SoundView Technology Group
Update on NXT-ID (NASDAQ: $NXTD); From Technology to Revenue
BOSTON
- April 20, 2017 (investorideas.com Newswire) SoundView Technology Group (http://soundview.co) releases the
following company update for NXT-ID, Inc. (NASDAQ:NXTD).
NXT-ID (NXTD $1.51)
FROM TECHNOLOGY TO
REVENUE
KRIS TUTTLE, APRIL
19, 2017
Despite
a positive update, a strategic merger agreement and major sequential quarterly
growth shares of Nxt-ID have declined 25% over the past week. After years of
being in the development stage the company is reporting very large YoY and
sequential increases in revenue. The consensus view is that investors fear
additional shares coming to market or a financing. But the cash flow profile of
the company is now very different. Consistent high margin revenue will enable
them to improve rather than impair their balance sheet.
Nxt-ID
filed their 10K for 2016 and held an online presentation to review results,
discuss current business plans including the proposed merger with Fit Pay and
take some questions from their analysts.
We
covered the Q4 results in a prior note but it's worth reiterating. With the Q4
results, Nxt-ID transitioned from a no-revenue development-stage technology
company to one generating material revenues ($4.5M in the quarter ended
December.)
Here
is a reminder of the highlights from the Q4 report:
The
headline number of $4.5M in revenue compares with $3.2M in Q3 and nominal
revenues a year ago. Revenues for the full year 2016 were $7.7M compared with
less than $1M in 2015.
LogicMark - Most of the
growth in Q4 was driven by LogicMark which continues to be a consistent and
strong performer. We are expecting (and modeling) continued linear growth for
LogicMark in Q1 and Q2. We could see a step up in LogicMark revenues beginning
in later in 2017 with expanded distribution and strong one-time purchase
products for PERS.
WorldVentures - An initial
shipment of cards was delivered in Q4 for WorldVentures to complete their
testing. The exact timing of the major release of the WV flye card will depend
on the completion of tests.
In
short, LogicMark is steady and growing with WorldVentures beginning to kick in
with volume shipments.
The FitPay Combination
FitPay
is a technology platform that enables contactless payments on mobile and
wearable devices. The platform relies on the tokenization scheme made popular
by Android, Apple and Samsung Pay. Thus making contactless payments possible on
over 10M retail POS terminals.
The
company has gone a step further in creating more open infrastructure (API and
SDK) that allow their platform to be tailored for uses other than payments. For
example, applications like access control in hotel rooms, office buildings and public
transit.
FitPay
also brings a back-end integration and relationships with service providers and
card issuers. This area is one of the most difficult parts of making payments
work for the consumer. Combining these integrations with Nxt-ID device level
technologies can create uniquely capable products in this emerging space.
Longer
term, the most interesting part of the merger may be how it changes the
management team and culture of the company. The management of FitPay has deep
experience in payments. The CEO, Michael Orlando, was recently a senior VP at
CyberSource and the CTO, Scott Stevelinck, served as the Chief Technical
Architect at Visa. There are more members of the FitPay team with strong
backgrounds in the space and skills that would greatly expand and compliment
what's in place today at Nxt-ID.
Until
the transaction is finalized and the team settles we can't yet be sure how the
staffing and roles will play out. But retaining and mixing in some of the very
capable team to essentially run with the payments side of the business would be
a huge asset for the combined company.
Some
cynics have asked us why FitPay would merge with Nxt-ID. Our speculation is
that FitPay may have leaned just a bit too heavily on the wearables market
(especially the non-Apple watch part of it) and this is an area that is
developing more slowly than industry experts anticipated. Consumers adoption of
new technologies is hard to predict and often not linear. Wearables will
certainly be commonplace, but timing of mass market acceptance is unknown.
We
see the FitPay transaction as a major change for Nxt-ID, one that puts them
more convincingly on the path to be a $100M+ revenue company with the assets
and management team to run it.
Model Updates, Valuation &
Conclusion
Nxt-ID
management doesn't give forward guidance. However, we know that the LogicMark
business has been predictable and we will have two quarters of inventory build
to enable the official launch of the WorldVentures flye card sometime in Q3.
That should support very strong YoY growth in Q1 and Q2 of 2017.
1H
2017 revenues will handily exceed the entire 2016 and for the full year 2017 is
shaping up to be up 3x 2016.
We've
updated our IV model to reflect recent results and refined expectations for
2017 and beyond. We'll have to do it again once FitPay closes and we get
another quarter or two of operating results.
Our
IV estimate remains $18/share. The updated model is below.
Additional
Disclosures
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 at the time this report was published. (see back page for more general
disclosures.)
ABOUT SOUNDVIEW RESEARCH
SoundView
conducts independent research - mostly on emerging technologies. We like
thematic-driven companies where technology is involved and use analysis to
identify the most promising investment opportunities.
Our
business model is combination of subscription fees along with some direct
investments and advisory fees. We measure our success by the quality of our
analysis, accuracy of the conclusions and the size and influence of our
audience. We apply our own proven approach to valuation that we call intrinsic
value (IV) for informing investment decisions and optimizing portfolio
management.
Contact:
Kris
Tuttle
SoundView Technology Group
kris@soundview.co
+1-617-828-6462
NXT- ID Inc Contact:
Media:
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