AI
Saturday, March 13, 2010 9:37:43 PM
Q4 Transcript thanks to Unclevername:
http://www.unclever.com/wavx/
4Q09 conference call, 03/11/10
Jerry Feeney, CFO: Thank you. Good afternoon everyone. [Safe Harbor][Review of Press Release]
Steven Sprague, CEO: Thank you, Jerry and thank you everybody for joining the call today.
I'm going to, in the course of my comments, cover our OEM business relationships, our upgrades, and enterprise business as well as some of the work that's going on in the government and then a couple of additional projects. So, let me start with our OEM business.
First, the Dell volumes are continuing to grow. I think we are seeing a very healthy recovery. I think we're seeing it very much in line with what a number of the analysts in the marketplace have been saying about the PC business growing. And certainly it appears as though that will continue to grow throughout the course of this calendar year. So, we're seeing good adoption of the platforms and the features that are on the platforms.
We're very excited today in our Dell relationship in that we are expecting very soon the launch of their next generation platform. I think you'll be impressed with the number of key features around security. Wave continues to deliver enhanced capabilities to the Dell platforms. I think we will show some of the strongest pre-boot management in the industry for strong authentication and management of the platforms, as well as some of the best enterprise recovery tools for data encryption in the marketplace today. So, we're really looking forward to the launch of those features. It's been a lengthy project bringing them to market. We expect that over the course of the next quarter.
And as usual any time there's a new launch of a platform, it is a great opportunity to continue to educate the customer base on the capabilities for data encryption that are in the box, as we ship factory integrated by the manufacturer as part of the core platform. So, when you use the core security features of Dell platform for biometrics, for your self encrypting drives, etc. those tools are today provided by Wave.
We also in the course of the last quarter have continued to expand a number of projects with Dell as a partner, both on new platforms and new features going forward. And we're very excited about the work that we're beginning to engage on that really represents what we'll see in platforms in 2011.
We also began in the fourth quarter, our first distribution in the Middle East. So that work is underway. We now ship in a variety of different languages around the world. As Jerry mentioned, globalization expenses or really translation expenses are a significant event for us, really in the last few months before any deliverable. And we now are shipping in 30 different languages on a worldwide basis.
So, we're very pleased with our Dell relationship. It is strong and continuing to grow and making great progress.
In the fourth quarter, we also signed a distribution agreement with Hewlett-Packard to resell our product. That contract has been signed. Our products are available across the Hewlett-Packard line. This is a case where when you order a new PC you can ask for a self-encrypting drive with the Wave software. They can directly supply it in a single contract, on a single purchase order.
We look to continue to add additional products. Today, we're focused on both the enterprise server and the self-encrypting drive supporter or what we call Trusted Drive Manager. We have already closed business contracts with HP customers in this quarter. So, we're very pleased with that. It's an area you will see us continue to invest in during the course of this year. If we're going to successfully build HP to a significant contributor in revenue, it takes resources to do that, both in training the reseller channel, in marketing resources, as well as in just the people internally working on a day-to-day basis with HP to make sure the process goes smoothly.
So far that project has been going very well. I think both HP and Wave are very pleased with the progress we've been able to make so far, over the course of the last really 90 days or so. And we're excited about the opportunities for it in the future. Clearly, one of our goals in 2010 is to bundle our software directly with HP platforms and we look forward to that. I think that there are a number of customers who would like to see a factory integrated solution. And certainly we are very interested in that happening as well. Ultimately, customer demand is going to drive that requirement, and I think we're showing that customer demand to HP today.
We continue to make good progress with Acer. Their volumes are up. We just extended our contract with them. They're now offering our server product, our EMBASSY Remote Administration Server available through their channels to help manage the Acer platforms. We continue to supply their desktop line of equipment, and we're working to expand that business into their laptop line of equipment. I would say that those discussions are going very well, but it is certainly not a completed process yet. So, we're excited about the opportunity that Acer brings to us. We clearly recognize that their expansion into a broader enterprise role or at least their desire to expand into a broader enterprise role is very beneficial for us, and we look ford to supporting them in that.
We also support Lenovo and Intel. Both of those platforms are, as well, are providing good distribution today. We have existing customers on Lenovo platforms. We continue to ship with Intel, where we're integrated in essence on a CD when they supply motherboards, for those who aren't aware of our direct international relationship. And we continue to see opportunities with other OEMs in the marketplace.
So, I think the inclusion of self-encrypting drive is something we'll continue to see expand within the OEM channel.
[Silence]
Operator: Mr. Sprague, I do apologize. We're unable to hear you at this moment.
SKS: I'm sorry, the operator just came in.
Operator: Yes Sir, I do apologize, we were unable to hear you for a few moments, but I can hear you now. Thank you.
SKS: Okay, I'm sorry. So, I'll just step back a second and say, let me just come back to - we continue to have an offering with Lenovo today. It is very much a case by case business, where a customer who is ordering a Lenovo platform can get the Wave software included. And we have a number of Lenovo customers who are including the Wave software. I would say you have to be pretty organized to order it through Lenovo. And we work to continue to expand that relationship. Today, we continue to be bundled with Intel platforms in the marketplace.
And ultimately, we see a number of other opportunities within the Asian market. And we have really a number of discussions that are going on. So we hope to expand the number of companies that are including self-encrypting drives on their products today in the marketplace.
So let me change gears and talk a little bit about the upgrade business. As most people are aware, we closed the largest transaction in Wave's history in the $5.7 million deal we did with a large automotive manufacturer. As Jerry mentioned in his comments, we have received already our $1.9 million that was billed in late December. That will really drive us to the first cash flow positive quarter from operations for first quarter. So we're very excited about that. It really has been a tremendous quarter and really a tremendous end to the last year.
The installation for that customer has gone very well. It has required significant resources from Wave in both the support of closing the customer in the end of December and in the work we've done over the course of the last couple months in helping in the actual delivery and integration and deployment of our server and the work with their internal teams. So, I think we're reaching a point where the sort of basic delivery process is done. It's allowing us to point some of that resource back to other opportunities in the market. This has been a very significant transaction for us. And we're very pleased with how well it's gone. I think the customer has also been very pleased with how Wave has supported.
We were paid to do customization of our products for them. That's customization we'll be able to provide to others as well. So, that work has been delivered and completed. So, I think we're in a very solid position. The new challenge with any software company is that you bring on a really large customer. There are always new things that you discover. And I think that we've been very pleased with how it's gone so far. So, we look forward to the next stage which is really rollout of the technology to the end users. And we're very excited about that. I mean, the goal is to ship on over 30,000 seats this year and that's a significant step for us.
We've had a number of other significant customers that are out there. We now have case studies that have been done on both Mazda and a European customer, VEGA Deutscheland. Both of those are customers who have now deployed encrypted drives. They're very please with their operations. They continue to buy additional units.
I think that's an important context, here is that, in many cases, we won't see the same kind of transaction that we saw at the large automotive manufacturer. There are certainly others where we'll get a large prepaid order at the front end of a transaction.
