Hello, and welcome to the OMNIQ Corporation's Third Quarter 2022 Earnings Conference Call. My name is Ali, and I will be coordinating your call today. With us on the call are Mr. Shai Lustgarten , Chief Executive Officer, who will provide an operational overview, and Neev Nissenson , Chief Financial Officer, who will discuss financial results. Today's call is being recorded, and you should have access to the company's third quarter earnings press release issued after the market closed yesterday. This information is available on the investor relations section of OMNIQ's website at www.omniq.com. I will now take a brief moment to read the safe harbor statement. During the course of this conference call, we will make certain forward-looking statements. All statements that address expectations, opinions or predictions about the future are forward-looking statements.
Although they reflect our current expectations and are based on our best view of the industry and our current expectations and our business as we see them today, they are not a guarantee of future performance. These statements involve a number of risks and uncertainties, and since these elements can change and in certain cases are not within our control, we would ask that you consider that and interpret them in that light. We urge you to review the company's Form 10-K and other SEC filings for a discussion of the principal risks and uncertainties that affect the company's business and performance and the factors that could cause actual results to differ materially. OMNIQ undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.
Following the prepared remarks, the company will be taking questions as time permits. Now I will turn the call over to Shai Lustgarten, CEO. Mr. Lustgarten, please go ahead.
Thank you, operator, and good morning, everyone. Thank you for joining us today to discuss our Q3 and nine-month 2022 financial results. I will begin today's call with a brief discussion of the Q3 results and then give you an update on the key achievements we recognized during the quarter. I will then turn the call over to Neev Nissenson, our Chief Financial Officer, and he will provide details of both the Q3 and nine months ending 2022. We will finish by giving you a clear understanding of our future focus and potential opportunities across the globe. It is my hope that after today's call, you will have an even better idea of why we are so excited about our business fundamentals going forward.
To start, I'd like to thank each one of our employees across our entire company for their continued hard work and dedication to our vision and strategic plan. I'm proud to report that Q3 revenue came in at $27 million, a record high sales number for the company, bolstered by organic growth of 32%. Our Gross Profit saw a 28% increase compared to the third quarter of 2021. Importantly, our AI revenue saw an increase of 50% compared to the third quarter of 2021. This led to a $1.5 million improvement of Adjusted EBITDA for the quarter. This growth was driven by strong customer demand across all our segments, which resulted in improved bottom line in the path to profitability.
During the quarter, we also announced several positive achievements, including OMNIQ named total solution partner for one of the largest global leaders in enterprise asset intelligence for robotic supply chain management. We announced a follow-on order for our AI-based Machine Vision system for a major U.S. fast food chain with more than 800 locations and for an automotive-related retailer with over 1,000 stores in the U.S. We announced the receipt of an approximately $10 million purchase agreement for Intelligent Healthcare Carts from Israel's Ministry of Health. We further announced the receipt of a purchase order to deploy our AI- Machine Vision solution in what is now the 50th North American major airport using OMNIQ's AI products. OMNIQ's healthcare product penetration success continues with having our Self-Service Patient Management Kiosks featured in Israel's newest state-of-the-art emergency medical hospital.
I would like now to focus on this breakthrough into the QSR and retail sector as we consider it as a potential game changer. Our proprietary patented AI-based Machine Vision technology provides accurate human-less object identification, in this case, identifying cars, including the color, make, and license plate. Historically, this information is vital for security, law enforcement, automation of parking and traffic management. However, we identified that the QSR and retail sector, which have thousands of locations lacking information about their customers and their consuming habits, is a significant potential market opportunity for us.
By installing our AI products in drive-throughs or the entrance of a business, the system immediately identifies and presents invaluable information about the customer. Once the customer profile is built, the business owner will know things such as when the customer last visited, what they usually order, how many times they visited in the past, are they eligible for any discounts or rewards, and so on. For the first time, we enable the largest companies to collect and use information about customer habits that have never been able to be effectively collected until now. Thus, create automation as we replace manual processes with machine-to-machine ones, which result in significant efficiencies. According to a study conducted by Quantum Advisors, there are approximately 200,000 quick service restaurants in the U.S. alone. Most are blind in knowing their customers.
