More newsflow from GXI...and implications.

Yesterday GXI announced its second rail deal and first one in North America with the Atlantic City Express Service (ACES). ACES is an express rail service offered by Ceasars Entertainment and Borgato that runs from Penn Stations in New York and Newark to Atlantic City and is operated by New Jersey Transit. Like the deal in the UK, it is small, but it is the catalyst for a couple of key developments that may have longer reaching positive impact on future performance:

1. Transactions are completed with real-time authorization for the first time. Due to current communications restrictions, all airline deployments to date have been deployed as store-and-forward transactions, executed upon landing. As a terrestial service, GXI was able to develop real-time solutions. It has been deployed in poroduction for a few weeks already, so it works. As real-time inflight communications links emerge, work with the rail providers should make it fairly straightforward to move to real-time inflight authorization. With real-time authorization, transaction values could be increased substantially. "Sir, would that be coffee, tea, or a BMW?" (just kidding...kinda)

2. As a result of this deal, GXI now has a partnership with another significant caterer/logistics manager beyond its highly successful relationship with LSG SkyChefs. Compass Group is C$3.4 billion equivalent hospitality operation that provides food and logistics services to ACES. With its extensive hospitality and resort catering services, there could be future alignment for more destination services to be sold onboard.

With its flow of announcements, GXI continues to demonstrate progress for investors. Based on my current forecasts, the operating break-even point is likely to be somewhere in the $1.6 to $1.7 million monthly runrate. On January 22nd, the company provided guidance that it should be exiting Q1, 2009 with a run-rate of approximately $1.5 million. With over 300 million passenger trip in its disclosed backlog, investors could infer that starting sometime in Q2, the Company may hit its breakeven inflection point. Deployment delays could create some variance risk to breakeven forecasts. Deployment delays during Q4 2008 have already pushed back breakeven by more than a quarter. With $5.6 million in cash and cash equivalents, the Company has a lot cushion. The most important takeaway is that the Company should emerge from this recession as dominant wordwide player in onboard retailing services where it is could be exposed to over 1 billion captured consumers...err...travellers annually. How many other Canadian stocks sport that type of profile, let alone one with a market cap below $30 million.

I do not own shares of GXI.

No comments:

Post a Comment