Biometrics industry stocks this week
Stock markets are calm as earnings season hits its stride. Some big banks and energy companies announced results that beat estimates. That’s good news. No need for a sell-off just yet. The Dow actually packed on an extra 200 points in one trading session this week.
In the biometrics sector IDEX ASA released its results for the fourth quarter and preliminary results for the full year. Corporate management held a presentation at a conference centre in Oslo, Norway, where the company is based. Current CEO Dr Hemant Mardia, incoming CEO and current Chief Products Officer Stan Swearingen, and CFO Henrik Knudtzon, addressed the crowd.
The company reported it made money in the latest quarter. Revenues in the fourth quarter were NOK 2.5 million and NOK 17.5 million for the full year. This is less than corresponding periods of 2016, but positive earnings are always welcome news.
Discussing the changing nature of the biometrics sector, management noted that the biometric card market is, “… at an inflection point.” The market for smart cards is about to take off and IDEX is well positioned to take advantage of the business emerging. According to management the company and its partners, “… are rapidly progressing towards commercialization.” In the latest quarter the company started the process for certification of its contact-based payment card. This process should be complete in the second quarter of 2018. After that, commercial bidding processes commence.
The company has several customer trials planned over the next few months. During the fourth quarter of 2017, IDEX also introduced two innovations for biometric cards, including a proprietary remote enrollment solution and a new large area sensor for optimal usability.
Shares ended the day up at NOK 4.74. The stock has been advancing over the last two weeks, rising about .50 NOK, though shares are still down on the year.
Also announcing results this week was BIO-key International. The company also provides biometric-based software and hardware. The company offered unaudited preliminary results for its fourth quarter and full year ended December 31, 2017.
The company expects to report audited results for its FY 2017 in late March. The results, if they come through the audit, are solid. Revenue in the fourth quarter of 2017 was up 74% over the same period last year. Gross profit was $2.2 million, up 57% over the same period last year. While net income advanced an impressive 200% to come in at a gain of half a million this year after a loss of half a million last year. For the full year the company has announced revenues of $6.3 million. Though, income for the year will come in at a loss of $4.2 million. Details on the exact date and time of the release of audited financials have yet to be finalized.
“In the past year, we worked to lay the foundation for long-term revenue growth. We focused on increasing our base of customers, growing our distribution channels, and launching a new line of products… Our efforts resulted in solid results including net income in our fourth quarter and 110% revenue growth in 2017,” said Michael DePasquale, CEO, BIO-key. “I am confident that we are on the right track as we pursue our goal of becoming a profitable company.”
DePasquale broke down the revenue streams. Software, licensing and maintenance fees contributed nearly 70% of revenues in 2017. The company’s fingerprint readers contributed about 24% of revenue in 2017. The company has been rolling out a line of biometric-enabled locks over the course of the year. Since launch in 2017 the company sales orders in China and Japan have been ramping up. But the business is still a small part of revenue, about 5.5% last year. But the company recently announced its products will be available in retail outlets in Hong Kong, while an Asian airline will be distributing TouchLock in its customer loyalty reward program. The program has over eight million members. So that share can be expected to expand.
“We are optimistic about our prospects for 2018 as the pace of engagement in biometrics gains momentum. With these initiatives in place, I’m confident that we are well positioned for continued financial and operational success in 2018. We look forward to providing further details on our strategy, financial performance, and outlook during our Q4 and full year 2017 earnings call later in March,” said DePasquale.
There is an amazing stock story playing out at Austrian biometric company AMS. The company is the supplier of the optical sensing devices being used in Apple’s face-based biometric technology. Now that the iPhoneX is on the market, earnings are washing back through AMS, which is flooded with cash these days. The company is hustling hard to meet the new and growing demand for the parts that allow face-based ID and that’s doing amazing things for the stock price.
Shares in the company trade in Zurich, Switzerland. The stock tripled in value last year. It was was the single best performing in the Stoxx 600 index of European equities. The company has an unidentified customer providing $150 million to set up a new plant as everyone rushes to build the capacity to do face ID now that the iPhoneX is working. The company providing AMS the cash for the new factory is a company that uses the product. It’s not a bank putting up the money. It will hire 8,000 employees for this new project. It’s happening in Singapore. The new facility will help meet the growth in demand for 3D image and optical sensing equipment that is now occurring. The company also has a deal to provide 3D sensors for use in autos. The company’s shares powered ahead through the recent broad sell-offs and was one of the relatively few gainers during that period. Shares in the company recently spiked 13% in one trading session. But maybe that’s not a surprise.
Nuance Communication also reported recently. The company impressed investors. The company is currently shifting its strategy. But it continues to perform even as it trims the sails.
Nuance’s fiscal first-quarter results improved on the last quarter. Adjusted revenue increased by 2.6% to $508.8 million. Adjusted net income rose 5% to $80.7 million, or $0.27 per share. That was better than estimates, which were for earnings of $0.26 per share.
