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ifish1, your question answered in UND presentation
I was hoping someone would be able to answer your question, as it was something I didn’t understand either. SKS answered it specifically in the 2006 University of North Dakota presentation.
The link is in Wildman’s post #171729.
http://investorshub.advfn.com/boards/read_msg.aspx?Message_id=32758891&txt2find=und
About minute 9:40:
“Let’s talk a little bit about what a Trusted Platform Module is, and I won’t spend too much time on this. It is a hardware security device. Think of it in this way. It is a container in which I can put identities, in this case Public Key Infrastructure credentials. And those identities – I can have one or a thousand. They are protected by keys in hardware on the device, and it takes advantage of things like the hard disc to store additional credentials encrypted according to keys that are in the Trusted Platform Module.
“In addition it has a little speed[?] engine inside the Trusted Platform Module whose sole purpose in life is to check your password. And so what you have is a PIN number, or really a pass phrase, that you supply to the Trusted Platform Module, and inside the hardware confines of the silicon at the heart of [?] the Trusted Platform Module it does the check to see if that PIN number is correct to release that single or group of credentials. And so what you have is all the benefits of, for example, Smartcard with matching the PIN number on the Smartcard to this hardware-created container that’s extremely tamper-resistant. You’d actually have to take the hardware apart. No amount of software looking at the wires is going to get you the PIN number that’s inside the chip. And you can supply that PIN number to release the credentials.
“Now I have true multi-factor authentication, something I have (my _____ laptop), something I know ( the PIN number that releases the credentials that are held in my laptop). And it’s extremely policy neutral. I can have one PIN number when I log onto my computer unlock all the credentials on my chip. I can also have a specific PIN number for my Citibank account that’s my Citibank credential, and that every time I go to the Citibank website I’m going to have to supply that PIN number. So if you were to casually walk up to my machine running and you click to go to Citibank it wouldn’t log me in unless you supply the PIN number.
tkc, it’s highest mkt cap within 30 days
In player’s post #170024 is this statement: “The market cap is determined as the highest value within 30 days of the placement taking place.”
He pointed out his mistake (i.e., using the current market cap) in post #170027
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=31635218
I haven't done the calculations. This might not change the conclusion that they've taken all they can. Also, I realize now that this could explain why they've been doing these odd, small placements.
New Large Orders
First of all, it’s very positive that DGLY now has new international customers, likely central governments, possibly large, who hopefully will continue to re-order.
Secondly, it’s interesting that these announced large orders are international in light of our last few posts. The 900 systems, at about $3,600 each, add about $3.3 million to the international total so far this year. This pushes international to just under 20% of the $40 million guidance, higher than the 17% budgeted for the whole year.
1.0 + 3.6 + 3.3 = 7.9
Also interesting, and to management’s credit, is that they realized they needed to let us know that these orders would ship in Q3. Presumably they didn’t announce the orders until they received payment, which explains the delay.
I looked at the Yahoo board to see the domestic projects that dglyinvestor has found. I didn’t track down the details of every project, but some are small (Madison Alabama, Sedgwick County, Des Plaines) and the large New Jersey project seems to be out of date, but Nevada is a good example. In total it would be for about 400 systems. But it is a 9-month contract, and it’s probably a safe bet that the Nevada municipalities would not all be buying the systems at one time. There are 27 Highway Patrol Divisions and the largest is Las Vegas with 158 vehicles.
In other words, this would probably not come in as one large 400 piece order, which I gather is typical in the U.S. It’s hard to know if this type of project would have been included in the dozen mentioned by Stan in the August 19 presentation (“I know of at least a dozen projects that are four and five hundred systems, one order”). He certainly could have been including projects of this type, and perhaps just misspoke when he used the term “one order” when he was trying to underscore the fact that each project would be that large by itself.
Anyway, looking over what dglyinvestor found so far tends to confirm the small order focus in the U.S.
Large Expected Orders: International/Domestic
Mike, thanks for pointing out that the large expected orders may be both international and domestic.
I did some sleuthing to find out where I got the impression that these large orders were international. I had to read some passages in the Q1 CC many times before I understood the sequence of questions and answers where Stan seems to imply that the orders are international. (See the underlined passages in the Q1 transcript below.)
But there was quite a bit of confusion between Stan and Ken at that point, and I’m not sure that even they knew what they were saying. Ken seems to say that indeed some of the expected large orders will be domestic, presumably for State Highway Patrols.
I’ve also included the passage from the August 19th presentation where Stan speaks of a dozen large projects (potential orders) for 400 to 500 systems each. When you couple that with the 17% projection for international’s portion of the $40 million, it implies that many of the large orders would be domestic. (See calculation section below.) Yet you have to wonder how many large domestic orders there could be, as DGLY works with central governments in the international arena and usually works with the many separate municipalities in the U.S.
Anyway, all this is probably not tremendously important, but those who have the fortitude to wade through it will see the various ins and outs.
FWIW:
Q1 2008 Q&A
MR. OSTEN, VENITOR CAPITAL. If I’m looking at the $40 million guidance you guys are talking about, you didn’t have any big deals in Q1; it was a very well-distributed quarter. Are there any large, potentially large, international or domestic orders built into that guidance or would anything over like a $1 million order or something be additive to that guidance?
[ Stan’s answer is certainly open to interpretation. At first I didn’t think he answered the question about large orders at all, but if he IS answering it, he is implying that it is that 17% international that encompasses the large orders. Then later he does seem to say specifically that the 17% represents the large orders. ]
STAN. Couple of things, Brandon. Good question. There is, as you know, in this business you do have a little bit of insight into what the future holds because of the way the bidding works and how many units out there and you somewhat know even when their money’s coming in. We have – the 40 million, the guidance, was basically given based upon just domestic business and some international business that we pretty well have a good feel for that we’re going to get, and that equates to about 17% is what we’re looking at as far as international vs. domestic. Now, Ken you might talk about some surprises that may happen.
[ Here I think Stan expected Ken to talk about the “elephant hunting” orders, which are not included in the $40 million, but Ken misunderstands and talks about large expected orders. Ken seems to be clearly implying that the Highway Patrol orders would be included in the large orders.]
KEN. Well, we’re continuing to work on some additional state fleets, the Highway Patrol type of departments where we’ve got units in for evaluation at several of those as well as several law enforcement agencies internationally. And we do expect – later in the year I’m expecting – late third quarter, early fourth quarter – having some very significant large orders coming in.
MR. OSTEN. And those large orders, if they come in, would be additive to the $40 million?
[ Here Stan comes in and tries to clarify. He seems to be saying that Ken was referring to the 17% of total orders, that is the international portion, when he mentioned “significant large orders”. Maybe it’s just utter confusion here. ]
STAN. No, we had figured those in our projections. That still just only equates to about 17%, Brandon. [ Then Stan goes on to talk about other potential orders, possibly the elephant hunting orders. ] What we’re saying now, there are some things that are out there that we do not have in the $40 million number but that Ken is working on but we just don’t have a sense of the timing of them yet.
LATER IN THE Q&A
[ Here Ken again talks about the large orders and this time he is specifically talking about international. ]
JIM STONE. Can you give us some feel for who you’re penetrating abroad and why you’re making inroads there [inaudible] similar [inaudible] to the U.S.? What’s happening?
KEN. It’s a little different in the international marketplace. In most countries you’re working with the government. Not that many countries actually have the structure like here where local police, local counties, and states, and the federal government all buy from us. Most of those are directly to a federal, if you will, government. We are working with several of those in various locations and just can’t disclose right now but we are expecting some very significant orders from our international countries during ’08.
This is a link to the whole Q1 CC.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=30176783
AUGUST 19, 2008 PRESENTATION about 3 minutes from the end
[ This is where Stan talks about a dozen large projects – potential orders – and also mentions the elephant hunting. ]
[Stan repeats question.] Whether or not we have a backlog for orders.
[Answer] You know I could tell you that virtually every quarter since we started shipping products we had a backlog. This is the first quarter in which production has been able to catch up to marketing. And again that’s why we also set there and say we need to go ahead and continue to build some inventory because there are projects that are out there. I know of at least a dozen projects that are four and five hundred systems, one order. So it won’t take long to blow through that inventory if he gets a few of those. Those are projects that are going to happen between now and the end of the year. So we usually had a backlog, and currently we do not. Also can tell you he is still out there doing elephant hunting, I mean where he’s talking to countries that are talking about 2 – 3 – 4 thousand pieces. So we’ve got a very bright future ahead of us.
INTERNATIONAL 17%
Another wrinkle is that the 17% international figure tends to support the idea that many of the large orders would be domestic. (The $3,600 figures per system is $4,000 discounted 10%.)
$40 million x .17 = $6.8 million international for 2008
$6.8 / $3,600 = 1,889 DVMs
When you subtract the Q2 $3.6 million international order and the c. $1 million international component in Q1, you’re left with about $2.2 million.
6.8 – 3.6 – 1.0 = 2.2 remaining international
2.2 / 3,600 = 611 DVMs
611 DVMs wouldn’t populate too many large orders, only one or two at the 400 – 500 level.
Possibly the Q2 $3.6 million order was extra and we should not include that:
6.8 – 1.0 = 5.8 remaining international
5.8 / 3,600 = 1,611 DVMs left for 2008
That could accomodate three or four of the 400-500 level orders.
Anyway, as I said above, FWIW.
Anyone else concerned that Q3 will be light?
I usually don’t do much trading in and out of positions, but I’ve temporarily sold my DGLY position because of the overall market/credit situation and because we now have about a week to go in Q3 and none of the expected ("late third quarter, early fourth quarter") large international orders have been announced. As we know, DGLY doesn’t ship international orders until they receive the funds, so even if large orders are received this week, they’re not likely to ship until Q4. (See Q2 CC excerpt below.)
It’s possible, of course, that orders have been received but not announced. It’s also possible that investors will be able to accept a light Q3 if orders are announced prior to the Q3 earnings release even if they won’t ship in Q3....
Q2 2008 Q&A
AUSTIN HOPPER – AWH CAPITAL. Morning. Thanks for taking my questions. Can you remind me again of your customer payment policies in the U.S. versus international. I thought you required pre-payment from international customers.
