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
Showing posts with label Product Announcement. Show all posts
Showing posts with label Product Announcement. Show all posts
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.
3/9/09
Active Control Technologies (ACT.V): Exploiting its Competitive Advantage?
Last week ACT announced that it was initiating a partner certification program for third-party applications providers. The intent of this program is to federate its extreme environment Wi-Fi network to third-parties in an effort to offer mine operators a level of functional extensibility that does not yet exist. The objective is to quickly and cost effectively leverage excess backhaul capacity to become a highly reliable, self-healing data backbone for maintenance, monitoring, process control, and mine automation applications.
As commodity prices continue to decline, improved production efficiencies could mean the difference between sustained production and a costly mine shutdown at some operations. Management at ACT hopes to leverage this reality.
At highly regulated mine operations, maintenance is an issue. If equipment breaks down, some operations will often shut down for as long as the equipment is non-operational. Real-time monitoring of preventative maintenance, and of maintenance engineers could dramatically improve operations. By some estimates, there could be up to a 20% production improvement in some mines by solving this issue. At large production facilities, a 3% to 5% improvement could have dramatic results on the financial performance of mine operations.
The Company hopes that its extension beyond emergency communications and tracking (as defined by the MINER Act) becomes a pronounced competitive differentiator as mine operators begin to select vendors later this year according to the legislated timelimes. The currently certified ActiveMine network offers significant data capacity advantages over other certified systems, and may be the only system to scale for add-on apps. The gross backhaul capacity of the ActiveMine data network is 54 Mbps with a throughput of 22 Mbps. Combined, the data requirements of voice and tracking applications leave 3/4 of the throughput unused. As a result, there is relatively vast amounts of unused available capacity for sensor monitoring, advanced video monitoring, and remote control applications. With packet prioritization algorithms, the effective capacity is probably a few percentage points higher. Its nearest competitive solution offers a fraction of the capacity - just enough for voice and tracking. The node certification by MSHA contemplates upgrades, which allows management to scale the backhaul throughput without significant future certification delays. Management plans to double throughput for future node upgrades.
To review, the Company has a backlog of approximately $6 million ready to deploy once the telephone devices have been certified by the Mine Safety & Health Administration (MSHA), and another $60 million in its gross sales pipeline. The factored pipeline could be worth between $15 million and $20 million right now. The promise of extensibility could increase closure probabilities on the current pipeline, which may imply an increase in the factored pipeline.
Depending on how terms are structured, the Company may be in a better position, with its new partner program, to increase recurring revenue streams. Based on its limited deployment experience to date, annual recurring revenue may represent between 20% and 25% of the deployed system cost for the life of a mine based on mine face movement and device replacement schedules. With properly negotiated contracts, ACT could benefit from higher future recurring revenue by charging access fees to the network, data fees, or a combination of both. It is unknown at this point whether ACT will charge for certification programs.
In of itself, the announcement could be discounted by investors waiting for final MSHA certification for the Wi-Fi phones. However, as a sales differentiator and potential recurring revenue engine, third-party certification could have longer term positive impact on margins, and it could help the Company compete for sales as coal mine operators select vendors. Clearly, the production monitoring and process control layer is highly appealing to mine operators that extract other commodities. We may finally see an increase in non-coal deployments as a result. If the Company executes reasonably well, it begins to head strategically in the direction of Ruggedcom (RCM.T), or Matrikon (MTK.T) both of which generate excess free cash flow.
The MSHA certification process has been excruciating. However, the Company has never compromised on data capacity, which presumably it could have to expedite certification. For those reasons it has the opportunity now to exploit unique competitive advantages in network capacity via third-party applications.
Disclosure: I currently own shares of ACT. I currently do not own shares of RCM or MTK.
As commodity prices continue to decline, improved production efficiencies could mean the difference between sustained production and a costly mine shutdown at some operations. Management at ACT hopes to leverage this reality.
At highly regulated mine operations, maintenance is an issue. If equipment breaks down, some operations will often shut down for as long as the equipment is non-operational. Real-time monitoring of preventative maintenance, and of maintenance engineers could dramatically improve operations. By some estimates, there could be up to a 20% production improvement in some mines by solving this issue. At large production facilities, a 3% to 5% improvement could have dramatic results on the financial performance of mine operations.
