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Thursday, 11/24/2016 9:51:36 AM

Thursday, November 24, 2016 9:51:36 AM

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Elbit Vision Systems' (EVSNF) CEO Sam Cohen on Q3 2016 Results - Earnings Call Transcript
Nov. 24, 2016 8:10 AM ET| About: Elbit Vision Systems Ltd. (EVSNF)
Q3 2016 Earnings Summary
Press Release News
EPS of $0.01 | Revenue of $2.48M (- 14.8% Y/Y)
Elbit Vision Systems Ltd. (OTCQB:EVSNF) Q3 2016 Earnings Conference Call November 22, 2016 9:00 AM ET

Executives

Ehud Helft - GK Investor Relations

Sam Cohen - Chief Executive Officer

Yaron Menashe - Chief Financial Officer

Analysts

David Kaplan - D.B.K. Advisors

David Dreman - Dreman Value Management

Mike Schellinger - MicroCapClub

I would now like to hand the call over to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, please go ahead.

Ehud Helft

Thank you, operator. Welcome to EVS third quarter 2016 conference call. I would like to welcome all of you to the conference call and I would like to thank EVS management for hosting this call. Before we start, I would like to point out that this conference call may contain projections of 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 risks identified in the documents filed by the company with the Securities and Exchange Commission.

With us on the call are Mr. Sam Cohen, the CEO and Mr. Yaron Menashe, the CFO. Sam will discuss some of the key highlights of the third quarter, while Yaron will summarize some of the financial highlights of the third quarter. After this, we will open the call for the question-and-answer session.

And now, I would like to hand over the call to Sam Cohen, EVS CEO. Sam, go ahead please.

Sam Cohen

Thank you, Ehud. I would like to welcome all of you to our conference call and thank you for your interest in our company. The third quarter continued our strong performance for 2016. We expect the revenue to be around $10 million this year which will be around 10% growth from last year. Therefore, we remain pleased with our performance to-date and we look forward to continue that in Q4. The revenue growth this year has primarily been from our Asian region, while our business in the U.S. and Europe remaining steady.

iBar growth continue its positive trend where we have seen year-over-year sales growth exceed 50% over the first three quarters of last year. To-date, we have installed over 180 units in production. The feedback from our customers continued to be positive and constructive. Using these inputs, we have continued improve this product to match our customers’ needs and demands. At the same time, these updates have allowed us to broaden the appeal and functionality of iBar to additional applications increasing our total relevant addressable markets. The majority of our sales to-date, have represented initial sales into customers or as we call it the land part of our strategy. We sell and install a small group of machines in the customers’ manufacturing facility allowing them to get comfortable with the product and measuring its return on investments.

After spending the short period of time, working with the iBar in production, the customers understand the performance and payback of this tremendous technology allowing the additional CapEx budgets to be allocated to expand units across the production floor. We believe that this extent of our iBar sales strategy is still ahead of us leading to significant and continued growth in iBar’s orders in 2017 and beyond.

Market trends in manufacturing towards automation are still – are extremely positive, especially in Asia for obvious reasons. In order to compete in globalized world, manufacturers have been forced to begin a long-term plan toward replacing intensive human labor with technology. Yet, automation and textile is still very much in its infancy. And we expect that this trend would continue to drive growth in our revenue for years ahead.

As part of our growth strategy, we recently started cooperating with one of Europe’s leading furniture retailer whereby they will push and ultimately require the textile supplier to manufacture the products utilizing EVS technology. Our technology provides the ability to manufacturers to standardize the global production and verify the global quality ensuring optimized performance from all production locations. Furthermore, we intend to expand on this strategy and are looking to work with further retailers. In summary, we remain very pleased with our performance in 2016 and we look forward to continue growth ahead.

And with that, I would like to go ahead over to Yaron Menashe, our CFO. Yaron, go ahead.