STAN. We do. You know the – we do require pre-payment. If you look in the second quarter you’ll see that we actually announced the order from our international client [PR was dated May 30th] but that particular order was not shipped until the very last of – I think it was last week I think – of the quarter. So it would have been an interesting quarter without that. So that is the method that we go by now.
I will say that if it’s a small, 5 - 6 -7 piece type of deal and we’ve got a relationship with them, in that situation we may go ahead and get some numbers out there. But anything of the magnitude and the size of our most recent one, we’re looking for money up front.
Q1 2008 Q&A
KEN. Well, we’re continuing to work on some additional state fleets, the Highway Patrol type of departments where we’ve got units in for evaluation at several of those as well as several law enforcement agencies internationally. And we do expect – later in the year I’m expecting late third quarter, early fourth quarter, having some very significant large orders coming in.
SKS Strategy Statements in Q1CC
tkc, it’s interesting to review what SKS said in Q1CC about strategy. As I understand it, the basic strategy is
To support “EVERYBODY who wants to join the manufacturing side of this security technology”
-- In order to maintain Wave’s leadership in hardware-based security
-- In order to increase Wave’s offerings to OEMS
-- All in order to increase the enterprise product line and get enterprise business. (See the last paragraph. Enterprise software is where the leverage is.)
I think he feels he can follow this strategy because he has believed all along, and still believes, that the revenue ramp is just around the corner.
Also, hardware-based security is becoming interesting to more manufacturers, so the strategy gets more expensive. “So in many aspects we've seen an enormous level of growth over the course of the last six months in the level of interest from players who are public like Intel and Seagate, but also from lots of other players who are not yet public about how they want to integrate hardware security into their platforms.” “…you will see the pace of devices continue to accelerate…”
But if you ask them to cut back on development for future products, you are asking them to change their basic strategy. (Yet I agree that without a quick change in revenues or available money, it is necessary to somehow run a leaner ship.)
Overall, in answer to Robert Isler’s question below, he says, “This is our strategy and we intend to continue with it.”
Q1CC Q&A
Q: Okay. One last question. I'll let you go. For at least the past couple years Wave has consistently been losing about 4.5/5 million each quarter, actually it's up to 6 million this quarter. And even as revenues have increased, the cost has increased by a comparable rate, so it looks like you are forever at the mercy of capital markets, always losing 4, 5, 6 million a quarter. And obviously that puts pressure on the stock price. Can you address this issue? It's been going on for a long time. Seems like every dollar invested results in like a dollar returned, instead of $10.
SKS: Well, and so we've, for good or for bad, we've made the decision and we've been pursuing it, that says maintain your position and support everybody who wants to join on the manufacturing side of this security technology.
So in many aspects we've seen an enormous level of growth over the course of the last six months in the level of interest from players who are public like Intel and Seagate, but also from lots of other players who are not yet public about how they want to integrate hardware security into their platforms. And in general when we see a platform that's going to ship millions of units, we raise our hand and say, "Yep, we'll build the support for that." Especially if it's something that integrates with other customers we already have. Not only does it keep competition at bay, but it dramatically expands our offerings to other OEMs. And so what you're seeing today is our investment in continuing to expand the product lines that we're bringing to the same Enterprise channel.
Now the challenge is, we would have thought we would have caught that growth on the expense side with growth on the revenue side on the Enterprise business already. I think we're seeing that.
But we're seeing more and more reasons why you want to buy the Wave Enterprise tools to meet the needs for the Enterprise market for the different hardware security technologies they’re buying.
So the transition to hardware security is full in force. And I think the right thing for us to do is to make sure that in this period of time we continue to maintain what is an incredible leadership position in this space, in the breadth of technology we support and in the depth of that technology. We will certainly see competitors. But a competitor who shows up and says, "Oh, we've just integrated Seagate's drive." Well, okay, that's nice. How are you doing on fully integrating the TPM? Then how are you on integrating the data integrity side, so that it works on the networking side. And, how about all the other devices? So now you've integrated Seagate, how are you doing with Intel? And I think you will see the pace of devices continue to accelerate and so it becomes harder and harder for a new entry to enter this market and start to generate some revenue from it.
We are generating revenue off of our core licensing business, and we are seeing the OEM business driving it. That's what is driving our expense line, as well as supporting the Enterprise business. But it's not growth dollar for dollar in the Enterprise revenue. And you could see dramatic up-tick in the Enterprise business and not see significant appreciation in the expense side to support that. **
** It took me a while to interpret this last paragraph. I think he is saying, "Our expense line is being driven primarily by supporting the OEMs. There is also expense in supporting the enterprise business, but that is where the leverage will be. When that ramps, the incremental expense will be relatively small."
trustcousa, I’ve re-read your post #170954 and now I see why you asked about a doubling of revenues.
I see what you are getting at: if they’ve been able to get by on raising about $800K per month, and their expenses average $2.3 million per month, that would seem to indicate that they have brought in $1.5 million per month from other sources. If it’s revenue, then billings should be about $4.5 million for Q3. I don't think this is quite a correct approach, but it's probably close enough.
Also supporting your idea is the continued reference by SKS to large orders in the pipeline that could come through.
But there is also conflicting evidence.
-- They didn’t revise the cash shortfall estimate downward in the September 15 Prospectus to reflect a revenue increase. $7.2 million makes no sense if they don’t need to raise any more money in Q3 and will be close to break-even in Q4. There is, of course, the possibility that this was an oversight.
-- Steven’s statements (mentioned in my last post) in the Q2 CC about upgrades through early August: (“So we already have a good strong showing in Q3. So revenues are up in Q3 versus a similar time frame in Q2.”) vs. what he said in the Q1 CC (“ We have seen now, since the first of April, more sales to date than we did in the entire Q1”). This tells us that there was no spike in upgrades through early August and that the RATE of increase had actually fallen.
But the money has to be coming from somewhere. The truth is that I don’t know what to make of it. It must be either
-- increased upgrade revenue as you suggest
-- a cash infusion expected shortly (WXP) so they’re pushing out expenses
-- the company just can’t get the money it needs and we will see some kind of retrenching
trustcousa,
An orderly progression would get us to about $3 million for Q3. See the table below.
It would take some kind of break-out in upgrades to get to a double this quarter, probably a couple of fairly big orders. If you change upgrades from 8,000 to 35,000, for example, that would change upgrade revenue from $480K to $2.1 million and would get us to $4.6 million total.
But in the Q1 cc Steven said that in the first 5/6 weeks of Q2, upgrades had surpassed all of Q1. Yet the total of Q2 upgrades was only 92% better than Q1. Then in the Q2 cc he said that upgrades in the first 5/6 weeks of Q3 were merely ahead of the Q2 pace. So the growth at that point was not as strong as from Q1 to Q2. So 8,000 would even be a little high if that trend continued.
I mean, all we can do is go by the facts or evidence that we have, right?
As for a large order, at some point some big fish is going to fall, but we just don’t know when….
ETS 4,700,000 $ 0.27 $1.270
ETS 3.0 1,500,000 0.45 0.680
- - - - - - -
TOTAL ETS BUNDLES 1.950
FDE 25,000 7.50 0.190
UPGRADES 8,000 60.00 0.480
- - - - - - -
SUBTOTAL 2.620
Bcom, ST Micro, etc. 0.140
Services 0.040
WXP/Development fees ?? 0.200
- - - - - - -
TOTAL BILLINGS 3.000
Cash Shortfall Estimate + NASDAQ Hearing Date
http://www.sec.gov/cgi-bin/browse-edgar?company=&CIK=wavx&filenum=&State=&SIC=&owner=include&action=getcompany
In the new Prospectus, it appears that the cash shortfall estimate is essentially unchanged from the last Prospectus in mid-August. If you look at the following table, it appears they have lowered their estimate, but presumably the thought process is, “Last time we said we needed 7.9 additional. We just raised 0.7. So now we need 7.2 additional.” In other words, they still have the same break-even scenario in mind even though the number got lower. (On the other hand, an entire month has passed, and we know they spend more than $700,000 – $800,000 per month.... Anyway, maybe they just didn’t feel it was necessary to recalculate the numbers....)
Cash-on- Estimated Total Needed
Document Hand PP Additional for 12 Months
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
424B5 8/13 0.0 .8 + 7.9 = 8.7 til 06/30/09
424B5 9/15 0.0 .7 + 7.2 = 7.9 til 06/30/09
SKS’s Recent Comments re Financing
I find it useful to stay aware of what SKS has specifically said recently about financing. I had drafted some comments, but I think I’ll just post the transcript pieces with a few bolded sentences. I also added numbers for clarity.
[1] is equity
[2] is “other short term opportunities”
[3] is WXP investment/sale
[4] is showing strength to the market through OEM partnerships
[5] is showing strength to the market through enterprise sales
[5a] is showing strength to the market through large enterprise sales
FINANCING OPTIONS OVERALL
Q1 CC Q&A
Q. …we're going to run out of money in the next 3 to 4 to 5 weeks, where are you going to get working capital to get us through that?
SKS:
[1] So on a short term basis you have an existing shelf registration that's available. You can fund off of that.
[2] There are some other short term opportunities that I'm not going to go into on this call that are tools the company certainly has available to them,
[1 cont’d] although I think my primary preference is still equity. I think it's the one that leaves the shareholders in the greatest control of this organization. And in general, I feel that's what the shareholders would like to be, is to be in control.
Q2 CC Opening Remarks
Briefly on a financing basis, this continues to be a challenging market.
[1 cont’d] We have continued to take as small a bite at the apple as is possible while raising capital. Share price continues to be, you know, a challenge within this.
[3] I think that we have a number of activities, the Olympics is a good example of it, that we hope to materialize the asset value of things like WaveXpress.
[4] We hope to demonstrate and show the extension and expansion of our OEM business, and
[5] continued breadth and growth of our sales on the Enterprise side.
[5a] We fundamentally believe that a few of the transactions that we're working on now could be major drivers to help people understand that yep, engagement is actually happening and it’s something that we can touch and feel, not just something that Wave keeps talking about.
