This morning Guestlogix announced that BA has begun to deploy its onboard retailing platform on 245 planes serving approximately 33 million passengers annually. Although terms were undisclosed, most multi-year agreements to date have ranged between three and five years, and this contract likely falls into that range with typical monthly minimum revenue guarantees.
BA should be considered a reference European account that can help to validate the solution to other major carriers in the region. In order to win this contract, GXI has worked hard over the past several months with BA to obtain PCI PED 2.0 certification for its handheld devices. This certification should help to align the solution to banks and credit card companies, which should help GXI to secure more potential European deals in coming months.
The 33 million passengers have been previously accounted for in the company's Q1 disclosure of 824 million passenger trips under contract. According Management, the company is currently generating revenue from the contract. Once switched on, GXI benefits immediately from all current inflight transactions by recognizing percentage-based fees. British Airways generates significantly more revenue per passenger than its North American counterparts, which typically generate about $0.5 per passenger in onboard transaction revenue. As a result, transaction revenue could exceed monthly minimum guarantees quickly.
Analysts are likely to have included the BA revenue streams in recent forecasts, so it is unlikely that estimates or targets would be adjusted upward as a result of this deployment. However, these revenue streams help to de-risk forecasts, and continue to provide evidence that execution continues on track.
Disclosure: I do not own shares of GXI or BA
6/22/09
CUPE is out of its collective mind.
While Torontonians struggle through this recession with many thousands losing their jobs and many other thousands having their incomes and benefits cut, CUPE leadership somehow believes that it is a good time to hold these same taxpayers hostage for hundreds of millions of dollars worth of employee perks.
In the end, there is little difference between entitlement bonuses that the union rails against and bankable sick days that it chooses to strike for. CUPE is hypocritical to the extreme to hold its fellow financially distressed citizens hostage for such purpose.
Citizens of Toronto should harden against these actions and urge City of Toronto negotiators to stand fast against CUPE. In fact, Torontonians should demand that for every week that this strike continues, that it removes a few basis points from its offered salary increase.
CUPE leadership has thown out all of the worn cliches like "bargaining in bad faith" in order to justify its actions. On the contrary, the wage increases seem reasonable, people can keep their jobs, and they can even keep their 18 sick days. Citizens just don't want the sick days turned into a pseudo-pension instrument at their expense.
City workers have been on strike in Windsor since mid-April. In one of the staunchest union towns in Canada, citizens are urging the City of Windsor to hold fast against the CUPE demands. If CUPE leadership was not so out of touch with reality, it would see this as a pretty good indication that people (families) everywhere, even in places with the greatest sympathies, are rising up against its bullying tactics.
Another question that should be posed is: who is the brainiac that negotiated these contracts in the first place?
In the end, there is little difference between entitlement bonuses that the union rails against and bankable sick days that it chooses to strike for. CUPE is hypocritical to the extreme to hold its fellow financially distressed citizens hostage for such purpose.
Citizens of Toronto should harden against these actions and urge City of Toronto negotiators to stand fast against CUPE. In fact, Torontonians should demand that for every week that this strike continues, that it removes a few basis points from its offered salary increase.
CUPE leadership has thown out all of the worn cliches like "bargaining in bad faith" in order to justify its actions. On the contrary, the wage increases seem reasonable, people can keep their jobs, and they can even keep their 18 sick days. Citizens just don't want the sick days turned into a pseudo-pension instrument at their expense.
City workers have been on strike in Windsor since mid-April. In one of the staunchest union towns in Canada, citizens are urging the City of Windsor to hold fast against the CUPE demands. If CUPE leadership was not so out of touch with reality, it would see this as a pretty good indication that people (families) everywhere, even in places with the greatest sympathies, are rising up against its bullying tactics.
Another question that should be posed is: who is the brainiac that negotiated these contracts in the first place?
6/16/09
Active Control Technologies (ACT.V) Contract Announcement
Earlier today, ACT announced that it has won a $1.4 million net new contract for two underground mines somewhere in the United States. According to management, this contract increases its current backlog, and will not be fully deployed until after its fiscal year-end (July 31). As a result, investors should expect revenue to be recognized during Q1, FY 2010.
Management believes that a small portion of the factored pipeline could turn into additional backlog before the end of its fiscal year, which is modest progress. The Company has clarified the definition of its factored pipeline as "written quotes". Management believes that "written quotes" total more than $20 million in potential contract value. However, it is difficult to understand how much of that total will actually translate into revenue during fiscal 2010.
As expected, the U.S. Federal Government has relaxed some of the guidelines for compliance to the MINER Act, allowing more time for mine operators to select vendors, and to substitute vendors later. As well, MSHA still has to approve the emergency communications and response plans submitted as of yesterday. As a result, investors should expect that a portion of quoted contracts may not be awarded for up to six months from now.
Due to the relaxation of various guidelines for compliance, competition for contracts is likely to intensify over the next few months. Although ACT appears to offer clear competitive differentiation in terms of throughput, breadth of offering, and MSHA certification, it has not yet developed local relationships (which can run generations deep). As a result, even with its technical superiority, investors should expect ACT to offer pricing discounts to win some business. As a result, gross margins may be impacted.
The value of the backlog has been clarified by management. The $6 million value cited earlier includes both contracted deployments, and future indicated deployments by current customers. As a result, prior to today's new contract announcement, the $5.2 million backlog (the company probably recognized approximately $0.8 million of the backlog since it last disclosed) was split approximately 50/50 between current and future indicated deployments. In essence, the current backlog was approximately $2.6 million prior to today. The new $1.4 million contract increases the current backlog to approximately $4.0 million. Without this understanding, expectations for near-term revenue recognition may have been too high.
