THE SECURITY TECHNOLOGY INSIDE
KRIS TUTTLE & STEVE WAITE:
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Nxt-ID has grown and evolved into a security technology company that uses partnerships and acquisitions to monetize their innovations and reach into multiple end markets. The LogicMark business in healthcare is already generating substantial revenue and the WorldVentures business with the "Flye" smart card is about to enter a high volume stage of deliveries and begin to generate revenue as well. We will see these two areas expand and others added. Most recently Nxt-ID has joined the Cisco Solution Partner program to provide biometric and encryption solutions in conjunction with other ecosystem partners. [Investors should recall that in Q1 of this year Cisco paid $1.4B to acquire Jasper to leverage their IoT platform in the enterprise market.]
We will be monitoring each area individually as it grows and contributes to the overall business. From a positioning standpoint, investors should consider Nxt-ID as a technology provider as shown in the figure below. The company strategy is to grow the existing partnerships aggressively in 2017 and add new ones that will drive growth in 2018 and beyond.
The rest of this report goes into greater depth on the newly-added LogicMark business in PERS and also the existing smart card business - both the WorldVentures Flye card and the evolution of the original Wocket card/wallet. We've also included a brief update regarding the third quarter of 2016 along with a brand new IV model which supports a share price of $18. We will get more details out after the company holds their full ER call in mid-November.
Recent Q3 Developments & Financial Results
In our August research note we highlighted the completion of an acquisition (LogicMark) which marked a big transition for NXT-ID from an early stage, largely pre-revenue company to one with commercial metrics of growing revenue and improving EBITDA.
After the stockholders meeting on September 1st the company completed their reverse stock split and other matters pertaining to the stock and balance sheet. The full details can be found in the SEC filings. These actions have allowed NXT-ID to achieve compliance with NASDAQ and free themselves to focus on growing the core businesses and extending their reach into new markets.
A clear harbinger of better things came in the release of preliminary Q3 results on October 10th. The company announced (emphasis ours):
"Revenues were approximately $3M for the three months ended September 30, 2016 compared to $418K for the same period in 2015. Revenues from the recent LogicMark acquisition were included from July 25, 2016, and accounted for approximately 90% of the increase from the comparative period in 2015. The operating loss for the three months ended September 30, 2016 narrowed to approximately $500K compared to an operating loss of $3M for the same period in 2015. The net loss for the three months ended September 30, 2016 was approximately $1.5M after approximately $1,000,000 in interest expense compared to a net loss of $3.543M for the three months ended September 30, 2015."
To summarize - $3M in revenue and a $500K operating loss versus $418K in revenue and a $3M operating loss a year ago. To be fair, interest charges were still substantial but we expect this to improve in the next several quarters.
In the very short-term, Q4 should offer another step-up in business results since we will see a full quarter of LogicMark in the results and deliveries of the WorldVentures smart card will commence in Q4 as well.
In 2017 NXT-ID will no longer be a company with regular reports of growing revenues and narrowing losses. For the next year we are expecting total revenues of $37M with very easy YoY comparisons all year long. The current market cap is less than 1x 2017 revenues and compares to our IV of $18 /share. (See our updated IV model in the valuation section below.)
Longer-term we expect to see more developments:
- NXT-ID has broad ambitions around their competencies and IP in biometrics, security, sensors, miniaturization and business development. That means they have quite a few "irons in the fire" with a range of partners, large and small. NXT-ID is the tail on the dog and often can't control the outcome or timing of these initiatives. However, some of them are likely to come to fruition.
- LogicMark is a major expansion for NXT-ID into a new market that offers myriad possibilities. It's a solid business today with some obvious near-term growth catalysts for the next year. But we see robust activity and investment in what we'll call the convergence of the internet of things (IoT) and healthcare. This is a market that will bring together two-way communication, sensors, biometrics and security to make home and remote care for chronic medical conditions, including "aging in place", a reality.
Now we have a revenue and earnings basis upon which to build a new IV model for NXTD. We will get more details after the company reports full Q3 results but based on what we already know, Nxt-ID will be reporting consistent revenues against very easy YoY comparisons for the next several quarters.
Our new model mostly reflects the additions of LogicMark and WorldVentures. With respect to LogicMark, we believe new products and expanded distribution will propel growth even faster as we get later in 2017 and into 2018. The Cisco arrangement is new, but as part of the Cisco IoT ecosystem we expect Nxt-ID to generate some revenues from this channel in 2017 and for it to ramp in 2018. Additional technology integration deals could add to our projections but none are "baked in."
One area we have been extra conservative in is the WorldVentures Flye card. If the card takes off (sorry!) then the revenues could be very materially beyond what we have modeled. But 1) we want to see the card in the field and 2) we want to see how WorldVentures rolls it out to members - existing ones and new ones. The second point is a big swing item regarding our future estimates of their demand for more cards from Nxt-ID.
At the current price, the stock is trading well under 1x 2017 sales and our IV suggests an $18 near-term price objective.
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SoundView serves as a strategic advisor to NXT-ID and provides advisory and other services to the company including strategy advice, company positioning, investor communication methods and ongoing technology and market research. SoundView employees do not have positions or other vested interest in NXT-ID stock. Additional disclosures at :
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