Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - IMAGEWARE SYSTEMS INC | iwsy8k_may102017.htm |
|
IMAGEWARE SYSTEMS, INC. FQ1 2017 EARNINGS CALL MAY 10, 2017
|
Exhibit
99.1
Call Participants
EXECUTIVES
S.
James Miller
Chairman and Chief Executive
Officer
Wayne
G. Wetherell
Chief Financial Officer, Senior
Vice President of Administration,
Treasurer and Secretary
ANALYSTS
Harvey
R. Kohn
Michael
Fawzy Malouf
Craig-Hallum Capital Group LLC,
Research Division
Robert T. Clutterbuck
Clutterbuck Capital
Management
LLC
|
|
|
IMAGEWARE SYSTEMS, INC. FQ1 2017 EARNINGS CALL MAY 10, 2017
|
Presentation
Operator
Good
afternoon, everyone, and thank you for participating in ImageWare
Systems corporate update call to highlight their progress since the
last update on March 30, 2017.
Joining
us today are ImageWare Systems' Chairman and CEO, Mr. Jim Miller;
and the company's CFO, Mr. Wayne Wetherell. Following their
remarks, we'll open the call for your questions.
Any
statements contained in this document that are not historical facts
are forward-looking statements as defined in the U.S. Private
Securities Litigation Reform Act of 1995. Words such as anticipate,
believe, estimate, expect, forecast, intend, may, plan, project,
predict, if, should and will and similar expressions as they relate
to ImageWare Systems Inc. are intended to identify such
forward-looking statements.
ImageWare may, from
time to time, update these publicly announced projections, but is
not obligated to do so. Any projections of future results of
operations should not be construed, in any manner, as a guarantee
that such results will in fact occur. These projections are subject
to change and could differ materially from final reported
results.
For a
discussion of such risks and uncertainties, see Risk Factors in
ImageWare's annual report on Form 10-K for the fiscal year-ended
December 31, 2016, and its other reports filed with the Securities
and Exchange Commission under the Securities 3 Exchange Act of 1934
as amended.
Readers
are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the dates of which they are
made.
I would
like to remind everyone that this call will be available for replay
through June 10, 2017, starting at 8 p.m. Eastern tonight. A
webcast replay will also be available via the link provided in
today's press release as
well as available on the company's website at www.iwsinc.com. Any
redistribution, retransmission or rebroadcast of this call in any
way without the expressed written consent of ImageWare Systems,
Inc. is strictly prohibited.
Now I
would like to turn the call over to the Chairman and Chief
Executive Officer of ImageWare Systems, Mr. Jim Miller. Sir, please
go ahead.
S.
James Miller
Chairman and Chief Executive Officer
Thank
you, Abanie, and good afternoon to you all. As you saw at the close
of the market today, we reported financial results for the first
quarter ended March 31, 2017.
I'd
like to begin today's call by speaking first about some specific
financial results for the quarter and then walk you through some
recent developments.
In the
first quarter of 2017, total revenue were at $900,000 compared to
$1 million in the first quarter of 2016. Gross margin in the
quarter was 71.8% compared to 73.3% in the same quarter a year ago,
with the difference primarily due to the impact of lower
year-over-year product revenue. Net loss in the first quarter of
2017 was $2.7 million or $0.04 negative a share compared to a loss
of $2.3 million or negative $0.03 per share
last year.
At
March 31, 2017, cash and cash equivalents totaled $1.5 million
compared to $1.6 million at December 31, 2016. Total debt was $3.9
million compared to $2.5 million at December 31, 2016, and we had
$1.9 million remaining on our line of credit.
In the
first quarter of 2017, we continued to focus on integrating our
patented Biometric Engine into the cloud and mobile markets,
principally via our award-winning GoVerifyID Enterprise and
consumer products for smart devices, while also expanding in the
nongovernment sector such as commercial, consumer and health
care. However, due to our business strategy relying on long-term
engagements with large
organizations, results from these initiatives continue to take time
to materialize from a revenue perspective. We remain encouraged by
the continued strong demand we are receiving behind the scenes, and
we anticipate further positive developments in strategic
partnerships during the remainder of 2017.
|
IMAGEWARE SYSTEMS, INC. FQ1 2017 EARNINGS CALL MAY 10, 2017
|
During
the first quarter, we did start to see small but consistent revenue
from users of our products who pay us for use and hosting on the
Software-as-a-Service CloudID and GoVerifyID solution.
