Intellicheck Inc (IDN) 2006 Q1 法說會逐字稿

Good day, everyone, and welcome to today's Intelli-Check's 2006 earnings conference call. This call is being recorded. And at this time for opening remarks and introductions, I would like to turn the conference over to Mr. Stephen Axelrod with Wolfe Axelrod Weinberger Associates. Please go ahead, Sir.

Good morning, ladies and gentlemen, and welcome to Intelli-Check's 2006 first quarter earnings conference call. Following remarks from the Company there will be a question-and-answer session. (INSTRUCTIONS).

We would like to ask that questions be brief so that all telephone participants will have an opportunity to ask questions. If you have additional questions you are invited to press star, one again. This call is being been recorded and is copyrighted as mentioned earlier. Therefore it cannot be recorded, transcribed or rebroadcast without Intelli-Check's permission. Your participation implies consent to our recording this call and placing it on the Intelli-Check website. If you do not agree to these terms simply drop off the line.

Before I turn the call over to Intelli-Check I would 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 to management - as well as 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 obligations to update the forward-looking statements.

That being said I would like to now turn the call over to our host, Mr. Frank Mandelbaum. Frank.

Thank you, Steve. Good morning, everyone, and thank you for joining as for our first quarter conference call. We are pleased with the direction of the Company as reflected in our financial results which we released this past Friday. With me today on the call are Ed Winiarz, our Senior Executive VP and CFO; Russ Embrey, our Senior Vice President and Chief Technology Officer; and Todd Liebman, our Senior Vice President of Marketing and Operations.

Ed will go over the highlights of our financials after which Todd will give an overview of our current marketing and sales initiatives and what we expect going forward.

After we complete the formal part of our presentation, we will all be available to take any questions that you may have. I will now turn the call over to Ed.

Thank you, Frank. Good morning, everyone. I would like to discuss some of the pertinent financial information that is contained in our 10-Q for the first quarter ended March 31st, 2006 - as Frank mentioned - which we filed this past Friday.

Reported revenues for the first quarter 2006 increased over 80% to approximately 536,000 compared to approximately 297,000 in 2005. Actual sales bookings or total shipments in 2006 substantially increased as well to approximately 736,000 from last year's first quarter sales bookings of 345,000.

During the first quarter of 2006, the total of our new non cancelable orders that were either shipped or included in our backlog was approximately $863,000. As a result, at the end of the first quarter 2006, our backlog - which represents products and services of noncancelable sales orders not yet shipped - increased to approximately 614,000.

The increase in revenues, sales bookings, and backlog is a result of our continuing success in penetrating certain key markets and the recurring orders from our licensees. Todd will walk you through some of the details of our current pipelines of sales, opportunities, and successes and why we remain extremely optimistic about our expected future sales growth later in the presentation.

Our gross profit percentage increased slightly to 66.2% from 2006 compared to 65.4% for 2005. We are experiencing a large portion of our sales coming from our software only products and services, as compared to our sales of bundled hardware and software products in 2005. As a result of our increased revenues, we are experiencing increased sales of our upgraded maintenance programs which are at very high margins. Additionally, all our revenue models, including transactional and subscription-based billings are beginning to contribute to our revenue stream.

Total operating expenses amounted to approximately 1.4 million for the first quarter 2006 compared to approximately 1.8 million for 2005. This decrease of approximately $400,000 was primarily related to a decrease of our legal fees of approximately 500,000 relating to [Tricom] Patent litigation, partially offset by an increase in employee and consulting costs of approximately 112,000.

If you exclude all non-cash expenses, total operating expense was approximately 1.1 million for the first quarter this year compared to approximately 1.5 million for the quarter last year. For the reasons prior stated we reported a net loss for the first quarter 2006 of approximately $945,000 or $0.08 per share compared with a net loss of approximately 1.57 million or $0.17 per share for 2005.

