Identiv Inc (INVE) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter, 2012, Identive Group earnings conference call.

My name is Montoya and I will be your operator for today.

(Operator Instructions).

I would now like to turn this presentation over to Ms.

Darby Dye, Director of Investor Relations.

Please proceed.

Hello, Everybody, and thank you for joining us today.

The purpose of today's conference call is to supplement the information provided in our press release issued earlier today announcing the company's preliminary financial results for the first quarter ended March 31, 2012.

Speaking on today's call are Ayman Ashour, Chairman and CEO, and Melvin Denton-Thompson, CFO.

Before we begin, I would like to remind you that various remarks we make on this call including those about our projected future financial results, economic and market trends, and our competitive position, constitute forward-looking statements.

These forward-looking statements and all other statements made on this call that are not historical facts, are subject to a number of risks and uncertainties that may cause actual results to differ materially.

The forward-looking statements we make today speak as of today, and we do not undertake any obligation to update any such statements to reflect events or circumstances occurring after today.

Please refer to today's press release, our annual report on form 10K for the year ended December 31, 2011, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results.

During this conference, we will also be making reference to Non-GAAP results or projections, including Non-GAAP revenue, first margins, operating expenses, and adjusted EBITDA.

Each of these Non-GAAP measures excludes some or all of the following.

Acquisition, transition and integration costs, equity based compensation expense, adjustments to earn out estimates, overhead allocation, and amortization and appreciation, and may also include the assumed breakage from consumer payment cards where, based on historical experience, the likely hood of redemption is remote, as well as timing differences on revenue associated with the personalization of pre-printed payment cards and tags.

Identity used these Non-GAAP measures internally and believes they provide a meaningful way to investors the to evaluate and compare our operating performance from period to period.

The cautions investors to consider these measures in addition to, not in a substitute for nor as superior to, Identive's consolidated financial results in as presented in accordance with GAAP.

A complete reconciliation between GAAP and Non-GAAP financial measures is included in today's press release.

Which is available in the investor relations section of Identive's website.

As a reminder, today's call is also available as a web cast with slides which can be accessed from the presentations reports and web cast page within the Investor Relations section of our website, at www.Identive-group.com.

If you are viewing the web cast you may enlarge the slides in the presentation by clicking on the magnifying lens in the bottom right hand corner of your screen, I would now like to introduce Ayman Ashour.

Thank you, Darby.

Good morning and thank you to all of you for joining us.

We had a poor Q1.

We always expected a challenging quarter, due to two reasons.

One, seasonality, the other one, the absence of revenue from the German EID program.

We have actually had the German EID program running for the last six quarters or so.

Which contributed nearly $3 million in our Q1 results last year.

Q1 was also worse than we planned because of the impact of slow down of various European citizen ID programs as the various (inaudible) measures hit.

You will see on the chart that our Citizen ID business, which is normally 20% of our business, was down to just about 10% of our business.

We also had deferral's of previously forecast orders for NFC (inaudible) box and from a large hand set manufacturer, as well as a couple of delays on payment orders, which hit our transponder business particularly hard during the quarter.

We had good performance for many other areas of our business, which helped bridge the gap of the nearly $3 million due to the absence of German National ID work.

In our ID infrastructure we had continued strong sales to support Telecom projects in Japan and China, as well as good order flow for embedded reader for the US Government IP security applications.

We also won a new contract from a US federal agency to supply more than 250,000 smart card readers for network log on.

Part of which we fulfilled in Q1.

And we achieved design wins with three different enterprise customers for our new secure tokens to support also cyber security initiatives.

In the ID solutions part of our business, we expanded the roll out of our cash less payment systems in Holland to more than 100 locations and 50,000 users.

And we added new payment capabilities and recurring business to our acquisition of payment solution in Germany.

Sales in our enterprise security business grew 10% year-over-year, driven by the expansion of our customer base in the commercial and industrial markets in the US, and in internationally, and also by improvement in activity in the US federal government sector.

We recently launched NFC base solutions for physical access control market and expect to be going into trials in this important area of NFC for business markets.

