Ofer Tziperman - Chief Executive Officer Shay Tomer - Chief Financial Officer Dimitrios Angelis - Chairman of the Board

Mike Latimore - Northland Capital Sherli Looi - Garrison, Bradford & Associates Edward Schwartz - Schwartz Investments Michael Vermut - Newland Capital

Thank you, Brenda, and welcome, everyone. Thank you for joining us today.

During the second quarter, we made strong progress executing on our plan to grow our core cashless payment solution business. This was demonstrated by the 58% revenue increase in the quarter, driven by industry-leading technology and expanded sales force.

The quarter was also highlighted by several customer wins across all of our verticals. This included the first order for our new Trio modular rebuild as well as a five-year contract with Arlington County, Virginia for our cashless parking solutions.

But before I go further, I would like to turn the call over to Shay, to take us through a more detailed discussion of our financial performance. Then I will return to talk about our operational activities and outlook.

Afterwards, Dimitrios will provide an overview and update on our patent portfolio and monetization activities. Then we'll open the call for your questions.

Shay?

Thank you, Ofer, and welcome, everyone. Earlier today we issued the results of our second quarter of 2014 in a press release.

A copy of which is available in the Investor Relations section of our website. Revenues increased 38% sequentially and 58% year-over-year to $7.2 million.

The significant improvement was driven by increase in our NFC readers sold to the U.S. market and first deliveries of our Wave device in Asia.

Looking at our total second quarter revenues by source and a percent of total revenue. Retail and mass transit revenue was $4.8 million or 66%.

Petroleum revenue was $1.5 million or 21%. Parking revenue was $500,000 or 7%.

And finally, MediSmart and access control product revenue was $390,000 or 6% of total revenue. Breaking down Q2 revenue by geographic region and the portion of each regions contribution to total revenue.

North America accounted for $2.6 million or 36%. Europe accounted for $1.8 million or 25%.

Africa accounted for $1.3 million or 19%. And finally, Asia accounted for $1.5 or 20% of our total revenue.

Gross profit in Q2 2014 increased 26% to $3.3 million. The increase was mainly due to the higher revenue compared to Q2 last year.

Total operating expenses in the second quarter of 2014 were $5.3 million compared to $5 million in the same year-ago period. The increase was mainly due to higher sales and marketing expenses designed to accelerate growth and increasing our patent litigation and maintenance expenses to support our patent monetization strategy.

The increase was offset by a 20% decrease in G&A expenses. Net loss from continuing operation in Q2 2014 totaled $2.3 million or $0.07 per share.

This was an improvement from net loss from continuing operation of $2.6 million or $0.08 per share in Q2 last year. Q2 2014 adjusted EBITDA loss from continuing operations, a non-GAAP measure, which represents earnings before interest, income tax, depreciation and amortization and further eliminates the effect of share-based compensation expenses and patent litigation and maintenance expenses, totaled $1 million.

This was a significant improvement from an adjusted EBITDA loss from continuing operation of $1.8 million in the same year-ago period. Now, turning to the balance sheet.

Cash, cash equivalents and short-term investments at quarter end totaled $10.6 million. Trade receivables totaled $6.5 million, which was up $1.9 million compared to the balance at the end of Q1 2014, due to the material increase in June revenues.

This completes my financial summary. I would like to turn the call back over to Ofer.

Ofer?

Thank you, Shay. As Shay indicated in his discussion about the contribution of revenue sources, during the second quarter we continued to build upon the momentum we have established across all of our core segments, particularly in our NFC and contactless reader business.

During the quarter, we introduced the Trio device, a truly innovative modular rebuild, designed specifically for the growing cashless payment industry. Trio provides multiple payment options in unattended market segments like vending machines, self-service laundromats and car washes.

The reader works with magnetic stripe cards, contactless payment solutions and secure cards with built-in EMV smart chip compatibility. This new product evolved from our field program Saturn 6500 readers.

