PowerFleet, Inc. (AIOT) Q4 2014 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the I.D. Systems Incorporated Fourth Quarter 2014 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, today’s call is being recorded. I would now like to introduce your host for today’s conference Ken Ehrman, Co-Founder and CEO. Sir, you may begin.

Welcome to I.D. Systems fiscal 2014 year-end conference call. Thank you for joining us. I’m Ken Ehrman, Co-Founder and CEO of I.D. Systems. On the call today, I will summarize our fourth quarter and full year results then Ned Mavrommatis, our CFO will detail our financials and Norm Ellis, our new Chief Operating Officer will detail into our sales and operational highlights. Following our opening remarks, we’ll open the call for questions and answers. Before we begin, let me remind everyone that. 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 SEC. 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 roughly 10 months since we initiated the changes associated with I.D. Systems 2.0. In that relatively short time, I am pleased to announce that we achieved the primary goals of this strategic initiative, which concluded at the end of the fourth quarter. Norm will describe these accomplishments in a few minutes, but I want to emphasize a number of key points. Our investments in I.D. Systems 2.0 were aggressive and focused on projects that will enable us to grow rapidly and profitably to scale and meet the demands of our Fortune 100 customers. Our priorities were quality, repeatability and scalability from product commercialization to implementation and support processes to customer realization of system benefits. With the help of three new TAM products launched in 2014 in roughly have the time than was originally projected we achieved record TAM sales volume of more than 7,000 unit shipped in the fourth quarter. Our highest quarterly revenue unit volume since we acquired our Asset Intelligence subsidiary from GE in 2010. We also shipped approximately 1,000 units of our new fourth generation VMS product in Q4, which was coupled with a significant change in our go-to-market strategy. Leveraging Norm’s experience at Qualcomm, we are now positioning VMS as a system as a service similar to the way we sell our TAM solutions. We are offering our VMS hardware at roughly half the upfront price of our previous hardware with a multi-year service contract tied to the use of the system software and analytics. Based upon the success of this model in the trucking industry, we are confident the lower initial costs to end users will stimulate much broader market adoption, while the recurring contract deal will generate a more predictable higher margin revenue stream for I.D. Systems. This raises two important considerations as you analyze and interpret our financials. First, these changes will be very beneficial in the medium to long-term. As I mentioned previously, we have barely scratched the surface of our adjustable markets. We estimate there are more than 8 million high value mobile assets worldwide that would benefit from our existing portfolio of wireless tracking and monitoring technology. To increase our historic penetration rates, it is imperative that we provide the highest quality most repeatable scalable solutions, and we need to exploit this untapped market opportunity as quickly and aggressively as possible. The prime example of our progress in this area is our accelerating penetration of the VMS market. In 2014 we shipped more than 8500 VMS units, increasing our install base by approximately 20%. As we transition our business to a more service centric model we expect our revenue growth rate in 2015 to be consistent with 2014. However this translates to a more significant year-over-year increase in unit shipment in 2015, which we will expect to increase recurring revenue and margins in future periods. The second consideration is that our transition to new pricing will have a negative impact on short-term revenue recognition and gross margins. Our Q4 result reflect this and we have expecting a similar impact in 2015, but again based on the success this approach has had in the truck and fleet tracking business coupled with the growth trends we are seeing in the VMS market, we made the tough, but appropriate decision to look pass this short-term impact to better position ourselves for the future. The benefit of this transition will be more predictable recurring revenue and higher overall deal margins. To illustrate this point, our fourth quarter revenue of $12.7 million understates the magnitude of the business we booked in the period. The aggregate value of the multi-year contract we executed in Q4 exceeded $33 million and we expect the total deal margins for the 1000 VAC4 unit shipped in Q4 to be approximately 60% over their contract terms. To capitalize on our untapped market opportunities we have also decided to continue our investments in our company in 2015 focusing on three key areas. One a continued emphasis on quality and reliability of our solutions through research and development investments, particularly related to the transition of our VMS offerings to a hosted service. Expanding our sales and marketing program to more aggressively promote our thought leadership brand identity and unique and patented technology. By investing more in promotion adding to our direct sales team and leveraging new and existing channel partners, notably Raymond Corporations and Toyota Industrial Equipments, the world’s number one lift truck manufacturer we plan to accelerate our lead position in the significantly underpenetrated VMS market. And three, a commitment to the continuous improvement of our internal processes and human resources making our company more efficient, more efficient and more motivated to drive and support rapid growth. Today as a direct result of our I.D. Systems 2.0 initiative our capacity to produce, deploy and support world class wireless asset management solutions is measurably stronger than it was a year ago. VMS sales in January and February are tracking 15% higher than the corresponding period in 2014. Our average sales cycle to close the VMS deal has decreased from over 200 days to less than 60 days. TAM sales so far have been more than doubled the period of last year. Our medium time to close customer service cases has been reduced by more than 50%. And our hardware RMA turnaround time has improved from less than 25% to 100% fulfillment within our SLA of 10 days or less. While we maintain our long-term objective of being one of the premier names in the internet of things space. It is clear that we are improving as an organization and making progress eliminating the obstacles that are previously limited our growth rate. It is gratifying to see these positive results selling up in our unit sales growth as well as our internal key performance indicators. With that let me turn the call over to our CFO Ned Mavrommatis to detail our financial results. Ned?

