NXT-ID Inc.

Ladies and gentlemen, thank you for standing by and welcome to the NXT ID third quarter results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone keypad. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today. Shailen Simmons, CEO of NXT IT. Thank you, please go ahead.

Thank you, Cherry. Before we get started, I would like to remind everyone that during this call, we will 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 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 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. Today we'll summarize our financial results for the recent third quarter and nine-month 2021 period. I'll also discuss operations. In August, I spoke about establishing three pillars to put us on solid ground, namely the right timing, product, and people. Let's first talk about time, where we've been spending it, and how our company is poised to take advantage of the demographic shift we currently find ourselves in. To ensure we have a solid foundation from which to grow, I spent much of my time keeping the company listed on the NASDAQ stock exchange. Addressing this challenge became a priority because we plan to increase our sales channels, structure partnerships, and think beyond hardware opportunities, all much easier when a company is listed on a well-respected stock exchange. We asked you, our shareholders, to approve a reverse stock split of our common and preferred shares. It was a consolidation of shares to make each one worth more to maintain the minimum price of a dollar per share that NASDAQ requires. I'm pleased to say that we received approval for both the preferred and common reverse splits, and we have also now received a formal compliance letter from NASDAQ. Thank you to all our shareholders for your support and our team for helping push this through. We also have spent time raising additional capital to ensure we can build the products and hire the talent necessary to bring our vision to life. We raised $16.4 million of capital to focus on product, marketing, and operations. At the end of September, we had $16 million in cash. The equity offering allowed us to attract new investors to the company who share our desire to see to see change in a market that has not seen much technological innovation, but has tremendous opportunities. Investing the time to shore up capital in our corporate structure has been time well spent, and we hope to further expand our institutional shareholder base. Because we have the opportunity to take advantage of the silver tsunami that will define the next 40 plus years of personal monitoring, safety, and security software and devices, We share some of the statistics about the graying of America and the globe last quarter and the need to apply new thinking to the sector. Our vision is to build a platform to power a new caring economy to support the silver tsunami and the sandwich generation that supports them. Our proprietary products, the Freedom Alert and Guardian Plus 911, currently support seniors by providing critical solutions without a monthly fee. There are many seniors on a fixed income on Medicare or Medicaid for whom recurring billing would force them to choose between their safety and security and potentially other critical needs in their lives. With a strong base of existing products, we're excited to expand into new product offerings, now monitored and monitored services, both domestic and international, in-home, professional services for senior living, and direct-to-consumer markets. Here's our vision. Many of you are familiar with Software as a Service, or SAS. Our Caring Platform as a Service, or CPAS, will act as the center of our offering to the care economy and technology space. This will bring together not just our own proprietary products, but allow us to collaborate with potential partners in the age tech and healthcare communities. To date, NXTID has 26 pending and issued patents. I'm pleased to share that two provisional patents were filed around fall detection this past quarter. Each year, approximately one out of four adults over 65 plus experience fall incidents. Less than half tell their doctors. And once they fall, their chances of falling again doubles. One out of five of those falls result in serious injuries. Three million older people are treated in ERs for falls. While falling may not result in serious injury, it does cause fear, resulting in reduction of daily activities. When a person is less active, they are weaker, resulting in an increased chance of falling. Despite a pressing need to improve fall detection and ensure response times are more rapid, personal emergency response systems, or PERS for short, and care-taking technology has not evolved for decades. NXTID is looking to develop solutions to meet these needs. Our latest provisional patents are focused on improving fault detection. One of the reasons why many people do not like to wear monitored PRRS products is because of false positives that can come from fault detection. It can remove a sense of independence and cause embarrassment. We're developing patents and fraud detection technology, artificial intelligence, and machine learning that we believe will help us better identify an actual fraud event versus a false positive. Better technology around fraud detection will not only save lives, but save money. In 2015, Total medical costs for falls was more than $50 billion. Medicare and Medicaid shouldered 75% of those costs. Reducing medical costs for our government and individuals is another reason why I'm so passionate about Caring Platform as a service. As you have seen in the news, Many industries have been affected by supply chain issues and semiconductor chip shortages. In our case, the biggest impact we have seen is the availability of chips and certain components. Despite these challenges, we have been able to meet the demands. As a company that is nimble and fast-moving, we are able to seek out parts in a spot market, redesign quickly to ensure that we can continue to operate with as much speed and efficiency at a challenging time for many companies. While higher chip costs may impact our margins, we have been able to secure the supply we need and will continue to focus on product development and shipments to our customers. Finally, let's briefly discuss people. As we hope to increase our revenue stream for existing products and new product development, we also hope to grow our already talented team. Our recent funding allows us to do so. We're in discussions with a number of candidates currently and hope to make some announcements by the end of 2021 or early next year. At this point, I will hand over the call to Mark for a brief summary of financials.

