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QPSA December Membership PR, eGames
So the registration continues strong. That is excellent.
A few points about the PR itself. Also eGames:
1. I wish they hadn’t felt the need to make excuses about the December number being ever-so-slightly lower than November’s. I guess the “distractions of the major holiday celebrations” were not in effect last year, as December 2009 registration was higher than November 2009.
2. A general statement about monetization so far, say for SnapMeUp, would have been really welcome, assuming that it is going well. We know there are millions of users signed up. Since the PR mentions expectations for the DSM platform through Sony and Grupo Expansion, and mentions eGames, I don’t like seeing no mention of things already in place. We know SnapMeUp has millions of players signed up; we don’t know if it is making money.
3. It appears that eGames is a tiny company on the brink of bankruptcy. This is from their September quarter earnings PR:
“Liquidity Condition:
At September 30, 2010, eGames had $301,000 in cash compared to $627,000 at June 30, 2010. Considering our net losses for the most recent quarter and the last six fiscal years, and the fact that we do not currently have access to a credit facility, we are continuing to evaluate our options to fund future operations if eGames does not become cash flow positive from operations during the upcoming quarters.”
"We are encouraged by the continued increases in our traditional product revenues due to strong sales of our physical products at the large national retail chain stores in North America but we are also challenged by the general market conditions and trends in our industry that have decreased our Internet-related revenues as well as our licensing revenues," stated Jerry Klein, eGames President and CEO. "We continue to forge ahead with our social game development and distribution strategy, with the launch of our next two social games, Satisfashion and Coffee Central, expected by the end of this year on the major Latin American social networks. We have two additional social games currently in development which are expected to be released during our 2011 fiscal year," Klein said. "The free-to-play micro-transaction model used for social games has been substantiated as a sustainable and profitable business model while social games continue to grow in popularity. Our plan is to maintain our focus on this segment of the market and develop top-performing games", added Klein.
The $132,000 increase in operating expenses resulted from:
• $168,000 in increased product development expenses related to having four games under development for the Latin American social networks and one game under development for the iPhone during the current quarter compared to last year's first quarter only having two titles under development; and
• $36,000 in decreased operating expenses across various categories.
Draft Minutes Dec. 6 OCA meeting
I'm new to this stock. I don’t know whether these brief minutes of the December 6 OCA meeting were posted.
http://www.oca.nh.gov/Advisory%20Board/DRAFT%20Minutes%20of%2012-06-10%20OCA%20Board%20Meeting.pdf
From draft minutes of meeting on December 6, 2010, page 3.
4. Case Updates
Ms. Hatfield called to the Board’s attention docket DE 10-195, which concerns a proposed long-term purchase power agreement (PPA) between PSNH and Laidlaw Berlin BioPower, LLC. Ms. Hatfield briefly explained the Commission’s recent decision, pursuant to RSA 91-A, requiring PSNH to disclose to the public all of the terms of the PPA. Ms. Hatfield stated that the now-public information indicates that the proposed price is hundreds of millions of dollars over market over the 20-year period of the proposed PPA. Ms. Hatfield also mentioned the upcoming deadline for the filing of testimony of intervenors, PUC Staff and the OCA on December 17.
“About Us” page on OCA site
http://www.oca.nh.gov/aboutus.htm
Standing up for fair residential utility rates since 1981.
The Office of Consumer Advocate (OCA) is an independent state agency with statutory responsibility dictated by RSA 363.28. The OCA represents residential customers of New Hampshire's regulated utilities - electric, natural gas, telephone and water. The OCA is authorized to participate on behalf of residential consumer interests in proceedings before the New Hampshire Public Utilities Commission (PUC), and other state regulators, federal regulators and in the courts. The OCA's mission is to advocate for reasonably priced, safe and reliable utility services.
While interested in patterns of rate or service problems, the OCA is not authorized to represent individuals in complaints with utilities. Rather, the Consumer Affairs Division of the PUC mediates individual complaints about regulated utilities.
The Office staff consists of the Consumer Advocate (Meredith A. Hatfield), Assistant Consumer Advocate (Kenneth E. Traum), Staff Attorney (Rorie E.P. Hollenberg), Utility Analyst (Stephen R. Eckberg) and Legal Assistant (Christina Martin). In addition, a statutorily authorized Advisory Board appointed by the Governor and certain legislative leaders gives the OCA policy guidance.
The OCA is a member of the National Association of State Utilities Consumer Advocates (NASUCA), an association of 44 consumer advocates in 42 states and the District of Columbia. We have members in the Consumer Protection, Telecommunications, Electricity, Natural Gas, Economics and Finance Committee.
For more information on the Office, a copy of our July 1, 2005-June 30, 2007 Biennial Report is available here. We encourage and appreciate any comments or suggestions that you may have.
Three points.
NO WARRANTS. Good catch.
SONY AGENCY. Wonderful news about a big ad agency. I now think it was unrealistic to expect them to sell any DSM on their own without an agency.
ACQUISITIONS. I wonder what they’re planning to buy?
"Quepasa will use the proceeds from the funding primarily to expand its gaming platform, including through acquisitions, as well as to facilitate the continued development of Quepasa-owned gaming IP and other general corporate purposes…. 'This funding allows us to accelerate investment and growth within social gaming,'" said John C. Abbott, CEO of Quepasa. 'We look forward to launching and monetizing culturally relevant social games within a Quepasa premium gaming channel and publishing these games on alternative audience networks.'"
Green Man, did you listen to the video on the MBD projects in Australia which greenman100 linked to in post #715? At about minute 1:40, Scott Fraser, VP of Operations at OOIL says, “We’ve actually brought two of the companies to the table. We brought World Water Works with their dissolved air flotation system, and Evodos, the centrifuge system that is designed specifically for the algae industry.”
So OOIL clearly doesn’t see Evodos as a competitor with an oil separation technology ready to push OOIL's Single-Step Extraction system out of the picture. Good news.
Yes, it is true that you (one) would have expected him to say, “No, I didn’t mean we would manage it.” That’s why I suggested that he didn’t hear, or just didn’t respond to, that part of the question. It seems almost ridiculous that Wave would try to gear up and hire the people to manage such a huge deployment.
He does continue to say that the systems integrators are needed for the whole government process - although the answer below makes it sound like the government has gotten far ahead of the systems integrators' ability to do their part.
Q. On one of your recent conference calls you spoke about system integrators being the first to deploy our software before the government. Do you still believe that to be the case?
A. Very much so. I think that the only caveat I would add to that is that I have seen over really the course of the last couple of months very significant progress within, within especially the U.S. Government, around their thinking on Trusted Computing. The challenge is is progress on their architectural thinking and the ability to actually buy something and deploy it might have a much bigger gap between it than I necessarily want to believe in. And the challenge is while I think the thinking is getting quite advanced, I’m concerned that the systems integrators aren’t actually there yet ready to catch the ball. And so they may have to deploy something in scale inside the systems integrators first.
There is no question that both the U.S. and U.K. governments are very clearly telling their systems integrators that Trusted Computing is very important, pay very close attention. That’s generating a higher level of discussion with Wave. Again I would like to see that discussion converted to actually some orders. We very systemically tell them over and over again, “You don’t know what you’re talking about. You need to go turn on 1,000, 5,000, 10,000 seats, and almost the volume almost doesn’t matter, and then call me back when you’re done because then you’ll know what you’re talking about.” The – we have a lot of experts right now who have never turned on a single TPM. And they’re just armchair IT experts. Even though they’re experts in their field. I don’t want to take anything away from them in their true capabilities in IT, but when it comes to talking about Trusted Computing, there’s nothing like a little bit of experience.
On the other hand, we also have big systems integrators and consulting organizations who are out talking up our product to customers who we can’t for the life of us get them to implement it internally.
We know the government has been trying to develop its approach/architecture for a long time. It sounds like SKS is saying that the government is now planning to manage its millions of TPMs centrally through the internet/cloud as a SaaS operation rather than department by department.
So in the cc the questioner said, “Steven, you also mentioned I think in your opening remarks about a possible five million seat opportunity, I guess five million machines for the government to possibly be turning on. Do you think Wave is in a position to manage five million machines? And can you just elaborate a little bit more on that statement?”
Sometimes people don’t hear the whole question, or they answer part of a question, or they misinterpret the question. In other words, possibly SKS was saying, “It is doable, like running a small Telco.” Not, “Wave will do it.” Possibly one of the systems integrators or the government itself will run the central management of these millions of seats, not Wave. Wave will simply supply – and must now develop – the SaaS version of ERAS, and it must be robust enough to manage 5+ million seats.
And in the Q&A section SKS did confirm that the 5 to 10 million seat comment referred to the government.
Q. ... Steven, you also mentioned I think in your opening remarks about a possible five million seat opportunity, I guess five million machines for the government to possibly be turning on. Do you think Wave is in a position to manage five million machines? And can you just elaborate a little bit more on that statement?
A. So from a scale perspective I don’t think that’s a difficult problem. And here’s why I can make that statement. Five million seats is a very small telco. It’s not tiny. Two hundred thousand seats is a tiny telco. Five million seats is at least a little bit interesting but you’re not trying to run Verizon. And in many aspects, turning on device identity is exactly that. You’re doing the same thing we do to register and enroll a phone except you’re doing it with something that’s a little heavier, has a bigger keyboard and a bigger screen, so hopefully it’s easier to explain to the customer what’s going on. The – from a scope perspective, I think that very clearly the message that came out of the NSA’s Trusted Computing Conference is Trusted Platform Modules are a key first-step technology, and that their recommendation advice is turn your TPMs on and use them to hold all your soft certificates. And I think that we certainly see the right warm and fuzzy dialogue in that direction. Again, as I just said, the gap is between even a strong commitment that says, “Yes we’re going to go do this” and buying something. It doesn’t happen at the same time. Right? It is, after all, the government.
wavxmaster, thank you!
That's definitely the way to go. Let’s coordinate next time. Hopefully a few more volunteers will pop up.
WAVX Q3 2010 CC Transcript
To iHub: This is my work, transcribed from a publicly-webcast conference call.
http://investor.shareholder.com/media/eventdetail.cfm?eventid=87066&CompanyID=WAVX&e=1&mediaKey=39ABF074D26B01B8B7E652FFB14E897F
I've added a few headers in the Opening Remarks section.
One of the interesting things which I’m not sure has been highlighted is SKS’s comments on two large potential new OEM partners. First mentioned around minute 9:00, then mentioned again right at the end around minute 1:08.45. In the 9:00 section he may be implying that at least one may be something other than a PC OEM.
+++++++++++++++++++++++
GERRY FEENEY
Net Revenues: +38% to $6,695,000
Q3 2009: $4,844,000
Total Billings: +19% to $6,163,000
Q3 2009: $5,194,000
Total Operating Expenses: $7,870,000
Q3 2009: $5,318,000
Net Loss: $1,178,000 or .01 per share
Q3 2009: $ 479,000, or .01 per share
Weighted Average Basic Shares Outstanding: 80,944,000
Q3 2009: 71,800,000
EBITDAS: $ (296,000)
Q3 2009: $60,000
Cash: September 20, 2010: $4,9 million
June 30, 2010: $4.5 million
Current Assets: $8.4 million
Current Liabilities: $7.1 million including $2.6 million of Deferred Revenue
STEVEN SPRAGUE
3:45
Thank you, Gerry. And thank you everybody for joining our call today. I’d like to start by taking you through some of the developments within our OEM channel, and then we’ll talk some about the development of enterprise software sales, and we’ll conclude with a number of conversations around our current investments in technology and some of our products.
4:00 DELL
So to start with, on the OEM side, we continue to have a very strong and positive relationship with Dell. We are in test for 2011 deliverables. We actually shipped finished code to them just the beginning of this current quarter we’re in. And we really look forward to a number of new and very interesting features in the products moving forward. We’re also having I think very good dialogue around the overall role of security within the product lines and capabilities, and we’re very pleased to be supporting those efforts. We look forward to continuing to help Dell lead in security in the marketplace.
And we’re also I would say making very good efforts in expanding the ability for sales force to actually carry these technologies to market. There are some interesting complexities in selling security as part of the PC platform, as most of the people in procurement just buy boxes, they don’t necessarily buy security. And it’s important to help connect those dots and I think we’re doing a much better job at that today than we were a couple of years ago, and I think there’s still quite a bit of work to do. So we continue to make progress on that front.
ACER
We’re also pleased that we are now shipping of Acer laptop line. Shipments are underway. We expect, as is typical with any PC manufacturer, for the volumes to grow over time, and so we’re really just at the beginning of that curve. We have been shipping their desktop line for a couple of years now and we’re pleased to be adding their laptop division. And it’s a very exciting development for us. It’s interesting working with a partner who is a few thousand miles away. It’s certainly had its few challenges, and I think we’re doing a good job in supporting them and we’ve added some staff in Asia to help support that, and clearly will be continuing to expand our efforts on that front.
6:10 ASUS
We’re also shipping first products with Asus as well and those projects continue. That is also very much in its early stages.
7:00 HP
We - on the HP front we signed a distribution agreement a year ago and we’ve been pleased with how that’s been working. We’ve had really I think really a very positive development here. Our product is broadly available now across the HP channels. We have a number of customer wins. We have a number of fairly good-sized customer wins in front of us. And a good example of what a customer win looks like in this market is we recently had a large financial services institution in the Southeast that procured product, or is procuring product, with their new HP machines, and we’re really just bundled along with that sale. And so we’re expecting to see in the few hundred seats per month really over the course of the next three years. That would be a consistent volume, and at the end of the day it’s between a 20 and 30,000 seat opportunity.
So it’s a nice selection. I think it does highlight one of the challenges we have. That’s a very significant customer win for us, 20-30,000 seats is a nice piece of revenue for Wave. But it shows up on a monthly basis and really the procurement contracts are with HP, they’re not with Wave. So there’s no assurance that next month they will continue to buy the same units. Having said that they’ve clearly standardized on this infrastructure, they’re deploying it within their whole organization, and they are training their employees. It’s just a question of what’s the definition of a legal announcement vs. you know, in its materiality. And as we don’t have a direct contract it’s very hard for us to press that through from a Press Release or public communications perspective.
8:03 LENOVO
We also continue to make progress with Lenovo. I would say in many aspects we’re sort of a year behind where we were with HP. We have now a number of customer prospects that they’re helping to bring to the channel. We had actually some challenges in the third quarter: we had an opportunity in Europe where we weren’t able yet to supply the self-encrypting drives. Not because of Wave but because they really weren’t ready to supply them in volume for Opal-compliant drives. And so that, I think, has helped motivate the process forward and we’re quite clear the channel is ready and supported today, and we’re making progress on that front. So we expect that 2011 will be a good development year, hopefully, with Lenovo, and we continue to supply across all the OEMs.
9:00 PC OEMS, NON-PC OEMS, DRIVE MANUFACTURERS
The OEM channel is very important to Wave, as it helps us put our brand and our capability in front of many customers. And when [?] we both support those customers directly and with our channel partners. In addition, I think that a number of – there are a couple of very large opportunities with additional OEM’s that are beginning to appear on the table, and I think the work that we’ve done in both the presence with the PC OEMs and with the drive manufacturers are really helping us to demonstrate that we can provide security infrastructure for many other brands in the marketplace, and we look forward to developing those relationships over the course of the next year or so. As we expand both within the PC space and beyond the PC space, it really is a very exciting time for us. Of course, the challenge is that very large OEM opportunities require investment. You know, HP’s a good example of that. It’s been a significant team that we’ve built over the last year, which really – you know, we made those decisions in January to support the HP channel in scale, and we’re seeing the benefits of it today. And I think we’ll really see the benefits of it over the course of the next twelve months.
10:15 ENTERPRISE SALES
So moving on, the next piece of the puzzle is the growth of the actual software enterprise sales. So this is where we sell a server product to support the client software that’s either been bundled with an OEM or the customers select it, for example, a self-encrypting drive to enhance their PC. We continue to see good, strong, growing interest. The marketplace in general is divided in those customers who’ve already purchased some aspect of software encryption. They are our best customers because they’ve had experience with encryption, and then people who are sampling it for the first time. And we find that once people get their hands on and test a self-encrypting drive they tend to move forward with it. We have quite a few customers who’ve committed to the drives and are still making their final decisions on enterprise software. And that’s always a great step for us because we can see the customer maturing into their selection of self-encrypting drives. We have a couple of very large opportunities in Europe where they’ve clearly stated they’re going to deploy self-encrypting drives across their entire enterprise and they’re measured in tens of thousands of seats, but they have not yet committed on the management software side, and certainly those are great prospects for us.
In that context, Q4 is shaping up to be our strongest quarter ever. We have some really great opportunities we’re pursing and I think even a couple of them that will drive, ultimately, announcement of them. And so we’re very pleased with that. It’s really actually quite exciting times for us now.
11:55 – OVERALL LEVEL OF BUSINESS ACTIVITY
The overall leverage of business activity - level of business activity is really growing quite well. And I think it’s through a combination of efforts. It’s a combination of broadening the distribution channel. We’ve invested in additional sales resources especially early in this year and that’s really coming to fruition now. I think we’re – the company’s finding its feet underneath it pretty well. So we’re exited about where we are. And I think we’re seeing that in both the numbers and the presence of Trusted Computing in the marketplace.
NSA CONFERENCE, FORRESTER CONFERENCE
Clearly one of the huge events of 2010 was NSA Trusted Computing Conference for us. I know I’ve spoken to a number of people about it. An enormous portion of the value was delivered in the first five minutes of the conference when the conference was set up to expect a couple hundred people and over 500 people showed up. And so it was very full, people were very interested in the topic, we had good customer visits there. I think we’ll have direct business that came out of that conference. We had a fantastic partner presentation, or customer presentation, from Price Waterhouse talking about their 30,000+ seats they’ve already deployed on their way to 85,000 seats and ultimately to the entire enterprise, which is 150,000 seats. So we were quite pleased to see that and I think many of the members of the audience were impressed that somebody had deployed that scale of Trusted Computing.
