ImageWare Systems Inc. (OTCQB:IWSY) Corporate Update Conference Call April 1, 2013 4:30 PM ET
Jim Miller - Chairman and CEO
Wayne Wetherell - CFO
Jerry Novack - Jenco Business Advisors
Good afternoon. Thank you for participating in the ImageWare Systems Corporate update call for the fourth quarter ended December 31, 2012 and the first three months of 2013. Joining us today are ImageWare Systems’ Chairman and CEO, Mr. Jim Miller, and the company's CFO Mr. Wayne Wetherell. Following their remarks we will open the call for your questions.
Before we go further, I would like to take a moment to read the company's Safe Harbor statement. Any statements that are not historical facts are forward-looking statements as defined in the US 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 it is not obligated to do so. Any projections or 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 10K and for the fiscal year ended December 31, 2012, its quarterly reports on Form 10Q for the quarter ended September 30, 2012 and other reports filed with the Securities and Exchange Commission under the Securities 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 date on which they are made. I would like to remind everyone that this call will be available for replay through May 1, 2013 starting at 7:30 PM Eastern Time 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.iwsimg.com. Any redistribution, retransmission or rebroadcast of this call in any way without the express written consent of ImageWare Systems Inc. is strictly prohibilited.
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.
Thanks Vince and good afternoon to everyone. As you saw at the close of the market today, we issued a press release that provides a corporate update, highlighting ImageWare’s progress for the fourth quarter ended December 31, 2012 as well as for the past three months.
Since our last call I am pleased to report that we continue to strengthen and enhance our product offering and market development to position ImageWare as a leader in multi-modal biometric security solutions and to accelerate our entry in to the commercial and consumer market places. Since we finalized and released version 2 of our flagship Biometric Engine or BE2 as we know it in 2012, we've been gaining traction in the commercial and consumer markets, two areas we have been heavily targeted. The release of our BE2 represented an evolutionary leap in multi biometric data management and is the first major upgrade of our flagship product in five years. We also introduced innovative solutions like CloudID, our next generation Cloud ready suite of Identity Solutions that is beginning to experience growing demand in the commercial arena.
In fact, in March, we entered in to a contract with Fujitsu under which ImageWare will deploy a Cloud-based multi-model biometric identity management offering that will be offered under the Fujitsu Global Cloud Platform. Fujitsu’s Global Cloud Platform is one of the world’s largest cloud platforms on which we will feature our CloudID product suite anchored by our patented multi-modal BE2.
As part of the agreement, ImageWare’s product will be licensed to end users on a service or transactional basis. The solution which is the first of its kind will be introduced in North America in the second quarter of 2013 with plans to collaborate on a global expansion model in the near future and will target large enterprise businesses and emerging applications. The agreement, which is in addition to our previously announced software license agreement with Fujitsu’s NuVola Private Cloud Platform is expected to significantly increase revenues, while providing greater stability and forward-looking visibility.
As you may recall, in September of 2012, BE2 became the first agnostic multi-modal biometric management solutions certified on Fujitsu’s NuVola Private Cloud Platform for the enterprise. In conjunction with this certification, we entered in to a three-year software licensing agreement in which ImageWare will be paid on a revenue sharing basis. Although the NuVola Private Cloud Platform with BE were scheduled for launch in the fourth quarter of 2012, that’s deployment was delayed due to product realignment within the Fujitsu organization; however we now expect it to commence in the second quarter of 2013.
To clarify the NuVola platform is a hardware applying solution centered around small to medium size businesses that are interested in setting up a private cloud, whereas the Fujitsu Global Cloud platform is designed to deliver software for a much larger enterprise audience. We believe our goal to establish a leadership position in biometric based identity management for the cloud is becoming a reality. Our working with leading IT innovator such as Fujitsu, we are able to quickly and efficiently enter the cloud based arena and gain access to a broader base of clients in the commercial market.
The launch of ImageWare’s products on the Fujitsu Global Cloud platform in the North American market is significant for us, and we look forward to the potential of participating with Fujitsu, and it's worldwide deployment in the near future. Further, by licensing our products on a service or transactional basis, we expect to see significant improvement in our revenue model and minimize our historically lumpy sales that have been difficult to predict.
We have reached a very exciting cross road, where the cloud and mobile computing has intersected with biometrics. The rapid expansion and availability and use of mobile devices presents an absolutely incredible opportunity. As these devices had become culturally ubiquitous, are nothing short of phenomenal in their reliability and robustness. The door is swung open to provide security for the myriad of transaction that occur on these devices daily.
While I can easily ascertain that it's my phone or my device, I can never really be sure who is actually using it. The more transactions and sensitive information that can be accessed via mobile devices, the more important that this critical security piece of the puzzle be solved.
It is this solution that the new generation of ImageWare products will address and solve. In pursuit of that goal, we continue to advance the development of our biometric-secured mobile transaction technology, building upon the wireless push technology and related patent, we acquired from VOCEL during the second quarter of 2012 and marrying those with the Biometric Engine.
In December of 2012, we released the first demonstration models of this mobile technology on the Android platform to keep corporate users and are currently in discussions with several clients regarding licensing. The Apple iPhone demo is expected to be completed in May and we also planned to offer the solution along side other feature phone.
Integrating ImageWare’s patented wireless push technology with ImageWare’s patented biometric solution provides the missing security link facing a growing number of enterprise users and government agencies using mobile platforms to transact business or interact with their users.
The solution is applicable for healthcare, law enforcement, banking, retail or any organization requiring highly reliable and flexible identity verification for their mobile users. We have also been preparing for a major international deployment as the exclusive provider of biometric identity management or prime contractor installing cargo scanning security at Republic of Ecuador’s major seaport.