WXP [#3 cont’d]
Q2 CC Opening Remarks
We've been actively pursuing both financial investment partners and/or potentially acquirers, although I think the first step here will be investment partners into it. And I think we're accomplishing the goal which is to define and show the value of WaveXpress as a consumer service within Wave.
Q2 CC Q&A
Q: Would you expect to be able to monetize WaveXpress by the end of this current year?
SKS: By the end of this year, yes.
Q: With the initial partnership. That first step that you talked about?
SKS: Our hope would be that in a much shorter period than that we can actually find external investment into it, which will give it valuation. So you can look at it and say, "We don't have to make up the value; we can see what somebody else paid for it." Right? And to that end we have casual discussions that are already underway. We by no means have somebody who's planning on doing it tomorrow. But I think this is something that could materialize, if you get the right momentum behind it, and I think it's building the right momentum today, as we speak. It could happen very quickly. Having said that, the video space is little bit interesting on that side, a lot of people had their fingers burned off.
Internet, some observations and questions.
Thank you for your work.
I’m sorry this got so long, and I know it is a lot of questions, but you covered a lot of ground. If you have time it would be interesting to hear your responses. (Or others could chime in.)
Also, for the record, I think it's important to say that I have high hopes for Wave. I am constantly assessing and re-assessing, and I think it's helpful to be clear about details.
“ It is somewhat interesting that some here are as down as they apparently appear to be given the fact that the company has NEVER been in a STRONGER position regarding the business itself.”
I appreciate those responders who were trying to keep track of both the positives and the negatives for Wave, but I thought that you indicated here that you were going to focus on the prospects for the adoption of Wave’s products as opposed to the financial difficulties.
Point # 1: “ DELL...With the rollout of the new E-series..Wave will nearly DOUBLE their lic. fees from Dell. Once the D series has been phased out... Wave will receive nearly 3 million dollars per quarter from Dell alone.”
Internet, has it been established that ETS version 3.3 will show up on the desktop machines soon and give us the same income boost there that we will get from the E-series laptops?
Point # 2: “Seagate will rollout the second generation of their FDEs in September which will have better success than the first generation. Why do I say this??? The second generation addresses the concerns and demands of the enterprise customers that were not provided by the first generation.”
The only changes I am aware of is that the second generation drives will have higher capacity and be faster. (Also, someone [awk?] pointed out that the new E-series small version will take the 2.5 inch drive instead of the 1.8.) Internet, are there other improvements I am not aware of, or do you believe that the slow adoption of FDE drives was SIGNIFICANTLY IMPACTED by the size and speed of the drives?
Point # 3: “ The point is that as more disk manufacturers enter the space...the FASTER the transition will be from software encryption to hardware encryption.”
I agree that it’s better if more manufacturers make FDE drives, but it’s hard to believe that would be really significant in spurring adoption. If Seagate hasn’t been able to sell many of theirs, why would these manufacturers be able to do better?
Point # 4: Intel.
I, too, hope this will be very positive.
Point # 5: “ Govt....We've been waiting for what seems like eternity for the Govt. to make a decision. The current fiscal budget ends by the end of Sept. If they are in the process of making a decision to purchase Wave's products...then we should hear something within the next four weeks.”
It sounds like you’re talking about a large agency-wide type of adoption, but doesn’t it sound like Steven was referring more to smaller orders when he spoke about the end-of-year money in the Q2cc?
Here he seems to be talking about the DoD:
“We've done extensive testing against their standardized images. They are doing that testing as well. There is a high level of interest in getting this done. We don't believe that there is a tremendous amount of competition for us. So we're in a strong position. Having said that, I'm still not putting it from a projections perspective any time soon. This is one of these items that could materialize in a very short period of time, but could also still take six to nine months. The government side is, every time we think we're just about there, there seems to be another process step we have to go through. I think that we understand at this point in time all of the steps that are required. We certainly had it explained to us, but this is not the first time. So we continue to make efforts to have broad based adoption.”
Here it sounds like he’s switched to smaller agencies or parts of agencies:
“Having said that, we have over 1,000 seats installed in one facility. We have another facility who has bought in and has about 100 seats deployed. Another one is just starting. We have a bid out there that's almost $1M worth of software for an agency. So there are opportunities that we are continuing to pursue. It's an interesting time frame in third quarter, because it's their end of year and there are people with free cash that they want to spend before it goes away. So we'd like to get our piece of that.”
Point # 6: “At some point....the number of monthly activations WILL reach a point that will translate into significant revenues.”
This may be something that MIB meant by “hopes and dreams.” We all HOPE that monthly activations will reach a significant level. And probably most of us THINK it will happen sooner or later. But then the question is “when.” Given the slow start and the slow ramp, it's hard to know what to believe about customers and their needs.
Point # 7: “The company has been given a potential valuation for WaveXpress.....30-40 million dollars by an independent third party. This is what management has been using in their attempts to engage the market about Wave's true value”
Internet, could you give more info on this? As I recall, people who attended the SHM said that numbers were informally mentioned, from $20 to $40 million. But I don’t remember anything about an “independent third party” giving WXP this valuation.
Point # 8: “ Wave needs to raise roughly 5 million dollars to get them to breakeven.“
As pointed out by zen, that is not the correct figure according to Feeney. According to Feeney, after the $800K PP they will need another $7.9 million. See my post #170217. Also, that is an estimate of the least amount they will need, and it has grown since the spring when they were more positive on the speed of the ramp.
Thanks again for your effort.
Best wishes.
Weby,
1. “I have no idea how long you've been following 1. the stock, and 2. the massive growth possibility.”
A year and a half. I know the growth potential is massive. I believe that eventually hardware-based security will be adopted by everyone in spite of the fact that there is little evidence so far that potential customers are interested.
2. “I have no objection to slow steady growth, but I believe that getting from 10 million a year to 30 million (breakeven given burn growth) IS massive growth.”
I was thinking more along the lines of
Revenue: 3 + 4 + 5 + 6 = 18
Cash flow shortfall: - 4 - 3 - 2 - 1 = -10
Weby, thanks for responding. Please let me know if I have misunderstood what you are saying.
1. “It seems to me that what we REALLY have to watch is not cashflow. If that doesn't improve we are dead in any case. What we need to watch is revenue growth v. burn rate growth.”
Are you saying that you think the problem is that expenses have been increasing faster than revenue? And that revenue growth vs. expense increase is not an aspect of cash flow?
It’s true that expenses have been slightly outpacing revenue growth. But even if expenses were flat, we would still have a problem. To me, it’s the tepid response to the FDE drives that is of concern. But maybe you are saying that the market pays more attention to the slowly increasing cash and earnings shortfall.
2. “As I read your numbers -- all revenue growth has gone to burn growth.”
I don’t see that in these numbers. These cash needed estimates by Feeney stayed fairly steady for a couple of years, then improved this spring, and then headed back up in August. They’ve gone up in August IMO because revenues have not grown as hoped, not because expenses grew unexpectedly.
3. “That's the growth balancing act that will only be corrected by a massive jump in sales. My hope is that we are actually at the cusp of that jump. It's why I've been reading the Dell literature so closely.”
Are you saying that the only way out is a massive increase in revenues? A massive increase would be wonderful, but what’s wrong with a steady, more modest increase, as long as it is strong enough to indicate that customers actually want FDE drives and TPM functionality? As soon as that becomes clear, then IMO it becomes possible to raise money at a reasonable price for whatever period of time that may be necessary.
I’m glad that you are trying to see what Dell is up to. Personally, I don’t expect much from them. As with many large companies, Dell seems to be very ragged around the edges. I don’t think it’s surprising, for example, that their literature is confusing and misleading. I also think it’s possible that Wave pulled a fast one on them by putting TPM at the top of the Control Point list. If so, good for Wave.
4. You say, “Will they sell a million encrypted HDD in 2009 -- that's your 8 million dollars. Will they sell 200,000 upgrades as it gains traction. That's the 8 million dollars. What we all want to know is unknowable. We all need to look calmly at those facts we know... bundling fees cover x%, FDE fees cover x%, upgrades cover x%, Web service assets are worth x% and figure out WHEN not if this thing become cash flow positive.”
That’s the point of being accurate about Feeney’s estimates. We certainly don’t know when cash flow will turn positive. And although we have no reason to think Feeney knows either, he does have more information than we do.
And I agree wholeheartedly with the approach of breaking down revenues so we can make better projections. See my post #169052.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=31295666
There, that method produced a “likely results“ projection of $2.178 million for Q2.
Weby, I think it’s worth noting that the cash shortfall estimate has gone up in the last 10Q and the 8/13 Prospectus. It has increased to $8.7 million.
(For comparison, at the bottom of the post are numbers from previous documents.)
Cash-on- Estimated Total Needed
Document Hand PP Additional for 12 Months
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
424B5 8/13 0.0 .8 + 7.9 = 8.7 til 06/30/09
Cash-on- Estimated Total Needed
Document Hand PP Additional for 12 Months
2006
Q2 ‘06 10Q: 1.9 + 4.4 + 10.6 = 16.9
Q3 ‘06 10Q: 3.1 + 9.1 + 5.6 = 17.8
Q4 ‘06 10K: 8.0 + 11.5 = 19.5
2007
Q1 ‘07 10Q: 2.6 + 15.6 = 18.2
Q2 ‘07 10Q: 12.5 + 2.7 = 15.2
Q3 ‘07 10Q: 7.8 + 4.7 = 12.5 til 09/30/08
Q4 ‘07 10K: 3.7 + 3.3 + 9.4 = 16.4 til 12/31/08
S-3 04/18: same as Q4 07 10K
2008
Q1 ‘08 10Q: 1.5 + 8.1 = 9.6 til 03/31/09
S-3/A 5/30: 1.6 + 6.5 = 8.1 til 05/31/09
S-3/A 6/20: 0.6? + 6.5 = 7.1 til 05/31/09
424B5 7/01: 0.1 1.7 + 5.3 = 7.1 til 06/30/09
Latest 10Q and Prospectus
424B5 8/13: 0.0 .8 + 7.9 = 8.7 til 06/30/09
Q2 ‘08 10Q: 0.0 .8 + 7.9 = 8.7 til 06/30/09
Zen, see player’s response to his own post.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=31635218
Player amended the calculation in the second post. Per this post, you should use the highest market cap over the previous 30 days (which occurred on 7/29) rather than the 8/21 closing price used in post #170024. With that calculation, Wave has $9.28 million available to raise until about August 28.
