Nxt-ID, Inc. (NASDAQ:NXTD) Q1 2019 Results Conference Call May 16, 2019 4:30 PM ET
Gino Pereira - Chief Executive Officer
Vin Miceli - Chief Financial Officer
Stan Washington - Chief Revenue Officer and Head of our Health Care Division
Mike Orlando - Chief Operating Officer and President of Fit Pay
Conference Call Participants
Brian Kinstlinger - Alliance Global
Hello, and welcome to the Nxt-ID Q1 Investors Update Conference Call. At this time, all participants are in a listen only mode. Later, we’ll conduct a question-and-answer sessions and instructions will follow at that time [Operator Instructions].
I would now like to introduce your host for today's call, Gino Pereira, you may begin.
Thank you very much. Good afternoon everyone. Thank you for joining our call today. We're going to discuss Nxt-ID's unaudited financial and operational results for the three months ended March 31, 2019, and give a general update on the progress of the spin off.
So during afternoons morning's call, we'll be making forward-looking statements, which consists of statements that cannot be confirmed by reference to existing information, including statements regarding our beliefs, goals, expectations, forecasts, projections and the future performance and the assumptions underlying such statements.
Please note that there are number of factors that will cause actual results to differ materially from our forward-looking statements, including the factors identified and discussed in our earnings slide released today and other SEC filings. Please recognize that except as required by applicable law, we undertake no duty to update any forward-looking statements, and you should not place any undue reliance on them.
With me on the call today is Vin Miceli, our Chief Financial Officer; Mike Orlando, our Chief Operating Officer and President of Fit Pay and PartX; and Stan Washington, Chief Revenue Officer and Head of our Health Care Division.
I will begin the call as usual and turn the call over to Vin for review of our financial results, and so Mike can spend for an update on payments in Health care respective, and we will take a few calls from the analyst that are on the call.
So our financials as you are by now are prepared on a continuing operations basis that reflects purely the health care side of our business and this gives, as the fintech site classified as a discontinued activity as we are going to spin it off. So this gives to public a clear look into the base business that will be remaining. The results for the first were pretty similar to the first quarter with previous year, which was very strong, so it shows continued strong performance as compared to the same period last year and revenue slightly lower income up.
And the revenues were about 30,000 below our analyst forecasts, though partially due to month-to-month fluctuations that's early in the year for the first three months of the year, and also slightly delay introduction of new products that we have into the retail market place. So they all take a little bit to spin up. However, April was a strong month for us and we expect to see some revenue growth in the second quarter and much stronger the last half of the year as we have some new innovative products that are being introduced to the marketplace.
As far as the spin-off is concerned, we've completed a number of items we need to finalize the spin off. We completed a term debt refinancing, which removed the restricted covenant that prevented us from moving forward with the spin off. And a filed a Form -10 registration statement with the SEC to register project PartX as a public company. So once we've received clearance from the SEC on registrations statements, we will be able to share the distribution and record date for shareholders, so they know when they would be entitled for date by which they need to own shares in Nxt-ID to be entitled to a dividend for a proportion equity interest in entitled PartX.
As we stated before, we believe that both the healthcare and FinTech businesses are better suited to operate as separate entity, and we think that the combined value of both of those businesses will exceed the value that is currently in Nxt-ID.
And with that, I would like to turn it over to the Vin Miceli to update you on the first quarter.
Thank you, Gino. Good afternoon all. So I think, I’m going to discuss the first quarter more in a summary format, you have the 10-K in the press release so I’m just going to go over some of what we consider to be the highlight in the first quarter. So in terms of revenues, revenues from our continuing operations for the three months ended March 31, 2019 came in about $4.2 million, compared to $4.3 million for the comparable 2018 period. The slight decrease in the revenues is primarily attributable to LogicMark's decreased sales volume on the commercial side of the business, offset in part by a favorable shift in product sales mix from land based products to cellular mobile products, which typically have a higher sell price on a per unit basis.
