InvestorsHub Logo
Followers 146
Posts 27518
Boards Moderated 3
Alias Born 02/07/2004

Re: None

Saturday, 08/12/2017 7:32:46 AM

Saturday, August 12, 2017 7:32:46 AM

Post# of 746
Elbit Vision Systems (EVSNF) CEO Sam Cohen on Q2 2017 Results - Earnings Call Transcript

Aug. 11, 2017 2:15 PM ET| About: Elbit Vision Systems Ltd. (EVSNF)
Q2: 08-05-17 Earnings Summary
Press Release News
Elbit Vision Systems Ltd. (OTCQB:EVSNF) Q2 2017 Earnings Conference Call August 9, 2017 10:00 AM ET

Executives

Ehud Helft - GK Investor Relations

Sam Cohen - CEO

Yaron Menashe - CFO

Analysts

Michael Brcic - National Securities

Tomer Cohen - Five Roads Capital

Operator

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

Ehud Helft

Thank you, operator. Welcome to EVS' second quarter 2017 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 contains projections or other forward-looking 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 demand 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 today are Sam Cohen, CEO and Yaron Menashe, the CFO. Sam will start by discussing some of the key highlights of the second quarter, while Yaron will summarize some of the financial highlights of the second quarter. After this, we will open the call for the question-and-answer session.

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 continued interest in our company. While we have seen a drop in our current backlog, we are extremely excited about the business we see in our near future. Over the past few weeks, we have seen a significant increase in orders from Europe and I've just returned from an extensive stay in US where I met with multiple top managers of many, many sectors. These current potential customers, each assured me that business is coming in the near future. From these discussions, we know that we are at the final stages of the sales process in a number of accounts globally and look forward to bring our backlog back in line.

Our backlog decrease is primarily driven by delay in capital spending from few large orders in US and a softer than expected market in China. We understand what is needed and are implementing the necessary corrective action. We will continue to make significant improvement to our products and have added features that will benefit our customers. Our efforts in software enhancements have begun to show significant momentum in our market by giving our customer base a strong, stable operating system with much needed tools and features to expedite their return on investment.

We have continued to pursue other ways to our solutions that boost performance, lower costs and provides customers with necessary automation to grow and thrive in today's market. We have spent time and resources over the past several months improving and refining our iBar product. Each of the upgrades and revisions will enable us to make the product significantly more attractive from a return investment perspective and will help advance our sales and marketing strategy.

We currently have multiple customers with over 20 units installed as well as won customers with nearly 80 units. In total, we have about 250 units running in production as of today. However, given the quality of land owners we have closed in the last few weeks, we believe this number will grow significantly in the upcoming quarters. Obviously, the iBar sales have not progressed on the timelines we originally expected, but over the past two years, we have acquired a vast amount of knowledge regarding how to better promote the product. Despite the delays, we do see high level of interest from all the players in our market and this will eventually lead to increased order momentum and size.

Just to summarize. As we close the first half of 2017, we feel very optimistic about the future of EVS. The decrease in our backlog has been offset by the positive momentum we have seen recently in our sales activity. Our commitment to the complete automation of the textile market and to create global quality standardization has not changed. Though we continue to build toward full potential of the iBar, we've never felt more confident in our future.

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

Yaron Menashe

Thank you, Sam. Revenues for the second quarter of 2017 were $2.3 million compared with $2.6 million in the second quarter of last year and $2.5 million in the previous quarter. Second quarter gross profit was $1.3 million, an 8% reduction compared with last year with gross margin 55.9%. Operating income in the second quarter of 2017 was $427,000 versus $630,000 in the second quarter of last year. Our operating margin was 18.7% compared with 24.7% last year. Our OpEx was higher in the second quarter, primarily due to a higher level of R&D expenses.

We expect R&D to remain at this level for the remaining of the year and we expect to increase marketing and sales toward the end of the year. Net income for the second quarter of 2017 was $396,000 compared with $587,000 in the second quarter of last year. Our net margin was 17.4% compared with 23% in the second quarter of last year. Our diluted EPS was $0.04 versus $0.06 last year. Cash and cash equivalent and short term deposit as of June 30, 2017 were 4.3 million compared with 4.5 million as of December last year. As of June end, our shareholder equity strongly improved and stood at $6.7 million from $5.8 million reported at the end of last year.

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

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Michael Brcic of National Securities. Please go ahead.

