Yahoo Finance
Filing
Sept. 19, 2019
2019 Q2 Data
Price: $0.50 Shares:120m, Cap: $60m
1.Business Information
(1) History
The company was found in 1990 in Alberta. Originally it was called Communication Systems International. Its main product is an enhanced GPS receiver which improves the accuracy of GPS. In 1997 it IPOed on TSE. At 1999, it acquired Satloc, a precision guidance system for aircraft.
At 2000, it acquired a location-based wireless company and later changed its name to CSI wireless. It carried both the GPS and wireless business for several years.
In 2005, it acquired Outback from RHS Inc which was found by Richard Heiniger. Outback is a GPS guidance system for agriculture which was manufactured by CSI for RHS by then. Richard joined CSI as director after the transaction. In 2006 the company sold the wireless business and change name to Hemisphere GPS in 2007. It continued to develop Outback and Satloc products for several years.
At the end of 2012, the CEO resigned and Richard Heiniger became the new CEO. At early 2013, it sold all non-agriculture business to a China company called UniStrong and changed its name again to Agjunction.
At the end of 2015, it merged with a private company called Novariant which is an auto steer tech company. Dave Vaughn, who is Novariant's CEO became Agjunction's new CEO since then.
At 2018, it created a new aftermarket auto-steering product called Wheelman which is basically Novariant's product. It has a sub $4000 price tag and aiming the smaller farmers which have less than 1000 acre of farm. Later it sold its Outback product line to the sub-company acquired by UniStrong and sold its Satloc product line as well.
(2) Major business.
Currently, its major products include Wheelman pro and Wheelman flex. Both are aftermarket autosteering products. It is a low-end auto-steering product which uses WAAS which offers 6-inch accuracy instead of RTK which offers centimeter accuracy. Also, it uses mechanic steering which is cheaper and easy to install. Also, it uses iPad and android tablet as monitor which is very innovative and easy to upgrade. The Wheelman flex is the same but offers sharing auto-steering between tractors. The steering gear can be easily detached from one tractor and attached to another tractor.
The wheelman product line is fairly new and has been received well by farmers. They have been growing at a 20%+ rate year over year. However, their sales might be very low since it is still new.
The company also try to sell to OEMs and VARs(value-added resaler). It also works will OEMs to created autosteering for them. Currently, it is working with Mahindra, an India tractor company. It received a $55m bulk order in 2018 from an EU VAR. The order will be finished in Q3 2019.
Before merging with Novariant. Novariant was supplying product to Ag Leader and combined with Ag Leader's own display. The product is called Ontrac3. It is more costly than Wheelman product.
The company also hold several autosteering related patents. It does receive licenses at least from 2 companies including Raven Industries, one of its major competitors. Currently, the company has ongoing patent litigation against Kubota.
(3) Debt and Credit Facility.
Currently, the company has $19m in cash and no debt.
(4) Employee numbers
By the end of 2018, it had 106 employees including 43 in R&D.
(5) Industry comparison.
Trimble Agriculture: It belongs to Trimble Inc, a Nasdaq $9B cap company. Trimble has two products called Trimble EZ-steer and EZ-pilot which are similar to Wheelman. EZ-steer is using similar mechanic steering but it is not as good as Wheelman. EZ-pilot is almost the same as the wheelman except it need a Trimble display. It also has a higher-priced auto-pilot system which uses RTK instead of WAAS. It also supports hydraulic steering in addition to mechanic steering. Previously in 2002, Trimble had sued the company for patent infringement. It was settled in 2007 with a neutral result.
Raven Industry: a US $1.2B cap company. Its product is called Smartrex, it is very similar to Wheelman. It offers both hydraulic and mechanic steering. Back in 2011, they are co-developing auto-steering solutions. Later, they broke up and in 2018 it filed a lawsuit against Raven and signed a license agreement.
Ag Leader: Ontrac3: Ag Leader's auto-steer product. It uses the mechanic steering as well. Basically, just Novariant's product using Ag Leader's monitor.
(6) Major events
2. Management
(1) Key person
Dave Vaughn: He is the former CEO from Novarient. During the last 3+ years, he brought quite some changes to the business. The sale of outback seems not a great decision. Now it seems just old Novarient business is left. It is still hard to tell whether he can turn the company around.
Also, the whole management team is very unwilling to share information to investors which are not very desired.
The relationship between the company and OEMs seems not very good. It never is able to land into any tractor manufacturer.
(2) Insider ownership & Compensation
The CEO is only holding around 2%. All insiders hold around 30%.
3. Financial data.
In the past few years, the company didn't make much money. All the cash it has now is mainly from the devesting of its business. Currently, it has around a $15m quarterly rev. But they are mainly from the EU bulk order received last year.
In the US, the company lastest customer counts around $10m in revenue in 2018. I think it might be Ag Leader. For the first 2Q of 2019, US total sales were only 7.7m which should include this customer and the license fees plus Wheelman product sales.
4. Valuation and Comments
(1) The wheelman product seems pretty promising and has a big potential doing well on the aftermarket. However, currently, it is still very low volume and it takes time to generate meaningful revenue. Also, it is in direct competition with Ag Leader's auto-steering product. It will offset some revenue from Ag Leader.
(2) Currently, the EU OEM & VAR revenue is not stable. After the ending of the $55m bulk order in Q3 2019, the company might suffer big drop in revenue and profitability.
(3) On an ongoing basis, the company spends $2.5m in R&D, $1.2m in marketing, $2m in G&A. However, it can only generate $5m in gross margin based on current $15m revenue level. It barely makes even now. Once the bulk order ends in Q3, it is very likely will suffer drop in revenue and incur losses. The company has around $20m in cash which will enable it no need to raise money in the near future even it incurs some losses.
(4) Currently, the company has ongoing litigation against Kubota. It might incur quite some legal cost. However, it might also generate license revenue if it goes well.
5. Risk
(1) EU bulk order ending might cause the company to become non-profitable again.
6. Conclusion
The company had a pretty mess history and struggled through the years. Its technology and product do have some potential. However, execution is critical. The management is not doing very well in my opinion. It is uninvestable currently unless there is a real trend that the company has turned around.
7.Links