You can imagine now what type of potential impact this could have in the retail and restaurant sector, as well as on OMNIQ. In addition to the QSR, other orders came from automotive retailer with over 1,000 sites. Similar to the QSR, any car that drives into the retailer's premises is identified and immediately alerts the service provider, allowing them to know essential information on each individual customer ahead of time. This instantly shortens the turnaround and increase throughput. There are thousands of additional automotive service providers locations in the U.S. that we have targeted. OMNIQ continues to enjoy significant growth with our long-standing Fortune 500 customers, many of whom have relied on the company for 20+ years to handle their logistic and supply chain challenges.
These long-standing relationships with the solid stability of our legacy product is the basis for one of our most significant growth engines, upgrading our Fortune 500 customer base to our AI products. Q3 was characterized by the addition of new customers within the traffic management, public safety, retail and restaurant sectors. Our Safe City product, QShield, announced only nine months ago, is continuing to show success. QShield is becoming a law enforcement platform as a crime investigation tool and real-time crime prevention tool. As we aim to do, it helps municipalities keep their residents safe, reduce time, and through our creative business model, QShield is offered, it increases the town's income that is now invested back into the communities. This new initiative already has 12 cities in the U.S., and we continue to see growing pipeline of cities interested in deploying QShield.
While we do not provide guidance, demand is stronger than we had anticipated, and our team is busy executing. As noted, Q Shield's business model is based on recurring revenue sharing with significantly higher margins than the current corporate average. Thus, we expect this strength to result in a positive impact to both the top and bottom lines. Before I go further, let me now turn this over to Neev to take a deeper look into our financial results. Neev?
Yes, hello, everybody. As Shai highlighted, in Q3, OMNIQ recorded revenue of $27 million for the quarter ended September 30, 2022, an increase of 32% from $20.5 million in the third quarter of 2021. The Revenue Growth is organic, as we already consolidated our financial statements with Dangot Computers for Q3 of 2021, as we acquired Dangot in the beginning of July. Total operating expenses for the quarter were down 3% to $8.6 million, compared with 8.9 million in the third quarter of 2021. Net loss for the quarter was $3.8 million or a loss of 0.52 per basic share, compared with a loss of $5.1 million or a loss of 0.73 per basic share for the third quarter of last year, an improvement of $1.3 million in our profitability.
Adjusted EBITDA, which means adjusted earnings before interest, taxes, depreciation, and amortization, for the third quarter of 2022 amounted to a loss of $516 thousand, compared with an Adjusted EBITDA loss of $2 million in the third quarter of 2021. Again, an improvement of $4.5 million in our Adjusted EBITDA profitability. Our nine-month results are impressive as well. OMNIQ reported revenue of $77.5 million for the nine months ended September 30, 2022, an increase of 45% from $53.4 million in the first nine months of 2021. The revenue increase reflects the consolidation of our financial statements with Dangot Computers, which we acquired in July of 2021, as well as organic growth.
Total operating expenses for the nine months ended September 30, 2022 were $24.2 million, compared with 19.5 million in the same period of 2021. The increase is largely stemming from the consolidation with Dangot. Net loss for the nine months ended September 30, 2022, $9.6 million or a loss of 1.29 per basic share, compared with a loss of $10.8 million or a loss of $1.86 per basic share for the first nine months of last year. Adjusted EBITDA for the nine months ended September 30, 2022 amounted to a loss of $1.5 million, compared with an Adjusted EBITDA loss of $3.6 million in the same period of 2021.
Cash balance at September 30, 2022 was $3.8 million, compared with 7 million at December 31, 2021. I would like to note that the cash improved from $2.9 million at the end of the second quarter to $3.8 million that we have for September 30, 2022. Now back to Shai for further highlights on the strength of the business and the opportunities ahead. Shai?
Thank you, Neev. To help you better understand the path of the company, I would like to remind you that 2020 was the year we focused on taking our AI- Machine Vision technology and making it the foundation of our next generation AI products. In 2021, we invested in making our company stronger to support our market penetration plan. We focused more on our balance sheet performance and spent time successfully uplisting to the Nasdaq, a significant milestone. This ensured our plans for execution for the next years ahead. In 2022, as we continued our focus on profitability, we started executing on the significant scalability our AI products bring. This is shown by the various achievements we discussed earlier in the call. To you, I say, this is just the beginning. These achievements show the potential for what lies ahead.
