ex99-1
Exhibit
99.1
ImageWare Systems, Inc. (OTCQB:IWSY) Q2 2020 Earnings Conference
Call August 19, 2020 4:30 PM ET
Company Participants
Terri
MacInnis - Vice President, Investor Relations with Bibicoff &
Macinnis, Inc.
Jonathan
Morris - Chief Financial Officer
Kristin
Taylor - President & Chief Executive Officer
Chris
Dickson - Vice President of Sales
Conference Call Participants
Terri MacInnis
Good
afternoon, everyone, and thank you for joining ImageWare Systems'
Second Quarter Financial Results and Corporate Update to discuss
the company's business and operations. I'm Terri MacInnis, VP of
Investor Relations with Bibicoff & Macinnis, Inc.
Joining
us today are ImageWare's President and CEO, Kristin Taylor; and the
company's CFO, Jonathan Morris; as well as Chris Dickson, Vice
President of Sales. Following those remarks, management will
address your questions.
Any
statements made in today's discussion 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 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 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, please see risk factors
in ImageWare's annual report on Form 10-K for the fiscal year ended
December 31, 2019, 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
remind everyone that a replay of the webcast will be available for
90 days 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 is strictly
prohibited.
Now,
I'll turn the call over to Jonathan Morris, Chief Financial Officer
of ImageWare. Jonathan?
Jonathan Morris
Thank
you, Terri and welcome to those of you joining our call today. Our
financial results are available on our website in the recently
published news release and Form 10-Q. For context on today's
discussion, I'll provide a brief summary of those
results.
Revenue
for the three months ended June 30, 2020, totaled $733,000, down
from
$812,000
for 2019. The revenue for both years primarily reflected our legacy
business.
Gross
profit for the three months ended June 30, 2020, totaled $579,000
as compared with $672,000 in the comparable period of 2019. Gross
margin decreased to 79% in 2020 compared with 83% in 2019 due to
the lower revenue of approximately $79,000 combined with the higher
certain fixed third-party software license costs as well as higher
sales of hardware and consumables of approximately
$14,000.
Loss
from operations for the three months ended June 30, 2020, was $2.9
million compared with $2.5 million for the same quarter in 2019.
This is an improvement of
$200,000
from the first quarter of 2020 and is due to our continued efforts
to reduce expenses. We ended the second quarter with $578,000 in
cash.
Revenue
for the six months ended June 30, 2020, totaled $1.5 million, down
from $1.7 million for 2019. The revenue for both years primarily
reflected our legacy business.
Gross
profit for the three months ended June 30, 2020, totaled $1.3
million as compared with $1.4 million in the comparable period of
2019. Gross margin increased to 82% in 2020 compared with 80% in
2019 and is attributable to the 2020 period containing a higher
percentage of software revenue with corresponding higher gross
margins than the corresponding period of 2019.
Loss
from operations for the six months ended June 30, 2020, was $5.7
million compared with $6.1 million for the same period in 2019. The
improvement is due to our continued efforts to reduce expenses. We
are in ongoing discussions with potential sources for significant
long-term capital now that our balance sheet and financial outlook
have materially improved, and we'll share more information as those
developments mature.
This
concludes my financial summary.
I'll
now turn the call over to Kris for the progress update of our
business strategy. Kris?
Kristin Taylor
Thank
you, Jonathan, and thank you to everyone for joining us today. I
hope you are all continuing to stay safe and healthy as the virus
surges and wanes across the country.
Our
distributed ImageWare workforce and committed team continue to
operate productively and effectively, and I'm very proud of them
and the new esprit de corps throughout our organization. To ensure
the ongoing health and safety of our team, our remote workforce
horizon extends to January 4, 2021, and we'll continue doing so for
as long as is necessary.
