Actually, a small percentage of Qwest's (Q) 30,000 unit order have been reflected in Q1 results. We estimate that several hundred units were shipped ahead of the precursor DEFIMNET deployment, which was completed subsequent to quarter end. Even with a small number of shipments, revenue for the quarter jumped by 124% to $0.44 million from $0.19 million for the same period for the previous year.
Gross margins were reported at 73%, which Management believes to be a typical range going forward. This is good news for investors as the Qwest deployment begins to take off. Management expects that a vast majority of the Qwest's first order should be shipped by the end of the summer, with close to 10% of the order already shipped only three weeks subsequent to completion of the DEFIMNET roll-out.
An Interesting Market Development: The Swine Flu Pandemic has created more urgency among U.S. government agencies to get government employees set up to work from home. The TruOffice deployments on the DEFIMNET fits under several "emergency preparedness" initiatives that have become more prominent as the cases of Swine Flu have increased. Route1 should benefit from increased velocity of deployment, as well as from more potential demand from U.S. Government agencies thoughout the year.
Don't Forget Europe: The Company has had a couple of reference deployments operating in Europe for several quarters. Subsequent to Q1, we may see a marked increase in activity from Europe as governments in this region begin to deploy relatively significant numbers of units. There may be a possibility of regional distribution agreements (similar to Qwest) by the end of fiscal 2009.
Fly in the Ointment: The Company has reported a skinny balance sheet at the end of Q1, with $0.75 million and a high quarterly burn of over $1.4 million. Of the $1.4 million, approximately $0.5 million could be categorized as one-time expenses, leaving $0.85 million of operating burn. Notwithstanding, this presents forward risk. Offsetting the future burn is a portion of cash received from the approximately $2 million DEFIMNET deployment, along with cash received from the rolling Qwest purchase order. In the short-term Management will be required to manage cash diligently as shipments ramp.
Bottom Line: The Company is finally now in the middle of the ramp that investors have been waiting for patiently for many quarters. The new challenge is that growth will need to be managed with a skinny balance sheet.
Disclosure: I do not own shares of Qwest or Route1.
Showing posts with label Security. Show all posts
Showing posts with label Security. Show all posts
4/29/09
Route1 (ROI.V) Hits a Key Milestone.
Ealier today, Route1 announced that it has completed the deployment of the Defense Identity Management Network, (DEFIMNET) for the U.S. Department of Homeland Security. The total value of this platform is approximately $2 million. More importantly, this is a launch point to deploy TruOffice subscriptions.
In Jaunary, its exclusive government reseller partner, Qwest (Q.NYSE) Government Services inc, commited to deliver 30,000 Mobikeys and related TruOffice subscriptions during 2009. The total expected value of those subscriptions is expected to reach $8 million in year 1 and $5 million annually once the roll-out is completed. To put this into perspective, we estimate that to date, Route1 has deployed somewhere in the range of 4000 to 6000 subscriptions under various pricing models. The Qwest commitment is approximately 8x total historical deployments. Unlike in the past, the pricing for these subsciptions is set, making future cash flows more predictable than in the past, so shareholders should expect fewer downside surprises. With guaranteed free hosting by Quest Communications, the gross margins on the TruOffice subscriptions may reach over 90%, which is impressive.
Expect the Company to finally become break-even shortly, and to begin to generate free cash flow by 2010 based on reaching this important milestone (right on schedule). It is unlikely that Qwest will stop selling Mobikeys and TruOffice subscriptions to government agencies, so investors should expect the level of subscriptions to grow beyond 30,000 over the next several quarters, adding to free cash flow potential.