For a more accurate reflection of near-term performance, investors should measure the current pipeline, and ignore/discount future indications by current clients. Analysts should continue to get clarification from Management on this measurement going forward.
The Company continues to find its footing as it begins to commercialize. The rubber is now hitting the road, and management must prove execution.
Disclosure: I own shares of ACT
Management believes that a small portion of the factored pipeline could turn into additional backlog before the end of its fiscal year, which is modest progress. The Company has clarified the definition of its factored pipeline as "written quotes". Management believes that "written quotes" total more than $20 million in potential contract value. However, it is difficult to understand how much of that total will actually translate into revenue during fiscal 2010.
As expected, the U.S. Federal Government has relaxed some of the guidelines for compliance to the MINER Act, allowing more time for mine operators to select vendors, and to substitute vendors later. As well, MSHA still has to approve the emergency communications and response plans submitted as of yesterday. As a result, investors should expect that a portion of quoted contracts may not be awarded for up to six months from now.
Due to the relaxation of various guidelines for compliance, competition for contracts is likely to intensify over the next few months. Although ACT appears to offer clear competitive differentiation in terms of throughput, breadth of offering, and MSHA certification, it has not yet developed local relationships (which can run generations deep). As a result, even with its technical superiority, investors should expect ACT to offer pricing discounts to win some business. As a result, gross margins may be impacted.
The value of the backlog has been clarified by management. The $6 million value cited earlier includes both contracted deployments, and future indicated deployments by current customers. As a result, prior to today's new contract announcement, the $5.2 million backlog (the company probably recognized approximately $0.8 million of the backlog since it last disclosed) was split approximately 50/50 between current and future indicated deployments. In essence, the current backlog was approximately $2.6 million prior to today. The new $1.4 million contract increases the current backlog to approximately $4.0 million. Without this understanding, expectations for near-term revenue recognition may have been too high.
For a more accurate reflection of near-term performance, investors should measure the current pipeline, and ignore/discount future indications by current clients. Analysts should continue to get clarification from Management on this measurement going forward.
The Company continues to find its footing as it begins to commercialize. The rubber is now hitting the road, and management must prove execution.
Disclosure: I own shares of ACT
6/15/09
Enstream: A Mobile Moneris or Dexit Revisited?
Yesterday, Telus (T), Bell, and Rogers (RCI) launched mobile payment solution branded Zoompass, which is developed and operated by Enstream, a new mobile payment solution platform, which also just happens to be a three-way joint venture among them. This post will attempt to contextualize Enstream (where the intellectual property resides) within the mobile ecosystem. Will it dominate? Will it survive? As with most things, its future is probably somewhere in the middle and it could morph into something entirely different.
I have attempted to sign up for the beta service. The sign up process appears to be fairly straightforward from the web, although the system hangs once I have logged into my new account from my Blackberry 8700. I still have not got to the point where I can use it.
Mobile Payments Will Have a Major Worldwide Economic Impact
An earlier blog post analyses the importance of billing systems in a race to become top dog for mobile applications. Mobile payment systems are a genus closely related to billing systems within the mobile ecosystem, although with probably more far-reaching economic implications, especially for emerging economic blocks such as BRIC and MENA. Mobile payments have the ability to accelerate the flow of funds, improve liquidity, and improve economic access for hundreds of millions, closing in on billions, of people worldwide (more on that later). Mobile payments systems are operating in countries as varied as Kenya, Korea, the Phillipines, and Britain, which has have helped to provide a glimpse into a potentially massive worldwide opportunity.
Is Enstream Relevant?
Leadership at Enstream appears to understands the global potential, and is already positioning itself within an inferred world market opportunity. The question is; can it get there from here? Possibly. But there is a lot of work to do and the JV is nowhere near to being a first mover in the industry. Even in Canada. The inter-relationships and possible connectedness among participants is extremely complex with carriers, software vendors, device manufacturers, distribution channels, retailers, banks, and payment networks all vying for bits of transaction value. Many of those bits are still to be defined, and Enstream has to stake out its claim quickly.
Consumer Feedback Is Negative
For now, the Zoompass solution offers some additional convenience for Canadian consumers, although many appear to be choking on the high fees currently advertised at $0.50 per transaction. Consumer feedback via the blogsphere and twitter has been decidely negative related to fees and the potential for competitive concentration. CEOs that have been in the market for a while have all commented that the fee structure, as it stands, is a likely impediment to adoption.
Commentary From the Ecosystem Itself is More Positive
Notwithstanding the fee structure, most of the commentary offered by CEOs already operating in the ecosystem has been balanced and considers what Enstream means to their companies, to Canadian consumers, and to the world.
Universally, CEOs believe that it is a positive development that Canadian carriers are getting serious about mobile payments. Most of the vendors in the Canadian market are under-capitalized start-ups that have struggled to convince carriers of the market potential in Canada. As one CEO put it, carriers are finally showing that they "get it". Some believe that Enstream could behave as a universal gateway to the major carriers for independent mobile payment applications, which may kickstart another wave of development in the vertical.
Zoompass connects mobile transactions to a co-branded prepaid, reloadable Mastercard - not subscriber accounts. Presumably, this hybrid card system offers users maximum flexibility for consumers to withdraw funds via ABMs, pay via POS, and to transact via SMS or NFC from a mobile handset. There are already several prepaid Mastercard programs deployed, with many others in the works, which all appear to operate within a similar framework. Many CEOs believe that the Enstream platform may be an opportunity to better connect current prepaid programs to mobile devices both electronically, and at the POS.
Others believe that this move by the carriers may spur on more aggressive competition from banks and payment networks, which could deliver competitive gateway infrastructures, and ultimately better choice and lower costs to consumers. Several financial institutions are currently at early stages of developing applications to connect mobile devices directly and securely to consumer bank accounts for mobile payments. However, unless projects are sped up, consumers may have to wait several quarters until serious choice becomes available.
