Today marks the debut of IDEX Biometrics (NASDAQ:IDBA) on NASDAQ through the listing of ADSs. An IDEX ADS is comprised of 75 shares making the total primary ADS outstanding 12.2 million. Our report has been revised to reflect ADSs rather than shares.
IDEX Makes Progress on Multiple Large Opportunities
Q4 results were completely on target with expectations, and we are heartened by the progress the company continues to make in very large opportunities. The most exciting we think is its lead in China where it now has two designs certified by China UnionPay and remains the only company certified by them. This is significant in such a huge market. In addition to payment cards, the company revealed that it is in the new Chinese wallet being piloted by the Postal Service Bank of China. It is a thick card that will be able to store and transact with the soon to be implemented China fiat cryptocurrency aka digital Yuan. This cryptocurrency is the only legal cryptocurrency in China and is ultimately to lead to the discontinuance of cash in the country. This wallet also allows users in Beijing to access health care services and it being considered for other applications. The purpose of the wallet is to provide a device that can allow transactions without needing to own a smartphone or have an Internet connection. This device will store Yuan much like a prepaid debit card would and is a solution for using digital currency for the unbanked and unconnected. Xiong’an branch of the Agricultural Bank of China is the only other bank that has a wallet it is testing. The market for these wallets could be huge particularly if the government mandates their use.
Other than China, IDEX continues to increase the number of card pilots it is in as well as ramping order shipments to Bloomberg. We expect the first adopters will be the European banks as Paribas starts rolling out is fingerprint cards and its local competitors move to compete with the same. As a result, we believe the first US banks to launch fingerprint cards may be those who are owned by European banks. Clearly the US will lag implementation as Asia and Europe are so far ahead in their process. The good news is moving to biometric cards needs no new POS hardware at retailers as opposed to the last generation of pin and chip so there would be no friction there.
While MasterCard already certifies IDEX, we expect VISA certification to be achieved in the next two months. VISA was slower to pursue biometric cards and has just gotten to certifying designs this year.
IDEX Reports Q4 on Target as it Starts to Ramp Production
In Q4 of 2020, the company generated $598,000 in revenues compared to $160,000 in 2019, product sales however were $593,000 in Q4 2020 compared to $10,000 in 2019, reflecting production shipments to Bloomberg as well as sample and pilot shipments to card manufacturers. Most of these sales were to Bloomberg for its new keyboards against its $6 million minimum contract. These sales yielded a gross margin of 70.2% versus 79.2% due to the mix of product versus NRE revenues.
Expenses decreased $2.1 million in Q4 2020 versus Q4 2019. This year the company benefited from a $936,000 development credit, which brought R&D spending to a negative $144,000. In Q4 2019 the credit was $553,000.
Operating loss for the quarter was $7.2 million compared to a loss of $7.3 million last year. The net loss was $7.2 million compared to $9.5 million, while the non-GAAP loss was $6.5 million versus $9.0 million, a decrease of $5.5 million, as management streamlined operations as it approaches volume ramps. The non-GAAP loss takes out stock-based compensation as well as $500,000 in one-time expenses from listing on NASDAQ in the Q4 2020 quarter.
GAAP loss per share was $0.009 this year compared to $0.015 last, and non-GAAP was a loss of $0.008 versus $0.015. The share count increased 41.4% to 868 million.
GAAP loss per ADS was $0.63 versus a loss of $1.16 last year. The non-GAAP loss per ADS was $0.56 versus a loss of $1.11 in Q4 2019.
EBITDA loss in this quarter was $6.0 million compared to $8.7 million in 2019. Cash flow (not including changes in working capital) was a negative $6.0 million compared to a negative $8.8 million. Free cash flow was a negative $6.2 million compared to $9.1 million last year.
At the end of December, IDEX had $7.3 million in cash, $6.7 million in working capital and no debt. It is burning about $5-6 million a quarter. On November 9th the company sold 42.5 million new shares at NOK 1.65 per share in a private placement resulting in gross proceeds of NOK 70 million (US$7.9 million). Its American Depository Shares (ADSs) will be listed on NASDAQ under the ticker IDBA, at the ratio of 75:1 shares to ADS on March 1, 2021.
On February 15, IDEX sold 83,214,674 new shares at NOK 2.75 per share for gross proceeds of about NOK 229 million (US$27.2 million). The company intends to use the proceeds to cover expansion investments and used for general corporate purposes, and is expected to fund the company to the commercially scalable volumes phase. The company now has share capital of NOK137,304,213.30, and 915,361,422 primary shares outstanding.
On February 2, 2021, IDEX announced that its fingerprint sensor and Tongxin Microelectronics’ secure element (SE) have been included in a second biometric payment card certified by China UnionPay. The card is ready for volume production and is being manufactured by Goldpac. TMC and IDEX have the only solutions to be certified by China UnionPay.
By 2025, IDEX could reach $500 million in sales or higher. That would result in an enterprise value of $4.75 billion. After its recent raises, the company now has 915.4 primary shares outstanding. According to the treasury stock method, the current fully diluted share count at a stock price of NOK2.97 per share is 942 million fully diluted shares. We are adding 20 million shares to reach 962 million by 2025. Divided by 962 gives us a stock price of $4.94 share. Discounting that by 30% per year to current value gives an EV of $1.66 billion and a stock price of $1.73 per share. To be conservative, we are starting with a valuation of $1.00 per share and will increase that as we see it ramp revenues and land design wins on it path to our earnings expectations. Translating that $1.00 price per shares to ADS is $75.00 per ADS.
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