Quarterly Earnings

2018 Second Quarter
On Track Innovations Ltd. Reports Second Quarter 2018 Financial Results
Revenues in First Half of 2018 Increase by 10% to $12.0 Million; Gross Margin in Second Quarter Increases to 52%

Rosh Pina, Israel – August 8, 2018 – On Track Innovations Ltd. (OTI) (NASDAQ: OTIV) (the “Company” or “OTI”), a global provider of near field communication (NFC) and cashless payment solutions, has provided a business update and announced financial results for the second quarter ended June 30, 2018.

 

Operational Updates:

  • In June, OTI received a purchase order for more than 3,000 cashless payment systems from Japan via its partner, Billing Systems Cooperation (TSEL 3623), a leading payment service provider. OTI will recognize a one-time sale, followed by a high-margin, recurring revenue stream over the long-term. By the end of the third quarter of 2018, OTI will have delivered a total of more than 10,000 advanced payment systems to Japan.
  • Expanded footprint in Poland through new government contracts:
    • In April, OTI secured a recurring revenue contract with the Polish National Post Office (Poczta Polska S.A.) to manage Warsaw’s public transportation “Smart City” card program (i.e. purchase or refill cards for travel via train, bus, or other mode of public transportation). OTI will be providing both the payment portion, as well as the software, in 272 terminals throughout post offices in Warsaw, whereby OTI will manage and control the entire sales and payment process.
    • In May, OTI signed one-year, $500,000 agreement to provide intermediation in the sale of train tickets for trains operated by Mazowieckie Railways in Poland. OTI will provide service to the Masovian Card and sharing information via the infokiosk using 84 ticket vending machines.
    • In June, OTI secured a four-year service contract with the Mazowieckie Railways company to provide and maintain their Smart Cart IT system in support of electronic ticket sales in Poland's largest and most populous province.
  • In June, OTI received two technology awards from Global Brand Publications (GBR):
    • OTI PetroSmart, OTI's South Africa based fuel management subsidiary, was named "Most Innovative Technology Company" in Africa.
    • OTI Europa, OTI's European subsidiary, was named "Most Innovative Cashless Payment Solutions Provider" in Europe.
  • In July, OTI received a purchase order for 5,000 advanced contactless readers to the widespread Russian retail self-service market. OTI has also applied for the Russian Mir certification, a Payment System Established by The Central Bank of Russia. The company expects greater penetration once the Mir certification is officially approved.

 

 

 

 

 

 

 

 

Management Commentary

“We’ve continued to experience strong operational execution in our business, evidenced by several purchase orders and contracts in some of our key target markets, including Poland, Japan, and most recently, Russia,” said Shlomi Cohen, Chief Executive Officer of On Track Innovations. “As part of these initiatives, we have continued to invest in our growing list of esteemed certifications, and most recently applied for the Russian Mir certification that we expect to receive in short order, which most likely accelerate penetration in this key market. In fact, we’ve identified Russia as a potential strategic market for OTI, and in July, we received a purchase order for 5,000 advanced contactless readers to the widespread Russian retail self-service market.

 

“In the first half of 2018, we recognized revenues of more than $12.0 million, representing growth of 10% from the year-ago period, and experienced our third consecutive quarter of positive Adjusted EBITDA results as we drive towards profitability. Looking towards the third quarter of 2018, we are expecting double-digit revenue growth compared to the third quarter of 2017 as a result of execution across all business units as we continue gaining market share in the cashless payments arena.”

 

Financial Summary

  • Total revenue in the second quarter of 2018 was $6.2 million, compared to $6.9 million in the same year-ago period. Revenues in the first half of 2018 increased 10% to $12.0 million, compared to $11.0 million in the first half of 2017.
  • Recurring revenues accounted for 24% of total revenues in the first half of 2018, compared to 23% of total revenues in the first half of 2017. On an absolute dollar basis, recurring revenues increased by 14% to $2.9 million, compared to $2.5 million.
  • Gross profit in the second quarter of 2018 was $3.2 million, or 52% of revenues, compared to $3.5 million, or 50% of revenues, in the same year-ago period. In the first half of 2018, gross profit increased 11% to $6.3 million, or 52% of total revenues, compared to $5.7 million, or 52% of revenues, in the same year-ago period.
  • Net loss from continuing operations in the second quarter of 2018 was $230,000, or $(0.01) per share, compared to a net income from continuing operations of $86,000, or $0.00 per share, in the same year-ago period. Net loss from continuing operations in the first half of 2018 was $525,000, or $(0.01) per share, compared to a net loss from continuing operations of $696,000, or $(0.02) per share, in the same year-ago period.

