– : Ned Mavrommatis – CFO Norman Ellis – COO

Jason Smith – Lake Street Capital Markets Bryan Prohm – Cowen & Company Josh Nichols – B. Riley & Co Morris Ajzenman – Griffin Securities

Good day ladies and gentlemen thank you for standing by, and welcome to the I.D. Systems' Q3 2014 Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) I would now like to turn the call over to our host Mr. Ken Ehrman, you may begin.

Welcome to I.D. Systems; fiscal 2014 third quarter conference call. Thank you for joining us today. I’m Ken Ehrman, Co-Founder and CEO of I.D. Systems. I will review our Q3 performance and then, Ned Mavrommatis, our CFO will detail our financials for the quarter and Norman Ellis, our new Chief Operating Officer will you his perspective on our business after his first few months with us. Following the opening remarks, we will open the call for Q&A. Before we begin, let me remind everyone about forward-looking statements. The following discussion contains forward-looking statements within the meaning of federal security laws, which are subject to risks and uncertainties, including, but not limited to; the impact of competitive products, product demand and market acceptance risks, fluctuations in operating results, and other risks detailed from time to time in I.D. Systems' filings with the Securities and Exchange Commission. These risks could cause the company's actual results for the current fiscal year and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of the company. While it’s been six months since we launched the strategic initiatives we call I.D. Systems 2.0. We’ve earmarked approximately $2.5 million aimed at building quality, repeatable and scalable processes to ignite our next phase of growth. Our short-term investments are targeted at creating a scalable implementation, training and benefits calculation capability. In addition, we are aggressively reducing our product development backlog, improving quality and efficiency and accelerating product delivery to meet growing market demands. Although the full positive impact of I.D. Systems 2.0 is not being realized immediately, I am happy to report our initial efforts are meeting our expectations with about one-third of the first 24 projects already completed. We believe these investments contributed directly to the growth we achieved in…

Thank you, Ken, and hello to everyone on the call today. I have already met some of you and if I haven’t met you yet, I look forward to meeting you in the near future. Prior to joining I.D. Systems, I conducted the appropriated due diligence including detailed conversations with many of my extensive contacts in the transportation industry. I.D. Systems has got high marks for its solution, people, and its position in the market. During the course of my interactions with the company, I have experienced the same things. We’ve got highly, quality talented people. Great products and a strong IP portfolio. And also major unpenetrated market opportunity. In the Transportation Asset Management business, even though it’s relatively mature market, end-users are coming to understand that to compete effectively in a crowded commodity landscape; they need better asset utilization and return on those assets. Our suite of transportation asset management products is as broad or broader than any in the industry and we’ve just introduced as Ken mentioned three more products. One for tracking intermodal containers, one for chassis which includes loaded and unloaded detection and one for monitoring drive vans and their cargo. So there is still plenty of hurdle ground for growth in this market. The warless VMS market opportunity is even more exciting with only about 5% of the addressable market penetrated and with I.D. Systems holding an estimated market share of about 50%. We are clearly the leader in this segment as reflected by our stellar customer list. The caveat is that we have less optimal processes in place and we’ve been limiting out growth. We could and soon will be doing less better. The good news is that processes can be fixed. And as Ken noted in the Q2 investor call, we’ve established a…

Thank you, Norm, and hello to everyone on the call. Revenue for the three months ended September 30 2014, increased 5% year-over-year and 3% sequentially to $11.7 million from $11.2 million in the third quarter of 2013 and from $11.4 million in the second quarter of 2014. The increase was due primarily to increased sales of our industrial vehicle management systems which grew 11% year-over-year as Ken mentioned, driven by strong contributions from channel partners and international markets. Revenue from VMS in Q3 2014 was approximately $7.2 million, up from approximately $6.6 million in Q2 2014 and approximately $6.4 million in Q3 of the prior year. Recurring revenue was $4.4 million or 37% of total revenue in the period compared to $4.5 million or 40% of total revenue in the third quarter of 2013. The slight decrease in recurring revenue was attributable primarily to TAM service contracts renewing at lower rates which reflect current marketing prices for cellular sales of PAM systems as Norm mentioned, cellular communication. However, the lower rates also helps drive 167% year-over-year increase in new unit sales of TAM system as Norm mentioned will contribute to recurring revenue over time. We are also trying to increase recurring revenue through the introduction of new products we developed in 2014. Gross margin was 47% compared to 45% in the second quarter of 2014 and 52% in the third quarter of 2013. The year-over-year decrease was attributable primarily to increased channel partner sales which have lower margin the direct sales to end-users. Channel revenue increased 70% compared to the third quarter of 2013. We are seeking to further increase channel revenue by expanding strategic partnerships with industrial truck manufacturers like Raymond Corporation and Toyota Material Handling. In presenting R&D and SG&A expenses, I am going to compare the current…

