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Research on BeWhere Holdings $BEW

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BeWhere Holdings (BEW.V / BEWFF) Write-Up

Company name: BeWhere Holdings
Stock symbol: TSXV: BEW / OTCQB: BEWFF
Stock price: CAD$0.32
Shares outstanding: 51.5M
Market cap: $16.11M
Basic insider ownership: ~36%
Forward 2018 P/S: 3.75x
Forward 2018 P/E: 25x

Intro:

BeWhere is an Industrial Internet of Things (“IIoT”) solutions company that designs and manufactures hardware with sensors and software applications to track real-time information on movable assets. It was founded in mid-2015 by seasoned entrepreneurs Owen Moore and Chris Panczuk, and is expected to be on an impressive $1.1M revenue run-rate in Q4 2017. Management has accomplished a great deal in the 2 years since the company was founded. They’ve designed and manufactured two IIoT products, have gotten two large contracts with big name clients (a worldwide armoured truck company and Aphria) along with smaller orders from various customers, are benefiting from a high conversion rate of pilot trials to larger orders, and have secured remarkable partnerships with industry giants Bell and Huawei, something very atypical for the vast majority of start-ups.

Products:

BeWhere offers variants of its two IIoT products: Bluetooth Beacons and mobile-IoT sensors. The former product is the only one commercially available today, and is the first product the company worked on. Furthermore, BeWhere’s software integrates easily with third-party applications using APIs.

Bluetooth Beacons:

With the advent of Bluetooth Low Energy (BLE) in the last few years, it became possible to monitor real-time information on movable assets using Bluetooth. BeWhere is the first to have seized the opportunity by providing a beacon solution that is both significantly cheaper (in majority of cases) and simpler to work with than active RFID tags with comparable battery life (3-5 years) and range (250m+). Radio-frequency Identification (RFID) has historically faced some adoption challenges stemming from its high cost. With this antiquated technology, the customer is not only paying a little more for the active tags with the sensors, but also needs to purchase one or several “readers(s)” to read the sensor data off the tags. Typical RFID readers range from $100-$5,000+.

Contrary to RFID, BeWhere’s Bluetooth beacons don’t need a “reader” to read the sensor data and then transmit it to the server where the data will be stored and analyzed. Instead the beacons transmit their data directly to a cellphone, Bluetooth/WiFi gateway (akin to a router) or telematics device, which then take care of getting the data to the server. Therefore, it’s as simple as installing an application on employees’ phones or plugging in a gateway to get the sensor data from all neighboring beacons. The cost of a beacon with sensors is $35, and it includes 7$ of prepaid monthly service fees. The company charges $0.50 monthly per beacon or $5 yearly per beacon. BeWhere makes a healthy 60% margin on the hardware, and 80%+ on the service fees. As the number of beacons deployed increases, the service fees revenue segment will begin to dominate the hardware revenue segment, at which point revenues will be mostly recurring in nature for this business. Furthermore, the hardware revenue portion can be considered semi-recurring as customers will need to replace their devices once the batteries reach the end of their life.

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Mobile-IoT (M-IoT) sensors:

With the huge IIoT market opportunity beginning, cellular carriers are wanting to get their piece of the pie by rolling out new cellular networks to allow for the direct connections of IoT devices, and collecting a small monthly connection fee per device. These cellular IIoT networks are either NB-IoT or LTE-M (also called CatM1) networks. Verizon was the first of the carriers to roll out its LTE-M network back in March. Others are following suit with targeted dates in July by Sprint, and early 2018 by Bell Canada. These networks are specifically designed for low-bandwidth applications needing a battery life of several years, e.g. smart cities, smart agriculture, supply chain management, fleet management, asset tracking/monitoring, etc.

BeWhere immediately recognized the market opportunity and designed a next generation beacon (or mobile-IoT sensor) to communicate sensor data directly with these new cellular networks. They are working closely with two industry titans: Bell and Huawei. BeWhere’s product is currently being tested by Bell, and should be commercially available in September well before Bell rolls out their LTE-M network in early 2018. Huawei is the manufacturer of the NB-IoT chipset found inside the product. They have been showcasing BeWhere’s product to their carrier customers mostly recently at the Shanghai Mobile World Congress. Huawei is looking to drive their chipset and NB-IoT network equipment sales growth this way.

