Intellicheck Inc (IDN) 2009 Q4 法說會逐字稿

Greetings and welcome to the Intellicheck Mobilisa 2009 annual shareholder meeting. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Carbonara, Investor Relations Group for Intellicheck Mobilisa. Thank you. You may begin.

Thank you very much and welcome, everyone. Thank you for joining us today for our 2009 fourth quarter and end of year conference call to discuss Intellicheck Mobilisa's results for the fiscal quarter ending December 31, 2009, and to discuss other business developments. In a moment I will call upon our CEO to lead today's call and introduce the other members of the Intellicheck Mobilisa management team who will be participating in today's conference call.

Before I do that, I will take a few minutes to read through the forward-looking statements. Certain statements in this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. When used in this conference call, words such as will, believe, expect, anticipate, encouraged, and similar expressions as they relate to the Company or its management, as well as assumptions made by and information currently available to the Company's fourth quarter and fiscal year 2009 financial results, management identifies forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management's current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances and the Company is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of such changes, new information, subsequent events or otherwise. 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.

With that out of the way, I would now like to introduce Dr. Nelson Ludlow, Intellicheck Mobilisa's Chief Executive Officer to preside over today's call. Nelson?

Thanks, James. Good day, everyone and on the call today is Steve Williams, our Chief Operating Officer and Pete Mundy, our Chief Financial Officer. Now today we'll discuss our fourth quarter revenue and a record year-end revenue.

For fourth quarter, we generated about $2.5 million, slightly more than Q4 revenue for 2008. Our end-of-year revenue was a record and it was above $12.4 million for the year 2009 which is an increase of about 24% compared to year-end revenue for 2008. Cash, cash equivalent position for the year ended at about $3 million, $3.0 million which is a modest decrease for the year. We ramped up sales personnel and particularly good when you look at that we also completed an acquisition and paid out cash for part of that to make that acquisition happen.

During the fourth quarter, we had a win for the transportation worker ID card or Quick Reader with the port of New York Port Authority, New York and New Jersey. Now, being chosen to protect the New York City speaks volumes, just for the sheer number of residents per capita in height and focus on security in New York City since 2001. They live 9/11 so they're really the leading port. We also received an Air Force-wide ATO or authority to operate during the fourth quarter.

Now, while defense ID has been at use at several air force bases across the country. including Andrews Air Force Base, the Air Force Academy, the award of the system-wide certification now allows procurement at other US Air Force bases nationwide. And that's in addition to the ATOs for the Navy, Marine Corps and the Army that we already have had. We added Dr. Bill Roof as Chief Scientist to our Company who brings a high level of technical expertise to our Company. His experience in the wireless arena coupled with significant law enforcement background, he was an NCIS agent and has a PhD in software engineering and he's invaluable to our Company.

On the commercial side, we won a contract with BJ Alan & Company, a well-respected national fireworks Company which will integrate the Intellicheck Mobilisa's ID check fast form software into all their point-of-sale terminals, 54 stores nationwide. We've won awards and accolades this quarter for the Best Harbor Security Technology for the Littoral Sensor Grid wireless security buoys. And this year we were named the 170th fastest growing company in North America by Deloitte on their 2009 Technology Fast 500 program. We also had the opportunity to meet with shareholders at the annual meeting on October 27th in New York City this year. While we maintain a large focus on closing new business and meeting with new potential investors, it was great to meet with the existing stockholders and something management looks forward to every year.

The last week of the fourth quarter, we were featured several times in the media in the wake of Christmas underwear bomber. As our defense ID access control product, which is already in use at over 80 federal facilities across the country, could easily be utilized at airports. Defense ID could empower TSA agents to identify terrorists or would-be terrorists whose are on watch lists who are attempting to board aircraft with falsified, fake, lost, or stolen ID cards.

Now we're vigorously pursuing those opportunities. We've sold product to TSA prior to the attack and have increased communications since that time. In fact, Steve Williams and I were speaking to Homeland Security just yesterday. Uniquely, our technology seeks out the bomber, not the bomb.

Practically speaking, it's far cheaper than the body scanners that the Wall Street Journal listed from other companies in the $100,000 to $150,000 range, compared to a $7,000 price tag for our product. It's non-invasive, takes only a second of time to scan an ID, cross references the full legal name, looks at things like height, weight, eye color, state, weight, date of birth and reduces the chances of the stories we've heard of a seven-year-old boy being named -- getting stopped each time he travels through the airport. Airport security is one market where our technology has application and since the fourth quarter, we were awarded a contract with US Army at Fort Stewart to provide them with defense ID.

