Elbit Vision Systems' (EVSNF) CEO Sam Cohen on Q2 2016 Results - Earnings Call Transcript
Aug. 12, 2016 5:26 PM ET| About: Elbit Vision Systems Ltd. (EVSNF)
Q2 2016 Earnings Summary
News
EPS of $ misses by $0.00 | Revenue of $2.56M (+ 33.3% Y/Y) beats by $2.56M
Elbit Vision Systems (OTCQB:EVSNF) Q2 2016 Earnings Conference Call August 10, 2016 8:30 AM ET
Executives
Kenny Green - GK Investor Relations
Sam Cohen - Chief Executive Officer
Yaron Menashe - Chief Financial Officer
Analysts
Ian Cassel - MicroCapClub
Brian Kinstlinger - Maxim Group
Mike Schellinger - MicroCapClub
David Kaplan - D.B.K. Advisors
Vipul Gondalia - MicroCapClub
Jason Revland - Blueprint Capital
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Elbit Vision Systems’ Second Quarter 2016 Results Conference Call. All participants are at present in listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded.
You should have all received by now the company’s press release. If you have not received it, please contact Elbit’s investor relations team at GK Investor Relations or view it in the News section of the company’s website, www.evs.co.il.
I would now like to hand the call over to Mr. Kenny Green of GK Investor Relations. Mr. Green, please go ahead.
Kenny Green
Thank you, operator. I like to welcome all of you to EVS’ second quarter 2016 conference call. I would like to welcome all of you to this call and thank EVS’ management for hosting this call. Before we start, I’d like to point out that this conference call may contain forward-looking projections or other forward statements regarding future events or the future performance of the company. These statements are only predictions and EVS cannot guarantee that they will in fact occur. EVS does not assume any obligation to update that information.
Actual events or results may differ materially from those projected, including as a result of changing market trends, reduced demands and the competitive nature of EVS’ industry, as well as otherwise identified in the documents filed by the company with the Securities and Exchange Commission.
With us on the call today are Sam Cohen, CEO; and Yaron Menashe, CFO. Sam will address [ph] EVS and discuss some of the key highlights of the second quarter, while Yaron will summarize some of the financial highlights of the second quarter. After that we will open the call for the question and answer session. I’d like to now hand the call over to Mr. Sam Cohen, EVS’ CEO. Sam please go ahead.
Sam Cohen
I would to welcome all of you to our conference call and thank you for your interest in our company. We are very pleased with the results of the second quarter. This shows substantial revenue growth of 33% over the second quarter of last year and solid sequential growth with increase of 10% over those of the last quarter. These factors indicate that our business is developing and growing as planned. They also support market trends we see in our duration [ph].
As we all know, manufacturing has entered a long term trend towards replacing human with technology. This is particularly true in our target industry textiles. Looking at the numbers, we understand that automation, especially inspection automation is still in its infancy in our markets. We expect these trends will continue to drive our revenue growth for decades.
Our operating profit of $630,000 grew by 26% over last year and 27% versus the prior quarter. The net income, which stood at $587,000, was 19% over the second quarter last year and up 28% versus the prior quarter. We also continue to see positive operating cash flow. We ended the quarter with $4 million in cash and equivalents versus just $1.4 million at the same time last year. Shareholders’ equity stood at $4.8 million versus $1.2 million last year.
Now turning to our business. To capitalize on new and exciting opportunities in our market, we have slightly increased our investment in R&D over the past year. Since then we have continually improved each product we offer by creating modules of tools and features that have been identified as critical need by our customers. This investment has enabled us to broaden our target applications and significantly increase our total available market. In fact, while we initially sold iBar primarily into tire cord application, we are now expanding sales to many other applications. Looking ahead and based on our current backlog level, we expect to continue to show solid third quarter results.
And with that, I’d like to hand over to Yaron Menashe, our CFO.
Yaron Menashe
Thank you, Sam. Today, we announced solid financial results for the second quarter of 2016 demonstrating strong sales and year-over-year growth in revenue, strong improvement in operating margin and substantiated growth in net income.
Revenue for the second quarter of 2016 were $2.6 million representing year-over-year growth of 33% and substantial growth of 10%. Second quarter gross profit was $1.4 million, 24% ahead of those of last year, which represented of those of prior quarter with a gross margin of 54%.