As we
said just 20 business days ago, on our last corporate update, we
are disappointed in results to date and that we are behind on where
we expected to be. As we also said, ImageWare made a conscious
decision not to sell direct as our primarily path to market, but
rather to leverage our foundational intellectual property in our
best of breed biometric software products that utilize it into the
broadest possible network of partnerships. The reasons were as
obvious then as they are today. We are a smaller technology company
and these large global partners have market share, brand
recognition, healthy budgets and priceless experience in moving new
technology to market. And of course, sales personnel based
literally all over the world.
Our
technology partnerships with Fujitsu, Deutsche Telekom, CA
Technologies, SAP, Lockheed Martin now Leidos, TransUnion,
Hewlett-Packard, Aruba, Extenua, CDW and several that have yet to
be disclosed, are all on strong footing in moving forward, albeit
at differing speeds.
That
said, we remain confident in the strategy and confident that the
outcome desired will be obtained. As we signaled on our call at the
end of March, we anticipated movement by Fujitsu towards migrating
our technology partnership to one focused on marketing and selling
product. That has now occurred with our signing of a
multiyear agreement with Fujitsu in Europe to market and sell the
IWS family of products throughout Europe, the Middle East, Africa
and India. As part of that agreement, ImageWare and Fujitsu will
collaborate on both sales to existing Fujitsu accounts and on sales
of new products such as the smart origination product and the
integration of ImageWare's products into additional new Fujitsu
products.
So we
have now transitioned in that region from technology partners
waiting for a roll out to actually supporting Fujitsu's ongoing
marketing and sales efforts to sell IWS products throughout the
region with a specific plan of execution. These sales efforts are
now very much underway, and we'll have additional details to you on
this in the very near future.
As we
said many times on these calls, the process each partner undertakes
is unique to that partner. It's thoughtful, deliberate, cautious
and cannot be shortcut. As we have also said often, it's not a
light switch that you turn on with immediate results. Mounting a
global or large regional sales campaign is not a casual endeavor.
We are now in the final stages of additional discussions with other
Fujitsu companies as well as other technology
partners, regarding more substantial relationships that will
involve the licensing and white-labeling of our products under
their brand and/or embedded in their products in certain
geographical areas.
In
other developments, we are proud to announce that we've signed an
agreement with [ SYNNEX ] for the distribution of our GoVerifyID
and CloudID products. [ SYNNEX ] is a multi-billion dollar
distributor of technology solutions in 25 countries. And it's an
honor to be selected to join the family of products they
distribute, as their multimode of biometric offering. And as many
of you know already, our GoVerifyID product was named industry best
by Frost & Sullivan, not only for its innovative approach but
also for its incorporation of best practices.
Also,
in April, ImageWare was selected to provide biometric identity
management and credentialing software to 5 Alaskan airports.
Delivery under this agreement has now commenced. This represents
the third agreement in which an airport has entrusted our
multimodal biometric authentication software to confirm the
identity and background of their employees.
We
remind our listeners that all of the GoVerifyID and CloudID
transactions are done on a Software-as- a-Service basis. This means
that ImageWare will receive monthly recurring revenues for each and
every identity under management of our products. Much the same as
we have already executed with FEMSA, which has moved from a pilot
to production system for its employees.
We
think our partner strategy is the correct one and that we are in
the right place at the right time with the right products. We
remain extremely confident based on our discussions with our
partners and our understanding of the companies that our partners
are speaking to regarding the use of our products that these
partnerships will pay significant dividend. And with that, we'd
like to open the floor for any questions you might
have.
|
IMAGEWARE SYSTEMS, INC. FQ1 2017 EARNINGS CALL MAY 10, 2017
|
Question and Answer
Operator
[Operator
Instructions] And our first question will come from Mike Malouf
with Craig-Hallum.