But according to the pdf at the link which player provides, it appears that the limit is 60 days not 30. If that is correct, then Wave has ‘til the end of September to raise the $9.28 million amount.
Ramsey, I didn’t read the whole document by any means but I didn’t see anything about distinguishing between offerings at market or offerings at below market.
http://www.sec.gov/rules/final/2007/33-8878.pdf
Starting on page 23:
“The new rule requires registrants to compute their public float by reference to the price at which their common equity was last sold, or the average of the bid and asked prices of their common equity, in the principal market for the common equity as of a date within 60 days prior to the date of sale. Then, for purposes of calculating the aggregate market value of securities sold during the preceding period of 12 calendar months, the rule requires registrants to add together the gross sales price for all primary offerings pursuant to new General Instruction I.B.6. to Form S-3 during the preceding period of 12 calendar months.”
Also, if by any chance the market cap exceeds $75 million at some point, then the 1/3 rule is no longer in effect (unless market cap goes back below $75 million at the time of the next 10K), I think.
Beautiful post, alea. I forwarded it to the people I got into Wave.
I’m beginning to believe that Steven, having grown up a rich kid, is still happily spending other peoples’ money.
But I think the “paradigm shift” is real, that Steven deserves a lot of credit for developing the almost astonishing Dell relationship, and that Wave’s software as far as I can tell is excellent. At this point I’m assuming that this is a perfect example of it being darkest before the dawn.
I sent an e-mail to IR about the Thomas & Friends cards.
I wondered if they would be ready for Christmas. Yvonne said the cards will be available in December, but that to make the Christmas selling season in a serious manner, vendors have to attend conventions that are held in January. EGMI will be ready to attend the conventions this January with the card.
I also asked about the functionality of the cards. The press release said, “The initial EGC Education "Thomas and Friends (TM)" GameCard(TM) is the launch of the company's "play & learn" product line for preschoolers. EGC's Educational GameCard(TM) product strategy includes a spelling GameCard, a math GameCard and a GameCards that matches sounds to story characters.
I wondered if pre-schoolers were actually doing spelling and math. Also if any focus groups had been held to confirm that pre-schoolers would use something requiring the amount of dexterity that the game cards seem to require. I noted that most pre-schooler toys I had seen had big colorful easy-to-press buttons.
She said that pre-schoolers are doing simple spelling and math these days and that the Thomas card is “larger, colorful, and fun. Testing is being done. There is nothing like this product at its price point on the market.”
We know they can make these things in all kinds of shapes, like this car, so it would seem they could do pretty much whatever they want, including making a replica of Thomas himself. I guess it comes down to the ability of the design team....
ASISEEIT, I'm afraid the tables in your institutional holdings posts #169963 and #169964 are misleading. I know this was not your intention.
The number of shares (first column) appears to be correct in comparison with other sites. But the third column is “percentage of total holdings since 8/21/08.” Whatever that is purporting to show, it is not increase or decrease in holdings for this period.
Per the NASDAQ site, for example:
ClearBridge Advisors decreased their holdings by 306,839 shares in the last reporting period, down about 7.4%.
Barclays Global increased their holdings by 5.797 shares, which is about a 1.2% increase.
Bard Associates is down 500 shares, about 0.12%.
Perritt Capital has no change.
Rathbone is a new position. (Good news!)
These are institutional holding sites that I know about. Some of them are more up-to-date than others.
(These links may not be working for some reason, but if you cut and paste them into the URL line, they do work.)
http://www.nasdaq.com/asp/holdings.asp?symbol=WAVX&selected=WAVX&FormType=Institutional
Also:
http://moneycentral.msn.com/ownership?symbol=wavx
http://www.ownershipanalyzer.com/CompanyInst.aspx?cik=919013&ticker=WAVX
This is an interesting historical view on the ownershipanalyzer site:
http://www.ownershipanalyzer.com/InstPositions.aspx?cik=919013&ticker=WAVX
Also, it looks like your cnbc site should be checked periodically as well because I don’t see the Feeney information on the other sites, and that is something we should know about.
Control Vault per theinquirer.net
Has this been posted?
http://www.theinquirer.net/gb/inquirer/news/2008/08/13/dell-introduces-laptops
Dell introduces ten new laptops
Including a Dell you might actually want to buy
By Charlie Demerjian: Wednesday, 13 August 2008, 6:48 PM
DELL JUST CAME out with ten new laptops today, some of which look very tasty indeed. They range from small to large, light to rugged, and have a ton of new features to go along with them.
The laptops start with the Lattitude E4200, a 12.1-inch sub-kilogram laptop and go up to the 13.3-inch E4300 that weighs an anchor-like 3.3 pounds. These are the ultra-portable variants. Moving on up, we have the mainstream E6400 and E6500, 14.1- and 15.4 inch models respectively. The bottom end Lattitude is the essential E5400 and E5500, same screen sizes, a lot cheaper body.
One outlier is the Lattitude E6400 ATG, a semi-rugged machine that meets the military 810F standard. The idea is not to have a howitzer-proof machine that runs as fast as a very sick water buffalo, but a full speed, no compromises machine that will take an above-average beating and some dust to go with it.
From there, the highest end parts are two new Precision laptops, m2400 and m4400 with 14.1 and 15.4-inch screens respectively. In the conference call, the Dell spokespeople mentioned a 17-inch model with 100 per cent colour gamut, quad cores and up to 2TB of storage, but we can't find any such beast on the Dell site as of this writing.
There are a bunch of neat touches across all of them, but nothing completely new. The biggest headline is that the E6400 with the extended battery and an extra 'slice' battery has enough juice for 19 hours of travel time. Translating vendor speak to real numbers, you should be able to get two full movies out of it on a flight, and that is an advance. To make matters even better, Dell is claiming a new feature called express charge that will fill the batteries to 80 per cent in only an hour. Looks like they have that overheating problem licked.
Other nice features include a backlit keyboard with an ambient light sensor, and most chassis are offered in no less than five colours. If the guy in accounting annoys you too much with stupid questions about email, he gets the Quartz Pink one 'by accident'.
Under the surface, we also have some nice additions, including a magnesium alloy structure for added rigidity. No more Sony Flexi-Chassis(TM)(R)(C) here, and the build quality should be distinctly un-Sony like too. In the higher-end machines, they also beefed up the hinges, they now look distinctly like the older IBM T4x era Thinkpads, basically big beefy chunks of metal. This is a good thing, a very good thing.
Another nice touch is that the new laptops have in common is the power adapters, they should work across all the new series. That allows Dell to make common docks, including some very slick new docking station/monitor combos. There is also a bunch of common accessories that play off the same common plugs, if they actually work as advertised, this could also be a very good thing.
Last but not least, we have two bits of software, the Dell Latitude On and Control Vault. Of the two, On is the best feature. It is a clone of the Asus Instant-On stuff, and likely works in the same way, but no details were given at the launch. On is a flash-based barebones Linux install that gets you up and running, on the Net, and with much of what you need to run the computer in instantly. Dell went to great pains to avoid saying the L-word though, it might anger the very touchy gods atop mount Redmond.
Control vault is basically a security centre software that actually does something. To be fair, it is hardware and software, and ties in a contactless RFID/smartcard sensor, improved (FIPS level) fingerprint reader, and NVRam to keep credentials in. The vault is the software that you see, and not all models have all the features.
In the end, there is actually a Dell notebook that your correspondent would consider buying now should they have Ubuntu variants and that's a rarity. The E6400/6500s are pretty damn nice, and the E4200 looks like a Sony TZ without the build quality nightmares and non-functional accessories. Who would have though Dell would come out with something that people actually want to buy?
E-Series. Worth re-reading from the Q1cc:
Let me talk a little bit about the OEM side of the business.
So beyond the Enterprise the foundation of the business is driven by selling our software packaged with the PC manufacturers through the channel. Most importantly, we have just finished the software for Dell for their next new platform. We'll see new platforms probably in the not too distant future. This will generate an increase in our licensing revenue. As we've announced before we have an increase in pricing on a per unit copy basis from Dell. And so as those new platforms ship with new software we get paid more for the new software than the older software. So we're very pleased to see that.
I think we're very excited about the collection of new features. And, as those platforms get announced, I think everyone will be impressed with the capabilities around security that come forward. We have played a very important role in helping bring a number of those together and we're excited to be able to provide our partner with that support.
Also, with the launch of new platforms on an annual basis comes education of the channel, and I think that's a really important step. While we're focused on other aspects of the business it's always important to remember that every year there's an opportunity to re-engage the sales force and articulate the new capabilities and the existing capabilities of the security features within these platforms.
Is this the "E" in E-series?
Cash in Q2
I think this is a clear way to look at cash in Q2. This is a revision of parts of my post #167718, and I again want to thank others for helping my understanding. Also, if you see any mistakes, please point them out.
Available Cash in Q2
.19 Options Exercised
1.48 Cash on hand 3/31
1.43 Accounts Receivable 3/31
1.58 PP 5/28
- - - - - - -
4.68
1.05 Q2 revenues minus A/R at 6/30 (1.985 - .940)
.23 Q2 increase in deferred revenue (probably cash)
- - - - - - -
5.96
.24 COGS
7.39 OPEX
( .09 ) D&A
( .59 ) Stock-based Comp
.02 Cash for Investment
- - - - - - -
6.97
6.97 Cash Spent
– 5.96 Cash Available
- - - - - - -
1.01
3.46 Accounts payable 3/31
4.54 Accounts payable 6/30
- - - - - - -
1.08 Increase
That should read Q2 Revenues EOM
I am still in EGMI. I sold about ¼ of my holdings at $.74 and expect to buy that back at some point.
I transcribed the call because it seemed somewhat lackluster compared to last quarter’s call, and I wanted to be clearer about what they had actually said. When I read it, it seems to be stronger than my initial impression. And I suppose there is inevitably a slight loss of focus while they are waiting for Mr. Steinberg to come on board, since it sounds like he intends to really take over.
