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Edited Transcript of ITC.TO earnings conference call or presentation 14-May-19 1:00pm GMT

Q1 2019 Intrinsyc Technologies Corp Earnings Call

Vancouver May 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Intrinsyc Technologies Corp earnings conference call or presentation Tuesday, May 14, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* George W. Reznik

Intrinsyc Technologies Corporation - CFO & Corporate Secretary

* Tracy A. Rees

Intrinsyc Technologies Corporation - President, CEO & Director

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Conference Call Participants

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* Gianluca Tucci

Echelon Wealth Partners Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the Intrinsyc Technologies First Quarter 2019 Results Conference Call. (Operator Instructions) I would now like to turn the conference over to Mr. George Reznik, Chief Financial Officer. Please go ahead, sir.

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [2]

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Thank you, Sabine. And thank you, everyone, for joining us to discuss Intrinsyc Technologies Corporation's financial results for the 3 months ended March 31, 2019. Intrinsyc issued these results in a press release today, which is posted on the company's website. Joining me on the call today is Tracy Rees, Chief Executive Officer and President of Intrinsyc.

During the call, we will make forward-looking statements about Intrinsyc's business. These statements are subject to certain risks and uncertainties, which could cause actual results to differ materially. Intrinsyc refers conference call participants, either today or in future, to read the industry standard disclaimer, which has been furnished as part of today's press release in the Forward-Looking Statement section.

Statements made on this call reflect management's analysis as of today, May 14, 2019. Management does not assume any responsibility or obligation to update forward-looking statements made during this conference call, unless required to by law.

Please note that the financial information issued on today's call is stated in United States dollars and in accordance with IFRS, unless otherwise stated. The company is also presenting selected non-IFRS financial measures, including EBITDA, gross margin and working capital.

Intrinsyc believes these non-IFRS measures provide meaningful information to investors. However, they do not have a standardized meaning and are not likely comparable to similar measures presented by other issuers.

I now turn the call over to Tracy.

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [3]

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Thank you, George. Intrinsyc reported revenue of USD 6.1 million with adjusted EBITDA of USD 156,000. Revenue was down 14% from the previous quarter and up 1% over the same period in the prior year. We had delays both in the expected launch of 2 new development platforms in production client orders due primarily to component shortages and client financing that negatively impacted Q1 revenue. We believe that these issues will be resolved during the second quarter through the introduction of the new development platforms, which are expected to add over $2 million in revenue over the next 12 months and the production launch of 5 new client products that will use the company's edge computing modules. These developments should lead to revenue growth in the second half of 2019. Intrinsyc is helping to take Internet of Things products to the next level, building artificial intelligence or advanced analytics directly into the device and systems where insights are needed in real time. Known as edge computing, this trend is creating opportunities for businesses seeking to deliver enhanced level of service across a wide range of industries: autonomous vehicles, intelligent cameras, smart home hubs, smart cities, robotics, and industry 4.0 applications, to name a few.

A report from Tractica estimates that AI, or artificial intelligence, edge device shipments will increase from 161.4 million units in 2018 to 2.6 billion units worldwide annually by 2025. Intrinsyc's portfolio of computing modules with their high-performance multicore processors and built-in artificial intelligence capabilities are ideal platforms for creating the next generation of intelligent Internet of Things products.

Intrinsyc continues to expand its portfolio of edge computing solutions with 2 new products introduced in the first quarter. We launched the Open-Q 660, Micro System on Module and development kit designed for use in 4K cameras, gaming, digital signage and other consumer and industrial IoT devices.

Intrinsyc's Open-Q 660 µSOM is an ideal platform to power the growing demand for devices capable of artificial intelligence and machine learning. We also introduced during the quarter the Open-Q 835 Micro System on Module, a premium tier System on Module based on Qualcomm Technologies' SDA 835 system-on-chip. Intrinsyc's Open-Q 835 µSOM is Intrinsyc's most advanced embedded computing module enabling the highest combination of computing performance, thermal and power efficiency and optimization. Next-generation premium tier IoT devices like VR/AR, head-mounted displays, IP cameras, enterprise tablets, medical imaging systems and other devices will benefit from this high-performance production-ready computing module. We expect the Open-Q 660 and 835 µSOMs to be designed into new client products and begin generating revenue immediately.

