Intelli-Check Mobilisa, Inc. (NYSEMKT:IDN)
Wall Street Analyst Forum 20th Annual Analyst Conference
June 8, 2009 9:50 am ET
Peter Ender [ph] – The Wall Street Analyst Forum
Dr. Nelson Ludlow – CEO
Good morning, ladies and gentlemen. My name is Peter Ender [ph] with the Wall Street Analyst Forum and I will be your host in this room for today. At this room, if I could please ask you to turn your cell phones off or to the silent mode as to not interrupt the presentation and this is also in accordance with the University Club policy.
Presenting today, we have Mr. Nelson or Dr. Nelson Ludlow from Intelli-Check Mobilisa. And Intelli-Check is a leading technology company developing and marketing wireless technology and identity systems for various applications including mobile and handheld wireless devices for the government, military and commercial markets. Products include the Defense ID system, an advanced ID card access control products currently protecting over 50 military and federal locations.
ID-Check is a technology that instantly reads, analyzes, and verifies encoded data in magnetic stripes and barcodes on government-issue IDs from approximately 60 US and Canadian jurisdictions to determine if the content and format are valid. Current customers include the US Army, Navy, Air Force and Marine Corp., Toys R Us, GE Finance, JPMorgan Chase, Barclays, L-1, L.L.Bean, and Disney. For more information, please visit their website at icmobile.com.
And without further ado, here is Dr. Nelson Ludlow.
Dr. Nelson Ludlow
Thank you very much. Good morning and good morning to our listeners that are on the webcast as well. We have our typical Safe Harbor statement. But what I am really pleased to tell you about is our company, what we do, the products and why this matters and why you would want to invest in Intelli-Check Mobilisa, our trading symbol IDN? And questions and answers afterwards.
And what we are is a company that can read government issued IDs. We are a security company. But we read that ID, check whether it’s fake and can pull the information off of it and do interesting things with that. We have nine patents on this technology, 10 other patents pending. We are the driver’s license company.
If you going into a Target and you want to apply for a credit card, the same scanner that scans the boxes, it can scan your driver’s license. You answer a couple of questions easily on the signature capture pad and you will get a credit card application automatically. People are 12 times more likely to follow through with that type of credit application than with the clipboard and putting your social security number on a piece of paper.
Military bases, Andrews Airport Base, Air Force One, West Point, they all have our access control system protecting those bases. Going into a bar whether you are 21 years or not, again those systems are our systems. We’re licensed to over 100 other companies. So the people that make driver’s licenses, they also license from us and how to read that that barcode or that magnetic stripe. And if you’ve ever taken one of your government issued IDs, military ID or your driver’s license, pick it out of your wallet, pull it over, flip it over and you will see that barcode with that information. That’s what we do.
To talk about our management team, our company is recently merged with a company Mobilisa. I was the founder of that company. I started out in the Air Force as a pilot, a scientist, worked at places here in New York State such as Rome Laboratory where I was their Technical Director and a Professor at the Naval Postgraduate School. And I did a PhD in Computer Science in Mobile Programming and particularly won a Computer World award for Best New Product that Bill Gates nominated as for mobile applications. And that’s what our company does. That’s why the word Mobilisa is in the name.
The Intelli-Check part is checking those IDs. Our Chief Operating Officer is a Former Liaison to Congress for the Air Force, a Government Contracting Officer. Russ Embry is our Chief Technical Officer, whose name is on many of the patents. Pete Mundy, our Chief Financial Officer has been a CFO of other publically traded companies prior to this. Bonnie Ludlow is our Senior Vice President for Marketing, also a Former Government Contracting person. And John Lange is our General Counsel. And what’s interesting as a growing high tech company, we have an in-house General Counsel, because intellectual property is key to our company. He used to work for K&L Gates, again the Gates being Bill Gates’ father of that firm.
