intelligent healthcare cards to be used in the customers 14 hospitals and over 2,000 clinics.
The customer serves over 50% of the Israeli population with clinics and hospitals all over the country and is known for its quality, innovation, and achieving JCI accreditation. JCI is a non-profit of organization that certified hospitals worldwide based on their high quality standards and safety and requires rigorous audit and quality compliance.
Dangot was the pioneer in providing computerized services with smart integrated solutions and is the leading supplier of intelligent cards to the most of the hospitals in Israel. Dangot is one of the pioneers in the industry for manufacturing high-tech cards, which are equipped with specialized features.
These cards integrate patient health files and records, diagnostic equipment, barcode readers, printers, and more so that it can identify a patient automatically preventing potential fatal mistakes. It also has an interface where doctors can access patients records from anywhere in order to provide high quality care and treatment efficiency.
With an increase in healthcare spending worldwide, Dangot will continue its growth because of the state-of-the-art proven cards. Thousands of these cards are already deployed in all the big hospitals in Israel. Additionally, on March 14, 2022, we announced the rollout of 1,000 units of the Smart Buy and Go, SBG solution for one of his roles largest supermarket chains by Dangot.
We plan to offer these SBG solutions to our customers in the United States as the market is massive. According to The Wall Street Journal in North America, groceries are a $1 trillion industry with 90% of grocery sales taking place in stores. As we shared at the time of the announcement Smart Buy and Go solutions are in growing demand by customers all around the world and the grocery industry is responding.
In October, 2021, TechCrunch reported Instacart acquired Caper AI, a smart card, an instant checkout startup for $350 million, as it moved deeper into the physical retail tech. According to an article published in the Washington Post, smart card solutions may cost between $5,000 and $10,000 per card. Our SBG solution is affordable at a fraction of the cost compared to the one and the others, that smart card solution generating and reporting.
The usage of an SBG solution enables the store to minimize lines and provide a better shopping experience. The solution enables customers to receive a specific terminal and on which they can scan product as they put them in regular shopping carts. Once finished with the shopping, the customer places the terminal back into the cradle and the payment is processed automatically allowing the customer to exit the store and go straight to their car.
In line with our AI-based solutions for automation of parking which eliminates lines, while exiting parking lots, our new Smart Buy and Go solution is another example of improving quality of life and minimizing friction. We are proud to market this solution in Israel and soon to offer it to our Fortune 500 U.S. customers, including some of the largest supermarket chains in North America. That's just about wraps up our prepared remarks.
As you've heard today, it was a very productive 2020 and OMNIQ is off to a great start here in 2022. Our focus remains on delivering leading for supply chain automation solutions and increased penetration of our new AI offerings. Thus, OMNIQ’s financial profile will transform as we increase the percentage of our high margin AI revenue stream, and benefit from the earnings leverage potential in this business model.
Before opening for questions, I want to extend my heartfelt gratitude to the people who help make this possible. First and foremost, our devoted employees who worked hard day after day, while continuing to act with professionalism and determination. Also, a heartfelt welcome to Dangot that has become an indispensable member of the OMNIQ family. Thanks as well to our loyal customers, and suppliers, our professional team and the strong supporters. Lastly but just as an importantly, I'm grateful for you, the shareholders for believing, ensuring the success with us.
Operator, I'll now turn over the call for questions.
Certainly, the floor is now open for questions. [Operator Instructions] Your first question is coming from Jason Schmidt of Lake Street. Please post your question. Your line is live.
Just curious what you're seeing from a supply chain standpoint, just being able to source components, and just relatedly, if you're seeing issues with getting out and being able to install some of these installations?
Like everyone else, of course, we face supply chain challenges and we do see that affecting, but we are able quarter-after-quarter to resolve these challenges or perform maybe not in a hundred percent, but perform in such a way that allows us to still show growth, not only in the quarter revenue quarter-after-quarter, but also in the backlog. So, definitely, we could perform better if we didn't have these global supply chain challenges, but we are very well satisfied with the fact that we continue to show growth in both parameters of revenue and backlogs.
