Shlomi Cohen - CEO Shay Tomer - CFO

Mike Latimore - Northland Capital Sherli Looi - Garrison Bradford Joshua Elving - Feltl and Company Kurt King - Harvest Capital

Thank you. Thank you and good morning, every one.

It has been a busy and productive three months since I was appointed as CEO in August. During the quarter we made meaningful progress executing on our new key initiative design to accelerating growth and reduce cost.

The programs we have been implementing to optimize are going to factor in process and reduce cost result in improved gross margin and lower operating expenses in Q3. This result demonstrates that the operational changes we have been taking are creating a leaner more efficient organization.

While we experienced strong growth in our petroleum segment during the quarter, the retail segment sales were down. The Company over recent years has focused on restructuring and R&D activity, and has not benefited as much as it could have from growth in the global NFC market.

I am committed to change that. As a CEO and head of sale for OTI, I have a clear vision for what needs to be done.

The Company has all the right elements in place, industry leading technology, world-class R&D and multi-billion dollar end market, to be leader in the global cashless payment. In order to achieve this I am rapidly transitioning the Company into a more capable and effective sales organization one that is more customer focused.

To support and to accelerate these initiatives, we as a company introduce a new product line up during Q3, design to expand our opportunities in attractive growth vertical such as ATM, kiosk and gaming. Now before I go into further details about this initiative as well as our operational progress and outlook, I would like to turn the call over to our CFO, Shay Tomer, who will take us through the financials for the quarter.

Shay?

Thank you, Shlomi, and welcome everyone. Before the market opened today, we issued the results for the third quarter of 2015 in the press release.

A copy of the release is available in the investor relations section of our website. As we reported in the press release, our revenues for the third quarter were $3.8 million, a decrease of 31% for the previous quarter and down 29% from the same year ago period.

The decrease was primarily due to lower retail segments as in the U.S. market partially offset by an increase in sales of our petroleum, access control and MediSmart quarter.

Now breaking down Q3 total revenue by sales and the percent of total revenue, retail and mass transit ticketing revenue was $1.6 million or 43%. Petroleum revenue was $1 million or 27%.

MediSmart and access control product revenue was $800,000 or 21% and finally [indiscernible] revenue was $353,000 or 9% of total revenue. Looking at Q3 revenue by geographic region and the portion of each region’s contribution to total revenues, North America accounted to $500,000 or 13%.

Europe accounted for $1.4 million or 37%. Africa accounted for $875,000 or 23% Asia and Israel accounted for $732,000 or 19% in South America accounted for $272,000 or 8% of our total revenue.

Gross profit decreased 23% to $2.1 million or 55% of total revenue from $2.7 million or 50% of revenue in Q2 2015 and decrease 21% from $2.6 million or 50% of revenue in Q3 2014. The increasing gross margin was mainly attributable to a change in our revenue mix.

Gross margin also improve due to less material use in the production of our vehicles product related to our manufacturing cost reduction effort. Our operating expenses for Q3 2015 were $4.4 million reduced by 4% from the prior quarter and by 9% from the same year ago period.

The year-over-year decrease in operating expenses was attributable to decrease in SG&A and R&D expenses. These decreases were offset by one-time charges related to management changes in other non-recurring expenses.

Excluding to namely current expenses, our total operating expenses were $4 million representing an 18% reduction compared to Q3 2014. The significant improvement was primarily due to the cost cutting measures we completed at the end of the 2014, as well as more recent operational improvements.

In fact our cost cutting measures were instrumental in reducing our cash used in continuing operating activities for the first nine months of 2015 by $4.2 million or 58% to $3 million compared to $7.2 million in the same year ago period. Net loss from continued operation for the third quarter of 2015 total $2.4 million or $0.06 per share, this compares to net loss from continued operation of $2.3 million or $0.07 per share in the same year ago period.

Turning to our non-GAAP results. We used adjusted EBITDA from continued operation and on GAAP metric as we believe it provide the clearer indication of our operating results.

So Q3 2015 our adjusted EBITDA loss from continued operations total is $1.2 million this was an improvement from an adjusted EBITDA loss from continued operations of $1.5 million in Q3 2014. Our adjusted EBITDA loss improvement was achieved despite lower revenues which was offset by higher gross margin as well as a significant decrease in operating expenses.