Trio gives our client the flexibility to use any card interface the customers might need to perform payment, while also preparing them for emerging payment solutions like contactless cards, NFC-enabled devices and smart EMV cards. Each target market for the Trio currently has millions of legacy coin-operated machines that eventually will be upgraded to cashless payment solutions.

The initial feedback and response from our existing and perspective customers has been very positive. In fact, shortly after we launched the device, we received an initial commercial order from Vianet, a leading software solutions provider for the leisure, gaming and vending sectors.

Vianet plans to initially install the readers in vending machines in Europe, starting from Q3. This is an important win, as it marks the first commercial order for Trio as well as a major new reader customer outside the U.S.

It also reflects the increasing demand and attraction for NFC solutions globally and is consistent with our growth strategy to expand our cashless reader sales on worldwide basis. Another recent win was with a new channel partner to supply our Saturn readers to the North American self-serve market.

This customer placed a $6.2 million order for our Saturn readers to be delivered over the next 18 months, with the first shipments beginning immediately. The shipments will include multiple types of OTI readers build specifically for the self-serve market.

This order represent the second largest Saturn 6500 readers win in our history, and another strong endorsement of our solutions for this important growth market. Our highly reliable and secure NFC technology combined with other cashless payment solutions, continue to provide significant competitive advantages, when we are able to supplant existing competitive technology as well as create new opportunities for implementing our patented NFC-based systems.

Based on an expanding pipeline of business, demonstrated by shipments year-to-date and additional secure orders, we continue to expect to deliver more than 150,000 NFC readers in 2014, which is up more than 35% from last year. The recognition in the vending industry that the introduction of a cashless payment reader is increasing, collected revenues by 30%, is driving this market at an accelerating pace.

In this context, we believe that our cutting-edge solutions, dedicated customer service and aggressive pricing strategy are now paying off with more strategic customers turning to OTI solutions. With our new Wave device, we are in discussions with several banks, mobile network operators and mass transit operators from around the globe for the deployment, and are in several pilot stages, which we expect will result in more orders this year.

Wave is a perfect unique solution to NFC-enabled existing smartphones, such as all current models of iPhone devices. It allows immediate deployment of NFC solutions and solves the current problems of non-NFC devices.

Its high level of security together with a multi-application platform, make it a very appealing solution to both open and closed-loop payment solutions. In our vehicle fueling segment, we continue to make meaningful progress, demonstrated by new implementations, contract wins and product launches.

As I mentioned on our last call, OTI PetroSmart, our wholly-owned subsidiary was awarded a new 15-year contract from the government ministry in Southern Africa. The initial order is valued at $550,000 and will be recognized as revenue this year.

This win reflects how adoption of EasyFuelPlus is gaining momentum across Southern Africa. Our growing customer base includes prominent petroleum retailers, major commercial fleets and government agencies.

Many of our longstanding customers who deployed our legacy cable solution are looking to upgrade to the wireless EasyFuelPlus, which is a more cost effective and scalable solution to implement and maintain. We continue to expect our strong sales efforts will result in additional major orders this year.

Our EasyFuelPlus line of business will become an important growth engine for us, as it continues to gain adoption by major market leaders. Now, our mass transit ticketing segment.

During the second quarter, we expanded the capabilities of 84 transit ticket vending machines operated by our subsidiary ASEC for the Mazovia Railway System in Poland. Integrated OTI NFC contactless card readers now allow travelers and commuters to easily use any NFC-enabled card or mobile device to recharge their prepaid phone cards issued by MNOs in Poland.

This added convenience for ASEC ticketing customers represents another revenue stream for these ticketing terminals as well as potentially from other NFC-enabled vending applications. We are working to expand ASEC services in the municipalities in Poland, and are looking for opportunities in other countries for the service.

Now, turning to our parking segment. We continue to make good progress across all of our geographical markets.

During the quarter, we signed a 20 years contract to help co-manage the parking operations of Elbasan, a city in Central Albania and the nation's first paid on-street parking solution. The agreement includes general and financial management services, parking fee collection, enforcement, an advanced permit system and customer support.