Operating income in the second quarter of 2016 was $630,000, which is an operating margin of 25%. Operating income was 26% ahead of second quarter last year and 22% ahead of that of prior quarter. Net income for the second quarter of 2016 was $587,000, an increase of 19% over last year and 28% over last quarter, representing a net margin of 22%. As of quarter end, our shareholder equity strongly improved and stood at $4.8 million, up from $2.7 million at the end of last year and $1.2 million at the end of last June.
And with that, we’d be happy to take your question. Operator?
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from Ian Cassel of MicroCapClub. Please go ahead.
Ian Cassel
I have a couple of questions kind of relating to the same thing. On previous earnings calls, I believe you mentioned that there were approximately 20 companies that have purchased at least on iBar – I think, it was 20, if I remember correctly. It seems as though that number has remained rather constant over the last few quarters, two or three quarters at least and you’ve obviously communicated there’s strong demand for the iBar. So, I was just wondering why the amount of companies that are at least trialling the product haven’t increased?
Sam Cohen
Hi, Ian, thanks for the question. The main reason for that is we want to control the growth and not create – or not commit on things that we cannot support at the end. So, we currently building the infrastructure to support exponential growth and it’s related to service and support and production. And this is one of the main reason why we – during the last six months we maintain around 20, 25 customers that have one machine or two machines under lend stage – on a lend stage.
Ian Cassel
Okay, thank you. That’s what I thought the answer was. Just wanted to verify that. And kind of a follow-up to that question, of the 20 or 25 companies that have at least purchased one iBar, if there is 20 or 25 companies choose to rollout the product across their companies, what would be your estimate on how many iBars that would represent?
Sam Cohen
That would represent, I would say, at least 200 systems around – behind it.
Ian Cassel
Okay. Okay, thank you.
Operator
The next question is from Michael [indiscernible] of Oppenheimer & Co. Please go ahead.
Unidentified Analyst
Hi. Congratulations on another great quarter. My question really has a little bit more to do with the stock there. Any plans or any updates on getting up listed and reserve split and things like that, so we can open up the shareholder pool? Thanks.
Sam Cohen
Thanks. We constantly evaluating it. As you can see, we can do it any time. We want to make sure that the timing will be the right timing. Again, I can assure that we constantly checking that this is the right time to do it. So when we will decide, obviously, you will know.
Unidentified Analyst
Great. Thanks a lot.
Operator
The next question is from Brian Kinstlinger of Maxim Group. Please go ahead.
Brian Kinstlinger
Hi, Sam, how are you? I may have missed it. How many iBars were sold in the second quarter? And then what’s the total install base right now?
Sam Cohen
Brian, hi, thank you. We did not publish how many iBars yet. I believe that in the next few periods we will publish this information how many iBars. And regarding – you ask how many iBars we sold up until now in total?
Brian Kinstlinger
Yeah, in total.
Sam Cohen
I would say about 170.
Brian Kinstlinger
Okay. And then can you talk about maybe a pipeline while you are not prepared to sell into new customers maybe, are you in active discussions with a variety as you build infrastructure or well that sales process have to hold off until you prepare additional…?
Sam Cohen
No, in the last few months, we brought in our applications and we offer the iBar to other premium customers, VVS. And as we mentioned previously, we opened the iBar to many other applications, mainly technical fabric like composite material, air bags, parachutes, this kind of applications. But we did open it for other applications.
Brian Kinstlinger
And then what kind of investment will be needed to build out that infrastructure that you discussed?
Sam Cohen
It’s not much investment, it’s much – it’s related to time. It takes a little bit more time than we thought to train the people to make sure the technician in the field knows how to do the job. I can say that fortunately or unfortunately depending on which direction you are looking at this, the traditional business is pushing us up every month and it’s basically pushing the service department – this is under – they are under a lot of pressure obviously to support the growth on the traditional business and the growth we are planning to do on the iBar. So we keep hire and train more people and obviously now we are doing it in much strong and aggressive way than we did six months ago because we realized this is the bottleneck and I believe this is what will give us the answer for the next upcoming quarters.
Brian Kinstlinger
Great. And then you mentioned solid financial results in the third quarter. Are there any more details for that? Shall we expect 10% sequential growth is still achievable even with your existing customer base?
