Thank you, Operator. Welcome to On Track Innovations' Fourth Quarter and Full Year 2018 Conference Call.

I would like to also to thank management for hosting this call. With us on the line today are Mr.

Shlomi Cohen, CEO and Mr. Assaf Cohen, CFO.

Shlomi will provide some of the recent key highlights and Assaf will briefly review OTI's financial performance of the quarter. Following the prepared remarks we will then open the call for the question and answer session.

Please be advised that the Safe Harbor Statement issue earlier today also presents to the content of this conference call. And with this I would like now to hand over the call to the company CEO, Shlomi Cohen.

Shlomi, go ahead please.

Thank you, Ehud. Welcome all and thank you for joining us today.

Following years of hard work and following our efforts during '18 OTI has taken another step to profitability by cutting our net loss by more than half to the minimal amount of $263,000. This achievement together with the fact that we dramatically decreased our debt to almost zero put us in a much better place than we ever been in our history.

I believe that 2018 overall marked a true turnaround year for OTI. As we progress through 2019 we have all the ingredients in place to really start enjoying the fruits of our turnaround effort over the past few years.

And as you will hear, excuse me for a moment, you will hear a more optimistic about our ability to show solid revenue growth for 2019, as a whole. Looking at year as a whole we reported revenue growth through $21.9 million of which an increasing portion 24% of total revenue is higher margin recurring revenue.

This allowed us to show co-spending improvements towards potential profitability, given our better gross margin profile as well as our now increasingly efficient and stable expense footprint. Furthermore we reduced our adjusted EBITDA loss from continuing operations for the year to $356,000 versus the loss of $673,000 in '17.

As the recurring revenue portion continues to grow we are well positioned to enjoy the more predictable growth that recurring revenue will provide us with. I would like to focus on our strategic progress.

In December, we sold our non-core Medi smart activity as you know, we have in place a long-term strategy to improve the business by fully focusing our sales and R&D efforts on our core technology. This sale will bolster our balance sheet, which is already strengthed nicely over 2018 with an additional $2.75 million added to our cash position.

To place that in perspective, at year end 2018, we are close to 6 million in cash with debt of close to zero at only 0.3 million. Towards the end of Q3 2018, we started to face new tariff that were presented by the US administration on goods delivered from China to US market.

This 10% tax temporarily affected our ability to continue with our positive revenue momentum in the US which had shown until Q3 2018 and as a result, we faced a revenue decrease during Q4 from the United States. We believe that the tariffs will also affect our Q1 2019 results.

In order to mitigate this in the past few months, we have internally started working on relocating our production site, outside of China. We expected to complete this project by the end of Q1 2019 and we strongly believe that once this process is over we will continue and even accelerate our positive revenue momentum during 2019.

While this indeed short-term negative is temporary and doesn’t change the bigger turnaround picture and we expect that the overall improvement in our business throughout 2018, will continue throughout 2019 and beyond. In fact, prior to Q4 2018, was overall successful year for us in the US and globally.

We delivered 10,000 rebuilds to the U.S payment kiosk market and more than 16,000 advanced contact less readers for smart ATM. For sales footprint perspectives 2018, was an important year in which we made progress on several fronts steps which set us very well for 2019 and beyond.

We’re especially pleased with our international expansion in the retail and mark transit signals. In 2018 we delivered more than 11,000 advanced contact less readers to the Russian retail self service market.

The most important development for us was the achievement of new notification in Russia our payment system established by the Central Bank of Russia. In October we achieved international certification one of Canada's leading payment brands.

Our certification allows Canadian business to integrate our secure cashless payment solution into vending machine, kiosk and other unattended devices throughout the country. Both the Canadian and the Russian certifications are important, significantly expanding our potential by growing our total addressable market.

During 2018 we delivered more than 5000 advanced system to the Japanese market and these systems are generated account revenue for OTI. Another key growth area for the company in the automated retail space is smart ATMs.

In 2018, we delivered more than 16,000 advanced contact less readers up 60% year-over-year and we expect to continue to increase sales and deployments around the world in 2019. I would like now to turn the call over to our CFO, Assaf Cohen to summarize the financial results for the fourth quarter and 2018 as a whole.

Assaf?

Thank you, Shlomi good morning, everyone. Before the market opened today we issued the results of our fourth quarter and year ended December 31, 2018 in the press release.