The company's gross profit margin continue to be quite strong came in at about 76% in Q1 2019 versus 72% in the comparable 2018 period, and the increase in the gross margin was primarily attributable to the favorable shift in sales mix.
Our operating expenses were down slightly in Q1 2019 versus the comparable 2018 period. They were down by about $200,000.
Operating income from continuing ops for the three months ended March 31, 2019 came in at just above $500,000 compared to just under $200,000 for the comparable 2018 period. And again, the increase there is attributable to the higher gross profit margin and the reduction in the operating expenses. Interest expense for the three months ended March 31, 2019 came in at just under 600,000 compared to 757,000 for the three months ended March 31, 2018, and the decrease in interest expense was totally attributable to the lower borrowing rate in the current term facility versus the revolver facility that we had in place before the May 2018 refinancing. The net loss from continuing operations for the three months ended March 31, 2019 came in at just under $300,000 compared to a loss of just under $700,000 for the comparable 2018 period, so real improvement.
Moving over to our balance sheet, taken a look, we closed the quarter with $0.2 million in cash and current assets, excluding discontinued operation assets of about $4.6 million. No real change in our long-term asset position everything is pretty much on par with where we were at 12/21/2018. In terms of our liabilities, current liabilities excluding debt were about $5 million at the end of March and up a little bit due to some higher account, primarily for inventory that came in at the end of the quarter. In terms of debt no real changes in our debt balances from year end 2018 through March 31, 2019. And equity held pretty constant at about $14.8 million, $14.7 million at year end, so not a lot of flux there.
Moving over to our cash flow for the first quarter, we actually generally about $765,000 in operating cash flow, which was real positive for us, and we're really encouraged by that. That coupled with the proceeds received in the first quarter from stock sales under the ATM really bolstered the cash position at March 31.
And so with that, I'll turn it back over to Gino Pereira.
Thanks, very much, Vin. So next, I would like to have Mike Orlando catch us up on Fit Pay and PartX and things that we have going on there. Thanks Mike.
Good afternoon everyone. So for the payments position, Q1 revenue was 221,000 for the quarter versus $514,000 for the previous period of 2018. The decrease was fully due to discontinuation of product sales to WorldVentures. So now our core revenue is really based on the core platform and device activations that we're seeing from our customer base. We saw a net loss of $1million for the period versus 935,000 for the same period last year with the gross margin of 72%. And 72% is actually higher than what we had anticipated, really due to the product mix and high delivery of software applications that we've build.
In terms of business milestones, we've launched Discover Network in January, so we now have four networks on the platform. We also announced the launching of Swatch Pay and Swatch devices in Europe, specifically Switzerland that they're selling now. We're seeing some good activations and good activity there and we're able to expand the product markets and geographies, in which they're selling to throughout this year. And then lastly, we are able to begin shipments of our flip product towards the end of March. Due to the timing of that the revenue in the quarter was pretty limited, but we expect to see contribution beginning in Q2 and more shipments of those devices as more inventory arise later this month.
Core business metrics that we measure for Garmin devices, we're not activated with Garmin Pay in 16 of their models with price points ranging from $199 up to $2500. And so that gives us a really wide customer base, in which Garmin selling the product to and where Garmin Pay is available. We have increased our footprints of issuing banks to 340 and the number of countries to 245, in which we have coverage. So as a result of this increase in supported devices and issuer and geographic coverage, as well as the launch of Swatch, our platform activation increased over 300% for the period year-over-year. So we're really excited about that and the continuing growth of -- what we're seeing in the market and growth with platform activations.
And with that, I will give it back to you Gino.
Thanks, Mike, and over to, Stan Washington, for an update on health care businesses.
