CC Transcript, part 2
Operator: Our next question comes from the line of Ronald Meier with R.E.M. Financial. Please go ahead Mr. Meier.
<Q – Ronald Meier>: Hi, Stephen, I have a few questions for you. Guess somewhat on the line of your last question. I hope to get a little more guidance regarding potential revenues for 2012 and just based on third-quarter revenues at 9.5 million, which is a nice increase by the way, and extrapolating those in the quarter for and just for purposes of discussion, I’m just going to be guessing it’s from a revenues to be around probably 37 billion for 2000 level unless we get a couple of big deals in the fourth quarter that even though the buyer at Safend in my opinion which was a prudent acquisition as you outlined earlier it still not immediately increased to the bottom line of that is probably going to happen in the near future, with the cross-selling opportunity that my concern is having gone from 130 to 250 and a little over the year, I don’t see us corresponding sales growth necessarily to keep that pace with the increase in personnel and that leads me to believe you really must be expecting some significant revenue growth in 2012 as it looks like the expenses based on today’s numbers are going to be somewhere around 45 million or more in 2012 and then in the first and second quarters of 2012 we’re facing roughly a $10 million hold from the winding down of revenues from our last two large deals, so we have to replace that revenue as well. I know we got 7 million in cash but it still looks tight to me. Is it reasonable to expect Wave’s increase in 2012 revenue from roughly my I guess of 37 in 2011 to probably down here 45 to 50 million range to cover our costs. And if so, what parts of your business lines do you see expanding that quickly to meet that kind of revenue target?
<A>: So I think there are two things that drive the revenue growth solidly over the course of the next 12 months. And they are the enterprise sales around self encrypting drives and the engagement of the enterprise sales around turning TPM on for known devices. And so one is the growth that we’ve been on the drive business and I think the – every time we do another transaction it makes the next transaction easier and the result of the last couple of large transactions has really put much more pipeline on the table for us. As potential deals that are named accounts, we know how many seat, we know that when they are buying PCs, we are working with our channel partners in both Dell’s and HP to go after those accounts and so I would say we’re very bullish on 2012 in the adoption of these technologies.
And I think that over the course of the last couple of years, we’ve gotten better at having better predictability in our forecasting, its never an exact science, but I think we are set up to have a sales year in 2012 within 45 to $50 million range if not north of that. I think its hard for us to judge where the adoption rate of our Wave’s encryption management products is, its very early on, but there is very strong demand in that space and it represents a different play than the drive business because its turning on TPM’s which everybody owns. So I have to wait for a hardware refresh cycle, its something that an organization can go deploy in scale today.
We have a couple of really good accounts, one we’ve closed already, one we’re hoping to close before the end of Q4 and there is a pretty good list of them after that. So I need to show some experience in that products, so that we can demonstrate to the customers that drove value on the ground as opposed to just in PowerPoint and demonstrations and I think that we’ll see good growth in that as well. So those two lines of business really drive the growth of business.
I think on the other side the potential that’s represented in the growth of trusted computing and mobile probably is not a huge revenue generator in the course of 2012 but lays a very solid foundation for growth in 2013. So again, it’s early on in that process. But I think those are the things that continue to propel and accelerate the growth for the company over the course of the next couple of years. So we’re at the beginning of really engagement of the trusted computing market. It’s very clear from the market momentum today that the conversation has changed over the last six months. And that helps the process. It’s a little less scary for people to jump into it.
And they are having today real challenge in the cyber security space, the things that we’ve been investing in have not been working and that’s creating this market opportunity that has tremendous scale to it. I think the other piece that that will enter into the fray, that is not to be underestimated is Microsoft’s entrance with Windows 8, hinted around the edges of what they are doing with trusted computing in it, it will be a broad story, it doesn’t flow backwards into Windows 7 or Windows Vista or Windows XP. We provide that infrastructure and so in a mixed environment infrastructure we really have a tremendous foundation to address some of the capabilities that Microsoft is already beginning to talk about and we play a very important role in partnership with the Windows 8 play as well.
So overall I think we see good momentum building in 2012. We see a very strong pipeline and I think these are the things that make us feel comfortable that we will continue to see a growing market in 2012.
<Q – Ronald Meier>: Okay. Regarding LCDs as you mentioned, did you see any OEM adopting LCDs or are they standard on laptops and making an announcement say by the end of 2012?
<A>: Hard to tell. I see a couple of very influencing customers that are standardizing now and I think those are the trends that move in that direction. We know that Microsoft has shown support for LCDs and Windows 8 and so that will make it easier for the OEMs to go down that path.
