BP, Shell lead plan for blockchain-based platform for energy trading

(Reuters) – A consortium including energy companies BP and Royal Dutch Shell will develop a blockchain-based digital platform for energy commodities trading expected to start by end-2018, the group said on Monday.

The logo of BP is seen at a petrol station in Kloten, Switzerland October 3, 2017. REUTERS/Arnd Wiegmann

Other members of the consortium include Norwegian oil firm Statoil, trading houses Gunvor, Koch Supply & Trading, and Mercuria, and banks ABN Amro, ING and Societe Generale.

Blockchain technology, which first emerged as the architecture underpinning cryptocurrency bitcoin, uses a shared database that updates itself in real-time and can process and settle transactions in minutes using computer algorithms, with no need for third-party verification.

Mercuria has been a vocal advocate of implementing blockchain technology to significantly cut costs in oil trading.

“Ideally, it would help to eliminate any confusion over ownership of a cargo and potentially help to make managing risk more exact if there are accurate timestamps to each part of the trade,” said Edward Bell, commodities analyst at Dubai-based lender Emirates NBD PJSC.

Similar efforts for an energy trading platform have failed to take off, Bell said, but added this latest bid with backing from BP and Shell and the banks, “may have more success than if it were an independent party trying to convince oil and gas companies to make use of it.”

The new venture is seeking regulatory approvals and would be run as an independent entity, the consortium said in a statement.

“The platform aims to reduce administrative operational risks and costs of physical energy trading, and improve the reliability and efficiency of back-end trading operations…,” the statement said.

(This version of the story was refiled to make clearer in headline that platform is tool for trading, not a trading platform)

Reporting by Arpan Varghese in Bengaluru; Editing by Manolo Serapio Jr.

Our Standards:The Thomson Reuters Trust Principles.

Toyota seeks more investments in Israeli auto tech, robotics

TEL AVIV (Reuters) – Japan’s Toyota Motor Corp is seeking more investments in Israeli robotics and vehicle technologies after its venture arm led a $14 million investment in Intuition Robotics in July.

A logo of Toyota Motor Corp is seen at the company’s showroom in Tokyo, Japan June 14, 2016. REUTERS/Toru Hanai/File Photo

The startup, which makes robots for the elderly, was the first Israeli investment for Toyota AI Ventures, a new $100 million fund investing in artificial intelligence, robotics, autonomous mobility and data and cloud computing.

“We will see more involvement of Toyota in the Israeli market in the future,” said Jim Adler, managing director of California-based Toyota AI Ventures, which is part of the $1 billion Toyota Research Institute.

“There’s more in the pipeline,” he told Reuters during a visit to Israel, adding that technologies dealing with perception and prediction and planning were of particular interest to Toyota.

Perception technology enables a self-driving vehicle to understand the world around it while prediction and planning can help a car interpret situations such as whether a child at an intersection might try to cross at a red light.

“There’s a tremendous amount of innovation happening in Israel as cars become more produced by data,” said Adler, who is in the country meeting companies whose technologies interest Toyota.

Israel is a growing center for automotive technology. Earlier this year Intel Corp bought autonomous vehicle firm Mobileye – one of Israel’s biggest tech companies – for $15.3 billion.

On Friday Germany’s Continental AG said it was buying Israel’s Argus Cyber Security, whose technology guards connected cars against hacking.

Toyota AI Ventures has made five investments and expects to invest in at least 20 companies worldwide.

Regarding its investment in Intuition Robotics – which plans to begin trials of its robots with older adults in their homes early next year – Adler said there were many common features between robotics and autonomous vehicles, which he referred to as “big robots with wheels”.

Japan’s population is aging, with 40 percent expected to be over 65 in 20 years, he said, and there will be demand for technologies that help the elderly stay in their homes, rather than have to move to assisted-living facilities.

“We think Toyota will have a role there,” he said.

Editing by Keith Weir

Our Standards:The Thomson Reuters Trust Principles.

Omega Healthcare Investors: Sometimes Short-Term Bad Can Be Long-Term Good

This article is about Omega Healthcare Investors (NYSE:OHI), a REIT, and why it’s a buy for the income investor long term, even when OHI has a short-term problem with one of its operators. I believe that the management of OHI is good and has already outlined the steps to be taken to get the Orianna properties to new operators with reduced rents.

Omega Healthcare is one of the largest operators of skilled nursing care properties and assisted living properties. OHI is a full position at 6.0% in The Good Business Portfolio. OHI’s position will be left to grow over time and added to whenever a dip like this happens. The company has at many times been under pressure and gotten down to $28 range, and each time it has bounced back, so this is another chance to buy into a good company with a very high yield.

When I scanned the five-year chart, Omega Healthcare Investors has a poor chart going up and to the right for 2013-2014, then down slowly for three years ending behind the market. In 2013, OHI had a good year when the market was up 27%; the company came in at a 30% increase.

Chart

OHI data by YCharts

Fundamentals of Omega Healthcare Investors will be reviewed in the following topics below:

  • The Good Business Portfolio Guidelines
  • Total Return And Yearly Dividend
  • Last Quarter’s Earnings
  • Company Business
  • Takeaways
  • Recent Portfolio Changes

I use a set of guidelines that I codified over the last few years to review the companies in The Good Business Portfolio (my portfolio) and other companies that I am taking a look at. For a complete set of the guidelines, please see my article “The Good Business Portfolio: Update To Guidelines And July 2016 Performance Review”. These guidelines provide me with a balanced portfolio of income, defensive, total return and growing companies that hopefully keeps me ahead of the Dow average.

Good Business Portfolio Guidelines

Omega Healthcare Investors passes 9 of 11 Good Business Portfolio Guideline, a fair score (a good score is 10 or 11). These guidelines are only used to filter companies to be considered in the portfolio. Some of the points brought out by the guidelines are shown below:

  1. Omega Healthcare Investors does meet my dividend guideline of having increased dividends for seven of the last ten years and having a minimum of 1% yield, with 10 years of increasing dividends and a 9.3% yield. Omega Healthcare Investors is therefore a good choice for the dividend income investor. The average five-year payout ratio is high at 82% because of its REIT designation. After paying the dividend, this leaves cash remaining for investment in expanding the business by buying bolt-on properties to the 1,000 it already owns or leases.
  2. I have a capitalization guideline where the capitalization must be greater than $7 billion. OHI fails this guideline by a small amount. OHI is a mid-cap company with a capitalization of $6.2 billion. Omega Healthcare Investors’ 2017 projected total yearly AFFO flow at $646 million is good, allowing the company to have the means for growth and increase dividends.
  3. I also require the CAGR going forward to be able to cover my yearly expenses. My dividends provide 3.2% of the portfolio as income, and I need 1.9% more for a yearly distribution of 5.1%. The one-year forward CAGR of 7.0% meets my guideline requirement. This good future growth for Omega Healthcare Investors can continue its uptrend benefiting from the continued growth of the senior citizen population.
  4. My total return guideline is that total return must be greater than the Dow’s total return over my test period. OHI fails this guideline since the total return is 64.33%, less than the Dow’s total return of 78.53%. Looking back, $10,000 invested five years ago would now be worth over $18,700 today. The total return in the good year of 2013 was 29.6% compared to the Dow gain of 27%, a small beat. This makes Omega Healthcare Investors a fair investment for the total return investor that has future growth as the senior citizen sector continues to grow. As an added plus we have President Trump cutting corporate taxes (both domestic and foreign) which will increase earnings slightly.
  5. One of my guidelines is that the S&P rating must be three stars or better. OHI’s S&P CFRA rating is three stars or hold with a recent calculated target price to $35.4, passing the guideline. OHI’s price is presently 25% below the target. It is under the target price at present and has a low price to AFFO of 10.8, making it a good buy at this entry point if you are a long-term investor that wants income with an above-average dividend yield.
  6. One of my guidelines is would I buy the whole company if I could. The answer is yes. The total return is weak, but an above-average yield makes OHI a good business to own for income with moderate growth long term. The Good Business Portfolio likes to embrace all kinds of investment styles but concentrates on buying businesses that can be understood, makes a fair profit, invests profits back into the business, and also generates a fair income stream. Most of all what makes OHI interesting is the potential long-term growth, as more skilled nursing care facilities are required and the income for the income investors is great.

