iGen Networks Corp (IGEN)

[Randy1111]

Research Analysis Report of IGEN Networks
by Mark Robbins

ROBINS’ EARLY BIRD RESEARCH NOTES MARC ROBINS CFA
503-445-2850 / 503-445-2483 [e-mail]
MARCH 27, 2017 BUY
RISK TOLERANT INVESTORS
IGEN NETWORKS CORP. SYMBOL: OTCBB: IGEN--$0.12; CNX: IGN—C$0.15
o Disclosures: 1,5, 9,10..... Please refer to page 23 and 24 of this report. Robins Management RIA/Catalyst Research & Management | Equity Research Report 1

IGEN NETWORKS (OTCBB: IGEN--$0.12): INFECT THE HOST; TAKE OVER THE HOST RECOMMENDATION AND SYNOPSIS As I look over my past fifty years of investing, one of the greatest observations I have enjoyed as an analyst is the way businesses are able to create start- up powerhouses despite the entrenched and apparent dominance of a major contender or two. These “Special Situations” are not novel because they present a wholly new product or service, but operate with just enough of a different twist to make the whole offering distinctive...and unbeatable. For example, Costco*, Starbucks, NIKE*, Medicis*, Vet Centers of America, Omark Industries* (with their Oregon Chain Saw wood-cutting chainsaw tool), and Precision Castparts* (perfecting their ‘lost-wax casting’ skills to such an extent as to dominate engine and airframe manufacture that jet travel almost completely rides on their continued success.) There are enumerable other examples.
With that first thought, I want to mention how Barb (my wife of 40 years) and I have bought many cars—most of them General Motors’ Suburbans, Pick-ups and Buicks. Of late, they all have had GMs’ OnStar componentry/service
that provides subscription-based communications,
in-vehicle security, hands-free calling, turn-by-turn navigation, and remote diagnostic assistance.
To say the least, it is a very nifty, incredibly useful piece of technology that should and could be
used by all owners of the cars. Not once have we purchased the service. Not once!
Don’t you dare think that I don’t care about my family’s safety; vehicle security and recovery; or
even the other magnificent communication features. We’ve paid royally for AAA’s premium
roadside assistance service and I was one of the first to install on-board, hands-free, cellular
phones from Motorola—with Siri-like voice control--when first available. The point is that what
should be the world’s greatest car safety and concierge service (OnStar) misses the mark
primarily because of how it is sold. It’s not. Not once in the last eight cars that we have
purchased have we even been approached regarding the OnStar option. Not once! There are
flyers, booklets, tags and even free months of use. Never a sales pitch and closing.
Enter
Networks Corporation and its 100% owned subsidiary Nimbo Tracking. It delivers
cloud-based services for the protection and management of mobile assets and commercial fleets,
via machine-to-machine (M2M) technologies. This is a terribly-broad explanation of the
Company’s
mission
. What this techno-speak really means is that
automobile diagnostic services via the Company’s own, vehicle installed componentry, highly-
IGEN
provides cellular data
connection services that provides stolen asset (car) recovery programs, roadside assistance and
developed and refined software and contract service monitoring. Instead, however, all this
information is delivered via your hand-held, smartphone and not an on-board screen. In other
words,
IGEN
IGEN’s Nimbo Tracking service provides consumers a much lower cost alternative of *Denotes company stories written and followed in The Red Chip Review as well as being featured in my new
book, Confessions of a 10-Bagger Junkie
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monitoring their automobile location, driver speed and whereabouts, operating and maintenance data for owners and repair shops as well as driver habits and behind-the-wheel practices. This last aspect may be a less understandable at this point, but it should eventually enable car owners
to benefit from insurers’ programs to provide lower, risk-adjusted premium rates based on actual driving performance.
The Secret Sauce: Although the range of services is not entirely unique, i.e. LoJack for stolen
vehicle recovery or OnStar’s concierge services, IGEN’s software algorithms and platform are
re-defining the relationship between the consumer and car. The distinctive integration between
software and hardware has created a solution that is automobile-agnostic when it comes to car
manufacturer, make or models. This universal “connectability” provides a manner from which
the services are deployed and made available to the retail purchaser of first new, and soon
“used”, cars. That advantage alone is original and makes the Nimbo Tracking service unique.
As our title implies, there is a sense of viral “infection” as to the approach IGEN has developed
in its product/service but also how it has created an installation approach that has the ability of
creating “pandemic” attachment, utilization and sell-through. ‘Inexpensive and universal’ are
often the keys to extraordinarily sizable operations. Put in another way, IGEN’s CEO has drawn
an analogy to UBER, in that Nimbo Tracking is “UBERizing” vehicles. Uber has created the
largest taxi service company in the world without owning a single cab but by connecting the
driver directly with the consumer. Similarly, IGEN’s technology platform brings the relationship
between the car and consumer to the forefront by allowing car owners to know where their
vehicles are and how they are being operated at all times. Its marketing approach to accomplish
this assists in just getting the consumer a little involved. Once that occurs, it’s “infected,”
Dealership benefits: The greatest product in the world will not sell itself unless it is offered to
you at the source. Here is where IGEN’s Nimbo Tracking business has taken hold and is really
multiplying like a virus. The Company is addressing a real, car dealership dilemma: By
installing a Nimbo Tracking device on every vehicle that comes onto the lot (This is called a
‘Pre-Load’ sale), and then utilizing it both as an Inventory Management Solution and Stolen
Vehicle Recovery (SVR) service, it greatly aids with super-sized dealership, inventory
management problem.
Believe it or not, cars go missing, get lost and are even stolen from car lots. Moreover, the
dealer often loses the whereabouts of a certain vehicle at the exact time a buyer wants to see that
exact car. The Nimbo Tracking solution also provides advantages on price, margins and service
that make it a “no brainer” to the dealer, and now new car dealerships are starting to Pre-Load
the Nimbo Tracking solution owned by IGEN.
