Intellicheck Inc (IDN) 2014 Q4 法說會逐字稿

Greetings, and welcome to the Intellicheck Mobilisa fourth-quarter and 2014 year-end results. At this time, all participants will be in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Cheryl Schneider with Dian Griesel International. Thank you. Ms. Schneider, you may now begin.

Thank you very much. Hello and welcome, everyone. Thank you for joining us today for Intellicheck Mobilisa's fourth-quarter 2014 conference call to discuss its results for the fourth-quarter and year ended December 31, 2014, and to discuss other business developments.

In a moment, I will turn the call over to Dr. Bill Roof, CEO, to lead today's call and introduce the members of the Intellicheck Mobilisa management team who will be participating in the call. However, before I do that, I will take a few minutes to read 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, encourage, 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 management, identify forward-looking statements within the meaning of the 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.

At this point, I would like to turn the call over to Bill Roof, CEO of Intellicheck Mobilisa. Bill, please go ahead.

Thank you, Cheryl. Good day, and welcome to the Intellicheck Mobilisa Q4 2014 and 2014 annual earnings call. Today we will present corporate earnings information for both the quarter and the year ending December 31, 2014. As we are anticipating holding our annual meeting this year on May 6 or about six weeks from now, we hope to have the opportunity to answer shareholder questions at that time.

Our Financial Officer, Bill White, will now review the 2014 Q4 and annual financial results. Bill?

Thank you, Bill, and a good day to our shareholders, guests, and listeners. I'd like to discuss some of the financial information that was contained in our press release for the fourth-quarter and year ending December 31, 2014, which we released this morning. We anticipate that our Annual Report on Form 10-K, as well as our preliminary proxy statement relating to our planned annual meeting in May, will be filed with the SEC later this week.

Revenues for our fourth-quarter ending December 31, 2014 decreased 19% to $1.1 million compared to $1.36 million for the same period last year. Both the orders were approximately $986,000 compared to $1.28 million in 2013. A chief factor affecting our Q4 financial results was a goodwill impairment write-down of approximately $4.2 million.

In accounting terms, goodwill is defined as the amount the acquiring company pays for the acquired company that is deemed to be in excess of the acquired company's book value. This excess book value shows as an asset on the balance sheet, and as part of our review to engage a valuation company to test goodwill to determine the carrying value on the Company's financial statements was equal to or greater than the fair value.

After performing this analysis, it was determined that the carrying value of senior deferred value and a non-cash adjustment of approximately $4.2 million was made to reduce the carrying value of goodwill on the Company's books. Our gross profit was $355,000 for the quarter or 32% as a percentage of revenue.

For the three months ending December 31, 2013, gross profit was $889,000 or 65%. It is important to note that a non-cash adjustment of $330,000 and amortization expense was taken in Q4 to address intangible assets which were set up incorrectly in 2008. As a result, amortization expense was understated in Q1, Q2 and Q3 of 2014.

Because of the qualitative factors involved and the fact that this adjustment was a non-cash expense and not material to the financial statements, we believe the appropriate accounting treatment was to make the adjustment in Q4, which we did. Notwithstanding the one-time adjustment, gross profit was within historical range at approximately 62% of revenues.

Operating expenses, which consist of selling, general and administrative, research and development increased $4.827 million, consisting of $317,000 for the three months ending December 31, 2014 from $1.49 million for the three months ending December 31, 2013. The increase in expense includes a $4.2 million goodwill impairment charge previously discussed and a one-time amortization adjustment of $330,000. Net of these adjustments, operating expenses increased $290,000 over Q4 2013.

Adjusted EBITDA for the quarter ending December 31, 2014 was minus $875,000 compared to minus $330,000 in the quarter ending December 31, 2013. The Company posted an operating loss of $1.4 million net of the non-cash adjustments for goodwill and amortization, and the net loss of $5.96 million for the three months ending December 31, 2014, including those adjustments, compared to a net loss of $600,000 for the quarter ending December 31, 2013.

The summary of the financial results for the 12 months ending December 31, 2014 and 2013 are as follows. Revenue for the 12-month period ending December 31, 2014 decreased 9% to $6.6 million compared to $7.3 million for the previous year. Our gross profit was $3.85 million for the 12 months ending December 31, 2014 or 58% of revenues, and $4.5 million for 2013 or [62%] of revenues.

Operating expenses net of the goodwill impairment charge increased $340,000 or 5% to $7.3 million in 2014 versus $6.95 million in 2013. Total operating expenses. including the $4.2 million goodwill impairment adjustment, increased $4.5 million to $11.5 million for the 12-month period ending December 31, 2014 from $6.9 million for the previous year. EBITDA was minus $2.1 million in 2014 compared to minus $1.32 million in 2013.

