Good afternoon. Welcome to I.D Systems Third Quarter 2016 Conference Call. My name is Andrew and I'll be your operator for today's call. Joining us for today's presentation is the company's CEO. Ken Ehrman, CFO Ned Mavrommatis, and COO Norm Ellis. Following their remarks, we will open up the call for your questions. Before we begin the call, I would like to provide I.D. System’s Safe Harbor statement that includes cautions regarding forward-looking statements made during this call. During the call, there will be forward-looking statements made regarding future events including I.D. Systems’ future financial performance. All statements other than present and historical facts which include any statements regarding the company's plans for future operations, anticipated future financial position, anticipated results of operation, business strategy, competitive position, company’s expectations regarding opportunities for growth. demand for the company's product offering, and other industry trends are considered forward-looking statements. Such statements include but are not limited to the company's financial expectations for 2016 and beyond. All such forward-looking statements imply the presence of risk, uncertainties, and contingencies many of which are beyond the company's control. The company's actual results, performance, or achievements may differ materially from those projected or assumed in any forward-looking statements. Factors that could cause actual results to differ materially could include amongst others SEC. filings, overall economic and business conditions, demand for the company's products and services, competitive factors, emergence of new technologies, and the company's cash position. The company does not intend to undertake any duty to update any forward-looking statements to reflect future events or circumstances. I would like to remind everyone that this call will be recorded and made available for replay via a link of available in the investor relations’ section of the company’s website at www.id-systems.com. Now, I would like to turn the call over to I.D. Systems’ CEO, Mr. Ken Ehrman. Sir, please proceed.

Welcome everyone and thank you for joining us today. After the market closed we issued our results for the third quarter and nine-month end of September 30, 2016 in a press release a copy of which is available in the investor section of our website. Our results for the third quarter and first nine months of the year were highlighted by strong gross margins and reduced operating expenses reflecting the continued success of our profitability initiatives. In fact, our operating expenses for the first nine months of the year mark their lowest level since 2009. However, while the improvements in our margins and operating expenses are encouraging our top line results have not met expectations. A key reason for this under performance is related to the product issues we experienced in 2015, issues that we have successfully addressed, which caused certain customers to exclude our solutions from their 2016 budgets. In other words, we were frozen until we resolve these technical and implementation issues. Nevertheless, our team has worked incredibly hard this year to regain our customers’ confidence and reestablish sales momentum with key enterprise accounts all with reduced expenses. This is demonstrated by the orders we began rolling out in late Q3and early Q4 with enterprise customers including a global industrial company and Michael Foods, a leading food processor and distributor, a wholly owned subsidiary of Post Foods. In this example, we received the pilot order, implemented the systems and received a meaningful follow-on order in less than 12 weeks. The. Type of roll-outs are consistent with our strategy of getting major customers to accelerate their quarterly by activity. As I've talked about on prior calls, we believe we now have a scalable business model that enables us to achieve accelerating growth and profitability as we penetrate our customer…

To 4.6 [Technical Difficulty] Our gross margin improved to 1116 basis points… This year as well as customers signing long-term higher margin service contracts. Turning to our expenses, selling general and administrative expenses for the third quarter of 2016 decreased 4% from $3.5 million in Q3 of last year. Our total operating expenses for the third quarter of this year decreased 4% to $6.1 million from $6.3 million dollars in Q3 of last year. For the first 9 months, our total operating expense decreased from 16% to 18.2 million from 21.7 million in the first nine months of last year. While these are certainly encouraging improvements, we recently implemented additional cost cutting measures to further align our organization and cost structure with our revenue profile while simultaneously improving product quality and efficiency. These measures are expected to reduce our operating expenses on an annual basis by an incremental $1.3 million. We plan to continue to evaluate opportunities to further optimize our cost structure and expect to realize over the coming quarters and full financial benefits from these recently implemented measures. Turning to our profit of profitability measures our GAAP net loss for the third quarter of 2016 totaled $2.1 million or $.16 for basic and diluted share. This compares to a net loss of $1.9 million or $.15 per basic and diluted share in Q3 of last year. For the first nine months of the year our GAAP net loss improved to $4.3 million or $.33 per basic and diluted share. This compares to a net loss of $9 million and $.72 per basic and diluted share in the same year ago period. And finally excluding stock based compensation, depreciation, and amortization as well as nonrecurring items our non-GAAP net loss for the third quarter of 2016 totaled $1.5 million…