Yaron Menashe

Thank you, Sam. I will now summarize the result of the third quarter. Revenue for the third quarter of 2016 was $2.5 million. This represents a 15% year-over-year decline compared with $2.9 million as reported in the third quarter of last year and 3% below those of revenue of $2.6 million reported last quarter. Note that the third quarter of 2015 was particularly strong quarter because of especially large orders we delivered in that quarter. This quarter, gross profit was $1.4 million or gross margin of 54.9% compared with $1.8 million or gross margin of 60.3% in the third quarter of last year and $1.4 million or gross margin of 54.3% in the prior quarter.

Operating income in the third quarter of 2016 was $554,000 which is an operating margin of 22.2%. This is compared with operating income of $915,000 in the third quarter of last year, which was an operating income of 31.5% and operating income of $630,000 or 24.7% margin in the prior quarter. Net income for the third quarter of 2016 was $528,000 compared with $929,000 in the third quarter of last year and $587,000 in the prior quarter. As of quarter end, our shareholders’ equity strongly improved and stood at $5.3 million, up from $3.7 million at the end of last year and $2.2 million as of September end last year. The cash and cash equivalents and restricted short-term deposit net of bank debt amount to $3.9 million in the quarter compared with $2.8 million net at the end of last year and $1.5 million net at Q3 end last year.

And with that, we will be happy to take your questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] The first question is from David Kaplan of D.B.K. Advisors. Please go ahead.

David Kaplan

Hi, everyone. I have a couple of questions. First of all, on the iBar, the expansion of the iBar, what’s the focus for sales and management right know, is it more on expanding the number of customers who are purchasing iBars or the number of iBars at existing customers? That’s the first one.

Sam Cohen

The focus is very simple. We must perfect the niche initial installations. We must learn from the customers exactly, where are the advantages and disadvantages and work on the disadvantages before we continue the expense. So, we are really focusing to improve our product, our values and in parallel to that, we are training more and more engineers and hiring more and more engineers to able to support growth later on.

David Kaplan

So I guess related to that and to another point that you brought up on the call about moving into retailers or for furniture manufacturers and which is I guess an expansion of your customer base to include now not just industrial – not just industrial manufacturers, but also retail manufacturers. So, how does that play in? Are there same requirements of the customer in terms of the engineers in your ability to expand sales?

Sam Cohen

Well, you know, retailers – large retailers, they have many suppliers all over the world and they have many suppliers, many companies even if it’s one company still you are going to have many plants in many regions in the world. So, a lot of advantages, one of the biggest advantages is the fact that they can standardize and they can ensure that the quality that they are getting from their suppliers in Brazil will be identical through the one in Bangladesh, for example. So, we feel very strong that this strategy of working with retailers and help them to receive good quality on-time from many locations in the world I think is going to be very beneficial for them and for us.

David Kaplan

Okay. I am just getting a little confused, so if we can kind of define the terms a little bit, you are talking about – there are retailers, there are manufacturers, there are suppliers, so who would be the customer of the iBar?

Sam Cohen

The retailer suppliers. So, for example, let’s take JCPenney, okay. They have suppliers in India. They have suppliers in China. They have suppliers in North America. They want to make sure that the suppliers will be – will have the same quality. They want to make sure that this will be standard and they want to make sure that they will get their product on time. So, they are going to approach their suppliers to use and push their suppliers to use EVS products. That’s our goal. That’s what we are trying to do.

David Kaplan

So, they would put into their SLA agreement with their suppliers that the manufacturers will be required to use an iBar system or whatever or an EVS?

Sam Cohen

Well, I did point that iBar is not even – but it’s more IQ-TEX and SVAs, but because until retailer they care about the end product, they don’t care – it’s not that they don’t care, but they are not so enthusiastic about the profit, they want to make sure that the product that they receive will be good. So, I am not saying that this is to-date, I am not going to require to-date, but definitely what we have seen today is first of all they create better awareness within their suppliers and the suppliers that have quality issues they call them and they push them to start using EVS product.