Total Return And Yearly Dividend

The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of the Good Business Portfolio. Omega Healthcare Investors misses the Dow baseline in my 56.0-month test compared to the Dow average. I chose the 56.0-month test period (starting January 1, 2013, and ending to date) because it includes the great year of 2013, and other years that had fair and bad performance. The fair total return of 64.23% makes Omega Healthcare Investors a fair investment for the total return investor who also wants a steady increasing income. OHI has an above-average dividend yield of 9.3% and has had increases for the past 21 quarters, making OHI also a good choice for the dividend growth investor. The dividend has recently been increased to $0.65/Qtr., from $0.64 or a 1.6% increase for the quarter.

Dow’s 56.0-month total return baseline is 78.53%.

Company Name

56.0-month total return

Difference from Dow baseline

Yearly dividend percentage

Omega Healthcare Investors

+64.23%

-14.3%

9.3%

Last Quarter’s Earnings

For the last quarter, on October 30, 2017, Omega Healthcare Investors reported AFFO of $0.79 that missed expectations by $0.06 and compared to last year at $0.82. Total revenue was higher at $194 million, up 4.4% year over year and missed expectations by $44 million. This was a poor report with the bottom line missing expectations and the top line increasing. The next earnings report will be out in late January 2018 and AFFO is expected to be $0.82 compared to last year at $0.82. The company guided AFFO for the year to $3.27-3.38, but this assumes it will be able to fix the problem with one of its operators. Earnings will most likely be very volatile over the next six months.

Business Overview

Omega Healthcare Investors is one of the largest skilled nursing care and assisted living facilities REITs in the United States.

As per Reuters:

“Omega Healthcare Investors is a self-administered real estate investment trust (REIT). The Company maintains a portfolio of long-term healthcare facilities and mortgages on healthcare facilities located in the United States and the United Kingdom. It operates through the segment, which consists of investments in healthcare-related real estate properties. It provides lease or mortgage financing to qualified operators of skilled nursing facilities (SNFs) and assisted living facilities (ALFs), independent living facilities, rehabilitation and acute care facilities. Its portfolio consists of long-term leases and mortgage agreements. As of December 31, 2016, its portfolio of investments included 996 healthcare facilities located in 42 states and the United Kingdom and operated by 79 third-party operators. As of December 31, 2016, the Company’s portfolio consisted of 809 SNFs, 101 ALFs, 16 specialty facilities, one medical office building, fixed rate mortgages on 44 SNFs and two ALFs.”

The graphic below shows the type of facilities required today. With seniors remaining active into their 80s, 90s and beyond, skilled nursing facilities continue to evolve to meet the higher expectations new generations of seniors and their families want with regards to amenities, décor and care.

Source: Omega Healthcare Investors Web Site

Overall, Omega Healthcare Investors is a good business with a 7% CAGR projected growth as more skilled nursing care facilities are needed going forward. The good AFFO provides OHI the capability to continue its growth by increasing revenue as it buys bolt-on properties and increases dividends.

Also as a tailwind, we have President Trump wanting to lower corporate taxes on income. As the corporate tax rate is lowered, earnings of OHI should increase slightly.

The economy is showing moderate growth right now (about 2.9%), and the Fed has raised rates in June 2017, with future rate increases dependent on the United States economy and inflation. The Fed projects for one more increase in 2017. I feel the Fed is going slowly; it doesn’t want to trigger a slowdown in the economy.

From October 30, 2017, earnings call, Taylor Pickett (Chief Executive Officer) said:

Adjusted FFO for the third quarter is $0.79 per share. Funds available for distribution, FAD for the quarter is $0.73 per share. The reduction in adjusted FFO and FAD is primarily related to converting the Orianna portfolio to cash basis accounting with no adjusted FFO or FAD recognized for Orianna in the third quarter.

During the third quarter, we cooperatively completed the transition of Orianna’s Texas facilities to another Omega operator, and we completed the sale of the Northwest facilities to two buyers. Unfortunately, the remaining portfolio continues to underperform and Orianna continues to apply free cash flow to pay down past due vendors and other obligations.

We are in active discussions with Orianna’s owners and consultants regarding the potential transition and/or sale of certain assets versus a federal or state court restructure. We are hopeful, we can develop an out-of-court plan, which if successful, would likely result in cash rents of $32 million to $38 million per year, as compared to the current annual contractual rent of $46 million.

“We remain confident in our ability to pay our dividend, increasing our quarterly common dividend by $0.01 to $0.65 per share. We’ve now increased the dividend 21 consecutive quarters. Our dividend payout ratio remains conservative at 82% of adjusted FFO and 89% of FAD, and we expect these percentages will improve as the Orianna facilities return to paying rent. Our revised 2017 guidance reflects the impact of Orianna’s cash accounting and our anticipation that no cash were received for the balance of the year. “

This shows the feelings of the top management for continued growth of the business and shareholder returns and the action being taken to fix the problem with Orianna.

From October 30, 2017, earnings call Daniel Booth (Chief Operating Officer), said:

“Turning to new investments. During the third quarter of 2017, Omega completed two new investments totaling $202 million, plus an additional $36 million of capital expenditures. Specifically, Omega completed $190 million purchase lease transaction for 15 skilled nursing facilities in Indiana and as part of that same transaction simultaneously completed a $9.4 million loan for the purchase of the leasehold interest in one skilled nursing facility with an existing Omega operator.”

This shows that OHI is still growing even with an operator in trouble.

Takeaways

Omega Healthcare Investors is a great investment choice for the long-term income investor with its high yield and a fair choice for the total return investor. I take this downturn as a long-term opportunity to get a great income stream at a bargain price. Omega Healthcare Investors is 6.0% of The Good Business Portfolio and will be held as we watch it grow over time. If you want a growing income, OHI may be the right investment for you, but it will be volatile for the next six months and you should be a long-term investor.