In addition to the obvious significance of the many wins, they are equally important as reference points. These references are what potentially allow us to capture more of the market opportunities which we expect to focus on during the course of the next year. With these achievements, we penetrated many new markets with our AI products. These products are all based on our single AI- Machine Vision technology platform. Our platform allows us to produce products that are relevant and answer the needs of many markets. OMNIQ's technology and products makes the invisible visible, creates automation by eliminating the touch of a human from any process, allowing countries, cities, schools, airports, hospitals, parking lots, and enterprises to be proactive and achieve unparalleled increased productivity, security, efficiency, and stronger customer satisfaction.
OMNIQ's team is indeed focused in concluding 2022 as a growth year and building the path to a successful 2023. It is important to note the technology and references that we have created so far is much more than looking a year ahead. We have a clear focus and strategic roadmap of continuing our penetration into the fastest-growing markets, which we will continue to execute on, and we look forward to reporting back to you in the next quarters ahead. Operator, I'll now turn over the call for questions.
Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Thank you. Our first question is coming from Jaeson Schmidt with Lake Street. Please go ahead.
Hey, guys. Thanks for taking my questions. Shai, I just wanna follow up on your prepared remarks. You mentioned that demand is stronger than anticipated. I just wanna clarify, was that just in regards to Q-Shield or across the whole company's product portfolio?
Thank you for the question, Jaeson. On the prepared remarks, yes, it was related to Q Shield's on the really strong demand that we see. To answer your question or elaborate even further, we do see this as well, increased the increased demand also in all of our other products and sectors we serve. It's the continued growth in backlog is still happening, and I would say it's across the board.
Okay. That's really helpful. Just following up on that, 12 cities under contract in the law enforcement space. Can you talk about or how that pipeline is growing, where that pipeline sits at today?
Yeah. I think we spoke about it before that in the previous call, we had about 30-something cities in the pipeline. We're seeing more than 60 cities today. Important to mention that we could have reported for Q3 even a larger amount of cities under contract. The only reason why this did not happen is because of elections and city councils decided to wait, kind of all of them, to wait until that ends so they can sign the contracts right after the election. We are expecting that a continued growth in the cities to be under contract.
Okay. Great. Then just the last one from me, and I'll jump back in the queue. How should we think about gross margin going forward? Obviously, the continued contribution or growing contribution of AI portfolio should lift that up, but I have to imagine Supply Chain and some of those dynamics, inflation, et cetera, are creating some headwinds. Any color you can provide on how we should think about gross margin here in Q4?
Yes. Obviously, I mean, we started talking about it. We had several discussions about that in the previous calls as well. We explained how as designers, as original equipment manufacturers, we can provide or seek for alternatives in case we have challenges in different components. We're still doing that, and we're still able to provide the response required in order to continue showing growth quarter-over-quarter. The gross margin trend is going to continue picking up, going to continue growing as we discussed before as well, with the objectives that we stated as well. It's assured, I would say, or secured because of, again, the increased backlog and demand that we see in the AI products.
Just to give you illustration, in 2021, we had about $2 million at this time in backlog. While right now we have about a little bit over $5 million already in backlog still for this year.
Okay. That's really helpful. Thanks a lot, guys.
Thank you. Appreciate it.
Thank you. Our next question is coming from Moran Pober with Acquisitions.com. Please go ahead.
Hey, Shai. Thank you for answering my question. First question is, what are the AI sales in 2022 compared to 2021?
AI sales in 2022 in Q3 is about $4 million actually, compared to half of it in 2021. Basically 100% increase.
Nice. What's the plan for next year? Like, how do you see 2023?
We want to continue keeping our objective to double that next year. If we saw doubling more, we'll see more than doubling ourselves this year, we'll at least see, or our objective is at least to see that doubling next year.
All right. Sounds good. Congrats. Looking forward to receive that.
Thank you, sir. Appreciate it.
Thank you.
Thank you. Our next question is coming from John Ragard with Spouting Rock. Please go ahead.