Our Board of Directors, this is worth mentioning. I will just mention a couple people. John Paxton is our new Chairman of the Board. If you’ve heard of company called Intermec, Telxon, detective guys to make these barcodes scanners, the people on the webcast, I am holding up what looks like a price gunner scanner, you will see at Wal-Mart. That type of scanner was made by company such as Symbol, Telxon, Intermec. John Paxton has been CEO of two of those companies. He also was COO of Litton. He is really Mr. Barcode.
We have a Former Assistant Secretary of Defense for C4I or what’s known as information technology in the military, Art Money. We have a Former Head of the Association of Motor Vehicle Administrators. We have lot of different people, but what we focus on is identity systems.
Trading symbol is IDN. Now the company has been around since 1994. Interestingly, 1995 is when they started putting machine readable information on ID cards. As soon as they start doing that, the same people that were putting out were the founders of this company, did also file for the patents on this. They did an IPO with AMEX in 1999 and merged with a growing company called Mobilisa in 2008. We’re about 55 employees and we have three major offices headquartered one in near the Seattle area in Washington State. We have an office here in New York on Long Island at Woodbury and also Alexandria, Virginia because we do a lot of government work.
We are approximately $11 million trailing 12 months in revenue. And if you know the old Intelli-Check, the company was losing money. It had a $42 million in negative retained earnings. When we did the merger, we have turned things around. We took a company that was essentially losing approximately $3 million a year to breakeven to three of the last four quarters in a row the company’s had positive cash flow.
We mentioned some of our customers, Toys R Us, Barclays, L-1 for those credit card applications. We just recently announced Payless Shoes. So in the Payless Shoes, you can also apply for a credit card. All the military branches use our system well over 70 military locations for access controls. Essentially, I mean, you can think of wherever you would use a driver’s license, whether it is law enforcement, getting on to a military base, Homeland Security, Port Authority here in New York. Any of those locations where you would think a driver’s license you would have to show an ID, that’s the potential market and a potential application for our company.
These are some of our partners. We are partnered with all the major hardware manufacturers. We don’t make hardware, we take their hardware, we modify it to be able to scan IDs better, we rebrand it and we provide the helpdesk, we put our software on it and we are the solutions integrator. We provide the total solution.
So let me mention, there are three areas. Government identity systems, access control, visitors, vendor systems. When you are at a big retailer, there is a problem with shopliftings, things going out the front door. But if you talk to those retailers, you will find out often more product is going out the back door than it’s going out the front door for shoplifting. Who are those visitors and those vendors, who are those guys that show up (inaudible)?
You don’t know if they’re actually wanted criminals. This system that we have and afterwards and there is a breakout session, I will be more than happy to scan your ID if you would like and I can show you exactly how it works. And we’ve had cases, where they scanned it, they founded that these are sometimes wanted felons. We had a truck driver driving on to a military base that actually was an absconder from the State of Montana and they were able to catch this guy. And actually over 40,000 cases, they’ve made stops at people throughout the system in the United States.
Does this scan all in about a second? The other program that is worth mentioning here is the Transportation Worker Identity Credential, TWIC, TWIC card. This is the government’s largest rollout of new cards ever in history. About 1.5 million new cards for anybody that works at a seaport, crane operator, truck driver, anybody that goes into Bayonne, New Jersey or any of the other 178 seaports across the United States, now requires one of these TWIC cards.
Well the government has issued these cards as of April 15th. Everyone needs one of these cards, but there are no readers yet. Intelli-Check Mobilisa was the first company to be approved by Homeland Security on a thing called ICE, Initial Capabilities Experiment and we were the first ones to do that.
There are five other companies that have readers that can do this. But reason I think our reader is better is not only to do we read the TWIC card, we can also read a driver’s license. So when that truck driver shows up and if they don’t have one of those cards or in this case, they’re often escorting people, how do they even check the escort? The way they do that is with a system like ours. You can scan their driver’s license.