Recent Portfolio Changes

  • Increased the position of Omega Healthcare Investors to 6.0% of the portfolio. I wanted a little more income and to take advantage of the recent dip in price.
  • Recently, on October, 16 trimmed Boeing (BA) from 11.3% of the portfolio to 11.0%. A great company, but you have to be diversified. The Paris Air Show was great for Boeing, and it easily beat Airbus (OTCPK:EADSY) in orders by a mile.
  • Wrote some L Brands (LB) November 17 strike 42.5 calls on the part of the holding. If the calls remain in the money near exercise time, they will be moved up and out.
  • Increased the position of L Brands to 3.2% of the portfolio; I believe the downturn in LB is well overdone.
  • Increased position of GE (NYSE:GE) to 4% of the portfolio, a full position. GE has now become a value and income play.
  • Sold the Harley-Davidson (HOG) position from the portfolio and will watch it see if President Trump cuts corporate taxes or brings foreign profits back at a low tax rate. This sell gets rid of an underperformer and makes room for a company with more present growth.
  • Added a starter position of 3M (MMM) at 0.5% of the portfolio. It has a good steady dividend history, a dividend king with 58 years of increasing dividends, and great total return. Please see my article “3M: Dividend King With Great Total Return”.

The Good Business Portfolio generally trims a position when it gets above 8% of the portfolio. The four top positions in The Good Business Portfolio: Johnson & Johnson (JNJ) 8.8% of the portfolio, Altria Group (MO) 6.8%, Home Depot (HD) 8.6%, and Boeing 11.0% of the portfolio; therefore, BA, JNJ, and Home Depot are now in trim position with Altria getting close.

Boeing is going to be pressed to 11% of the portfolio because of it being cash positive on 787 deferred plane costs at $316 million in the first quarter, an increase from the fourth quarter. The second quarter saw deferred costs on the 787 go down $530 million, a big jump from the first quarter. The second-quarter earnings were fantastic with Boeing beating the estimate by $0.25 at $2.55. The third-quarter earnings were $2.72, beating expectations by $0.06 with revenue increasing 1.7% year over year, another good report. Recently S&P Capital IQ raised its one-year target to $272.

JNJ will be pressed to 9% of the portfolio because it’s so defensive in this post-Brexit world. Earnings in the last quarter beat on the top and bottom line, and Mr. Market did like the growth going forward. JNJ is not a trading stock but a hold forever; it is now a strong buy as the healthcare sector remains under pressure.

For the total Good Business Portfolio, please see my article on The Good Business Portfolio: 2017 2nd Quarter Earnings And Performance Review for the complete portfolio list and performance. Become a real-time follower, and you will get each quarter’s performance after the earnings season is over.

I have written individual articles on JNJ, EOS, GE, IR, MO, BA, PEP, AMT, PM, LB, OHI, DLR and HD that are in The Good Business Portfolio and other companies being evaluated by the portfolio. If you have an interest, please look for them in my list of previous articles.

Of course, this is not a recommendation to buy or sell, and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account, and the opinions on the companies are my own.

Disclosure: I am/we are long BA, JNJ, HD, OHI, MO, IR, DLR, GE, PM, LB, MMM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

A Beaten-Down Small-Cap With No Debt, A Growing Business, And 270% Upside

The Company

WidePoint Corp. (NYSEMKT:WYY) is a US company founded in 1997 and headquartered in McLean, Virginia, that grew through acquisitions and mergers of IT consulting firms. It currently has about 300 full-time employees, plus consultants and temporary employees, runs offices in Columbus OH, Fairfax VA, Hampton VA, Fayetteville NC, Dublin, Reading UK, and the Netherlands, and five data centers located in Ohio, North Carolina and Virginia. It is specialized in technology-based product and service management solutions in the fields of wireless mobility management, cybersecurity, and consulting services. Specifically, it offers mobile, telecom solutions and expense management, identity services and Cert-on-Device (a cloud-based service that provides secure digital certificates to all types of mobile devices in order to enhance the information security assurance), analytics and management services, and communication integrated platforms to both the public and private sectors.

The Market

WidePoint operates in a fast growing market. Most of its customers are located in North America, where the service IT market is growing 15%+ per year (see research by Gartner.com), and Europe (Ireland, UK and Holland generate 6% of total revenue, and the share is falling). Some major drivers of growth have been identified by WidePoint as:

  • Mobile workforce expanding faster than in any prior technology cycle
  • Mobile devices forcing IT departments to support multiple, disparate platforms
  • Identity management & assurance has become critical to prevent ongoing network breaches

While the company’s private clients (among them JPMorgan Chase (NYSE:JPM), U.S. Bancorp (NYSE:USB), Cardinal Health (NYSE:CAH), Advanta, Carnegie Mellon Univ., Delta, FedEx (NYSE:FDX)) belong to a multitude of industries (Financial, Healthcare, Education, Retail, Transportation, etc.), WidePoint’s main customers are federal agencies and their contractors. WidePoint sometimes also acts as a subcontractor to large IT corporations (such as AT&T (NYSE:T) which, by the way, recently won a large contract with the US Army). The company’s focus on the public sector (more than 80% of total revenues) is unlikely to be reduced in the future. WidePoint has not been very successful in penetrating large private companies.

The public sector IT market is growing slowly but steadily. Network security concerns above all – a segment where the company is strong – are growing by the day. The Trump administration has asked for $95.7 billion for federal IT in 2018, up from $94.1 billion this year and $90 billion in 2016, most of it for the Department of Defense (source). The overall increase comes as the Office of Management and Budget details plans to move agencies off legacy IT systems that account for more and more of agency IT budgets.

From FY 2015 through FY 2018, government-wide legacy spending as a percentage of total IT spending rose slightly from 68 percent to 70.3 percent. Aging legacy systems may pose efficiency and mission risk issues, such as ever-rising costs to maintain and an inability to meet current or expected mission requirements,” OMB wrote in the IT chapter of the budget request. “Legacy systems may also operate with known security vulnerabilities that are either technically difficult or prohibitively expensive to address and thus may hinder agencies’ ability to comply with critical statutory and policy cybersecurity requirements.”

Government Contracts

WidePoint’s government client base is largely located in the Mid-Atlantic region of the U.S. Most contracts last in principle up to five years but are subject to annual renewal (normally not an issue). WidePoint currently holds major prime contracts with – among others – the Department of Defense, the Department of Homeland Security (“DHS”), the Department of Health and Human Services, the Transportation Security Administration, the Washington Headquarters Services, the U.S. Customs and Border Protection, the Centers for Disease Control, the Department of Justice, the FBI, as well as many government contractors. Recently, the company added some new important customers, such as the US Coast Guard and (as announced on November 1) the Federal Emergency Management Agency, and now provides TLM support to all of the major components of DHS.

Competition

Due to its diverse market capabilities, WidePoint has competitors in many different fields, including “publicly and privately held firms, large accounting and consulting firms, systems consulting and implementation firms, application software firms, service groups of computer equipment companies, general management consulting firms, offshore outsourcing companies”. Key competitors currently include Tangoe, Inc. (NASDAQ:TNGO), Calero, KEYW Holding Corporation (KEYW), VeriSign (NASDAQ:VRSN), IdenTrust, SureID, DigiCert, and Entrust, and in cybersecurity as well as consulting, Lockheed Martin Corporation (NYSE:LMT) and Northrop Grumman Corporation (NYSE:NOC).