That same week actually we were also at the Forrester Conference, where we had presentations by Boston Medical Center and their deployment of self-encrypting drives. And actually subsequent to that they won an award that was highlighted in our press release if anybody wants to go read more details about it. And it’s these events that have large-scale customers standing up talking about their capabilities that make it more comfortable for the next customer to come in and buy. And they actually, they both generate leads for us and they generate I believe much faster closes in the customers that we have. So we’re seeing an increased pace of activity.
14:20 GOVERNMENT, NSA CONFERENCE
I also would say that the other place that’s been quite interesting is the overall scale of government interest in Trusted Computing in general. I think that TPMs broadly are a key technology to help secure cyberspace in that for the first time we can have known devices connected to the network, and TPMs can provide a very important tool for that. We’re very familiar with that concept. Known devices connect to the network is how Verizon secures its network. And bringing those tools and capabilities to the enterprise, whether the enterprise has a few thousand seats or a few million seats, it really is a great way to assure a much better level of security. So I think the next 12 months will be an interesting time. I know we’ve said that before in government, but the presence is different today. The Trusted Computing Conference was excellent. There is a much higher level of awareness within all aspects of the government opportunity. And so we’re excited to see it. I’m cautiously optimistic on when significant revenue will flow from it. At some point the tools to turn on all the TPMs need to be enabled across the entirety of government, and I think we’re approaching that point. So we’ll see how the next 12 months progresses, how budgets continue to form. My sense is that we’ll see a lot of similarity to what took place in U.K. government, as an example, where even across their fairly drastic cuts in government spending their cybersecurity spend actually went up. And so there’s a lot of interest in addressing cyber security and I think we’re in the right place at the right time.
16 BITLOCKER MANAGEMENT
Let me talk a little bit from a product perspective. We just launched our Wave for BitLocker Management. And it’s sort of interesting to – we’re in a very unique position at Wave in that our primary support of data encryption has been around the self-encrypting hard drives, and so for us it is a natural occurrence to go support Microsoft’s BitLocker solution from a management perspective because we’re not making any statement that our software encryption isn’t sufficient. Many other companies out there who’ve built software encryption for a long time will have a hard time supporting BitLocker and basically declaring that their product doesn’t hold up to the Microsoft BitLocker product. Many of our customers have a mixed environment where they have older machines they did not buy self-encrypting drives on, and they’re upgrading those machines to Windows 7. And they have the tools within that environment to support Microsoft BitLocker. BitLocker management today is relatively difficult because Microsoft really makes you write scripts to manage it, and so you have to kind of know what you’re doing. And what we’ve done is we’ve automated that process and we’ve plugged it into the same tools and experience that we’ve learned from managing self-encrypting drives to manage the BitLocker environment. So we’ll see how that progresses. We’ve had very strong level of interest from the customer base in it and from the analysts. It’s, I would say, one of the few times that we’ve put out a press release on a product where within the first couple of days we got more than a few phone calls from people saying, “I want to learn more” or “Come show me that product.” So there clearly is a pent-up demand for it and we’re excited to go fulfill that. I think it will be a very natural addition to our self-encrypting drive management to provide BitLocker management.
Our advice to customers is still the same, which is by far the best solution is to pick a self-encrypting drive, buy it on every brand new machine. On the machines that you already own, deploy Microsoft BitLocker and use Wave to manage them in both cases. So it’s – it’ll be interesting to see how it adds to the sales. The market size is really quite incredible. It’s about 20% of all enterprise seats now have the capability, and we’re in a very strong first-mover position in that by binding it to our central management of Trusted Platform Modules it’s a natural extension for us in the whole Trusted Computing space, and we’re pleased to be supporting it.
18:50 ERAS 2.0
We also this last quarter updated our Embassy Remote Administration Server to version 2.0. ERAS 2.0 really brings a number of very cool capabilities, from much stronger remote recovery services to support for non-domain-connected clients and no-touch deployment of TPMs. So we bring a number of next-generation features to the product. And these are features that customers have asked for we’ve developed over the course of the last year. We continue to invest very strongly in the product base. We recognize that we’re early-on in the overall scope of Trusted Computing.
NSA CONFERENCE, LEADERSHIP IN THE SPACE
To that end I’ll come back to the Trusted Computing conference. I think that one of the things that we did was really bring a set of Class A both demonstrations and product capabilities to the Trusted Computing Conference to demonstrate Wave’s leadership. I think anyone who was there walked away with an understanding that Wave clearly was the leader in the Trusted Computing space in providing the tools and capabilities to expose the functionality of both TPM and self-encrypting drives. And we look forward to continuing to expand that capability moving forward. We’re interested in continuing to be #1 in the space in developing the solutions, and I think we’re showing are capabilities in that.
So ultimately the plan is, and the plan’s very simple, is to grow revenue, grow the top line, invest heavily in continuing to expand this emerging market because it really is quite tremendous. You know today we talk about self-encrypting drives and TPMs for identity but we’re really building the foundation for subscriber management to cloud services, and that’s a tremendous market.
PROFITABILITY
And to move to profitability, I think that 2011 we have a very good shot of carrying that from a profitable basis and yet still expanding. So we’re trying to manage the business in such a way that the general recurring revenue that we have a very high level of expectation of drives the expense line and that we let the larger transactions drive profitability. And I think that’s the right way to approach it. As larger transactions occur, they’ll give us more capacity and continue that process as we grow the company.
21:30 ELECTRONIC SIGNING
To that end, let me finish by just highlighting a couple of things within our eSign division. Mortgage foreclosures have certainly been in the news over the course of the last quarter, and I thought I’d highlight a couple of interesting things. BNY announced that we are the first document custodian to go – or they are the first document custodian to go fully electronic and provide a service for, in essence, storing and archiving the electronic mortgages. And their trusted service represents and operates in 34 countries and serves over 100 markets, so they have pretty good scale. And we expect that volume to continue to grow over the course of the next year. Clearly it’s an early-on component. So I think one of the things that everybody would note that’s of interest is if your original mortgage had been electronic in its original form, then trying to find the paper is not really so much of a problem because it’s fairly easy to keep track of an electronic document.
The second one is one of our customers, a company called Signia Docs, was really the first to host an e-note funded by a warehouse lender. And one of the things – so it was funded by a warehouse lender and then sold to Fannie Mae. And so this was a really hot topic at the mortgage tech show even just a couple of weeks ago because what it was was adding liquidity back into the mortgage market for electronic notes. And it was one of the first transactions where they had successfully gone through the whole process of having one lender actually create the document and then having that document successfully sold through. And so clearly, as anyone who is an investor knows, liquidity is a very important aspect to the market and we are pleased to be part of that first transaction.
And finally we – our partner, Xerox, who have licensed the eSign systems, are the e-vault for Freddie Mac. So we have a customer with some quite significant scale. And it’s really an area where we haven’t been able to talk about before they publicly made statements about it at the last mortgage tech show, so we’re free to talk about it now. And it really is a tremendous opportunity that we’ve been part of in providing the electronic signing infrastructure underneath that. And it’s really both the process of signing the document as well as hosting or vaulting the originals because that’s the real challenge at the end of the day as we’re all learning these days, “who has the mortgage?” In this case, we provide the vault where the instructions are as to which vault each mortgage is in. And so it’s an interesting portion of the market. At the end of the day, electronic signing is a very important aspect of identity of assurance of various components, so we’re cutting our teeth pretty broadly in the mortgage space, and electronic signature we think is a very important component of this space going forward. So we continue to be enthusiastic. Overall the eSign Systems division is generally cash neutral within our operation and so continues to be a technology we invest in and grow, and we’re very pleased to have them as part of our family of products.
And so with that I’ll stop there and open it up to questions. And I’m sure there are a number of questions. We’ll work to get through as many of them as possible. And thank you for your attention and your interest and we look forward to talking to you next quarter as well.
25:30 Q&A
[Operator instructions]
TIMOTHY COLLINS – SRA
Q. Hello, Steven, Just a couple of clarifications if you don’t mind.
A. Sure.
Q. I noticed the R&D increased about 50% for the quarter and it represents about 40+% of your revenue, and that’s good, that’s good because it’s going to create product. So can you just give us some color on that and exactly what your reasoning is and what you’re doing?
A. Yes, so the scale and scope of opportunity that is being brought to us today is really quite tremendous and actually continues to accelerator pretty dramatically. And I think we can today directly look and see the revenue that’s associated with those actions. And so it’s the right thing for us to do. We’re paying very, very close attention to cash. If you note cash actually in this quarter also continued to rise. And so we’re very focused on that. And I would say we’re managing for a longer term than just single quarter over single quarter. But fundamentally we sit in front of an enormous emerging market. And I think that the decisions are easy. Where it’s going to get harder is when we reach the organization’s capacity to grow. We’re not there today, but I get the sense that the limitation on growth is not resource-driven as much as the capacity of the organization to do too many things at the same time while we grow. And that’s really the development – you know, it’s the development and scale of the company. And so I think we bump up against that threshold a little bit.
But to use an example, one of the things that we’ve been very heavily investing in, and you’ll see the progress on in first quarter, is the launch of our service as a fully-managed web service in the first half of next year, and that opens for us the entire small/medium market. So instead of having to buy a server to manage Tim Collins’ machine, you’re going to be able to go to a website and sign up and have one or two or three people, or a single person, have their drive managed. And the reason that that’s really important is you have the same challenges as an individual or as a small organization that a very large company has in the case that you lose data or information, which is how do I prove that it was encrypted when lost. And so it’s extremely important for the small/medium enterprise. And that’s a huge chunk of the market. It’s not just the really big players in the marketplace.
And as we look forward to that – I mean we just – you know we had an opportunity that came to us the other day that’s clearly tied down to somewhere between five and ten million seats if we extend the service that we’ve been demonstrating for now a number of years onto a product basis. And so when the customer starts to ask for the productization of things you’ve been demonstrating, those are the things you should jump on and go implement. And in some cases we get non-recurring engineering checks for them. Our experience has been you don’t need to make money on a non-recurring engineering basis. If you can get the customer to help support the development, that’s a fantastic way to move the product and capabilities forward. Reduces the risk, but doesn’t eliminate the risk.
29:35
Q. All right, that’s great. When you were mentioning Price Waterhouse presented at the NSA Conference. I guess that Price Waterhouse not only can use your product, but as a consulting firm and accounting firm, couldn’t they recommend the product and actually turn around and be sort of a sales agent for your product? Is there something more there?
A. Oh, I think there’s clearly something more there. The question is, “How fast does that kind of a transition happen in a very large organization?” And the general answer is, “Slower than you’d like.” Today we’re very pleased to have them from an IT customer perspective and as a customer perspective, and certainly they’re leading the market in an implementation which we think every Fortune 1000 should implement yesterday. They’re fixing a fundamental vulnerability which every company has today in the marketplace, and it can be easily fixed by turning your TPM on.
On the other hand, we also have big systems integrators and consulting organizations who are out talking up our product to customers who we can’t for the life of us get them to implement it internally. So we’re going to have a little bit of a mixture of both. In general, the IT department and the consulting side of an organization are not directly connected. Some companies do it better than others and eat their own dog food [means cooking] as it were, and others, it’s like they’re two separate beasts.
31:15
Q. I guess it’s a giant step in the right direction. My final question is basically, you’ve enhanced your marketing capabilities, you’re adding people. And you’re certainly out there developing product for the future, and you were really, seem to be very excited about what happened at NSA Conference. Would it be safe to say that your pipeline is probably the biggest it’s ever been and that you’re obviously hoping for some sort of December quarter flush through of some of that product line? Is that kind of the way it is?
A. Well, so our pipeline has been growing month-on-month very strongly. Q4 is – has historically been a very good quarter for us and we have high hopes. It’s always an interesting challenge, especially in your larger transactions, does something kick up and push things to the right. We have transactions in various stages as I sit here and speak. Some are in procurement conversations, some are on their way, some have had hiccups and will move to Q1, and that’s just the nature of the beast. The pipeline, however, continues to grow substantively and really, truly every week. I think the key thing for us is that very, very seldom do we lose an account. We have accounts that have pushed things off, have made no decision, but it’s not that they’ve made a decision to not, for example, support a self-encrypting drive. There’s one exception, in Q3 we had about a $300,000+ transaction with a big consulting organization who wanted Lenovo-based machines with self-encrypting drives and they couldn’t supply them, and they actually almost supplied the wrong thing, which fortunately was caught before the machines were shipped. And so that was an unfortunate occurrence in that we lost that transaction in that they continued to deploy the software they used to deploy. On the other hand, they continue a strong relationship with us, and we certainly look forward to doing business with them on their next PC buy, as well as they have a couple of other projects they’ve expressed interest in and we’re working with them on.
So it’s an interesting environment. We’re still early-on. We are by no means in a customer pull market. We still carry every order all the way to the finish line. And at some point it will transition, Whether it’s enough large transactions that are public that people are understand and we can do case studies on, that it’s awards that are won, that it’s repeat orders. We have a very strong repeat order basis across our customers. Those are the things that drive companies to become more comfortable and become easier to close. And we’re in the early stages of that. It’s definitely easier today than it was a year ago and substantially easier, orders of magnitude, than two years ago.
Q. Congratulations on you progress. Thanks.
A. Thank you.
34:30
RONALD MEYER – REM FINANCIAL
Q. Hi, Steven, I admit today I’m kind of searching for a little reassurance regarding your comment a few months back when you stated that Wave had roughly five to ten potential clients about the size of the U.S. auto maker that could close during 2010. And I understand that these are potential deals and they’re prone to delay for a variety of reasons. They’re certainly not under your control. I mean just because a company says they like Wave’s solutions and will implement them, they first have to make that decision to buy x-amount of laptops from some OEM before Wave can close any deal.
A. Um-hum.
Q. And as you said, delay does not mean that the five to ten deals are lost, but of the five to ten deals you mentioned, are they all still in the pipeline and, if so, do you see any of them closing before the end of 2010?
A. So, yes they’re still in the pipeline and yes, I expect them to close before the end of 2010. Will all of them? No. Some of them will move on. We have actually – Q4 should be an interesting time. It’s – the challenge with these transactions is maturing them to the actual decision where somebody puts a piece of paper in the fax machine and orders something. And, as you mentioned, there are multiple stages to that order. We have one very large customer, we actually have two of them, that have now at least told us that they’ve selected their – that they’re going to go buy drives, and I’m still waiting to see that carried through actually from a procurement document perspective, but they’re pretty solid on the fact that they’ve picked the solution. And so now it’s maturing that conversation into the actual order and the negotiation to an order, etc. And these are north of 50,000 seats each, so we have high hopes for that. I would say one of them has a pretty good likelihood in Q4 timeframe; the other one’s starting to be stretch for Q4 and is looking more likely to be Q1.
And so yeah, we’re pretty enthusiastic about what the numbers could be for Q4. I think, having said that, we’re still running the organization, as I said before, operationally, let’s run the organization against the orders we expect to come in the door from an expense perspective and development perspective, and let’s let these larger transactions drive profitability. So we’re pretty enthusiastic. I think we put another very large one on the radar screen just last week. And I would say we have the beginnings of a really enormous one that’s starting to have dialogue around it, but it’s too early to tell. It helps build the pipeline for 2011. So I would say progress is very solid. And hopefully some of these close from an execution perspective, make it easier and easier for the next guy to adopt. We’ve seen that case already and it’s getting better.
The balancing act is we do wrestle with a little bit of competition, not a ton. We compete against a fair amount of vaporware out there right now, and I think the challenge for us will be in 2011, and maybe it takes ‘til 2012, as our competition’s vaporware turns into something that’s a little more solid. That will make the game a little more entertaining. But…
Q. Ah…
A. But the signs of real competition say there’s a real market here, too.
38:35
Q. Presently I’m aware of only one publicly-announced estimate by an analyst of Wave’s revenues for – projected revenues for 2011, and that analyst was from MDB Capital Group and he estimated Wave’s revenue for next year at $45.75 million. Does this estimate seem reasonable to you, and could you give us some picture of what will be the business drivers to get us to that $45.75 million?
A. So, does it seem reasonable? Yes, it seems reasonable. What are the business drivers? At some point here the adoption of self-encrypting drives is going to go from the 3 or 4% stage to 30%. Why? Because it’s cheaper. Not only is it more secure, easier to manage, faster to deploy, etc., it’s cheaper to procure. And I think that we’re understanding how to sell that capability now. And so why is it cheaper to procure? If you would like a laptop that goes this fast. So let’s use a “this fast” definition, let’s call a PC WinMark score of 4,000. Just pick a number. And you’re willing to spend 700 bucks for a PC WinMark score that goes 4,000. So the question is, you want a machine that goes that fast running normal business apps. And so you have a choice, you can buy – and if you need encryption you can go buy BitLocker, and that will take your 4,000 score down to 3.600. OK, so you’re going to have to spend more on something, more memory, more processor, to get back up to your PC WinMark score of 4,000. Or you can buy a self-encrypting drive and your PC will run at 4,000. And so we ran those tests and actually 2 gigs of memory on a BitLocker platform, everything else created equal, added back almost enough. It was still slower by about 75 points. But so it was a little bit less to double your memory, to go from 2 gigs to 4 gigs than it was to add a self-encrypting drive. And our typical customers are paying less for self-encrypting drives than they are paying for 2 gigs of extra memory.