We have quite a few of multiple tens of thousands of seat customers today who are standardizing on the technology either in a division or across the whole organization, that have bought a 1,000 or 2,000 seats so far and will be great recurring business as they buy new computers into their organization. So in essence, as they procure new machines, they're buying those machines with encrypted hard drives bundled in the computer and we see a recurring revenue stream that's not only the OEM fee we get from bundling software in the computer and the dollars we get for the upgrade of the encrypted drive but then the enterprise server dollars. So, in general, we are seeing well into the $60 to $70 per machine to Wave in revenue. And so we're very pleased with how those rollouts are going. And I would say the pipeline is very strong.
We've brought on a number of new, large accounts. Many of them are testing the software today. We have a couple that have already begun the process of procuring drives although they have not signed contracts with us for the server product. It's always great when they are buying the drives in sort of anticipation of closing a contract with us on the manageability of the drives. And we really are across industry. We have customers in the health care industry, like CBI Health and Boston Medical and Blue Cross Blue Shield, and all the way to the food industry like Acher Daniels Midland. So, those customers ultimately help convince the next tier of customers to sign on, etc.
So, the upgrade business is going quite well. It continues to be a challenge. We have gone from 1% of new laptops with encrypted drives to now over 2.5% of encrypted drives shipping on laptops. We'd love to see that number significantly higher. I think that our objective over the course of the year is to see it at well over 5%. We think that's very achievable and really drives the business towards doubling the business, having the same 100% growth we had last year into this year.
The challenge for us is that at some point in time, we'll go from a few percentage points of machines shipping with encrypted drives to the vast majority of machines shipping with encrypted drives. That's been a very typical PC industry curve. The challeng, of course, is predicting exactly where the knee of that curve is.
So, we're clearly in a very strong growth phase of drive adoption, but if you look forward and say two or three years from now, you might end up with half of all machines with encrypted drives. Clearly, the growth is going to accelerate at some point in time. There's no question that buying a computer with a self-encrypting drive provides the best data protection available in the marketplace today. We fundamentally believe it will become a standard really across all machines being procured.
From a competitive prospective, mostly we see software full disc encryption as a competitor. We very very seldom see any of our competitors who offer hardwar- based support in the marketplace. We have an enormous advantage being built-in in the factory. Every time you order a self-encrypting drive from Dell, our software comes bundled with the machine. And that's a tremendous value for us. If you want to procure someone else's software to manage a drive, then you have to delete our software first and deploy theirs. So, we really have a great first shot at every customer. And really gives us a tremendous advantage, especially supporting it in multiple languages on a worldwide basis. We have customers, for example, like Acher Daniels Midland, who has deployed it worldwide, and they support it today in multiple languages, and it's very helpful for them.
Finally, let me talk a little bit about the government side. This has been a very interesting quarter from a government perspective. Not only did we sign a new contract for work within the government. It's a $1.6 million plus deal, and we've already made some of our first deliverables this quarter. If you look from a revenue perspective actually that was one of the areas where in the fourth quarter there was, I don't know that there was any contribution really from the government work that we've been doing, because we finished most of the work in the third quarter. And we've really just begun the full effect of this contract in first quarter. So, we are underway, building a number of components. We're very pleased to be doing that. It's a tremendous piece of business for us.
We see today broad based adoption of the Trusted Computing base as part of the security for the Defense Department and for a number of the federal agencies. And it's becoming clearer and clearer every day to the broader marketplace that that is the case. So a lot of the work that the government has been doing in what's known in the industry as Trusted Execution is all based on the Trusted Platform Module being in a machine. And so, Wave has a tremendous opportunity there. We've been in the government marketplace with Trusted Platform Modules and self-encrypting drives, for now a number of years, and we'll see the adoption in machine identity, the need for the Trusted Platform Module to hold keys for Microsoft applications, and as the core root of trust for Trusted Execution.
People will see those terms used, Trusted Execution, in some cases Trusted Execution is now branded by NSA as High Assurance Platform. They're relatively interchangeable. There's a fair amount of information on the web about High Assurance Platform and its use of the Trusted Platform Module underpinning it. So, many forces are coming together in the industry from Intel shipping their new chip sets, which have support for the Trusted Execution components, the TPM being broadly available, the government work clearly being articulated in the marketplace as requiring it. Wave has some interesting advantages as well. We just recently received our certificate of net worthiness for our EMBASSY Trust Suite, which allows us to deploy across all government machines. That's a very important sort of next step of certification for us, and we're very excited to see that. So, that really opens the door for us to deploy our technology as a standard capability to manage the Trusted Platform Module. And I think we're in a unique position in that marketplace today.
The challenge of course with the government is when are they actually going to order something in any scale? We certainly have many individual groups within the government today as customers. We've shipped thousands of copies of software within the government realm so far. But ultimately, this is about turning on the Trusted Platform Module across the four or five million machines within the federal space. So, it's a huge opportunity for us. We continue to invest in it. I think we will see significant tangible progress over the course of this year. It's certainly in some days been a little bit like watching paint dry, but the adoption of TPM across the entire federal space I think is going very well.
So finally, let me just touch on two last pieces. We continue to explore the use of Trusted Platform Modules for strong identity. We have a service that's up on the web called id.wave.com. We're just about to launch a next version of the service. You'll see it most likely before the first of April. It will continue to be a beta service. We learned a lot from watching our first beta service about how the web is going to interact with Trusted Platform Modules. It has been extremely useful. This version actually meets all the open identity for open government initiatives. So we're going through our ICAM certification. What that means is that the government is agreeing to allow third party identity credentials to log you on to a bunch of government sites. And so our service will meet the requirements to do that.
So, you'll be able to use your Trusted Platform Module to go get your camping license or something along those lines. Any government website that is out there should support OpenID credentials, and from a variety of providers, and we'll be one of them. And this provides a very secure logon to whether it's something like Google APPs or salesforce.com, where I have no passwords. I log into my machine with its trusted drive. It unlocks my platform. My TPM secures my credentials to log me onto the web and it automatically connects me to Google apps or Sales force or any of the ID sites that are out there. We think that really begins to show a paradigm where your PC can start to look like in ways your smart phone works. I log into my device; my device logs me into the rest of the world.
It's still a beta site. We clearly know that there's additional work to be done. It's not something that is yet really ready for strong marketing. Anybody is welcome to test it. I would suggest that you wait pr'y until after the first of April. But, if you have a computer with a Trusted Platform Module, it will work. And you can begin to get a sense of what it would be like. Clearly, one of the tasks is more of the websites are going to have to promote how you go in and do this. It's a little complicated in some cases to figure out how it all works.
And on a final note, our eSign team in fourth quarter they received their MERS certification for servicing mortgage transactions. So, this is electronic signing and storing of mortgages. Our customer Xerox is now holding 30,000 E mortgages or E notes on our servers. So, we're very pleased this thing is up and operational. This provides really great document integrity. And as you see signatures being used, you can understand why all of us would want to use this.