As we look forward, we're encouraged by the build up of our order book to about $18.5 million, based on commitments coming from across our business.

More than 40% of our revenue stream now comes from business of recurring nature.

Sales of payment products, services, and systems now account for approximately 13%, a little bit over 13% of our total Non-GAAP revenue, and our material and growing part of our business.

With our acquisition of Payments Solution we have hundreds of thousands of active users of our Just Pay brand, at [stadia] across Germany.

The operational and management capabilities of Payment Solution are nothing short of unique.

In the six German [stadia] we operate, we transacted over 1.1 million transactions during Q1, with over 6 million Euro in total transaction value.

This is a phenomenal amount given the small number of gains and the short amount of retail time available in soccer in comparison to other sports like baseball for example.

In the NFC space, in Q1 we achieved important design wins to supply NFC tags to support electronic wallet projects in the US.

We received NFC tagging [quarters] in the event management smart posters as well as other numerous applications.

We also achieved initial orders from a new additional global hand set manufacturer, who has launched NFC phones already.

We added new NFC designs and are now supporting all four types of the NFC forum tags with the broadest product range in the world.

We're also encouraged with the moderate recovery of sales for our enterprise security systems, to a couple of US government agency's, projects in Q1 that have previously been delayed.

Our total sales to the US fed market were approximately $4.5 million.

And included in our backlog now a new order for $1.6 million from the US department of justice which we expect to fulfill in Q2.

In our SaaS or software business or ideas as a service business, we are seeing new trials and expansion of existing trials from global 1,000 customers.

But are also seeing longer sales cycle for our identity management solutions.

As customers continue to evaluate the SaaS solution in pilot situations before moving on to corporate wide deployments.

We have formed our new Identity Management & Cloud Solutions divisions combining our activity that focused primarily on employee ID, and fast tracked integration of ID on demand into our existing Hirsch Identive structure with the (inaudible) supporting our SaaS infrastructure business bringing Cloud Solutions to a broader range of enterprise security channel and customers.

On the corporate side, our elevation to an accelerated filer with the SEC has created additional compliance obligations under section 404.

That, in turn, is requiring significantly more audit and compliance work as well as financial reporting than in the past.

Both in Q4, and in Q1, this has resulted in the late filing of our periodic filings.

So, as I just mentioned, we were disappointed in our revenues for Q1.

But have been investing at a high level in R&D and sales and marketing.

I would like to spend a little time discussing the kinds of investment we are making, where are we making it, and why we're making it.

We all see the tremendous excitement and projections for growth in (inaudible) cash less payment, and the whole world of NFC.

These are areas we are making a significant amount of investment and are devoting a lot of resources to.

While we are seeing some revenues in these areas, the markets are still not fully here.

We believe they are coming and we believe that with NFC, it is not a matter of if, it is inevitable.

I will discuss in a couple of minutes why we see Identive as the right company for NFC, but it is important to remember that in this area, our investment is in two parts.

One is in the tags, readers, SDKs, et cetera, we call all of this NFC infrastructure.

This is what we sell today and we expand our product range from time to time in IdentiveNFC.com.

So you can actually see the products there.

And this is what we have been mostly talking about thus far.

The other bigger investment area is in our app's and Cloud Base solutions.

Which we plan to start launching over the next two weeks to coincide with the smart card alliance and the NFC exhibitions in San Francisco.

The other major investment for us is in expansion of our addressable markets.

Here a big 3 particular areas.

First, our investment and idea on demand.

Our running cost in this area has been approximately $1 million per quarter.

We believe this is ultimately the path that many of our customers will go.

And we have all seen how SaaS solutions have left traditional solutions behind.

A second area is expanding our offering in transponder's from smart tags, labels, stickers, basically soft paper type products, into PVC cards and badges.

Our new invention, Smart Core, allows us to enter this market and not just enter as [me too] but enter with a significantly improved and differentiated product.

So this is an area that we're building up virtually from scratch.