The contract includes approximately 4,000 managed parking spaces, a number we expect to increase during the term of the project. Our work in Albania is part of our strategy of entering long-term public/private partnership contracts for municipal parking management.

Since we introduced EasyPark 15 years ago in Israel, we have sold more than 850,000 in-vehicle parking meter devices. In fact, EasyPark is implemented in more than 45 cities in Israel and has helped collect more than $150 million in parking fees over the years.

This unique combination of our in-vehicle parking meter together with our complementary EasyPark Mobile solution will allow us to provide the best service to both municipalities and drivers in Albania. Also in Q2, we signed a five-year contract to help manage more than 5,000 on-street parking spaces in Arlington County, Virginia.

Arlington County was one of the first cities in the U.S. to adopt our cashless parking solutions.

EasyPark will replace the County's existing iPark system. Arlington County is expected to deploy EasyPark devices soon.

Now, I would like to turn the call over to our Chairman and CEO of OTI America, Dimitrios Angelis, to provide an update on our patent portfolio and monetization activities. I will then return to open the call for questions.

Dimitrios?

Thank you, Ofer, and welcome, everyone. I would like to take this opportunity to bring everyone up to speed on our current lawsuit and general patent monetization activities.

I'd like to remind everyone that it is difficult to comment on ongoing litigation in any significant detail. First, with respect to a lawsuit against T-Mobile, we are continuing to wait for the court's invitation for oral argument.

Since both sides in our case have already submitted their briefs for their respective motions for summary document, the next step would be for oral arguments to be heard. We understand the court is very busy with their workload of many lawsuits, and we are simply waiting our turn.

We stand prepared to move forward with the case, as we always have been, when it is our time. The theme of the lawsuit is only one part of our current patent monetization efforts.

Since I started I put together a detailed master analysis of all of our patents, both domestic and international, and have worked to better understand those patents and how we can best tap into the unused potential of each one. Each patent has a highest and best use, and it is my goal to ascertain what that is for each one.

For some of the patents, the best use is an outright assignment to someone else. For others, it is to sue a legit infringer and collect money damages.

And for the third group, it is to collaborate with another business entity and try to either license some new products or some hybrid of the first two models that will best fit the situation. Most of this work has been with law firms and lawyers, and therefore it is confidential to discuss any significant detail now.

But I want everyone to know that we are continuing to turnover every stone and consider our options for best monetizing the patents. In addition, we are working on new patent applications as an ongoing way to keep our intellectual property pipeline robust and at the cutting edge.

This is organic growth and it takes time. But we are also evaluating licensing opportunities for other patent portfolio, as a way to create synergy with our patents and be able to quickly expand our monetization efforts.

That concludes my prepared remarks. And I'd like to now turn the call back over to Ofer.

Thank you, Dimitrios. Looking ahead, we plan to build on our operational and financial momentum and take advantage of the strong industry tailwind in the cashless payment space.

I believe that now more than ever before, we are well-positioned to capitalize on this multi-billion dollar market opportunity, a market that continues to evolve and expand. Given this tremendous market opportunity, coupled with our focus and leaner, highly capable team, I continue believe we will be able to deliver at least 30% revenue growth this year, as well as achieve positive adjusted EBITDA on a quarterly basis by Q1 2015.

Now, with that we are ready to open the call for your questions. Operator, please provide appropriate instructions.

So just a few things. I guess, obviously you're very strong in the payment space.

Can you shed any light on how many units of the Wave you shipped in the quarter or just some color around the Wave shipments in the quarter?

We did not disclose the number today. What we can say that this is a sub 100,000, and that the first shipment that we have made for the Wave device worldwide, so that with as a very important and significant win.

And I am happy to say that we have now delivered the entire quantity.

And then as you look forward on your reader business, do you see most of the growth coming from sort of the current customers you have or do you see other large prospects out there that could become meaningful?

