OMNIQ Corp. (OTCPK:OMQS) Q1 2022 Earnings Conference Call May 17, 2022 11:00 AM ET Â Company Participants Shai Lustgarten - Chairman and Chief Executive Officer Neev Nissenson - Chief Financial Officer Conference Call Participants Jaeson Schmidt - Lake Street Capital Markets, LLC Howard Halpern - Taglich Brothers, Inc. Matthew Williams - Friess Associates Operator Good morning, and thank you for joining us for the OMNIQ Corporate Update Call for the First Quarter ending March 31, 2022. Joining us today we h ...

Financial Data and Key Metrics Changes - Q4 2021 revenue increased by 93% to nearly $25 million compared to $12.9 million in Q4 2020 [6][15] - Annual revenue grew by 42% to $78.3 million from $55 million in 2020 [7][18] - Gross margin improved to 24% in Q4 2021 from 19% in Q4 2020, driven by growth in service agreements [7] - Cash position increased by 39% to approximately $7.1 million since December 31, 2020 [8][17] - Net loss for Q4 2021 was $2.2 million, a reduction from a loss of $2.9 million in Q4 2020 [16] - Adjusted EBITDA loss narrowed to $548,000 in Q4 2021 from a loss of $771,000 in Q4 2020 [17][20] Business Line Data and Key Metrics Changes - The acquisition of 77% of Dangot Computers is expected to generate immediate joint projects with OMNIQ's AI solutions [8][9] - Significant contracts include a $7 million agreement with a logistics client and a $7.8 million deal with a food distributor for IoT equipment [24][25] - A purchase order valued at approximately $1.8 million was received from a Fortune 500 IT supply chain provider [27][28] Market Data and Key Metrics Changes - Demand for AI machine vision solutions is growing in the U.S., Israel, and South America [10] - Five cities in the U.S. are under contract for the Q Shield initiative, with more than 30 cities in the pipeline [11][47] Company Strategy and Development Direction - The company aims to increase its annual revenue run rate to over $100 million [6] - Focus on expanding AI-based solutions and supply chain automation [40] - Plans to develop and install the Q Shield system in multiple U.S. cities, enhancing law enforcement capabilities [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth despite global supply chain challenges [44] - The company expects to achieve positive cash flow in 2022 and maintain a revenue run rate of at least $100 million [70] - Recurring revenue increased from 10% in 2020 to 15% in 2021, with a target of reaching 20% in 2022 [49] Other Important Information - The company secured a new $8.5 million lending facility with Bridge Bank, replacing a higher interest facility [21] - The integration of Dangot's offerings is progressing well, with expectations for accelerated growth in joint projects [30] Q&A Session Summary Question: What are the supply chain challenges being faced? - Management acknowledged supply chain challenges but noted continued growth in revenue and backlog despite these issues [44] Question: What was the AI revenue for Q4 or 2021? - AI revenue is projected to be around $6 to $7 million for 2021, with continued growth expected in Q1 2022 [45] Question: How many cities are expected to be under contract for the Q Shield initiative by year-end? - Management indicated that they expect to double the number of cities under contract within 2022 [47] Question: What is the percentage of recurring revenue for 2021 and predictions for 2022? - Recurring revenue grew to 15% in 2021, with a target of reaching 20% in 2022 [49] Question: What are the synergies with Dangot and current joint projects? - Management explained that Dangot's products complement OMNIQ's AI technology, allowing for comprehensive solutions in various verticals [50] Question: What is the current backlog status? - The backlog increased to approximately $18 million at the start of 2022, up from $14 million at the end of 2021 [60] Question: What is the expected gross margin profile with increased recurring and AI revenue? - Management expects gross margins to continue to improve, aiming for the 30% range as AI products are sold [65] Question: Is there interest from U.S. and European hospitals for Dangot's products? - Management confirmed ongoing discussions with U.S. distributors and noted significant interest in Dangot's healthcare products [66] Question: Is the company expecting positive cash flow in 2022? - Management confirmed expectations for positive cash flow in 2022, alongside continued revenue growth [68]