Our
purpose statement is that we are a biometric-first cybersecurity
company. And we're on a mission to bring the highest level of
security to systems, data and places by identifying and
authenticating people through biometrics. From helping law
enforcement, identify and manage perpetrators to providing
countries and borders with a way to validate who someone is. We are
serving government organizations with large-scale biometric
solutions, a market estimated to be $83 billion in value by 2026.
Additionally, we secure enterprise systems and data with
multifactor authentication, a market estimated to grow
to
$18
billion by 2025.
On our
last two quarterly updates, we discussed the company-wide
assessments made in our top-down five-year business plan and our
clear-eyed assessment of our business and the market landscape. I
am happy to report that we have continued to execute against this
plan, with engineering work on products identified for adjustment
and upgrades as well as the new sales practices to capture the
opportunities we see for ImageWare.
Today,
where possible, I'd like to provide you with an update on these
activities and our road map of products, projects and initiatives
previously discussed. Chris Dickson, our VP of Sales, will shed
some light on our sales pipeline as well as a few new opportunities
that have developed since we spoke in June.
Our
expertise in biometric smart badges, which we call EPI, is another
area we plan to modernize in the coming year. Our technology is
used by many Fortune 1000 clients and we believe we can grow this
business beyond where it is today.
Physical
and logical access continues to be a burgeoning space. We believe a
strategy of heavily focusing on the ImageWare Identity platform
that I have talked to you about in several prior calls will serve
many sectors: law, federal, state and local, as well as the
enterprise security market. Simplifying our portfolio and messaging
around the Identity platform will be important in the coming
year.
On the
product side, nearly 15 years ago, we created the Biometric Engine,
known as BE. Since April, we have been working to modernize and
rejuvenate this database to be able to scale to higher levels and
interface with clients more easily. I am pleased with the hard work
of the team to bring the soul of our products to new heights, and
it is now completed.
This
new version of the BE will be much more cost-effective with regards
to the developer time spent maintaining the code and cloud
computing costs for operation. And speaking of cloud costs, the
team has continued to audit and optimize software to bring our
cloud
costs
down further, reduced by 42% since I started in March.
With
our Identity platform, we are fertilizing this platform to meet the
needs of the public safety sector, working to refresh the offering
with expanded features and better functionality. In our discussions
with many law enforcement customers, we understand the challenges
they are now facing with greater public scrutiny on the operations,
while at the same time experiencing an elevated need to protect the
general public.
Shorter
approval cycles are helping to drive our revenue here. A key to
addressing these needs is migrating our legacy law enforcement
product from an on-premise only system to a cloud-based service.
This will not only reduce the cost and efforts associated with our
product, but will also provide a new level of functionality, such
as mobile booking and identification to enable more back-office
functions to be performed in the field in real time.
Additionally,
we are exploring how to leverage the identity platform into other
markets, such as border control, health care, academia and parole
services. I have spoken about this before, I will say it again. A
big differentiator for ImageWare is the fact that we are
open.
Having
an open platform enables customers of large biometric deployments
to use multiple vendors, and therefore, no need to be locked into
any one solution or vendor. There are clearly other vendors who are
open, but we are the only company to offer clients the patented
Biometric Engine, which enables biometric matching services to
scale across many biometrics at much lower cost with faster
matching results to end users.
Also,
the use of multiple biometrics, such as face, voice, finger, palm,
et cetera, provides greater accuracy in matching along with greater
convenience to the user. For example, in a dark environment, such
as a movie theater, a user may select voice authentication rather
than facial. This is the scheme we patented in our situational and
conditional patents that I've talked about previously.
Law
enforcement is particularly keen to use our products because we are
open, and federal clients have been doing the same for more than
two decades. And we believe enterprises and consumers will be right
behind them. To service enterprises, we are nearing completion of
the updated GoVerifyID multifactor authentication product for
enterprises. By expanding the depth of this product, we can expect
to entice more clients to buy it.
For
example, we have recently broadened support for VPN appliances or
servers that provide secure communication channels for remote
employees, enabling our biometric authentication to be added to
homeworkers accessing corporate systems. This is pivotal given
where the world is in terms of seeing global workforces in the
millions of individuals now working from home.