Q. Yeah.
A. So this is simple math. However, very few people have taken into consideration when they buy a PC that buying a hard drive with a cryptographic co-processor that accelerates the performance of the PC, in this case by making the encryption speed invisible, is a key decision-maker. It’s probably the most bang for your buck on a performance basis in your PC. Faster than memory. It’s definitely faster than a processor upgrade. And yet there are dozens of organizations out there today that are doubling the memory cause they think that’s, by the seat of their pants, what they should do, and then putting software encryption on. Where in reality if they kept the memory the same and bought an SED drive. At some point in time it will dawn on the procuring public that you get a lot more performance out of your PC by buying hardware-based encryption. Then all these other by-products of it’s faster, easier, stronger, easier to prove, etc., are gravy in the conversation. That conversation’s been very helpful to us. And that’s just selling drives, that’s not selling Wave. Then the question is, ”Why Wave?” And I think that we provide a very broad panacea of features today.
Q. Um-hum. Last question. Do you believe Wave’s ERAS and BitLocker management products for Windows 7 is going to have a material impact on revenues in, say, 2011?
A. Oh, I certainly hope so. I think it’s an enormous addressable market. We’re I think quite unique in the market with the product capability that’s there. Microsoft’s built a perfectly decent software encryption capability in the platform, It’s just really hard to deploy. And I think that, as typical, everybody overestimates the capacity of the IT department to read the manual, assuming you can find the manual. And that if the IT department has a choice between writing scripts and pushing a button, pushing the button is a vastly superior plan because there’s much less opportunity for an error. And at the end of the day, BitLocker is about compliance. And so one of the things that I think we can provide a level of assurance to the customer on is that we’ve kind of thought through the problem once. And so we’ve been able to invest 10 – maybe 10 times, maybe 100 times more from a resource perspective in building BitLocker management than two guys in the IT shop who are trying to figure out how to roll the thing out. And so our level of automation, our level of performance, our level of compliance, the probability that we pass your audit the first time – those things are substantially higher and with a much lower headache. And the reality is that the IT department should be focused on the business process for whatever customer they have and not be worrying about the mundane details of how to manage PCs. It’s how do I improve profitability and productivity in my enterprise. And so we can help them achieve that.
Q. OK. Thanks a lot, Steven.
A. Thank you.
44:30
KEVIN GUSINOW – First Place Financial
Q. Hey, Steven. Just to touch on that last piece that you were talking about BitLocker and managing it for them because we’re more efficient. Where would we make money on that? I mean how would be get paid on the management of the BitLocker part?
A. Oh, so we sell an enterprise server on a per-seat basis, so if you deployed 1,000 seats of Microsoft BitLocker onto your 1,000 employee network and you want to go actually now enable that and use it, then you can come to us and we’ll sell you a server product on a per-seat basis. Rough order of magnitude is in the sort of, I think we’re at $45 MSRP today for the service. And so we generate revenue on a per-seat basis for the management of BitLocker.
Q. And is that annual or is that a one-time fee?
A. So that’s a one-time licensing fee with maintenance. And we do have a set of calculations for selling our products as a service for those who are interested. And we actually this last quarter for the first time we’ve made our servers available as a managed service as well. So we’ll run your infrastructure for you. We have a number of early customer conversations on that subject. But that’s really appropriate to the smaller-size enterprise. 1,000 seats is actually probably not – a bad target number for that. Where instead of you adding a server in your rack, we’ll just run it as a cloud service from our facilities.
46:10
Q. OK. And then with more and more of these corporations going to cloud computing using more cell devices and tablets, where – how does Wave protect that, or where do we see ourselves positioned in that? And how do we make money in that?
A. Sure. So I would say in – the most important thing that we do is we apply to the PC the tools to say it’s one of ours. So if I’m a company and I now have – I used to have all my people in the building and all my applications inside my building, and so therefore I could have a LAN and you just came and plugged in your PC and all the security was run by the front door. Well, all the people have become tele-workers, and so they’re working from all over the planet at United airlines lounges. And so we’ve supplied them with VPN technology where the user has User ID and Password credentials. They log in and connect to the corporate network and carry on. And one of the things we clearly have shown is that you could move all that remote access to your Trusted Platform Module and dramatically secure the relationship with the PC back to the company.
But it becomes even more dramatic when you move the services outside of the facility and into the cloud. And so now how am I going to manage computers that are connecting to a third party service where none of the traffic is even traveling through my organization? And that’s what we want it to be because it’s very efficient, but we also want to know only our devices are connected to the network. And the reason that’s important is because it’s important to have our policies applied to those devices. Like, “Do I have encryption before I download all your medical records?” It would be a good thing to know. And so I don’t want you logging onto the cloud from your kid’s laptop, which has no encryption, and downloading all the medical records. And so known devices connected to sensitive networks and sensitive services is very important component of the puzzle. And so when we make money is we sell infrastructure to manage the TPM, turn it on, turn it off, give it keys, help you to coordinate which are your machines and which are not. And then it interconnects to the existing cloud services. So I can already show a Trusted Platform Module logging on to salesforce.com and google apps, It’s just early-on in the process. And at the end of the day, those keys should be owned by the corporation not by the carrier. And that model I think has been very well proven by Blackberry, where you have a Blackberry enterprise server. And so this is bringing that _____ kind of concept with much greater flexibility to the 1.5 billion PCs. So the next time you get a smart phone ad [?] or an iPad, put it next to your PC and ask, “Why is it different?” And the reality is that all of those other devices are in a device-centric model of authentication. The PC today is entirely user-centric and that’s why it’s annoying. So we’re bringing the infrastructure to enable a device-centric model. This is a huge play. In many aspects, I’m providing some of the key tools, and Wave is helping to press these tools into the market, to turn the 1.5 billion PCs into 1.5 billion 5-pound smart phones, in that they’re an identity-centric model for networking. And we think there’s an enormous market for us to generate revenue from that.
And so the rest of the pieces are a tactical play against that. How do we deploy software in the box? How do we help facilitate the services? How do we generate the enterprise revenue that allows us to invest in, and build, and expand the service to manage these and ultimately move that to a cloud service in and of itself, which you’ll see us do next year.
Q. OK. Well, thank you for answering those questions.
A. Thank you.
50:50
DAVID AVISCH [?]– Private Investor
Q, Hi, Steven.
A. Hi.
Q. On one of your recent conference calls you spoke about system integrators being the first to deploy our software before the government. Do you still believe that to be the case?
A. Very much so. I think that the only caveat I would add to that is that I have seen over really the course of the last couple of months very significant progress within, within especially the U.S. Government, around their thinking on Trusted Computing. The challenge is is progress on their architectural thinking and the ability to actually buy something and deploy it might have a much bigger gap between it than I necessarily want to believe in. And the challenge is while I think the thinking is getting quite advanced, I’m concerned that the systems integrators aren’t actually there yet ready to catch the ball. And so they may have to deploy something in scale inside the systems integrators first.
There is no question that both the U.S. and U.K. governments are very clearly telling their systems integrators that Trusted Computing is very important, pay very close attention. That’s generating a higher level of discussion with Wave. Again I would like to see that discussion converted to actually some orders. We very systemically tell them over and over again, “You don’t know what you’re talking about. You need to go turn on 1,000, 5,000, 10,000 seats, and almost the volume almost doesn’t matter, and then call me back when you’re done because then you’ll know what you’re talking about.” The – we have a lot of experts right now who have never turned on a single TPM. And they’re just armchair IT experts. Even though they’re experts in their field. I don’t want to take anything away from them in their true capabilities in IT, but when it comes to talking about Trusted Computing, there’s nothing like a little bit of experience.
Q. Um-hum. Steven, you also mentioned I think in your opening remarks about a possible five million seat opportunity, I guess five million machines for the government to possibly be turning on. Do you think Wave is in a position to manage five million machines? And can you just elaborate a little bit more on that statement?
A. So from a scale perspective I don’t think that’s a difficult problem. And here’s why I can make that statement. Five million seats is a very small telco. It’s not tiny. Two hundred thousand seats is a tiny telco. Five million seats is at least a little bit interesting but you’re not trying to run Verizon. And in many aspects, turning on device identity is exactly that. You’re doing the same thing we do to register and enroll a phone except you’re doing it with something that’s a little heavier, has a bigger keyboard and a bigger screen, so hopefully it’s easier to explain to the customer what’s going on. The – from a scope perspective, I think that very clearly the message that came out of the NSA’s Trusted Computing Conference is Trusted Platform Modules are a key first-step technology, and that their recommendation advice is turn your TPMs on and use them to hold all your soft certificates. And I think that we certainly see the right warm and fuzzy dialogue in that direction. Again, as I just said, the gap is between even a strong commitment that says, “Yes we’re going to go do this” and buying something. It doesn’t happen at the same time. Right? It is, after all, the government.
On the other hand, if the government wanted to take a step forward and address global cyber security, there’s nothing better they could do, truly nothing better, than turn on all their TPMs and assure that only their devices are on their network because it would signal to everybody else to go do that. And if that single thing was done, we would do more for global cyber security than probably any other investment we could make today. Because it’s been proven to work, right?
A. Yes.
A. You went from portable phones that didn’t have security and cloning, and everybody was stealing everybody’s phone calls, and that one simple action in the Startak, from a Startak analog to a Startak digital in like the early 1990’s, where they replaced all the phones. They turned off the analog network and went to digital. The transition from analog to digital introduced security, and we have 4.7 billion phones today. And for you and I as consumers it works pretty good.
Q. Um hum. You know, Steven, staying with….
A. I haven’t gotten billed for your phone calls in a long time.
c. 56:30
Q. Staying with the NSA conference. In lieu of the NSA Conference and the upcoming presidential trusted identity initiative…
A. Um-hum.
Q. Do you expect the President to put out type of language of basically hearing that the way to go is hardware, hardware security and SEDs. I mean are we at that point yet where we could start hearing the government talking and actually making that a directive?
A. So we clearly saw that guidance out of the government folks at the Trusted Computing Conference. No question at all. Initial drafts of the National Strategy for Trusted Identity Credentials had the concept of device credentials and Trusted Computing in it, so it will be interesting to see what the final draft of it comes out looking like. But I think the concept of a device-centric identity is very important. And I think it should be intuitively obvious to everyone because last time I checked there’s no smart card slot in your phone. So clearly you’re going to want an identity held in your device called your smart phone because you’re not going to want to plug something in it to become you. You just want that to be your identity container. My argument’s very simple, which is if the smart phone’s allowed to hold all my credentials, why can’t my PC hold all my credentials? What’s the difference? It’s just heaver.
And as we use our PC for the vast majority of our important transactions like actually closing the transaction on the thing we bid on on eBay using our smart phone at 2 o’clock in the morning. Right? But typing your shipping address in on your smart phone is not nearly as much fun as with a 101-key keyboard. And so we just want a mixture of these devices going forward and we shouldn’t have to pay a tax on our PC because it is perceived not to have security and somehow our XYZ smart phone does. And so we think TPMs provides a very interesting device in the picture to assure that the PC now has not only the same, but more capability than your smart phone does to doing secure transactions.
Q. Um-hum. And also one other question, Steven. Our customers that we’ve now had for the last year or two that have been buying software for us, I think you mentioned some buy 10, 20, 50 seats a month. Is that pipeline with those particular customers, are they still buying? Are they buying more now than they were a year, a year and a half ago? How is that relationship expanding or ______ remain the same?
A. So we’re very happy with it. I would say it’s better than it’s ever been. If a customer has bought from us a couple of times, then they continue to buy from us. They don’t fall off the radar screen. The customers that we’ve seen once or twice who’ve gone out and bought ten units or twenty units, that were clearly testing it, they may or may not have made a decision to go with self-encrypting drives for whatever reason, or we can’t see them on the radar screen right now. But the customers who have made a decision to standardize on SEDs continue to, and to my knowledge, nobody’s switched off of it.
Q. OK. Thank you, Steven.
A. Thank you.
59:10
ROBERT ISLER – Private Investor
Q. Hi, Steven.
A. Hi.
Q. Here’s my question. Cybercrime losses recently according I think according to Gartner passed the $100 billion mark. You have the strong interest in companies combating that problem. And business awareness of Trusted Computing solutions has grown exponentially in the past few years. And Wave, as you’ve said many times, enjoys a significant technological lead over its competitors. So, given that scenario, and the number of years Wave has been building relationships and planting flags, I would think that Wave should be in the driver’s seat, but I believe by now it should be showing a much clearer sign of a revenue ramp. Yet for the past year for every sequential quarter that we report, it’s always the same $500,000 or so revenue gain over the previous quarter, actually 300,000 this time, with 80% to 90% of Wave’s revenues still derived from the basic Dell licensing/bundling agreement.
So, two questions. First is you’ve said that the beauty of your business model, and you mentioned before again, is that you receive a recurring revenue stream as your existing customers regularly upgrade more machines, and additional revenues as new customers are constantly added. And several months ago you said you had over 200 customers, and you just said that your pipeline is stronger than ever. And you’ve also spoken about a solid increase in the $100,000+ customers. So even without a new homerun account, it seems to me that the cumulative result of all these factors should be a much more robust quarter-over-quarter growth than the single digit sequentials that we’ve been seeing for the last three/four quarters. So I was wondering if you could comment on that and also let us know when you anticipate a meaningful and consistent ramp to finally begin.
A. Sure. So I mean I think there are a number of pieces that feed this, right? And part of that is that the market obviously responds well to large, hit-a-grand-slam-homerun accounts. If you put out a single press release and it has a huge event to it, and everybody gets excited about that. And certainly those are great events. In addition, there is a tremendous amount of work that goes into really just the growing of the market and the growing of the awareness of the market. And I think that’s the thing that we are very enthusiastic about on a daily basis. And ultimately that’s what will drive much more consistent quarter-on-quarter growth, as the market emerges. I think in many aspects, I try and say it in the manner of we’re still pushing every account out. And the number of times that we get a blank phone call from somebody who’s picked up the phone and called us and says, “I would like to go buy this” is still very seldom. And so I agree with you. This is – I’ve had this conversation many times over. This is the most interesting challenge, which is so who’s actually responsible for telling anybody in the enterprise space that there’s something new that’s going on? And…
Q. I guess my question is this…
A. it’s an interesting challenge.
A. If you have these existing customers that are buying on a regular basis plus all the new customers plus such a strong pipeline, why are we not seeing it in the quarterly, the growth quarter over quarter over quarter for the past three or four quarters. It’s like the same couple of hundred thousand. I would think, shouldn’t it be bigger if you have all those factors coming in?
1:03
A. You know, so ultimately, yes, it should become bigger. It – I mean the numbers are what they are today. Right? And it’s in both billings and revenue recognition. So we see growth in billings. Revenue grows because those billings are recognized over 12 months, so there’s a certain dampener that’s built into the numbers there, which is just a natural dampener. So any of my larger transactions, if we look at the transaction from the auto manufacturer, great addition to cash, but then that revenue is actually realized evenly over the course of the year. And so if you take whatever growth number and you make a big chunk of the revenue recognition as just a completely flat line across the year, it’s going to level the curve some. And so it doesn’t appear in the same way. And so you have – you actually have in some cases more significant growth, it’s just hard to see it. But it has to prove it out in the numbers.
From our perspective, the next step as we’ve clearly stated – and I would like to have shown yesterday, right – is like to show you a couple more automotive-style transactions. Right? Where the significant event the world focuses on it as a significant event, and it’s the next step up in Trusted Computing. Mixed with that is closing additional accounts who come in and say, “OK. Yup. We’ve decided to use your stuff, we’re going to buy 500 units a month forever.” Fantastic. Right? We’re not yet to the point in this emerging market where there’s been enough of a focus, or enough of an event that’s driving the customer pull. And it was very interesting to see, it was very interesting to see the level of response that was created by our BitLocker press release. The number of people who called us – I mean nobody ever calls you after you put a press release out. In this case, we had a number of phone calls. And ______ an interesting event. I don’t know what to make of that yet. It’s way way way too early on. But people are paying more attention to this space than they have in the past. I would say, the other thing that is very reassuring for us is just the level of interest in the whole Trusted Computing space. The number of people who know what a TPM is, …
Q. Absolutely.
A. the places that they’re going, the fact that NSA held a conference with the brand on it. All those things are just hugely good. And so what you want to do and I think what you want us to do, is you want us to continue to be helping both pull this market forward as we move and to clearly show the level of innovation that’s possible. And that’s what will maintain our leadership. The moment we sit back, the risk is that the really big players in the marketplace just copy what you have and declare that’s enough. And I think that we are quite comfortable today that we’re a pretty hard target to chase. And there are a couple of people that are doing a reasonably good job. The rest of the people haven’t paid attention that this is a big race yet because the market is still small.
Q. One real quick follow-up. I wasn’t clear when you were talking about – answering someone else’s question – the five to ten significant accounts. Could you take a stab at – you said some are going to be pushed off. How many do you feel comfortable with for Q4?
A. So I’d say there are a couple of opportunities for Q4 that are very solid. And so we’ll see how they close in [?] But if – yeah, we’ll see how the numbers play. At the end of the day, the question is, “Did they go away?” Now [?] we had a big customer that was shooting for March delivery of PCs, therefore they’d have ordered their infrastructure now. And for whatever reason on their PC buy they couldn’t make their mind up and so they have now pushed that decision off to July delivery of PCs. Great. So it’s not that they’re still getting March delivery of PCs and decided not to include encryption, it’s just their whole program has slid to the right by 90 days. And you’d like to be able to say, we can see that. I think probably we watch it with a little bit tainted eye, as we’d like to believe they can pull it in and make it happen, but the reality is they’ve gone from a Q4 to a Q1. The scope of the opportunity is the same. And it’s just – it’s frustrating for us in that it requires an enormous amount of energy to get them to that point and to hold them, right? The moment you don’t press on them, then those resources aren’t available to the next guy. And so the pace that that slows down, that slows down the whole adoption of the whole market. And so we want to be efficient but we also – you don’t want to step back and then hand that customer to somebody else because you’re not calling them back. And so we invest very heavily in that process. This is – if this was easy everybody’d want to do it, but what we sit in front of – I mean the scale and scope of this market opportunity and boy this has been true for the last probably eight quarters, is bigger today than it was a quarter ago. The just raw opportunity that this market presents, and I think the opportunity for Wave. And we’re very enthusiastic about that.
