PowerFleet, Inc. (AIOT) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the I.D. Systems Inc. First Quarter 2015 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] And as a reminder, this call is being recorded. I would now like to turn the call over to Ken Ehrman, Chairman and CEO, you may begin.

Thank you. Welcome to I.D. Systems fiscal quarter 2015 conference call, and thank you for everyone who has joined us today. I’m Ken Ehrman, Co-Founder and CEO of I.D. Systems. On the call today, I will summarize our Q1 results, Ned Mavrommatis, our CFO will detail our financials, and Norm Ellis, our new Chief Operating Officer will provide details on our sales and operational efforts. Following our opening remarks, we’ll open the call for Q&A. Before we begin, let me remind everyone that the following discussion contains forward-looking statements within the meaning of the Federal Securities Laws, which are subject to risks and uncertainties, including, but not limited to the impact of competitive products, product demand and market acceptance risks, fluctuations in operating results, and other risks detailed from time-to-time in I.D. Systems filings with the Securities and Exchange Commission. These risks could cause the company’s actual results for the current fiscal year and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of the company. The first quarter of 2015 reflected both the progress I.D. Systems continues to make and the challenges we remain committed to address it. As we announced in March, we have completed our I.D. Systems 2.0 strategic initiative focused on building quality, repeatable, scalable processes to support our goals for revenue growth and most importantly, profitability. Our accomplishments included accelerated commercial release of four new industry leading products and improved software upgrade process and hosting capability, enhanced analytics software tools, more scalable field service resources, new and improved customer training tools and better processes for supplier quality assurance and customer support. During the first quarter of 2015, we expanded a significant amount of resources introducing these improvements to our top customers as well as leveraging them to help win new business. Year-over-year, I.D. Systems revenue increased 14% in Q1 compared to the first quarter of 2014. Our TAM business segment exceeded our revenue target with more than 5,000 units shipped compared to just under 2,000 units shipped in the same period a year ago. Our VMS unit sales were also in-line with our expectations with almost 1,800 units shipped, more than 15% higher than shipments in the first quarter of 2014. Our pipeline remains strong and we are confident we will meet our revenue and profitability objectives for the year sustaining the growth rate we achieved in 2014. In terms of challenges, we clearly need to get our 36% Q1 gross margin back to our historical range of approximately 50%. However, the factors that contributed to our first quarter gross margin are well understood and generally reflect efforts we believe will contribute directly to future revenue growth with our top customers. The primary factors that impacted our gross margins in Q1 were as follows. As we have commented previously under our new VMS pricing model, our short-term revenue recognition and gross margin will be negatively affected in 2015. However, the multi-year service contracts we execute with customers will generate more revenue and higher margins over the long-term as well as predictability compared to the revenue we recognized from initial upfront hardware sales in the past. Our high start-up cost with our implementation partner in Q1 allowed us to address field issues with our most important customer to facilitate enterprise system expansion, the primary objective of this partnership. We also incurred higher than expected cost for the initial production of our new VMS device, VAC4, which will decrease as we continue to ramp up volume and finalize several cost savings project being implemented in our manufacturing and procurement processes. Finally, although we had a low gross margin on a $1.1 million sale of our TAM spare parts to Walmart, this refurbishment initiative will extend the life of nearly 55,000 TAM devices on Walmart trailers for many years, which will have a corresponding positive effect of long-term TAM revenue. I also want to comment briefly on one element of our SG&A expenses in Q1, a non-recurring cost for a strategic initiative. This initiative involve a well-renowned technology company in the midst of a turnaround, which we felt have the potential to significantly impact our business. While we ultimately were unable to reach an agreement on key terms, going through the process was a great learning experience. We identified several strengths and weaknesses and crystallized our long-term objectives for our business rather than simply saying our long-term objective is to become a leader in the industrial Internet of Things space. We have further refined our plans to get there. Our plan has two primary objectives based on our relationships with the Fortune 100 companies become our customers’ go-to asset tracking company for their high value assets not just industrial vehicles, trailers and containers. For example, vehicle batteries, company cars, industrial machines, non-powered physical assets and much more. Secondly, help our customers connect the product that they manufacture to the Internet as we are doing with industrial truck OEMs Toyota and Raymond. We have the experience to provide IoT solutions to companies that cannot or do not want to develop and maintain their own hardware, software and firmware engineering expertise. We still have ways to go to meet these long-term objectives, but we are improving as an organization and making progress eliminating the obstacles that have previously limited our growth. By continuing to imply the improvements of I.D. Systems 2.0 to our existing customer base, investing more in sales and marketing to capitalize on our new enterprise opportunities and expanding our channel partner relationships, especially with Raymond and Toyota, we are confident that I.D. Systems will continue to grow and show the improved results that all the shareholders are expecting. Now, before I turn the call over to Ned, I want to report some good news regarding our rental car management segment. We have just executed our third statement of work with Avis Budget Group. While I am precluded from divulging the specifics of the program at this time, it is a fully funded engineering initiative to enhance our existing technology to meet Avis Budget’s fleet tracking needs. With that, let me turn the call over to Ned Mavrommatis, our CFO for a more detailed review of our financials. Ned?