Thank you. As Shailen said, it was quite an intense quarter for us with the successful completion of two separate fundraisings and the special shareholders meeting to approve the reverse split of our common stock. Now with that behind us, our focus is back on the business. I'd like to discuss the company's unaudited financial and operating results for the third quarter ended September 30th and for the nine-month year-to-date period. First, the third quarter. Revenue was $2.4 million. a decrease of 10% from the same quarter last year. While third quarter revenue was soft, we're encouraged by the lift we saw in revenue in October, which was up 6% from prior year. Gross profit was $1.3 million for the quarter, a decrease of $611,000 compared to the same quarter last year. Gross margin was 53%. compared with 71 percent in the prior quarter. Gross profit was mainly impacted by lower revenues and a $314,000 reserve for obsolete inventory that was recorded in the quarter. Gross margin was impacted by both the inventory reserve and the higher manufacturing cost for our new 4G Guardian product that was introduced late in the fourth quarter. Operating expenses were $1.8 million compared to $2 million in the prior quarter and $2.4 million in the same quarter last year. We do not expect this year-over-year favorability to continue as we begin to add resources to support new product development and launch. Operating loss for the quarter was $497,000, slightly better compared to the operating loss in the same quarter last year. And finally, net loss was $743,000, or 12 cents a share, compared to a net loss of $1.1 million, or 32 cents a share, in the same quarter last year. The earnings per share numbers have been adjusted for the 1 for 10 reverse stock split made in October. Now let me talk about the nine months year to date. Revenue was 7.6 million, a decrease of 14% compared to the nine month period last year. Gross profit was 4.6 million, a decrease of 29% from the same period last year. Gross margin declined from 73 to 61%. As was the case with third quarter results, Gross profit and margin was impacted by lower revenue, the inventory reserve, and the higher manufacturing cost for the 4G Guardian product, which was launched in November of last year. Operating expenses for the nine months were $6.1 million, essentially flat to prior year. Operating loss was $1.5 million compared to operating income of $410,000 during the same nine-month period last year. And finally, net loss was $7.7 million, or $1.43 per share, compared to a net loss of $1.4 million, or 44 cents a share, in the same nine-month period last year. This year's results included $6.6 million of non-recurring expense. And again, the EPS numbers have been adjusted for the stock split. Now let me speak to three key events that happened after the close of the quarter. On October 18th, we shut our Oxford, Connecticut corporate office and consolidated corporate functions in our Louisville divisional operating office, an opportunity for us to further rationalize our cost structure and run more efficiently. On November 1st, the company's wholly owned subsidiary, LogicMark, made a $1.1 million payment to its senior lender, completely satisfying all of its financial obligations with that lender. With that payment made, the company no longer has any senior debt. And then finally, on November 3rd, we set the record date for our annual shareholders meeting to be held in New York City on December 17th. So this concludes my remarks. Cherie, let's open the call up for questions.

As a reminder, to ask a question, you will need to press star one on your telephone keypad. Again, everyone, if you have questions, that's star one on your telephone keypad. To withdraw your question, you may press the pound key. Please stand by while we compile the Q&A roster. Your first question comes in the line of Brian Kitzlinger from Alliance Global. Your line is now open.