Thank you, Ken and hello to everyone on the call. Revenue for the three months ended December 31, 2014 increased to a Q4 record of $12.7 million, up 12% from $11.4 million in the fourth quarter of 2013. The increase was attributable primarily to increased sales in both the VMS and TAM segments, which grew 11% and 15% respectively from the fourth quarter of 2013. Gross margin in the fourth quarter of 2014 was 35% compared to 30% in the same period a year ago, also result our lower than historical levels due primarily to non-recurring items. In the fourth quarter of 2014 margin was impacted by spare part purchase order from Wal-Mart that would be used to refurbish existing hardware and was a critical part of a $14 million three years contract extension with Wal-Mart. In connection with the three year contract expansion, we extended our product warranty to Wal-Mart and recorded a one-time warranty expense in the fourth quarter. The overall gross margin on the Wal-Mart deal over the three years is in line with our historical gross margins. The gross margin in the fourth quarter was also impacted by the sale of approximately a 1000 units or new VAC4 product, which has been sold primarily under our new recurring service model for VMS Systems. In both cases, the initial lower product margins will be offset by higher margin services over the course of the associated multi-year contract. The margin in the fourth quarter of 2013 was impacted by a non-cash non-recurring inventory reserve charge, reflecting our newest generation of wireless M2M technology, rendering older products up the lead. R&D expenses in Q4 2014 were $2.4 million compared to $1.8 million in Q4 2013, reflecting the formal conclusion of the I.D. Systems 2.0 initiative. SG&A expenses in Q4 2014 were $6.3 million compared to $5.7 million in Q4 2013. The increase was attributable primarily to increased investment in process excellence resources related to the I.D. Systems 2.0 initiative and incentive compensation expenses associated with the achievements of the company’s target revenue plan. Excluding stock based compensation depreciation and amortization and non-recurring items non-GAAP net loss in the fourth quarter was $3.2 million or $0.27 per basic and diluted share compared to non-GAAP net loss of $155,000 or $0.01 per basic and diluted share in the fourth quarter in 2013. The non-recurring items impacting these results were a $441,000 loss and settlement on a finance receivable with Avis Budget Group in Q4 2014 and a $2.1 million inventory reserve charge in the fourth quarter of 2013. Net loss totaled $4.6 million or $0.38 per basic and diluted shares in Q4 compared to net loss of $3.1 million or $0.26 per basic and diluted share in the fourth quarter a year ago. Recurring revenue in Q4 2014 was $4.5 million or 35% of total revenues. Most of the recurring revenues to-date is from the TAM business, however with the introduction of VAC4 we are transitioning the VMS business from an upfront revenue model to a recurring revenue model. With our new go-to-market pricing strategy for VMS we will receive fewer dollars upfront for hardware units, which we expect in the short-term will impact revenue and gross margin compared to our traditional upfront revenue model. However the good news is that those hardware units will have a multi-year service contract that will help us gain a more predictable stream of higher margin revenue in the long run, which will increase incrementally and generate higher gross margins. In 2015 we expect our revenue growth rate to be consistent with 2014, but we anticipate a more significant year-over-year increase in unit shipments. The shift in our go-to-market approach has also prompted us to plan additional strategic investments in our business, which we expect will help us make the most of our untapped market opportunities in the shortest amount of time, but we also believe will increase 2015 expenses. For example, we expect to hire additional resources in sales and marketing in 2015 to aggressively pursue new revenue and maximize market penetration, which we expect will increase our SG&A expenses. We also intend to increase our investments in R&D, particularly to further improve the capacity and quality of our hosting services to maximize our reliability and scalability as we add new customers we expect a significant influence of new I.D. Systems’ hosted customers specially through channel partners such as Toyota Industrial Equipment which just formally launched its VMS program with I.D. Systems for approximately 273 dealer branches across 70 dealerships in North America. Our balance sheet remain strong as of December company had approximately 13.6 million in cash, cash equivalents and marketable securities and no debt. Thank you for your time today I look forward to reporting further to you in the near future, as we continue to make progress on our financial objectives. Now I would like to turn the call over to Norman Ellis our Chief Operating Officer to review our most sales and operational highlights.