Finally, for those of you who have followed Identive from the days of SCM, we are now spending our offering to cover the much larger market for physical access as well as our traditional IT focus.

Within our normal addressable markets we continue to make investment to accelerate our growth, and improve our competitive position, and our launch of the new Hirsch Identive systems in Las Vegas a couple of months ago at the ISC, and expansion of our traditional IT reader business to mobile tokens, basically building the benefits of a secure card into a simple USB device with both contact and contact-less applications.

Finally, we have the ongoing expansion of capacity at our transponder business.

I now will move specifically into the area of NFC, and why Identive holds a unique position in the NFC ecosystem.

Why is it that Identive is so well positioned in NFC?

I would like to give you a little bit more color also on what we are doing.

To start with, what is NFC?

NFC is high frequently RFID with smart card technology.

This is exactly what Identive is.

From our launch two years ago, the manage of a smart card reader company with an RFID transponder and solutions company, or what we call Secure ID.

Today Identive has the world's broadest range of tag designs for all four types of NFC, from all six major semi-conductor companies producing IC's for NFC tags.

We know of no other company with even half as many designs, and we are the only player in the NFC world that's addressing both readers and tags.

Operating across the entire value chain from wafers to app's, and we're the only NFC company with direct consumer facing experience with all of the technology behind it.

So these are part of the uniqueness of Identive and NFC, and why we believe we are absolutely the right company to be making the big investment we are making now in NFC.

Our particular experience in the consumer space helped us understand and appreciate, and ultimately shape, our own vision for NFC app's and services.

We now come to our vision, which is a vision of a world full of NFC mobile phones, and how consumers will operate in that world.

Through our strong presence in Japan, we have seen over the years that there are many big applications for simply using mobile phones as credentials or cards.

They have had them in Japan for many many years.

But we actually believe that the biggest use of NFC is more with the web based interactions, and with the phone as a reader or as a peer to peer interactions.

So it is a smart posters, retail application, social networks, loyalty and all the these applications with the consumers using his or her device with the user interface that they are used to and they like and they are comfortable with to interact with the physical world.

It is this where NFC brings a physical posters, Smart tags, and other NFC enabled physical items in the world into a dynamic changing personal life content, and this is the space that excites us, and this is the space where we are targeting.

We are using our deeper understand of NFC technology and cloud applications, coupled with a real life applications in the consumer world where we're active to build our NFC solutions.

I would just like to mention here some of the important IP portfolio.

We are growing and we have been building up and have discussed in prior analyst and conference calls, but it is important to just be aware that today we have either patents, or patent pending in the overall dynamic tag management, on transitional tags for NFC phones, augmented reality with NFC applications, one time password generators, and a whole host of other areas for many different applications.

So this is really where we have been, and why we have been continuing to spend at the fairly high level, even though Q1 has not held up to the level we expected.

So with that, I will turn the call over to call Melvin to go over the Q1 results, then I will come back and address the outlook for Q2.

Thank you, Ayman.

The financials I'm going to discuss in the following slides are on Non-GAAP measures based on preliminary results.

Revenues for Q1 2012 were $21.9 million.

This is a decline of 2% from Q1 2011.

This decline resulted principally from the Germany ID reader project sales we had in 2011, not being repeated in Q1 2012.

And from project delays in transponder division as Ayman has already mentioned.

Gross profit margin of 45% was lower than the 46% from Q1 last year, driven by volume reductions and product mix.

The OpEx increase results from the continued investment to the areas of high future potential growth, NFC, Payment, Software Service, and SmartCore (inaudible).

The increases are in R&D, and sales and marketing.

With a relatively weak sales in the continued investment in the future growth areas, the resulting EBITDA was the loss of $3.1 million.

While we are continuing to grow R&D and sales and marketing, we have a number of reorganization projects in progress, particularly around the integration of recent acquisitions which will improve efficiencies and reduce cost.

In particular, in the US, and Switzerland, and in Germany.

Next slide shows the below EBITDA items in the reconciliation to the GAAP preliminary consolidated net loss.

Depreciation and amortization includes $0.9 million of amortization of intangibles.

