This week in biometrics industry stocks
As the biometrics industry continues to grow Biometric Update is bringing a new focus to the stories around the stocks in the sector. Check in with this space each Friday for a rundown of the financial news and interesting ideas from the week that was.
Earnings season is well underway. Across the economy companies are reporting second quarter results. Within the biometrics sector this quarter’s results were affected by Petya, the random timing of contracts in the tech sector and a shift in strategy by an industry player.
-Massachusetts-based biometric software company Aware Inc., reported this past week that revenue for the second quarter of 2017 was $2.7 million, down 60% from the $6.9 million reported in the same quarter last year. A press release distributed by the company notes the decrease in revenue was partly a result of the timing of contracts. In the second quarter of 2016 a large biometrics software license sale to a U.S. government military customer bumped earnings at that time; without a similar sale this quarter earnings lagged. As well, in the second quarter of 2016 revenue from a large medical imaging license sale came through, but again, without a similar bump this quarter earnings were down. The company also reported revenue over the first half of 2017 was $7.1 million, down 40% from $11.7 million in the same six month period last year. Such is life in the tech world where no can ever be sure exactly when that next big contract is going to drop. Aware did report patent-related income as well as lower costs for providing software licenses and hardware sales in the quarter. But the CEO of Aware, Kevin Russell, was quoted as saying, “Our revenue results for the second quarter did not meet our expectations. Our quarterly revenue and earnings fluctuate based on project wins and the timing of the delivery of licenses and services for those projects. Financial results this quarter are a reflection of these fluctuations. The ability to forecast the timing of revenue remains a challenge. We continue to be encouraged by the interest in and opportunities for our biometric solutions in the government, commercial and mobile markets.” Investors seem to understand the cyclical nature of the industry. Shares in Aware sold off a bit in the wake of the news, falling from about $4.80 to near $4.40, before recovering to around $4.60 late in the day Thursday.
-Security software-maker Gemalto NV had a tougher go of it this past week. The company is undergoing a shift in overall strategy. That shift is showing up in the earnings. This week the company announced a goodwill impairment charge of some $489 million. That is, the company is writing off an investment in chips for the phone sector. As a result Gemalto reported revenue of USD $867.4 million in the second quarter of 2017. That’s a nine percent decrease compared to the same period in 2016. According to a media report the charge was “unexpected.” As a result several analysts downgraded their ratings on the European-based tech provider. Shares in Gemalto fell 17 percent last Monday. The company has had a tough year. Philippe Vallee is the relatively new CEO of the company. He took over from the former long-standing CEO, Olivier Piou, in September. Since then the company has reoriented its business. The company is moving away from producing chips for phones (in the SIM sector) That business is undergoing a long-term structural decline. Gemalto is now moving into the security sector and is working on everything from “passports to connected cars” according to a media report. Nevertheless, the company is currently caught up in the middle of this strategy shift. Gemalto says it expects the double digit declines in its SIM business to continue for the rest of the year. But the declines will be offset by expected revenue increases in other areas, including government programs such as the “3M Identity Management Business.” According to the company the shift in strategy should lead to “stable revenue year-on-year” by the second half of 2017. The new focus on security was only announced in April but is expected to start contributing materially to earnings towards the end of 2017. The decline in the SIM market led to the booking of the non-cash goodwill impairment charge this quarter. Gemalto next announces results for the first half of 2017 results on September 1. Shares in Gemalto were trading just over $63 a share in early March of this year. A previous earnings surprise (related to the declining SIM business) at that time saw shares drop to $49 a share before recovering to trade around $55. Following this week’s surprise shares are now trading about $44 a share. Hopefully the company is looking at a comeback over the rest of the year.
-Shares in Nuance Communications also sold off late this week as the company announced a recent global malware attack will affect its earnings in the third quarter. The company was caught up in the Petya attack a few weeks ago. A transcription service the company operates for doctors has been offline since. Users of that product have begun to muse in the media that they may have to switch products. So no wonder the company is scrambling to get the glitch corrected. This past week Nuance released an update on the attack, stating it should have everything fixed in two weeks. However, the loss of healthcare transcription revenues in the final week of the third quarter and “the inability to fulfil partner orders for imaging products during the same period” will have an effect on earnings. Nuance announced that it expects GAAP revenues to come in at a loss of between $0.11 and $0.09 cents per share. According to non-GAAP (non-standard) numbers, earnings per share should be positive at between $0.26 and $0.28 (though, still down from previous estimates). The press release was sure to emphasize that beyond the malware incident business is actually pretty good at the company. According to management Nuance is enjoying growth in its voice biometrics solutions division (among other business areas). Despite the effects of the malware incident new bookings in the quarter were strong and up year-over-year between 20% and 25%. Cash flows from operations were also strong at approximately $130 million. As a part of the company’s restoration efforts post-Petya, “Nuance has hardened its systems with enhanced security and with the latest anti-malware agents.” At the time of the malware attack shares in Nuance fell from almost $18 a share to about $16.60. The shares recovered in the days after and are now trading around $16.90 in the wake of the update.