1:08.45
I think the one place where we have seen demand pull is in the OEM side. We had two enormous opportunities that began to mature in the last three/four months that will be interesting 2011 opportunities that we didn’t call them, they called us. And that’s fantastic.
Q. Great. Thanks a lot.
SKS. Thank you. So I think we’re going to wrap up taking questions with that. And I really thank everybody for joining our call today. If there are any additional questions, please feel free to send me an e-mail. And we look forward to talking to you after the first of the year. So have a great holiday time and happy New Year and we look forward to talking to you then. Thanks. Bye-bye.
GreenMan, thanks for the research.
1. I see that I was incorrect in my post #696 in suggesting that OOIL’s Quantum Fracturing was used only in its feeding technology. I see that it is also the basis of the Single-Step Extraction System.
2. I didn’t get far enough in researching Evodos to see that they are working on an oil separation process to go along with their dewatering process.
3. From the Evodos website, i sounds like they are still working on the Cell Lysing Technology, working with Pall Corp,, although we don’t know when that information was posted. Perhaps by watching the MBD projects closely we will be able to see if the CLT is ready to go yet (and also find out if it is better in some ways than OOIL's oil separation process). It looks like those MBD projects could be extremely important and informative.
http://www.evodos.eu/?id=4530&PHPSESSID=4e948c057ba76d1de83d729474b7bfc6
4. In the Evodos PR (link provided by mercurialmike), it sounds like at this point only the Spiral Plate Technology (harvesting to a paste) is licensed by MBD. There’s no mention of extracting the oil or the Cell Lysing Technology.
http://www.newswiretoday.com/news/79492/
“Larry Sirmans, Technical Director of MBD Energy, said: ‘We are excited by the ability of Evodos to harvest algae at low energy requirements and with a high concentration factor, without using any chemicals. We look forward to working with the Evodos team to forge a comprehensive commercial relationship with game-changing potential in the exciting third-generation biofuels space.’”
“With Evodos’s Algae Harvesting systems micro algae are harvested undamaged and as an almost completely dewatered paste. The energy balance of this harvesting process is positive. This paves the way for producing third generation biofuels at commercial scale. The Evodos Algae Harvesting systems are based upon Evodos proprietary Spiral Plate centrifugal technology.”
Evodos Harvesting, OOIL Harvesting, Growing, and Feeding
ceng, I’m no expert and I haven’t been paying much attention to the algae space recently, but according to the links provided by mercurialmike, Evodos’ has a centrifugal harvesting method which MBD is testing for the same projects for which it is testing OOIL’s Single-Step Exctraction System. This appears to be competition in extracting methods for the MBD projects.
But the two harvesting systems may have different uses: one may be better for one end product and one may be better for another as I said in my post. From the information below, it looks like the Evodos system may be great for food rather than oil, and oil, of course, is what the OOIL Single-Step Extraction System focuses on.
Looking at the Evodos website, it appears that they are in the separation business. They say, “Evodos SPT, a breakthrough in separator technology.” Apparently it's low energy and doesn't use chemicla, so it can be used with food products, for example.
http://www.evodos.eu/index.php?PHPSESSID=2558c8abccb3518324a2c0b629ede1cb
“Chemical Free Separation
“Evodos has decided to redesign the hydrodynamics fundamentally. by introducing the Spiral Plate Technology (SPT), Evodos sets a new standard in the centrifugal separation industry. This allows many new centrifugal separation applications such as handling soft solids, fatty and greasy solids, abrasive solids. All without the use of chemicals. And with low energy.”
http://www.evodos.eu/index.php?id=45&PHPSESSID=2558c8abccb3518324a2c0b629ede1cb
“Algae Harvesting – low cost and industrial scale
“The algae harvesting technology of Evodos brings you the lowest price point per ton algae harvested. The low energy requirement results in a positive energy balance. The algae are harvested as an almost completely dewatered paste. This also reduces the cost price of the drying process. The algae are harvested alive and do not suffer shearing or thermal damage. The Evodos algae harvesting technology is designed for industrial use and scalable.”
One other thing, it looks like both OOIL and Evodos are hoping that MBD is the route to scaling up their processes.
+++++++++++++++
HELIX BIOREACTOR & MULTIREACTOR.
By the way, concerning OOIL’s Helix BioReactor growing method, I stumbled on this on OOIL’s website on the page about the MultiReactor system. (The MultiReactor system is the system that uses sunlight, gets the sunlight down into multiple growing layers, and also filters the light in order to get the best wavelengths for algae).
http://www.originoil.com/products/multireactor.html
“The MultiReactor is a response to the challenges of growing algae with 100% artificial light. While potentially very productive, any electrically-lit system such as OriginOil’s Helix BioReactor™ requires significant electrical energy, which only works when energy is available from waste sources (e.g. process heat) or in special circumstances where there is excess energy capacity (e.g. geothermal generation).”
I was really surprised to see this admission, as that is what I remember hearing from third parties about artificial light systems. But now OOIL has the MultiReactor growth technology to promote (in addition to the Helix BioReactor). The MultiReactor appears to have benefitted from some of the work done on the Helix BioReactor in terms of how to get light down into a contraption made of up layers.
+++++++++++++++++
QUANTUM FRACTURING
Incidentally, the Quantum Fracturing process is the feeding process. Again, I’m no expert, but this may be something unique to OOIL. Another question I would like to know more about.
pf, this doesn’t reveal who Fredric Levin is, other than that he is not an insider, but gives his views from last April. (It’s a comment from him on ian’s blog).
http://iancassel.com/2010/04/10/quepasa-corp-qpsa-to-leverage-social-gaming-and-virtual-goods-to-grow-membership/
I see that the first two links are to stories about MBD testing Evodos’ Algae harvesting centrifuges for the same three projects that they are working on with OOIL. The date on the first is October 20. This could mean any number of things:
-- The Evodos system is for a different purpose than the OOIL Single-Step Extraction System. (At first I thought they might be using the Evodos system for, say, animal feed only.)
-- MBD will use multiple, separate harvesting methods in these three projects.
-- MBD will somehow use both both the Evodos and OOIL harvesting/extraction systems in tandem.
-- MBD hasn't finished testing the OOIL extraction system, so is continuing to investigate other options for the three projects.
-- MBD has rejected OOIL’s extraction system (but will continue to use OOIL’s Quantum Fracturing feeding system).
At some point it would probably make sense to ask OOIL about this.
Short Article on Vermillion’s Q3
It's interesting in terms of giving some perspective on the roll-out of a diagnostic test like this.
It covers details of the revenue per test plus the change to their revenue-splitting deal with Quest (which will be applied retroactively). Also notes the more “time-intensive” sales approach needed for the OVA1 test, and the difference between financial results so far and expectations.
http://www.genomeweb.com/proteomics/vermillion-signs-better-revenue-splitting-deal-quest-ova1-lowers-full-year-sales
Vermillion Signs Better Revenue-Splitting Deal with Quest for OVA1, Lowers Full-Year Sales Guidance
November 12, 2010
By Adam Bonislawski
Vermillion this week reported that testing volume for its OVA1 ovarian cancer diagnostic is growing at a double-digit clip and that it stands to book a larger share of OVA1 revenues under a new agreement with Quest Diagnostics.
Despite the increase in OVA1 sales, however, company officials lowered their 2010 guidance from 8,000 to 10,000 OVA1 sales to a range of 5,000 to 5,500 sales for the year. During a conference call to discuss the company's third-quarter results, CEO Gail Page attributed the shift to a more time-intensive sales approach focusing on educating gynecological oncologists, and an initial failure to take into account the likely slowdown in physician visits during the holiday season.
The company posted third-quarter revenues of $413,000, $114,000 of which came from sales of OVA1 tests.
During the quarter, 1,973 OVA1 tests were performed, up 74 percent over the approximately 1,130 tests performed in the second quarter. The $114,000 in OVA1 revenue represented a 153-percent increase over the $45,000 in OVA1 sales the company posted the quarter before. The company did not report any revenues for the third quarter of 2009.
Early fourth-quarter results suggest that sales of the test have continued to grow at the same rate, Page said during the call.
The $413,000 in total revenues was a 20-percent jump from $344,000 in the second quarter, with the $299,000 not generated by OVA1 sales coming from license revenue related to the achievement of milestones under the company's strategic alliance with Quest.
The new deal with the diagnostic giant extends Quest's exclusivity period for OVA1 by two years, with an option for a third, and replaces the previous revenue split for OVA1 sales with new terms more favorable to Vermillion.
Under the old agreement, Vermillion received a royalty payment of 25 percent of Quest's gross profit on each OVA1 test sold. The new agreement, which will be applied retroactively to all tests sold since the product's commercial launch in March, provides Vermillion an upfront fee of $50 for every test performed plus 33 percent of Quest's gross profit.
Asked why the company negotiated an upfront fee as opposed to an even higher percentage of gross profits, Page noted that the fee would be helpful to the company from a cash flow perspective, particularly as it works to smooth out OVA1's reimbursement cycle.
"This agreement provides for us a certain amount of cash flow up front, and it allows us a certain time to really work with [Quest] and the payers to get the payments sort of ironed out and established," she said.
Vermillion's per-test revenues dropped to $91.20 for the quarter, down 45 percent from an average of $131.58 per test in the second quarter. However, Jeffrey Salzman, corporate director of reimbursement, said that the company didn't "believe that the average sales price numbers actually imply anything at this point," and that it expected "the rate of reimbursement to vary quarter-to-quarter or even month-to-month based on a number of factors including the payer mix and billing cycle, especially while payer coverage is first being established."
At the roughly $100-per-test reimbursement rate Vermillion has averaged since launching OVA1 in March, sales of 5,000 to 5,500 tests in 2010 would put the company's OVA1 revenues in the range of $500,000 to $550,000 for the year. That would be significantly less than the $9.7 million in OVA1 revenues the company predicted in a document filed with the SEC on Dec. 4, 2009. The same filing predicted $34 million in OVA1 revenues in 2011. At the current reimbursement rate, the company would have to sell 340,000 tests next year to meet that projection. In the United States, ovarian masses are detected in approximately 250,000 women annually.
The company, which received a CE mark for OVA1 in September, is planning an international roll-out for the test in 2011, Page said, and has begun talks with Quest about offering the diagnostic in India, Mexico, and England. It has also identified China and Brazil as markets of interest, she added.
During the call, Page also noted that Vermillion has begun an intended-use population study for its peripheral arterial disease test Vasclir in collaboration with researchers at the Colorado Prevention Center. The study, which Page said should allow the company to finalize the test's biomarker algorithm, will be completed in the summer of 2011.
Vasclir is the second test Quest accepted from Vermillion as part of the partners' three-test strategic alliance. PAD currently affects some 12 million Americans, with the incidence of the disease expected to rise as the incidence of diabetes increases. Last week Vermillion received $244,479 in Therapeutic Discovery Project tax credits for the development of Vasclir, as well as $244,479 for work on OVA2 – an expanded version of OVA1 (PM 11/05/2011).
The company's R&D spending jumped 191 percent in the third quarter to $1.1 million from $382,000 a year ago, and its SG&A costs rose to $2.9 million from $310,000 in the same period last year.
The firm's net loss for the quarter fell to $2.7 million, or $0.26 per share, from more than $11 million, or $1.72 per share, a year ago.
As of Sept. 30, it had $25.3 million in cash and cash equivalents
ou71764, possibly you are referring to my post #8030 from August.
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=53864986
+++++++++++++++++
The Importance of this Abbott Milestone Payment, the Importance of Abbott Phase 2
My previous posts on the subject: 2570, 2582, 2631, and 2975 (Scott Tobin conversation).
dayneyus, I delayed in reading the Shareholder Letter because the reactions on the board were so ho-hum. So when I finally read it, I was astonished to find the sentence you highlighted.
Up to this point, as far as I know, we have merely received vague statements (in the Q’s and K’s) about the company being pleased with the progress of the test. As far as I know, this is the first time the Phase 1 and 2 milestone payment has been mentioned directly.
+++++++++++++++++++++
MY UNDERSTANDING OF THE PHASES IN THE ABBOTT TIMELINE
Phase 1. Phase 1 was merely the development of the assay, and was completed last year.
Phase 2. Phase 2 is the crucial series of tests by which the validity of the assay will be assessed. As stated in the Shareholder Letter, it is the “clinical trial” for the test. The initial Phase 1 and 2 testing was done by a third party and was paid for by Abbott (signaling completion) in August 2009. But there was a delay in Abbott’s acceptance of the Phase 2 results. Last January when I spoke to Scott Tobin, he said that Abbott was doing more testing (Post # 2975).
Phase 3. Phase 3 will merely test to see if better results can be achieved with DRE prior to collection of the sample. (This would be crucial, I would think, only if Phase 2 results are not good enough.)
Phase 4. Phase 4 is optimization of the test.
++++++++++++++++++++++++++
The refrain on the board to focus on Quest rather than Abbott has been misguided, I believe. This crucial Phase 2 in the Abbott timeline is where we need to focus. I believe that nothing can happen with this test until this Phase 2 is completed successfully – and here is Barnhill specifically stating that it is being successfully completed and the payment (the proof of its successful completion) should be here before the end of the year! So unless he is delusional or lying, this statement in the Shareholder Letter is VERY VERY IMPORTANT.
It is the importance of this phase and its imminent completion that would explain why he goes into so much detail in the Shareholder Letter about the PSA test, the milestone payments, and the revenue guidelines.
Hello ian. Thanks for your response.
You write
I won't blast you as nothing you have said is false.
My guess is these, "related party" transactions are used as proof of concept to sign up additional campaigns with "unrelated parties".
I think Quepasa will be a tremendous investment, but there’s one thing that’s really bugging me. And now the Liolios Group has come right out of the gate repeating the same error.
In the PR Liolios says, “This is also increasingly attracting advertisers to the company's new distributed social media platform, Quepasa DSM. Introduced less than a year ago, Quepasa DSM has secured ad campaigns totaling more than $7.3 million so far this year, up from $800,000 the company announced in March."
The fact is, as clearly stated in the 10Q’s, that all of this (including the Acapulco, Cozumel, and Ixtapa campaigns) was paid for by Ancira through AHMSA and Matt Inc.
It is a huge positive that the company has a wealthy patron willing to get the company established and growing with minimal dilution.
This funding method
-- gets money into the company without dilution
-- funds improvements to the company’s DSM platform
-- shows potential advertisers DSM's strength as an advertising method
-- benefits Mr. Ancira (and hopefully Mexico) through promoting his causes
But these related party transactions cannot be presented as DSM “increasingly attracting advertisers.” IMO this is turning a positive into a negative. The company has to be reasonably upfront about this. If they don't want to specifically state the source in a press release, then at least don't trumpet it as "attracting advertisers."
My guess is we will have a major DSM reseller agreement signed by year end with a non affiliated party.
No, I’m not Microcap Speculator.
Microcap Speculator appears to have accepted the revenue figures as being real revenue. At the link you provided, he says, “Quepasa announced last month that it had ‘secured ad campaigns totaling more than $7.3 million so far this year.’ That is a huge improvement. QPSA will still have a nosebleed price-to-sales ratio above 10 (even if all that revenue is recognized this calendar year), but it is making big steps in the right direction.”
I think you know what I think about that “revenue.” If you don’t, you’ll have to re-read my posts.
Best wishes.
pf, this would be easier if you would read what I’ve written.
You say
as a fellow shareholder (or you an owner of QPSA stock?)
I really like management to get paid in stock.
Facebook, Zynga and Twitter all had early investors who gave the networks cash in order to get things rolling. AHMSA is an early investor like the rest of us.
There is only 13 million shares outstanding.
Everyone wants transparency. QPSA is the only publicly traded social network stock out there. QPSA is much more transparent than Facebook or Twitter.
Hi, pointandfigure.
I agree that it is most important that QPSA is building the platform and attracting users, which I think is what your interesting Twitter revenue/valuation figures show. It appears that QPSA is still very undervalued.
I also think it is positive that QPSA now has some real revenue, even though small ($167k).
But the basic point of my post was about honesty in communication.
I was very happy that they revealed that most of the millions in revenue was from a related party, but concerned that they continue, without let-up, to trumpet these revenues as if they are “real.” I would prefer details about the beginning revenues from SnapMeUp and details about how DSM is attracting new advertisers rather than this continuing misleading focus on the Ancira donations.
Another example is the talk about cash flow break-even and EBITDAS. When you’re paying management mostly in stock, the cash flow figures are simply not meaningful IMO. When management will be paid in cash with stock as an addition, then the real cost of doing business will be much higher, as we all know.
For me, this persistent lack of straightforwardness brings into question the reliability of all statements, and this can only hurt a company. That's why, for example, I am anxious to see "proof" that the DSM platform really is attracting advertisers.
JMHO
cjg, maybe it's the "Important Disclosures"
I went back to check if they had put the “Important Disclosures” section in the previous earnings PR’s and I couldn’t find any previous earnings PRs, so I guess this is their first. I’m glad they included this:
“Important Disclosures
Approximately 96% of the revenues for the nine months ended September 30, 2010 came from two companies of which a director of Quepasa is an officer or director.”
$ 4,199,846 9 months revenue
x 0.96
- - - - - - -
$ 4,031,852 96%
$ 4,199,846
$ (4,031,852)
- - - - - - - - - -
$ 167,994 4%
Blue Fin, yes. And I sometimes find that I don’t even hear some things until I listen two or three times. I generally record presentations of my companies and have them to listen to instead of the radio if I can’t sleep.
He obviously loves talking about this stuff, but he apparently just wings it. I imagine that whatever plan he uses is just not detailed enough (if there is a plan beyond the slides). He gets over-enthusiastic, and I think he loses track of who he is talking to and the purpose of the presentation. My assumption is that many people in the audience don’t know what he’s talking about.