Thank you, Ned and hello to everyone on the call today. 2014 was an extremely busy and productive year and we have much to show for it. As Ken rightly emphasize we concluded our I.D. Systems’ 2.0 strategic initiative in Q4, aimed at building quality, repeatability, scalable processes to support our goal for revenue growth and profitability. So I want to share details about some other projects we completed under that initiative first and foremost we accelerated development and commercialization of four new key products in 2014, bring them to market in about half the time that would have taken under our original project plan. In our VMS business we shipped about 1000 units of our new VAC4 in the fourth quarter of 2014. This fourth generation products decreases our VMS implementation cost by up to 40% compared to the previous generation of our system hardware. It also increases the speed of deployment by over 50% primarily by reducing installation time from as much as four hours to as little as one hour. In addition the VAC4 enable seamless, wireless field upgrades, which helps keep our end users current with our latest software to optimize the value of their system, simplifies our customer support and help end users. In our TAM business we launched and shipped three best in class products in 2014, with significantly expanded and improved on our portfolio of industry leading container and trailer trucking solutions. The GSM-D400, an intermodal container tracking system and the GSM-D150 an intermodal chassis tracking device are designed to address the needs of mobile asset management, which we see as a key growth opportunity in the U.S. transportation industry. The GSM-D300 a dry van management system with an advanced censor endless customers to perform full function asset monitoring, with either satellite or seller communications. By the way our patent for application for this dry van cargo sensing was just allowed as we announced on February 26, 2015. The system integrates a battery power light sensor with an ultra-sonic cargo detector to improve the accuracy of cargo retention and provide our customer with critical load and unload data without the need for external door sensors. We think this new patent will significantly enhance our competitive advantages in the dry van and intermodal container segments of our TAM business. Another key improve under the I.D. Systems 2.0 initiative or the surge [ph] as we refer to it internally was our software upgrade execution. We tripled our rate of our VMS software upgrade in 2014 compared to historic levels. That enables existing customers to transition to our new VAC4 hardware and get full access if they choose to the business intelligence of I.D. Systems analytics. In addition by illuminating older versions these upgrade help reduce our software and support quest. The surge [ph] also enhanced capabilities of our analytics offering, which improved enterprise data analysis and drill down from multi-site multi-region customers in both our VMS and TAM businesses. We have also automated the distribution of analytics data to provide customers with a scalable means of qualifying their VMS benefits, without us having to send on of our performance service engineers to every customer site. The surge [ph] improved the scalability of our solutions in many other areas as well to support rapid roll out across large enterprises. For example we significantly enhance our field service resources with new processes and new implementation partner Metro Mobile Electronics, which has reduced our lead time for onsite customer support by approximately 80% compared to historic levels. And we developed and launched a suite of new computer based training tools to improve both initial and ongoing customer training, which frees up our human resources and significantly expand our capacity to train hundreds or even thousands of customers simultaneously. One of our many quality improvements under the surge [ph] was development of our new quality audit process, which has improved product quality at both contract manufacturing facilities and our third-party fulfillment centers, which both direct ship to our customers. Another key quality metric for us that improved significantly under the I.D. Systems 2.0 initiative is our service level achievement for VMS hardware support. By implementing new processes, we reached 100% of our SLA commitment to VMS customers and users during the last six months of 2014. We believe this progress -- we that the progress we made in all of these areas contributed significantly to our record Q4 revenue, record annual revenue. Double-digit year-over-year revenue growth and continued leadership in the market we serve. Here are some most noble highlights of the fourth quarter of 2014. Nestle placed follow-on orders for our new power fleet VMS with the VAC4 platform under a multi-year service contract that includes analytics. Nestle will have cumulative total of about 2,000 power fleet devices deploys across more than 60 sites in North America when this latest deployment is complete. Ford Motor Company placed a follow-on order with us to deploy our VMS technology at a plant in Southeast Asia. This will be our first Ford implementation in that part of the world. Ford is currently using our VMS systems in plants throughout North America and Europe. It is worth noting here that our European subsidiary have outstanding 2014 more than doubling the revenues they generated in 2013. We have now deployed VMS systems in more than 20 countries and are pursuing many more opportunities abroad particularly in Asia, which according to the industrial truck association has the fastest growing forklift sales in the world. Our Asset Intelligence subsidiary shipped a record number of TAM products in Q4, about 7,200 units and earned a contract extension from Wal-Mart for a large number of existing units. This Wal-Mart extension runs through October 2017 and is valued at up to $14 million. We executed a master license agreement with a leading global airline to deploy the AVRamp version of our VMS on up to 3,000 airport vehicle, at up to 7 U.S. club airports. We received an initial purchase order under this agreement validate more than 500,000 for just the first airport. If the airline orders all the system elements we proposed the agreement have a maximum potential value of over $7 million. We received additional orders from several other new customers in the fourth quarter of 2014 that had enterprise expansion potential including a Fortune 500 heavy equipment manufacturer, one of the largest world’s furniture makers, a premier global logistics services provider and a leading U.S. specialty retailer. And on a final note I.D. Systems received three industry awards in Q4. For the fourth time, we made Deloitte’s Technology’s Fast 500 list of the fastest growing technology companies in North America, based on a 287% revenue growth from 2009 to 2013. We’re also named by Food Logistics as one of the top 100 technology solution providers to the food and beverage industry. And CIO Review named our company one of the 20 most promising logistics technology solutions providers in the United States. This is an exciting time as we turn our attention from and I.D. Systems 2.0 foundation of quality, repeatable and scalability to focusing our energy and investments on aggressive marketing, world class sourcing services and a commitment to continuous improvement. We have tremendous opportunities in front of us direct engagements with global enterprise further grounds in international markets and new partner distribution channels like Toyota’s forklift dealer network. With our new VMS go-to-market approach, we are position to monetize these opportunities with more predictable higher margins recurring revenues over the long-term. I’ll look forward to reporting to you on our progress in the future. Let me now turn the call back over to Ken to open up the Q&A. Ken?