The Company hopes that its extension beyond emergency communications and tracking (as defined by the MINER Act) becomes a pronounced competitive differentiator as mine operators begin to select vendors later this year according to the legislated timelimes. The currently certified ActiveMine network offers significant data capacity advantages over other certified systems, and may be the only system to scale for add-on apps. The gross backhaul capacity of the ActiveMine data network is 54 Mbps with a throughput of 22 Mbps. Combined, the data requirements of voice and tracking applications leave 3/4 of the throughput unused. As a result, there is relatively vast amounts of unused available capacity for sensor monitoring, advanced video monitoring, and remote control applications. With packet prioritization algorithms, the effective capacity is probably a few percentage points higher. Its nearest competitive solution offers a fraction of the capacity - just enough for voice and tracking. The node certification by MSHA contemplates upgrades, which allows management to scale the backhaul throughput without significant future certification delays. Management plans to double throughput for future node upgrades.
To review, the Company has a backlog of approximately $6 million ready to deploy once the telephone devices have been certified by the Mine Safety & Health Administration (MSHA), and another $60 million in its gross sales pipeline. The factored pipeline could be worth between $15 million and $20 million right now. The promise of extensibility could increase closure probabilities on the current pipeline, which may imply an increase in the factored pipeline.
Depending on how terms are structured, the Company may be in a better position, with its new partner program, to increase recurring revenue streams. Based on its limited deployment experience to date, annual recurring revenue may represent between 20% and 25% of the deployed system cost for the life of a mine based on mine face movement and device replacement schedules. With properly negotiated contracts, ACT could benefit from higher future recurring revenue by charging access fees to the network, data fees, or a combination of both. It is unknown at this point whether ACT will charge for certification programs.
In of itself, the announcement could be discounted by investors waiting for final MSHA certification for the Wi-Fi phones. However, as a sales differentiator and potential recurring revenue engine, third-party certification could have longer term positive impact on margins, and it could help the Company compete for sales as coal mine operators select vendors. Clearly, the production monitoring and process control layer is highly appealing to mine operators that extract other commodities. We may finally see an increase in non-coal deployments as a result. If the Company executes reasonably well, it begins to head strategically in the direction of Ruggedcom (RCM.T), or Matrikon (MTK.T) both of which generate excess free cash flow.
The MSHA certification process has been excruciating. However, the Company has never compromised on data capacity, which presumably it could have to expedite certification. For those reasons it has the opportunity now to exploit unique competitive advantages in network capacity via third-party applications.
Disclosure: I currently own shares of ACT. I currently do not own shares of RCM or MTK.
1/29/09
10+2 and Descartes Systems (DSG-TSX)
Earlier this week Descartes Systems (DSG-TSX) announced that it has launched an electronic service for the new Importer Security Filing (ISF)10+2 customs filings regulations for the United States.
The 10+2 customs filing rule (10 data elements and 2 messages) is designed to help identify actual cargo movements and improve the accuracy of cargo descriptions. Expanded ISF descriptions are part of Department of Homeland Security’s (DHS) strategy to better assess and identify high-risk shipments to prevent terrorist weapons and materials from entering the United States. As well, the new descriptions help regulators trace product inputs to root manufacturers for product safety recalls (remember lead paint and toys?). The 10 data elements are:
Manufacturer (or supplier) name and address
Seller (or owner) name and address
Buyer (or owner) name and address
Ship-to name and address
Container stuffing location
Consolidator (stuffer) name and address
Importer of record number/foreign trade zone applicant identification number
Consignee number(s)
Country of origin, and
Commodity Harmonized Tariff Schedule number
Initially, the service is expected to be rolled-out to Descartes' current 4000 customers, and then bundled with current electronic services for new potential customers. Currently only 5% of documentation worldwide is handled electronically. As more Governments layer more regulation on the movement of goods, and as margins compress with a declining world economy, more shippers will be forced to switch from manual customs filing processes to electronic processes. As complexity increases, so do the costs of manual input. Increased regulation such as the 10+2 becomes increasingly positive for electronic messaging vendors such as Descartes Systems, especially in a weakened economy. Although 10+2 is a fairly major regulation, there are dozens more to be enacted over the next two years including EU harmonization. At one point soon, it may become impossible to manage shipping documentation manually.
As adoption of the service increases by its client base throughout the year, DSG revenue should increase by between $1.5 million and $2.5 million for FY2010 (C2010) and $0.01 incremental EPS or a 5% positive impact on forecasted earnings of between $0.20 and $0.23 EPS. By FY2011, the EPS impact should double to 10%.