The commercial identity system program, I think this is the one that has the biggest potential for our company and let me explain why? There is little blocks on the bottom and for the listeners that are on – that are watching this webcast, at the bottom, you will see a little device and has two slots in it, they’re about the size of the driver’s license. One of them reads the barcode; the other reads the mag stripe. Have a lot of different applications.
We’ve just recently announced a new product called Scan-in, that’s going to be showcased at the HITEC, Hospitality Industry Technology Conference, June 24th in California. This is a new product that helps you get into a hotel quicker. You just put in your driver’s license, you scan your credit card and you are instantly into the property management system for that hotel.
One large hotel chain that we recently spoke to said that two-thirds of their actual rooms are rented to people that did not have a previous reservation. That means there is people having to fill in at your home, your address and take the credit card and do all that information. That’s slow and that has people standing in line. So we can speed that process up.
We are also partnered with Fiserv, which is the one of the largest financial services company that sells information systems to banking industry. Same products when you apply for a new bank account, typically the way banks do now is they take a Xerox copy of your driver’s license and then put that into a folder and then reenter all that information into the system. It’s a very clumsy way of doing it. It’s much better to actually be able to take your driver’s license and pull that information electronically, check whether it’s fake right on the spot and then save that information. Again, that’s what we do. So we’ve just announced that product. Now there are already 88 banks.
Grocery stores, we have a major Northeast grocery chain that is using our system, so that they can check when people are selling alcohol to prove that whether you are 21. In pharmacies as you know, there are certain medicines, cold medicines for example that are not prescription based, but do require that you show a driver’s license as one of these ones that people used to make methamphetamine.
Dr. Nelson Ludlow
Sudafed is one of those, a lot of cold medicines. You have to show a driver’s license. Well how do they do that? Well somebody has to sit there and write it down in a book. All these things are clumsy ways in the old ways of doing it by hand. We automate that process, we check whether it’s real, we pull the information off of it and save it electronically, all under an automated way. How do we do that? We have the patents on that. So you can see some quite large market potential for that.
We also, since we are a security company, and we have a lot of military – former military people in our company, we also do port security. So we do wireless, but a niche area of wireless where we are really the best in the world. Wireless over water. We put Wi-Fi in Washington State Ferry System which is North America’s largest ferry system.
At one point, we had more people with Wi-Fi accounts in any other passenger system in the world, including Boeing’s Connexion project. And we did it for British Columbia ferries, and we did ship to ship wireless for the Navy. And a thing called the floating area network where we live tested this with the naval vessels this summer in a program called Trident Warrior.
How did they do this? It’s ship to ship direct wireless and what we have been able to do is modify relatively inexpensive cell phone type of radio and instead of working in a point-to-point, make them work point to multiple points, so that all these ships can be moving around. It’s really the network magic that we do and we do that in the naval port environment.
Port security is really important to the Department of Homeland Security. There is more new discretionary funding in port securities than any other area. Most of Homeland Security’s budget is fixed. TSA operators, the guys in the airport, I mean they have to pay their salaries it’s pretty much a fixed budget every year. But as far as new funding, there is more new funding in port securities than any other area and that’s where our company is going.
There is actually quite an overlap to being able to protect the port at the front by checking IDs and also be able to protect at the backend in our newest program since we are using Bowie’s with high tech sensors, new biosensors including cameras and other sensors, so that when a ship comes into the port such as here in the area of Bayonne, New Jersey, you can put these sensors much further out along Long Island and be able to get that information long before a ship comes actually into the harbor.
Let’s talk revenue. Intelli-Check prior to the merger in 2008, when we moved the headquarters to Washington State was ranked the 44th fastest growing publically traded company over a two-year period of time. And we are pleased to announce last week that the Business Journal ranked us the sixth overall fastest growing publically traded company that’s headquartered in Washington State and number one non-biotech company. So the fastest growing non-biotech public company in the state of Washington.
