Exhibit
99.1
-1-
C O R P O R A T E P A R T I C I P A N
T S
Wayne Wetherell, Senior Vice President of Administration and
Chief Financial Officer
Jim Miller, Chairman and Chief Executive
Officer
David Somerville, Senior
Vice President of Sales and Marketing
C O N F E R E N C E C A L
L P A R T I C I P A N T
S
Stan Kaplan, Private
Investor
P R E S E N T A T I O N
Operator:
Good
afternoon, everyone, and thank you for participating in ImageWare
Systems’ year end financials results and corporate update
call to highlight the Company’s progress since its last
quarterly update on November 14, 2018.
Joining
us today are ImageWare Systems’ Chairman and CEO, Mr. Jim
Miller, and the Company’s CFO, Mr. Wayne Wetherell. Also
joining our call today will be Mr. David Somerville, Vice President
of Sales and Marketing. Following those remarks, we’ll open
the call for your questions.
Any
statements made on this call that are not historical facts are
forward-looking statements as defined in the U.S. Private
Securities Litigation Reform Act of 1995. Words such as
“anticipate,” “believe,”
“estimate,” “expect,”
“forecast,” “intend,” “may,”
“plan,” “project,” “predict,”
“if,” “should” and “will,” and
similar expressions as they relate to ImageWare Systems, Inc. are
intended to identify such forward-looking statements. ImageWare may
from time to time update these publicly announced projections, but
is not obligated to do so. Any projections of future results of
operations should not be construed in any manner as a guarantee
that such results will in fact occur. These projections are subject
to change and could differ materially from final reported
results.
For a
discussion of such risks and uncertainties, please see Risk Factors
in ImageWare’s annual report on Form 10-K for the fiscal year
ended December 31, 2018, its quarterly report on Form 10-Q for the
quarter ended September 30, 2018, 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’d
like to remind everyone that this call will be available for replay
through May 16, 2019, starting at 7:30 p.m. Eastern Time tonight. A
webcast replay will also 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 Systems, Inc. is strictly
prohibited.
Now,
I’ll turn the call over to Wayne Wetherell, CFO of ImageWare
Systems. Please go ahead, sir.
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Wayne Wetherell:
Thank
you, Operator, and welcome to those of you joining our call today.
Our financial results are available in the recently published news
release and Form 10-Q. For context on today’s call,
I’ll provide a brief summary of those results.
Revenue
for the quarter ended March 31, 2019 increased to $931,000,
compared to $716,000 for the same period in 2018. The revenue for
both quarters primarily reflect our legacy business. Gross profits
for the quarter were $727,000, compared to $468,000 in the same
quarter of 2018. Gross margins for the quarter increased to 78%,
compared with 65% in 2018. The first quarter net loss from
continuing operations was $3.6 million, compared to $3.6 million
for the same quarter of 2018. We ended the quarter with cash of
$2.9 million. In late April, we completed a $6.55 million
registered direct offering of our common stock.
This
concludes my financial summary. I’ll now turn the call over
to Jim for the progress update on our business
strategy.
Jim Miller:
Thanks,
Wayne. Good afternoon to you all. I’m pleased to have the
opportunity to speak with you today. Once again, I’m going to
start by noting that most of you are already familiar with our
technology overview and with what our patented, highly scalable,
multimodal biometric technology does, how it’s different from
and superior to other competing technologies and why it’s
needed.
We’ve
been busy at IWS, and with the debut in March of our Digital
Identity Platform, we now have much more to offer. With the
creation of the Digital Identity Platform, we have the ability to
create the digital identity record, which, by the way, once
created, can be used or federated, with permission, across any
number of other use cases. We also have the ability to
biometrically authenticate those created identities on any devices
you use, which is the only reliable way to authenticate that you
are really you, and we allow our users to manage those identity
files, a one-stop shop for all of those products with the
world’s best patented biometric authentication at its
heart.
For
those of you who would like to drill down onto that information
one-on-one, our IR Team is available to speak with you, or you can
visit our website at iwsinc.com, which I think you will find
extremely informative.
We are
the only Company that offers true anonymous biometric security. We
do this by employing a technique we developed and patented to
separate biometric matching from personal information, so that in
the remote event of any security issue, an intruder would only have
access to useless biometric templates without knowing who they
belong to. With our portfolio of patents, 22 issued and 25 pending,
for cloud-based anonymous storage, transmission and matching of
multimodal biometrics, only ImageWare can provide the ultimate
level of authentication assurance, security and
privacy.