Competitors often offer more scale, which in some instances enables them to significantly discount their services in exchange for revenues in other areas or at later dates. Pricing pressure is endemic in the industry. Because of WidePoint’s small dimension, significant fixed operating costs structurally lower its competitiveness and profitability potential. Fixed costs may be difficult to adjust in response to unanticipated fluctuations in revenues, but the company is doing its best to manage resources such as personnel and facilities (not much can be done about depreciation) in a flexible way.

Although operating in a highly competitive sector with rapidly evolving technologies and no barriers to entry, WidePoint has arguably demonstrated through the years an ability to dynamically upgrade and preserve its “technological advantages” through a decent level of R&D expenditure, product innovation, acquisitions, and attracting and training highly skilled professionals such as engineers, scientists, analysts, technicians, and support specialists. Its annual expenditure for internal software development is about $0.6 million. Current development activities are focused on the integration of WidePoint software based platforms, enhancements to improve the delivery of information technology services delivered through these platforms and Cert-on-Device. The company’s technology is “production available, scalable, and affordable” – in one word competitive – and so should remain for the foreseeable future.

Federal agencies have a lot of inertia. They are slow to move but once they award a service contract, they tend to perpetuate it. Incumbent service suppliers develop big competitive advantages over potential entrants for they become “insiders”, develop relationships, have access to immaterial knowledge (including the likely terms of renewal of service contracts) while not having to face learning entry costs. As the company states in a recent presentation: “Many of our professional staff work on-site or work in close proximity with our customers and we develop close customer relationships.” Indeed. Thus WidePoint’s business – especially with the US public sector – is rather stable, and revenues are rather predictable. However, due to the relative size of certain clients and contracts – the Department of Homeland Security provided 61% of total revenues in 2016 and its share is growing – the loss of any single significant customer can adversely affect year-end results of operations.

An Improved Governance

After years of disappointing results, WidePoint suffered a period of governance instability that was well described by SA author One Other Fool (you can read the details there). As a result, the company’s main shareholder (15.4%), Nokomis Capital, began to have an active role, and was awarded two seats on the Board. Although not a panacea, this has improved shareholders’ supervision on management actions. Lately, WidePoint completed its transition with Jin Kang, 53, now “firmly in place and fully in charge” as Chief Executive Officer and President of WidePoint Corporation. The old generation of managers – Steve Komar, Executive Chairman of the Board of Directors and former CEO, and Jim McCubbin, Executive Vice President and CFO – resigned effective October 31, 2017, after guiding the company for 20 years.

Management Ownership

Managers have been adding small amounts to their stock of shares recently; their overall ownership is not bad.

Financial Situation

WidePoint has no long-term debt. At June 30, 2017, net working capital was approximately $3.1 million as compared to $5.0 million at December 31, 2016. However, net losses amounted to roughly $2.5 million in the first half of this year, up from $1.5 million in the first half of 2016 (another $0.3 million was spent on an acquisition). WidePoint Corp.’s adjusted earnings per share data for the three months ended June 2017 was -$0.020, the same as the data for the trailing 10 years ended June 2017. The burning rate was high, and given the depressed price of the stock, there’s no margin of error left. To be clear, WidePoint’ s Altman Z-Score is 0.99, indicating it is in Distress Zones, implying bankruptcy possibility in the next two years.

WidePoint has a history of losses. Net losses amounted to approximately $4.1 million, $5.5 million, $8.4 million, and $1.7 million during the years ended December 31, 2016, 2015, 2014 and 2013, respectively. As of June 30, 2017, accumulated deficit was $68 million. Thus investing 10 years ago in WidePoint’s stock would have yielded -51% (the S&P 500 yielded +82%). And it never paid dividends. This negative past increases the dilution risk, should the stock appreciate, or if revenues disappoint again, or there is a need to finance an acquisition: companies such as WidePoint cannot help but grow in dimension and technological capability.

One positive legacy of its disappointing past is that, as of June 30, 2017, the company had approximately $33.4 million in net operating loss (NOL) carry forwards available to offset future taxable income for federal income tax purposes, and approximately $30.0 million available to offset future taxable income for state income tax purposes. These NOL carry forwards expire between 2020 and 2036. Thus the ability to utilize these deferred tax assets depends upon its ability to generate future taxable income.

Outlook and Opportunity

The company has launched at the beginning of this year a fixed-cost reduction program, targeting especially general and administrative expenses, that is beginning to have a positive impact on the balance sheet. Facilities, offices, and disaster recovery sites are being consolidated, and staff and operational personnel are being cut by reducing technology platforms and combining redundant help desk support across functions. More worrisome, sales resources are being reduced too, as well as product and software development expenditures. This may show some “desperation” but as a consequence, third-quarter losses are expected to be minimal.

On the revenue side, WidePoint is attempting new, less aggressive pricing strategies with its own clients, while aggressively targeting competitors’ customers with lower introductory pricing to garner increased market share, and emphasizing higher margin solutions. I don’t know whether this short-term profit-boosting strategy will succeed, without hampering the much needed growth in scale. I estimate WidePoint’s annual revenue in 2017 to be broadly in the $84-86 million range ($78.4 million in 2016). Cost of revenues and operating expenses should reach $84-87 million: net loss should be $1.5 million or less, which implies a clearly profitable Q4.

The new contracts with the Coast Guard and FEMA could realistically boost revenue by at least $6-10 million in 2018 alone, although they will also raise operating expenditures. Furthermore, it is now becoming clear that penetrating the public sector takes a long, long time and translates into profits very slowly. For example Todd Dzyak, CEO of WidePoint Integrated Solutions, declared, “We look forward to expanding our managed services support and to introducing our enhanced TM2 Framework to FEMA,” hinting at how penetration proceeds in steps and takes time. But old contracts with other federal agencies are slowly producing a growing business stream.

Risks

As I suggested, WidePoint is an inherently risky bet. It’s a small cap with a history of losses and limited equity, operating in a highly competitive industry without the economies of scale of some competitors, and with a concentrated customer base. WidePoint has been unable in the past to raise prices to profitable levels. Thus, notwithstanding strong revenue growth, it still has to prove it can turn growth into consistent profits. If pricing pressure continues to adversely affect the bottom line, WidePoint could drag itself for a few years more until an adverse shock or a gradual decline in its technological capability pushes the company toward bankruptcy. A dilution of shareholders in 2018 is also possible if expected revenues and profits are slow in coming.

Having said that, it seems to me that these fears are largely based on a backward-looking perspective. Recent events have substantially de-risked the company’s medium-term outlook. Even in a pessimistic and disappointing scenario, where the revenue growth does not generate all of the expected profits, I have no doubts that 2018 will be in the black, giving the company (and the stock) a breathing space. In the IT services industry, M&As are frequent and as the balance sheet improves, WidePoint could become a target for a buyout. Such consolidation would solve the scale problem and reward shareholders.

