FWP 1 dfwp.htm FORM FWP Form FWP

Free Writing Prospectus

Filed Pursuant to Rule 433

Registration No. 333-142443

October 25, 2007

CROSS MATCH TECHNOLOGIES, INC.

Free Writing Prospectus

Subsequent to the filing of this Free Writing Prospectus with the Securities and Exchange Commission, Cross Match Technologies, Inc. (the “Company”) intends to use the attached presentation in connection with the Company’s road show relating to its initial public offering of securities described in the above-referenced Registration Statement on Form S-1.

Forward-Looking Statements

Some of the statements contained in this free writing prospectus may constitute forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. More detailed information about factors that may affect our performance may be found under “Risk Factors” in the preliminary prospectus. Any forward-looking statements included in this free writing prospectus are based on information available to us on the date of this free writing prospectus. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

The Company has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the Company has filed with the SEC for more complete information about the Company and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, WR Hambrecht + Co will arrange to send you the prospectus if you request it by calling toll-free 1-800-OPEN-IPO (800-673-6476).

Cross Match Technologies / Company Confidential and Proprietary
1
IPO Roadshow Presentation
October 2007

Cross Match Technologies / Company Confidential and Proprietary
2
Forward Looking Statements
Statement Under the Private Securities
Litigation Reform Act of 1995
Statements in this presentation concerning Cross Match Technology's
future prospects are “forward-looking statements”
under the Federal
securities laws. There can be no assurance that future results will be
achieved, and actual results could differ materially from forecasts,
estimates, and summary information contained in this presentation.
Important factors that could cause actual results to differ materially are
included but are not limited to those listed in Cross Match Technology’s
registration statement filed with the Securities and Exchange
Commission. Other and changed factors may also be discussed in
future 8-K, 10-K and 10-Q filings. All filings will be available for viewing
on the investor relations section of our web site at
www.CrossMatch.com.

Cross Match Technologies / Company Confidential and Proprietary
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Offering Summary
Issuer:
Cross Match Technologies, Inc.
Symbol / Exchange:
‘CROS’
/ NASDAQ
Filing range:
$13.00–$17.00
Shares Offered:
8,333,334 primary shares
1,086,956 secondary shares
Overallotment:
15% (100% secondary)
Use of proceeds:
General corporate purposes including
acquisitions
Expected pricing date:
November 2007
Bookrunner:
WR Hambrecht + Co
Co-Managers:
Stanford Group Company and E*TRADE

Cross Match Technologies / Company Confidential and Proprietary
4
Presenting Management
James W. Ziglar
President and Chief Executive Officer
Mark A. Slaven
EVP, Chief Financial Officer
William A. Smith II
SVP, General Counsel and Secretary; Director of Corporate Development

Cross Match Technologies / Company Confidential and Proprietary
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James W. Ziglar
President and Chief Executive Officer

Cross Match Technologies / Company Confidential and Proprietary
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Securing Borders

Cross Match Technologies / Company Confidential and Proprietary
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Why Invest in the Biometrics Market Now?
•
Technology advancements
•
Definition and adoption of standards
•
Government requirements identified
•
Program funding budgeted
•
Deployments recently started

Cross Match Technologies / Company Confidential and Proprietary
8
Biometrics Industry By Applications
2011 Market Total = $6.6B
CAGR: 21%
Device / System
Access
Surveillance*
Criminal ID*
Civil ID*
Consumer ID
Access Control /
Attendance
* Cross Match Application Markets
Source: International Biometric Group (2007).
2007 Total Market Size Estimated at $3.0B
Cross Match Market Estimated at $0.9B

Cross Match Technologies / Company Confidential and Proprietary
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Why Invest in Cross Match?
•
Global platform
•
Technology leadership
•
Growth strategy

Cross Match Technologies / Company Confidential and Proprietary
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Cross Match Highlights
•
Cross Match founded 1996
–
Acquired Smiths Heimann
Biometrics in 2005 (founded
1992)
–
Acquired C-Vis in 2006
•
Locations:
–
Corporate Headquarters: Palm
Beach Gardens, FL
–
Int’l Operations:  Jena and
Bochum, Germany
–
Public Affairs/Federal Sales
Office: Arlington, VA
•
Manufacturing facilities:
–
PBG and Jena
–
ISO 9001 certified (Jena)
•
Patents
–
> 80 patent registrations
–
> 80 patents pending
•
Employees:
–
Total: ~ 330
–
R&D: ~ 110
•
Revenues:
–
2006: $77m
–
1st
Half 2007: $47m

Cross Match Technologies / Company Confidential and Proprietary
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•
More than 5,000 customers in 80 countries
•
Over 100,000 products deployed worldwide
•
Direct and Channel sales market model
•
Manufacturing and R&D in U.S. and Germany
•
2006 revenue by geography: US (62%); Rest of
World (38%)
Global Platform
Note: Countries where Cross Match products are deployed shown in
blue.

