Good afternoon. Welcome to I.D. Systems Fourth Quarter and Full-Year 2018 Conference Call. My name is Mark, and I will be your operator for today’s call. Joining us for today’s presentation is the company’s CEO, Chris Wolfe; and CFO, Ned Mavrommatis. Following their remarks, we will open up the call for questions. Before we begin the call, I would like to provide I.D. Systems’ 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 that are considered forward-looking statements. Such statements include, but are not limited to the company’s financial expectations for 2019 and beyond. All such forward-looking statements imply the presence of risks, 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 statement. 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. Finally, I would like to remind everyone that this call will be made available for replay 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. Chris Wolfe. Sir, please proceed.

Thank you, Mark. Good afternoon, and thank for joining us today. After the market closed, we issued our financial results for the fourth quarter and full-year 2018 and a press release, a copy of which is available in the Investors section of our website. A year ago, our team set five primary objectives for I.D. Systems. First, to grow the company’s top line by 20% or more; second, to achieve non-GAAP break-even; third, to deploy 50,000 high-quality connected car devices to Avis; fourth, to integrate our industrial truck business; and our fifth goal being to reinvent our transportation asset management business. I’m extremely proud to report that our team was successful on all fronts in 2018. More specifically, our continued execution on new product and go-to-market initiatives resulted in the achievement of several financial milestones in 2018. This included record revenue $53.1 million, record recurring revenue of $19.5 million, and record gross profit of $25.8 million. On top of this, our efficiency initiatives helped us achieve basically adjusted EBITDA break-even and end the year with more than $15 million cash on our balance sheet. I’ll turn the call over to Ned to walk you through these financial details for the fourth quarter and the full-year. Afterwards, I’ll provide an update on our three businesses and our objectives for 2019. Ned?

Thank you, Chris, and good afternoon, everyone. Turning to our financial results for the fourth quarter and full-year ended December 31, 2018. Revenue for the fourth quarter increased to $11.5 million from $11.2 million in the same year-ago period. For the full-year, revenue increased 30% to a record $53.1 million from $41 million in the same year-ago period. The increase in annual revenue was driven by higher Connected Vehicle Solutions and Industrial Truck Management, or ITM revenue. Breaking down our total revenue by source for the fourth quarter, ITM revenue was $7.8 million, a 15% increase, compared to $6.8 million in Q4 2017. Logistics Visibility Solutions, or LVS revenue was $3.2 million, compared to $3.5 million in Q4 2017. And lastly, Connected Vehicle Solutions revenue totaled $470,000, compared to $921,000 in Q4 2017. The decrease in Connected Vehicle Solutions revenue in Q4 2018 was due to finalizing the delivery of the first 50,000 units to Avis in the third quarter of 2018. Following that successful deployment, we secured a new order from Avis in December of 2018, which will ensure continued growth in revenue in 2019 and beyond. Recurring revenue for the fourth quarter of 2018 increased 11% to $5 million, up from $4.5 million in Q4 of last year. For the full-year 2018, recurring revenue increased to $19.5 million from $18.8 million in the same period a year ago. The growth in recurring revenue is expected to continue to grow, as every unit we sell comes with a long-term high-margin recurring revenue contract. Our gross profit for Q4 of 2018 increased to $6.1 million from $5.6 million in the same year-ago period. As a percentage of total revenue, gross profit for the fourth quarter improved to 53% from 50% in the prior year period. The increase in gross profit…

Okay. Thanks, Ned. Our record top line revenue in 2018, as Ned pointed out, was driven by strong growth in our Connected Vehicle Solutions business as we successfully delivered the first 50,000 systems to Avis. Not only the deployment of these systems drive our top line performance for the year, but in Q3 and more so in Q4, we started to realize the benefits of higher-margin recurring revenue related to those systems, which is reflected by our expanded gross margin in the fourth quarter. Our success with the first deployment and the operational benefits that Avis was able to achieve helped to secure a major follow-on order for an additional 75,000 units in December. This new order will bring the total units deployed with Avis to 125,000 and perhaps more importantly, our total number of recurring revenue units for the company will be well over 300,000. Additionally, the new agreement provides Avis with a variation of our technology to test in Europe and will also provide full Zipcar functionality. This new order continues our many years of working with Avis to conceptualize, build and implement innovative technology that enables Avis to achieve their connected fleet goals and also their business transformation goals. Our future potential with Avis will depend on OEM adoption, Avis licensee uptake, Zipcar growth and the use of our product in other geographies. Simultaneous, while working on to earn the next order from Avis, we are exploring opportunities to expand our market by taking our Avis specific product, emerging into a generalized fleet management solution. To that end, in Q4, we continued the R&D developments we began in Q3 related to the Avis deliverables for the new order. This ongoing R&D is the reason we saw an increase in our expenses in Q4. We anticipate revenue for…

