Identiv, Inc. (INVE) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Identive Group Earnings Conference Call. My name is Montoya, and I will be your operator for today. [Operator Instructions] I would now like to turn this presentation over to Ms. Darby Dye, Director of Investor Relations. Please proceed.

Hello, everyone, and thank you for joining us today. The purpose of today's conference call is to supplement the information provided in our press release issued earlier today, announcing the company's preliminary financial results for the first quarter ended March 31, 2012. Speaking on today's call are Ayman Ashour, Chairman and CEO; and Melvin Denton-Thompson, CFO. Before we begin, I would like to remind you that various remarks we make on this call, including those about our projected future financial results, economic and market trends and our competitive position, constitute forward-looking statements. These forward-looking statements and our other statements made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially. The forward-looking statements we make today speak as of today, and we do not undertake any obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to today's press release, our annual report on Form 10-K for the year ended December 31, 2011, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results. During this conference, we will also be making reference to non-GAAP results or projections, including non-GAAP revenue, gross margin, operating expenses and adjusted EBITDA. Each of these non-GAAP measures exclude some or all of the following: acquisition, transition and integration costs; equity-based compensation expense; adjustments to earnout estimates; overhead allocation; and amortization and depreciation; and may also include the assumed breakage from consumer payment cards where based on historical experience, the likelihood of redemption is remote, as well as timing differences on revenue associated with the personalization of preprinted payment cards and tag. Identive uses these non-GAAP measures internally and believes it provides a meaningful way for investors to evaluate and compare our operating performance from period to period. We caution investors to consider these measures in addition to not as a substitute for nor superior to Identive's consolidated financial results as presented in accordance with GAAP. A complete reconciliation between GAAP and non-GAAP financial measures is included in today's press release, which is available in the Investor Relations section of Identive's website. As a reminder, today's call is also available as a webcast with slides, which can be accessed from the Presentation, Reports & Webcasts page within the Investor Relations section of our website at www.identive-group.com. If you are viewing the webcast, you may enlarge the slides of this presentation by clicking on the magnifying lens on the bottom right-hand corner of your screen. I would now like to introduce Ayman Ashour.