Management expects the revenue model for the mobile-IoT sensors to be an all-inclusive monthly recurring revenue on a 2-3 year contract with BeWhere getting 60% and the carrier 40%, as is typical in the industry. Based on my experience, I’d estimate the cost of the hardware to be around $20. I’d expect there to be several months to a year payback period, after which it would be all recurring revenue at 80%+ margin since the only direct costs are associated to the company’s networks (where the data is stored and analyzed), similar to a SaaS company. Management believes they can generate hundreds of thousands in revenue per month in 2018 from the mobile-IoT sensors.

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Management & BOD:

Owen Moore, CEO founded Grey Island Systems International which went on to be acquired by BSM Wireless (previously Webtech Wireless before its merger with BSM Wireless) for $38M. As president of Grey Island Systems, Owen drove revenues to $24M in less than 10 years. After the sale of his first company, he joined BSM Wireless as the executive VP of sales. Chris Panczuk, COO has been in the telematics industry since 1998 and was with BSM wireless until 2014. Chris’s role at BSM was VP of enterprise sales.

Between both founders, there is ~35 years of experience in the industry. Management is the principle reason for the business’s success to date. Without their industry experience, it would have taken years to build an equally robust distribution channel as the company has today.

Financials:

For the FY2016, the company generated $225k in revenue and had adjusted net loss of $722k (adjusting for one-time RTO expenses, share-based comp and D&A). They started selling their product in mid-2016 as it took about one year of development to be commercially ready. Considering their product was on the market for half a year, they were able to convert some pilot trials to larger orders with a few customers rather quickly.

In Q1 2017, they announced 2 large contracts, one with an international provider of armoured car transportation for its US business, and the other with Aphria. The only companies which fit the description of “one of the most trusted security and logistics brands in the world” mentioned in the news release are Brinks and Garda. IMO, I think it’s pretty safe to assume that these are significantly large contracts otherwise the company wouldn’t have bothered announcing them. In addition, it’s stated in the press release of the contract with the armored car transport company that BeWhere looks forward to growing their business with them as they operate in over 100 countries worldwide. I don’t believe it would be too difficult for them to secure the rest of the company’s international business, and they seemed confident about accomplishing this as per the tone in the PR.

I recently spoke with management, and they guided that revenues would be doubling QoQ for the next few quarters. I suspect that Q2 and Q3 revenue will be mostly from the two aforementioned contracts given the necessary installation time. In my financial model below, I assumed that revenues would more than double QoQ for Q2 considering the small revenue base of Q1. To remain conservative I assumed a double QoQ for Q3 and ~60% QoQ growth for Q4. I also used 50% blended gross margins since I’m presuming that discounts were given on the hardware for the two large orders. Additionally, management told me expenses would be slightly higher in the coming quarters due to the R&D with the mobile-IoT sensors. OPEX is expected to normalize back to $400k/Q in 2018.

In Q4 2017, I have the company on a $1.1M revenue run-rate and ~$150k net income run-rate. All revenue in 2017 is assumed to be from the Bluetooth beacon business given that the mobile-IoT sensors aren’t available yet. Annualizing the estimated Q4 revenue and net income run-rates yields a forward P/S of 3.75x and a P/E of 25x. I easily think they could double revenues in FY2018 as the Bluetooth beacon business should keep growing, and the mobile-IoT sensors will be available for sale in September. Therefore, I see 100%+ upside on the stock by early next year. More importantly I see revenue growth continuing in the long-term and I expect share price appreciation to carry forward for years. BeWhere is doing everything right to secure its seat as the market leader for the future.

The company’s balance sheet is solid with no debt on the books and $1.4M in cash on hand. Should they need to do a raise to fuel the mobile-IoT growth, it would be on favorable terms considering that their last private placement in mid-2016 was oversubscribed and money had to be turned down.