Conclusions and Takeaway

Clearly, a turnaround is developing, based on a cost-cut strategy and some major recent contract awards. These awards are not a coincidence but rather the product of a slow, long-term strategy that is now bearing fruit. In 2018, net profit should reach $3-5 million, or $5c. per share (P/E ? 10). Current market capitalization, about $45 million, does not reflect the company’s stockholders’ equity (net assets) of about $28 million and current revenue trends. More than inherent risks, it is past history that weighs on investor confidence, creating an opportunity. The next (Q3) earning release in mid-November and an updated management guidance for 2018 should boost this unloved stock – currently trading at $0.54 – by 35% in the short term and by 90% by mid-February. I expect this stock to price $1.30/1.55 a year from now (+270%), although in a best-case scenario, it could reach $2-2.20 (+380%). As usual, risk and reward go hand in hand: only fools put all their eggs in one basket.

Disclosure: I am/we are long WYY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Equifax clears executives who sold shares after hack

(Reuters) – Equifax Inc (EFX.N) said on Friday four of its executives who sold shares before the credit-reporting firm disclosed a massive data breach that wiped out billions from its market value were not aware of the incident when they made the trades.

FILE PHOTO: Credit reporting company Equifax Inc. corporate offices are pictured in Atlanta, Georgia, U.S., September 8, 2017. REUTERS/Tami Chappell/File Photo

A special committee set up by Equifax’s board to investigate the trades concluded that no insider trading took place and that pre-clearance for the trades was appropriately obtained. (reut.rs/2habhk9)

The company’s shares were up 0.2 percent at $109.10 on Friday at midday, around 24 percent lower than on Sept. 7 when Equifax disclosed that cyber criminals had breached its systems and accessed sensitive information on 145.5 million consumers.

The shares slumped as much as 37 percent in the days after the disclosure.

Atlanta-based Equifax had been aware of the breach since July 29, days before some of its senior executives, including its chief financial officer, sold $1.8 million in shares.

After an investigation that included 62 interviews and a review of over 55,000 documents, including emails, text messages, phone logs, and other records, Equifax said the executives had no knowledge of the breach when they sold the stock.

“The conclusion that the Company executives in question traded appropriately is an extremely important finding and very reassuring,” non-executive Chairman Mark Feidler said in a statement.

Former Equifax Chief Executive Officer Richard Smith, who stepped down in September and agreed to forgo his annual bonus, told lawmakers last month that the executives would not have known of the breach because suspicious incidents are detected every day at the firm and take days or weeks to confirm.

The U.S. Justice Department is conducting its own criminal investigation into the share sales.

The hack, among the largest ever recorded, exposed information that included names, birthdays, addresses and Social Security and driver’s license numbers.

It has also prompted investigations by multiple federal and state agencies as well as scores of class action lawsuits.

The exact financial toll on Equifax is still unknown, and as of early Friday, the company said it still had not set a date to release its third quarter financial results. If the company does not release the results by Nov. 9, it will have to seek an extension from the U.S. Securities and Exchange Commission, which gives large companies 40 days after the close of a quarter to report their financials to investors.

Equifax is also still searching for a replacement for former CEO Smith.

Credit monitoring services such as Equifax collect vast amounts of financial information from consumers, working with banks and other lenders, for example, to track the creditworthiness of individuals.

Reporting by John McCrank in New York and Aparajita Saxena in Bengaluru; Editing by Saumyadeb Chakrabarty and Frances Kerry

Our Standards:The Thomson Reuters Trust Principles.

Tens of Millions of Americans Want an Apple iPhone X for the Holidays

Americans of all ages hope to get their hands on the iPhone X this holiday season.

A whopping 20% of American adults have placed Apple’s iPhone X atop their holiday smartphone wishlists, rewards provider Ebates revealed in a survey released this week. Among teens who said they want a smartphone this year, 35% chose the iPhone X. Collectively, tens of millions of people hoping to get a smartphone this year have their sights set on the iPhone X.

However, Ebates, which worked with researcher Propeller Insights in its survey of more than 1,000 adults and 500 teens, suggested the iPhone X has some competition. Namely, 38% of adults said they’d prefer the Samsung Galaxy S8, and 28% of teens said the same. Apple’s iPhone 8 Plus was atop 23% of adult smartphone wish lists, and the iPhone 8 attracted 22% of would-be adult smartphone buyers. A quarter of teens would like the iPhone 8 Plus and 35% say they’d like to get an iPhone 8.

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Apple’s AAPL iPhone X hits store shelves on Friday. The smartphone is the most expensive iPhone Apple has ever released at a starting price of $999. However, for that price, users are getting a dramatically redesigned handset with a screen that nearly entirely covers its front panel, a Face ID facial-scanning feature, and wireless charging.

There has been some debate over the extent of iPhone X demand. Some market analysts have wondered whether the price will drive customers away. Others have suggested that Apple’s pricing isn’t a problem and the company will attract customers far and wide. GBH Insights analyst Daniel Ives believes Apple could attract tens of millions of customers this year.

Apple started offering the iPhone X on pre-order last week, and its available units sold out in just minutes. Carriers similarly sold out quickly, though some iPhone X models were still available well into the day on Friday. Apple itself has not announced actual sales or pre-order figures, but called early pre-orders “off the charts.”

It’s unclear from the Ebates study why some adults might prefer the Galaxy Note 8 or iPhone 8 over the iPhone X. It is worth noting, however, that those handsets are readily available at stores and cost less than Apple’s top-of-the-line smartphone.

Ukraine hit by stealthier phishing attacks during BadRabbit strike

KIEV (Reuters) – Hackers tried to access confidential data in powerful but stealthy phishing attacks launched in parallel with an eyeball-grabbing ransomware strike called BadRabbit last week, the head of the Ukrainian state cyber police said on Thursday.

Ukrainian Cyber Police Chief Serhiy Demedyuk speaks during an interview with Reuters in Kiev, Ukraine November 2, 2017. REUTERS/Valentyn Ogirenko

The BadRabbit attack mainly affected Russia but also hit the headlines in Ukraine — a frequent victim of cyber strikes — by causing flight delays at Odessa airport on the south coast and disrupting electronic payments in the Kiev metro.

“During these attacks, we repeatedly detected more powerful, quiet attacks that were aimed at obtaining financial and confidential information,” cyber police chief Serhiy Demedyuk told the Reuters Cyber Security Summit in Kiev.

The discovery suggests Ukraine may have been a key target of last week’s attacks, despite the higher incidence of BadRabbit victims in Russia.

Demedyuk said it was a kind of “hybrid attack” that is becoming increasingly common. “There is an open, let’s say instantly obvious attack, while underneath there is a hidden, fairly well-thought-out attack, to which nobody pays attention.”

“The main theory we’re working on now, is that they (the perpetrators of both attacks) were one and the same,” he said. “The goal was to get remote and undetected access.”

The parallel attack targeted users of Russian-designed software called 1C with phishing emails that appeared to be from the developer, Demedyuk said.

1C’s developer did not immediately respond to a request for comment from Reuters.

