On Track Innovations Ltd.(USA) (NASDAQ:OTIV)

CAPS Rating: 1 out of 5

The Company designs, develops and sells contactless microprocessor-based smart card products. Its three complete system product lines include Payments Solutions, Petroleum Systems and Smart ID Solutions.

Results 1 - 16 of 16

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Member Avatar Beavan7708 (< 20) Submitted: 1/9/2014 2:02:05 PM : Outperform Start Price: $3.64 OTIV Score: -48.25

This stock is set to fly high.

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Member Avatar mmmed (29.14) Submitted: 1/2/2014 10:41:45 PM : Underperform Start Price: $3.59 OTIV Score: +46.89

neg earnings, declining rev.

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Member Avatar Randmoney (< 20) Submitted: 1/2/2014 6:51:59 PM : Outperform Start Price: $3.11 OTIV Score: -37.87

NFC is the future here in the states. We are well behind other countries already utilizing this technology. Mobile is the way of the future!

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Member Avatar TadpolesUS (82.16) Submitted: 11/27/2013 12:41:49 PM : Outperform Start Price: $2.95 OTIV Score: -35.39

Making great headway in their electronic transaction initiatives.

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Member Avatar Gainster (53.81) Submitted: 11/21/2013 12:29:45 PM : Outperform Start Price: $3.16 OTIV Score: -41.20

Best in class NFC and lot of other reasons:

http://seekingalpha.com/article/1842482-on-track-innovations-improving-ops-and-valuable-ip-is-formula-for-multi-bagger

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Member Avatar midastouch017 (35.83) Submitted: 11/16/2013 11:05:15 AM : Outperform Start Price: $1.76 OTIV Score: +5.49

On Track Innovations: Improving Ops And Valuable IP Is Formula For Multi-Bagger

Disclosure: I am long DRAD, OTIV. (More...)
http://seekingalpha.com/article/1842482-on-track-innovations-improving-ops-and-valuable-ip-is-formula-for-multi-bagger?source=yahoo

On Track Innovations (OTIV) is our top stock pick for 2014 (so far), albeit one, that we are highlighting six weeks before New Year. It is the sole stock in our portfolio that we believe has a realistic chance of delivering a 5x or better return over the next 12 months - with little risk of permanent capital loss. It shares numerous qualities with many of our other long ideas. It is underfollowed, has financials that are optically worse than reality, is on the cusp of profitability, is well positioned in mega-markets, has patents whose value likely exceeds the company's market cap, and potential litigation awards that could pay out multiples of the market cap, and has an aligned Board that in recent months has been actively buying stock. Despite the fact that OTIV has never had a profitable year, we believe our investment has a high probability of a 50%+ return (current fair value is $5, in our view), and a reasonable likelihood of a 5x return or more, with little likelihood of suffering a permanent capital impairment.

Intro

OTIV is our top pick for 2014. We believe there is little probability of permanent capital impairment, while it is the single stock we own where we can identify a specific catalyst that can result in a 5x return, or better, with a reasonable probability. Moreover, even if this catalyst does not play out, we still anticipate shares to appreciate. We present this 2014 idea today, since the company reports 3Q results on Tuesday November 26th, and we believe the company's operating progress will be a catalyst to move shares higher. If some of the upside for our 2014 top pick is pulled into late 2013, we can live with it.

Thesis

1. OTIV is an $85 million market cap company, which lacks research coverage or an institutional following, which has resulted in a significant mispricing. Investors are unaware of improving operations, patent value, and potential immense litigation awards.

2. Financials look bad, but rapidly improving. OTIV has never had a profitable year, but should turn EBITDA positive by 2Q 2014, by our estimates. In addition, recent asset sales should reduce expenses, increase cash by $10 million by year-end and $12.5 million following the achievement of an earn-out. In addition, there are $127 million of NOLs.

3. OTIV's core operating business is likely to experience dramatic growth in 2014 and beyond. The recent announcement of a 10-year, $50 million Polish e-ticketing program and a 3-year, $10 million plus program to supply NFC readers, should ensure huge y/y growth in 2014. Certification from MasterCard for OTIV's Wave device and increasing use of NFC technologies should result in hyper-growth for several years, and a multiple-rerating.

