Right back at you Steve with a thanks for all your posts.
Anyway, here's another Lehman Brothers Update:
March 15, 2004
Identix Inc (IDNX - $5.15) 2-Equal weight
Company Update
Critical Technology Acquisition
Investment conclusion
Lost amid all the hoopla of Identix' big Government
livescan contract win last week was its
announcement of an acquisition which we believe
can potentially revolutionize the accuracy of facial
recognition technology. IDNX has acquired the
technology and assets of Delean Vision Worldwide.
Delean, owner of a new technology we know well,
has created a biometric around algorithms extracted
from unique characterisics of the human skin. Co.
tests have shown the tech achieves a remarkably
low level of false reads and false rejects. What does
this all mean?
Dividend Yield NA Current BVPS 4.7
Convertible No Debt To Capital 2.0
52 wk Range 7.25 - 3.57
Summary
The tech can be easily merged with facial
recognition biometrics, possibly eliminating the
material error rates still bedeviling full acceptance of
the technology. (But the tech can also be applied to
other biometrics, as well). This could lead to faster
of use facial recognition to securing & verifying travel
documents.
We await tests by National Inst. of Standards & Tech
to verify our very high optimism on this acquisition.
What is This Potentially Market-Altering, Biometric Technology Identix has Acquired?
We became aware of privately held, Delean Vision's “Visual Skin Print” technology about nine months ago. “Visual Skin
Print” technology uses the details of the skin for authentication. It locates characteristic areas of skin on the user's face or
the user's hand, and then uses advanced, proprietary algorithms to match these "visual skin prints", with a claimed
probability of a mistake of less than one trillionth. The technology can utilize standard PC’s and web cams (i.e., it doesn’t
require proprietary cameras and viewing screens to work), is relatively inexpensive, and – as we can attest – is user
friendly. Its applications potentially cover many markets, and it can be integrated with several types of biometrics, although
as we’ve noted above, we believe that facial recognition will see the most immediate benefit.
The claimed levels of false rejects and false acceptances are nothing short of astounding. The one big question mark we
have noted with Delean is that the National Institute of Standards and Technology (NIST) has not yet tested the efficacy of the technology – as it has for many other areas of biometrics. We had expected testing to begin within several months, and
we assume that the acquisition by Identix will not change that timetable. As we note below, some of the purchase price is
tied to the award of certain patent applications.
To acquire Delean, Identix issued 675,000 shares of its common stock and a warrant with rights to purchase up to 800,000
shares of its common stock at $4.70 per share. Two hundred thousand of the common shares are subject to a six-month
lock up, while another 200,000 shares are subject to a 12-month lock up. The exercise of the warrants will be subject, in
increments, to the final ward of certain identified claims in the patent applications Identix is purchasing.
Estimates, Rating and Target
At this time we are maintaining our 2 –Equal weight rating, our F3Q04 EPS estimate of ($0.05), our F4Q04 EPS estimate of
($0.04), and our F2005 EPS estimate of ($0.15). IDNX, as it has for the last ten years, remains our most significant “show
me” story. Given the huge potential of the biometrics market, which is currently $300-$500 million and could be a multiple
billion dollar industry in 3-5 years, and because IDNX certainly the indisputable leader in the biometrics industry, we believe
investors have been and will continue to value the company on a multiple of its biometric revenue, and eventually earnings.
IDNX has traded on a multiple of 3x-10x revenues over the last five years. Because of the BPA and our belief that IDNX is
getting closer to fulfillment of several large contracts, we believe shares should be valued toward the upper end of the
historical range. We believe the market expects this company to double or triple its revenue base over the next five years.
Based on this expectation, our target price remains $10.
Analyst Certification:
I, Jeffrey Kessler, hereby certify (1) that the views expressed in this research note accurately reflect my personal views about any or all of
the subject securities or issuers referred to in this note and (2) no part of my compensation was, is or will be directly or indirectly related to
the specific recommendations or views expressed in this note.