Thank you, Ken, and hello to everyone on the call. Revenue for the three months ended March 31, 2015 increased 14% to $11.1 million from $9.7 million in the first quarter of 2014, driven primarily by a 35% increase in sales of transportation asset management systems. Recurring revenue increased in the first quarter of 2015 to $4.5 million compared to $4.3 million in the first quarter of 2014. Gross margin was 36% compared to 51% in the first quarter of 2014. As Ken noted, the decrease was primarily attributable to four factors: our continued transition to a new service contract oriented VMS pricing model, start-up cost to onboard our new VMS implementation partner, higher than expected cost for initial production of the company’s new generation of VMS devices and low gross margin on approximately $1.1 million in TAM spare parts through Walmart, which was part of a refurbishment program expected to extend the life of the TAM devices on the Walmart trailers. We expect gross margins to start trending higher as we start to realize benefits through cost cutting initiatives on the VMS hardware and start seeing the benefits of the VMS service contracts. SG&A expenses of $6.8 million were flat compared to the first quarter of 2014. Excluding non-recurring cost of $669,000 related to an unconsummated for strategic initiative in 2015 and $1.1 million of our executive change in 2014, our non-GAAP SG&A expenses in the first quarter of 2015 and 2014 were $6.1 million and $5.7 million respectively. During the last call, I said that we expect SG&A expenses to be in the range of $23 million to $24 million in 2015 and if you exclude the one-time charge of $669,000, we still feel comfortable with that estimate. Research and development expenses increased to $1.2 million from $1.1 million in the first quarter of 2014, primarily as a result of increased system and quality testing on our company’s new products. We expect R&D expenses to be in the range of $5 million to $6 million in 2015. Excluding stock-based compensation, depreciation and amortization and other non-recurring items, our non-GAAP net loss was $2.7 million or $0.22 per basic and diluted share compared to non-GAAP net loss of $947,000 or $0.08 per basic and diluted share in the same period a year ago. Net loss was $3.9 million or $0.32 per basic and diluted share compared to a net loss of $2.8 million or $0.24 per basic and diluted share in the first quarter of 2014. As of March 31, 2015, I.D. Systems had $11 million in cash, cash equivalents and marketable securities and no debt. I want to conclude by re-emphasizing that in the short-term our new go-to-market pricing strategy for I.D. Systems hosted VMS may generate fewer dollars per unit and a lower gross margin upfront for system hardware compared to our traditional upfront revenue model, but we firmly believe that VMS unit sales will increase and recurring service contract revenue will grow as a percentage of total revenue, resulting in higher gross margin in the long-term. Since the introduction of the new pricing strategy, we signed $1.6 million in long-term service contracts related to VAC4 shipments. Thank you for your time today. I look forward for reporting further to you in the near future as we continue to make progress on our financial objectives. Now, I’ll like to turn the call over to Norm Ellis, our COO, to review our most recent sales and operational highlights.