At this point, I'd 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 first quarter ended 2006 by approximately 434,000 primarily as a result of the net cash used in operating activities of 633,000 - resulting mostly from the net cash loss of approximately 705,000 for the period, partially offset by the proceeds we received from the exercise of stock options of approximately 199,000.

As of May 12, 2006, we had approximately 5.15 million in cash, cash equivalents and marketable securities. Our cash is invested in short-term investment grade CDs, government securities and bonds.

Therefore our ratio of current assets to current liabilities as of the first quarter ended March 31st, 2006, remained strong at 3.9 to 1.

Our cash expense burn rate for the first quarter 2006 which excludes any margin on sales and the resulting commissions due on such sales and excluding capital expenditures on average was approximately 372,000 per month, including expenses relating to our patent suit. We do expect our cash expense burn rate to remain for the remainder of 2006 to increase to approximately 425,000 per month due to the expected requirement of staffing and related expenses, due to the anticipated growth of our business.

We anticipate that our current available cash on hand, cash resources from expected revenues from the sale of our products - including the sale of our units and inventory and licensing of our technology - will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. However we may need to raise additional funds to finance more rapid expansion or require complementary businesses or necessary technologies.

As I will explain, we have been actively marketing our newly announced products and technologies for licensing and integration into other complementary systems and technologies, as well as standalone applications. The potential opportunities in these markets could result in additional cash flow for the Company. I will now turn the discussion over to Todd, our Senior VP of Marketing and Operations.

Thanks Ed. I'm very pleased to say we had a strong first quarter and have gotten off to a great start for 2006. Our book sales for the first quarter were $863,000 - approximately 147% increase over the same period last year. We had a strong mix from a variety of customers indicating the continuing momentum we see in the marketplace.

Just to reiterate from our last call our sales bookings goal for 2006 remain 6 million of which the majority will come from the commercial side. We do not expect major government funds to be allocated for mandated initiatives - where our technology is embedded until the fiscal 2007 budget begins in October 2006 - but continue to actively pursue these opportunities in the government sector.

I'd like to take a few minutes to bring you all up to speed on sales and marketing activities that have taken place over the past few months. I will start with a quick update on the sales force. I'm very pleased to announce that we have brought on a new member to head up our financial services vertical market. Rebecca [Brisson] joins us from [Talis].

Talis is a French conglomerate that has a strong worldwide presence in credit card terminal market. Rebecca has 15 plus years' experience in the credit card terminal financial services markets and has a wealth of knowledge and contact that she brings with her to Intelli-Check. We are excited about her joining us and believe she will definitely strengthen the Intelli-Check sales force.

From the product development side I'd like to further update you on two new products that we discussed on our last call. First is our ID-Check PHL. It is a browser helper object that allows us to integrate our core ID-Check technology and to browser-based application without any integration efforts on the part of the software developers who have developed the application. We can simply map the fields contained in the driver's license to the appropriate fields contained in the Web browser through a sophisticated graphical user interface we have developed.

This is critical for us because in the past we have been relying upon application developers to integrate our software developers' kit. We now have eliminated this time-consuming step for virtually all browser-based applications. We are excited to announce the product is ready for commercial use and we are actively marketing and selling this product. The early feedback has been very positive.

The second product to update you on is our new ID-Check POSX. This is the new Veraphone VX 510 terminal from Veraphone phone that is running on the Verika V platform. We recently finished the port of our software to this new platform and introduced it at the Electronic Transaction Association Show last month in Las Vegas.

I'm pleased to say we now have a competitively priced verification product that we can sell in the $1000 range. This will allow us to more effectively compete on the lower end of the market with this new technology. In addition, all of the hardware is off-the-shelf so no inventory buildup is required.

With the introduction of the ID-Check POSX we will be discontinuing the sale of the IDC 1400 at the end of June 2007. We will continue to support the 1400 until that time. Support of this product has been discontinued by the manufacturer for some time so therefore we cannot provide our customers with the level of service required to support this product.

