Q4 2019 Earnings Call
Good afternoon, welcome to identify presentation, a fourth quarter fiscal year 2019 earnings call. My name is Anastasia and I will be our operator this afternoon.
Joining us for today's presentation are the company CEO, Steve Humphreys and CFO Sandra Wallach, following management's remarks, well open the call for questions.
Before we begin please note that during this call management, maybe making references to non-GAAP measures or projections, including adjusted EBITDA and free cash flow. In addition, during the call management will be making forward looking statements any statement that refers to expectations projections or other character.
Just takes a future events, including financial projections and future market conditions is a forward looking statement actual results may differ materially from those expressed in these forward looking statements for more information. Please refer to the risk factors discussed and documents filed from time to time with the S.
He see including the Companys latest annual reports on form 10-K, Identive assumes no obligation to update these forward looking statements, which speak as off today.
We'll now turn the call over to CEO, Steve Humphreys for his comments Sir. Please proceed.
Thanks, operator, and thank you all for joining us today.
As you'll have seen today, we published our fourth quarter and full year 2019 results as well as reaffirmed our outlook for 2020.
Now I'll go into those details in a minute, but given the environment. We're in globally I'd like to put some context around our business comments.
The main perspective I'll take us through today is that the fundamentals of our business are looking strong we actually weathered pretty well the supply chain challenges from the early onset of the virus in China and even in some respects our products benefit from lots of people working from home.
So we're driving her business forward, our board's independent directors R&D continuing their process to engage outside advisers to assess strategic alternatives and were on all the pads, we discussed a little over a month ago.
In parallel we're being proactive about enabling our people to work from home. We're tracking the location by location responses that are best as well as what's being required as governments respond.
As an organization, we're already dispersed company with a range of our activities across the U.S., Canada, Europe, India and Southeast Asia. This means we used to working remotely we've got the infrastructure in place at our processes and people are very familiar with it.
So this is a tough period, we're all in but we think were relatively well position to weather the impact and we're doing everything the first and foremost take care of our people our customers and our partners therefore deserve our investors.
We make the right moves proactively we'll get through this and should be able to strengthen our competitive and market position as we come out of the churn.
There are some opportunities to get ahead competitively, while others are hunkered down some of which I'll comment on it a bit.
Is this all passes the company's the took care, but also worked hard to get ahead and be better position as business returns to normal will be long term winters, we plan to be one of those.
So hopefully that gives you some context of how we're managing through the cobot 19 issues and the business and government effects that are happening.
Some other tactical comments later about some of the business effects like cancel trade shows that we wanted to start with that overall perspective that we're managing proactively and expect to be an even stronger competitive position as we all get through this I don't want that topic to overshadowed the realities of the strength of our business. We just have to discuss it as part of our business environment.
So let's get into our results now give you all are perspective on the business progress and our outlook.
While we're being proactive about the environment, we're driving our business forward and all center most of my comments on that.
So looking at our 2019 full year in Q4, they're very consistent with the preliminary results. We reported on January thirtyth, mostly in line with or slightly above the preliminary in figures.
As we already reported and discussed we had a slower fourth quarter than we expected, but even with that our overall business grew 7% supported by a 20% growth in our premises business for the full year and 62% growth in our RF I'd business in the fourth quarter.
The strategic metrics of software and services revenues and recurring revenues also grew solidly.
Software and services grew 27% for the full year and recurring revenues grew to 10% of total revenues in the fourth quarter.
We also drove leverage in our business model growing EBITDA by 20% year over year, almost three times the rate of our revenue expansion.
Now in our prior discussion we focused on four factors that impacted our business federal government contracts closing outside the quarter, a large Mexican customer whose revenues we reserved.
Behind plan hiring of salespeople and the launch of our SaaS products. So I'd like to update our progress against each of these challenges and highlight trends that are helping our growth started off strong in 2020.
First we strengthened our federal business, adding key federal salespeople for our premises as well as our Thursday business at a federal program manager to support our existing federal customers.