Thank you, Norm and thank you everyone for your time on the call today and we’ll welcome any questions you may have at this time.

Thank you. [Operator Instructions] Our first question comes from Morris Ajzenman with Griffin Securities. Your line is open.

Afternoon, guys. First question, these contracts going forward recurring revenue model and again with VMS moving in the same model as the Asset Intelligent Group are all these contracts locked in where current revenue kicks in your gross margins will approximately 60%, is that fair and is that accurate for all these contracts going forward once the recurring revenue model kicks in?

Well I’ll take that one. So if you look at the cost of the hardware versus the price as well as cost of the hosting compared to price over the term of the contract, the margins in the deal are around 60%. So if someone signs a five year commitment to us then over that five year term they’re paying us for that hosting and services capability and the net margin on the deal is as you said 60%.

How does it play out I guess the question for Ned then over the first quarter and the soon quarters of this year is just step up in a more aggressive manner particularly with VMS on the similar current revenue model and your hardware is sold at low prices, what should we expect gross margins on a GAAP basis just gross margins to be for the next couple of quarters?

Sure, hey Morris. The gross margin get impacted upfront because the way its priced out the hardware has a lower gross margin and the services have the higher gross margin. As we look into 2015, we expect the gross margins for the whole year to be approximately 50%. However in the beginning of the year they were going to be in the mid-40s towards the high 40s and then improving to the low 50s towards the back half of the year.

Alright so then for the first quarter the fourth quarter was an anomaly with these onetime expenses based on new model anywhere between 45% and 48% is a realistic expectation for gross margins.

Yes.

Okay.

And one thing I want to add in our model is that we don’t anticipate that every one of our customers will immediately move to the new model. So in the units sold this year we’re exciting roughly half will be on the new model and half will be on the old model.

Okay. And one last question I’ll get back in queue here. What would have told unit shipped in 2014 in asset management and you might have given to us, but for the full year asset management and VMS.

The number on VMS was 8700 I believe and 17500 for Transportation Asset Management.