The increase in the depreciation results from the recent investment in capacity for the transponder division, and the acquisition of Payment Solutions.

Post acquisition costs were $0.6 million reflecting the investment in acquisition integration plans to improve efficiencies and reduce costs that I have just mentioned.

Non-GAAP revenue recognition of $0.5 million is the EBITDA impact of the Non-GAAP revenue adjustments.

Going forward, these could be positive or negative depending on timing.

The resulting GAAP consolidated net loss is $6.6 million.

The next slide we have the summary balance sheet.

I will discuss the main changes in cash in a moment, however, the other main changes in the balance sheet arise principally from the acquisition of Payment Solutions.

This includes the increases in goodwill, intangibles, property plants and equipment, other accrued expenses and liabilities, and the increase in long term obligations to principally relating to the financing of the Payment Solutions equipment installed in the stadia.

The purchase price accounting for Payment Solutions is still preliminary.

Cash reduced by $3.9 million in the quarter from $17.2 million, to $13.3 million.

The main uses of cash included $0.6 million in payments of debt note and mortgage, $1.5 million of CAPEX, this included remaining payments on machines installed last year, and down payment on further investment of capacity for the transponder division.

In the quarter, we acquired the minority share holding in idOnDemand, this was done for a cash payment of $0.5 million.

And then acquisition and post acquisition expenses totaled $0.8 million.

These items all amounted to $3.4 million of the $3.9 cash reduction.

With that, I will hand back to Ayman for outlook.

Thank you, Melvin.

We're seeing an improvement in Q2 over Q1, and we expect that our Non-GAAP revenues will be somewhere in the range of $23 and $25 million.

We expect continued improvement in the US federal government business.

We also expect that the spending on citizen ID programs in Europe will be still weak and probably some of the business will be deferred further back into Q3 and Q4.

In our transponder business we expect sales to recover after their uncharacteristic weakness in Q1, as the new capacity is more fully utilized, and we are working against a strong order book for transponder's and NFC tags.

We are excited about the launch of our NFC cloud base services platform which is happening over the next couple of weeks and I mentioned earlier.

We expect to be active in a number of trials during the second half of the year.

And expect to start seeing some revenues in 2013.

We expect the gross margins in Q2 to show improvements over Q1, with improved volumes in transponder's and the continued strong Hirsch Identive performance.

We expect that the of OpEx will decline as a percentage of sales and overall, we remain positive about our business and about the fundamental growth in our industry and our sector and our position in it.

With that, I'll turn it to the operator to poll for questions.

Thank you.

(Operator Instructions).

Our first question comes from the line of Matthew Hoffman of Cowen.

Please proceed.

Good morning, gentlemen.

So things like Europe causing you some headaches here across the board.

You mentioned the $18.5 million in orders and I see in the slide deck a break out of the orders and the EID, I assume that's the Germany ID program, or highlighting it, and the underlying business.

Can you give us an idea of what that backlog looks like maybe by major product group?

What the trends are in the backlog?

It looks to be the one thing that is building momentum here is the backlog.

So anything you can do to break it out, and also look at the geographic products.

That would be helpful, thanks.

Thank you, Matt.

The line is not terribly clear, so I'm not sure I got everything.

I don't know if you have actually looked at the web cast or not, but in the web cast we've provided the last four or five quarters backlog.

And we're actually seeing this as building up quite a bit over the previous quarters and we have also taken out the German ID portion of the backlog to make it easier to see.

In terms of the break out by division, I can't give it to you immediately right now, but it is something that we would try to have in future quarters.

I apologize you can't hear me I'm on the road, so I'm calling on a mobile phone.

I think it looks like one of the positives here is the build up of backlog, and I just wanted to see any sort of trends you can tell us about the backlog in terms of is the build up occurring on the NFC side, is the backlog occurring in your Secure ID programs?

I was just looking for any sort of color you can give us?

Very good.

Sure.

Just to give you an idea, if we compare the end of Q1 last year, our back log excluding the big German national ID program was $12.7 million.

And we compare that to $18.5 million now.