On the marketing side I am pleased to announce the launch of our new website is scheduled to take place within the next week. The new site is completely redesigned to match the look and feel of the newly designed marketing collateral we introduced late last year. It'll also include more information about our products and services and will be much easier to navigate. In addition we plan to launch our e-store in the next 30 to 45 days where customers will be able to order products directly through our web site.

We also have a brand-new customer support website in development. With our new customer support site our customers will be able to download product updates as soon as they are posted. The new site will be tied into our registered customers database so only customers under software warranty will be able to download updates. This will alleviate the manual process we have to go through today to distribute software updates.

I want to switch gears for a moment and bring you up to speed on the various markets and initiatives we are currently working on. We continue to make excellent progress with our multiple financial services companies. We are actively engaged in a number of custom software development projects to allow our customers to begin to actively roll out the technology to their Tier 1 retail customers. We have been spending quite a bit of time developing both kiosk and handheld applications that will allow retailers' customers to apply for instant credit on the spot.

In addition we continue to work with our customers on integrating our technology into the retailers' point-of-sale systems. We expect to roll out our technology for the issuance of instant credit with a number of significant retailers over the next several quarters.

On the access control side of the business we're continuing to partner with multiple players in the industry. We recently announced a new partnership with Stopware who is one of the leading providers of visitor management systems. We are not only targeting Class One office buildings but high-risk targets such as oil refineries and power plants. We expect this line of business to be steady as customers improve their access control security.

On the financial services side of the business our relationship with Veraphone continues to strengthen. With their recently announced acquisition of [Lippman] it will provide yet another channel for us to sell through. We have signed up a few key ISOs and with the addition of our new employee heading this vertical, we expect this business to grow quickly over the next few quarters. The addition of the Verika V platform will now allow us to serve a larger percentage of the ISO community.

We are also in the final stages of developing a new web-based product for banks and credit unions to use to verify not only the encoded media on the drivers license but also generate detailed reports about the individual to help prove the customer's claims identity including a Social Security check, (indiscernible) compliance and out of the wallet questions.

Because the architecture of this product is browser-based our customers will be able to use our new BHO and no integration will be required. This product will be offered using our transactional model menu stream. We hope to be able to launch this product in limited release by the end of the second quarter.

We are continuing to sell our product for age verification to bars and nightclubs. Unless legislation is passed, mandating the use of age verification technology, as the rest of our business grows this segment will decrease in percentage of our overall business. However should Federal or state legislation pass requiring verification of the driver's license and those establishments that sell alcoholic products, it could help to greatly spur the sales of our products. We are currently working with one state that is seeking to past such legislation.

We are also working with a variety of Fortune 500 companies on commercial projects where the key emphasis continues to be productivity enhancement. Customers we are working with range from shipping and logistic companies to auto rentals, to the wireless industry. We are confident that a number of pipeline opportunities will convert into bookings and revenues later this year.

We are still actively pursuing two key government opportunities before us. TO the first one is the First Responders program which is part of VHS. This is the program that will involve handheld devices running our software as well as additional applications. We are still working closely with the government and various partners on this opportunity including [Intermech]. We expect that we will see revenue opportunity from this sometime in late 2006 or early 2007.

The second initiative deals with the requirements of [FIPS] 201 which evolved from HSPD 12. This program calls for all government employees and contractors to be issued a new interoperable credential that will allow them access to any government facility. There are approximately 90 million new government IDs that are required to be issued starting in June 2006. We have partnered with Anteon to provide them our technology for the front end credentialing. We believe that we can potentially see revenue from this program beginning later in 2006.

We expect the momentum we have built up over the last year to continue and we're very optimistic about the future because of the announced wins and the potential revenue that can evolve from the business models associated with each one, together with the growing pipeline of new opportunities and government programs in which our technology is an important component, we remain optimistic that 2006 will be a great year for Intelli-Check.

I would now like to turn the call back over to Frank.

Amber, this completes the formal presentation to the Company. We will now be ready to accept any questions that our shareholders may have.

