Although they reflect our current expectations and are based on our best view of the industry and of our businesses as we see them today, they are not guarantees of future performance. These statements involve a number of risks and uncertainties, and since those elements can change and in certain cases, are not within our control, we would actually consider and interpret them in that light.

We urge you to review the company's Form 10-Q and other SEC filings for a discussion of the principal risks and uncertainties that affect the company's business and performance and other factors that could cause actual results to differ materially. OMNIQ undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, further events or otherwise, unless otherwise required by law.

I will now turn the call over to Shai so that he can provide an overview of the quarter ended June 30, 2020, and then an update on the company's business and operations.

Thank you, operator, and thanks to everyone joining us on the call today. I appreciate you taking the time to listen in, and hope this finds you and your loved ones safe and healthy.

I want to be mindful as we go through the results of the quarter, so I'll preface this by saying that the pandemic continues to impact businesses and enterprises in various forms. And although there are pervasive challenges for many industries, we have maintained a diversified portfolio of our core business and have seen a strong second quarter despite the current business climate.

During the quarter, we received significant contracts and repurchase orders and ink deals that relate to our supply chain management, mobile data collection services, Smart City parking and traffic control solution and Quest Shield campus safety solution. These products all present major opportunities for us.

And while we have technology footprint in various industries, our goal is to be a leader in utilizing artificial intelligence, or AI, to provide safety, security and data management and maximize revenue for our clients, which include government agencies and leading Fortune 500 companies.

I will now hand it over to our CFO, Neev Nissenson, to go over the summary of the Q2 2020 financials. Go ahead, Neev.

Yes, hello. We reported revenue of $12.7 million for the quarter ended June 30, 2020, although it represents a decline of 8% sequentially on the first quarter of 2020, revenue of $13.8 million.

I would note that the revenue decrease was primarily related to the pandemic's effect on the sales cycle of our AI-based solutions during the quarter and further impacted by strong fulfillment and deliveries by our subsidiary, HTS Image Processing in the second quarter of 2019. Our gross margin for the second quarter of 2020 was 20%, impacted by the product mix during the quarter that consisted less of our high-margin AI-based sales.

Total operating expenses for the second quarter of 2020 were $3.9 million as compared to $3.8 million in the second quarter of 2019. The increase in operating expenses was largely related to increase in general and administrative expenses and noncash stock-based compensation, partially offset by lower professional fees.

Net loss for the quarter was $2 million approximately compared to $530,000 for the second quarter of last year. The increase in net loss was mainly attributable to lower sales and corresponding margin during the quarter compared with the same period in 2019 as well as the increase in operating expenses.

Adjusted EBITDA, which means adjusted earnings before interest, taxes, depreciation and amortization for the second quarter of 2020 was a loss of $551,000 compared to adjusted EBITDA of $451,000 in the second quarter of 2019.

I will now turn the call over back to Shai to continue with the overview of the quarter.

Thank you, Neev. It's important to note that we continue to stay focused and in pursuit of the opportunities we're seeing in markets where we operate with our mission to provide world-class AI-Machine Vision solution.

This is particularly relevant today with COVID-19 as the world looks to transition to hands-free automated alternatives in the interest of public health.

Thus far, we've seen some tremendous progress, particularly during this quarter as companies and municipalities focus more intently on touchless transactions and technology. We believe this pandemic has changed the world, and we also believe that the demand will continue to proceed for such solutions that will also provide efficiencies and cost savings within the supply chain, data collection, traffic and parking management and the public safety arenas.

I would like now to get into some of the specifics on our AI-based Machine Vision solutions so that we can articulate our value proposition and what makes OMNIQ a compelling company.

Without a doubt, businesses spend a large portion of their time generating data, invoices, reports, files and more. According to IDC, 80% of these data remains unstructured, creating challenges in searching and analyzing the numbers within the corporate ecosystem.

This is expected to contribute to the widespread problem of data underutilization. Forrester reports that between 60% and 73% of data within an enterprise is not currently used for analytics.

As such, our AI-based image processing solutions deliver vehicle data for revenue control, management and automation of Safe City sites, homeland security, law enforcement, critical facilities, border crossings, secure access control and logistics systems.

Our next-gen computer vision solutions allow our customers, which include many municipalities, to address Smart City challenges by detecting, identifying, adapting and responding to safety in real time. Our enhanced AI capabilities are the growth engine for OMNIQ as we continue to focus and invest our capabilities to grow our leadership position around implementing AI in the supply chain, public safety, automation of parking and Smart City industries.