Actually it's a combination. Obviously, we are increasing the number of shipments to our existing customers, which I believe is probably the best evidence that the market is right now taking off rapidly.

But on the same time, we are also providing new shipments to some new customers, some of which like Vianet, which we have already published also out of the U.S. And at the same time, we are now making efforts to expand also to the Latin American market and also to the Asian market.

So definitely we believe that the growth is going to come both from the existing customers as well as from new ones.

Most of the new prospects in the vending vertical, do they tend to be outside of vending?

Most of them are in the vending, and I would also say the self-serve market. So anything with regard to unattended payments solutions are relevant customers in that respect.

And it looked like your petroleum results were very strong in the quarter. Should we think of that as a run rate or does that tend to move around a little bit?

In general, we definitely may see some fluctuation between quarters across all segments. Some of the wins are subject to tenders.

And those tenders are not always equal across all quarters. So definitely that was a very good quarter for the petroleum division.

We have some other tenders in the pipeline, but again we cannot control the specific date of granting the tender or even winning it. So all-in-all we believe that this is going to continue.

And the petroleum we believe eventually is going to be one of the important growth engines for the company. And we hope that this is going to continue to over the next few quarters as well.

And any updated view on potential payments from SuperCom this year?

Actually there are several potential mechanisms for payment, the default one is quarterly payment, and SuperCom were making their first payment on time. And the next payments we cannot go into details, because this is subject to their business and we will get our share accordingly.

And then just last, can you talk about how many 10% customers you have in the quarter?

How many what?

How many customers were over 10% of revenue in the quarter?

Shay, do we have that information?

Yes, sure. We had two customers.

Two customers over 10%.

So I have a couple of question. The parking segment, you signed a contract for 20 years with Albania.

Could you give us a sense of the value in dollar terms? Is that worth to you?

Number two, in the same segment, what is the length of the sales cycle? And moving on to petroleum, could you give us an indication, you said you have the tender for the contracts.

What is the competitive landscape in those areas? And finally, are you driving towards a recurring revenue business model or are these all sales of units and you have to continue selling units to get revenue?

So as far as the first question regarding Albania, we're talking about 20 years contract. The only thing that we can say at this point in time is that we started exactly from the same point 15 years ago in Israel with few thousands of parking spaces.

So we have very good reason to believe that Albania is a greenfield market and is probably going to eventually yield similar results to the excellent results that we had in Israel over the years. And what is definitely important to mention is that unlike the contract that we had in Israel or still have in Israel, in Albania the mandate that we got together with the local operator is much broader.

So it's not only about collecting parking fees, but also being part of the ongoing management, including enforcement. So the overall fees that we will participate with are going to be much wider.

And we have mentioned as well that we are not expecting to be in only the first city that we have started with, but rather to expand to some more countries, and all over the country, as time goes by. So we definitely believe that we are going to see the first revenues this year, but this is going to accelerate and grow as time goes by.

But again, 20 years contract is a wonderful achievement and we are very happy about that, because we have proved already that the stickiness of this kind of a solution is very high for long term. So that is for the Albania.

As far as the sales cycle, indeed it's not easy to get such a contract. It might be a long sales cycle.

But once you are in, it's very difficult to take you out. So those are the two sides of the same coin.

As far as your third question regarding the petroleum market and the competitive landscape, it is interesting to mention that most of the competition in our specific field of operation, which is around fuel management and the AVI, automatic vehicle identification, is coming from other Israeli companies. And there are not too many players around the world in this specific segment, but then again obviously we need competitors in certain tenders.

One of our reasons and one of our ways to overcome this challenge of the competition is to team up with some of the market leaders. So in some cases we are not standing always in the front, but other market leaders like Wayne, like Tokheim, are eventually offering the solution and standing in the front with their marketing strength, given the different markets.

And eventually regarding your question with regard to the recurring revenues, definitely we are looking to have a very healthy mix of selling products, like we are doing today, combined also with service and recurring revenue model. For example, in the petroleum market, we have, for example, with BP in South Africa, we have an agreement where we are also entitled to few cents to every liter, which is dispensed through the system.