Yes. Thank you. I have a couple. First one is if Shai, you could give us a little bit of quantification on how Supply Chain impacted the business and both the revenue and the cost of sales in the third quarter. Did you miss some shipments because you were short components? Were there additional costs incurred to get product to the facilities to complete things as well?
Yes. Yes, we have, if I need to quantify that, we've missed probably $2 million in shipments due to different reasons in Supply Chain . It's, I would say, lack of products, that some of the OEMs we work with, partners we work with, are still facing challenges. On the component level of our systems, we usually are able to meet the objectives of the deliveries as we find alternatives being designers, but some of the solutions we sell still have, part of the solution or, products, of other OEMs as well. As a total solution provider, when we need certain product, then, that could affect the delivery, and that happened. Like I said, to quantify that, it would be about $2 million.
We could have basically sold $29 million, but still happy with the fact we're able to show a record-breaking sales revenue of $27 million. That's regarding the revenue. Regarding the gross margins, I would say about expenses that relate to expedite deliveries, expenses that relate to unique shipments that you need to incur because you want to make sure not only you meet the revenue objectives, but more importantly to serve our customers. That cost about, I would say, roughly close to $600,000 or 550,000 this quarter. Basically, you could know. This is a good question because basically, if you look at the Adjusted EBITDA, you're already breaking even or a little bit already positive.
Again, we'll probably need to see that next year. How do I see this going forward? I mean, I can't say if we're going to finish all these challenges, but I can say that the world is doing much better, and we as a company are doing much better as well. I'm hoping that we'll continue to be able to show the growth in all parameters.
Thanks. One more, if I may. As it relates to Q Shield and Safe Cities, what is a prudent pace at which you and your distributor can install new cities that are under contract and continue the high quality and reliability of what you've had? We're just trying to model out the future and get kind of a pace of how many installed and revenue-generating cities there will be as we go forward.
Our plan is to, of course, install in as many as possible. Just to give you an illustration, if we do install, for example, in 100 cities, then we're talking about, you know, over $20 million of revenue, recurring revenue a year, for that, I mean, as a rule of thumb. I'm trying to be conservative. Like we mentioned, we started this initiative nine months ago only, and by now we have 12. There are probably double that amount that we're ready to sign the contracts. Like I mentioned again in the previous question asked by Jaeson, due to elections, this kind of postponed that. We're looking forward to get this contract signed this year.
That would, if you look at it as a product that just penetrated this market nine months ago, if we conclude this year with about 20 cities signed, then the path towards 100 is real quick. You know, given all the conditions and cautions in that statement. Still, we're happy with the pace, we're happy with the deployment, we're happy with the interest, and most importantly, we're happy with the performance of Q Shield because it's doing more than we ever expected, quicker than we ever expected. I hope that kind of gives you more color and answers your question.
No, it's a big help. Thank you so much for updating us on Safe Cities.
Thank you. Appreciate your support.
Next question.
I do apologize, sir. If there will be any final questions or comments, please indicate so now by pressing star one. We have a question from Neil Nisker with Family Office. Please go ahead.
Hey, Shai. Congratulations on the top line growth and progress on the bottom line.
Thank you.
I wanted to go back real quick. This wasn't one of my primary questions, but I just wanted to go back and make sure I understood that you had about $600,000 of expedited shipping in Q3, expedited shipping cost. Basically, you would have been cash flow breakeven or cash flow positive on an EBITDA basis if that was normalized. Did I hear that right?
Yes.
Are you incurring expedited shipping costs in Q4?
Less than what we saw in Q3.
Okay. All right. I wanted to ask a couple of questions around the October seventeenth news release, where you were named the total solution partner for the large global Long-Term Healthcare Enterprise Asset Intelligence company. I don't really understand what we're doing there. A couple of questions. Can you basically tell me what the combined solutions are that we're taking out to industry? And what is it that we bring to the table? And what is it that this partner of ours brings to the table to make that solution work?
Yes, of course. As you know, OMNIQ is a total solution provider to Fortune 500 enterprises. I mean, these are some of our customers. Being a total solution provider gives you the responsibility to deploy different technologies to respond to the needs of these customers. Basically, that is what we always refer to as automation of processes. Part of automating processes in Supply Chain for such huge organizations, part of it today is Robotics, and we all heard about that. The largest, I would say, robotic company in the world and also Supply Chain company in the world that we refer to in this PR that we partnered with selected us to be one of their few partners that they share their robotic solutions with. Why?