Okay. So then for ‘15 you expect your revenue growth rate to be similar to ‘14 which is 14%, but unit volume will be greater. Can you give us any idea what that unit volume growth rate will be?

We’re expecting a 40% increase in unit volume on the VMS side and roughly 15% increase on the TAM side.

Thank you.

Our next question comes from Jason Smith with Lake Street Capital. Your line is open.

Hey guys, thanks for taking my questions. A real quick Ned could you talk about what the gross margin impact from the Wal-Mart contract was in Q4?

Yeah if you look at the gross margin in Q4 and you backed out the impact of the Wal-Mart impact, the gross margin in Q4 would have been approximately 45%. If you back out the impact of the 1000 units that we sold under the new pricing model than they would have been closer to the 50% range.

Okay thank you. And then with you guys shifting to a more service centric model any change to your gross margin target out there of 54%? And if you could update us on where you think your breakeven run rate is?

Sure the gross margins will be impacted at the beginning as I said before, just because the hardware has the lower margin than the services. So in the beginning of next year our margin will probably be around the mid to high 40s and then towards the back half of the year we expect to be in the low 50s. So for the overall for ‘15 we’re looking at 50% gross margin. Once we go into ‘16 and ‘17 then you can see in the high margin services kick in, we can see them going higher the 54%, 56% level. When you look at the breakeven point once we build the sales, marketing and R&D efforts it will be approximately on a non-GAAP basis $52 million in annual revenue.

Okay. And then the last one from me, Ken it sounds like you guys are off to really good start here this year, wondering your confidence in growth for this year where it’s coming from is it signing up new customers, expanding at existing customers or a combination of both?

Well there’s a lot of things, one, is I certainly anticipate that the impact of I.D. Systems 2.0 will continue our execution time, our time from order to delivery has improved significantly and the sooner we deliver the sooner people will order more, because they certainly want to do that and that was the problem we had which is that we were kind of our own worst enemy there. So the ability to execute better should accelerate that revenue, but in addition adding Toyota as a distributor while we don’t know exactly what the impact that will be, if it’s anywhere near the impact that our Raymond has been, which certainly enable us to achieve the unit targets that we set out to achieve for the year.

Alright, thanks a lot guys.

Thank you.

Our next question comes from Josh Nichols with B. Riley. Your line is open.

Hi guys, how is it going? Just want to go over a couple of things, real quick regarding OpEx now that I guess everything is wrapped up with I.D. Systems 2.0, but the company is still obviously going to make some investments for growth for sales and R&D any idea on what OpEx might be looking like for ‘15?

Sure so the SG&A expenses we expect to be approximately between $23 million and $24 million that include about $3 million in non-cash expenses including depreciation, amortization and stock-based compensation. And R&D expenses we expect to be in the range of $5 million to $6 million for 2015.

Okay. And then looking here at just some of the sales and everything I was wondering do you see much seasonality in the business as far as cyclicality maybe Q4 is low or Q1 or anything like that?

Yeah this is Norm, typically historically Q1 has been slower for us. We’re having good Q1 right now, but I think a lot of customers that work on annual budgets will sometimes flush those budgets out in Q4 and we have a practice of trying to assist them with spending that money as appropriate as you might imagine. So we did have a great Q4 and so Q4 will clearly be slightly behind that but it’s been a highly cyclical I think it’s more based on the budgetary constraints that our customers have, but we’ll accelerate through the balance of the quarters and of course I think we’ll have a very strong Q4 this year as well, it will be a bit little slower in Q1, but it will be growing every quarter as we go through the year.

And then glad to see that Toyota is starting to ramp, so you mentioned 270 dealerships just for reference how many dealerships do they have and any idea as far as how long it taken to scale that out?

I think it was 270 branches and 70 dealers so there is a difference there between the sizes of them, this week they were doing the introduction of our technology to those dealerships so that at ProMat, which is the largest material handling show of the year. The announcements regarding the new release of the product, which by the way is slightly different than Raymond because it’s going to be labeled with Toyota, so it’s going to be a Toyota branded product completely both the hardware and the software is really due to kick in at the end of March.

Okay, let’s see. And then last thing I guess or actually real quick of the 7000 unit Transportation Asset Management sales any specifics as far as how many of those sales were related to the key markets of intermodal or chassis things like that?