Thank you, Ned, and hello to everyone on the call today. At a high level, we had solid repeat business in Q1 from core customers. On the TAM side from Ashley Furniture, CH Robinson, Knight, Meijer, Swift, Walmart and other. On the VMS side, from Audi, Bridgestone, Caterpillar, Ford, General Mills, Nestle, P&G, Toyota, U.S. Postal Service, Walgreens and others there as well. We also want initial orders from new customers with strong enterprise potential, including a leading global supplier to the oil and gas industry, one of the world’s most prominent power management companies, one of the largest privately-held Ag businesses in the US, a leading packaged food producer and a leading global manufacturer of engineered polymers. Our general partners also continued to make important contributions to our revenue, with sales to end users across a diverse range of industries, including automotive, food and beverage, grocery, healthcare, home products and mass retail. I want to go in a little more detail on our progress in Q1 with a few customers in particular. First, Toyota, both Toyota Motor Manufacturing North America, an end user of our system and Toyota Industrial Equipment, our channel partner, which is the North American arm of the world’s largest forklift OEM. Toyota Motor Manufacturing supply chip automotive production complex in Kentucky had been a customer of ours since 2002. They’ve also been an advocate for audio systems internally in their organization, which has led to additional Toyota automotive plants choosing to deploy our VMS solutions including one in the first quarter of 2015. Toyota Industrial Equipment and I.D. Systems formally announced our strategic partnership at ProMat 2015, the material handling industry’s largest trade event. We are private labelling the VAC4, our fourth generation VMS hardware unit under the Toyota T-Matics Command brand and providing system hosting and implementation support for Toyota’s end users. Toyota will be reselling our solution to its distributor network of approximately 270 dealer branches across North America. A couple of important notes on this program. I.D. Systems has done a lot of work on our backend systems to integrate with Toyota’s dealer portal, including a seamless single login mechanism and a highly automated system configuration and coding tool. We are ready to support both factory installations and after-market system deployments at end user sites. Our channel sales and support team is also continuing to tour the country, conducting sales training with Toyota dealerships. Toyota’s engineering team has integrated our system into its forklift production process, so our VMS can be ordered as an option on trucks coming out of their factory. We support this effort with custom vehicle hardware cabling and packaging as well as Toyota-branded product labelling and software. Although Toyota has enabled VMS installation as a factory option and formally launched its dealer program, they have actually not yet fully implemented to their internal systems to support after-market VMS deployments. So, while we have started to receive factory fit orders, we have not yet begun to see orders for after-market implementations. We look for much greater contributions to our revenue from Toyota in the second half of 2015. We are also working to introduce our new service contract oriented model in VAC4 product to other forklift OEMs, including our long-time partner, the Raymond Corporation, which is actually a subsidiary of Toyota. Raymond has invested considerable resources into selling earlier generations of our VMS solution to end users like the Home Depot, Big Lots, Ross Stores, SuperValu and many others. So, introducing their organization to our new go-to market approach has many complexities and requires considerable effort. In addition to expecting an increase in recurring revenue through the Raymond channel in 2015, we are also engaged in products that we hope will embed our intellectual property and software even deeper in the Raymond’s industrial trucks at the factory level. A couple of notable end user customers also occupied a significant amount of time and energy in the first quarter of 2015, specifically General Motors and United Airlines. At GM, we have completed a significant pilot deployment of our VMS solutions. Provided them with very unique required deliverables and introduced our unique analytics data platform for analyzing material handling asset activity. GM has a complex organization with many stakeholders and the extent to which they will follow peer automotive makers like Ford and Toyota and rolling out our VMS remains to be seen, but we have gone a great lengths to exceed this important enterprise customer’s expectations. United Airlines, for whom -- with whom we’re implementing our initial system at Newark Liberty Airport has ambitious agenda for applying our technology. They want to track and manage many types of equipment unique to the airport environment, including auxiliary power units or APUs that provide power to park aircraft and the jet bridges that bring passengers to the aircraft door. To support United’s objectives, we have spent a considerable amount of time on flight, surveying equipment and developing solutions for these applications. We believe this investment of our resource will pay off in the long run as we expand our airport fleet management -- vehicle management solutions not just with United but also with other airlines and ground equipment companies operating at airports around the world. As Ken mentioned, we also made a significant effort in Q1 to introduce our improved I.D. Systems 2.0 processes to many existing customers such as BWAY, Sonoco and Knight Transportation to new a few. At Knight, for example, we have impressed senior management and solidified our competitive position to improve product quality and introduction of our new VeriWise GSM-D300 dry van management system. This solution incorporating on newly patented cargo sensor gives Knight unprecedented visibility of the time it takes customers to load their trailers, which enables Knight to prioritize the most efficient customers and increase trailer utilization providing tremendous value to their business. Another observation Ken made that I want to elaborate a bit more on is the cost cutting initiatives we are undertaking. We are making design requirements to our VAC4 VMS product that will cut unit costs by at least 14% on top of the 50% cost reduction this product already represents compared to earlier generations of our VMS hardware. We have also reduced the cost of the product after the popular VMS option we used to measure lift truck productivity by over 60%. On the TAM side of our business, we are also achieving cost reductions from procuring product components such as battery packs more effectively to contracting better rates for cellular and satellite data communication services. Impacting our entire business, we have also implemented new processes that have reduced our average travel cost on a per trip basis and we have negotiated new freight rate that will save us approximately 3.5% on our shipping costs. I will conclude my remarks with the couple of other notable highlights from the first quarter of 2015. First, our power fleet VMS solution earned a 2014 M2M Evolution Internet of Things Excellence award from TMC and Crossfire Media, which honors innovative products that collect and analyze machine data to drive better business decisions. Second, the U.S. Patent and Trademark Office allowed our application for a patent on an advanced cargo sensing system for dry van trailers and intermodal containers. As illustrated in the Knight example I gave, we think this addition to our patent portfolio will greatly enhance our competitive advantages in the dry van intermodal container segments of our TAM business. We have tremendous opportunities in front of us. I’m very excited to be able to have a leadership role in the next phase of I.D Systems’ growth. I’ll look forward to reporting you further on our progress in the future. Let me now turn the call back over to Ken to open the Q&A. Ken?

