June 10, 2017 -
As the biometrics industry continues to grow and expand Biometric Update is bringing a new focus to some of the stock stories in the sector. Check in with this space each weekend for a rundown of some of the financial news emerging out of the group of biometrics industry stocks we like to follow.
-Massachusetts-based tech firm Aware Inc. was recently the focus of a report on the popular investment-focused website Seeking Alpha. According to the report the fact that the “Biometric software is an industry ripe for consolidation…,” is a good reason to look at Aware as an investment. The company is one of the top four biometric firms in the sector. It control just 24.7% of market share according to the analyst. But as the sector evolves through a period of rapid growth there will be a coming period of consolidation taking. As the analyst puts it, “M&A activity in the space will grow as the industry matures…” The biometric market is expected to grow at a compound annual growth rate of 15% between 2017 and 2022/ This is huge growth. Could Aware represent a good investment in that context? The company’s stock is trading around $4.80 a share after hitting a high of about $6.25 last year. So there could be a bit of an entry point in that dip. As it is Aware holds 47 US patents and has 40 patent applications pending. This is a positive. According to the analyst, “Aware Inc. is [currently] undervalued,” though the analyst does warn that, “…upside is blunted by the large amount of cash on the balance sheet.
–BIO-key International recently released 2017 first quarter numbers. While revenue may be volatile the news was generally good. First quarter revenue rose 229% to $1.4 million on “general strength” across the company’s business lines. The organization announced it has achieved positive cash flow of $116,953. Considering the company had a negative operating cash flow in the same period last year, this is really good news. The company also recently announced a new line of biometric and Bluetooth enabled “padlocks” at the Consumer Electronic Show (CES) 2017, one of which, TouchLock, was recognized as a “Top Product” at the event and has since been featured on more than 30 morning news TV shows across the U.S. according to a press release. The company also noted that it has shifted to a software as a service (SaaS) subscription pricing model in response to preferences in the industry. According to a press release, “While this model can temper near-term revenue growth, it provides a more stable and predictable source of revenue that should also mitigate quarter-to-quarter variability.” Michael DePasquale, chairman & CEO of BIO-key, commenting on the results, said, “As previously indicated, BIO-key had a strong start to the year, which also translated into positive operating cash flow. Importantly, the performance was spread across the business. It is gratifying to see the investments we have been making in the business begin to translate into higher sales activity.” Depasquale went on to say that, “Software license sales reflected a combination of new and existing customer business across healthcare, point-of-sale devices and two new regional bank customers looking to protect online access to customer records. This expands our presence in the financial services industry where we see significant potential for additional business due to increasing acceptance of biometrics.” According to Depasquale general interest in the biometric sector seems to be picking up: “Progress on the hardware sales front reflects growing awareness and demand and solid sales activity with some new and existing customers. We also saw a nice pick-up in hardware sales via Amazon, which taps both the consumer and enterprise market. We believe this is a very encouraging sign for future demand…With respect to our new consumer-oriented biometric padlock product lines, we believe we have garnered some solid interest from major retailers that we think could turn into sales in the next few months, and are already in production on a small amount of initial product inventory to support those conversations.” Commenting on the volatile nature of the company’s earnings Depasquale said that, “While revenue volatility remains a fact of life in the early innings of biometric deployments, we believe that we have the right technology and focus and are building a business platform to support higher and eventually more predictable revenues.”
-Last month a stock analyst looked into recent shifts at Diebold. The company is probably best known as a supplier of ATMs and voting machines. But as demand for ATMs shrinks the company has been branching out and has undertaken a, “…twofold strategy of consolidation and diversification in order to improve returns.” According to the analyst shares in the company are “beaten down by the market” and so are cheap as compared to peers. Could Diebold stock be a good buy? On one hand an overall reduction in bank branches has eaten into Diebold’s ATM business. In response Diebold bought German rival Wincor Nixdorf AG for about $1.1 billion last year. The acquisition created the world’s biggest maker of ATMs. The new company has 35% market share. But the company is also diversifying away from the physical ATM business into services and software. According to the analyst, “The company does not plan to leave its focus on banking and retail markets, but instead wants to embrace the macro trends that it is seeing within the industry: automation/self service, digitalization, and individualization.” One way to do that will be to focus on electronic point of sale technology (and related biometrics). Whatever the case, the new strategy is being worked into the guidance Diebold management offered up for 2017. “While revenue growth in 2017 is set to be flat, adjusted [earnings are] forecast to grow from $399M to $455M at the midpoint, primarily driven by $40M in combination benefits,” according to the company. So far results have not shown that year over year acceleration. In the first first quarter adjusted earnings were $75 million compared to $79 million in the prior year. But investors will be watching to see if that earnings bump begins to show by the end of Q2. A separate report published this week notes that brokerages expect Diebold Nixdorf to report $0.24 earnings per share (EPS) for the current quarter, with the “highest EPS estimate coming in at $0.39 and the lowest estimate coming in at $0.16.” Earnings at that level would be a decline from the $0.43 reported during Q2 of last year. Diebold next earnings report is due Thursday, July 27th.