The market conditions appear favorable for more U.S. government agency subscriptions. The new U.S. administration has a stronger bias towards "green" initiatives, and reduced energy consumption. The security afforded by the DEFIMNET platform combined with Mobikeys and TruOffice subscriptions allows U.S. Federal Agencies of all levels of data security access to more easily and cost-effectively tele-commute. DEFIMNET/TruOffice aligns with President Obama's stated Agenda (which should reflect budget prioritization) in several areas including:
In Jaunary, its exclusive government reseller partner, Qwest (Q.NYSE) Government Services inc, commited to deliver 30,000 Mobikeys and related TruOffice subscriptions during 2009. The total expected value of those subscriptions is expected to reach $8 million in year 1 and $5 million annually once the roll-out is completed. To put this into perspective, we estimate that to date, Route1 has deployed somewhere in the range of 4000 to 6000 subscriptions under various pricing models. The Qwest commitment is approximately 8x total historical deployments. Unlike in the past, the pricing for these subsciptions is set, making future cash flows more predictable than in the past, so shareholders should expect fewer downside surprises. With guaranteed free hosting by Quest Communications, the gross margins on the TruOffice subscriptions may reach over 90%, which is impressive.
Expect the Company to finally become break-even shortly, and to begin to generate free cash flow by 2010 based on reaching this important milestone (right on schedule). It is unlikely that Qwest will stop selling Mobikeys and TruOffice subscriptions to government agencies, so investors should expect the level of subscriptions to grow beyond 30,000 over the next several quarters, adding to free cash flow potential.
The market conditions appear favorable for more U.S. government agency subscriptions. The new U.S. administration has a stronger bias towards "green" initiatives, and reduced energy consumption. The security afforded by the DEFIMNET platform combined with Mobikeys and TruOffice subscriptions allows U.S. Federal Agencies of all levels of data security access to more easily and cost-effectively tele-commute. DEFIMNET/TruOffice aligns with President Obama's stated Agenda (which should reflect budget prioritization) in several areas including:
- Technology:
- "Bring Government into the 21st Century"
- "Modernize Public Safety Networks"
- Homeland Security:
- "Protect Our Information Networks"
- Energy and Environment:
- "Reduce our Greenhouse Gas Emissions 80 Percent by 2050"
The stock should benefit from today's announcement. Is it a good entry point for investors? First of all, with approximately 400 million shares, there are a LOT of shares outstanding for a Company at this stage of development. The stock is highly liquid on a share basis, although the daily value traded is modest. It is unlikely now that the company will return to the market to raise more equity, so there is little chance that that the fully diluted share count will increase in the short-term. However, the capital structure could be a value impediment. Secondly, as the Company scales and becomes profitable, shareholders could see its market valuation align to similar recurring revenue technology companies that have reported one or two consecutive EBITDA positive quarters. Many of those Companies have experienced significant share price increases since March, and appear to be trading in the $30 million to $50 million range measured in terms of market cap. As ROI progresses, the market cap may reach similar levels once it begins to report positive earnings, which on a share basis, implies upside from current levels. However, the excessive shares outstanding creates inherent volatility. At current prices, a half a penny swing in the shareprice could mean up to a 10% swing in valuation.
I do not own shares of ROI.V or Q.
4/14/09
Why I Stopped Stumbling
Yesterday eBay (EBAY) announced that it was selling its StumbleUpon subsidiary to the original Founders for an undisclosed price.
When I first found StumbleUpon I became an immediate fan and downloaded the Stumble toolbar in 2006. I spent the next couple of years or so Stumbling throughout the nether recesses of the Internet. For me, StumbleUpon became my personalized art gallery and curiosity museum with millions of other Stumblers acting as curator. It was a lot of fun, bordering on addicting.
As a Canadian start-up in the social networking space, StumbleUpon began to attract interest from Investment Bankers sniffing out IPO fees by the end of 2006. It came as a moderate surprise that eBay (EBAY) offered $75 million to buy the Company outright in 2007.
From the beginning, the acquisition appeared to make little sense. There was not much alignment between Stumblers and eBay buyers and the StumbleUpon toolbar as recommendation engine seemed far too random to be leveraged commercially by Power Sellers. Maybe with a few tweaks, eBay management envisioned a social competitor to Google (GOOG). Whatever the monetization strategies forward were for eBay, it was background noise as I continued to Stumble, installing the toolbar on nearly every computer that I used regularly.
And then it happened. One fateful evening during the spring of 2008 I Stumbled and fell into a vicious malware trap that became an expensive nightmare which put my home network out of commission for nearly two weeks and cost several hundred dollars in real money to clean up the mess. The attack was clearly designed for StumbleUpon. As soon as the Stumble button was clicked, the browser was highjacked and the malware was loaded. The attacker had gamed the system so that the malware became a recommended site. How many other Stumblers were attacked?