Additionally,
on GoVerifyID, we have made substantial progress in creating a
self-service portal, enabling end users to test, purchase and
provision GoVerifyID in an automated way. By broadening the scope
of supported systems and devices and making the product more easy
to install and administer, we can increase the competitiveness of
the product in the marketplace while driving down internal cost
structures.
In
summary, the Biometric Engine is upgraded. We are focusing
development on the Identity platform on public safety, and we are
nearing completion of GoVerifyID upgrades having already completed
the mobile and back-end portions all of which will make our
products much more focused on the needs of the marketplace,
building more depth and value into the product, while increasing
the ease of usability. We'll be excited to discuss this more on the
next update call.
For the
remainder of the year, ImageWare will continue to focus on building
out the Identity platform with dedicated resources focused on
revamping the law enforcement platform with a cloud back end,
anticipating this new back end by the middle of 2021. Work is
already underway on the smart badging platform now as well, with
anticipated new features by Q3 of next year, at the same time,
continuing incremental development of GoVerifyID as driven by
customers and opportunities.
I
wanted to let shareholders know that we are in discussions with
entities regarding a raise of capital between $10 million to $15
million. This money is desperately needed to fuel the empty tank of
this business to grow new and existing staff as well as key
platform and product upgrades. Once received, we hope the business
can finally have the wind in its sails to take off and become the
company it is long deserved to be in the cybersecurity
sector.
At this
time, I would like to introduce you and warmly welcome Chris
Dickson, our VP of Sales. As noted in our press release, Chris has
more than 25 years of international experience in sales and
business development in security, blockchain, cloud and enterprise
software. From his very first day with us, Chris has added a
valuable sense of urgency and focus to ImageWare along with his
network of key relationships. His deep technical knowledge gives us
a vital sales edge as Chris is building teams and collaborating
closely with both our engineering and product management
departments.
Chris
has a legacy of important sales accomplishments from his time with
Computer Associates and Verizon Enterprise to his most recent
responsibility for sales, in launching one of the first
enterprise-based blockchain SaaS solutions into the marketplace,
while at the Bitfury Group, a Forbes 50 Blockchain company. I
invite you to read his full bio on our website. We are thrilled to
have Chris officially join us.
Chris,
please tell us more about Q2 sales achievements, equally important
what you and the sales team are focused on.
Chris Dickson
Thank
you, Kris. It would be my pleasure. Let me start by sharing the
progress the team has made with business in Q2. During the second
quarter, we received $655,000 in orders. These orders were derived
from 2 new sales, 35 incremental sales to existing customers and 13
renewals. These orders predominantly came from sales of our law
enforcement and Identity platform solutions to our public safety
customers with some noble exceptions. I'll highlight a couple of
those transactions a little later as it shows where some of our new
product and solution focus is starting to pay off.
Q2
historically has been a quiet quarter for ImageWare. In 2019, we
only closed $389,000 in orders, part of our renewed focus on our
rich customer base, we've been doubling down and looking for
incremental sales opportunities. You can see the fruits of this
with the increase in transactions, yielding a 70% increase in
quarterly sales year-on-year, and this is something you'll see us
continue.
One of
the deals that was a notable exception, though only a small seeding
deployment of our GoVerifyID multifactor authentication solution
was to a medium-sized bank in Latin America with our partner in the
region, Fujitsu. We are anticipating more deals with Fujitsu not
only in Latin America and the Caribbean markets, but also in other
parts of the world, such as Continental Europe.
Pipeline
generation continues to be a significant focus for both the sales
and marketing teams, and we have significantly increased our
outbound and webinar focus. We are building a new website, which
should be launched by the end of the year.
I'm
pleased with our early traction. In Q2, we have added more than 67
net new opportunities over the 3 product lines: Identity platform;
GoVerifyID; and law enforcement and biometric smart cards, with an
estimated transaction value of over $5 million. 17 of these new
opportunities are for our multifactor authentication, GoVerifyID
solution.