Recent operating highlights: IGEN Networks Corp filed its Q3 2016 report which included
record revenues for the quarter and nine-month period stemming from record product shipments
and service activations. The Company reported third quarter revenues of $376,476 and nine-
3
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month period revenues of $828,570. Total invoicing for the quarter was $544,031. Gross profits
for the quarter were $86,797, and for the nine-month period were $304,865 - also a record for the
Company. Net losses for the quarter dropped to $149,690, the lowest the Company has reported
since Q2 2014. This was achieved in spite of $167,555 in Q3 revenues being deferred. Including
these deferred revenues, and therefore on a non-GAAP basis, the Company reported positive
funds flow from operations of $17,121. The Company’s 2016 annual report for year ended
December 31, 2016 including Q4 2016 financial results should be released soon.
Price Targets:
We are recommending purchase of IGEN Networks Corp. shares at (U.S.) $0.12 per share for investors who can tolerate speculative equities. The stock is dual listed so U.S. investors can purchase shares on the OTCQB under the symbol IGEN, and Canadian investors can buy it on the CSE using the symbol IGN. Our opinion is based on the belief that these shares should appreciate as much as 100 % by the end of 2017 which would put the stock in the range of $0.25 to 0.30 per share (U.S.). We believe IGEN’s shares have the potential of reaching $ 0.50 to 0.65 (U.S.) during 2018. Our aggressive price projections are based on four primary factors:
1. Pre-Loads at the Dealership: Accelerated revenue growth is expected due to increased adoption of its Pre-load program where all vehicles at contracted new car dealerships are installed with Nimbo Tracking when they arrive on the lot from the manufacturer;
2. Verizon Wireless Partnership Program: IGEN now has a long-term relationship with Verizon Wireless and recently this “partnering” agreement was increased thereby providing IGEN national to Verizon’s list of over 12,000 new car dealerships;
3. Channel Partner Referrals: Additional new account sales are coming from its network of distributors, channel partner, and new car expeditors who install and sell after-market products.
4. Recurring Revenue: IGEN’s Nimbo Tracking is now receiving a stream of recurring revenue from annual renewals as its existing customer base adds service time to its plan as well as more bonus-featured services once the initial activation term expires.
Ultimately, IGEN Networks Corp should stand-out as an acquisition target by a larger company interested in its established and rapidly growing client base, broad and recurring revenue streams, advanced M2M software, and data generating and collection capabilities. This could mean larger operators already involved in this arena, or serving allied transportation industries, might have interest. IGEN could also be targeted by cellular operators wanting to retain, and possibly build, this group of data-time users. Lastly, the Company may be considered as a “tuck- in” acquisition target by companies seeking a better understanding of driver behavior for insurance ratings or consumer engagement for cars repair and maintenance services.
On that note, we should point out that during March 2016, CalAmp Corp. (Nasdaq: CAMP- $17.01) acquired LoJack Corporation (LOJN) for $134 million, or $6.45 per share. IGEN, which
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some say is the biggest threat to LoJack, currently trades at the micro-cap market valuation of less than $4 million. Typical of almost all ‘big fish swallowing littler fish’ buy-outs, time and growth would be necessary for this to happen again, but IGEN’s growth rate was just super- charged by the “pre-load” sales approach and Verizon’s B2B partnering with IGEN.
CURRENT STATUS: A LOT HAPPENING FOR A SMALL COMPANY
As indicated, some really momentous news regarding the Company occurred last July when their first, “Pre-load” dealership agreement was consummated and launched. This one sales order completely redefined the kind of business IGEN represents especially since the new arrangement required more than 3,000 cars to be activated over a month’s time to complete the transaction. This new arrangement essentially meant installers placing 100 Nimbo Tracking device units a day, for 30 days. It also redefined the kind of initial sale IGEN recorded as well as the follow-on flow of extended subscriptions.
IGEN benefits from another exceptional follow-on aspect when the transfer of the Nimbo Tracking device ownership goes from the dealership operation to the retail car buyer. Please consider that the tracking service extension and possible service upgrade means when the retail client makes another “installment” to IGEN’s Nimbo Tracking business up front. I call this the “Ka-Ching!” aspect of the business: IGEN’s cash register goes “Ka-Ching!” every time a car is sold with the benefit of the tracking service and can go “Ka-Ching!” again with a renewal and/or subscription upgrade with IGEN not doing really anything more to make the additional sale. As you can also tell, it is another cash inflow source to the company that a) serves to widen the Company’s overall margins and b) extends the value of the Nimbo Tracking unit over a much longer life span...another facet that boosts the value of the service and most particularly the Company. The added revenue stream is due when a unit is sold with the sale of the car off the lot: This means that the service program life often goes from one-year to a three-year term (“Ka- Ching!”). That the program can also be “upgraded” to a more complete service (“Ka-Ching!”). What I’m trying to convey in my own churlish way is that once Nimbo Tracking’s devices are installed, there is a plethora of ways IGEN can realize additional fees and revenue streams.
? In May, 2016, IGEN signed a major account agreement/partnership with Verizon Wireless establishing Nimbo Tracking (IGEN’s operating entity) within a partnering program of the carriers to sell B2B combined services. This program includes sharing of leads though Verizon’s sales and support organization that covers the major automotive dealer network—about 12,000 businesses--located across the USA. As one can tell, this helped to move the Company’s selling efforts to an entirely new plane of activity.
? In June, the company announced a joint venture with Star Shield Solutions and Sky Force Technology, targeting high volume automotive dealership stores located in Southern California. These two entities will market and install Nimbo Tracking systems.
? During last July, IGEN shifted its sales and marketing effort from a ‘one car ?one system ?one sale’ selling approach (like what should be used by GM dealerships to sell
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OnStar), to a one dealership ?all cars being installed and having the opportunity to sell the service to all retail buyers. As explained in detail, this means that all the cars on a single lot, or all of the dealership properties, are all equipped with Nimbo Tracking systems and can then be monitored for location, loss or theft. Then, the whole selling modus operandi shifts at the dealership from something someone else owns or from something that is just part of the car sales merchandize package to a device that the dealer owns and can sell and even more importantly, make revenues and a profit contribution from. This shift should make all the difference in the world to IGEN but also auto dealerships.
