On Track Innovation's CEO Discusses Q2 2012 Results - Earnings Call Transcript

On Track Innovations Ltd. (OTIV)

Q2 2012 Earnings Conference Call

August 30, 2012 08:00 AM ET

Executives

Oded Bashan – Chairman and Chief Executive Officer

Ohad Bashan – President

Tanir Horn – Chief Financial Officer

Garth Russell - KCSA Strategic Communications

Analysts

Marc Silk - Silk Investment Advisors

Edward Schwartz - Schwartz Investments

Bernie Sandford - Winslow, Evans & Crocker

Presentation

Operator

Welcome to the 2012 Second Quarter Financial Results Conference call for On Track Innovations, which we refer to as OTI. On today’s call are Mr. Oded Bashan, Chairman and CEO, Mr. Ohad Bashan, President, and Ms Tanir Horn, CFO. Today’s conference call is being recorded and will be available for replay until September 6, 2012 in the Investor Relations section of our website along with the copy of today’s prepared remarks.

I will now turn the call over to Garth Russell of KCSA Strategic Communications.

Garth Russell

Thanks Rachel. Thank you everyone for joining us today. You should have received a copy of the first half 2012 press release issued earlier this morning. If you’re not on our distribution list, please contact us at info@otiglobal.com and we will be happy to add for future information.

Before turning the call over to management for their prepared remarks, I must state that today’s call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Whenever we use such words as believe, expect, anticipate, intend, plan, estimate, or similar expressions, we are making forward-looking statements. Because such statements deal with future events and are based on OTI’s current expectations, they are subject to certain risks and uncertainties and actual performance or achievements of OTI could differ materially from those described in or implied by these statements on this call.

For example, forward-looking statements include statements regarding our goals, beliefs, future performance strategies, objectives, products, plans, revenue targets, profitability, potential opportunities, expansions, pipeline or current expectations. Forward-looking statements could be impacted by the effects of protracted evaluation, validation material periods in the U.S. and other markets for contactless payment cards, market acceptance of new and existing products, and our ability to execute production on orders, as well as risks and uncertainties, including those discussed in the risk factors section and elsewhere in our annual report on Form 20-F for the year ended December 31, 2011 and in subsequent filings with the Securities and Exchange Commission.

Although, we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be achieved. Except as otherwise required by law, OTI disclaims any intention or obligation to update or revise any forward-looking statements which speak only as of the date hereof, whether as a result of new information, future events or circumstances, or otherwise.

This call contains certain non-IFRS measurements namely adjusted EBITDA. Adjusted EBITDA represents earnings before interest tax, income tax, depreciation and amortization and future eliminations and further eliminates the effect of share based compensation expense. The company believes that adjusted EBITDA could be considered in evaluating the company’s operations, since they provided clear indication the company’s operating results. This measure should be considered in addition to the results prepared in accordance with IFRS and should not be not be considered as a substitute for IFRS results. The non-IFRS measure included in this calls have been reconciled for IFRS result in a table in the press release issued earlier today.

With that, it’s now my pleasure to turn the call over to Ohad Bashan, President of OTI.

Ohad Bashan

Thank you Garth and welcome everyone. Thank you for joining us today. We are disappointed with the results for the first half of the year, as they do not yet reflect the multiple agreements the company has recently signed across its different operating segments and instead reflects impacts upon our business outside of our control.

The main reason for the decrease in our revenues compared to the same period last year is the ongoing Thailand, and its ongoing impact that the Thailand flooding had on our company’s actions which could continue for the remainder of the year. I would like to stress that we have established multiple sources of production and we are now back to normal production capability. While these haven’t allowed us to overcome the lost orders for this year, it will help us regain customer confidence in our supply chain.

OTI has an insurance policy that covers it against loss of profit. Thus far, under the policy we have filed claims for $11 million and we mentioned to the (inaudible). If these claims are paid, the long term impacts of these events will be minimal from a cash flow’s standpoint. And as we previously stated, we are also working on covering consequential damages, we’ve received the small initial payment for direct damages and we believe we’ll recover additional funds.

At the same we continue to focus on establishing our U.S. presence, being more aggressive with the sales and marketing of our solutions in the U.S. with focus on introducing EasyPark, NFC solutions and MediSmart. Elsewhere, we’ll continue to expand our multiple forms for each of our solutions and continue to grow our business overall and create new sources of revenues. While this progress is ahead of our expectations from just a year ago, we don’t expect it to be reflective in our financials until we meet 2013. It is because the lead time for many of our products is long and going from the contracting phase and into implementation takes an average of 9 to 12 months. Therefore, we believe our business is on solid grounds as our technology is leading in our expected markets and we are looking forward to 2013 and beyond.

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