4. Patent portfolio creates margin of safety. Despite the fact that OTIV has never been profitable, it has invested $10s of millions of dollars on R&D and have over 100 patents in the field of payments, NFC technology, parking, oil and gas, etc. We believe in a worse case scenario, the patent portfolio could garner at least $50 million in a sale, while still leaving us with the operating business. However, it's likely that the patents are worth far more than this and OTIV engaged Global IP Law Group in June to help develop a strategy to monetize its portfolio.

5. Due to its limited following, the market is not correctly pricing the potential value of litigation damages. OTIV is suing T-Mobile for infringement on a variety of handsets, including those from both Nokia (NOK) and HTC. Following a favorable Markman ruling in June on claim construction on patent 6,045,043 (the '043 patent), we believe OTIV is well positioned for a settlement or successful litigation. Should OTIV prevail against T-Mobile, which could result in $10s of millions in damages (or more), they would be well-positioned to successfully litigate against additional carriers and handset manufacturers, and could see their market cap fly higher overnight.

6. OTIV has a new management and an aligned Board that has been buying stock in the open market. The Board successfully gained control of the company in a proxy contest, and since, has installed a capable, motivated new management and set a new strategic plan in motion. Two members of the Board have actively been purchasing stock in the open market, over 916,000 shares (3% of the company) since June. We believe the buyers are likely Jeff Eberwein, also Chairman of Digirad (DRAD), and Charles Gillman (also on Digirad's Board) who have made the purchases via a Rule 10b5-1 trading plan, at prices up to $1.88 (based on the most recent filing). In our view, this is an outstanding endorsement of the belief by insiders that shares are meaningfully undervalued and the company's future is bright.

Company Background

OTIV was founded in 1990 and is based in Rosh Pina, Israel. The company designs, develops and sells contactless technology solutions including leading technology in the field of Near Field Communications (NFC). The company serves a number of segments including contactless payment and NFC solutions, loyalty applications, petroleum payment, parking and mass transit ticketing, and Smart IDs. The last of the segments, SmartID, represented 37% of revenue last quarter, the OTIV's largest segment, but is being sold in a pending transaction with SuperCom Ltd. (SPCB).

OTIV was founded by Oded Bashan and Ohad Bashan, but following years of unfulfilled promise, the company's largest shareholder Jerry Ivy engaged in a proxy contest. His effort was augmented by inviting Jeff Eberwein and Charles Gillman onto his slate - both have an excellent record in activist activities and in value creation. For greater background on the proxy battle and the players, we highly recommend this excellent SA article from Edward Schwartz from October 2012. Ultimately, the activists succeeded in gaining control. With 8 of 9 Board members US citizens, the company will become a US filer beginning January 1st, 2014, which should further enhance the company's credibility and transparency.

Over the last 20+ years, OTIV has invested $10s of million into R&D, but has yet to turn an annual profit. Still, they have over 100 patents, which we believe have real value. Moreover, we believe the NFC payments segment, which has taken a long time to develop, could result in significant revenue to OTIV, even if it never becomes the colossal opportunity once expected. Further the Wave device plug-in, a device agnostic, secure tool, certified by Mastercard (with others to come soon), which eliminates the need to carry credit cards or cash, appears to have potential for significant growth.

oti WAVE Wave Plug-in Source: OTIV

wave_pki_img_5Wave Plug-in Source: OTIV

Rapidly improving financials

We believe OTIV is 2 to 3 quarters from profitability. Given the company's historic losses, this would mark a dramatic turnaround.

OTIV's EBITDA loss improved from a loss of ($1.7) million in 1Q to a loss of ($1.5) million in 2Q. We expect significant further improvement in 3Q and 4Q.

On August 9th, OTIV divested its Parx France operations, which will reduce quarterly expenses by $200,000, although OTIV will continue to receive 25% of that business's EBITDA.

On August 14th, OTIV announced the sale of its SmartID business, its largest business unit at 37% of revenue. Based on the pro-forma found on page 32 of SuperCom's amended F-1 on August 26th, the SmartID business had operating losses in excess of $800,000 in 2012, and we suspect a similar run-rate in 2013.

From these two exits, EBITDA should improve by at least $400,000 in 3Q. However, we suspect modest top-line growth in 3Q and 4Q (on an apples-to-apples basis), and additional cost reductions resulting in EBITDA loss should be under ($1.0) million in 3Q, and EBITDA profitability by 2Q14 given several notable recent business wins.