These are the numbers, as of June 5th, we are trading at a $1.76. Our market cap’s around $45 million. Interesting on this slide is the insider ownership is a little over 51%. The people that are at this company are invested into this company. We believe in this company.
And again to mention, because lot of people know the prior Intelli-Check, when I took over as CEO, these were the three areas that we wanted to focus on and this is how we turned the company around. We focus on increasing the revenue. Often when you invest and you see a very cool high tech company, which I believe we are.
One of the problems with those type of company is it’s a cool science project type of technology, but they don’t have a serious business plan in place. Everything is focused on the technology and what’s not focused on operations and sales, that’s what we changed in this company, everything is focused on the sales.
We changed the business model. Business model used to be, we would sell this cool technology to someone else to build this cool product. We have changed that to we build the applications, to we support them and we service them. So we have a 1-866-SCAN4ID, that’s for our number for our 24/7 helpdesk.
And if you go from selling a software development kit which is really only a couple of hundred dollars till you build the application to when we install that LLB and give with our kiosks, we build them, we install them under our helpdesk, that is more profitable and we have a happier customer because we provide it all. That’s what we did at the company. We also changed some costs around.
What’s recent about our company is we have added 50% increase to our sales team. We are a small company and those projects that have talked about commercially for scanning ID and applying for a credit card has a very high gross margin. It’s selling software into the retailer’s point of sale system.
It doesn’t – there is not a lot of cost of goods sold. We’re using their existing point of sales system, but with our software. So it’s a software license, so you can see that actually has quite high gross margins to it. What we need to do is go from those 4-bit retailers we have to 40 to 400 of them. So we are trying to cookie cutter with the success that we have already done and do it again and again and again. That’s what we added to the sales team.
We are a growing company. We have added some engineers. We have $10 million in backlog and existing contracts primarily on our wireless and port security programs. We’ve recently added a Controller. I am also very happy to say that we have added a PR investor relations firm. The company does a very good work. What we did not do very well is get the message out. We didn’t tell people what we were doing. And that’s a very recent change in just the last few weeks. An investor relations group is helping us do that and so I am very pleased with opportunities like this to tell you about our company.
Also this TWIC program, April 15th, we just started requiring these cards. We have announced three different ports in the last few months are now testing our system. Two of those are in the top 10 ports in the country. We also that new banking program, to apply for new accounts with Fiserv and the new product called Scan-In that we are developing for hotels.
Also there was – we inherited a long standing lawsuit where someone was violating our patent and are pleased to announce that they recently settled out and they – the company that was infringing on that settled with us and they also admitted that our patents were valid and did so in our recent press release, so we are very pleased with that.
We also received army wide accreditation. Our systems are used at West point. But there are over 70 army bases just in the United States. There is 280 large military installations across the United States; we are only in 70 of those. So getting an army wide accreditation and now a navy wide accreditation is really a good thing. Now those bases can buy, they don’t have to go through a new program. It’s already has that seal of approval.
As I mentioned, we’ve picked up 4,600 stores of Payless Shoes, one partnership at Georgia Technology Association. What’s really cool about is Georgia actually has an encrypted barcode on their driver’s license. We are partnered with their technology association, so that you can scan the card and actually talk wide into their DMV records and so that’s something that we are very pleased with. And then the TWIC program again, we were the first ones approved for the ICE program for our products. You can see there is one of the handhelds and what I am pointing to is a handheld that has a fingerprint reader, biometrics, RFID, radio chip reader, all into one device and that’s our product that’s been tested at three seaports right now.
So what’s going to happen with our company? What can you expect to see? I am hiring some more people into sales and business development. If you look at our company, we have got a very cool products. It’s basically a no-brainer that we need more sales people to talk to the retailers and to implement our system and we are making significant progress on that.