Thank you, Darby. Good morning, and thank you to all of you for joining us. We had a poor Q1. We always expected a challenging quarter due to 2 reasons: one, seasonality; the other one, the absence of revenue from the German eID program. We've actually had the Germany eID program running for the last 6 quarters or so, which contributed nearly $3 million in our Q1 results last year. Q1 was also worse than we planned because of the impact of slowdown of various European citizen ID programs as the various austerity measures hit. You will see on the chart that our citizen ID business, which is normally 20% of our business, was down to just about 10% of our business. We also had deferrals of previously forecast orders for NFC tag-in-box and large -- from a large handset manufacturer as well as a couple of delays on payment orders, which hit our transponder business particularly hard during the quarter. We had good performance for many other areas of our business, which helped bridge the gap of the nearly $3 million due to the absence of German national ID work. In our ID infrastructure, we had continued strong sales to support telecom projects in Japan and China, as well as good order flow for embedded reader for the U.S. government IT security applications. We also won a new contract from a U.S. federal agency to supply more than 250,000 smart card readers for network log on, part of which we fulfilled in Q1. And we achieved design wins with 3 different enterprise customers for our new, secure tokens to support also cybersecurity initiatives. In the ID solutions part of our business, we expanded the rollout of our cashless payment systems in Holland to more than 100 locations and 50,000 users. And we added new payment capabilities and recurring business through our acquisition of Payment Solution in Germany. Sales in our enterprise security business grew 10% year-over-year, driven by the expansion of our customer base in the commercial and industrial markets in the U.S. and internationally, and also by improvement in the activities in the U.S. federal government sector. We recently launched NFC-based solutions for physical access control market and expect to be going into trials in this important area of NFC for business model. As we look forward, we're encouraged by the buildup of our order book to about $18.5 million based on commitments coming from across our business. More than 40% of our revenue stream now comes from business of recurring nature. Sales of payment products, services and systems now account for approximately 13%, a little bit over 13% of our total non-GAAP revenue and are our material and growing part of our business. With the acquisition of Payment Solution, we have hundreds of thousands of active users of our justpay brand at stadia across Germany. The operational and management capabilities of Payment Solution are nothing short of unique. In the 6 German soccer stadia we operate, we transacted over 1.1 million transactions during Q1, with over EUR 6 million in total transaction value. This is a phenomenal amount given the small number of games and the short amount of retail time available in soccer in comparison to other sports like baseball, for example. In the NFC space, in Q1, we achieved the important design wins to supply NFC tags to support electronic wallet projects in the U.S. We received NFC tagging orders in event management, smart posters, as well as other numerous applications. We also achieved initial orders from a new additional global handset manufacturer, who has launched NFC phones already. We added new NFC designs and are now supporting all 4 types of the NFC Forum tags with the broadest product range in the world. We're also encouraged with the moderate recovery of sales to our -- for our enterprise security systems to a couple of U.S. government agencies' projects in Q1 that have previously been delayed. Our total sales for the U.S. fed market were approximately $4.5 million, and included in our backlog now, a new order for $1.6 million from the U.S. Department of Justice, which we expect to fulfill in Q2. In our SaaS or software as a business, or idea as a service business, we are seeing new trials and expansion of existing trials from Global 1000 customers but are also seeing longer sales cycle for our identity management solutions as customers continue to evaluate the SaaS solution and pilot situations before moving on to corporate-wide deployments. We have formed our new identity management and cloud solutions divisions, combining our activity that focus primarily on employee ID and fast track the integration of idOnDemand -- ID on demand into our existing Hirsch Identive infrastructure with the aim of supporting our SaaS Infrastructure business, bringing cloud solutions to a broader reach of customers. On the corporate side, the -- our elevation to an accelerated filer with the SEC has created additional compliance obligations under Section 404. That in turn is requiring significantly more audit and compliance work, as well as financial reporting than in the past. Both in Q4 and in Q1, this has resulted in the late filing of our periodic filings. So as I just mentioned, we were disappointed in our revenues for Q1 but have been investing at the high level in R&D and sales and marketing. I would like to spend a little time discussing the kind of investment we are making, where are we making it, and why we're making it. We all see the tremendous excitement and projections for growth in contact-less, cashless payment in the whole world of NFC. These are areas we are making a significant amount of investment and are devoting a lot of resources to. While we're seeing some revenues in these areas, the markets are still not fully here. We believe they are coming and we believe that with NFC, it is not a matter of if. It is inevitable. I will discuss in a couple of minutes why we see Identive as the right company for NFC, but it is important to remember that in this area, our investment is in 2 parts: One is in the tags, readers, SDKs, et cetera. We call all of these NFC infrastructure. This is what we sell today, and we expand our product range from time to time in identiveNFC.com. So that -- you can actually see the products there. And this is what we had been mostly talking about thus far. The other big area of investment area is in our apps and cloud-based solutions, which we plan to start launching over the next 2 weeks to coincide with the Smart Card Alliance and the NFC exhibitions in San Francisco. The other major investment for us is in the expansion of our addressable markets. Here, I pick 3 particular areas: First, our investment in idOnDemand. Our running cost in this area has been approximately $1 million per quarter. We believe this is ultimately the path that many of our customers will go, and we have all seen how SaaS solutions have left traditional solutions behind. A second area is expanding our offering in transponders from smart tags, labels, stickers, basically soft paper-type products, into PVC cards and badges. Our new invention, SmartCore, allows us to enter this market and not just enter as we need to, but enter with be significantly improved and differentiated product. So this is an area that we're building up virtually from scratch. Finally, for those of you who have followed Identive from the days of SCM, we are now expanding our offering to cover the much larger market for physical access, as well as our traditional IT focus. Within our normal addressable markets, we continue to make investment to accelerate our growth and improve our competitive position and our launch of the new Hirsch Identive systems in Las Vegas a couple of months ago at the ISC and the expansion of our traditional IT reader business to mobile tokens, basically building the benefits of a secure card into a simple USB device with both contact and contact-less applications. Finally, we have the ongoing expansion of capacity at our transponder business. I'll now move specifically into the area of NFC and why Identive holds a unique position in the NFC ecosystem. Why is it that Identive is so well positioned in NFC? I'd like to give you a little bit more color also on what we are doing. To start with, what is NFC? NFC is high-frequency RFID with smart card technology. This is exactly what Identive is. From our launch 2 years ago, the manager of a smart card reader company with an RFID transponder and solutions company or what we call Secure ID. Today, Identive has the world's broadest range of tag designs for all 4 types of NFC, from all 6 major semiconductor companies producing ICs for NFC tags. We know of no other company would even have as many designs, and we are the only player in the NFC world that's addressing both readers and tags, operating across the entire value chain from wafers to apps. And we're the only NFC company with direct consumer facing experience with all of the technology behind it. So these are part of the uniqueness of Identive in NFC, and why we believe we're absolutely the right company to be making the big investment we're making now in NFC. Our particular experience in the consumer space helped us understand and appreciate and ultimately shape our own vision for NFC apps and services. We now come to our vision, which is a vision of a world full of NFC mobile phones and how consumers will operate in that world. Through our strong presence in Japan we have seen over the years that there are many big applications for simply using mobile phones as credentials or cards. They have had them in Japan for many, many years, but we actually believe that the biggest use of NFC is more with the web-based interactions and with the phone as a reader or as in the peer-to-peer interactions. So it is a smart poster's retail application, social network, loyalty and all these applications where the consumer is using his or her device with the user interface that they are used to and they like and they are comfortable with to interact with the physical world. It is this where NFC brings the physical posters, smart tags and other NFC-enabled physical items in the world into a dynamic, changing, personalized content. And this is the space that excites us, and this is the space we're targeting. We are using our deepened understanding of NFC technology and cloud applications coupled with the real-life applications in the consumer world where we're active to build our NFC solutions. I just like to mention here some of the important IT portfolio. We are growing and we have been building up, and I've discussed it in prior analyst and conference calls. But it is important to just be aware that today, we have either patents or patent pending in the overall dynamic tag management on transitional tags for NFC phones, augmented reality with NFC applications, one-time password generators and a whole host of other areas for many different applications. So this is really where we have been and why we have been continuing to spend at a fairly high level even though Q1 has not held up to the level we expected. So with that, I will turn the call over to Melvin to go over the Q1 results, then I'll come back and address the outlook for Q2. Thank you. Melvin?