Sam Cohen
It’s really hard to say. And this is why we cannot elaborate more on that. It’s difficult for me to predict.
Brian Kinstlinger
Great, okay. And then last questions, how many sales people do you have selling iBar, you are planning to add to that total?
Sam Cohen
Right now I can say this. The infrastructure that we currently have can support much larger growth. Actually our sales people are pushing us to sell much more and get more orders and we – let’s say, the bottleneck is definitely not sales, the bottleneck is service and support. That’s currently the bottleneck.
Brian Kinstlinger
Thank you so much.
Sam Cohen
Let me say that sales can support much stronger growth.
Brian Kinstlinger
Yeah, okay, thank you.
Sam Cohen
You are welcome.
Operator
The next question is from Mike Schellinger of MicroCapClub. Please go ahead.
Mike Schellinger
Yes. I believe that previous conference call, you reported that you sold 15 iBars in Q4 and I believe 45 in Q1. I was wondering if you could tell us how many you sold in Q2?
Sam Cohen
We cannot say, it’s not published yet.
Mike Schellinger
Okay. And in terms of iBar, what if somebody came and ordered an iBar today, what’s sort of the lead time for delivery of an iBar and do you have a substantial backlog of iBar deliveries or you’ve been able to keep up on that?
Sam Cohen
We currently have two places that we can produce iBars. We can produce iBar – manufacture here in our headquarters in Israel and we can also do it in our offices in United States in Greenville, South Carolina. I can say that we can support 100s if not 1000s of iBars every year. This is not the current bottleneck. That’s not the problem at this point.
Mike Schellinger
Okay. Thank you.
Sam Cohen
You are welcome.
Operator
The next question is from David Kaplan of D.B.K. Advisors. Please go ahead.
David Kaplan
Hi, good morning, everyone. Another question I guess going back to the – going back to guidance or lack, I guess, of guidance, the first half of this year was off of pretty relatively easy comps for you guys and if you look back last 12 months in sales equal probably the previous five if not six quarters of sales. So you’ve had a pretty nice ramp up in the first half of 2016 and if you go back to Q3 of 2015, but when I look at those number one of the things that really kind of sticks out at me are two of the things, first of all, the gross profit margin had reached a high in the third quarter 2015 and has now shrunk back down to below 55%, it’s still a very nice gross margin, but it’s very - it fluctuates a lot. So can you talk a little bit about why that happens?
And then the second question has to do with your budget for marketing and sales was quite high in the third quarter 2015, did that have to do with the launch of the iBar, or something specific or related to the iBar, that number came way down for the last two quarters and thinking you said at the end of this second - last-half of this year, what are you budgeting for marketing and sales?
Sam Cohen
Well, the third quarter of 2015 was, I would call it a special quarter. It happens to be that many of the orders were received during – and big size orders received in the second quarter of 2015, which impacted the results of Q3 2015. That’s basically the only reason. It was an unusual quarter and this is – it’s – we also had a very important exhibition in November of 2015, which also impacted – created some uncontrollable ways, let’s call it this way in our results.
So this is the main reason why Q3 2015 was a little bit high or higher than the rest of the quarters. Regarding the budget of sales and marketing, we continue to invest in China. We invest a lot of money in China, as far as building the right infrastructure, as far as new salespeople, new agents and distributors.
We’re now in a process of doing the same thing in South America. And we also did something, I think, extraordinary and very important. We relocated one of our major – one of our, I’d say, strongest engineers from United States to Shanghai and China. And we believe it will create a very strong impact on results.
David Kaplan
Okay. That conference you had in November of 2015, will you be there again in 2016?
Sam Cohen
Actually this exhibition happens every four years. So, we will not have it. But there are many, many other exhibitions, not in that magnitude, not in that size. So, we don’t expect anything like this in the upcoming years. We should say it in 4, in 3.5 years now.
David Kaplan
Okay. And then just, I guess, in terms of share count, there was a big bump of share count between 2015 and 2016. Are there any new shareholder, sorry, share compliance for employees or anything that you guys are planning to come up that we should think about in terms of share count dilutive in 2017, yes?