One of the other things that is important to be aware of is in the back log, we don't count big blanket orders, so we don't really count them until they are firmed up with a reasonable firm delivery date.

And that's another thing that we do.

We've seen build up in the transponder business and in the transponder business we manufacture.

So we buy wafers, and we manufacture the finished transponder, and this is where when you get a customer deferral, like what happened last quarter, it hurts you badly because you plan for a certain IC, you plan for a certain thing, then it doesn't happen.

Most of the backlog would really be in service, and software type contracts, with universities, it would be in transponder business as I mentioned, in readers, and reader infrastructure projects, as well as enterprise security type applications, like we do with the federal government and airports, and similar projects of that nature.

Okay.

All right, so switching gears here.

A couple of other questions and I'll pass it off to the next guy.

Your NFC, you mentioned the NFC in the box program was one of the smart phone was pushed out, I know you identify them, but can you give us some sort of idea about two things.

First of all, the size of the magnitude of the push out, is it something you had counted on and over multiple quarters, that would be kind of the first.

Just help us understand the opportunity that are out there for you for tag in the box.

And the second is for you to identify either whether that business can come back.

You mentioned you had a new hand set OEM.

Again, help us to understand the scale of the possibilities ton NFC side with the hand set OEM.

Sure.

First of all, the order, as it's known in Europe as frame order that we have been working on is for between ten and 15 million tags.

And it has been mostly going to Asia pacific, and a little bit into Europe.

And that particular manufacturer, their hand sets have not been going as fast as they had projected, so they have just had to take a little bit less.

From that particular manufacturer, they are expecting that the business will be coming back on stream, during later quarters of this year.

In terms of the other global manufacturer, that we have recently started receiving orders from, the initial orders are less than 100,000, but we expect, and we have inquiries from them for significantly higher numbers.

Give you an idea, just in the scale of things, if all of the things that were working on right now materialized, we are going to be out of capacity again soon.

So it is our transponder capacity this year.

We're up to about 150 million depending on the mix.

This quarter we're adding the conversion or the making of a label, and a tag capacity in this area.

We're getting some very strong initial orders for what promises to be much bigger orders.

So mostly it ends up being a few hundred thousand here and there, with promises for several millions to follow.

I'm not sure, Matt, if that has answered your question or not.

No, that does.

That's perfect.

That's as much color as I know you can give right now, but we appreciate it.

Last question.

Just coming back to the annual guidance, I know you give us the billing on the top line, to 23 to 25, I believe I heard you say, the revenue guidance.

Almost 23 to 25 for next quarter.

What sort of split should we be using?

Should we assume that it is a traditional kind 40/60 split for total revenue first half, second half?

And then also, talk about your cash and your burn rate, and what you guys are going to do to reduce that, thanks.

Sure.

First of all, the mix between H one to H two for us has ranged anywhere between 38%, to 38-62, to 45-55.

Last year we were disappointed in the second half, because the US government business was just a lot weaker than we expected.

So I don't want to be giving you different excuses every quarter, for things that haven't happened.

64 is a fair one.

We're hoping still to be able to see stronger business in the second half and indications we have from the various guides are very positive but I think we would like after the Q2 numbers give a more solid view over H two as a whole as well as Q3.

In terms of the cash position, Payment Solutions actually helped us quite a bit on the cash for the quarter, adding about $1.7 million because the business does generate a lot of cash.

And our expectations is that the burn rate would be reducing as the business holds up in terms of the sales and the EBITDA generation.

Obviously, if that does not happen in Q2, we'll have to slow down much more drastically, but we are optimistic that that will not be needed.

But that's obviously one of the things we have to continue to look at very closely.

Thanks we'll see you in a couple weeks.

Our expectation is that the cash position, at the end of Q2 will probably be in the mid-single digits to allow for some of the payments with the debt and some of the CAPEX.

All right, thank you.

Our next question comes from the line of Michael Kim with Imperial Capital.

Good morning.

Can you speak a little bit about the federal projects and the contract awards that you've announced?