Michael
Fawzy Malouf
Craig-Hallum Capital Group LLC, Research Division
I'm
wondering if you can give us a little color on the FEMSA rollout.
How that -- we're now in May now and as we sort of look at over the
next couple of quarters, how do you see that impacting
results?
S.
James Miller
Chairman and Chief Executive Officer
Yes,
FEMSA, as I said, has now moved from pilot to production system. We
received the first relatively modest purchase order from them under
the 2017 agreement, which is good. We have spent a little time
since the last shareholder call. So literally, as I said, 20
business days ago, putting in a new system that has to do with
biometric asset control, simply using biometrics to ensure that
assets owned by FEMSA checked in and out of the system are really
being checked out by the people that say that they are who they say
they are. This was a little bit of a deviation from the rollout
plan to employees. It's an extra add- on. It required a little
additional work on our part. And understandably, until it was put
in place, which was just this last week, FEMSA was holding on any
additional rollouts to employees. But it was delivered and
installed and working. It's actually, by the way, a product that
could be sold in -- to other customers as well. So we're excited
about that, and it should move ahead. The pace of the rollout is,
as we've said, entirely up to FEMSA. It resides in their hands.
That's not unique to ImageWare or FEMSA, of course. As
you
know, Mike, Software-as-a-Service, the feature that people like to
use when they take that model and purchase a software or license it
is because they can control the speed and the cost where they
rollout. FEMSA's overall
idea here is to cover all their employees over time, which are
several hundred thousand plus additional -- 50% additional in
vendors and consultants. So we believe that, that rollout will
start to pick up now that
we have put in this new biometric asset management system for them.
And should favorably impact in the revenues going forward. Again,
it's a Software-as-a-Service and we are paid by the individuals
identities that we manage on a monthly basis. So no reason that we
can see why it shouldn't move forward and favorably impact results
for the remainder of the year.
Michael
Fawzy Malouf
Craig-Hallum Capital Group LLC, Research Division
Okay,
good. And then, I noticed that you commented a little bit about
increase in the activity or the direct activity to help sell the
solution. Can you give us a sense -- is that going to increase or
do you have some budget set
aside for that cost? And if not, how much should we expect that to
increase the share of market?
S.
James Miller
Chairman and Chief Executive Officer
Yes.
It's a good question. And it -- but the -- I think the cost will be
minimal. I mean, truly de minimus. I say that because
what's really required here is the support of one or two sales
engineers. They can jump into
presentations in the early going and support any kind of a more
technical than sales discussion. Fujitsu, like all of our partners,
is extremely capable and confident organization. And because we
have been technology partners for some time, it has actually
acquired a good bit of skill and ability in the ImageWare software.
So in terms of supporting their efforts, getting them up to speed,
we've spent a lot of time doing that already. And as I said,
they're quick studies. They know what they're doing. This would be
more -- we have someone available and dedicated to them on our site
here, so that they know there is a person they
can call if they have any questions. And again, I think this will
be mostly, Mike, as the relationship kicks of and
starts.
|
IMAGEWARE SYSTEMS, INC. FQ1 2017 EARNINGS CALL MAY 10, 2017
|
Wayne
G. Wetherell
Chief Financial Officer, Senior Vice President of Administration,
Treasurer and Secretary
And
Mike, to some extent, that's reallocation of current
cost.
S.
James Miller
Chairman and Chief Executive Officer
That's
right. Yes.
Wayne
G. Wetherell
Chief Financial Officer, Senior Vice President of Administration,
Treasurer and Secretary
From a
direct sales standpoint to a sales support. So lot of that would be
reallocation of existing costs.
Michael
Fawzy Malouf
Craig-Hallum Capital Group LLC, Research Division
Okay.
That makes sense. And then just a final question, may be for Wayne.
Can you talk a little bit about liquidity and capital needs and
sort of how you look for the next couple of quarters and what kind
of options you have?
Wayne
G. Wetherell
Chief Financial Officer, Senior Vice President of Administration,
Treasurer and Secretary
Sure.