These people are all new since our discussion on January Thirtyth building the base for a wider pipeline of new customers as well as expanding opportunities with our current customers.
This applies both through our Hirsch three VR freedom products in federal access control as well as our therapy business of course.
Both these areas sales additions complement our segment leading products.
So second we've effectively eliminated our exposure to financial inconsistency in the Latin American market.
We continue to have success, there, but we've implemented strict early payments payment requirements and factored into our projections enough allowance to forego revenues it payments aren't certain.
Third we brought on new salespeople for strategic accounts, the northwest region, the central region as well as Theres B and added an inside sales manager to our U.S., our if I'd business now in our business sales engineers, our pivotal to expanding sales and building customer channel credibility. So we've hired a new essi manager as well as that.
Fees in Texas, the northwest in the southwest.
Fourth we gotten our SaaS sales underway, our velocity cerus freedom cloud and subscription based in App purchases of our PDF signed utility our focus for most of our salespeople. So.
So you can tell we've been busy the past five weeks since our last conference call. We focused on these areas and made progress and all of them, though to be clear, there's more work to be done in each.
The substantial growth in both software and services and recurring revenues are certainly highlights for the year.
As we've discussed transitioning to more of a recurring revenue model is challenging in the short term as customers evaluate which services are best for their businesses. As a result, the length of the sales cycle can increase and revenues are spread over a longer period of time, but that said this is a more stable sticky and predictable model of course, and we expect our expanded.
Salesforce to allow us to drive conventional on premises sales while building RMR in parallel.
In addition to our SaaS products in the fourth quarter. We also launched mobile apps for PDF, signing for Thursday platform and refresh mobile apps for freedom and Sabrina.
All of these plus releases, we've launched in the current quarter puts us in a terrific product position for 2020.
So with that I'll turn it over to Sandra to go over our financial results for the quarter end the year and then I'll return to talk more about our growth drivers and outlook for 2020 Sandra.
Thanks, Steve and thanks to many of you joining us again for our full earnings call before we dive into our FFO financials I'd like to share an update in the context of our release of preliminary unaudited results dated January thirtyth of 2020.
For every metric that we reported on January Thirtyth today, we are reporting slightly better results than the top end of our range from revenue over range of 0.2 million through GAAP EPS, beating by one cents. In addition, we are still reporting non-GAAP adjusted free cash flow of positive 0.1 million.
With 2019, representing the first full year in over a decade, where we were able to generate non-GAAP free cash flow.
No diving into the key metrics. The first one is growth, which even factoring in the lower fourth quarter revenue delivered our total year 2019 revenue growth rate at 7% year over year.
Additionally, without the 23% reduction in our access card business as we have continued on our strategy disclosed earlier to exit lower margin third party products, our consolidated growth was up 14% year over year.
Standalone software and services business is steady at 13% of our revenues for the full year and that fourth quarter. Our full year results were up 207 basis points over the prior year.
Recurring revenue accounted for 10% of total revenue in the fourth quarter and 9% of our full year 2019 results, reflecting 117 basis point improvement.
Over the full year 2018.
Our fourth quarter, 2019, GAAP and non-GAAP adjusted gross profit margins of 40, and 42% respectively versus the comparable period of Q4 2018 were negatively impacted in total and by segment by mix within our segments. Our promises segment was negatively impacted by lower.
Video analytics software sales, which have a significantly higher gross margin rate and our identity segment did not see a recurrence of a large deployment thursby software solutions, which was in the fourth quarter of 2018 at 70% plus gross margins.
Our GAAP and non-GAAP gross profit margins for the full year 2019 continue the increased over comparable periods based on our stronger sales of higher value added solutions with our GAAP gross profit margins, increasing from 43% to 44% for the full year 2019, and non-GAAP gross profit margin increase.
We're seeing from 44% to 45% respectively.
This year, our non-GAAP adjusted EBITDA margin hit, 8% and our non-GAAP adjusted EBITDA on an absolute basis, but 6.8 million just below our original guidance coming into 2019 of seven to 9 million. These results reflect a 20% increase from 2018.
