TRAKOPOLIS IoT Corp.
(TSX.V – TRAK)
The Howard Group – A Perspective & Introduction
By Dave Burwell & Grant Howard
January 17, 2017
The Internet of Things is real, growing faster than most people can appreciate and opening a vast array of opportunities for companies focused on providing asset tracking and solutions for business. Enter TRAKOPOLIS with a long list of key investment considerations.
- The company has an established presence in the burgeoning “Industrial Internet of Things” space
- Agnostic Intellectual Property – works over multiple carrier networks and devices
- F2016 (June 30) revenue – $4.75 million from 340 customers in 13 countries (in process of being changed to a calendar year end)
- Management objective – $10+ million run rate as of Q4 calendar 2017
- Recurring revenue represents 70% of total revenue
- $4.3 million in the bank – $0.185/share
- Management believes current cash will take TRAKOPOLIS to cash flow positive – early 2018
- Tight share structure – 23.1 million shares issued
- Insider ownership – 14% fully diluted
- Management performance shares (total 1.8 million) tied to reaching $25 million and $50 million in sales
- Honeywell recently commercially launched ConneXt Lone Worker with TRAK software
- Other partners and customers include Bell, Telus, Microsoft, Canyon and Canfor
- Electronic Logbook software acquisition opens up a massive market opportunity
- Focus on rapid sales expansion through large channel partners and expanding direct sales team
- Strong and experienced management and Board of Directors
- Attractive valuation compared to TSX Venture “IoT” peer companies
Hot Focus in Tech – The “Internet of Things”
Since 2014, the “Internet of Things” (IoT) has been a growing topic of conversation in the tech world, but the real opportunity is not on the consumer side but with “enterprise”. Businesses are willing to pay, consumers not so much! What exactly is the “Internet of Things” and what impact is it going to have on the world?
The world is becoming more and more connected to high-speed internet; costs are coming down and more devices are being created with Wi-Fi and Bluetooth capabilities and sensors. Technology costs are going down and smartphone penetration is surging. All these things can be considered a perfect storm for businesses that saw the coming wave and were early movers into the IoT space.
According to Wikipedia, “The IoT allows objects to be sensed and/or controlled remotely across existing network infrastructure, creating opportunities for more direct integration of the physical world into computer-based systems, and resulting in improved efficiency, accuracy and economic benefit.”
From an enterprise’s perspective, merging telecommunications with real-time information leads to connectivity and visibility, which creates and enhances business intelligence and better-informed decision making. This is also referred to as “Industrial Internet of Things.”
According to GE Digital, investment in the Industrial Internet of Things will reach $60 trillion by 2030 with over 50 billion assets, machines, equipment, turbines, rolling stock, etc. – connected to the internet.
arc. Applause.com, June 2016
First, Trakopolis is a Software as a Service (SaaS) company. It has:
- Proprietary solutions
- Software that is cloud-based
- Real-time asset tracking
- Technology that gathers and analyses data
- Software that works across a variety of carrier networks and devices
And ultimately, makes its customers more productive in the management of corporate assets such as equipment, devices, vehicles and people.
TRAKOPOLIS is a new entry to the public scene, as it only began trading on the TSX Venture Exchange on November 1st, 2016 following CANhaul Internationals’ Reverse Takeover (RTO) of Lateral Gold Corp. However, the corporate entity was established in 2007. CANhaul International officially changed its name to TRAKOPOLIS during the RTO process.
The company had an oversubscribed go public financing, raising $5.75 million at $1 per share.
It is important to note that over the course of its private history, management raised approximately $14.7 million. Much of that came from friends and family of the management team and individuals in the Grande Prairie area of Northern Alberta.
What stands out is that much of the equity that was issued over the course of time to investors, employees and management ranged between $1.05 and $1.50 per share. Also, the major shareholders of Lateral Gold participated in the $1 financing and holders of $1.2 million in shareholder debt (except $275k) converted to equity at the $1 preferred share offering.
Following the Lateral 4 for 1 stock consolidation and completion of the go public financing, CANhaul shareholders owned approximately two-thirds of the new company.