A distributor of 1C in Ukraine, who asked not to be named, confirmed that customers had been targeted and said it had warned users to take extra precautions as a result.

An employee works at the Ukrainian Cyber Police headquarters in Kiev, Ukraine November 2, 2017. REUTERS/Valentyn Ogirenko

Demedyuk said his department learned of the hack when about 15 companies reported that they had been compromised.

He said it was not yet possible to say how many people or firms or people had been affected in total, but 1C products, which include accounting software, are widely used in Ukraine.

Another virus, dubbed “NotPetya”, also targeted users of accounting software in June. It took down thousands of computers in Ukraine and spread around the world, disrupting shipping and businesses.

Slideshow (4 Images)

Security researchers and cyber experts believe the NotPetya and BadRabbit attacks could have been carried out by the same group as they share a key piece of code.

Demedyuk said Ukrainian authorities had prevented five other major attacks on financial institutions and strategic infrastructure since June, declining to name the targets.

In one of the attacks, police managed to block the transfer of 10 million hryvnia ($371,277) out of a company’s account.

He also said hackers have been exploiting so-called “back doors” that were installed by hackers during the NotPetya attack.

For more Reuters cyber news, go to www.reuters.com/cyberrisk

Follow Reuters Summits on Twitter @Reuters_Summits

Additional reporting by Jack Stubbs in Moscow; Editing by Matthias Williams and William Maclean

Our Standards:The Thomson Reuters Trust Principles.

The Downfall of Doppler Labs: Inside the Last Days of a Hardware Startup

On October 23, Doppler Labs founder Noah Kraft got a Facebook notification. One of those “On This Day” pop-ups, resurfacing a post from exactly two years ago, when Kraft had appeared on CNBC to make the case for his company. “We want to put a computer, speaker, and mic in everyone’s ear,” Kraft said during the interview. “We have very lofty visions of the future, everything from real-time translation to personal assistants.”

The memory stung. Because on October 23, Kraft was nine days away from shutting down Doppler Labs for good. Kraft, co-founder Fritz Lanman, and newly installed CEO Brian Hall were still doing all they could: trying to convince big companies to buy Doppler, trying to raise another round of funding, trying to sell more Here One earbuds, the company’s wireless headphones that gave users a way to change the volume of the real world. They had as many as 10 meetings a day, with increasing desperation. Nothing was working. Kraft would set a deadline for calling it quits, then extend it a week just in case. By October 23, with November payroll looming and no options in sight, they’d lost nearly all hope.

That Doppler Labs is closing its doors now seems surprising for many reasons. Internally, executives say the company’s never been more stable. Kraft and Hall spent most of 2017 re-orienting the team’s efforts around the hearing-health market, helping pass a bill allowing hearing aids to be sold over the counter and building a new app for those with mild to moderate hearing loss. Progress is underway for the second version of Doppler’s main product, a pair of wireless earbuds called Here Two.

Meanwhile, Doppler’s core idea—that in-ear computers are the next frontier—has permeated the industry. Apple’s promoting AirPods, Google’s touting Pixel Buds, and every headphone maker from Bose to Jaybird is experimenting with wireless earbuds you can wear all the time. Voice assistants like Siri and Alexa continue to improve rapidly, and users are beginning to look for ways to stay connected to tech without having to bury their face in a smartphone all day. These are the things Doppler’s been waiting for. It just ran out of time.

Doppler made plenty of mistakes over the last year or so. It also had the bad luck of being a hardware company at a time when the biggest players in tech—Microsoft, Apple, Google, Amazon, and Facebook—are all pouring billions into developing their own gadgets. “Hardware is hard” is one of the great Silicon Valley clichés, but plenty of startups are feeling the truth of that statement.

Kraft has always been Doppler’s best cheerleader. But when I walk into his office to talk about the end of Doppler, he’s different. Normally talkative and assured, Kraft now takes long pauses to collect his thoughts, fidgets in his chair, and can’t even bring himself to sugar-coat the situation. His sales pitch didn’t work, he says. Why keep selling? Instead, Kraft has been doing a lot of reflecting over the last few weeks, wondering what happened and what could have been different.

Kraft thinks back to a year ago. After selling its Dubs earplugs and the Here Active Listening earbuds, Doppler was ready to start manufacturing the product it had been working toward since Kraft and Lanman founded the company in 2013: Here One. They raised $24 million in a Series B round of financing in the summer of 2016, bringing the company’s total funding to about $50 million. They had big-name investors like David Geffen and Henry Kravis, and plenty of believers in both the tech and music worlds. Things looked good.

At the end of the summer, an investor set up a meeting with the hardware heads of one of the aforementioned five big tech companies. (Kraft won’t say which, both because he’s signed non-disclosures and doesn’t want to hurt his employees’ chances with those companies.) The Doppler executives left that meeting convinced this company was either going to invest heavily in Doppler Labs, or buy it outright.

Early Doppler employees in their first office.

Doppler Labs

Around the same time, an early build of Here One came back from Doppler’s China manufacturers in far better shape than anyone expected. (I got a demo of this build around the same time, and it was impressive.) The earbuds looked good, the software worked almost perfectly, and even the real-time translation feature seemed to be coming together. Suddenly, Here One was on pace to beat Apple’s AirPods to market. “Not only did we have an inbound offer, but we were ahead of the curve,” Kraft says.

Armed with an awesome demo and what they believed was a real offer from a tech giant, Kraft and his team started to think about selling the company. “Before this revolution happens, maybe somebody’s going to take us out to win the race,” Kraft thought. The team set up shop in the gorgeous offices of the Universal Music Group in downtown San Francisco, a wide-open space with spacious views of the Bay Bridge. Through October and November, they hosted a parade of potential investors and acquirers from all over the Valley, including all of the big five. Kraft, Lanman, and some high-level Doppler engineers took each group through the company’s technology and vision, and gave them a demo of Here One.

Looking back, both Kraft and Lanman say they should have approached the process differently. “We were definitely irrationally confident,” Lanman says. Kraft is more blunt: “We thought we were the shit.” He won’t share Doppler’s actual asking price, but compares its fortunes to Dropcam, which sold to Google for $555 million in 2014. “We were signaling that we’re not desperate at this point, so if you want us, it has to be proactive.” That might be why, at the end of the meetings, everyone responded the same: Investors love your tech, but wanted to see Doppler actually mass-produce and sell a product

By the end of November it was clear the best thing for Doppler to do was prove that Here One could be a success. That presented its own challenges. They’d switched manufacturers, and a longer-than-expected wait for a component pushed mass production back from fall of 2016 to February of 2017. That meant Here One wouldn’t beat AirPods to market, or capitalize on the all-important holiday sales rush. And Doppler had to raise another $10 million just to get the product out the door.

To make matters worse, in January, a team came back from China with troubling news. They’d hoped the earbuds would to get 4.5 hours of battery life with augmented hearing, or three hours of music streaming. But because of a Bluetooth chip drawing more power than expected, Here One was lasting barely three hours of AR, and less than two for music. Apple was promising five hours on a charge for AirPods, which made Doppler look even worse. “We focused so much on size and compactness with Here One that we kind of compromised battery life,” Lanman says.