[Operator Instructions] Our first question will come from the line of Jaeson Schmidt of Lake Street Capital. Your line is now open.

Hey, guys, thanks for taking my questions. Just starting with Avis, I know, on the first contract, you guys had early targeted delivering about 2,500 units per week. Is that sort of the ballpark figure we should expect for the second contract?

That’s our contractual obligation with Avis. However, our production capacity is, we’ve increased it to 5,000 a week. So that way, we can basically meet any surge demand that Avis has. So – but 2,500 a week is a good number to use.

Okay, perfect. And looking at the CarrierWeb business, how should we think about the potential growth rate for that business? I know it’s off a smaller base. And then relatedly, do you think with these assets now in your hands, you can actually accelerate that growth?

That’s a great question. That’s actually what’s behind our acquisition of CarrierWeb. I mean, if you look – again, my background is actually in that space. When you look at – there’s a huge opportunity in the private fleet area, where they’re looking for products today and also the in-cab providers have to move from, what they call, AOBRD to electronic logging device, an ELD, and we actually have that product. They have to move by December of this year. And at the same time, they also are facing the 3G to LTE migration. So it’s a just a prime opportunity for us to come out with a full suite of LTE, BLE-enabled technology, a full suite package to them. So you’re right, they’re coming off of a very small base. But right now, the traction that we’re seeing is pretty phenomenal, an excitement.

Okay, that’s helpful. And the last one for me and I’ll jump back in the queue. With these new LVS products you launched last fall, are you seeing any major changes in the size of the potential contracts you could secure?

Oh, absolutely. Multiple field trials right now are several tens of thousands of units in size and potential. So, again, I mean, that – that’s actually our stated objective was to go after the top 100 in both the truckload, what we call, the for-hire fleets, as well as the private fleets. So that’s what we’re calling on today. We actually have several of those engaged as we speak.

Okay. Thanks a lot, guys.

Yes. Thanks, Jaeson.

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

Yes. Hi, thanks for taking my question. I just want to clarify, did you say that Industrial Truck Management business is going to grow 20% in 2019, just based off the Jungheinrich deal alone?

Yes.

Yep.

Yes. And are there other – what other kind of larger opportunities are you foreseeing? Are you seeing in the Industrial Truck Management business that could kind of be like also game changers, if you win?

Well, it’s interesting. We actually had a slight, I’d say, reengineering effort on our site sales and biz dev activities there. Our pipeline right now is quite as stronger than it’s been in the long time. A lot of those fleets that we’re talking to right now are again in the several 1,000 range. We’ve had phenomenal success in the manufacturing area with General Motors, Toyota, et cetera. So you can see other manufacturers, that’s kind of a sweet spot for us, as well as distribution. We’re also – this is kind of interesting seeing the traction between LVS and ITM, because with our new LVS platforms, we can go after less than truckload and the private fleets, all of which have cross docks or facilities with – you got it, material handling equipment. So right now, it’s like very synergistic between the two and our sales activities. So – which is actually a very good thing for us.

And then – great to hear the outlook for the Industrial Truck Management. LVS businesses has historically been a little bit more flattish. But I know that you’re pursuing some of these sizable opportunities. Are you expecting healthy growth in that business evolve, maybe perhaps like double-digit growth, or is it a wait-and-see?

I think with the CarrierWeb acquisition, I would say, we’re – I’m personally targeting double-digit growth in that business. We have some pretty aggressive goals for next year. And I think if we’re able to achieve those, you will see better than that actually.

And then last question for me is just regarding the Avis deployment. I know that Avis is obviously working with some OEMs or whatnot. But what percentage of the total Avis fleet do you think you might be able to penetrate globally in the U.S. and Europe?

