Intellicheck Inc (IDN) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, my name is Patty, I will be your conference operator today. Welcome to Intelli-Check's 2005 first quarter earnings conference call. Following remarks from the Company, there will be a question-and-answer session.

If you have a question, please press the star key followed by the number one on your telephone keypad and your line will be unmuted in the order received. We would like to ask that questions be brief so that telephone participants will have an opportunity to ask questions. If you have additional questions you are certainly invited to press star one again this. Call is being recorded and is copyrighted. Therefore, it can be not be recorded, transcribed or rebroadcast without Intelli-Check's permission. Your participation implies consent to this call and placing it on our our website. If you do not agree to these terms simply drop off the line.

Before I turn the call over to Intelli-Check, I'd like to read the forward-looking language. Certain statements on this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. When used on this conference call, words such as expect, believe, intend, will, and similar expressions, as they relate to the Company or its management, as well as the assumptions made by and information currently available to the Company's management identify forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements.

Additional information concerning forward-looking statements is contained under the heading of "Risk factors" listed from time to time in the Company's filings with the Securities and Exchange Commission. We do not assume any obligation to update the forward-looking information. With that aside, I'll turn the call over to Mr. Mandelbaum. Sir, you may begin.

Thank you very much. Good morning, everyone, and welcome to Intelli-Check's first quarter conference call. I'm Frank Mandelbaum, Chairman and CEO, and with me today on the call are Ed Winiarz, our Senior Executive Vice President and Chief Financial Officer, Todd Liebman, our Senior Vice President and -- of Marketing and Operations and Russ Embry, our Senior Vice President and Chief Technology Officer. All of us will be available for questions at the end of the formal presentation.

To start, Ed will bring you the highlights of the numbers that we reported on Friday after the close and then Todd will bring you up to date on our current sales initiative. Ed?

Thank you, Frank. Good morning. I'd like to discuss some of the pertinent financial information that is contained in our 10-Q for the first quarter ended March 31, 2005, which we filed this past Friday. Reported revenues for the first quarter of 2005 remained relatively unchanged at approximately 297,000, compared to approximately 298,000 for the first quarter of 2004, however, actual sales or bookings in 2005, increased 27.5%, to 350,000, from last year's sales bookings of 275,000. Even though our reported revenues did not materially change, our sales bookings were appreciably higher as compared to last year.

Todd will walk you through some of the details of our current sales initiatives and why we remain extremely optimistic about our expected future sales growth later in the presentation. Our gross profit did not materially change and amounted to 65.4% for the first quarter 2005, compared to 65.3% for the first quarter of 2004. Total operating expenses increased by approximately 479,000, from net of our prior year's quarter, to 1,780,000 or 2005. This was primarily related to our legal fees which increased by about 525,000, compared to the prior year resulting from the active nature of our Tri-Com patent litigation suit. We appeared before the court this past March, for a settlement conference, and believe that the Company will not incur significant additional legal charges relating to this matter.

Non-cash expenses for the first quarter 2005, were approximately 246,000, which included 176,000 of non-cash stock-based compensation expense, compared to 55,000 in 2004. You should note that if you excluded the increased legal expenses relating to the Tri-Com, and non-cash expenses, our operating expenses for the first quarter 2005, would have been approximately $1 million compared to 1.2 for 2004. Additionally, without these expenses, our net loss would have been decreased to approximately 800,000 for 2005, compared to the adjustment loss of 1 million 20 thousand for 2004. For the reasons prior stated we reported a net loss for the first quarter, ended March 31, 2005, of $1,569,603, or $0.17 per share compared with a net loss of $1,106,319, or $0.12 cents per share for the quarter ended March 31, 2004.

At this point I would like to review the Company's liquidity and capital resources. Net cash, including cash equivalents, and short-term marketable securities and investments decreased for the quarter ended March 31, 2005, by 951,000. The principal reason for this decrease resulted from the net cash loss of 1,323,000, which was computed by deducting non-cash expenses from the reported net loss offset by a decrease in accounts receivable of 193,000, and increases in accounts payable of 253,000, primarily from the legal fees due on the patent litigation. As of May 1, 2005, we had approximately $3 million in cash, cash equivalents and marketable securities. Our cash is invested in short-term high-grade papers CDs and bonds.

We anticipate that our current available cash in hand, cash resources from expected revenues from the sale of our products, including the sale of our units in inventory and licensing of our technology will be sufficient to meet our anticipated working capital and capital expense requirements for at least the next 12 months; however, we are currently in discussions and working with investment banking firms for the purposes of investigating the opportunities to create additional capital on acceptable terms to the Company. There can be no assurances that we will successful in raising such additional capital.