The Howard Group spoke with a key Canaccord investment advisor who was instrumental in the structuring and go public financing. It’s clear there is substantial behind the scenes support for not only management, but the business direction. He emphasized that the average cost of the stock held by management, employees, private company shareholders and the go public financing participants is well above the current trading price.
With the stock trading in the $0.70 range as of this writing, very few shares are “in” or “near” being in the money.
“TRAKing” the Company Revenue
As displayed in the above chart, in Q2 and Q3 of 2015 revenue spiked due an enterprise sale of $1.1M in hardware. The revenue from this deal was received over the two quarters. At that time, oil and gas prices slowly started to erode and some customers went under. As a result many TRAK assets were idle while other subscriptions were adjusted to lower maintenance pricing. These subscriptions are anticipated to come back online as activity in the energy sector increases.
Proactively, through fiscal 2016 the company focused on diversifying customer base away from oil and gas, and was able to stabilize revenues. To unabashedly quote Bruce Lee, “To hell with circumstances, I create opportunities,” which is exactly what happened as TRAK’s sales efforts are now concentrated on eight industries such as forestry, transportation, mining, gas detection and insurance.
The necessary shift in sales efforts has paid off as in the past two years the company has gone from 55% of sales attributable to the energy sector, to today’s current situation, where 36% is derived from energy.
Partners and Customers
The TRAKOPOLIS solution is relevant to many verticals. The company currently sells to nine verticals in North America; Oil & Gas, Forestry, Transportation, Urban Services, Construction, Rental, Mining, Government and other.
TRAKOPOLIS has key partnerships in gas detection and insurance that extend the addressable market and expand ROI for customers.
Massive Growth Opportunities
In February 2016, TRAKOPOLIS partnered with Honeywell Analytics to integrate its software solutions to provide location based services with Honeywell’s existing Wi-Fi enabled gas detector. In short, Honeywell required real-time and historic gas alarms that tracked the location of all workers, check-in/check-out functions, and provided mobile connectivity out of cell range.
Trakopolis and Honeywell have created ConneXt Lone Worker.
After a year-long development and beta testing, the product is ready for a commercial launch in Q1 2017 and is currently being field tested by a major U.S. corporation and several other entities in both oil and gas and utilities.
According to TRAKOPOLIS management, the launch will start in North America, and Honeywell will ideally expand the sales effort to “the globe”.
Fleet Management Software
Recently, TRAKOPOLIS purchased Calgary-based Verigo’s Electronic Logbook (ELOG) software assets. This strategic move instantly allows TRAK to penetrate the massive fleet management space.
ABI Research predicts total global subscribers to commercial telematics or fleet management will reach 59 million users by 2021. “The spike will see fleet management hardware and recurring commercial telematics subscription revenues generate double-digit growth across many regions and businesses, like last mile deliveries, with fleet management system revenues to exceed $22 billion by 2021.” Click here to view article.
According to the news release dated November 14, 2016, “ELOG capability provides Trakopolis with a complete platform to allow fleet operators to comply with the FMCSA’s (Federal Motor Carrier Safety Administration – U.S.) announced Electronic Logging Device (ELD) mandate in the United States, which is expected to come into effect in 2017. The Company expects a similar requirement in Canada to follow. The ELD mandate requires commercial vehicle drivers that are required to keep Records of Duty Status (RODS) logs to transition to ELOG-based records over the two-year transition period beginning in December 2017.”
The new ELOG solution will be sold as an add on feature to the TRAKOPOLIS solution offering and increase average revenue per unit. Management expects ELOGS to contribute significantly to revenue growth through 2017.
The industry (including TRAK) typically charges approximately $15 per truck or driver for use of this type of product and with its ELOG technology TRAK is generating 65% margins. There are already two resellers in place, who are actively working with TRAKOPOLIS to sell the product.
The Case for TRAK’s Future Valuation
The company has a number of comparables in the marketplace to consider. As of this writing TRAKOPOLIS’ market cap is $16 million and its annualized revenue based on Q1/F17 (Sept. 30) is just over $5 million. According to the company’s corporate presentation, it is management’s objective to achieve a revenue run rate in excess of $10 million by Q4 of this calendar year.