Please see today’s earnings release for further details about this metric including a reconciliation of adjusted EBITDA to our comparable GAAP results. Now turning to the balance sheet, cash, cash equivalents and short term investment as of September 30, 2015 totaled $11.5 million.

We believe our cash position for [indiscernible] sufficient capital and runway will execute our growth plan. This completes my financial summary.

For a more detailed analysis of our financial results, please reference our Form 10-Q which we plan to file by November 16. I will now turn the call back over to Shlomi for additional comments on our operational progress and outlook.

Shlomi?

Thank you, Shay. As reviewed by our financial performance in Q3 we gained significant traction on our operational initiatives to improve margins and reduce cost.

A key underlying element of our strategy is the further alignment of our internal origination and cost structure that will make our operations more efficient and more focus. This will better align our cost with our revenue base and in particular will let us realign operational efficiencies.

We have made tremendous progress on these initiatives in only three months and expect they will be fully implemented by year-end. This will result in further cost reductions and a more efficient organization.

We plan to redeploy the majority of the cost savings towards strengthening our sales organization in terms of both personal and geographic reach. Following my appointment I conducted a comprehensive review of OTI operations and business strategy.

It was immediately apparent that OTI had tremendous technology but lacked the sales and marketing infrastructures to compare effectively in the billion dollar global NFC market. The Company for example we’ve not have sales professionals focused on emerging markets like Asia Pacific unchanged in business.

Although in last three months I began to implementing a new go to market strategy to fill this gaps and transition OTI into a more capable and professional sales organization in order to capture greater market share in the growing NFC space. To that end I have been actively recruiting new sales and marketing professional to address emerging opportunities in Europe, Asia-Pacific and North America.

One of these key items was [indiscernible], who is now our Director of Marketing, [indiscernible] has more than 20 years of experience in technology marketing. His deep understanding of our rich technology coupled with his experience allow him to understand what our customer needs, making him an effective marketer and valuable new addition to our team.

In addition to becoming more sales and marketing oriented, we recently introduced our revolutionary new product client to compete in new markets and industry verticals. In fact our extended portfolio of new product introduces broad range of market opportunities and payment matters.

A new and exciting product we developed is OTI Metric which is a complete system for the unattended vending machine market. The product faced a modular approach to support the entire vending lifecycle management process from cashless payment, terminal management to telemetry.

We also introduced a new ultra compact certified payment NSU called the [indiscernible] 8700 Uno. This product was designed for easy installation in unattended self-service payment stations like vending machine, ATM and gaming and kiosks.

And all the products that opens up internally a new market opportunity for OTI is the [indiscernible] a compact, a lightweight portal pin based reader all cashless payment metrics including memory slide, contacts and contact list. This product was design especially for standard application in the small business market and it is ideal for businesses with low volume in sales while looking to implement in affordable mobile payment solution.

Perhaps the most authentic new product were recently introduced by the OTI Pay Capsule which is a wearable NFC payment device. Pay Capsule play into the Internet of Things or IoT.

The hyper-connected world that is transforming the way consumers interact and transact. According to Cisco, there would be 50 billion connected devices by 2020.

Earlier this week, Business Insight called the Internet Of things the next industrial revolution because it is expected to change the way of businesses, government and consumer interact with the physical world. They estimated that over the next five years nearly 6 trillion will be spent on IoT solution.

Pay Capsule is underlying technology and foundation to enable payments for the Internet of Things. Pay Capsule is a contactless secure element that acts as a credit card.

The device is small enough to fit into our wristband, our sheer cuff or even a ring which offers great flexibility and can be used for payment transactions wherever contactless payments are accepted. As MasterCard showcased at Money20/20 last month, this technology brings an innovative way to pay a wide area of consumer product across the automotive, fashion, technology and wearable markets.

OTI Pay Capsule eliminates the boundaries of how we pay by delivering a secured digital payments, experienced virtually anything [indiscernible], apparel and other limitless possibilities. Pay Capsule was well received by attendees, partners and prospective customers at Money20/20 last months.

I encourage you to visit our Facebook and YouTube pages to view the Pay Capsule product demo and promotional videos. While it is early this product is positional game changer for us.