Q3 REVENUES, EPS
I was a bit disappointed with Q3 revenues. And I don’t like it when important facts are ignored, like the fact that the only reason EPS was not lower than Q2 was because of a $123,000 gain on investments off-setting the increase in opex. (I don’t mind that opex increased; I expect that, as they stop using stock as compensation. But I want them to be upfront about results.)
PROMOTIONS & SPORT CARDS
I’m trying to decide what to make of the shift away from promotions. They said that their other projects are higher margin, so I suppose that is the reason, but I’m wondering when those new products are actually going to come online. For example, there seemed to be a change in timeline for the sports cards. The Q1 cc implied (to me) that a contract had already been signed and would be announced soon. Now they are saying that there is not a signed contract, and even if it were signed they couldn’t announce it until the product is ready to go.
THOMAS & FRIENDS
I also realize that I misunderstood their Thomas & Friends agreement.
“Also we will have the exclusive use of the Thomas mark to ensure that we have a large access to the market and will be keen to work with retailers and distributors who are already keen and see the value of this particular product.”
Now I realize that they are saying that they (EGMI) have licensed the Thomas & Friends trademark and will be using it on educational cards that EGMI is responsible for selling through distributors and to retailers that sell Thomas merchandise. Somehow I had thought that Hit Entertainment was going to be selling our cards with the Thomas trademark. If someone has a clearer understanding of this, I would be interested to hear it.
I hope they have tested the card with pre-schoolers. You would think they would have, but if they had, you would think they would have spoken about it. This is probably a question for IR.
OVERALL
Overall, I still don't see any reason why they can't sell millions of these cards for various purposes. I think that is why I was a bit disappointed with Q3 revenues, as I really expect sales to take off at some point.
Q2 2008 CC Transcript
EGMI Q2 2008 CC
August 8, 2008
Yvonne Zappulla
Roger Holdom
Lee Cole
ROGEWR HOLDOM
Thanks Yvonne and good morning everybody. Welcome to the call. There’s a prepared statement and at the end of this we’ll be answering your questions with Lee and I helping out. So there you go.
During the second quarter of 2008 Electronic Game Card generated revenues of $2.5 million, marking our sixth consecutive quarter of profitable growth. EGC’s revenues increased by 69% over the prior year’s second quarter of $1.5 million, an increase of 8% sequentially over our first quarter of 2008 and the revenues of $2.3 million.
During the second half of 2008, EGC expects to see development of additional partnership, distribution, and licensing agreements as well as in the launch of educational toys – in the area there – and by the year-end of sports game cards including the highly-lucrative sports memorabilia sector.
Plus we have additional new products in development, both in-house and from external companies keen to work with our proprietary technology, all of which will add to the EGC business going forward.
Electronic Game Card reported comprehensive net income of $1.3 million or 2.6 cents per share on our basic shares outstanding, or 2.1 cents per share fully diluted. This figure is slightly above street expectations and compares to a net income of $668,000 or 1.5 cents per fully diluted share for the second quarter of 2007, and a small improvement over the prior first quarter, which rounds to $1.3 million or 2.1 cents per fully diluted share.
As of June 30, 2008, Electronic Game Card had approximately 51.4 million shares of common stock outstanding. Our fully diluted share count totaled 64.9 million shares.
The gross profit for the three months ended the 30th of June 2008 was 1.9 million, generating a 75% gross margin, approximately in line with the prior first quarter. The company’s second quarter 2008 operating expenses totaled $452,000. Going forward as we manage our growing business we may need to increase personnel and marketing expenditure but only as we see the need and in line with a prudent responsibility as our business requires it. We will not be compromising profitability.
Income expenses totaled $147,000. Interest income totaled $62,000.
For the six months ending the 30th of June 2008 Electronic Game Card revenues increased 94% over the prior year six-month period to $4.8 million. Comprehensive net income totaled $2.6 million or 5.3 cents per share, or 4.1 cents fully diluted compared to $883,000 or 2 cents per share during the prior year’s first half or 1.5 cents fully diluted.
Cash and equivalents on June 30, 2008 totaled $6.9 million, an increase of $1.2 million from March 31.
Accounts receivable remained consistent with the prior first quarter of 2008 at $2.6 million.
Total liabilities increased 5% over prior first quarter 2008 to 2 million, excluding long term debt of 6.5 million which exists in the form of a 6% convertible preferred that converts at $1.01 per share.
In conservatively reviewing our level of business activity, EGC believes that it will deliver a minimum of 10 cents fully diluted EPS in 2008. We also project that our guidance for 2009 will show an increase of approximately 40% over 2008, both in revenue and earnings. As of today, Electronic Game Card’s stock price is trading at roughly 8x 2008 fully diluted EPS.
Going forward, we seek new opportunities for us as a company. These include the new markets which we are intending to enter with new products. Educational toys and games, as you know, has been an area where we have consistently been interested in advancing our product into using our technology. EGC announced last month our entry into this market by signing a multi-year licensing agreement with Hit Entertainment to produce a Thomas and Friends educational game card.
Thomas and Friends has been the #1 pre-school toy property in the U.K. for the past 8 years and is currently broadcast as a video program for children into over 145 countries around the world. Thomas has sold over 200 million books and its internet site gets over 30 million hits per month. It also publishes a magazine that sells nearly 200,000 copies in the U.K. per month. The traditional [?] game market generates in excess of $60 million annually in the U.K. and the U.S.A. EGC has little competition in this area and the price point for our product will be highly attractive. Also we will have the exclusive use of the Thomas mark to ensure that we have a large access to the market and will be keen to work with retailers and distributors who are already keen and see the value of this particular product.
The sports collectible game card, the sports game cards, or the sports memorabilia game card are all under development. The potential addressable market is over $300 million. Now EGC is already working hard with a number of large sporting franchises to complete an entry into this opportunity. We want to work with teams, say in the European soccer league. Now Europe’s top 20 soccer teams, including clubs like Manchester United, have well over 300 million fans globally of which 120 million are currently active. Plus the other major sports franchises globally, covering all the major sports, from baseball, basketball, soccer, American football, and moving into other areas where we know there is keen interest including motor sports and working on products such as golf.
We believe that it is an incredibly positive outlook and we continue to work toward sustaining a major contract in this area. Now as everyone, when I use the word “contract” I know you’d like me to tell you more about the products and more about the companies involved. But I must say these franchises are incredibly keen on confidentially. Not even when we sign a product contract but also until the actual product is ready for launch. They’re also very keen that they should get the maximum publicity for this particular product especially the distributors and retailers of it, so they’re very keen at the moment. All I can say is that we see a major opportunity that is being reflected in the marketplace and we are working with major teams and major distributors to ensure that we maximize the opportunity with the quiz [?] cards in this particular format. So we’re very excited about the educational games.
We also believe there is a huge market in our existing areas of interest. Now as you know in the past we’ve talked about sales promotions, we’ve talked about gaming, in both in casinos in the United States and around the world, and also lotteries, where the game card was originally created and where the origin of the technology starts.
Now we’re still very, very keen on Native American gaming. As you know it is a massive market within the United States of America, $26 billion annually in revenue. As you know EGC is very active in that area, working to develop strategic partnerships and work with the tribes involved to deliver a long term business model which will allow us to see the maximum opportunity.
Now as we said in our last call, we went to the National Indian Gaming Conference in April in San Diego and that gave us an opportunity to make sure that the product – which as you know has been approved by NIGC as a Class II product to be sold within those areas and those markets where NIGC Class II is used. And we’re following up with all of those different tribes and different distributors and all the areas and people who expressed a strong interest in our product. And we will continue to work on that and hopefully will be able to develop new markets and new opportunities right across the United States.
Now the key to that was distribution partnerships. And we always know that when we are looking for future milestones in the development of the company, it is the ability to create a strong distribution and retail network. And we’re working closely with partners for that distribution. Now as an internal sales effort we’re working very hard to talk directly to people that are interested in the cards and we continue to get interest coming in to our various offices in both the U.S. and the U.K. But we are also a firm believer in local people who have local knowledge and local relationships adding to our sales drive and also adding to the knowledge that we have to make sure we have right product at the right price delivered to the right person. And we want to make sure that happens as profitably as possible, and that is why we continue to be in discussions with distributors around the world as we speak.
Now since the current management team took over control of Electronic Game Card, we have perfected our core technology. And that’s gone so well that we are now protected with six international patents and we still have numerous patents pending around the world.
As I stated, we continue to get our regulatory approval. We have got NIGC Class II gaming licenses approved for the whole of the United States. We continue to work with regulators on a state or country basis. And one of the strong points of our message to those regulators wherever they are in the world is that success in gaming is GLI or Gaming Laboratory International approval status. We are in a class by ourselves and we actually created the reporting structure around our product. We’re very proud of it and it’s being recognized globally as a really strong point and a point of difference about our product and the security, reliability, and robustness of the product.
We continue to templetize the card, creating a software library of over 27 games with another seven in development. And I said we are working on products that are both the games as you would understand and know them, but also taking the essence of that technology both in-house and externally to make stronger products and making sure that that templetization of the product allows us to move into all the markets that we’ve highlighted earlier in today’s reporting.
We expanded our addressable market substantially. We’ve established higher price points for our product line. We’ve right-sized the company, eliminating 75% of the costs within the first year and instituted cost controls achieving consistent gross margins across the product line. In the past two years our operating expenses have come in at under $500,000 a quarter
In addition to all of the work on developing the product and right-sizing the company, we stabilized our finances, restructuring our debt such that EGC achieved positive shareholder equity at year-end of 2007.
Today, with the exception of our share price, Electronic Game Card meets all the listing requirements for the coveted NASDAQ Small Cap market. We accomplished our turn-around and have reported six growth quarters and are ______ strong with a perfect unique product that is prepared to immediately address a very large market opportunity which we believe will put EGC accessible to markets in excess of $1.2 billion
As promised, upon the success of the goals EGC set out to accomplish in early 2006 and pending shareholder approval, the company is now ready to launch the next level of growth under the leadership of one of the preeminent international gaming entrepreneurs, Lord Steinberg. Now Lord Steinberg as we said in our press release is an incredibly accomplished successful businessman and one of the most well-known personalities in the gaming industry. He founded Stanley Leisure in Belfast in 1958 with one licensed betting shop. Stanley Leisure PLC became the largest casino operator in the UK, the fourth largest retail bookmaker in the UK with 600 shops. In 2005, Stanley Leisure sold its retail bookmaking operations for approximately 1 Billion U.S. dollars. In 2006, Stanley Leisure then sold its 45 casinos to Genting International for approximately $1.3 billion.