He did really well at the conference right after the automotive announcement (was it Needham?), and I was hoping someone would suggest that he use that as a blueprint.
Partial Transcript Rodman & Renshaw
September 13, 2010
I listened to this again and realized there are some interesting tidbits. For example, his take on the Intel/McAfee deal and his comment about more Taiwanese computer OEMs. Also a few statistics, some of which were already posted.
For the first 8-1/2 minutes I show just a couple of the statistics he mentioned. It’s verbatim after that.
SKS
-- We’re about 125 people
-- My team in general has had over 10 years experience in this.
-- We’re paid 93 cents a copy by Dell for the software we put in the box. We ship on a little more than 4-1/2 million units per quarter.
-- We also then supply the enterprise software that allows the corporation to centrally manage these devices and to use them as part of their security. Our largest customer to date has been Price Waterhouse, which for the first time is going to talk about their implementation this week at the NSA Trusted Computing Conference. And they’ve rolled out just under 60,000 seats at this point.
8:30
In this case, drives are an option, they’re not a standard component. You pick and choose what drive you want in your computer. So we get $7.50 for every drive that ships in the box from Dell. We have slightly different business models with others but they’re in the same range. And again we supply server software that centrally manages these drives. Why do you need server software? Because if you for forget your password to your drive, it’s a brick. There is no recovery mechanism. If you have a central server, that’s what provides that recovery mechanism. It also provides the tools to prove to the lawyers that when you lost your laptop it actually had an encrypted hard drive in the box. Because it turns out that going in front of the judge and saying, “Oh, yeah, I lost $100 million of data, but trust me, it was encrypted.” is really a bad plan. You need some evidence. And the purpose of the server is to provide that evidence in a simple and cost-effective manner.
And so we’re seeing very significant growth in this space. We’re at about 3% of new laptops ship with encrypted hard drives. It should be 50%. Anyone who’s here who’s going to buy a new machine, ask your company to supply you with an encrypted hard drive. It is a better performing, easier to use, much higher security solution than anything that’s available in the market today.
So we’ve had some interesting momentum increases over the course of the last year. At the end of last year we announced a $5.7 million deal. It’s going very well. We have a large automotive manufacturer. They’re in the process of deploying 30,000 seats. They ordered a total of 75,000 seats and we’re expecting the next tranche order at the end of this year. So we received 1.9 million of that deal is already in hand. Next 2.1 should happen at the end of this year and the balance will happen the following year.
10:20
I think we’ve had a very interesting event in our industry, which was the acquisition of McAfee by Intel. So a lot of people are going, “Huh? Why is a chip company buying a software security company?” The entire future of the computing industry is dependant on whether or not we get the security picture right. So the risk that Intel and Microsoft have today, in my opinion, is they could be put out of business by the telcos – – completely – – if they don’t get this right. And so this is a defensive strategy against iPhones, iPads, etc., and Androids, and whatever, completely replacing the PC industry. And the reason is very simple because the PC does a connection-centric model for networking. It depends on which wire you plugged it in and which IP address you have.
The phone on the other hand is an identity-centric model. It doesn’t care what network ____? You can be on WiFi in this hotel and it still rings your phone because it’s based on the identity of the phone, not how you connected to the network. And as we switch the PC to that, we will enable the basis of the subscriber-based internet, and that market is truly enormous. It’s the net present cash flow value of Comcast times 1.5 billion PCs. And if anybody has any questions on what you think the future of this industry looks like, this is iPad economic model for everybody. So we build the tools inside the PC for subscriber management, data protection, only my machines on my network, only my apps on my machine, only my services tied to my device, just like an iPad. Except tied to the PC platform, So that way if Boeing, or Northop Grumman, or XYZ Corporation wants to have a monopoly of only their services, their users, their devices on their network, they can. And it turns out to be a much more secure way to conduct business.
12:10
The result of this is that one of the organizations that’s clearly seen the light here has been the National Security Agency because all the Federal machines, all of our coalition partner machines have these same technologies. And so how do I take advantage of that installed base? And so we have over 450 people today, we’re going to be in Orlando starting tonight for the next couple of days talking about how to use and deploy these technologies worldwide. We think it will be a very interesting event. I think it’s interesting to note that the government had to take the lead in pressing security forward vs. the IT world.
So we have a great collection of customers both on the OEM side and on the enterprise side. And this is just a few of the selected ones. They range completely horizontally across the market because we supply through the Dell channel. We earn revenue because we go hand-in-hand with Dell to their customers. They supply the PCs. We supply the servers to help them manage their PCs. We think we have a very effective competitive advantage in the market. We’ve been first to market. We’re actually embedded within this machine with our brand. And so, as this market slowly evolves and people have a greater awareness that these technologies are already there, I think many organizations will pick up the phone and call us and say, “OK it’s great that I have all this Wave stuff in my box. How do I use it?” And we see that today over and over again. As the installed base continues to grow – we’ve shipped over 70 million copies of our own software and there are about 350 million TPM’s out there. The vast majority of them ship with no software at all. We think it’s a really interesting opportunity. And as we’re netting over $50 a seat from enterprise software on a per seat basis, it’s an interesting market to go after. And it’s growing every day.
So the result is that billings have been growing pretty consistently year-over-year. That also drives quarterly revenue growth. Today a huge portion of that’s been driven by our OEM business. And with the next stage of growth in our business is driven by our enterprise growth. We recently just expanded our OEM business again. We now have gone from Acer desktops to Acer mobile, so we’re 100% of the Acer family going forward. That volume will start to trickle into the market fourth quarter and will probably take a year to go full-bore volume. We’re on all the Dell machines. We signed a distribution contract with HP, we’re not bundled with HP but we supply through the HP channel. We have HP customers today. And we’ve also signed a distribution contract with Lenovo, although we’re not bundled on Lenovo yet either. So we’re very pleased with how the line’s moving forward, and we’ll see some of the other Taiwanese OEMs during the course – both the end of this year and beginning of next.
And this is probably most important, we’re finally reaching a point where our revenues are sustaining us. In an emerging market this is critical because we don’t have to raise capital to support this business. We are earning enough revenue from the day-to-day operations of the business and our established customers and our recurring revenue streams from that to fund the Research & Development budget and the expansion of this business that’s going on right now. And at least for the next foreseeable future we see that model playing out well. We think that the organic growth of the business and growing the enterprise side and building those customers in will help to fund the growth of the business going forward. So we’re very pleased with that. This is a very important thing for us. We are the only company in this space that’s in this position, where we are actually paying the rent on these technologies. There are other companies who are still subsidizing divisions, who are investing like we used to be in this space, but they haven’t reached the point where they’re self-sustaining. And we think this really gives us a huge foothold forward because we can continue to stand on the gas pedal _______.
15:40
You will see from us this week technologies like, I’ll use an example. We’re going to show a self-encrypting hard drive, first time it’s ever been shown, where half the hard drive has got one key and the other half of the hard drive has a different key. So this half can be the consumer image and managed by the user, and this half can be the corporate image managed by the corporation, one laptop. And zero risk that data can go from this side to this side. Which means that if my, as a consumer, I’m admin over here and I get every virus known to man, nothing that I do over here in my Twitter and Facebook and all these accounts can affect my corporate side. And so it’s a very simple way of doing it with just the drive. As we move towards Trusted Computing which will allow us to do that simultaneously in real time – what’ we’re doing will require you to power off and power on your machine, but it will let you watch movies on the airplane on your Goldman Sachs computer, which you can’t do today, because they completely lock it down so you got to carry an iPad with you if you want to watch a movie.
So in summary, we think this year continues to drive ___ the growth of the PC business as we see overall growth with Windows 7 adoption. There’s a huge replacement going on right now. We see many customers replacing all their PCs. We’re seeing growth in our HP relationship. We’ve had a couple of nice transactions that have gone there, and we see more of the channel’s getting more educated. There are at least a few people at HP who know how to install Wave. And we’re seeing good growth in the self-encrypting drives. You know it’s still early-on in an emerging market. There’s no question that this still has a lot of water to go underneath the dam as it were. But it’s – this is – it will be interesting to see how this week comes out. There’s a lot of stuff going on. There are a lot of people interested. We’re displaying this week at Intel Developers Forum, Forrester’s conference in Boston, the Trusted Computing Group in Orlando, The Transglobal Aerospace Group in Washington, D.C. because all these people want to know about how they deploy hardware security.
17:40
And so we think that the market still is moving very much in this direction. The fact that Intel did this deal with McAfee has resulted in all of our OEM customers calling us up and asking us to come in and talk about our next 3-year roadmap because we’re what helps them remain independent of having security software provided by the chip vendor. We want a lot of chip capabilities that use security in the box and then we want to take advantage of those to build platforms that are neutral to the specific technologies, which is a model that’s worked very well in the past and will work very well going forward.
You want to, at the end of the day, be able to manage encryption on your PCs, on your Macs, on your Linux boxes, and ultimately on all your handsets with the same software, as opposed to having locked-in and proprietary solutions. Very much along the lines of what Apple is doing today doesn’t work very well for the corporation because you’re going to have a mixture of devices.
So we think it is a very scalable business model. We think we’re at a very interesting time. The company’s got a good foundation underneath it. The market’s really moving in our direction I think very solidly. So we think the next period of time’s going to be very interesting times for us.
Q&A
Q. Talk about competitors and whether there’s ______ consolidation ________ given the importance _____.
A. My prime competitor in this space is the Infineon software team. They’re a software division of Infineon’s chip group. They supply HP at this point, I supply Dell. They supply a few of the Japanese guys, I’m starting to supply more of the Taiwanese guys. Lenovo built their own. In many cases I think in reality no one would be really interested in acquiring the Lenovo software position. What you really want to do is just go compete with them and replace them. Which may or may not be a viable strategy. We’ll see how it plays out.
I think it would be extremely hard to enter this space right now. Clearly, long-term there are opportunities within the context of Infineon if they’re not an enterprise software company long-term. But again I’m not sure whether the right attack there is acquisitive or just compete. We’ve found so far “just compete” is a vastly superior plan. We collectively as vendors in this space collaborate a lot to make it work. Right now, it’s our little scheme against everybody.
Here’s the thing that’s important to remember. When you hear Facebook and Google and those guys talk about identity, yeah they have 300 or 500 million accounts. We have 350 million tokens. It’s much harder to go replace the tokens. The accounts is an interesting thing. And so _______ future. So I’ll leave you with a little thought. Imagine Facebook where Facebook knew none of your data. That everything was encrypted. All you had was keys. And so if you want to all be members of my Facebook page, I’ll give you a key, but no one at Facebook can see what data we post on the page. That’s cool. And that’s a very different context of privacy and groups and whatever for the future. So you could do encrypted Twitter, you could do encrypted Facebook, but you need the infrastructure for the security and the keys in the box. So this has real scale to it. We just have to get the plumbing right in the corporate environment first so we can go help solve these problems going forward. And then we’ll go see how it plays out. We’ll see what the world looks like in a few years from now as it does today. Very viable business short-term, cool business long-term _____.
There's some confusion in your post.
“BSD500 was approval last month in US and the EU approval is inminent. They got weeks ago the Safety Certification for MicroThermX Microwave.”
“BSD2000 approval is also imminent in US by FDA”
No, there was no mention of QPSA. The whole discussion seemed more focused on venture capital and a pretty high-level view of the space. There were a couple of interesting points on valuation of social media companies. The show (or Bloomberg in general) may be directed much more towards institutions than individual investors. Maybe I'll write up a couple of the interesting points later.
11:40 coming up: how to invest in the social media space
Adding co-founder of Linkedin to the discussiion.
Well, if they don't mention QPSA here, it will be very disappointing.
cjg, I don't know if he is involved with QPSA.
Peter Thiel on Bloomberg Today
Peter Thiel, PayPal co-founder, will be the guest host on Bloomberg’s "In Business" today for the 11:00 hour (EDT). Earlier, on the radio simulcast, I heard him described as a large investor in social networking sites such as Facebook and Zynga, implying that they would be talking about that. They did not mention Quepasa, but it’s hard to believe they will be able to get through the hour without mentioning it.
Here’s a list of some of his investments:
http://www.crunchbase.com/person/peter-thiel
BSDM devices
Note that investorvillage has some knowledgeable posters.
Here is a brief rundown, to the best of my knowledge:
BSDM has two hyperthermia devices in addition to the new ablation system.
-- The BSD-500 (one just sold to Texas) has had FDA approval for a number of years, but has never sold well. This product heats surface tumors.
-- The BSD-2000 (two more just sold to China): they have been trying to get FDA approval for this device for years. This product can heat tumors inside the body.
How the FDA could approve the 500 and not the 2000 is something I do not know the answer to.
Both of these are hyperthermia devices (as opposed to ablation, which is what the brand new product is for). Hyperthermia is still controversial in the medical community. It is no longer being suggested as a stand-alone treatment for tumors, but is being put forward as a treatment to be used in conjunction with radiation and/or chemo to improve the outcomes from those treatments. Apparently the heat can destroy some cells that radiation and chemo do not destroy and, in addition, the heat renders the other tumor cells more susceptible to being killed by the radiation or chemo.
As I understand it, early studies were done with equipment that was not able to get the tumors heated to the necessary temperatures, and so were not all that successful, and this gave hyperthermia a bad name. More recent studies, often using the BSDM equipment, I believe have been more successful, but not enough to convince the naysayers (or the FDA).
I just received a gracious and helpful e-mail from Jameson Rose. I forgot to ask if I could post his response, so I have paraphrased his answers.
Below is my e-mail with his paraphrased answers, plus a couple of my comments in brackets.
++++++++++++
Hello Mr. Rose,
I am a new shareholder in your company. I left a voicemail message for you on Monday, but I understand you have been out of the office. I thought I would go ahead and send you an e-mail I prepared with my questions.
Question 1. The Series B shares. In the 10Q the same earnings (the $359,493) is shown being applied to both the Series A shares and the Series B shares separately. Somehow that doesn’t seem correct. I know the Series B is traded in Germany for some reason, but I can’t find anything in the 10Q’s and 10K’s which explains how Series B relates to Series A. Can you tell me if the 10Q treatment is correct, and what the characteristics are of the Series B shares?
Answer: He said both classes have the same equity rights but the Class B has no voting rights.
[My comment: It still appears to me that the 10Q is not correct and that both series should not be shown as they are, each getting allocated the same profits. I will have to look at it some more and possibly write to him again about this.]
Question 2. CCHIT certification. I understand the company has CCHIT 08 certification. I assumed that was the most up-to-date available, but I see that NextGen announced last December that they have a “premarket conditional” 2011 CCHIT certification. Has MLKNA applied for that, or is it not applicable to MLKNA?
Answer: He said MLKNA is in the process of getting the 2011 CCHIT certification. He said it was not until earlier this very month that the CCHIT and two other certifying bodies were authorized to proceed with certification. He said MLKNA is ready and they meet all the 2011 requirements. In fact they met most of them in 2008. He explained that a few vendors did get the conditional certification but most did not because it is “a bear,” it is expensive, and those that got the conditional certification have to retest anyway to meet the finalized rules.
http://healthit.hhs.gov/portal/server.pt/community/healthit_hhs_gov__onc-authorized_testing_and_certification_bodies/3120
Question 3. I registered for Mymedlinkchart. A notice popped up saying that I would receive an e-mail to confirm my registration, but I received nothing. I called 888-262-8960 and was told that that number is not in service. Does Mymedlinkchart still exist? It sounds like a good idea.
Answer:
-- He said he would make sure the phone number is updated.
-- He said that Mymedlinkchart does still exist but it’s moving in a new direction as part of a portal that will connect doctors, hospitals, labs, imaging centers, as well as patients. He indicated that it will be “through” a health information exchange. It will give participants the ability to share patient information, which is one of the “meaningful use” requirements, but will also give providers access to various other services and apps. He used the analogy of Salesforce or the iphone, platforms which offer various services and apps on a single platform, but in Medlink's case it is focused on healthcare. He also mentioned that it fits in with the national goal of a national health informationn network.
[My comments:
-- This addresses my question about the company’s vision statement on its website, a question which I didn’t ask. And it brings up new questions, such as how this relates to the basic EHR business. I’m not very familiar with the whole EHR marketplace, so I wonder if their EHR competitors are doing anything similar.
-- I remember that there was a comment in a PR concerning the company's work with the NYC Department of Health concerning the large database they will have.
-- Maybe there will be an official announcement when their website update takes place (see below).]
Question 4. Other assets. This is described in the 10Q as, “Other Assets consists of deferred charges resulting from a consulting advisory agreement dated February 10, 2010.“ Does that mean you did work for a company but did not bill them yet? If you had billed them, I assume this amount would be in Accounts Receivable?
Answer: He said it is essentially a prepaid expense on a 3 year contract.
[My comment. I’ll have to look at this again, and in terms of cash flow. Did they have that much cash to pay out?]
Question 5. Are there plans to bring the website up-to-date? I note that the latest PR is from May.
Answer: He said that the new website is ready and should be going live pretty soon.
Number of Members
Possibly when that article was written it was in the 19 million range, as it ended August with 18.7 million.
The John Henderson report posted on September 18th by iancassel said, “almost 20 million members.” I don’t know where 20 million is posted on the company’s website, but they’re no doubt over 20 million by now
Here’s a schedule of announced numbers:
Do you know if the UFC “Why I Watch” campaign took place? It was announced July 7th. As far as I know that would have been the first independent DSM campaign, definitely a positive step.
http://www.quepasacorp.com/index.php?option=com_content&task=view&id=240&Itemid=68
Charles, I agree with everything you say.
In fact, I said in my post how positive Ancira’s support is. The fact that DSM is not where QPSA expects its main revenue is also true, but irrelevant.