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PRs:

BeWhere Holdings (BEW.V / BEWFF) Write-Up

Company name: BeWhere Holdings
Stock symbol: TSXV: BEW / OTCQB: BEWFF
Stock price: CAD$0.32
Shares outstanding: 51.5M
Market cap: $16.11M
Basic insider ownership: ~36%
Forward 2018 P/S: 3.75x
Forward 2018 P/E: 25x

Intro:

BeWhere is an Industrial Internet of Things (“IIoT”) solutions company that designs and manufactures hardware with sensors and software applications to track real-time information on movable assets. It was founded in mid-2015 by seasoned entrepreneurs Owen Moore and Chris Panczuk, and is expected to be on an impressive $1.1M revenue run-rate in Q4 2017. Management has accomplished a great deal in the 2 years since the company was founded. They’ve designed and manufactured two IIoT products, have gotten two large contracts with big name clients (a worldwide armoured truck company and Aphria) along with smaller orders from various customers, are benefiting from a high conversion rate of pilot trials to larger orders, and have secured remarkable partnerships with industry giants Bell and Huawei, something very atypical for the vast majority of start-ups.

Products:

BeWhere offers variants of its two IIoT products: Bluetooth Beacons and mobile-IoT sensors. The former product is the only one commercially available today, and is the first product the company worked on. Furthermore, BeWhere’s software integrates easily with third-party applications using APIs.

Bluetooth Beacons:

With the advent of Bluetooth Low Energy (BLE) in the last few years, it became possible to monitor real-time information on movable assets using Bluetooth. BeWhere is the first to have seized the opportunity by providing a beacon solution that is both significantly cheaper (in majority of cases) and simpler to work with than active RFID tags with comparable battery life (3-5 years) and range (250m+). Radio-frequency Identification (RFID) has historically faced some adoption challenges stemming from its high cost. With this antiquated technology, the customer is not only paying a little more for the active tags with the sensors, but also needs to purchase one or several “readers(s)” to read the sensor data off the tags. Typical RFID readers range from $100-$5,000+.

Contrary to RFID, BeWhere’s Bluetooth beacons don’t need a “reader” to read the sensor data and then transmit it to the server where the data will be stored and analyzed. Instead the beacons transmit their data directly to a cellphone, Bluetooth/WiFi gateway (akin to a router) or telematics device, which then take care of getting the data to the server. Therefore, it’s as simple as installing an application on employees’ phones or plugging in a gateway to get the sensor data from all neighboring beacons. The cost of a beacon with sensors is $35, and it includes 7$ of prepaid monthly service fees. The company charges $0.50 monthly per beacon or $5 yearly per beacon. BeWhere makes a healthy 60% margin on the hardware, and 80%+ on the service fees. As the number of beacons deployed increases, the service fees revenue segment will begin to dominate the hardware revenue segment, at which point revenues will be mostly recurring in nature for this business. Furthermore, the hardware revenue portion can be considered semi-recurring as customers will need to replace their devices once the batteries reach the end of their life.

Click image for larger version

Name:	Bluetooth-beacon.jpg
Views:	1
Size:	42.3 KB
ID:	685

Mobile-IoT (M-IoT) sensors:

With the huge IIoT market opportunity beginning, cellular carriers are wanting to get their piece of the pie by rolling out new cellular networks to allow for the direct connections of IoT devices, and collecting a small monthly connection fee per device. These cellular IIoT networks are either NB-IoT or LTE-M (also called CatM1) networks. Verizon was the first of the carriers to roll out its LTE-M network back in March. Others are following suit with targeted dates in July by Sprint, and early 2018 by Bell Canada. These networks are specifically designed for low-bandwidth applications needing a battery life of several years, e.g. smart cities, smart agriculture, supply chain management, fleet management, asset tracking/monitoring, etc.

BeWhere immediately recognized the market opportunity and designed a next generation beacon (or mobile-IoT sensor) to communicate sensor data directly with these new cellular networks. They are working closely with two industry titans: Bell and Huawei. BeWhere’s product is currently being tested by Bell, and should be commercially available in September well before Bell rolls out their LTE-M network in early 2018. Huawei is the manufacturer of the NB-IoT chipset found inside the product. They have been showcasing BeWhere’s product to their carrier customers mostly recently at the Shanghai Mobile World Congress. Huawei is looking to drive their chipset and NB-IoT network equipment sales growth this way.

