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Edited Transcript of IDSY earnings conference call or presentation 2-Mar-17 9:45pm GMT

Thomson Reuters StreetEvents

Q4 2016 ID Systems Inc Earnings Call

WOODCLIFF LAKE Mar 31, 2017 (Thomson StreetEvents) -- Edited Transcript of ID Systems Inc earnings conference call or presentation Thursday, March 2, 2017 at 9:45:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Chris Wolfe

I.D. Systems, Inc. - CEO

* Ned Mavrommatis

I.D. Systems, Inc. - CFO & Treasurer

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Conference Call Participants

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* Jaeson Schmidt

Lake Street Capital - Analyst

* Mark Drucker

B. Riley & Co. - Analyst

* William Gibson

ROTH Capital Partners - Analyst

* Dan Weston

WestCap Management - Analyst

* William Meyers

Miller Asset Management - Analyst

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Presentation

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Operator [1]

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Good afternoon. Welcome to I.D. Systems fourth-quarter and full-year 2016 conference call. My name is Andrew and I will be your operator for today's call.

Joining us for today's presentation are the Company's CEO, Chris Wolfe, and CFO, Ned Mavrommatis. Following their remarks, we will open the call up for your questions.

Before we begin the call, I would like to provide I.D. Systems' safe harbor statement that includes cautions regarding forward-looking statements made during this call. During the call there will be forward-looking statements made regarding future events including I.D. Systems' future financial performance.

All statements other than present and historical facts, which include any statements regarding the Company's plans for future operations, anticipated future financial position, anticipated results of operation, business strategy, competitive position, company's expectations regarding opportunities for growth, demand for the Company's product offering, and other industry trends are considered forward-looking statements.

Such statements include, but are not limited to, the Company's financial expectations for 2017 and beyond. All such forward-looking statements imply the presence of risks and uncertainties and contingencies, many of which are beyond the Company's control. The Company's actual results, performance, or achievements may differ materially from those projected or assumed in any forward-looking statement.

Factors that could cause actual results to differ materially could include, among others, SEC filings, overall economic business conditions, demand for the Company's products and services, competitive factors, emergence of new technologies, and the Company's cash position. The Company does not intend to undertake any duty to update any forward-looking statements to reflect future events or circumstances.

I would now like to remind everyone that this call will be recorded and made available for replay via a link available on the investor relations section of the Company's website at www.ID-Systems.com.

Now I would like to turn the call over to I.D. Systems CEO, Mr. Chris Wolf. Sir, please proceed.

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Chris Wolfe, I.D. Systems, Inc. - CEO [2]

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Welcome, everyone, and thank you for joining us today. After the market closed, we issued our results for the fourth quarter and full year ended December 31, 2016, and a press release, a copy of which is available in the investors section of our website.

Our results for the fourth quarter outpaced our prior quarter due to additional orders we received from several of our major customers. This was a key driver in the sequential increase we reported in both revenue and gross profit. These positive results for the fourth quarter capped off a year of significant change for I.D. Systems that transformed our company into a much stronger, leaner, and more focused organization.

The major cost-cutting initiatives we implemented in the second half of 2015 and throughout 2016 drove meaningful improvements in several key financial metrics, namely gross profit, operating expenses, and net loss. In fact, our total operating expenses were the lowest since 2009. It is important to remember that these record results do not materially reflect the benefits from numerous comped optimization measures we have taken since December of last year, which eliminated roughly $1.3 million of annualized costs from our business.

The above being said, we can't save our way to growth, but before I go further I would like to turn the call over to our CFO, Ned Mavrommatis, who will provide more details and insights into our numbers and the fourth quarter and the full year of 2016. I will then return to discuss our operational progress in each business segment as well as our initiatives for 2017. Ned?

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Ned Mavrommatis, I.D. Systems, Inc. - CFO & Treasurer [3]

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Thank you, Chris, and good afternoon, everyone. Turning to our financial results for both the fourth quarter and fiscal year ended December 31, 2006 (sic), our revenue for the fourth quarter increased 12% to $9.2 million from $8.2 million in the prior quarter and decreased 9% from $10.2 million in the fourth quarter of last year.

