I will now take a brief moment to read the safe harbor statement. During the course of this conference call, we will make certain forward-looking statements.

All statements that address expectations, opinions or predictions about the future are forward-looking statements. Although they reflect our current expectations and are based on our best view of the industry and our 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 ask that you 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 of the factors that could cause actual results to differ materially. OMNIQ undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless otherwise required by law.

I will now turn the call over to Shai.

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.

The third quarter was another busy one for outside OMNIQ. As we continued to build on our momentum from the previous quarter, we're very pleased to report third quarter sales of $15.8 million, a 25% increase from our sales in the second quarter and 21% increase over the pre-COVID world of third quarter of 2019, an indication of our strong solid position as a supplier of choice to some of the largest and most demanding companies in the U.S.

as well as to governments, municipalities and institutions.

Our strategy of combining legacy although sophisticated equipment with advanced modern artificial intelligence-based, or AI-based, solutions, has proven itself by generating growth while expanding our product offering to serve the challenges of the changing world we are facing, which will require massive AI solutions, automation and touchless operations. We expect our AI-based solutions to dramatically improve our profitability and become our main growth engine already in 2021.

Neev will discuss our financial results in detail shortly.

As those of you who have followed our company know, OMNIQ is an object identification company. We capture and analyze data through artificial intelligence-based machine vision solutions as well as Internet of Things-enabled technologies, or IoT, to provide real-time actionable intelligence.

Our IoT products and services are used for the supply chain mobility needs of our Fortune 500 customers covering diverse industries, including health care, food, supermarkets and retail, basic materials and logistics.

Our AI-based machine vision solutions in addition to now being also offered for several applications in the supply chain market, like yard management system in cooperation with Zebra and the touchless tire identification system in cooperation with one of the largest tire manufacturers in the world, is already installed and proven in 3 other large and fast-growing markets. The first of these markets is called Safe City, which includes campus safety in schools and universities, police departments, places of worship, community centers and neighborhood watch.

The second is Public Safety, which includes as well as homeland security and terror prevention already deployed in sensitive districts in the Middle East border control, federal agencies and municipalities.

And the third is traffic management, which includes traffic control and management, like our HOV, which is the high occupancy vehicle solution that provides accurate and effective detection of vehicle occupants and automation and ticketless parking for airports, garages and campuses.

As you can see, our AI-based machine vision technology, which is powered by deep neural network algorithms that indicate the human brain and have been chosen by most demanding customers like the Israeli Defense Forces, are capable of the highest level of performance for machine data, detection analytics and can be adopted for various types of mission-critical applications that call for real-time actionable intelligence.

While the current pandemic has continued to create economic uncertainty and challenging business conditions for much of this year, we have found opportunity to leverage our technology and strength as the current global demands for COVID-19 safety measures have broadened the need for many of our touchless object identification solutions for the various industries and markets we serve.

During the subsequent to the third quarter, we built on the steady demand for our solutions across a broad range of verticals as we continue to be selected for significant projects while major contracted purchase orders and achieved a valuable partnership. I will go over these successes in detail after Neev discussion -- after Neev discusses our third quarter financial results.

Let me now turn over the call to Neev. Neev?

Yes. Hello, everybody.

We reported revenue of $15.8 million for the third quarter, representing a 21% increase over the third quarter last year. Our gross margin was 17.17%, a decline from 26.7% in the same period last year.

The decline was attributable to an increase in cost of goods sold due to product mix consisting of high percentage of lower-margin product sales during this quarter.

As mentioned in our press release, we started fourth quarter with increased sales of our AI-based solutions, and we expect to improve our margins already in this quarter. Total operating expenses in the third quarter of 2020 were $5.8 million compared with $4.2 million in the third quarter of last year.

The increase was largely attributable to an increase in non-cash stock-based compensation awarded to professional service providers.

Net loss for the quarter was $3.8 million or a loss of $0.83 per basic share compared with a loss of $1.4 million or a loss of $0.38 per basic share for the third quarter of last year. The increase in net loss is mainly attributable to lower gross margin due to product mix and higher operating expenses during the quarter compared with the third quarter of 2019.

Adjusted EBITDA, or adjusted earnings before interest, taxes, depreciation and amortization for the third quarter 2020 was a loss of $0.9 million compared with adjusted EBITDA of $0.5 million in the third quarter last year.