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

Thank you. [Operator Instructions] And the first question is from Morris Ajzenman of Griffin Securities. Your line is open.

Hey guys. Back on a gross margin front, I mean clearly, you guys are making traction, topline is growing double digits [indiscernible] quarter. So, you’re clearly getting attention vis-a-vis your customers stepping up, but let’s further just drill down on gross margins. Ken, you said, you like to return to 50% range. Is that doable in some quarter in 2015 and then couple that with when do you start making money on a pro forma basis, how many quarters is that for you to see?

It’s definitely our objective. So, the question will be how many more of our existing customers need the attention that we have to give them in Q1. So, Norm talked about it, but we definitely expanded some significant, what I’d call, field service resources to get the improvements we made during the surge, deployed to our biggest customers that have the most potential to buy more. And if you notice, over the last two or three years, we really didn't get too many enterprise rollouts. We got a lot of customers and they ordered one at a time, maybe another plant every quarter or two. And that was what we were trying to fix, but we also had a tremendous amount of legacy issues that were in our customer base. So we actually spent a lot of time and I made a list, I'm probably not going to have to read them to you, but we spent a lot of time cleaning up issues that were 14 years in the making with our customers whether that Raymond, Knight, as we mentioned Sonoco, Eaton, Toyota, Trac, GM, I mean we invested those resources and at this point what they are telling us, by way of example, and I could go through each one of them is that now they plan on rolling out our system sooner rather than later. So that's what they are telling us. They are going forward and actually placing those orders whether that's John Deere against – Sonoco, for example, just asked for a quote for 24 more sites. So these are the kinds of things that are going to be the outcome of these investments and I really felt strongly that we needed to make those investments because one of the big concerns that everyone had was that we were just growing at 15% or considering the market opportunity, our growth rates weren't what they should be. But the only way to get there is to make -- when you are dealing with the most demanding companies in the world is to actually meet those demands and I feel like we've made tremendous strides with our customers. I am sure Norm would concur with that and the feedback we're giving from those customers is that now they are planning on rolling out in a much more expeditious way than they’ve ever done in the past. So how that's going to translate to the financials, I think as I mentioned in my opening remarks, we still believe we are going to hit the revenue as well as profitability objectives that we set out to achieve on the last conference call, but we will see how many more field investments we are going to need to make, because when confronted with that decision, assuming that the customer says when we make those improvements that they are going to roll out the way some of these guys have, I'm going to have to make that choice to do it. So I hope that answers the question.