Revenue from VMS for the fourth quarter was $5.3 million, an increase of 31% from the prior quarter and an increase of 10% compared to the prior-year fourth quarter. Revenue from TAM was $3.8 million, down from $5.1 million in the prior-year fourth quarter. The decline in TAM was largely due to a decrease in sales of TAM spare parts during the prior-year fourth quarter.

Our gross margin for the fourth quarter of 2016 improved by 220 basis points to 47.4% from 45.2% in Q4 of last year. For the full year, our gross margin improved by 900 basis points to 49.7% from 40.7% in the same period a year ago. Both the quarterly and full-year improvement was primarily due to the increased efficiency of our VAC4 insulation, analytic software, and online training processes which we implemented late last year.

Turning to our expenses. SG&A expenses for the fourth quarter of 2016 increased 17% to $5.3 million from $4.5 million in Q4 of last year. The increase was primarily due to $929,000 of costs related to severance expenses and foreign-currency translation losses. Excluding these expenses, our SG&A expenses for the quarter were down 3% compared to Q4 of last year. For the full year, our SG&A expenses decreased 12% to $20.1 million from $22.8 million in 2015, driven by headcount reductions and other cost-cutting measures.

Our research and development expenses for the fourth quarter were $1.1 million, which was consistent with the levels we reported in Q4 of last year. For the full year, our R&D expenses were $4.5 million, down slightly from $4.6 million in 2015.

Our total operating expenses for the fourth quarter of 2016 increased 14% to $6.5 million from $5.6 million in Q4 of last year. The increase was due to the one-time cost we recorded during the period. For the full year our total operating expenses decreased 10% to $24.7 million from $27.3 million in the same period a year ago.

As Chris mentioned, we implemented additional cost-cutting measures in mid-December in order to better align our organization and cost structure with our revenue profile, while simultaneously improving product quality and efficiency. These measures are expected to reduce our operating expenses on an annual basis by an additional $1.3 million. We continue to evaluate opportunities to further optimize our cost structure and expect to realize the benefits over the coming quarters.

Our GAAP net loss for the fourth quarter of 2016 totaled $2.1 million, or $0.16 per basic and diluted share. This compares to a net loss of $970,000, or $0.08 per basic and diluted share, in Q4 of last year. For the full year, our GAAP net loss improved to $6.4 million, or $0.49 per basic and diluted share, from a net loss of $10 million, or $0.79 per basic and diluted share, in 2015.

Finally, excluding stock-based compensation, depreciation and amortization, as well as nonrecurring items, our non-GAAP net loss for the fourth quarter of 2016 totaled $832,000, or $0.06 per basic and diluted share. This compares to a non-GAAP net loss of $429,000, or $0.03 per basic and diluted share, in Q4 of last year.

For 2016 our non-GAAP net loss totaled $2.9 million, or $0.22 per basic and diluted share. This was a significant improvement from a non-GAAP net loss of $6.6 million, or $0.52 per basic and diluted share in 2015. For more detail on our non-GAAP net income, please see the reconciliation to GAAP terms included in the supplementary tables of our earnings release.

Now turning to our balance sheet. At quarter-end we had $6.9 million in cash, cash equivalents, and marketable securities, compared to $5.5 million at the end of the prior quarter. The balance outstanding on our $7.5 million credit facility at quarter-end was $3 million. It is also important to point out that our cash used in operating activities for 2016 improved by $4.4 million, or 64%, to $2.5 million from $6.9 million last year.

This completes my financial summary. For a more detailed analysis of our financial results, please reference our Form 10-K, which we plan to file by the end of March. Chris?

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Chris Wolfe, I.D. Systems, Inc. - CEO [4]

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Thanks, Ned. Since my appointment as CEO last December, my first major initiative has been and continues to be to transform I.D. Systems into a company known for building, delivering, and installing what I would call professional-grade solutions with impeccable quality. Following my appointment as CEO, the staff and I immediately put in place a game plan to improve our overall business performance, while unlocking the potential in our core VMS business and also realizing the long-term targeted growth opportunity like the rental car market.