Thank you, Ayman. The financials that I'm going to discuss in the following slides are non-GAAP measures based on preliminary results. Revenues for Q1 2012 were $21.9 million. This is a decline of 2% from Q1 2011. This decline resulted principally from the Germany eID reader project sale that we had in 2011 not to be repeated in Q1 2012, and some project delays in transponder division, as Ayman has already mentioned. Gross profit margin at 45% was lower than the 46% from Q1 last year, driven by volume reductions and product mix. The OpEx increase results from the continued investments in the areas of high future potential growth of NFC payment, Software as a Service and SmartCore. In particular, the increases are in R&D and sales and marketing. With the relatively weak sales in the continued investments in the future growth areas, the resulting EBITDA was a loss of $3.1 million. While we're continuing to grow R&D and sales and marketing, we have a number of reorganization projects in progress, particularly around the integration of recent acquisitions, which will improve efficiencies and reduce costs, in particular in the U.S., in Switzerland and in Germany. Next slide shows the below EBITDA items and the reconciliation to the GAAP preliminary consolidated net loss. Depreciation and amortization include $0.9 million of amortization of intangibles. The increase in the depreciation results from the recent investment in capacity for the transponder division and the acquisition of Payment Solution. Post-acquisition costs were $0.6 million, reflecting the investment and acquisition integration plan to improve efficiencies and reduce costs that I have just mentioned. Non-GAAP revenue recognition of $0.5 million is the EBITDA impact of the non-GAAP revenue adjustments. Going forward, this could be positive or negative depending on timing. The resulting GAAP consolidated net loss is $6.6 million. Next slide, we have the summary balance sheet. I will discuss the main changes in cash in a moment. However, the other main changes in the balance sheet arise principally from the acquisition of Payment Solutions. This include increases in goodwill; intangibles; property, plants and equipment; other accrued expenses and liabilities; and the increasing long-term obligations to -- principally relating to the financing of the Payment Solutions equipment installed in the stadia. The purchase price accounting for Payment Solutions is still preliminary. Cash reduced by $3.9 million in the quarter from $17.2 million to $13.3 million. The main uses of cash included $0.6 million in payments of debt note and mortgage; $1.5 million of CapEx, which included remaining payments on machines installed last year and down payment on further investment of capacity for the transponder division. In the quarter, we acquired the minority shareholding in idOnDemand. This was done for a cash payment of $0.5 million. And then acquisition and post-acquisition expenses totaled $0.8 million. These items all amounted to $3.4 million of the $3.9 million cash reduction. With that, I will hand back to Ayman for outlook.

