The TraceSafe (CSE:TSF) (OTC:UTOLF) story doesn’t end with COVID. In fact, the story is just getting started as TSF is transforming how the world connects, one business at a time!
- TraceSafe (CSE:TSF) (OTC:UTOLF) made a great name for itself in the global pandemic world where its technological prowess was critical for economies to re-open around the world.
- It is now entering new verticals in the post-pandemic world as the company continues to secure large, multi-year contracts in very diverse industries.
- Quarantine management is a minuscule 1% of the Total Addressable Market (TAM) and not the focus. The company is concentrating on 99% of the TAM where it is gaining traction with its next-gen IoT solutions.
- TraceSafe has a sophisticated ecosystem of compelling products and provides its customers with a one-stop Platform-As-A-Service (PAAS) solution.
- It announced record-breaking Q2 2021 financials and year-to-date revenue now exceeds 2020 full-year sales. Forecasted sales pipeline is strong with higher-margin, recurring software revenues.
- The current stock price is depressed as the investors seem to think of TSF as a COVID play. Unfortunately, this view is myopic, as TSF pivots into exciting new ventures with its state-of-the-art tech and continuous ability to innovate.
The rapidly advancing IoT technology is making it possible to apply data-driven decision making to new realms of human activity. From monitoring machines on the factory floor to tracking the progress of ships at sea, sensing changes in physical environments to keeping close tabs on human vital signs, IoT systems are enabling companies to get far more out of their physical assets, revolutionize how we run our cities and homes, improve health outcomes, and even save lives.
“If policymakers and businesses get it right, linking the physical and digital worlds could generate up to $11.1 trillion a year in economic value by 2025.”
But how did TraceSafe start its exciting journey?
TraceSafe started out in the demanding med-tech world tracking the most vulnerable customers of the world i.e., babies. Safety, security, and accuracy are some of the most essential traits necessary if a company is to thrive in this sector.
Well, thrive, it did! Over a 10-year period, TraceSafe developed a bullet-proof cloud platform that is designed to be highly flexible. Tech can be tailored to many different applications, including contact tracing, quarantine management and real-time location services for company employees. This software is coupled with a complete stack of wearables- the hardware segment of the business. The hardware is also unique as it utilizes advanced low-power Bluetooth beacons and ensures both user privacy and administrative control.
A quick glimpse of the business
TraceSafe is a global leader in location-aware Internet of Things (IoT) platforms for large-scale industrial and enterprise operations.
Their patented contact tracing bracelet has already been deployed in mission-critical quarantine applications around the world in partnership with leading governments. In addition to their government work, TraceSafe is developing leading-edge solutions for enterprise, healthcare, education, government, and large-scale venue management.1 Their cutting-edge wearables are guiding some of the largest enterprises in the world, including Amazon and Samsung:
It made a great name for itself in the global pandemic world where its technological prowess was critical for economies to re-open around the world:
But it’s the progress since the height of the global pandemic that has been breathtaking:
- October 2020
- November 2020
- December 2020
- January 2021
- TSF products help keep iconic television show in production approved for nationwide corporate sales in TELUS IoT marketplace due to the anticipated demand in post-COVID verticals
- TraceSafe's privacy-centric software, medical grade security and encryption enables it to be named the preferred partner of Tritan Software
- February 2021
- March 2021
- Launch of wearable-based time and attendance pilot program to address $2.1bn USD market
- TraceSafe signs multi-year technology agreement with tier-1 transportation firm to enhance guest experiences by providing connectivity support, APIs for rapid pairing, gyroscope for human activity recognition, RFID protocol for payment processing, as well as capacity and safety monitoring
- April 2021
- TraceSafe Joins Seatrade Cruise Virtual: Tech & Innovation Conference to pave the way for more digital cruise experiences
- TraceSafe partners with Hubbcat Telecommunications, increases global reach across European markets
- TSF’s integrated worksite management system, Safesite, wins 2021 IoT award
- TraceSafe’s innovative asset tracking technology is available on the TELUS IoT marketplace ecosystem
- May 2021
- June 2021
- July 2021
- TraceSafe adds contactless access control to its IoT platform
- August 2021
- TraceSafe continues to gain traction in the sports and event industries by providing solutions at the 2021 IIHF Women’s World Hockey Championship
- September 2021
TSF has successfully pivoted from the humble quarantine bracelet, to track and trace solutions and is now offering a host of workplace integration tools:
As you will note above, TSF is now entering new verticals in the post-pandemic world by seizing a number of business opportunities in sports, health, technology, media, energy, and transportation sectors. These are large, multi-year contracts which are fuelling the growth as TraceSafe emerges as a serious player in the IoT space.