On February 25, 2005, our convertible redeemable preferred stock was converted into 454,545 shares of our common at a conversion price of 6.60 per share. This not only eliminated our required dividend payout of 240,000 per year, but after taking into account the net loss for the period, has increased our stockholders equity by approximately 1,462,000 to 2, 331,000 from year ended 2004. As Todd will explain, we have been actively marketing our newly announced products and technologies for licensing and integration into other complimentary systems and technologies as well as stand alone applications.

Potential opportunities for these markets could result in additional cash flow to the Company. I'll now turn the discussion over to Todd, our Senior VP of Marketing and Operations.

Thanks, Ed. We continue to make great progress during the first quarter in building our pipeline and realigning the sales force to execute on the strategy I discussed during our last call. We have been putting a very strong emphasis on the retail and the financial markets, and I believe this effort is beginning to pay off. I expect that within the near future, we will be able to announce a handful of significant events in these markets. As I have mentioned numerous times during presentations, these are the two key markets that we are focusing on. That being said, we are also beginning to make excellent progress in our other markets. We continue to receive orders for our age verification products. We have also had some very good success recently in the access control market, as well as the casino market with a number of our existing customers reordering our products.

We recently introduced our now ID mobile product which is a hand held device that both a has a mag stripe and 2D bar co -- excuse me, 2D code reader capability built in. We have also, we have also alread -- we have already taken our first orders for this product. We will be shipping multiple units in the next few weeks. The government opportunities remain active and we are diligently working on a number of large potential initiatives but timing for the funding of these projects is still not quantified. I thought I would dive down a bit deeper into each of our markets to give you a better feel for what the sales team has been working on. I will begin with the retail market.

Intelli-Check begins to uncover new opportunities in this market . We continue to test with one of the largest mass merchandisers and are in a multi-store pilot with a major U.S. cellular company. The choice of our solution would present significant revenue potential for us, beginning as soon this quarter, but the revenue could stretch out into the third quarter and beyond depending on rollout. We are also in the process of forming a key strategic partnership with a major fortune 50 company which has many of the key retailers we are focusing on as customers. It is a very exciting opportunity that we hope to be able to announce in coming months.

On the financial side we have made excellent progress in this market. Our focus has been two-fold, the financial institutions themselves, as well as the credit card processing market. We are in the final stage of completing two very key agreements for this market. These are exciting opportunities with strong revenue potential, through contacts I have made in my prior travels. We are also anticipating a handful of pilots with various financial institutions, and credit unions within the next 45 to 60 days.

On the age verification side, as I have mentioned a number of times, this has historically been the core of Intelli-Check sales, of our sales. We have seen an uptick in orders over the past 60 days. These orders tend to be 'onesy' or 'twosies'. There is not huge revenue associated with these orders, but it continues to broaden our reach and allows us the opportunities to grow our recurring revenue base in future years. Additionally, we have recently made a strong, stronger push into the casino industry. We have an excellent customer base in this market with virtually every major casino in Las Vegas and Atlantic city as a customer.

We are actu -- we are act -- we actually are beginning to expand our reach into other areas of the casino we have not traditionally played in. We received a large order this past week from an existing customer for a brand new casino application for our technology. We also continue to have major opportunities in the C store market, as well as the traditional bar and night club segment.

On the access control side we continue to push forward in this market. We are working closely with many channel partners to sell our solution. We continue to make sales in this area; however, typical sales, like the age verification market, are on the small side, due to the fact that building that house thousands of people would only require a few systems. We remain active in this market and see many opportunities outside the traditional multi-tenant building such as hospital, and corporate campuses.

On the government side, we are encouraged to see quite a bit of movement on the Homeland Security front, particularly for the first responders initiative. We are working closely with a number of partners for this initiative. Our technology is currently being integrated into various hand held devices to meet the proposed requirements for this initiative. The opportunity could be quite large, and we are diligently working with our partners towards a controlled rollout of this product.

We are also involved in another -- a number of legislative initiatives at both the state and the federal level. These initiatives would require electronic age verification technology, as with any legislative initiative, timing is unknown. It is possible that one or more of these could come to fruition by the fourth quarter. The Company is encouraged by the increased awareness of the strength of our technology and intellectual property in our multiple markets. Because of this, we are currently in negotiations with several major companies that are desirous of integrating our solutions for identity management into their product offerings.

We expect a positive outcome from some of these discussions during this quarter. I am very encouraged about the opportunities that we have created over the past few months since I joined the Company. I strongly believe, and remain confident, that within the next month or so, we will be able to announce significant progress on these opportunities. Thank you for your time and I would now like to turn the meeting back over to Frank.