I think if you listen to where we are for example our Financial Conference last week and Micron presented their support for the Opel drives and it’s very clear that every solid-state drive should have encryption built into it and I think they’re clearly signaling those kinds of directions but it’s not – it’s on the roadmap today are still both encrypting and non-encrypting drives from all the drive manufacturer. So we are probably still yet another year away before the non-encrypting version start to fall off the roadmap.
<Q – Ronald Meier>: Okay.
<A>: Having said that, the challenge of course in this space is we are still only at a couple percent adoption of Opel drives. So the hockey stick curve of adoption of this technology by the OEM industry is still to happen. And it has not happened yet. We’ve been waiting for it. It’s been slower than what we would expect in a world where it’s clearly a better technology, it’s cheaper to operate, it’s cheaper to acquire, it’s cheaper to deploy and yet the enterprises seem to have lots of extra cash to spend on buying slower more complicated software encryption solutions.
<Q – Ronald Meier>: I understand that Wave’s end point monitor is not commercially available until some time towards the end of the year, but could you give us an early indication of how Wave’s launch it’s end point monitor is being accepted by the industry and do you see this product really making a significant contribution to Wave’s revenue in 2012?
<A>: So unfortunately, I would say I’m a little bit too close to it to be as objective as perhaps you would like. We have been very influential in driving support for Bio’s integrity management and booting the computer safely before you hand control over to Windows. And so we are a significant part of the market generation side as well as the fulfillment side of it and for some time I think you have to be a little bit cautious on believing what we say.
This is where I think the key point is, let’s go ship a few customers, let’s clearly demonstrate the value on the ground that this provides. The numbers are very compelling and the protection that it provides is very compelling.
Premises about how do I assume that I’m going to have machines that get hacked et cetera. How do I at least start by getting to a point where I have only my devices on a network and not everybody else’s devices on the planet. And so it gives me the beginning of a completely different array of control over how you construct an enterprise. And I think they play an incredibly important role in the cloud computing model going forward, in assuring that virtualization is running on the machines, in assuring that the BIOS hasn’t been tampered with. We are moving to a much more flexible BIOS with something call UEFI in the future. And so are going to be more susceptible to attack, because we’ve introduced more flexibility into BIOS, and so it makes us even more important to have management of my BIOS correctly in my PC.
And by the way this is critical whether if BIOS in the PC or BIOS in the boot process in a mobile phone or a tablet. It’s very important that we know that the right baseline software is running on the machine. And so I would say we’re pleased to see the enthusiasm that’s been generated so far, people are talking about them in the right way, everyone seems to believe it’s a very strong and good idea. Not a lot of people have any experience with what it means to actually have it deployed. So we get some deployment experience under our belt and I think that will be much easier for me to answer that question in six months time.
It is nice to see that we can take a brand new product and we’ll be looking at, if we close our second transaction, we’ll be looking almost a $1 million with the business in the first quarter of availability of the product. And that’s a huge step from where we have in the past with just computing.
<Q – Ronald Meier>: That’s sounds encouraging. You mentioned -- last question, you mentioned Micron and regarding the recent PR with micron that stated Micron C400 SED solution, are you still in partnership with Wave? Does Wave benefit by getting a piece of each dry cell or did Wave just do it in exchange for Micron promoting Wave’s management product?
<A – Steven Sprague>: We did a non-recurring engineering project with them. We got paid for some of the testing and development that we did. But fundamentally we make our money by selling the management software, they make their money by selling drives. So, we are doing some joint offers together to customers, we’re doing some joint marketing efforts and demonstrations, and I think we’re very pleased with that. It’s been a great partnership so far, so we’re very pleased with that.
<Q – Ronald Meier>: To scratch your back those kind of things.
<A – Steven Sprague>: Absolutely
<Q – Ronald Meier>: Yeah. Okay. Thanks very much, Steven.
<A – Steven Sprague>: Thank you.
Operator: [Operator Instructions] Our next question from the line Robert McNamara [ph], who is a Private Investor. Please go ahead.
<Q>: Hey, Steven, thanks for taking my call. A question about the government. I know of course they move so slow, but it seems like we’ve got lot of traction last year, the NSA conferences and whatnot but. I mean where do you really see the government in the first quarter and second quarter as opposed to where we are right now?
<A – Steven Sprague>: I would say the major events we are looking for, there are a variety of ones that are working through the system. But the standardization of trusted computing is part of the acquisition plans. We see in the first half of next yea. We won’t really know until the paperwork comes out. But we would certainly like to see BIOS integrity as a requirement in the marketplace for DoD and for the broader federal government, as opposed to just as a piece of advise maybe you can go turn it on and see how it works. And I think the jury is still out and that we’ll see how that ultimately comes out but that should be in the first half of next year and I think we are seeing a lot of interest in standardizing stop encrypting drives and all of their laptops they recognize it as a preferred solution for data encryption that you have to buy the laptop with the drive built-in and think we have seen very strong progress within the procurement side of government to require drive, secure drives as part of the minimum configuration of their machines.