In order to support and accelerate development of this new product, we formed an innovation task force that we continue to support our strategy to be the market leader. And as we accelerate our position into sales driven organization, our new products will enable our extended sales team to be more successful particularly as we enter in new growth market like Japan.

Japan, represents quite possibly the largest multiple opportunities for OTI cashless payment solution. In fact according to the recent analysts report, Japan currently has more than 5.5 million vending machines nationwide.

Japan is committed to support cashless payment market by 2020 when it hosts Tokyo Olympics. However, the country's current cashless payment infrastructure telecast is unique to the domestic market and not compatible with international payment services.

This market dynamics and while this make the idle time for OTI to enter the Japanese market with our extending product portfolio. We are working closely with our Japanese channel partners Billing System Corporation, a multibillion dollar publically traded payment service provider.

Together we're working to develop [indiscernible] competitive prototype product like the southern 8700 Uno. We expect to complete development and enter Japanese market with this product in the second half of 2016.

In part with our growth and efficiency initiative we continue to evaluate our business segments and intellectual property portfolio. I’ve been working closely with the board and our advisors through this process, our objective is to maximize the value of OTI asset and better position us to capitalize on the tremendous opportunities in the global [indiscernible] cash sustain of market.

We plan to control that strategic process by the end of day, as part of the process our advisor and IP expert evaluated our intellectual property assets and investments and we have developed a new comprehensive strategy based on this timing. And efficient our product probably extends in intellectual property portfolio of NFC solution is the 043 patent, the progress towards settlements with T-mobile during Q3 as well as our infringement claims against AT&T and Verizon mark another important step in our plan to defend our innovation and maximize our intellectual property.

Looking ahead our operational progress in the third quarter along with our expanding product portfolio, sales pipeline and partner channels have set the stage for the better finish to the year-end and an even stronger 2016. Our plan for 2016 is based on accelerating our growth and reducing expenses.

While there is more work to be done, we are in a strong position to capitalize on the global multi-billion dollar cashless payment market. As we execute our plan I’m committed to improve our shareholder communication and being [indiscernible] stand as possible, so starting this quarter, we are hosting a live Q&A session and we have now waiting to open the call for your questions.

Operator, please provide the appropriate instruction.

In your press release then just write their at the end of your prepared comments you referenced a pipeline that could lead to a better finish to the year, could you maybe put a little more color around that, is that from a revenue perspective and does that compared to this third quarter or perhaps compared to the year ago quarter, or how do we think about what that means?

Hi Josh, it’s Shay. Basically we are not providing guidance for the fourth quarter, our expectation will be with the better results from this quarter, both in the topline as also in the expenses line.

Okay. And then in referencing the pipeline, there I would suggest that you have contracts or negotiations with entities that lead me to believe that the revenue could be better is that strength or is that view coming from existing customers or new customers?

I think from both. Shlomi speaking.

I think from both because we are working now very closely with our aggressive partner and I believe that during 2016 we will see a combination that you generated from the existing one and also from a new account that we are trying to develop and I think that few of them we make them sure enough during the coming quarters.

Okay. And then around your comments in Japan, I’m not sure I heard correctly did you say, you are hoping to begin generation revenue in the back half of 2016?

Yes, we are thinking above the second half from the simple reason that we need to meet the [indiscernible] so we are walking now intensively in R&D team plus billing system, our partner in Tokyo in order to make sure that you are looking to entire request of the fairly cash [indiscernible] that's the main idea and that tourism by the way that make sense that in the second half of 2016 we will start to generate revenue from these activities.

Okay. Great, now I got my final question.

Just as around your liquidity position I believe Shay make some comments about feeling as if your balance sheet is in good enough shape to allow for you to execute against your growth plans internally, can you confirm from that -- I know there is a lot of concern in the investment community is that you need access to additional liquidity can you maybe just talk a little bit further about the liquidity position?

This correct, was I said is enough for cash, and cash equivalent in our bank accounts to support our accelerate growth and then to support our planning that for the future and we base this on the focused that we’ll seeing here and also some of the cost cutting programs that we did in the past and in the last few weeks that we'll implicate our entire expenses for 2016.

On the license and the transactions on your lines have been relatively stable last three quarters or so. Is that -- do that continue to be stable going forward?

