Good afternoon. Welcome to I.D. Systems' First Quarter 2016 Conference Call. My name is Carmen, and I will be your operator for today's call. Joining us for today's presentation is the company's CEO, Ken Ehrman; CFO, Ned Mavrommatis; and COO, Norm Ellis. Following their remarks, we will open up the call for your questions.

Before we begin the call, I would like to provide I.D. Systems' Safe Harbor statement that includes cautions regarding forward-looking statements made during the call. During the call, there will be forward-looking statements made regarding future events including I.D. Systems' future financial performance.

All statements other than present and historical facts which include any statements regarding the company's plans for future operations, anticipated future financial position, anticipated results of operation, business strategy, competitive position, company's expectations regarding opportunities for growth, demand for the company's product offering and other industry trends are considered forward-looking statements.

Such statements include, but are not limited to the company's financial expectations for 2016 and beyond; all such forward-looking statements about risks, uncertainties and contingencies, many of which are beyond the company's control.

The company's actual results, performances or achievements may differ materially from those projected or assumed in any forward-looking statements.

Factors that could cause actual results to differ materially could include, amongst others, SEC filings, overall economic and business conditions, demand for our products and services, competitive factors, emergence of new technologies and the company's cash position.

The company does not intend to undertake any duty to update any forward-looking statements to reflect future events or circumstances. I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's Web site at www.id-systems.com.

Now, I would like to turn the call over to I.D. Systems' CEO, Mr. Ken Ehrman. Sir, please proceed..

Welcome everyone, and thank you for joining us today. After the market closed, we issued our results for the first quarter ended March 31, 2016 in a press release, a copy of which is available in the Investors section of our Web site.

It's nice to say that we were profitable but to fully appreciate our progress and the achievement of this milestone, it's important that I put that in perspective. We had one quarter of profitability in 2013 and before that it was 2006 since we generated a profit.

In 2006, we were focused on two key accounts, today we are focused on 50 to 60 enterprise accounts. Along that line, in the first quarter we received meaningful orders from approximately ten of our top accounts. And as we rebuild our momentum, I expect that number to grow.

In fact, we expect that every key account to place sizable orders quarterly and we have been working to achieve that objective since the beginning of the year. With 45% of our revenues now recurring, we have a much easier hill to climb each quarter to achieve our breakeven number and beyond. However, we still have several challenges ahead.

We have all transportation asset management or TAM units that need to be replaced with our new solution, many of which are coming off of their five-year terms which were previously priced at higher monthly charges. We need to reestablish momentum with all of our key accounts.

And, finally, we need to prove that we are now a truly scalable organization and continue to meet our product quality objectives. Fortunately, we have some near-term momentum and catalyst as well. Our program with Avis is nearly complete. We anticipate releasing WebUX, our next generation user software this summer.

Our aviation products are performing well and work quality and usability is exceeding our expectations. We have the best analytics platform in both TAM and VMS. These products, they are leveraging data from nearly 20 years of operation to create industry benchmarks that no new entrant could ever replicate.

And finally, we have the best intermodal and chassis tracking products in the industry hands down. As you know, we have invested significantly in our relationship with Avis. We have some of our most talented resources currently on the projects.

I am encouraged to report that we are making good progress and should have a yes or no decision from Avis this summer or perhaps sooner. The reason I am relatively optimistic at this point is because the product is working well and looks great.

Norm and I have been on the road most of the quarter, meeting with our customers and instilling confidence that I.D. Systems is ready to meet their enterprise needs and we have the right products to do so now much more efficiently than ever before. In addition to our I.D.

Systems 2.0 investment, we have also made significant change to our organization over the last two years. As I mentioned on the last call, [Chris Vold] [ph] has been a great new addition as a consultant.

Chris is an extremely talented engineering leader that adds much needed process and diligence to our team as well as great industry experience having served as the President of the Omnitracs division of Qualcomm.

In addition to Chris, we had a new engineering talent and promoted our most capable employees from within while maintaining our current expense structure. Looking forward, with this quarter's results we should have no problem continuing to recruit and retain top talent.

In addition, we are finally providing our sales team with the necessary tools to be effective and making it easier for our customers to buy. This is a proven and winning combination. From an international sales perspective, our strength in the EMEA region is worth noting. In fact the Q1 EMEA results exceeded our budget by about 20%.

We are also now pursuing OEM relationships over there as a result of our VAC4 performance. I am encouraged to report that due to our team's continued execution and focus, the second quarter has also started of strong and is meeting our internal expectations.