And then ultimately, certainly there is a whole legislative process around cyber security that we continue to watch. We would strongly support the concept of in any of the regulatory space and the concept that only known devices are connected to sensitive networks and data you should not be allowed to hug your kids laptop to the nuclear power plant.
<Q>: Exactly. And a follow-up question there, are you pleased with the progress in Europe and would you say the Europeans now that they get it more than the U.S. government but would you say that it might be a little bit quicker? At the end of the day just because of the size and maybe their understanding of it?
<A>: So I would say we have extremely good progress within the U.K. government. I think the U.K. government gets it pretty strongly at this point and have been abdicating and talking about trusted computing, some more work still to be done in the broader EU. Having said that, we’ve invested a lot over the course of the last really two quarters and building out our European team we have moved from a few guys doing business development in the marketplace to a proper full of sale marketing team and we’ve had some really great hires and some really strong people who have joined the organization and they’re just getting their feet wet and I think we will see good results out of that.
So we’re pleased with how the European market is moving at this point in time and do they get it more or less than the U.S. market? I think that is hard to say. Sometimes it is a mixture of what they are willing to say versus what they’re actually doing on the ground but there is strong support in this. We have been apart of a bunch of folks within the aerospace industry for the last couple of years and I would say aerospace worldwide has latched onto the concepts of trusted computing is part of their standards and plans to think it is about driving these investor groups forward from a standards perspective so everyone is doing it. We have had early outreach in oil and gas industry for standardization, everybody is – functioning with the same problem which is we don’t know how to combat these advanced persistent threats within machine in a manner that gives us the tools to really defend the network and trusted computing plays an enormous role in helping this problem.
But it is a big change for how people have been thinking. Most organizations don’t believe their device is important. And I think one of the things that we are seeing is that the conversation around everybody bringing every miscellaneous mobile device to work is starting to educate people and the fact that it does make a difference what device you bring. Your Blackberry is much more secure than her Android or iPhone because it has an embedded hardware security chip in it and that is not lost on the broader enterprise. So when you walk in and prove to them that they already have a 100% saturation enterprise with a hardware security element on the PC, if we could show interoperability to that to the rest of the mobile space you are really beginning to wake them up on to a common strategy they can latch a hold, invest and defend and deploy. And I think that is really driving the marketplace. There was a lot of plumbing to still be done.
<Q>: Okay. Great. Thanks so much.
<A>: Thank you.
Operator: Our next question is from the line of [indiscernible] Singh who is a private investor. Please go ahead Mr. Singh.
<Q>: Hey, Steven. This is [indiscernible]. Nice quarter. I’ve got two quick questions. One revolves around a government sector and the other one is the enterprise arena. On the government side, are we at this stage in Q1 and Q2 -- and this similar to what the last questioner asked, are we at this stage right now that we are going to see initial deployment rather than simply pilots?
<A>: Yes, what we are deploying are not 50 seats, these are thousand seats or more. The question is, is it 1,000 seats and a 7 million enterprise pilot? Whom I would argue, yes, still to a certain extent, but they are not research projects. They are deployment for the sake of understanding scale deployment. I mean, in some cases they’re more like 25, 30,000 seats. So its not, let’s go buy 1 million seats and deploy it across the network, that is still to come, but getting some scale experience is really the next step.
<Q>: So are these agreements being done on independent departments independently or is there a central command that is actually giving you these purchase orders on a variety of different departments, but is being controlled by a central location?
<A>: So it’s a mixture of both, depends on the different groups. We have a number of department groups that are -- that manage and deploy their own infrastructure and you get into places like U.S. Army its part of the consolidated hardware programmer they would have to standardize pieces. Eventually, at the scale that this is being looked at, you probably do end up with some form of enterprise type agreement. I would say we are not there yet.
We had discussions around it, but I am not sitting here hoping it to arrive next month. It is still a ways away and a ways away means I can’t tell you whether its six months away or two years away. We will see department level deployments first before it drives the demand for a government either DOD or federal wide procurement vehicle, which is typical for what they do. They don’t do a ton of them, but this is technology that lends itself to that direction.
<Q>: So when you are were talking about 20,000 and 25,000 volumes is that significant releasing 8-K, does that effect at the time that happens or is this going to be something under the...