Generally, yes.

And then, gross margins were very strong in the quarter I guess is that at a sustainable level, how should we think about gross margin? Since that was a pretty big change.

So, as you know our gross margin, it's really depend on the revenue mix and so we're on an ongoing efforts to improve our margin and our efficiency in the production, but the gross margin will really be depend on the revenue mix for each quarters. So, it was improved this quarter and I'm not sure that it will retain the same level for the next quarter, it really depend.

And then in terms of the -- this new capsule product that you talked about, can you give a couple of examples of either target customers or target channels for that?

Generally speaking if you are taking the Pay Capsule that is quite [indiscernible] technology that we developed that we're able to implement it in, for example in the cost [indiscernible], you can implement it in the car key and in any other words that's existing in the market. We can develop this product to different implementation and we started to discuss and this is very initial stage we're picking with few potential accounts that can be quite important for us including 2016.

One of that for example is a fashion company that they want to implement this element in their jacket.

And then, it sounds like you -- I mean you've done a great job of reducing costs, it sounds like there's some additional measures this quarter, but I guess would you say that it'll be done with the efficiency measures by the end of this calendar year?

Yes. Basically -- maybe in more -- basically yes.

But I have to say that the efficiency program that we're [doing] it's going to be on a constant level, meaning that we will proceed to a check on a regular basis, any kind of activities that we're handling in order to make sure that it's efficiently not, that's the reason that we're calling it not a cost cutting program, but an efficiency program and this is something that we will implement in every quarter.

And just last question I guess can you sense that you -- do you see some better top line results in the fourth quarter? Is that largely tied to the reader market or some other product line?

Mainly will be based on the readers. That's correct.

My first question is, could you please update us on the T-Mobile now that you have won the infringement suit? And as a follow-up, are they alternative technologies to be used by T-Mobile if they choose to?

Basically, I'm not able to say and not able to present so much new information on the T-Mobile case. As you know we released statement that we saw the process of settlement with T-Mobile.

We are going to complete this process in the near future and also [indiscernible].

Sorry, there was some -- I can't hear you, so you can update because things are in the pipeline?

So, I will say it again, I'm saying that the last update that we're arguing regarding T-Mobile it's the same like the last question is that you were [indiscernible] regarding T-Mobile meaning that we're now combating the settlement with T-Mobile and we're planning to finalize the process in the revenue in future.

I have another question in relation to Japan, you said that they have 5.5 million vending machines and you're working with a partner to penetrate the market. Now is your technology the only technology or do they have their other technologies to select from.

Obviously we are not the only solution provider for the more than 5 billion vending machines indoor and outdoor, but following the business trade we conducted few weeks and meeting with more than 15 different potential account partner. I think that OTI positioning in an excellent way simply from the fact that we are having a very advanced technology compare to the other competitors.

And on top of it, we are quite competitive cost wise. So I think that we are now in a very good position to start this process of replacing them and the bigger element in the vending machine.

Right and you've mentioned that you will become a sales organization, what is your expected sales size in terms of the team and how much capital do you need to invest in them?

Okay, first of all regarding the statement of being more sales category to the main idea here is to accelerate the sales force that you're having the sales and marketing for that you're adding. We are recruiting talents from the different regions like APAC and also in EMEA and [indiscernible] with of course we're trying to make sure that our excellent present organization in North America, we continue accelerating the business over that.

And at the moment we're not planning any kind of fundraising we are able to finance the entire investment that we're doing in sales and marketing from the cost cutting and the efficiency program that we're implementing.

Hi, guys, a couple of follow-ups, I know you guys don't want to talk too much about the patent litigation, I guess I had a question about kind of thinking you're referenced a couple of differences and strategy and I understand you why don't want to get into that too much. I am just wondering we've seen litigation expense in the income statement for three years without much to show from it, will we continue to see litigation expense at the current going forward?

Basically not and that in 2016, we'll be the entire amount that we're spending on the patent fresh litigation will be less compare to 2015. And it's mainly because again related to the efficiently program that we're implementing but also related the way that we're managing the different legal firm to OTI.

We change the modern base.

Okay so that doesn't necessarily speak to any kind of time Verizon or expectation for finalization of or ruling base on AT&T or Verizon but rather a different way of proceeding with the litigation?