Thank you, Todd. This concludes the formal presentation, at which point, we will open the call to any questions that you may have.

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. [Operator Instructions] One moment, please for the first question. [ Silence ] Our first question comes from Robert Freed, a private investor. Mr. Freed, your question, please.

Hi, good morning. My question is regarding the Certegy transaction announced in early February. Were, first -- it's actually two questions. First, were any receive news received during the first quarter with regard to that transaction? And second on the going forward basis, in this quarter and quarter three, four, are there any type of expectations that you'd like to share with us regarding revenue from that transaction? Thank you.

Todd, would you answer that, please?

Sure. Absolutely we received substantial revenues for Intelli-Check during the first quarter for -- from Certegy. We seem to be ahead of schedule from what it appears on the transactional model -- transactional model that we're working on with Certegy. Some of the revenues we've received from them to date deal with other solutions that they've been buying from us, so they could begin to implement our product. As a matter of fact, I was out in Las Vegas this past week for a series of the meetings, and our product was prominently [inaudible] with Certegy, with one of their divisions that deals with the casino market.

So, we -- we've made great progress with Certegy. Really what we're doing at this point, or what Certegy is doing is, really validating all the different ways that driver's licenses can be accepted in the field, because there's so much legacy equipment out there. So we're finalizing the technical side which is, we've been working on -- which is in great shape and really just putting the , the hardware plan together for being able to roll out the product. So, we're still very optimistic. We have a great are relationship with Certegy. We definitely received substantial revenues in the first quarter and it should continue moving forward, but the real transactional model base we see will start sometime in the third quarter.

Thank you.

You're welcome.

Our next question comes from Robert Edmunds, a private investor. Mr. Edmunds your question, please.

Good morning, gentlemen. Is there anything that you can be more specific about, as far as these contracts such as the ones with the fortune 50 that you specified and we had discussed in the past about this retail outfit, we had named it -- actually, someone else named. It can you talk about that and can you also talk about where we stand now that the driver's license bill has been signed, what that can mean to us on the bottom line?

Todd, do you want to answer that.

Well, I will take the first couple of parts. The mass merchandiser that we spoke about or that you're questioning, we continue to make great progress and are optimistic that good things will come of it, so that's positive. The second part of your question -- refresh me, I know one of them dealt with mass merchandiser, one of them dealt with the ID act which I will turn it over to Frank and your third part was --

You mentioned -- someone on this call had mentioned that they had seen units in a Target store on several occasions and I just want to find out how that was going and as far as the driver's license bill, how does that mean to us?

Well, you also asked about a fortune 50 company.

Yes, you, you had said that we were working with several fortune 50.

We, we can't--

Are those financial? Retail? What kind of companies are those?

It, it -- I can say it's in the financial segment, and deals with the financial segment. That's all I can really say about it but we see tremendous opportunity with this company, you know, working very closely with them. They like our product, and we're really making some headway over the last two to three weeks with them so, we're excited about that. And again, on the mass merchandiser side, we're making tremend -- terrific progress, have continued communication with them and are optimistic about the outcome of, of -- that opportunity. And I will let Frank talk about the Real ID act which I know you are referring to.

Thanks, Todd. The Real ID act, which has already passed both houses of Congress and has been tacked on to the Iraq funding bill and is just waiting the presidential signature, actually is very positive for us in that it assures that the driver license remains the legacy document of choice and it will be in a lot of these programs coming that we've discussed in the past, the Homeland Security Presidential Directive 12, that's winding its way through NIST, the National Institute of Standards for final regulation is a requirement, but since the driver license has always been, in our mind, of the de facto national ID, this makes it the national ID.

It requires certain minimal sets of data, but it doesn't tell you that everyone must be the same in every state, which will make our patented technology all the more valuable, as we continue down the road. So this is a very, very positive event for Intelli-Check. It's not going to create any near-term revenue but, it does assure that the driver license will be, as it is right now, the true ID document in the United States.

Our next question comes from Dan Morris, of RF Lafferty. Mr. Morris, your question please.

Good morning, Frank. Good morning, everyone. Frank, I wonder if you could give us a heads, you know, follow-up on, I know you mentioned the Tri-Com litigation. Can you tell us where we are at on that situation and when you expect to see a resolution?

Well, we believe the litigation is moving very favorably for us. We had a mandatory settlement conference in the judge's chambers on March 17. There were various proposals out for the settlement; however, we will settle the case should it settle on terms discussed in the judge's chambers. We will not settle it on any less terms than that and the only thing is is that this thing is moving along, but I can't give you a definitive date as to the resolution of that particular litigation. We do feel very confident, as the outcome -- as relates to what the -- we believe the outcome will be.