While we realize that there is more work ahead, it's nice to start to seeing the operational and financial benefits from all of the efforts that we have endured over the last two years. Now I would like to turn over the call to Ned Mavrommatis, our CFO, to walk through the financial details for the quarter.

Then Norm Ellis, our COO will provide an update on our products, channel partnerships and customer pipeline. Finally, I will return to discuss our execution of strategy, initiatives and outlook for 2016.

Ned?.

Thank you, Ken and good afternoon everyone. Now to our financial results for the first quarter ended March 31, 2016. Our revenue increased 3% to $10.5 million from $10.2 million in the prior quarter and decreased 6% from $11.1 million in the same year ago period. The sequential increase in revenue was driven by a 22% increase in VMS revenue.

The year-over-year decrease in revenue was largely due to $1.8 million decrease in sales of TAM spare parts during the first quarter of 2016. The decline was partially offset by 20% increase in VMS revenue. Recurring revenue for the first quarter of 2016 increased 5% to $4.7 million from $4.5 million.

On a percentage basis, recurring revenue accounted to 45% of our total revenue, a 500 basis point improvement from 40% in Q1 of 2015. Our gross margins improved by 500 basis points to 50% from 45% in the prior quarter and increased 1400 basis points from 36% in the same period a year ago.

The improvement was primarily due to the increased efficiency in our VAC4 installation, analytic software and online training process implemented in Q4 2015, as well as customers signing long-term, higher margin service contracts. Turning to our expenses.

Our selling, general and administrative expenses, or SG&A expenses decreased 29% to $4.8 million from $6.8 million in the same year ago period. The significant improvement was driven by headcount reductions and other cost-cutting measures we implemented in the second half of last year.

Our R&D expenses decreased 8% to $1.1 million from $1.2 million in Q1 of last year. The decrease was primarily due to the completion of product development projects in the second half of 2015 related to our I.D. Systems 2.0 strategic initiative.

Our total operating expenses for the first quarter of 2016 were $5.9 million, down 26% from $8 million in the same year ago period. As I indicated on our last call, we plan to maintain this level of operating expenses throughout 2016.

Our GAAP net loss improved significantly to $698,000 or five cents per basic and diluted share compared to a GAAP net loss of $3.9 million or $.32 per basic and diluted share in Q1 of last year.

And finally, excluding stock-based compensation, depreciation and amortization and nonrecurring items, our non-GAAP net income for Q1 2016 totaled $1000 or zero cents per basic and diluted share. This was a significant improvement from a non-GAAP net loss of $2.7 million or $.22 per basic and diluted share in Q1 last year.

For more detail on non-GAAP net income please see the reconciliation to GAAP terms included in the supplementary tables of our earnings release. Now turning to our balance sheet. At quarter-end we had $6.1 million in cash, cash equivalents and marketable securities which was down slightly from $6.4 million at the end of the prior quarter.

As we mentioned on our last call, we established a $7.5 million revolving credit facility in December to provide us with additional financial flexibility. The credit facility better positions us to take advantage of the increasing demand of our technologies. As of today, we had not drawn down on the facility. This completes my financial summary.

For more detailed analysis of our financial results, please reference our Form 10-Q which we plan to file by Monday, May 16.

Norm?.

Thank you, Ned. [indiscernible] we completed last year, to our next generation vehicle asset management product, VAC4, continued to play a key role in driving new and recurring business.

During the first quarter we continued to experience a high take rate and positive response from customers to the enhanced product with limited returns or service calls. This speaks only to the product's quality and capabilities but also to our dedicated sales and customer service teams where we work closely with customers to rollout the solution.

Our continued momentum in our VMS business was further reflected by the 20% increase in revenue in Q1. The growth we experienced was driven by sizable orders for VAC4 from two of our largest customers, Audi and General Motors.

Both organizations recognize the tremendous value our solution provides, enhancing productivity and creating a safer working environment for their employees.

These wins also confirm the effectiveness of our go to market approach which is focused on direct sales to enterprise customers while enabling our capable channel partners focus on selling and servicing to smaller accounts. Accordingly, we have refocused our sales teams efforts and resources which has reinvigorated sales momentum with key customers.

The approach has also positions us to [perfectively] [ph] serve and further penetrate our expansive existing customer base of blue chip enterprises.