I was furious that StumbleUpon, or eBay for that matter, would allow itself to be a security threat. I attempted to contact customer support at both eBay and StumbleUpon with no luck. I left lengthy emails explaining the exact conditions by which I was attacked. No response. I requested information regarding StumbleUpon security policy. Silence.
As my malware event unfolded I stopped Stumbling. And then I uninstalled the trail of Stumble toolbars that I left on unsuspecting computers. To me the Stumble toolbar was a gateway to malware. A security threat. Gone.
In my mind, eBay has spent a lot of capital buying technology that carries intrinsic security risk. The security risks associated with Skype are well known to the point where many in the VoIP telephony segment deride Skype as the "terrorist telephone network" due to its inherent lack of traceability. Paypal? I have an account that I do not use any more because I associate eBay with security risk. Paypal may be very safe, but due to my history with eBay I am not interested in risking my funds with any of its subsidiaries.
Maybe a response to my inquiries from eBay or from the StumbleUpon subsidiary would have eased my concerns about security and possibly saved me as a client. But nothing happened.
With Garrett Camp and his team now buying back StumbleUpon (likely at a fraction of its original purchase price), maybe the Company can regain its mojo as it unshackles from eBay. Maybe somebody there will finally call me back and ensure me that the Stumble button is no longer a security threat. In the meantime, I remain a retired Stumbler.
When I first found StumbleUpon I became an immediate fan and downloaded the Stumble toolbar in 2006. I spent the next couple of years or so Stumbling throughout the nether recesses of the Internet. For me, StumbleUpon became my personalized art gallery and curiosity museum with millions of other Stumblers acting as curator. It was a lot of fun, bordering on addicting.
As a Canadian start-up in the social networking space, StumbleUpon began to attract interest from Investment Bankers sniffing out IPO fees by the end of 2006. It came as a moderate surprise that eBay (EBAY) offered $75 million to buy the Company outright in 2007.
From the beginning, the acquisition appeared to make little sense. There was not much alignment between Stumblers and eBay buyers and the StumbleUpon toolbar as recommendation engine seemed far too random to be leveraged commercially by Power Sellers. Maybe with a few tweaks, eBay management envisioned a social competitor to Google (GOOG). Whatever the monetization strategies forward were for eBay, it was background noise as I continued to Stumble, installing the toolbar on nearly every computer that I used regularly.
And then it happened. One fateful evening during the spring of 2008 I Stumbled and fell into a vicious malware trap that became an expensive nightmare which put my home network out of commission for nearly two weeks and cost several hundred dollars in real money to clean up the mess. The attack was clearly designed for StumbleUpon. As soon as the Stumble button was clicked, the browser was highjacked and the malware was loaded. The attacker had gamed the system so that the malware became a recommended site. How many other Stumblers were attacked?
I was furious that StumbleUpon, or eBay for that matter, would allow itself to be a security threat. I attempted to contact customer support at both eBay and StumbleUpon with no luck. I left lengthy emails explaining the exact conditions by which I was attacked. No response. I requested information regarding StumbleUpon security policy. Silence.
As my malware event unfolded I stopped Stumbling. And then I uninstalled the trail of Stumble toolbars that I left on unsuspecting computers. To me the Stumble toolbar was a gateway to malware. A security threat. Gone.
In my mind, eBay has spent a lot of capital buying technology that carries intrinsic security risk. The security risks associated with Skype are well known to the point where many in the VoIP telephony segment deride Skype as the "terrorist telephone network" due to its inherent lack of traceability. Paypal? I have an account that I do not use any more because I associate eBay with security risk. Paypal may be very safe, but due to my history with eBay I am not interested in risking my funds with any of its subsidiaries.
Maybe a response to my inquiries from eBay or from the StumbleUpon subsidiary would have eased my concerns about security and possibly saved me as a client. But nothing happened.
With Garrett Camp and his team now buying back StumbleUpon (likely at a fraction of its original purchase price), maybe the Company can regain its mojo as it unshackles from eBay. Maybe somebody there will finally call me back and ensure me that the Stumble button is no longer a security threat. In the meantime, I remain a retired Stumbler.
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