-The annual general meeting of Nowegian company IDEX took place last month. Three board members took advantage of an option to receive remuneration in shares, resulting “in an issue of 115,350 new shares.” The idea that insiders are asking for stock rather than cash is a positive indicator for the company’s future growth.
–NXT-ID announced quarterly earnings last month. Although the technology company reported a loss of thirteen cents per share it seems a major institutional investor, Vanguard, took advantage of the sell-off to increase its position in NXT-ID. According to a report, “Vanguard Group Inc. raised its stake in shares of NXT-ID Inc by 13.6% during the first quarter…” The disclosure was part of Vanguard’s most filing with the Securities Exchange Commission (SEC). Another brokerage, Maxim Group, has also started coverage on shares of NXT-ID. In a research report released earlier this spring the company attached a “buy” rating and applied a target price of $4.25 to the stock. Currently Nxt-ID stock is trading just under $1.50 a share.
-Some interesting ideas popped up in the transcript of the most recent earnings call hosted by the CEO of Precise Biometrics‘, Håkan Persson. According to Persson, “The fingerprint technology market continues to grow at the same time the market is changing, with increased competition between established and new sensor vendors. Revenue from several of our customers are growing steady…,” said Persson. “We now have 27 license agreements with global distribution of our software for mobile devices, smart cars, wearables and other product areas and I will say, confirming our leading position [in the market]. [In] February we finalized the acquisition of NXT biometrics for U.S. $3.5 million in cash. NXT biometrics is especially [important in terms of] dispute litigation…solutions for the biomedical authentication industry…Fingerprint technology will be increasingly used for mobile payments, while enhancing the security of fingerprint authentication has become even more important… Their precision enables us to expand our fingerprint recognition offering with software, spoof detection and liveness, meeting the market demands to increase security to prevent fraud. We’re working on integrating liveness into our BioMatch products and glad to have the solution ready for the market in the second half of the year. The solution has been well received by our customers and we expect it to generate revenues from first half of 2018.” Later on in the call Persson went on to say that, “…the markets of Fingerprint Technology continues to grow. Our research estimates based on industry data [suggest] a market of about 1 billion devices in 2017 excluding Apple devices.
Our…estimate [is] that the global market excluding Apple in terms of number of shipments of sensors, the smartphone, cards, other products will amount about 2.5 billion units in 2020, of which 1.3 billion with smartphones…This clearly shows that we have great growth opportunities ahead of us, open to mobile markets as well as for embedded product. The market for Smart Cards and other products with fingerprint technology is expected to start to grow end of this year and to accelerate in 2018 to 2020… Several of our customer are in final stages of commercial and technical evaluation with mobile device manufacturers, we’re working closely with our customer supporting to successfully complete these evaluations and become selected for device implementation… The embedded market is starting to generate lot of interest and several of our new potential customers address this market in particular…”
Persson also said:
“… increased volumes and competition in the markets of finger print technology is driving a shift towards smaller fingerprint sensors to reduce cost. This development increases the performance requirements on the fingerprint software and matching algorithms in order to provide a good user experience on security. Obviously, this is a challenge as the software has less features from the users fingerprints to work with. Further the increased usage and the adoption of the fingerprint technology has also lead to increase performance requirements by advance use case, such as how to better manage wet fingers, dust and other anomalies.”
“The growing competition in the market is driving differentiation of fingerprint solutions. As mentioned sensors are becoming smaller and new sensor technology such as optical, ultra sound and others that are not yet visible will provide new industrial design options, for example integrating sensor under the display, in the display or other types of materials. This development requires very high image enhancement [indiscernible], as the quality of the fingerprint image can very different from one sensor implementation to the other… These are challenges are areas where we put a lot of research efforts and are well placed to take… Growth in mobile payments increases focus on security in mobile devices. Today fingerprint sensors are vulnerable to spoof attack. The growth of payments using fingerprint technology calls for increased matches to detecting the fingerprints spoofs. This will result in spoof detection and liveness becoming increasingly important to detect fake fingers and secure people’s identity. This is why we acquired NexID Biometrics. [The company is a] leader in this field and enables us to further enhance our product offering and the increased security of fingerprint technology.”
-Speaking of “spoofing” a report appeared recently about the Berlin-based hacking group Chaos Computer Club. A member “Starbug” recently claimed to have beat the Samsung Galaxy S8’s iris-scanning authentication feature with a photograph. According to a report the hacker “…took a photo of the subject from a few metres’ distance, printed it out, and dropped the contact lens over the iris to imitate the curvature of an eye…When that image was presented to the camera, it unlocked, right on cue.” Responding to the report Samsung released a statement saying the spoof requires “a rare combination of circumstances” to pull off. “It would require the unlikely situation of having possession of the high-resolution image of the smartphone owner’s iris with IR camera, a contact lens and possession of their smartphone at the same time. We have conducted internal demonstrations under the same circumstances, however, [and] it was extremely difficult to replicate such a result.”
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