The company recently announced that it is enjoying the fruits of a boom in biometrics. In an interview, Nuance Director of Product Strategy for Voice Biometrics, Brett Beranek, recently told Biometric Update that the voice biometrics product sees 300 million consumers perform more than five billion authentications annually. During a conference call held to announce earnings, Paul Ricci, CEO of Nuance, chatted about the recent results and commented on the reorganization at the company.
“In the first quarter, our company reached the important milestone of returning to organic growth. Three years ago, we undertook a plan to transform our business. We implemented actions to focus on new growth initiatives, develop integrated solutions and extend our geographic footprint, while implementing a productivity agenda to expand and protect margins… While our work is not complete, I’m pleased to say our Q1 results reflect the achievement of our persistent focus and execution against this transformation plan. We delivered strong performance across our key metrics, notably in revenue, [earnings per share] and net new bookings… Net new bookings were up 10% from the first quarter of fiscal year 2017,” said Ricci.
The chief executive went on talk about the progress the company has made in structuring the automotive business. The company has talked about spinning out the auto unit as a stand alone company. During the question and answer part of the conference call, Jeff Van Rhee, analyst, Craig-Hallum Capital Group LLC, asked about the rumors. He was also asked about the amazing growth rates the auto unit has been experiencing.
“[There are] certainly rumors in the market with respect to an auto sale. I won’t ask you to confirm it, but can you talk to sort of your thoughts on auto? On growth, I think you had commented [that it was] double-digit. [You say it is] lower than that this quarter. [Can you offer] a little color about that declaration? [Are you] still comfortable with double-digits? And then, at a higher level, to the extent you can, [will you explain] the logic of slicing this off as its own division… [Do you have any] commentary with respect to [how it is] the optimization of this value [would be] be as a separate entity and owned by someone else, as opposed to within your business?,” asked Van Rhee.
Ricci answered, explaining, “… with respect to growth, we anticipate that being a double-digit growth business this year. Of course, that’s an annual growth rate and we don’t have much to say about quarter-to-quarter. One has to look at the comparables in the previous quarter and flows in any particular quarter, but it’s a business with high recurring revenues and we expect it to grow in double-digits this year… Your second question is, ‘Why form it into a separate unit?’ We did talk about this some last quarter. To recap that… It’s a very dynamic business and it requires its own independent focus. The ability to operate at the speed in which the automotive technology markets are moving now, very rapidly moving markets. And we believe we were more likely to achieve that in a separate focused business. With respect to all the rumors, I really can’t comment on that, of course,” said Ricci. Auto is getting hot. That seems clear.
All in Nuance raised its full year 2018 guidance on revenue and earnings-per-share. The company now expects revenue growth in a range of between three and five percent. That’s up from an estimate of between two and four percent previously.
Ricci also mentioned that the company will have a new pick for CEO soon. The CEO announced about a year ago he is stepping aside. But the company has yet to make an announcement about who the new CEO will be. Investors are getting antsy.
“Before closing, I want to comment briefly on succession,” said Ricci on the conference call. “Nuance’s board, through its search committee, has progressed its work and has noted in recent communications, expects to meet its goal of a final selection in time for the March 31 transition.”
With that deadline still looming, on Thursday the 22nd, a long-term shareholder, Neuberger Berman, released a letter it had sent to the Nuance board, demanding the company announce who the next CEO will be. The Nuance board is hearing from some elite Wall Street players on this issue.
Neuberger Berman is an interesting company. It is a private, independent, employee-owned investment management firm that is among the elite of Wall Street. Founded in 1939 the firm manages billions for pension plans, charitable organizations, sovereign wealth funds, high-net-worth individuals and mutual fund investors. Clients include everyone from the Teacher Retirement System of Texas to the National Social Security Fund of China according to Wikipedia. The firm is currently rated one of the best places to work in asset management amongst firms with greater than 1,000 employees. The firm increased its assets under management 14% per year from 2010 to 2014, and now manages about $250 billion for clients. And now the firm is demanding action on the succession issue at Nuance.
This afternoon the company shared the text of a letter it sent to the Nuance board. Neuberger Berman has been a “… long-term holder of Nuance Communications, Inc., owning shares on behalf of our clients for over five years, and has engaged with the Board of Directors to help drive changes that Portfolio Managers believe could lead to long-term value creation,” according to the letter.
“We note that today, 14 months after CEO Paul Ricci announced his retirement and only a few weeks before he is about to retire, shareholders have not received any meaningful update about the CEO succession, and a new CEO has not been announced. We remain concerned as to the Nuance Board’s ability to execute the announced CEO succession plan, and the departing CEO’s influence on the process.
We believe that the shareholders’ right to call a special meeting – a proposal that appears on the ballot for the upcoming annual meeting of shareholders – will allow shareholders to act in case the Board fails to execute on the succession plan and prevent a delay of the decision for another year,” said Neuberger Berman management. More on this to come!