So 6% gross margin might not happen in 2015 in any one quarter?

I mean, I don't want to say it the same way you are saying it because the VAC costs are getting lower and we are taking costs out of the products. So as we do that, we should see plus under the service contracts the margins are significantly higher than they have been. So I don't want to make that commitment. What I feel pretty strongly about is the revenue and profitability message that we gave in the last quarter.

Thank you. And I guess maybe for Ned kind of just corollary to that, when do you believe you would be able to start generating cash from activities -- from operating activities?

Morris, we expect that the revenue target that we set out on the last call we expect to meet those revenue targets. So as we said last time, we expect the third and fourth quarter of this year to be at a breakeven point from a cash flow and turning into positive.

Thanks. And one last thing, I will get back in queue. Can you just give the VMS and TAM by both product and services revenue?

Sure. When you look at the TAM business, $3.3 million came from products and $2.7 million came from service. When you look at the VMS business $3.6 million came from products and $1.3 million came from service and then the $260,000 in service revenue from the rental car business in the quarter.

Thank you.

Welcome.

Thank you. The next question is from Josh Nichols of B. Riley. Your line is open.

Yeah, real quick, I know there is probably not too much you can say about the second Avis statement of work, but if I recall the original contract was the statement of work too would include at least 250,000 Avis in April, is that still in play?

So I am not really allowed to elaborate that much about it, but I think I can probably repeat many of the things that I have said in the past, which is they wanted to roll out our system to their entire fleet, but there has been a lot of changes in their market. Well, that's their marketing objectives. With our technology, we weren't going to simply develop that without a commitment from Avis. So this program is the commitment we were looking for from a financial standpoint to cover the expenses that we need to tether our systems to their next generation requirements. So that's about all I could say, but the whole purpose of this program and we wouldn't be doing it if it wasn't the case, was to be rolling out the technology to their whole fleet upon completion.

Great. And then I guess just look here, there is few factors I know gross margins, you’ve talked before, anyway that you can quantify specifically the effect of the change in the VMS pricing strategy and what that had on gross margins versus the other items which are kind of more of a one-time and hopefully non-recurring in nature?

Hey, Josh, this is Ned. The effect of the changes in the model did have about a 5% impact on the gross margin. A lot has to do with the initial builds of the VAC4 product were higher due to volumes being low. We are doing a couple of things to make sure that we improve our cost which would affect – have a positive impact on this gross margin. The first is a couple of engineering projects that would further reduce our costs. In addition, as we sell more and more of this new VAC4 units and you build a lot more the price of the unit will come down. As well, as I said in my opening remarks, we did sign up already $1.6 million in long-term service contracts related to this VAC4 product. So as that service revenue starts to hit our revenue line that should also help with the gross margins going forward.

Okay, you said it was $1.6 million in the quarter?

I'm sorry, say that again.

You said $1.6 million just for the service margin aspect in the back portion, is that correct?

$1.6 million in long contracts, yes, that we signed related to VAC4 shipments since we introduced the new pricing model.

Okay, thanks a lot.

Thank you. And the next question is from Andrea James of Dougherty & Company. Your line is open.

Thanks for taking my question. Hi. So it seems like you have a good rationale behind the gross margin performance in Q1, but you are kind of sticking to the revenue growth on this new 15% and profitability of breakeven, these objectives for the full year. And I am just looking at Q1 didn't really get you closer to that. So I am just wondering what gives you the confidence to reiterate what you've said previously rather than, say, lowering expectations in 2015?

This is Norm, so how are you?

Hi, good.

Like Ken, I am very confident. I mean the pipeline looks phenomenal, so I am very excited about that and the class of customer that we are talking about has very large facilities in size of numbers of units and when you get to that level of installation and deployment, you can be quite effective with that, because you get 50 or 100 vehicles to do which really allows us to optimize the installation part. So on smaller ones we're doing 8 or 10 charge, right, your installation cost can be just proportionately high, but when you can get an assembly line approach to that, which you can get larger facilities that really starts to drive that cost down, and we get paid for that, for those services. So when we do that, we really get a chance to really get a return that is proportionate to the volume and the size of the opportunity that we're rolling out. And again, like I said, the pipeline is very strong and the model as we get more recurring as they build, and they are every quarter now, that's quite comparable on the recurring side, so larger percentage on an ongoing basis against out total. That will also help deliver some of those results later on this year.