Right before the product launched, Kraft gathered the team and told them to expect reviews that praised the technology but slammed the battery, which is precisely what happened. But then users started reporting problems with the charging case. Hall, a longtime Microsoft marketing exec initially hired to help Doppler scale and sell Here One, was suddenly thrust into triage mode. The product was already late in getting to folks who pre-ordered, and Doppler wanted to keep supply promises to retailers and partners. “We made the choice to keep going,” Hall says. “That was a mistake, in retrospect.”

Kraft and Hall watched sales numbers trickle in for the next couple of months, and by May, realized Here One was a flop. They’d originally planned to make and sell a few hundred thousand models, but only sold 25,000. Another 15,000 sit in a warehouse somewhere. Even with all the people who love Here One, those sales numbers turned Doppler from hot-shit startup to virtual impossibility. Here One was Doppler’s only real chance, and they’d missed it.

But it’s not that simple. At one point during our conversations, I ask Kraft if he thinks that Doppler could have succeeded, if it had done everything right. No delays, no product issues, everything out as promised. He thinks about it for a long time, then answers simply: “No.”

When you get right down to it, Kraft says he feels he’s only made one real mistake. “We fucking started a hardware business! There’s nothing else to talk about. We shouldn’t have done that.”

Back in 2013 and 2014, when Kraft and Lanman first raised money for Doppler, the gadget industry looked ripe for startup disruption. Pebble, Jawbone, and Xiaomi looked like burgeoning behemoths. Beats got $3 billion from Apple, Oculus $2 billion from Facebook, and Nest got $3.2 billion from Google. Founders and investors alike believed that thanks to smartphones, and the giant supply chain they wrought, a new breed of consumer tech was coming soon. Gadgets were back.

Now, however, the hardware world is full of cautionary tales. Juicero conned investors out of more than $118 million, while Jawbone lost nearly $1 billion. Pebbled was stripped and sold for parts to Fitbit. And let’s not even get into Lily Robotics, Electric Objects, Hello, Pearl, Zeebo, Zano, or the dozens of other hardware companies that have failed for one reason or another in the last few years. A study by analytics firm CB Insights found that while it’s still relatively easy to get early funding for a hardware company, only 24 percent of those companies will raise any more money at all, and 97 percent will essentially turn into nothing. “As hard as it is for all tech startups, it’s even more difficult for consumer hardware companies,” the survey concludes.

Despite the odds, Doppler spent the summer of 2017 pursuing every imaginable way to save the company. They started looking to raise another round of financing, a Series C, meeting with current investors and potential new ones. Hall calculated that Doppler needed at least $35 million to finish development of the next product, which became a line in the sand. With Here Two, and a new focus on the hearing aid industry, they thought Doppler had a shot. With any less funding, they’d be transplanting blood without closing the wound. They could get a few million to keep going, and even had $4 million in the bank that would at least pay people until about the end of the year, but that didn’t feel right. Hall, Kraft, and Lanman didn’t want to lose any more money than they already had. If Doppler couldn’t make a real go of it, it would end things the right way. It was $35 million or bust.

Doppler co-founder Fritz Lanman wears a (very) early prototype of Here One.

Doppler Labs

Unfortunately, $35 million is a big number. They’ve raised too much money to be be considered an early-stage venture, and don’t have enough sales or momentum to merit a growth round. “People said, ‘Look, we’re not going to write $40 million checks for businesses that don’t have real revenue,’” Kraft says. Doppler had meetings with 60 investors, and none panned out. It was the same feedback as before: great tech, great team, great demo, no checkbook.

Doppler’s other option was to sell the company at a far lower valuation. Kraft and Lanman explored shaving their equity stakes by more than 75 percent, hoping to find a way to at least pay back investors and make a little money for employees. Mostly they wanted a landing place for the tech and the team. That’s the thing the Doppler leadership comes back to over and over in the weeks leading up to the end of Doppler: doing right by the employees. They eventually received two offers from hardware giants, but neither was meaningful money. “They said, ‘Let’s see if we can do a deal that’s definitely shitty for you, but not too shitty, and definitely better than going out of business,'” Kraft says. Doppler would have saved face, but it wouldn’t have made anybody any money. So Doppler said no.

With your company facing closure, when do you tell employees? You want them to know as early as possible, so they can go get new jobs and not miss too many paychecks. You can’t tell them too early, though, in case something comes through and the company’s not over after all. You don’t want to have everyone show up one day to an empty office with a note on the door, but you don’t want to panic them too early either.

Kraft says he’s tried to be honest with his team without freaking them out. Most employees knew Here One wasn’t selling well, and that fundraising was hard. But they only found out for sure last Wednesday, a week before the company’s all-but-certain last day of solvency. Kraft and Hall kicked off an all-hands meeting. They started with a detailed update on all the company’s projects: a team back from China with progress on Here Two, manufacturer changes, a last update on the new hearing-health app set to be available November 1.

After about 45 minutes of business as usual, Hall changed the subject. “All I can tell you is,” he said, “we still don’t have a lead, and if anything the options have become slimmer.” Kraft mentioned that if anyone had been hiding a billionaire relative with cash to burn, now would be a good time to introduce them. For the following hour or so, Hall and Kraft took questions: Why can’t we raise money? What does this mean for us? Some were sad that it was over, others defiant that it wasn’t.

Doppler’s first ever product, the Dubs earplugs. (Those are Kraft’s ears.)

Doppler Labs

At another all-hands on Monday night, the team heard the final bell. It was a shorter meeting than the previous one—people knew it was coming. The discussion quickly turned tactical, as the employees tried to figure out how to go out the right way.

On Wednesday morning, Doppler’s website will change. Instead of an online store, it’ll contain a download link to the new app, pages about Here One and Doppler, and a note from the leadership explaining what happened and why Doppler is no longer. The whole team has a job until November 10, and the company is trying to find everyone a job, including potentially all at the same company, one of the big five. In the meantime, everyone’s task is to help get the company’s assets ready for sale and maximize their value. Everything has to go, from the patents to the office furniture. For another three weeks after, there will be eight Doppler employees—two in HR, two in tech, two in customer service, and two in finance—helping old employees get situated and ensuring customers aren’t left with no options.

Doppler’s new app, made for people with hearing loss who could use a little help in the form of a cool looking pair of headphones, will be free to download for the next 10 days. Kraft calls it “a final gift” to users, who can get support until December 1. After that, everything will shut down and Doppler will be over.

Every employee I spoke with at Doppler echoed the same thing: that this was a difficult, demanding, chaotic job, and they wish they didn’t have to leave it yet. Even so, they seem to take some solace in the company’s legacy. “Down the road, let’s say the hearing aid market is completely disrupted three to five years from now, it’s so important that Doppler is remembered as the company that opened that door,” says KR Liu, Doppler’s VP of advocacy and accessibility and the driving force behind the company’s hearing-health work. “That’s really important not only to me, but the employees of the company. That’s what we want to be known for, remembered for.”