On the commercial side, we partnered with Rooms to Go. They're America's number one independent furniture retailer. This was for our ID check fast form product. It eliminates vulnerable, at time consuming paper and pen applications to provide a paperless instant secure credit card application and approval. This product scans the bar code or mag stripe on the back of an ID which contains information such as name and address and it populates those fields in electronic applications.

Comparing to writing your sensitive data and handing it over on a piece of paper, not to mention speeding up the process for a much better customer experience, preventing the lines from building up to enable retailers to safely and quickly offer this sticky retention useful product. One of our clients, LL Bean reported back to us that their customers are 12 times more likely to sign up for a card using the ID check fast form, signing up for over a course of a week with the automated form and within two weeks than the entire prior year before that so more people in two weeks had new credit card applications than the year before.

Now, since Q4, we've also signed an agreement with Alliance Data Systems. I think we've all seen a press release on that. That's probably one of our most important contracts to date. They're a leading provider of loyalty and marketing solutions to pilot ID check fast form technology for potential applications and deliver of its credit card programs to provide to retailers. Their retailers are big. I believe they have approximately -- over 90 different retailers.

Okay, at this point I'd like to have Pete Mundy, our Chief Financial Officer, give you more color on the Company's financials. Pete?

Good day to all. I'd like to discuss some of the financial information that was contained in our press release for the quarter and year-ending December 31, 2009 which we put out this morning. Our complete annual report on Form 10-K will be filed with the SEC later this afternoon.

Revenues for the fourth quarter ending December 31, 2009, increased slightly to $2.577 million compared to $2.575 million for the previous year. Total booked orders were approximately $5.1 million in the fourth quarter of 2009 compared to approximately $5.4 million in the fourth quarter of 2008. As of December 31, our backlog, which represents non-cancelled sales orders for products not yet shipped and services to be performed, was approximately $10 million compared to $11.3 million at December 31, 2008. Our gross profit as a percentage of revenues was 64% for the three months ending December 31, 2009, compared to 60% for the three months ending December 31, 2008. The increase in percentage is due to a change in our product mix.

Operating expenses, which consist of selling, general and administrative and research and development expenses, increased 16% to $2.208 million for the three months ending December 31, 2009 from $1.901 million for the three months ending December 31, 2008. As the Company experiences further sales growth, we do expect that we will incur some additional operating expenses to support this growth, including the hiring of additional sales persons and an increase in marketing costs such as participation in more trade shows and the generation of marketing materials. Research and development expenses should also increase as the level of research and development projects increase and we continue to integrate additional products and technologies with our patented ID check technology. Interest income was negligible during the period.

The interest expense of $10,000 in the fourth quarter of 2009 represents the amortization of deferred debt discounts recorded on the notes payable related to the positive access acquisition; it was not a cash outlay. We do not have a recorded tax provision due to the expected utilization of net operating loss carryforwards. We still have approximately $37.2 million in NOLs that can be utilized in the future. Adjusted EBITDA for the quarter ending December 31, 2009, was negative $194,000 compared to a positive amount of $178,000 in the quarter ending December 31,2008. Our net loss was $574,000 or $0.02 per diluted share for the three months ending December 31, 2009, as compared to a net loss of $32 million or $448,000 or $1.29 per diluted share for the three months ending December 31, 2008. However, included in 2008 was the impact of the non-cash goodwill and intangible asset impairment charge of $32.093 million.

For the full year-ended December 31, 2009, revenues increased 24% to $12.415 million from $10.017 million in 2008. We continued to increase our revenue stream -- our recurring revenue stream. For 2009 recurring revenues represented approximately 24% of our total revenues. Our gross profit percentage was 65% in 2009 compared to 63% in 2008. And total operating expenses increased 20% to $8.602 million compared to $7.166 million excluding the impairment charge in 2008. Adjusted EBITDA increased to $980,000 compared to $922,000 and our net loss was $526,000 or $0.02 per share compared to the net loss of $32.921 million or $1.47 per share.

Now I'd like to focus on the Company's liquidity and capital resources. As of December 31, 2009, the Company had cash and short-term investments of $3.008 million, working capital of $2.257 million, total assets of $25.758 million, and stockholders equity of $21.579 million. The Company did not utilize any bank financing during 2009. The primary sources of cash during 2009 has been the cash provided by our net income. The primary uses of cash have been for working capital and for acquisitions. The Company generated $320,000 in net cash from operating activities, principally as a result of the cumulative net loss for the year offset by changes in working capital. Net capital expenditures were $168,000, principally related to the purchase of additional computer equipment. Stock option and warrant exercises in 2009 generated cash of $54,000.