David Kaplan

Okay. So you mentioned specifically the new furniture supplier customer, retailer or whoever it was and I imagine that’s a relatively new customer and so can you talk a little bit about…?

Sam Cohen

No, no, no, the supplier – no, no, no the retailer is not EVS customer.

David Kaplan

Okay.

Sam Cohen

The retailer has suppliers who supply fabric to him, okay and they are asking their suppliers to use EVS product, but their retailer is not EVS customer, okay.

David Kaplan

Alright. So has there been a growth in the number of customers who are using the iBar for now or this is you are saying iBar is totally different product anyway?

Sam Cohen

There has been a growth, but this has nothing to do with the retailer.

David Kaplan

Right. Okay, great. And then just my last question, I think I thought that is the floor on the calls with you guys, relative to liquidity of the stock and if there are any plans in the near-term for EVS to do something about the liquidity profile?

Sam Cohen

Well, we are – if I understand you are asking about liquidity right you are asking, what are we doing about liquidity?

David Kaplan

Yes, stock trading liquidity, yes.

Sam Cohen

Trading liquidity. Well, we – in our plans, first of all, I think we improved the liquidity in the last few months very much. We are – we just been noticed that some of the bankers in Israel – one second please – sorry about that, we have just been noticed that some of the banks in Israel will allow trading of shares that are minimum price will be $105. So, we believe that this is something that we will be happy to do and I believe we will do it in the next few months or quarters. And I believe this will open for especially Israeli traders to the ability to go ahead and buy themselves EVS shares.

David Kaplan

Is that only if it’s traded on a large exchange rate if it continues to be OTC there would still be – it’s the dollar amount that they trade or care about?

Yaron Menashe

It can be an OTC.

Sam Cohen

It can be an OTC too.

David Kaplan

Okay, great. Thanks very much.

Sam Cohen

Okay.

Operator

The next question is from Michael [indiscernible] of National Securities. Please go ahead.

Unidentified Analyst

How much cash was generated in this quarter?

Yaron Menashe

It was almost similar to our net deposit around $0.5 million.

Unidentified Analyst

Okay. You sort of seem to imply that the iBars that are placed right now have some kinks in them that you are working with the clients to perfect, is that taking a little bit longer than you thought because of that?

Sam Cohen

Well, personally I think it took more time than we initially thought obviously. We thought that it’s going to much shorter, but it takes more time. And I think the main reason is we know that we are ahead of any competition and we want to make sure that when the growth will be very strong we want to make sure that our product will be mature and we will spend less time in this way we will have much better profit. We spend less time installing these machines and supporting these machines and make sure that the customers are happy and the expansion will be much faster and smoother. So, we prefer at this point when we have around 200 machines and everything is still controllable to be in a position where we control the situation. We perfect the product. We perfect all the features that any customer is looking for and then we are moving to – in this way we are moving from one or two applications we are expanding it to three, four, five applications and segment in the textile industry in this way we are – we make sure that when we are going to have 1,000 machines, everything will be okay.

Unidentified Analyst

Got it. Finally and maybe you addressed this and I missed it, but this quarter was down 15% from a year ago, can you go into a little bit of the explanation of that and that’s it? Thank you.

Sam Cohen

Well, first of all, third quarter of last year was exceptionally strong. It was one or two big orders that we received in the middle of last year around June, July last year and we had – contractually we had to deliver it in the third quarter. However, when you look at this kind of – in our business if shipments didn’t arrive on time, then you are going to have $300,000 or $400,000 shifting from one quarter to another. So, we need to look at this as two quarters or three quarters and then we can – or 1 year and then we can measure the real performance. Again, I don’t see this as something that we should be concerned the opposite. Again, when you look at nine months, nine months this year or nine months last year you see that there was a nice growth between them.

Unidentified Analyst

Great. Thank you very much.

Operator

The next question is from David Dreman of Dreman Value Management. Please go ahead.

David Dreman

Hi, everybody. I just want to go back to the iBar for a little bit can you talk a little bit about what your customer pipeline for the iBar looks like?