At the end of it all, the people who worked at Doppler at least feel like they tried. And they’re all excited, in some way, to live in the future they predicted. “It’s not as good as doing it yourself, but it’s something,” Lanman says. “At least we left a mark.”

'Wolfenstein II' Review: Elevating Nazi-Killing to High Art

New Orleans is on fire, and the new word to have is revolution. In the alternate-history 1961 portrayed in Wolfenstein II: The New Colossus, the city has been walled-off, turned into a massive ghetto by the Nazis who won World War II. A place to send the “undesirables.” And now, with the stirring of legitimate resistance to the Nazi regime taking hold across America, the Axis fascists have descended on the city, intent on stamping out their enemies for good. When the player arrives, the bayou is a miasma of terror and bullets. And then there’s you, the hero, the quintessential figure of the American fever dream, the source of Wolfenstein‘s greatest strength and its greatest liability: a good guy with a gun. Shooting, chopping, punching, and dismembering Nazis to set the world right. No matter what.

The problem with Wolfenstein II is the same problem shared by media like Quentin Tarantino’s Inglorious Basterds, and really by any story that purports to tackle serious issues while also indulging in ideas of righteous bloodshed. How do you make a story around over-the-top, violent revenge fantasies while also taking the subject matter seriously? How do you make a game about killing faceless, cartoonishly evil Nazis without somehow cheapening the real-world evil they represent? (Or, perhaps worse, by offering a cop-out: a way to indulge in imaginary violence without ever pointing back to the realities that spawned it?)

Wolfenstein‘s answer comes early. The game takes place after the ending of the first one, finding its Nazi-killing protagonist, former US Marine BJ Blazkowicz, triumphant in a major strike against the worldwide Nazi regime but left near death, crippled and comatose following a brutal final fight. In his months-long recovery, he dreams of his father. In a horrific, sudden scene, BJ flashes back to a moment of childhood abuse: his father insults BJ’s Jewish mother, drops the n-word repeatedly, and hurts both BJ and his mother.

Bethesda Softworks

It’s an unexpected moment, all the more horrific for its surprise, so harrowing that more telegraphing, or maybe an explicit warning, might have been appreciated. But it also makes an essential rhetorical point. If Wolfenstein, as a game about a big ol’ American boy fighting the baddies, is going to traffic in larger-than-life Americana, then it will do so while acknowledging that America is no stranger to cruelty of its own devising. By incorporating American racism and patriarchal violence into its narrative, Wolfenstein II insists that, even in its alternate history setting, the Nazis weren’t a new arrival to the United States. In a very real sense, they were already here.

And so the developers at Machinegames work to infuse their hyper-violent shooter with equal parts camp and authentic pathos. The Nazis are both absurd and horrific, as are the uniquely American horrors that BJ faces, like the Ku Klux Klan. The resistance is built from a coalition of period-appropriate American leftist movements, socialist labor workers from the South working with a Black Panthers-style group led by an Angela Davis lookalike, alongside a mystical purveyor of weird science out of an Indiana Jones flick. Actual references to Nazi atrocities like Kristallnacht give way to cathartic moments of self-righteous gore.

The camp here seems intended to act as a release valve for the story’s more serious morality-play elements; it’s a conduit for the player’s righteous anger, giving them the means to mete out justice against people who really, really deserve it. Meanwhile, the darker elements reframe the campy violence into a metaphorical statement against fascism, against abuse of power and racism and all the evils that feed into it. To occupy the Nazi-killin’ combat boots of BJ Blazkowicz is to affirm that it’s more than OK to punch Nazis—it’s necessary, if only to defend the weak and the marginalized.

Bethesda Softworks

And Machinegames makes one hell of an argument for that dynamic. The writing here is as sharp, as humanistic and witty and real, as anything in videogames, and the action is equally compelling. The levels are dynamic, challenging puzzles of ruined urban environments and gun-toting fascists. The guns, massive demonic machines in obsidian black, thunderclap with explosions like the sound of collapsing buildings. Enemy soldiers burst into bloody chunks, and Nazi war machines burn with all the colors of the sunset. Wolfenstein taps into that darker element of the psyche, that horrible ancient place that says, maybe, it’s okay to enjoy something horrible. They’re Nazis, after all.

Any given individual’s enjoyment of Wolfenstein II: The New Colossus is going to come down to their willingness to buy into that above assertion, and with it the messy juxtaposition of camp and tragedy that it tries to pull off. Its detractors will undoubtedly suggest it’s an insincere game, going for shock value and dumb laughs, not really doing justice to its ideas. And, in some instances, it almost certainly doesn’t. But Wolfenstein II is also authentically angry, a coiled and wild beast ready to strike. Machinegames has built something that honestly believes that evil needs to be fought, and it conjures that anger not just to entertain it but to stoke it.

Wolfenstein II believes that people can do things that turn them into monsters, and it believes that monsters need to be dealt with, in the fantasy world it creates but also in the real one. The imagery of American racism, of paternal abuse, is too stark, too specific and strong to suggest anything otherwise. Fuck up what you can, it says, in the name of BJ Blazkowicz.

Google Hangouts Makes Another Push Into Corporate Video Conferencing

Google’s push to shake up corporate meetings is getting an upgrade.

The search giant debuted a new video conferencing system with a camera, speakers, and associated gear that are intended to make it easier for companies to conduct and broadcast corporate business meetings.

The new video conferencing gear, which works with Google’s Hangouts Meet video conferencing software, is an upgraded version of equipment that Google introduced in 2014. But the latest includes extras like a touchscreen tablet that syncs with Google Calendar so people can more easily access scheduled meetings.

Google’s goog new video conferencing gear, which costs $2,000 plus $250 annually, comes amid a similar push by several big companies. Microsoft msft has Skype for Business, Facebook fb has Workplace software, and Cisco csco has a lineup of business software and hardware.

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Although people can use Google’s Hangouts Meet for online video meetings without the help of extra gear, Johnston believes that limitations in current laptop cameras make for an inferior experience. For example, the camera included in Google’s latest camera package has a wider-angle lens that can show more people in a conference room than a typical laptop camera.

Google hopes that business customers will buy the new gear to replace older phones or conferencing units sold by companies like Polycom. Scott Johnston, a Google product management director, says that the new Google equipment is better because it is compatible with various Google apps like the Google Drive for storing a video archive of past meetings.

Although Google designed the conferencing gear, several hardware companies built some of the equipment in the bundle. Asus manufactured the Chromebox computer that powers the system, Huddly built the camera, and display technology company Mimo built the touchscreen.

Google produced the speaker, which incorporates technology from Lime Audio, the Swedish startup that Google bought in January for an undisclosed amount. That technology helps remove echoes and ambient noise, Johnston said.

Uses must be G Suite subscribers to use the conferencing gear, which is available only through Google. It will not be available in retail stores.

“We need to get there,” Johnston said, voicing hope that brick and mortar stores may one day sell the equipment.

The gear is part of Google’s G Suite collection of workplace software and hardware that’s part of the company’s larger Cloud business unit. It’s pitched as a companion to the company’s Jamboard digital whiteboard, which costs $5,000 and can also be used to conduct online meetings and take digital notes.