The operating loss, net of goodwill impairment charge, was $3.438 million or $0.72 per diluted share for the 12 months ending December 31, 2014 compared to an operating loss of $2.42 million or $0.70 per diluted share for the year ended December 31, 2013. The net loss, including the impairment charge of $4.2 million, was $7,644,000 or $1.59 per diluted share for the 12 months ending December 31, 2014.

As of December 31, 2014, our backlog was approximately $530,000 compared to $381,000 for the same period last year. Interest income and expense were negligible.

Now I'd like to focus on the Company's liquidity and capital resources. As of December 31, 2014, the Company had cash and cash equivalents of $2,966,000; working capital defined as current assets less current liabilities of $1,880,000; total assets of $15,814,000; and stockholders' equity of $13,148,000.

During the 12 months ending December 31, 2014, the Company generated net cash of $2.75 million compared to using $1.46 million for the 12 months ending December 31, 2013. Cash used from operating activities was $2.5 million in 2014 compared to cash used of $1.5 million in 2013. We used cash of $131,000 in investing activities compared to $81,000 in 2013. Cash provided by financing activities was $5,247,000 in 2014 compared to $71,000 in 2013.

In 2012, the Company entered into a two-year revolving credit facility with Silicon Valley Bank. The maximum borrowing under the facility is $2 million. Borrowings under the facility are subject to certain limitations based on a percentage of accounts receivable as defined in the agreement, and are secured by substantially all of the Company's assets. At December 31, 2014, there were no outstanding borrowings and unused availability under the facility was approximately $696,000.

We currently have effect of a universal shelf registration statement on Form S3 with the Securities and Exchange Commission. Under the shelf registration statement, the Company may offer itself from time to time in the future in one or more public offerings its common stock, preferred stock warrants, and units.

The aggregate initial [operating] price of all securities under this registration statement sold by this Company will not exceed $25 million. And pursuant to SEC rules, the Company may only sell under this registration statement up to one-third of the market cap held by non-affiliate stockholders in any 12-month period.

I will now turn the discussion back over to Dr. Roof.

Thank you, Bill. What you just heard defines the challenges before us. Since October 1, we have worked diligently to identify and understand these challenges, and we subsequently defined the strategy, and plan to quickly and effectively address shortcomings of the past, and that we believe will put us on a path to long-term success. We are extremely optimistic about our vision and strategy, and we'll share our progress with you today.

In early October 2014, we began by defining a new company culture that focuses on employee engagement and breeds a self-starter attitude, innovation, respect, honesty, and success. We planned and implemented a company restructuring in November that supported our strategic vision and removed barriers to success.

We have traveled the country nearly every week since early October to meet with customers and business partners. As a result, we inaugurated a new era of mutually beneficial business relationships, with a focus on economic synergy, respect, honesty, and success. We concluded that the Company's infrastructure was aged and insufficient to support growth. So, we began modernizing our infrastructure to position the Company to compete and win in today's information technology markets.

Over a period of many weeks, we met with current and prospective investors where we articulated our go-forward strategy for pivoting the Company and positioning Intellicheck as a true leader in our space. The September and November addresses to our shareholders focused on five main areas -- resources, markets, products, processes, and intellectual property.

At this point, we will describe our progress in each of these (technical difficulty) -- marketing leader and team player. He defines the five rights we require for this position, those being the right person with the right ethics and the right skills in the right place at the right time.

In January, we raised approximately $8.5 million in capital. This capital infusion provides critical advantages to the Company. One, the capital provides the cash we need to execute our new business plan; and two, the capital gives us agility to address new markets, products, and relationships quickly and effectively.

In January, we hired a new Vice President of Sales, Bob Sanfelippo. Bob is a career sales professional who brings tremendous experience to our sales efforts, and who is already bringing significant value to our sales planning, strategy, and process. Bob is making a big impact with prospective partners and clients around the country.

We began renegotiating legacy contracts that were losing money, and we have been successful in many of our negotiations to date. As mentioned earlier, we began implementing a new company IT infrastructure that moves us to the cloud and provides the following benefits. The new infrastructure adds a modern customer relationship management system for our sales and marketing team to use in planning and executing our strategies.

We are replacing QuickBooks with an integrated financial system that provides the level of granularity, visibility, and transparency we need to operate the Company. We implemented a goodwill impairment write-down of approximately $4.2 million, due mainly to the two capital raises, the August 2014 reverse split, and the declining share price during 2014. This was a non-cash write-down and does not affect our cash position.