?
IGEN NETWORKS INTRODUCTION AND BACKGROUND: It’s like LoJack on steroids and OnStar without the cost...
To make sense of the title and IGEN’s distinctive play in the automotive IOT world, I’m going to start with the statement of three facts that readers need to comprehend and “absorb” into their understanding about this business and equity. They are...
? Large auto dealerships misplace and actually lose cars (their merchandize) off their lots.
? Add-on products and services, like OnStar, are built into their automobiles by the OEMs
but there is little if any inducement by the OEM to entice the dealer to “sell” their
product/service to the retail client.
? Dealerships’ auto service shops (specifically repairs) are a very important facet of
dealerships’ income statement and conversely (unfortunately) as the car gets older and requires more maintenance, the actual client/owner returns their vehicles less and less to where he bought the vehicle for service.
There is no need to dwell on these points at this time. But as one reads along, you will undoubtedly incorporate the above “truths” into the story and have a far better understanding to their significance as well as how IGEN benefits from the nature of the industry.
TITLE HO! I know the title sounds like a heading that might best be used for a Medical Arts/Bio- Science fiction, but it can be applicable for industrial entities that deliver a “have-to-have” product or service (like the iPhone or Microsoft “Word”) or marketing approach that is innovative and fosters ubiquitous acceptance or brand (“Whassup!”, The Most Interesting Man, or It Takes a Lick’n...”). Interestingly, the mechanism as to how viral cells reproduce is exactly as described; Once they enter the host cell they turn the receiving organelle and sub-components into a “zombie-like” character of its former self. Its entire being is focused on reproducing the
Most recently, IGEN’s Nimbo Tracking operation announced that in February it received
new orders for pre-load car dealership accounts further expanding its customer base. To
further the Company’s operating reach, it also opened a new sales office in Charlotte, NC
to help cover the Eastern and Central US sales activities. This expansions will support
and help further accelerate IGEN’s existing growth rate, and permit increased nationwide
engagement with the Verizon Wireless lead sharing program.
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viral DNA and the subsequent viral particles that literally explode the host’s outer-body when they have over-whelmed its physical boundaries. This infection, reproduction, explosion of the host and re-infection of another new host cell continues until the entire body is totally overcome by the massive assault. Quite literally, “it takes over the host.” (Hence, the reason fighting viral outbreaks are so difficult and perfect for biological warfare and terrorism.)
Ok, so how does this involve IGEN? Remember the auto dealership ‘facts-of-life’ outlined above? Auto dealers lose cars off the lot because their vehicle can be just down-right stolen, misplaced somewhere in a back lot, borrowed by a salesman for a road-test and delivered to the ‘wrong’ parking space, or borrowed by the sales manager or other official to drive home and to show-off. The corollary to the previous sentence is that the larger the dealership, the harder it is to monitor, account and find the lost inventory.
Enter IGEN. The Company has developed the distinctive integration of software and hardware within a componentry-packed, discrete module that can be attached to one’s car via the OBD2 buss. This mentioned buss has a “plug outlet” that is often used by service and repair mechanics to attach their diagnostic test tool and monitor practically all your vehicles functions. In this case instead of attaching or hooking into the plug, the installers attach leads to the OBD2 harness or buss just to draw power. This method of attachment does not harm or influence the electronic network of the car.
Since their device is surprisingly small (please note the device versus the size of the adjoining quarter), compact and does not use the OBD2 connector to operate, what it means is their sensor/communicator module can be well hidden, up-and-behind the dashboard in a variety of places. This connecting independence permits IGEN’s Nimbo Tracking device to be much harder to detect, neutralize or remove by a villain intent on stealing the car.
The other major point to stress is that this attachment method allows IGEN’s Nimbo Tracking device to be auto-agnostic. It can be used on practically any car on the market. Because it is so
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small and not directly plugged into the harness, it can be installed and useful on any brand or make of car. It also makes it practically available and useful on any make of used car, as well. The Company lifted a lesson from Steve Jobs when the Apple master developed the iPhone...that the combination of an accelerometer, GPS tracking software, voltage sensor and cellular communication technology permitted a similarly fashioned, independent and discrete device the ability to “read”, discover and transmit a myriad of data and information from one’s power use, location and movement alone. IGEN’s unit is not only remarkably capable given its size and a super sensor that transmits a raft of data but also it can be continually programmed and updated to perform more analysis, collect other forms of data and provide an ever-increasing array of helpful information and analytics.
So, what we have is a device with smartphone sensor capabilities and smartphone compute and transmission power but “without the screen and keyboard” as integral components of the device itself. It’s already installed and hidden within the new car that is for sale but offering a “LoJack on steroids”-like service package with the option to upgrade to the “Next Generation OnStar” capabilities. IGEN’s goal for service offerings is based on the premise of connecting the consumer more directly to the car. With the Pre-Load model, the consumer purchases the basic service with vehicle protection for typically three years at a price range of $800-$1200. This component/service/connectivity package is in most cases an option that is included in the financing of the car purchase. At this same time, the dealership will attempt to up-sell the consumer a longer subscription and the most advanced SVR-Platinum service.
Some of the more interesting features that are accessible from the consumer’s smartphone are centered on peace-of-mind and security for the family members. Examples include.....
? Speed alerts that are sent to mom and dad to warn them of their “teens” overly speedy driving;
? Geofencing capability, or establishing virtual-perimeter/area boundaries, that send an alert when the car crosses the boundaries such as an attempted theft, or son or daughter is somewhere they should not be;
? Vehicle condition alerts, i.e....when battery voltage drops below acceptable levels, fix before you need roadside assistance;
? Real-time tow, shock, or theft alerts...when someone is moving your car with the ignition off;
? Service and maintenance alerts that track real-time engine times and mileage driven; and
? Location-on-demand when a family member needs help or roadside assistance.