Some Global Comparatives
Device manufacturers such as Nokia (NOK), RIM (RIMM), and Apple (APPL) have a broader world view on mobile payments. In March 2009, Nokia made a substantial strategic investment in Silicon Valley-based Obopay. Obopay operates with a similar model to Enstream, but with deployments in both the United States and India. The price point is $0.25 to send up to $1000 and nothing to receive funds. In the meantime, RIM is actively testing ideas and pursuing multiple opportunities in the space, and has recently announced a partnership with payment giant PayPal (EBAY) to deliver billing and payment solutions for its AppWorld venture. PayPal Mobile is considered by many to be competitive to the new Enstream venture.
Euronet (EEFT) is a significant electronic transaction processor with 421,000 prepaid wireless, long-distance, and gift card endpoints worldwide. In 2007, it acquired RIA, the third largest money transfer agent in the world, and then last year attempted but failed to buy MoneyGram, the second largest money transfer agent in the world behind Western Union. Euronet, through its electronic network, is beginning to deliver a mobile payment and remittance infrastructure that can be cash-based. And here is why.
Between 80% and 85% of all mobile subscribers in emerging economies do not have bank accounts (not to mention credit), nor do they have easy access to local banking infrastructure. Most emerging economies operate as cash-based societies. This is a main driver behind the proliferation of prepaid subscriptions in BRIC, MENA and Latin America. Euronet and others like it are attempting to deploy ways to digitize cash via local merchants without banking infrastructure. By comparison, the Enstream solution appears to need banking infrastucture.
____________________________________________________
Bottom Line: Ecosystem
The Enstream launch is seen as positive by participants in the ecosystem as long as it evolves to a platform for multiple mobile payment applications tha can be offered to Canadian consumers. Enstream states that it is looking for development partners. The question is how economic will it be for independent developers to participate. Without participation by third-parties, the concept may struggle.
Bottom Line: Consumers
Consumers appear mistrustful of the enterprise, which implies that there is a branding deficit shared by the three founding partners that could impede progress. Pricing has been described by consumers and others in the ecosystem as the most immediate concern and potential barrier to adoption. Objections and barriers have been erected quickly by consumers, which may require time, capital, and effort to overcome before traction can be gained.
Bottom Line: Market Share
As for worldwide expansion, by comparison to other more advanced solutions worldwide, Enstream is late to the game and its business model may not be easily translatable to other regions of the world. As a result, Enstream should be viewed as regional play limited to the Canadian marketplace, with potential to buy its way into other markets in the future.
Bottom Line: Investors
Investors should expect that the JV will contribute little to the performance of RCI, T, or BCE over the next few years, unless the business model is revamped to go viral, which is quite possible. From a cost perspective, Enstream could contribute to the accelerated extinction of "hard cards" on display in many convenience stores, saving millions of dollars in the channels.
I have attempted to sign up for the beta service. The sign up process appears to be fairly straightforward from the web, although the system hangs once I have logged into my new account from my Blackberry 8700. I still have not got to the point where I can use it.
Mobile Payments Will Have a Major Worldwide Economic Impact
An earlier blog post analyses the importance of billing systems in a race to become top dog for mobile applications. Mobile payment systems are a genus closely related to billing systems within the mobile ecosystem, although with probably more far-reaching economic implications, especially for emerging economic blocks such as BRIC and MENA. Mobile payments have the ability to accelerate the flow of funds, improve liquidity, and improve economic access for hundreds of millions, closing in on billions, of people worldwide (more on that later). Mobile payments systems are operating in countries as varied as Kenya, Korea, the Phillipines, and Britain, which has have helped to provide a glimpse into a potentially massive worldwide opportunity.
Is Enstream Relevant?
Leadership at Enstream appears to understands the global potential, and is already positioning itself within an inferred world market opportunity. The question is; can it get there from here? Possibly. But there is a lot of work to do and the JV is nowhere near to being a first mover in the industry. Even in Canada. The inter-relationships and possible connectedness among participants is extremely complex with carriers, software vendors, device manufacturers, distribution channels, retailers, banks, and payment networks all vying for bits of transaction value. Many of those bits are still to be defined, and Enstream has to stake out its claim quickly.
Consumer Feedback Is Negative
For now, the Zoompass solution offers some additional convenience for Canadian consumers, although many appear to be choking on the high fees currently advertised at $0.50 per transaction. Consumer feedback via the blogsphere and twitter has been decidely negative related to fees and the potential for competitive concentration. CEOs that have been in the market for a while have all commented that the fee structure, as it stands, is a likely impediment to adoption.
Commentary From the Ecosystem Itself is More Positive
Notwithstanding the fee structure, most of the commentary offered by CEOs already operating in the ecosystem has been balanced and considers what Enstream means to their companies, to Canadian consumers, and to the world.
Universally, CEOs believe that it is a positive development that Canadian carriers are getting serious about mobile payments. Most of the vendors in the Canadian market are under-capitalized start-ups that have struggled to convince carriers of the market potential in Canada. As one CEO put it, carriers are finally showing that they "get it". Some believe that Enstream could behave as a universal gateway to the major carriers for independent mobile payment applications, which may kickstart another wave of development in the vertical.
Zoompass connects mobile transactions to a co-branded prepaid, reloadable Mastercard - not subscriber accounts. Presumably, this hybrid card system offers users maximum flexibility for consumers to withdraw funds via ABMs, pay via POS, and to transact via SMS or NFC from a mobile handset. There are already several prepaid Mastercard programs deployed, with many others in the works, which all appear to operate within a similar framework. Many CEOs believe that the Enstream platform may be an opportunity to better connect current prepaid programs to mobile devices both electronically, and at the POS.