A copy of the release is available in investor relations section of our website. I would just cover some of the main financial highlights to provide additional colors.

I would be covering some non GAAP metrics, including adjusted EBITDA for continued operation. We believe this provides a good understanding of our ongoing performance.

Please see the earnings release on our website for further detail about this non GAAP metric including a conciliation of adjusted EBITDA to our comparable GAAP results. In addition as you know we announced the sale of MediSmart in December.

The result of MediSmart are therefore included as discontinued operations and all the prior period information has been classified to confirm with the current period presentation. Revenues in the fourth quarter of 2018 were $4.5 million, compared with $6.3 million in the fourth quarter last year.

As Shlomi explained the lower level of revenues was due to the impact of import tariffs of product manufacturer in China. In addition, in the fourth quarter we have the lower levels of revenues from APAC.

We have taken steps to mitigate the tariffs issue which should be completed by the end of the first quarter of 2019. Full year 2018 revenues were $21.9 million versus $20.9 million last year.

In terms of breakdown of where revenues were derived for the fourth quarter, retail and mass transit ticketing revenues were $3.2 million or 71% of sales and patrolling revenues were $1.3 million or 29% of sales. For 2018 as a whole retail and mass transit ticketing revenues were $16.6 million or 76% of sales and petroleum revenues were $5.3 million or 24% of sales.

Looking at geographic breakdown in the fourth quarter, the Americas accounted for $1.5 million or 34%, Europe was $2.1 million or 46%, Africa was $0.6 million or 13% and APAC was $0.3 million or 7%. For 18 as a whole the Americas accounted for $7.9 million or 36%, Europe was $8.4 million or 39%, Africa was $2.5 million or 11% and APAC was $3.1 million or 14%.

Compared to last year we grew revenue by 10% in the Americas and 15% in Europe. Recurring revenues in the fourth quarter accounted for $1.2 million, which is 26% of total revenues compared to $1.2 million or 18% of total revenues.

For the year the recurring revenues accounted for $5.2 million or 24% of total revenue compared to $4.6 million or 22% of total revenues. Gross margin in the fourth quarter was 48%, a solid improvement over the 46% reported in Q4 last year.

For the year gross margin was 51% also as of the 50% reported last year. In the fourth quarter of 2018 operating expenses were $3 million versus $3.5 million in the fourth quarter of last year.

For 2018 our expenses increased slightly to $13.1 million versus $12.6 million last year. Net loss from continuing operations in the quarter was $862,000 or loss of $0.02 per share this is compared to loss of $627,000 or loss of $0.02 per share in the fourth quarter of last year.

For the year we reported a net loss from continued operations of $1.9 million, or loss of $0.05 per share, compared with a net loss of $2.4 million or loss of $0.06 per share in 2017. We had a net income of $533,000 or positive $0.01 per share in the quarter versus a loss of $693,000 or loss of $0.02 per share in the fourth quarter last year.

For the year, we reported a net loss of $253,000 or loss of $0.01 per share versus a loss of $598,000, or loss of $0.01 per share in 2017. Now turning to our non GAAP results.

Adjusted EBITDA in the fourth quarter of 2018 was a loss of $471,000 compared with an adjusted EBITDA loss of $204,000 in Q4 2017. For 2018 as a whole we reported an adjusted EBITDA loss of $356,000 a solid improvement over the adjusted EBITDA loss of $673,000 in 2017.

Looking at our balance sheet OTI ended 2018 in a solid position with a strong debt reduction. At yearend cash, cash equivalents and short-term investments was $5.9 million and short and long-term debt was $0.3 million, giving us a net cash position of $5.6 million.

At year end 2017, we had $10.1 million in cash, cash equivalents and short-term investment and $5 million in debts. This complete my financial summary for more detail analysis of our financial results, please reference our annual report on Form 10-K, which we plan to file by March 29, 2019.

And now I would like to hand the call back to Shlomi.

Thank you, Assaf. While it has taken time our strategy of transitioning from pure product company to a solutions company that utilizes software in the clouds offering complete service solution is growing and working, is ongoing and working.

This strategy is providing us with a stable customer base with ongoing the higher margin and predictable revenue stream. As a result it is worth emphasizing a few important changes.

One our recurring revenues are now 24% of the overall pie versus 22% last year, an increase of 12% in absolute term and we’re accounting to focus our energies on increasing this portion. During Q4 our recurring revenue reached to 26% of our total revenue compared to 18% of the same period a year ago.

