IDI Inc. (IDI, Financial) is an emerging information solutions provider operating within the burgeoning data fusion market. The company offers clients next-generation information solutions that provide unparalleled insight into risk management and market intelligence. IDI’s recently expanded management team has been executing an aggressive growth plan to gain a solid foothold in the industry.
IDI recorded revenues of $2.3 million in 1H15 from continuing operations, mainly from data fusion operations. 2Q15 sales represented a drop of nearly 21% against the previous quarter. However, the management highlighted in their comments that the IDI brand recorded a 168% increase in customer onboarding during 2Q15 through the acquisition of billions of additional consumer data points. The business recorded a net loss of $5.5 million during 1H15 from continuing operations.
Despite the net loss, we observe immense potential for growth for IDI, underpinned by the improved data points on consumer sales, the positive cash position, and continuous product development and marketing efforts.
Overview of Formation and Transition Into the Data Fusion Market
IDI was formed on March 21 following the consummation of the merger between Shanghai-based advertising media solutions specialist, Tiger Media Inc. (TMI), and The Best One Inc., parent company of high-growth data solutions provider, Interactive Data LLC.
In order to exclusively focus on the burgeoning multi-billion dollar data fusion market, the company discontinued its operating interests within the advertising services industry. The management’s move is viewed as positive since 1H15 sales from the data fusion division displayed a 93% increase in comparison to advertising services revenue of 1H14. In 3Q15, the Company launched its idiBASIC product. This is likely to drive sales in 2H15 sales and sustain healthy growth in the business.
In order to support the new business focus, the company has made key appointments into crucial roles within Sales & Marketing, Information Security, and other supporting technology areas. Additionally, the company is due to raise capital of $10 million to develop and launch the company’s next-generation data fusion technology.
The Data Fusion Market
The amount of digital data in the market is growing at an exponential rate, doubling every two years. Data fusion technologies enable organizations gain more accurate market and risk intelligence from these extensive data sources in real time. The overall industry is facing exponential growth. The broader big data market is forecasted to reach nearly $85 billion by 2026, representing a CAGR of 17% over the 15-year period commencing 2011.
New Product Development and Launches
In early 3Q15, the company introduced its first information product, idiBASIC. The product offers a basic solution at an affordable price point. This is likely to drive robust sales growth through 2H15, through new business relationships with a wide range of potential clients.
IDI is cited as currently developing a comprehensive investigative system entitled idiCORE, with an expected release date of 4Q15. This premium product will be powered by a state-of-the-art systems architecture that far exceeds the market’s current offerings. The management envisages the new product to stimulate exponential growth in sales during the next one or two years.
Stock Performance and Insider Buying by a Significant Shareholder
IDI’s shares closed a little over $6.70 per share on Aug. 28, approximately 3% higher than the day’s open at $6.50 per share. The shares are currently trading between approximately $6 to $7 on average.
The company’s major shareholder, Phillip Frost, has been purchasing common stock on the open market between $6 to $10.50. Successive acquisitions made within a period spanning a little over a month (as per SEC filings), sum up to a total purchase of 80,000 shares at a cumulative value of $607,761. This implies an average price of $7.60, which is on a par with the current average market price. This acts as a strong indicator of the insider’s view of the shares as a bargain in this range.
The Pursuit of Additional Capital to Finance Development
In a move to accelerate development and implementation efforts, the company intends to proceed with a registered direct offering to an institutional investor. This move will secure additional equity finance of $10 million for the company through the sale of approximately 1.2 million shares at $7.81. We view the moves positively as it will significantly improve its cash position and stability, particularly in facilitating the planned launch of idiCORE in 4Q15.
Addition to Board and Management Team Another Positive
Stockholders approved the appointment of Peter Benz and Robert Swayman as independent directors in June. Benz and Swayman introduce a collective experience of over 50 years within planning, operations, finance, investment management, and business incubation. The board now indicates a healthy mix of executive and independent leadership and we opine this factor to drive vetted and purpose-driven decisions in the future. In August, industry veteran Daniel Lanphere was hired as vice president of Sales. Lanphere brings with him 18 years of direct experience in the forefront of technology, data and service solutions industries. He is to spearhead the achievement of IDI’s revenue objectives. We view this high-profile addition positively which will help achieve a broader topline.
Healthy Balance Sheet Supports IDI in Better Managing Challenges
With the shift in sales to data fusion solutions and the resultant product launches, IDI’s strong balance sheet provides it an opportunity to position itself for future growth. As of June 30, IDI recorded $13.4 million in assets which contained a cash balance of $3.08 million. The company has made notable investments during 1H15 in respect to development activities, represented by a 178% increase in intangible assets at $2.2 million. On the debt side, IDI only reported $2.7 million in current liabilities. IDI recorded a net working capital position of $2.4 million and a current ratio of 1.88. The company’s financial position facilitates flexibility to invest in business growth.
Source: Company filings
Margin Improvement
Gross margins at IDI are up by 100 bps quarter-on-quarter whereas operating profits and net profits have dropped. This is resultant of the higher administrative costs incurred on the newly appointed management and board on top of higher initial sales and marketing expenditure in view of future sales. At the current level of performance, we estimate that a 40% to 80% topline improvement would contribute $0.05 to $0.10 in EPS (continuing operations) in FY15. Notable improvements are expected in revenues 3Q15 onwards underpinned by (a) new marketing initiatives; and, (b) sales of idiBASIC. Notably, the gross margins of IDI are higher than the comparative margins achieved during the past two years by TMI. The management envisages the recapturing of lost margins through appropriate focus strategies.
Source: Company Filings
Conclusion
IDI presents an interesting opportunity to investors. The company’s stock has a 52-week high of $12.80 but has presently stabilized around $6 to $7 on average. IDI’s operations do encompass a level of product development risk owing to its early stage of growth and the loss of $47.1 million on discontinued operations further erodes overall EPS by $4.40 per share for FY15. However, we see the strong balance sheet position and overall focus on growth resulting in a rebound in earnings of ongoing operations. Further, the management team is represented by industry veterans who have helped generate revenues exceeding $3 billion. The upcoming quarter should see the company accelerating its sales and marketing efforts to boost revenues (including sales of idiBASIC) whilst proceeding with product development initiatives (launch of idiCORE in 4Q15). These combined factors posit positive bases that would ignite the stock value over the short and medium term.