As many of you know, I.D. Systems has many of the right elements that comprise a category-winning business: large untapped target markets, innovative products, technologically expert employees, diversified market segments, and our marquee Fortune 100 customer base. However, what is missing was the Company's ability to consistently deliver professional-grade solutions that also consistently worked in our customers' diverse and also challenging real-world environments.

With the problem identified early in last year when I joined the Company, our product and engineering teams embarked on a mission to address it. Last year we launched the [VAC4S] and the one major partner of ours, a very important partner, stated that it was the highest quality product that we have released to date. Also, this month alone we are releasing two new Software-as-a-Service offerings. These have been highly praised by our customers, who are participating in our beta programs.

The first, FleetView, which is targeted at our TAM customers, and VisionPro, which is targeted at our VMS customers, will enable us to accelerate our evolution to a recurring Software-as-a-Service revenue model. We are also releasing our newest and the industry's strongest data analytics platform, PowerFleet IQ version 2.0. PowerFleet IQ compliments VisionPro in enabling our customers to drive significant value by using the data and the information to help drive decisions to improve their safety, security, and utilization of their assets.

Today I.D. Systems is a market leader in the VMS space with 45% market share. Likely you've probably heard that before and it sounds impressive, but when there's 3 million available units out there and only 120,000 installed you know there's opportunity. While we are great so far at what we've done -- and I think we've done a lot to be where we're at -- the reason we haven't penetrated deeper into the market, nor have other industry participants, is primarily the functions [and] dynamics conditions of our customers. These customers have challenging operational and technological requirements, long budget cycles, and complex decision processes. In recognizing these challenges and making them opportunities, we are pursuing a multi-pronged approach to attacking this large market potential.

First, we will continue to focus our efforts on our key strategic accounts for what we call refresh and fleet expansion opportunity, given the cost reductions and ease-of-use of the VAC4S and VisionPro platforms. This alone is a $500 million opportunity and includes existing customers such as General Motors, General Electric, Walmart, Walgreens, the United States Postal Service, the Defense Logistics Agency, and Ford.

We will also be leveraging our industry-leading data analytics integration capabilities with PowerFleet IQ and this unlocks the true value of our system in total. Nestle, as one example, is actively working with us to drive our data analytics solutions to an entirely new level of capability.

Secondarily, we are honing our processes and systems to penetrate the preponderance of the market, which is really the smaller sites: 8 to 15 vehicles per customer site. Our channel partners and our dealer networks and their dealer networks play a key role here and in recent meetings with Toyota it seems like there's a phenomenal amount of untapped potential. Again, VisionPro and the VAC4S being simpler to use and easier to install will enable us to succeed with these smaller accounts.

We are also positioning our software, services, and data analytics platforms as our primary competitive differentiators and we believe it will prove instrumental in our success at further penetrating this massive market. Again, these new platforms also set us up as a true Software-as-a-Service provider, whether it's I.D. Systems-hosted or installed behind the firewall at the customers' premise.

Now let's quickly turned to the transportation asset management business. While overall revenues were down for both Q4 and the full year, this segment of the business is relatively stable and predictable. Unlike VMS market, the TAM market is rather penetrated and mature. While we don't believe this market is poised for rapid growth, we do believe we can grow our market share by leveraging actionable insights from our analytics platform, VeriWise IQ.

As mentioned above, we are also releasing our next-generation Software-as-a-Service FleetView transportation platform for fleets for drive and trailers, intermodal containers, chassis, and flatbed trailers. Initial response from our largest intermodal and chassis customers has been very encouraging. FleetView allows these customers to improve their operational efficiency, reduce cycle time, increase asset utilization, and improve profitability.

One of the growth areas for the TAM market is intermodal and even more so chassis tracking. In the second half of last year we secured a major win with a global international shipping company of our VeriWise container tracking systems. A key reason for this customer selecting I.D. Systems was our analytics platform.

Lastly and finally, let's shift to the rental car. Let's talk about rental car. As many of you know, over the last couple years we have invested significantly in our partnership with Avis. The result is a product that streamlines and automates the vehicle data collection and billing process of their fleets, but it also enhances the customer experience with the vehicle itself.