No the numbers for the chassis intermodal are just beginning to kind of like we just launched those products in the second half of 2014. So a lot of that business was still in the traditional dry van market space. We have several very large pilots underway right now with some of the leading intermodal providers in the U.S. and those will come to conclusion in the next couple of months and we’re very excited about 2015 and what that will lead to for the intermodal and chassis market.

Yeah great, okay. Well thanks a lot guys.

Thank you.

Our next question comes from Bryan Prohm with Cowen & Company. Your line is now open.

Thanks, good afternoon guys.

Good afternoon.

Hey, congratulations on getting all the 2.0 goals hit into year-end. For me the question is based on everything that’s been asked so far I mean will ask some where do we get from here questions around beyond the impact of 2.0. So today you’ve outlined longer term vision of repositioning VMS as a system as a service adopting a multi-year service model. And Ken you guys have already hinted at $100 million sort of long-term revenue goal for the company long, can you walk me through what that would look like and how the changes you’re making today what is recurring revenue look like in that $100 million pie, is it slightly over 50% is it a substantial majority? What is the big inflection point come or the crossover rather? Thanks.

Well that answer the last part, but let me start with the first part which is if you look at the total assets that are currently being tracked today in our markets that we’re serving which is the industrial trust market, the airport vehicle market, the intermodal containers, chassis and dry vans you are talking about net about 5% market penetration. And as I’m sure most of the attendees on this call know the cost and prevalence of cellular communications have come way down and have gotten much more broad. So most of our transportation customers are moving completely away from satellites and to cellular, which is a great thing for us because it means that battery life going to be better as well as the margins should be better and the cost should be lower so the ability for our prospects to deploy becomes much more realistic than ever before. I mean it was only three or four years ago where have might cost us $20 a month per asset for cellular communication, and now it’s less than a $1. So it’s a massive improvement on the macro level. So our basic 2015 focus is to continue our emphasis on reliability, focus on the channel developing like adding Toyota as well as other forklift OEMs. Adding to sales and marketing now that we believe we have a scalable business capabilities from a delivery standpoint, from an implementation partner that we’ve signed up, from its online training that we’ve created as well as the benefits capability through our analytics tool. So we really feel good about adding to our sales and marketing as well as just continued focus on workforce training. So those are our 2015 strategic focuses. But as it relates to the financials let me have Ned answer the about the crossover.

If you look at our recurring revenue today of about $17 million plus it hasn’t really grown at rate that we’re all happy with. We believe with this new model that within three years where we’d be able to double that number.

Great that’s very helpful, thanks. Let me talk a little bit about mix then, a 1000 units of that VAC4 in Q4. How does that mix shift or how does that mix look in VMS going at year end a year from now?

Well our plan for ‘15 is about 50-50. Well actually VAC4 is going to be the new product beginning at the end of Q1 for everybody. But there is still maybe a different pricing models for older customers versus newer customers. So the older customers that we have established pricing relationships and master agreements with are going to be a little bit more challenging to move to the new approach. So in 2015 it’s about 50-50 in 2016 we’re expecting closer to 75% will be on the new model and then 2017 you’re talking about 90%.

Great, that’s really helpful. Thanks for answering my questions guys. Take care, good luck.

Our next question comes from Raymond Young with [indiscernible] Asset Management. Your line is open.

Hi guys, good afternoon. I’ve a question for Ned. Can you comment on your cash used for 2015 given the focus on recurring revenues and the need to finance hardware?

Well we are not going to finance the hardware, we are going to charge an upfront fee for the hardware. It’s lower than we charge now, but it would still be above cost it would just have a lower gross margin. So we believe based on our balance sheet that we do not need any additional capital to execute our business plan.

Okay. I have a question for Norm, can you comment on win rates in 2014, has it been flat or has it been escalating and what are your expectations for 2015?

I think our win rates have been increasing not only the percentage against our competition, which we’ve always done pretty well against current competitor. Our biggest challenge I think in the past has been the no decision for the customer that would just not make the change, but with our business analytics tool that we have today we’re able to show them not only ROI internally, which we’ve been able to do before, but we also now are able to show them comparisons to their peers, respecting confidentiality of course as appropriate. And that really is quite compelling against the no decision one, hey well maybe the ROI I believe it or I don’t believe it or it’s not quite as good as I thought it might be, but if I know my peers are doing things and based on my results I’m lagging behind them, it really does kind of get to uses flowing formed to get pass that no decision and really go forward. So I think in that case we’re doing really well on the no decision side and we’ve always kind of been really strong against our direct competitors when we went head-to-head. But I think the point that Ken mentioned earlier was our speed to close is increasing and that’s the part that I’m most excited about instead of taking 180 days or 200 days six months getting that down to two months. Couple of things come into play one our ability to execute with Surge 2.0 [ph] was really the impetus to do that. So we’re able to execute more efficiently, the implementation is easier on the product 50% reduction in installation time gets us to rewarding the customer quicker. And as I mentioned our business analytics tool so really helpful in driving home that value and understanding for the customer. So I think we should be able to achieve the goal that we talked about today and I’m excited in the future as we get even more training to our people and the market continues to see the benefits of this adoptions in the VMS markets specifically we’ll see good future potential for growth.

