On Track Innovations' (OTIV) CEO Shlomi Cohen on Q2 2017 Results - Earnings Call Transcript
Aug. 15, 2017 11:17 AM ET| About: On Track Innovations Ltd (OTIV)
Q2: 08-05-17 Earnings Summary
Executives
Shlomi Cohen - CEO
Yishay Curelaru - CFO
Tamir Ben-Yoseph - General Counsel
Analysts
Brian Kinstlinger - Maxim Group
Josh Elving - Lake Street Capital
Edward Schwartz - Schwartz Investments
Mike Latimore - Northland Capital
Marty Elbaum - Horizon Networks
Mike Vermut - Newland Capital
Josh Elving - Lake Street Capital
Now I would like to turn the call over to OTI's CEO, Shlomi Cohen. Shlomi, please proceed.
Shlomi Cohen
Thank you. Good morning, everyone. Thank you for joining us here today to discuss our results for the second quarter ended June 30, 2017.
The second quarter of ‘17 marks a significant milestone in our plan to bring OTI to its full potential. We are pleased to report quarterly revenues of more than US$6.9 million, net income from continuing operation of $86,000 and quarterly positive adjusted EBITDA income of more than US$0.5 million. This represent not only the highest quarterly revenue level since we started our overall OTI’s operation two years ago but also the highest quarterly revenue achieved since the Q2 2014.
Most importantly, our achievements for the second quarter of ‘17 results from significant growth in both our retail segment and petroleum. In our retail segment, we saw increased sales and the delivery of new products into new and expanding markets and verticals, together with outstanding achievements, to recover in very short time on lost accounts. In the US market alone, we saw a growth of 190% in our reader sales compared to Q1 ‘17. In our PetroSmart division, we saw during Q2 a growth of more than 100% compared to Q1 results of long-term efforts to grow existing and new opportunities. In total, Q2 presented an increase in revenues of more than 70% compared to the prior quarter and more than 40% compared to the second quarter of ’16, together with net income from operation and positive adjusted EBITDA. We’re very proud of our team’s work and results from these outstanding efforts.
And before I dive further into the results of our activities and achievements during the second quarter of 2017, I’d like to turn the call over to Yishay for his detailed report on our financial results. Yishay?
Yishay Curelaru
Thank you, Shlomi, and good morning, everyone. Before the market open today, we issued the results of our second quarter ended June 30, 2017 in the press release. A copy of the release is available in the Investor Relations section of our website.
As we cited in the press release, our total revenues increased 73% to $6.9 million from the prior quarter and increased 44% from Q2 last year. The outstanding increase compared to the prior quarter was primarily due to first successful delivery of more than 3,000 payment systems to the Japanese market; a 133% increase in sales of our petroleum segment, which came mostly from sales in Africa and which contribute to our future recurring revenue; and nearly 190% increase in sales of readers in the United States.
Now breaking down our Q2 revenues by source and their percentage of total revenue: Retail and mass transit ticketing revenues was $4.7 million or 67%. Petroleum revenue was $1.9 million or 28%. MediSmart and access control product revenues were $354,000 or 5%.
Looking at 2Q revenues by geographic region and the portion of each region contribution to total revenue: America has accounted for $2.3 million or 33%. Europe accounted for $1.7 million or 25%. Africa accounted for $1.5 million or 22%, and Asia accounted for $1.4 million or 20%. Our gross margin for the first half of 2017 increased 1% to 52% of revenue compared to 51% of revenues in first half of 2016 and decreased 1% compared to last quarter and second quarter of 2016.
Turning to our expenses. For the second quarter of 2017, operating expenses increased 12%, $3.3 million, from $3 million in the same year-ago period. For the first half of 2017, operating expenses increased only 4% compared to the first half of 2016. The increase was mainly attributed to variable cost related to the increase in sales.
Our net income from continued operation for the second quarter total US$86,000 or $0.02 per share. This was an improvement from a net loss from continued operation of $598,000 or $0.02 a share same in the same year-ago period. For the first half of 2017, net loss from continued operations decreased 60% to $696,000 from $1.4 million in the first half of 2016.