Negotiations continue with Avis on a multi-year agreement that allows Avis to deploy our connected car technologies in their rental fleet. It is imperative for both companies to have a solid deal as it sets a strong foundation for a relationship that will span many years and be a critical business enhancer for Avis, as well as a cornerstone for future I.D. Systems connected car opportunities.

With that, we are ready to open the call up for your questions. Operator, if you could please give the appropriate instructions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Jaeson Schmidt, Lake Street.

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Jaeson Schmidt, Lake Street Capital - Analyst [2]

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Thanks for taking my questions. Just a quick housekeeping one. Wondering how much recurring revenue you had in Q4 and then also how much of that came specifically from the VMS segment.

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Ned Mavrommatis, I.D. Systems, Inc. - CFO & Treasurer [3]

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Jaeson, it's Ned. Recurring revenue in the quarter was $4.5 million; $863,000 came from the VMS segment.

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Jaeson Schmidt, Lake Street Capital - Analyst [4]

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Okay, perfect. Then, Chris, just wondering how the engagement pipeline on the VMS side is going. How should we think about that traction that you have been seeing over the past [three] months and how that's set up for 2017?

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Chris Wolfe, I.D. Systems, Inc. - CEO [5]

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As I said in my statements earlier, but maybe more color to add to that, the new products that have been in beta -- actually the VAC4S is actually in production. It's been phenomenally well received. We reviewed it with our largest channel partners. As I said, they were phenomenally happy with the quality of it.

Toyota was just in last week. We had a great review; Toyota is going to be a great channel for us. And then lastly, some of the companies already mentioned, USPS and others, are actively targeting the pilot initially to test out our VisionPro Software-as-a-Service platform. So again, we have a lot of interest and a lot of traction and our goal here is to actually execute.

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Jaeson Schmidt, Lake Street Capital - Analyst [6]

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Okay. And then the last one from me and I'll jump back into queue. How should we think about gross margin trending this year?

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Ned Mavrommatis, I.D. Systems, Inc. - CFO & Treasurer [7]

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The goal, Jaeson, is to continue to improve gross margins. With the new products which are lower cost as well as the new prices, we expect gross margins to be above 50% towards the beginning of the year; headed towards 52% towards the end of the year.

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Jaeson Schmidt, Lake Street Capital - Analyst [8]

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Okay, very helpful. Thanks a lot, guys.

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Operator [9]

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Mark Drucker, B. Riley.

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Mark Drucker, B. Riley & Co. - Analyst [10]

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Chris, could you maybe elaborate on your strategy for driving growth in VMS?

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Chris Wolfe, I.D. Systems, Inc. - CEO [11]

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What's really interesting to me, because I come from the telematics business-to-business space, is in meeting with the customers, in meeting with the channel partners -- we have a great product. This is one of the most feature-rich products I have been -- actually had the chance to work with.

The problem is the quality of the product, the installability of the product; how you can support the product. You have probably heard this before. I was hired in here initially, which is good for the transition to CEO, really in the product development area, so I actually got to see firsthand what the issues were and what needed to be resolved.

To be honest with you, if our product just worked, we would have no problem with adoption. What happens is these customers have long budget cycles and if, for any reason, there's a slip-up on implementation, you could be out for two years because the other sites that might roll you out have kind of -- they would forgo putting you in the budget for next year.

That all being said, we are having great engagement with our customer base today. Again, I think VisionPro, if you haven't seen it, if you have an opportunity to be in Woodcliff Lake or whatever, we would love to give you a demonstration of it. It really such a different level of experience for our customer base and I think that alone and the VAC4S will enable us to get to that where you just plug it in and it works.

I think once we get to that -- which we are at, we just have to roll it out this year -- as well as some process improvements on how we implement. We can go into the detail there; that could be all day. But I think we run a great roadmap to just make it easy for customers to succeed with our product.

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Mark Drucker, B. Riley & Co. - Analyst [12]

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Thank you. What -- speaking of the roadmap, could you maybe touch on revenue growth that you may expect in VMS and for the overall business?

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Chris Wolfe, I.D. Systems, Inc. - CEO [13]

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I can talk briefly about that without -- I don't want to give too much forward-looking statements here on that, but any one of our major accounts, if you just look at them, are easily $6 million to $10 million. As I mentioned in my statements, $500 million worth of opportunity in our captured accounts, so we don't have to go far afield to get, to me, what would be tremendous growth.