The other is increased emphasis on intellectual property. We want to license our technology with other large hardware manufacturers and to be able to get our intellectual property in more places. I want to be able to give more information about the company, again I say we haven’t done very much of that in the past and that’s something new for us. And we also just recently started a non-deal road show. And we are working on new products and we are looking at a few smart M&A opportunities. There are other privately held companies that are small, that we know and if we do the surgically and in a smart way, we would actually could be a synergistic effect of other accretive deals to be a win-win.
You are going to see that we are emphasizing top line growth. We are basically in my opinion, a very good $10 million to $12 million roughly breakeven. For ’08, our EBITDA was $800,000 up. But what we are trying to do is our next short-term goals to grow that company in the $20 million, $25 million in revenue.
So to recap, what I like about this is I try to invest and look for things that have a broad appeal. It’s very rare do you find something that is as common that everyone has such as a driver’s license. We do the applications for that over $200 million driver’s licenses in North America and we are the ones that have the patents on that.
There’s other companies out there ID such as L-1 that makes driver’s licenses. They license from us. Anybody that’s doing something with a driver’s license is either using our technology which is most case or perhaps violating our patent or strongly going after intellectual property. That’s really a strength of ours.
There are several new legislative initiatives that are making this more important, the Defense Authorization Act of 2008, the Saxton Amendment. Congressman Jim Saxton from New Jersey, after his base was attacked by terrorist, he put an amendment in there and said I want all military bases to have an access control systems such as the one made by Intelli-Check Mobilisa. That is now law and the Defense Department is actively figuring out how to roll that out and of course we are right there. The TWIC reader, April 15th, Homeland Security, just this year, I mean just a few weeks ago is now requiring this card. I mean it is hard to believe it has taken this long since that terrible day in 2001. But the government is moving and is moving forward and that is also now a law.
Our company has no debt. We have sufficient capital. We have many governments in large Fortune 500 types of contracts. We have safe contracts; we have been growing our revenue. In three out of the last four quarters, we have had positive cash flow. And also we have changed – we have a new Chairman of the Board, who is really my business mentor. This guy is Mr. Barcode. He is the President of Zebra. He grew Telxon, grew it and sold it to Symbol. He was also CEO of Intermec and grew that company as well. That’s a good business mentor to have because that’s the same approach that we are trying to do with this company.
So I welcome any questions that you have. I’ll be glad to answer them. If you have a question, if you wouldn’t mind stating your name and standup, so I can clearly hear you and we are glad to answer those questions. Thank you, sir.
(inaudible). To me that seems like a solution to the illegal immigration problems, could be a huge market, so I would like you to comment on that, because people say, well, why don’t more employers check well if they didn’t have the needs. But now with this type of technology, it seems like you know if somebody is legal or not, so a very simple thing.
Dr. Nelson Ludlow
If you don’t mind, I will restate the question so that the listeners on the webcast can hear. The question, if I can summarize, it was that what about the legal immigration situation and could we use drivers’ licenses for that? We’ve actually have a small contract from the government to look at a program called the I-9 Registration. If you are an employer, that’s one of the things you are supposed to do is check certain documents for every employee. And how do you do it? Well, the most common one is with the driver’s licenses, one of the documents. And so we are doing that for them to make an automated way that employers can check.
And the really cool part is how do you make them do? Well one way to do it is you have a law. You must do it. Okay, that’s fine the I-9, but the cool part about this is it actually helps protect the company, because now you have a record of the documents that you read and say absolutely, we’ve checked that guys driver’s license and we did so that on this date and here was the information.
So that is a potential thing in the future that we are hoping for and we already do access control systems. We – there is a major air force or an army fort in the Washington DC area and they were doing a test of the system see how they liked it. On the very first day, they cut several illegal aliens that were trying to work on that military base.
But I mean, well just imagine, I mean every market with every employer, not every military base, but hundreds of thousands of customers.
Dr. Nelson Ludlow
What I am excited about is that it has a broad range. When you are trying to look in the software world, you try to build the killer app, the thing that everybody wants to use. It’s hard to find those. Cell phone applications, I mean there are certain ones out there. I am very excited about this because essentially everyone in North America has a driver’s license.