And 148% increase from the full year 2017.
Our GAAP net loss attributable to common stockholders was 2.1 million or a loss of 12 cents per share for the fourth quarter.
For the full year, our GAAP EPS reflects positive improvement of 23 cents per share.
Quarterly and year to date free cash flows show that we gave back 1 million of our positive progress September year to date.
We are still generating 0.1 million positive free cash flow for the total year 2019.
First as a negative 6.5 million during 2018.
For your reference we have included the full GAAP to non-GAAP reconciliation in the appendix here and then the press relates filed earlier this afternoon.
Our next side our revenue in the fourth quarter was an 11% decrease compared to the fourth quarter of 2018.
And an 18% sequential decrease compared with the third quarter of 2019.
Premises segment generated 46% of our total fourth quarter 2019 revenue a decrease of 3% on the fourth quarter of 2018, and a decrease of 33% from the third quarter of 2019.
The comparative quarterly decrease was driven by unevenness of our large video analytics deployments to enterprise customers offset by higher revenue in our traditional physical access product lines and new incremental revenue from the by count acquisition.
The sequential quarterly decrease was primarily attributable to lower physical access control solutions and with more pronounced than our normal seasonality with the business drivers that weren't discussed earlier.
I promise this segment generated 50% of our full year revenue.
And an increase of 20% from 2018.
Revenue from our identity segment in the fourth quarter.
Was 54% our total revenue this represents a decrease of 17% from the fourth quarter of 2018, and an increase of 2% from the third quarter of 2019, the comparable quarterly decrease was primarily driven by the nonrecurring large deployment of Thursday software solution.
In the fourth quarter of 2018, along with the reduction in revenue from our lower margin Axis card segment, partially offset by the return of transponders to growth in excess of 60% this quarter.
Sequential quarterly increase highlights the strength exiting the year and transponders with growth sequentially of approximately 29% offset by the plan lower sales of excess costs.
Identity segment generated 50% of our full year 2019 revenue a decrease of 3% from 2018.
Moving now to our operating expense management underlying the non-GAAP opex as a percentage of revenue movements by corridor is a relatively flat expense base, which we have managed to normal seasonality in acquisition for the third and fourth quarter of 2019 per earnings release, our total GAAP operating expenses were 9.3 million.
Which included an expense for the update at the fair value of the earn out liability associated with the by Count acquisition.
Zero point to answer a point fourmillion, respectively, our fourth quarter 2019, GAAP operating expenses.
Joe an increase of 0.2 million as compared with the fourth quarter of 2018, which was part of the acquisition and integration of both are seeing by count and did not have a similar nonrecurring expense for the fair value of the earn out liability a 0.4 million.
Our non-GAAP operating expenses adjusted to exclude restructuring and severance costs and certain noncash charges normally excluded from our non-GAAP results such as stock based compensation and increase in the fair value of the earn out liability and depreciation and amortization as well as additional non-GAAP items.
Listing of acquisition related transaction costs were 7.7 million in the fourth quarter of 2019 as compared with 7.9 million in the third quarter of 29 tea and 7.4 million in the fourth quarter of 2018.
Now turning to the balance sheet, we will be comparing our position at December 2019 to the position one quarter ago at September 19, and the prior year quarter ending December 2018.
The net activity for the fourth quarter was primarily comprised of is 0.4 million cash usage driven by our net income excluding noncash item as zero point Sixmillion cash usage from operating assets and liabilities with it diminimus amount of capital expenditures, our non-GAAP free cash flow.
Generated was a negative 0.1 million that performance within the quarter highly influenced by the reduction in expected revenues late in Q4, what's left a significant amount of inventory on our books. Although this buildup of inventory was not planned in fact, it has allowed us to manage the supply chain disruptions.
Certainty caused by Cobot 19 with limited impact to date.
Under financing activities, we had 0.8 million net cash used driven by zero point $6 million decrease in net borrowings offset by 0.2 million tax payments related to RSU releases.