Those
of you who have been following biometric technology for any length
of time know that the market is significantly different from what
it was and where it was just months ago. From the perspective of
some of our new potential customers, they sometimes perceive that
we just invented something new and earth-shattering, but in fact,
it’s not that at all. It’s really that the market has
caught up with the need for fully vetted digital enrollment,
coupled seamlessly with multimodal biometric technology. In fact,
we are now being reapproached by potential customers we’ve
contacted previously who tell us, in essence, that they just
didn’t get it in prior conversations, or simply weren’t
ready to go to market back then. All of that is now
changing.
In
recognition of this new market reality, we’re going to have
an expanded format for today’s call, which will provide you a
perspective from the viewpoint of David Somerville, our Senior Vice
President of Sales and Marketing, who will give you a broadened
perspective on where we are and what we have to look forward to.
Dave will give you his perspective on the current state of the
market and an overview of the increase in our sales pipeline and
activity, and I’m sure you will keep in mind the limitations
he has with regarding providing certain project specifics. When
Dave has completed his comments, I’ll bring you current on
certain projects that we’ve talked about in our last call,
which was just six weeks ago.
With
that, it’s my pleasure to introduce to you Mr. David
Somerville, our Senior Vice President of Sales and Marketing at
ImageWare. David?
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David Somerville:
Thank
you, Jim. It’s my sincere pleasure to provide everyone an
update and my perspective to date.
As all
of you know, sales success is the result of many, many factors,
and, in my experience, the most important ones are market
readiness, product readiness, and having the right team and
strategies in place to capitalize on the opportunity. This
framework will provide the context to my update and my view of the
road ahead. In short, the identity market is hot, and getting
hotter. I’m increasingly optimistic about IWS’ ability
to capitalize in this high-growth market, and here are some of the
reasons why.
Firstly,
current cybersecurity defense initiatives remain ineffective
against the bad guys and the number one attack vector, i.e., stolen
passwords or compromised credentials, with data breaches and
associated costs nearly reaching over $4 million globally per
breach. Even with improved password defenses, such as two-factor,
the attacks continue to happen and outwit these rudimentary
techniques.
Secondly,
the transformation of our businesses globally towards a digital
economy and the never-ending drive for increased automation,
leveraging cloud, artificial intelligence, IoT require the
strongest digital identification and authentication solutions as a
cornerstone for all of these initiatives.
Lastly,
the regulatory environment is changing rapidly, as well, and laws
to protect consumer data, such as GDPR in Europe, now have teeth.
There are significant penalties for noncompliance, where these
significant penalties are causing a shakeup to the business world
around the globe and a business driver to better protect customer
data.
All of
these market factors are creating the perfect storm for IWS. The
market now recognizes that identity is the new security parameter,
traditional defenses are no longer considered adequate to fully
protect the enterprise and their end customers, and the market is
now starting to realize that the new digital economy is now enabled
by digital identity proofing and authentication provided by our
Digital Identity Platform and that multimodal biometrics are the
only reliable and secure way to enable that digital
future.
Let me
now share an update on our team. I’ve made a few key hires
and appointments within the IWS Sales and Marketing Team to help us
drive and execute on the market opportunity. Firstly, we have
appointed a VP of Marketing to drive visibility of the IWS brand
and solutions across all major social and media channels globally.
In addition, we have appointed an SVP of Strategic Business
Development to further develop and drive our strategic partnerships
and sales into OEM, global consulting firms, money security
providers and global channels. Finally, I’ve appointed a head
of customer success to ensure our pre-sales and post-sales
engineering execution is flawless. I’ll continue to provide
updates as we progress with key hires globally. All of these key
appointments are already showing effect, with increase in inbound
interest and progress with new business and partner
opportunities.
In
summary, I’m very confident and excited we’ll start to
see revenue growth throughout 2019, and beyond. We are highly
engaged right now closing some significant new business for IWS
this quarter, and beyond, across all verticals globally. We also
expect to expand our go-to-market partnerships throughout the
remainder of this year. Our pipeline has never been healthier and
continues to grow, and I look forward to sharing further updates as
we make progress.
Now,
I’ll hand back over to Jim for his concluding
remarks.
Jim Miller:
Thanks,
David. As Dave said to you, identity is the new security parameter.
Now, for all the money invested in firewall and threat detection
systems, it turns out that the leading suspect in the vast majority
of all data breaches is the inherently faulty PIN and password, and
as that realization reverberates throughout the industry,
we’re now seeing new and, in some cases, renewed interest in
our product suite. You need a fully vetted identity to enroll in a
system and then you need to reliably and quickly authenticate that
identity time after time. With the March introduction of the IWS
Digital Identity Platform, we now have those products all from one
vendor, ImageWare.