Where
COVID-19 is driving real interest in our multifactor authentication
GoVerifyID solution, it is also blunting our more substantial
identity management opportunities. The COVID-19 environment
continues to slow these projects, either because of unavailability
of technical staff or because of sluggish approvals for
purchases.
I'd
like to now turn sight to the future and specifically sales for the
remaining 2 quarters of this year and beyond into '21. As Kris has
covered in our previous calls, we already have a strong and loyal
customer base in government. And more specifically, the public
safety market that includes law enforcement and border control.
It's a market we know and are known for. It's also a market where
we continue to see unrealized opportunity, both from our existing
law enforcement solutions and more broadly, for our revolving
identity management platform.
ImageWare
pivoted into public safety in the mid-1990s. We leveraged the
digital technology we owned to do something for society. We created
a digital booking platform with facial recognition for state and
local law enforcement in the state where we have headquartered the
company for more than 33 years. At that time, this platform was
revolutionary. We moved from criminal photographs stapled to paper
into the digital realm by helping law enforcement not only identify
perpetrators better and faster, but by giving them a platform to
manage them all. We did that in 1998.
Law
enforcement is a market we will continue to focus on, and more
importantly, we will expand in. Our renewed focus has already added
45 new opportunities in this area in Q2. Historically, we've been
very strong domestically in Arizona, California, Nevada and
Washington State.
We also
have a small presence in Canada and in various international
locations. However, we have never made a concerted effort to pan
across all 50 states, Canadian provinces and overseas. We will do
so now. Our solution has never been more relevant and the
technology never more differentiated, but there is more to come, as
Kris has covered already.
The
other area we are continuing to see opportunity and are keenly
focused on is in the enterprise and the security, trust of the
remote worker. Enterprises are now faced with being dependent on
remote workers to deliver business as usual. This new paradigm
requires a new approach not only in how teams access enterprise
systems and data, but how the whole process is
managed.
VPNs,
or virtual private networks, access, password management and
resets, the entire trust access market has changed. To solve these
issues, we are expanding the ability of GoVerifyID to manage this
new paradigm. We're excited about our ability to biometrically
secure remote workers data and look forward to delivering a new
product in the coming months. We plan to hire more sales stuff to
work in focused areas such as federal, public safety and the
enterprise. New hires should be on board in the next several months
and we will be pushing for growth in North America as well as
overseas.
This
concludes my sales summary. I'll now turn it back to you,
Kris.
Kristin Taylor
Thank
you for that insight, Chris. Now, I'd like to take this opportunity
to give you an update on our patent and intellectual property
strategy. It bears repeating that ImageWare has built the
most-cited, multimodal biometric patent portfolio in the
world.
As I
said on our last call, we've refocused efforts and picked up the
pace to grow the generation of more meaningful patents on a monthly
basis, building upon our portfolio of 24 issued patents, many of
which are foundational. On separate occasions, our patents have
been successfully asserted in court to block infringing products.
We believe many of our patents have great foundational value with
regards to multimodal biometric systems.
As you
know, we have partnered with ipCapital Group to help to develop a
licensing plan. The overall plan will include taking a look at a
number of areas, including licensing, assertion and building on top
of what we have. Mark Blackman, VP of Product Management, will be
assisting me with this as he has a strong background in IP
strategy, specifically in the security sector. As biometric
multifactor authentication takes off in the marketplace, the more
lucrative the IP business could become to ImageWare. We will keep
you updated as events warrant.
Furthering
the monetization discussion, now I'd like to say a few words
regarding business development. We are making more tangible
progress in our efforts to recruit new partners in our ongoing work
with existing partners that, I spoke to you about in June. I expect
we'll have more specific updates for you in the coming months as we
expand our focus in critical wins through partners.