For completeness. We've included the full balance sheet per the earnings release in the Appendix and then our 10-K filings we will be providing a full reconciliation of the your cash flows.
In the context of our target business model, although we came in short during the fourth quarter of 2019 during the year, we achieved many milestones, including achieving net income profitability for the second and third quarters for our stockholders ahead of expectations.
Today, we are reconfirming, our full year 2020 guidance, we believe that our business model is positioned to continue to accelerate towards the scale required to generate positive and profitable growth.
However, we are continuing to track the potential impact of Coca 19, and will provide an update at the situation persists well in the next quarter or worsens to impact other parts of our business with that I will conclude the financial discussion and pass it back to Steve. Thanks, Sandra the numbers show the challenges that caught us in the fourth quarter.
Later, but also the underlying strength of the business.
Our multiyear trends have stayed strong and the product launches and sales team building at the end of last year and the first couple of months of this year habits again in a strong position to grow revenues and expanded EBITDA.
We usually see a seasonal trend in the fourth quarter of revenues, 8% to 10% below the preceding fourth quarter, but as a result of our actions we expect to beat that trend in our current first quarter.
Now I would you describe the actions taken to strengthen federal sales. The overall sales team Thursday federal sales are if I'd sales SaaS products and mobility products.
Weve continued progress in this quarter, putting us in a strong position for our key initiatives expanding recurring revenues driving positive cash flow and profitability at especially taking more share in our key markets the premises security at our if I'd.
Launching leading products and projects across our business.
Now I'd like to focus on our if I'd for a moment.
The three forces that are very positive for us right now.
First NFC is becoming a core solution for RF I'd devices, we are well known as the go to company for NFC solutions, including a close partnership with a leading provider of NFC chips NXP.
So we're positioned as the leader in the right to allergy category.
Second customers are adopting our if I'd solutions across a wide range of products over the last couple of years early adopter companies like Disney Mattel, Nike and even block chain providers adopted NFC based RF I'd. We're now clearly moving into the early majority and we're seeing more request for design quotes in RF peas than ever before.
From a wide range of companies in industries.
Thirdly were the beneficiary of consolidation in our industry.
Smarttrack has been one of our toughest competitors in the high frequency NFC space, but most of their business has been an ultra high frequency or you HF. The technology used in the very low price retail tags, you'll find in your clothes.
Now Smarttrack was acquired a couple of months ago by Avery Dennison, a much larger company almost exclusively in the U. HF space.
As a result, avery's refocus smart tracks team and production capacity heavily on you HF, reducing service and even abandoning some customers in the H. aftermarket.
Now we're benefiting from this trend with both end customers and NFC chip providers, turning to us as the most experienced and committed team to deliver hften NFC solutions and to pick up the slack from smart tracking every spoke us away from Hften NFC and onto you HF.
In fact, because of this demand surge, we haven't needed to add direct salespeople.
We have so much pipeline inquiries, we've taken part of our sales budget and applied it to more engineering and inside sales capabilities to manage the volume of opportunities we're seeing.
We want to continue to be the high service provider, especially while a competitor is gone it if direction, creating a market opportunity that we're hitting hard now to take advantage of.
Now this is a business that grew over 60% in the fourth quarter and you'll continue to see strong group this year.
So turning back to premise is now there are three keys to our growth sales RMR and are uniquely complete product range.
On the sales side I've mentioned the hires already so I won't reiterate those but in addition to people for technology trends are core to our growth and share gains cloud mobility data security and credential security.
Our products reflect this philosophy Cirrus freedom cloud velocity web Liberty, our touch secure access readers are secure Ts cards, smartcard readers tokens and sub Rosa mobile security.
Last quarter, we lunch velocity Cirrus, our Hearst velocity cloud based access control system and our subscription based PDF signing feature and start Rosen.
This quarter, we've launched our three VR investigator video App.
And just today, we announced the launch of our Bluetooth readers and subscription based mobile credentials. Another key piece in our frictionless access platform.
Now anyone who wants to see where our vision is going should take a closer look at our mobile us I'd, Bluetooth reader and mobile credential product and especially the user experience.