Michael Brcic

Hi. Sorry. I missed the first couple of minutes from the call, but I do have a bunch of questions. You mentioned some large US orders that you expected to close in the first half that didn't. Have they started closing in this quarter or what's the status of that?

Sam Cohen

In the last few weeks, I was in the US and met with all of them and we did have some delays. It's difficult to predict, but the customers show me that business is coming, it should come and that's it. I cannot really tell you, some customers can say okay, it's coming and it's going to take 3 months, some customers, it will take 3 weeks. It's very difficult to predict. But I don't feel like we're missing anything or I think that these are internal processes inside the organization.

Michael Brcic

Got it. Thank you. And this might also be too hard to answer, but do you expect the year-end revenues to be higher than last year or lower or flat or do you have any insight into that yet or is it too early?

Sam Cohen

It is too early. It's hard to predict. We're working hard globally, Europe, Asia and North America. It's very difficult to predict. It can be flat, it can be a little bit lower and it can be much higher. It really depends on what's going to happen in the next two months. But as I said in the conference, we are very focused, we feel very strong about our business. Our business model didn't change. I don't feel anything that fundamental change what we're doing. That's it. It's a small company, it may happen that one quarter here, one quarter there. If you miss one or two deals that were larger than $0.5 million, you may have fluctuations in your results. And that's exactly what happened.

Michael Brcic

Finally, any sort of sense you can give us on possibly listing on the major exchange, because we have a lot of problems here in the US, not being able to buy the stock. Is there any sort of timeframe you can sort of give or a little bit of color on that?

Sam Cohen

Okay. I don't know of any problem that you may have being on the OTC, however, we don't have any timeline. It's in our to-do list. We're looking for the right timing to do that and it happens, now, it wasn't the right time to do this. But we're preparing everything, we did some reverse cleaning a few months ago. So everything is getting ready, it's just technicality at this point. So saying that, it's just timing. When we feel this is the right timing, we will do it.

Michael Brcic

Okay. Is there a chance it could happen this year or is that out of the question?

Sam Cohen

There is always a chance. There is always a chance.

Michael Brcic

Finally on cash balance, if that keeps growing, is there any sense of maybe a special dividend or anything like that?

Sam Cohen

Could you repeat that? I didn't understand.

Unidentified Analyst

Regarding the cash balance, if that keeps growing, is there any thought of paying a special dividend or something like that?

Sam Cohen

Everything is on the table. I cannot say it's not, but this is not something that we are planning in next few quarters. We are investing back all the money back to the company.

Operator

The next question is from Tomer Cohen of Five Roads Capital.

Tomer Cohen

My first question has to do with the next generation of the iBar. I'm curious if you could give us an update on when you think you'll be able to launch that?

Sam Cohen

I cannot give you an update, I will say that we're working very hard on all aspects; hardware, software, mechanics, everything on this project, but I cannot give you any indication at this point.

Tomer Cohen

I see, okay. And then as far as your competitive position…

Sam Cohen

I must add another thing here. I was in an exhibition in May in Frankfurt and in that exhibition I realized that everybody are watching and listening and reading and following EVS [indiscernible] details and it's very difficult for us to expose any information at this point as far as, you know, when are we going to launch it, what's the status, what it's going to contain because competitors, customers, partners, companies that produce weaving machines, all kinds of companies are watching EVS and watching every step. So we need to be very careful in what we are saying or writing in our PRs and conference calls. So I'd like to apologize in advance because meeting with all these guys and they're telling me, okay, we're following this, we read that, it's very critical for us now to be very careful.

Tomer Cohen

That makes sense I understand that. Could you walk me through, you mentioned that your sales and marketing expense would increase, is that because you're expecting to hire new sales people?

Sam Cohen

Basically we are now spending more money in sales and marketing, business development and R&D that's what we're doing right now. Right now we feel this is the bottleneck. Starting with R&D, I can tell you that R&D is something that is very critical to keep us with advantage - the technical and chronologically advantages that we have. And following that we are going to spend more money in sales and marketing distribution channel and so on.

Tomer Cohen

As far as new sales people, could you walk me through, are these people who are going to be out a customer sites helping with integration or are they going to be chasing entirely new customers, or where do you think they'll sit in the sales cycle.

Sam Cohen

Both. But chasing new customers, chasing customers in general mainly, mainly in Asia and North America.

Tomer Cohen

And then my last question has to do or you know what actually I'll jump back in line and ask my other questions later. Thanks.

Operator

[Operator Instructions] The next question is from Jason Harmon [ph]. Please go ahead.