Others believe that this move by the carriers may spur on more aggressive competition from banks and payment networks, which could deliver competitive gateway infrastructures, and ultimately better choice and lower costs to consumers. Several financial institutions are currently at early stages of developing applications to connect mobile devices directly and securely to consumer bank accounts for mobile payments. However, unless projects are sped up, consumers may have to wait several quarters until serious choice becomes available.
Some Global Comparatives
Device manufacturers such as Nokia (NOK), RIM (RIMM), and Apple (APPL) have a broader world view on mobile payments. In March 2009, Nokia made a substantial strategic investment in Silicon Valley-based Obopay. Obopay operates with a similar model to Enstream, but with deployments in both the United States and India. The price point is $0.25 to send up to $1000 and nothing to receive funds. In the meantime, RIM is actively testing ideas and pursuing multiple opportunities in the space, and has recently announced a partnership with payment giant PayPal (EBAY) to deliver billing and payment solutions for its AppWorld venture. PayPal Mobile is considered by many to be competitive to the new Enstream venture.
Euronet (EEFT) is a significant electronic transaction processor with 421,000 prepaid wireless, long-distance, and gift card endpoints worldwide. In 2007, it acquired RIA, the third largest money transfer agent in the world, and then last year attempted but failed to buy MoneyGram, the second largest money transfer agent in the world behind Western Union. Euronet, through its electronic network, is beginning to deliver a mobile payment and remittance infrastructure that can be cash-based. And here is why.
Between 80% and 85% of all mobile subscribers in emerging economies do not have bank accounts (not to mention credit), nor do they have easy access to local banking infrastructure. Most emerging economies operate as cash-based societies. This is a main driver behind the proliferation of prepaid subscriptions in BRIC, MENA and Latin America. Euronet and others like it are attempting to deploy ways to digitize cash via local merchants without banking infrastructure. By comparison, the Enstream solution appears to need banking infrastucture.
____________________________________________________
Bottom Line: Ecosystem
The Enstream launch is seen as positive by participants in the ecosystem as long as it evolves to a platform for multiple mobile payment applications tha can be offered to Canadian consumers. Enstream states that it is looking for development partners. The question is how economic will it be for independent developers to participate. Without participation by third-parties, the concept may struggle.
Bottom Line: Consumers
Consumers appear mistrustful of the enterprise, which implies that there is a branding deficit shared by the three founding partners that could impede progress. Pricing has been described by consumers and others in the ecosystem as the most immediate concern and potential barrier to adoption. Objections and barriers have been erected quickly by consumers, which may require time, capital, and effort to overcome before traction can be gained.
Bottom Line: Market Share
As for worldwide expansion, by comparison to other more advanced solutions worldwide, Enstream is late to the game and its business model may not be easily translatable to other regions of the world. As a result, Enstream should be viewed as regional play limited to the Canadian marketplace, with potential to buy its way into other markets in the future.
Bottom Line: Investors
Investors should expect that the JV will contribute little to the performance of RCI, T, or BCE over the next few years, unless the business model is revamped to go viral, which is quite possible. From a cost perspective, Enstream could contribute to the accelerated extinction of "hard cards" on display in many convenience stores, saving millions of dollars in the channels.
In the end, we may see Enstream positioned as a Moneris-type of mobile payment infrastructure that would likely compete directly with Moneris itself, or some other bank-based mobile payments system in Canada. As for other threats, handset manufacturers could provide substitution through some as-of-yet developed applications. Notwithstanding, to be successful Enstream would need to become a neutral Canadian platform for competing applications from local providers to multinationals.
Bottom Line: Joint Venture
However, there is no guarantee the the founding partners can resist meddling, or poking each other in the eye, long enough to give the venture an opportunity to feel its way towards success. For every successful JV among Canadian institutions - whether banks or telcos - there have been dozens that have failed.
I do not own shares of any of the Companies mentioned in this post. As well, I have chosen to generalize the commentary as opposed to attribute direct quotes.
6/9/09
Redknee (RKN.TO) signs meaningful contract in Middle East.
Today, Redknee announced that it has won a triple-play converged billing contract in the EMEA (Europe Middle East & Africa) region. More specifically and according to the company, the contract is an upsell to a current client with major operations throughout the Middle East.
Although the client and specific terms of the contract are not disclosed, the company has offered a little more insight. First, it is an enterprise software transaction leveraging its billing platform with a three year service term. The size of the contract has been described at a "multi-million dollar" level with approximately 60% recognized during the remaining two quarters of FY 2009. There is no customization required, so gross margins should be near the impressive 79% gross margin reported for Q2, 2009. As a result, this announced contract should represent a meaningful positive impact on performance for the year.
To review, Redknee reported financial results for Q2 2009 on May 12th where revenue for the quarter increased by 9% to $13.8 million versus $12.6 million for Q2 2008. The company reported EBITDA of $1.1 million for the quarter versus a loss of $0.6 million for Q2 2008, an increase of $1.7 million. Cash and equivalents increased to $20.3 million from $15.3 million for Q2 2008. The contract announced today should help to accelerate growth in sales and cashflow. Investors should also see improvement in EBITDA and earnings margins for the remaining two quarters of the year, as it gains operating leverage from the upsell.
Redknee has a growing worldwide presence in regions such as Latin America and the Middle East where the mobile infrastructure has been struggling to keep up with 40% annual growth in subscribers. Right now in the Middle East and North Africa, there are approximately 176 million mobile subscribers, representing 54% total penetration. Even as the worldwide recession takes its toll, the Middle East remains one of the most robust areas of growth in the world with 15% growth projected for 2009. The company has a handful of operator clients in the region, and this contract could become a reference for further penetration into the market as operators begin to think more about service bundling.