Thanks, Ned. Before we open the call for your questions, I just want to restate the objectives we are dedicated to achieving. We want our organization to be as world-class as our customer base. We aim to make our patented end-to-end technology one of the top success stories of the internet of things revolution and we are committed to achieving more predictable sustainable revenue growth as well as profitability for our shareholders. I am sure we will continue to identify new challenges as we progress, but we embrace those challenges and we know we need to execute every day to make our goals a reality. Now we’ll turn the call over for any questions.

(Operator Instructions) Our first question is coming from the line of Bryan Prohm from Cowen & Company. Your line is open. Bryan Prohm – Cowen & Company: Hey, good afternoon guys.

Good afternoon. Bryan Prohm – Cowen & Company: Hey, I was pressing star 1 and I wasn’t sure that with the pause that did I had actually pressed sufficiently. Hey congratulations. Good quarter. I am trying to connect the dots here on the number that I think Norm to add $100 million of revenues. Since now, we are in the $11 million to $12 million quarterly run rate and that’s before the real inflection of 2.0 really hit. How quickly can this scale up during 2015 given all the drivers that we see falling into place now in the next three, six, nine months?

Well, I think, let me answer that. I think, it’s really going to be a function of how well we finish out I.D. Systems 2.0 because if you look at the opportunity with aviation, the Department of Defense, Toyota Material Handling, GM, Swift, Warner, Track, it’s really going to be how effectively we can implement the programs that we are working with them now and then how quickly they move forward. So, I think, again, we are setting ourselves up to get to that number. We are making the investments we clearly need to make in order to service them at those levels and we are going to try to get there as quickly as we can. Bryan Prohm – Cowen & Company: All right, hey, sort of a following question, the TAM growth Transportation Asset Management growth is it’s been like low-single-digits right for the first two quarters of the year and now it’s 167% increase is that, how much that it’s directly correlated with 2.0 and/or new products?

Sure, hey Bryan it’s Ned. So the 167% increase is the unit sales compared – (inaudible) Bryan Prohm – Cowen & Company: Pardon me.

However, although it doesn’t have an immediate impact in revenue, it would have a big impact in revenue going forward as we deliver those units and as they start generating recurring revenue. We believe that the majority of that increase in unit sales has to do with the investments that we are doing with I.D. Systems 2.0. Bryan Prohm – Cowen & Company: Okay. And then, sort of related to 2.0, you earmarked $2.5 million, how much has been spent to-date and will the balance of it all be spent in 4Q?

We spent approximately $1.7 million to-date. The majority of the balance will be spent in the fourth quarter. There is one project that would go into 2015 so there will be some dollars left over that we will spend in 2015. Bryan Prohm – Cowen & Company: Okay. And then, so what is – does the breakeven run rate then still come back to somewhere around the $10 million range based on the previous guidance you given around that metric? Thanks.

We are still – this is Ken, we are still putting together our plan for 2015 based on Norm’s input. I think we are going to – now that we – assuming by the end of the year, we can achieve our objectives of creating the scalable company that 2.0 is about. Our objectives in 2015 are to really penetrate those markets that we are talking about. So there is a possibility that in 2015, that we will make some investments in growing our sales and marketing organization assuming we get to the point where we are ready to do that. So we are not 100% set on what that level of investment will be, but we definitely don’t want leave these untapped market opportunities untapped because we didn’t have the resources to go out there and get in front of them. Bryan Prohm – Cowen & Company: No, understood. There is an order of magnitude difference between $15 million quarter at the $25 million quarter.

Exactly, so… Bryan Prohm – Cowen & Company: All right, I have asked a bunch of questions, I’ll pass the line. Thanks guys.

Thank you.

Our next question is coming from the line of Josh Nichols from B. Riley & Company. Your line is open. Josh Nichols – B. Riley & Co: Just looking at the revenue by the different verticals. So, in rental fleet probably around 275 and you said 6.2 for the industrial asset management, so probably around $7 million which will be about 4.5 about flat sequentially a little bit u for the quarter, is that correct?

Let me just give you the actual numbers, Josh. So, VMS in the quarter was $7.2 million, rental call is $273,000 and transportation was $4.3 million. Josh Nichols – B. Riley & Co: Okay, thanks a lot. Let’s see and then the new Wi-Fi version of the VMS product I am guessing that the VAC4, correct?

That is correct. Josh Nichols – B. Riley & Co: And you have orders going out for sometime this year, you said a bit later?