So you expect a favorable outcome.

Yes, we do.

Right. Okay. Thank you.

Again, ladies and gentlemen, if you would like to ask a question, please press star one on your touch-tone phone. Our next question comes from Gus Allen of Gunn Allen. Mr. Allen, your question, please.

Good morning, gentleman, it's Gus Allen from GA Financial. The question I have, I guess is for you Frank. If, in fact, you are looking at some rather substantial contracts to be signed relatively soon, is it possible that these new contracts would make the need for additional financing much less?

Well, the answer is, one, it's really a twofold answer. We're investigating opportunity to raise capital; however, the size of these contracts -- the reason that -- part of the reason to raise capital is to improve the balance sheet dramatically, because we're very optimistic that some of these government initiatives are looking to break and break within the next several months. And knowing how the government operates, we don't want any question to come up as to the Company, you know when they take a quick look, even though Ed pointed out that we have sufficient capital to last until May 1 of next year, we want to improve the balance sheet dramatically.

So one, I don't think it will impact but it should have a very, very positive benefit as to the terms is on which we can raise capital, which will be very good for our stockholders, because of the benchmarks and pointers that we will have in the next -- what we believe -- several weeks, to point to and therefore the capital raise would be much less dilutive to the Company, not that it ever would have been very dilutive to begin with.

Our next question comes from Robert Edmunds, a private investor. Mr. Edmunds, your question, please.

Yeah, I wanted to get back to that driver's license bill. The driver's license bill basically states that companies or that people must electronically identify driver's licenses? And if, if that's the case, is there anyone out there that can compete with us, or do we have a virtual monopoly on that kind of -- in a -- kind of a review?

Number one, the requirements are in the realizee [ph] bill. It requires verification of the various breed of documents used to get other forms of ID. Since the driver license is the ID utilized in almost every instance -- nobody carries a passport with them day-to-day, we believe that it opens up many opportunities for us. But there is no basic requirement that when you go to do a transaction, it's just been grandfathered in, how people do it and now verification comes in to the play.

So we're not saying that right now anything is going to happen overnight because, one, they have until -- it's a period of time, until it gets fully implemented. What it will require is the various state motor vehicles are going to have to tighten up their issuing process and because of it, we are currently in discussions with several states to put our technology into their issuing offices to prevent fake out-of-state licenses to be utilized to get a real one in another jurisdiction.

Can you tell us what states are actually using the product now from a motor vehicle departments and what that means to us?

Well, we're probably right now in -- probably about 10 states doing it right now. But there are a total of -- some states use it exclusively in Vermont and Maryland, Florida, Delaware, et al off the top of my head, every one of their issuing offices has our technology. But then depending upon budgeting, it's only in other states utilized in as many states as they had money to buy the technology. So I can't quantify how many there are specifically but we are in as many states, as I said, and we're optimistic we will be in additional states in the near future.

So, in addition to Maryland, you're saying Vermont and Florida are using it in their DMVs?

And Delaware and there are several others but I don't have them on the top of my head, yes.

Are we still going after the whole, you know, the rest of the country, though?

These are issues -- of course, we're looking to make this everywhere, but you only get an order. You can go knock on all the doors when the budget money is there to buy it. So just going to knock on doors, everybody in the motor vehicle -- let's say, side of the coin knows Intelli-Check. We are the national testing labs for them. So we don't really have to go knocking on doors. When they have the money and they want it, they come to us.

Okay, but, Frank, if I can jump in for a second, I think it's also important to note that we are working with a number of potential strategic partners in this area who can help align us in closer, and again, these some of the major initiatives we are working and present more information to the investor community in the coming times with more information on these exact type of topics.

Anything else with Northrop Grumman?

There is -- we still are embedded within the Dekus program, very strongly embedded. There is a brochure that the government put out where we're listed right in as one of the partners with the major companies, such as Northrop, Lockheed, Bearing Point, TheoD, et al, but there's been no huge funding for that as of yet, but we are definitely involved in that program.

That funding problem is political?

It's just normal governmental. I wouldn't call it political. It's just, takes its time until it gets funded.

And ladies and gentlemen, if you would like to ask a question, please press the star one on your touch-tone phone. There are no further questions at this time. Please continue.

All right, if there are no further questions, we thank you all for attending. And as news develops, we will apprise our shareholders of it. Thank you very much for attending this morning.

Ladies and gentlemen, that does conclude our conference call for today. You may all disconnect and thank you for your participation.