I also want to touch on our leading proactive public safety solution, Quest Shield, which we developed as a key component in the field of homeland security and public safety. We introduced Quest Shield, the proactive system that can flag suspicious vehicles and alert law enforcement before the drivers are able to cause harm.

We have completed several installations of our Quest Shield package for schools, campuses and religious institutes and are now working on approaching this huge market opportunity through different channels. With regards to the homeland security vertical, we believe this area will be a major growth driver in the near future.

As of today, our technology serves over 40 countries with approximately 15,000 of our sensors deployed globally, 6,500 of which are in the U.S. with our loyal Fortune 500 customer base standing as one of our major assets of OMNIQ.

As the global artificial intelligence market is expected to grow at a compound annual growth rate of 42% from 2020 to 2027, we expect to begin to see massive adoption as advanced technologies gain more traction. At the center of supply chain industry, we believe we are well positioned to capture sizable share in the market, particularly given our strength in the food and drug industry sectors and for logistics automation.

Although sales cycles have been impacted slowdown in meetings, we have utilized this time to develop marketing channels and have seen tremendous traction during the second quarter.

During the second quarter of 2020, we reported several notable contracts and partnerships. In late April, we introduced our SeeHOV, Artificial Intelligence Machine Vision solution for high-occupancy vehicle violation detection, which offers the ability to distinguish between human passengers and dummies and enable efficient monitoring and ticketing of drivers violating HOV requirements, resulting in better traffic flow on crowded roads and highways.

This was a major scientific and commercial milestone in transforming OMNIQ into a worldwide leader in providing AI-Machine Vision-based solutions for verticals like Smart City, Safe City, automation of parking and supply chain.

We're excited to introduce this new solution with cutting-edge proprietary AI-Machine Vision technology and expect to initiate installations later in 2020.

During the same time period, we received a $3.9 million purchase order from one of the largest U.S. supermarket chains of the -- for the supply of mobile data collection, computing and communication equipment.

The order was from an existing customer, who also recently purchased $1.5 million in handheld equipment from OMNIQ. This is significant as it marks the increasing interest in reducing hand-to-hand transport [ evidence ] as produce from warehouse to point of sale, signifying the heightened capability of touch-free supply chain management in the age of COVID-19.

In May, we were awarded a key project by the City of San Mateo, California, to provide an innovative cloud-based Smart City parking and traffic control solution. We are pleased to bring a new comprehensive solution to the city.

With our March 2020 acquisition of Eyepax' IP assets, including PERCS business intelligence suite, we accelerated our capabilities and became a prime contractor offering a data-rich intelligent solution to improve traffic flow and public safety. Our combined capabilities are proving to be attractive to parking operators and municipalities like San Mateo.

In June, we were selected to deploy our Quest Shield campus safety solution at the Talmudical Academy of Baltimore in Maryland. Quest Shield has been tailored to provide a proactive solution to improve security and safety in schools and on campuses, community centers and places of worship in the U.S.

Many schools and communities are expressing concern around children returning to school in the fall due to COVID-19. With that in mind, Talmudical Academy will also employ the Quest Shield to provide an automated screening process to confirm that students have had their temperatures checked per Maryland regulation upon their arrival on campus and prior to them entering the school facilities.

Also in June, we received a follow-on order to upgrade the access control and parking system at La Sierra University in Riverside, California, which has approximately 2,500 students and 700 employees. This order demonstrates growing market recognition of the benefits of our AI-Machine Vision-based technology.

This past quarter, we also announced the appointment of Dr. Barak Hershkovitz, General Motors' Director of Connected Customer Mobility Solutions Engineering to our Advisory Board.

Dr. Hershkovitz is the latest member of our Board, joining former Chief Scientist of the Israeli Government, Professor Mina Teicher and Technology Innovator, Yair Grinberg.

Dr. Hershkovitz has played an integral part in the development of several patents, and his experience will be invaluable as we grow our business in the approximately $1 trillion Smart/Safe City segment and the estimated $3 billion parking vertical.

We have assembled some of the best scientific and technology lines on our Advisory Board to enable OMNIQ's leadership in innovation and creativity at the forefront of the exciting verticals that we are penetrating such as supply chain, parking, public safety, homeland security and others. We believe there will be many more exciting updates in the near future.

Operator, I will now turn the call over for questions.