Also in Q1 we launched PowerFleet IQ and VeriWise IQ, a next generation supply chain analytics platform that assess the performance and utilization of forklift and industrial trucks as well containers, trailers and other transportation assets.

The new analytics platform builds on our strong track record of industry innovations which continue to improve the critical balance sheet intelligence we provide the customers on their supply chain assets. Market response and demand for PowerFleet IQ and VeriWise IQ from customers has been particularly encouraging.

This has reaffirmed our belief that the innovative analytics platform was a game changer for any large enterprise with extensive material handling or transportation asset operations. Analytics will continue to be a key driver for new customer wins and follow-on deployments this year and into the future.

Turning to our transportation asset management business. While our segment revenue was down year-over-year due to customer terminations of old system, the quarter was highlighted by new wins for our VeriWise product.

During Q1 one of our existing truckload carriers customers purchased 500 new units of our VeriWise intermodal container tracking system in addition to extending the service contract for additional three years. Together the new purchase orders and service contracts are value at $1.2 million.

Our industry-leading VeriWise solution helps carriers maximize fleet utilization and minimize idle time by providing visibility of loading and unloading events. The systems generates real time data on load status throughout the shipment cycle and is the only integrated solution that provides load and door status without the need for wired sensors.

In fact, this system can reduce shipment cycle times by an average of 72 hours per container per month as well as increase shipment volume and revenue by 10% without increasing fleet size. Shifting gears to our rental segment.

During the first quarter we completed the development of our next generation rental car automation solution, building upon nearly 15 years of experience in this industry. Our connected car technology now uses cellular communications to automate the rental and return of cars.

With these sizable investments now behind us and our proven ability to streamline and optimize the global organizations car rental process, we believe we are well positioned to further penetrate this major untapped market. Now I would like to turn the call back over to Ken..

Thank you, Norm. As you can see, our improving financial results and operational momentum are starting to generate returns from our strategic I.D. Systems 2.0 investment. The systems we developed under this initiative were focused on automating the most labor intensive and customer frustrating elements of our deployments.

And as our Q1 results revealed, it has allowed us to profitably grow revenue and margins as our customers expanded their implementation. The bottom line is that I.D. Systems is no longer the rate limited factor for growth or profitability. As you have heard today, our best in class products provide a clear and tangible return on investment.

Proof of that will be our ability to maintain profitability, considering the nearly 20 years of approximately of $100 million invested to date. This provides us with the deepest experience and unquestionably best brand in our markets. It's time to provide the return on investment for our shareholders in addition to our customers.

So looking ahead, our results for the first quarter along with our optimize cost structure and expanding sales pipeline, sets the stage for a strong 2016.

Our operational success will be measured by our continued ability to further penetrate our existing customer base and secure new enterprise customers, as well as our ability to leverage our fixed cost infrastructure.

Our execution on these initiatives will drive our financial goals for 2016, which include meaningful revenue growth and achieving non-GAAP profitability for the year. While there is more work ahead, we believe we are in strong position to capitalize on the global industrial Internet of Things revolution.

We believe these factor will help us achieve our objectives and deliver long-term shareholder value. With that, we are ready to open the call for questions. Operator, please provide the instructions..

[Operator Instructions] And our first question comes from the line of Mike Crawford with B. Riley & Co. Please go ahead..

The gross margin was the strongest it has been in two years. Is there anything in particular that contributed unusually to that mix or is that more of a level that you expect to achieve going forward..

Hey, Mike, this is Ned. At this revenue level and based on the pricing adjustments we made last year as well as the growing service revenue. We feel comfortable with this level of gross margins..

Okay. Great. And then just regarding the recurring revenue. What is the churn experience or seasonality associated with that since it doesn’t seem to be just one straight line up building, stepping stone one quarter to the next but does seem to bounce around a little bit..

Yes. The VMS service revenue is growing nicely. The challenge has been with the TAM service revenue. As Ken mentioned in his prepared remarks, we have some TAM units out there that are renewing the contracts and because of cellular pricing and satellite pricing coming down, the renewals are at lower pricing.

Now our costs go down also, so we still maintain our gross margins. However, it tends to affect revenue. When you look at the VMS service revenue, they increase significantly quarter-over-quarter. Last quarter in Q1 of last year, the VMS recurring revenue was $539,000 and they were up close to $900,000 this quarter..

Okay. Great. And then last question is, how do you describe the progress you are making with your Toyota channel..