Our revenue in the Americas grew year-over-year by10%. Looking ahead into 2019 while our first quarter will be a slower one as we transition our manufacturing out of China which will be completed by the end of the quarter.

We’re very excited with regard to our potential. All the hard work in energies we had put in over this past few quarters and years will really begin to pay off in 2019.

And we expect to see solid revenue growth for the year as our furthermore, we don't expect any change to our OpEx level. So we hope that much of this growth can reach and will improve our bottom line.

In summary, I believe we are well-positioned in 2019 to enjoy the fruits of our past effort and look forward to new shareholders value creation over the long-term. With that I would like to open the lines for Q&A.

Operator, please.

In regards to your manufacturing what percent of that is out of China is it 100% or less. And then a follow-up to that is so where you moving it to.

Okay so I will say that almost 90% of our production is actually done in China and we’re actually relocating the production from China into the Philippines and the fact that it's creating an impact on Q3, on Q4 results is mainly regarding the fact that the US market is the biggest market that we’re having. More than one third of our revenues is actually generated in the US market.

I just wanted to get back to the manufacturing operations moving from China to the Philippines. Just wanted to get an idea of how this is going to impact the first quarter like you said the fourth quarter was impacted by this, just trying to get an idea of the magnitude that this could impact the first quarter.

It won't be really fully operational in Philippines I think till the end of the first quarter. So, looking at it I know that you had about 28% decline in the fourth quarter revenues.

Should we look at a similar type of decline or temporary decline obviously, in the first quarter of this year.

I would say that, first of all by the end of this month we’re going to complete the entire handover from China to the Philippines and from this moment we would start to do the ramp-up in order to do the recovery that we were facing in the last two quarters, this is one. Second thing, to tell you right now what will be the impact in Q1 it's a little bit early because we are seeing working around the clock in order to deliver any purchase order that we had globally and especially to the US market and we plan to be creative in order to see what we can do legally in order to bypass this 10% tax.

But I think it's too early at this point of time to speak about the final results of Q1, I think it’s in a few weeks we will have much better picture and later on we will share it with the market.

And the move to the Philippines I was just wondering if you could give us an idea of how the labor cost there compared to the labor costs in China.

This is an interesting point we were having a discussion on that internally. Today when you’re looking on the Chinese market compared to other Far East market and even in east of Europe, those market that I mentioned they are competing with the Chinese market.

So from a cost perspective we're not going to face any kind of change in sold product, we will be able to improve our gross margins. So all in all from cost perspective it's going to be the same or in same some cases even better.

Very strategic move on your behalf there. And I was hoping that you could talk a little about your partnership with Puma Energy I know there was a press release not long ago about that, just trying to get an idea of the size of this the potential what you believe that that could actually contribute to your top line in 2019 and beyond.

Okay so to the audience that are not familiar with the Puma PR it's related to our fueling business and the automated fueling activities that we are having. So to your question I would say the following.

This is first of all high gross margin account that is strategic for us because although there we’re not selling products we’re selling solution. Revenue wise during the coming years it will be our significant one.

We’re now doing the ramp up and the idea is to accelerate activities globally because Puma is a global player in the energy sector and those guys are actually stepping to many countries with this new technology from OTI.

So you’re not selling product on this account, does that mean we should look at this going into your recurring revenue licensing and transaction fee line.

Because we’re still in the presentation phase I prefer not to give you a direct answer but all in all when you're looking on accounts such as Puma or BP or other multibillion accounts that we are having in this sector eventually it's reached to this point as well.

And with the divestiture of MediSmart or already in the books it's completed. What impact if any do you think that this is going to have in your margins and operating expenses going forward?

First of all I think that you can see already the impact on our gross margin. The gross margin without MediSmart is 51% and if you are keeping MediSmart it was 52% but again strategically we took a decision four years ago when I came on board and the idea is to focus only on the core technology and core business, MediSmart was not part of it.

But for the long run, we will see that the fact that we are not dealing with MediSmart, we’re less investing in R&D and other operations and activities. The company today is much more focused because this is related to the entire strategy that I am having since I came on board when we step out also from easy part, the access control and lately from MediSmart.

All of those activities will not part of our core technology and core business.

I just have one further question, I was hoping you could talk a little about how that MER certification in Russia and the interest certification in Canada, how this might benefit your sales to these regions. Give a little more insight into this please.

Thank you.