Thank you, Gino. Hello everyone. For LogicMark and the healthcare business for Q1, our revenue as you've heard was slightly down at $4.2 million year-over-year, or slightly down 2% our gross margins essentially remained flat year-over-year and for Q1, our gross margin percentage was up 3.5%. And again this was driven by the product mix and the momentum we're continuing to see in a cellular product over land based devices.
The government channel continues to perform very well for us and we are expecting increased growth through 2019. This is going to be driven by deeper penetration within VA, and other government agencies outside of the VA, which we are pursuing pretty aggressively. We are very bullish on the opportunity to bring in additional government contracts, which we believe will increase our reach within federal, state and local agencies.
Our retail channel partnerships have also launched with Walmart.com and Walmart and we're currently testing marketing campaigns to increase our exposure there and continue to drive more sales outflows. Operational efficiency is continually strong to manage costs and continue high level of customer satisfaction. And from a business development standpoint, we are continuing to expand our product development pipeline to serve additional market segments with innovative solutions. As we've discussed previously we're in the process of developing solution opportunities in other key market. So we're doing testing now in new channels such as real estate.
We are in the process of moving forward on strategic opportunities in the hospitality segment, and are looking for key partners in other areas to help us continue to drive our mPERS strategy as we move forward. The mobile platform development is going well with beta testing expected to begin in Q3 of this year. This will continue to drive our strategy to push this particular opportunity in the segment a lot further. Gino, thank you.
Thanks very much, Stan. I think we can turn it over to analyst questions now.
[Operator Instructions] Our first question comes from the line of Kinstlinger.
In the last four or five quarters, you've been around $4 million and chance in revenue. I remember talking about this figure as big as 10%. Has that changed? And what prohibited in the last couple of quarters from growing roughly that percentage?
One of the things that we seen that's -- so a lot of our growth has come from a single cellular device that we sell to the VA. And what we actually seen, and that’s going very well. But what we've actually seen is a quicker drop- off I think than expected in the total. So, we're aware that land lines are going away. It seems to happen a lot more slowly for seniors, because they're slower to adapt to new technology. But in recent quarters, we have seen an increasing rate of drop off on land line. So the older products are not doing as well, the products are doing great. But the products that we have in the pipeline that are coming out in 2019 around midyear are designed to address that. So there is going to be a Wi-Fi solution for seniors that are at home and obviously no longer had land lines. And we will have expanded offerings on the cellular version, which will give a lot more flexibility than just calling 911.
So we have believe that we have product very close in the pipeline that will address that we are also upgrading our wireless devices up to 4G, so that we are keeping pace with technology. And I think that those will very quickly produce results once they are in the market. So we are not going back, we're holding our own, what's happening is all the products are dropping off a little quicker but the newer products introduction that we have are doing well and correct.
So is it fair to say that the reductions in the landline business will be offset in the second half of the year as we head into next year to return a 10% plus growth.
That is our expectation. It's hard to put a percentage on it, it could be higher -- it could be a little low. But we're expecting meaningful growth with these new projects.
[Operator instructions] I’m showing no further questions. I would now like to turn the call back over to Gino for closing remarks.
So Vin to continue on Brian's point. I think there there's two things; one the fintech company in preparation for the spin-off continue to achieve very meaningful stones towards strong relationship with major bank, as well as the credit card companies. And I think it has an exciting future in front of it as they spate operating company. On the healthcare side, we've devoted more resources into expanding on what we have our base healthcare business, which is the very solid business for the VA, and were using that as a platform to take the company forward into both new products and new verticals.
A lot of these products are being developed right now and should be out, most of it in 2019. And we're excited about the scope of the new verticals that we will be entering into. So we remain very optimistic for the company. We think that the second quarter should show some increase revenue growth. But the second half of the year, and particularly the latter half of the year, we expect to see much stronger effect from the new products we're introducing. And so with that, I think that’s all we have. Thank you very much for joining us and we can end the call.
Ladies and gentlemen, thank you for participating in today's conference. That concludes the call and you may now disconnect. Everyone, have a wonderful day.