This is Norm. The progress has been very good. There is initiatives underway on their side for training and we are focused on obviously he 80:20 rule. So that 20% of the their dealers drive 80% of their business is where our focus is. And so far, it's gone very well. The pipeline in the portal that we built for them a year ago continues to grow.

So we are excited about that. So we actually can watch the development of the orders as they come in and the quote. Now we got to help them convert those quotes into orders and that’s what the training is focused on doing is allowing them to get to the point where they can actually close the deals.

And we want to teach them how to -- they want to [fish] [ph] for them. So it takes a bit longer but it's the right thing to do because they are assigning champions at some of their key dealers. We are training them.

And now they had to support their sales team members as they go out and bring these deals in that they have and pushing them into the end zone and we get orders that we can ship and book revenue against. So it's going quite well..

[Operator Instructions] And our next question is from the line of Morris Ajzenman with Griffin Securities. Please go ahead..

Just a follow up to the previous question. Would the re-pricing and I guess new service component, however you want to phrase that, with Transportation Asset Management. Will that be a couple of quarters or will that be a year or two before we are going to start seeing better top line growth as this reprices the -- you get it out to more customers..

You know if you look at some of our largest customers which contribute for the majority of our units, they are already under new renewals which has adjusted the pricing. However, if you look at the space in general and the price of cellular and satellite communications is going to continue to come down.

That’s great for us because it opens the door to a lot more applications. However, when customers renew, they know that we are able to get lower pricing so the renewals tend to come for a lower pricing. As I said before, what's great, our costs come down significantly also. So we are able to maintain our gross margin.

But more importantly, it's going to help in the door to a lot more applications for our systems. So the goal is to sell a lot more units than we are currently selling..

Okay. So the $4.2 million revenue run rate, overall for service in this quarter, should that be a run rate for next few quarters at a minimum? At that level..

Yes. Sure..

Okay. A question for Ken here. You used the language, meaningful revenue growth 2016. Can you kind of [bracket] [ph] or give some sort of numbers of what meaningful in your mind would mean..

To me, the best way to characterize that will be based upon the number of key customers that place orders during the quarter. So Q1 was nice because 10 out of our 50 to 60 key customers placed orders. But if you start thinking about improving that, because all ten have much more room to place orders if we continue to execute.

And 15 or 20 place orders next quarter, the opportunity to have meaningful revenue growth is certainly in front of us. Our budget calls for roughly 15% revenue growth over last year but that would be kind of the base line. We are looking to certainly beat that significantly if our progress continues..

Okay. So your budget -- I am sorry, is....

I would not use that to raise guidance right now. We still have, as I mentioned, we have to prove that we continue to function and operate cost effectively and efficiently..

Okay. So it's not cast in stone but you would like to see a 50% top line growth, but that’s dependent on these customers further rolling it existing penetration, more orders..

Right, exactly..

Right. And just a question, just nitpicking here, for Ned here, actually achieve benefit. Existing the first quarter last year, you had $7.8 million in inventory, existing year you had $7.1 million inventory. Existing this quarter you had $5.5 million inventory. What's kind of going on? Is that been inventory turn or it's just an anomaly, Ned..

No. As we mentioned in the previous call, our focus is to better manage our working capital. We are going to continue to do that and that’s why you are seeing the stability in the cash position..

And last question and I will get back in queue. Ken, so next few months we should expect to hear something [indiscernible] from Avis.

Anything else you can say beyond that or not?.

The only thing I would add to that is it's pretty clear, if you listen to Avis's quarterly calls, that the connected car initiative is something that’s very important to them so in this particular area, it's going to be our ability to execute effectively. That’s going go directly impact that progress for that program.

So we still have work to do but we are definitely well positioned..

And our next question is from the line of William Gibson with ROTH Capital. Please go ahead..

I would like to just focus in a little bit more on transportation asset management. I understand the lower cellular cost.

But what's sort of the hit rate? In other words, do some people contracts come off and they don’t renew or can you give us sort of a percentage of those who are renewing?.

Well, I would say pretty much all of our major customers are renewing. But their fleet size changes. What I would like to highlight about the transportation asset management business is that our products are really best in class. Our analytics is the best in class and we are winning deals when competing with our toughest competition right now.

So the deals that we announced were pretty significant after careful consideration of our products versus our competitors. And so our TAM focus right now is maintaining the quality of product, getting the new product out there into the untapped markets like intermodal and chassis, as well as maintaining our position in the trailer market.

