LogicMark Inc (LGMK) 2019 Q1 法說會逐字稿

Hello, and welcome to the Nxt-ID Q1 Investors Update Conference Call.

(Operator Instructions)

I'd now like to introduce your host for today's call, Gino Pereira.

You may begin.

Thanks very much.

Good afternoon, everyone.

Thank you for joining our call today.

We're going to discuss Nxt-ID's unaudited financial and operating results for the 3 months ended March 31, 2019, and give a general update on the progress of the spin-off.

So during this afternoon's call, we'll be making forward-looking statements, which consist 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 that underlie such statements.

Please note there are a 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 release 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; Michael Orlando, our Chief Operating Officer and President of Fit Pay and PartX; and Stanley 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 a review of our financial results, then to Mike and Stan for an update on Payments and Health Care, respectively, and we'll take a few calls from the analysts that are on the call.

So our financials, as you are aware 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 side is classified as a discontinued activity as we are going to spin it off.

So this gives the public, a clearer look into the base business that will be remaining.

The results for the first quarter were pretty similar to the first quarter of the previous year, which was very strong.

So it shows continued strong performance compared to the same period last year in revenue.

Revenue slightly lower, income up.

Revenues were about $300,000 below our analyst forecast though, partly due to month-to-month fluctuations, that's earlier in the year, the first 3 months of the year, and also slightly delayed introduction of new products that we have into the retail marketplace.

So they'll 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 more strongly over 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 that we need to finalize the spin-off.

We've completed a term debt refinancing, which removed a restrictive covenant that prevented us from moving forward with the spin-off.

And we filed a Form 10 Registration Statement with the SEC to register PartX as a public company.

So once we've received clearance from the SEC on the Registration Statement, we will be able to share the distribution and the record date for shareholders, so that they know when they would entitled -- the date by which they'd need to own shares in Nxt-ID to be entitled to a dividend for a proportional equity interest in PartX.

As we've stated before, we believe that both the Health Care and the FinTech businesses are better suited to operate as separate entities, and we think that the combined value of both those businesses will exceed the value that is currently in Nxt-ID.

And with that, I would like to turn it over to Vin Miceli to update you on the first quarter.

Thank you, Gino.

Good afternoon, all.

So I'll take you -- I'm going to take -- discuss the first quarter more in a summary format.

You have the 10-K and the press release.

So I'm just going to go over some of what we consider to be the highlights in the first quarter.

So in terms of revenues, revenues from our continuing operations for the 3 months ended March 31, 2019, came in at 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 continues 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 3 months ended March 31, '19, 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 3 months ended March 31, 2019, came in at just under $600,000 compared to $757,000 for the 3 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 3 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.

Taking a look, we closed the quarter with $1.2 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 12/31/2018.

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 accounts payable, 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 '18 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 generated about $765,000 in operating cash flow, which was real positive add for us, and a real -- 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.

Sure.

So next I'd like to have Mike Orlando catch us up on Fit Pay and PartX and things that we have going on there.

Thanks, Mike?

Yes, thanks, Gino.

Good afternoon, everyone.

So for the Payments division, Q1 revenue was $221,000 for the quarter versus $514,000 for the previous period in 2018.

The decrease was wholly due to discontinuation of product sales to WorldVentures.

So now our core revenue is really based on the [Fit] core platform and device activation that we're seeing from our customer base.

We saw a net loss of $1 million for the period versus $935,000 for the same period last year, with a gross margin of 72%.

And the 72% is actually higher than what we had anticipated, really due to the product mix and high delivery of software applications that we've built.

In terms of business milestones, we've launched Discover Network in January.

So we now have 4 networks on the platform.

We also announced the launching of SwatchPay and Swatch devices in Europe, specifically Switzerland, and they're selling now.

We're seeing some good activations and some good activity there, and they're looking to expand those -- the product markets and geographies in which they're selling to throughout this year.

And then lastly, we were 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 a contribution beginning in Q2 and more shipments of those devices as more inventory arrives later this month.

Core business metrics that we measure for Garmin devices, we are now activated with Garmin Pay in 16 of their models, with price points ranging from $199 up to $2,500, and so that gives us a really wide customer base in which Garmin is selling the product to and where Garmin Pay is available.

We've increased our footprint of issuing banks to 340 and the number of countries to 45 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 of platform activation.

Now with that, I'll give it back to you, Gino.

Thanks, Mike.

And over to Stan Washington for an update on the Health Care Division.

Thanks.

Thank you.

Thank you, Gino.

Hello, everyone.

For LogicMark and the Health Care business for Q1, our revenue, as you've heard, was slightly down at $4.2 million year-over-year, slightly down about 2%.

Our gross margin dollars essentially remained flat year-over-year.

And for Q1, our gross margin percentage was up 3.5%, and again, this is driven by the product mix and the momentum we're continuing to see in our cellular products over the land-based devices.

The government channel continues to perform very, very well for us, and we're expecting increased growth through 2019.

This is going to be driven by deeper penetration within the VA and other governmental agencies outside of the VA, which we're pursuing pretty aggressively.

We're 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 bestbuy.com, and we're currently testing marketing campaigns to increase our exposure there and to continue to drive more sales output.

Operation -- operational efficiency is continuing strong, to manage costs and continue high level of customer satisfaction.

And from a business development standpoint, we're 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 markets.

So we are doing testing now in new channels such as real estate.

We're 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 overall strategy to push this particular opportunity in this 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 4 or 5 quarters, you've been around $4 million and change in revenue.

I remember talking about this business being a 10% grower.

Has that changed?

And what prohibited you just in the last couple of quarters from growing roughly that percentage?

Yes, I think that we've -- one of the things that we've seen that -- so a lot of our growth has come from a single cellular device that we sell to the VA.

And what we've 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 -- it's a world of where the land lines are going away.

It seemed to happen a lot more slowly for seniors because they are slower to adapt to new technology.

But in recent quarters, we have seen an increasing rate of drop off on land lines.

So the older products are not doing as well.

The new products are doing great.

And -- but the products that we have in the pipeline that are coming out in 2019 around midyear are designed to address that.

So there's going to be a WiFi solution for seniors that are at home and obviously no longer have landlines.

And we'll have an expanded offering on the cellular version, which will give a lot more flexibility than just calling 911.

So we believe that we have products very close in the pipeline that will address that.

We're also upgrading our wireless devices up to 4G so that we're keeping pace with technology.

And I think that those will very quickly produce results once they are in the market.

So we're not going backwards, we are holding our own.

What's happening is some of the older products are dropping off a little quicker, but the newer product introductions that we have are doing well and great.

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 to 10%-plus growth?

That is our expectation.

It's hard to put a percentage on it, could be higher, could be a little lower, but we're expecting meaningful strong growth with these new products, yes.

(Operator Instructions) I'm showing no further questions.

I would now like to turn the call back over to Gino for closing remarks.

Thank you very much.

So really to continue on Brian's point, I mean, I think there's 2 things.

One, the FinTech company, in preparation for the spin-off, continues to achieve very meaningful milestones through its strong relationships with major banks as well as the credit card companies, and so I think it has an exciting future in front of it as a separate operating company.

On the health care side, we've devoted more resources into expanding on what we have our base health care business, which is a very solid business with the VA, and we're 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 them 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 increased revenue growth, but the second half of the year, particularly the latter half of the year, we expect to see a 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.

You may now disconnect.

Everyone, have a wonderful day.