This is the first aspect of our commercial “infection” process. Because dealerships endure some degree of ‘merchandize shrinkage’ and the larger the dealership the more the problem exists, it behooves the owner/operator of the car lot to more closely track his inventory using the relatively low-cost, very effective Nimbo Tracking system. Because IGEN’s Nimbo Tracking componentry employs both GPS and an accelerometer and communicates by transmitting data
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via the Verizon cellular network, it is near impossible to “hide” a vehicle in the United States without the network coverage discovering the whereabouts of the vehicle.
We understand some competitors’ earlier location systems were defeated by thieves parking the stolen vehicle under a bridge, inside a multi-storied parking lot or even in a garage. With IGEN’s Nimbo Tracking system, which is so very similar to your cell phone and its location/transmission capabilities, its practically inescapable to evade. If the power is on, the Company’s tracing network can detect its last location and help you or the constabulary recover the vehicle.
The next stage of commercial “infection” concerns how this practical expenditure can provide an even more economically positive opportunity to the dealership. More accurately, because the “Finance and Insurance” dealer1--during the closing and signing process--makes the sales pitch to the retail customer to seriously consider purchasing and subscribing to, at very least, IGEN’s Nimbo Tracking SVR Plus—Stolen Vehicle Recovery basic program, the selling of the service from the lot to the consumer transfers ownership from the lot and generates an additional profit for the dealership.
Yes, the dealership actually works at selling the device, one of two levels of monitoring service and a minimum of communication time at one setting. But, here the package is “sold” and can be easily added to the purchase price and “financed” with the acquisition of your new car.
You remember the last time you’ve purchased a car. After finishing dickering with the salesman and floor manager, they walk you into a third office to “finish the paperwork”: Meaning they want to arrange for you financing, insurance and if at all possible the super-duper exterior coating option, an extended warranty package and now, the Nimbo Tracking package. (Boy, do I wish I was more gullible. They tried selling me the warranty on the last pick-up I purchased. In two years, repairs on the electronics would have paid for it by itself.) I guess since you have pretty much succeeded in completing the acquisition of your new car, dealerships believe there is one more “bite at the apple” where they can sell you more options and services.
On one hand, this sales move could be considered a way for the dealership to “lay-off” the cost of their improved inventory management system onto his customer base, OR a better and more realistic view is to consider the sale is a way for the dealership to generate another source of incremental revenue with a high gross margin feature to further enhance the customer’s driving experience. Whether a profit generator or cost layoff, this is where IGEN’s Nimbo Tracking
1 The “F&I” ‘salesperson’ at the dealership is essentially the last person you see when buying a car. After being sold on the vehicles features and negotiating the price, you are led to another office employing a third person (that’s in addition to the floor salesman and the sales “manager’), who walks you through the financing options, repair and operating insurance deals and in this case, the purchase and subscription terms to the stolen vehicle information system.
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solution comes into the dealership-customer scenario with a better solution to the entire process. Let me explain.
We have discussed the IGEN SVR-plus componentry and system. We have not really focused on all the features and information services that the device can provide. Yes, there is ‘stolen vehicle recovery’ tracking ability across the entire 48 States and Canada in every device and service package. But for the original price, there is also included 24/7 connectivity to a Dedicated Call Center, 5-miniute Real-Time Internet Tracking (it means you can use your cell phone and personally track and observe where your vehicle is), and there are other “upgradable” features like “Roadside Assistance” and “Concierge Trip Service”.
For a marginally higher price—less than $100, dealerships can upsell the SVR offering to the SVR-Platinum service level, which provides a substantial number of added features and benefits. As an example, vehicle geo-fencing, state boundaries alerts, excessive speed alerts, maintenance and low-battery reminders are also included. The adjoining table lists the features and benefits of IGEN’s two service offerings at this time. The table also provides a competitive assessment of IGEN’s two offering packages versus the Company’s two major competitors—LoJack and OnStar. The graphic also provides a really good representation of the nearly coast-to-coast tracking coverage the IGEN/Verizon team delivers.
The point that needs to be stressed at this time is that IGENs SVR units get installed by the dealership to help them with inventory tracking. Thereafter, the unit and service is sold about
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60% of the time downstream to the retail car buyer as an added convenience option and to provide piece-of-mind to the new owner. Because of software additions that the Company can currently provide and some that are in the offing, the value of the SVR “package” is being further enhanced as a way to better protect one’s family, monitor your children’s driving behavior, and ultimately benefit the car owner as an insurance buyer with policies that more exactly match your driving habits and skills in the form of more accurately priced premiums. Moreover--if the dealership is longer-term oriented and customer conscientious, it further behooves the dealership to convince the original, new car buyer into purchasing the longer, more elaborate SVR program.
Once you have grasped the value of the SVR devices installed and operating to the dealership, you can pretty easily grasp the fact that the dealership would love to pass-on and sell the retail car buyer the SVR service. This is a nifty way for the dealership operation to sell-off an option that originally was in place to help protect inventory and better secure established profit margins. Once the car is being considered for purchase, the device evolves from a cost saver to an added profit maker.
Now don’t think this is just only a foil for more greedy profits. Many car models are known targets and prized for their post-theft sales price. In some instances, a few car models are worth far more “parted-out” to repair shops. So, the “newly installed” SVR service is worth a lot to a new car owner as added protection from car loss. But then there is a realization of more of the SVR-Platinum features having value to the car owner as it becomes more a part of the family.
For example, my wife works teaching private school on the other side of Portland....about 75 miles away from home. Not only can I “track” where her car is (If she made it to work from the home in Underwood Monday morning? Or even more importantly, I can track her progress home as she wends her way back through Portland, rush-hour traffic on Friday.) Another feature is that I can “geofence” her whereabouts in Hillsboro during the work week (apartment, school or Freddy’s grocery store, etc.) and “detect” her location without bothering her during the day. Same thing for Barbara. With her cellphone, she can track me as I visit my local haunts in Hood River, The Dalles, and even back and forth to my downtown office in Portland. Again, these are little features made easily available using the same SVR componentry and service.