Thank you, Melvin. We're seeing an improvement in Q2 over Q1, and we expect that the revenues would be -- our non-GAAP revenues would be somewhere in the range between $23 million and $25 million. We expect to continue an improvement in the U.S. federal government business. We also expect that the spending on citizen ID programs in Europe will be still weak and probably, some of the business will be deferred further back into Q3 and Q4. In our transponder business, we expect sales to recover after their uncharacteristic weakness in Q1 as the new capacity is more fully utilized and we are working against a strong order book for transponder and NFC tags. We are excited about the launch of our NFC cloud-based services platform, which is happening over the next couple of weeks that I mentioned earlier. We expect to be active in a number of trials during the second half of the year and expect to start seeing some revenues in 2013. We expect the gross margins in Q2 to show improvement over Q1, with improved volumes in transponders and the continued strong Hirsch Identive performance. We expect that the OpEx will decline as a percentage of sales. And overall, we remain positive about our business and about the fundamental growth in our industry and our sector and our position in it. With that, I'll turn it to the operator for -- to pool for questions. Thank you.

[Operator Instructions] Our first question comes from the line of Matthew Hoffman of Cowen.

It still seems like Europe is causing you some headaches here across the board. You mentioned the $18.5 million orders and I see in the slide deck a breakout of the order and then you're kind of pulling the eID. I assume that's the Germany ID program, or highlighting it in the underlying business. Can you give us an idea of what that backlog looks like maybe by major product group, what the trends are in the backlog? It looks to be one -- the one thing that's building momentum here is the backlog. So maybe if you could just break it out and also look at the geographical product footprint if possible.

This line is not terribly clear, so I'm not sure we've -- I got everything. The -- when you -- I don't know if you've actually looked at the webcast or not. But in the webcast, we've provided sort of the last 4 or 5 quarters backlog. And we're actually seeing this as building up quite a bit over the previous quarters. And we've also taken out the German ID portion of the backlog to make it easier to see. In terms of the breakout by division, it's really -- I can't give it to you immediately right now, but it is something that we would try to have in future quarters.

Yes. It just looks like -- I apologize if you can't hear me. I'm on the road, so I'm calling on a mobile phone. But the -- I think it looks like one of the positive here is the buildup of backlog and I just wanted to see any sort of trends you could tell us about the backlog in terms of is it -- is the buildup occurring on the NFC side? Is the backlog occurring in your Secure ID program. I was just looking for any sort of color you can give us or whether it's [indiscernible] and Europe falling back.