Let me now turn the call back over to Shai to talk more about our operations and achievements for the quarter.

Thank you, Neev. Before going to our major sales wins, I just wanted to touch on 2 important strategic initiatives we have undertaken since the beginning of the third quarter.

We expect these initiatives, combined with our R&D and marketing activities, to have a positive impact on our growth and profitability already in 2021.

The first of these is the partnership we formed with Zebra Technologies, a global leader in enterprise asset intelligence, specialty printers, mobile computing, data capture, radio frequency identification products and real-time locating systems with approximately $4.5 billion of sales in 2019.

Our machine vision vehicle and container recognition technology, powered by neural network engines is being incorporated into Zebra MotionWorks location solution, Zebra's industry-leading logistics yard management system. This collaboration results in an automated identification of assets, such as trucks, trailers and containers, the tracking of asset locations and the status and motion of assets and other resources, allowing customers to monitor and manage these assets and their cargo with increased control, minimized downtime and maximizing performance.

Yard logistics can be extremely costly if not optimally managed. We believe the integration of our machine vision technology with Zebra's state-of-the-art yard management solution is a vote of confidence for our AI systems.

I cannot be more pleased and proud about our partnership with Zebra.

The second initiative we undertook was the launching of our robust online business-to-business e-commerce platform at the beginning of the third quarter. As many of you know, our corporate customers are mostly Fortune 500 companies.

Our e-commerce site, omniqbarcodes.com, gives smaller and midsized companies easy access to our data collection, rugged handheld computers and mobile peripheral solutions for their supply chain operating needs in processing, shipping and receiving and warehouse and inventory management. These companies represent a significant and growing segment of the market, and we want to give them access to top trusted hardware brands and accessories and a friction-free shopping experience with shorter order cycles.

We trust that by introducing the new distribution channel, targeting a new market segment, we can generate an additional source of growth for the company.

Now let me go over some major contracts and installations over the past several months. In July, we were awarded an order to deploy our machine vision technology for automatic recognition of license plates and other pertinent information of vehicles and motorcycle traversing selected roads and gateways for a country in the Himalayan mountain range.

This is an example of our technology being used by local homeland security and law enforcement authorities for vehicle information that can be checked against security databases in real-time for quick reaction in crime prevention.

Also in July, a leading U.S. health care company purchased approximately $4 million worth of products and services, including mobile data collection devices with advanced communication capabilities, comprehensive managed services and an online order portal.

Our supply chain solutions are integrated into the customers' logistics system and enable a more user-friendly and efficient approach to ordering, receiving and inventory operations, specifically in relation to drug distribution.

In August and September, we received multiple orders totaling approximately $3.5 million from a leading global transport and third-party logistics company to supply mobile data collection devices equipped with advanced communication capabilities, such as the scan guns and wearable computers to facilitate order fulfillment and general warehouse management functions as the customer provides contract distribution services for many companies in many different industries. We're very pleased to provide these customers with equipment to meet its critical supply chain operating needs.

In September, we started deploying another machine vision solution, our SeeDOT Systems for automated vehicle monitoring at weigh-in-motion and safety stations in the Southern U.S. state.

OMNIQ's AI-based SeeDOT Systems are powered by deep learning neural network-based algorithms and are used for automatically monitoring commercial motor vehicles entering and exiting controlled areas such as the weigh-in-motion stations along highways, ports of entry and border crossings, secure parking facilities and similar sensitive installations.

Our SeeDOT technology enables the accurate capture of Department of Transportation numbers, or DOT numbers, on the cabs of commercial vehicles for vehicle and owner identification, prescreening, inspection and compliance monitoring. This is another important application of our machine vision technology for public safety and law enforcement.

By accurately capturing DOT numbers, license plate numbers and vehicle images, our neural network engine drives the efficient retrieval of relevant information from state and federal databases, allowing state agencies and law enforcement officers to access vehicle inspection and safety records, HazMat registration, license compliance, freight paperwork and overweight permits and so on. So that these officers can focus on high-risk vehicles, while allowing faster flow of traffic and reduced wait times by eliminating random checks.

Also in September, we were awarded a $1.8 million project by a global metal solutions company and one of the largest middle services companies in North America, to provide Android-based mobile computing devices with communication capabilities, software and services for the customers' advanced logistics program. This new logistics initiative will provide their customers real-time updates on deliveries of orders as well as telematics information from the delivery trucks.