During Lord Steinberg’s tenure, Stanley Leisure grew both organically and through acquisitions. In the last five years, as a publicly traded company, Stanley Leisure generated total shareholder returns at a compounded annual growth of more than 25%. In addition to this highly successful business career, Lord Steinberg was made a Conservative life peer in 2004 and is an active member of the House of Lords in the United Kingdom.
Lord Steinberg’s immediate intentions upon his election to executive Chairman are as follows: He wishes to support the current business plan to deliver the 10 cents fully diluted EPS in 2008. He wants to supplement the company’s growth by layering on top of our current plans and distributions many of his contacts and relationships around the world, including many thousands of gaming establishments which are either owned or influenced by Lord Steinberg so he can allow that technology and our successful product to be introduced to those markets where he feels he can best use his knowledge of successful management of businesses and also our successful product to produce further growth.
We continue to work on delivering a stronger company and strengthening the management of the company and we will do that in line with the growth and expansion of the company.
We would also look in building a stronger management team and growing the company to allow us to progress to a senior exchange. And we will continue to look, under Lord Steinberg’s guidance, for accretive acquisitions which are complementary to our existing business.
I will now turn the call over to our interim CEO, Lee Cole, who will help manage the process of answering your questions.
LEE COLE
Thank you, Roger. With that we will now open up the call to questions.
17:00
Q&A
[Operator Instructions.]
ADAM CRADGET?
Q. Hi, guys. Nice quarter again. Couple of questions for you just starting off on the top line. Could you give us a breakdown for roughly how many game card units you sold in the quarter? And in the past you’ve indicated what percentage of that was recurring revenue.
LC. Just over 1.4 million units and just over 20% recurring revenue.
Q. So, sounds pretty similar to Q1.
LC. Yes.
Q. Do you still expect sequential growth and for that to ramp up in the second half of the year here?
LC. Yes, we’re on track with our projections and with Lord Steinberg’s coming entrance into the gaming market, we might even beat our estimates.
Q. Sounds good. Moving down, a couple of balance sheet / cash flow questions. I haven’t seen the Q filed.
LC. No, that should be filed any minute.
Q. If you know off-hand I’d love to get operating cash flow and capex. If not, I can just check the 10Q when it comes out.
LC. The operating cash flow was about 2 million for the period.
Q. And do you know what capex was by any chance? Pretty minimal still?
LC. I haven’t got that in front of me. Sorry.
Q. Was it 2 million, was that for the six months or was that for the….
LC. That was for the six months, yes.
Q. And then, I apologize, I missed the opening remarks if any of these were answered You guys are generating pretty decent cash flow here for the last couple of quarters and you really don’t have many capital expenditures, and now that your cash balance is in the $7 million range and will probably ramp up to around 10 million by year end. Can you just elaborate on your uses of cash there and it you would ever consider a stock buyback program.
LC. Yeah, I mean obviously with, again, with Lord Steinberg and the other board members coming on hopefully after the shareholder vote, I’m sure that’s one of the things they’ll be looking at. Just from a practical perspective we’ve still got 6.5 million of notes, and some of the new initiatives, you know, that we’re very interested in might take some cash. We’re not saying that is the case, but with a growth company, you know, there’s a lot of potential.
Q. Sure. In terms of those new initiatives can you give us a sense for what your guidance assumes maybe for each of those new growth areas, when it’s going to hit. You know, is it all your existing business for the remainder of this year and then maybe sports and education comes in in the first half of ’09? Maybe just kind of broadly speaking what...
LC. Yes. It’s our existing initiatives for this year and then next year we expect much more influence on the gaming side obviously with again with Lord Steinberg running the company. And that’s when we see the educational and the sports initiatives which we’ve probably got down for 15% of next year’s revenue.
Q. 15%?
LC. Yes. And then we’ve got some new initiatives which Roger alluded to which are not in any of the numbers.
Q. And then finally in terms of a new full-time CEO, is there any update there or is that going to be something you address after Mr. Steinberg comes on board?
LC. Yes. As you’re aware with Lord Steinberg coming on board, when he’s on board that’s going to be one of the first things that the Board of Directors is going to be looking at.
Q. That’s it for me.
LC. Thanks.
MICAHAEL WEISS
Q. Hi. Congratulations on a good quarter. One thing, in the last call you mentioned an investment that was very close to fruition and I also notice that the value of the investments in the balance sheet went up. Any comment or what the status is?
LC. Yes. If you look at the first six months of the year we saw ______ the investments went up about 1 ½ million, which was mostly due to our investment in the mobile phone technology company, which Roger you can perhaps talk a little bit about.
24:25
RH. Sure. OK. As you know we’ve always talked about these investments which we inherited, but I’m glad to say that we are working very hard on those areas. The one that’s the closest to coming through to be saying that we can publicly talk about the launching into the marketplace that Lee alluded to is the mobile phone application. That’s going verym very well. We have a beta system that’s working. And it’s an incredibly robust system. We’re very, very happy about that and we are working very hard to be able to tell you more about that within the next quarter. So as soon as we can allude to that some more…
But to say the application, which links into a huge number of markets, takes really on board the technology that we really understand here and the software that we really understand and allows us to move that and put it into mobile phones. And if you know there are 6 billion mobile phones actually in the world. Somebody worked out there are three mobile phones for every one television there is within the global marketplace.
And we feel that understanding that and the application and the way that we’ve taken the hereditary investment structure that we were landed with back in 2006, we’ve found a really good way of using this technology, a really strong way of entering that market. We’ve found four business models which we’re very excited about which all integrate into that. And as I say it’s all about the use of mobile phones to deliver content in a new and refreshing way which provides a guaranteed form of information and metrics that will really open up that particular market from simply just being what it is at the moment, which is a relatively small market with not a lot of consumer interest, into something that we think will have a huge brand impact for advertisers but also that’s going to provide advertisers with a real in-depth understanding of what their consumers are thinking of the activity. So we’re very, very excited about it and it’s something that we see as fundamentally tying in to the current economic conditions in a very, very exciting and profitable way.
LC. Just for clarity, that is an investment we’ve got which we own about 20% of the company now and we’re hopeful that that might go public in the U.K. in the next 60 to 90 days.
Q. Any liquidity on that? Do you plan on keeping it or selling it or…?
LC. No, it’s in our balance sheet as an investment. I suppose the board will decide when they want to dispose of it. IPOs, typically you’d be locked up for a year. After that it could be a very nice liquidity event.
Q. The going concern opinion, is it going away or you said...?
LC. When we do the next audit.
Q. OK. So hopefully it will be gone when you do your next audit.
LC. OK.
Q. Would you say your visibility in general is increasing over time as you have more and more different avenues? Are you feeling comfortable? Are you seeing any drop-off or maybe increase in – as the sales slow down, are people using promotions more to generate sales?
LC. I mean, as our great friend Scientific Games has alluded to in the last month or so, their business is improving in slightly harsher economic times, and our product is a rather relatively low price, and we’re at the stage in our ramp-up and especially again with our much more increased focus on gaming with Lord Steinberg’s joining us. And that opens up tremendous new markets to us and even though he’s not, Lord Steinberg’s not officially on-board until he gets voted on ________, we’re already seeing his influence coming through in our pipeline.
Q. Anything you can comment on?
LC. No.
Q. Speaking of Scientific Atlanta, you didn’t really mention anything about world lotteries. Any progress there?
LC. Yeah, we’ve been making steady progress, and hopefully during the next quarter we will have some interesting announcements.
Q. OK. I’ll let somebody else. Congratulations on a good quarter.
LC. Thanks a lot, Michael.
Q. Thank you.
LARRY KAYE
Q. I will pass. My questions have been answered. Thank you.
28:30
DAVID WATSON
Q. Yeah, hey guys. Can you break down the 14 cents for next year? Between the various markets you guys have, where do you expect that 14 cents to come from? We’ve had this on calls in the past of what’s in the estimate and what’s not. Can you just break that down for me?
LC. Yeah, I mean, again this is subject to change but for the moment, the 14 cents for next year is roughly 50% promotional, 15% lotteries, 15% gaming, and 15% education and sports, and then 5% other.
Q. OK. So, if I look at this year, the 10 cents, how much of that is promotional this year, the 10 cents?
LC. Roughly 70%.
Q. OK, so really you’re projecting the promotional market’s going to be flat year-over-year?
LC. We’re projecting more penetration in other markets than promotional. Hopefully we will have some growth, but our focus is to get into these other markets, which have got sort of higher margin potential.
Q. And how many fully diluted shares are you assuming for this year and next?
LC. We were working on 65 million fully diluted, and that probably would go up to – with new hires, etc., new CEO - that could go up as high as 70 million for next year.
Q. And you talked about you were just one requirement short of being listed on the NASDAQ Small Cap. What’s the thinking around whether you’re going to do a reverse split or what-have-you?
LC. Again, when the new Board’s voted in, the only requirement that we’re short of for NASDAQ is share price, so that would be in the form of a reverse split. And I’m of the opinion we need to do whatever we need to do to get onto the NASDAQ market, and hopefully the Board will be of that opinion, too, when they’re voted in.
Q. And when do you expect the new CEO to be brought on board?
LC. Again, we sort of, we’re waiting for Lord Steinberg to come fully on board at the meeting and then I know that’s something he’s going to be looking at.
Q. OK. All right. Thanks.
LC. Thanks a lot.
CLOSING STATEMENT – ROGER HOLDOM
Thank you very much indeed. I’d like to thank you all for taking the time to join us today and for those who asked questions, thank you very much.
It’s always been the intention of the management to turn around EGC and to build it up to the point of attracting serious management talent to take the company up to the next level. We’ve consistently stated that our long term mission is to deliver quality at every level of our organization and to expand our product offerings, increase our IP, and further our distribution capabilities and reach.