Sure. I mean, just to give you an idea, if we compare the end of Q1 last year, our backlog, excluding the big German national ID program, was $12.7 million. And we compare that to $18.5 million now. One of the other things that is important to be aware of is in the backlog, we don't count big blanket orders. So we don't really count them until they are firmed up with a reasonable firm delivery date, so -- and that's another thing that we do. We've seen buildup in the transponder business and in the transponder business, where you're doing the transponder, we manufacture. So we buy wafers and we manufacture the finished transponder. And this is where when you get a customer deferral, like what happened last quarter, it hurts you badly because your plan for a certain IC or plan for a certain thing, then it doesn't happen. In our -- most of the backlog would really be in service and software type contracts with universities, with the -- in transponder business, as I mentioned, in readers, and reader infrastructure projects, as well as enterprise security type applications like we do with the federal government and airports and similar projects of that nature.

Okay. All right. So switching gears here, a couple of other questions and I'll pass it onto the next guy. Your NFC -- you mentioned the NFC in a box program with one of the smartphone OEMs was pushed out. I know you won't like identify them, but can you give us some sort of idea about 2 things? First of all, the size or magnitude of a pushout, is it something that you would count it on and over multiple quarters? That will be kind of the first. Just help us understand that the opportunity that are out there for you for smart -- for tag-in-box. And the second is for you to identify either whether that just can come back. You mentioned you had a new handset OEM again. Help us to understand the scale of the possibilities on the NFC side with the handset OEM.

Sure. I think the -- first of all, the order -- the blanket order or as it's known in the Europe as frame order that we've been working on is for between 10 million and 15 million tags. And that particular -- and it has been mostly going to Asia-Pacific and a little bit into Europe. And that particular manufacturer, their handsets have not been going as fast as they have projected. So they have just had to take a little bit less. From that particular manufacturer, they are expecting that the business will be coming back onstream during later quarters of this year. In terms of the other global manufacturer that we have recently started receiving orders from, the initial orders are less than 100,000. But we expect and we have inquiries from them for significantly higher numbers. The numbers of the various -- I'll give you an idea just in the scale of things, we -- if all of the things that we're working on right now materialize, we are going to be out of capacity again soon. So it is our transponder capacity this year. We're adding up. We're up to about 150 million depending on the mix. We've added -- for this quarter, we're adding the conversion or the making of a label and a tag capacity in this area. We're getting some very strong initial orders for what promises to be much bigger orders. So it is -- mostly, it ends with promises for several millions to follow. I'm not sure, Matt, if that has answered your question or not.

No, that's perfect. That is much color as I know you can give right now, but we appreciate it. Last question from me, just coming back to the annual guidance. I know you gave us visibility on top line to $23 million to $25 million. I believe I heard you say the revenue guidance -- or was $23 million to $25 million for next quarter. And if you -- what sort of split should we be using? Should we assume it's a traditional kind of 60 -- oh, I'm sorry, 40-60 the split for total revenue, first half to second half? And then also talk about your cash and your burn rate and what you guys are going to due to reduce that?

Sure. The -- first of all, I think the mix between H1 to H2 for us has ranged anywhere between 38% -- to 38-62 to 45-55. Last year, we were disappointed in the second half because the U.S. government business was just a lot weaker than we expected. So I don't want to be giving you different excuses every quarter for things that haven't happened. So we're -- so I think the 60-40 is a fair one. We're hoping still to be able to see stronger business in the second half. And the indications we have from our various guys in the field are very positive. But I think we would like to ask are the Q2 numbers, give a more solid view of our H2 as a whole as well as Q3. In terms of the cash position, Payment Solutions actually helped us quite a bit on the cash for the quarter, adding about $1.7 million because the business does generate a lot of cash. And our expectation is that the burn rate would be reducing as the business holds up in terms of the sales and the EBITDA generation. Obviously, if that does not happen in Q2, we'll have to slow down much more drastically but we are optimistic that, that would not be needed. But that's obviously one of the things that we have to and we continue to look at very closely. And just to give you an idea, so our expectation is that the cash -- probably cash position at the end of Q2 will probably be in the mid single digits to allow for some of the payments for the debt and some of the CapEx.

Our next question comes from the line of Michael Kim of Imperial Capital.