We have three children. All of which are grown and “gone” now, but like all parents we had to suffer through the teenage years as well as the college experience of their gaining independence and maturity. (Now as a teenager myself long ago, I fully know what kind of mischief and stupid behavior a youngster can get into especially involving cars, girls and dating. Today, the roads are far more crowded and dangerous. Speeds are still “too fast”, stopping distances are a lot closer than they were in the 1970’s, and cars even though better constructed don’t react as quickly as we would often like. Also given the changes in city safety, what could have been considered a late night evening of innocent necking has far greater potential for serious interference given gangs and thugs; smaller, more limited police forces; and the greater lack of civility among population-centered inhabitants?) The point is that teens ‘demand’ their freedom
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and independence as part of growing up. It is certainly far harder as a parent to cut the apron strings and/or supervision given these modern times.
I raise these difficult topics because IGEN’s SVR monitoring system can provide location information and whereabouts intelligence that should help assuage parental concern. To this end, the SVR-Platinum service first allows a parent to monitor a teen’s whereabouts (Are they at the boyfriend’s or girlfriend’s home? The movies? Bowling? At school for a dance. Or, somewhere else!) Is the teen daughter (or son) exceeding the speed limit (by using SVRs Excessive Speed Alert) and/or on some boulevard or Hi-way they have no reason for driving? Are the teens somewhere, or in some neighborhood, they shouldn’t be. Between the constant tracking and monitoring information provided by the IGEN SVR and available via the communication connections, parents can not only feel more comfortable about where their youngsters are but can more regularly monitor their activities.
Consider the same problem from a different standpoint: Youngsters have a habit of driving too fast and taking-on too many risks (Too fast. Tailgating. Frequent lane shifting. Joyriding or silly driving behavior?)2 The simple reality of teen automobile driving and their basically “normal” conduct of speeding is that this more careless behavior is responsible for roughly six teens between the ages of 16 and 19 dying each day of the year. There are over 200,000 teens within the same demographic that are injured each year as well due to the same, hard-to-harness traffic comportment. To that end, if your children realizes that their driving style and habits can and will be monitored at any time during the evenings they are out--just like any other occurrence at home, there is a more appropriate degree of proper behavior and sanity while out-on-the-town with their friends or even alone3.
We’ve discussed a couple of ways where IGEN’s Nimbo Tracking system can help an individual car owners with solutions regarding auto theft and improper usage. There is another aspect of the service that not only is beneficial to the owner but also serves a great need for the automobile dealership. That being post-sale maintenance and repairs.
One of the biggest dilemma’s new car dealerships face is the tightened margins they have realized on sales over the past few decades. To stem this decline, they have resorted to arranging
2 CBS News; “Teens’ Brains Are Wired for Risky Behavior: Study”; March 8, 2017; 2:36 PM...But new research confirms that teenage brains are actually wired to engage in risky behaviors..... Researchers also found that context matters to whether or not adolescents actually engage in those behaviors.
3 I had a nephew who at age 16 was killed on a country HiWay dragging against one of his buddies. This of course was in the mid-1980’s but think about how the boy would have acted differently if he “knew” his Mom could not only monitor his speed but knew his whereabouts on any evening at all times of the evening. I remember the crazy things I did as a kid (driving 210 miles between Pendleton and Portland in two hours) and other dangerous shenanigans. There is no way I would have done that with an IGEN SVR reporting my speed and progress!
Researchers found that sensation seeking
peaks around age 19 worldwide and then declines with age. In contrast, young adults’ ability to self-regulate or
quash their impulses climbs until the age of 23 or 24 when it fully develops... the study also showed that risky
behavior among teens – Things like unsafe sex, alcohol and drug use, and dangerous driving – varies greatly among
different countries.
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financing, selling premium services and bolstering the importance of maximizing the dealership- operated repair shop as ways to improve overall sales and enhance margins.
I’m probably a textbook example of a car buyer that should be a perfect target for dealer follow- up and proffered maintenance. Instead, I prefer using one of my old-line, independent, professional shops to perform repairs because I find they more frequently “take care of my immediate repairs” but also tend to step-up and handle needs as necessary. But that said, I don’t think I’m the typical customer.
Dealerships want, need, desire a way to stay in touch with their happy car buyers. It not only makes good operating sense since that dealership wants that customer back when it’s time to replace the vehicle they just sold. Moreover, one of the best ties to customers is to provide friendly, superior service as time passes and problems arise. Like my wife, she wants a ‘service writer’ that she knows by name, doesn’t refer to her as “little lady” or “little woman” (Eastern Oregon-speak, wouldn’t you know!), is honest and forthright about the repairs and what is needed, and is as exact as possible regarding the time needed and when she can pick up her car.
You take care of her and her car, don’t talk down to her, treat her fairly and respect her time: One has a customer for life. Everyone is happy. She’ll also be back to buy the next vehicle.
Conversely, one of the biggest problems to this happy car-selling formula is that the ownership of new vehicles reached 6.5 years in the first quarter of 2015. This is nearly two years longer than what new car ownership period were in 2006. Even worse, the number of cars more than twelve years old on the roadway continues to grow and is expected to increase another 15% by 2020. Cars are a) being better built with more durable components and with fewer ingrained problems; and b) people are holding onto their cars because of the substantial increase in the price of a new vehicle. So on one hand, dealerships are being forced to “do a better job” regarding repairs and maintenance, while the actual number of replacement sales are being stretched-out.
So here is the worst bugaboo to the whole equation: Buyers tend to generally avoid returning to dealerships after their new car warranties expire.
Inquirer Motoring talked to car experts and found out from them that up to 70 percent of car owners didn’t return their cars to the (dealership) after the warranty ran out...
...4
Whatever the reason, the ties between dealerships and auto owner are strained and this bond should and needs to be closer for certainly the dealership’s sake. A better relationship should
4 Inquirer.Net, “What Drives Car owners Away From Their Dealers?”, Wednesday March 8, 2017
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Eskeldson noted that poor service, high prices, and callous service people are often given as
Auto expert Mark
reasons for people to take their cars to other shops. And some told they were offered unnecessary
repairs

also behoove the car owner given what should be a dealer’s “technical advantage” when it comes to repairing a model sold by the same lot.