(OPERATOR INSTRUCTIONS) Sam Bergman. Bayberry Capital Management.

A few questions I have. First of all, regarding the ramp of some of these programs. Which programs are going to ramp up in the third and fourth quarter that will get you to that $6 million range of revenue?

We are actually expecting all of the things that we announced. We are not specific that any one is going to be the driver as Todd had stated very clearly in his comments that we expect to meet our goal. However the majority of it will come from commercial and without being specific in which it is, he mentioned all the various opportunities before us. We do not expect a great contribution from government although we do expect some, sometime this year.

Currently a couple of the announcements made this quarter with Metrologic and also Intermech. Are you presently receiving revenue from or license fees from these companies? Or those particular alliances have not started yet?

Well, we obviously definitely signed them. They have begun and as the opportunities develop within each of the markets that they are in we will receive revenue, based upon these programs.

Could you tell me which market Metrologic you two are focusing on?

Metrologic is more or less right now primarily in the commercial side and Intermech right now is primarily on the government side.

But Sam, Metrologic is really retail point of sale scanning technology. It can be for both Tier 1 retailers as well as kind of the petroleum side. Those are really the two active markets we are going after. Petroleum would be probably more on the age verification side to use our technology which is probably more of a stretch. But really where we see it are the Tier 1 retailers who are looking to implement our technology.

We see this primarily will be through the large financial services companies who go in and offer our products at the point of sale cash registers where they will need to upgrade their scanning technologies to be 2D compliant.

I see. That's going to occur in '06 or '07?

We definitely think we should see some, definitely, revenues from that in '06. There's no doubt about it. Exactly when, we can't tell you but we've been on a number of joint marketing calls with Metrologic; and we do have a lot of interest.

But to get back to your question you asked earlier, really, where I see a lot of potential or where I think a lot of the revenues are going to come from is the financial services sector. The large financial services companies where our technology will be some part of [handhelds] or kiosk for the issuance of instant credit.

We are seeing a tremendous amount of interest there and we are generating a lot of revenue from that today; and I think we have the potential to do some fairly large-scale rollouts or begin some rollouts by the end of this year.

Okay. Thank you, Todd. One last question, Frank. Homeland Security, I believe, in 2008 is requiring people coming over from Canada to not only have just a license but a passport and biometrics for their checkpoint. Are you involved in any of that at this point or not?

Let me just say there's been a lot of controversy as to what will be required to cross over from Canada, etc. The Canadian Premier said we have the driver license. Why do we need an e passport? So that is not a definitive initiative yet from the government that they will change from just the driver license to being forced to use this new e-passport that hasn't that even been certified yet. So it's very difficult to say that it will be an e-passport and not the driver license at this point.

And we are involved with partners of ours who are part of those initiatives in some of the areas.

(OPERATOR INSTRUCTIONS) Richard [Karp]. [Ganell] and Financial.

Actually just a few questions. No. 1, can you give us an update on the Tricom scenario?

Yes the Tricom scenario, we were in court for a pretrial hearing. This is a few weeks ago. What happened at the hearing is the defendants in this case - Tricom - requested an initiative -- not an initiative. They requested a hearing on what is called a Markman hearing. Our counsel had stated we wanted to go to trial. That Markman hearing was literally waived by the actions during the course of this litigation. The judge said pointblank that she knew very little about patent law. She therefore granted them two months to put in why there should be a hearing. Gave us a month answering them, three weeks.

So we are looking out past July 21st through this stall tactic before we can even wait for the judge's ruling. So nothing is really happening near-term based upon what took place at the pretrial hearing.

It was not detrimental to Intelli-Check; it just is another stall of time in our opinion.

I noticed that Tricom's product is in some of the 7-11s, which obviously we had tested there prior. Any update on dealings with 7-11? Or is that on a standstill because of this Tricom scenario?