The point of my post was that I don’t want to see the company making mis-leading statements, especially when it is totally unnecessary! You actually strengthen this point. The quote in the PR could have focused on how well the DSM campaigns have performed and how that, along with increasing membership, will attract new advertisers. There was no need to imply that the $7.3 million is from outside advertisers attracted to the site.
I fear that some people fall into a pattern of minor mindless dishonesty when it isn’t even necessary. I would have hoped that a professional IR firm would not fall into such a pattern and would help the company to get its message out clearly and honestly. I prize honesty in management, as I think most investors do. I was really a bit taken aback to find out from the 10Q that even the three cities' campaigns were paid for by Ancira.
As for today's PR, I would understand if Ancira didn’t want his efforts put out there every time a PR is issued. So if they don’t want to say that a related party has funded the $7.3 million, at least don’t trumpet it as something it is not. So what happens is, careful investors do some DD and say, "What? This was all from a related party?" Then they have to decide, "Is this low level of deceit OK or not?" It's OK with me to the extent that I keep my investment, but I don't like it.
As I keep trying to say, the company’s story is so good that it doesn’t need subterfuge.
I think Quepasa will be a tremendous investment, but there’s one thing that’s really bugging me. And now the Liolios Group has come right out of the gate repeating the same error.
In the PR Liolios says, “This is also increasingly attracting advertisers to the company's new distributed social media platform, Quepasa DSM. Introduced less than a year ago, Quepasa DSM has secured ad campaigns totaling more than $7.3 million so far this year, up from $800,000 the company announced in March."
The fact is, as clearly stated in the 10Q’s, that all of this (including the Acapulco, Cozumel, and Ixtapa campaigns) was paid for by Ancira through AHMSA and Matt Inc.
It is a huge positive that the company has a wealthy patron willing to get the company established and growing with minimal dilution.
This funding method
-- gets money into the company without dilution
-- funds improvements to the company’s DSM platform
-- shows potential advertisers DSM's strength as an advertising method
-- benefits Mr. Ancira (and hopefully Mexico) through promoting his causes
But these related party transactions cannot be presented as DSM “increasingly attracting advertisers.” IMO this is turning a positive into a negative. The company has to be reasonably upfront about this. If they don't want to specifically state the source in a press release, then at least don't trumpet it as "attracting advertisers."
Q2 2010 10Q
"We received from AHMSA, which owns MATT Inc., a $3.5 million contract to develop a website and a series of environmental campaigns using our DSM Technology and a $3.0 million contract to develop a website and a legislative campaign using our DSM Technology. These contracts are the ones described in DSM and website development revenue above.”
“We received the following from MATT Inc. on behalf of the Municipalities of Acapulco, Cozumel and Ixtapa in Mexico without commission or fees:
-- $572,321 of DSM revenue for the first six months of 2010; and
-- $227,679 of Deferred Revenue as of June 30, 2010 for future services rendered which under GAAP is treated as liability."
++++++++++++++++
$ 572,321 Acapulco, Cozumel, Ixtapa 1H 2010 Revenue
227,679 Acapulco, Cozumel, Ixtapa Deferred Revenue
3,500,000 Environmental Campaign
3,000,000 Legislative Campaign
- - - - - - - -
$7,300,000
= = = = = = = =
A Couple of Questions
I’ve been trying to get up to speed here. Before I bother the company with these questions (and I understand Mr. Rose isn’t too responsive), I wonder if anyone here has answers or insight on any of these subjects.
1. The Series B shares. In the 10Q they show the same earnings (the $359,493) being applied to both the Series A shares and the Series B shares separately, implying that the Series A and Series B are the same thing somehow. I know the Series B is traded in Germany for some reason, but that's all I seem to be able to find out.
2. CCHIT certification. I was impressed with the CCHIT 08 certification and assumed it was the most up-to-date available - until I found that NextGen announced last December that they have a “premarket conditional” 2011 CCHIT certification. Anybody know if MLKNA has applied for that, or is it not applicable to MLKNA??
“NextGen Healthcare Information Systems, Inc., a wholly owned subsidiary of Quality Systems, Inc. (NASDAQ: QSII) and a leading provider of ambulatory healthcare and connectivity solutions, today announced that NextGen® EHR (Electronic Health Record) version 5.6 has earned designation as a premarket conditionally CCHIT Certified® 2011 Ambulatory EHR, additionally certified for Child Health and Cardiovascular Medicine with Advanced Reporting, in the Certification Commission for Health Information Technology’s (CCHIT®) Comprehensive certification program. Also, for the first time ever, CCHIT rated vendors based on “usability” and NextGen EHR version 5.6 received five stars – the organization’s highest rating."
http://www.businesswire.com/news/home/20091217005963/en/NextGen-EHR-Named-CCHIT-Certified%C2%AE-2011-Ambulatory
3. Vision/goal. The company's vision statement seems to indicate that the company is looking for more than just signing up individual physician practices for the EHR application, but is looking to create a database and/or network of some sort. I will continue trying to get a better handle on this myself, but if anybody has anything enlightening on this subject, I would appreciate it.
From the website:
“Our Vision
MedLink International is dedicated to creating the digital backbone for the delivery of enhanced medical services for healthcare professionals worldwide through a suite of network, communication, management, financial and value-added solutions utilizing MedLink Total Office and the MedLink VPN. The MedLink VPN connects the healthcare professionals with vital information and key resources creating efficiencies in order to achieve optimal, real-time delivery of patient information.”
So doctors sign on to MedLink’s Virtual Private Network in order to access information that is somehow more easily accessible through the VPN? Or available only through the VPN? Or...?
Thanks, svenm. Much appreciated.
I think we all realize that the importance of the PwC deal does not lie in the exact price Wave received. But Doma’s number aroused curiosity in some of us, though clearly not all.
dig, no I don't have the whole thing. I just did this part because I was curious.
Statements in WAVX Q1 2010 CC re PwC deal
SKS
AROUND MINUTE 4
With that, I’d also like to talk about an interesting transaction that took place really at the end of Q1. It’s something that we’ve been working on for a significant period of time. We have a large organization that has now deployed Trusted Platform Modules on over 60,000 seats. They are using the technology of the Trusted Platform Module primarily to secure their VPN and wireless access. They’ve actually, we believe at this point, are well over 15,000 to 20,000 seats that are actually using it on a daily basis and the rest are being rolled out.
This is a first step for them to move away from other hardware-based tokens and really leverage the security of their machines. It is one of the largest rollouts of Trusted Platform Modules yet to take place and we’re very pleased that they chose Wave’s software to do it. We have to date provided them with the client-side software to support this. It was a non-Dell account where our client-side software is actually bundled with the machine. So we were paid on a per-unit basis and our billings have been a few hundred thousand dollars so far on this account. They have not yet deployed our enterprise server to manage these. I think it’s a good indication of the capability of just the client application by itself. They themselves are a very sophisticated Public Key Infrastructure company in that they have the tools and capabilities internally to manage the keys, they have been for a number of years. We were able to integrate our client software with their existing server solution, so it provides a very powerful solution. There’s still a very strong opportunity for us to provide them with server sales associated with this account and we continue to work on that progress.
But it is a unique opportunity for showing the value of Trusted Platform Modules to secure the overall enterprise. And I think as they become more public about their actual deployment and are willing to share their results, the return on their investment, the strength of the security that they gained, the fact that only their machines are on their networks are really becoming very powerful capabilities in the market. And we think the other 65 million seats of software that have been deployed should also benefit from – and we believe most of those organizations will not have the same internal skill sets. And so the first step is to go purchase one of our server applications to help them to manage that infrastructure and its deployment.
AROUND MINUTE 20
And so let me just provide one point of clarity, which is that in the consulting firm contract that we’ve done, as I said in the context of my comments that we are supplying client software today, not the full server package. And so today our pricing on that is measured in a few dollars per seat, not yet $50 per seat. Like I said we continue to believe it is a very strong opportunity for our server infrastructure as we move forward. But I just wanted to be clear on that.
AROUND MINUTE 44
Q&A LG
Q. On the 60,000 TPMs that are being activated in the first quarter and now in second quarter, I’m assuming those 60,000 TPMs were from this global accounting and consulting firm? Is that correct?
A. That is correct.
Q. It is?
A. Yes.
Q. OK. And we’re getting how much per for those 60,000? We’re getting like 95 cents or a dollar a TPM?
A. No, we’re getting significantly more than that. But, so lets put it this way, If they had only bought Dell machines then we would have gotten our OEM payment from Dell. The package of software that’s in a Dell client machine is sufficient to accomplish the task. However, they’re not a Dell customer. They are a Lenovo customer, and we replaced the existing Lenovo TPM stack. And that should not be lost on people. That’s a generally interesting fact.
Q. It is.
A. Now we got paid a number of dollars to supply them client software. And they already had a very well-established Public Key Infrastructure, which they chose to use instead of purchasing our server. And they are a rare example of a very sophisticated Public Key Infrastructure IT department. And so were able to use this out of the box, and I think have been pleasantly surprised with how powerful turning on identity in your machine can be, and I think their general reaction is, “Why the heck isn’t everybody doing this?” And so I think they now have a very important next role, which is to help the world to understand, to the extent that they are willing to play that role, that if we want to improve the cybersecurity of the world, we should turn on the security that we already own that’s in our box. Now most organizations will have a hard time with that and will need help, and that’s why Wave builds a server infrastructure that makes it easy to deploy. This is, after all, an industry-standard capability, so now if you want to go through all the gory details. It’s a little bit like Ethernet. That’s an industry standard as well. You can go build your own Ethernet stack. It doesn’t make any sense to do that when you can go buy one off-the-shelf. In this case they happened to have a lot of the parts already on the shelf.
Q. Being a global firm, 60,000 is not the total seats that they have worldwide. It would be a lot more than that, correct?
A. Correct. They are a larger organization than that.
Q, And on a scale of 1 to 10 what would you say is the chance that they will eventually upgrade to the $50 or $60 package?
A. I think the chance is extremely high, the most interesting question is when. Right? I would say in the next six months it’s probably a 50/50 deal. In the next couple of years it’s probably substantially higher than that.
Q. And one last question regarding this thing. When - will they ever let you publicly name their account? Or will the global automobile maker ever allow us to publicize who these accounts are?
A. I think as everybody gets more and more comfortable both with their implementations and the promotion of this that everybody will be much more willing to talk about their brand. but for obvious reasons, this is not about their brand, it is about what we are doing in the marketplace. And so they’re a validation point. We’re working on quite a few of our large customers now to be a little bit more public with their implementations. And I would say we’re making good progress on it.
Q2 2010 CC Transcript
iHub, this is my own work from a publicly-available webcast.
Unclever, maybe you can put this on your site? Sorry it’s not in your precise format.
WAVX Q2 2010 CC
August 9, 2010
Steven Sprague, CEO
Gerry Feeney, CFO
GERRY FEENEY, CFO
Thank you. Good afternoon everyone.
[Safe Harbor statement]
For the second quarter ending June 30, 2010, Wave’s net revenues rose 34% to $6,449,000 compared to the second quarter of 2009 net revenues of $4,798,000. Total billings for the second quarter of 2010 rose 38% to $6,330,000 compared to the second quarter of 2009 total billings of $4,595,000.
As a result of planned investments in the company’s sales and marketing efforts to support OEM partners and related sales opportunities, as well as increased headcount in engineering support services, Wave’s total operating expenses increased to $7,411,000 in the second quarter of 2010, which is up from $5,136,000 in the second quarter of 2009.
The net loss for the second quarter was $967,000 or $.01 per share compared to last year’s second quarter net loss of $344,000 also a loss of $.01 per share. The weighted average number of basic shares outstanding for the second quarters of 2010 and 2009 were approximately 80,303,000 shares and 66,376,000 shares respectively.
To highlight the company’s operational performance, Wave reports EBITDAS, which is a non-GAAP measure defined as earnings before interest, taxes, depreciation, amortization, and stock-based non-cash compensation expense. In the second quarter of 2010 Wave had negative EBITDAS of $53,000 compared to positive EBITDAS of $144,000 for the second quarter of 2009.
Resulting from Wave’s second quarter $1.1 million cash purchase of two U.S. patents, as of June 30, 2010 Wave’s cash declined to $4.5 million compared to $5.1 million on March 31, 2010. And at June 30, 2010 Wave had total current assets of approximately $8.5 million and total current liabilities of $7.1 million, which also included $3.1 million of deferred revenue.
And now Steven will highlight some of the key developments of the second quarter of 2010.
STEVEN SPRAGUE, CEO
Thank you, Gerry, and thank you everybody for joining our call today. We appreciate your time in the middle of the summer.
I’d like to start by chatting a little bit about the progress we’ve made on the OEM front over the course of the last quarter. And let me start by referencing Dell. We are currently engaged in our work on the next generation of security solution on Dell platforms, which will show up sometime in early 2011. We’re very pleased to continue to do the work that we do with Dell and really this just represents a continuation of the work we’ve been doing with them over the last number of years. We’re also pleased to say that we have successfully expanded our relationship with Acer to include their mobile platforms as well, and we expect to see the delivery of those platforms – really first ones should ship before the end of the year. It’s always an interesting challenge in the specific timing as we enter new model relationships as we don’t really have the track record experience with those specific models to predict them accurately, but should be in fourth quarter at least by the end of the year.
We also are – continue to make progress and have accomplished first deliveries with Asus. This represents very small volume today but certainly they’re a large PC manufacturer and we look forward to working with them and helping them with their security solutions and continuing to expand our relationship there. I think the best way to think about our relationship on that front is just very early on in the process and, as anyone who’s been with Wave for a number of years knows, it takes a number of years to develop into the full capacity that’s potential. And it really relies on us keeping our head down and delivering, and we’re really at the early stages of that. So we’re pleased to continue to expand our OEM business. It ultimately helps to drive volume and drive the customer attaches.
We also have good progress on our HP relationship. We’re not bundled with the HP platforms, but we are supplying software through the HP channels. And actually if we look at sort of the last 10,000 seats of enterprise sales, to sort of round out the numbers to look at a random, we’re now over 6%, almost 7% of those seats are now HP channel seats. So we’re starting to make some progress there. Certainly those numbers can come up as we take advantage of the channel distribution of HP.
7
It really represents the early process of the progress that we announced starting last fall where we began to list products and their availability this spring, and we’re now actually seeing a number of customers that are supporting specifically their self-encrypting drives with Wave’s software and management. So we’re very pleased to see that, and look for those numbers to continue to grow over time. Still the vast majority of the revenue that we generate from upgrades comes through our relationship with Dell.
And we do have a number of customers that supply through Lenovo. It’s not as well-organized a channel today. You have to kind of really want it. It requires a lot of energy from the Wave sales force to supply it. We do have a number of customers who are large-scale Lenovo customers who are taking our software today, and we continue to work to make that an easier process and hopefully we’ll continue to make some progress on that both this quarter and next.
So on the OEM side we are very strongly engaged. And we’re making progress, we’re expanding our market share and we’re very pleased to show that. We continue to be in the early stages of Trusted Computing. Many people have these technologies and are really just beginning to learn the power of strong authentication and the capabilities for strong Network Access Control that are part of every PC that’s out there. So we certainly do a lot of work to evangelize it and help train and educate the channels that the OEMs are and can become to really help press these technologies into the marketplace.
So we’re very pleased with the progress on that front and we continue to put a lot of energy into it. Actually as you look at the expense side of our business, we’ve made some pretty substantive investments in growing the team supporting Acer in an effort to support their mobile channel. I think we’ll see significant benefit from that as that volume begins to ship, but you do actually have to build the product before you can deliver it. And so we’re in the midst of that at this point in time.
On the enterprise side, sort of switching gears here, we continue to have good growth on the enterprise side. It’s been an interesting quarter. We had some challenges in the supply chain on encrypted drives in second quarter which I think really probably affected us by a few hundred thousand dollars. With a sort of four to six week period where it was very difficult to gain supply. We’re completely through that at this point and we’re seeing actually pretty good customer volume. The overall sales in the quarter were higher than the previous quarter, which is a good trend to continue to have.
We have a really nicely-forming pipeline. The number of accounts that are over $100,000 in scale has grown very significantly and continues to be a tremendous opportunity for us. It’s really what will drive the revenue in the second half of the year and really help us achieve our targets. We also have and continue to have somewhere between, it’s really between five and ten very large accounts that we are working that we would expect to close before the end of the year. Some of those might take longer. Our experience certainly with the very large accounts is they are hard to predict, the specific timeframes of them.
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If you compare where we are today to where we were a year ago, a year ago we were working two or three large accounts, today we’re working five to ten large accounts. And these are accounts that are in – that have the capacity to be multiple million dollar transactions. And it really depends ultimately on how they order as to how much of that revenue we see booked as revenue and how the transactions actually flow through. We’re very pleased to see these customers are testing the solutions, in many cases they’re negotiating pricing, in some cases they have made decisions and have begun actually procuring machines with drives but have not made the final decision around software solutions. So there are a number in different stages and we continue to add them. So I think that we are definitely seeing a positive motion in the marketplace both around self-encrypting hard drives as well as in the adoption of Trusted Platform Modules.
We referenced actually in our press release for this quarter really two transactions. One is a Big 4 accounting firm. They’re rolling out strong authentication using Trusted Platform Modules. This is something where they’re replacing existing solutions they had in house. They’re very pleased with the benefit of in essence using their laptops as 5-pound tokens. So in the same way that your phone works where you get access to your e-mail and don’t have to type in passwords to a VPN or passwords to access your e-mail, your laptop can work that same way. And so it’s really bringing that mobile or smart phone experience to the PC especially around things like e-mail and corporate access so that your machine is persistently connected in a secure manner back to the corporation. We think that that’s going to continue to be a very broad capability for us in the marketplace. And in essence we have somewhere around 70 million seats out there that are potential upgrade sites for that so it is a tremendous opportunity for us.