Markets. In January, we began identifying firms to support our rebranding and marketing strategies. We began our rebranding efforts in February, and expect that you will see significant changes as we complete implementing our strategy in Q2 2015.

In February, we signed a contract with Helzberg Diamonds, a member of the Berkshire Hathaway Group, to purchase our ID Check software using our new Software-as-a-Service or SaaS revenue model. We are excited about our business relationship with Helzberg Diamonds and look forward to the potential of expanding our business to other Berkshire Hathaway companies.

We began developing compelling strategic partnerships that we expect will support and enhance our current and future product strategies. We began identifying and establishing business relationships with product development and channel partners of all sizes, both traditional and nontraditional. We plan to announce these relationships either via our website or formal press release, as appropriate.

Products. In November, we pulled the Fugitive Finder product from the market for redesign and rebranding. There were a number of design and operational issues that made the product unsuitable for the market. Our redesign and rebranding efforts, nearly complete at this time, include critical input from law enforcement focus groups.

We are ready to take our initial version of this product to market, backed by a defined product roadmap resulting from our focus group efforts. We ask that you follow our progress by visiting our website and by remaining vigilant concerning other announcements we may release in the near future.

In January, we canceled the barZapp product, as it was losing money for the Company, it was being used by hackers around the world to perfect their fake driver's licenses. At that time, we began our enhanced security, product redesign, and rebranding strategy, and we will be ready to release the new product shortly for valid businesses only.

We developed new pricing strategies and models that support our revenues and earnings goals. Acceptance of our new pricing by legacy customers is good, while acceptance by new customers is excellent. Additionally, existing contracts that are losing money for the Company have been or will be terminated.

We began enhancing the design of our Defense ID products to provide a viable security solution for the Defense Department as well as state, federal government, and commercial markets. Current customer and potential customer response is extremely positive. Again, we ask that you follow our progress by visiting our website and by remaining vigilant concerning other announcements we may release.

Processes. We conducted our annual shareholder meeting in early November 2014. We conducted a detailed due diligence effort and provided finding suitable at the November meeting. At that time, we presented a go-forward plan to the Board and identified resources necessary to execute the plan.

We scheduled and completed a non-raise roadshow with potential investors in early November 2014. We planned and implemented a Company restructuring in late November 2014, with a focus on sales and marketing. We conducted a roadshow in early January, with the goal of raising the capital required to execute our business strategy. This resulted in a successful raise of approximately $8.5 million.

We conducted an annual sales meeting at our Jericho office in mid-January. One result of this meeting was the implementation of a new strategic sales and forecasting process. Also in January 2015, our executive team evaluated the sales opportunities customer by customer, dollar by dollar, and began developing new forecasts based upon our new forecasting and deal qualification methodologies.

In many cases, we visited customers to measure and understand the validity of the relationship and probability of signing a contract. The result of these efforts is a new, fresh, and accurate understanding of our business potential going forward.

We met with potential investors during a non-raised roadshow in February 2015. We conducted a Board meeting in Alexandria, Virginia in March 2015. We developed a Company budget and presented it to the Board in early March 2015. We presented Intellicheck at the ROTH conference in March 2015. And in March 2015, we sourced and hired an ITIL-certified Customer Support Manager to build and manage an industry standard service management organization to support our customers.

Intellectual property. In December 2014, we began identifying alleged patent infringers. In January of 2015, we began identifying law firms to manage legal initiatives pertaining to the patent infringement issues. We are approaching the protection of our intellectual property from a number of legal avenues that include contingency-based agreements.

In March 2015, we filed a lawsuit against IDSCAN.NET. This is the first step in our strategy to protect the shareholders' intellectual property rights, and potentially to recover compensation for use of our patented technology. At this time, we have one additional patent infringement suit prepared and ready to file, and we have additional targets identified. Also, we submitted one new patent to the Patent Trademark Office and are preparing to submit additional patents.

In summary, we articulated a five-point plan for our shareholders in September and again in November. Today, we informed our shareholders of our progress against this plan. We sincerely hope you recognize our progress and ask for your support as we move the Company forward.

For those shareholders who have contacted us to wish us well and to ask how they might help, we deeply appreciate your thoughts and prayers. This is the type of support that will help us as we pivot the Company to profitability and increase shareholder wealth.

Thank you for your attention today. We look forward to addressing our shareholders again during our next shareholder meeting. Have a blessed day.

Thank you, Bill. Operator, I'm turning the call back to you now.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.