Absolutely, so regarding MER, MER was almost, first of all maybe for the beginning we identified the Russian market is a strategic market and from the moment that we understood that the potential over there is relatively significant, we decided to invest efforts in order to get the MER certification. And I think that the moment we got the MER certification we started with sales activities over there and so far we delivered in relatively very short time more than the 11,000 advanced contact less readers to the Russian market.

I’m expecting by the way that in the first half of this year we will see a continued strength, meaning that we will keep the positive momentum in the Russian market and we will see more positive results like we saw in the second half of '18. The Russian market by the way is now moving quite fast compared to the other parts of Europe this market is growing faster.

And they are injecting more and more cash less system to the payment markets and OTI want to take some market share in this respect. Regarding interact we don’t have direct activities at this point of time in the Canadian market.

But this is the reason there was the incentive for us to get the interact certification it's related to our partners in the US market that they're actually active in the Canadian market. And in order to support in with their Canadian activities, we decided to get interact certification and I believe that we will see the results of this achievement during 2019, it's going to impact the revenue of almost every partner that we’re having in the US market that they are active also in the Canadian market.

So nothing yet but just that you'll definitely open up some doors revenue potential for 2019 believe in Canada.

Absolutely.

I wanted to find out what’s your thoughts were about the NASDAQ listing. What do you plan, were you in jeopardy now or is there solutions to the problem.

We first of all we got an office from there and we have time till April 22.

We have until when?

April 22nd.

Right.

And basically I think that it's needless to say that's we're investing a lot of efforts in order to reflect the company results in the market as well. And we have a few other options that we consider assuming that we would be not be able to reflect this correctly.

I don’t think that we need to get into details in the conference call now but the company is doing almost every step that is relevant in order to change this situation.

Can you talk little bit about what are the top revenue drivers here maybe the top two regions, top two use cases whether it's ATM or lending addressing, just get a sense of the top driver this year.

If I start from the verticals I would say the following. First of all definitely we will continue with the positive momentum that we are having with the ATM.

Just as a reminder in 2017 we were selling five times more compared to '16 and in 2018, we were growing this vertical by 60% from 10,000 to 16,000 advanced contactless readers through the smart ATMs. So this is regarding vertical number one.

In vertical number two here I’m having a little bit some kind of challenge to position which one will be interesting for us but I would say definitely from volume perspective no need to mention the fact that the vending will continue to be number one but I’m putting a lot of efforts and attention on very interesting vertical that we’re having and this is actually the EV charger the electric vehicle chargers. First point is that we’re having and its already active it's actually in the City of London that although that you can already see EV chargers in the street with contactless reader on the face of the EV charger and telemetry unit inside to connect the hundred or I think that today it's even more than that to the cloud via our system.

And I believe following the fact that the number of electric vehicles in the market is increasing dramatically this vertical in OTI will increase as well. And we’re doing quite a lot of efforts almost in every region in order to generate positive results on the EV charger.

At the moment yes, it's not the biggest vertical that we’re having but for us it's going to be a strategic one in the next few years. From region perspective needless to say that US will continue to be number one also in 2019 but definitely the Japanese market, the Russian market they are going to follow the US market as well.

I hope that I gave you the answer for your question.

And did you say in the fourth quarter you saw a little bit of weakness in the APAC region. Is that what you said and so what was the cost.

Again I would say in Q4 after a very positive momentum that we were having in the first quarter, just to remind you by the way when you’re looking on quarter one, two and three each one of them was better year over year compared to the previous quarter. Unfortunately the US administration came with the new tax on any goods delivered from China to US and it created a negative impact on our activities in the US market and that the reason that we’re actually relocating our production from China to the Philippines and by the end of this month, by the end of this quarter this hand over will be completed and I hope that we’re actually giving clear answer to this temporary event.

So orders out of the APAC region were as expected.

Because when you’re looking, APAC for us it's mainly Japan, its 95% Japan. And Japan by the way year over year you can see that in '18, we were selling more than in '17.

So for us we were able to deliver all the planned system to Japan I think in the first half, during the first nine months in 2018.

Thank you. On behalf of the management of OTI I would like to thank you for your continued interest and long-term support of our business.

In the coming weeks we intend to actually next week we attend the ROTH conference in California and I look forward to meeting some of you over there. If you would like to set up a meeting with me please contact me or the IR agency, GK at anytime.

Thanks again and have a good day.