Turning to our non-GAAP results. We use adjusted EBITDA from continued operations, a non-GAAP metrics, as we believe it provides a clear indication of our operating results. In the second quarter of '17, our adjusted EBITDA income was $536,000 compared to a loss of $133,000 in the second quarter of '16. Please reference in today’s earnings release for further details about this non-GAAP metric, including a reconciliation of adjusted EBITDA to our comparable GAAP results.
This complete my financial summary. For a more detailed analysis of our financial result, please reference our quarterly report on Form 10-Q, which we filed today.
I would now like to turn the call back to Shlomi for additional comments of our operational progress during the second quarter. Shlomi?
Shlomi Cohen
Thank you, Yishay. As I touched earlier on this call, our success in achieving over than $6.9 million in total revenue and positive adjusted EBITDA income of US$536,000 was driven by great progress across significantly multiplied verticals and across the globe. In Japan, our hard word to enter that market tools for alliances and development of FeliCa-certified products is now delivering results.
During the second quarter, we delivered more than 3,000 systems of our most advance certified FeliCa reader Uno Plus, together with our global machine-to-machine advanced technology. This delivery is a major milestone for OTI. With this delivery behind us, we continued together with our Japanese partner, Billing System, to develop a strong sales pipeline in the Japanese market in order to build a stable market share in the biggest unattended market worldwide.
In Europe, we continued to see acceleration in the deployment and activation of our otiMetry systems, which generates recurring revenues. We have now established what we believe is a solid base for the sustainable growth of this recurring revenue generated.
In North America, we continued to reduce risk, expand and diversify our customer base by trading ourselves into more accounting-different segment. During the second quarter, we delivered a significant amount of results to our partners across the US market, and we can see that the self checkout vertical is rapidly gaining momentum.
Another geographic market that got our attention since the end of last year is Australian market, where we established a strong and stable relationship with our partner, Vend Access, and they’ve already delivered and deployed a good number of recurring revenue-generating otiMetry system. We believe that we will continue to expand our activities within this important market.
More globally, product was maintained in the ATM vertical, as we developed into a stable growing vertical. During the second quarter, we delivered a significant quantity of our UNO Contactless Reader to the ATM market via our global partner. This specialized reader contains unique features developed by our R&D team to adverse the needs of the smart ATM markets. We continue to believe that this vertical will play an important role in our continuing groups and we deliver additional sales during 2017. All-in-all, we are very pleased with the progress made by our retail segment and the results achieved.
With all this progress, it is almost easy to overlook the fantastic work of our PetroSmart division. PetroSmart brought US$2.3 million in the sales during the second quarter. This is our best in almost two years and represents a 102% increase from the previous quarter. Additionally, in late April, PetroSmart entered into a global strategic supply agreement with Dover Fueling Solutions, a leading provider of advanced fuel dispensing equipment and automation solutions. This partnership will make PetroSmart products available into the North American and globally via a network of direct operation and channel partners in about 130 countries served by Dover Fueling Solution. We continued product innovation and growth in sales as strategic partnership will remain strongly positive regarding the fueling activities, and we believe that we will continue to see a growth in this segment.
We have covered a lot of ground here, and so before I wrap up and turn the call over to questions, I would like to read the key accomplishments of the second quarter. We have increased our top line revenue. We continued to successfully implement our strategy of becoming a one-stop shop for unattended payment solution by selling more solutions than ever. As a result, we have increased our recurring revenue and today it is more than 18% of our total revenue. We have established a strong position within the Japanese market. We have gained positive momentum in all our major retail vertical and specifically AT&T vending. We have continued to expand into new markets while diversifying with existing markets.
Summarizing all these, I will say that we stood by our plans, executed on our strategy and delivered the expected results. For the long term, I strongly believe that we will continue to see growth within our different verticals and presenting a positive adjusted EBITDA in 2017.
Operator, we are now ready to open the call for your questions. So please provide the appropriate instructions. Thank you.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Brian Kinstlinger with Maxim Group. Please go ahead.
Brian Kinstlinger
Hi, Shlomi, nice to see the solid rebound in demand. Can you outline how long you expect it may take approximately until you have your bank certification or payment processing certification in place for the Japan vending solution?
Shlomi Cohen
We are actually working on that together with our partner Billing System. And it’s not going to be during ‘17, but we expect that we will finalize this during ‘18.