So let me just walk you through the difference here a little bit to use your phone to get into door. Our biggest competitor HIV makes you take extra phone open an app and either tap a button or wiggle the phone to open the door.
Their mobile this idea happened a reader you just leave the phone in your pocket and swipe your hand near the reader, we've gotta capacitive sensor that signals the reader to check for in nearby phone and credential and lets you end.
Now we can make it even more frictionless using your phones location and Geo fencing to tell the system than your nearby and want to go in the door, even without Bluetooth directly to the door.
So we're taking a customer experience first approach, which ties directly into our vision higher security for the organization with less friction and a more convenience for the user at all priced and structure do move our customers towards a virtual infrastructure price on a subscription basis.
There's also create the touch free experience. So as people are concerned about handling cards and touching readers, we've got another product well positioned to benefit in today's environment.
So I know that was a bit of a deep dive, but we're really excited divisions coming together and specific examples usually help clarify why we see such growth opportunity and to helps anyone thinking about individualize it.
It's also important to notice how fast the technology and products are progressing so there's a context around or more pragmatic activities like hiring also cost controls that we're really focused on growth while also getting leverage in our business.
So, let's turn now to efficiency.
This is core to our business model leverage and continuing to grow EBITDA faster even that revenues.
In addition to building up our teams to drive more sales and premises and were engineering and production capacity in our if I'd and continuing to launch grade products. We've also been taking cost alignment and reduction actions as we went through on our call last month, we've already implemented measures to reduce overhead and to make sure our businesses operating as efficiently as possible.
Now there's more work to do that as we said before we expect this to result in about $4 million and savings on an annual basis compared to our original guidance, taking full effect as we go into the second half of the year.
So you can see how we've taken fast action to be positioned for growth first and foremost while also reducing overall expenses to allow the business to generate positive cash and earnings on our current revenue outlook for 2020.
Two more things I'd like to comment on one of which is from our prior call.
That's the strategic alternative assessment, which the independent directors are engaging and as I mentioned earlier reset at the outset, we wouldn't be providing specific updates, but the independent directors are of course actively engaging with outside advisers as expected.
The second factor I'd like to come back to our some of the tactical effects of the change business environment. We're all operating in at least for the next few months.
[noise] like everyone and business earlier this quarter, we had challenges from supply chain disruptions as the virus first effective China.
And as I mentioned earlier with some intensive efforts by our supply chain team, we actually managed to keep our business progressing well it hasn't been easy since China is the only source for example from some of our antennas needed for our RF Ivy transponders, but it seems like weve navigated through it well it might take a little bit of time to stabilize the supply chain, but the path forward seems clear.
Largely from a supply chain perspective in southeast Asia.
I also already commented on some of the general demand side challenges. So I'll just mention some specifics.
The main impact so far has been some trade shows cancels, including login, Matt IC West the NFC Forum, and we're sure more gonna come, especially now.
Now these are usually good business builders, so not having that means we have to build the pipeline in other ways and we're doing that so for example in the time slot of IC West which are scheduled for next week, we're setting up the demos and press discussions that we already had planned but doing them at our headquarters and engaging customers and media virtually.
It's actually pretty efficient and we might learn a few things that can make our marketing were effective even under normal times.
As for our internal operations, except for manufacturing most of our work can be done remotely in terms of engineering product management marketing text important functions like those.
So like every business, we're watching the situation and the health and safety of our people our customers and our partners will always come first but we believe we have the contingency plans and operating continuity plans already in place.
Now while the increase in remote working might temporarily slowed down some aspects of the business. It may also benefit others, you don't want to profit from a crisis, but the fact is both our Thursday mobile apps and our smartcard readers tokens are central to secure remote working.
Now this was I actually a fairly solidly confirmed when a bank in Switzerland that a directed its employees to work from home ordered several thousand tokens all at once.
All the employees needed a secure method to access the banks VPN remotely and token based two factor authentication is one of the best combinations and ease of use and security. The bank was already a customer for their executives and keep people, but now they need everyone to have the same secure access and we were able to deploy it quickly and seamlessly to help the customer.