Company Description:
Identix is the leading producer of personal identification and verification systems for security access control and law enforcement
applications.
Company Name: Disclosures Ticker Price () Rating
Identix Inc C IDNX 5.15 2-Equal weight
Other Team Members:
Scott Schneeberger, CFA 1.212.526.9351 sschneeb@lehman.com
Important Disclosures:
The analysts responsible for preparing this report have received compensation based upon various factors including the Firm’s total revenues,
a portion of which is generated by investment banking activities.
C - Lehman Brothers Inc. makes a market in the securities of this company.
Risks Which May Impede the Achievement of the Price Target:
IDNX: Identix's operating environment and end markets remain challenging. The continued lack of visibility into economic recovery and/or
corporate and governmental adoption of Identix's product solutions creates uncertainty and will continue to do so until these issues are better
addressed.
Other Material Conflicts:
IDNX: Identix was advised by Lehman Brothers, in its merger with Visionics, the leading provider of facial recognition technology.
Key to Investment Opinions:
Stock Rating
1-Overweight - The stock is expected to outperform the unweighted expected total return of the industry sector over a 12-month investment
horizon.
2-Equal weight - The stock is expected to perform in line with the unweighted expected total return of the industry sector over a 12-month
investment horizon.
3-Underweight - The stock is expected to underperform the unweighted expected total return of the industry sector over a 12-month
investment horizon.
RS-Rating Suspended - The rating and target price have been suspended temporarily to comply with applicable regulations and/or firm
policies in certain circumstances including when Lehman Brothers is acting in an advisory capacity on a merger or strategic transaction
involving the company.
Sector View
1-Positive - sector fundamentals/valuations are improving.
2-Neutral - sector fundamentals/valuations are steady, neither improving nor deteriorating.
3-Negative - sector fundamentals/valuations are deteriorating.
Stock Ratings From February 2001 to August 5, 2002 (sector view did not exist):
This is a guide to expected total return (price performance plus dividend) relative to the total return of the stock’s local market over the next 12
months.
1-Strong Buy - expected to outperform the market by 15 or more percentage points.
2-Buy - expected to outperform the market by 5-15 percentage points.
3-Market Perform - expected to perform in line with the market, plus or minus 5 percentage points.
4-Market Underperform - expected to underperform the market by 5-15 percentage points.
5-Sell - expected to underperform the market by 15 or more percentage points.
Stock Ratings Prior to February 2001 (sector view did not exist):
1-Buy - expected to outperform the market by 15 or more percentage points.
2-Outperform - expected to outperform the market by 5-15 percentage points.
3-Neutral - expected to perform in line with the market, plus or minus 5 percentage points.
4-Underperform - expected to underperform the market by 5-15 percentage points.
5-Sell - expected to underperform the market by 15 or more percentage points.
V-Venture – return over multiyear timeframe consistent with venture capital; should only be held in a well diversified portfolio.
Distribution of Ratings:
Lehman Brothers Equity Research has 1627 companies under coverage.
40% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating, 38% of
companies with this rating are investment banking clients of the Firm.
40% have been assigned a 2-Equal weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating, 10%
of companies with this rating are investment banking clients of the Firm.
20% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating, 67% of
companies with this rating are investment banking clients of the Firm.
This material has been prepared and/or issued by Lehman Brothers Inc., member SIPC, and/or one of its affiliates (“Lehman Brothers”) and has been approved
by Lehman Brothers International (Europe), authorised and regulated by the Financial Services Authority, in connection with its distribution in the European
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written permission of Lehman Brothers. We do not represent that this information, including any third party information, is accurate or complete and it should not
be relied upon as such. It is provided with the understanding that Lehman Brothers is not acting in a fiduciary capacity. Opinions expressed herein reflect the
opinion of Lehman Brothers and are subject to change without notice. The products mentioned in this document may not be eligible for sale in some states or
countries, and they may not be suitable for all types of investors. If an investor has any doubts about product suitability, he should consult his Lehman Brothers
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