Brian Kinstlinger
Great. And then a follow-up on Japan, what does that pipeline look like? Is your team currently in discussions with a number of other retailers? Are you waiting until that certification takes place? Thanks.
Shlomi Cohen
As I mentioned before, all the sales and marketing activities that we are doing in Japan, we’re doing it together with Billing System, and needless to say that we are working in order to extend the pipeline that we were unable to do, and in our pipeline we have significant account that we are working and making sure that as soon as possible we will be able to generate significant income from those accounts. It’s a process. Don’t forget that the culture in Japan is a little bit different from Europe and US. And the decisions taken is a little bit more longer is understatement, but I think that all-in-all we are in a very positive momentum in this market.
Brian Kinstlinger
Then the 3,000 deliveries, that was great to see at your milestone. When do you expect the remaining 10,000 to be delivered? Will that be throughout ’17 or will that stand through maybe first half of ’18 as well?
Shlomi Cohen
The contract that we are having with a biggest retailer in Japan is the contract for three years, and what are having within is and basically 10,000 systems that we need to deliver on an annual basis.
Brian Kinstlinger
I see, annual basis, okay. And then finally, on the fueling side, what countries drove that rapid growth? And then how long, before you’re seeking to integrated with the Dover Solutions, at least prepared to begin selling that solution?
Shlomi Cohen
So as Yishay, our CFO, mentioned, that the majority of the income during Q2, as I remember, came from Africa. And regarding the partnership that we are with Dover in the North American market, just as a reminder, we’re already working with Dover in other regions successfully. And what really is signed with Dover in the beginning of the year is actually expansion of this agreement that we are having with them in the North American market. We believe that we will see a small portion of it in the second half of this year and the major part of this agreement we’ll see during 2018.
Operator
The next question comes from Josh Elving with Lake Street Capital. Please go ahead.
Josh Elving
Hey, good morning. Really impressive second quarter revenue number. I guess, a little bit of what I wanted to try to pick a part was: I know you have lumpy revenue from quarter to quarter depending on the timing of orders and deliveries. I guess, what I was trying to get a sense for was, if your base line revenue on a run rate is somewhere in the maybe $5 million range, can you call out any significant orders? Such as we had $1 million order in readers or $0.5 million in petroleum in a particular country, were there any kind of onetime orders that, perhaps, won’t repeat? Or I guess maybe in a bigger picture, how should we think about revenue for the full year and maybe the quarterly cadence?
Shlomi Cohen
When you’re taking company from, let’s say, from a negative stage to a positive stage, during this transition phase, you are actually building the entire pipeline from the beginning. Regarding onetime sales, I think that you can see this, we reduced it dramatically, following the fact that we have selling more and more solutions. And when you are selling more and more solutions, needless to say that the relations that you are building with your customer is a long-term relation. And you can see it by the way in all the places, for example, in Europe and also in the States today, something that we haven’t done before, and I am not speaking about the Japanese market, but it’s obvious. So we are -- and as I mentioned in the previous calls, we are also moving from being a product company to a solution company. And when you are doing that, the entire business model is actually changing and the entire impact on the different parameters that we are having is changing as well. So I believe that in the mid- and the long term, the onetime sales will not be part of our business. I hardly -- when I am looking now and I am trying to think about the amount of business that we are doing and what the portion of the business that it’s onetime sell, I don’t see too much.
Josh Elving
So maybe to clarify the question. So in the past, you talked about your optimism around growing revenue in 2017 over 2016, would you be able to kind of reiterate that outlook for continued growth in revenue in 2017? I know you offered up EBITDA -- positive EBITDA for 2017, and I think that was relatively known. Do you still feel confident?
Shlomi Cohen
I still believe that we will continue to grow with our top line. I remain positive.
Josh Elving
Yes, that’s great. And just to clarify. On the quarterly run rate, I think it would be helpful just to help investors understand if we should expect some level of bumpiness from quarter to quarter. Obviously, this was a significantly stronger than expected revenue performance in the second quarter. I don’t anticipate that you’d be able to maintain that level going forward.
Shlomi Cohen
I will say the following. Look, when you’re dealing with type companies OTI, I know that the wishful thinking is the growth would be lineal, and I will be more than happy if the growth will be always lineal. But I think that, again, on an annual basis we will continue to see growth; if it’s going to be lineal, I don’t think so. But needless to say that when I prefer to look on the company on a perspective of annual basis instead of quarterly basis, but still I feel that even the second half of this year will positive.