Hi, Gray. Thanks for taking my question. Just one question, actually. Prior to you joining, NXT, I would say, was not really a great executor, and so really didn't really allow the company to succeed, in my opinion. What are the maybe two or three keys to stronger execution, notwithstanding capital? Is it better go-to-market strategy? Is it you need to update the technology, sales leadership, just everything? I'm curious a couple of what you think are the primary things you can do to turn the story around. Thank you.

I'll go ahead and take that. Thank you, Brian, for asking that question. So I think that it's the key for any company who is in a technology space, not just ours, when it comes to basically success. We absolutely need marketing and sales capabilities. My background is actually in marketing, and I've been a revenue generator for every company I've been at for the last 26 years on the technology side. Secondarily, we haven't launched a new product since November of 2020, and the 4G product is fantastic, and we are excited to be selling that product, but we also need to continue to look at innovation and provide offerings that can actually expand the spectrum of a consumer's life cycle and Certainly, I think that for the unmonitored product space, we are doing a fantastic job ensuring that those who have needs and cannot afford a recurring billing, we're able to help them stay safe and secure. And so but you'll see us basically also looking at, you know, addressing additional sort of, you know, customer and customer segments. And so I think that's really key to helping us, you know, help a consumer as they age into the different products into a life cycle. So we have to have products for every part of that, you know, sort of life cycle of that customer. And I think third is, you know, it's really important for a technology company not just to have, I would say, R&D acumen, which I think this company has had a lot of, but also the capability to have the right team members to actually execute against us, which means stronger looks at engineering talent and product talent to bring onto the company and the capability to execute and market those products. And so I think if you bring all of those things together, we absolutely have all of the ingredients and we are gathering all of those ingredients for success for the company moving forward.

Great. If I could just ask one follow-up on the people side. I know you and I have spoke. You have people you want to bring on through past relationships. But outside of some of those key management roles that you've identified, how does the labor shortage, if at all, impact your business as you look to recruit people?

Sure. That's a great question. I think that certainly every company is experiencing the squeeze of talent. And so, you know, I'm chuckling a little bit because, you know, obviously I want to hire the best, you know, most talented executives, but we also are very interested in hiring some of the best talents on many levels. You know, we were thrilled to have recently hired an amazing marketing manager to come to us from Timberlands. She has been managing social. And so there, as well as other marketing areas, pieces. And so she actually joined us, I think it was around October 18th of last, and she's actually already executing, you know, up to speed and helping us with product marketing, as well as, you know, getting our social program together. And so we're not looking at, you know, I think across the board, we are absolutely like every company looking at, you know, a tremendous amount of shortage and talent, but I'm very happy to note that I have a extremely vast network of when it comes to technology talents and folks in the technology industry that I'm tapping into for all levels of hiring for this company. And I think the second part is that, you know, I've often told people, I think we're like a startup with the ticker symbol. We should operate with speed, with efficiency. And so sometimes that could mean that we're outsourcing some of that development work and not having to hire in-house to do it because that's a faster way to do it. Sometimes that could be a partnership in terms of development work. And so we're looking at all of those different options because I think that to be a nimble company and for the shareholders to benefit from a company that can operate like a startup and reap in the results of actually a company that can operate with speed, that's the kind of things that we need to look at.

Okay, thank you.

Your next question comes in the line of Chris Tunnell from Soundview. Your line is now open.

Hi there. Thanks for taking my call. Congratulations on getting the company on a more sustainable path. capital base. I have just a couple questions. I know it's early, but if you think about where you want to go in the next few years and product mix, do you see the company as, you know, basically predominantly more sort of an AI software company, or how far into the device, you know, physical segment do you think you'll be versus partners that you might integrate with?