As a matter of fact, in my strat plan here internally, we just need one -- to solidify our financial base we just need one refresh a year. That's not our goal is to have one, but if we could get one refresh a year basically we would solidify our financial position. And we are well on path to make that happen.

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Mark Drucker, B. Riley & Co. - Analyst [14]

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Thank you. You also touched on gross margins. I was wondering: could you maybe give us a sense of when you may achieve profitability on the bottom line?

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Ned Mavrommatis, I.D. Systems, Inc. - CFO & Treasurer [15]

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Sure. If you look at our current expense structure and our current gross margin expectations, we expect our breakeven point on a non-GAAP basis to be approximately $10 million to $10.5 million. We are not far from there, but really it's about focus, about executing, getting these customers to continue to buy our product. And we feel we can get there.

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Mark Drucker, B. Riley & Co. - Analyst [16]

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Okay. So if we are talking $10 million to $10.5 million, so we are maybe mid -- maybe in the middle of 2017? Is that kind of where we are thinking?

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Ned Mavrommatis, I.D. Systems, Inc. - CFO & Treasurer [17]

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I'm sorry; we can't give forward-looking statements because we don't give guidance, but we said before, we right-sized our expense structure to allow us to get to profitability at a lower level. As you can see where we are, now it's about execution and we believe we can get there in shorter order.

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Mark Drucker, B. Riley & Co. - Analyst [18]

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Thank you and last question from me. Can you maybe provide an update on a potential expansion with Avis? How have your conversations progressed with them?

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Chris Wolfe, I.D. Systems, Inc. - CEO [19]

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As again in my other statements, I have been involved with the negotiations, as well as Ned. They are proceeding, but I would more or less say we can't do a bad deal for I.D. Systems and obviously Avis feels the same way. We're both working in earnest to get the deal closed, but I think what's more important is what my earlier statements were is this is a foundation deal for us for the next 10 years.

We don't -- I'm not really viewing this, and neither is Avis, as just a one-hit wonder. We've got to get this deal right. It's got to be written correctly because we are going to be living with it for a very, very long time. And so, while it's painful for all of us, it's just got to be the right deal.

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Mark Drucker, B. Riley & Co. - Analyst [20]

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Thank you.

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Operator [21]

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William Gibson, ROTH Capital Partners.

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William Gibson, ROTH Capital Partners - Analyst [22]

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Is it fair to say that you think the sales momentum grows as the year goes along?

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Chris Wolfe, I.D. Systems, Inc. - CEO [23]

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I think that's absolutely what I would say, because our new products are just now being -- like the software side, are just now being released. As a matter of fact, this month.

ProMat is coming up in April; there's a reason for the timing. The VAC4S, which is a hardware platform, is already out there, but the two together is what really changes an inflection point for us. And the software as I said is coming out in the next -- it's imminent.

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William Gibson, ROTH Capital Partners - Analyst [24]

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And you mentioned or talked about expanding pipeline and then the $500 million opportunity. Could we put some parameters around where that pipeline stands right now? Is it a $40 million pipeline, a $20 million, $60 million?

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Ned Mavrommatis, I.D. Systems, Inc. - CFO & Treasurer [25]

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Well, Bill, if you look at just our customer base alone, it's over $40 million to $50 million in short-term opportunity. As Chris said in his opening remarks, the challenge was capitalizing and getting these customers to roll out our system to their product. And the challenge has been related to the product and I think some of the changes that we are making it's going to allow us to capitalize on that pipeline.

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Chris Wolfe, I.D. Systems, Inc. - CEO [26]

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If I could add to Ned's statements, I think what is key in my statements which you might not have picked up, the sales strategy here and our approach to go-to-market strategy has kind of changed over time.

One thing we try to do is avoid going downstream to where the preponderance of largest scale of the market is and I think we have changed that mindset here. We need to change that mindset. With Toyota as a channel partner and others, we have an excellent opportunity to go downstream and with our new products, it makes it phenomenally easier to implement those customers.

