ImageWare Systems, Inc.
Q3 2020 Earnings Call Transcript
Published:
- Terri MacInnis:
- Good afternoon, everyone, and thank you for joining ImageWare Systems' Third Quarter Financial Results and Corporate Update to discuss the Company's business and operations. I'm Terri MacInnis, VP of Investor Relations. Joining us today are ImageWare's Chair Person and CEO, Kristin Taylor; and the Company's CFO, Jonathan Morris. 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.
- Jonathan Morris:
- Thank you, Terri, and welcome to those of you joining our call today. Our financial results are available on our website and 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 September 30, 2020, grew 215% to $2.471 million, up from $785,000 for 2019. The revenue for both years primarily reflected our legacy business. This increase was primarily driven by services revenue for smart badge technology, including software integration services, system installation services and customer training for one large customer, the U.S. Department of Veterans Affairs for a combined value of $1.2 million. These larger than average fluctuations are typically due to project-oriented solutions for our federal customer segment. Based on our current visibility with market conditions, we believe that we will see an increase in federal government procurement and implementations with respect to Identity management initiatives. Gross profits for the three months ended September 30, 2020 grew 152% to $1.633 million, as compared with $647,000 in a comparable period of 2019. Gross margin decreased to 66% in 2020 compared with 82% in 2019 due to the one-time impact of additional services costs incurred for this one particular customer. Although changes in our costs are typically caused by revenue fluctuations, cost of services can also vary depending on the level and complexity of services required.
- Kristin Taylor:
- Thank you, Jonathan, and thank you to everyone for joining us today. We are feeling the impacts of COVID-19. The virus is surging. In California alone, we are seeing nearly 11,000 new cases daily and more than 12 million U.S citizens have confirmed infections. Tens of thousands of new cases are reported daily. As much as we thought we would have been through the worst of it, the reality is the pandemic is affecting our current clients and partners as well as our potential clients. Prior to the pandemic, ImageWare operated with a 20% remote workforce model with today's 100% distributed virtual team performing at such a high level. We are in negotiations to sublease our current 8,000 square foot office space in San Diego. As a next step, we will seek a more innovative new space that would allow us to create a demonstration environment for potential clients in our three verticals, law enforcement public safety, federal, as well as the enterprise. We will look for a bright and open office space that is inviting for collaboration. The new space would accommodate what we expect to be a majority of our workforce continuing to work remotely even after the world returns to a new normal. Our new office will be designed to encompass our vision to support our mostly work-from-home team with a place to hold some board and office meetings, demos and testing. As a biometrics first cybersecurity company, we are building on our legacy of providing the very highest level of security to systems, data, places, and facilities by identifying and authenticating people through biometrics. Our putting biometrics first is a competitive delineation. Since I joined ImageWare in March, we spent much of the last three quarterly calls reviewing our history and the many unique benefits of our technology. Today, I'll discuss progress made since the prior quarter where we are and where we are headed. At the end of the day, it's all about our relentless focus on driving results. Today's call is fundamentally different because having just closed an $11.56 million financing, we now have the much needed working capital to fuel the Company. I'll also review what we have been able to accomplish over the past 8 months in an austere environment, and what we are able to do now that we are funded. Of course, as Jonathan pointed out, we'll continue to look for cost savings, while we spend strategically to accelerate sales. We continue to execute on our strategy to optimize legacy products, as we refresh and integrate them with the latest cloud and mobile technologies, to define our niche in the security market place, to deliver increased value to the customer in numerous sectors and realize cash flow positive by growing consistent revenue.
- A - Kristin Taylor:
- We've been asked, will the business ImageWare does with IBM be affected by the split up of their operations IBM recently announced that it would cut away the managed infrastructure services cloud business from its larger services business and create a new company yet to be named. will help service more customers to manage infrastructure across the hyperscale platforms. Customers will pay to manage any application on any cloud platform. On a positive note, will give us the opportunity to partner with companies across all cloud vendors for biometric authentication, not just IBM. In 2014, we forged a relationship with IBM Security and IBM Global Services that is unaffected by this split. We continue to team with IBM and look for partnership across global opportunities. In fact, we are in the process of becoming an IBM partner which brings us closer to IBM to team with them. But first, we must go through a certification process. A shareholder noted that I have built a reputation for getting close to those who influence corporate decision makers and asked, has this been happening at ImageWare and with what success? My life is about relationships, and not just corporate decision makers. As many of you have known, I believe that life is about connection and loyalty. Results are important, but relationships are what matter. Although, I have been busy fundraising, I have not stopped my efforts to speak to my large global personal network about ImageWare. I have been reaching out to corporate friends, friends of friends, technical and financial analysts. I'm finding great interest from some of these connections. It is imperative for us to finish our GVID MFA product, refresh the biometric engine as well as get moving on the EPI smart badging platform upgrade. All of these products appeal to the enterprise clients. And in turn, I want to be able to offer finish products that are capable of immediate use. In terms of the law enforcement space, an area I do not have an old network in, I had been developing new relationships with important advisors, who have helped to make critical introductions to heads of state, ambassadors, police chiefs and military personnel. This has been paying off as I have weekly calls with law enforcement and public safety high level officials that have been leading to meaningful business.
- Kristin Taylor:
- This concludes our Q&A session. At this time, I'd like to end our call with a brief closing comment. Thank you again for joining us today. I'll leave you with the thought that the entire team and I do our utmost each and every day to build momentum, drive strong growth prospects to deliver best in class growth, expand sales, and take the steps needed to help make ImageWare, the successful company we all know it can be. We are making progress against our strategic priorities and executing on our broad vision to expand the growth of our company. I encourage anyone with questions or feedback to reach out to our Investor Relations team or myself. Stay safe and be well. We wish you a happy holiday season. Thank you again.
- Operator:
- This concludes today's conference call. Thank you for your participation.