Josh Elving
Okay. And I just have one more question and I’ll get back into queue, and this is around IOT and variables. I don’t anticipate that’s going to be a significant contributor at all in 2017, but can you maybe talk about progress that you’ve made? Can you maybe talk a little bit about how many pilots you may have in process or how many entities you’re talking to? And where you are seeing the most interest? Is it in food and beverage, athletic wear, fashion, automobile? Thanks.
Shlomi Cohen
In the IOT business, I think that -- and I think I spoke with you about it few times that it’s actually walking a little bit slower than we expected. For many reasons, by the way, that I don’t think that we are trying to step into this important topic during this call and I’ll be more than happy to do it offline later on, but basically what I want to say is that there is a progress in the IOT. It’s going a little bit slow mainly because of the regulation that still is not stable enough in order to support the IOT payments market. And you can see, by the way, with all the others that also in some kind of parking mode on the IOT, there is a lot of enthusiastic in this market, there is a lot of innovation, but from the other end we need to complete this innovation also with regulations, because in the end of the day, the payments market is a regulated market. And you need to make sure that the entire cooperation from the other side will be influenced well. So I agree with your statement that we’re going to see something significant in 2017, but we’re still positive regarding the IOT. I think this is the future of the payment market.
Josh Elving
Thank you.
Operator
The next question comes from Edward Schwartz with Schwartz Investments. Please go ahead.
Edward Schwartz
Good morning, Shlomi. Great quarter.
Shlomi Cohen
Thank you.
Edward Schwartz
Regarding your run rate for cost of goods, around 50% and seems to learn between 50% to 54%, can we take that as depending on product mixes as an annual - I mean, as a run rate going forward?
Shlomi Cohen
Well, for me, the long term, the answer is positive. If you’re asking me for the short term, as I mentioned before, when you’re taking companies from one stage to another, especially -- and you’re familiar with OTI very good, I think that it’s still a little bit lumpy. But all-in-all, the direction is positive, yes.
Edward Schwartz
Okay. And I noticed - and pursuing your incoming statement via R&D increased in second quarter, was that to accommodate your customer or are you spending more money now to develop more new products?
Shlomi Cohen
Yishay, can you answer that?
Yishay Curelaru
Yes. Basically, the increase was due to employment salaries cost and the development of new products.
Edward Schwartz
Okay. Thank you.
Yishay Curelaru
Welcome.
Operator
[Operator Instructions] The next question comes from Mike Latimore with Northland Capital. Please go ahead.
Mike Latimore
Yeah, yeah great results. Just on to the path of one comment you made there, you said you expect the second half to be positive, did you mean that you expect sort of second half to early year-over-year, like that?
Shlomi Cohen
Yeah. Basically, year-over-year, I think that you see that we are growing and compared to 2016 for sure, and eventually the second half of this year should complete this focus that we are having.
Mike Latimore
Got it. And it’s great to see the diversification. I guess, just trying to get a better sense of if there is any seasonality in the business. It seems like with kind of all your product and channels, there is maybe less seasonality, but can you talk a little bit about seasonality? Are the summer months slower, the year-end sort of budget-plus kind of staff? Or any kind of seasonality would be great.
Shlomi Cohen
Yeah. This is excellent point because, as I mentioned before, we are still trying to find the seasonality that we are having in our business. I definitely can say that always Q4 is considered to be strong, and I believe that it will continue to be like that. But because the company moves from being a product company to a solution company and we change the entire business model, I don’t think that we can find or we can identify a clear pattern regarding each one of the quarters that we are having during the year. I think that we need more time in order to stable the activities that we are having in each one of the verticals and in each of the divisions that we are having before that we will have a clarity regarding seasonality. But this is by the way one of the things that I’m busy with in order to identify and to get some kind of indication regarding the quarter. It’s a little bit early to speak about that, but needless to say that this is one of the most important things for us in order to have a better planning for the years to come.
Mike Latimore
Okay, great. And then with regard to your comments about North America, you called out sort of the self-checkout vertical, I guess was that the vertical the biggest contributor to your North American revenue?