Management expects the revenue model for the mobile-IoT sensors to be an all-inclusive monthly recurring revenue on a 2-3 year contract with BeWhere getting 60% and the carrier 40%, as is typical in the industry. Based on my experience, I’d estimate the cost of the hardware to be around $20. I’d expect there to be several months to a year payback period, after which it would be all recurring revenue at 80%+ margin since the only direct costs are associated to the company’s networks (where the data is stored and analyzed), similar to a SaaS company. Management believes they can generate hundreds of thousands in revenue per month in 2018 from the mobile-IoT sensors.

Click image for larger version

Name:	Mobile-IoT.jpg
Views:	1
Size:	54.4 KB
ID:	686

Management & BOD:

Owen Moore, CEO founded Grey Island Systems International which went on to be acquired by BSM Wireless (previously Webtech Wireless before its merger with BSM Wireless) for $38M. As president of Grey Island Systems, Owen drove revenues to $24M in less than 10 years. After the sale of his first company, he joined BSM Wireless as the executive VP of sales. Chris Panczuk, COO has been in the telematics industry since 1998 and was with BSM wireless until 2014. Chris’s role at BSM was VP of enterprise sales.

Between both founders, there is ~35 years of experience in the industry. Management is the principle reason for the business’s success to date. Without their industry experience, it would have taken years to build an equally robust distribution channel as the company has today.

Financials:

For the FY2016, the company generated $225k in revenue and had adjusted net loss of $722k (adjusting for one-time RTO expenses, share-based comp and D&A). They started selling their product in mid-2016 as it took about one year of development to be commercially ready. Considering their product was on the market for half a year, they were able to convert some pilot trials to larger orders with a few customers rather quickly.

In Q1 2017, they announced 2 large contracts, one with an international provider of armoured car transportation for its US business, and the other with Aphria. The only companies which fit the description of “one of the most trusted security and logistics brands in the world” mentioned in the news release are Brinks and Garda. IMO, I think it’s pretty safe to assume that these are significantly large contracts otherwise the company wouldn’t have bothered announcing them. In addition, it’s stated in the press release of the contract with the armored car transport company that BeWhere looks forward to growing their business with them as they operate in over 100 countries worldwide. I don’t believe it would be too difficult for them to secure the rest of the company’s international business, and they seemed confident about accomplishing this as per the tone in the PR.

I recently spoke with management, and they guided that revenues would be doubling QoQ for the next few quarters. I suspect that Q2 and Q3 revenue will be mostly from the two aforementioned contracts given the necessary installation time. In my financial model below, I assumed that revenues would more than double QoQ for Q2 considering the small revenue base of Q1. To remain conservative I assumed a double QoQ for Q3 and ~60% QoQ growth for Q4. I also used 50% blended gross margins since I’m presuming that discounts were given on the hardware for the two large orders. Additionally, management told me expenses would be slightly higher in the coming quarters due to the R&D with the mobile-IoT sensors. OPEX is expected to normalize back to $400k/Q in 2018.

In Q4 2017, I have the company on a $1.1M revenue run-rate and ~$150k net income run-rate. All revenue in 2017 is assumed to be from the Bluetooth beacon business given that the mobile-IoT sensors aren’t available yet. Annualizing the estimated Q4 revenue and net income run-rates yields a forward P/S of 3.75x and a P/E of 25x. I easily think they could double revenues in FY2018 as the Bluetooth beacon business should keep growing, and the mobile-IoT sensors will be available for sale in September. Therefore, I see 100%+ upside on the stock by early next year. More importantly I see revenue growth continuing in the long-term and I expect share price appreciation to carry forward for years. BeWhere is doing everything right to secure its seat as the market leader for the future.

The company’s balance sheet is solid with no debt on the books and $1.4M in cash on hand. Should they need to do a raise to fuel the mobile-IoT growth, it would be on favorable terms considering that their last private placement in mid-2016 was oversubscribed and money had to be turned down.

Click image for larger version

Name:	BeWhere-Financials.JPG
Views:	3
Size:	35.1 KB
ID:	688

PRs:

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