Financial Data and Key Metrics Changes - Third quarter revenue reached $20.5 million, up 30% year-over-year from $15.8 million in Q3 2020 [7][9] - Total operating expenses for the quarter were $8.8 million, compared to $5.8 million in Q3 2020, reflecting the consolidation of Dangot and nonrecurring acquisition expenses [10] - Net loss for the quarter was $5.1 million, or a loss of $0.73 per share, compared to a loss of $2.8 million, or a loss of $0.33 per share in Q3 2020 [10] - Adjusted EBITDA for Q3 2021 amounted to a loss of $1.9 million, compared to a loss of $0.9 million in Q3 2020 [11] Business Line Data and Key Metrics Changes - The acquisition of Dangot Computers is expected to create a $91 million revenue company based on 2020 pro forma figures [6] - Revenue contribution from Dangot during the quarter was approximately $9 million [45] Market Data and Key Metrics Changes - The company received over $30 million in orders announced in October, indicating strong demand despite supply chain disruptions [7][26] - The company has been selected for long-term installations of AI machine vision systems for public safety and law enforcement in multiple cities [5][14] Company Strategy and Development Direction - The company aims to strengthen its position in AI solutions, supply chain automation, and the new offerings from Dangot [12][25] - The strategy includes expanding into the North American market with proven products from Israel, particularly in self-service kiosks and healthcare solutions [21][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth, supported by a strong customer base and high demand for AI solutions [7][26] - The company expects to see significant results from streamlining operations and deploying new ERP systems within three to six months [47] Other Important Information - The company successfully uplisted to NASDAQ and raised $15 million in equity to strengthen its balance sheet [5][6] - The company has received a ten-year contract from La Sierra University for campus management software [14] Q&A Session Summary Question: Will the company acquire more than 51% of Dangot? - Management confirmed plans to execute the option for the remaining 49% acquisition sooner than the previously stated twelve months [29] Question: What is the potential for Dangot-related orders in the U.S.? - Management indicated ongoing discussions with major customers in the U.S. for self-ordering kiosks and healthcare carts [30] Question: What is the revenue contribution from Dangot? - Revenue from Dangot during the quarter was approximately $9 million [45] Question: What are the expected margins for smart city projects? - Expected margins for smart city solutions are projected to be between 35% to 55% [48] Question: What is the target for recurring revenue? - The target is to achieve 10% recurring revenue as a portion of total revenue [69]

Financial Data and Key Metrics Changes - OMNIQ reported Q2 2021 revenue of $13.1 million, a 3.5% increase from $12.7 million in Q2 2020, reflecting higher demand post-COVID-19 [15][16] - The first half of 2021 revenue reached approximately $32.9 million, marking a significant 24% year-over-year growth [12][31] - The net loss for Q2 2021 was $2.5 million, or a loss of $0.53 per share, compared to a loss of $1.9 million, or a loss of $0.49 per share in Q2 2020 [16] - Adjusted EBITDA for Q2 2021 was a loss of $437,000, an improvement from a loss of $551,000 in Q2 2020 [17] - Cash balances were reported at $5.4 million as of June 30, 2021, which increased to over $10 million post-acquisition of Dangot [18] Business Line Data and Key Metrics Changes - AI-based revenue in Q2 2021 increased approximately 100% from Q1 2021 [13] - Dangot Computers Ltd. contributed $19.5 million in revenue for the six months ended June 30, 2021, with a gross margin of 24% [6] - Combined pro forma revenue for OMNIQ and Dangot for the six months ending June 30, 2021, was $52.5 million, with a gross margin of 20% [7] Market Data and Key Metrics Changes - The self-service kiosk market is projected to reach $30.8 billion by 2024, indicating significant growth potential for OMNIQ's offerings [8] - OMNIQ plans to install approximately 120 self-ordering kiosks in Aroma Espresso Bar branches by the end of 2021, with a total of 250 kiosks expected by the end of 2022 [9] Company Strategy and Development Direction - OMNIQ aims to leverage the acquisition of Dangot to expand its market presence and enhance its AI-based offerings [5][11] - The company is focused on creating long-term shareholder equity by strengthening its balance sheet and continuing growth in both AI products and supply chain automation [20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth in AI demand and backlog, indicating that sales are expected to increase [44] - The company anticipates gradual revenue growth from cross-sales between OMNIQ and Dangot, with significant contributions expected in 2022 [35] Other Important Information - OMNIQ's combined consolidated revenue for the first half of 2021 exceeds $52 million, representing an annual run rate of over $100 million [31] - The company is in a strong position to uplist to a major stock exchange, having met the necessary criteria [55] Q&A Session Summary Question: Contribution from the U.S. market regarding Dangot - Management indicated that immediate cross-sales will occur, with significant growth expected to start gradually this year and continue into 2022 [34][35] Question: Timeline for expected synergies and normalized EBITDA - Management expects to see significant synergies beginning in early 2022, with a focus on enhancing EBITDA through the merger [36][37] Question: Update on legacy business - The legacy business is experiencing year-over-year growth due to improved offerings and additional in-house solutions [38] Question: Backlog comparison and pipeline for second half momentum - Management confirmed that the backlog continues to grow, supporting positive momentum for the second half of the year [40][41] Question: Plans to increase ownership in Dangot - Management confirmed plans to increase ownership in Dangot sooner than the due date outlined in the acquisition agreement [43] Question: Status of AI technology breakthroughs - Management noted strong demand for AI solutions and an increasing backlog, indicating continued growth in this area [44] Question: Update on previous AI deployments - Management provided updates on projects in Georgia and New York, highlighting successful pilot programs and the company's unique end-to-end solution capabilities [46][48] Question: Expected gross margin with $100 million in annual revenue - Management aims for gross margins in the mid-30s, with aspirations to reach higher margins as integration progresses [52] Question: Confidence in uplisting to a major exchange - Management expressed confidence in meeting the criteria for uplisting but noted that the timing is out of their control [55]

Financial Data and Key Metrics Changes - Reported revenue for Q1 2021 was $19.8 million, an increase of almost 43% from $13.8 million in Q1 2020 [11] - Net loss for the quarter was $3.3 million, or a loss of $0.70 per share, compared to a loss of $2.9 million, or a loss of $0.74 per share in Q1 2020 [12] - Adjusted EBITDA for Q1 2021 amounted to a loss of $1.2 million, compared to a loss of $834,000 in Q1 2020 [12] Business Line Data and Key Metrics Changes - New orders for AI-based solutions increased by 100% compared to Q1 2020 [10] - The legacy AIDC business received significant purchase agreements, including a $6.1 million agreement from a major food distributor and a $6.8 million agreement from a specialty retailer [17][18] Market Data and Key Metrics Changes - The acquisition of Dangot Computers Limited is expected to create a combined pro forma revenue of approximately $91 million for fiscal 2020 [4][19] - Dangot's revenue for 2020 was approximately $35 million, with attractive gross margins [6] Company Strategy and Development Direction - The company is focused on leveraging its AI-based technology and expanding into new markets, including the African market [15] - The acquisition of Dangot is seen as a strategic move to enhance the company's offerings and customer base, particularly in the U.S. market [19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in exceeding the 2020 pro forma revenue figure in 2021 [4] - There is an expectation of increased demand for AI products as the market opens up post-COVID-19 [40] Other Important Information - The company has paid off its $5 million line of credit, resulting in cash of $2.7 million as of March 31, 2021 [12] - Management is working towards an uplisting to a major exchange and expects to be profitable this year [65] Q&A Session Summary Question: What is the market size for the new business model supplying solutions to gated and non-gated communities? - The company estimates about 400,000 gated and ungated communities across the nation, utilizing an indirect sales channel for marketing [25] Question: What are the gross margins for the acquired company? - The gross profitability for Dangot's legacy products ranges between 30% to 35% [26] Question: What synergies are expected from the acquisition? - The company anticipates expense cuts between $1 million to $2.5 million and significant revenue growth from cross-selling products [35] Question: What trends are being observed in deal flow from state and local governments? - There is a significant increase in demand for traffic management and public safety AI products [39] Question: What is the status of the company's cash position and working capital? - The company has managed cash effectively, with a range between $2 million to $5 million, and has seen improved liquidity due to timely payments from customers [53] Question: Will there be any further acquisitions this year? - While the company is focused on completing the current acquisition and achieving profitability, it remains open to future opportunities [79]