Qualcomm continues to be a valuable technology partner, providing substantial marketing support to the company. Intrinsyc was invited by Qualcomm to present at the Embedded World Conference in Nuremberg, Germany in February. During the event, Intrinsyc presented several of its edge computing solutions, including voice-controlled applications for smart homes and other IoT applications.

Select highlights from the fourth -- first quarter 2019 are as follows. In early January, we announced our multiple clients that are, in aggregate, valued at $748,000. Orders were received from a combination of existing and new clients. The largest order was a product development services project for an outdoor surveillance camera valued at $375,000. In addition to the camera project, project clients are utilizing Intrinsyc's advanced performance Open-Q computing modules and expert product development services to build a variety of innovative industrial and consumer IoT devices. We announced the availability of the following edge computing platforms: the Open-Q 835 µSOM and the Open-Q 660 µSOM and their respective development kits.

We increased our design wins of companies developing their products or shipping commercial devices using our computing modules from 59 to 62. Clients and production remained constant at 24 as we had 3 new production clients offset by 3 clients with discontinued products.

George will now provide a detailed review of our financial results.

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [4]

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Thank you, Tracy. Intrinsyc experienced decreased hardware product and services revenue in the first quarter of fiscal 2019, with reduced operating expenses for continued quarterly positive EBITDA compared to the prior comparative periods. Intrinsyc's revenue was $6.13 million for the quarter ended March 31, 2019, representing an increase of 1% over the prior year first quarter of $6.06 million and a 14% decrease over the prior quarter ended December 31, 2018, at $7.1 million.

The company has transitioned to the new lease accounting policy under IFRS 16 in fiscal 2019, which resulted in the establishment of a right to use asset with a corresponding lease liability on as March 31, 2019, balance sheet, pertaining to its leased commitments attributable to its facilities in Vancouver, BC, Canada and Taipei, Taiwan. The company has implemented IFRS 16 lease accounting on a retroactive basis and presented the pro forma balance sheet as at January 1, 2019, accordingly.

As a result, the company has amortized the [6] portion of its right to use lease asset during the 3 months ended March 31, 2019, which contributed to the increase in total amortization expense in this period with the variable portion of its lease commitments continuing to be accounted for as an operating expense allocated to each respective functional area based upon relative headcount. The company's adoption of IFRS 16 lease accounting policy has impacted its prior reported periods, which have been restated for consistency and presentation.

Total revenue for the company's embedded computing hardware products was $4.1 million during the 3 months ended March 31, 2019, which is consistent with the prior year first quarter but decreased by 12% from the 3 months ended December 31, 2018, of $4.6 million. Services and Software revenue was $2.1 million during the 3 months ended March 31, 2019, which increased from $2 million in the prior year first quarter but decreased from $2.5 million during the 3 months ended December 31, 2018.

Gross margin for the 3 months ended March 31, 2019, was 32% with decline from 35% in the fourth quarter of 2018 and 33% in the first quarter of 2018. The decrease over the prior periods is attributable to the change in revenue mix, with increased revenue contribution from Intrinsyc's hardware projects and lower gross margin relative to Software and Services at higher gross margin during the most recent quarter.

Gross margin for the company's Services and Software business decreased to 56% during the most recent quarter, from 61% in the prior quarter due to lower utilization of our engineering team per customer projects offset by the favorable impact from the weakened Canadian dollar during the period. Gross margin for the Hardware Products business increased to 21% in the first quarter of fiscal 2019 compared to 20% in the fourth quarter of 2018.

Core operating expenses consisting of sales and marketing, research and development and -- or R&D and administration expenses declined to $1.82 million in the first quarter of 2019 compared to $1.84 million in the fourth quarter of fiscal 2018, but increased from the prior year first quarter of $1.6 million. The increase over the prior year first quarter is due to increased investment in headcounts for the company's hardware product, customer orders, and increased costs pertaining to the company's global expansion.

Sales and marketing expenses increased to $602,000 for the most recent quarter due to increased trade show activity and related travel expenses compared to the prior quarter of $553,000, but declined from $643,000 in the prior year first quarter, which had extensive trade show activity. R&D expense increased to $427,000 in the most recent quarter, from $419,000 in the fourth quarter of fiscal 2018 and $397,000 in the prior year first quarter. R&D expense is the result of investment of the company's engineering capacity and its development activities as it continues to broaden its product portfolio. The company also performs R&D activities on customer-paid engagements in addition to the R&D expense reported.