And we are pleased to see our first medical application has gone live this quarter with the signing of supplemental medical insurance forms for Medicaid from one of the insurance providers. So anybody with e-mail can actually go in and fill out their paperwork. You don't need a fax. You don't need a physical signature. You can sign it purely electronically and really makes for a much easier to process and easier to use transaction. So, with that, I will stop my prepared comments and we'll open it up for questions. And I'll answer questions for awhile and see where we go. Thank you.
QUESTIONS AND ANSWERS
Timothy Collins, Security Research Associates: Steven, Jerry, Wave team, congratulations. You've beat every metric and met goals that I didn't know that you could reach that quickly. So I really congratulate you.
SKS: Thank you, Tim.
Collins: I think the one area that I would like to just have you add some color on is marketing. And I just wondered if you could give us the plan. I'm delighted to hear that you're bolstering the sales force.
I mean, I think that you have an immense order from the big three. I know that there are other immense orders out there. And so I know that you're going to do everything you can to capitalize on it. But I think for this year, last year was the year of getting your affairs in order, and this is the year of upgrades. And so how are you, can you just give us color about how you're going to go about improving the marketing and bringing this message across?
SKS: Sure. I would say we're approaching it from a variety of fronts because this is an emerging market, so there's not necessarily a clearly defined path. And these range from how do I continue to educate my OEM sales channel, because they are obviously the front line in this.
Where we want to go is where somebody is out buying new machines because they are a great hot target. And I would say we're getting very good cooperation from our partners. We have an understanding of who's bought drives. We are able to market to those people who bought drives. And that whole relationship is much smoother and better today than it was 12 months ago and better then than it was 12 months before.
The second is just creating awareness. We find that a number of small events, especially in industry verticals have the best collection of customers. We were at one yesterday in New York City where we had 400 or 500 people and were able to collect well over 50 new customer leads within the event. And they give us the list of all the people there. And across the board, people are interested in understanding how they're going to secure their machines and what are the benefits of encrypted hard drives.
I would say the third area is that we are investing in just educational materials in the market. So, one of them is we help to sponsor a report by Trusted Strategies on the performance of self-encrypting drives versus software based encryption to just show how much better a solution a self -encrypting drive is. For anybody out there who is carrying a software base encryption product, you know that it feels like it slows down your machine and it does. And this really took that from a sort of general sense and put numbers to it and said, 'Here's why this technology is better.'
We're in the process right now of doing some work on the legal front. Because I think that many people are out there buying encryption, which, while an interesting thing, isn't really the right thing to buy. What you want to buy is the proof that your laptop was encrypted when you lose it. And I think that's one of the tremendous challenges, is helping to explain both to the IT Department and to the legal and audit teams, really your CEO and CFO, that there are enormous benefits to buying a hard drive versus buying software based encryption, when it comes to the other side of the equation, which is. 'OK now I lost a computer, how do I actually prove that it was encrypted?' And we have a tremendous advantage on that front. So, we're trying to provide some the legal backup and legal work to that that helps customers to understand and have thought through some of the challenges on that front. We find in general most of the customers out there are still just going 'Oh, my God, I just want to know it was encrypted.' Or I want to hope it was encrypted. In reality, what they really need to do is know that it was encrypted.
So I would say those are the three core efforts. And in a very lightweight way is how can we help to participate, communicate, and influence the standards and/or regulations where possible to clearly articulate the needs that are in our benefit? And so lobbying would be too strong a term. I would say medium weight influence is the right pay to accomplish it. So where possible we'll provide our expertise and input and commentary, when it's an opportunity to comment.
Collins: All right. Thanks. I guess one question that's probablyweighing on everyone's mind is that you appear to have reached financial stability. And so I think everyone would like to know what are your plans for raising capital? And how do you see the future of the financial progress of the Company?
SKS: We have no short term plans for raising capital. We're very pleased that Q1 will definitely be our first quarter where we are cash flow positive from operations in the history of the Company. And we certainly hope that subsequent quarters will be as well.
I would say on a short term basis, there's no immediate need for cash. Obviously, there are lots of things in the new emerging market that can change that position. And I think all of those are from the positive side, not the negative side. And so we're certainly paying attention to the market, making sure the Company is in a very good and stable position on that front. But right now, there's no short term plans.
Collins: Thank you, Steven.
SKS: Thank you.
Robert Eisler, Private Investor: Hi Steven. I had a question. I think earlier in the call you mentioned that for the large auto account there was a significant amount of resources and manpower needed to get it up and running. Is this going to be the case like whenever you have a large account that a significant amount of your resources will have to be diverted toward it? Or as you go forward, it will be less and less? Just wanted to get a read on that.
SKS: I would say two comments to it.
One is this is the largest transaction we've ever done. You don't want to under-resource it.
Is it an exceptional transaction? At this moment in time it's an exceptional transaction. I don't think that we had any significant unforeseen challenges. I think actually the implementation went very much as expected.
Could we have done it with less resource then we actually applied? Probably, yes.
Should we have? No, not at all. We should have done exactly what we did which is assure we had more than enough hands and feet directed at the problem to be successful in our implementation. Because it's important for the largest customer you've had in the market place.
We are definitely getting much more efficient in our implementations just in general. We've learned a lot from our couple hundred customers. We've built those capabilities into our product. And it's one of the enormous advantages we have.
If we look at the product just in the course of the last 12 months, the amount of input that has come from real world customers that has now found its way into the code that is moving this industry forward is tremendous. And as we launch our new products, we'll highlight those features in more detail. But, they're better auditing; they're better manageability; they're greater depth in manageability in the product and much greater flexibility for the enterprise customer. So, it makes it easier to manage and deploy and to achieve their goal which is how do I set this up and forget it.
Eisler: That sounds good. And one follow-up question regarding expenses, 2009 expenses full year I think you said was $22 million. As you ramp up revenues, do you have a sense of what expenses might be for the current year?
SKS: I think it's hard to guess to a specific number. The vast majority of our investment today is in resources around growing our sales and marketing channel, adding additional salespeople, and support of now not just one very large OEM but a second one. And we're clearly at the front edge of getting HP to a point where it will cover the full cost of the people that are supporting HP.
Having said that, the reason I hesitate a little is that we see a number of projects in front of us that could be significant non-recurring engineering and development type projects, where we'll get paid and we'll staff the people against that. And those are obviously lower margin opportunities, but pretty much across the board they build intellectual property for the Company that then we get to use and resell to others. So we are very pleased to go do those and look to expand that amount of work that we are doing. And it's very typical especially within the government arena that projects are done on both purchase of software as well as on a time and materials basis to develop things. So I think we'll see growth on both sides.
We're at the front edge of a very large marketplace. And Wave has a significant presence in a number of those areas. You just look at the context today of Trusted Execution and the Trusted Computing base around TPMs and boy the world is just starting to wake up. We have been waiting for a really long time for this, and there's no question. The fact that the level of dialog that TPMs are being talked about in the RSA key note speeches is not to be underestimated.