We ended the quarter with about 4.75 -- $475,000 in cash. And we
had -- out of our $6 million line, we had borrowings outstanding of
$4.1 million -- $4.15 million with remaining $1.85 million on the
line. As we've said, we
are anticipating some fairly near-term activity in revenues, some
of which have the opportunity to bring in some initial cash, and we
feel that we are working towards getting to those. We will continue
to use that line getting to that station.
Operator
Our
next question will come from Harvey Kohn with HRK Strategic
Advisory.
Harvey
R. Kohn
Jim and
you answered part of this, but part of me wants to congratulate you
on what seems to be very positive agreement with Fujitsu. Another
part of me, however, can't help wanting to know -- and again, you
answered it to somewhat. What makes this agreement any different
from the 2 or 3 other previous agreements we've had -- have been
hearing about over the last couple of years?
S.
James Miller
Chairman and Chief Executive Officer
Yes.
It's a good question, but here is the answer. This is a agreement
to market and sell the products coupled with a specific plan of
execution. That is, Fujitsu came to us and said, "Okay, we're happy
with the product and the technology. We are now going to move the
effort from figuring out how to launch a product and how to make
sure adoption is swift," which is part of what I explained in the
last call. The things they did that -- where they commissioned
studies for what is the optimum biometrics that user can use or
where they'll be the most comfortable with the system. The
upgrading significantly of their K5 Cloud, so this is a
world-class competitor to the AWS Cloud, for example. The creation
of a product called Catalog Manager, which allows for the
auto-configuration and away system from any place on the world.
These are, again, easy for me to say in a sense or two, but really
heavy lifting significant things that Fujitsu felt they had to
accomplish to get the product to a point where it would be greeted
enthusiastically by the market. They've done this. They've done
this 100% on their time, at their expense. This is now
an
agreement that says, we're willing to put our name and, in some
cases, our brand on these products and sell them as if they were
our own. And our experience, not just in this company but in any
company anywhere, suggests that when people do that they have
calculated a return on investment from that exercise. And they
believe it favors them. It's positive. Otherwise, there is no
reason on the world to conduct a marketing and sales campaign,
unless you think that you're going to sell very, very favorable
amounts of product. So that's really the difference. Fujitsu, you
know, studied this. They came up with a plan. They made
certain changes to products that they had that work in tandem with
ours. We, of course, have come out with our own set of new products
in the GoVerifyID line, Enterprise and Consumer and upgraded those.
And we've come together now to say, "Okay, it's time to sell these
products to the market."
Fujitsu configured some new groups, one of which was in Europe,
that house all of their cybersecurity products. So we are with the
right folks in the right place. And as I said, that rollout is now
underway. They have commenced their efforts. And I have no reason
to think that the results will not be, frankly, exceptional based
on the efforts they're putting into this, based on the personnel
they're putting at it, based on the scale of the folks that are our
partners. So I think it's just -- it's really the final stage in
the transition, Harvey, from technology partnering to market and
sales partnering, which, of course, is what it's all about. And as
you know, it's been the variable. I mean, we've had a lot of these
technology partnerships where we're integrated and resident and
ready to go, but we have been dependent as that strategy is by
definition on -- the partners willingness to roll out and go to it
in a big way in the market. So in Europe, the
Middle East, India, and Africa, Fujitsu is doing that. And as I
said in my remarks, we anticipate other places in the world will
follow and, obviously, we'll keep everybody up-to-date on that as
it happens.
|
IMAGEWARE SYSTEMS, INC. FQ1 2017 EARNINGS CALL MAY 10, 2017
|
Harvey
R. Kohn
Okay.
Second question. It's very clear that [indiscernible], Mexico and
then FEMSA, we are actually begun, what you just talked about, the
ultimate goal of onboarding by end users as opposed to
partnerships. And if we
extrapolate numbers from FEMSA and look out 6 months to a year,
it's a pretty impressive partnership right there. I wonder if you
could give us some real numbers -- and I know you can't give us
names and how many other major end users are actually doing pilots
and how close some of them are to pulling the trigger towards full
onboarding? And if you can give us an idea of the size of some of
these and why it gives you such confidence?