Administration expenses decreased to $786,000 in the first quarter of fiscal 2019 from $870,000 in the prior quarter, but increased from $601,000 in the prior year first quarter. The increase over the 3 months ended March 31, 2018, is due to increased employees of the company's product operations team over the past year to support its revenue growth in addition to expenses associated with its global expansion.

EBITDA was $156,000 or 3% of revenue for the first quarter of 2019 compared to $665,000 or 9% of revenue for the fourth quarter of fiscal 2018 and $349,000 or 6% of revenue in the same period in the prior year. EBITDA performance in the first quarter of fiscal 2019 was impacted by a combination of decreased engineering utilization and customer projects, with reduced hardware product revenue offset by lower operating cost.

Due to the weakening of the Canadian dollar, the company incurred a foreign exchange loss of $68,000 during the 3 months ended March 31, 2019, compared to a foreign exchange loss of $6,000 during the fourth quarter of fiscal 2018 and a foreign exchange gain of $9,000 for the prior year first quarter due to the revaluation of the company's Canadian dollar denominated treasury investments. The company generated a net loss of $172,000, with a loss per share of $0.01 during the 3 months ended March 31, 2019, compared to a net loss of $675,000, with a loss per share of $0.04 for the fourth quarter of fiscal 2018 and to net income of $168,000, with earnings per share of $0.01 in the same period in the prior year, with 19.9 million shares outstanding as of March 31, 2019.

The company has purchased a total of 1.5 million shares since October 2017 under its normal-course issuer bid or NCIB for an amount of CAD 2.2 million at an average price of CAD 1.44 per share. The company had cash in investments of $4.2 million as of March 31, 2019, which declined from $6 million as at March -- December 31, 2018, due to the positive EBITDA and related operational cash flow during the most recent quarter offset by capital expenditures required to support its operational growth, funds used by the company to repurchase its shares under its NCIB program and the impact of working capital movements.

The company had day sales outstanding or DSO for its accounts receivables of 44 days as of March 31, 2019, which decreased from 60 days as at the prior quarter period. The company had inventory of $6.4 million as of March 31, 2019, which increased from $4.6 million as of December 31, 2018, and is comprised of purchases to fulfill outstanding and anticipated client product orders. The company had decreased net working capital of $10.1 million as of March 31, 2019, from $10.3 million as of December 31, 2018, due to the positive EBITDA in the fourth quarter in fiscal 2018 offset by the company's NCIB program, capital expenditures and the performance in the first quarter.

And now I'll return the call back to Tracy.

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [5]

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Thank you, George. Due to delays and cancellations in some client products, we expect that revenue in the first half of 2019 will be relatively flat compared to the previous year, with growth returning in the second half. In response to our slowdown of growth and focus on our bottom line results, we are making prudent adjustments to our operating expenses.

Going forward, we are focused on improving on our sales execution, expanding our client base and helping our clients successfully launch their products using Intrinsyc's edge computing modules.

We also continue to introduce new products developed in collaboration with our strategic technology partner, Qualcomm Technologies. In April, we introduced the Snapdragon 855 hardware development kit. The 855 HDK is designed to support the ecosystem of technology companies and application providers looking to utilize the advanced features of the Snapdragon 855. This is Qualcomm's latest generation technology and pushes the boundaries of computing and power performance with innovations in immersive multimedia, artificial intelligence and security. We believe that the company has a bright future and that our share price does not fully reflect the company's value. We have been active in getting our story communicated to new potential investors following up our participation at the ROTH investor conference in March, with the spring investor conference in April and Planet MicroCap conference in May.

Further reflecting our confidence, the company has purchased over 1.5 million shares through an NCIB program begun in September 2017. I appreciate your support as we continue to execute on our growth strategy and focus on delivering long-term value for shareholders.

Operator, we will now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Gianluca Tucci from Echelon Wealth Partners.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [2]

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I guess I'll kick it off here by asking for an update on bookings and backlog in the quarter?