That's helpful. Thank you. And then this, you mentioned the new VMS implementation partner and there is like some initial costs to integrate them. Is this the one that you had previously announced last year like six to nine months ago or is this a new one?

I try to eliminate the word new from any place, but it might have been in the script or the press release. So if that's made it in, I'm sorry about that. But, no, it was -- Q1 they were working very diligently in all these customers, so there was lot of learning curve for them and that's what we are talking about there. No, the same customer. Same implementation partner.

So it's just the continuation of the same the implementation partner that you guys had hired, they are still getting up to speed, is that how we look at it?

Well, in Q3 and Q4 they were mostly selling VAC3, in Q1 they were selling VAC1, so they had to learn the new processes, I mean VAC4, sorry.

Got it. Thank you.

Thank you.

Thank you. And the next question is from Jason Revland of Blueprint Capital. Your line is open.

Thanks everyone, I’ve got two questions. The first is just housekeeping on Avis. Is there any exclusivity of cash to this new Avis project and what is the timeline to complete that project?

There is some slight exclusivity, again I'm not really supposed to talk about this but I'll give you a little bit of what I don't think they would have any issues with. The exclusivity side is more on our side, the custom features that we're creating for them we can't sell to other people.

And the timeline?

The timeframe is, we're supposed to be completed with this project by the end of the year.

Okay, great to see motion there.

It's [Technical Difficulty] that's for sure.

I appreciate the extra color. The second question relates to the Toyota Forklift opportunity, I'm not sure the market is properly discounting the scope of that. Can you give us a better sense of how to model that opportunity i.e. the number of forklifts that Toyota sells, the economics, the sell-through rates and also what is the opportunity to sell to on a retrofit basis to existing forklifts?

This is Norman, as I mentioned in my comments, the initial rollout with Toyota was four, the new equipment being manufactured in the factory. And there is a significant lead-time on those orders for Toyota. So we'll see some of that little bit later as those orders come to fruition but they’re being placed now. The aftermarket will start in July, and I think there they will see a more immediate impact on -- as far as opportunities to ship and recognize revenue more quickly. But they manufacture right around 40,000 forklifts per year, the large manufacturer in North America. And it’s hard to estimate at this point how many will take the initial use, I like to think there is going to be a large percentage but we're being a little conservative in our approach just to have some upside hopefully but we think there will be some really good penetration, the training we're doing with the dealers has gone very well, they're very excited about it and so as we continue to work, we've actually realigned our sales organization to matchup more directly with the dealers, specifically Toyota and Raymond. So I think we’re positioned well to really leverage that and the work that we did on the host and on the integration side for ordering, configuration, single sign-on and all those things to really may it quite seamless for their dealers to use it and making it easy is really important when you go onto a channel like that and I think we've accomplished that and we'll see the results of that going forward. I hope that answers your question.

It does, if I may follow-up on the aftermarket opportunity. Is that just as exciting as the new forklifts sold in your line?

Yes, absolutely, in fact there is a lot -- these units left a long time out there right, they’re built with great quality and customers use them for a decade or longer. So, you can take those numbers and multiple them quite significantly on the aftermarket side. I think it's important for people like Toyota and Raymond because they like to really drive value to that end user for the services they can offer for maintenance and support as well as new sales of course. So they’re very interested in supporting customers and aftermarket sales, they believe they can get some competitive differentiation, get introduced maybe just to some new opportunities that they couldn't have got introduced to if they weren't supporting it though. I think the aftermarket will be a big part of our relationship with Toyota going forward.

Great color, thank you all very much.

All right.

Thank you [Operator Instructions] The next question is from Bryan Prohm of Cowen. Your line is open.

Hi, thanks for taking my questions. A couple from me [Technical Difficulty] the first and second ways of the [Technical Difficulty] you don't want to talk about but what was the gross margin for those first and second waves of Avis Budget?