S.
James Miller
Chairman and Chief Executive Officer
Well,
good question. Little tricky to answer because it's frankly all
over the block as you would imagine. They are between us and our
partners. And just because you haven't seen another partner rollout
with a formal marketing and sales agreement such as we just
announced with Fujitsu in Europe, does not mean the partners
themselves are not running pilot efforts with their own customers.
So there are literally a dozen to a dozen-and-a-half different
places where from small businesses to Fortune 25 companies
in the world are
looking at the product, running it through test laps, talking about
pricing. So it's -- as I said, it's a little bit all over the
block. Those things have been -- albeit slowly, have been
progressing well for us. And the conversation indicates that there
are buy signs amongst a number of those folks. And so we anticipate
converting the pilots in the conversation to sales and revenue. And
that's -- really that's the foundation of
the confidence we have in the model and the market is that we're
seeing, again, albeit slowly, but we are seeing progress being
made. And as I said, behind the scenes, folks are doing and saying
and acting in the way that is consistent with placing an order for
these products. So we have no reason to believe that we won't be
receiving those orders, some of which in the short run. Some of
these big companies, as I've said in the past, have really an
arduous process. I will tell you, in one instance, with a very
major oil company, we've had to go through an incredible security
vetting process just to get to the pilot. And that process by
itself can take several months because it's their process and you
will do it according to their protocols. No way to shortcut it, as
I've said, as much as you'd like to. And then you
get to
the test. So -- I mean, we -- but we have quite a bit them,
historically, more than we've ever had in this company's history of
conversations, of pilots, of test exercises going on. And then our
partners have their own. As I said, just because they've been
quite, it doesn't mean they haven't been active. There is a lot of
activity going on between our partners and ourselves here. So
again, that -- nothing but reason for confidence in that respects.
This is the process people take to buy the product. So it's
underway.
Operator
We'll
take our next question from Bob Clutterbuck with Clatterbuck
Capital Management.
|
IMAGEWARE SYSTEMS, INC. FQ1 2017 EARNINGS CALL MAY 10, 2017
|
Robert
T. Clutterbuck
Clutterbuck Capital Management LLC
I
figured this will be the last time I probably get to call in. So I
was going to ask two, but Harvey stole some of my thunder. I wanted
to drill down on Fujitsu, but I think you've done that. So this
would be a tough one, but I think we got to address the elephant in
the room. Mike asked Wayne earlier the question about cash. And
Wayne, I'm almost sure you said we're $1.8 million to $1.9 million
ballpark. We borrowed $2 million in the
quarter. I know you absolutely anticipate revenues, but we have
been challenged with revenue delays. And if we get them, obviously,
we don't have -- what is the plan if we don't have revenues because
plus or minus July 1 or certainly August 1, I would guess, by our
calculations, we'll be out of cash?
Wayne
G. Wetherell
Chief Financial Officer, Senior Vice President of Administration,
Treasurer and Secretary
Well,
Bob, we have a number of alternatives. Obviously, we have -- had
some conversation with the line of credit folks
about changing terms on the line. So that's one avenue that
presents itself. The other is, no secret. The company has an active
$15 million shelf registration, that is effective. So there is that
available as well. And we have had a number of folks interested in
making investments in the company. So there is always that
alternative. Devil, of course, as you well know in the details in
every one of those things. But we think with the alternatives on
the table and the prospect of revenues, we will be able to
effectively manage the company to a successful
outcome.
Operator
At this
time, this concludes our question-and-answer session. I would now
like to turn the call back over to Mr. Miller for closing
remarks.
S.
James Miller
Chairman and Chief Executive Officer
Thanks,
Abanie. Savvy analysts who cover the biometrics space predict a $35
billion to $50 billion market within the next 3 years. They
disagree only on degree, not on outcome. In an interview yesterday
that I read, [ Unisys' ]
new CEO declared biometrics to be the cybersecurity game changer in
the coming year. Unless every single one of those folks are
incorrect, inflection is at hand and we are exceptionally well
positioned to replace a 50-year old security construct, pins and
passwords, with the only real authenticator of your identity,
that's you. I said on our last call, but it's worth repeating,
products that are now commonplace and we can't live without, PCs,
mobile devices, cable, satellite entertainment, even power steering
your color TV, didn't fly off the shelf when they were introduced.