<A>: It depends on how the order is structured. We certainly have large organizations today that we have not 8-Ked, because they’ve just continued to buy units on a few hundred units here, a few hundred units there basis. Even though they might be 150,000 seat enterprise. Were we have announced the transactions is when somebody has placed an order for a bulk of seats across their enterprise. So I don’t know if we have a specific threshold today, but north of the $1 million transaction is a transaction that should have been 8-K.
<Q>: Okay. The other question that I had relates to comments that you’ve made in the past starting last, I think last Q4 you had said something -- I think last Q3 conference call -- fourth quarter last year. you had said something like five to 10 deals in the pipeline, significant deals that could close within the short period of time. And then later on earlier this year you had made mention of 10 of 15 or 10 to 20 deals in the pipelines. So far we have a doubling of the GM deal we have the BASF coming online, we have Price Waterhouse, the TPMs and we have this potential European deal. What’s taking that...?
<A – Steven Sprague>: Yeah. And there are a couple of other, what I would consider, high brand value transactions that are in the market. They have chosen not to give us orders that are – let me buy my 100,000 seats upfront. And so I’m not allowed to use their names, because they haven’t given me permission to do that, and I have no assurance that next quarter they’ll continue to buy seats.
But we have had a significant execution of nice brand accounts in the marketplace, that are substantial skill corporations, where they are buying technology standardized for the organization. But does it rise to the material event? The answer really is no.
So, it just puts us in an interesting position where these are significant brands. They are household names. You’d know who they are. But I can’t articulate to what you – what their security strategies are they’re not placing a transaction with me in a manner that enables me to put out a disclosure statement because there’s no assurance.
All I can say is XYZ Corp. has bought $50,000 worth of software and might buy some more in the future. And the probability that they might more in the future, very high because they’ve told us they’re standardizing their product. I just don’t have an agreement that says that. They can change their mind at will whenever they feel like it, right?
<Q>: Yeah. Are these SEDs or are these TPM’s that were...?
<A – Steven Sprague>: These are all primarily SEDs.
<Q>: Okay. At what point...?
<A – Steven Sprague>: I think what we’ve seen in the TPM market is that we needed a new catalyst to drive the adoption of TPM and we’re seeing the BIOS integrity work as that catalyst today. The fact that Microsoft has made that part of Windows 8 software boot, the fact that the U.S. government has mandated a NIST 800-147, the requirements for bio security on these are all really healthy things to drive the world’s attention to the fact that we have absolutely no idea what’s running underneath our PCs and this is where Stuxnet can get you and turn off your water supply, your electrical supply, affect your aviation industry, etcetera. And maybe we should get that under control.
On the other hand, anybody who has listened to me talk, says, yep, there is a sure possibility that this thing may not really take off until we have a “major event” and frankly we’d all prefer not to do that.
<Q>: One more thing, Steven, can you give us an update regarding Price Waterhouse? As far as I know that they have been buying our software for the TPM. Have they gotten to the next phase of their deployments that they were thinking about? And normally that was put out my Price Waterhouse a number of months ago. They talked about the possibility of upgrading into an SED format, and have they made any progress on that front?
<A – Steven Sprague>: They made progress. They’ve not placed an order yet. So, they’re engaged there, very pleased with what we’ve provided. They gave a fantastic presentation at both NSA and in our London conference. They’re very actively involved in a variety of other projects not directly involved with Wave around the Trusted Computing space. So we see a I think a very healthy level of involvement Pricewaterhouse has security adviser and to a certain extent systems integrator in the front or systems designer and so they have become a very strong component of Trusted Computing in the marketplace and they have been very helpful to us.
<Q>: Okay. I appreciate that. Thank you.
<A>: Thank you.
Operator: Our next question is from the line of Jason Miller [ph] who is private investor. Please go ahead Mr. Miller.
<Q>: Hi, Steve, and I have one question for you. The June conference in New York you had talked about a European company having an order done by the end of Q3 beginning Q4, is that the same company you are talking about in regards to north of $1 million on this call?
<A>: Yes.
<Q>: Okay. That is my question.
<A>: So it has been an interesting process. Its been on track and I would say they are pretty comfortable with what we are doing. We are actively working on stuff on a daily basis and we’re enthusiastic about both of them as a customer and what we can do together in the future as well.
<Q>: Thank you.
Operator: And our last question is from the line of Donald Lee [ph] who is private investor. Please go ahead Mr. Lee.
<Q>: Yes. My question has been answered. So thanks.
Gerard T. Feeney, Chief Financial Officer and Senior Vice President, Finance and Administration
Well, thank you very much. And thank you everybody for your attention today and your interest and I think in the course of the next couple of quarters will be interesting for folks. We really – we are excited about the progress we are making and the things that we are doing today and we look forward to it. And so I look forward to talking to you in the spring. Thanks. Bye, bye.
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