Subsequent to the end of the quarter, we also announced 2 $1 million transactions. The first was an order by a leading sales and marketing agency service, consumer packaged goods and retail companies worldwide.

We will supply an IoT platform and devices that the agency will use to support retail merchandising services, helping their clients move products off shelves and into shopping baskets.

The second is an order from one of the largest U.S. supermarket chains for the supply of mobile data collection, computing and communications equipment.

The purchase followed a $5.5 million order from the same customer for similar equipment in June.

As you can see, we have been focused on new business development and growth initiatives. We have inked sales agreements with multibillion-dollar Fortune 500 companies across multiple verticals, from health care to logistics to metals to supermarkets to consumer packaged goods and retail, and with government agencies to provide sophisticated machine vision solutions that help make cities safer and security-related data capture more efficient.

Since the COVID concerns began, we have seen increased interest from the health care and food sectors to critical industries during the pandemic. However, generally, we have observed that our contactless, Internet of Things and machine vision solutions are receiving broadened traction across many industries as companies and organizations are increasingly focused on productivity, health and safety.

Indeed, at OMNIQ, we are establishing ourselves as the supplier of choice for the technology needs of our customers in both the smart city and supply chain markets. As of today, approximately 17,000 of our machine vision sensors are installed worldwide, including approximately 7,000 in the U.S.

Our targeted markets of supply chain mobility, safe city, public safety and traffic management, which I described at the beginning of this call, are all large, fast-growing markets that present a tremendous addressable opportunity for OMNIQ.

Before I turn over the call to the operator for questions, I just wanted to thank our very committed sales team, our strong R&D team around the world and our dedicated staff and management team at OMNIQ who continue to drive our performance even in these challenging and uncertain times we have thus far experienced in 2020.

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

Great job. Can you tell us more about the future implementations of the AI businesses for your Fortune 500 customer base?

Yes. Well, thank you for that question.

And again, thank you for your continued support. As you know, we are focusing on implementing machine vision solutions within the supply chain levels of the operations of our Fortune 500 customers, which we have a lot of them within our family of customers.

This means that we are working heavily to implement solutions between the 4 walls, which are the warehouses, to continue to identify training our engine, to identify objects together, by the way, with augmented reality, which will allow complete free hand, frictionless identification and flow of work orders, shipping and delivery much quicker than ever seen before.

That's the initiative we took between the 4 walls. We went out of that already and have started implementing solutions.

Zebra is only one example on doing everything outside the 4 walls in yard management and also on trucks, identifying containers, identifying trucks, authenticating that the right load is indeed loaded on the correct trucks, eliminating a lot of human error, eliminating a lot of hundreds of millions of dollars of inefficiencies that is done without a machine-to-machine solutions such as ours. And that is already implemented and now being worked with different customers as we described before, with pilots and different initiatives that we started.

So going forward, we should continue looking and seeing installations and projects awarded of machine vision automation, our solutions within the supply chain levels of our Fortune 500 customers.

Excellent. And are you considering acquisitions?

That's a good question. I think we spoke about it also before.

We always, always are leading strategy that evolves to -- we focus on 2 areas. One is organic growth and the other is M&A.

We always are checking the opportunities and seeing if that would complete us as a solution or gain better market share by doing a transaction, and that is very relevant at all times. And, of course, complements the other side that we work on every day, which is the organic growth.

So the answer is yes.

We're looking all the time at opportunities to bring us better and faster to the objective lines.

Great. And one last question, please.

What changes do you see in your customer activities as a result of the COVID pandemic?

We certainly see the need for touchless, frictionless solutions, and that's one side of things. And the other one, I'm very happy we started working on even before the pandemic and we're able to introduce that in the beginning of the quarter, which is the e-commerce, the online shopping, which just not only had created for us an additional channel of growth and revenue, but also is very -- very much complements the unfortunate COVID reality we live in today.

But definitely, it was a good move on our part, good move by the team to keep that up. And certainly, we already see revenue coming from that e-commerce channel that we initiated.

So when do you think realistically that you can be profitable bottom line?

I think that this will come closer now. We did make tremendous advancement towards that objective.