Service bundling is becoming an emerging priority because there are approximately 33 million landline subsribers and another 39 million internet users in the region. Although landline subscriber growth may be flat, internet subscriber growth continues to take off as more fixed wireless broadband networks are deployed.
It is undetermined whether analysts that are aware of this company were expecting a contract of this magnitude at this time. The stock has garnered very little analyst attention to this point, although there may be new impetus for some that have been on the sidelines to initiate coverage. The Company is closing in on a market cap of $100 million, is generating cash, and has a healthly balance sheet with over $20 million in cash and no significant debt. This profile should be attractive to analysts and, in turn, institutional investors.
The share price has had a healthy run since the middle of April, more than doubling since then on significantly higher volumes. Even as investors fret about whether the U.S. economy has bottomed, this particular Company is making inroads into the fastest growing region of one of the only sectors that has shown growth during the recession. The contract announced today could be considered validation that Redknee is positioned continue its growth trajectory while potentially increasing cash flow. Fundamentalists should take note.
Although the client and specific terms of the contract are not disclosed, the company has offered a little more insight. First, it is an enterprise software transaction leveraging its billing platform with a three year service term. The size of the contract has been described at a "multi-million dollar" level with approximately 60% recognized during the remaining two quarters of FY 2009. There is no customization required, so gross margins should be near the impressive 79% gross margin reported for Q2, 2009. As a result, this announced contract should represent a meaningful positive impact on performance for the year.
To review, Redknee reported financial results for Q2 2009 on May 12th where revenue for the quarter increased by 9% to $13.8 million versus $12.6 million for Q2 2008. The company reported EBITDA of $1.1 million for the quarter versus a loss of $0.6 million for Q2 2008, an increase of $1.7 million. Cash and equivalents increased to $20.3 million from $15.3 million for Q2 2008. The contract announced today should help to accelerate growth in sales and cashflow. Investors should also see improvement in EBITDA and earnings margins for the remaining two quarters of the year, as it gains operating leverage from the upsell.
Redknee has a growing worldwide presence in regions such as Latin America and the Middle East where the mobile infrastructure has been struggling to keep up with 40% annual growth in subscribers. Right now in the Middle East and North Africa, there are approximately 176 million mobile subscribers, representing 54% total penetration. Even as the worldwide recession takes its toll, the Middle East remains one of the most robust areas of growth in the world with 15% growth projected for 2009. The company has a handful of operator clients in the region, and this contract could become a reference for further penetration into the market as operators begin to think more about service bundling.
Service bundling is becoming an emerging priority because there are approximately 33 million landline subsribers and another 39 million internet users in the region. Although landline subscriber growth may be flat, internet subscriber growth continues to take off as more fixed wireless broadband networks are deployed.
It is undetermined whether analysts that are aware of this company were expecting a contract of this magnitude at this time. The stock has garnered very little analyst attention to this point, although there may be new impetus for some that have been on the sidelines to initiate coverage. The Company is closing in on a market cap of $100 million, is generating cash, and has a healthly balance sheet with over $20 million in cash and no significant debt. This profile should be attractive to analysts and, in turn, institutional investors.
The share price has had a healthy run since the middle of April, more than doubling since then on significantly higher volumes. Even as investors fret about whether the U.S. economy has bottomed, this particular Company is making inroads into the fastest growing region of one of the only sectors that has shown growth during the recession. The contract announced today could be considered validation that Redknee is positioned continue its growth trajectory while potentially increasing cash flow. Fundamentalists should take note.
6/5/09
Game-Changer Startup Alert: Phybridge and the rebirth of the twisted pair.
Most who follow this blog anticipate updates about publicly listed technology Companies. Going forward investors are likely to see a select few earlier stage private tech startups profiled. The criteria for such a profile is simple: potential game-changers.
Phybridge is an early-stage startup (and graduate of the UofT's Accelerator incubator) located in Mississauga that has developed technology that makes twisted pair copper (essentially the phone line) a viable Internet Protocol-based (IP) high speed data network.
Introducing VoIP over twisted pair. The first killer application is to enable Voice over Internet Protocol (VoIP) with a single point of convergence to the data network in the server closet. Until Phybridge's introduction of Uniphyer a few weeks ago, there was no simple and cost effective way for enterprises to repurpose twisted pair to deliver the productivity benefits of converged IP-based communications.
ROI is unbeatable. Although the benefits of VoIP are clear from a productivity standpoint, the ROI of migrating from digital telephony to VoIP is often impaired by the costs of upgrading facilities to CAT5/6 cabling, and by the ongoing expense of managing data throughput priorities in order maintain (or at least come close to) the quality of voice service and reliability that clients have become accustomed to via digital switched telephony. Broadband networks will only become more clogged with SaaS applications and streaming media over time, so VoIP QoS is likely to remain at risk. Business disruption during VoIP deployment is a significant issue because it could take days or weeks to recable and tune. By contrast, deployment of the Phybridge solution could take, literally, minutes. For proof, check out this video.
Intrinsic network redundancy. The data network itself represents a single point of failure risk in the case of network disruption. Not only are data systems down, but so are communications systems; essentially a company is "out-of-business" for as long as the data network is down. For many 24-7 enterprises, this is an untenable risk. By repurposing the twisted pair for VoIP, it becomes an intrinsically redundant parallel-but-connected network for communications. In addition, the Uniphyer solution also provides power to the handset, which makes the network even more redundant in the case of a power outage to the data network.