Another theme that has surfaced over the past few months is how innovative the company really is. They have continued to bring compelling products to the market, from the Patient Path suite to AI/ML capabilities to its rock-solid ecosystem. Their efforts have been recognized globally as they have won impressive awards and certifications. There are also no other contact tracing companies in Canada that have partnered with a company of Telus’ magnitude, and this partnership is expected to continue as TraceSafe solutions are deployed among Telus’ corporate clients and employees.
“TraceSafe, powered by TELUS’ secure and reliable IoT ecosystem, is one more way in which TELUS is helping Canadians – including innovators and entrepreneurs – stay connected to the people and information that matter most to them.”
– Darren Entwistle, TELUS President and CEO2
The TraceSafe TAM
TraceSafe operates in a huge market with Enterprise Wearable Tech & Contact Tracing being by far the biggest segments:
Yes, that’s correct. Quarantine management is a minuscule 1% of the total market size and if we go by TraceSafe’s recent contract wins listed above, wearable tech and contact tracing are the dominant themes, by a long shot!
On the enterprise wearable and contact tracing front, TraceSafe signed a deal with UKG which is a company built by the merger of Kronos and a Florida-based software provider called Ultimate Software. The company is one of the biggest cloud computing companies in the world with top-tier clients that include Tesla, Marriott, Samsung, Yamaha, Sony Music, The Salvation Army, Miami Dolphins, Phoenix Suns, Revlon.
TraceSafe has also begun to work with one of Singapore’s biggest construction companies, Boustead Construction. This sets the stage for further deals in Asia within the construction or office segment.
The company has also made great strides in the hospitality and venue management sectors. They got approved for both TD Garden and the World Juniors which is a big deal as it was backed by Hockey Canada.
The possibilities are virtually endless — TraceSafe bracelets can also be equipped with payment capabilities for use in concession stands. There is a massive opportunity here to partner with privately-held Delaware North – the owner of TD Garden3 and one of the biggest private hospitality and restaurant companies in the world.4
If the existing deals are successful, it sets the stage for TraceSafe to work with some of the biggest sports and venue companies in the world. Potential contracts with teams from the NBA or NHL are not out of question.
With the market expected to grow at a 41% CAGR and TSF having a proven business model with the ability to continuously innovate and add to its existing suite of impressive products, the stars seem to be aligning.
It’s easy to get caught up on the wearable, hardware, and communication protocols side of the IoT world and McKinsey predicts that this trend is changing:
The most notable changes in this dynamic industry will emerge around new software that allows for IoT connection between devices. Hardware still accounts for 30% of the total value of IoT technology, although trends suggest its global market value is decreasing.5
– McKinsey Digital
The main differentiator in the market is the software aspect which creates actionable intelligence derived from data.6 This is one of the core aspects of TSF’s cloud dashboard reports. From contact tracing to asset tracking, TSF has all bases covered.
We are already seeing that significant revenues are starting to show up as customers are placing a premium on TraceSafe technology to provide data intelligence in location tracking, workplace habits and the safety of workers. Big data play, anyone?
The sophisticated TraceSafe ecosystem
COVID created a new era of enterprise wearable technologies and TraceSafe is capitalizing on the opportunity to pivot into new sectors. They are evolving with the needs of a rapidly growing market and are positioning themselves to take greater market share. The market requires that wearable devices be smaller, more flexible, more comfortable, and if possible, should be designed to be worn invisibly, (e.g., hidden under clothing).7 Finally, future wearable devices should never be short of power, and for instance, could be designed to include minute energy harvesters.
The consumers asked and TraceSafe delivered!
Customers can choose from a range of customizable, comfortable, and small devices that blend in or stand out, like tags, lanyards, wristbands, and cards. They have the flexibility to design their own devices from adding logos and brand colors to choosing from a range of sensors for movement recognition, contactless payments, or keyless entry. There is also a wide variety of battery options to choose from including consumable, rechargeable or replaceable, and last from one month to one year.
In terms of functionality and configurations, customers can:
- Match any environment
- Receive up to tens of thousands of devices within weeks of ordering
- Track location in real time
- Only work within a predetermined space
- Update clients and employees with haptic, visual and/or auditory alerts
Then, we have the gateways that hold the TraceSafe wearable ecosystem together. These gateways can be placed strategically around the location, enabling real-time information to be extracted and uploaded to the cloud. All the data sent to the cloud is encrypted and secure:
TraceSafe also has beacons for an added layer of safety and additional data analytics capabilities. Using these beacons, companies can alert employees who are too close to a hazardous location, asset tracking or monitor traffic to better allocate resources and staff:
It’s the TraceSafe location-aware IoT software which is the cherry on top!