No, that's good to hear. And can you share how much AI revenue was in either Q4 or for all of 2021?
Yes, we're going towards the -- we're still looking at all the services involved in this, but we're looking at growth of about probably $2 to $3 million from last year, totaling about $6 to $7 million this year. And that continues to grow even stronger in Q1 of 2022.
And then last one for me and I'll jump back into queue. You've highlighted some continued traction in the safe city market, five cities under contract. What could that number be by year end?
You mean number of dollars revenue?
I'm sorry, number of cities.
Okay. So, thank you for that question, because basically when we started working on that solution, the development of Q Shield, last year and kicking it off, with deployment this year. We saw only in few months, not only five cities that are under contract, but actually more than 30 in the pipeline that drew really fast from minimal sales efforts. And we are trying to be cautious about the projections here, but we should probably be able to double the number still within, at least double it within 2022.
Your next question is coming from [Hella Penisque]. Please post your question. Your line is live.
Hi. Thank you, Shai. Results speak for themselves. I have a few questions please. First, what is the percentage of recurring revenue for 2021 and your prediction for 2022 and going forward?
So in 2021, we were able to show growth in our recurring revenue, from the 10% that we discussed in previous year to actually the 15%, and we are looking to get closer to the 20% towards the first half or at least for year 2022 to reach 20%, so doubling it basically from previous years.
Excellent. Regarding Dangot, can you please explain the synergy with Dangot and the current and potential joint projects, products?
Yes, definitely. So when we penetrated vertical, when we look at a market and the vertical of the solution that we provide, we start of course, from providing the AI technology that is the infrastructure, that's the baseline of the vertical solution that we provide to markets, that's where we start from. And Dangot offering, the different products there, they actually are fitted into these verticals. They are part of the vertical solution. So for example, if we look at the parking solutions, then we provide the Machine Vision that allows the identification and ticket-less parking and automation of the solution of parking lots.
But in addition to that now with Dangot, we can provide the kiosk that does the billing, we can provide additional smart payment solutions as well in the form of either kiosks or other different applications, software applications. So, basically that gives us the ability to provide a turnkey solution to parking owners or parking operators. And as one good, very good example is only recently where we exposed that turnkey solution to one of the products, basically biggest parking operator in the U.S. today, they immediately issued an order of approximately $2.5 million only for the Dangot key smart kiosks that we offer together with our base technology.
Thank you. That's great. And one last question, please. Dangot from Israel and investors what is evolvement in improving safety? Please tell me, if not confidential off course.
Yes, these are difficult time in Israel as we all know, looking at all the terror acts that are happening. Our position in Israel, OMNIQ solution is very well integrated serving today, the Israeli defense forces and additional -- different agencies as well to identify terrorist, to identify objects that or anomalies that our AI can spot and alert that they could be a risk. So we are doing that our solution, our technology does that every day.
And especially at these times, what you see in the news is only a friction of what is of all the total threats that are daily in Israel, and our solution OMNIQ, and I'm proud to say that is one of the probably more significant and major technologies that prevent all the other risks that were that our solution was able to detect and alert and notify the Israeli defense forces and different agencies to let them be proactive and treat these risk before they become events that you don't hear about in the news today.
So we are to your question, we're doing that every day, but we're doing it especially today as well. And very proud to say that unfortunately, of course, there are incidents that we hear about in the news, but probably 10 more times are the ones that OMNIQ is assisting to resolve before they come to the news. And we say fatal casualties due to our technology.
Of course, that is very, very important and I'm happy to hear it. Thank you very much.
Your next question is coming from Howard Halpern with Taglich Brothers. Please post your question. Your line is live.
Congratulations on the quarter and the year.
Thank you, sir.
In terms of your backlog, do you -- can you tell us where it stands? Or how much of an increase over when you entered 2021, as you entered 2022?
Yes. We ended 2021 with about $14 million in backlog, which was record breaking backlog back then. And today we're like I said, we're still showing growth in revenue quarter-over-quarter, and our backlog is about $18 million. So, the increase is about $4 million together with increase in revenue as well.