On August 31, 2009 the Company acquired 100% of common stock of Positive Access Corporation, a leading competitor to Intellicheck Mobilisa for developing drivers license reading software for $1.948 million. The terms include cash payments of $1.225 million of which $625,000 was paid on August 31, 2009 and $400,000 will be paid on August 31, 2010 and $200,000 at August 31, 2011. The current and long-term portions of the notes payable were initially recorded in the financial statements net of deferred debt discount of $40,000.

In addition, the Company issued 608,520 shares of common stock valued at $750,000 plus direct issue cost of $13,000. The transaction was accounted for using the purchase method of accounting. The initial cash payments are funded out of the operating cash of the Company. Even after the net cash of approximately $600,000 used to purchase Positive Access during the year, the Company only used net cash and short-term investments of approximately $392,000. We currently anticipate that our available cash and short-term investments, as well as the cash from operations will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. I'll now turn it back over to Nelson.

Pete, thank you. Particularly pleased about the Positive Access acquisition because as you pointed out in those numbers, we were able to absorb that without going to the street for money, without taking a loan from a bank or some financing, so the Company absorbed that very good.

Now, I'd like to mention briefly about the lawsuit, the EID Passport filed on December 1. I can't go into details of the case at this venue, but I do want to comment on the press releases that EID Passport has put out saying they're expanding the lawsuit. Actually, they dropped one of their original claims when they put out that press release and most of all, their claims are false. We stand behind our products and our technology. Our position remains unchanged and I want you to know we do not plan on issuing a press release every time EID files another frivolous claim. We have the same position. Please be confident that these claims are frivolous and that we will definitely vigorously defense our Company, their reputation and your, the shareholders interest.

In changing subjects, we mentioned about the award that we won this year for Port Security in Deloitte award for the Fast 500. Also we won a Puget Sound Business Journal fastest growing Company in Washington State. We are Number 6. And we were listed by the Russell as IDN with the top performing stock in the year 2009 in their micro cap stock index. There may have been one press release that might have took the Russell 2000 and it's actually the Russell micro cap which is actually a slightly larger list, and we were number one performing stock for 2009 on that list.

Let's review big picture strategy here. For 2010, we plan to build off the successes that we've started in 2009. Remember, 2009 is the first whole year that the new management team has had with IDN. We're going to keep pressure up to close sales to the major retailers; this coupled by adding more military bases or to win seat ports for our quick reader. Our augmented sales team has created a stronger pipeline now more than ever with existing products and introducing some new products we launched this year for pharmacies, banks, hotels and even now a law enforcement product we're testing at one of our military bases.

We expect the Company to continue to grow organically at a healthy rate without winning one of these big contracts from Homeland Security such as the airports. If we do win a big contract like that, then we'll have explosive growth so let me discuss one such possible large program. $1 billion of additional funding has been mentioned by the President -- the President of the United States has asked for funding for new screening technologies and systems so we're pushing for TSA to review our product.

There's a recent Zogby, a national poll of over 1000 citizens, that 90% stated that they are in favor of TSA agents scanning passenger driver licenses and ID cards at the TSA checkpoint. Over 90%; that's pretty impressive. Clearly this is needed and it provides an additional security layer to TSA's all other layers of security so we're working to get our products in front of the right people at the Department of Homeland Security and at TSA.

Without that, we're going to have healthy organic growth and with it, we should have explosive growth. On top of it and I've stated to shareholders before, do not be surprised if we make some other acquisitions that are similar to the acquisition that we made with Positive Access. We know the security space and we are looking for smart tactical acquisitions that compliment our Company. With that, I'd like to now turn it over to Steve Williams to talk about the business development. Steve?

Thank you, Nelson. We continue to build all three business units; wireless, government identity and commercial identity. Our wireless team got a boost with the addition of Dr. Bill Roof, Chief Scientist. With over 27 years of software engineering experience, Dr. Roof most recently held the position of Vice President of Engineering for Intelli-Dot Corporation, no Patient Safe Incorporated, where he successfully lead the Company through a challenging FDA approval process for mobile, wireless hardware, and software products. Throughout his corporate career, Dr. Roof has served as Vice President of Research and Development for Pyxis Life Sciences, a division of Cardinal Health, co-founder and Chief Technical Officer of Ameranth Technology Systems and Design Engineer and Manager at SAIC.