It just seems like that to all of us as we look back. When they did
hit stride, they were enormous success stories. And we
believe
that biometrics and specifically ImageWare brand of biometrics will
be no different. This past week, Verizon revealed its most recent
study of security in the mobile space and found that 80% of
security breaches results in the failure of pins and passwords to
adequately protect us. At 80% level, there can be little doubt
that the move to biometrics is not only close but imminent. We
remain confident that our technology and our business model
uniquely positions us to be the leader in our
industry.
As
always, we'd like to thank everyone for joining and appreciate your
time and ongoing support. We look very much forward to speaking
with you along the way at our next quarterly call. Thank you, and a
good evening to all of you.
Operator
That
does conclude today's conference call. Thank you for your
participation. You may now disconnect.
|
IMAGEWARE SYSTEMS, INC. FQ1 2017 EARNINGS CALL MAY 10, 2017
|
The
information in the transcripts ("Content") are provided for
internal business purposes and should not be used to
assemble or create a
database. The Content is based on collection and policies governing
audio to text conversion for readable "Transcript" content and all
accompanying derived products that is proprietary to Capital IQ and
its Third Party Content Providers. The provision of
the Content is without any obligation on the part of Capital IQ,
Inc. or its third party content providers to review such or any
liability or responsibility arising out of your use thereof.
Capital IQ does not guarantee or make any representation or
warranty, either express or implied, as to the accuracy, validity,
timeliness, completeness or continued availability of any Content
and shall not be liable for any errors, delays, or actions taken in
reliance on information. The Content is not intended to provide
tax, legal, insurance or investment advice, and nothing in the
Content should be construed as an offer to sell, a solicitation of
an offer to buy, or a
recommendation for any security by Capital IQ or any third party.
In addition, the Content speaks only as of the date issued and is
based on conference calls that may contain projections of other
forward-looking statements. You should not rely on the Content as
expressing Capital IQ’s opinion or as representing current
information. Capital IQ has not undertaken, and do not undertake
any duty to update the Content or otherwise advise you of changes
in the Content.
THE
CONTENT IS PROVIDED "AS IS" AND "AS AVAILABLE" WITHOUT WARRANTY OF
ANY KIND. USE OF THE CONTENT IS AT THE USERS OWN RISK. IN NO EVENT
SHALL CAPITAL IQ BE LIABLE FOR ANY DECISION MADE OR ACTION OR
INACTION TAKEN IN RELIANCE ON ANY CONTENT, INCLUDING THIRD-PARTY
CONTENT. CAPITAL IQ FURTHER EXPLICITLY DISCLAIMS, ANY WARRANTY OF
ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT. CAPITAL IQ, SUPPLIERS OF THIRD-PARTY CONTENT AND
ANY OTHER THIRD PARTY WORKING WITH CAPITAL IQ SHALL NOT BE
RESPONSIBLE OR LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY DAMAGES OR
LOSS (INCLUDING DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL AND ANY
AND ALL OTHER FORMS OF DAMAGES OR LOSSES REGARDLESS OF THE FORM OF
THE ACTION OR THE BASIS OF THE CLAIM) CAUSED OR ALLEGED TO BE
CAUSED IN CONNECTION WITH YOUR USE OF THE CONTENT
WHETHER OR NOT FORESEEABLE, EVEN IF CAPITAL IQ OR ANY OF THE
SUPPLIERS OF THIRD-PARTY CONTENT OR OTHER THIRD PARTIES WORKING
WITH CAPITAL IQ IN CONNECTION WITH THE CONTENT HAS BEEN ADVISED OF
THE POSSIBILITY OR LIKELIHOOD OF SUCH DAMAGES.
©
2017 Capital IQ, Inc.