-A good example of the genuine and widespread interest in the biometrics sector was a report from the UK this week that a company called B-Secur pulled in USD $4.5 million in early-stage funding from a syndicate of British and Irish investors. According to reports B-Secur is working on a product that uses an, “… individual’s unique heartbeat pattern,” as a biometric measure. According to company executives relying on an electrocardiogram (ECG) pattern to confirm identity, “… marks the next generation in biometrics, moving beyond first generation modalities of fingerprint, iris or voice.” The company also claims that, “As an internal biometric, ECG authentication can minimize hacking or spoofing risks.” A report on the firm claims the company is working in the UK, Ireland and U.S. in the automotive, financial services, access control, smart cities and the buildings sector. One of the firms putting money into the company is Accelerated Digital Ventures (ADV), an early stage investor that typically invests alongside, “… seed partners including angels, accelerators, and incubators…” Other companies ADV has recently invested in include CharlieHR, Caresourcer and Push Doctor.
-Fingerprint Cards AB also released financials this week for the second quarter of 2017. According to the company revenue in the second quarter came in at USD $100 million, which is down 51% compared with the second quarter of 2016. Operating profit was positive however, coming in at USD $8.8 million. Earnings per share (before dilution) amounted to USD $0.01; cash flow from operating activities was USD $64 million. The company’s CEO, Christian Fredrikson, commenting on the results, said that, “Towards the end of the quarter, inventory levels in the value chain normalized as anticipated… As a result, our own inventories declined and all of our major customers ordered sensors from us. We have continued to secure important orders which will result in increasing market shares with some major customers.” He went on to say that cash flow was in line with the period the year previous as result of, “… us reducing our own inventories and current receivables.” The company recently acquired Delta ID, a firm involved in the Aadhaar program in India. Fingerprint Cards wisely snapped up that company. According to Fredrikson Fingerprint Cards still has lots of cash on hand even after the acquisition of Delta ID. “Despite financing a large part of the acquisition of Delta ID with internally generated funds, our cash and cash equivalents now amount to [USD $113 million],” said Fredrikson. He also announced that over the past quarter nineteen new mobile devices were launched that utilize the company’s sensors. The company also recently announced a partnership with Qualcomm that will see the a sensor produced by Fingerprint Cards, “… pre-integrated into selected Snapdragon mobile platforms.” The company also announced new projects with Zwipe and a company that makes smart cards, Kona-I. According to Fredrikson these deals show that, “… the smart card market is developing as we had expected.” The CEO went on to say that, “… we have succeeded in securing a strong position for future growth in smart cards, although it will take a few more years before market volumes can be compared with those we see for smartphones.” Commenting on the company’s new involvement in the Aadhaar project Fredrikson said that, “After having completed the acquisition of Delta ID, we are now the only supplier offering biometric solutions based on both fingerprint sensors and iris recognition. The acquisition is an important step in our strategy to broaden our offering and has roused great interest among a number of our major customers.” Shares in the company, trading at just above $29 a share earlier this month, are now up smartly at $36.29. And no wonder. The company has a good story to tell.
-BIO-key International celebrated a big achievement this past week. Common shares in the company began trading on NASDAQ, Tuesday, July 25, 2017. Shares trade under the symbol BKYI. According to Michael DePasquale, chairman and CEO, “Our Nasdaq listing is a significant milestone for BIO-key and our shareholders, that underscores our ramping sales momentum so far this year.” DePasquale went on to describe the increasing interest in the biometrics sector: “We continue to see growing interest in the efficiency, cost benefits and enhanced security of our biometric solutions. This trend is supported by the growing prevalence of fingerprint biometric solutions on mobile devices as well as the recognition that conventional password and PIN authentication is fundamentally broken,” the CEO was quoted as saying in a press release. The company has been doing well lately. It announced in the second quarter that it had orders from ten healthcare organizations for new fingerprint biometric systems. The new listing on Nasdaq will help the company land new contracts. Such a listing will benefit the company’s sales and marketing divisions, which can use the listing to increase the visibility of the brand. In its first week of trading, shares in BIO-key hit $3.55 by late in the day Thursday.
-This is an interesting time for BIO-key to be listed on NASDAQ. Companies across the tech sector have been performing extremely well on stock markets around the world this year. Investor interest has sent the so-called FANG stocks (Facebook, Apple, Netflix and Google) soaring. For its part, the NASDAQ composite index hit new record high earlier this week (having risen 4% through the month of July so far). A Thursday afternoon sell-off saw the index fall to 6,382, and that has some so-called technical analysts (those who analyze shares based solely on their market movements) worry that the drop represents a market top. According to one technical analyst the fact there was a big sell-off but no real big news to spark the sell-off is a sign the bull market is getting long in the tooth. One suggestion is that Thursday’s sell-off represents the market high for this summer. This makes sense. As Wall Street traders go on vacation through August, stock markets have a habit of drifting along sideways on very low volume until people come back to work in September. Whatever the case, it’s been a heck of a ride for NASDAQ this year. All-in, half-way through the year, the composite index is up from 5383 on December 30th of 2016 to a close of 6382 near the end of July. That’s an 18% increase over just six months. No wonder some are calling this a market top—that’s the kind of rapid growth can’t go on forever.
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