Eisler: Okay. Thanks a lot and again congratulations on the progress that seems to be growing each day.
SKS: Thank you.
John Cangalosi, Private Investor: Good afternoon, Steven.
SKS: Good afternoon.
Cangalosi: I happened to call in and I was connected to the wrong conference call, so I missed the financial results. Can you just briefly tell me how the results, the revenues and the net income?
SKS: So we can certainly repeat them. I think that the best thing to do is just go download the press release which has all of the numbers in it. Jerry maybe you can just highlight the top two or three numbers if you'd like.
Cangalosi: You don't have to elaborate on the entire thing. Just give me the revenue and as I said the net income for the quarter.
Feeney: Right. So you can get this at Wave.com. Revenues for the fourth quarter are $5.2 million. Net loss for the quarter: $1 million. Net revenues for the year: $18.9 million. Net loss: $3.3 million.
Cangalosi: All right, good. And my question: I understand that you're doing business with IBM and Samsung and Acer. Does Wave have any interconnection with the semiconductor industry? Doing business with any of the semiconductor companies?
SKS: So we support the Trusted Platform Module chip. And we have contractual relationships with ST Micro, Broadcom, Windbond who has a new name now. And we support all of the different chip manufacturers within the PC space. We also directly support a number of the PC disk drive manufacturers. Seagate, Samsung, Toshiba, Fujitsu, and others.
Cangalosi: Good. That's it. I don't have any more questions today. Thank you very much.
SKS: Thank you.
Ronald Meyer, Private Investor: My congratulations as well on the progress Steven. It also appears that you're making significant progress to getting the industry to finally accept hardware security over software and now the recent Chinese threat to Google has brought cyber security to the forefront. So my question is really with that recent Google announcement at the RSA conference that their Netbook products for consumer and business versions will be shipping the TPMs installed for security. What opportunity may that present to Wave for future growth?
SKS: I think there are two opportunities there. Just the simplistic, without trying to guess whether Google will sell more than one or two Netbooks or not, right? As a new entry, it's impossible to know how many machines they'll move. The reality is that having Trusted Execution as part of that brand and the perception that that is a key technology can't be overstated. I think it is, we'll look back at it as one of the significant steps forward in the industry.
Understand that that articulation is exactly what is being built across the entire federal space. With, I would say, a slightly higher level of security within the federal space, so I think their science project is more sophisticated, for the sure. But ultimately, these are technologies that every single one of us wants to use.
The government will tell you that the technology is how do I use classified and unclassified networks? The reality is in a consumer platform, is how do I support applications from two different vendors and I don't want them to interfere with each other. It can be as simple as I want to watch videos and know that no viruses that are contained in the video are going to affect my e-mail. So that level of isolation is tremendously valuable. It's based on the Trusted Platform Module. And I think the core message to take away from is no one is articulating an alternate scheme, no one. So, if you're going to do Trusted Execution, it's being based on the Trusted Platform Module.
And so, that's the goal. Is how do we get everybody on the planet to turn their Trusted Platform Module off? [ON? – unc] And that's where the installed base of software where we're well into the 60s of millions of copies of software having been shipped becomes an asset that is not to be just ignored. The upgrading of all of those machines and generating, as we've been saying, north of $50 a seat for Wave for each upgrade, that's where the real opportunity is.
And so I think we've built a lot of the right tools. I think that we continue to have our R&D dollars, the research part of our R&D dollars in things like, how do I use my TPM to logon to Google APPS. Perfect. There's a right down the middle of the bowling lane aspect. And, as I said before, we may or may not end up be a significant identity provider. If all we do is teach people how to turn their TPM on, we can be hugely successful on that front. So don't under-estimate my desire to launch id.wave.com as a huge commercial service. It's having a tremendous effect for us in what we do.
Meyer: This whole thing sounds positive. Could you comment a bit on how Wave might benefit from NHS commercial solutions plans to use the commercial off-the-shelf SED and TPM management products for their High Assurance Platform software distribution.
SKS: So we were about to go tell the world fairly broadly about our role there within the government's HAP conference which then got pushed out until the fall time frame. So, I'll say a little bit instead of making everyone wait for six months. So, there are a couple of things that I think are very simple.
One is that if a computer is going to run multiple operating systems, then really the only way to do data at rest security is to have the data rest security done below the operating systems or in the hardware. And so we think self-encrypting drives is a logical component to the platform and we think can drive tremendous value. Because it's just running independent of what operating system or operating systems you're running on the platform. We think we can have a very valuable role there.
And as I said before, all of these platforms are based on the use of the commercial off-the-shelf Trusted Platform Module. And Wave has the leading software today to do Enterprise management of the TPM. So, we think we're in a strong position to participate. I will say that this is an area where lots of interesting science, lots of very, very cool projects, even some small amounts of revenue, but if you looked at the total deployment of Trusted Execution environments today, it's still a very small number.
The goal is how do we take that capability that's been pioneered for use in our government and military networks and use it on our consumer PCs, to help secure us on our day-to-day activities? We believe we can play an enormous role in that process. So that's where our focus is. I think that we bring an interesting piece to the puzzle as do many other companies. This is not a solution that's going to be done by any one single company and anybody that says they have the whole thing they have the whole thing wrapped up. This is going to be a multi-vendor solution to achieve. We'll bring our expertise in TMP management, the hardware management, the self-encrypting drive management, some of the ancient history that Wave has had in trusted application distribution really benefits us in this space.
Meyer: Looks promising. Last question. Concerning growth for if first quarter since we had a couple of months gone by compared to the fourth quarter. Let's for comparison purpose take out the $1.9 million that fourth quarter, the auto deal, and just compare fourth quarter billings to what's happening this first quarter. And do you see at least 20% growth in first quarter billings over the fourth quarter?
SKS: So I'd love to give a straight forward answer on it. But let me just tell you that such an enormous component of my business is the OEM side and I only know one-third of the data. So even though I only have a few weeks left in the quarter, the only thing I know is January's numbers. January's numbers were good. But, without knowing what February and March's numbers are, plus or minus a few hundred thousand dollars there, which is easily achievable, tends to weigh it one way or the other.
I think that it's important for us to not try and project yet where we just don't know the answer. I do believe we'll get much more accurate with this in time, because so many of our customers are reordering equipment. So customers we signed a year ago are buying more machines today for this year's supply. As that continues to grow, the percentage contribution of new customers will be less because the older customer continue a very strong recurring stream. And I think that that will really help sustain Wave and give us much better predictability. I think we're pleased with how Q1 is forming up.
Meyer: Okay. Great. Thanks, Steven.
SKS: Great. Well, thank you everybody for your time today. Hopefully, we look forward to talking to you in the future. I know that Jerry Feeney and Brian Burger will be at the Roth conference next week. So, if anybody is out in L.A going to the Roth conference, they can certainly see them there. And I'm missing that one. I'm actually taking a few days off on vacation. And I look forward to talking to everybody at the end of Q1 which we should do probably in the first week of May. Thank you very much.
http://www.unclever.com/wavx/
4Q09 conference call, 03/11/10
Jerry Feeney, CFO: Thank you. Good afternoon everyone. [Safe Harbor][Review of Press Release]
Steven Sprague, CEO: Thank you, Jerry and thank you everybody for joining the call today.