Thanks Ned and good afternoon everyone. As Ken alluded to earlier we continue to make steady progress rolling out our industry leading solutions with new and existing customers. On the VMS side of our business, we continue to expand with major enterprise customers. Our progress on this front was recently demonstrated by the follow-on orders received from a Fortune 10 global industrial manufacturer, and a top three auto manufacturer. Both of these large enterprises have opportunities for growth in both Q4 and 2017. Recently completed a signal. We recently completed a significant pilot with a large government agency. They have approved the BCA, business case analysis, and are now working to fund a large roll out in2017. One of the world's largest auto parts manufacturers also completed a multi-location pilot resulting in a very compelling ROI. They intend to roll out their entire enterprise beginning in early 2017. Another significant win in Q3 [indiscernible] Michael Foods, who's a leading food processor and distributor. Michael Foods selected powerfully to outwit its fleet of industrial trucks to roll out and file an extensive evaluation of several VMS providers where the customer ultimately selected I.D. Systems based on our advanced capabilities and analytics. We are looking forward to helping them leverage our solutions to increase employee safety and better understand productivity on a material handling operations throughout powerfully I.Q. analytics platform. We intend to expand our presence with affiliates of Michael Foods in 2017. We continue to work closely with both Toyota and Raymond as key OEM. partners in the VMS. space. With employee safety as a top priority for many organizations our VMS solutions delivers a safer delivers a safer workplace by controlling access to vehicles, providing insights into operator behavior, monitor and identifying safety issues, and helping customers establish best practices…

Thank you. Norm. As you can hear, the third quarter certainly reflected both challenges and successes. However, we believe we have taken the right actions and implemented the appropriate measures to improve our business both in the new year and long term. We think customer wins, management, and sales force changes, and even a leaner cost structure reinforces our confidence that we have reached an inflection point in our business. To that end, our sales team is working closely with major customers to confirm our products are included in their 2017 budgets many of which Norm talked about. And to ensure we are selected as their preferred vehicle management solutions provider. Our recent wins service proved points in our success in this regard, which has led to a renewal of our outlook and confidence for next year. In fact, we have seen industry leading enterprises such as the Fortune 500 industrial company we announced recently, John Deere, Wal-Mart, Nestle, a large branch of the DOD and Proctor and Gamble all name as their official VMS supplier. Over the course of next year, we expect to add more marquee names to this list for our VMS solution. Looking Q4, based on orders we've already secured from new and existing customers along with additional orders that we expect to receive when customers exhaust their year-end budgets, we are confident that our fourth quarter will be higher and our costs lower on a sequential basis. Our recent wins demonstrate that we are leaders in this large internet of things sector, and we believe we are finally in a position to profitably and meaningfully increase our market share in 2017 and beyond. With that we're ready to open the call for questions. Operator, please provide the appropriate instructions. Certainly, we will now take questions from I.D. Systems publishing analyst and major institutional shareholders. [Operator Instructions]

[Operator Instructions]. Now, our first question will come from Jaeson Schmidt with Lake Street Capital. Please proceed.

Hey guys. Thanks for taking my questions. Just wondering if you can help us size some of these revenue opportunities with the customers currently in the pipeline. How should we be thinking about not only the near term opportunities here but also the opportunities to expand longer term?

Sure. Well, kind of you have to look at each one individually, and that would take a lot of time, obviously. The largest opportunity in the near term is probably Avis as Norm mentioned. But there are other rental car companies that are looking at orders as well. Second to that would probably be General Motors because we've proven this year that the ROI is readily attainable. We've done a great job from an implementation standpoint, and they've been talking about large volume next year. You have the U.S. Postal Service who’s back and interested in putting our new technology, including both [indiscernible] 4 as well as analytics throughout their enterprise. They’re certainly in need of a refresh. You have the Toyota plants we talked about, more Ford business. So we're talking each one of these are multimillion dollar opportunities that we've been talking about for many, many years that at this point based upon the value that they're getting from the pilots be analytics which demonstrate and bring that data to the front as well as what they're telling us about their budgets for 2017 have us pretty optimistic especially when you combine it with our cost structure.