This helps customers from moving away from managing multiple connectivity platforms. Customers are empowered to build uncompromising cloud applications that flawlessly integrate with existing infrastructure, all while ensuring data protection and privacy compliance.
Some key features of the software include:
- Cloud or on-premises
- Handling over 100,000 devices per instance
- Processing over 15,000,000 device interactions daily
- Configurable dashboards, reports, analytics, and intelligent alerts
- API integration with other platforms, including HR and health management information systems
Combining the hardware and the software product offering, TraceSafe provides its customers with a one-stop Platform-As-A-Service (PAAS) solution:
TraceSafe’s strategic roadmap and financials
The management is now in the “Scale” phase of its strategic roadmap:
In this phase, TraceSafe is strategically pivoting towards higher levels of software support revenue in addition to ongoing hardware sales and is moving away from solely providing contact tracing solutions. Current areas of expansion are asset tracking, employee time and attendance, and worker safety. Customers currently using TraceSafe’s contact tracing hardware can expect add-ons to various TraceSafe devices, including RFID and rechargeable batteries, over the coming months.8
Looking at the financials, revenues have grown impressively and the Q2 2021 revenue of 3.4m is almost equal to the FY2020 revenue of 3.56m! This fact underscores the revenue stickiness as customers appreciate the value of TSF’s enviable ecosystem of products.
Investors still mistakenly assuming TraceSafe as a Covid play need to have a look at this simple chart:
The chart shows that as the COVID cases have decelerated, the quarterly revenues have kept their upward momentum.
To determine the rate of COVID cases we have looked at the quarterly global case count and created a line graph to visually depict this rate of change. For example, the global case count was 10.46m as of June 2020 while the figure was 0.79m at the end of March. The rate of change was, therefore, 12.08x in Q2 2020. Similarly, in March and June ‘21, the global case count was 128.95m and 182.261m respectively. This gives us a rate of change of 0.413x in Q2 2021.
Still think TraceSafe is a COVID play? Think again!
Looking ahead, management is forecasting a healthy outlook with excellent quarters going forward. The current trends are expected to continue into Q3 and throughout 2021 with more sales in the pipeline.9
These developments will also enable TSF to become profitable in the future. If it can continue executing this strategy, the margins will continue to improve as the revenues will come from the SAAS components of the business which are higher-margin as compared to the hardware business.
Stock price action
Let’s have a look at how the stock has performed over the past year:
We can glean the following information by looking at the chart:
- Massive rally in the stock from Nov ’20 to Feb ’21
- Retracement to the $0.48 CAD level since Feb ’21
- The stock has returned 100% to the shareholders since Nov ’20
The first point on the massive stock rally needs to be put in perspective given the stock is a micro-cap and it was a great time for the stock markets. The TSX index returned around 17% while the TSX small-cap index was up by 37% during the same time period.10 Still, February was a historic month for the company as it signed an agreement with a Fortune 500 firm and benefitted from product deployments in Malaysia, providing great reasons for the massive run-up.
The obvious elephant in the room is the retracement back to $0.48 CAD since February and what are the possible reasons behind it?
One possible reason can be that the market continues to view TSF as a COVID play. Let’s not forget, quarantine management is 1% of the TraceSafe TAM.
Mr. Market is getting spooked by this tiny 1% market evaporating as economies reopen. But what’s hidden in plain sight is the company’s IoT solutions servicing 99% of the TAM. TSF has continued to secure large contracts with a far greater remit than just quarantine solutions- asset tracking, payments, workplace management and attendance & time management, just to name a few:
However, it does seem that the tide may well be turning as the buyer volume has been picking up since September. Investor interest is climbing as the RSI approaches oversold levels. WalletInvestor is also predicting better days ahead for TraceSafe (CSE:TSF) (OTC:UTOLF):11
Even though the stock has returned an impressive 100% since November ’20, TSF has the makings to become a multi-bagger given its future potential as a serious player in the IoT space!
The Airbeam connection and stock valuation
In March 2021, TSF disclosed a 14.3% stake in a company called Airbeam, a leading developer of solutions for 5G edge compute and wireless technologies., and is at the cutting edge of computing platforms for smart cities and roads. Airbeam will also be deploying wireless cameras with unlimited storage and smart displays for advertising. They are expected to go public sometime soon. If you research the company, the growth rates of the industry it operates in and the analyst valuations, the company stands at a valuation anywhere between $200-400m.