Over the past two and a half years we’ve shifted this company into a higher-margin, profitable entity. We at EGC are actually honored that Lord Steinberg is eager to lead our company forward. At our first-ever Annual Shareholders Meeting scheduled to take place at 10:00 a.m. Eastern Time on September 2, 2008 at the Grannis Financial offices in Manhattan. They’re based at 1120 Avenue of the Americas, but if you need more information just ask Yvonne. And EGC hopes on that day to announce a positive shareholder vote which will allow us to welcome Lord Steinberg as our new Chairman and also the other proposed directors to the Board of our company.
Thank you very much for joining us today. Good afternoon from London.
Snackman, I think you inadvertently left out the last half.
It works this way: A viewer logs onto [olympicsonthego.com] or onto www.tvtonic.com/olympics.
From there, the viewer follows the steps to "subscribe" to a particular sport or sports — for example, swimming or track and field. Favorite events will be downloaded over a period of time — perhaps overnight — and the viewer can watch the event at his or her convenience.
No Internet connection is needed for viewing, but the service is limited to coverage provided by NBC itself.
"As we prepare to broadcast the Beijing Olympic Games, we are committed to reaching as many viewers as possible," said Perkins Miller, senior vice president of digital media for NBC Sports and Olympics. "The service will especially appeal to fast-paced fans who want to catch up on their favorite sports, off-line."
Terms of the business deal were not disclosed, but Sprague said it will bring a brand recognition and potential growth to Wave's Internet television application, TVTonic.
"That division was doing fun things on the Internet, but it was hard to understand what its value was," said Sprague, who added that there has been limited marketing of mostly 300 video blog content providers. "We're now demonstrating we can do a large-scale event with large-scale media that brings value not yet realized."
The potential for market impact is big: Sprague said there are 50 million personal computers in North America running on the Windows Vista operating system.
Wave Systems employs about 130 people worldwide, including 35 to 40 in Lee.
Ramsey, thanks for the response.
In my post I said, “If the goal is $3 million, it should take somewhere in the neighborhood of 15,000 to 20,000+ upgrades. And at this point that probably means one or two big customers, probably TPM customers.”
I probably should have gone into more detail in that sentence.
-- When I said “TPM customers” I meant customers using ERAS on their non-FDE seats to manage their TPMs.
-- When I said “at this point” I meant that there probably won’t be enough small accounts ready to do that yet, so for this quarter (Q208), we would still need to bag one or two large accounts for TPM management if we want to reach $3 million.
My hope here was to add some structure to the revenue projections for Q2.
Best wishes.
MIB, number of upgrades
MIB, this doesn’t address the gravamen [How’s that for a word? Thank helpfulbacteria.] of your post, but it does address what it would take to reach the $3 million level prior to the new E-series ETS pricing.
As we know, upgrades are the main driver of increasing revenues. The spreadsheet below brings into focus how many upgrades may be needed to reach $3 million in quarterly revenues. If the goal is $3 million, it should take somewhere in the neighborhood of 15,000 to 20,000+ upgrades. And at this point that probably means one or two big customers, probably TPM customers.
Note that there is nothing here for developmental payments. Also, I used Q1 rather than Q407 as the starting point because I had done some work on that quarter trying to break it down into components.
PER UNIT ASSUMPTIONS
- - - - - - - - - - -
$ 0.28 ETS Bundles (1)
$ 7.50 FDE Sales
$ 50.50 Upgrades (2)
- - - - - - - - - - -
Q108 /--------------- Q208 -----------------/
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
To Get to To Get to
Estimated Likely(??) $3 Million $3 Million
Breakdown Results Scenario I Scenario II
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
UNITS
ETS 5,000,000 5,500,000 5,500,000 5,500,000
FDE 6,000 (3) 30,000 30,000 75,000
Upgrades 1,995 (4) 5,000 22,000 15,000
REVENUE ($Millions)
ETS 1.400 1.540 1.540 1.540
FDE 0.045 0.225 0.225 0.563
Upgrades 0.101 (5) 0.253 1.111 0.758
Other (6) 0.168 0.160 0.160 0.160
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
1.714 2.178 3.036 3.021
should be 1.699
1.799 x 0.27 = 0.486
1.799 x 0.28 = 0.504
1.799 x 0.29 = 0.522
littlefish, you say
“If I'm telling people that are gonna hold for a couple years then they are in the same boat I'm in…”
I just want to make sure you realize that the phase “in the same boat” implies a negative situation, possibly that your new information is negative. Is that what you meant to imply?
This is how “in the same boat” is defined at http://www.usingenglish.com/reference/idioms/in+the+same+boat.html
“If people are in the same boat, they are in the same predicament or trouble.“
Source: lewallencontemporary.com
New Wave, thanks for the additional details. EOM
New Wave, I want to be sure I am interpreting your post correctly.
You say, “Several weeks ago one region had a post-evaluation account portfolio of nearly 60 customers and another had 50…”
Is your definition of “post-evaluation” the same as SKS’ in the Q1CC: “…I would define post-evaluation when I've heard from the customer that they've standardized on the solution, they are starting to buy.”
So is it your understanding that there were a total of 20 to 40 customers in that category at the time of the cc, and now there are about 110 in that category in just two out of eight regions?
This would, of course, be tremendously good news.
Thanks for your help.
This is the full Q1CC section:
Q: All right. Last question then for you. Just a little more clarity in understanding the breadth of customers. If you can't estimate as to how many FDE devices are projected to ship in Quarter 2, could you put a number on how many Dell customers are in, just let's say, what I call Phase 1, the process of evaluating FDE, and how many are in Phase 2, how many customers are in a post-evaluation process? The numbers?
SKS: So evaluation vs. post-evaluation. So I would guess I would define post-evaluation when I've heard from the customer that they've standardized on the solution, they are starting to buy. That number is still in the sort of 20 to 40 enterprise customers. I'm not so sure I can label it exactly. I don't have the numbers sitting in front of me, but it's in that range. What, and we've already stated before, is exciting to us is the breadth of customers who have gone out there and bought a few units. Now of those that have bought a few units, I would say probably between a third and a half of them, we're in direct contact with already.
This article from last October was probably posted already, but I searched for it on the board and couldn’t find it, so I’ve gone ahead and posted it. It has a couple of cross-domain data sharing comments.
It also has a suggestion as to what might be the next “secure-storage application,” which specifically uses the TPM. This "application locking" sounds like it could possibly be useful on consumer PC's as well as enterprise PC's.
http://www.washingtontechnology.com/print/22_19/31636-1.html
10/15/07; Vol. 22 No. 19
The quest for the holy grail
Government, industry keep hunting for ever-elusive trusted computing
By William Jackson
Trusted or trustworthy computing has long been a goal of both industry and government, but attaining it remains elusive.
Part of the problem is the difficulty in defining the concept. When computer systems exchange information, you need to make sure the inputs and outputs are valid and unaltered. But how do you gauge — or trust — such assertions?
“You can ask 10 people, and you’ll get 10 different answers,” said Bud Wilson, information technology director at the government solutions unit of TechTeam Global Inc.
Most people in industry interpret “trustworthy computing” to mean secure computing, Wilson said, but that is too broad to be a good definition. Microsoft Corp. has a trustworthy-computing initiative, which refers to a reliable, repeatable software development process.
To the standards organization Trusted Computing Group, trusted computing refers to security controls based on its specifications built into hardware platforms. The standards body has given us the Trusted Platform Module chip for storing cryptographic keys, passwords and digital certificates, which is becoming common in laptop and desktop PCs.
Then there is the trusted system according to the National Information Assurance Partnership, which refers to platforms that have been evaluated under the Common Criteria at Evaluation Assurance Level 4 or above for role-based access control, controlled access and labeled security protection profiles. So far, evaluated systems include Sun Microsystems Inc.’s Trusted Solaris Operating System Version 8, Red Hat Enterprise Linux Version 5 and the XTS-400 Secure Trusted Operating Program from BAE Systems Information Technology.
“I’m not sure there is a generally accepted definition,” said Ron Ross, senior computer scientist at the National Institute of Standards and Technology. Ross is struggling to write a definition of trustworthy systems for the upcoming Special Publication 800-39, “Managing Enterprise Risk,” which is part of a series of NIST publications on computer security. It is expected to be available this month.
The focus of trustworthy computing in government is on enabling cross-domain data sharing so people can access data on networks handling differing levels of security classification from a single computer. This would help eliminate the need for multiple computers on a single desk and simplify data sharing within and among agencies. DOD and the intelligence community are working on a platform to enable this type of sharing with an eye toward the holy grail of trusted computing. “We’re going to converge at some point between the DOD and the civilian agencies,” Ross said.
Trusted control
The Trusted Computing Group’s Trusted Platform Module is probably the most visible element in enabling cross-domain information sharing. The group — consisting of industry heavyweights such as Advanced Micro Devices Inc., Hewlett-Packard Co., Intel Corp. and Microsoft — has developed a specification for building a secure microcontroller for laptops, desktop PCs or server motherboards. The controller generates cryptographic keys for signing documents and computer-based transactions. It also provides a description of the computer’s hardware, which can be a source of nearly irrefutable identification for that computer.
The Defense Department sees the TPM as a primary tool for securing sensitive-but-unclassified information on portable devices. In July, a DOD directive required the encryption of all sensitive data on laptops, personal digital assistants and removable storage devices using Federal Information Processing Standard 140-2 compliant tools. The department requires that all servers, desktop PCs, laptops and PDAs purchased include the TPM chip.
Storing the keys and digital certificates for these functions on a dedicated piece of hardware keeps them more secure from external attacks and malicious code, the department said. TPM’s hashing function can be used to ensure the integrity not only of documents stored on a computer but also of applications and other pieces of hardware on the computer, said Michael Willett, senior research director at the TCG. He called the TPM a security metric.
“Hashing is a way to take a cryptographic snapshot,” he said. A hashing algorithm creates a unique numerical digest of a document, a piece of software or the code on a computer chip. The original contents cannot be derived from this digest or hash, but any change in the content results in a different hash. Comparing before-and-after hashes can reveal alterations, enabling detection of unauthorized tampering with documents or applications.