I
envision our company's success, to use a baseball analogy, being a
result of our consistently hitting singles and doubles with an
occasional home run. We needed to make a number of enhancements and
improvements in various products in order to begin making
meaningful sales. A good part of that process is behind us. And
along with ongoing work, we are now making those
sales.
My
thanks to both Chris and Jonathan for your contributions to this
update I'm optimistic and positive about the future of our company.
The entire management team, as well as the existing group of
stellar employees are doing all the things necessary to make that
positive future a reality.
This
concludes our prepared remarks. We appreciate the questions you've
recently submitted via e-mail, and now we'll begin our
question-and-answer session.
Some of
your questions cover similar subjects. Others, we are not prepared
to address at this moment. And some topics are best addressed in
future quarterly updates. We will answer your questions as we can,
with the best information available at this time.
Question-and-Answer Session A - Kristin Taylor
We'll
begin by answering questions on the subject of new products. We've
been asked, what new products can we expect.
Over
the past six months, I've looked at all the products that have been
created over the lifetime of our business. It is now important to
clear the shelf and bring forward only the most important products
that the market needs that are differentiators. Those critical
products are: the biometric engine, the law enforcement platform,
biometric smart badges called EPI, the Identity platform and
GoVerifyID.
In all
the products mentioned above, we are revamping them to ensure our
client base has updated, feature-relevant and easy-to-use products.
We are also looking at new products, as mentioned prior. The remote
workforce is important now, and we are collaborating on a product
that we believe will be a hit when launched. We think biometrics
will be one of the most critical parts of the product.
Further,
we are exploring how we can drive more proliferation of biometric
authentication in a touchless and frictionless way. We are having
many meetings on this to not only drive a method, but potentially a
new product in this area. We are also wanting to leverage AI, or
Artificial Intelligence, in a predictive and behavioral
regard.
We are
looking for the best teams, technologies and standards to work
with. We are looking to combine behavioral and biometric
authentication in a seamless and easy way for users. Also, we
continue to evaluate the pillphone, a monitoring and communication
platform for healthcare, as well as its relevance to corollary
markets that could use the platform.
Next,
we were asked about new markets. First, is medical an opportunity
for us and are we planning expansion into patient and medical
records? Chris, could you take this question?
Chris Dickson
Certainly,
Kris. The healthcare industry absolutely offers opportunity for
ImageWare. Today, biometrics is already used to protect patient
data and control access to systems and places, but the usage hasn't
become mainstream yet. Current solutions are complex and
fragmented.
For
example, one system is used to accessing the system and another
system for a place or a location. That's a problem we look to solve
with our Identity platform. There may also be a larger opportunity
for ImageWare, by leveraging the Identity platform to identify and
validate patients and patient data, removing duplication and
reducing overhead.
Kristin Taylor
We've
also been asked to elaborate on our key marketing strategies.
Chris, this one is also for you.
Chris Dickson
First,
we need to clearly define who we are to our market. When people
understand this, we will hit new heights of success in our
business. Next, we are building an integrated marketing plan that
has deep ties into sales, engineering and product marketing. We are
creating a new website to be completed by the end of the year that
highlights what we do in simple, concise and meaningful ways. Our
products and platforms will be simplified.
The new
website will give potential customers the ability to demo and
purchase our products via the website. We have generated new sales
decks across the sectors to provide potential clients with
easy-to-understand value propositions, graphics and
pricing.
We must
balance inbound and outbound marketing. In the past, ImageWare has
heavily focused on inbound, meaning we let people call us. Today,
we are aggressively using outbound marketing methods to drive our
leads with tools such as webinars, direct outreach and campaigns.
We have upgraded our use of marketing and sales tools like
Salesforce and HubSpot.
We are
reaching out to influencers such as technical and financial
analysts, as well as journalists and bloggers to carry the torch
for our brand. When they understand what we do and speak about us,
they can influence buyers. It's critical we stay connected to the
most meaningful people in the marketplace in each sector we play;
law enforcement, federal and general technology spaces. As our
first image continues to take shape, we will build the most
important relationships to drive our brand.