Well, the number that Avis was shared with us and we’ve shared with you is still the 50% range. So right now, you – we’d say, we have another 100,000-ish somewhere between where we’re at and there or more. But again, obviously, we have to earn that. We have to deliver the 75,000. We have to deliver on the development deliverables, which we’re working on right now and we’re getting ready to hand over the keys, so to speak in Q1 here. So it’s looking good. I mean, I think, exclusivity with Avis, again, expires in December of this year. And so, we’ll be in contact with them talking about the next follow-on order before that.

Great. Thank you.

Thanks.

[Operator Instructions] Our next question comes from the line of Glenn Mattson of Ladenburg Thalmann. Your line is now open.

Hi. Thanks for taking my question. I apologies if there’s a background noise in travelling. But building off of Josh’s question, wondering about the Avis deal and how it works. Can you maybe – Chris, you can just kind of explain kind of some of the gives and takes as far as how they allocate resources when they’re deploying this vis-à-vis you versus maybe some of the second source supplier that they’ve announced? Like how do you compete for management attention and being the priority over the other supplier and things like that?

Good question. Literally, we have not seen any, what I would say, a lack of attention on Avis’ part. Right now, everyone is gearing up for this. It’s going to be different implementation installation this year versus last year. Last year we were trying to target, what we call, the in-fleeting window. We were not initially installing on cars that were already in the fleet. This year, it’s going to be more of a carpet-bombing approach, where we basically go out and install on every vehicle that we can possibly go on. So I think you’re going to see – right now, Avis is looking to get a nationwide installation assistance team. We help with them and we’ll – we’re always available to help with them going forward as well. But again, I think their goal is to get their whole fleet outfitted, and we’re going to be a significant part of that today and going forward, so.

Right. And then there’s nothing about kind of – is that regional based or one supplier might be more focused in Europe and one more in the U.S. or anything like that, or is it just?

Yes. Some of that is true. It’s more make and model based. It’s like we operate – we’re actually certified on 75 different make and models in years. And so the other providers also have to be certified, and that will dictate what percentage of the fleet they get ultimately.

Okay, great. That’s helpful, thanks. And then maybe you can just expand a little bit beyond the telematics, you talked about customers beyond Avis, but you’re not talking about in the rental car market, right? I think, you’re talking about another – in other markets. And so you have to wait until exclusivity to kind of sign deals in that space wit for it to expire, or can you – yes?

Yes. Okay, good question. We can’t go into the car sharing a rental under the exclusivity. That being said, we’re not precluded from going into fleet management, which again, there’s – it’s a very crowded competitive space, but there is a way for us to play in that space. I don’t want to go into all the details. And if you think about it, we’ve already had people asking us to take a variant of our product, because they like a lot of the capabilities. So if you’re thinking about fleet managements, these are people that are like you look at the, let’s call it, Class 1 to 5 vehicles in the United States, roughly there’s 25 million of those. By 2021, they are expected to be 26% penetration, that’s roughly 6 million telemetry devices out there. So I think there’s a good runway there. And it’s – I think, we can play there as a complement to the existing fleet management providers. We don’t necessarily need to go head-to-head with them in that space. And there’ll be more on that. I mean, it’s basically – that’s our business development work we’re doing right now.

Okay, great. Thanks. I’ll jump back in the queue. Thanks for the color, Chris.

Okay.

And our next question comes from the line of Dan Weston from Westcap Management. Your line is now open.

Yes. Hi, good afternoon, everybody. Thanks for taking the questions. Some of which have been answered. But Chris, can you talk a little bit about CarrierWeb? And specifically, was there any one or two or more products that were really the driver behind this acquisition? If I missed that, I apologize.