Sam Cohen
Absolutely not. The change become because one of the major shareholder exercise warrants – his warrants. He invested another $1 million in the company and this is what created the bump in the - or the jump in the number of shares. But we don't expect this in the future. There’s nothing like this in the future.
David Kaplan
Thank you very much.
Sam Cohen
It’s going to be stable.
David Kaplan
Great. Thanks.
Operator
The next question is from Vipul Gondalia of MicroCapClub. Please go ahead.
Vipul Gondalia
Hey, congratulation on a great quarter. My question around cash flow, it looks like you had a great cash flow and cash equivalents raised to almost $4 million. And from what I read, company don’t require more CapEx next year for incremental growth. So, what I have planned for cash flow ever increasing? And apart from that, is there any plans to distribute dividends, or reinvest in growth? And I understand that you don’t need to reinvest in growth, so if you can elaborate a little bit on that, it will be great.
Sam Cohen
Okay. Hello Vipul, as you see, our cash flow – operating cash flow is very similar to our net income. We don’t have any other special expenses that are not cash. And we are not planning any Capex in the coming quarter. We don't need Capex forward. For now, we are not planning dividends, but we will, of course, consider it in the coming quarter.
Vipul Gondalia
Thank you very much. That’s pretty much.
Sam Cohen
You’re welcome.
Operator
The next question is from [indiscernible]. Please go ahead.
Unidentified Analyst
Hi. You were talking about setting the foundation for exponential growth, and it sounded like, that was mainly overcoming a bottleneck in service and support. Can you shed some more light on where you're at in that process of being prepared for service and support? Is that already finished in terms of hiring new people or do we have another quarter for you to lay that foundation?
Sam Cohen
I believe that it will take another three or four months to complete this process and basically prepare it for 2017.
Unidentified Analyst
Okay. Thank you.
Operator
A follow-up question from Vipul Gondalia of MicroCapClub. Please go ahead.
Vipul Gondalia
Yes. Hi, again. So I’ve got a question around receivables, understand that, because there’s a lot of demand on the product. Company also maybe collecting advance from customers, so what are your plans for improving receivables. And do you collect advance, how does it work if you can throw some light on that?
Yaron Menashe
Mr. Vipul thank you for the question. We in general if we get it all from Asia, usually it comes with LC and we usually cover 90%, so we get the money before we even produced a product at least 90% and sometimes it's 100%.
Sam Cohen
And when we receive the product.
Yaron Menashe
Yes, when we receive the product we usually get most of the money and in the Western world Europe and North America usually payments in I would say 95% of our customers from the regions pays about 40%, 50% down payment, additional 40% up on shipping and then 10% service days after installations or something like that. So we secured the cash you prior to starting the installation.
Vipul Gondalia
Thank you, very much.
Sam Cohen
You’re welcome.
Operator
[Operator Instructions] The next question is from Jason Revland of Blueprint Capital. Please go ahead.
Jason Revland
Hi, good morning everyone and thanks for taking my questions. I have two observations and a related question. One it seems obvious that you have more demand than you can or want to satisfy at the moment. And two, you have also been patiently waiting to split and uplift the stock for several quarters despite having all the requirements already satisfied. So my question is are you simply waiting for the stock price to further increase in order to minimize the number of times that you will need to reverse split the stock or is there something else that's holding you up on that. Thank you very much.
Sam Cohen
Well, Jason first of all we need to really understand the advantages and disadvantages and weigh advantages and disadvantages by uplifting. What it’s really going to create for us. Working for sure it’s going to create a lot of headache [ph] for your own that’s for sure. But when weighed both of and we understand the benefits we think - and of course we believe that we can create we should and we believe that the price of our share can be increased. And so we want to make sure we optimize the timing of doing it. So, the answer is all of the above. Your observation is correct.
Jason Revland
Okay, thank you for the question.
Sam Cohen
Okay.
Operator
There are no further questions at this time. Before I ask Mr. Cohen to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available tomorrow on Elbit Vision Systems website www.ebs.co.il. Mr. Cohen would you like to make some concluding statement.
Sam Cohen
Yes, thank you. On behalf of the management of EBS, I would like to thank you all for joining us today. Have a good day.
Operator
Thank you. This concludes The Elbit Vision Systems second quarter 2016 results conference call. Thank you for your participation. You may go ahead and disconnect.