Congrats, Shai. At this corona situation, it is a great achievement to keep sales close to the annual 2019 sales.

I looked at some competitors and found out that the top companies in the industry had been affected in the same or bigger way. Just to mention, Cognex sales ranked by 15% , Manhattan Associates by 12% and even Zebra by 13%.

Not to mention recurring dues that show very little lower 1-digit revenue. So what is the reason that you have been so successful with the top line?

Thank you, Hela. Thank you for that question.

First of all, I think that the reason -- the main reason is our attractive product offering. The basis of our -- I mean, the technology that we base all our products on is machine vision, which allows real-time information, real-time inputs and creates a proactive capability to our customers.

That's what everybody are driving for and want. And this technology, unique technology that we worked very hard on with 9 patents and continuing to develop and go deeper into the deep learning capabilities and artificial intelligence capabilities of it, this technology creates a very attractive offering by OMNIQ to our customers and especially relevant these days.

That's the -- for sure, first reason. The second, of course, is the ability or our Fortune 500 diversification customer base.

That allowed us to actually continue showing the revenue, top line sustainability and actually today, even growth. What we do see are some declines with some customers that are more into the retail space.

But basically, the diversification, as I mentioned, allowed us to show very significant growth in the other sectors that we serve, mainly the food and drug industry.

I think that this main -- this is mainly the reason we're able to sustain our top line in Q2 despite of many other companies.

Excellent. And also, you wrote in the press release that some homeland and other artificial intelligence projects have been delayed.

Can you please explain?

Yes. As you -- especially in the homeland security and government projects, et cetera, all the shutdowns created from March for 3 months, the different shutdowns, different reaction to the market adjusting to the new reality, that created a slowdown in the decision-making, especially, like I said, in the government projects, municipality projects, universities that got shutdown, et cetera.

But that basically is the main reason for the slowdown. Still, we do -- we were -- we continue to be in touch with them.

We were continue -- we continue to get awarded by civil projects, but the implementation or installation of our systems had to be postponed to later times, which picked up. We already started doing it this quarter and end of last quarter, and we see back the ramp-up of the market of our customers in these sectors that before were a little bit slowdown.

Okay. And one last request, please.

Can you explain the recent safety project for education institute you recently won? And your thoughts about future growth.

Sure. Yes.

The -- we came out with Quest Shield. Quest Shield is a solution that basically we took from what we did for projects for the government projects, we did in the border crossing points, 3 border crossing points here in the U.S., with Mexico, in different other countries as well.

We took all of these capabilities, this high-level capabilities and we actually commercialized it to be a suite, a package, a solution, a product that is suitable to the -- to schools, okay, 12 schools and others as well. Because that -- we thought the same security, there's no reason why it can't serve other customers like schools and thus allow schools to -- or provide schools with the first proactive security system.

Not only security is what we provide to them, we also automate a lot of their functionalities together with security. For example, the pickup lines at schools, as you know, parents come in and pick up their kids.

This is a very, what we call broken chain where there could be a security breach. And what we do is we place our sensors at the front of the school.

We create databases. We start conducting the analytics required in order to understand who's coming in, who's going out.

There is an automation and the user interface that communicates directly with the parents. And part of the registration process, which can be altered or configured by the parents 24/7, just using the user name and the password.

And this way, we know how to -- in real time, who's in, who's out. We know the students that should come in, we know which parents can come and pick up when they are picking up their kids.

Nothing is broken anymore. We notify ahead of time.

If there is a parent that wants to pick up their kids earlier, and it's no longer by trying to reach over the phone, use same way as you use it -- used to buy something on Amazon. You just log in and you get into your secured area, and you can create the adjustment and update.

So that's exactly what we created in schools. We brought them to the next level that they should have been in same as the government is with our systems in the borders.

And as we protect their borders today, we protect our kids as well. That -- this is -- these are some of the functionalities, we communicate with police departments.

And if there is a vehicle that is blacklisted or a person that is blacklisted for some reason, some database, we communicate immediately with the police and create alerts, customized alerts and thus create, again, proactive measures before something bad happens.

So basically, that's -- this is the offering. And with the COVID-19 situation, today, we also had updated our systems with some additional modules like the one that I spoke about, where we track and make sure that the kids are taking their temperatures and are reporting that into their scorecards into our system, into Quest Shield and thus creating, again, or allowing the school to meet the regulations of the states like Maryland with the Talmudical Academy that uses that as well.