Conference Call

Management will host an investor conference call at 9:00 a.m. Eastern time on August 8, 2018, to discuss OTI’s second quarter 2018 financial results, provide a corporate update, and conclude with a Q&A from participants. To participate, please use the following information:

 

Date: Wednesday, August 8, 2018

Time: 9:00 a.m. Eastern time

U.S. Dial-in: 1-888-317-6002

International Dial-in: 1-412-317-5245

Webcast: https://www.webcaster4.com/Webcast/Page/1720/26753

 

Please dial in at least 10 minutes before the start of the call and request to join the “On Track Innovations Q2 2018 Earnings Conference Call” to ensure timely participation.

 

The conference call will be available for replay by clicking here and via the investor relations section of the company’s website.

 

Use of Non-GAAP Financial Information

This press release contains certain non-GAAP measures, namely, adjusted EBITDA from continuing operations, or adjusted earnings from continuing operations before interest, income tax, depreciation and amortization. Adjusted EBITDA from continuing operations represents earnings before interest or financing expenses, income tax, depreciation and amortization, and further eliminates the effect of stock based compensation expense, patent litigation and maintenance expenses and other expenses. OTI believes that adjusted EBITDA from continuing operations should be considered in evaluating the Company’s operations since it provides a clear indication of the Company’s operating results. This measure should be considered in addition to results prepared in accordance with U.S. GAAP, but should not be considered a substitute for the U.S. GAAP results. The non-GAAP measures included in this press release have been reconciled to the U.S. GAAP results in the tables below.

 

ON TRACK INNOVATIONS LTD.

RECONCILIATION OF NON-GAAP ADJUSTMENT
The following table reflects selected On Track Innovations Ltd. non-GAAP results reconciled to GAAP results:
 (US dollars in thousands)

 

 

Three months ended June 30,

Six months ended June 30,

 

2018

2017

2018

2017

 

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

 

 

 

 

 

Net (loss) income

$       (280) 

$        93 

$       (613)  

$        (772)  

 

 

 

 

 

Net loss (income) from discontinued operations

50

(7)

88

76

Financial expenses, net

95

39

127

110

Depreciation

345

302

680

583

Taxes on income

 (27)

25

(38)

56

Total EBITDA FROM CONTINUING OPERATIONS

$     183

$      452

$           244

$           53

 

 

 

 

 

Other expenses

70

-

70

                          -

Stock-based compensation

         62  

         84

            115  

            174  

Total adjusted EBITDA FROM CONTINUING OPERATIONS

$        315

$      536

$         429

$         227

 

About On Track Innovations Ltd

On Track Innovations (OTI) is a global leader in the design, manufacture, and sale of secure cashless payment solutions using contactless NFC technology. OTI’s field-proven innovations have been deployed around the world to address cashless payment, automated retail and petroleum markets. OTI distributes and supports its solutions through a global network of regional offices and alliances. OTI is the proud recipient of the 2017 AI Award for Best Cashless Payment Solutions Provider – Israel. For more information, visit www.otiglobal.com.