Okay. And generally and maybe this would be more descriptive, but the pipeline that you're seeing from even the addition of Dangot, how are you handling that pipeline because you seem to say that it's growing every day?
Yes, pipeline is growing, which is great. And the way we handle that is by -- be able to really focus on and managing it much together with our customers really laser point on -- and focusing laser focus on every single detail, every supply chain challenge that might be affecting the schedule.
We work together with our partners, the customers, and our vendors in order to meet the pipeline demands because it is growing, which is a good thing, but also requires from us to really step up and our team members to manage everything much more carefully. So, we can schedule everything in time to respond to the demand -- to the growing demand of our customers.
And in terms of the acquisition related expenses, how much can we back out of that fourth quarter SG&A number?
I don't have that number off of my head, but I would say it's about probably a million dollars.
And related to some of the prior questions with recurring revenue and AI revenue, if well not if, but when you achieve that 20% area of total revenue, what are we looking at in terms of the gross margin profile that you hope to achieve by the end of 2022, with that type of recurring in AI revenue?
So as we mentioned also before, as we penetrate and like you mentioned sell more AI products, and by the way, we're doing even better with our legacy today. Our legacy gross profits have been raised as well. And that's why in Q4, you can see what we expected and mentioned also in previous calls, the increase in gross profit and it came to 24%. And that's exactly by the way, the number that we also projected and mentioned. In 2022, we expect that trend to continue and grow. We still put a lot of efforts and investments, I expect to reach, like I mentioned before the 30s.
And just one last one about the Dangot parts and the healthcare, are you seeing interest from both U.S. hospitals and European hospitals for that product?
Absolutely, already been in discussions with the different distributors in the U.S., to take that product, we are matching prices with what they sell today matching do sanity checks on the added value that we provide over the competition. And yes, we see tremendous in interest, we have customers in the field. So, the penetration for us should be simple. But like I mentioned before, that's very interesting for us, but only one product line that we're already starting to cross sell.
Your next question is coming from George Guttman with Jericho Partners. Please post your question. Your line is live.
I've been reading the annual reports as you know now for a long time. And there was a line there that really struck me. I haven't seen it before. You said that, you expect positive cash flow positive 2022. To me, it's a very, very, very positive sign. So, if you are able to say that you expect to be cash positive this year, are you able to give guidance at all top line beyond the vague $100 million?
Yes, we are seeing -- first of all, yes, all the parameters are going to continue the positive trend that we have seen last year and especially Q4, as the world also comes out of the pandemic, things are getting better and definitely pandemic was good for us. I mean, in that weird way, but still we did very well and we grew during that time because of the unique solutions we have.
This started 2022 in a very positive way as well, that's why you see also the parameter of the backlog growing together with profitability together with the revenue as well. And basically, the cash flow parameter as well will continue to grow. The revenue that we are tracking is a current run rate of $100 million. And looking at Q1, if I can just hint towards 2022, we are looking at a run rate of a minimum $100 million. So, that's what we're expecting for 2022.
Do you have a timeline to pay-off Blue-Star?
You mean ScanSource?
Well ScanSource, the way I read it is $2.9 million, so it's negligible. I mean, BlueStar, which is significantly more.
BlueStar is an AP, it's accountable. It's something that we work dealing with them and backed up with the accounts receivables. But ScanSource by the way, just to let you know, we paid off to zero. So, it's not even 2.9 anymore.
That's great. That's great. Well, you know what? Congratulations, and I believe that we are in the cusp of a completely new day at OMNIQ. I've been here for a long time. The next five, seven years should be significantly better than what I've experienced in the past five years.
George, thank very much for your loyalty. Thank you very much for your support and I'm very excited, not only for myself and the team here, but also for you because, you have been asking me for four years about ScanSource, for example. And yes, we paid it off to zero, that's a great milestone for us and also another liability that we paid to zero last week. And, we are doing much better, and yes, it's a breakthrough year for, 2022 is going to be a tremendous breakthrough year for OMNIQ.
There are no further questions in queue at this time.
Okay. So, we can adjourn.
Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and I have a wonderful day. Thank you for your participation.