Trakm8 Share Discussion Threads

[nod] 25/9/2017 22:34

michaelmouse: "Clearly cashflow is more of an issue for trakm8 initially since they have to stump up the costs and wait several months before they've got their money back."I think the issue is that it will take longer than several months to recoup the cost plus a margin.Let's say a unit sells for $120. The customer treats this as a capital cost over say three years. This is based on the expected life of a product. A desktop PC may be capitalised over 3 years. I would imagine these units are similar.With the SaaS model, it's an operational expense (like a lease) for the customer. TM8 may spread the unit cost over two years at say $5 per month, so the customer is paying more over three years but does not have to stump up the cash upfront.TM8 may offer upgrade incentives and charge $10 per month. The customer would pay three times the unit price over three years but has the flexibility of being able to upgrade the hardware next year.It would impact TM8 cashflow for at least one year and possibly two years. It can tie customers in if they don't have to find Capex.

[bhxian] 25/9/2017 21:37

For what it is worth the view that I hold is that the board are very happy to understate their progress, not only in technological terms, but also, in market development terms.This lowering of expectation allows them to continue the inexorable increase in installations -in the full knowledge that come 2-3 years they will have provided the right business proposition for a very much larger entity both as a partner and major shareholder- with resources sufficient for them to escalate their electric vehicle ambitions (in transport) and a brand/product extension strategy to wider uses of the technology evidenced by some of the applications referred to in blondeamans' excellent note.

[michaelmouse] 25/9/2017 20:29

I nearly always try to look at some sort of margin of safety when investing.

With trakm8 I'd say the margin of safety is how attractive it would be to a much larger company wishing to enter this arena.

Consider their client list and the ever expanding number of devices that trakm8 have installed. Imagine how attractive that would be to a predator. They could quite easily cut costs substantially and then pick up significant high margin recurring revenues.

I'd prefer trakm8 to build significant scale first but even at this stage then I believe a potential buyer would pay a very significant premium for the company.

From last year's report John Watkins said this:-

"However, the Board notes that recent corporate consolidation has valued target companies on the basis of revenue and installed base, rather than on profitability and cash flows, such is the growth profile of the telematics industry."

Which appears to confirm the above, and why trakm8 are concentrating on acquiring quality clients and significantly building their installed base. 

[michaelmouse] 25/9/2017 20:07

I've a feeling some don't want to grasp the concept blondeamon ;)

[blondeamon] 25/9/2017 20:05

That's exactly what it is, I don't know why some people cant' grasp it. Basically once you break even and for the remainder of the contract it's free money. The more devices the more recurring revenue and so on.

SaaS is not a choice, they were forced to switch as no client likes to pay upfront and all competitors have now SaaS too. If you don't you lose clients.

I don't mind it actually, with SaaS renewals are much easier as the client doesn't have to find a huge sum of money every few years and there are great retention rates as they'll probably not bother to search again for another provider if they can just stay where they are.

With the old model they'd have to pay upfront cash again, making them more likely to shop around. In any case, they won't find a better product in the market now anyway so SaaS or no Saas shouldn't be a problem.

[michaelmouse] 25/9/2017 19:48

Emptycup - Not sure I follow your argument?

However, here's my understanding, but I'm quite happy to be corrected if wrong.

Prior to their SaaS model, I think that Trakm8 charged an upfront fee to customers for the hardware and other associated costs. They then billed an ongoing monthly subscription fee for each device. Since the client is covering the costs of the set-up then cashflow is not an issue or certainly far less of an issue.

In a SaaS model, there isn't a set-up fee and a larger fixed monthly fee will be charged from the off. Clearly cashflow is more of an issue for trakm8 initially since they have to stump up the costs and wait several months before they've got their money back.

In each model the recurring revenues from monthly fees eventually begin to generate profit, cashflow and higher margins the longer they are installed.

With the SaaS model, every time they bring a new client on board then there is a lag between installing the devices and waiting for them to become cash generative (or should I say get their cash back). Hence the timing of major projects is critical since trakm8 are stumping up their cash to begin with.

However, as the client base grows over time then sufficient cash flows will be generated from existing installed devices to cover the costs of bringing additional clients on board.

Clearly last year the delayed contracts had a major impact on cashflow. It should be less of an issue in future years.

I may be wrong but this is my understanding, and hence if major contracts continue to be won then eventually they will have very significant recurring revenues and growing margins. This in turn gives high visibility over future earnings.

I may be wrong of course but we shall see as time progresses.

[axdelta] 25/9/2017 18:57

The associated costs with manufacturing a device, dealing with faults and upgrades can leave very low margins. The MI gathered from the devices can be packaged up and sold and this is where the money is. Not sure how far Trakm8 has penetrated this market of cash for information.

[emptycup] 25/9/2017 18:30

michaelmouse: 'Longer term though, those recurring revenues and margins that you've mentioned suddenly show a totally different picture, and the high visibility of earnings and cashflows going forward become highly attractive.'

Might be missing something?

They bake the h/w and install into a 3 or 5 yr model. That's no different to upfront Year 0 + 3 yrs subs surely? Issue with this is that they have to finance the kit over the term - so cashflow is hit. Work harder to keep still and is what I can see from this.

In the traditional fleet tracking vertical they have no choice, but for integrated systems where you have the opportunity to charge for professional services, then there is a real chance to gain. But, I don't see much evidence of projects that help bring the cash to the front of the project.