You don’t need new laws; you’ve got the laws, but no body to foresee them. So giving is always you know –
Dr. Nelson Ludlow
Right, thank you. Yes.
(inaudible). Could you please explain the revenue model?
Dr. Nelson Ludlow
Yes. Okay, the question is could you please explain the revenue model? How does our company make money? Okay, we do it in three ways. The wireless programs are primarily government research and development contracts. The government pays us for these contracts. We have a large backlog in these. They are not very – it’s not high in profitability, but here’s is the cool part about it. It actually, we get reimbursed for our cost for the lives for labor. So reimbursement cost plus fixed fee contract, roughly the profit in that case is about 10%, a low – but it’s our intellectual property and we are developing new programs.
Second one is the government area. We typically – we sell the hardware and we typically make a gross margin on that around 50%. We also get paid for the installation, the training, the follow-on to that. And we also have a reoccurring revenue model and we get paid approximately $149 per month for a device. We provide the bad guy databases, so when you scan somebody’s driver’s license and check, we do have law enforcement databases, the Homeland Security or different law enforcement people have. If you go to our website, you will actually see that there was a FOX News did a three minute clip on our company and you will see that Sheriff’s offices and different US Marshall programs are protecting their courthouses in the State of Ohio with our system.
With back to the revenue part, we provide that bad guy detail. Now in that case, it’s government data. But in many places including military bases have non-law enforcement people protecting the gates. They are not authorized to legally use Homeland Security type of data or FBI’s data. So we provide publically available data to it. The FBI puts on the Internet wanted posters. What we have in these price gun scanner is the ability to read your driver’s license, check whether it’s fake and then check it to a 140 different databases all in under a second and then pull up again if it does match our name, date of birth, different things. We can pull up the photo from that actually wanted poster or the phone number in Albany that’s doing the – the FBI group is reporting that, so we get that reoccurring model.
And then in the commercial space, we sell at a rather large gross margin because it’s our software. Software is a very high gross margin and that’s typically in the 70% to 80% and it’s been our gross margins for that. We sell an enterprise license typically and then approximately a 20% reoccurring revenue to update the driver’s license. Here’s the beauty of it. There is almost 200 different formats of driver’s licenses in government IDs in North America, US and Canada.
That’s good for us. Connecticut comes up with a new driver’s license. California comes up with a new driver’s license. Intelli-Check Mobilisa is the test lab for those Department of Motor Vehicles. When California comes up with a new driver’s license, they send it to us and we check the format. That gives us a leg up. That gives us a first look at those driver’s licenses and we give our customers an automated update every so often throughout the year, so that when new driver’s licenses come out, they have that and we get paid for that. Yes, sir.
Another security high project, could you a little bit get to those markets (inaudible) is medical insurance cards, because every time we go to a doctor, they say can I copy your insurance card. Well, they really should have a technology where they say can I see in your insurance card and then they have all your records and access to everything that they need since and they know what your insurance plan is all about, the particulars and all of that.
Dr. Nelson Ludlow
The question was what about the medical industry and the medical insurance cards data. That definitely is one; there are HIPAA Compliance Rules to be careful of. But other than, that’s a very good market. I know every time that I go to a new medical location, you have to fill up I don’t know 10, 20 different forms and you start losing count of how many times you have written your name down again and again and again.
And then here’s the other part that you don’t get to see as a customer, some poor person in the back is retyping all that information into a database system. It’s very costly for them, frustrates the customer, the patient, but is also costly to the medical industry. If we can automate that and that’s another potential area of this technology we could apply to.
Well, if there are no other questions, in the breakout session, I’ll be happy to scan your ID, talk about any part, this is kind of cool to actually see your ID scanned, see what information is on your ID card. And we are very excited about this company and look forward to meeting with you afterwards. Thank you very much.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!