Just as a consideration, when you have an eight-unit site, our cost of sales was way too high to implement an eight-unit site. But now with the VAC4S and VisionPro, we can do it a lot more cost effectively.

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William Gibson, ROTH Capital Partners - Analyst [27]

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Okay, that makes sense. Then lastly, R&D spend; is that, on a dollar basis, relatively flat?

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Ned Mavrommatis, I.D. Systems, Inc. - CFO & Treasurer [28]

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It was flat, Bill. It was $1.1 million in Q4 2016, flat compared to the prior year fourth quarter.

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William Gibson, ROTH Capital Partners - Analyst [29]

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No, no, I was actually trying to lead you into a guidance question for 2017.

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Ned Mavrommatis, I.D. Systems, Inc. - CFO & Treasurer [30]

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We expect it to remain at this level going forward.

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William Gibson, ROTH Capital Partners - Analyst [31]

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Okay, good. Thank you.

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Operator [32]

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Dan Weston, West Capital Management.

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Dan Weston, WestCap Management - Analyst [33]

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Good afternoon, guys. A couple questions on your customers. First, maybe can you touch a little bit on post office or USPS in terms of where they were as a customer in their peak? Have they been at a customer to any material degree in the last couple of years and what the opportunity might be for that specific customer, let's say, over the next one to two years? If you could elaborate on that I would appreciate it.

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Chris Wolfe, I.D. Systems, Inc. - CEO [34]

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I'll let Ned give you the history lesson and then I can fill you in on where things are going.

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Ned Mavrommatis, I.D. Systems, Inc. - CFO & Treasurer [35]

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Obviously, postal was a significant customer. We were in the hundreds of their bulk mail, airmail, and processing and distribution centers. They bought their system in 2007, 2008, and 2009.

Throughout the years they continue to purchase product, primarily spare parts, so they were never a significant customer. But as Chris mentioned, right now we're looking at getting them to refresh their systems and he can give you a little bit more detail.

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Chris Wolfe, I.D. Systems, Inc. - CEO [36]

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Just to follow-up on that, we are actively working with the US Post Office to actually do a pilot of the new VisionPro and VAC4S platform. What's great about the new pilot is it's, more or less, our generic, off-the-shelf product.

Historically we have had a phenomenally heavily-customized product for USPS. And obviously we will do what USPS needs to launch them, but -- not only a refresh of their current sites, which is a tremendous opportunity, but there's also I think an almost doubling the size of the number of sites in the projections that we are looking at.

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Dan Weston, WestCap Management - Analyst [37]

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Wow, that's sounds significant considering I think they were your first or second biggest customer.

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Chris Wolfe, I.D. Systems, Inc. - CEO [38]

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Yes, we have a lot to do there, though, to get to the pilot program and obviously the acquisition process for USPS. But, again, we are on our way to do that.

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Dan Weston, WestCap Management - Analyst [39]

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Would you consider that opportunity to be in a competitive situation or is it yours to have or lose?

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Chris Wolfe, I.D. Systems, Inc. - CEO [40]

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Actually, I think it will be up for competitive bid because that's a requirement. That being said, I think our biggest competitive differentiator, which I didn't -- I touched on it, but I didn't really go into it, is if you look at everybody that's in this space that competes with us, we are primarily the only one that can do enterprise scale behind the firewall implementations, which we've done for the Department of Defense, we've done for the USPS, we've done for Walmart, etc. I know there's very few companies in our space that can do what we do behind the firewall and USPS is definitely there.

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Dan Weston, WestCap Management - Analyst [41]

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I appreciate the color on that, Chris. Continuing on some of the customers, in your last call I guess your predecessor was talking about a significant pilot with a US government agency, which I want to say consisted of 50 units. And then I think on your prepared comments or on your press release you talked about the DLA as a potential customer.

Are those one and the same or are these two different customers?

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Chris Wolfe, I.D. Systems, Inc. - CEO [42]

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No, that's one and the same.

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Dan Weston, WestCap Management - Analyst [43]

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Got it. Then so on the DLA; is the first pilot of the 50 units completed now? And where do you see that business trending on an order pattern going for the rest of the year?

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Chris Wolfe, I.D. Systems, Inc. - CEO [44]

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I think the pilot is underway; the question is just uptake and getting the acquisition and the capital expenditure approvals through the DLA process.