Sam Cohen

Well, it’s hard to say, because we are still expecting some orders by the end of this year. We – I don’t feel like we have a huge pipeline, but it’s in the same pace of what we have seen up until – in 2016.

David Dreman

Okay. And what about going into 2017?

Sam Cohen

Again, it’s hard to say, it’s really depend on the budget meetings of all of our customers. Obviously, we have sales forecast and we know what should come what we believe will be the numbers, but because it’s very difficult to predict, I cannot really tell you what I – I cannot really predict what’s going to happen. We expect and we believe that 2017 will also have some growth in the iBar. Again, it’s very difficult to say if it’s going to be the second quarter or the third quarter where we are going to start seeing more and more orders coming in, but I believe in 2017 – sometime in 2017, we should start feeling that the number of iBars will start growing and give us what we expect and what we worked so hard for.

David Dreman

Just as a follow-up to that, what sort of segments are you selling the iBar to?

Sam Cohen

Right now, we are in the high end and mainly to the automotive industry. We just started printed circuit boards, glass fabric that goes into the printed circuit board industry. But it’s more high end automotive technical fabric military applications, that’s where we are going to start and I believe we will continue to do this in 2017.

David Dreman

So, it’s a very directed sales segment as opposed to just letting the sales team run wild and try to get customers in various sectors?

Sam Cohen

Yes. At this point, yes, again, the day we will feel that we have everything in place all the infrastructure like service sales, support manufacturing, when everything will be in place, I think we will lose everything and we will start really pushing this very strong across the board. Just as a side note, we are renovating our offices here, preparing it, increasing dramatically the area of production. So, those are lot of things going on in EVS in order to make sure that everything will be ready for further growth.

David Dreman

Will that timeline that’s sort of time when you will be ready to go for floors, would that happen in 2017?

Sam Cohen

I hope so. This is something that we are working very hard for this to happen. But it’s again, it’s hard to predict, I am not saying this because I have tried to predict in 2015 what’s will happen in 2016 and I have seen some delays. So, this is what our plan – we plan to do that. We plan that this will happen in 2017. But I feel very, very strong that it will happen. It will happen in the – let’s say 18 to 24 months. That’s how we feel about it.

David Dreman

Okay. Well, I appreciate your time and good luck on the coming quarter.

Sam Cohen

Thank you very much.

Operator

[Operator Instructions] The next question is from Mike Schellinger of MicroCapClub. Please go ahead.

Mike Schellinger

Yes. Thanks Sam for taking my question. Can you comment on the number of iBar customers that you have landed thus far and maybe how it’s – how that number is growing from say the beginning of the year or a year ago?

Sam Cohen

Yes. In fact, Mike, we – I can say on purpose, but we didn’t increase the number tremendously from the beginning of this year. And the main reason was just like I mentioned before we wanted to perfect our product. We wanted to make sure the infrastructure is in place globally. People in China and India and Asia and United States, North America and Europe, everybody will be ready. Production will be ready. And we really wanted to fulfill all the customer’s requirements and received all the input from them and make sure that we will add all the features that they require before we move on to the next step. So, we increased it by let’s say three or four customers. We have a plan – currently, we have a plan and we will complete this plan by the end of this year. This is part of our budget meetings for 2017. But we are working very closely with all of our sales managers all over the world to identify the next batch or the next wave of customers where we want to have land and expect the current customers to expand and give us repeat orders for the iBars that they currently have. One thing to remember and I think that this is very important to understand, our legacy business is still very strong growing. The demand is incredible, especially in Asia. I mentioned this several times. So, I can say that we have very nice variety between let’s say on segments that we are working on different area in the industries, different products. So, the company is very stable, mature and we feel very good about iBar as well as the legacy business.

Mike Schellinger

Okay, thank you very much.

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.evs.co.il. Mr. Cohen, would you like to make your concluding statement?

Sam Cohen

Thank you. On behalf of the EVS management, I would like to thank you for joining us today. Have a good day.

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