On October 1, we announced the receipt of an additional $4.5 million from the United States Navy for our Littoral Sensor Grid wireless security buoy technology, signaling our governments confidence in the capability and need for this technology. About three weeks later, as Nelson previously mentioned, we were presented with the Best Harbor Security award by Admiral Retired Jay Cohen, former under Secretary of Science and Technology Director at DHS and former Chief of Naval Research to the United States Navy. The award recognizes this technology as the most promising for increasing harbor security around the country.

The wireless security buoys provides a high capacity communications, indication and warnings of network grid to provide realtime security monitoring for marine environments. The buoys include sensors for both environmental and Homeland Security purposes including water quality, oil spill detection, video, and dirty bomb detection as well as other security sensors. There are numerous applications for this technology, as there are many ports around the country or for that matter around the world that our security buoys can help make safe. In government ID, as Nelson mentioned, we have had enhanced communications with TSA following the Christmas attack on a Detroit airliner. TSA has bought IDN product prior to the attack. We are well-positioned and continue to position ourselves to help keep airports safe with our defense ID access control products.

In 2008 we participated in a Port of New York New Jersey conference. A year later in December 2009, we announced we were awarded a contract with the Port of New York New Jersey to supply them with mobile transportation worker identity credential TWIC readers and access to control systems to support the Department of Homeland Security TWIC pilot project. Also in December, we received yet another authority operator ATO. This time from the United States Air Force. We now have an ATO from the Army, Navy, Air Force, and Marines.

In January, we received a contract from the United States Army at Fort Stewart to provide them with defense ID access control systems. The value of the contract is $250,000 for equipment, software, installation, training, and warranties. This is the second military base in Georgia to purchase the defense ID system. In the Summer of 2009, Fort Benning purchased $800,000 worth of equipment and services to protect their military base.

In commercial ID, in December we announced a contract with BJ Alan Company to integrate Intellicheck Mobilisa's ID check fast form into all point-of-sale terminals in their 54 stores nationwide. BJ Alan chose our technology to further enhance their systems for better efficiency and customer service at the point-of-sale. Our ID check fast form automates the sales process as well as tracking purchases in relation to each customer and significantly enhances customer service by streamlining the process of gathering customer information. We added two more commercial clients already this year. We partnered with Rooms To Go, Americas number one furniture retailer, to provide instant secure credit card applications and approval. Rooms to Go is an important client and we're happy to provide products and services to their nearly 150 stores nationwide.

We also signed an agreement with Alliance Data systems to pilot the ID check fast form technology for potential applications and delivery of its credit card programs provided to retailers. Alliance Data currently manages nearly 90 branded credit card and marketing programs for many of today's leading retail brands. This is a big move forward for our two companies. Alliance Data will be able to offer our patented technology to their approximately 90 retail chains and improve the speed, security and accuracy in the credit application process. These are test markets currently being examined with a system-wide rollout scheduled to start later in 2010.

I'd also like to refresh you on the opportunities of our new products and update you on the traction we're making. Scan In is our ID check technology designed specifically for the hospitality industry. Building on our ID check technology, we have developed a product to help pharmacies track pharmaceutical sales to comply with state and federal laws called Assure Scan. The product scans the ID and tracks the amount of controlled drugs purchased to be within legal limits. If it is above limit, it is notifies the pharmacist. We have started to see sales on both of these products.

I'm very pleased with the pipeline we are developing and I won't get into specific numbers, but we have many pilots being conducted that were not in place a few quarters ago. As with government identity systems, our current customers continue to purchase additional recurring consumables in the commercial identity product lines. Thank you and I'll turn it back to Nelson.

Thanks, Steve. I just want to reemphasize one thing Steve said which is Alliance Data Systems. I recommend you guys go to AllianceData.com and check out that Company. That very likely could be the largest value contract the Company has had in its history, a very good partner and I'm very excited about that contract. You can see we've got a lot of business opportunities in the works and we have more in the pipeline now than we ever have had before. That's really what it's all about so let me recap today's call.

For 2009, it was our first full year since the merger with Mobilisa, and we beefed up our sales team, doubling the size. We acquired our leading competitor. We replicated the successful instant credit card application and replicated that at other large retailers, many more than we've ever had before. We won pilot projects for the TWIC reader, Port Authority in New York for example. And we have continued to win at military bases and the federal government. As a result, we recorded record revenues above $12.4 million, up 24% from the year before. For 2010, we have that strongest pipeline ever and we're pursuing larger dollar value contracts than we have previously.

The outlook is good. 2009 was good and 2010 even better. At this time I'd like to open it up the call to questions and answers. Out of respect for the other listeners, please clearly state your name, your organization, and try to succinctly state your comment or questions so that we can get you an answer. Thank you very much.