Okay. That's helpful. And then I know you mentioned being frozen now of some budgets given the product issue. When this happened, do you have a sense of if customers primarily went with a competing solution or simply did not use this type of technology?

Yes. This is Norm. Yes. We track that very, very closely as you might imagine. And to our knowledge and the best of our ability we do not believe we've lost any, any significant opportunities out there. So, typically they don't want to mix VMS solutions for lots of reasons - usability, data integrity, things like that. And, you know, the product that we did have in there Vac 3 that, you know, had some challenges, but we got it working very well throughout, you know, 2013 and 2014 continues to deliver. It was a newer product that was having the challenges. Those are now behind us. So, we're excited about, you know, getting back in the budget cycles. And I’ve been out there actively pursuing that. And the ones I mention here, the large auto parts manufacturer, we had that very specific discussion - I don't know - 30 days ago. 45 days ago. And they are budgeting for a significant roll out in 2017. And so, we see a bright future ahead for that.

Okay. And then just two quick housekeeping ones and I'll jump back into queue. Can I get the revenue breakdown between VMS TAM and rental car? And then with the [indiscernible] coming down further, what's the new break even revenue run rate?

Sure. Hey, Jaeson. This is Ned. Revenue in the quarter for TAM was4 million. VMS was also 4 million, and then we have 236,000 from rental car. And the break-even part as I said during the prepared remarks we took an additional $1.3 million in annual operating expenses in early this month. Obviously the majority of that will be in [indiscernible] next year. And we're able to reduce our non-GAAP breakeven point to under $10 million in quarterly revenue.

All right. Thanks a lot guys.

You’re welcome.

Thank you.

And our next question comes from Josh from Josh Nichols with B. Riley. Your line is now open.

Yeah. I was wondering you mentioned that you were frozen with a lot of your customers for 2016. Why is that just being addressed now? It seems like it's something that you would have known some time ago whenever the previous quarters you talked about starting to generate organic revenue growth.

Yes. Good question. And typically these budgets are done on an annual basis. So, you know, we want to stop ship for six or eight months in 2015 and it didn't allow us to cultivate and get into the budgets for 2016. You know, we started shipping again in late 2015, and the product continues to improve. So now, you know, late 2015 and throughout 2016. So, now we’ve had the opportunity to, you know, put the pilot of the products in either an existing customer where they had already used Vac 3 and now they’re going to use Vac. They like it. We actually were able to bring the price down to the customer because we had cost savings that we passed along to them, which makes it even more competitive. And then our new customers of course when we couldn’t ship for those 6 to 8 months. We couldn't start pilots or whatever. So we were able to get pilots regoing. And we had several of them that were very successful in 2016 and thus we're back into the budget cycle for 2017. So, they’re typically annual So, you know, and it all comes with different quarters, so they all don’t come, you know, January 1. But it's an annual process for most of the Fortune 200 customers.

And then last question for me is it’s good to hear that there's a number of larger opportunities the company is pursuing that could materialize in 2017. But I mean this was probably the lightest quarter from a revenue perspective in the number of years. And given the pushback of profitability one more time to 2017, what makes investors confident or what gives you the visibility to really be confident that 2017 won't pan out to be more like2016.

Thanks, Ken.

Thank you.

Our next question from William Gibson with Roth Capital Partners. Please Proceed.

Yes. Norm, you mentioned the government agency and then Ken you talked about the post-office. Was that the government agency or is there another one in there?

Another one.

And are any of the new cutbacks related to rental fleet?

No. We have not, based on the current dialogue with our rental car interested parties, we have not cut back on the expenses associated with the rental car solution. We have as I mentioned on the last call delivered the pilot and prototype units to Avis. They've done some evaluations of it, and it puts us in a nice position. But one thing I could say is that if we weren't pursuing that industry our financials would have certainly looked significantly better in2017 - ‘16. I'm sorry. It would have used those resources that were dedicated to the rental fleet solution to grow sales or we would have not incurred those expenses. So, you're definitely seeing in the first nine months of this year an impact of the effort that we've put into the rental fleet solution.