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Now,
let’s talk about what’s going on with sales and
business development areas since our last call. This year has seen
an increase in demand for our solutions from all industry sectors,
including our traditional business in government and law
enforcement, and now into the enterprise space directly and via our
continuously expanding partner ecosystem.
In our
February 8-K filing, we disclosed that we had entered into a
definitive agreement with a global financial services provider to
provide multimodal biometric authentication solutions for a
healthcare application. Under the agreement, our GoVerifyID mobile
biometric solution will be part of a system used to help ensure
compliance with mandates under the 21st Century Cures Act, which
requires all states to implement electronic visit verification, or
EVV as it’s known, for patients, which will create a digital
record of the care provider and authenticate the care provider and
the patient. Our new customer is still set to commence the use of
the product in production, now commencing June 1, at which point we
will generate revenues under the agreement. Over time, their plan
is to use the product in other states where they are under contract
to provide this service. EVV is mandated by federal law for
personal care services under Medicare. Our customer will use
GoVerifyID to authenticate home health care services provided under
Medicare. Using both biometrics and GPS on a laptop or mobile
device, our product helps authenticate that care was provided by a
specific person at a specific location and at a specific time, and
it will allow access to electronically stored medical records which
can be protected under HIPAA by a biometric
authentication.
Last
quarter, we disclosed that we entered into a five-year license
agreement with Contactable to resell our biometric products, which
have been fully integrated as part of their product offering.
Through Contactable, ImageWare has been awarded a contract to
provide the biometric authentication as part of the services
provided to a major multinational mobile telecommunications
company. The initial phase of this agreement is for a specific
geographic region which has approximately 30 million mobile
customers, with additional phases anticipated. I’m still
precluded from discussing price points for the moment; however, the
size of the contract will yield material results for IWS as we move
through the various phases of implementation, and as I said on our
call six weeks ago, we expect deployment of revenues to commence in
the second half of this year.
This is
the first of its kind mammoth undertaking. The mobile carrier is in
the process of evaluating how to move forward with a
first-of-a-kind deployment to such a large number of users. Do they
decide to enroll in phases or collect all enrollment data and then
flip the on-switch for all users at once? Our revenue begins when
customers use their biometric data for authentication, which is
after the data has been collected and enrolled. As we said on our
last call, the carrier will have a mandatory phase-in period for
all existing customers, and, of course, biometrics will be the new
standard operating procedure for all new customers. This particular
carrier has several hundred million subscribers worldwide, so this
opportunity is expected to be a needle-moving game changer for our
Company.
The
project also provides us for the first time with world-class
private sector references for our products to stand alongside our
world-class government references, such as the Canadian TSA, the
U.S. Veterans Administration, the state of Arizona, and Los Angeles
World Airports. We have lacked those large reference customers in
our private sector business and now we have them. The business from
our partnership with Contactable, with mobile communications
carriers, puts ImageWare on the path toward profitability, and we
continue to anticipate new transactions in the pipeline, that we
expect to announce in the second quarter.
Last
week, we kicked off our product integration with ForgeRock, a
leader in identity and access management, at their national sales
event. ForgeRock has named us one of their preferred partners to
take to market, and we and they are in the process of commencing
the marketing and sales efforts for our joint products. Needless to
say, we continue to be excited about the possibilities inherent
working with them.
Regarding
Fujitsu and MedClick, which you’ll recall is the private
label version of our pillphone application, we continued our work
with Fujitsu and their partners on securing a large reference.
While there’s a fair amount of activity here, there is no
update from our March report at the moment. We have deployed the
initial phase for the Canadian financial institution which we sold
last year with Fujitsu. A bit of internal reorganization is going
on at Fujitsu at the moment, but we continue to support their
efforts to target and close opportunities for their
Biometrics-as-a-Service product, which, as you know, they licensed
to us on an OEM basis—excuse me, licensed from us on an OEM
basis.
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As you
know, IBM selected ImageWare to provide the biometric
authentication software for the next-generation Canada TSA
restricted access identity control product. This is a $2.8 million
order. During the first quarter, we made additional software
deliveries of approximately $600,000. Unfortunately, we are under
certain accounting rules and only able to recognize approximately
25% of that amount. This is a standard practice when accounting for
large projects where we are just a portion of a larger effort. The
good news is that our Engineering Team has this project going along
quite well and we will be able to recognize all of this, and the
remaining approximately $1.2 million in revenues, during this
calendar year.
Finally,
we recently completed a private placement, which raised $6.5
million in gross proceeds, with institutional investors. We
expected that his financing will take us to cash flow positive
status.