To that end, IGEN’s Nimbo Tracking service can help improve the relationship between the two parties.
The SVR-Platinum service already has a variety of service reminders and maintenance reports that should not only prompt the owner to attend to the auto’s operating requirements but also do an on-time alert and needs assessment for the dealer. It is one thing to get a reminder card from out of the blue that says “Hey Marc; It’s been 45oo miles and five months since we saw you and the faithful Hupmobile at “Friendly Freddys Quick-change Lube!” It is oh so reassuring that they care about me especially when I’ve changed the oil two times since the last visit or better yet sold “ol’ Bessie.”
Delivering some closer and more pertinent service warnings could be a very helpful way of instilling a stronger tie between dealer and client. I drive between my home in Hood River and my office in Portland twice and sometimes three times a week. That is a distance of 270 and 400 miles a week and doesn’t account for any in-between errand traveling that may also occur. So, you can imagine that I run up the oil changes on a sooner than normal schedule.
I’m old fashioned and believe that a service should occur every 3,000 and 4,000 miles. Because I’ve gotten busier with my fuller schedule, it had been 5000 miles since the last oil change. Having a signaled reminder “knowing”, as well as relaying, that my time to get in for a service was at hand would be very helpful and particularly re-assuring. When I arrived at the service center, not only did the oil need changing but a head light was out, tires needed swapping and window-wipers needed replacing.
The point is that when I started driving we used to visit “service stations” that, overtime, came to know drivers as friends and their cars as “patients.” Every time you “filled-up” at the neighborhood filling station, the driver’s car would get a quick inspection. During the window washing and oil check, the servicemen would also make repairs and do maintenance routines with each visit. Now I understand that autos are far more reliable and need less maintenance, but we drive our cars harder and they take far more abuse than what was tolerated 20, 40 and certainly 60 years ago. Today, we often have to fill our own tanks and don’t take the time to examine our vehicle. If we are lucky enough to live in the two or three states that require attendants, the gas jockeys often have trouble finding the fill ports. Wouldn’t be nice to have some assistance that “knows” how many miles you have been driven since the last oil change or checkup, or when the wipers were switched, or tires rotated, etc.
Yes, IGEN’s
Nimbo Tracking system has already ways to help drivers monitor certain
maintenance activities, and they are developing more. It is a way to increase the value to the
dealership for its “inventory tracking” system buy also provides the dealership/customer more
value after selling the car as a way to build a stronger tie between the two.
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FUTURE OPPORTUNITIES: We have barely mentioned the opportunities regarding insurance, taxes and fleet tracking services that when added could spawn even more sources of on-going revenue for the Company or at least help build greater product value. It’s appropriate that we delve more into the auto insurance realm at this time because of the immense numbers that face the industry and the not inconsiderate prospects it presents for IGEN.
Prior to our introduction to IGEN, we learned that automobile collision insurers would love to track drivers to better gauge driving risk profiles, conditions, commute times and actual miles driven during a policy’s duration. In fact, this subject always became a topic of discussion when we attended any CalAmp presentation or quarterly earnings, phone conference call. As we became more familiar with IGEN, we learned further that this push by auto insurers is to help alleviate the $15.8 billion of annual “rating errors” that occurs because of the current underwriting process. This loss, or void in risk assessment, arises because of the very poor data regarding drivers and especially NEW drivers and the actual insured reality of collision experience. This needs a little more color.
The following table displays in explicit detail the billions of dollars lost to insurers due to “leakage” because of differences between what the real risks that are found in the world versus
US ESTIMATED PREMIUM LOSS BY RATING FACTOR
COURTESY OF QUALITY PLANNING REPORT
what they are perceived or measured to be with insurance actuarial analysis. The data is divided between those rating factors that are directly associated to the vehicle—condition, distances, car characteristics, the territory--one drives in, etc. versus those factors directly related to the drivers,
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how good they are behind the wheel, what kind of driving risks they take, maturity, number of violations/accidents and so on. It doesn’t take genius to also understand that many insured drivers also exaggerate about their good driving habits as well as “gilt” their reported record the best they can. So, it is inevitable that the entire amount of the premium loss will never be recovered, but the number is certainly large enough that it could be diminished.
To best explain how this problem can be helped, let’s consider a new driver and the problem that immediately faces the insurer. When you arrive at the time to operate and insure your first car, the insurance carriers are essentially facing a blank sheet of paper regarding you as an insurable risk. If you have taken driving lessons, passed the operators test, have good grades in High School and/or College, come from certain kinds of socio-economic background, have not received citations of any kind, etc.....many and all of these kinds of determinants and experiences are used to construct a risk profile for the new driver. It helps the insurance company zero-in on a levelheadedly reasonable idea about the kind of insurance risk you are. But in reality, it is still an educated guess! It is just a projection of the kind of risk you are...an estimate of what kind of driver you might be. From the above table—the lower half, one can see that a combination of about $2.7 billion--Unrated Drivers, plus $ $1.9 billion—Driver Characteristics make of a portion of the rating loss or premium leakage that is such a big problem for the insurance industry.
In the same light, this analysis really indicate very little about the fact that you speed on “freeways” at 79 MPH, or run stoplights, or are overly aggressive with lane changes and tailgate, etc. (typical behaviors for a young, male driver), but are “lucky” or have been lucky regarding tickets when you apply for insurance. Those factors would eventually show-up within the category described by the Violations/Accidents factors.
The point is that insurers believe there needs to be a more precise way of gauging one as a risk— regardless of age and maturity—as well as a way to get a better reading on all the other factors that may effect the amount you drive as well as where you drive and when you drive because all of these factors effect your rating. It becomes patently obvious how this data is very important and valuable. To that end, they are more desirous of tracking you and your driving practices on the fly.