I'm going to, in the course of my comments, cover our OEM business relationships, our upgrades, and enterprise business as well as some of the work that's going on in the government and then a couple of additional projects. So, let me start with our OEM business.
First, the Dell volumes are continuing to grow. I think we are seeing a very healthy recovery. I think we're seeing it very much in line with what a number of the analysts in the marketplace have been saying about the PC business growing. And certainly it appears as though that will continue to grow throughout the course of this calendar year. So, we're seeing good adoption of the platforms and the features that are on the platforms.
We're very excited today in our Dell relationship in that we are expecting very soon the launch of their next generation platform. I think you'll be impressed with the number of key features around security. Wave continues to deliver enhanced capabilities to the Dell platforms. I think we will show some of the strongest pre-boot management in the industry for strong authentication and management of the platforms, as well as some of the best enterprise recovery tools for data encryption in the marketplace today. So, we're really looking forward to the launch of those features. It's been a lengthy project bringing them to market. We expect that over the course of the next quarter.
And as usual any time there's a new launch of a platform, it is a great opportunity to continue to educate the customer base on the capabilities for data encryption that are in the box, as we ship factory integrated by the manufacturer as part of the core platform. So, when you use the core security features of Dell platform for biometrics, for your self encrypting drives, etc. those tools are today provided by Wave.
We also in the course of the last quarter have continued to expand a number of projects with Dell as a partner, both on new platforms and new features going forward. And we're very excited about the work that we're beginning to engage on that really represents what we'll see in platforms in 2011.
We also began in the fourth quarter, our first distribution in the Middle East. So that work is underway. We now ship in a variety of different languages around the world. As Jerry mentioned, globalization expenses or really translation expenses are a significant event for us, really in the last few months before any deliverable. And we now are shipping in 30 different languages on a worldwide basis.
So, we're very pleased with our Dell relationship. It is strong and continuing to grow and making great progress.
In the fourth quarter, we also signed a distribution agreement with Hewlett-Packard to resell our product. That contract has been signed. Our products are available across the Hewlett-Packard line. This is a case where when you order a new PC you can ask for a self-encrypting drive with the Wave software. They can directly supply it in a single contract, on a single purchase order.
We look to continue to add additional products. Today, we're focused on both the enterprise server and the self-encrypting drive supporter or what we call Trusted Drive Manager. We have already closed business contracts with HP customers in this quarter. So, we're very pleased with that. It's an area you will see us continue to invest in during the course of this year. If we're going to successfully build HP to a significant contributor in revenue, it takes resources to do that, both in training the reseller channel, in marketing resources, as well as in just the people internally working on a day-to-day basis with HP to make sure the process goes smoothly.
So far that project has been going very well. I think both HP and Wave are very pleased with the progress we've been able to make so far, over the course of the last really 90 days or so. And we're excited about the opportunities for it in the future. Clearly, one of our goals in 2010 is to bundle our software directly with HP platforms and we look forward to that. I think that there are a number of customers who would like to see a factory integrated solution. And certainly we are very interested in that happening as well. Ultimately, customer demand is going to drive that requirement, and I think we're showing that customer demand to HP today.
We continue to make good progress with Acer. Their volumes are up. We just extended our contract with them. They're now offering our server product, our EMBASSY Remote Administration Server available through their channels to help manage the Acer platforms. We continue to supply their desktop line of equipment, and we're working to expand that business into their laptop line of equipment. I would say that those discussions are going very well, but it is certainly not a completed process yet. So, we're excited about the opportunity that Acer brings to us. We clearly recognize that their expansion into a broader enterprise role or at least their desire to expand into a broader enterprise role is very beneficial for us, and we look ford to supporting them in that.
We also support Lenovo and Intel. Both of those platforms are, as well, are providing good distribution today. We have existing customers on Lenovo platforms. We continue to ship with Intel, where we're integrated in essence on a CD when they supply motherboards, for those who aren't aware of our direct international relationship. And we continue to see opportunities with other OEMs in the marketplace.
So, I think the inclusion of self-encrypting drive is something we'll continue to see expand within the OEM channel.
[Silence]
Operator: Mr. Sprague, I do apologize. We're unable to hear you at this moment.
SKS: I'm sorry, the operator just came in.
Operator: Yes Sir, I do apologize, we were unable to hear you for a few moments, but I can hear you now. Thank you.
SKS: Okay, I'm sorry. So, I'll just step back a second and say, let me just come back to - we continue to have an offering with Lenovo today. It is very much a case by case business, where a customer who is ordering a Lenovo platform can get the Wave software included. And we have a number of Lenovo customers who are including the Wave software. I would say you have to be pretty organized to order it through Lenovo. And we work to continue to expand that relationship. Today, we continue to be bundled with Intel platforms in the marketplace.
And ultimately, we see a number of other opportunities within the Asian market. And we have really a number of discussions that are going on. So we hope to expand the number of companies that are including self-encrypting drives on their products today in the marketplace.
So let me change gears and talk a little bit about the upgrade business. As most people are aware, we closed the largest transaction in Wave's history in the $5.7 million deal we did with a large automotive manufacturer. As Jerry mentioned in his comments, we have received already our $1.9 million that was billed in late December. That will really drive us to the first cash flow positive quarter from operations for first quarter. So we're very excited about that. It really has been a tremendous quarter and really a tremendous end to the last year.
The installation for that customer has gone very well. It has required significant resources from Wave in both the support of closing the customer in the end of December and in the work we've done over the course of the last couple months in helping in the actual delivery and integration and deployment of our server and the work with their internal teams. So, I think we're reaching a point where the sort of basic delivery process is done. It's allowing us to point some of that resource back to other opportunities in the market. This has been a very significant transaction for us. And we're very pleased with how well it's gone. I think the customer has also been very pleased with how Wave has supported.
We were paid to do customization of our products for them. That's customization we'll be able to provide to others as well. So, that work has been delivered and completed. So, I think we're in a very solid position. The new challenge with any software company is that you bring on a really large customer. There are always new things that you discover. And I think that we've been very pleased with how it's gone so far. So, we look forward to the next stage which is really rollout of the technology to the end users. And we're very excited about that. I mean, the goal is to ship on over 30,000 seats this year and that's a significant step for us.
We've had a number of other significant customers that are out there. We now have case studies that have been done on both Mazda and a European customer, VEGA Deutscheland. Both of those are customers who have now deployed encrypted drives. They're very please with their operations. They continue to buy additional units.
I think that's an important context, here is that, in many cases, we won't see the same kind of transaction that we saw at the large automotive manufacturer. There are certainly others where we'll get a large prepaid order at the front end of a transaction.