This customer has been willing to talk to others and actually hopefully will begin to make a number of presentations about the success that they’ve had in deploying Trusted Computing solutions inside their enterprise and the benefits that they’ve seen from it. So I think that that will really help us in moving the market forward in understanding the capability that’s already in-house.
The other organization is Cass Information Systems. They have deployed self-encrypting hard drives. This is a case where they had an existing software solution and replaced their software solution with hardware-based encryption. They’re very pleased with performance and security capabilities that we bring to them, and I think today are a great reference customer and will continue to be a great reference customer for us. I think that, again, the advantages that today exist around self-encrypting hard drives and the benefits they bring to any enterprise, any large organization that’s out there, really any organization, should be buying their PCs with self-encrypting hard drives as part of the platform.
So we’re making good progress on the enterprise side. I think we continue to wrestle with this challenge of just education in the market that these solutions are there. And I think we’re beginning to see some substantive help. September should be a very interesting timeframe for us. We have a tremendous number of conferences and events that are scheduled. Clearly one of the largest one will be the Trusted Computing Conference that’s being hosted by the NSA. We’re going to have a couple of customers present there. We’re also going to have solutions around things you can buy today, things like VPN security and wireless security, and other capabilities that you can actually put your hands on and procure today and deploy in scale.
And we’re also going to show really some of the cutting edge of integration of Trusted Computing and the Wave solutions and what you can do, and I think it will be an excellent event to not only show the practicality of the solutions in the market today but to clearly demonstrate Wave’s leadership on the technology side. We’ve implemented a number of very cool capabilities that provide I think real return on investment to the enterprise in helping them to secure their equipment in the marketplace today.
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We’re also going to be showing solutions at TSCP, which is the consortium of aerospace companies and how they inter-collaborate and work together across the world on the network and the security solutions. This is still at the demonstration stage for that organization but the goal is for them ultimately to agree to standardize on aspects of Trusted Computing technology. So we’re very pleased to see their interest in that area. And we’ll be showing solutions, as well as one of the big systems integrators is going to hopefully be showing solutions. Their plan is now to come and bring them and show them, so we’re excited to see that.
We have a customer that will be presenting at the Forrester Conference. We’ll be showing at the Intel Developers Forum, some of the advanced capabilities of Trusted Computing technologies as well. And we’re going to be at Network World in Dallas. And that’s just the week of the 14th, 15th, and 16th of September so it will be a busy time. There’s I think a tremendous interest in these technologies now and we’re really working hard to fulfill that. The desire to understand, “How can I leverage the security I already own?” In today’s tough economic times, there’s really no need to spend extra on security when you can leverage the capabilities you already have in your box. And I think we provide a very elegant solution to accomplish that.
So finally wrapping up. There are a number of new product capabilities. We’ve deployed our first beta solutions in demonstration with Smart Cards. We’re also showing beginnings of our enterprise software as a service. And you’ll see more of that from us over the course of the coming quarters. We’re very interested in supporting a solution that reaches down into the smaller enterprise, solutions where they don’t really want to run their own hardware. And so here’s a case where we can provide a very elegant capability to host and manage the infrastructure to support both Trusted Platform Modules and self-encrypting drives securely as a hosted service. And I think that we are in a unique position to provide that. We have – we’ve learned a lot from what the enterprise actually would like to have deployed and we’re taking our existing enterprise infrastructure with some modification and supporting it as a service-based solution in the marketplace. It’s another area where we’re investing quite strongly right now because we think we’ll see very substantive returns as we move to support the sub-000-seat enterprise, many of whom today are not really interested in expanding their own hardware solutions, really their server rooms, and are moving to look to cloud computing as a solution where they can subscribe to a service as opposed to secure a license to a server. And I think we can fill that area quite well.
We also are doing a number of projects around identity, still the most interesting of which is our capability to support Open ID with the Trusted Platform Module. It is a service that is up on the web. Certainly anybody’s welcome to use it and it’s quite effective. There continues to be strong interest from the U.S. government in their deployment of Open ID for government services and we really provide one of the anchor points for proving that those identity credentials are easy to use and not having to have a user ID and password to log on.
And finally I end with that we saw great progress with our eSign division. We had an announcement from one of our partners, Bank of New York Mellon, that they’re leveraging the eSign platform for their document custodial services, and we’re very pleased to provide them. They are one of the leading brands in the industry. And it was a long process for them to select us and deploy this technology. They are at full production capability today. We actually shipped our software to them back just the end of last year and spent the first half of the year in deployment.
That represents for us to date a few hundred thousand dollar licensing opportunity to Wave, and we look forward certainly to supporting them and supporting the industry. In general we provide technology both on a licensing basis as well as a transactional basis. And mortgage is still a very small space in total volume of documents and transactions that are being done, but certainly there’s tremendous value in the transparency that’s brought to the industry by having an electronic mortgages. You can have really very good understanding of where all your documents are, the quality and details of the information that are part of a mortgage and we’re pleased to be right at the forefront of that. I think that again our presence in electronic signature when combined with aspects of Trusted Execution and Trusted Computing and ultimately Identity start to become a very powerful suite of technologies and we’re pleased to be able to provide them.
And so with that I will wrap up. We did also mention in our news release a note from the Gartner Notes, which I’ll let everybody go read, but I think we’re very much in synch with them. They’ve come to the conclusion that most if not all hard drives that will be shipped in five years should be encrypting hard drives, and I think we agree with that. The challenge of course is how fast that ramp is and how much people turn on and manage them. Having a self-encrypting drive without centralized management really doesn’t provide you with the value that you want. If you want to have the ability to prove that your laptop was encrypted when lost, you need to have some form of central management even if you are a company with only one or two machines. Because somebody has to help assert that proof. I think we provide the leading platform in the market to accomplish that and we are making good progress with it.
So overall this has been a good quarter. We’ve seen good growth in the quarter. We’re making great progress. The team is really moving along well and the level of innovation that Wave is involved in and the amount of that innovation that’s now starting to be driven by customers is really quite exceptional. And so it’s been a good quarter for us and I look forward to now answering any questions people have, and we’ll move forward from there. So thank you for your time and I look forward to questions.
Q&A
[Operator instructions]
22:20
RONALD MEYER – REM FINANCIAL
Q. Nice progress for the quarter, Steven.
A. Thank you.
Q. Today I wanted to get a better understanding of what our strategy or strategies are in getting TPMs to be turned on. It’s nice to see the increasing use of self-encrypting devices and increasing sales we’re having for ERAS coupled with our bundling agreement with Dell. And I mean those two business activities are certainly paying the bills and giving Wave steady growth, but the real growth still is – in revenue – is still tied to our goal of getting businesses and government to turn the TPMs on so Wave can provide central management through ERAS. So could you give us a clear picture of how you see this business growing and what is our specific strategy or strategies to get TPMs turned on. For example, when our clients purchase SEDs with the new laptops, we’re providing ERAS to them, and in increasing numbers it sounds like. So it would seem that would provide an increasing opportunity to promote the added value of utilizing the TPM on their PCs for authentication in conjunction with ERAS with not much additional cost if any.
A. Right.
Q. I mean is that part of our strategy? Or what other strategies are we employing?
A. Sure. So I would break our strategy today into two fundamental components. One is very classic blocking and tackling, which is leveraging customers who are turning on their Trusted Platform Modules, using them as case studies to hopefully influence others, building the sort of basic Return On Investment models, showing the benefit of the capability. So really I would consider very classic ground-up set of marketing efforts around that. Certainly you see some of that – having customers stand up and be willing to be counted and ones who have just turned on 100 TPMs is a huge opportunity for us. And we’ve certainly had a number of customers who’ve deployed self-encrypting drives who’ve gone back and turned on their TPMs. Now obviously that doesn’t today generate for us an incremental revenue stream above an beyond, but we have had them provide then references to other customers, so it does help certainly move the process down the pipeline. I think one of the other things that’s important there is on a competitive basis the fact that we have full centralized TPM management gives us a tremendous advantage over the folks out there that are only trying to offer software to support a self-encrypting drive.
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The second front, which in some ways is more visible, is the efforts that we’re trying to do to influence best practices and policy. And in that front you’ve certainly seen – it’s up on our website now – we’ve tried to provide some guidance around really two fundamental policies that we’re pushing quite heavily. One is that only known devices, or only identified devices, should be connected to either sensitive data and sensitive networks. While this sounds simple and obvious it is not a practice that is generally practiced today. So it’s very typical for your administrator of the electric plant to have a VPN to check on the plant over the week-end with a user ID and password that he types in or she types in to access the control systems. Which means if I steal that user ID and password, I can gain access to critical infrastructure. That’s a bad plan. And so we try to point that out as often and as appropriately as possible. And we think that moving down a path of policy that says, “Only known devices connected to sensitive data or sensitive networks” is a very technology neutral way and the huge advantage that Trusted Computing has or Trusted Platform Modules have is that we already have one on 300+ million machines out there. So it’s an inexpensive technology for government and industry to leverage – to do this.
And so we’re having some impact. I think there – we’ll see more of it through the course of the fall. There’s a lot of attention being paid on this and it should not be lost on people that the, for example, NSA decided to rebrand one of their divisions the Trusted Computing Solutions Group. We think that’s great. It helps us. it helps others. Trusted Computing is a vendor-neutral solution and as we are very comfortable in our market share presence in Trusted Computing. If we can get that boat to rise then we will rise with the rising tide hopefully in a much stronger position than others.
And so we’re advocating that in U.S., we’ve done a bunch of work in the U.K., we’ve done a bunch of work in mainland Europe, and I think that that’s an area where it takes longer. We’ve certainly been at it for a number of years. I think finally you’re able to see some of the progress of what has been the last few years of investment in this area. And I mean we’re doing it in the right way, I mean it’s being driven from the standards body, it’s being driven independently from us as a vendor but in a manner where we’re really supporting the concept of a very standard solution being deployed in the market as opposed to, “We’re here from XYZ Company and please buy XYZ software.” I think this is really about changing the architecture. So a little bit of long-winded answer to your question, but that’s I think the two ways that we will drive the conversion of these tens of millions of devices out there that have hardware security in the box.
And I’ll leave one last point. I think there’s another huge help that we have and I think that huge help is the slow but steady progress out of Apple in demonstrating the value of a device-centric model for subscriber management to content and services. When you get an iPad and you log onto content on your iPad you can now actually gain access to all sorts of different stuff without logging in to each individual component. And that concept is completely foreign in the PC planet. And what we really do as Wave is we help build the tools – with others – to support the economic model that is what Apple’s trying to push, but as an open platform for everybody else to play with.
29:30
So that XYZ Corporation – pick a brand, I won’t try to pick a brand – has the ability to have only their services, their users, their devices, their content, their cloud services, on their network. And that’s exactly what iPad has but its completely proprietary to Apple. This way every corporation could have the same thing and you could have participation of more than one on a single PC. So I think that’s a very valuable aspect of these technologies. And we’re – If you look at us tactically, sometimes it’s a little hard to figure out all the pieces moving at the same time. That’s why we play in identity, it’s why we play in data security, it’s why we play in trusted execution. You know, it’s part of the role of TPM. So it’s a very important set of tools that everyone can benefit from. And I think we’re in an okay position at this point in time to be one of the leading providers in this space.
Q. In the same vein, could you comment on the importance of Windows 7 adoption. cause that’s really taking off now, and how that will increase the use of TPMs and then influence the purchase of Wave’s products and management.
A. Sure. So Windows 7 I think is a very important driver in this business for two reasons. One, it’s forcing every organization to re-evaluate what they’re buying on the client side. And so at least they take a moment to look at their laptop and say, “Is this the right laptop we should be buying? Does it have the right features, the right memory, the right price point?” And so it’s been in many cases a very long time, in some cases ten years, since the last time they made the same set of decisions when they purchased Windows XP.
And the skip of Vista has been enormously damaging to this industry at large. And I think we’re watching the resurgence of a complete platform refresh in the enterprise. And that in the past has droven – sorry, driven – new technologies and there’s no question TPM is part of Windows 7 platform. Microsoft leverages it for Bitlocker. It is a core capability there supported by the client and server for a number of key applications. And you’ll see more from us on that front. There are some capabilities in Windows 7, with Microsoft servers, that with Wave software that we’re demonstrating now that are really quite tremendous. I’ll hold off and leave a little bit of surprise for our September conference [?] but we’ll show some very fun pieces.
Q. OK. Last question. Are you pleased with the progress we’re making toward a bundling agreement with HP? And does the management shake-up at HP change the timetable?
A. I have no idea if the management shake-up at HP is going to do anything. I mean what? That news is what? Two days old? It hasn’t figured out how to get three layers down, nevertheless to us. We – I would say we’re pleased with our progress. At the end of the day, as we know and we’ve clearly demonstrated, this is all about revenue. If you want to have an effective relationship with these large OEM partners you need to drive differentiation inside the company. In this case, we’re doing it from the channel side and our partnership there. The more large customers come in and say, “We want Wave software with our self-encrypting drives” the better off it is for us. And I think we’ve got, we’ve gotten some good progress so far. In many aspects we know how important it was three-four four years ago with Dell to have people like U.S. Army mandating TPMs in helping solidify those relationships. We need some of those kinds of events going forward within the context of HP. We’re pleased where it is. It would be fantastic to bring one or two large accounts to ground with HP and show them that we can generate a few million dollars through their channel. That at the end of the day is what gets them to pay attention. So we’re very focused on that. We’re making good progress. It’s all about can we show incremental growth in each one of these pieces and keep everybody happy along the way that they’re getting the right product, the right service, at the right time.
Q. Thanks Steven.
A. Thank you.
JON HICKMAN – MBD CAPITAL GROUP
33:30
Q, Hey, Steve. Could you talk a little bit more about the opex spending and when you might be able to let enough of the revenues drop to the bottom line that we’ll show some profit?
A. Sure. So I would tell you that the way we’re managing it right now is with a couple of different components. One is preserve cash because that’s very important to us. We don’t have a huge amount of cash and we want to make sure that we have a good solid cash position moving forward and growing. Second one is, that we support our customers. And I would say that’s been, over the course of this last four or five month period, an interesting challenge as we bring on a stronger set of requirements on the OEM side both in the demands we’re seeing from Dell and the demands we’re seeing from Acer,r that’s required us to invest. And we’re very pleased to invest in our Dell partnership. It’s been very critical to us and critical to driving our business going forward.
Second side is where we see what I would consider opportunities. So a little bit less customer-specific driven, but completely clear if you put all the investors in a room, you’d make the same decision. And clearly that one is around supporting a managed service for our server as a cloud service so that we can take advantage of the smaller enterprise execution. It’s quite clear to us that that market has shifted from buying boxes, even appliances, and is moving to looking to the cloud almost exclusively. The smaller the company the more they’re looking to the cloud for managed services. And we don’t want to cede that market to somebody else. We have the best platform to leverage from, but it’s not for free to take what has been an enterprise server and convert it to a cloud service. So we’re investing in that, in those two pieces, today. Everything else is a direct investment in sales and marketing, which we continue to grow as the market opportunity grows. You don’t want to get too far out in front of it, but you also don’t want to be chasing it and leaving opportunities on the table.
So, having said that, I think the right thing for us to do is - we’re managing the company for what I would consider fairly high probability growth, and then we’re leaving the larger account transactions to drive the profitability of the organization. So as we bring those larger transactions to ground, that ultimately should drive a growth in revenue that moves the company into the profitability column. We have a number of transactions that will get us there. We’d have liked to have closed an additional one by now. We closed one back in January. That was very helpful to the organization. We’re quite close on a number of them. We don’t have them done yet to announce, but we’re hoping soon. And that will ultimately drive the profitability and, with our fingers crossed appropriately, profitability for the year. So we’ll see, but it will depend on our successful execution with a number of large accounts to do that because we want to continue to maintain our leadership position. This is such a huge market in front of us that fairly low-cost investments today open for us tremendous scope market opportunities based on the technology we already have and we don’t want to get too far behind that and open a vector for significant competition. I think we’ve done a reasonably good job of defending our position so far.
37:30
Q. So. OK. I got a couple of other questions.
A. Sure.
Q. One is, on the mobile side people are estimating that there are going to be five billion smart phones in operation in 2015 or something like that. So do we need your solutions in the smart phone world or are phones already – If I want to connect to a website on my phone, do I need it to be – do I need my phone to have a TPM in it and your software?
A. So long-term, yes. But it’s a much more crowded marketplace today. So we’re functioning from the following assumption: which is if we successfully execute in the PC-based market, where nobody’s paying attention anymore. Right? There’s just 1.5 billion PC’s that we spend more than half our time with, but there’s nobody’s interested in your laptop anymore. Which is nice for us from a competitive perspective because everybody’s worrying about the next Android phone, of which there aren’t that many yet – that we can successfully help the enterprise to understand the tools and infrastructure for data-at-rest in hardware storage. Starts in your hard drive, it will eventually migrate down to just a flash chip-based solution, but you want the same manageability on your flash chip that you want on your centralized hard drive. And so if you have all the hard drive management then it’s very easy for us to incrementally add smaller and smaller devices. And so we’re very interested in that. And we’re actively participating in the conversation around flash-based storage.
Second is TPM. We think that the enterprise would prefer to have their own identities and their own keys, and not rely on the carrier’s identity or the carrier’s keys. And in this case, I would add Apple in as a carrier. That I – the corporation really needs to have its own user identities that they control and manage. Now that’s an area where the jury is completely still out. I think – I fundamentally believe, and we are pursuing the aspect, that the Microsoft/Intel PC market is not going away, and that ten years from now you will still most likely have a laptop on your desk with some big screen attached to it to look at - to have situational awareness of all your data as opposed to trying to run your entire life as well as your job off a 3x4 inch screen. And so if you do that then it’s important for the PC to have a very generic access control mechanism. In history so far of computing, if we put something that’s standardized in the PC, like WiFi, it shows up in 100% of the smart phones. But it started in the PC. Same with your Ethernet port, same with your USB port, etc. We have yet to actually see technologies start to trend the other direction. And so identity is a very complicated one where the carriers actually control the identity inside the device, And in the PC there’s the first ______ open platform for identity.
