Trader's Edge: I.D. Systems (IDSY)
19-Oct-01 17:24 ET
[BRIEFING.COM - Robert J. Reid] I.D. Systems is an interesting small cap play and should benefit from increased security awareness. The company is wrapping up some pilot programs for its wireless tracking products. We expect it to announce some sizable deals among various sectors over the coming months.
What Do They Do?
I.D. Systems (IDSY 6.23) allows management the ability to control and track the location and status of their assets -- from letters and containers to forklifts and railcars -- in real time. Its patented RF (radio frequency) technology and proprietary software enable automated, intelligent, cost-effective monitoring and analysis of virtually anything-including vehicles, materials, and people-in real time. The Company's solutions benefit users by reducing operating costs, improving safety, enhancing service, and increasing profits. The great part about its system is that it can be used across a variety of industries and indications are that it's catching on strongly.
Security Concerns: The terrorist attacks are scaring companies into beefing up their security. For example, airlines realize that a grave concern is the unauthorized use of aircraft ground support vehicles (tow tractors, cargo loaders, baggage tractors, fuel trucks, and catering trucks) to transport people and weapons rapidly to an airplane. If someone gained access to the ramp area, he could access vehicles without restriction.
There are few systems currently in place to prevent such use and keys are typically left in the vehicles. IDSY's technology offers a number of unique benefits that enhance command and control over aircraft support vehicles. Anyone who wishes to operate a vehicle that services aircraft must present an access control ID badge to the system's intelligent vehicle-mounted hardware and enter a PIN code. Only if the person is authorized for that particular vehicle, in that particular area of the airport, at that particular time of day would he be able to start the vehicle. Also, IDSY's driver tracking and control technology not only prevents the unauthorized use of equipment, it also allows equipment to be instantly and remotely deactivated via radio frequency.
Cost Savings: The increased security is certainly appealing, but the system has also proven to reduce costs. For example, the system tracks vehicle utilization to justify fleet reductions, controls maintenance planning to reduce repair costs, and eliminates anonymous damage caused by abusive or careless driving. In recent pilot programs, the cost savings have exceeded expectations.
Industrial Vehicles: Most of the company's pilot programs are in the IV segment. The company estimates that the market opportunity is estimated at more than $6 bln.
Package and Letter Tracking Market: IDSY has been focused primarily on the U.S. Postal Service. During 2000, the Company's solution was deployed and began collecting data used to analyzing the flow of mail. IDSY's Asset Communicator is configured to fit inside a standard business envelope. IDSY's system allows the USPS, for the first time in its history, to track test mail in real time and identify bottlenecks in the mail delivery chain. The USPS chose IDSY's technology because it provided virtually 100% detection and communication reliability in harsh environments.
Rail Industry: The benefits to the rail industry are both cost savings and security. At a recent industry meeting, IDSY presented results from its real-time railcar tracking program with FMC and Union Pacific. The system delivers precise, on-demand train location updates to enable more accurate planning throughout the supply chain. For example, the system automatically notifies management when a train arrives at its destination. Also, the system alerts management if any railcar is not where it is supposed to be. This is a significant safety feature when hazardous materials are transported around populated areas. The system also provides significantly more information than the railroads' existing railcar-tracking system, which cannot provide data in real time and relies on railcars to be moving past certain mileposts in order to obtain location information.
Key Points
Pilot Programs: We spoke with the company's CFO, Ned Mavrommatis, this morning who confirmed that beta tests are progressing well. The company, while not providing detailed guidance, does expect these pilot programs will transition into large production type orders. In fact, the company says the performance of the pilot programs have exceeded expectations.
Airlines Increasingly Interested: The key to the story is the increased interest by airlines, but other sectors are also showing more interest. Earlier this week, IDSY announced that its industrial fleet management system will be deployed at two additional facilities of a major automotive manufacturer for their fleets of forklifts and other material handling vehicles based on the results of a previous pilot installation at a third facility.
FAA Charge: On every plane ticket, the FAA charges a small fee. Historically, this money was being used for construction, but much more of that money will be spent on security.
Deals Soon?: Street talk is that IDSY is in significant contract negotiations with the Big Three automakers, British Airways, Union Pacific, FMC Corp.
Catalysts: 1) Company is meeting with potential investors on 10/24; 2) IDSY present at a trade show in Las Vegas next week; 3) Sources tell us that significant deals will be announced in the near future 4) Sell side analysts could pick up coverage over the next 6-12 months if the company can land deals to get revenue figures onto the radar screens of institutional investors.
Govt Contracts: IDSY recently announced that it has received contracts from the US Navy and the US Postal Service. The three-phase Navy contract may lead to implementation of the company's system on industrial equipment assets at US naval bases around the world. Under the USPS contract, IDSY will provide its fleet management system for approximately 35 industrial vehicles. This is the fourth USPS facility -- with a cumulative total of approximately 400 vehicles -- to order the company's fleet management system. The USPS maintains approximately 500 major mail processing centers and approximately 40,000 facilities overall in the United States. The USPS also utilizes the company's mail tracking system to monitor and analyze the flow of mail.
Impressive Customer List: Customers include DaimlerChrysler, Deere & Co., Ford, General Motors, Hallmark Cards, the U.S. Navy, and the U.S. Postal Service, among others.
Financials: Balance sheet is in good condition: The company has cash/investments of $6.7 mln, or $1.15 per share, with zero debt. Have enough cash for 18 months, but contracts should kick in before then. Sales were less than 500K in first half, but contract wins over the next few months are expected to give that a nice boost. Company says break-even revenue is $8 mln.
Caution: IDSY is a very thinly traded stock with only 5.8 mln shares outstanding and a float of a mere 3.3 mln shares. Average daily volume is only 7,300 shares. We hesitate writing on stocks this thinly traded because traders can get burned by not being able to easily get out of a position. We make an exception here because if a deal or two goes through, volume should increase as it will attract some small cap equity funds. Also, perhaps a sell side firm will initiate coverage which would help volume.
Please feel free to share your comments or ask questions of rreid@briefing.com.
Used with permission of brief.com |