Similarly, with Thursby, if military service people in reservists want to work remotely. Our app is the most widely used bring your own device solution for them. So theres a policy decision to work in a more dispersed mode. Our products are a great solution and of course, we're proactively offering that.
To further help customers facing challenging they're working conditions, we're launching some promotions to offer a remote access products at discounts to help organizations enable their people to work securely from their homes or other remote locations. So hopefully this will all be transient, but it also might motivate more wrote working which could at least partly remain even post crew.
Basis, and this would actually expand the available market for some of our products.
So despite the slowdown we encountered at the end of the fourth quarter, we were still able to deliver overall positive results for fiscal 2019 due to our highly defensible position and the resiliency of our business.
We've taken some fast actions to address our challenges and to be stronger going into 2020.
Now the uncertainty of Cobot 19, certainly is an issue which will continue to be very open about but it's something it's affecting the world's more severely than our particular business and because their products serve some of the needs that are being created we could have some resilience even this situation.
To be clear, though it becomes more pervasive and impacts all aspects of life and business no businesses completely immune to the effects.
So from a business long term demand and competitive perspective, we see plenty of room for optimism. We entered 2020 with strong backlog a focus on recurring revenue launches and sales expansion, great new products specific trend strengthen our if I'd business and our interest solidly aligned with our shareholders.
So with that context, operator could you. Please open the line for a question session.
Certainly.
Well now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad, you will hear tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then too well pause for a moment as callers join the queue.
Our first question comes from Mike Latimore with Northland Capital Management. Please go ahead.
[noise] I guess on the.
On the kind of the potential for government agencies to do more.
Work at home I guess can you give a little more color on what you're hearing or seeing you know any particular agencies that have gone kind of.
Full steam ahead in that regard and obviously that would probably benefit your Thursday.
Okay.
Yes.
Sure.
Some of the military bases in Germany for example, I have.
One of them.
Hi, Rheinland falls is actually going into full walk down.
And so we're talking with them about giving mobility access for for some of their personnel.
And then in terms of the you know the domestic federal government. The FCC of course has been the first one to two go through that gate.
So basically as each of them you know announce different different policies were just reaching out to them to see if we can enable their write their remote access it especially through mobility.
And the.
The the growth in the transponder business.
It sounds like you're expecting continued strong growth this year in that category I saw that that's one question that too.
Like what verticals are used cases do you think are healthy us this year.
Yes, we're definitely seeing a lot of activity there.
And that's also why we were pretty happy that we worked our way through the supply chain issues with some of the antenna supply at all because the volumes are going up but pretty fast. So libraries are certainly one vertical lives coming through.
Strongly.
Some consumer devices are launching some activities.
Re usable.
Reusable is that have to have authenticity with something like in some cases, a major appliance or in some cases, a printer or other business device is a use case and.
And then healthcare some of the consumables in some of the testing equipment that we used for assay validity and things like that.
Got it and then on just on the Opex side on.
DNA costs did you say there was a couple onetime benefits in the fourth quarter or what would be again kind of baseline for DNA.
Yes, so what what.
What's embedded in the GAAP results for Q4, and Q3 was the additional right recording of the fair value of the earn out liability related to the by Count acquisition. So in Q3, there was 200000 on a GAAP basis, that's not recurring and in Q.
Before there is 400000, that's not recurring on a GAAP basis on a non-GAAP basis.
Gionee is running.
To answer that question.
Yeah.
[noise] DNA is running about a million.
Seven a corridor coming out of Q4.
Okay, Great and just last one.
How are you thinking about kind of gross margins for the year.
Okay.
So I think we're confident that we're going to be hitting our target range for the year I think our challenge is going to be in Q4, our gross margins were driven down sort of in a in a short period of time, because just trying to transponder and some of the business issues that we had on the premises side I think.
Going to see some continued pressure in Q1, but as things come back in the additional salespeople ramp up on the premise decide to really drive the expansion that business I think we'll see it even out over the year, but I think we're going to see some early.