We have quite a few of multiple tens of thousands of seat customers today who are standardizing on the technology either in a division or across the whole organization, that have bought a 1,000 or 2,000 seats so far and will be great recurring business as they buy new computers into their organization. So in essence, as they procure new machines, they're buying those machines with encrypted hard drives bundled in the computer and we see a recurring revenue stream that's not only the OEM fee we get from bundling software in the computer and the dollars we get for the upgrade of the encrypted drive but then the enterprise server dollars. So, in general, we are seeing well into the $60 to $70 per machine to Wave in revenue. And so we're very pleased with how those rollouts are going. And I would say the pipeline is very strong.
We've brought on a number of new, large accounts. Many of them are testing the software today. We have a couple that have already begun the process of procuring drives although they have not signed contracts with us for the server product. It's always great when they are buying the drives in sort of anticipation of closing a contract with us on the manageability of the drives. And we really are across industry. We have customers in the health care industry, like CBI Health and Boston Medical and Blue Cross Blue Shield, and all the way to the food industry like Acher Daniels Midland. So, those customers ultimately help convince the next tier of customers to sign on, etc.
So, the upgrade business is going quite well. It continues to be a challenge. We have gone from 1% of new laptops with encrypted drives to now over 2.5% of encrypted drives shipping on laptops. We'd love to see that number significantly higher. I think that our objective over the course of the year is to see it at well over 5%. We think that's very achievable and really drives the business towards doubling the business, having the same 100% growth we had last year into this year.
The challenge for us is that at some point in time, we'll go from a few percentage points of machines shipping with encrypted drives to the vast majority of machines shipping with encrypted drives. That's been a very typical PC industry curve. The challeng, of course, is predicting exactly where the knee of that curve is.
So, we're clearly in a very strong growth phase of drive adoption, but if you look forward and say two or three years from now, you might end up with half of all machines with encrypted drives. Clearly, the growth is going to accelerate at some point in time. There's no question that buying a computer with a self-encrypting drive provides the best data protection available in the marketplace today. We fundamentally believe it will become a standard really across all machines being procured.
From a competitive prospective, mostly we see software full disc encryption as a competitor. We very very seldom see any of our competitors who offer hardwar- based support in the marketplace. We have an enormous advantage being built-in in the factory. Every time you order a self-encrypting drive from Dell, our software comes bundled with the machine. And that's a tremendous value for us. If you want to procure someone else's software to manage a drive, then you have to delete our software first and deploy theirs. So, we really have a great first shot at every customer. And really gives us a tremendous advantage, especially supporting it in multiple languages on a worldwide basis. We have customers, for example, like Acher Daniels Midland, who has deployed it worldwide, and they support it today in multiple languages, and it's very helpful for them.
Finally, let me talk a little bit about the government side. This has been a very interesting quarter from a government perspective. Not only did we sign a new contract for work within the government. It's a $1.6 million plus deal, and we've already made some of our first deliverables this quarter. If you look from a revenue perspective actually that was one of the areas where in the fourth quarter there was, I don't know that there was any contribution really from the government work that we've been doing, because we finished most of the work in the third quarter. And we've really just begun the full effect of this contract in first quarter. So, we are underway, building a number of components. We're very pleased to be doing that. It's a tremendous piece of business for us.
We see today broad based adoption of the Trusted Computing base as part of the security for the Defense Department and for a number of the federal agencies. And it's becoming clearer and clearer every day to the broader marketplace that that is the case. So a lot of the work that the government has been doing in what's known in the industry as Trusted Execution is all based on the Trusted Platform Module being in a machine. And so, Wave has a tremendous opportunity there. We've been in the government marketplace with Trusted Platform Modules and self-encrypting drives, for now a number of years, and we'll see the adoption in machine identity, the need for the Trusted Platform Module to hold keys for Microsoft applications, and as the core root of trust for Trusted Execution.
People will see those terms used, Trusted Execution, in some cases Trusted Execution is now branded by NSA as High Assurance Platform. They're relatively interchangeable. There's a fair amount of information on the web about High Assurance Platform and its use of the Trusted Platform Module underpinning it. So, many forces are coming together in the industry from Intel shipping their new chip sets, which have support for the Trusted Execution components, the TPM being broadly available, the government work clearly being articulated in the marketplace as requiring it. Wave has some interesting advantages as well. We just recently received our certificate of net worthiness for our EMBASSY Trust Suite, which allows us to deploy across all government machines. That's a very important sort of next step of certification for us, and we're very excited to see that. So, that really opens the door for us to deploy our technology as a standard capability to manage the Trusted Platform Module. And I think we're in a unique position in that marketplace today.
The challenge of course with the government is when are they actually going to order something in any scale? We certainly have many individual groups within the government today as customers. We've shipped thousands of copies of software within the government realm so far. But ultimately, this is about turning on the Trusted Platform Module across the four or five million machines within the federal space. So, it's a huge opportunity for us. We continue to invest in it. I think we will see significant tangible progress over the course of this year. It's certainly in some days been a little bit like watching paint dry, but the adoption of TPM across the entire federal space I think is going very well.
So finally, let me just touch on two last pieces. We continue to explore the use of Trusted Platform Modules for strong identity. We have a service that's up on the web called id.wave.com. We're just about to launch a next version of the service. You'll see it most likely before the first of April. It will continue to be a beta service. We learned a lot from watching our first beta service about how the web is going to interact with Trusted Platform Modules. It has been extremely useful. This version actually meets all the open identity for open government initiatives. So we're going through our ICAM certification. What that means is that the government is agreeing to allow third party identity credentials to log you on to a bunch of government sites. And so our service will meet the requirements to do that.
So, you'll be able to use your Trusted Platform Module to go get your camping license or something along those lines. Any government website that is out there should support OpenID credentials, and from a variety of providers, and we'll be one of them. And this provides a very secure logon to whether it's something like Google APPs or salesforce.com, where I have no passwords. I log into my machine with its trusted drive. It unlocks my platform. My TPM secures my credentials to log me onto the web and it automatically connects me to Google apps or Sales force or any of the ID sites that are out there. We think that really begins to show a paradigm where your PC can start to look like in ways your smart phone works. I log into my device; my device logs me into the rest of the world.
It's still a beta site. We clearly know that there's additional work to be done. It's not something that is yet really ready for strong marketing. Anybody is welcome to test it. I would suggest that you wait pr'y until after the first of April. But, if you have a computer with a Trusted Platform Module, it will work. And you can begin to get a sense of what it would be like. Clearly, one of the tasks is more of the websites are going to have to promote how you go in and do this. It's a little complicated in some cases to figure out how it all works.
And on a final note, our eSign team in fourth quarter they received their MERS certification for servicing mortgage transactions. So, this is electronic signing and storing of mortgages. Our customer Xerox is now holding 30,000 E mortgages or E notes on our servers. So, we're very pleased this thing is up and operational. This provides really great document integrity. And as you see signatures being used, you can understand why all of us would want to use this.