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [3]

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Yes. I don't think we have those numbers specifically. The bookings were down sequentially for the reasons that we mentioned. We did have a couple of customers that unfortunately discontinued operations and that had an impact in the quarter. And we had a couple of other clients that we expected orders from that pushed those out. So that's the reason bookings were down.

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [4]

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We still have relatively strong backlog. We still have commitments -- firm commitments and purchase outstanding orders from customers that, I mean, you're scheduled to deliver later this quarter, including the end of life Qualcomm chipsets to one of our largest customers. So the current backlog is still strong and -- even though bookings were down in the quarter.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [5]

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Okay. And I guess could you provide some further insight to seasonality and the degree of intra-quarter swings that we might see for the balance of this year, Tracy?

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [6]

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Sure. So we did expect Q1 revenue to be down sequentially from Q4. So just a matter of degree in terms of some of the things that we were expecting to happen with either development kits or production customers. And so part of that was the availability of components to build things and get the revenue. And the other aspect was, as I said, there was some push out from some of our customers, primarily due to financing issues.

So we expect our second half of the year to be back loaded and that is somewhat typical for us, at least the last couple of years. And so, as I said, we expect revenue growth in 2019 to return in the -- later in the second half, as I said.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [7]

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Okay. And so I think you increased your design wins to 62, if I have -- yes, to 62. How many of those are scheduled or do you foresee turning into production wins for the balance of this year? I think you mentioned 5 in your press release about printing to edge computing.

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [8]

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Right. So we expect at least 5 new production clients in this quarter, and we may have 1 production client that drops out, remains to be seen, but that's kind of where things are now. So we expect at least 5, we have visibility of those 5. There could be others that get there by the end of this quarter. And we're continuing to get new design wins as we introduce new products. So our base is expanding and that's a positive thing for future revenue. And I'm not quite sure if I can recall if we put the exact number in, but the 5 new production clients that we are expecting to generate revenue over the next 12 months, we expect at least $2 million annually from those 5 clients. So that's kind of the nature of how our business will expand. It's very accretive as we add new clients and they get into their annual run rates that our business is going to improve.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [9]

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That's great color. And I think you did a good job about this in your commentary about talking to some of the trends in technology. You mentioned edge computing and consumer IoT. Can you dive a little deeper and talk about some of the specific things your customers are doing in these areas of the new technology wave, I would call them that.

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [10]

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Sure. Well, I have to be a little bit circumspect with some of these as we have NDAs, so we can't specifically talk about the specific company names, but I'll give you some ideas and -- and we do work with some very big companies and, of course, by the nature of our partnership with Qualcomm, they introduced us to their friends and their friends tend to really big companies sometimes. So as one example, we've built a -- we have a platform for smart home hub products, so voice-controlled products in the home. And you can imagine some big partners and companies that have products in those areas that we've worked with to introduce those products. And again, what is unique for us and what's enabling a lot of growth is, as I mentioned, that just the nature of voice control products require a lot of intelligence. There's a lot of processing that goes on locally, which -- again, that's the nature of edge computing. And it means that computing and analysis of data is happening on the device and happening in real time as opposed to sending that information back up into the cloud for processing. So what that means is that there's more computing power that's needed in these remote devices. So you need both more computing power and more connectivity power. And that's where we're really strong and technology that's empowering those devices is actually coming up out of the mobile space. So if you look at where artificial intelligence happened, where voice control products happened, a lot of that technology was embedded for mobile devices, for phones, and we're taking that technology and then enabling it into a wide range of Internet of Things products.

So I mentioned voice-controlled smart home hubs, but we also have products for head-mounted displays, for visors, for people who have vision issues, for devices to help people hear, so those are a couple of applications as well as connected cameras, surveillance cameras and the more kind of in the industrial IoT space. We also have retail analytics cameras in some of our customers so where they'll have 2 cameras up in the ceiling of a store and they observe shopping behavior and they get all kinds of market data based on that.

So it really just -- I can spend another 10 minutes going through all the different types of applications that we're enabling with this more intelligent platforms and particularly where software is a critical component. And that's really our advantage. We're great software engineers. We're not just selling dumb hardware and dumb commodity hardware, we're selling these intelligent edge computing platforms, and we're enabling a lot of new technology in new applications. And one of the challenges in introducing new technology and new applications is sometimes you get some false starts and that's okay because we're planning lots of seeds and those seeds are spreading and those seeds will be harvested in the future as the industry matures.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [11]

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Excellent color, Tracy. I guess I'll turn to the press release this morning on Mark, the Head of Sales. Can you, I guess, dive a bit deeper in -- like, is he going to a competitor or like what prompted his resignation?