Financial Data and Key Metrics Changes - OMNIQ Corp reported Q4 2020 revenue of $12.9 million, a 13.6% increase year-over-year from $11.4 million in Q4 2019 [9] - For the full year 2020, revenue was approximately $55.2 million, reflecting a 3.5% decline compared to 2019 due to pandemic-related impacts [10] - The net loss for Q4 2020 was $2.9 million, or a loss of $0.61 per share, compared to a loss of $2.8 million or $0.71 per share in Q4 2019 [9] - The gross margin for 2020 was 19.8%, down from 24.5% in 2019, attributed to reduced revenue and delays in certain projects [10] Business Line Data and Key Metrics Changes - The AI-based technology sales saw a 100% increase in new orders in Q1 2021 compared to Q1 2020, indicating strong demand for AI solutions [5][22] - The legacy AIDC business is experiencing growth through expanded services to existing customers, with higher average revenue per user (ARPU) compared to the previous year [18] - Significant purchase agreements were secured, including a $6.1 million deal with a major food distributor and a $6.8 million deal with a large retailer, both aimed at enhancing supply chain automation [19] Market Data and Key Metrics Changes - OMNIQ is expanding its AI-based solutions into the African market through a partnership with a South African logistics provider, indicating growth potential in new regions [17] - The company is actively pursuing contracts in various municipalities for AI solutions, which are expected to drive revenue growth in the safe city and parking markets [15][16] Company Strategy and Development Direction - The company aims to integrate AI with its legacy AIDC business to penetrate the supply chain market more effectively, anticipating that AI will replace traditional barcode solutions [20] - OMNIQ's strategy includes productizing its AI business, which was a focus in 2020, to enhance scalability and revenue generation [14][15] - The management emphasizes the importance of building long-term relationships with large customers to facilitate the adoption of AI solutions [21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing a strong start to 2021 with record new orders and a positive outlook for AI revenue growth [22] - The company expects to be profitable in 2021, driven by increased sales from both AI and legacy AIDC businesses [45] - Management highlighted the importance of adapting to the pandemic's challenges and leveraging existing customer relationships to maintain revenue levels [12] Other Important Information - OMNIQ is in the process of pursuing a NASDAQ listing, with expectations to achieve this goal within the year [42] - The company is exploring joint ventures and partnerships to expand its market reach and enhance growth opportunities [55] Q&A Session Summary Question: Was there any hesitation in deployments during Q1 due to COVID-19? - Management reported a steady quarter with no significant hesitation, indicating positive feedback from customers as the world began to open up [25][26] Question: What is the sales cycle for new customers in parking and safe city? - The sales cycle has been shortened significantly due to productization efforts, allowing for quicker deployments to municipalities and schools [27] Question: What are the expected margins on recent large orders? - Margins vary by deal, with potential gross margins reaching up to 45% for higher technology services, while typical orders maintain around 20% [28] Question: Will there be multiple revenue generation methods for AI technologies? - Yes, the company plans to implement various revenue models, including revenue sharing and licensing, with gross profitability ranging from 65% to 87% [30] Question: What is the growth potential without major changes to the cost structure? - The existing infrastructure can support significant growth in the AIDC business without additional expenses, while AI growth may require some investment in indirect sales channels [31] Question: What percentage of revenue is expected from AI in the next three years? - The company aims for AI to contribute 50% to 60% of total revenue by 2022, focusing on higher-margin software solutions [32] Question: Will the company benefit from the proposed infrastructure bill? - Management believes the bill will open up new opportunities, particularly in technology-related projects [52] Question: Are there plans for joint ventures in the Middle East? - The company is open to partnerships and joint ventures in the region, which could lead to significant projects [55]