Basically with [indiscernible] model the legal expenses [indiscernible] strategy and each one of the new approach as we're taking in the efficiency program.

Right okay good and then I guess high level question may be hard to answer, but in talking about the fourth quarter and then a better 2016, how do we think about the opportunities in 2016 obviously NSC is a massive market you're talking about billions of dollars as far as size of market, how do we think about that from multi-dollars perspective? Is there an opportunity to dramatically growth revenue off of 2015 into 2016 or is it going to take a couple of years to develop this?

Are we talking about much better quarters in 2016 in compared to this third quarter or what we've seen in the first half of the year?

I think that we're enlisting huge amount there to change meaning the main idea and if you're looking on the last activities that we representing, we extending our product line. By extending our product line the main idea is to start working with different verticals because so far the revenue generated that we're having so far lost from vending machine and I think a bit from the ATM.

With the new product that we're having we're now penetrating a little bit to the point of sale, but again we're not going to compete that with the giant, we’re taking the end point, meaning the mini point of that, so this is a new vertical for us, this one thing, the second one is [indiscernible] things, I think that here with the PayCapsule technology that we are ordering it's a game changer for us in 2016 so this is another by the verticals or even another new industry for OTI and probably for OTI and with the new technology that we are going to implement on the UNO, we are now also planning to penetrate to different regions for example Japan is one of our strategic country during 2016. So all-in-all the idea is to accelerate revenue compared to 2015 and start to do the change internally and definitely in front of our customers.

So that's the plan this is our strategy and different [indiscernible] we will present entire 2016 strategy in front of the board in the coming weeks, I think that we would be able to speak it a little [indiscernible]

Okay. So just a follow-up that's helpful I appreciate that do you expect revenue then from PayCapsule in 2016 or is it just going to create awareness that wasn’t there before?

At the moment, its early to say, I believe that in something like two months from now, with the plan that we are [indiscernible] we’ll have a better visibility regarding the market, one [indiscernible] compared to the readers that it's a long-term new developments, the PayCapsule is relatively with -- and I’m saying relatively because we can meets the time to market a little bit faster than the industry.

Okay. Last question and I will hold it to this but third quarter revenue, third quarter 2015 revenue do this mark to bottom?

Listen, hopefully yes, but this is not something that I’m able to comment I think that really here is a thing we are doing whatever is needed in order to accelerate our revenue.

Shlomi, can you address specifically what happen to reader sales in North America last quarter?

Yes, I think that we were having some delay with the POs that we were planning to get from the main account there I think in North America and this was only a temporary delay not more than that. We were [indiscernible] with our main accounts and we’re pretty sure that this is temporary delay.

Right, I mean I think you are referring to USA Technology who reports earnings tomorrow I mean can you quantify how much that PO would have been?

At the moment I prefer not to go into these detail but I’m saying again I think because of temporary delay and I believe that in Q4 you will see that we are going back to normal.

So in a qualitative sense that has anything changed in your relations with either USAT or with your other large customer Cantaloupe, or we’ll be really just talking about a timing issues here?

No its nothing change. As I mentioned before temporary delay not more than a day.

Okay. So is there any reason why overtime, we should see your sales of readers into North America reflect the growth patterns that we’re seeing at your customers who are buying those readers?

I think in 2016, the plan is to accelerate the business not only with the existing major part of the [indiscernible] we will also see growth in other major accounts and we will walking on that I believe in the next coming quarters, you will see the change here.

Okay. My question actually was specific to your two largest customers is there any reason why we wouldn’t expect to see the growth in your reader sales track the growth of their own installations and the vending machines in North America?

Look I don't want to step into firm commitment regarding 2016, regarding the major account that we are having especially because we are still working on the 2016 plan and we didn’t present it yet to our board of directors. I believe that at the moment we will complete this process and is going to be -- before the end of the year, I will be able to speak about it as well.

Okay. Let me ask you a different way that -- is there anything that changed in those relationships that would keep your business from being consistent with the trends of those customers, is there any sort of a change competitively pricing wise?

No, no, nothing changed. Nothing changed, I will say more than this, we are even working on our major projects with the major accounting North America.