Ayman, could you speak a little bit about the federal projects and the contract awards that you've announced? It sounds like maybe the funding delays are starting to come through? And is it your expectation that the federal business should do better than sort of the $19 million that we saw last year?

Yes. I think we're beginning -- I mean, some of the projects last year, the delays, were not necessarily funding related. Some of it was funding but in some cases were sort of the sheer size of the projects, and the projects' management requirement. Sometimes, there were just not enough cleared people to be able to do the work. So some of these issues are sorting themselves out. We expected -- our plan for the year is to do somewhere near $23 million to $25 million and in the federal business and we feel that, that number is still reasonably on track. And given that $4.5 million in Q1 if you sort of -- if we continue on the space and you have a stronger Q3 as you normally would expect, then it would probably be somewhere in that range. The -- but again, the federal government, especially in an election year, there is a lot of uncertainty. We feel pretty good about Q2. And frankly, to feel good about Q1 and Q2 with the federal government is a really important thing. I think it's a good thing for us.

And then switching to idOnDemand, obviously, you guys are undergoing some trials right now. What are some of the initial feedback? And what are your expectations for some of those pilots turning into enterprise-wide deployment?

Just to give you a bit more color on idOnDemand, the revenues in idOnDemand for the quarters were like $200k or $300k. So it was nothing very big. The range for the full year probably still remains somewhere between $2 million and $5 million, dependent on a couple of big rollouts. The kind of clients we're working on, I would say, are even G -- Global 100 rather than Global 1000. So initially, when Jason and the guys started the company, their expectation that they will be mainly going after the mid-sized enterprise, but where we've had the biggest traction is with the G 1000. And so the trials tend to be quite extensive. Part of what we need to do to support the trials are the expensive data centers we operate, secure data centers, all the software and all the services we have. We've now moved actually our current production facility from Pleasanton down to Santa Ana as part of that integration. So we're really trying to reduce the cost base to allow for a longer sales cycle, but we continue to feel positive about it. And a couple of things to be aware of when we specifically look at idOnDemand, because idOnDemand has spawned into 4 different activities within Identive. One activity, obviously, the original SaaS activity, idea as a service, but also into offering, through Hirsch Identive, cloud solutions. And then the 2 other areas is into the NFC and the cloud solutions on NFC. And finally, an important area is in enabling us to expand our traditional IT product into physical and IT broad range access control product, again not just a need to, but a product that is coming in very highly differentiated. And I think, Mike, well, you know the space very well and you have an appreciation for how large that market and sorts of opportunity and it does, well I'm sure.

And just switching to transponders, you talked a little bit about some volume expansion starting in the second quarter, but which vertical markets or opportunities are you starting to see pickup, some momentum? Is it in the transit area or ticket or is it payment? Or which verticals are you starting to see some strength?

NFC, payment and transit are the 3 main areas. Some of our activity, particularly in what we call the TOM pay or the payment tag with the TOM technology, the TagOnMetal, we never really expected we would have quotations out in the millions. But we right now have quotations out in the millions for these tags. And these are high-value tags. And we've got activity on projects globally from Japan, India, U.S., everywhere, lots in Europe. So TOM activity is very high and NFC tagging is very high. One of the products that we're beginning to get a fair amount of traction on is the transitional NFC tag that combines secure code with an NFC solution. So for people who have an iPhone or an older phone without NFC capability, it can -- it will still be compatible. You obviously will get a richer experience with an NFC phone.

Our next question comes from the line of Joe Munda of Sidoti.

In the call, you talked about the stadium venue, soccer stadiums, where you guys are experiencing success with cashless payments. And you actually mentioned the news where the time of the sport could actually be longer than a soccer game. Is there any possibility that you do bring that infrastructure to the United States to like a baseball or football venue? And are you also looking at possibly expanding to the Olympics or the World Cup that are coming up in Brazil?