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [12]

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Yes. So it's personal reasons. I have known Mark a long time. I've worked with him at 3 companies. We're great friends. He's a great person. He has been a big help to me here, and he has other things he wants to go off and do, unrelated to professional competition or anything of that nature. So we're friends. He's going to continue to work with me for a transition period, but he wants to do something different. And like I said, we've been a long time together and we have a great relationship and I think we'll continue to have a great relationship in the future.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [13]

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Okay, good. And then so as you add these 5 new production wins in Q2 or in Q3, how should we be thinking about gross margin as we progress through the year? Are these going to be more labor intensive at the start and then over time that uplift in the gross margin will occur or is there something else to be considered here?

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [14]

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Yes. I -- it's a natural progression as our customer relationships mature and our products mature that the margin improves on those products. So we do expect slight improvement, it won't be dramatic, but it'll be slight improvement in every year. And those are the 2 forces we kind of have in our favor as we expand the number of customers and our clients in production, we get incremental revenue. And again, if you look at it, it's very accretive in the sense of like building a volcano. And you're building on top of a base, and each new production client is like more lava coming up out of the volcano and the volcano gets higher and higher because you're adding more and more clients every year. And so our engine really starts with the development of new products, and that's part of the reason we're hopeful to our future. We've actually spent a lot of focus in the last couple of years of expanding our product portfolio. And we have a number of new products and things that we've recently introduced and new things coming online that are leading then to new clients that want to use those devices or attracted to some specific functionality. And a good example of that would be, we recently introduced the Single Board Computer based on Snapdragon 605 technology, which probably doesn't mean a lot to people, but what that is, is the first chip that Qualcomm built that was specific for the IoT market and more specifically for cameras and connected intelligent cameras as opposed to chips that they build for the mobile phone space.

So that's important, obviously, because it means that Qualcomm is committed to the growth of their business in IoT, and we are an important partner for Qualcomm. But it's also important in the sense of, we're getting more targeted solutions for specific IoT verticals. And that attracts new clients that come to us that we get new production wins for and that over time generate revenue with improving margins. And that's the business model that we're confident is going to lead to continued growth and improved results.

And again, the important thing is, when we do get a production client that -- typically, the lifespan of that client is 3, 4, 5, 6 years. So you're not -- you're adding to your installed base, you're not having to go out and reinvent it with new customer acquisition every year.

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [15]

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Yes. If you go deeper and wider in those customers continue -- evolve products and adjacent products. So during the product life cycle with the customers 1 product. But over the time the customer life cycle, as Tracy said, has a lot of repeatability and a lot of longevity.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [16]

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Okay. No, that's fantastic. So just as a follow up to that question, how would you segment, if you can, your customer base today in terms of, like, direct leads in terms of customers that Qualcomm refers to you and I guess customers that approach you initially at the process?

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [17]

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Yes. So it's a little bit blurry, but I'll give it an effort. So in terms of the first category, we have just plain direct referrals. A person calls us up and says, "Hey, I want to introduce this person to you and they're interested in buying a product." That's probably only 10% to 15% of the business that we get.

And the other part where it's a little blurry, as an example, is more of the indirect referrals or where people might go to the Qualcomm website, and if you go to the Qualcomm website today and you typed in Intrinsyc, there's probably 25, 30 pages on the website where Intrinsyc's mentioned, either with products, development kits or our services or reference designs or technology blogs that we've written. And so we get quite a bit of people that go to the Qualcomm website and they see, as an example, if I want to get an automotive development platform running Qualcomm technology, the place to get it is from Intrinsyc. So they will come to our website and they'll buy there.

And we don't really have a way of knowing where they specifically came from when they make their purchase, but we do get kind of a record of kind of where people come to our website from. And so we know quite a bit come from Qualcomm.