So we are adjusting and updating our system to be relevant and creating the security, creating proactive approach, automating everything to make the parents feel their kids are getting their security, their needs.

Congratulations on getting the Talmudical Academy in Baltimore. As you know, I live here.

And when the news was announced, it was quite a stir and a buzz here, hoping that will lead you to very many more schools and you can use that as a model. You said something about Amazon.

You also mentioned many things about parking. One of the first conference calls you had as a leader of OMNIQ, you mentioned that we want to become the Amazon of parking.

What's the status of that project? Where are we going?

When can we see results if indeed the project is still ongoing?

So thank you for the question, George. The -- it is a -- what we are creating and what I meant, and we spoke about that, as you mentioned in our previous conference.

We created an infrastructure, technological infrastructure that is based on machine vision, artificial intelligence algorithms that allow us to create -- to put our sensors that we design in different -- in the segments in the markets we serve and get the inputs in real time, capture the data and start creating the analytics and provide the solutions to our customers. That was the main thing.

It is relevant to many sectors. When I said the Amazon of parking, what we have today and what we started introducing in 2020 and actually creating revenue already from, is our ability to create -- I'll give you an example.

Amazon disrupted the market with their sophisticated solutions that allowed flexibility, allowed immediate results, allowed a better, more efficient business revenue model as well in many sectors. And -- but they first created the infrastructure, and what we did is the same thing.

And we -- I'll give you an example, the parking solution and why I said the Amazon of parking is because today, what OMNIQ has is a cloud-based ticketless, gateless, frictionless solution that today is used, for example, in one of the cities in California, where we even show that the enforcement is even better not using gates. And not only that, it is connected to all the other parking lots in the city.

And once there is something happening in one parking garage, then all the others are alerted. You don't have that today because you don't have these inputs and nothing is connected in real time.

And that's why -- that's what we referred to, in very high level, that's what we refer to as the Amazon of parking, where the only...

I'm sorry, I actually -- I'm sorry, I actually...

The only company -- no, no, no. Let me just relate to the second portion also of your question.

The -- regarding the project, there is a project, there are talks and I'll be able to update once things are much more practical and hopefully, we'll even go faster. But everything is still going.

I'm sorry. I actually meant to say the Uber of parking.

I think that's what you mentioned, not the Amazon. But either way, I'll take one.

I'd rather take Amazon than Uber.

I try to continue your analogy. I remember, yes.

We spoke about it as the Uber, but yes.

Yes. Okay.

So let me ask you this question. In the press release, you mentioned something about the tire technology and that we expect to see something in 2021.

Okay. So what do we expect to see in 2021?

With regards to the solutions that we offer as machine vision in the supply chain, that's one example of the product that we introduced and are piloting currently. We're finishing the applications.

We're finishing the last touches of the development in order to actually bring this as a completed stable, firm product to one of the largest manufacturers of tires in the world. And this is an example of how you take the machine vision and creating innovation by bringing it to a very conservative market such as supply chain, which relies on technology that exists for more than 25 years now hadn't change, only progress within that same basis of the same technology, only made it better.

Actually, we are coming with our innovative machine vision to supply chain to disrupt the market. And SeeTire is only one example of what we are working on.

There are 2 other examples that we spoke about several times but are not yet running products that we are exposing to the market, but are very innovative and are continuing. We'll also be able to show and present them going forward this year and implement them next year in supply chain.

Supply chain, you've got to remember, the cycle there of implementation take a little longer. But with our innovation and the forces today in the market like COVID-19 unfortunately happens, but still something that contributes to our message.

I think that will speed up the process to already see some results this year.

Okay. I'm in the car, so my phone was going in and out.

I thought I heard you say that you're in the process of getting some big security contract, the security deal in combination with somebody else. Did I hear that correctly or what?

It's not combination of anyone. We are -- we work with the government, several governments, but -- and there are several projects that we expect to still happen this year, which were postponed a little bit.

But once they happen, you guys will -- everyone will be the first to know.

When you say [indiscernible], are you able to tell us what governments?

I cannot -- George, I apologize for that. But as always, once these projects are signed, then we can announce them immediately with the appropriate restrictions by the government.

Thank you, operator. As always, I would like to take this opportunity to first thank the amazing OMNIQ team.

Despite the current unprecedented times, our team of employees continue to meet every challenge and deliver with an outstanding performance. I really want to thank everyone at OMNIQ.

To all, thank you for your continuing support. Keep safe, and I'm looking forward to speaking with you soon.

Thank you.