Who cares? Telecom vendors. Since the introduction of VoIP about a decade ago, Cisco Systems (CSCO) has chewed into about 25% of telephony market share at the expense of telecom gear and phone service vendors like Nortel (NT) (no explanation required here), Avaya, and Mitel among others. A good portion of the other 75% of the remaining market is at risk as big switches deployed at the beginning of this decade come to end-of-life. Needless to say, the entire telecom ecosystem is beginning to take notice of what Phybridge is doing. With the current plug-and-play Uniphyer appliance, telecom vendors can extend the life of switches that would otherwise become irrelevant, while extending the life of a previously considered obsolete network, and delivering new revenue streams to telecom services vendors that Cisco cannot otherwise access. Copper becomes viable again.
Who cares? Anyone in a concrete building. Of the 75% of the telephony market not yet tapped by Cisco, a significant portion is simply unable to take advantage of VoIP and related converged services because it is cost prohibitive to upgrade networks. In particular, the health care sector is watching developments at Phybridge closely. Hospitals throughout North America constructed prior to this decade do not have adequate cable infrastructure for VoIP deployment, and hospital administrators do not want to disturb the nastiness that is behind most of the walls, including (believe it or not) asbestos. Although healthcare services could benefit greatly from VoIP, there has been no plausible way to upgrade. Similarly, class "C" buildings, heritage buildings, hotels, and other institutions (schools, colleges, governments) have been unable to effectively upgrade. Until now. In partnership with Phybridge, phone services vendors now have a wide swath of previously closed market open to them. And Cisco can't get at it.
Can Phybridge fulfill its promise? Among Canadian technology startups, conditions for success are particularly brutal because they are often under-capitalized as domestic investors remain fixated on resources and commodities. Even among technology investors, telecom is not sexy, as most investors (and this blog) are focused on high profile technologies such as SaaS, mobility, social networking, broadband, and virtualization. There is even less sexy in twisted pair, which could be a source of skepticism among jaded investors previously burnt by failed telecom investments. That is, until one digs into the problem and discovers a multi-billion dollar greenfield opportunity with a sense of urgency.
Management has horsepower and a track record. The founding partners John Croce and Oliver Emmanuel (the brain behind the solution) have managed to scrape together somewhere north of $1 million from friends and family earlier this year. Currentl operations are very lean with a monthly burn rate of less than $50k. The business potential associated with the technology has managed to attract heavy-hitter senior management from Avaya including Steven Fair, who led the approximate $200+ million annual sales organization in Canada and was, for a time, interim President. John Croce himself has generated significant returns for shareholders with previous successful start-up ventures in financial service and real estate. He has a track record of proven success.
Channels blooming. Recently, the company has also been busy signing up significant distribution partners including Jenne and Westcon among others. In discussions with management at Jenne ( a +$100 m operation in Ohio), it has already educated hundreds of resellers who immediately "get it" and are already beginning to sell into the US market.
The labs are surprised. Interestingly, the solution has also been "fast-tracked" into the labs of many of the major telecom vendors in North America. The initial response from the labs is to be "blown away", because most thought a solution similar to Uniphyer to be impossible.
References are real. Beta customers so far have been impressed with the ease of deployment and the quality of service. For one client in Ottawa, several dozen endpoints were migrated to VoIP and brought live in less than 90 minutes from start to phone calls.
Scaling risk should be noted. Operationally, the Company has outsourced manufacturing of the appliances to China for its first clients and partners. Investors should take note that there could be some short-term working capital risk associated with its growth potential. Within a few days after official release, the Company already has a sales funnel for Uniphyer valued in excess of $5 million. The company has the sales horsepower on board to close, which could create a parabolic growth curve.
Over time, (actually as soon as possible) the Company expects to license the intellectual property to telecom vendors in order to maximize margins, and to improve scalability.
Clear path to exit; but will shareholders get maximum value? With the amount of interest shown in the technology by telecom services vendors throughout North America, there is likely a clear path to future exit for shareholders. The seminal nature of the technology has attracted early executional horsepower, so there are strong indicators that the company may be able to fulfill its latent potential. However, the big question will be whether the company can be capitalized to the point where it can maximize success and shareholder value before it gets taken out. John Croce has done it before, so there is good chance that he can do it again. Smart investors should take note...and begin pounding on his door.
Disclosure: I own shares of CSCO, although I do not own shares of any of the other companies mentioned in this post.
Phybridge is an early-stage startup (and graduate of the UofT's Accelerator incubator) located in Mississauga that has developed technology that makes twisted pair copper (essentially the phone line) a viable Internet Protocol-based (IP) high speed data network.
Introducing VoIP over twisted pair. The first killer application is to enable Voice over Internet Protocol (VoIP) with a single point of convergence to the data network in the server closet. Until Phybridge's introduction of Uniphyer a few weeks ago, there was no simple and cost effective way for enterprises to repurpose twisted pair to deliver the productivity benefits of converged IP-based communications.
ROI is unbeatable. Although the benefits of VoIP are clear from a productivity standpoint, the ROI of migrating from digital telephony to VoIP is often impaired by the costs of upgrading facilities to CAT5/6 cabling, and by the ongoing expense of managing data throughput priorities in order maintain (or at least come close to) the quality of voice service and reliability that clients have become accustomed to via digital switched telephony. Broadband networks will only become more clogged with SaaS applications and streaming media over time, so VoIP QoS is likely to remain at risk. Business disruption during VoIP deployment is a significant issue because it could take days or weeks to recable and tune. By contrast, deployment of the Phybridge solution could take, literally, minutes. For proof, check out this video.
Intrinsic network redundancy. The data network itself represents a single point of failure risk in the case of network disruption. Not only are data systems down, but so are communications systems; essentially a company is "out-of-business" for as long as the data network is down. For many 24-7 enterprises, this is an untenable risk. By repurposing the twisted pair for VoIP, it becomes an intrinsically redundant parallel-but-connected network for communications. In addition, the Uniphyer solution also provides power to the handset, which makes the network even more redundant in the case of a power outage to the data network.
