Biometrics stocks this week: IDEX, NEXT, IDTY, IWSY, FPC

Biometrics stocks this week: IDEX, NEXT, IDTY, IWSY, FPC

Earnings season is rolling through its peak period this week. At least three biometrics firms released financial results Wednesday. Other releases occurred in the days before and after.

A common theme among many of the companies reporting in the biometrics sector is the ongoing shift in the market away from fingerprint sensors for mobile devices and toward the card market. It can be argued that the market for mobile-installed fingerprint sensors has matured. Leading-edge biometrics developers are moving on to new untapped markets like the emerging one for biometric-secured payment cards.

A good example of the market shifts playing out is IDEX ASA, a Norwegian firm that is currently reorienting its business away from the mobile market and toward the card market. According to a press release distributed this week along with the firms financial results, “IDEX ASA is preparing for mass commercialization of biometric smart cards… The market for biometric cards is rapidly gaining momentum.” To negotiate the market shift IDEX is hustling to get a card-based sensor into end-user trials. It’s clear, the time to strike is now. Mastercard and VISA are working to increase consumer awareness. Interest in next-generation smart cards is increasing among all card issues. Taken together, the interest and action in the card market is, “… leading to an inflection point in the market for biometric cards,” according IDEX. The firm expects to play a roll in the emerging market.

Already in 2018 IDEX has successfully completed “all deliverables” for certification of its contact-based card. The firm is also working on contactless cards. Proof of concept of those cards is planned for the second quarter of 2018. According to the firm, “The company is currently in active commercial discussions and expects initial production orders shortly.”

IDEX also indicated there may be some life left in its mobile fingerprint sensors. The company said it will continue to market those into the IoT market. Fingerprint sensors first showed up on mobile phones. But as the Internet of Things blossoms there will be a market for sensors on all kinds of other devices. Repackaging existing technology for this secondary market is a smart move on the part of IDEX.

But beyond the positive narrative IDEX management is telling there are still the real financial challenges to making this market shift. Those challenges showed up in the first quarter numbers the company posted this week.

Getting into the company’s first quarter results it’s clear the organization is between products. According to the latest results IDEX recorded total revenues of NOK 1.8 million in the first quarter of 2018. That number breaks down to NOK 0.5 million in product sales and NOK 1.4 million in services income. The results compare less than favourably to total revenues of NOK 6.8 million in the first quarter of 2017. In that period the company posted NOK 6.6 million in product sales. The reduction in revenue is due to reduced shipments of sensors for use in mobile handsets according to the IDEX press release.

The company emphasized some of the actions it has taken to reduced cost. The company has reduced head count and that has helped. Perhaps most importantly IDEX management was sure to note that it does not have any debt to financial institutions or lenders. According to management the company has adequate equity and liquidity to operate as a going concern for more than twelve months. That will give the company some time to get sales moving in new markets. To that end the company also announced this week that it is strengthening its sales and marketing teams. IDEX has hired experts from the cards and payment industry in preparation for mass commercialization of its coming cards.

Among the appointments is the hiring of David Orme, who has been hired as senior vice-president of global sales and marketing. He starts in early June. There are also some new hires in Asia as part of the transformation to a card-centric organization. According to the announcement, “The hires have extensive experience from the smart card and fingerprint industry, including companies such as Gemalto, Oberthur, Synaptics, NEXT Biometrics and Authentec.” IDEX also announced it has hired a global head of marketing communications as well as a PR agency.

“I am very excited about our strong team of commercial hires and our ability to attract industry experts based on our leadership position in the biometric cards market,” said Stan Swearingen, CEO, IDEX. “I am really looking forward to getting David on board with his solid experience and relationships in the payments and security ecosystem. He and his team are key to our success going forward.” Swearingen himself is new, having taken over as CEO on April 1. The recent changes make it clear the board is serious about reorienting the focus of the company. Even so, considering the financial results, it was no surprise that shares in IDEX ASA were trading off over 4% at USD $0.56 the day after the release.