Ah downward pressure for mix.
Okay great.
Thanks, a lot they like the Sir.
Thanks, Mike.
Our next question comes from Jeff Kessler with Imperial capital. Please go ahead.
Thank you.
First question is the 60% increase in the backlog at year end.
Which was up for up sequentially third quarter.
Can you give some idea of what is in the mix and can you give some idea of.
Let's call it but the margin in that mix is.
Yeah, and give us an idea of hubs of perhaps perhaps timing, which I'm sure it's going to be a tough one.
But what is you know again, what is gonna be driving what drives that backlog and and.
Is it the type of thing that he is going to help margins, particularly as we get toward the second half of the year end you begin to start looking at you know guidance for the latter part of the year.
Yes, sure Jeff the the backlog Guy as always the case is largely driven by our transponder business, that's where we have typically long lead times and ER and most of the backlog, whereas in our premises business, we have pretty short turnaround time, so when we get an order and we tend to tend to I guess.
Sure and ship and go so that's sort of backlog than mix and gross margin would reflect heavily the transponder business, which is gross margins in the mid thirtys.
Now that said the backlog also includes some of our software and services through our multiyear contracts some of our agreements on three VR and so that offset some of the transponder margin mix. So it's it's higher than you would see for transponders overall, but it is predominantly transponders.
Okay.
Second thing is can you discuss up.
Effectively operationally what are you doing to build up.
The recurring revenue part of the business not just that you've gotten people in there.
Are you hiring people, who are when you say you're doing a lot of hiring or you hiring people who have experience in that in the ability to make that type of sale and she basically stay on top of the customer for a long longer period of time.
Yeah. Good good question. So you. So yes, we specifically have identified what we're characterizing as strategic sales people are really on I mentioned Oh, what are we just hired in fact and she's got a lot of recurring revenue experience.
And and similarly, we're skewing our new hires in that direction, we're recruiting in Europe right now with a similar profile so I.
You're alluding to the fact that people who can sell recurring revenues are often different from those who have gotten very comfortable with vito selling a big box in an on prem.
That said we're also.
We're also incenting, our <unk>, our core Rs EMS and dealers.
To go sell recurring revenue as well the dealer channel is pretty enthusiastic about recurring revenues. So we think the dealer channel worked pretty well, but we're also over language salespeople who are focused on it.
Yes.
Have you ever have you seen any.
No. If she has begun to be used to increasingly.
And in hotels, and let's just say places that you stay Oh, the gathering places have you seen.
Pressure from there and if you could just go over once again, where you're seeing some of the uptake.
On the on the NFC side.
That would offset what do you, which clearly going to be a downturn in the hotel business.
So yeah, we don't do very much in the hotel business, but NFC for.
Using a cyber credential for physical access is definitely a use case that day that we've got a number of prospects in the pipeline for.
And then.
Not NFC, but Bluetooth yeah, we just launched the Bluetooth reader and that includes mobile credentials oddest subscription basis, which would do the same thing get access but through Bluetooth. So I think you're going to see more NFC and Bluetooth or for a physical access yeah. It's had false starts in the past, especially Bluetooth.
As but does the use case that we've got.
You don't have to take your phone out and where you can just get your hand close the readers you're not actually touching anything.
We think actually finally starts to deliver a benefit and then also the costs on the mobile credentials.
Our Ah are finally getting in a range that people can compare compare and positively with with cards. So I think you can see growth in both areas NFC and Bluetooth.
One final question and that is.
On the onto your acquisitions, which has shown very strong starts after you acquire them and then have settled out a little bit.
Particularly I'm sorry to hear on both a three VR and Thursday I'm wondering if you could make any comments on is to service. The this is going to settle out at a is it going to be remain is it going to remain lumpy is there a way too is there a way to essentially is he set out in terms of a more recurring revenue.
All right or is this is a stable revenue stream and the same I guess the same question for three three VR.
Sure. So just on the Thirtys beside first I.