Kristin Taylor
Thank
you, Chris. Our next question pertains to Qualcomm. We've been
asked to comment on Qualcomm's recent successful defense of an
antitrust lawsuit against its licensing policies, which determined
that it is fair to charge monopoly prices as part of a free market
system.
We are
in support of the reversal of the FTC ruling and believe it upholds
the value of patents as property, enabling companies to justify
taking on the risk of expensive bets of long-term R&D
projects.
A
follow-up question is, how is your success at Qualcomm framing your
roadmap for ImageWare?
I've
drawn upon many elements of my Qualcomm experience in developing
the roadmap of our company. Of course, ImageWare is not literally
on the Qualcomm roadmap as the two companies are completely
distinct and service markets that are completely different. For
example, in mobile, global standards require compatibility across
billions of devices, and therefore, inclusion of IP in a standard
that is very valuable with the defined process for establishing
what is called FRAND, or fair, reasonable and nondiscriminatory
pricing terms. It's not a perfect process as we often see
throughout court actions, but it's a mature global process that has
provided a conduit for IP price discovery.
In
biometrics, there are no global standards for compatibility across
billions of devices as of yet anyway. We see licensing a source of
secondary income for ImageWare, heavily dependent upon how fast
multimodal biometrics takes off. Our products and services will
remain the driver of our business.
So
coming back to my experience at Qualcomm and my relationship with
Qualcomm. The ImageWare value comes at providing back-end biometric
services at scale. However, Qualcomm's business is focused on IP
licensing and mobile chipsets, therefore, at this time, we see more
value in selling to Qualcomm's ecosystem partners that provide
mobile based services to Qualcomm devices rather than selling
directly to Qualcomm.
Our
next questions are regarding our technology. We've been asked to
explain in layperson's terms the value to the customer of our
convergence of everything we offer today in an Identity
platform.
For
governments and businesses, there is value in the convergence as it
will be easier and more cost-effective to scale identity and
authentication across their operations, leveraging biometric
technology. Our platform enables the replacement of all the
various
authentication
systems used for both physical security systems, such as proximity
cards to open doors and logical security such as passwords, key
tokens and 2FA with a single solution. Administration and support
costs all go down with this convergence to one system.
Additionally,
biometrics adds another layer of security by authenticating the
actual individual rather than a password, a smart card or a device,
something that is of great value as work becomes remote-based for a
number of industries.
The
user also benefits. Our solution provides an easier experience,
allowing for contactless authentication across a number of devices
and systems. Users no longer need to remember a number of passwords
or always have their mobile device or badge on their person to gain
access to their work. They simply scan their selected biometric to
gain access.
We've
also been asked if we are comfortable that enough of the fixes and
enhancements have been completed now, so that the next two quarters
will show growing sales over the first two.
I am
proud of the amount of work Sudheer Koganti and the development and
engineering teams have undertaken since March. We are working at
lightning speed, but in a very thoughtful regard to make sure what
we are refreshing aligns with the market. It is also important to
note that while we are busy with these refreshes, we are selling
and building revenue.
This
concludes our Q&A session.
Kristin Taylor
At this
time, I'd like to end our call with a brief closing comment. I
appreciate your time and attention, and thank you for joining us
today. I hope that you now have a sense of both our product and
sales momentum and improved insight into our drive to continue to
build, innovate and expand products, fine-tune the key features of
our products and make meaningful inroads towards our sales
goals.
We have
made and continue to make important progress as we leverage our
history to build our future. I am committed to being a diligent
steward of ImageWare, making the tough decisions in the long-term
best interest of our company. We face the challenges ahead with
optimism and confidence in our success. I would like to encourage
anyone with ongoing questions or feedback to reach out to our
Investor Relations' team or myself. Stay safe and be well. Thank
you, again.
Terri MacInnis
This
concludes today's conference call. Thank you for your
participation.