Safe storage
The TPM also can be used as an interface for security functions being defined in specifications for trusted-storage devices. TCG has released a draft of the specifications for public comment.
The TPM focuses on the computing platform, which is only half the equation, Willett said.
“As a storage guy, to me, that’s the sound of one hand clapping,” he said. Storage devices are “where data spends most of its useful life,” and that is where security belongs. A working group began developing trusted-storage specifications about three years ago and released the 230-page document in June.
Although the draft specifications are not expected to be ready until late this year, TCG said they are complete, and storage and application vendors can begin using them to design secure products.
Specifications are provided for cryptography, public-key cryptography and digital signatures, hashing, random number generation and secure storage.
Willett said the major hard-drive manufacturers who participated in development of the trusted-storage specification plan to incorporate the specifications in their products. The first application announced is full-disk encryption.
Another secure-storage application likely to appear soon will be application locking, which will tie disks or other devices such as USB drives to a single computer. Secure-storage devices and their host computers will authenticate on another through a handshake protocol that TPM manages.
TCG said an estimated 250 million devices with TPM chips installed have been shipped, and another 50 million are expected this year.
“There are chips bolted to most laptops, and it is appearing in servers,” Willett said. The DOD mandate is expected to be a major catalyst in making the chips ubiquitous, and applications using the chip, such as BitLocker in Microsoft’s Windows Vista operating system, are beginning to appear.
But there has so far been a paucity of applications using the chip, and awareness of the chip and its functionality is growing slowly.
“There are a lot of reasons for that,” Wilson said. “It’s becoming pervasive in the hardware space. The early adopters are the financial sector and the DOD. Beyond that, it’s a little bit early.”
But even with approaching ubiquity, many users and privacy advocates have reservations about the TPM and trusted computing in general. The big question for many users is: “Whom are you trusting?”
“I’m not a big fan of trusted computing,” Wilson said. Its adoption makes sense within closed organizations such as DOD or a bank where close regulation is accepted, but consumers and other nonregulated users are likely to balk at it, he said.
Others aren’t as leery. “It’s a good and helpful effort to increase the level of trust in the general computing environment,” said Ed Hammersla, chief operating officer at Trusted Computer Solutions. TPM can help enable cross-domain information sharing, he said.
Ross points out that trusted computing ultimately depends on more than technology built into hardware and software. It depends on a trusted relationship among the parties sharing information and between the users and their systems. This requires some way for each to judge the other’s trustworthiness. This, in turn, requires the ability to demonstrate a level of compliance with a set of security requirements: a matter of technology and policy.
Developers need to give more attention to software development and system-engineering processes, Ross said. Full trust can best be achieved when the applications and operating systems running on trusted-hardware platforms have been built from the ground up to standards of trustworthiness rather than merely evaluated for compliance with a set of specifications at the end of the process. “We have focused an awful lot on the evaluation side, and we haven’t spent enough time on the development process for good software,” Ross said. “You cannot evaluate your way to good software.”
William Jackson is a senior writer with Government Computer News. He can be reached at wjackson@1105govinfo.com.
Left: Bud Wilson, of TechTeam Global Inc., said he doesn’t have much faith in trusted computing, which doesn’t make sense for nonregulated users. Right: Ron Ross, of the National Institute of Standards and Technology, is writing for NIST’s upcoming Special Publication 800-39, “Managing Enterprise Risk.”
Image: Photos by Stan Barouh/Henrik G. de Gyor
cslewis, Weby, thanks for the responses.
Weby, I see now that the words do suggest such a partnership.
On the one hand it would be discouraging to think that managing TPMs is so complex that the government can’t handle it on its own. (Possibly it’s not complexity but the huge numbers.) On the other hand, it would be nice to have big companies pushing TPMs and Wave’s software, not just as system integrators but with the extra profit motive of being an outsourced manager of the keys.
Had you heard about this prior to the Q1 cc? Do we have other information, or any other reason to believe that the DoD wants/needs help managing its TPMs?
Can anyone decipher these paragraphs from the Q1CC?
This was part of the answer to a question in the CC:
We had an interesting experience with a big defense contractor where I would say they finally saw the light bulb go on. Where they recognized that, "Oh, you know we build lots of software for smartcards, and we have a few million customers with smartcards." And Wave is raising its hand saying, "We shipped well more than a few million every quarter. Your entire installed base that you have 500 people focused on is only a few million units."
So how will we[?] take some of those infrastructure pieces and apply it against this enormous growing market that's out here? They are like, "Wow, what a great idea." So if we can then help that organization understand how for them to monetize the technology, then we as a software provider and a product provider get carried along for the ride. And that's what we're focused on. The problem is we're an enabling infrastructure in a much bigger beast.
I’ve included the whole Q&A passage at the end of this post in order to put the above paragraphs in context.
QUESTIONS
So, it sounds like he’s talking about a defense contractor that makes central management software for Smartcards, and has customers (the government?) for this product with a few million seats.
My questions are:
1. What is SKS saying the defense contractor could or should do?
2. How would whatever it is they should do benefit Wave?
3. Does it make sense to be comparing the number of Wave’s ETS bundles with the number of seats this defense contractor is serving? In other words, is the number of ETS bundles on Dell machines comparable to the number of "real" customers that this defense contractor has?
(For example, is he simply saying the defense contractor should use the TPM somehow? And if they do use the TPM, then Wave’s TPM management software will be needed? Or, if they do use the TPM then it is simply more support for the hardware security space? Or, since he focused on the 27 million Wave ETS clients, is he saying that the defense contractor should somehow be relating its products to Wave’s??)
Any help would be appreciated.
ENTIRE QUESTION AND ANSWER
58:20
Q: Two last questions, if I could. First, at the beginning of the call you mentioned, I just want to understand if I was clear on this. Regarding the Dell, do you think there's some kind of slowness or for lack of a better word "bottleneck" in the process, and where's the slowing down of the facilitating orders for you guys. If there is a problem, what would you think it would be?
SKS: I'm not so sure I would articulate it as a problem. I think that in many aspects they do what they do and they do it very well. Our challenge is to get sufficient mind share both from the Dell sales force and from the customer as to how to deploy this technology. And in many aspects, it's as much of a challenge with the industry at large as it is within Dell.
I went with Dell to see a Fortune 100 company, has over 100,000 employees. The CIO stood up in front of the room and was – gave a great five minute presentation on why he was so excited about hardware security and TPMs and that all their new machines were going to come with TPMs, etc. And then we pointed out that their three-year-old machine also had a TPM in it, and then he was pissed. He said, "Well how come nobody told me that there was a TPM in the box, and what to do with it? You mean I've had all this security and no one’s helped me to understand how to deploy it." Right?
Q: Yeah.
SKS: So, that's sort of a challenging marketing message. To defend the Dell guys. Yep, they put a bullet point in the product tear sheet that says, "Our machine has a TPM in it." And realistically should they necessarily do much more than? Some days, no. But the fact is that the industry hasn't told everybody how to use this, and there's millions and millions of devices out there.
We had an interesting experience with a big defense contractor where I would say they finally saw the light bulb go on. Where they recognized that, "Oh, you know we build lots of software for smartcards, and we have a few million customers with smartcards." And Wave is raising its hand saying, "We shipped well more than a few million every quarter. Your entire installed base that you have 500 people focused on is only a few million units."
So how will we take some of those infrastructure pieces and apply it against this enormous growing market that's out here? They are like, "Wow, what a great idea." So if we can then help that organization understand how for them to monetize the technology, then we as a software provider and a product provider get carried along for the ride. And that's what we're focused on. The problem is we're an enabling infrastructure in a much bigger beast.
Q: Yeah.
SKS: Now, the challenge is it takes longer. The good news is, it has incredible scale. I mean we have shipped 27 million copies of software, each of which has a potential $50 upgrade.
Q: Yes. That's just great.
SKS: And when you think about that upgrade installed base, remember that a machine has a three or four year life. So a machine you shipped last January, a year ago January, is good for all of this year and all of next year. So you really haven't lost the opportunity to upgrade software to that machine until the end of 2010.
Q: Right.
SKS: And so from my perspective, this is again why I say, the short term is still, we still have our challenges in getting all these pieces moving in the right direction. The medium term is awesome.
test eom
1260, it sounds like you are in agreement with ASISEEIT and keV’s CPA.
I believe you’re also saying that at first these payments will show up in deferred revenue. So this would be an example of the developmental revenue progress payments we have talked about before.
Maybe one of our accounting experts can help.
My guess is that Wave would be paying things like payroll taxes and social security, but the employee would receive his/her salary check from the other company as a consultant. So the person would be on Wave’s books as an employee but with little or no salary expense.
This is just a guess.
Paying for the WXP Olympic Development Work
“That's what MSN's GM of Entertainment and Sports Rob Bennett is expecting. He told us Microsoft (MSFT) has spent the last eight months building a system to accommodate demand, built around Microsoft's Silverlight media player and bandwidth from Limelight (LLNW).”
I wonder if Microsoft paid for the WXP development work, and if that is what this passage from the Q108 CC was referring to:
Q: All right. And how's the workforce doing? Has it been increasing? Have you been employing more people? I know the last time, it was about a year ago, you had about 100 employees. Has it grown any more?
SKS: The company is at about 130 people today. Predominant growth has been in both the sales and engineering teams, and both in support of real customer accounts. Some of those engineers have been directly paid for by other organizations where we are doing work on a non-recurring engineering basis.
Bull_Dolphin, thanks for the clear explanation. EOM
Fools rush in where angels fear to tread...but
what is the difference between downloading and caching?
TIA.
from italophiles.com
MIB, thanks for addressing the engagement question.
When you look at it in dollar terms, $2.1 million (only an additional 225K over Q4) is not impressive. But when you think of it as 7,000 upgrades and 20,000 FDE drives (likely future upgrades), it seems more meaningful.
It's hard to know, in the absence of really strong customer response. (I had expected thoes FDE drives to FLY off the shelves.)
That’s why I was wondering if other concrete evidence, such as the 1,000 customers buying a few drives, may enable us to make a good investment decision prior to seeing really strong evidence in the revenue numbers.