Sounds like the funding delays are starting to come through, and is it your expectation that the federal business should do better than the $19 million that we saw last year?

Thanks.

Thanks, Michael.

Some of the projects last year, the delays were not necessarily funding related.

Some of it was funding, butin some of the cases the sheer size of the projects, and the project management requirement, sometimes there just wasn't enough cleared people to be able to do the work.

So some of these issues are sorting themselves out.

We expected our plan for the year is to do somewhere near $23 million to $25 million in the federal business.

And we feel that number is still reasonably on track.

And given that $4.5 million in Q1 if we continue on this pace, and you have stronger Q3, as you normally would expect, then would probably be somewhere in that range.

The federal government, especially in an election year, there is a lot of uncertainty.

We feel pretty good about Q2, and frankly, to feel good about Q1 and Q2 with the federal government is a really important thing and is a good thing for us.

And then switching to idOnDemand, obviously you guys are undergoing some trials right now, what's some of the initial feedback and what are your expectations for some of those pilots turning into enterprise wide deployments?

Just to give you a bit more color on idOnDemand, the revenues in idOnDemand for the quarters were like $200,000 or $300,000, so it was nothing very big.

The range for the full year probably still remains somewhere between $2 million and $5 million dependent on a couple of big roll outs.

The kind of clients we are working on, I would say are even G global 100, rather than global 1,000.

So initially when Jason and the guys started the company, their expectation that they will be mainly going after the mid size enterprise.

But where we have had the biggest traction is with the G 1,000.

And so the trials tend to be quite extensive.

Part of what we need to do to support the trials are the expense of data centers, we operate, secure data centers, all of the software and all the services we have.

We have now moved, actually, our card production facility from Pleasanton down to Santa Anna as part of that integration.

So we're really trying to reduce a cost base to allow for the longer sales cycle, but we continue to feel positive about it.

And a couple of things to be aware of when we specifically look at idOnDemand.

Because idOnDemand has spun into four different activities within Identive.

One activity is obviously the original SaaS activity ID as a service, but also into offering through Hirsch Identive Cloud Solutions.

And then the two other areas is into the NFC and the Cloud Solutions on NFC, and finally an important area in enabling us to expand our traditional IT product, into physical and IT broad range access control product.

Again, not just a [me too], but a product that is coming in very highly differentiated.

And I think, Michael, you know this space very well, and you have an appreciation for how large that market and opportunity in it as well I'm sure.

And just switching to transponder's, you talked a little bit about some volume expansion starting in the second quarter.

But which vertical markets or opportunities are you starting to see pick up some momentum?

Is it in the transit area, or ticket, or payment, or which verticals are you starting to see some strength?

NFC, payment, and transit are the 3 main areas.

Some of our activity, particularly in what we call the TOM PAY, or the payment tag with the Tom technology, the tag on metal, we never really expected, we would have quotations out in the millions, but we are right now have quotations out in the millions for these tags.

And these are high value tags.

And we have got activity on projects globally from Japan, India, US, everywhere, lots in Europe.

So Tom activity is very high, and NFC tagging is very high.

One of products that we're beginning to get a fair amount of traction on is a transitional NFC tag, that combines a QR code with an NFC solution.

So for people who have an I-Phone, or an older phone without NFC capability, it can still be compatible.

You obviously will get a richer experience with an NFC phone.

Great, Ayman, thank you.

Thank you.

Our next question comes from the line of Joe Munda of Sidoti & Company.

In the call you talked about the stadium venues, the soccer stadiums where you guys are experience success with Cash as Payment, and you mentioned venues where the time of the sport could actually be longer than a soccer game.

Is there any possibility that you bring that infrastructure to the United States to like a baseball or football venue?

And are you also looking at possibly expanding the Olympics or the World Cup that are coming up in Brazil?

Well, our business right now there are two different competences that we have in this area, Joe.

We have the whole infrastructure, the software, and the products that we sell.

And we have supplied these into other countries, we've supplied them into Ukraine last year.

I think this is where the European championships is going to be held this year.

Yeah.