Oh okay. Thank you. And just one last little one. Now was one of the frozen companies a major airline?

Yes. Most definitely.

Thank you. But before I move on, because we did talk about the airlines, I would say that, that major airline to which you are referring now, as I mentioned probably in previous calls, a fairly robust solution that looks great and is delivering a nice ROI. They've assigned an internal champion to drive that ROI and ensure that it not only brings success at the hub that was originally selected, but throughout their entire enterprise because they see now that it's working the value it can provide. And in addition to that the other major aviation customer that we are using is certainly talking about the success that they're seeing from our system and is talking about a Q4 order as well significant expansion 2017.

Our next question comes from the line of Dan Weston with WestCap. Please proceed.

Yes. Hi. Good afternoon guys. Thanks for taking the questions. I had a couple just follow-ups. You were going kind of quick there. On the VMS side on the Fortune 10 customer that you spoke of did they comprise 5% or 10% of your - any orders so far in 2016 year?

We signed a master agreement and they started with three sites, but they are not a significant customer in 2016.

Got it. And then so do you expect them to contribute anything of magnitude in Q4 or when do you expect the ramp to kind of kick in on that particular customer?

Well we did receive an order in Q4. So, it will be something that we're delivering on in Q4, but it's actually a showcase facility for them throughout their entire enterprise with industry-leading technology, not just ours but many technologies. It's part of a - I can't use the exact term, or you’d see it, but a smart factory and this is. So then based upon the success of the first two sites as well as this third one that we just received, we would expect that those benefits would be, you know, pushed through their entire enterprise, and that's why they gave us an enterprise level contract.

Very good. Thanks for the color there, Ken. And then on the government customer you spoke of you mentioned a significant pilot. Sorry, you were going kind of fast there. Could you just give a little more color in terms of that particular customer, what the pilot comprised of, you know, any type of, you know, color into what this is going to be used for and what the next steps are with that particular customer?

Yes. So this was a 50-unit pilot, which is a very large pilot by our typical standards. Typically, our pilots are 10 or 15 years, then we go to 50 units. It’s representative of the size of the opportunity and the particular client wants to understand the value of this being a government agency. As you might understand with other government agencies, there's a fair amount of bureaucratic activity that goes on and that gets directed to the business case, so we have some very specific things. We were trying to measure productivity, impacts, other things that commercial customers measure as well, but they want to measure it quantified and then, you know ,sent back to them in this BCA the business case analysis, and we with our PowerFleet I.Q. product that we, you know, built a year ago we’re really able to take the data from the pilot and accumulate it, and then, you know, bring it back to them in a manner that is very compelling which is helpful just because of those challenges of working with the agency of that type and they just within the last 10 days gave us complete sign-off on the BCA, which means they'd accepted it in its entirety and now they can go look for funding. And, you know, we won't get any funding this year, but we're very confident that in 2017 we will we will see some significant funding for that agency, and be able to begin their fairly expansive roll out. And it will take more than one year likely to do all of it, but I think we got off to a great start next year. I hope that answers your question.

You did. No, that's helpful. Okay. I’ll tell you what. We’ll take the rest of that offline. I don’t want to take up too much time here. On the auto parts manufacturer pilot. So, did I hear you right in that particular customer indicated that they are now ready to go into full roll out with their company.

That's correct. That was a [indiscernible] pilot, ten units at each site, which is more typical We did it at three different sites and three different geographies of the U.S. All three were highly successful, and I went out and met with them just recently and we reviewed the ROI that we had worked on with them. When we do a pilot like that we always set up, you know, targets, key areas of interest of the customer has that we're trying to measure against productivity improvements impact reductions, you know, things such as that. And we went over the ROI results with their management team. They had five people in the room in addition to our people. A very successful discussion. These are their numbers. Not numbers that we're telling them, hey, we did we did this for somebody else, right? These are numbers from their three different sites. They were they were just like, wow. We wish we had money now. We’d be rolling it out in 2016. But the budget process for a large enterprise like this gets to be, you know, kind of a pain in the butt, but we're going to we're going after it and I believe we'll start that in either late Q1 or very early. Q2 because they're very excited about it. I could see the excitement in the room, and it's a very significant rollout.