Unidentified Analyst

I was wondering if you could comment a little bit more on the market conditions in China whether these factors are affecting just your company or they are conditions that are affecting a number of your competitors and sort of the textile industry overall in China. Thank you.

Sam Cohen

Well, we don't feel that - we don't know exactly what's happening with competition in China at this point. We are following other companies and I don't know if it impacts other similar companies to EVS, capital equipment to the textile industry companies have an impact at this point, we don't know. We know that for EVS we have seen a drop in getting new orders. We worked hard to really understand what happened there. It's a combination of culture. It's a combination of them understanding how to implement our systems and the cycle of getting repeat orders from Chinese customers.

The answer is we know what happened in EVS, he hope we know what happened in EVS, and we already started to implement a correction action. And this is the answer. I don't really know of any competition, real competition in China. Many customers stand during the negotiation that they are looking to competition, almost everyone in China telling us this. We have some competition in [indiscernible] some competition in film application, but we really don't have any competition in textile.

Unidentified Analyst

I appreciate the additional color on that and you did mention that you know making a correction. Is that just in terms of just changing your sales approach or also in terms of pricing, I'm just wondering if you could comment on whether your pricing has received some additional pressure than usual in China or in any other markets

Sam Cohen

We definitely feel that the pricing strategy in China, only in iBar was not the correct one. We started very high price and we feel today that at least in China it wasn't the correct approach or the correct strategy. So this is something that we implanted few weeks ago, two months ago, but it will also take time for us to go and meet with these customers, explain that okay we improved our production, we improved our purchasing, all kind of things. We improved our product, so we can sell it now in lower cost and they will accept it very openly and positively, I'm pretty sure about it.

Operator

The next question is a follow up from Tomer Cohen of Five Roads Capital. Please go ahead.

Tomer Cohen

I'm just curious if you could update us on your competitive positioning. I know you've talked a little - you told investors about companies that are further along in our products. But I'm curious if you could talk about people who are start-ups if there's anybody coming into this space that's innovating that you think might affect you?

Sam Cohen

I mentioned before that we had a very important exhibition in May, in textile in Frankfurt, technical textile exhibition in one of the largest, if not the largest in textile. This was a great exhibition for EVS and we also believe, this is a side note that the first quarter wasn't so strong in Europe, mainly because of that, the people waited for this exhibition. But immediately after that we picked up many, many more from Europe. We have seen two or three competition, three competitors rather in that exhibition. All of them were in really early stages as far as the architects, you can see that there are some people that presented a big machine vision that was in okay situation I would say, probably maybe two, three years. We are two years ahead of them based on what we've seen.

They don't have good experience and they don't have large customer base and installation base like we do. As far as shade variation analyzer, we didn't see anything with shade variation analyzer. In iBar, I would say that what we seen over there is really in a mock up stage. And this is one of the reasons; I mean, one of the competitors showed something mechanically it looks similar to what we have, mechanically. But definitely from the inside it looks far, far away from what we currently have and what we are able to generate. So this is like I said before, it is very important, but we will keep the cards close to our chest not to talk too much about it. But we feel even after this exhibition, we feel like we are at least two, three years ahead of all the competitors.

Tomer Cohen

Great that's helpful. Keep up the good work and hopefully the quarters to come will yield all the fruits of your hard work.

Operator

There is a follow-up question from Michael Brcic of National Securities. Please go ahead.

Michael Brcic

Just as an aside on the listing thing, I used to be at Oppenheimer and Company and they would definitely not let us recommend anything that was not listed on the main exchanges, here at National, it's similar and probably a little bit more stringent. But my question is regarding competition, do you have any sort of intellectual properties sort of safeguards or anything like that can extend your time in elite.

Sam Cohen

Yes, we do have a patent on the iBar and if you go into details with this patent, you will see there is really strong patent that blocks anybody else to do what we're doing [indiscernible] something there that address a real strong issue with questionable defect, which is the biggest problem. If you have a hole in a fabric that's not a questionable defect that's a defect, but if you have something related to density and stuff like this, this is questionable, it depend on the application and the patent that we have address exactly this issue. And without this you cannot - you simply cannot have a system, you cannot really have a machine, and on the other side, if you have this then you really standardize the weaving process. That's the direction we are taking.

Operator

[Operator Instructions] 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 www.evs.co.il. Mr. Cohen would you like to make your concluding statement.

Sam Cohen

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

Join the InvestorsHub Community

Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.