Yes. Josh Nichols – B. Riley & Co: Okay, any idea for the transitions be between moving from the power fleet and power box the VAC 4 and the recent deals were for power fleet, I believe mostly?

Well, that it gets back to what I was talking about earlier, which is once we feel comfortable with the products and the investments we are making in 2.0, we are going to really start much more aggressively marketing and selling them. So, the answer is, we should see a significant uptick on them because we’ll now have the capabilities to support any expanded sales that would result from the increased sales and marketing organization. We tried that once before, just to go back 15 years in our history. We expanded our sales and marketing organization significantly and we were not even closed already and we didn’t realize that both. We didn’t have the ability to service the current customers and so it turned out to be a very preliminary or premature expansion, I’ll call it. So at this point, Norm and we actually have metrics that we put in place from reliability and scalability standpoint that if and when we achieve them is when we are going to really invest a little bit more heavily in the sales and marketing side. Josh Nichols – B. Riley & Co: That makes sense. And then, so looks like there is some big opportunities intermodal, chassis and auto pilot program, a couple of things going, what’s it look like for how long to these pilot program may turn into nation-wide rollout or something like that?

Well, I think, it is going to depend on how effectively we execute on those pilots. So in many of the cases, we have been executing much better than we have in the past. So as a result, the numbers that we are projecting, if we talk to our customers are very significant. But you have to temper that with reality, because to grow much more than 15% to 20% on a revenue basis would be a pretty significant accomplishment. So, if you just looked at the potential from those current customers and what they are telling us, it provides the Greenfield to achieve much higher revenue growth than we would want to put down and commit to you right now. So, the bottom-line is we got to continue to execute. Josh Nichols – B. Riley & Co: All right. And last question for me, it; looks like margins moving up as mentioned, highlighted on the last quarter call that you expect them to. Is this as far as the breakout is that, you are seeing a better margins on that Transportation Asset Management side or maybe the VMS or kind of any granularity regarding the mix?

Well, when you look at the margins amongst both businesses they’ve been pretty consistent, till last quarter that we expect the margins to improve which they did and especially as we look into 2015, as we get the new VAC 4 product out there, which cost less, we should see further improvement on our gross margins. Josh Nichols – B. Riley & Co: Okay. Thanks a lot that’s it for me.

Thank you.

Our next question coming from the line of Morris Ajzenman of Griffin Securities. Your line is open. Morris Ajzenman – Griffin Securities: Hey guys. .

Hi, how are you? Morris Ajzenman – Griffin Securities: Hi, just a follow-up on the S intelligence, it looks like you came in about 4.3 million fixed, I think that compares to 4.5 million a year ago is that’s the ballpark?

Yes. Morris Ajzenman – Griffin Securities: And basically you said low rental rates, so that that’s based on very wider revenues with annual review modestly -order rate renewals.

What happens, Morris, is the cost of these cellular services continue to come down over time, so lot of the renewals get renewed at a lower rate which had a slight effect and a decrease in our service revenues. Our cost also goes down so the margins do not change but the revenue goes down. However, as mentioned before, during this quarter we saw a significant increase in the new units sold compared to prior periods. So as we continue to increase the new units sales, we should see higher service revenue going forward. Morris Ajzenman – Griffin Securities: Okay, so as a follow-up that would be, can you have several quarters of top-line growth in once double-digits and because – so basically we should look at that as we transition based on new units sold and how those plays out looking out of couple quarters, should we see AI growing double-digits on the workers system basis going forward?

Absolutely. Our plan for the Transportation business is not to grow at 1% or 2% per year and if you look at our new products, especially for the intermodal and the chassis market as well as the existing trailer space and some of the experience that Norm brings to that space. We expect to increase the new unit sales in that business, we should have an improvement of double-digit growth in the top-line for that business. Morris Ajzenman – Griffin Securities: So then, again, I am just kind of seeing on this, but I want to make sure I understand this, this quarter total range of 5% is an anomaly from the perspective of the last few quarters and so, in quarters going forward, you are still talking double-digit growth rated. Understand one from this quarter-to-quarter but overall, we should see top-line growing at double-digits, is that correct?

Yes, right now, we – for the nine months of the year, we are up 15% so far and absolutely expect that for the year, we should continue to maintain that level of increase over last year. Morris Ajzenman – Griffin Securities: I understand for the nine months, I am looking at this current quarter, this current quarter should be not be indicative of growth rates going forward or should it be for some extent on the near-term basis this quarter?

