The go-to guys
A wireless system that tells service people where to go is propelling eDispatch to stardom.
By Paul Kaihla | February 21, 2000
"When the market is hungry," old hands on the Street like to say, "feed it." These days, the market is absolutely ravenous for anything to do with wireless. To gauge the fury of the current feeding frenzy for this brand of high-tech chow, look no further than eDispatch, a Vancouver-based software firm that has married the Internet with wireless dis-patching. Great concept, but consider the risks in this play. For starters, the technology has no commercial track record. Furthermore, the stock's origins are on the Vancouver Stock Exchange, hardly the world's most illustrious. For most of its three-year history as a public company, eDispatch.com Wireless Data Inc. (CDNX: EWD) has languished as an obscure penny stock–trading at about 50¢ in early January 1999. It has 29 employees, a tiny float of 25 million shares, has never turned a profit, and when it first came to Bay Street looking for money last year, none of the heavy hitters would touch it.
Enter the wireless feeding frenzy that took hold this past fall. That's when eDispatch began serving up buckets of stock. In October, it announced a private placement with the hope of raising $4 million through special warrants convertible to shares priced at $2.05. It raised more than three times that amount–$13.8 million–all of it from Canadian small-cap mutual funds and boutique brokerages. Then, three months later, a Bay Street gorilla joined the feast. On Jan. 26, CIBC World Markets Inc. led a syndicate in a private placement for eDispatch valued at a whopping $31.5 million. This time, the warrants were priced at $10.50. That day, the stock closed at an all-time high of $14.10, which represents a one-year return of 2,720%. "Last April, I came to the Street with exactly the same story," eDispatch president and CEO Brian Ellis, 49, mused a day after the financing announcement last month. "They wouldn't give me the time of day. It's now 48 hours since I arrived in Toronto and I'm walking away with $30 million. Ya gotta love Bay Street."
The basis for all of the sudden glamour and hype? EDispatch just happens to be the only publicly traded, Web-based company in a sector that IT consultants in the US estimate will balloon from almost nothing to more than US$1 billion in annual sales in the next two years. Rob Millham, an analyst with an eye for high-growth tech stocks who works in the Vancouver office of Research Capital Corp. (the brokerage participated in eDispatch's last two financings), calls wireless dispatching the next "killer application" for cellular and PCS service providers. The argument goes that, to get a leg up on each other in their explosive and fiercely competitive market, wireless telcos will all launch a series of added-value services for business customers–and wireless dispatching will be at the top of the list. To wit, on the heels of eDispatch's $30-million financing, Nextel Communications Inc. (Nasdaq: NXTL) was expected to announce that it has chosen eDispatch as the exclusive wireless dispatching technology that it will market to its more than four million subscribers. The sixth-largest wireless provider in the US, Nextel is one of the visionary companies that is shaping the future wireless universe. Millham projects that the deal could bring eDispatch $150 million in annual revenue by 2002. He also expects eDispatch to achieve a 20% net margin. That, in turn, would bring earnings per share of more than $1–and give today's lofty stock price a more rational forward multiple.
Nextel's expected deal with eDispatch represents a powerful endorsement of the Vancouver company's technology. "Landing Nextel is going to create a snowball effect," says Millham. "EDispatch is talking to three or four other telcos. Whoever gets out of the gate and gets a relationship with the telcos first is going to have a huge entrenchment in this sector."
For such a big future, eDispatch's technology has decidedly puny roots. Before changing its name in late 1998, the company was called InStep Mobile Communications Inc. It provided dispatching software to taxi fleets in Vancouver and other cities, who used it to transmit orders to proprietary digital terminals in fleet cars from a central computer. "I told them to get out of the taxi business because it's a slug's game," says eDispatch's 65-year-old chairman Peter Bradshaw, a founder and former chairman of competitor MDSI Mobile Data Solutions Inc.
Instead, the firm developed dispatching software for use over Internet-based wireless networks that essentially turns a "smart phone," or data phone, into a mobile computer terminal with an Internet portal for receiving orders. Each phone is implanted with an Internet browser, which was developed by California-based Phone.com Inc. Bradshaw's company also shifted its business strategy, deciding to team up with wireless carriers who would market the dispatching service to customers such as utilities and other enterprises with workers who live on the road.
In September, eDispatch signed up its first big customer, Southern LINC, which is a subsidiary of the Southern Company, the largest electrical utility in the US. It is also a wireless carrier with an obscene number of cellular sites: it provides blanket coverage across 329,000 square kilometres of Alabama, Georgia, Mississippi and Florida. It is selling eDispatch's service to clients such as Birmingham Water Works and Sewer Board in Alabama. Here's how it works. The dispatch system is programmed with each worker's location, schedule, equipment and expertise. When a customer calls the local utility asking for a worker to fix a burst hot-water pipe, the Birmingham dispatcher, working in Internet Explorer, types the job information into the eDispatch screen. "The computer will know that the job takes about three hours," explains Bradshaw, "and the program thinks, ‘We can't give that job to Tom because he only has two hours before he goes into overtime; we can't give it to Dick because he doesn't have the right tools; but we can give it to Harry, who happens to be in that zone.' It selects the optimum worker for each job." Once the worker is selected, the system transmits the data, which goes through a hosted server and over Southern LINC's wireless network. The customer's name, phone number, location and details of the work order then appear on the screen of the worker's interactive phone. "The nice part about it is that the product is far less expensive than MDSI's offering," says Bob McWhirter, a Royal Bank Investment Management Inc. vice-president who is one of Canada's largest high-tech institutional investors (but does not own any eDispatch). "It's intriguing."
Even more intriguing is where eDispatch's dizzying stock price will go next. It has about a dozen Canadian institutional investors supporting it, and Ellis is hoping to get a TSE listing in the first half of this year. The stock also has little exposure to US investors, so you'd think there'd be some upside when Ellis launches a road show there this spring, with an eye on a future Nasdaq listing. But a word of caution. Some portfolio managers worry that eDispatch's small staff will not be able to implement its service with Nextel and simultaneously sign up new telcos. The firm also has several US competitors who will undercut it if it fumbles when rolling out its product. And at least one investor complains that Ellis lacks experience in dealing with the Street. He says the CEO hyped expectations for a deal with Nextel among institutional investors throughout the last few months of 1999, which raises the spectre of selective disclosure and leaks to competitors. "Quite honestly, he shouldn't have even been using the word Nextel in a sentence," says Peter Hodson, a portfolio manager who runs Synergy's Canadian Small Cap Class fund. But for the moment, Hodson isn't about to sell his $285,000 stake in eDispatch. "There are lots of examples of stocks that have gone from zero to heroes just because they have a wireless base," he quips. "This is one of them."
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