There was really only a first wave, oh no, there was 5,000 unit pilot then a 25,000 unit expansion, I think on the both programs, and Ned correct me if I'm wrong, those programs were at 50% gross margin.

Great, thanks. The second question, the $1.6 million in long-term contracts that you spoke of related to VAC 4, is that above or below in line with your expectations. Can you give us some incremental color there? Thanks.

That was in line with our expectations for the first quarter. So far, the new unit sales for VMS had been in line with our expectations.

Okay, great. And then a question on Walmart spare parts, that's two quarters in a row now where there has been [Technical Difficulty] gross margins from Walmart spare parts, are we sort of through that now or is it something that can pop-up again from time to time?

I think it can pop-up from time to time, they're trying to get all 55,000 units refurbished and the amount of hardware they ordered was probably for 20,000, 25,000 so far. So some don't need refurbishment but until they put their hands on them, we don't know how many. So I heard that we’re going to get another spare parts order, so just you know I think it could continue but it’s hard -- it's all function of their refurbishment process and how many units need refurbishment versus how many don't.

Okay, that's great color thanks. Last question from me then, so your outlook for revenue growth at 14% year-over-year, does that include the breaking news today or is that [Technical Difficulty] incremental to the outlook?

It is incremental, it wasn't in our budget, but on the other hand, we still got to meet our other revenue numbers. So, yes it's nice to get, because it helps us get to that objective but I think what's going to really help us get to that objective is the investments we've made in Q1 and our key customers. I mean, really I'm just being open about the issue, I mean, when we've had -- we’ve had Sonoco as a customer for nearly two years and the investments we made in Q1, they're talking to us now about 24 locations. We've had Alcoa for almost three or four years and the investments we've made in Q1, they're now telling us they want 13 to 14 more facilities. So that's the way we're going to exponentially grow this Company. And so, for now, we have to continue to do that and believe that those investments will bear fruit as we move forward. So we don't want to just grow at 15%, 15% growth would be Alcoa going from three facilities to four facilities. We're looking for the kind of growth that our customers are today telling us that they would like to achieve.

Great thanks, that's all me, I'll talk to you soon guys, take care.

Thank you.

[Operator Instructions] The next question is from Dan Weston of WestCap Management. Your line is open.

Yes, hi, good afternoon guys. Most of the questions have been answered at this point, but I just had a housekeeping question regarding Toyota. Correct me if I'm wrong, I thought when you originally signed the deal or announced it with Toyota about a year ago, or maybe not that long, that they had 80 dealers in North America, and did I hear you correct that 270 branches did you say on the call today?

Between dealers and branches, there is 270, they have 80 what they call dealers which is the term, and when you combine the branches that those dealers have it goes to 270.

Okay, I got it, but the aggregate opportunity hasn't changed at all, it's just semantics between a dealer and a branch?

Exactly, exactly, same opportunity, yes.

Very good, that's all I had for now, congrats guys thanks.

Thank you.

Thank you. And there are no further questions in queue at this time. I'll turn the call back over for closing remarks.

Okay, great. Well, I want to close with the long-term objectives and then remind everyone what were you know the market opportunity that's in front on us. So as everyone knows, there is nearly 8 million assets or product should and could be installed on today. The good news is, with cellular cost at all-time lows, the expenses to get them there are not really going to get better by waiting. So it's the first time, where we're really just very well positioned both with the relationships we have and with the Norm’s expertise, I think Norm has been doing a fantastic job for us. And so, the investments we made in Q1 and the financials associated with that were disappointing to me, I was certainly not happy with it but on the other hand, if I would have you know looking back at where we spent those resources, it's not like we did a Super Bowl ad, we spent those resources on our key customers, so once they were telling us that they had a champion there, they want it to roll it out across their enterprise, but we just needed to get certain things working that weren't working because they were part of the I.D. Systems’ 1.0 and I think those investments are definitely beginning to bear fruit and so we're very optimistic about the future. Thank you for everyone who joined the call and we'll definitely keep everyone posted.

Thank you ladies and gentlemen. This concludes today's conference, you may now disconnect, good day.