All I can tell you is we have met with companies like 7-11 and the feeling -- and we have met with 7-11 as well on a number of occasions. The feeling we get - which is very very clear - is that these large C store chains and that's why I mentioned Metrologic's a little earlier a couple of minutes ago, because I think it's very important. I'm not sure if I expanded on it correctly enough and I apologize if I wasn't clear.

We really don't see any of these large petroleum C store companies ever buying a stand-alone product and rolling it out like a Tricom product or even like our 1400 that we used to sell or any of our stand-alone products.

They wanted integrated solution that is part of their cash register system and to do that you need a 2D bar code scanner like a Metrologic. So that's where that partnership becomes very important.

So really where I'm coming at is that I don't think that -- you may see some limited franchisees here and there buy a stand-alone product because they been stunned by an underage sting. But I don't really ever see - and we been told this pretty straightforward - that they are not interested in buying a stand-alone system. They want it integrated completely into their point of sale and that is what these partnerships with Metrologic's symbol that we've announced become so important because they are the ones who are actually selling the 2D bar-code scanners and are in there embedded with the C stores and the point of sale companies.

So we really don't see that as a viable option long-term for these guys.

[Stephen Morris]. Private investor.

Just to reiterate on that one, you are pretty much saying that the Tricom product is no competition and how -- do you know anything about how they are surviving? And how they are able to generate the resources to constantly stall this thing?

I mean I won't speak for how they are surviving but there is certainly a market for it because I don't know, but there is certainly a market for onesees and twosees. But it's a very expensive market to go after because you need a lot of feet on the street. And when you are selling a product for sub $1000, you can imagine the share volume you need to share sale to generate significant revenues. Where we are going after the large financial service companies integrating with the large petroleum companies.

That's a very different product. That's more of a licensee and not a stand-alone product and we really don't see those guys as a competitive threat in those markets at all.

Can you expand a little bit more on this financial services side and bring us on any updated on the target stores?

We can't speak about customers specifically but all I can tell you is where we have done installations the technology is just being received so unbelievably well it is being spread out, not to only applications like instant credit but also check authorization as well as returns and exchanges. So people have been very very pleased with our technology. We have three major, major players who are customers of ours today generating significant revenues for us that are all three major financial services players.

All of ours have our technology actively out in the field, working. So all I can say is, we are making tremendous progress and our technology has been shown to virtually every Tier 1 retailer in the country with just tremendous excitement, and really where we are really going after it is on the handhelds and kiosk side. Because there doesn't require any integration into the point of sale system and that just takes a lot longer to integrate. But yet we can get our products out there, literally in a matter of weeks, months once the technology is completed to their specifications with stand-alone products that are kiosk- or handheld-related.

And the potential size of some of these orders what are your -- your best guesstimate?

I mean some of these orders - because we will be selling a bundled solution that will include hardware and software, the software may come in the realm of transactional or subscription models. Which most of them do but we will be selling to hardware as well. Obviously lower margins but higher dollar amounts, which will add a lot of contribution dollars to the line. Should be in the hunters of thousands of millions of dollars if these retailers began to roll out the products. There's no doubt about it.

So that is why we are pretty excited and we have been working with a lot of these companies now for six months to a year and really starting to see a lot of excitement and more so just waiting for key product to be ready so they can get into their store.

We see some actually potential that we are trying to meet for back to school with some of the retailers we are working on because as you guys probably know, back to school is a huge time for retailers. And that is really in the August timeframe.

So there are a couple of initiatives we are trying to get out there, literally in the next month so they can do their planning, see exactly how it works. tweak it for back to school potential.

There are no further questions. (OPERATOR INSTRUCTIONS). And no further questions, Mr. Mandelbaum. I will turn the conference back over to you for any closing or additional remarks, Sir.

Thank you, Amber. We thank you for attending the Intelli-Check first quarter conference call. We look forward to speaking to you in the future and continue to bring you good news as the year develops. Thank you all for attending.

That concludes today's conference. We do appreciate your participation. Have a great afternoon.