Who cares? Telecom vendors. Since the introduction of VoIP about a decade ago, Cisco Systems (CSCO) has chewed into about 25% of telephony market share at the expense of telecom gear and phone service vendors like Nortel (NT) (no explanation required here), Avaya, and Mitel among others. A good portion of the other 75% of the remaining market is at risk as big switches deployed at the beginning of this decade come to end-of-life. Needless to say, the entire telecom ecosystem is beginning to take notice of what Phybridge is doing. With the current plug-and-play Uniphyer appliance, telecom vendors can extend the life of switches that would otherwise become irrelevant, while extending the life of a previously considered obsolete network, and delivering new revenue streams to telecom services vendors that Cisco cannot otherwise access. Copper becomes viable again.
Who cares? Anyone in a concrete building. Of the 75% of the telephony market not yet tapped by Cisco, a significant portion is simply unable to take advantage of VoIP and related converged services because it is cost prohibitive to upgrade networks. In particular, the health care sector is watching developments at Phybridge closely. Hospitals throughout North America constructed prior to this decade do not have adequate cable infrastructure for VoIP deployment, and hospital administrators do not want to disturb the nastiness that is behind most of the walls, including (believe it or not) asbestos. Although healthcare services could benefit greatly from VoIP, there has been no plausible way to upgrade. Similarly, class "C" buildings, heritage buildings, hotels, and other institutions (schools, colleges, governments) have been unable to effectively upgrade. Until now. In partnership with Phybridge, phone services vendors now have a wide swath of previously closed market open to them. And Cisco can't get at it.
Can Phybridge fulfill its promise? Among Canadian technology startups, conditions for success are particularly brutal because they are often under-capitalized as domestic investors remain fixated on resources and commodities. Even among technology investors, telecom is not sexy, as most investors (and this blog) are focused on high profile technologies such as SaaS, mobility, social networking, broadband, and virtualization. There is even less sexy in twisted pair, which could be a source of skepticism among jaded investors previously burnt by failed telecom investments. That is, until one digs into the problem and discovers a multi-billion dollar greenfield opportunity with a sense of urgency.
Management has horsepower and a track record. The founding partners John Croce and Oliver Emmanuel (the brain behind the solution) have managed to scrape together somewhere north of $1 million from friends and family earlier this year. Currentl operations are very lean with a monthly burn rate of less than $50k. The business potential associated with the technology has managed to attract heavy-hitter senior management from Avaya including Steven Fair, who led the approximate $200+ million annual sales organization in Canada and was, for a time, interim President. John Croce himself has generated significant returns for shareholders with previous successful start-up ventures in financial service and real estate. He has a track record of proven success.
Channels blooming. Recently, the company has also been busy signing up significant distribution partners including Jenne and Westcon among others. In discussions with management at Jenne ( a +$100 m operation in Ohio), it has already educated hundreds of resellers who immediately "get it" and are already beginning to sell into the US market.
The labs are surprised. Interestingly, the solution has also been "fast-tracked" into the labs of many of the major telecom vendors in North America. The initial response from the labs is to be "blown away", because most thought a solution similar to Uniphyer to be impossible.
References are real. Beta customers so far have been impressed with the ease of deployment and the quality of service. For one client in Ottawa, several dozen endpoints were migrated to VoIP and brought live in less than 90 minutes from start to phone calls.
Scaling risk should be noted. Operationally, the Company has outsourced manufacturing of the appliances to China for its first clients and partners. Investors should take note that there could be some short-term working capital risk associated with its growth potential. Within a few days after official release, the Company already has a sales funnel for Uniphyer valued in excess of $5 million. The company has the sales horsepower on board to close, which could create a parabolic growth curve.
Over time, (actually as soon as possible) the Company expects to license the intellectual property to telecom vendors in order to maximize margins, and to improve scalability.
Clear path to exit; but will shareholders get maximum value? With the amount of interest shown in the technology by telecom services vendors throughout North America, there is likely a clear path to future exit for shareholders. The seminal nature of the technology has attracted early executional horsepower, so there are strong indicators that the company may be able to fulfill its latent potential. However, the big question will be whether the company can be capitalized to the point where it can maximize success and shareholder value before it gets taken out. John Croce has done it before, so there is good chance that he can do it again. Smart investors should take note...and begin pounding on his door.
Disclosure: I own shares of CSCO, although I do not own shares of any of the other companies mentioned in this post.
6/3/09
Guestlogix (GXI.V) Introduces OnTouch - What does it mean?
Earlier today, Guestlogix announced that it has deployed an new onboard suite of services branded OnTouch, which packages 5 product bundles into value-added destination services for passengers. GXI has essentially organized its platform to allow airlines to bundle services with maximum appeal to passengers. For North American airlines, where GXI has approximately 90% contracted penetration, this takes onboard selling beyond alcohol and food, and is designed to actually improve the travel experience for passengers. In-flight attendants, who are trained to e provide safe positive travel experiences for passenger, find selling the service bundles a natural extension of what they do. Who wouldn't want to make a passenger's life easier once they leave the plane? Plus, inflight attendents share in the upside by receiving a commission from the airlines for completed sales.
The packages are bundled as:
1. OnTouch(TM) Box Office - In-flight offerings of theatre, concert, theme park and attractions tickets associated with destination cities - purchased in the air. As previously disclosed, these currently include CityPass, broadway tickets, and Disney theme park tickets. Expect more partnerships to be announced throughout the year for this service.
2. OnTouch(TM) Ground Connections - In-flight offerings of airport transfers via taxi, bus, train, limo and more for a destination city. Currently there is a deal for Heathrow Express - although company officials believe that this service could be expanded to as many as 30 major cities by the end of the year. This appears to be the killer offering.