Okay. Last question, Ken can you comment on or give us some comment on Avis?

Avis is definitely continues to be a customer, I mean I’d probably say the same thing I would have said when we first got started. They’re an important customer of ours we’re almost to the end of year three of our five year contract on the 30,000 cars. We continue to execute on that, they continue to use it to increase their fuel revenue and we continue to be in dialogues with them as well as enterprise and heard about their next phase of telematics in their cars.

Okay. But no definitive timeline?

No, not from really any of them. I think that in this industry obviously we have the lead position with 30,000 devices installed, which is more than Zipcar, Hertz On Demand and V Car combined based upon my knowledge and when there is a next step from anyone of the three we think we are extremely well position to be there.

Okay, thank you.

[Operator Instructions] Our next question comes from Dan Wesson [ph] with Westcoast Management. Your line is open.

Hi guys, thanks very much and congrats on the quarter. Most of the questions have been answered, just a couple of quick ones. The recurring revenue piece of the pie could you disclose what you are experiencing in terms of renewable rates on those service contracts?

When you look at the transportation business where the majority of the recurring revenues coming today, the renewable rates are very high, most of our contracts have automatic renewal and the largest customers like Wal-Mart we just announced a three year extension. So when you look at the renewal rate in our transportation business today is very high.

So say like over 90% kind of thing.

Absolutely.

Okay. And then as a follow on to one of the previous questioners in terms of where you expect recurring revenue to shake out I think you laid out a three year plan maybe you could discuss a little bit about where let’s say you would end 2015 on a quarterly basis of recurring revenue?

When you look at this year we ended the year with $17.5 million, I think it’s not reasonable to expect to see a 25% to 30% increase in recurring revenue at the end of 2015.

Okay, that’s great. And the oil prices, I was just wondering what kind of impact if any you are seeing from your customer base in terms of increased CapEx potentially from the lower oil prices we are experiencing now?

I think the biggest one I could point to is probably in the aviation industry, obviously but a lot have hedged their oil pricing or purchasing. So it’s not directly impacted there, but I think that they are definitely doing better financially, so we are seeing more an uptick there. I mean one thing that’s nice is we are kind of insulated because we have so many different industries that we serve. So we are not reliant on the automotive industry or the aviation industry or rental car industry. So certain companies that might be negatively impacted by the price of oil are Sonoco is a customer so I am sure they are not happy so again it kind all these kind of microeconomic changes have both positive and negative impact on our customer base. The macro element that has the biggest impact to our benefit are the cost and prevalence of cellular as I talked about.

Got it, okay. And then finally Ned just refresh my memory the collection of the $5.5 million from Avis, was that cash collected in Q4?

Yes.

Got it. Okay that’s it from me and thanks a lot guys, congrats again.

Thank you.

Thank you. I am showing no further questions, I would like to hand the call back to management for closing remarks.

Sure, I would like to conclude the call by saying that I firmly believe and I am sure Norm and Ned would attest to the fact that the completion of the Surge [ph] has resulted in enthusiasm level at the company that is really never been higher. We are adopting new customers and being able to deliver and execute on that with much fewer bugs and much fewer delays then we had in the past. Although I will say we are not fully at out of the woods yet we still have work to do. So from a short-term standpoint we are going to continue to invest in ensuring we have quality and scalable processes. Medium term our plan is to continue to invest in the sales and marketing to really go after $8 million assets that are unserved and need our technology, time is our enemy in that regard and the sooner we get on them the better. And then long-term to be clear our goal is to be the preeminent company in the internet of things space, we are calling it kind of the internet of supply chain things that’s our plan and we are working everyday to help get our company to achieve it. So thank you again for your time today and we will certainly stay in touch.

Ladies and gentlemen thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a great day.