Interestingly, this analysis that we just described only factors in just a few of the risk rating factors: Those specifically found in the lower half of the above table. When you also include items like condition of the car, tires, braking capability, etc., or the conditions of the roads you travel every day, or the amount the driver uses the car, etc.; the insurer would have a much more accurate reading of all the conditions they have to use to price a proper and accurate premium.
It should then seem apparent insurers would love to “be in your very car with you when you drive...on the tollway (for us out West, Freeway), during traffic, during the weekend, on the Friday night commute home.” If you think it’s a little too much like “Big Brother” looking over
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your shoulder, you could be right. However, there are many (my wife’s a good example) where they would not be afraid of being monitored for the sake of better insurance rates. In allowing the insurer to “drive alongside”, it would no doubt help her rating and probably the price of our premium. Me, on the other hand, I think it would behoove me to have them stay away. The point here is that the better an insurance company can analyze what type of driver you are in different road scenarios, the more accurately they will be able to calculate a risk category that fits your driving style and would best fit the risk profile to your cost in the premium.
Well, the IGEN’s Nimbo Tracking system is already capable of measuring most all of these factors and the data can be “dialed-in” if those seeking better rates desire to try alternative policy pricing approaches. If the device is ubiquitously on-board—as it may well come to be within a few years—those willing and desiring a lower premium rating and cost should be willing and very able to invite the insurer to dial-in their vehicle for a month of “review”.
A FEW THOUGHTS ON THE US AUTOMOBILE MARKET
Although the 2008 to 2010 US economy and more particularly, the US auto recession, knocked the veritable stuffing out of practically all car manufacturers around the world, it was principally devastating to the US manufacturers. The effect of the recession was exacerbated by a substantial increase in the price of gasoline and diesel and an OEM industry that had focused on building fuel inefficient, land barges—Suburbans, sport utility vehicles and pick-up trucks— rather than smaller, fuel efficient and electric models.
If you examine the first of the two graphs below, the Federal Reserve data charts show the rather staggered improvement in auto production from the low in 2009 until 2013. The combination of
the downturn, higher fuel prices, limited small car production capacity and the earlier build-up of mega-vehicles in the operating fleet of cars on the road helped cause a ‘perfect storm’ effecting the “Big Three automakers and their return. Furthermore, the turn-around was pushed out to
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some degree because the same US manufacturers, which had invested little in the design and production of fuel-efficient models to offer consumers, required extra time to help catch-up their respective product lines.
The design and manufacture of a newly designed car typically takes years, not months, to move from the drawing board to the showroom. Two to three years to produce a vehicle based on the same platform, and where it just involves styling modifications. More than twice that number to start from scratch with wholly new design. This was more the case as all the offered models needed to be drastically updated and “slimed down”. Today, the big three seem to have heeded the lessons of the last decade and are producing smaller and more efficient vehicles along with their very profitable pick-ups and SUVs.
The second graph illustrates light vehicles and truck vehicle sales. Readers can see that light- duty vehicle sales have snapped back to what has been the normal cyclical highs experienced since the early 1980s. Although there seemed to be a little grief about auto sell-through in January of 2017, consumer confidence has rebounded strongly since the Presidential inauguration and employment continues to improve, which portends a rebound in consumer purchases relatively soon. It is very likely that new car sales will, like the past two seasonal “booms” will remain high in the mid- to high-teen millions for several years to come.
The point of this economic ‘side-bar’ is to explain just how huge the US automobile market truly is—we are talking about a single industry in the US that represents roughly a $1.6 trillion in business each year. Yes, it is economically cyclical but as the above chart shows, it an important and vital industrial component of our economy as well as daily lives.
The other amazing factor is that there are 50,000 car dealers, franchise operators and pre-owned sales organizations in the U.S. and about 14,000 are sizable, new car, franchise dealers. The topical facet I found most interesting about this aspect of the industry model, as I was
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researching the subject, was all the divergent articles about the future of auto sales dealerships....Will they survive? What are their problems? How will they change? How can they improve the sales experience? How technology is forcing the change of approaches? And, many more unanswered queries.
From this study came two conclusions: 1) Dealerships are not going away and they will evolve with the blessing of technology, other features and follow-on services. They will also get better at all that they do. 2) The concept and reality of “Big Data” and tying the customer more closely to the dealership is and will be a high priority for some time. In a couple of articles, it seemed these facets were a path to survivorship.
I guess what I’m concluding is that autos are here to stay. US consumers are still in love with their cars despite being challenged with fluctuating fuel prices, model and make competition, CAFÉ rules and economic swings. It means the industry will continue and survive. However the importance of tying the dealership to its happy customer is becoming paramount (hence, the role of how the IGEN SVR system goes beyond just the recovery of a stolen car) to a role that is helpful and boosting interaction between car and the owner as well as the owner and the dealership used to make the purchase
FINAL THOUGHTS ON IGEN’S INCOME STATEMENT MODEL AND TARGET PRICE
The following Excel model provides our best quarterly thoughts for QIV of 2016 and the four quarters of 2017 as well as annual projections for 2018 and 2019. There needs to be some comments made about producing models this early in a Company’s operating life and the assumptions one requires to complete the mosaic.
Because the business has really matured and changed so dramatically just since last July, I will start by saying that unlike geometry, two data points (two quarters of results) is hardly sufficient to construct a “straight line” for projecting forward operating results. To that end, management has been very helpful providing insight and guidance to the best of their abilities and within the confines of the current rules. But, I really like what I see and have witnessed and believe management has done a remarkable job turning a very rough & tumble start-up into the makings of a exceedingly exciting micro-cap company/stock.
What gives us confidence that our numbers are close within the reality of what to expect (and quite possibly conservative) is that A) Dealership/Customer retail conversions are running as high—if not higher—than we have projected; B) the national partnering roll-out of B2B sales by Verizon should greatly expand the probability of more dealership “pre-load” deals; and C) We really didn’t include any “thoughts” regarding fleet sales—something that I know management knows about and fully understands--and with one completed contract, IGEN’s entire operating complexion would change and benefit greatly.