3. OnTouch(TM) Shopping & More - In-flight catalogue sales with home and/or destination delivery in a variety of product categories; As previously disclosed, this is offered through a partnership with SkyMall. Notably, GXI has also partnered on in-flight entertainment offerings with a carrier in Singapore.
4. OnTouch(TM) Minutes on the Go - In-flight offerings of prepaid phone cards, phone top-ups, rentals, and web connections; No partners have been announced yet.
5. OnTouch(TM) Concierge Everywhere - Personal itinerary management and destination-based travel updates and offers via mobile SMS and email. Partners could be announced soon.
The bundling makes it easier for passengers to understand the various value propositions, and also makes it easier for in-flight attendents to sell the services, for which they are re-inbursed through commissions. For the airlines, who are suffering from reduced capacity, these value-added destination services deliver more ancilliary revenue opportunity than would otherwise be unattainable without the bundled Guestlogix platform.
The company expects significant uptake for these offers because:
- for the most part, passengers would be spending money on destination travel services anyway, and OnTouch offers better convenience and less hassle at the destination - which actually improves the travel experience. This is not new spending that needs to be induced (like ordering another beer), it is simply disintermediation of a transaction that would otherwise need to be completed at the destination airport terminal.
- passengers can get access to destination events and entertainment that they may have not been able to access easily via alternative means once they land. For example, CityPasses are really valuable for tourists in major cities like Chicago, New York and Toronto, but they are hard to find on the ground.
There is evidence from Europe that passengers are willing to spend onboard if the products and services are offered to them. The company believes that for every $1.00 increase in revenue per passenger trip in North America represents approximately $16.5 million in additional revenue to Guestlogix. On a flight with 100 passengers, this would mean that only 3 or 4 passengers would need to purchase ground connection services, and only 1 or 2 would need to purchase a destination event ticket. Modest uptake should result in meaningful positive impact on Guestlogix financial performance. The current deployment with one major airline has performed ahead of expectations in terms of uptake and customer experience.
Investors should view this announcement as a significant positive step forward for GXI, especially considering that the current deployment appears to be going well. After announcing its most recent quarter, the stock experienced a significant step-up in price in early April, since then it has plateaued in the 90 cent range. As these OnTouch services get rolled out and mature, there is more high margin revenue growth potential on the horizon, which should reflect in earnings leverage going forward. As a result, investors may become more comfortable that there is room for the stock price to continue on an upward trajectory.
The packages are bundled as:
1. OnTouch(TM) Box Office - In-flight offerings of theatre, concert, theme park and attractions tickets associated with destination cities - purchased in the air. As previously disclosed, these currently include CityPass, broadway tickets, and Disney theme park tickets. Expect more partnerships to be announced throughout the year for this service.
2. OnTouch(TM) Ground Connections - In-flight offerings of airport transfers via taxi, bus, train, limo and more for a destination city. Currently there is a deal for Heathrow Express - although company officials believe that this service could be expanded to as many as 30 major cities by the end of the year. This appears to be the killer offering.
3. OnTouch(TM) Shopping & More - In-flight catalogue sales with home and/or destination delivery in a variety of product categories; As previously disclosed, this is offered through a partnership with SkyMall. Notably, GXI has also partnered on in-flight entertainment offerings with a carrier in Singapore.
4. OnTouch(TM) Minutes on the Go - In-flight offerings of prepaid phone cards, phone top-ups, rentals, and web connections; No partners have been announced yet.
5. OnTouch(TM) Concierge Everywhere - Personal itinerary management and destination-based travel updates and offers via mobile SMS and email. Partners could be announced soon.
The bundling makes it easier for passengers to understand the various value propositions, and also makes it easier for in-flight attendents to sell the services, for which they are re-inbursed through commissions. For the airlines, who are suffering from reduced capacity, these value-added destination services deliver more ancilliary revenue opportunity than would otherwise be unattainable without the bundled Guestlogix platform.
The company expects significant uptake for these offers because:
- for the most part, passengers would be spending money on destination travel services anyway, and OnTouch offers better convenience and less hassle at the destination - which actually improves the travel experience. This is not new spending that needs to be induced (like ordering another beer), it is simply disintermediation of a transaction that would otherwise need to be completed at the destination airport terminal.
- passengers can get access to destination events and entertainment that they may have not been able to access easily via alternative means once they land. For example, CityPasses are really valuable for tourists in major cities like Chicago, New York and Toronto, but they are hard to find on the ground.
There is evidence from Europe that passengers are willing to spend onboard if the products and services are offered to them. The company believes that for every $1.00 increase in revenue per passenger trip in North America represents approximately $16.5 million in additional revenue to Guestlogix. On a flight with 100 passengers, this would mean that only 3 or 4 passengers would need to purchase ground connection services, and only 1 or 2 would need to purchase a destination event ticket. Modest uptake should result in meaningful positive impact on Guestlogix financial performance. The current deployment with one major airline has performed ahead of expectations in terms of uptake and customer experience.
Investors should view this announcement as a significant positive step forward for GXI, especially considering that the current deployment appears to be going well. After announcing its most recent quarter, the stock experienced a significant step-up in price in early April, since then it has plateaued in the 90 cent range. As these OnTouch services get rolled out and mature, there is more high margin revenue growth potential on the horizon, which should reflect in earnings leverage going forward. As a result, investors may become more comfortable that there is room for the stock price to continue on an upward trajectory.
If only Guestlogix could find a way to reduce the time that it takes to get checked bags from the plane to the luggage carousel...travel would be civilized again. Notwithstanding, I can't wait to finally be able to bypass the taxi lineup.
Disclosure: I do not own shares of GXI.
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