Nxt-ID, Inc.
Q3 2019 Earnings Call Transcript

Published: 19 Nov 2019

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Nxt-ID IR Update Webcast and Conference Call. At this time all participants’ lines are in a listen only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator instructions]I would now like to hand the conference over to your speaker today, Mr. Vin Miceli, CEO. Thank you. Please go ahead, sir.

[Vin Miceli:]

Thank you, Jim. Good afternoon, all. And thank you for joining our call today to discuss Nxt-ID's unaudited financial and operating results for the nine months and three months ended September 30, 2019 and to provide a general update on the overall business.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 future performance and the assumptions underlying such statements.Please note that 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 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 such statements.So, again, thank you for joining the call today, very excited to be here and to give you an update. Again, Vin Miceli here. I am here today with Kevin O'Connor, President of our LogicMark operation.And the format for today's call will be as follows

[Kevin O'Connor:]

Yes. Thanks Vin.So, I'll give kind of a brief overview of the business. I'm not going to go into the financials, obviously, as Vin really touched on them, with LogicMark really being the bulk of the financials within the business.So, overall, the LogicMark core business continues to perform really well. There are strong fundamentals, the business, really the entire time that we've been part of Nxt-ID, has performed well, and we've got a strong position that we can build from. So, volume remains strong, strong gross profits that Vin touch on, and profitability continues to be very good.One of the things that we've always been pretty focused on and even more so now is the operational efficiency is excellent. And as Vin took over as CEO, Ken, who runs our global operations and I've been working with Vin to really take a look at all expenses across the business. So, even though we think we operate it really efficiently, one of the things we're really focused on is to literally go line item by line item and look at the fact that everything we're spending that we're putting into the right areas and that we're looking to get a return on that. So, we're going through that process now and are optimistic that we can allocate the resources into the right areas to give us the best return, manage our costs while at the same time we want to be focused on maintaining a high level of customer support, because that's really important. We’ve got a strong reputation with the customers that we serve of taking good care of them. So, we want to make sure that as we're looking at cost reductions that we're not cutting too far or cutting in the wrong areas where it's going to impact the level of service of the customers. We want to make sure we can continue to build on that.One thing I'm pretty excited about is, as we've gone through these changes recently is we now are at a point where I believe that we're going to be able to invest in LogicMark in the right areas. We've got a strong core business, we think that there is good future opportunities, and it's really a matter of being able to invest in the right areas to build on that, and I think we're in a position right now where we can strategically drive the right initiatives and put the resources into the right areas. So, a big part of that has been and I have been working really closely with our engineering and product development team to focus on the NPI to make sure that number one, we're developing the right solutions for the right markets and that we don't have so many projects going. We've had a lot of things that have in many cases been distracting in the past. We’re able to really focus on the things that need to be developed and get them delivered because with so many projects in the pipeline, it was difficult to get them out in a timely manner. So, working with engineering product development, we’re looking to streamline that whole process.And overall, our focus is really just continue to build on the strong business, and target the NPI investment, get the product designed and released, to take care of the core business that we have but then also look at broader markets, so we can expand our core. When we think the overall space that we serve today as far as personal emergency response, there are opportunities and we want to make sure that we got the right solutions being developed and delivered into the market. And everybody is working on the same direction to make sure that again we're putting the resources in the right areas to deliver on that.So, with that, Vin, I’ll hand it back over to you, and you can go through the additional details you talked about.

[Vin Miceli:]

Sure. Thank you, Kevin. Thank you.And so, next, I’d like to spend a little bit of time and chat with the investors and the group that -- about the sale of Fit Pay. And I just want to clear up. if I may, if there is any -- we’ve tried to do a very good job in the external fillings, describe what transpired as it relates to the failed spinoff and the ultimate sale of Fit Pay. And so, there's a couple of points that I really just want to make sure that everybody is aware of and understands, so that there is no confusion or what have. And so, I think it will just make for a much cleaner, much clearer picture for everyone.And so, back in May when we went through the refinancing of the Company's term loan facilities, the lender that we currently have and certainly the previous lenders were very concerned about how the cash flow generated from on LogicMark was being allocated to the remainder of the business. And so, one of the things that was -- became very, very clear was that the lenders wanted to limit the amount of time that it would take in an effort to minimize the amount of cash that would be used elsewhere within the business. And so, when we entered into the agreement, the agreement allotted the company 60 days from the effective date of the term loan facility to effectuate, if you will, the spinoff. And so, it was 60 days. And then, if the 60 days lapped, then we were not able to complete the spinoff in that timeframe, we had an additional 30 days in which we would be required to look for a suitor for the business.So, as we got to the -- once we got the refinancing completed and we had the Form-10 filed, we were looking to gain bridge loan financing for Fit Pay and it was quite difficult. What we were finding was we could not gain a lot of traction and the financing that we were being presented, didn’t appear to provide Fit Pay with enough runway to continue on its growth patterning. And so, it really brought into -- and very importantly also was that around the midsummer July, late June, early July timeframe, the financial markets were starting to soften, if you’ll recall, and it made it more difficult to get term sheets that we believe were conducive for Fit Pay to really be successful and to really work with. And quite honestly, it brought in a lot more questions as to whether or not we would be successful bringing Fit Pay public. And so, with all of that going on, it was clear that we were not to going to be able to get this done in the time allotted by the lender.So, ultimately, we -- as you all know, obviously, we completed the sale. On September 9th, we sold the business to Garmin for roughly $3.3 million. And so, I mean, if there is a silver lining here and I think back on this all the time, I believe that if there is any good news, we were able to take a big chunk of sale proceeds and delever the business going forward, which should really help the business going forward. And secondly, we obviously don't have the operating cash flow requirement that Fit Pay would require.So, I think, what’s very import is that as Kevin alluded to, what we did was after on post Fit Pay basis, what we did was we really paused for a moment, we went back and we really said to ourselves what do we really need to do here to regain shareholder confidence, and what do we really need to do here to position the Company in such a way that we could really position ourselves for future growth and really enhance the value of the business. And what we came away with -- and I know it all sounds very generic and what have you, but saying it and doing it are two very distinctly different things, at least in my mind. And so, I feel compelled to tell you that we broke it down into three phases. And Kevin has already alluded to this, so I may sound a little bit redundant, but I think it's worthy of mention again.So, we really boiled it down into three basic components

[Operator:]

[Operator Instructions] Our first question comes from Michael Diana with Maxim Group. Your line is now open.