 

Safe Harbor / Forward-Looking Statements

This press release contains express or implied forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal securities laws. Whenever we use words such as "will," "expect," "anticipate," "intend," "plan," "estimate," "would," "should," "can," "promising" or similar expressions, we are making forward-looking statements. For example, we are using forward-looking statements when we discuss, among others:  our expectations regarding delivery of our payment systems to Japan, receipt of the Russian Mir certification in short order and its potential effect on our penetration to the Russian market, our drive towards profitability and our expectations for revenue growth in Q3 compared to Q2 and market share gaining in the cashless payments arena and our expectations regarding future growth into new markets such as the Russian market.  Forward-looking statements are made as of the date of this document and are inherently subject to risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statements.  Additional factors that could cause actual results to differ materially from those anticipated by our forward-looking statements are stated under the captions “Risk Factors” in our most recent Annual Report (Form 10-K) and other known and unknown uncertainties and risk factors including those detailed from time to time in the Company's filings with the Securities and Exchange Commission.  Forward-looking statements are made as of the date of this release, and we expressly disclaim any obligation or undertaking to update forward-looking statements. The reader is cautioned not to place undue reliance on forward-looking statements.

 

Investor Relations Contact:

Greg Falesnik

MZ North America

1-949-385-6449

Greg.Falesnik@mzgroup.us

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ON TRACK INNOVATION LTD.
INTERIM UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(US dollars in thousands)

 

 

 

 

 

 

June 30,

December 31,

 

 

 

                  2018

                    2017

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

Cash and cash equivalents

 

$     6,592

$      6,742 

Short-term investments

 

2,161

 3,331 

Trade receivables (net of allowance for doubtful

 

 

 

 accounts of $550 and $568 as of June 30, 2018

 

 

 

 and December 31, 2017, respectively)

 

5,536

5,827 

Other receivables and prepaid expenses

 

2,168

 1,563

Inventories

 

3,313

3,009

 

 

 

 

Total current assets

 

19,770

20,472

 

 

 

 

 

 

 

 

Long-term restricted deposit for employees benefit

 

473

498

 

 

 

 

Severance pay deposits

 

384

405

 

 

 

 

Property, plant and equipment, net

 

              5,401

              5,859 

 

 

 

 

Intangible assets, net

 

                 313

                  336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

 $      26,341

$      27,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ON TRACK INNOVATION LTD.
INTERIM UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(US dollars in thousands)

 

 

 

 

 

June 30,

December 31,

 

 

 

                  2018

                    2017

 

Liabilities and Equity

 

 

 

 

 

Current Liabilities

 

 

Short-term bank credit and current maturities

 

 

  of long-term bank loans

$          3,974 

$          4,181 

Trade payables

6,418

 6,264

Other current liabilities

2,441

2,421

 

 

 

Total current liabilities

12,833

 12,866 

 

 

 

Long-Term Liabilities

 

 

Long-term loans, net of current maturities

477

   814

Accrued severance pay

890

              939

Deferred tax liability

408

              500

Total long-term liabilities

1,775

           2,253

 

 

 

Total Liabilities

14,608

       15,119

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

Equity

 

 

 

 

 

Ordinary shares of NIS 0.1 par value: Authorized –

 

 

50,000,000 shares as of June 30, 2018 and

 

 

December 31, 2017; issued: 42,473,076 and 42,353,077 shares as

 

 

of June 30, 2018 and December 31, 2017, respectively;

 

 

outstanding: 41,294,377 and 41,174,378 shares

 

 

as of June 30, 2018, and December 31, 2017, respectively

1,068

 1,064 

Additional paid-in capital

224,903

 224,758 

Treasury shares at cost - 1,178,699 shares as of June 30,

 

 

   2018 and December 31, 2017

(2,000)

        (2,000)

Accumulated other comprehensive loss

(945)

           (691) 

Accumulated deficit

(211,293)

     (210,680)

Total Equity

11,733

         12,451

 

 

 

Total Liabilities and Equity

 $      26,341

$     27,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ON TRACK INNOVATION LTD.
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(US dollars in thousands, except share and per share data)

 

 

 

      

Three                    Three months ended June 30,

Six months ended June 30,

 

 

                  2018

                    2017

                  2018

                    2017

           

 

Revenues

 

 

 

 

 

Sales

 

 $      4,656 

 $      5,646 

 $      9,137 

 $      8,426 

Licensing and transaction fees

 

 1,498 

 1,300 

2,879 

2,540 

 

 

 

 

 

 

Total revenues

 

 6,154 

 6,946 

12,016 

10,966 

 

 

 

 

 

 

Cost of revenues

 

 

 

 

 

Cost of sales

 

