NXT-ID, Inc. (NXTD) has transformed tremendously in the past year, executing on an acquisition strategy to build upon its legacy technology to transform from a bit of a one-trick pony to that of a diversified company with increasing revenues and a multi-prong attack that addresses the booming Internet of Things (IoT) market. Thanks to the closing of the buyout of LogicMark, LLC last July and a new rewards card technology program with WorldVentures, revenues surged in the first quarter. With the recent combination of businesses with Fit Pay, the developer and owner of a technology platform that adds contactless payment capabilities to wearable devices, shareholders are likely to see continued improvements in the fundamentals at NXT-ID going forward.
Through organic efforts and acquisitions, the company now has a portfolio of core technologies integral to the next-generation of IoT, enveloping payment, encryption, miniaturization, sensors, advanced biometrics and cloud services.
Core Businesses Improving Fundamentals
In a recent conference call on results from the first quarter of 2017, NXT-ID CFO Vin Miceli discussed some of the highlights of the quarter ended March 31, 2017. Revenues rose from $42,000 in Q1 2016 to approximately $6.7 million in the recent quarter. The large increase was attributed to the LogicMark acquisition last summer and shipments of smartcards as WorldVentures began beta testing the loyalty card program with the purpose of adding features, tweaking bugs and reacting to feedback ahead of a full launch to its more than 500,000 members.
NXT-ID CEO Gino Pereira later in the call detailed that about $2.5 million in Q1 sales were directly related to the WorldVentures’ agreement. He further added that he anticipates similar revenue in the current quarter from WorldVentures, while cautioning that it is a dynamic situation that can see some swoons ahead of the commercial launch, expected sometime this year.
Gross margins reversed from a negative position in 2016 to 53% in Q1 2017.
While revenues and margins improved, operating expenses were basically flat around $2.4 million. A slight uptick in general and administrative expenses were offset by declining expenditures for research and development. Interest expense jumped $1.2 million as the company felt the impact of financing the acquisition of LogicMark. Net loss contracted substantially to only $730,000 in Q1 2016 from about $5.4 million in Q1 2016.
The quarter ended with NXT-ID having roughly $2.5 million in cash on hand.
Unlocking NXT-ID’s IoT Premium
With a market capitalization under $14 million, Wall Street doesn’t seem to be pricing in the growth potential and improvement in financial metrics. To that point, Pereira said in the call that he doesn’t believe that the current share price accurately reflects the value of NXT-ID’s business. Analysts at Maxim Group agree, initiating coverage on NXT-ID in April with a buy rating and a $4.25 price target.
The drivers for NXT-ID are centered on IoT, an unstoppable force of an industry that is forecast to result in 200 billion connected devices by 2020, compared to only 15 billion in 2016. BI Intelligence estimates that $6 trillion will be spent on IoT in the next five years. As noted by NXT-ID COO Michael Orlando, the wearable market opportunity alone is enormous, with predictions that there will be over 500 million units in the market by 2020, with about 65% of those having payment capabilities on board.
All of NXT-ID’s operations and R&D are pointed at maximum IoT market penetration and establishing a leadership role in the industry. 2017 is about demonstrating the platform applications and end-to-end solutions built upon NXT-ID technology.
Thanks to existing NXT-ID security technology and the platform and infrastructure relationships now under the NXT-ID umbrella through the Fit Pay merger, NXT-ID is indeed a leader on the payment front. Fit Pay is an attractive partner to original equipment manufacturers (OEMs) because it effectively solves three major challenges for wearables and IoT OEMs: keeping the consumer engaged with the product, differentiating their product and creating a recurring revenue stream.
Becoming a Household Name of Tomorrow
Without dropping names, Orlando let shareholders know that the Fit Pay platform is being integrated with the first group of OEMs and that negotiations are ongoing with “a number of premier brands that you’ll recognize.” Named a ‘Startup of the Year’ for payment technology by the industry publication Paybefore in April, Fit Pay has an established healthy ecosystem of strategic partners, including Visa (V), MasterCard (MA), G+D Mobile Security, STMicroelectrics (STM), Infineon and many more, so investors certainly should be looking for a major development with a household name that could potentially catalyze the stock.
Last week, Fit Pay hit a milestone becoming one of the first companies to have its Token Service Provider (TSP) solution successfully integrated with the Visa Token Service, qualifying Fit Pay as a Visa TR-TSP partner through the Visa Ready Program. “Successfully integrating with Visa, the largest card network in the world, is a major step forward in our effort to bring contactless payment capabilities to a whole new generation of devices,” said Michael Orlando, in an announcement on the accomplishment.
Fit Pay and MasterCard announced in October that the companies were partnering to extend payment capabilities to IoT devices through FitPay’s integration with the MasterCard Digital Enablement Service (MDES).
While smartcards are in focus with investors because of the WorldVentures partnership, that’s not necessarily the greatest value proposition for NXT-ID. The biggest value rests in the company being a first mover in the connected world, albeit IoT or components, such as payments and the diversity to satisfy a variety of IoT needs.
In response to a question during the shareholder call, Pereira echoed the topic of negotiations behind the scenes touched on by Orlando, saying the company is working with several “very significant players” on “different form factors” which could be “more IoT-based,” giving examples of possibilities of a watch or a ring.
Pereira explained that while Fit Pay brings to the table a way to instantly put payment technologies on multiple IoT wearable devices today, there are other immediate opportunities to combine technologies also. For example, this could include authentication technologies in the band. A real-world use for this would be in sports and concert arenas, where patrons would have NXT-ID technology built into bands that identified them for specific access points, while doubling as a payment source for concessions or souvenirs.
Fit Pay’s existing relationships, such as a prepaid card agreement with MasterCard, begins to speak to the possibilities at hand to create new products or expand upon those already in use.
Pereira went on to say that expectations are for at least one “success” by the end of 2017. Considering that most companies even close to the market value of NXTD are still purely developmental, it’s entirely possible that Pereira and Maxim are spot on in thinking that Wall Street is off in its view and that a market correction will come at the hands of NXTD’s innovation, strong team and formidable IoT player it is becoming.
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