By Lisa Thompson
NASDAQ:IDBA
READ THE FULL IDBA RESEARCH REPORT
Q2 showed a continued revenue ramp as current customers took more product than in Q1. We had expected slightly higher revenue for the quarter, but a $166,000 order slipped into Q3 due to supply chain issues caused by shut downs and quarantines in Shanghai and other parts of China. That $166,000 order was shipped in Q3. IDEX (NASDAQ:IDBA) has its products assembled and tested in Shanghai and the challenge now is to make up for lost production time. Issues in China have lessened there, as plants reopened and quarantine requirements have been reduced. All of IDEX’s products go through Shanghai. It is currently investigating the possibility of using its vendor’s facility in Portugal as another option. As a result of shutdowns, the supplier lost a number of weeks of production which we expect to impact IDEX in Q3 and possible Q4 and as a result we are lowering near term revenue expectations. It is still expected that sometime in 2023 the industry will hit the inflection point and sales should take off. The card industry is still experiencing shortages of secure element chips slowing plans by customers to roll out biometric cards, but it appears shortages are not as bad as they once were.
Revenues in Q2 were generated by the same set of customers as in Q1: Bloomberg, IDEMIA, Zwipe, Dongwoon (first time), and one other customer that is also using product for security access. By year end, we expect more shipments to IDEMIA as it signs and starts to ship to yet unannounced large bank customers.
In response to delays and to preserve cash, IDEX is working to lessen its cash burn by reducing staff going forward and particularly in R&D as much of that work is behind it. More spending will be allocated to sales and marketing as industry interest picks up as competitors start their introductions. There is solid demand from end users wanting to adopt both the next cool technology as well as the increased security fingerprint cards afford.
First Half Highlights
The chart below looks much the same as the Q1 Highlight slide, with only the addition of Reltime to design wins for the IDEX/Infineon solution.
As a fabless semiconductor company with high operating leverage, it is expected to be at very high pretax margins once it ramps revenues and it deserves an enterprise value to sales valuation in line with its peers that trade at 6.9 times 2022 revenues. It currently trades at $121 million market cap and a $105 million enterprise value. We believe that by 2025 it has the potential of $500 million in sales at which point it could be valued as a $3.7 billion company.
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