And we are pleased to see our first medical application has gone live this quarter with the signing of supplemental medical insurance forms for Medicaid from one of the insurance providers. So anybody with e-mail can actually go in and fill out their paperwork. You don't need a fax. You don't need a physical signature. You can sign it purely electronically and really makes for a much easier to process and easier to use transaction. So, with that, I will stop my prepared comments and we'll open it up for questions. And I'll answer questions for awhile and see where we go. Thank you.
QUESTIONS AND ANSWERS
Timothy Collins, Security Research Associates: Steven, Jerry, Wave team, congratulations. You've beat every metric and met goals that I didn't know that you could reach that quickly. So I really congratulate you.
SKS: Thank you, Tim.
Collins: I think the one area that I would like to just have you add some color on is marketing. And I just wondered if you could give us the plan. I'm delighted to hear that you're bolstering the sales force.
I mean, I think that you have an immense order from the big three. I know that there are other immense orders out there. And so I know that you're going to do everything you can to capitalize on it. But I think for this year, last year was the year of getting your affairs in order, and this is the year of upgrades. And so how are you, can you just give us color about how you're going to go about improving the marketing and bringing this message across?
SKS: Sure. I would say we're approaching it from a variety of fronts because this is an emerging market, so there's not necessarily a clearly defined path. And these range from how do I continue to educate my OEM sales channel, because they are obviously the front line in this.
Where we want to go is where somebody is out buying new machines because they are a great hot target. And I would say we're getting very good cooperation from our partners. We have an understanding of who's bought drives. We are able to market to those people who bought drives. And that whole relationship is much smoother and better today than it was 12 months ago and better then than it was 12 months before.
The second is just creating awareness. We find that a number of small events, especially in industry verticals have the best collection of customers. We were at one yesterday in New York City where we had 400 or 500 people and were able to collect well over 50 new customer leads within the event. And they give us the list of all the people there. And across the board, people are interested in understanding how they're going to secure their machines and what are the benefits of encrypted hard drives.
I would say the third area is that we are investing in just educational materials in the market. So, one of them is we help to sponsor a report by Trusted Strategies on the performance of self-encrypting drives versus software based encryption to just show how much better a solution a self -encrypting drive is. For anybody out there who is carrying a software base encryption product, you know that it feels like it slows down your machine and it does. And this really took that from a sort of general sense and put numbers to it and said, 'Here's why this technology is better.'
We're in the process right now of doing some work on the legal front. Because I think that many people are out there buying encryption, which, while an interesting thing, isn't really the right thing to buy. What you want to buy is the proof that your laptop was encrypted when you lose it. And I think that's one of the tremendous challenges, is helping to explain both to the IT Department and to the legal and audit teams, really your CEO and CFO, that there are enormous benefits to buying a hard drive versus buying software based encryption, when it comes to the other side of the equation, which is. 'OK now I lost a computer, how do I actually prove that it was encrypted?' And we have a tremendous advantage on that front. So, we're trying to provide some the legal backup and legal work to that that helps customers to understand and have thought through some of the challenges on that front. We find in general most of the customers out there are still just going 'Oh, my God, I just want to know it was encrypted.' Or I want to hope it was encrypted. In reality, what they really need to do is know that it was encrypted.
So I would say those are the three core efforts. And in a very lightweight way is how can we help to participate, communicate, and influence the standards and/or regulations where possible to clearly articulate the needs that are in our benefit? And so lobbying would be too strong a term. I would say medium weight influence is the right pay to accomplish it. So where possible we'll provide our expertise and input and commentary, when it's an opportunity to comment.
Collins: All right. Thanks. I guess one question that's probablyweighing on everyone's mind is that you appear to have reached financial stability. And so I think everyone would like to know what are your plans for raising capital? And how do you see the future of the financial progress of the Company?
SKS: We have no short term plans for raising capital. We're very pleased that Q1 will definitely be our first quarter where we are cash flow positive from operations in the history of the Company. And we certainly hope that subsequent quarters will be as well.
I would say on a short term basis, there's no immediate need for cash. Obviously, there are lots of things in the new emerging market that can change that position. And I think all of those are from the positive side, not the negative side. And so we're certainly paying attention to the market, making sure the Company is in a very good and stable position on that front. But right now, there's no short term plans.
Collins: Thank you, Steven.
SKS: Thank you.
Robert Eisler, Private Investor: Hi Steven. I had a question. I think earlier in the call you mentioned that for the large auto account there was a significant amount of resources and manpower needed to get it up and running. Is this going to be the case like whenever you have a large account that a significant amount of your resources will have to be diverted toward it? Or as you go forward, it will be less and less? Just wanted to get a read on that.
SKS: I would say two comments to it.
One is this is the largest transaction we've ever done. You don't want to under-resource it.
Is it an exceptional transaction? At this moment in time it's an exceptional transaction. I don't think that we had any significant unforeseen challenges. I think actually the implementation went very much as expected.
Could we have done it with less resource then we actually applied? Probably, yes.
Should we have? No, not at all. We should have done exactly what we did which is assure we had more than enough hands and feet directed at the problem to be successful in our implementation. Because it's important for the largest customer you've had in the market place.
We are definitely getting much more efficient in our implementations just in general. We've learned a lot from our couple hundred customers. We've built those capabilities into our product. And it's one of the enormous advantages we have.
If we look at the product just in the course of the last 12 months, the amount of input that has come from real world customers that has now found its way into the code that is moving this industry forward is tremendous. And as we launch our new products, we'll highlight those features in more detail. But, they're better auditing; they're better manageability; they're greater depth in manageability in the product and much greater flexibility for the enterprise customer. So, it makes it easier to manage and deploy and to achieve their goal which is how do I set this up and forget it.
Eisler: That sounds good. And one follow-up question regarding expenses, 2009 expenses full year I think you said was $22 million. As you ramp up revenues, do you have a sense of what expenses might be for the current year?
SKS: I think it's hard to guess to a specific number. The vast majority of our investment today is in resources around growing our sales and marketing channel, adding additional salespeople, and support of now not just one very large OEM but a second one. And we're clearly at the front edge of getting HP to a point where it will cover the full cost of the people that are supporting HP.
Having said that, the reason I hesitate a little is that we see a number of projects in front of us that could be significant non-recurring engineering and development type projects, where we'll get paid and we'll staff the people against that. And those are obviously lower margin opportunities, but pretty much across the board they build intellectual property for the Company that then we get to use and resell to others. So we are very pleased to go do those and look to expand that amount of work that we are doing. And it's very typical especially within the government arena that projects are done on both purchase of software as well as on a time and materials basis to develop things. So I think we'll see growth on both sides.
We're at the front edge of a very large marketplace. And Wave has a significant presence in a number of those areas. You just look at the context today of Trusted Execution and the Trusted Computing base around TPMs and boy the world is just starting to wake up. We have been waiting for a really long time for this, and there's no question. The fact that the level of dialog that TPMs are being talked about in the RSA key note speeches is not to be underestimated.