Oh, no, not at all. So, in the space, you have and I just mentioned Class 1 to 5 vehicles, right? So the other classes were the bigger vehicles, which are like tractor trailers, et cetera. The Class 8 is typically where the big telemetry players are. And the Class 8 are what’s hauling 53-foot trailers down the road or 28-foot pumps or whatever. Those truck drivers based on the FMCSA rules have to have, what’s called, an electronic logging device in the cab, and that’s mandated. They have to have an ELD by this December. A lot of them has ELDs, but a lot of them are also old technology. So it’s – there’s going to be a refresh cycle coming up here. So, again, that’s an Android-based ruggedized tablet that’s in the cab, connects to the CAN bus or the – with the power of the units OBD, onboard data bus. And basically keeps track on when he’s driving, when he’s not. It also integrates back into the TMS system. So the value proposition is phenomenally sticky. You send the workloads – work orders out from the driver. He take – tracks and getting his work done and it basically feeds back into getting paid, it feeds back into the billing system. So it’s phenomenally sticky totally integrated solution, that’s one. The second one is, what they call, two-way command and control for refrigerated. And so if you go down the road and you see a refrigerated unit, a CarrierWeb had that product basically, which can do two-way, not just monitoring, because it’s one thing to monitor it and find out you have a set point that’s wrong, the goods inside are overheating. There’s another thing to be able to turn down the cooler, right, and they have that capability. Just as a point of note on that, I had my team do an analysis of deals that we were not considered in, because we did not have a refrigerated tracking unit. And in the last 18 months, it was like $7 million worth of business that we weren’t considered in, because we did not have a refrigerated tracking unit. So, now…

I’m really glad you brought that up. Yes, I was just going to ask you guys if you had lost deals in the past by not having those products. Did you say, it was about $7 million that you’ve identified from last year?

Yes.

That’s incredible. And then also did you mention that since the acquisition you’re already receiving orders from existing legacy customers from IGSI on the new CarrierWeb products?

Absolutely, yes.

Okay, terrific. Okay. Next, on the Jungheinrich. This is a white label deal the way I understand it. Is that a similar type white label deals to the one you guys signed back with Toyota a couple of years back?

Yes, it’s very similar. The – it’s really different though. Jungheinrich business model is different. We have great relationship with Toyota. Matter of fact, they had a very strong year last year for us. Jungheinrich actually owns a lot of their dealers, right? So it’s a – they actually have more, say, over pushing the product out through their dealer network. So, again, we think it’ll be actually a lot faster ramp up with Jungheinrich.

That’s really important. I’m glad you said that. And then did they share with you or do you have any internal discussions in terms of what you think the attach rate could be at think particular customer for the white label program?

Well, we know it’s on the order of about 2,000 units a year. And if you look at that ITM business at the high-end product, we ship about 8,000. So again, it’s 25% growth rate with Jungheinrich consider it a lower revenue per unit, because it’s through a channel, but it’s also at a lower cost. So it’s – economically, it’s a very good deal for both teams.

Very good. Ned, real fast. Could you give us the 10% customers in the quarter, please?

Sure, Dan. Walmart was the only customer that was over 10% during the quarter. Toyota was right behind it at 8%.

Okay. And then just a couple of more. Chris, any update on the large online retailer that you landed in Europe? Any updates on that particular customer?

They keep the – matter of fact, that’s – I’m glad that’s great. That’s a Jungheinrich success story. They’re the ones that actually brought us into that account. They continue to deploy throughout Europe at RDCs, distribution centers.

Nothing to formally announce beyond the – I think it was three that you had originally signed up?

Oh, no, we’ve actually implemented probably four more sites in Europe since that time.

Wow, that’s terrific. And any talk about coming back over here in the U.S.?

There has been talk on ongoing discussions, but I think it’s too premature to talk, get into details on it.

Very good. And then lastly, Ned, on the Avis deployment, are you expecting – did I hear you right in saying that, you’ll see some revenue out of the statement of work number two in Q1 and then the majority shipping in volume in Q2? And then also are you expecting in addition to any potential hardware unit revenue, any kind of one-time start-up development revenue out of Avis for Q1?

We are going to have start-up development revenue in Q1 for Avis. The majority of the product is going to be shipped in Q2, Q3 and beyond, but we will start recognizing revenue in Q1 related to the Avis order.

Is that recognition and revenue specific to the development part of it, or will there be any hardware unit sales?

The majority of that will be related to the development. We are working with Avis that there might be some hardware, but if any hardware will be minimal. The majority that delivers are scheduled to be delivered in Q2.

Got it. Okay. And then finally, can you quantify at all what that development revenue you’re expecting in Q1?

It would – could range anywhere from $1.5 million to over $3 million.

Very good. All right. Thank you very much for taking all the questions and congratulations, guys.

All right. Thank you.

Thanks.

And our next question comes from the line of Jeff Silver of Corrado Financial Group. Your line is now open.