That's one option. And other option is that we are now expanding on our solution offering, and in addition to fuel management, we are also providing fleet management aspects based on recurring revenues.

And so to make a long story short, it's going to be eventually a healthy mix between the two of them.

Great quarter you had this quarter and I am glad to see things are really good on the revenue side and also the expense side. In your press release this morning you gave guidance that this year's revenue would be 30% over last year.

Could you quantify that and give us some color to that?

Well, just by way of mathematics, we are talking about at least $26 million for the year.

And of that $26 million for the year, is that breakeven or does it show a loss or can you expand on that a little?

We still do feel its going to show a loss, but as we have mentioned we are going to move to profitability by Q1 of 2015.

Now, you've done a great job in reducing selling and administrative expense. So can you give us some color as to where you've done that?

It was a combination of various aspects, starting from improving on the headcount, going on to changing some of our contracts with some of the advisors and consultants moving on to changing some of the aspects in our operations, the way that we are working with some of the manufacturing subcontractors. Eventually, as we have turned any and each and every stone, in the company in the last year-and-a-half to see how we can improve on each aspect, all with the one target of bringing the company as soon as possible to profitability.

So far I am happy to say that we are on track according to the plans.

Speaking of the headcount what was the headcount at yearend 2013? What was at the end of Q1 of this year and the end of Q2 this year?

I think that when we actually started the turnaround process, it was something like 275 employees.

And you lost 80 employees when you sold two divisions approximately, so we can safely say, the year ended at about 190-ish?

Correct. And the thing that, right now we are around 155 across the group.

Out of them about half both in our subsidiary in our Poland and our subsidiary in South Africa and the rest between the U.S. operation and the Israeli operation.

So you may say, in fact, significant reduction in that case. But again it is important to note, Ed, nothing that is going to help the growth strategy, so for example, on the sales side, we actually expanded rather than decrease.

Are there any effects of the reduction of the workforce on earnings? And are you close to, what you feel is, optimal employee count?

I think that we have reached the optimal status right now. And what we focusing right now is on increasing the sales and the revenues because with the current number of employees, we can actually support much more sales.

That's exactly the direction that we are heading right now. And by refocusing the company around cashless payment solutions, we have started to achieve that goal to a great sense.

The revenue increased shockingly. I am really glad that you had the revenue increase.

Were there orders that you could not announce that attributed to this revenue increase, because the customer didn't want a press release to put out?

Obviously, and we can only release what is also acceptable by our customers. And we will not release deals that are against the policy or against the interest of our customers.

But you can imagine that these revenues are coming from deals. And therefore, the answer is yes.

Now, I'm a little bit confused about your comments on the Wave, and maybe it's just not my understanding of the total sale. But it appears to me, sometime in the fall of 2013, you announced a sale of a 100,000 units to a Hong Kong Bank consortium.

And I think that, if I recall correctly, the press release for that was the order was to be shipped early winter 2014, either January or February. So are you talking about in your comments earlier a different order or is this the same order?

No. It's the same order.

And what we said is that we are going to conclude the shipment in Q2 of 2014, and that's exactly what we did.

I was confused or I misinterpreted your comment, so that necessitated the question.

No problem.

Few questions for you here. Can you comment on, I know there been discussions of Apple making entry into the NFC market, Amazon yesterday on the contactless payment systems.

What the ramifications to OTI are, the opportunities to OTI, licensing patents, can you just go through that?

So Apple being Apple, we'll never know, until we'll see the announcement probably next month. But definitely it looks like finally after a decade, NFC, it's being adopted by all the major players.

Amazon, as you have mentioned is another good example for it. And I think that the best and immediate impact on the OTI business is that it's going to increase and it is already increasing the demand for our readers.

Eventually, if you have a vending machine you would like to be able to accept payments by all the iPhone users and all the Android users, et cetera, so you have to have some kind of cashless payment solution. And here is where OTI fits in, especially, since we are now providing our solutions to the majority of the operators in the vending industry, at least in the North American market.