Eisler: Okay. Thanks a lot and again congratulations on the progress that seems to be growing each day.
SKS: Thank you.
John Cangalosi, Private Investor: Good afternoon, Steven.
SKS: Good afternoon.
Cangalosi: I happened to call in and I was connected to the wrong conference call, so I missed the financial results. Can you just briefly tell me how the results, the revenues and the net income?
SKS: So we can certainly repeat them. I think that the best thing to do is just go download the press release which has all of the numbers in it. Jerry maybe you can just highlight the top two or three numbers if you'd like.
Cangalosi: You don't have to elaborate on the entire thing. Just give me the revenue and as I said the net income for the quarter.
Feeney: Right. So you can get this at Wave.com. Revenues for the fourth quarter are $5.2 million. Net loss for the quarter: $1 million. Net revenues for the year: $18.9 million. Net loss: $3.3 million.
Cangalosi: All right, good. And my question: I understand that you're doing business with IBM and Samsung and Acer. Does Wave have any interconnection with the semiconductor industry? Doing business with any of the semiconductor companies?
SKS: So we support the Trusted Platform Module chip. And we have contractual relationships with ST Micro, Broadcom, Windbond who has a new name now. And we support all of the different chip manufacturers within the PC space. We also directly support a number of the PC disk drive manufacturers. Seagate, Samsung, Toshiba, Fujitsu, and others.
Cangalosi: Good. That's it. I don't have any more questions today. Thank you very much.
SKS: Thank you.
Ronald Meyer, Private Investor: My congratulations as well on the progress Steven. It also appears that you're making significant progress to getting the industry to finally accept hardware security over software and now the recent Chinese threat to Google has brought cyber security to the forefront. So my question is really with that recent Google announcement at the RSA conference that their Netbook products for consumer and business versions will be shipping the TPMs installed for security. What opportunity may that present to Wave for future growth?
SKS: I think there are two opportunities there. Just the simplistic, without trying to guess whether Google will sell more than one or two Netbooks or not, right? As a new entry, it's impossible to know how many machines they'll move. The reality is that having Trusted Execution as part of that brand and the perception that that is a key technology can't be overstated. I think it is, we'll look back at it as one of the significant steps forward in the industry.
Understand that that articulation is exactly what is being built across the entire federal space. With, I would say, a slightly higher level of security within the federal space, so I think their science project is more sophisticated, for the sure. But ultimately, these are technologies that every single one of us wants to use.
The government will tell you that the technology is how do I use classified and unclassified networks? The reality is in a consumer platform, is how do I support applications from two different vendors and I don't want them to interfere with each other. It can be as simple as I want to watch videos and know that no viruses that are contained in the video are going to affect my e-mail. So that level of isolation is tremendously valuable. It's based on the Trusted Platform Module. And I think the core message to take away from is no one is articulating an alternate scheme, no one. So, if you're going to do Trusted Execution, it's being based on the Trusted Platform Module.
And so, that's the goal. Is how do we get everybody on the planet to turn their Trusted Platform Module off? [ON? – unc] And that's where the installed base of software where we're well into the 60s of millions of copies of software having been shipped becomes an asset that is not to be just ignored. The upgrading of all of those machines and generating, as we've been saying, north of $50 a seat for Wave for each upgrade, that's where the real opportunity is.
And so I think we've built a lot of the right tools. I think that we continue to have our R&D dollars, the research part of our R&D dollars in things like, how do I use my TPM to logon to Google APPS. Perfect. There's a right down the middle of the bowling lane aspect. And, as I said before, we may or may not end up be a significant identity provider. If all we do is teach people how to turn their TPM on, we can be hugely successful on that front. So don't under-estimate my desire to launch id.wave.com as a huge commercial service. It's having a tremendous effect for us in what we do.
Meyer: This whole thing sounds positive. Could you comment a bit on how Wave might benefit from NHS commercial solutions plans to use the commercial off-the-shelf SED and TPM management products for their High Assurance Platform software distribution.
SKS: So we were about to go tell the world fairly broadly about our role there within the government's HAP conference which then got pushed out until the fall time frame. So, I'll say a little bit instead of making everyone wait for six months. So, there are a couple of things that I think are very simple.
One is that if a computer is going to run multiple operating systems, then really the only way to do data at rest security is to have the data rest security done below the operating systems or in the hardware. And so we think self-encrypting drives is a logical component to the platform and we think can drive tremendous value. Because it's just running independent of what operating system or operating systems you're running on the platform. We think we can have a very valuable role there.
And as I said before, all of these platforms are based on the use of the commercial off-the-shelf Trusted Platform Module. And Wave has the leading software today to do Enterprise management of the TPM. So, we think we're in a strong position to participate. I will say that this is an area where lots of interesting science, lots of very, very cool projects, even some small amounts of revenue, but if you looked at the total deployment of Trusted Execution environments today, it's still a very small number.
The goal is how do we take that capability that's been pioneered for use in our government and military networks and use it on our consumer PCs, to help secure us on our day-to-day activities? We believe we can play an enormous role in that process. So that's where our focus is. I think that we bring an interesting piece to the puzzle as do many other companies. This is not a solution that's going to be done by any one single company and anybody that says they have the whole thing they have the whole thing wrapped up. This is going to be a multi-vendor solution to achieve. We'll bring our expertise in TMP management, the hardware management, the self-encrypting drive management, some of the ancient history that Wave has had in trusted application distribution really benefits us in this space.
Meyer: Looks promising. Last question. Concerning growth for if first quarter since we had a couple of months gone by compared to the fourth quarter. Let's for comparison purpose take out the $1.9 million that fourth quarter, the auto deal, and just compare fourth quarter billings to what's happening this first quarter. And do you see at least 20% growth in first quarter billings over the fourth quarter?
SKS: So I'd love to give a straight forward answer on it. But let me just tell you that such an enormous component of my business is the OEM side and I only know one-third of the data. So even though I only have a few weeks left in the quarter, the only thing I know is January's numbers. January's numbers were good. But, without knowing what February and March's numbers are, plus or minus a few hundred thousand dollars there, which is easily achievable, tends to weigh it one way or the other.
I think that it's important for us to not try and project yet where we just don't know the answer. I do believe we'll get much more accurate with this in time, because so many of our customers are reordering equipment. So customers we signed a year ago are buying more machines today for this year's supply. As that continues to grow, the percentage contribution of new customers will be less because the older customer continue a very strong recurring stream. And I think that that will really help sustain Wave and give us much better predictability. I think we're pleased with how Q1 is forming up.
Meyer: Okay. Great. Thanks, Steven.
SKS: Great. Well, thank you everybody for your time today. Hopefully, we look forward to talking to you in the future. I know that Jerry Feeney and Brian Burger will be at the Roth conference next week. So, if anybody is out in L.A going to the Roth conference, they can certainly see them there. And I'm missing that one. I'm actually taking a few days off on vacation. And I look forward to talking to everybody at the end of Q1 which we should do probably in the first week of May. Thank you very much.
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