The other thing as I mentioned in my remarks is, Qualcomm had an embedded computing event in Germany earlier this year and we were invited to exhibit our products and actually staff their booth with them at that event. So quite a few people obviously saw us that we were there and that we were presenting and so and what we were presenting that our products were on display there. And as I said, we did a demo of a voice-controlled home consumer IoT product there. So we get a good exposure in that case. But we also get just a lot of people from Internet searches that are looking for Qualcomm-based development platforms and production platforms. So that's the other big chunk of where customers come from in addition to just our outbound sales efforts.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [18]

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Okay. Can you give us an update on your status in your strategic review process there that you announced earlier this year?

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [19]

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I'm trying to think of what I can say. We've talked to people, and we're continuing to talk to people, but we don't really have anything specific to announce. But -- I mean there is a fair interest. And then the other thing I would just add some additional color to is that for the first time, particularly -- well, look, we haven't done a lot of outreach to specific investor conferences, but we did quite a flurry of conferences in the first 4 months of this year and spent a lot more time talking to U.S.-based investors and found that the -- particularly the story of the markets that we're pursuing and the products and our partnerships and the business model are all very well received by the people that we talk to. So again, that gives us confidence that we're doing the right things, and that although it seems to be that the Canadian market is not particularly friendly to technology companies, that there is a demand for a company that competes in the markets that we do and have the kind of growth story that we have.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [20]

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Okay. Great. And then I guess, George, a question for you, I haven't forgotten about you, but inventories swelled in the quarter by over 30% sequentially. I assume that's primarily because of a committed PO for Q2 or Q3?

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [21]

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Yes. I mean -- thank you, Gianluca. And -- for a couple of reasons that's part of the reason. The other one, as Tracy said, we really have expanded our product offering, particularly with the 660 and some of the other products launched. So we had to expand the available dev kit and related inventory to -- that we're selling on our website that generates leads for our design wins and eventual production wins. So we have been investing really in the last couple of years significantly in product development and roughly about $1.6 million a year. And now you're seeing investments in inventory. We have had strong -- about 25% of our hardware revenue at -- of $4.1 million this past quarter was for dev kits of various platforms and right now the large majority of revenues coming from our 805 platform, which we really launched 4 years ago.

And so it takes a while to get these in, but really planting seeds for future revenue growth and customer growth as well in addition to some of those committed purchase orders from customers. So there's a net investment, but we see that turning over and translating into cash later this year.

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Operator [22]

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(Operator Instructions) Our next question comes from [Ward Benedict], a private shareholder.

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Unidentified Shareholder, [23]

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A couple of questions. I just was -- look a little more arcane than probably what you just went through there. Looking through the notice of annual and special meeting circular, and with regards to the performance objectives for 2019, what are they?

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [24]

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Yes. 2019 is primarily driven on revenue and EBITDA. The -- for the corporate achievement, continued growth in revenue, of course. We've gone from 2013 to last year we went from USD 6 million to USD 26 million. So that growth, so we -- even though there's some quarterly fluctuations in revenue, we're committed to doing -- to increasing the business. So there's growth in revenue and continued contribution on cash flow from operations EBITDA. On the EBITDA, we're balancing investment and expanding our products, which we do anticipate increasing -- fueling the increased revenue and customer base over time. And as well as attacking and expanding our markets, we've expanded in Taiwan to have our own facility there now. We have a facility in India as well as in Europe. So those are the areas that we're focusing on. But the key metrics are really revenue and EBITDA.

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Unidentified Shareholder, [25]

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Okay. So it's not necessarily an increase of, say, over last year's revenue, it's just -- it's going to be based on a pure revenue number and I think I noted, it says on Page 19, last year, part of that additional funds was paid on the increase or I guess exceeded the excess EBITDA, for instance. So we don't -- it sounds to me like basically compensation just could be paid on just gross numbers as opposed to growth. Would that be right?

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [26]

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Well, it's a combination of revenue and EBITDA, but the operational cash flow, the company has to make money before it can pay any performance bonuses and that's really the focus for self-generation of the...

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [27]

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Yes. So we have revenue growth goals every year. So our revenue growth goal for last year, as an example, was, I think, over 20%. So it was $27 million and we exceeded -- it's like $27.1 million and I think we did $27.5 million. So we had...

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Unidentified Shareholder, [28]

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Actually, just to clarify, I think your target according to this I'm looking at was $25.4 million and you did $25.7 million, sounds right?

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [29]

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Yes. That's right. I don't know what I said it but I'm a little dyslexic sometimes. Yes, that's exactly right. So -- and our growth goals for this year are pretty similar to last year, so...