Shlomi Cohen
Not yet, but needless to say that quarter-over-quarter, we are going with this vertical. I think that you can see especially in the US markets. I’m not saying about other regions, but especially in the US markets, the self-checkout system and the kiosk, I don’t want to say that it’s booming but it’s growing very fast. I think that you can see it not only in the fast-food markets, but you can see it also in the supermarkets in the stores, in the different stores, and you can see inside retail market a new segment of stepping into the self-checkout and kiosk implementation. And I believe that it will be like that.
Mike Latimore
And did you have any 10% customers in the quarter? And if so, how many or maybe what their presence were.
Shlomi Cohen
I think that except Japan, but not on an annual basis, on a quarterly basis I think Japan was the biggest account.
Mike Latimore
So that was over 10% of revenue?
Shlomi Cohen
Yes, the answer is yes. Yishay, correct me if I’m wrong please?
Yishay Curelaru
No, you’re right about Japan, but it was less than 10%.
Shlomi Cohen
Less that 10%, okay.
Mike Latimore
That is a good diversification. And then last one on your ATM sales, does that show up as North American revenue or some other region?
Shlomi Cohen
It’s also an important question because we are working actually with the regional headquarter of this giant in the States, but basically the deliveries is all over the world. This is the right definition for the ATM vertical. We are facing the team in US, but the delivery is in Europe, in APAC, and of course also in the States.
Mike Latimore
Great. I guess, when you’ve recognize revenue and your report your regional segments, it shows up as America’s revenue, though?
Shlomi Cohen
Yishay?
Yishay Curelaru
Can you repeat your question?
Mike Latimore
Yeah, just on the ATM sales - so I know it’s sort of sold globally, but does it show up when you report revenue as a America’s revenue?
Yishay Curelaru
Yes, it is. I just want to provide myself, regarding Japan, it war more than 10%.
Mike Latimore
Okay, so substantially more or slightly more?
Yishay Curelaru
Slightly more.
Operator
The next question comes from Marty Elbaum with Horizon Networks. Please go ahead.
Marty Elbaum
Shlomi, congratulations. It seems like the company is trying around. It’s wonderful. Can you further comment at this time about the test that you’ve done with the National Food franchise?
Shlomi Cohen
I cannot speak too much about this, and you’re saying about the fast food chain in the US market?
Marty Elbaum
Yes.
Shlomi Cohen
We are doing it -- our business model that all our business is B2B. And we have a partner here in the US market that we are working with him on this vertical, on the kiosk and self-checkout systems, and it was relatively a long process before we stepped in. And today we are delivering, I would say, a significant amount of payment solutions into this vertical. According to the information that we are giving regarding that because we’re under NDA, but this was basically the process that we faced with this account.
Marty Elbaum
So this could be a significant revenue source possibly for this year so?
Shlomi Cohen
Not only from this account, but generally saying from the kiosk and self-checkout systems, the answer is positive.
Operator
[Operator Instructions] The next question comes from Mike Vermut with Newland Capital. Please go ahead.
Mike Vermut
Hi, guys. How are you doing? Great quarter. So just starting off, looking -- we have created a lot of vertical relationships across geographies and now looking into - it’s going to take a little longer term, looking into ‘18 and ’19, when you see your partnerships, what lays ahead of us on the verticals, geographies, Japan coming on, how much more predictable has that business gone? I think everyone is looking ahead and looked at the business as a product lumpier business. When you are looking at it now, how predictable has our business come? How much confidence you have in ‘18, ‘19 with what’s of ahead of you when you’re looking at your plan that there’s significant growth and profitability ahead for the company with what you have planned out now?
Shlomi Cohen
This is something that we are dealing with that internally and I think related it’s related to previous question from Mike Latimore regarding seasonality. We are trying -- again, I am saying, when you’re moving from stage to another stage, we need some time to say the level of forecast and prediction. And I am saying again the fact that we were moving from being a product company to a solution company and also in the European region for a one-stop shop, this is something that increase our ability to create clarity with our focus. I think that we need a little bit more time before we will see and before we will able to define the prediction with our market. But I think that we are going to be in the direction, something that we didn’t have before, because it was based on box-moving. And we reduced the box-moving approach dramatically, and this is something that eventually the market will see the impact not only on our ability for prediction but also it will impact our gross margin. So I think that we need a little bit more time before we will give a clear answer regarding the prediction.