Management has expressed that there are a number of contributing factors required in order to achieve the above objective. These include Honeywell sales of ConneXt Lone Worker, adoption of the ELOG product enhancement and the new sales representatives winning large deals from the enterprise segment of the numerous verticals they service.
Based on these numbers, the stock is trading at 3X annualized last quarter results and 1.6 X forecast Q4 annualized revenues. In addition, the company is sitting on $0.185/share in cash or approximately 25% of its market value.
There are several companies that can be used as comparisons to TRAK for the discussion of valuation as of the date of this writing. The below descriptions are taken from respective company profiles and last reported financial information.
TrackX – TSX.V: TKK
TrackX provides cloud-based asset tracking solutions for supply chain and logistics intensive businesses. Headquartered in Denver, Colorado, TrackX’s patented platform combines support for multiple auto-ID technologies, workflow, event management, alert notifications and analytics to deliver significant value to its customers.
Market Cap – $ 21 million (55.68 million shares issued)
Trailing 12 month revenue based on last reported quarter – $1.3 million
Revenue to market cap – 15x
Blackline Safety – TSX.V: BLN
Blackline helps businesses manage the most efficient evacuations and emergency responses to safety and health incidents in the workplace. Behind each of our groundbreaking innovations is a strong team of designers and engineers with millions invested in technology research and development. They are agile and capable, developing and manufacturing everything in-house from wearable safety technology to cloud-hosted monitoring software.
Market Cap – $83 Million (28.5 million shares issued)
Trailing 12 month revenue based on last reported quarter – $7.6 Million
Revenue to market cap – 11X
BeWhere – TSX.V: BEW
BeWhere is an Industrial Internet of Things (“IIOT”) solutions company that designs and manufacturers hardware with sensors and software applications to track real-time information on movable assets. The company develops mobile applications, middleware and cloud-based solutions that stand-alone or that can readily integrated with existing software.
Market Cap – $18.7 million (49.3 million shares issued)
Trailing 12 month revenue based on last reported quarter – $166 Thousand
Revenue to market cap – 115X
Industry Mergers and Acquisitions
Larger players are acquiring companies that are in fleet management and the Internet of Things space.
As a recent example, in November 2016, Verizon acquired NYSE listed Fleetmatics for $2.4 billion or $60 per share . As described in the news release “Fleetmatics brings to Verizon more than 42,000 customers, approximately 826,000 subscribers, a broad portfolio of industry leading products, and a team of 1,200 professionals focused on solving the critical challenges of businesses that deploy mobile workforces.”
Certainly, TRAK is quite a distance from Fleetmatics, as its revenues were around $80 million (USD) per quarter with healthy margins at the time it was acquired, but it speaks to the point that there is a sizeable and growing market and companies are willing to pay up to secure healthy recurring revenue streams. Fleetmatics EBITDA margins were in excess of 30%. Verizon paid just over 8X revenues.
In November, Board member Tracy Graf purchased shares at $1 in the open market, which was the pricing on the go-public financing in which Mr. Graf was also a participant. He subsequently purchased stock on December 21st and December 22nd, both at $0.62.
Other members of the board recently purchased shares in the open market,, Christopher Burchell purchased shares at $0.65 on December 13th and Gil Sonnenberg purchased shares at $0.60 on December 29th.
Brent Moore – CEO
Brent founded TRAKOPOLIS in 2007. He is a successful entrepreneur who has assembled an innovative team of professionals to capitalize on the Internet-of-Things revolution. Brent focuses on marketing, business development and strategy.
Richard Clarke – CFO
Richard focuses on TRAKOPOLIS’ corporate strategy, financial performance and capital management. He also implements and manages a well-rounded evolving financial strategy that encompasses operating, investing, and financing activities for the company.