Because, again, we are the face to the customer. We are the ones that respond to the largest customers in the world's needs. What we bring to the table, again, is a total solution. Not only, of course, the integration of that total automation to their Supply Chain levels, but also we bring to the table our Unique Machine Vision Technology. Together with Robotics, you can really aim for 100% efficiencies. That is what makes this press release unique. Not only because we were selected due to the fact we have unique technology that attracts our customers to deploy, but also they want to be part of it. Also now that we have the total solution that can respond to additional needs with Robotics.
Okay. If they're a global leader in this space, I assume they have a large sales team. Do we benefit from their feet on the ground when it comes to taking this, these offerings that we're a big piece of, into the marketplace? Are we basically benefiting from having their people involved with selling these solutions?
Absolutely. That already takes effect in the opportunities that we're handed by their sales team. Now being partners, we're getting daily leads and opportunities that are more relevant to our technology and that come to them because like you mentioned, they have huge sales team, they have huge reseller channel that they depend on. Being exposed to their ecosystem, being partners now we are getting also leads opportunities which already generate revenue.
Okay. One final quick one on this topic, Shai. When you look out over the next 12-18 months, I mean, is the potential to expand the revenue that we're generating with this partner. Can you quantify that a little bit? I mean, what could this be 12-18 months from now compared to what it is today in terms of revenue?
I don't know if I can really quantify. I mean, I can say that if we're seeing in Supply Chain , not considering you know, our machine vision breakthroughs that go into Supply Chain , if we eliminate that, for example, we're seeing you know, growth in Supply Chain of single digits in percentages. This capability now that we have and the partnership we created together now with our technology, that should bring it to much higher double digits, so minimum 20%. We should at least double the growth that we're witnessing on year-to-year basis from regular operation and regular products we offer today. We should probably double the increase in percentages, the growth in that Supply Chain segment.
Okay. Shai, one final question. The retail space sounds like one of your biggest opportunities. You mentioned that you're targeting other companies in the automotive space. If we kinda box off automotive and restaurants, could you share what a couple of other verticals in the retail space are that you're targeting?
Yes, of course. As we spoke, as we mentioned during the call, we became relevant to many markets using one platform, one AI platform that we spend a lot of time in designing, and we have nine patents on, et cetera. That made us relevant to different markets. We already created the penetration. One of them is what you mentioned, the retail space with automotive. You know, when you look at the different retailers that we are now exposed to, is all the car dealerships, all the drive-throughs that go into car washing, different additional airports in different additional ones, not only major ones that we're exposed to today. We got more than 50. It makes everything more. Anything that has,
Today, the low-hanging fruit, anything that has drive-through, either in retail or in restaurant, we have in a box solution that is becoming a plug-and-play one that we are relevant to. That's what makes it so unique. That's what makes us so excited because now we are relevant. It's crossing or eliminating all the borders between markets. It's eliminating our limitations. We're not looking just on markets. We're looking now on a platform that is relevant to many markets.
As we train the engine, the algorithms to identify any type of vehicle, that opened it up with additional components that we design, but open it up for a drive-through, for example, a product in a box product that we're providing to this retailer and the restaurant, fast food restaurant. Now taking it to the other ones in different markets, like I mentioned, give you some examples. That's the scalability that we're talking about, and that's what really makes us excited.
Okay. Well, again, thank you, and I look forward to hearing from you again in three or four months.
Thank you, sir. Appreciate your support.
Thank you. There appear to be no further questions in queue, so I'll hand it back to Mr. Lustgarten for any closing comments he would like to make.
Thank you, operator. I'd like to conclude, first of all, I really would like to extend my sincere thanks to our loyal customers and suppliers, our professional team and other strong supporters. Last but not least, we would like to thank our shareholders for sharing the success with us as well as wish you all continued success. I'm really looking forward to talking to you next quarter. Thank you very much.
Thank you.
Thank you, ladies and gentlemen, and this does conclude today's call. You may disconnect your lines at this time and have a wonderful day, and we thank you for your participation.