Cross Match Technologies / Company Confidential and Proprietary
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Iris
Tenprint
Palm/
Full-Hand
Single/Dual
Finger
Document
Readers
Technology Leadership -
Hardware

Cross Match Technologies / Company Confidential and Proprietary
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Capture / Enroll / Match
Verify / Identify
Facial
Iris
Technology Leadership -
Software

Cross Match Technologies / Company Confidential and Proprietary
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Cross Match Puts It All Together
Enrollment
Applications
Credentialing
Vetting
The Value Chain

Cross Match Technologies / Company Confidential and Proprietary
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The Value Chain: Enrollment
Applications
Vetting
Credentialing

Cross Match Technologies / Company Confidential and Proprietary
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The Value Chain: Vetting
Applications
Credentialing
Enrollment

Cross Match Technologies / Company Confidential and Proprietary
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The Value Chain: Credentialing
Applications
Vetting
Enrollment

Cross Match Technologies / Company Confidential and Proprietary
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The Value Chain: Applications
Credentialing
Vetting
Enrollment

Cross Match Technologies / Company Confidential and Proprietary
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L SCAN Guardian
Case Study

Cross Match Technologies / Company Confidential and Proprietary
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Growth Strategy
•
Grow leading market position in Livescan
•
Focus on high growth technologies and solutions
•
Invest in forward thinking R&D and acquisitions
•
Capitalize on commercial market opportunities

Cross Match Technologies / Company Confidential and Proprietary
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Other
Multiple-Biometric
AFIS/Live-Scan
Fingerprint
Iris Recognition
Face Recognition
IDMS & Middleware
Civil & Criminal ID Total Markets
*  Source: IBG
2007 Market Estimated at $1.8B
2011 CAGR: 22%
High Growth Technologies

Cross Match Technologies / Company Confidential and Proprietary
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Cross Match Addressable Market
*  Sources: IBG, Frost & Sullivan, Cross Match
2007 Market Estimated at $0.9B
2011 Target Segments CAGR: 28%
Target Segments
Fingerprint
Multiple-Biometric
AFIS/Live-Scan
Face Recognition
Iris Recognition
IDMS & Middleware

Cross Match Technologies / Company Confidential and Proprietary
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Cross Match Customer Base
U.S. Government
Law Enforcement
International

Cross Match Technologies / Company Confidential and Proprietary
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Cross Match Customer Base
Banking and
Finance
Education and
Government
Benefits
Critical
Infrastructure /
Transportation

Cross Match Technologies / Company Confidential and Proprietary
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Key Strategic Partners
Biometrics4ALL

Cross Match Technologies / Company Confidential and Proprietary
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Long-Term Revenue Drivers
Homeland Security
Border security
Transportation security
Critical infrastructure
Law Enforcement
Flat ID and 1000 dpi scanners
Mobile applications
Verification solutions
First Responders
Military/Defense
Mobile applications
Surveillance

Cross Match Technologies / Company Confidential and Proprietary
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Long-Term Revenue Drivers
Civil Applicant
Market
Background checks; PIV
US Courts; State and local agencies
Commercial opportunities in regulated
industries
International Opportunities
Travel document security
Voter ID/ Registration
National ID Cards
Government benefits provision

Cross Match Technologies / Company Confidential and Proprietary
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Financial Overview

Cross Match Technologies / Company Confidential and Proprietary
29
•
Robust top-line growth
•
Consistently high gross margins
•
Significant operating leverage
•
Solid 1H 2007 performance
•
Low capital requirements
Financial Highlights
•
Scalable operations to meet additional demand
51% CAGR from 2003 to 2006
52% to 47% from 2003 to 2006
Adjusted OPEX as a % of revenue
from 79% in 2003 to 43% in 1H2007
•
Revenue increased
29% y-o-y
•
Gross margin at 54%
•
Adjusted EBITDA of $5.0 million
•
Cash increased to $21 million
Capex 3% of revenue
Note: See slides 33, 34 and 40 for detailed disclosure on adjusted operating expenses and adjusted EBITDA.