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Given that preamble, we show that the Company produces more than $2.5 million in revenue for 2017, which is up roughly 100% from our concluding estimate for 2016. Revenue takes similarly sized jumps for both 2018 and 2019 rising to $4.5 million and $8.4 million, respectively. Our model shows untaxed net income at a loss of $680 thousand for 2016; a $50,000 loss for 2017; nearly half a million profit for 2018 and $1.8 million profit for 2019. This translates into untaxed GAAP EPS numbers of a loss of $0.02 per share; break-even for 2017; $0.01 for 2018 and $0.05 for 2019.
When including the “deferred” revenue figures, which is actually a better way of observing and gauging IGEN’s actual operating growth and profitability given that “subscription cash” is paid up front and not amortized over the operating period of the subscription, the Non-GAAP approach to “profitability” or funds flow is far more positive approach to examine the business.5 Our model generated a loss of 1 cent for 2016; $0.03 for the current year; $0.08 for 2018 and $0.17 for 2019.
I am not going to comment extensively about the balance sheet at this time because being a “pseudo” start-up stating anything about the financials would be pretty useless and a waste. They are not good. It does not mean that the business is kaput, or near bankruptcy—hardly—but like any infant that is just learning to walk, not very strong. Those overly concerned at this very juncture regarding ratios and equity positions are not only missing the point of the opportunity but shouldn’t really be involved in this business as an investment. However, the really potent and powerful observation that should be commented on is A) the relative ease in which management is able to add cash to expand into its next phase of business, and B) that the business itself—because of the retail client subscription conversion sales—has been essentially generating sufficient cash flow to help fund on-going operations for a couple of months. Does it mean that having a weak balance sheet is “OK”? NO! But, it does mean that it’s very likely that IGEN will be able to out-grow its weak financial condition as well attract new investors willing to bolster its equity positon.
VALUATION THOUGHTS: At this early date in IGEN’s existence, valuating a young company is more an art and anything close to a science. The good news is the Company’s rapid growth and stream of exciting news and partnerships as well as the relatively active acquisition backdrop of
5 I think it important that readers understand my “knowledge” of subscription sales and deferred revenue. For ten years, I first founded and operated a publication, The Red Chip Review, where subscription sales of the $500 per year sales price was how the business operated entirely and those checks that came in almost regularly were so very important. The point here is that the amazing thing about the publishing business, or any subscription business for that matter, is that not only do you get the cash up front—the entire payment—but there are renewal payments that come in almost like clockwork after you “survive” year “1”. So after the first year, there is a steady flow of “unexpected” cash that bolsters the financials of the operation. One thing that IGEN is doing that is not just important, but paramount, is that management is always on the look-out to add more features and added value to the subscription. That is the magic formula to making the subscription renewal business a huge “Ka-Ching” cash generator. We regularly had a 70% renewal rate. This entire model does not incorporate this important facet!!!
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acquisitions that are also bolstering valuations for more mature operations. Let’s face the fact that the arena is “hot”. This means that any ratio or relative valuation tools to be used will have really pretty high comparatives.
To that end, there are three ways that we could employ to derive target prices (or better yet ranges for this year, 2018 and 2019) based on our model as it stands. I’ll admit that they are a bit unconventional but provide a semblance of logic to our outcomes.
Oper. Per share Cash flow (Funds Flow)
Cash flow (Funds Flow) times 6 to 9 times IGEN deferred revs from sub conversions Shareholder "Yield" based on deferred rev
Year 2017 $0.03
$0.19 $0.29 $0.03
$0.32
Year 2018 Year 2019 $0.08 $0.17
$0.46 $0.69 $1.01 $1.51 $0.06 $0.12
$0.63 $1.17
What we have done is take the “Funds flow” figures (Pre-tax Income plus Deferred revenues from subscription up-sales) and used that “cash flow” figure times 6 to 9 times for a per share price range for the shares. This produces a range for the company’s shares, as displayed, of $0.19 to $0.30 for this year; $0.45 to $0.70 for next year; and $1.00 to $1.50 for 2019. Now, these are pretty heady target figures, so I thought it best to test the results a couple of ways. For 2018, I thought, “what if management “paid out” the deferred revenue figure as a dividend, where would the shares trade?” Think about the logic (although they would never do such a thing): The Company is making a very small profit and the subscription fees could be considered as “excess cash”. To check this theory, we generate—using a 10% yield given the associated risk level--$0.32; $0.63; and $1.17, respectively for 2017, 2018, 2019. The interesting fact is that this approach places the suggested share prices within the previous ranges. Lastly, using actual un-taxed profits for 2019, a nickel 20 to 25-times P/E values the shares between $1.00 and $1.25....another “check” on out guesses.
We therefore believe the shares will trade up to the $0.20 to $0.30 per share level later this year and twice that in 2018. We expect 2019 to be the year for the real appreciation opportunity. With actual GAAP earnings and cash flow, the probability of the shares hitting a dollar or more is a far more realistic target projection at this time.
Marc Robins CFA March 27, 2017
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DISCLOSURES:
No position in IGEN Networks is held by the analyst. Currently, CRMG/Robins Management receives a $2,500 per month retainer paid in cash for consulting work. In addition, CRMG/Robins Management is receiving $1,500 per month to pay for IGEN’s attendance to the September, 2016 Robins Round-up equity conference.
This update was written for informational purposes only and is an attempt to consolidate both recent company news announcements by each featured company as well as add news information received during investor presentations and personal discussions with management. This is not an offer to “Buy” or “Sell” securities. Catalyst or Robins may add or subtract to positions without announcing to recipients of this newsletter at any time before, during or after its publication.
This report has been written in accordance with current SEC regulations and the Standards of Practice developed by the Association of Investment Management & Research (AIMR). This research has been conducted by employing analytical practices generally accepted as standard within the analytical industry. Our conclusions are, by the very nature of forecasting, speculative, but are also reasonable, supportable and consistent.
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personnel and research analysts with the investment thesis and overall research recommendation developed before the commission is established.
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