However, the more interesting possibilities for Descartes Systems lie in bundling. As Descartes layers more electronic documentation services onto its distributed platform, it can offer compelling service bundling options for potential new clients that are difficult to compete with on pricing and scope . The bundling options would be similar to how cable companies bundle channel packages, internet access, and phone services to consumers.
In North America, the launch of the electronic 10+2 customs filing service could be a tipping point for Descartes Systems because it establishes a base for aggressive service bundling. If management executes effectively, then bundling strategies could have substantially more significant impact on performance than $0.01 EPS improvement in FY2010. Investors should be aware of this potential.
There is still a lot of gross margin leverage with this SaaS Company. Descartes Systems is well positioned to take advantage of some of the utility/cloud computing opportunities that are emerging, which should have a positive impact on network costs. Similarly, with a highly evolved and expansive normalized data taxonomy, it is well positioned to federate data flows with like-minded partners and extend its reach throughout the supply chain from point of procurement to point of sale. Such data integration could result in transaction based revenue sharing with gross margins nearing 100%.
Investor should take note of the launch of DSG's 10+2 custom filing service, because three years from now, it may be looked back upon as a key service launch in the evolution of the Company.
I do not own shares in Descartes Systems.
The 10+2 customs filing rule (10 data elements and 2 messages) is designed to help identify actual cargo movements and improve the accuracy of cargo descriptions. Expanded ISF descriptions are part of Department of Homeland Security’s (DHS) strategy to better assess and identify high-risk shipments to prevent terrorist weapons and materials from entering the United States. As well, the new descriptions help regulators trace product inputs to root manufacturers for product safety recalls (remember lead paint and toys?). The 10 data elements are:
Manufacturer (or supplier) name and address
Seller (or owner) name and address
Buyer (or owner) name and address
Ship-to name and address
Container stuffing location
Consolidator (stuffer) name and address
Importer of record number/foreign trade zone applicant identification number
Consignee number(s)
Country of origin, and
Commodity Harmonized Tariff Schedule number
Initially, the service is expected to be rolled-out to Descartes' current 4000 customers, and then bundled with current electronic services for new potential customers. Currently only 5% of documentation worldwide is handled electronically. As more Governments layer more regulation on the movement of goods, and as margins compress with a declining world economy, more shippers will be forced to switch from manual customs filing processes to electronic processes. As complexity increases, so do the costs of manual input. Increased regulation such as the 10+2 becomes increasingly positive for electronic messaging vendors such as Descartes Systems, especially in a weakened economy. Although 10+2 is a fairly major regulation, there are dozens more to be enacted over the next two years including EU harmonization. At one point soon, it may become impossible to manage shipping documentation manually.
As adoption of the service increases by its client base throughout the year, DSG revenue should increase by between $1.5 million and $2.5 million for FY2010 (C2010) and $0.01 incremental EPS or a 5% positive impact on forecasted earnings of between $0.20 and $0.23 EPS. By FY2011, the EPS impact should double to 10%.
However, the more interesting possibilities for Descartes Systems lie in bundling. As Descartes layers more electronic documentation services onto its distributed platform, it can offer compelling service bundling options for potential new clients that are difficult to compete with on pricing and scope . The bundling options would be similar to how cable companies bundle channel packages, internet access, and phone services to consumers.
In North America, the launch of the electronic 10+2 customs filing service could be a tipping point for Descartes Systems because it establishes a base for aggressive service bundling. If management executes effectively, then bundling strategies could have substantially more significant impact on performance than $0.01 EPS improvement in FY2010. Investors should be aware of this potential.
There is still a lot of gross margin leverage with this SaaS Company. Descartes Systems is well positioned to take advantage of some of the utility/cloud computing opportunities that are emerging, which should have a positive impact on network costs. Similarly, with a highly evolved and expansive normalized data taxonomy, it is well positioned to federate data flows with like-minded partners and extend its reach throughout the supply chain from point of procurement to point of sale. Such data integration could result in transaction based revenue sharing with gross margins nearing 100%.
Investor should take note of the launch of DSG's 10+2 custom filing service, because three years from now, it may be looked back upon as a key service launch in the evolution of the Company.
I do not own shares in Descartes Systems.
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