Ted Duffield – CRO
Ted is a results oriented sales executive directly responsible for overseeing, sales, marketing,
pricing, and revenue management. As a growth-oriented leader, Ted creates and delivers a revenue generation strategy that focuses on creating a world class TRAKOPOLIS buying experience.
Laine Hotte – CTO
Laine is a respected technology expert leading the TRAKOPOLIS R&D team. Laine helps reach objectives through cross-company engineering initiatives and collaboration. He additionally supplies effective technical guidance to our web application and enterprise infrastructure teams.
Board of Directors
Brent Moore – President, CEO and Director
Founder and leader since 2007. Serial entrepreneur
Paul Cataford – Director
Co-founder and CEO of Zephyr Sleep Technologies. Professional independent director at Sierra Wireless – SW TSX
Frank Turner – Director
Partner at Osler, Hoskin & Harcourt LLP. Practices in mergers, acquisitions, dispositions and strategic alliances
Cameron Olson – Director
Chief Financial Officer of Calgary Sports and Entertainment Corporation. Substantial public company experience
Gilbert Sonnenberg – Director
Experienced and respected leader within the Financial industry. Co-founder and Chief Officer of I Want wireless.ca Ltd.
Chris Burchell – Director
Strategic business and finance consultant. Previously Managing Director, Investment Banking, for Cormark Securities.
Anthony Dutton – Director
Seasoned public company consultant and director.
Writer’s note: The Howard Group (HG) worked with IBC Advanced Alloys for 2+ years on its capital markets communication program.
Tracy Graf – Director
CEO and President of Carfinco Financial Group Inc. Director of three other TSX.V listed companies.
Writer’s note: The Howard Group (HG) has had the pleasure of working with several companies Mr. Graf lead or as a board member and investor.
- HG managed and oversaw the capital markets communications program for dividend payerCarfinco Financial for 5+ years. Under Mr. Graf’s leadership, we saw the shares rise from $1+ to its buy-out by Santander Bank (Spain) at $11.25 per share.
- HG assisted Less Mess Storage in securing necessary financing to become a public entity, which was then acquired 14 months later at a 44% premium to its IPO. Mr. Graf was a board member and investor.
- HG, over a three year period, managed and oversaw the capital markets communication program for Lonestar West, which saw its stock price rise from $0.60 to over $4, market cap increase from $9 million to $90 million and more than $35 million raised. Mr. Graf is a member of the board and an investor
One may wonder why the stock is trading in the $0.70 range when the average per share cost for management, employees and investors is much higher than the current market price. Potential investors may also be thinking this scenario doesn’t make sense especially when you consider what has been accomplished combined with the forecast growth profile.
It’s no secret that in an RTO situation, some people end up with “cheaper” stock and don’t want or care to do anything but move on. Since trading started last November, it certainly appears some of the $0.36 per share (post consolidation) has been finding its way to the market.
Since trading began, a little more than a million shares has changed hands with Canaccord accounting for more than half the buying and the dreaded “Anonymous” accounting for more than half the selling.
We are told by investment advisors very close to the situation that the major Lateral Gold shareholders, who also participated in the $1 per share financing have been buyers, not sellers.
What this is pointing to is that the “market for the stock” is tightening, which is positive. Now it’s a matter of the market in general becoming much more aware of TRAKOPOLIS, what it has done, and gaining an understanding of where it is going.
Some people will look to be buyers today and some will choose to take a wait and see approach while tracking management’s progress.
There is no doubt that the Internet of Things is real and a hot topic in the world of technology.
TRAKOPOLIS isn’t a start-up. Management already has some bruises from the commodity crash and thus charted a course to client diversification while solidifying relationships with well-known corporations.
The company is properly positioned for manageable but accelerated growth as entities embrace embedding technology into assets.
TRAKOPOLIS has an excellent share structure, is cashed up with over $4 million in the bank, and management believes it will achieve and surpass cash flow break-even with the financial resources on hand.
In short, there is no requirement for equity unless an acquisition opportunity arises.
Another plus to consider is that the presence of Honeywell and others will become much more evident throughout 2017.
It’s very difficult to find a reason why someone wouldn’t look very hard at TRAKOPOLIS!
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