Another company in the race to bring fingerprint sensors to the card market is NEXT Biometrics, which announced it has shipped the first samples of its biometric module for smart cards to seven top customers in Asia, Europe and North America. The company is also engaged with another 20 customers worldwide and hopes to ship smart card modules to those as well. The modules are a key element of NEXT’s strategy for bringing its large-area fingerprint sensor technology to the smart card market. “I’m very pleased with the strong interest we’re seeing among customers for our innovative smart card solutions,” said Ritu Favre, CEO, NEXT.

Ipsidy, formerly known as ID Global Solutions Corporation, reported this week. The company changed its name this past February. The company had been traded on the OTCQB Venture Market under the trading symbol “IDTY”. But it has just announced that has graduated to the OTCQX Best Market. It’ll trade under the same symbol. With more than seventy employees the New York-headquartered company is growing smartly. There are two operating subsidiaries, MultiPay in Colombia and Cards Plus in South Africa. It’s latest product is a face-ID product that can be used on the portable device of the client’s choosing (as opposed to other identity products that require dedicated hardware). The product enables mobile biometric multi-factor identity authentication for a range of common transactions and is available for both iPhone and Android devices. The company just announced first quarter earnings for 2018 that were similar to its Q1 2017 results. Ipsidy generated USD $0.5 million in revenue for the quarter (not far off the $0.6 million generated in the same quarter last year). Nevertheless there was a net loss of $2.8 million. That’s significantly lower than Q1 2017, but the difference was largely due to one-time costs related to some changes in the company’s capital structure. The company has converted some debt and eliminated some derivatives, which resulted in a $4.1 million charge last year. In addition to the mobile app, the company also reached a deal in Colombia around mobile authentication for banks in Latin America. There was also an agreement this quarter with the Zimbabwe Electoral Commission to provide automated fingerprint identification to prevent duplicate entries during voting in an upcoming election there. The company is one to watch. Shares enjoyed a nice price spike of late, rocketing up from under 18 cents cents to a bit over 36 cents between February and March of this year. Since then shares have settled back to about 26 cents.

Another firm reporting financial results this week is ImageWare Systems. According to a release revenue in the first quarter decreased 23%, declining from $928,000 in the first quarter of 2017 to $716,000 this year. Overall, the company reported a net loss of $3.6 million this quarter. That’s bit more than the $2.7 million reported in the first quarter 2017. That said, the company had some good news to share. In April ImageWare received a $730,000 order from an existing customer for additional licenses of its biometric identification software. As well, in January, the company brought David Somerville on board as senior vice-president of sales and marketing. His job will be to help the company navigate the expected increase in worldwide sales activity as ImageWare enters a new period of growth. Somerville brings more than 20 years of in the sales and support of security software to the firm. According to Jim Miller, chairman and CEO, “Revenues in the quarter continued to reflect primarily our legacy business. However, we did see initial orders from several of our sales partners. Thus far in 2018 we have seen our first sales, although modest, under that model from our partners CDW, Fujitsu, Extenua and Avatier. While we have limited direct visibility on when sales projects will actually close, we do know that every project is making progress and our partners have given us good reason to believe that several will close in the second quarter.” Shares in ImageWare were trading at USD $1.49 in the immediate wake of the release. That’s off just a cent from the previous days close of $1.50.

Swedish biometrics firm Fingerprint Cards (FPC) last week proposed that its main shareholder and former CEO Johan Carlstrom replace the current chairman. The story is particularly newsworthy as Carlstrom still faces a trial for suspected insider trading.

The backstory: Carlstrom was replaced as CEO in 2014 after police launched a probe into suspected insider trading in the shares of FPC. He faces a trial in a Stockholm district court in November. He denies the allegations, and is still clearly interested in the company where he is a the single largest shareholder. (He is reported to own 15% of the company.)

In other FPC news, last month CFO Hassan Tabrizi and Jan Johannesson, vice president strategy and corporate development, announced they would leave the firm. Since then, current chairman Jan Wareby and board members Asa Hedin, Carl-Johan von Plomgren and Ann-Sofie Nordh have all declined re-election to the board.

Investors do not seem particularly worried about the shifts in control. Shares in FPC were off only a slight 0.4 percent in the wake of the news.

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