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Unidentified Shareholder, [30]

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So it's a hard number, for instance, this year would the target be 20% growth on $25 million, say, you looking at getting close to $30 million, so is that the number?

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [31]

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Yes. That's my revenue goal. And -- but I mean, it's not a forecast, it is not a -- it's not guidance, it's what I have to do to keep the directors from yelling at me every time they see me.

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Unidentified Shareholder, [32]

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Okay. And so this last year, I think it looks like there was compensation for the annual incentive plan was USD 437,000 or CAD $566,000. Now is that, just to clarify, and that was realized or I guess accrued last year, but ended up getting paid out of Q1, would that be right? Am I correct on that?

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [33]

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Yes.

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [34]

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Yes, sir.

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Unidentified Shareholder, [35]

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Okay. So there's $437,000 there. You mentioned keeping the board off your back, kind of a bugaboo with I think a lot of shareholders, a numbers of directors, certainly of mine, I'll speak for myself there. And I'm just looking at a couple of things here. And again, the print is kind of small in the circular so pardon me as I'm flipping through some pages here, the -- it looked to me like the total compensation for the board last year, if I'm seeing all the numbers, was about to $228,000, okay? So would that be correct in that, George?

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [36]

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Yes, you would, [Ward].

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Unidentified Shareholder, [37]

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Okay. I just want to make sure there's nothing I'm not picking up out of the circular here. But then interestingly, I note on Page 31 that the corporation disbanded the Executive Committee on January 31 and that it established a Special Committee on February 1, the next day, comprised of Daniel Marks, Howard Speaks and Mr. Duguay. And members of Special Committee will receive an initial $5,000 per month with the chair and the special committee receiving an additional $7,500 a month. So if I tally that up, that's CAD 210,000 or pretty much what we spent on the board last just across 3 guys, and I assume that's going to be above and beyond what the rest of the board and probably these board guys are paid in their regular role as opposed to the Special Committee? Is that correct? Have I read that correctly?

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [38]

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Yes. That's correct. And that really coincide with the engagement of ROTH. There is a lot of activity that's gone on, on the strategic side looking for accretive opportunities to expand the company and give us more critical mass and grow the business with greater efficiency and growth in revenue and cash flows. And -- so that's -- that really was established to recognize that we're going to need additional teamwork and assistance from Tracy and I to address those activities.

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Unidentified Shareholder, [39]

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Okay. So that will go on for a period of time, I would suppose. I'm just wondering if there's going to be an ongoing expense or committee expense. I just see board costs, something that I've always been concerned with increasing sort of at an inverse to the share price, I guess. And as I look at it this morning, it's certainly taken a bit of a hit again. So all of these initiatives that are being taken to generate shareholder value, I guess, somehow the shareholder value -- we're almost at a 3-year low today, despite -- and I'll be the first to say, you guys have done a great job at increasing revenues, but finding the profitability, not EBITDA, but actual earnings per share, seems to be a challenge. So that's why I'm looking through your circular and saying, as a business person myself, I look and say, "Well, where can I save money?" Because it seems it's a real challenge to get a positive EPS here.

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [40]

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Yes. I think -- if you look at EPS and net income versus EBITDA, I mean -- Tracy and I spent a lot of time just recently talking to a lot of U.S. pretty sophisticated technology investors, primarily institutional in LA and New York and Vegas, several conferences, and there was a lot of candid excitement about what we've done growing the business on the revenues, but also the profitability. Their comment was, we usually don't see that kind of a positive cash flow from operations when you've grown, we usually see companies raising money and generating. As you know, this has been totally internally funded from resources generated by the company since the turnaround 8, 9 years ago. And so we had $1.9 million of EBITDA and USD 26 million in revenue last year, and that was good growth from the prior years and that was net of increased investment of R&D.

On the net income line, the majority of those are noncash items. So you got amortization, stock-based comp, but in particularly Q4 last year, we had one item that we had to revalue and put through the P&L for a strategic investment that was not directly related to operations. That was the investment of Stream TV. Absent that, we would have certainly had positive net income.