Yes. Hi, Chris and Ned, congratulations.

Hi, Jeff.

A number of my questions have been answered. But I just wanted to see if I’m thinking about this correctly. You had $19.5 million in recurring revenues since 2018, which is great performance. I believe you mentioned that CarrierWeb has got currently about $3 million in recurring revenues. And if I just put some general numbers around the Avis 75,000 unit order, that could be another several million dollars, $3 million to $4 million, maybe a little north of that, in terms of recurring revenues on an annualized basis. I would imagine that Jungheinrich also will layer on recurring revenues. And then you just announced yesterday as well that you got this contract from Heath, which looks like they’ve got about 130 cabs, I think, which, again, I would imagine that, that gets layered on. I mean – so, it seems to me as though we could see a real significant percentage ramp in recurring revenues just from the few items that I’ve identified. I mean, am I thinking about that the right way?

You absolutely are, Jeff. And if you look at for 2018, Avis only contributed recurring revenue primarily in the fourth quarter. So for 2019, we’re going to have a full-year of Avis recurring revenue for the initial 50,000 units. And obviously, the remaining deliveries with that as well. So you are absolutely thinking about the right way, and we feel we’re in a great position not only from a recurring revenue standpoint, which we see a significant increase in 2019, compared to 2018, but as well as the total revenue because of the fact that already we have the Avis order in hand, the CarrierWeb business, as well as iCAN [ph] business are performing well. And we expect some additional business related to Logistics Visibility because of the new products.

That’s great. I mean, I know that you wouldn’t provide guidance or anything like that. But it certainly seems as though there’s good visibility in a reasonably short period of time, call it, 12 to 24 months for a 50% or more increase in recurring revenues. And obviously, the multiple that investors would put on recurring revenues of this nature is quite substantial, so that’s pretty exciting to see?

Yes, thank you. By the way, just on Robert Heath, just say that the current order is, we’re actually outfitting their fleet, right? And so the potential for them, they actually have 370 tractors, and they have about 1,100 trailers. And those trailers are all refrigerated, which carry a higher average revenue per unit and the in-cab obviously is roughly around $30 a unit.

Got it. Over what period of time do you think they’ll be…?

Those contracts are usually three to – well, the contract length is usually three to five years depending on the terms that we negotiate. But that – we’re deploying units right now with Robert Heath, so.

Terrific. I appreciate it. Thanks. Thanks a lot and again, congratulations.

Thanks, Jeff.

[Operator Instructions] Our next question comes from the line of David Tennant [ph] of Cannon Wealth Management. Your line is now open.

Hi, guys, thanks for taking my questions. Most of them have been answered, especially from the very astute Dan Weston. But the one remaining question I have, which is a follow-on to the last caller is the recurring revenue component. Can you tell me based on the business that is already baked in for 2019, the incremental from Avis Budget, Jungheinrich – or Jungheinrich, however, you pronounce it, what is that recurring revenue? And then can you speak to the financial impact of that? What is the contribution margin of the next dollar of recurring revenue going forward?

Sure. Thanks, David. If you look at the recurring revenue this quarter was only $5 million. For the annual, it was approximately $20. As I said before, that does not include – it only includes one quarter from the Avis 50,000 units. So for next year, we expect an additional – approximately $2 million in recurring revenue from the 50,000 units from Avis. If you layer on top of that, the additional $2.2 million base recurring revenue for CarrierWeb, obviously, that number will grow as we sell more units, as well as the Jungheinrich units and the new units from Avis. There’s no reason we can’t end the year with $25 million to $30 million in annual recurring revenue. And that recurring revenue, the majority of that revenue, the gross margin approximately 70%, which if you really think about it, there’s really no additional cost required to service those revenues. So a lot of that’s going right to the bottom line.

Okay, that’s all I have for you, guys. Good luck.

Hey, thank you, David.

And at this time, this concludes our question-and-answer session. I’d now like to turn the call back over to Mr. Chris Wolfe for his closing remarks.

Thanks, Mark. Thank you for joining us today. I’d like to thank our employees, customers, partners and shareholders for their continued support. We look forward to updating you on our next call, and we look forward to a successful 2019. Thank you.

Thank you for joining us today for our presentation. You may now disconnect. Everyone, have a wonderful day.