Great. Thank you for that color, Norman. Then by the way, assuming that you went full roll out, could you give us any indication of how many units that could represent for you?

Yeah, it’s in excess of 700. So that's a very large deal.

Got it. Okay. And then just a couple more. On the side, you mentioned that you're continuing in the negotiations stage. Could you give a little more color on that, Ken, please in terms of the negotiations that are going back and forth? Are they predominantly related to financial negotiations or is it something else?

Well, there are many facets to the negotiations. The good news at least with them is that our master service agreement which was a lengthy negotiation is already agreed upon. So now it's a matter of how many, you know, finalizing exactly what they wanted to do as well as the dollars associated with that. And that frankly considering the level of investment we've had to make and the impact it’s had on our financials we've been basically toting a pretty strong line. And we need it to be something that's meaningful. We need it to be something that we can do reliably and successfully. And we’re disappointed that it’s not signed by the end of the summer as I was told to expect, but it's certainly not a standstill, it's something that's progressed since our last quarterly conference call. But now it's a little bit unsure how to determine when the timing of the order will be. But I'm optimistic that it's going to be sooner rather than later.

Got it. Just to just make sure I understand there, so, you know, when you were talking about the previous MSA that was a lengthy negotiation I would imagine your position is to implement the structure that was in that initial MSA and they're trying to maybe say no this is a new product and we need to get a new MSA. Is it with different pricing?

No. MSA, well yes, to some extent the MSA pricing was based upon a radio frequency based version that did maybe five or six things. The newer version is a cellular version that does about 100 things. So it is much more functional, much more real time, much more in line with what the expectations of a large rental company would have… And so, yes, they kind of want the old price for the new function and we’re saying the new function costs more. So, you know, we’re the price is not currently the biggest issue but there are several outstanding issues that we're close on. But we're not there yet.

Okay. And then lastly maybe you can give some commentary. There has been some news in the markets recently one of which was relating to Toyota and their new ride sharing program with Getaround. Do you have any comments on that? It seems like you have such a strong relationship with Toyota that maybe you would have been included in that business and from what I read one of the key components there is that functionality with the unlocking and locking of the car door with your smartphone, which I thought [indiscernible] had the patent. Any color around that would be helpful if you have it.

Sure. From an IP standpoint we definitely feel pretty good about our intellectual property position. With regards to that specific Getaround company it’s really not of any magnitude that we would want to incur the expense to enforce that IP. So, at this point until it becomes something significant, it's not going to be worth our time to pursue. On the other hand, we are pursuing the three major rental car companies and they see the value of our industry - let's call it industry standard platform. And what I mean by that is a platform that works on every single manufacturer and provides those hundred functions that they need.

Great stuff, Ken. I really appreciate the time.

Thank you. Our next question comes from the line of Morris Ajzenmen with Griffin Securities. Please proceed.

Hey guys.

Hey, Morris.

Phones have been picked over pretty well here. But just one last thing on the Avis budget here. Listening to different questions and your answers my interpretation is and tell me if I’m incorrect that you invested a lot of time in this. I mean this goes onto years now going back and forth. And you and Mike if I recall correctly a couple of years ago [indiscernible] vehicles and it was tested. And it sounds like what you want at this point. And again, you can come if you want to or not. You want to a much more meaningful roll out, and I’m not sure if this is right, but you’re proposing not a large meaning rollout?

Yes. The quantities are still up for discussions, because from our standpoint we had an expectation kind of like the original deal that the next step was going to be 250,000 units. That was the reason we took the original development project that we completed and delivered the prototypes for and they are now saying maybe they want fewer units, not significantly fewer, but, you know, substantially fewer. It’s hard to really get into the specifics, but enough where that then we start talking price, and then you start talking about terms like exclusivity. So, there's a lot of terms that were in the original 250,000-unit deal that are impacted by the current state of the negotiations. So, we're feeling like we've made some significant progress in that regard but we are not there yet. I remain optimistic and what I definitely know is that the device that we've created performs extremely well, works on all the makes and models that these customers need in order to have a universal platform in their entire fleet. And so we will continue to showcase that platform. And continue to look to sell significant quantities of it.

