Lehman Bros. First Call Note
- Estimates charge at $35 per click
- The service comes with a guarantee that the prints taken will be useable or they will be retaken for free (this compares to a nearly 40% rejection rate when ink prints are used.)
- At some point in the future the contract also makes the provision for bio-ID of individuals taking certification tests, such as the Series 7 for the NASD, to ensure no one has hired a professional test taker.
- Revenues will ramp up slowly over the next few quarters and COULD HAVE A MEANINGFUL IMPACT ON FISCAL 1999 RESULTS FOR IDENTIX.
Do I smell an estimate increase for 1999?
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Impact of NASD Deal revisited -
The economics of the lease are driven by the third party lessor. Randy said that the TP600 sales would be to an independent thrid party. According to GAAP accounting rules, the 3P lessor can not have recourse to IDX or IDX would have to record the sale in installments. Therefore I believe that the sale/leaseback will be for 3 to 5 years at an interest rate of 12% to 18%. Any other terms would create too much risk for the lessor. Also, the 3P is not likely to agreet to pay full markup on the TP600s. If the 3P balks, the deal does not get done.
The annual payment on a $40,000 TP600 @ 15% interest for 4 years is $14,000. I threw in an additional $6000 for miscellaneous costs per year just to be safe to get $20,000 per year. The $6000 is probably too high and the TP600 lease amount would decrease greatly after 4 years. I will adjust the annual cost to $18,000.
With the new $35 per click figure I recalculate my estimate to be:
250,000 printsets / 250 centers = 1,000 printsets per center * $35 = $35,000 - $18,000 = $17,000 profit per center * 250 centers = $4,250,000 total profit * 50% profit split * 65% tax adjustment / 25 million shares = 5.525 cents per share.
As I said before, this calculation shows the NASD contract covering ALL fixed costs of each center and additional contracts going directly to the bottom line. |