Mike Vermut
Excellent. So when we look forward, obviously the -- what would be a split where you say a services recurring revenue gets to when you are looking over the next few years. Is it are we no longer -- are we moving towards the 40% recurring-type model or would you start lumping more into that recurring fees?
Shlomi Cohen
Okay. So this is -- as I mentioned few times already, this is our strategy. The strategy is to increase the recurring revenue as much as possible, and today we’re touching the 20% recurring revenue out of our entire revenue. And this is important milestone, by the way. And we continue to push into this direction, by the way, not only in the retail division but also with the petroleum, because in the petroleum we are also generating recurring revenue and the company, on top of the fact that we are selling solutions over there, we’re also compensated [indiscernible] with fuel power customer. This is very important to mention as well. So, when you’re looking today on the different division that we’re earning, if it’s the retail and the ticketing, and you’re looking on our petroleum division, both of them today are generating recurring revenue.
Mike Vermut
Okay. Over time, that should be changing the valuation of the company in and of itself. So that will be the same structure in the U.S. with [indiscernible], so that will be as we implement and install, that becomes recurring revenue as well per gallon?
Shlomi Cohen
I cannot comment on that, but I will say that in general the answer is positive.
Mike Vermut
Okay. Great, okay. Well, fantastic job, guys.
Operator
The next question comes from Josh Elving with Lake Street Capital. Please go ahead.
Josh Elving
Just had a couple of follow-ups. I just wanted to make sure if I heard it right. I heard that petroleum sales were $1.9 million or 28% of revenue, but then I also heard that PetroSmart delivered $2.3 million in revenues, so I just wanted to just double check on that number to see which was accurate.
Shlomi Cohen
Yishay, can you answer that?
Yishay Curelaru
Yeah, the volume was $1.9 million, 28% of the quarterly revenues.
Josh Elving
Okay. And then with regards to PetroSmart. You talked about an expansion of Dover. I know Dover is international, but did you say any revenue in the second quarter came from Dover or was that all from the legacy business?
Shlomi Cohen
We didn’t say anything about that, and we will continue not to say anything about it.
Josh Elving
Okay. But the revenue expected from Dover is expected to be relatively modest in 2017 in the back half of the year with more potential in 2018, is that accurate?
Shlomi Cohen
We’re expecting to have income from this account. I cannot comment on the size of income.
Josh Elving
Okay. And then I think you talked a little bit about it, what was the contribution from the ATM relationship - for the ATM channel in the second quarter? Do you offer any color on that?
Shlomi Cohen
The only thing that I can say is that quarter-over-quarter we can see growth with the ATM growth. It’s going up.
Josh Elving
Okay. And then as you think about just the reader business on a go forward, where is the biggest opportunity? Is it kiosk, is it vending or ATM?
Shlomi Cohen
Look, I think - it’s a good question. I will say this follow. I think that the upside in the kiosk and self checkout is quite high. Needless to say that the vending wealth recovery continued to be also until 2017, the biggest vertical that we are earning. ATM, I want to say that it’s going to close, but yet with the two other verticals, because we can see that there is a very positive momentum over there, part of it’s because the speed of the implementation is going very fast, on the other end, our R&D team are able to deliver more features for this vertical that market is requesting. So all-in-all, if I need to focus the end of 2017, when we will continue to be the number one, I think that up that up to that it’s the self-checkout system, and then it’s the ATM. What will happen in May 2018, it’s a good point. I think that I’m not sure that we will continue to be, I will say, in the same rent that I mentioned now, is contributing to seeing forward. But the good news by the way, is that those three verticals are going. For us, they are going.
Josh Elving
That’s great. And then I guess my last question. I don’t expect you to be able to comment specifically, but I did see that a date was set for settlement discussions with a former customer or a customer of your regarding a lawsuit, I just wanted to get a sense for if we should read that as a positive development in the sense that you are talking again?
Shlomi Cohen
Tamir?
Tamir Ben-Yoseph
I think that the answer is what you would expect, which is we can’t comment on pending litigation.
Josh Elving
Allright. Thank you very much.
Operator
The next question comes from Edward Schwartz with Schwartz Investments. Please go ahead.