Now, [indiscernible] all the rental companies, I presume that take a long time to get to the stage where you are now with Avis budget, or am I incorrect on that?

Well, not necessarily because the platform exists now. So now it's just a question of how many do they want and when. So it's not the same kind of thing where we might have had to customize it to one or the other. At this point with the 100 or so capabilities that it provides it's something that has applicability to the entire rental car industry.

Thank you. A previous question touched on Toyota and also Raymond in there. Please help me understand why this hasn’t really gained more traction using them as you would [indiscernible]. Why hasn’t this really taken off more so?

See, that’s a great question. And we've been working very hard on it as you know. We've talked about a lot. And, you know, part of it was perhaps a lack of understanding on their part as to what kind of resources they needed to apply against it from a training standpoint, from a, you know, go-to-market standpoint. So, they really hadn't done it before. And I mean they’re are a great manufacturer of lift trucks, the largest in the world. But, you know, they haven’t been, you know, actively pursuing telematics like we knew for a living. So, we worked with them very, very closely. And just recently they've added several resources to their team I mean like within the last 60 days of very talented people that they've hired or moved over from other positions. That now starts put more, you know, expertise and more, you know, volume against getting their dealers trained because, you know, in a case of Toyota they have, you know, about 80 large dealers and another 250 smaller dealers that are a subset of the of the 80. And it takes a lot of work to get those people training, and get them up to speed on the value proposition, because, you know, we want to teach them how to fish. We can't fish for them. You know, we don't have the resources to do that. So we have people that are --trained a trainer, and we have online materials that we allow them access to. But it's… we needed some more support. They have they're giving it to us. So I'm excited that, you know, we'll begin to see some momentum built there. But it but it's been challenging. We had thought we'd have more by now. It just didn’t materialize, but I think they’re going to be a great partner. They're very committed to it. I think now that they understand what needs to be done, they're embracing that, so they can add more value to their customer. They realize that, and I think are going to get even more traction going forward. I hope that answers your question.

We’ll this take several quarters. Will it take a year before you start seeing anything coming out of this…

[Indiscernible] it won’t take a year. And we’re already seeing some results now, but they’re small. And I think as they put more resources on it, you know, we’ll start to see incremental gains, you know, some in Q4 perhaps. Certainly in Q1 and Q2. But to get a full ramp and really rolling we’ll take, you know, a couple quarters to get that. But we’ll see improvement quarter to quarter, you know, starting almost immediately.

And the last question, this one’s for Ned. I haven’t forgotten you. Gross margin 49%. So, up until year of year, first quarter’s 50%, second quarter 53%. So, I thought we had a gross margin possibly being higher on a worthless quota. I presume this is part of it. But what is more of a sustainable gross margin going forward from your perspective?

Yeah. I think the major reason Morris from a percentage standpoint obviously there's a component of our cost of sales that speaks and because this quarter had lower revenue it had an impact on the gross margin percentage. As revenue goes up to the levels that we had in the previous quarter in Q1, we feel comfortable with the gross margins will have a five in front of it.

Okay. Thank you.

You’re welcome.

At this time, this concludes our question-and-answer session. If your question was not taken you may contact the company's investor relations team at idsy@liolios.com. I would now like to turn the call back over to Mr. Ken Ehrman for his closing remarks.

Thank you everyone. As I mentioned to those who asked me in our annual meeting what I'll be saying at the annual meeting in 2017, It's about the fact that instead of on a quarterly basis three or four key accounts are placing size orders 5 to 10 key accounts are placing size orders, which would double our revenue. The investments we've made should allow us to accommodate that. The customers and prospects are talking us that they're going to move in that direction. So, I am optimistic, but at the same time we need the protected downside, which is why we're addressing the costs and continuing to address the cost while we do everything in our power to ensure that those customers do place the orders that they're telling us they're going to place. And I look forward to be able to report that finally those investments have paid off. So thank you everyone today. And I look forward to keeping everyone updated as the year continues.

Ladies and gentlemen thank you for joining us today for a presentation. You may now disconnect.