 2,973

 3,476

 5,727

 5,276

Total cost of revenues

 

 2,973

 3,476

5,727

 5,276

 

 

 

 

 

 

Gross profit

 

3,181

3,470

 6,289

 5,690

Operating expenses

 

 

 

 

 

Research and development

 

815

889

 1,645

 1,591

Selling and marketing

 

1,463

1,492

 3,108

 2,834

General and administrative

 

     1,065

     939

1,972

1,795

Total operating expenses

 

3,343

3,320

 6,725

 6,220

 

 

 

 

 

 

Operating (loss) income  from continuing operations

 

(162)

150

(436)

(530)

Financial expenses, net

 

 (95)

 (39)

 (127)

 (110)

(Loss) income from continuing operations

 

 

 

 

 

 before taxes on income

 

(257)

111

(563)

(640)

Income tax

 

27

(25)

38

 (56)

Net (loss) income from continuing operations

 

(230)

86

(525)

(696)

Net (loss) income  from discontinued operations

 

(50)

  7   

(88)

(76)

Net (loss) income

 

$       (280)

$              93

$         (613)

$       (772)

Basic and diluted net loss attributable to shareholders per ordinary share

 

 

 

 

 

From continuing operations

 

(0.01)

*

(0.01)

(0.02)

From discontinued operations

 

*

*

*

*

 

 

 

 

 

 

 

 

$            (0.01)

$                 *

$        (0.01)

$      (0.02)

 

 

 

 

 

 

Weighted average number of ordinary shares used in computing basic and diluted net income (loss) per ordinary share

 

 

41,271,644

 

41,095,788

 

41,243,169

 

41,087,729

 

*    Less than $0.01 per ordinary share.

 

 

 

 

 

ON TRACK INNOVATION LTD.
INTERIM UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(US dollars in thousands)

 

 

 

 

Six months ended June 30,

 

 

                 2018

                2017

 

Cash flows from continuing operating activities

 

 

 

Net loss from continuing operations

 

 $              (525)

 $              (696)

Adjustments required to reconcile net loss to

 

 

 

net cash used in continuing operating activities:

 

 

 

Stock-based compensation related to options issued

 

 

 

  to employees and others

 

115

174

Accrued interest and linkage differences, net

 

7

(47)

Depreciation and amortization

 

680

583

Deferred tax, net

 

(54)

21

Gain on sale of fixed assets

 

(17)

(7)

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

Accrued severance pay, net

 

(28)

74

Decrease (increase) in trade receivables, net

 

963

(1,151)

(Increase) decrease in other receivables and prepaid expenses

 

(658)

90

Increase in inventories

 

(344)

(47)

Increase (decrease) in trade payables

 

445

(396)

Decrease in other current liabilities

 

(650)

(855)

Net cash used in continuing operating activities

 

(66)

(2,257)

 

 

 

 

Cash flows from continuing investing activities

 

 

 

Purchase of property and equipment, net

 

(414)

(98)

Change in short-term investments, net

 

1,173

2,500

Investment in capitalized product costs

 

(87)

(157)

Proceeds from restricted deposit for employee benefits

 

-

44

Proceeds from sale of fixed assets

 

17

12

Net cash provided by continuing investing activities

 

689

2,301

 

 

 

 

Cash flows from continuing financing activities

 

 

 

(Decrease) increase in short-term bank credit, net

 

(80)

213

Repayment of long-term bank loans

 

(348)

(374)

Proceeds from exercise of options

 

34

15

Net cash used in continuing financing activities

 

(394)

(146)

 

 

 

 

Cash flows from discontinued operations

 

 

 

Net cash used in discontinued operating activities

 

(107)

(71)

 

 

 

 

Total net cash used in discontinued operations

 

(107)

(71)

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(288)

463

 

 

 

 

(Decrease) increase in cash, cash equivalents and restricted cash

 

(166)

290

Cash, cash equivalents and restricted cash-beginning of the period

 

7,799

(*)  7,500

 

 

 

 

Cash, cash equivalents and restricted cash-end of the period

 

$               7,633

$          (*)  7,790

 

(*) Reclassified to conform with the current period presentation.