And we have supplied them into other markets, and we're constantly on the look out for different opportunities.

Then the other competence we have, which I talked about, is the operational competence.

And if you look at actually on some of our social network channels, I think it's on the Flicker or something, you see a lot of pictures.

If you go to our website or ask identive.com and hit the flicker on the left, you will see a lot of pictures, because we have a lot of people at these stadia, in Germany right now.

I personally was at the (inaudible) game and it was about 82,000 people were in attendance.

You can't pay with anything there except our product.

So you can't pay with cash, you can't pay with Visa, you can't pay with Mastercard, you can only pay with Just Pay.

And to support that it's a complex process.

It is unique to the German market, because it involves things like the deposit you have on your beer glass, and all kinds of similar things.

How transportable this would be, it's really too early for us to tell.

We have six stadia in Germany now where the only inter-operable system in Germany.

We are really excited about it.

It is by far the biggest on the continent on continental Europe now.

But it is still too early to say we can take this expertise and move it to Fenway Park, for example.

And the other thing that you will find is that in soccer, just because of the nature of it, you don't have people revolving around the stadium selling peanuts or sausages or anything else, because people just will not tolerate you passing in front of them when the one goal in the 90 minutes being scored.

So I hope that answers.

I understand that.

I have been to multiple games in Europe, but isn't that where your contact with Readers would come in and isn't that another opportunity?

Indeed.

Indeed.

But you see the thing is, you would be amazed because when we put these systems in, and in the six stadia where we are really operating it a built on operate transfer type model, in these stadia, the retailers and the stadium owner experience significant increase in the retail activity from before the system was installed to after.

So quite a bit of increased.

It ranges from sometimes 20% increase, to significantly higher than that.

So it is good for everyone, and it's phenomenally fast and easy is, labor intensive still, but fast and easy.

We are optimistic as over the years as NFC phones get introduced that that would drastically change this whole area as well.

Yeah, I'm guessing it's because we're not as far along with NFC as I guess the rest of the world is.

Is that also one of the reasons why you guys haven't tried to bring that here?

That's probably a smaller part of it.

As we launch our NFC platform, we're expecting to start doing some trials at universities and different places in the US.

You would have noticed last week we were addressing the California University Association.

I can't remember the exact Association in California, I think [Persers], or something like that, University [Persers] in California, about NFC.

So we're trying to get more and more awareness of it out.

Obviously, the amount of retail activity in the US is phenomenal in sports games.

In Germany, quite often you end up with an average of probably five Euro, six Euro, for a top class sort of a first division if you will.

Soccer game and in Fenway Park you can't buy a beer with five dollars.

Yeah.

So the retail opportunity in the US would be much much bigger.

But I don't think it is something that we're ready to address right now.

As you can see, we're already committed into a lot of areas where we are spending a lot of money on a lot of things.

And I think you and the two previous analysts would probably hammer us on the head much harder if we are doing more than what we are doing now.

Yeah, that brings me to the next question with the cash.

You give $13 million or so in cash (inaudible) drop down to the mid-single digits Q2.

Do you guys have enough cash?

Typically for us Q1 and Q2 our cash consuming Q3 and Q4 are cash generative.

So you would see that last year on operating basis in Q3 and Q4, we're generating cash.

And our expectation that that would be the case here as well.

Obviously, we would like to have a lot more cash, but we're not in the market to raise cash.

And we want to be sort of delivering the performance within our means, and we feel reasonably confident in our ability to do so.

Keep in mind also that our investment in R&D and sales and marketing is something.

And one of the reasons I detailed out this three different kind of investments we're working on, is a lot of what we're investing in.

It's not necessarily revenues for this year, and in the case of the NFC platform, the revenues for next year are also small.

So we're making significant investments for the long term future of the business.

And we feel incredibly excited about it, because of where we're at.

NFC is very complex, and the ecosystem is very complex, and a lot of people talk about it, day and night.

But as you dig deeper and deeper into it, you will find this all over it.