Edward Schwartz
Yeah, one quick question. My impression of the dollar relationship is for fleet management. What about individual gas stations converting their pumps to contactless readers to prevent skimming and things like that? Every night on the news, in my local news, there is a report of the gas station that’s been skimmed where skimming equipment reported, and so people’s credit card information gets stolen.
Shlomi Cohen
Yeah. During ’17, we will remain only on the fleet market. We have discussions by the way with part of our partners to step into the retail market, and I think that we will - sooner or later we will step into the retail market. To tell you exactly when it’s a little bit difficult today, because we need to make few changes, and I think that’s one of the biggest step that we are going to do in this respect during the second half of this year, we are developing self-destruct element that we will able to install easily inside the curve in order to approach the retail market. I strongly believe that by the end of this year, this development will be completed and we will be ready for the retail market.
Edward Schwartz
Okay. And regarding the ATMs, Diebold is a larger manufacturer of ATM equipment, and on their website, I noticed what appears to be one of your reader incorporated in one or two of their equipment. Can you confirm that?
Shlomi Cohen
I cannot confirm that.
Edward Schwartz
Okay, thanks so much.
Operator
The next question comes from Brian Kinstlinger with Maxim Group. Please go ahead.
Brian Kinstlinger
Hey, Shlomi, two follow-ups. First of all, in Japan, can you comment on the competitive landscape for solutions similar to yours?
Shlomi Cohen
It is a little bit more complicated because, as of today, we are competing with local players in the Japanese market, but we don’t have at the moment a local Japanese markets that is able to meet the close look of what we are with [indiscernible] together with issuers like Visa, MasterCard on so on. What we were doing, we were actually integrating everything in one solution. And I know that our competitor are walking in presenting our combined solutions, but as far as we know -- and again, it’s relevant for last week, I don’t see at the moment are significant player that is able to combine the entire package that we are having one solution. I want to be very careful regarding that as far as I know.
Brian Kinstlinger
Yeah, and just so I’m clear on fundamental outlook, last year you did $29 million-and-change of revenue and you’re looking at annual revenues, I think you said you’re looking for a growth here year-over-year from here, is that accurate?
Shlomi Cohen
Yes.
Brian Kinstlinger
Okay, great. Thank you.
Operator
The next question comes from Mike Vermut with Newland Capital. Please go ahead.
Mike Vermut
A couple of quick follow-ups. So on the kiosk side of equation, what’s the model we’re targeting there? Is it going to be - I know it’s different, but when you look at it, is it going to be a fee per transaction? What’s the ultimate goal on that? The kiosk obviously are exploding -- on the kiosk side, the facts on the kiosks.
Shlomi Cohen
Again, it’s depending which region, it’s a little bit different. I think that when you analyze the different regions that are playing, such as Australia, Japan, Europe and US, it’s a little bit different. I can say that in the European region, we decided to be aggressive and we are actually going with the flat rate over there. In the US market, it’s a combination in some a case. And the same thing with the Australian market.
Mike Vermut
So when you say flat rate, it’ll be per month like a monthly fee?
Shlomi Cohen
Per month per machine, that’s correct.
Mike Vermut
Got it. Excellent. And then looking at your, -- I know the Japanese rollout has been slower, but when you really get in, these are dialoging with filing systems and customers. Is the market as larger as you expected? And is our potential in the market as large if not larger than you expected?
Shlomi Cohen
I think that the potential is huge. That remains the same as always. I think that Japanese took strategic decision to be cashless. But again, people that are working in the Japanese market, they know that it’s -- there is a long decision cycle in this market. There is a lot of relation that you need to build, a lot of network that you need to establish before we are moving on. I think that if you go a little bit back to ‘16, everyone was asking me, “What about Japan? What about Japan?” And I was saying it’s not a question if we are going to get the field, it’s only when. And I think that this is the best answer that I can give regarding the Japanese market. It’s not something that all of us are familiar in the US market or in the European market. They are working a little bit different, and we need patience.
Mike Vermut
But has anything changed with the mandate to 2020?
Shlomi Cohen
No. N, the decision has been -- no one was changing the decision, but again, for me sometimes it’s a little difficult to understand the entire culture, I guess, that we are in. We are improving by the way with this respect and we are working intensively over with Billing System. And I think that in the end of the day the relationship that we are having with Billing is the most important change. They are doing a great job by the way.