Cross Match Technologies / Company Confidential and Proprietary
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Financial Controls and Operational Initiatives
Oracle ERP system installed
Rebuilt finance and accounting staff
SOX 404 documentation underway
Financial
Controls
2006
Operational
Initiatives
Completed integration of SHB
Supply chain velocity and flexibility
Improved operating leverage
Planning and forecasting tools and
processes

Cross Match Technologies / Company Confidential and Proprietary
31
$22
$22
$25
$6
$7
$14
$19
$17
$19
$19
Robust Top Line Growth
($ in millions)
$77
$46
$32
$22
2003
2004
2005
2006
Annual Revenue Growth
•
Strong organic growth
•
Consistently strong
quarterly performance
Quarterly Revenue
($ in millions)
% YoY
Growth
by Qtr
181%
27%
176%
57%
(2%)
Q1
Q2
Q3
Q4
CAGR: 51%
(1) Unaudited.
2005
(1)
2006
(1)
2007
(1)
32%

Cross Match Technologies / Company Confidential and Proprietary
32
$13
$12
$8
$10
$10
$8
$9
$7
$3
$3
51.8%
45.9%
47.2%
45.6%
46.0%
51.5%
47.8%
43.0%
54.5%
53.0%
Consistently High Gross Margins
($ in millions)
$12
$16
$22
$36
52.0%
50.3%
47.0%
47.1%
2003
2004
2005
2006
Annual Gross Profit / Margins %
Quarterly Gross Profit / Margins %
($ in millions)
Q1
Q2
Q3
Q4
(1) Unaudited.
2005
(1)
2006
(1)
2007
(1)
•
Innovation and time to
market
•
Cutting edge
technologies

Cross Match Technologies / Company Confidential and Proprietary
33
Significant Operating Leverage
$37
$20
$23
$19
$18
2003
2004
2005
2006
2007 H1
($ in millions)
(1)
2003: Represents $18.8m less depreciation and amortization of $1.0m and expenses of $0.2m with ATI, a wholly-owned subsidiary spun off from Cross Match in June 2006;
2004: Represents $20.6m less depreciation and amortization of $0.6m, and expenses of $0.9m associated with ATI.
(2)
Represents $26.0m less depreciation and amortization of $2.0m, and expenses of $1.3m associated with ATI.
(3)
Represents $45.5m less depreciation and amortization of $4.6m, expenses of $1.2m associated with ATI, and non-recurring expenses of $2.7m.
(4)
Represents $24.0m less depreciation and amortization of $2.6m and non-recurring expenses of $1.0m.
Adjusted Operating Expenses / % of Revenue
48.2%
43.5%
79.0%
59.7%
49.3%
(1)
(4)
(3)
(2)
(1)

Cross Match Technologies / Company Confidential and Proprietary
34
Resulting in Improving Adjusted EBITDA
($ in millions)
2003
2004
2005
2006
1H 2007
Profitability is quickly improving as Cross Match grows to scale
its operations and infrastructure
Note:
2003, 2004, 2005 and 2006 exclude R&D charges associated with ATI, a wholly-owned subsidiary spun off from Cross Match in
June 2006; and, in 2006 and 1H 2007, non-recurring expenses.
$5.0
$0.2
($0.4)
($2.6)
($9.2)

Cross Match Technologies / Company Confidential and Proprietary
35
Cross Match Outperformed on All Metrics in
1H 2007 versus
1H 2006
$10.7
1H 2006
1H 2007
$36.2
$46.9
Revenue
Gross Profit
EBITDA*
$7.5
1H 2006
1H 2007
$17.7
$25.2
$4.4
1H 2006
1H 2007
$0.6
$5.0
29%
Growth
Rate
Gross
Margin %
improved
by 480 bps
Delivered
11% EBITDA*
for the 1st
half
2007
($ in millions)
* Adjusted EBITDA

Cross Match Technologies / Company Confidential and Proprietary
36
Strong Balance Sheet
($ in millions)
Assets
Liabilities and Stockholders' Equity
Cash
$20.6
Current portion of debt
$1.7
Other current assets
37.9
Other current liabilities
21.8
Total current assets
$58.5
Total current liabilities
$23.5
Total long-term assets
$97.4
Long-term debt
$2.8
Other long-term liabilities
6.5
Total long-term liabilities
$9.3
Redeemable preferred
$7.5
Equity
115.6
Total assets
$155.9
Total liabilities and stockholders' equity
$155.9
June 30, 2007 (Unaudited)

Cross Match Technologies / Company Confidential and Proprietary
37
Growth Strategy Broadens Product Mix
2007 Revenue Mix
2011 Targeted Revenue Mix
LIVESCAN
OTHER*
LIVESCAN
OTHER*
* Other: Facial, Iris, IDMS & Middleware, Document Readers, Mobile, Multiple Biometrics,
Single Finger, Services