The first answer is sales themselves and we just brought on a really good federal sales Guy Jason Evans.
I was out with him at the FCO West show in San Diego, which is the big get the Big Navy show.
Last week and he <unk>. That's the first thing is really building a pipeline with the date dedicated sales guy he's based in the DC area.
It has a very good contact list across certainly the Pentagon, but also the civilian agencies and then the other part is we launched the PDF signing.
Add on as a.
Subscription price, but that said you know the federal government is not always happy doing subscription pricing and so we can get individuals on a subscription side I think the federal government sales are continue are going to continue to be build a good pipeline of prospects and you know and sell them in chunks, but have enough going.
True that a the build steadily but then the good thing is you've got a bunch of absent People's hands and then you can start doing the upsells on a subscription basis. So that's the that's the therapy approach and we do see the pipeline broadening out quite a bit there.
Three VR.
Similarly, I think the.
With the investigator App that we just launched so we have our our video investigator capability on mobility devices.
You can start to price that we haven't launched it yet on a GAAP honest subscription price basis, but we will and then you can start to add different features again for for different Upsells. So I think you're gonna see both.
Growing and then also on three VR. We also realized we need some dedicated sales focused on that so similarly, the strategic salespeople.
Who have a recurring revenue focus will also have a three VR as well as the freedom access system focus.
Great. Thank you very much.
Thanks, Jeff.
Once again, if you have a question. Please press Star then one.
Our next question comes from Jason Smith with Lake Street. Please go ahead.
Yeah. Thanks for taking my questions, Steve just want a follow up on one of your comments in the prepared remarks, you mentioned that you traditionally see ER in 8% to 10% sequential decline in Q1 did I hear correct that you expect to be better than that.
With us here.
Absolutely, yes, just and I think what we're saying is.
That.
Instead of the numbers dropping by 10%, we'll see some rebound I don't think we're going to necessarily be able to commit that we're going to beat Q4.
Okay, No under said, but that's helpful and just following up on that are you thinking about seasonality. This year just given the current macro backdrop any differently or should we think a how should we think about the cadence of that ramp to a year 2020 guy.
Yeah.
No I don't think we're thinking about seasonality any differently I mean, obviously, if theres some overwhelming effect that changes the economic trajectory you know that can.
That can change things, but in terms of seasonality no. We've always you in fourth quarter strong because of a number dimensions in our business and so there's there's typically even that drop off in first and then the grew sequentially in third quarter is often the strongest because the federal government buying cycle and that's still the federal government year end.
So we expect seasonality to be.
Comparable.
Yep barring any crazy macroeconomic things that the change trends for all of us, but we do expect a consistent seasonality.
Okay and the last one from me and I'll jump back into queue curious if you can provide an update on the traction you're seeing in the education in school market.
Sure.
It's a it continues to be strong in fact, we're doing a yeah, a pretty big integration of a couple of different sensor platforms for a major school district that includes gunshot detection emergency calls you fire and others that is up.
That is really interesting use case that yeah that makes it basically a you know a full disaster response platform.
For school and then of course, the wireless locks continue to be a really attractive component for schools because they tend to have such distributed facilities and disconnected facility. So schools are are definitely a good and growing vertical for us.
Okay. Thanks, a lot guys.
Thanks, Jason.
At this time. This concludes the Companys question and answer session. If your question was not taken you may contact I'd dentists Investor Relations team at I N D E Gateway IR Dot com.
Now I'd now like to turn the conference back over to Mr. Humphreys for.
For his closing remarks.
Okay. Thanks, operator, and thank you all for joining us we're going to keep a you all updated as our business progressive there's always though it might be a bit different in some cases for example, but next week. The Roth conference. This system. He might be aware is going to be held virtually so we'll be doing or one on ones through video conferencing since the physical conference as that.
We have been canceled, but we'll keep information coming in building our business.
And hopefully even finding ways to help our customers through some of the changes in business practices.
And and drive some additional business growth out of that so thank you all again for joining us and have a good evening.
Thank you for joining US today, you may now disconnect.
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