No, Ayman, I understand what you're saying, but what I'm asking really is with what's going on right now in Europe, and I was recently there, with a sturdy and more than a sturdier business coming from Europe, I mean how much are you factoring that in in terms of your budgeting next year as well?

Right.

It seems like some of those projects that you might have with citizens or the European countries how much you guys factor in the sturdy in there?

Sure.

We are we are factoring realistic cases, and if the realistic cases don't happen, and it is much worse, we will be able to react to it.

But being very active in Europe, we have a strong pipeline of projects of orders, and you know there is a lot of comfort in the various things we're working on.

Keep in mind, the Citizen ID programs is really the bulkiest bit of our business.

And when we had the German National ID oder, it was $13 million it was really the only single order or, it was actually four different orders of that magnitude.

But let us not forget that the Germany still has a population of over 18 million people, and of these 18 million people, approximately 60-65 million people have the new national ID cards.

And a 10th of that 65 million gets the new cards every year, and so far the total number of Readers that have been supplied are 1.2 million, of which we have 70% market share.

So sooner or later, we believe that there would be additional business coming and we would be very well positioned for the that German ID future business.

So these things have not gone away, and the new cards are being rolled out.

So that's an important area for us, it is bulky.

But we continue to be active in it.

Okay.

Thanks.

I'm sorry, people are making signs at me, Joe, saying there's more to your question.

No, that's all I have, thanks.

Thank you.

Our next question comes from the line of Bhakti Pavani or CK Cooper & Company.

Please proceed.

Hi, Ayman.

Hi, how are you.

Good, how are you?

Thank you.

My first question is is related to the German National ID program that was not at all considered in the Q1 revenues.

Do you think that program is coming back?

Or it's just been delayed or it is gone?

That's the point I was just answering to Joe.

What we supply for the German ID program is what is known as secure IT kits.

It's a kit which consists of the software, and a Reader.

And the new German ID that has been rolled out over the last couple of years and will continue to be coming every year is basically an electronic ID, that allows you from your home to get online, and to do certain transactions with your city.

Okay.

So ultimately, the ratio of Readers to cards, or secure IT kits to cards, would be one to one or even 2 to 1.

That will take time.

And our expectation is that that business that will be significant business in the coming periods of time.

Okay.

I don't have active orders on it right now.

And I'm not super excited about the Citizen ID segment of our business this year.

Because of the points made earlier in terms of the posterity in Europe.

But we expect that to be an important part of our future.

Okay.

So how much was your revenue accounted for the European revenues?

Like, of your total revenues how much was the Europe revenues for this year?

For this quarter, I'm sorry.

The IMEA revenue you will see it on the first slide of the web cast, and we will be happy to email it to you.

It was 37%, for Q1.

Okay.

And we'll make sure that we email you the pack as well.

Okay.

Talking about the NFC tag.

On the last call you had mentioned you received blanket orders, and I think Matthew asked this question, that it's been delayed.

So just curious, did you ship any NFC tags for this quarter and how much was that comprised of the revenues.

I don't have a figure for you for Q1 on this particular order.

We can investigate it.

But I don't have a figure for you right now.

But we are shipping NFC tags every day.

Just to give you an idea on even the consumer type.

Or retail type website, we have an online market, identivenfc.com, there are daily orders.

To company's, to businesses, but in terms of the bulky orders, we are shipping on fairly regular basis.

Okay.

Seems like you are making a huge investment in the R&D and sales and marketing.

Would it be fair to assume that the same portions would be carried forward throughout the year?

Or it's just that Q1 and Q2 will be heavy?

In percentage terms, Q1 and Q2 will be heavy.

We expect in absolute terms that the run rate will remain largely the same.

But in percentage terms as we get into stronger quarters, the percentage would go down.

Right.

Okay that's it from my side, thank you very much.

Thank you.

At this time there are no questions.

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

Ashour for closing remarks.

Well, thank you very much for being part of our call, and we look forward to giving you a update, and hopefully with a better quarter in Q2.

Thank you.

Thank you for your participation in today's conference, this concludes the presentation.

You may now disconnect, have a wonderful day.