I hope so, I think the VMS revenue went up by a significant percent quarter-over-quarter and the TAM sales went up also by a very significant percent. So we can maintain that type of increase that would be fantastic. Morris Ajzenman – Griffin Securities: All right, but I am looking at the overall revenue growth rate. It should revert back to double-digit overall revenue growth rate.

For the company, that’s correct Morris. Morris Ajzenman – Griffin Securities: Okay, okay. Thank you. I’ll get back in queue. .

All right. Thank you.

Our next question is coming from the line of Jason Smith of Lake Street Capital your line is open. Jason Smith – Lake Street Capital Markets: Thanks for taking my questions. Lot of my questions have been answered, wondering a quick housekeeping Ned. Who are the 10% customers in the quarter?

Sure, we had two customers in the quarter that were over 10%. The Raymond Corporation and Wal-Mart and there were seven – they were 18% and 12% respectively. Jason Smith – Lake Street Capital Markets: Perfect. And then can I know it’s pretty early innings, but just wanted to get your thoughts on how we should think of the Toyota opportunity and what’s the slope of ramp there could look like?

So, the Toyota opportunity is definitely one of the most exciting, I guess new developments, I’ll call it for the company this year. The amount of dealers that they have are probably three to one over what Raymond has and all of the learnings that we’ve uncovered through the process of getting that relationship working smoothly with Raymond were immediately transitioning over to Toyota. So I wouldn’t think that the ramp up in sales from Toyota will be anywhere near as long as it’s taken for Raymond. In fact, I would expect by the end of next year, that there is definitely a high likelihood that Toyota would eclipse Raymond by the end of the year. So, but, again, that’s just my guess, they’ve been very excited about the opportunity since we last spoke, we are now private-labeling the product. So we are putting their name on it. We are investing heavily in a portal so that they can automatically – efficiently order our product and service our product. So there is a tremendous enthusiasm on sides, theirs and ours about what the potential for this relationship brings. Jason Smith – Lake Street Capital Markets: Okay, perfect. And then lastly, just wanted to go back to your earlier comments about expanding sales and marketing next year. Do you anticipate a significant step-up in OpEx in order to go after all these opportunities you guys have in front of you?

We are not there yet. So, what Norm’s – I’ll tell you that, it’s going to be about bringing in, obviously we don’t have to do that in order – as the Toyota relationship matures. But for direct sales, we would benefit greatly from having kind of the superstars that Norm knows from the industry that he can bring to I.D. Systems as he gets much more familiar with the opportunity and how our selling process works. So there are some people that Norm would like to bring in, especially now, the opportunity is right in front of us, so why wait? We just don’t know exactly what level that’s going to be. It’s definitely going to be a measured approach. It’s not going to be 20 new sales guys all at once. We are going to be smart about it. But we definitely have not figured out exactly what those numbers are going to be just yet. Jason Smith – Lake Street Capital Markets: All right, thanks a lot guys.

Thank you.

(Operator Instructions) We have a follow-up question coming from the line of Morris Ajzenman of Griffin Securities. Your line is open. Morris Ajzenman – Griffin Securities: Hi, what can you talk to us about car rental business and what’s going on with the previous relationship with Avis budget and where Roger talking to at this point?

Sure, well, as everyone knows, we are in year three of our five year contract with Avis. We continue to execute. We continue to work with them on the current technology. We are also continuing to talk to them about what the future will hold. We also are talking to the other major rental car companies and I will just frankly say that they are definitely interested in both our patents and what we can do. But, similar to last quarter, haven’t fully made up their mind as to exactly which bits and pieces if not all of our technology that they want to implement on their fleet. So, we are engaged and we are actually trying to avoid being distracted by it because it’s really hard to put your finger on when the real home runs can come to be. It seems much more likely that significant revenue growth would come from the company as I talked about earlier from the aviation space, from the DOD, from Toyota, General Motors, Swift, Warner, Track. I mean, these guys are engaged now and talking about expanding. So rental car is still something that we have a great 18 year investment in and we continue to be technology leaders in. But, how that’s going to impact our financials for now, we are not really putting much weight in it. Morris Ajzenman – Griffin Securities: Thank you.

All right. Well, I think there are no further questions. So, just one closing remark, which is, we’ve done a lot of transitioning in the I.D. Systems 2.0 not just in our investments internally into creating those scalable quality processes. But we also had a significant change in our sales leadership and I am very happy to report that although we started in July, we really didn’t see much, if any of hiccup in our revenue in the quarter that we made the significant transition. So I am definitely looking forward to the propositions that Norm will bring to our future. He has been doing an excellent job so far and I am extremely optimistic as a result. So, thank you very much and I look forward to reporting in the future.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.