So, all in all we're looking on 2016 with those major accounts in a very positive way.

Then a different question, with respect to Japan, I've seen some discussion on the press about the Felica standard possibly actually being deployed outside of Japan. Is that true and is that something that would be an opportunity for you?

Felica outside of Japan?

Yes.

I don't think so. I didn't hear anything about that any country will implement Felica outside of Japan.

Felica is a Japanese standard and this is unique as to say. It's unique.

Then a different question would be, could there be opportunities tied to Japan if they don't require Felica? Perhaps Japanese customers that are looking at markets outside of Japan?

There is few accounts that we are discussing with them, not only the local market, we're also speaking with them about the other accounts that they're having outside of Japan, by the way mainly APAC, they're still in APAC. So, yes few accounts and Japanese accounts that we're picking with them, not only on the local but also on their regional market.

And although they don't need as I mentioned we don’t need Felica.

And then next you in the last couple of quarters have announced a new telemetry product that I don't think we've heard anything about in terms of customer wins. Can you give us an outlook for that incremental product?

Yes, so far we are having few hundreds of otiMetry already being sold and mainly in the European markets and we're starting to see also some activities in APAC but I also stated so far we're having a little bit less than 10 different pilots with major accounts in EMEA and also in APAC, a little bit also in North America and hopefully during the coming quarters we will see positive results out of those pilots that we're having. All in all by the way we are in a very positive direction with the otiMetry and we're planning to work with our partners in the different regions.

Can you speak specifically about the opportunity in North America, so this telemetry will be paired with the readers that are [predominantly] being sold into that market?

Related to the otiMetry?

Yes.

At the moment I cannot go into details but I can say that we're speaking with major accounts on the otiMetry. It's a long evaluation process with them and as soon as that we'll have something significant we'll let you know.

And then a question on expenses, so you -- you're at about a $4 million run rate excluding the non-recurring charges related to executive separation. Should we think of that as the ongoing run rate or should we think of something even lower than that given that you're still talking about additional expense [heads]?

We believe they could be a little bit less than 4 million for the quarter with the decease we anticipated specially in the [indiscernible] and the uses that we will do with some efficiency and cost cutting to finance the new recruitment as part of the present marketing team. So, we anticipate it will be little bit less than 4 million.

Can you please give a little bit of explanation or color on the new model for your legal proceedings?

Honestly, I cannot go into details about the mode of operation that we are having with our legal -- but let's say that as you can already understand and it's clear, it's a win-win situation for both sides.

No other -- will there be any filings or anything related to that or will anything come out in terms of that structure and what we learned about T-Mobile?

I mean, [indiscernible] sorry, it was [indiscernible], we are as we reported before we [indiscernible] in principle of the agreement with T-Mobile which we are negotiating now and we are [according] to final stage of the -- this negotiations and let's say -- as soon as we finalize then we will be able to update soon about the developments of that.

Okay it's a difference in the AT&A and Verizon who versus T-Mobile correct?

We chased the structure of our legal expenses regarding the patent according to our renewal high efficiency program. Obviously, we cannot get into details about the structure and in area.

We already said we will reach whenever turn it, but it's different and the cost will be less than it was before.

Hi, yes, I have a couple of follow-up. I would like to know that on what it's happening to your other business segments the fuel business segment where you seem to have a very good product, is that after [indiscernible] other geographies other than the current one, is there any expansion opportunity and also the other business segment of the municipal parking?

Thank you.

Okay, so I believe that you're speaking about the fuel management division that we're having PetroSmart. PetroSmart is a very healthy organization with an excellent technology and we're exporting the technology to a little bit more than 50 different countries worldwide.

We will continue with this activity and hopefully we will accelerate the productivity also during 2016. Regarding the parking division, we are doing efforts over in order to see how we're going to penetrate to other market, but compare to the PetroSmart this is smaller division with associating limited possibilities in the main markets.

When you do go to the 50 different countries in PetroSmart business, what kind of expected revenue you've seen the near future three years ahead?

I also say that it's changed from one market to another. This is a long-time investment that we're doing with over different markets and we thought we need a bit when you're looking year-over-year on the activities that we're having with PetroSmart is in a very positive way direction.

So it's actually growing year-over-year.

Oh no, thank you.