(Operator Instructions). Our first question or comment comes from the line of [Richard Karp with Rockwell Global Capital].

Good afternoon, gentlemen.

Hi, Richard.

I just have a few questions and I'll be very clear on them so we don't -- other people will have an opportunity. If I'm correct, since I've been involved with the Company for so long, fourth quarter is usually the weakest quarter and it's based on government and federal monies available -- is less money available during that time. Am I correct?

This work is definitely seasonal. I've looked at it for the last three years. Q4 and Q1 are typically the weakest quarters. Q2 and Q3 are typically our strongest quarters. With some minor deviation, that's held through for three years in a row, so yes, you're correct.

Now, you had made a statement that you felt that you would see healthy organic growth over this next year, even without getting anything out of the TSA in any substantial order towards the airports for that matter. When you say healthy growth, what percentage growth are you seeing when you state healthy?

Yes, as you know, we don't give forecast of specific numbers, but along the same lines of what you saw between '08 and '09, and our pipeline is stronger already than it was before. I feel confident that we're going to continue that organic growth. Let me emphasize that to everyone on the call. That's without winning TSA.

That is without winning some of these very large contracts that we're trying to go after, but that's obviously the goal we are going after. We're going to have continued healthy organic growth with the opportunity of explosive growth because we do have the product that TSA needs. We do have the product that the Coast Guard needs. When one of those things happen and we're keeping the pressure up and we will get there. When that happens, then we should have growth above that. I guess that's it.

The billion dollar supplemental bill that you mentioned, which I've heard about before, how long has that been up there without being approved or funded?

Okay, the President can make recommendations, Congress obviously has to vote the funding. It was under the underwear bomber did his thing, it was in January time frame and it was on the day that the President -- he had several press conferences, but it was a press conference that essentially they had to announce. There was a lot more information and they could call it connect-the-dots press conference where many groups within the United States did have this information, but it wasn't given to the right people and they didn't connect the dots. He was on a list called the Terrorists Identity Data Mark Extract List. It has about about 549,000 names on it. Let me just tell the shareholders here, the no fly list a much smaller list. It's about 5,500 names. the group -- in fact we were just speaking to the guy that used to be in charge of that no fly list. And they did have pressure to reduce the size of that list so you're not stopping the wrong people, but there are other lists out there.

Our product, currently military bases, scans well over 100 lists. It's not a technology problem and indeed, yes, it's a big organization and they're trying to get things right. We're trying to make sure we get to the right people and with things like the Zogby Poll coming out, 90% of the public are in favor of scanning an ID at checkpoint. Senator Schumer from New York did a press release -- not a press release, sorry, a press conference and he asked lead questions. I think they did do a press release with that conference, and he asked a question, what if somebody has a fake ID, and it gave examples of security loopholes that we still have.

That's why we're here. We have the solution for that and we're going to keep the pressure up with them. But without that, Steve and his team have many -- we've doubled the sales team so it's no surprise our pipeline is bigger. We're hitting more places and we have good products, so that's why the pipeline is bigger.

Two last things. Obviously my clients who own the stock are very excited about the money you've been given because obviously by the Navy to develop this buoy product, $7.5 million to date if I'm correct.

I don't have the exact number so I don't want to comment, but it is in the millions, yes. Are you asking for an exact number of how much funding we received to date because if so, I don't have that in front of me. The rest of that question might be?

Okay, but yes we have received funding on to that. That is probably one of the very important products or projects and we are converting that to a product to sell to other ports. We've had very successful tests for dirty bomb sensing. I think the culmination of that was, yes, the Navy gave us funding for that, but to have the Admiral that was in charge of the Office of Naval Research and the Head of Science and Technology for the Department of Homeland Security, say this is one of the most new promising technologies just verified what we knew this was a good idea. It makes sense. Just like walking through the metal detector, you have the cargo ships go through a screening for dirty bombs so that's what we're doing.

(Operator Instructions). I'd like to hand the floor back over to management for closing comments.

Okay. I wanted to thank everyone for being on the call. This last quarter, I visited many of you. We traveled around the country, have met with nearly 20 analysts. We're talking to people. This Company is going places and if you do have a question that you did not want to ask on here, please contact our IR firm. I want to make sure that we're addressing whatever questions you have. We're proud of this Company and we would be glad to get you whatever information you need, as well as we've already done meetings throughout the four corners of the United States and are going to be doing more meetings with investors. Again, thank you, and I'll look forward to meeting with you personally or on our next conference call for Q1. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Have a wonderful day. Thank you for your participation.