Canada Day 2009 Week In Review - Guestlogix (GXI.V)

While I was relaxing on the dock, not many meaningful announcements were made during Canada Day week (surprise!).

On July 2, 2009 Guestlogix reported results for Q2, 2009 with sales of $4.6 million up 150% from Q2 2008 sales of $1.8 million. More significantly, it reported positive net income of $.03 million or 0.00 EPS. The company has 824 million passenger trips under contract with 563 million deployed and generating revenue. With recurring revenue averaging around 90%, contractual minimum guarantees, and a substantial install base, investors should consider future revenue streams to be more predictable than in previous reporting periods for this company. The company reported $1.5 million in monthly revenue for May, inferring a forward 12-month baseline of $18.0 million excluding new deployments or the expansion of its OnTouch merchandising platform. With monthly operating expenses in the $1.2 million range, 12-month EBITDA baseline could track to approximately $4.0 million, assuming that the Company continues to manage its expenses.

With the recent introduction of its OnTouch merchandising platform, and a couple of key pilots soon going into production, investors should start to see a steady increase in commission-based revenue on higher priced items sold onboard. As the company rolls these services out, associated revenue streams should begin to be reflected in accelerated EBITDA and net income margins during future reporting periods, even as total revenues increase. Investors could see GXI exit FY2009 with a baseline monthly revenue stream nearing $2.0 million.

Since tripling from its lows of early April during a 10-day period, the share price has more or less traded in a range near $0.90 on low volumes. Since reporting its first net income quarter last week, volumes have increased and the stock is beginning to nudge $1.00. The stock is trading at approximately 48x TTM EBITDA, and 13x FTM baseline EBITDA. As the Company deploys the remainder of its passenger trip backlog over the next 3 quarters and begins to roll-out merchandising services, the baseline EBITDA forecast should be positively impacted, decreasing the forward EBITDA multiple.

Guestlogix has attained a net income inflection point without the earnings benefit of some of its more powerful merchandising programs, which should be launched later this year. Investors should see accelerated earnings over the coming quarters as a result.

Disclosure: I do not own shares of GXI