In our
last call, we were asked if ImageWare would hold an Annual
Shareholders’ Meeting and the answer is an emphatic yes. We
have committed to hold an Annual Meeting this fall or sooner.
Because of the majority of shares of ImageWare are held by a small
number of people, historically, the need for an Annual Meeting was
not needed as much, as in normal situations. Annual Meetings are
not inexpensive. They include legal, accounting and transfer agent
fees, and we have typically directed those funds to better use
elsewhere. However, that said, we are very much looking forward to
our upcoming meeting.
Now,
I’d like to turn this call back over to James for some
questions and answers.
Operator:
Thank
you. Jim Miller and Wayne Wetherell are available to take your
questions. If you’d like to ask a question, please signal by
pressing star one on your telephone keypad. If you’re using a
speakerphone, please make sure your mute function is turned off to
allow your signal to reach our equipment. We ask that you limit
yourself to one question and one follow-up question. Again, press
star one to ask a question, and we’ll pause for just a moment
to allow everyone an opportunity to signal for
questions.
We’ll
take our first question today from Stan Kaplan (phon).
Stan Kaplan:
Hi,
guys. I’d like to understand the potential revenue stream a
little bit more closely. First of all, how much revenue do we need
to bring in each month to breakeven?
Wayne Wetherell:
We need
between $4 million and $5 million on a quarterly basis, so
somewhere a little over $1 million a month would get us
there.
Stan Kaplan:
Okay.
So, taking into account current revenues, what’s the gap
currently? If revenues stay the same—let’s just talk
about the next few months—what would the shortfall
be?
Wayne Wetherell:
If they
stayed the same, Stan, from the just reported quarter?
Stan Kaplan:
That’s
correct.
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Wayne Wetherell:
You’re
talking about the shortfall, like in cash …
Stan Kaplan:
Right.
Wayne Wetherell:
…
in a quarter?
Stan Kaplan:
Yes,
from the—obviously, we have some revenues, an let’s
just subtract that from what our breakeven needs to be. So,
what’s the gap there?
Wayne Wetherell:
It’s
approximately $3 million, a little over $3 million. Assuming
we’re going to be at what we’ve been in this past year,
we’re somewhere in the neighborhood of $1 million, a little
over $1 million, a quarter. So, that means we’re about $3
million short for that $4 million, $4 million to $4.5 million
breakeven.
Stan Kaplan:
Okay.
Of our existing customers that are generating revenue, how many do
we have that have a fairly high probability of making up that gap
in the next six months, let’s say?
Wayne Wetherell:
Well,
I’m trying to understand “of our existing
customers.” Well, there’s a number of those customers
that could make up that gap.
Stan Kaplan:
On
their own, individually?
Wayne Wetherell:
Yes, on
their own. Yes, absolutely. I mean, it all depends, Stan, on the
pace of their roll-out of the product. If they decide to move the
pace quicker, or they decide to, as sometimes people do, take Phase
1 and 2 and compress it into one phase instead of two, the
roll-out, the assumptions for revenue, all change, sometimes
dramatically. The reality of that is, when we’re licensing
product to partners, as we’ve talked about frequently on
these calls, we don’t have the ability to direct that.
That’s one of the consequences, if you will, of dealing in a
partner model. You license it to a partner and then you really have
to go with that partner as they navigate their own end users and
get to roll-out, and roll-out, as we just talked about in our
remarks here, means revenue.
Operator:
Thank
you. At this time, there are no further questions. I’ll turn
the conference over to Mr. Jim Miller for any additional or closing
remarks.
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Jim Miller:
Thanks,
James. From recent conversations I’ve had with a number of
longer term ImageWare investors, it seems like they’re
beginning to believe, along with all of us at the ImageWare Team,
that the market we thought we were addressing three and four years
ago is finally here now. Specific evidence can be seen in the two
transactions we made in filings two months ago. More evidence is
seen and heard every day on the financial news. Identity, truly, is
the new security. We have meetings almost every day with potential
customers who’ve now come to that conclusion. Now, it
won’t be obvious to everyone by tomorrow, but as one-by-one
we enter into agreements with companies and provide services to
those who have searched everywhere and conclude that ImageWare has
the best platform to work with, both ImageWare and our investors
will reap the benefits. This is no longer just a single
opinion.
As
always, we appreciate your support, as well as your taking the time
for today’s call, and we look forward to speaking with you on
our next one. Good afternoon, and have a good evening to
everyone.
Operator:
That
will conclude today’s conference call. Thank you for your
participation.
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