[Michael Diana:]

Okay. Hi, Vin.

[Vin Miceli:]

Hi.

[Michael Diana:]

Well, first of all, congratulations on becoming CEO. This you are -- the presentation you just gave certainly hit the ground running, I’d say. Let me ask you one thing just to confirm really, because I think I know the answer. On the sale of Fit Pay to Garmin, was that a clean break, meaning there are no contingent liabilities, expenses or anything else?

[Vin Miceli:]

Yes. That's correct. It was -- to use your phraseology, a clean break, and there were no future applications on the part of Nxt-ID.

[Michael Diana:]

And Michael Orlando's claims have all been taken care of in that sale, is that right?

[Vin Miceli:]

Yes. As I mentioned, we completely repaid the seller note at the time of the Fit Pay sale to Garmin. I believe, if my mind serves me correctly, we paid about 400 -- I want to say, was either 480 or slightly below that. And we basically repaid the entire seller note and we took $2 million of the proceeds, Mike, or thereabouts and delevered the term loan facility.

[Michael Diana:]

Okay. And then, obviously, one of the problems before is you are burning a lot of cash -- or Fit Pay was. So, do you have any assessment of like how much per month you are saving by not having...

[Vin Miceli:]

I think it’s -- you could derive it. You can pretty much derive it derive it, Mike, by look at the financial statements and looking at the loss from discontinued operations. But, on average, I think, it’s safe to say that the cash burn at Fit Pay was anywhere between $250,000 and $300,000 per month. And as we were getting closer to the sale date, that number was significantly higher.

[Michael Diana:]

Okay. And in your press release, you mentioned savings of $380,000 from interest expense, that's cash savings, right?

[Vin Miceli:]

That's all cash savings, absolutely. And if -- again, we have very -- for lack of a better way to put it to you, our team loan facility, Mike, is quite pricy, and we paid upwards of 13% on the money. And so, when you take the $3.3 million of delevering that we had through the first nine months, and you basically wait the seller know which had a lower interest rate than the 13%, but when you blend that all together, the annual savings approximates $380,000. Now, also keep in mind that we will take down the term loan facility by roughly another $600,000 in Q4. So, as we head into 2020, we’ll have a much reduced cash pay interest on a prospective basis.

[Michael Diana:]

Right.

[Vin Miceli:]

Which is obviously very important to us.

[Michael Diana:]

Sure. And you mentioned in prepaid, how much was that approximately?

[Vin Miceli:]

So, yes, included in the current term loan facility any prepayments that we make in year one, we have to pay a prepayment penalty of I believe it’s 7%. So, when we paid down $2 million, we ended up paying about $140,000 of prepayment penalty, which as I alluded to before, pointed out as part of our interest expense in Q3.

[Michael Diana:]

Sure. And won’t be there in Q4, right?

[Vin Miceli:]

Correct.

[Michael Diana:]

Okay. And I know you had an office in Florida. Do you intend to keep that office?

[Vin Miceli:]

So, we're just in the final stages of terminating the lease agreement. That was one of the first things that I attempted to do. It won't be huge savings, but nonetheless, we weren't getting a lot of use out of the property. And so, again, nothing worse in my mind than wasting money. So, I think that closing that will go a long way for us. And essentially we’ll save roughly all in -- we’llSave about 15 -- I believe it’s 15 or 18 months of rent. And so, not a huge deal, but still significant in my mind and very important that we're not wasting dollars that we could put to a better use.

[Michael Diana:]

Sure, okay. And last one for me. You say in the press release you’re very optimistic about the remainder of 2019. Certainly, you discussed the expenses at length. And I guess, you also -- but as to revenues, you also mentioned October was a good revenue month. So you...

[Vin Miceli:]

Yes. I certainly can't -- I can't speak what the quarter will look like, Mike. But having October in hand, I think if October is any indication, we had a very strong October, I think, if my mind serves me correctly, revenues came in at about $1.540 million or $1.550 million, somewhere around there, but very strong and very encouraging in my mind. So, if that's any indication we should have a good fourth quarter. But, I certainly can't -- it's basically a book and earn business, there is not a lot of backlog in the pipeline. So, it's very difficult to predict where revenues in the quarter will shake out. But, we certainly have a good start to Q4, and I'm pretty happy about that.

[Operator:]

[Operator instructions] And I am not showing any further questions at this time. I'd now like to turn the call back over to Vin Miceli for any further remarks.

[Vin Miceli:]

Thank you, Dan. Thank you, everyone. I again thank you very much for being patient with us and giving us a couple of months here to get on the webcast with you and give you an update. I'm positively encouraged by our efforts thus far. And we basically are trying very hard to make improvements here and get back on the right track and build shareholder value. Again, I look forward to seeing some of you at the upcoming annual meeting really, look forward to meeting some of you in bringing and providing an update on where we currently are and where we will be with -- as we head into 2020. So again, thank you, and have a very good afternoon. Thanks.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.