That being said, we are definitely -- I just had a meeting with them this week. We have weekly meetings on the progress and the next steps, but it's -- actually the other guy on the phone was from the US Marine Corps. He said it's the military; hurry up and wait. And being an ex-military, it's like, yes.

So it's nothing we can do to push that rope, but all we can do is support them until they are ready to move. Again, it's moving; it's just moving on Department of Defense time.

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Dan Weston, WestCap Management - Analyst [45]

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Okay, last couple, then I'll hop off; is relating to the two new SaaS offerings that you talked about. Could you give us a little color there in terms of how you plan on selling that?

Is that something that you will sell a la carte to existing customers? Can it be sold to businesses who are not existing [in fees], let's say VAC4 customers or TAM clients? Can you talk a little bit about who the target audience is there and can it be sold separately?

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Chris Wolfe, I.D. Systems, Inc. - CEO [46]

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That's a good question. All of our customers ultimately will have an opportunity to move to what we call the SaaS platform, whether it be our hosting or their hosting.

That being said, we have phenomenal customers on existing what we call Vision, older technology platform. We will still support that platform and support those customers, but give them an easy method to migrate to the SaaS approach. So that's already being done. We have already migrated numerous customers over for the beta program that are phenomenally well receiving it.

And the way the revenue model breaks down is instead of software maintenance or instead of being buried in hardware maintenance, it's a recurring revenue model based on SaaS rental. So basically they are renting the application. The applications reside not only on the onboard unit, on the vehicle unit, but also in the software itself, so you can't really have one without the other. Unless we were to integrate with another third-party hardware provider, which is not necessarily out of the question.

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Dan Weston, WestCap Management - Analyst [47]

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Got it. Okay, thank you for that color. My last question is, in case I missed it, did you discuss any of the current ongoings in the airline industry or can you talk a little bit about that, please?

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Chris Wolfe, I.D. Systems, Inc. - CEO [48]

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Right now we do have obviously installed customers at Miami, also at Newark and Chicago. We have pilots going on right now with a couple of our aviation customers on what we call a cellular version of our product. It's kind of early stage, proof of concept with those customers. A little too early to say where that will go, but the potential is there as well as in our VisionPro platform, by the way, one of the key differentiators is what we call our visibility option.

Again, if you have an opportunity to see it, you will see that you will have complete visibility of all assets on the tarmac. You will see -- actually you will be able to replay what assets were next to an aircraft before it departed.

So there's a phenomenal capability in the VisionPro software side, but also in the onboard side for access control of who's on that vehicle before the plane takes off. Again, we have pilots going on and we have active customers in the aviation space.

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Dan Weston, WestCap Management - Analyst [49]

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Very good. I'm going to hop off and see if anyone else wants to try, thanks.

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Operator [50]

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William Meyers, Miller Asset Management.

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William Meyers, Miller Asset Management - Analyst [51]

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You said that the fourth-quarter sequential increase was driven by orders from several of your significant accounts. I was hoping you could be a little bit more granular about that. And also, were those increases just for the quarter or are those going to spill into the following quarter or 2017?

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Ned Mavrommatis, I.D. Systems, Inc. - CFO & Treasurer [52]

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Sure. The big customers for the quarter that were incremental related to our VMS business. As I said before, it was up 30% compared to the previous quarter and it came from the Raymond Corporation, which is a big partner of ours, General Motors, and Nestle, as well as Ford. Those were the big customers and we expect to get additional orders from those customers; not only in the first quarter, but continued throughout 2017.

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William Meyers, Miller Asset Management - Analyst [53]

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Okay, that's it from me.

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Operator [54]

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(Operator Instructions) I'm seeing no other questions in the room at this time, so I'd like to turn the call back over to management for closing comments.

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Chris Wolfe, I.D. Systems, Inc. - CEO [55]

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First of all -- this is Chris and I just want to say thank you to everybody who happened to be able to make the call today. I appreciate all the support from my employees, my customers, and actually our investment community and I look forward to giving you another update in the next quarter. Thank you.

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Operator [56]

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Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may now disconnect at this time. Everyone, have a great day.