Moreover, following the exit of the SmartID business, OTIV appears poised for spectacular y/y growth. Excluding Smart-ID, 2013 revenue is likely to be in the $24 million range. Based on the recent 10-year, $50 million Polish e-ticketing program and a 3-year, $10 million+ program to supply NFC readers, there should be $8 million in incremental revenue in 2014. In addition, the company recently won a $1 million initial order for its EasyFuel Plus solution in Africa, and "commercial quantities" of its EasyFuel Plus solution for long-time partner Tokheim. Finally, on Wednesday, the company announced that a consortium of 30 Hong Kong, Taiwan and Macao based banks had adopted OTIV's NFC payment solution, including its Wave device.

We believe the Wave device could be a major growth driver. On October 16th, it received certification from MasterCard (MA) making it the payment industry's only certified NFC audio-jack add-on solution. Notably, OTIV's CEO Ofer Tziperman indicated that "we expect other major payment companies to follow suit and provide certification in the near future." Given the lack of investor following, this important development was met with a yawn. We wouldn't be surprised if there are additional announcements in the next week or so, corresponding with the CARTES 2013 exhibition from November 19-21 in Paris, where OTIV will be demonstrating the Wave.

To be clear, the NFC space has been a disappointment, and may continue to disappoint. That being said, it represents a multi-billion dollar opportunity. Even if it falls far short of hopes, coming off of OTIV's small revenue base, they could enjoy dramatic growth, just from a modest portion of wins - but we believe they will do far better.

Below, we provide our model. For 2014, this model reflects the recently announced wins,

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Member Avatar slong300 (< 20) Submitted: 11/4/2013 9:37:50 PM : Outperform Start Price: $1.80 OTIV Score: +9.25

Very speculative play that has all the signs of being the next HUGE winner. I like what management seems to be building upon and no big investors/analysts on the radar yet. Could be primed for a huge gain in the next 6-12 mos.

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Member Avatar skypicks (66.94) Submitted: 1/26/2011 12:34:24 PM : Outperform Start Price: $4.03 OTIV Score: -98.84

another mobile payments/NFC pick

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Member Avatar Skyshark29 (25.82) Submitted: 10/8/2010 10:12:03 AM : Outperform Start Price: $1.71 OTIV Score: -43.00

Sector pick, tech/storage stocks on the move.

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Member Avatar vignatius (59.71) Submitted: 12/20/2008 8:01:15 PM : Outperform Start Price: $1.67 OTIV Score: -96.87

-In a segment I believe to see substantial growth over the next 5-10 years.
-Mastercard uses its products for Paypass
-Contactless payment is a way I pay for many items at gas stations and I belive we will see them at more places
-Easy to use and quick

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Member Avatar handoverhill (< 20) Submitted: 5/29/2008 5:55:27 AM : Outperform Start Price: $2.61 OTIV Score: -63.73

This stock is in the tecdhnology sector of the market and in the industry of semicondustors. It's revenues increased 7% and net loss totaled $20.6M which reflects an increase in sales of petroleum products and payments products.

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Member Avatar shekel4nothing (< 20) Submitted: 6/12/2007 4:10:56 AM : Outperform Start Price: $6.48 OTIV Score: -105.50

From all accounts, the paypass technology for Mastercard and OTI's other payment technologies work well and save the banks much money. Credit card companies do not move that quickly but they are in the process of incorporating paypass much more widely. When those orders finally start to roll in, OTI sales will jump.

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Member Avatar TwoSide (62.37) Submitted: 6/8/2007 5:06:45 AM : Underperform Start Price: $6.61 OTIV Score: +107.26

Trend.

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Member Avatar 6green (66.19) Submitted: 4/19/2007 8:26:18 PM : Outperform Start Price: $8.25 OTIV Score: -115.12

Contacless systems have great potential. On Track's technology is already used in Master Card pay pass, and is compatible with other major credit cards. Also, the founders are still have a strong involvement with the company.

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Member Avatar kc12070 (< 20) Submitted: 3/15/2007 12:25:21 AM : Outperform Start Price: $7.52 OTIV Score: -116.95

looks on track for year over yaer earnings

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Member Avatar ztur2218 (< 20) Submitted: 12/18/2006 1:55:16 PM : Outperform Start Price: $6.69 OTIV Score: -115.24

This great company with innovative product that compete the smart card market

Results 1 - 16 of 16

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