We are cash flow positive for many months now, more than 2 years. But certainly, the bottom line is to show the profitability as well.

And as I mentioned in this PR, as we advance forward with our AI exposure, as we grow our revenue, which we are, then we will certainly see this happening very soon. I don't want to put a finger at a certain month or a certain date, but I can definitely say that 2020 for us is not a year that we gave up on like many others.

It's a year that we actually had challenged ourselves, saw better need of our solutions and were able to even put higher objectives for this year, which a lot of it deals with getting profitability quicker.

You had a huge increase in cash from one quarter to the next quarter. Did that all come from cash flow?

It all comes from cash flow, yes.

And you will use that cash for?

Growing our business.

[indiscernible] investments, growing our business? Okay.

So the previous question, I asked you if you are looking at acquisitions. I'm going to look at it from the other side.

It seems to me that the customer base that you have is so valuable and is absolutely positively not reflected in the stock price. The AI technology that you have is, in my opinion, not reflected in the stock price.

Has anybody a bigger company actually come and send to you? You know you would be better off if we merge together because we have the wherewithal to exploit what you have better than what can do yourself?

So George, to answer that...

Has anyone kicked your tires?

The answer is yes. And all of these are getting into a discussion in our Board.

And if -- anyway, the answer is yes.

It just sounds like a broken record, but what's your progress in getting the NASDAQ listing or NYSE listing?

Yes, that's a good question. And of course, this is an objective that we're discussing for a long time.

And yes, it does look that we will be able to move forward on that more aggressively in the next few months. I know we've discussed this, like you said, sounds like a broken record.

Unfortunately, not everything is up to us. Also, the reality had postponed a lot of actions, as you all know.

And implementations and reviews of material and applications, et cetera, et cetera. So not everything is up to us, but we certainly are focused on this.

And all the actions and objectives we still have for this year to finish and conclude in the next 1.5 months. As a result of that the uplisting will happen.

And because it drives the performance, it drives the numbers, it drives everything forward. Parallel to it, we're continuing with our reviews and application and answering questions, whatever interaction we have with both exchanges.

Okay. All right.

That's great. And last time we talked about a month ago, you said you had some inquiries from a company down in South America.

Has anything come up there?

It actually was a municipality, one of the larger ones. Yes, this is advancing not only that as you maybe you heard or remember, we've really done a lot in our international reach and inked orders and project implementations and installations internationally.

So that's only one example, the municipality over there. And hopefully, that will ink into an order as well.

But we definitely are increasing our international sales, which to me, is a great sign of the potential not only that we see here in North America, but really globally.

Okay. And also, can you tell us what percentage your revenues this quarter were from the AI business?

Still the percentage -- I mean, we did go down a little bit, and that's why we saw a lesser GP. But if I look at it, about probably 10%.

I mean, yes, 10% would be good.

And it should be much larger next year, right?

Yes. And by the way, we do -- and we did mention that as well.

We do already ramp-up in Q4.

This question may be just the same as was just asked, but I'm putting it a different way. You've just approximate revenue breakdown of hardware versus software today and which you expect it to be a year from now.

Is that the same question as what percentage of your revenue is AI?

Well, no. It's not the same because we do have additional software solutions that we're selling.

And to answer your question precisely, we see that it is the software versus hardware from being something only a year ago about -- we were about 95%, 97% hardware. And the rest was software or services, if you will.

Today, we are reaching the -- closer to the 20% and so that is definitely a good advancement there. And the AI within software was -- like I said previously in the previous question, was reduced a little bit because of automation of parking solutions that went down a little bit, not orders, by the way, none -- no orders were canceled, no, nothing like that, only postponed.

That's why we see the ramp-up already in Q4. But parking did go down naturally, people travel less, et cetera.

So our Machine Vision in parking, in traffic management, for example, that went down and we expected that to be more significantly revenue portion in Q3 still. We see that ramping up in Q4 and from the total, let's call it, 20% software -- or services and software, we are -- probably half of it, like I said, is over the AI.

And then what would you guess the breakdown between hardware versus software and services would be a year from now? Still 80-20?

No. For sure, no.

It will grow to larger portion. Our objective is to be at the 40%.

Thank you very much for joining our call this morning. We look forward to reporting on our progress on our next conference call.

Stay safe and healthy. Thank you very much.