Well, the -- I think the -- our business right now, there are 2 sets of -- 2 different competencies that we have in this area, Joe. We have the whole infrastructure, the software and the products that we sell, and we supply these into other countries. We supplied them into Ukraine last year. I think this is where the European Championships is going to be held this year. And we supply them into other markets. And we're constantly on the lookout for different opportunities. Then the other competence that we have, which I talked about, is the operational competence. And if you look at actually on some of our social network channels -- I think it's on the Flickr or something, you'll see a lot of pictures. If you go to our website, askidentive.com, and hit the Flickr on the left, you'll see a lot of pictures because we have a lot of people at the stadia in Germany right now. I personally was at a game, Dortmund game, and it was -- about 82,000 people were in attendance. You can't pay with anything there except our product. So you can't pay with cash. You can't pay with Visa. You can't pay with MasterCard. You can only pay with justpay. And to support that, it's a complex process. It is unique to the German market because it involves things like the deposit you have on your beer glass and all kinds of similar things. How transportable this would be? It's really too early for us to tell. We have 6 stadia in Germany now. We're the only interoperable system in Germany. We're really excited about it, by far the biggest on the continent and Continental Europe now. But it's still too early to say we can take this expertise and move it to Fenway Park, for example. And the other thing that you'll find is that in soccer, just because of the nature of it, you don't have people revolving around the stadia selling peanuts or sausages or anything else because people just will not tolerate you passing in front of them when the one goal in the 90 minutes is being scored. So I hope that it answered your...

I understand that. I can see the multiple gains in Europe. But isn't that where your contact with readers would come in? And isn't that another opportunity?

Indeed, indeed. But you see, the thing is you'll be amazed because when we put these systems in and in the 6 stadia where we're really operating, it's sort of a -- it is a build, own, operate, transfer type model. In these stadia, the retailers and the stadia owner experience significant increase in the retail activity from before the system was installed to after. So quite a bit of increase. It ranges from sometimes 20% increase to significantly higher than that. So it is good for everyone and it just -- it's phenomenally fast and easy, labor-intensive still but fast and easy. And we're optimistic that with -- over the years, as NFC phones are -- get introduced that, that would drastically change this whole area as well.

Yes. I mean, I'm guessing. It's because in the United States, we're not as far along with NFC as I guess the rest of the world is. Is that one of -- also one of the reasons why you guys haven't -- are to bring that here?

The -- I think it is -- that's probably a smaller part of it. I think we're expecting -- as we launch our NFC platform, we're expecting to start doing some trials at universities and different places in the U.S. You would have noticed. Last week, we were addressing the California University Association. I can't remember the exact association. It was the California, I think, persons or something like that, university persons in California about NFC. So we're trying to get more and more awareness of it out. Obviously, the amount of retail activity in the U.S. is phenomenal in sports games. In Germany, quite often, you end up with an average of probably EUR 5, EUR 6 for a top class, sort of a first division if you will, soccer game. And in Fenway Park, you can't buy a beer with $5. So the retail opportunity in the U.S. would be much, much bigger, but I don't think it is something that we're ready to address right now. As you can see, we're already committed into a lot of areas and we're spending a lot of money on a lot of things. And I think you and the 2 previous analysts would probably hammer us on the head much harder if we're doing more than what we're doing now.

Yes. And well, that brings me to my next question. With the cash, you have $13-or-so million in cash. Is that cash going to drop down from mid single digits 2Q? Do you guys have enough cash?

We -- typically, for us, Q1 and Q2 are cash consuming. Q3 and Q4 are cash generative. So you would see that last year, on operating basis in Q3 and Q4, we're generating cash. And our expectation that, that would be the case here as well. Obviously, we would like to have a lot more cash, but we're not in the market to raise cash. And we want to be sort of delivering the performance within our means and we feel reasonably confident in our ability to do so. And keep in mind also that our investment in R&D and sales and marketing is something -- and one of the reasons I detailed out the 3 different kinds of investments we're working on is a lot of what we're investing in is not necessarily revenues for this year. And in the case of the NFC platform, the revenues for next year are also small. So we're making significant investment for the long-term future of the business. And we feel very -- we feel incredibly excited about it because of where we're at. I mean, the -- it's -- NFC is very complex and the ecosystem is very complex. And a lot of people talk about it day and night. But as you dig deeper and deeper into that, you will find us all over it.