More of the same...

Trak has to justify the growing overhead - look at the vacancies highlighted earlier. Show revenue by business unit and a clear strategy or we'll be trying to hit all the targets rather than right-sizing to the largest.

[lukead] 25/9/2017 15:32

And of course do look at Michaels blog, could have a share price of £10 to £20 in a few months time, just need those orders to actually make some dosh, just think 80 to 2000, Michaels Blog, it's all there for everyone one to see.

[michaelmouse] 25/9/2017 14:11

Yes I'd imagine that eventually solutions sales will make up an even larger percentage of total revenues.

[blondeamon] 25/9/2017 14:07

The hardware is not paid separately, you still only pay a monthly Fee and that is covering the hardware.

So Trakm8 will cover the cost of it until we get that cash back.

These days Products sales is only standalone RoadHawk cameras and nothing else. IMO it will be far below 20% in the next updates as we stopped doing CEM contracts to Microlise.

[michaelmouse] 25/9/2017 14:03

True but product sales made up just 20% of total sales in the last reported results (£5.5m).

[axdelta] 25/9/2017 13:50

Trakm8 is not strictly SaaS as it manufactures hardware as part of the service.

[axdelta] 25/9/2017 13:50

Trakm8 is not strictly SaaS as it manufactures hardware as part of the service.

[michaelmouse] 25/9/2017 12:40

Succinctly put blondeamon. That's why trakm8 should be looked at as a medium to long term investment.

The full benefits of a SaaS model get better and better as the months roll on by and trakm8 are signing up large clients and renewing contracts. The downside is that the cash can get tight initially as we've already witnessed.

Longer term though, those recurring revenues and margins that you've mentioned suddenly show a totally different picture, and the high visibility of earnings and cashflows going forward become highly attractive.

[blondeamon] 25/9/2017 12:21

Thank you all for your kind words.

@dc2:All new contracts now use the SaaS model, which means that when a contract is signed there is no lump sum payment but the client pays in monthly installments. So if Mecalac bought 2000 devices then Trakm8 will have to build them and install them from their own pocket/cash reserves. To break even the cost the first 1-2 months would need to pass then after that it's pure profit.

Majority of contracts are 3-5 years in duration so the earlier it's booked the better it is. All these new contracts were either booked in last weeks of last FY or start of this one so they will have a slightly positive impact for the half year and a much greater impact on the full year and years after that.

Once a device is installed and broke even, we keep collecting a nice monthly fee until the contract runs out. Usually they just renew as well so margins can reach 90%+ on devices installed older than 6 months.

That is why I believe all these contracts will have a nice impact on November and for the full year it will be even better as always. If you heard that telematics companies are weighted more against the second half that is the reason why.

[dc2] 25/9/2017 09:30

I agree with michaelmouse, a good (and brave) write up. I do have a question (possibly a naive question) though. If Trakm8 missed their target because contracts slipped into the next year then how many of them relate to the previous year and how many are new? In other words, assuming all contracts were booked to their respective years then how are they doing so far this year.

[michaelmouse] 24/9/2017 19:49

Excellent article blondeamon. Whilst bullish overall, I like the balance in your report. An investment in a small/micro cap company is never risk free, but when they do pay off it can be spectacular. I share your optimism.

[blondeamon] 24/9/2017 19:15

My post in Stockopedia on Trakm8:

[knowbodyyouno] 24/9/2017 12:07

I'd be surprised if the share price reaches those heights. However, I do recall it reaching £4 a couple of years ago but let's see. What we need is consistency in the form of hard numbers and and contract wins.

I topped up on Friday, as I believe we won't fall much below current lows and I also (going by the recent trading update) have faith that Nov's numbers will be pretty solid.

As always DYOR.

GLA

[lukead] 22/9/2017 14:42

Don't worry Nod, if you believe MICHAELMOUSE's blog, this share will be worth £10/£20 next year, I'm sure if you private message him, he will be delighted to give you his reason for this hoped for lofty share price projection. Currently 80p to buy, interesting?????

[nod] 21/9/2017 22:43

From 110p to 80p in three months. There's not a lot of market confidence in the profits being generated. Unless the Interims are really good it may drift down for another nine months.The departure of the Finance Director must have been known on 4 July, as he was not awarded any options.It seems unusual to move the finance team from head office to the manufacturing facility in the West Midlands. It's not made clear whether the FD left because of a relocation. It would help allay fears and rumours if the company explained simple things to its shareholders.

[blondeamon] 21/9/2017 20:42

From the in-company recruiter at Trakm8:

"Current Trakm8 Vacancies:

Computer Vision Scientist - Coleshill
Big Data Scientist x2 - Shaftesbury
Systems Test Engineer - Shaftesbury
Technical Architect - Coleshill
Junior Software Engineer - Coleshill
Salesforce Arch/Dev - Coleshill
Sales Administrator - Coleshill
Applications Engineer x4 - Coleshill
Vehicle Software Engineer - Coleshill

If you have relevant experience/skillset for any of the above roles please get in touch for more info. "

The sheer numbers of engineers needed is amazing, from Computer Vision to Big Data scientists. The company is expanding rapidly, there must huge demand if they are hiring so aggressively again after being so careful with costs biting into profits last year.

[blondeamon] 21/9/2017 19:23

Glad to see her advancing her career and making connections with the company's money. I wonder if they got any money from all those projects RM is involved with governments.