Well, thank you for the question. I think that is a good question. I think that we are looking at a mix. I think that for a successful company to, what we would like to do, transform this industry, I think we need to be looking at a mix of software, machine learning, artificial intelligence, as well as hardware. I'd like to think that we can all develop hardware that would be a perfect fit for people who are a little bit older. And I think that when we And when we think about our customer base, we have to think the way that the AARP has been doing for the last several years. It used to be that I think, you know, if you're retired and you turn 65, that's when you get the letter from AARP. Much to the consternation of many people, I'm sure, they're getting AARP letters earlier in their life, right, around 50 even nowadays, right? And so we tend to think about a customer's life cycle with us in a similar way, which is what can we offer as a product that's, you know, earlier that could be of assistance? And then how do we, you know, partner with our, you know, customers as they age? you know, not just them, but also the caretakers. And so how are we developing products that actually fit that customer life journey, right? So I see that as a combination of not just software, you know, artificial intelligence and machine learning, but also, you know, I think we will probably stay to a certain degree in some level proprietary hardware work, as well as partner with other hardware companies as part of that. So, you know, if you're younger, right, And, you know, the Apple device is a good one for you. You know, you can see us look at expanding software and services into that category space. But, you know, as we all know, when you get a little bit older, manual dexterity doesn't often sort of let us utilize things that are very small in form function. And so we may never be able to, to a certain degree, look at completely getting out of the device space. I think that we would want to stay there because our customers need us to be there. And so you'll always see us probably be in a mix of providing a blend of software services as well as hardware.

Okay. Thanks. I appreciate that. Second question is just on the existing business. It doesn't have to be a legacy, but the existing business. Do you feel that that is I mean, it's been running at sort of a, you know, I won't say autopilot, but it's just been kind of running at that level for a long time. Do you feel that, you know, that's going to continue to sort of help you operate just as an annuity? Is there any risk to that business in the short term, or is your positioning there such that, you know, you guys can rely on that kind of on a quarterly basis to support your operations?

I think if we're referring to our, you know, incredible partnerships, on the logic mark side with the Veterans Administration and others, I think you could absolutely say that, you know, we hope to continue to earn their trust as providers of very needed products to the vets of the United States. I mean, I think that, you know, we are proud to, you know, to have that partnership. We continue to basically do everything we can to basically be the best partner possible for the Veterans Administration. As you can imagine, you know, we've gotten our GSA in the past year and so you know we will continue to look to expand our government work you know into other sectors of the government i mean today we we you know offer our products into the largest health care system in the united states which is the veterans administration hospitals and clinics and so we would like to look at what that means with the gsa to expand into the medicare medicaid side um you know state and local municipalities and so you know I would say that what we call sort of the legacy business, the business where we serve the government of the United States, you will see us continue to not just service the Veterans Administration, but we will be looking at expanding the government business, as well as add-on direct-to-consumer, as well as B2B businesses and pro products.

Okay, that's great. I'm glad to hear that. Last question from me for now is – Yeah, obviously closing the Connecticut office makes a lot of sense. And Louisville is an existing location. What are your thoughts on physical location? I mean, do you need one? Are you guys going to be more virtual? How are you kind of thinking about that?

So it's, you know, it's a question I'm sure every company gets asked nowadays in the world of COVID is, Ironically, this company has always been somewhat remote-oriented since the beginning. LogicMark, which is the wholly-owned subsidiary of the company, had been, I believe, actually was started in Virginia. And so we've always had employees based in a multitude of different locations. I'd like to think that this company has had a very strong sort of and looking for the best employees wherever they sit in the United States. And so we've been very proud of doing that. We'll continue to sort of look at growing that footprint where we find the best, you know, I think, employees that we can find. I think that physical location in Louisville is fantastic. From Louisville, we can reach 80% of the United States from a distribution perspective. That's something that we think is important to have. Our warehousing, our customer support, our operations run out of Kentucky. We'll continue to be there at least for the foreseeable future.

Okay. Terrific. Well, that's all I have for now. I'm eager to watch you guys develop over the next few quarters. Thanks very much.

Thank you for your questions.

Again, everyone, as a reminder, if you have questions, please press star 1 on your telephone keypad. Again, that stars on the number 1 on your telephone keypad. I am showing no further questions at this time. I would now like to turn the conference back to Ms. Shailen Simmons.

I want to thank you all for participating in our call today and for your continued support. Just a reminder that the replay will be available on our website. And feel free to send any comments or questions to us through the investor relations email at investors at nextid.com. As we are entering the final months of the year, I want to wish everyone a happy and healthy holiday season with your family and friends. Thank you.

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