So given the relationships, both Norm and [Chris Wolt] [ph] have, we are very optimistic about the progress in the TAM business and we exceeded our TAM new unit sales budget this quarter and we expect that to continue moving forward..

Good. That’s good. And just in terms of product sales, you mentioned the second quarter starting strongly. Should they be up sequentially a little from the first quarter..

Our budget has been relatively flat but I would expect that as the momentum builds, that we should see some growth. But I am not going to commit to that at this point but we are happy with April..

[Operator Instructions] And our next question is from the line of Dan Weston with WestCap Management. Please go ahead..

Congrats on profitability for the quarter. Ken, maybe you can expand a little bit on Avis. I thought it was interesting that it was the very first customer you commented on on the call. I think you mentioned that you successfully delivered a product to them but you still have work to do.

Could you elaborate a little bit on -- is the actual product completed and finalized and if so, how many kind of pilot or test vehicles is it attached to. Any of the color you can provide as well as other work you may have to do to complete and get the order signed..

As Norm mentioned, we delivered the first units at the end of Q1. We have been in the testing phase since then. We have indentified issues and bugs as you would expect and we have been resolving them.

So we are much closer now having maintained our focus on this project to having the product that they believe will be the product that’s necessary to roll out to their customers. But we are not there yet which is why I am saying I expect decision sometime in the summer or perhaps sooner..

Got it. And when you say you have not done yet, you just have a few other, I am guessing, kind of minor product related issues to kind of iron out before they move forward..

I am hoping they are minor but we are testing on hundreds of different makes and models. So you know every time you do that, you could potentially uncover something. But right now based on the progress that we have made, I am anticipating certainly completing the requirements of this phase before the end of the summer..

That’s great stuff. Ned, could you talk to the 10% customers in the quarter, please..

The only customer that was over 10% was Wal-Mart and it contributed 14% of our revenue in the quarter. Besides that a few customers that were under 10%, Ford, [Raymond] [ph] and GM as well as Audi, were other big customers in the quarter but they were all under 10% of revenue..

I think it was Norm who may have commented on GM rollout. Could you talk a little bit about that relationship and how you see the pipeline for that specific customer building over the course of this year..

Yes. We are very optimistic on how that’s going right now. We have launched several locations and we had the pilots going earlier last year. We successfully won that business which we are proud of but now it's all about executing. And we are actually rolling out a brand new facility right now in excess of 100 vehicles. So it's gone very well.

One of the next facilities I think is pushing the 400 size, number of units, that’s great. And we think, I don’t know, there might be 8 or 10,000 total. That’s going to take a couple of years to get to work through those.

But I think it's important that with lot of collaboration with them, they are taking a very methodical approach to it which I think is great because it's going to mean, we are going to get a great return as they go forward because it's not just, throw them in there and hope that they work and that their teams use them.

They are very methodical on how they go forward with from plan to plan, and we are right in the middle of it and our analytics is helping a lot because it really drives very significant and informative data to them on how to really maximize the return.

So I would hope they would continue to pick up momentum and do even more of them in the quarters to come. But so far it's been very successful. And we have put a lot of effort into it. It's not like, just hope that it works out. There is lot of dedicated people working on it.

But I think they are very happy and we will continue to execute and we will only get better..

I appreciate that. And then Ken, could you talk a little bit about the relationship you have with United Airlines and I think you mentioned last quarter that after some delays with the VAC4, which we all know about, it was back up and running and you expected to see some purchase orders in Q1. Any commentary you can provide there would be helpful..

Sure. We did get a few orders, adding some vehicles to the existing Newark installation. And now that that’s successfully up and running, we are in the midst of negotiating kind of the next phases. So there is an unintended plan to expand to their other major airport and at this point we are no longer the rate moving factor to making that happen.

United has to regain that confidence and begin placing those orders but we are certainly expecting that to add to the many of the key accounts that should start ordering some size deals in Q2 and beyond..

And ladies and gentlemen, at this time this concludes our question-and-answer session. I would like to turn the call back to Mr. Ken Ehrman for his closing remarks..

Thank you, everyone for participating on the call today. I really want to thank all of our employees and partners for their continued confidence in our efforts. We are definitely making progress but we have ways to go and as we continue to execute, the picture in the future looks very bright.

So we appreciate everyone's patience as we have worked through this and we look forward to continue the reporting on a quarterly basis. Have a great day..

Thank you for joining us today for our presentation. You may now disconnect..