No, I mean -- I understand what you're saying, but what I'm asking really is with what's going on right now in Europe? And I was recently there with austerity and 1/3 of your business coming from -- more than 1/3 of your business coming from Europe. I mean, how much are you factoring that in, in terms of your -- this year budgeting and next year as well. It seems like some of those projects that you might have with citizens or the European countries, how much are you guys factoring austerity in there or [indiscernible]?

Sure. We are factoring as sort of realistic cases. And if the realistic cases don't happen and it is much worse, we know we'll be able to react to it. But being very active in Europe, we have a strong pipeline of projects, of orders, and there is a lot of comfort in sort of -- in the various things we're working on. Keep in mind the citizen ID program is really the bulkiest bit of our business and the -- when we had the German national ID order, $13 million, it was really the only single order or it was actually 4 different orders of that magnitude. But let us not forget that the -- Germany still has its population of over 80 million people. And of this 80 million people, approximately 60 million, 65 million people have the new national ID cards and 1/10 of that 65 million people gets the new cards every year. And so far, the total number of readers that have been supplied are 1.2 million, of which we have 70% market share. So sooner or later, we believe that there will be additional business coming and we would be very well positioned for that German ID future business. So these things have not gone away, and the new cards are being rolled out. So that's an important area for us. It is bulky but we continue to be active in it.

Our next question comes in the line of Bhakti Pavani of C.K. Cooper & Company.

My first question is related to the German national ID program that was not at all considered in the Q1 revenues. Do you think that program is coming back or it's just been delayed or it's gone? What is the...

I think, this was really -- that's the point I was just answering to Joe, that the -- what we supply for the German ID program is the Secure -- what is known as Secure IT kits, which is -- it's a kit, consists of a software and a reader. And the new German ID that's been rolled out over the last couple of years and will continue to be coming every year is basically an electronic ID that allows you from your home to get online and to do certain transactions with your city. So ultimately, the ratio of readers to cards or Secure IT kits to cards would be 1:1 or even 2:1. That will take time, and our expectation is that, that business -- that will be significant business in the coming periods of time. I don't have active orders on it right now, and I'm not sort of super excited about the citizen ID segment of our business this year. But because of the points made earlier in terms of the austerity in Europe, etc., but we expect that, that business to be an important part of our future.

Okay. So how much was your revenue accounted for the European revenues, like of your total revenues? How much was the European revenues for this year -- for this quarter, I'm sorry?

The EMEA revenue, you'll see it on the first slide of the webcast. And we'll be happy to email it to you. It was 37%. That was the EMEA for Q1. And we'll make sure that we email you the pack as well.

Okay. Just talking about the NFC tag in the box, on the last call, you had mentioned you received blanket orders. And I think Mike have asked this question that it's been delayed. So just curious to know, did you guys ship any NFC tags for this quarter? And how much was that comprised of revenues?

I don't have a figure for you for Q1 on this particular order. We'll -- we can investigate it, but I don't have a figure for you right now. But we are shipping NFC tags every day. Just to give you an idea, on even the consumer type or retail type website we have or online market, identiveNFC.com, there are daily orders to companies, to businesses. But in terms of the bulky orders, we are shipping off fairly irregular basis.

Okay. It seems like you are making good investments in the R&D and sales and marketing. Would it be fair to assume that the same amount or the same portion of investment will be carried forward throughout the year, through all the previous quarters? Or it's just that Q1 and Q2 are going to be heavy?

In percentage terms, Q1 and Q2 will be heavy. We expect in absolute terms that the amount, the run rate, to remain largely the same. But in percentage terms, as we get into stronger quarters, the percentage would go down.

At this time, there are no questions. I would now like to turn the call back over to Mr. Ashour for closing remarks.

Well, thank you very much for being part of our call, and we look forward to give you an update and hopefully with a better quarter in Q2. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.