Cross Match Technologies / Company Confidential and Proprietary
38
Investment Summary
•
Overall market: 21% four year growth
•
Target markets: 28% four year growth
•
Global platform
•
Technology leadership
•
Aggressive growth strategy

Cross Match Technologies / Company Confidential and Proprietary
39

Cross Match Technologies / Company Confidential and Proprietary
40
EBITDA
and
Adjusted
EBITDA
are
not
measures
of
performance
under
United
States
generally
accepted
accounting
principles.
EBITDA
is
defined
as
net
loss
before
other
interest
(income)
expense,
provision
for
income
taxes
and
depreciation
and
amortization.
Adjusted
EBITDA
is
defined
as
EBITDA
as
further
adjusted
to
eliminate the following non-recurring expenses, none of which management views as relevant to the assessment of our core operating performance: (a) research
and development expenses attributable to Authorizer Technologies, Inc., or ATI, a wholly-owned subsidiary we spun-off to our stockholders in June 2006, (b)
expenses we incurred in connection with the spin-off of ATI, and (c) expenses we incurred in
connection
with
the
design
and
implementation
of
our
accounting,
administration
and
compliance
infrastructure
associated
with
our
preparations
for
becoming
a
public company. We believe that the presentation of EBITDA and Adjusted EBITDA included in this presentation provides useful information to investors regarding
our results of operations because it assists in analyzing and benchmarking the performance of our business over the periods presented. We believe that these
measures
are
useful
because
they
exclude
items
described
above
that
are
not
directly
related
to
the
operating
performance
of
our
business.
These
measures
also
provide
an
assessment
of
controllable
ongoing
operating
expenses
and
are
used
by
management
to
assess
and
make
decisions
regarding
our
financial
performance. Furthermore, they also are used by management to determine whether capital assets are being allocated efficiently. In addition, we believe EBITDA is
used by securities analysts, investors and other interested parties in evaluating companies, many of which present an EBITDA measure when reporting their results.
EBITDA
and
Adjusted
EBITDA
as
presented
in
this
presentation
may
differ
from
and
may
not
be
comparable
to
similarly
titled
measures
by
other
companies.
Although
we
use
EBITDA
and
Adjusted
EBITDA
as
financial
measures
to
assess
the
performance
of
our
business,
their
use
is
limited
because
they
do
not
include
certain material expenses, such as depreciation, amortization and interest. We disclose the reconciliation between EBITDA (and Adjusted EBITDA) and net loss
below to compensate for this limitation. While we use net loss as a significant measure of financial performance, we also believe that EBITDA and Adjusted EBITDA,
when
presented
along
with
net
loss,
provides
balanced
disclosure
which,
for
the
reasons
set
forth
above,
is
useful
to
investors
in
evaluating
our
operating
performance.
However,
EBITDA
and
Adjusted
EBITDA
have
important
limitations
as
an
analytical
tool.
For
example,
EBITDA
and
Adjusted
EBITDA
do
not
reflect:
•
our cash expenditures or requirements for capital expenditures or capital commitments;
•
changes in, or cash requirements for, our working capital needs;
•
our interest expense or cash requirements necessary to service interest or principal payments on our debts;
•
tax payments that represent a reduction in cash available to us; and
•
any cash requirements for assets being depreciated and amortized that may have to be replaced in the future.
EBITDA and Adjusted EBITDA included in this presentation should be considered in addition to, and not as a substitute for, net loss as calculated in accordance
with United States generally accepted accounting principles as a
measure of performance.
The following is a reconciliation of net loss to EBITDA and Adjusted EBITDA:
Explanatory Information
2003
2004
2005
2006
H1'07
Net loss
$
(12.0)
    
$
(4.6)
      
$
(4.9)
      
(11.3)
    
$
(0.3)
      
Interest (income) expense
1.3
        
-
       
(0.1)
      
(0.5)
      
(0.2)
      
Provision for income taxes
-
       
-
       
0.8
        
2.5
        
1.6
        
Depreciation
1.3
        
1.1
        
1.5
        
2.4
        
1.5
        
Amortization
-
       
-
       
1.0
        
2.5
        
1.4
        
EBITDA
(9.4)
      
(3.5)
      
(1.7)
      
(4.4)
      
4.0
        
ATI research and development expenses
0.2
        
0.9
        
1.3
        
1.2
        
-
       
ATI spin-off expenses
-
       
-
       
-
       
0.7
        
-
       
Non-recurring charges related to accounting,
administration and compliance infrastructure
-
       
-
       
-
       
2.7
        
1.0
        
Adjusted EBITDA
$
(9.2)
      
$
(2.6)
      
$
(0.4)
      
$
0.2
        
$
5.0