So we expect that if Apple will join the NFC revolution, then this is probably going to be the last point that was missing so far, but is going to give a major boost to the market. So that's one aspect.

And other interesting aspect that we are expecting is what is going to be done with all the non-NFC iPhone devices once Apple comes out with iPhone 6, which hopefully is going to be NFC-enabled. I mean, there are hundreds of millions of devices are out there that are not NFC enabled.

And for that among others, we have the Wave device, which makes a perfect solution. And we already see a keen, I would even say, a very keen interest by some of the operators, some of the major banks, some of the mass-transit operators that are looking to include all of these users as part of the NFC offerings.

So we expect that this is going to open up much a wider interest also in our Wave solution. So that is as far as your Apple and Amazon related question.

Is there any other device that competes with the Wave that could achieve that goal as well or is Wave here the really only alternative out there?

Luckily for us there aren't any direct competitions. There isn't any direct competition to the Wave.

What we do see is that there are other bulky solutions, such as sleeves. So you will need to replace the cover of your iPhone with a bulky device that will always have one color black, and if you're fine with that then there is an alternative.

But it costs something like four times more than what the Wave will cost. So we really think that if there is a need to introduce all the existing iPhones, and we believe that at least for the next three years there is going to be such a need, then probably Wave is the best price per performance solution for such potential users.

And now I guess kind of circling back to the prior question on the recurring revenue aspect. It seems like the homerun here is great selling the devices across all of your segments, but the real homerun is to capture the piece in the percentage of that recurring revenue, right, especially if you're getting, now Apple, Amazon, coming into the NFC space.

What are you looking at over the next few years? Does that becomes -- the numbers dwarf the recurring aspect of this potential dwarfs to what your device sales could be?

When do we start to see that transition, because that's the Holy Grail here, to capture that, that changes the whole dynamics of the company?

Absolutely. We agree, and there are two phases.

First phase is that you are introducing your solutions to the market and whoever deploys that is a great achievement for itself. The second phase is that you're offering, and we are in discussions with some of our prospective customer, we are offering them a combined model, where they get reduced upfront cost in return to some percentage of the recurring revenues.

We are in discussion with some of the prospective customers. I believe that we will be starting some kind of these deals maybe even this year, certainly next year.

And moving forward, we believe that this is going to be getting a higher percentage out of the total revenues.

Look, I had a couple quick ones here. On the petroleum side, there is a good probability we see an entrance into the U.S.

market in size. And it seems like that's the perfect market for you to move into here.

I think it's ready, it's willing, and we just haven't really seen that yet. Is that coming?

Yes. Actually, we are working the needs as we speak, without going into more details.

And then I'll leave you with one more. When you look into leads and see, obviously, you must have six, nine months kind of lead time.

What are you seeing when you look into '15 and '16? Are we accelerating on the order quotation?

Yes, absolutely. Actually what really makes us very excited over here is the feedback that we get from the market.

And needless to say that it is always a struggle on the short term, and when you need to acquire new customers and this is definitely a challenge on the short-term. But once you got a customer, you really have them for long-term, especially if you are providing good service and definitely a good product and solution.

And this is right now on the top of our list. And I think that if I may speak on behalf of our customers what they say, that they really appreciate about OTI is the quality of the solutions and good service.

And that's a reason that we start seeing more and more customers in the pipeline, and this is definitely an immediate result of the increase of the number of sales team that we have done during the last year. So this new sales team going out there and new builds that we expect to come from Latin America, from Asia, from Africa, and all of those in addition to what we already see in the North American market.

And in all these markets we have just recruited and placed additional sales people on the ground. So we have very good reason to believe that this is going to result in more in accelerating orders.

Thank you, Brenda. So thank you everyone for joining us on our call today.

I especially want to thank our investors for their continued support and patience. We look forward to updating you on our next call.

Operator?