Despite a slight delay from the prime contractor, the initial deployment is scheduled to begin late April at the port of Guayaquil, the country’s main seaport that handles a majority of imports and export. We expect to receive approximately $150 to $200 per port worker receiving credentials as well as annual management and maintenance fees equal to roughly 50% of the initial credentialing cost per worker.
Depending on the final number of enrollees, we expect the contract value to exceed $3 million over its seven-year term. Again, the high end biometric secured credentialing solutions we provide to Ecuador are essentially the same underlying technology that's been deployed for Los Angeles World Airport which we announced early last year.
Both LAX and Ontario Airports are expected to be completed at the end of the second quarter. In fact, we can easily replicate this platform for virtually any port system that needs transportation worker identity cards in order to comply with the SAFE Port Act.
Not only are our solutions easily deployable, they generally represent gross margins ranging from 60% to 70% and sometimes higher, and they provide a recurring revenue stream due to the management and maintenance we perform. This is a great example of how unique and patented technology has the potential to provide a strong steady revenue growth along with excellent forward looking visibility.
At the end of 2011, we set a goal to establish a leadership position in biometric based identity management for the cloud. The steps we have taken throughout 2012 such as the release of our BE2, our introduction of the CloudID product suite, our go-to-market agreement with our partners at Fujitsu and our efforts to move the Biometric Engine into the mobile market has clearly paved the way toward achieving this goal.
As you may recall, we also took steps to improve the corporate governance of ImageWare by welcoming three key members to our board of directors. Neal Goldman, the CEO of Goldman Capital Management, and ImageWare’s largest shareholder, Charles Crocker the Chairman and CEO of Crocker Capital, a private investment firm with a particular interest in companies with patented mobile technology in the healthcare and financial market and John Cronin, the Managing Director and Chairman of IP Capital Group, the world’s largest intellectual property strategy consulting firm.
Supplementing these proactive steps is the balance sheet that has allowed us to competitively bid for new business. At December 31, 2012; cash and cash equivalents total $4.2 million, compared to $6.8 million at December 31, 2011. We continue to carry no debt.
During this last quarter, we set up a $2.5 million unsecured line of credit with our largest shareholder, Neal Goldman. Based upon current and projected cash levels as well as the recently secured line of credit we just mentioned, we do not expect at this time to require any incremental equity capital to fund our current operations and to reach profitability and positive cash flow.
We continue to see intellectual property as a key to our strategy. In 2013, we filed an additional eight patent applications in the United States around our biometric and mobile technology. In addition to our strong US patent position, we have been awarded patents on our multi-mobile biometric engine technology in Canada, Australia and China and have applications pending processing in Europe.
It’s been an exciting time for us and we remain confident in our ability to drive shareholder value and advance ImageWare as a leader in multimodal biometric security solutions. And now I would like to open the call up for any questions you might have.
Thank you sir. (Operator Instructions) And our first question is from the line of Jerry Novack with Jenco Business Advisors. Please go ahead.
Jerry Novack - Jenco Business Advisors
Could the company speak to the increase in share volume over the past few weeks is the result of its recent road show - well above its previous moving averages?
Well, Jerry, yes, to some extent we can. We, it will come as no surprise that we as management are out acquainting people with ImageWare and our story on a regular basis and we believe that that has had some impact on interest in the company. Certainly announcements such as the Fujitsu partnership and the first of its kind deployment of CloudID in the North American market with a plan to move it around the world, I think has certainly heightened interest in the company but we clearly are driving in a much different direction than the historical ImageWare people have known in the past, and I think that’s had a big impact on the volume day-to-day.
Obviously, it's something we've tried to do because obviously that's in everyone’s best interest is to increase the volume in ImageWare. I think more people interested in the story and more eyes and ears if you will on the stock and the company and what it's doing.
And at this time I would like to turn the conference back over to management for any closing remarks. This does conclude the question-and-answer session.
Well, Vince thanks again. I would like to conclude by sharing with you how very enthusiastic we are throughout this company. As we said earlier, we stand at an incredibly exciting intersection of three major market moving forces. The cloud, mobile computing and biometrics and we saw this coming at the beginning of 2012 and we've been planning for it, now it's here.
Our technology and product set fit this is enormous market opportunity perfectly and we are confident that we will be able to effectively capitalize on it. Properly done, we believe that a significant increase in shareholders’ value will be follow driven largely by our market position and the transformation of our financial model.
We know investors get impatient. We do too. But new markets demand a thoughtful approach. New financial models cannot be casually adopted and time is required to chart these new models and new partnerships with large, medium and smaller partners, we are as in the case in cloud and mobile biometrics. We are charting brand new territory.
There are no historical models to emulate. We have a number of discussions underway, which we expect to significantly increase sale. The first of these was announced last week with Fujitsu, and we are confident that more will follow.
In summary, our strategy to diversify ImageWare’s revenue stream and decrease our dependency upon larger government projects is beginning to gain traction. Although, we will continue to pursue government contracts when it’s appropriate. Our SaaS mobile and cloud offerings in the commercial and consumer markets will provide us with a more stable recurring revenue stream and a clear picture of ImageWare’s long-term opportunity.
We appreciate your continued support and interest and we remain committed to returning shareholder value. We thank you very much for participating today’s conference call and we look forward very much to speaking with you again at the end of the next quarter.
Thank you, Mr. Miller. Ladies and gentlemen that does conclude our conference for today. Thank you very much for your participation. And at this time you may now disconnect.
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