So I don’t have this issue that Blackberry just had with – where it’s quite entertaining, this issue with Blackberry and the United Arab Emirates – especially when you realize that most PCs have been doing virtual private network services for as long as we can remember, doing basically exactly the same thing as Blackberry handsets are doing, But nobody’s paying attention to that. So I think we’re on the right tact [sic]. We are paying very close attention to mobile, we are by no means ignoring mobile. It’s just that we feel that the standards will get driven by the PC, and that corporate deployment of those standards in scale, the corporation will drive interoperability into the handsets as a requirement.
Q. So do you see, do you ever envision a time, or can you envision a time, where more of your revenues would come from mobile than from the desk or laptops?
A. I really truly don’t know. I think that it’s too early on to understand today. I’m very comfortable trying to go deploy a services-based relationship with 1.5 billion laptops and desktops. Let’s go get that one first. And maybe at the end of the day we end up with a significant role in that marketplace and somebody else does all of mobile. 1.5 billion PCs is still a lot.
Q. Yeah. I know.
A. And so I’m willing to go play in a very proven market where no one else is playing today cause it’s not nearly as sexy cause the thing weighs too much. Other than it weighing too much, it does everything else your smart phone does and does most of them better.
Q. I know [?]
A. Right.
Q. OK. That’s it for me.
A. Thank you.
TIMOTHY COLLINS – SRA
42:50
Q. Hi Steven and Gerry. Congratulations on your quarter. I think that you’re showing really good progress on the Balance Sheet. You’ve got a good-looking balance sheet now. And the P&L is in balance with your needs to grow. And so I really congratulate you and the team for delivering that important…
A. Thank you.
Q. I guess my question is with all the SEDs that are proliferating and with the H&E’s [?] what are corporations doing? If they’re not upgrading with you, how are they – are they getting adequate security by just utilizing what’s at hand? And when will they, when do you think they’ll awaken?
A. Well, I think one of our most interesting marketing challenges and one that we certainly wrestle with on a day-by-day basis, is that we have quite a few customers who we were unable to convince in the first round to go with hardware vs. software, went and deployed software, and then 90 to 180 days later call us back up and go, “Oh my God. This is a nightmare.” And what I think we need to do is we need to clearly and as strongly as possible through our own marketing materials, our own tools that we have, support to the industry analysts and others, help people skip making that first mistake. It is surprising the number of customers that have then come back, and in many cases have now gone on to successfully deploy self-encrypting drives in hardware, and had a very positive experience, you know like, “Why did we ever do that?”
And so we’re trying to highlight that more often now cause I think that that’s what will ultimately get more enterprises more comfortable with these solutions. They still perceive it as very new. And unfortunately for good or for bad their current mode of operation is to buy only established IT, which is a little bit funny because buying – everybody knows you don’t want to buy a five-year-old laptop, but in essence they’re buying in most cases four- or five-year-old architectures. And so this is an introduction of a new emerging technology. I think Gartner’s making the right statement in that five years from now you won’t be able to buy a hard drive without encryption. And so a lot of them will get managed. So you got to go from a market that is still measured in the tens of thousands and get it up to 300 million. And we think there’s growth in the tens of thousands to three hundred million.
Q. Do they have adequate protection by not upgrading, I mean just by implementing the drive itself? Lets say a corporation buys 1.000 notebooks, do they – they certainly can’t control it, the IT manager can’t control it. But do they have any kind of control?
A. So, too many organizations are buying encryption when they should be buying the ability to prove the laptop was encrypted when lost. From a legal perspective there is starting to be a growing amount of evidence out there that many of the solutions where people have bought both software encryption or bought, for example, hard drives that don’t have centralized management, they have an enormously difficult time proving that the device was encrypted when lost. And that’s just a matter of greater sophistication, whether it’s in the accountants or the lawyers or even the regulators. And we have done a fair amount to educate all three. We’ve had a couple of white papers that have been generated. We have one that was put together by a group called Field Fisher in U.K., who are one of the leading attorneys around data protection law, and we’re doing some similar work in U.S., and we’ll actually have a paper published relatively soon which really talks to, “What do I have to do to meet the regulatory requirements? Above and beyond just telling people when I lose data, how do I actually have adequate encryption so I don’t have to tell them because I didn’t actually lose the data?” And so that continues to be a challenge. It is somewhat of a fascinating process to watch as to what people do actually deploy and what they think they’ve done and what they actually have done. And actually you can see it a little bit. If you read press releases about lost devices, you’re now starting to see the terms, “We think it was encrypted” which I always find highly entertaining because that means they spent millions of dollars on buying encryption but didn’t actually achieve the goal, which is proof. And we’ve been focused since Day One on how do you build tools that prove a device is encrypted. And I think we have if not one, we have close to – nearly close to the best solution in the marketplace to achieve that today.
Q. One last question, the conference coming up in September15th I believe, do you consider that a watershed event, or does it have the makings to be a watershed event?
A. Oh, I think it’s a very – I think it will be a very important inflection point for two reasons. One, it never hurts to have a large, very well-respected security organization attaching their brand to Trusted Computing. That’s always a positive event. The second one actually is that we’ll assemble in a room an interesting collection of people, both customers and a number of organizations who’ve built components of these solutions. And I think for the first time it could dawn on a much larger community, I think something that has been very clear to me and to many of the people within Wave for a long time, this stuff is really cool and really, really important to the future of computing. And there’s only so many times where we can say it before the world starts looking at us like, “Oh my God, these people are insane.” Where in reality having that articulated and shown by a collection of other organizations has the potential to wake a few folks up. This is how you build a set-top box for the servicing of all cloud services and all web services for the whole PC installed base. And if it works there it’ll work on all other computing devices. And so there’s tremendous potential in this marketplace, the question is tactically what do you do to execute? And we think it’s about deployment, it’s about providing an effective solution to manage, and leveraging and gaining experience in the enterprise, ultimately bringing that to the internet as a service so that everyone can take advantage of it. And hopefully within the next few years we’ll be looking to how do you expand this beyond enterprise computing and into the entire consumer market as well.
Q. Thank you.
50
DAVID AVITCH
Q. Hi. Steven. I’d just like to follow up with you. On the last conference call you mentioned the government integrators probably being first before the government.
A. Uh-huh.
Q. And then we see at the upcoming Trusted Computing show, looking at the track, it looks like it’s a who’s who of government integrators and of course yourself doing a presentation. What we would like to know is do we expect the integrators to say, “This is just a demo and this is down the line” or could we expect that the government integrators are going to say that they’re starting to deploy Trusted Computing solutions?
A. So I wish I had a crystal ball and I could tell you exactly what they’re going to say in a month’s time. My expectation is that you’ll see a mixture of both. Quite important to the systems integrators is the ability to articulate to the government that they know what they’re doing. And the only way to know what you’re doing is to actually try the stuff. So if somebody went out and said, “OK, great! Here’s a request for proposals to turn on a million TPM’s” who’s going to respond? And based on what information can they make their assumptions, as they’ve not had any real scaled deployments. There have been scaled deployments but that experience base is not in the systems integrators today. And so part of the tools is to help go create that so it makes it easier both to request it and on the other side, easier to supply it. So this is – both sides of the discussion have to get educated, both the customer and the supplier. And I think we’re in an interesting time where people are looking to cut budgets, they’re looking to reduce their spending on IT, but at the same time they want a greater level of service and a greater level of security, and we think the context of using embedded security to provide a tremendous return on that investment and leverage something you already have is an experience we know well. We like the fact that our cell phone works well, and that you just turn it on and it connects to the network. And then it’s been quite interesting to watch other application vendors leverage that capability. That opportunity now exists within the PC and should be broadly leveraged.
Q. Steven, are we any closer to getting a mandatory buy on the government on self-encrypting drives on future consolidated buy programs?
A. Don’t know yet. I mean I think, are we closer, sure. We have seen the self-encrypting drives added as an option for the second year in a row on the consolidated hardware acquisitions programs, specifically the CHESS program. We’ve seen a number of machines that have been ordered under the CHESS program. It is very positive for us that the Wave ERAS client software has met the Netcom’s certification for networthiness so that we have an ability for that software to be mass deployed, and we’ve had that now for. I don’t know, it’s been six-eight months.
And so we’re certainly in a posture to see a much broader adoption. I think that this is part of the goal of the conferences and the education that’s going on within the government, which is “How do we mature towards a greater mandate for Trusted Computing capabilities within the platforms and devices that are being procured?” I think they’ve seen very good response in the past when they’ve done that and it’s something that should be repeated often. So I’ll specifically point to the memo that came out of Office of Secretary of Defense, signed by John Grimes that mandated TPMs back in 2007 on all procured machines in DoD. And that stands as a standing rule today and I think it’s been hugely effective within the enterprise. Now we got to go turn them all on.
Q. Also Steven, at the Shareholders Meeting Robert Thibadeau showed a demo of self-healing on the systems. Could you give us an idea on basically how important that is really going forward for the government adoption?
A. So I think on a short-term basis it’s probably not that critical. One a long term basis what I am demonstrating, and for those of you who have followed Wave for a long time, this is the ability to provide the assurance of trust on a device for the first load of software, and then ultimately for the load and distribution of applications on the client side. It puts us in a very strong position on that front. Certainly some others could go do that. I think we’re uniquely – we’re in a unique position today to provide capability. We’ve certainly extended some of the capabilities we showed there and we’ll show some further steps down that path. I think it’s – the best way I can articulate it is, showing you a little bit of a sneak peek of the future. as we migrate from simple management of TPMs and simple management of self-encrypting drives, what happens when I roll all these pieces together, and is there a long-term role both for revenue and for intellectual property and for the brand that is Wave in the management of these devices. And I’ll stop there. I think we’ll continue to show other pieces of that. So long term, I think it’s very important to us from a revenue perspective and a growth perspective. On a short-term basis I don’t think it’ll make a difference at all.
Q. OK. Thank you.
A. Thank you.
56
DAVID RADFORD
Q. Hello, Steven, It’s David Radford, a private investor in the U.K. Steven, at the beginning of the year you mentioned that Wave was poised for significant growth with both HP and with Acer. I’d like to concentrate on the on HP aspect if I may.
A. Um-hum.
Q. At the start of this conference call you mentioned that Wave wasn’t bundled with HP at present.
A. Um-hum.
Q. And that of the 10,000 seats, something like 6% to 7% were with HP, which suggests something like 600 to 700 seats, which obviously is a start, but it’s on the modest side of things. My question to you is really two parts. When are you now anticipating significant growth with HP? Secondly, could you indicate what you perceive to be a realistic timeframe for a bundling arrangement with HP?
A. So bundling is always the hardest to guess because at the end of the day it reflects against HP’s cycles. There are no specific plans to bundle our solution yet today, and we are offered as an option. We’ve had a number of discussions around aspects of bundling but there certainly are no commitments at this point in time. As far as being provided as an option, so if someone orders an HP platform with a self-encrypting drive they can select Wave software to be supplied by the HP channel. So we are an available stock keeping unit at HP. You can order it through your HP salesman, really click on the box and add the Wave software to your platform.
Having said that, the two steps are both educate the HP channel with the availability of the offering, and to that extent we have people that are directly working on a daily basis inside HP as part of educating their sales force and the people who actually take orders that the capabilities are there. And then we also have customer-facing personnel who are actively out there bringing transactions where the customer says, “Look, I’m an HP customer. I think this is a great solution and I want to add this on everything going forward.” And so we have some – as it’s always been for us, it takes a little while for the traction to get gained. It takes some time for people to actually to pilot it. Does it work? Am I the first customer to ask for this on HP? It took a little while to get through that. And now we’re at a point where I would say there are a few dozen accounts, most of them are small in scale. We have a couple that are much more substantial organizations, one of whom has started to order significant volume. And so the numbers are getting a little more interesting. And that will continue to grow throughout the course of this year.
So if I look even at the course of the last month, the volume number is substantially greater than 6 or 7%. I’m trying to look at it over a longer period of time and say, “OK, now how do I reflect that as it continues to make progress across the next few quarters?” I think that we could close a significant deal with HP tomorrow. We could supply tens of thousands of seats. There’s no capacity limit. So it’s really a question of those customers. We have today I think an interesting and growing pipeline of HP customers, and we’ve only really been at it for about six months. And any of the larger accounts take longer than six months to mature. And we’re certainly just – I would say we’re really just at the beginning of the scale where the HP sales force is out there going, “Hey, that was a cool transaction. I could go do that.” And so we’re actually seeing opportunities that are brought to us by HP that can we go help work hand-in-hand with them to close. It will still take us some time before we have our first transaction where HP closes it and we didn’t know about it.
Q. OK. So in terms of significant growth, it’s fair to say that we’re not going to see very large numbers out of HP this year. Would that be a fair statement?
A. I don’t know that it’s a fair statement, and the reason I say that is very easily I could have a customer who closes next month who could be tens of thousands of seats. Right? And so I would say on a general – if you just looked at the general flow of transactions and you take out the sort of exceptional accounts, we will see HP’s presence continue to grow and reach its normal market share participation on that with Dell over the course of the next year or so. Having said that, you could have a single account that would very dramatically skew the numbers because they’re still – everything is still relatively small numbers today.
Q. Understood. Steven, I’d just like congratulate you on an excellent set of results. Well done.
A. Thank you.
Q. Thank you. Good-bye.
61
JOHN CANGILOSI
Q. Yes, good afternoon, Steven.
A. Good afternoon.
Q. I have a quick question. _____ that we have seen the revenue’s been growing over the past years and _____ for every quarter. Do you see that going on, in the subsequent quarters that the revenues are going to keep increasing?
A. We certainly expect so. I think we’re – the best way to think of the organization right now is it seems to be firing pretty well on most cylinders. We’re making good progress, and the market is growing, the awareness of these technologies is growing, the importance to the OEMs is growing. And we’re at the beginning of an emerging market, so unless we have some outside force that significantly changes the marketplace, I would certainly expect that we’ll see continual growth for as far forward as we can see. And we’re very focused on the top line aspect of that growth today. And as I said earlier, in the prepared comments, in managing our cash side of that.
Having said that, we certainly have an expectation here that at some point there’s a very significant uptick in awareness. So, we do – let me give you a sense of it. We do a Return on Investment calculation for the corporation. If you’re willing to consider some improved performance of your machine as part of that calculation, in that your machine actually runs faster with hardware-based encryption than software, and so therefore there’s a saving in productivity and time – (some people are willing to consider that, others are not; I would argue almost all of us would feel better with a faster computer than with a slower one) – that you can easily define a return on investment that’s in the $3,000 to $4,000 per machine. And that’s a big number. And I think as the enterprise begins to understand that that’s the capability that’s associated with a self-encrypting drive, this thing has the legs to achieve what Gartner is saying, which is five years from now you won’t be able to buy a drive without it. So, again, somehow I gotta go from zero to now a few tens of thousands of units to a few tens of millions of units. And I think we will see – we’re in the right position to see solid growth through that platform.
Q. Right. OK. One last question. If it weren’t for the reverse stock split, where would Wave Systems be today?
A. “If it weren’t for the reverse stock split.” Well, you know I think the challenge with any of those questions is that what level of investment would you want to consider? You can - the reverse stock split was years ago was a 3 to 1 slip, so you can take whatever the share price is and divide by three. And that’s the mathematics of it. The reality is that investment has put us in a position where we sit in front of a very large marketplace and ultimately we believe we can provide a very strong return on investment for everyone. Having said that, the stock’s been up, the stock’s been down over years and there are certainly people who’ve made money and lost money. And I think we’re – we’ve done a perfectly OK job of articulating a clear vision that some have chosen to invest in.
Q. Right. OK. Thank you very much, Steven.
A. Thank you.
RICHARD POTTER – PRIVATE INVESTOR
Q. Congratulations on a good quarter and keep up the good work.
A. Thank you. [Pause] Excellent. I think on that note we’ll wrap up. And again thank you everybody for your time today and we appreciate your interest and if there are any questions I can help try and answer after-the-fact, feel free to e-mail me, my e-mail’s broadly out there, and I look forward to talking to you in a quarter. Thank you.
ou71764, thanks for the response.
ABBOTT VS. QUEST
I don’t say that Abbott will beat Quest to a test or beat Quest to market. I’m saying that I believe that there are PROBABLY NOT TWO SEPARATE clinical trials being conducted, and the likelihood is that both Abbott and Quest are awaiting the results of Phase 2 in the Abbott timeline. Then they can both begin to develop their tests, which presumably will be done separately. (This is all IMO. All Tobin said was that some work would benefit both companies and some work would be done separately.)
As for Phases 3 and 4, all I know about that is what was in the original timeline, which was one month for Phase 3 and four months for Phase 4.
QUEST PAYMENTS
Incidentally, we should also be on the lookout for payment(s) from Quest. This is from my post # 2975 re my conversation with Scott Tobin:
CLINICAL LABORATORY IMPROVEMENT AMENDMENTS
While we were discussing Quest, Mr. Tobin said that about a year and a half ago there was a modification in how CLIA regulations are interpreted. I gather these are regulations (administered at the state level?) that apply to the development of lab-developed tests. Because of that change in interpretation, labs are required to take a role earlier in the development process of tests such as ours.
“Take a role earlier” essentially means “contribute money to the process earlier” so that the lab can establish rights to the test. Because they need to pay for certain things to establish rights, a company such as Quest will want to pay a company such as HDVY earlier in the development process than in the past. Although Mr. Tobin was NOT saying that money will be coming soon from Quest, he was saying that it can be expected sooner in the development process than in the past (and should be received prior to final development of the test). He said we should “stay tuned” re receipt of money from Quest.