So the investors we're talking through are looking at what the core business is generating and looking at assessing the value, both currently and future expectations going forward. So definitely sensitive because we're all shareholders here, [Ward], with you and frustrated. Some of the feedback has been on the Canadian markets, micro-cap space in technology has really orphaned a lot of good companies, especially in technologies, but a lot of focus on certain growth sectors like cannabis, that's not excuse, just a commentary, whereas when you expand further in the U.S., there's a much larger pool chasing good technology companies. So we still have to keep continue to perform, grow this core business and then augment it to get more critical mass and there's a really exciting dynamic market opportunity in the AI edge computing space where we're well positioned for the partnership of Qualcomm, and we need to execute and grow critical mass to capitalize on the opportunity.

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Unidentified Shareholder, [41]

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And with critical mass, for instance, I mean, I think, some people comment or seem to think ITC is too small, and that if it was a larger company, part of that could be a merger, and I think there's been some discussion about that merger acquisition. If you married up with a company of similar size, for instance, you could probably recognize some efficiencies. Is there anything happening on that front or is there anything investors could get excited about internal of that or is it just kicking the tires at this point?

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [42]

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So operational efficiencies is a key driver but also market expansion, but...

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [43]

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Yes. So in that case I think we really can't announce anything until something is done. So as I said, we're talking to companies. I think what we're doing in the industry and again our products, our clients, our business model, our business partnerships are attractive. And they're attractive to other people in the industry. So if you kind of look at it not necessarily from an investor perspective, just from an industry perspective, what we've built is something of value, and I think our company is respected within our industry. So that's not necessarily reflected in the share price, but again, as I said, if I take an industry perspective, and if I was at another company and I looked at Intrinsyc and I'd say, wow, that's a pretty good little company.

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Unidentified Shareholder, [44]

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And I wouldn't disagree with you. I mean, it's all -- but as a shareholder, of course, you know where I'm focused on, and it's been -- I've been here since 2003, so a long time. So it seemed a few years ago like we were getting over the cusp and the last 2 years have been tough to swallow, watching increasing revenue growth but it just seems to be there's one thing or another that, i.e., the Stream right down last quarter.

And with that, again, I wish I had a little more time to pour through some of this information, but I believe that, that -- I guess for lack of a better way to express it, you may write that back up or re-recognize the value in that if they're successful in raising sort of on the capital I think $25 million and I think they have about another year to do that. Is that right?

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [45]

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Yes. What we have is a ratchet clause essentially and there's 2 other primary lenders of theirs that have indicated their intention to convert. What happened, they did a lower financing at a lower round, but they're targeting a larger financing. So at year-end, we just -- we didn't have the additional shares issued, assuming that the value of the company still supports it, we would just have the -- recognized the incremental value of the additional shares issued and that we've got -- could be written up at that time as well. And [Ward], both Tracy and I, once you digest more of the information because it was just published today, we always welcome the opportunity to meet with you and I will highlight that we are having our Annual General Meeting in our Vancouver office today at 10:30, so...

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Unidentified Shareholder, [46]

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I'll be there, George. I look forward.

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George W. Reznik, Intrinsyc Technologies Corporation - CFO & Corporate Secretary [47]

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Look forward to seeing you, sir, and always spending time with you and every other shareholders. So Tracy and I are very accessible to shareholders for any discussions or questions.

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Unidentified Shareholder, [48]

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Yes. And I'll certainly take advantage of that. And then I believe, also, relating to Stream, when this was I guess sort of reorganized, they made a commitment to either themselves or have a third-party, I guess, that they might introduce by commit to about $1.5 million in purchases. I'm just going by memory here, so. And there was a time line on that, and I've got to think we're getting towards the end of that time line. Have they stepped up and, I guess, fulfilled their commitment or partially fulfilled that?

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [49]

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Short answer is no.

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Unidentified Shareholder, [50]

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Okay. I'll ask more then when I see you.

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [51]

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Okay.

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Operator [52]

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This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Tracy Rees for any closing remarks.

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Tracy A. Rees, Intrinsyc Technologies Corporation - President, CEO & Director [53]

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Thank you. Before we conclude this call, I want to thank everyone for joining us today and for your continued support of Intrinsyc. As a reminder, we encourage you to visit Intrinsyc's website at www.intrinsyc.com to stay updated on the company's activities.

Operator, you may now disconnect the call.

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Operator [54]

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Thank you, sir. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.