To be conservative, let’s say in our base-case, the valuation is at 100m. So basically, the valuation is unchanged from its 2019 level of $97M12 — highly unlikely but we are being conservative here.
This puts TraceSafe ownership value around $14M. Wayne Lloyd announced a decision to issue Airbeam shares via special dividend to TraceSafe shareholders once the company goes public.13
Below is a calculation of how big this dividend will be given a few different Airbeam valuation scenarios:
- 100m valuation (base case) = $0.32 per share
- 125m valuation = $0.41 per share
- 150m valuation = $0.49 per share
- 200m valuation = $0.66 per share
- 300m valuation = $ 0.98 per share
Now let’s look at TSF’s current and estimated future fair valuation (figures in USD):
|Current stock price||$0.38|
|June YTD sales||$4.79m|
|FY 2021 sales||$11.5m
(conservative estimates assuming Q2 run rate with no additional contracts)
|Current P/S valuation||1.4x|
Name me one PAAS stock that trades at a 1.4x P/S valuation multiple!
While no two PAAS stocks are the same, you would be hard-pressed to find a PAAS stock that doesn’t trade at a double-digit P/S multiple. For instance:
- TWLO trades at 21x P/S
- CRM trades at a 10.2x P/S
- VEEVA trades at a 23.6x P/S
Secondly, the above valuation also does not even capture the Airbeam investment! Let’s re-calculate the fair value:
|P/S ratio for cloud services industry||5.3x14 (very cautious estimate)|
|FY 2021 sales using the P/S multiple||$60.95m|
|Stock price based on the new multiple||$1.40|
|Return from Airbeam investment||$0.32 (assuming the lowest, base-case valuation)|
|Fair value of the stock||$1.72 (453% return from current levels, using very cautious assumptions)|
1. Execution risks
This is a risk you have to consider, despite TraceSafe's solid value proposition. TSF has laid out some ambitious, long-term plans to continue to disrupt some of the most exciting sectors of today. TraceSafe, in the past, has shown us how skillful it is when it comes to pivoting and adapting to its customer’s needs and to adverse scenarios. The contracts are sticky, and it has continued to secure large-scale deals. But can it keep up this pace? Can it meet or exceed projections?
2. Penny Stock Risks
As you can see from the charts we showed on the company, TraceSafe is like any other penny stock. No matter how exciting they are, penny stocks pose significant risks and wild swings. It depends on you as the investor to assess your own risk tolerance. If you get in at the right time, you can become rich overnight. If you get in at the wrong time, you could strike out and miss and lose it all. TraceSafe is no exception. For example, if you got in in late November 2020 and cashed out at the right time in mid-February 2021, you could net a 700%+ gain. On the other hand, if you chased the stock at the top and still held it, you could’ve potentially lost more than ¾ of your money. Just be mindful of when to get in and get out and do all you can to not catch a falling knife. Stocks like this are high risk, high reward, no matter how excellent the business model is and what sector they trade.
3. Macro Market Risks
Is this the tech bull market’s last stand? Is this rotation out of growth and into value here to stay this time? We went through a similar situation from February-April when bond yields skyrocketed, and tech stocks and pandemic-era winners plummeted. Then Delta hit and threw a wrench into things. Now, with economies reopening and the Fed preparing to taper its stimulus, bond yields are back again. For example, on Tuesday, September 28, the 10-year yield hit its highest level since June, and the Nasdaq closed down 2.83%. Could bond yields continue to rise as tech stocks continue to free fall?
Key takeaways for investors
Before investing, the key question that needs to be asked is whether this tech is going away or do businesses still require accurate analytics to make data-driven decisions to improve their workplace management and operate more efficiently? Demand is certainly not going away as we observe mounting applications of IoT technology in different industries.
TSF has proved that its full suite of products has vast applications by attracting customers from a number of sectors. The company’s one-stop PAAS solution gives it an edge in the IoT space. There is an ever-growing demand for its products as demonstrated by it selling over one million IoT devices and numerous contract wins.
As TSF continues to win more contracts, the software element of the business should become more prominent. This will provide more recurring revenue which will also generate higher margins. We already got a glimpse of this in the Q2 financial results.
The current stock price is depressed as the investors seem to think of TSF as a COVID play. Unfortunately, this view is myopic as investors can miss a great investment opportunity, especially at these levels. As the company continues to pivot into exciting new ventures with its state-of-the-art tech, TraceSafe (CSE:TSF) (OTC:UTOLF) could be a stock that rockets from its current level.
 IoT Wearable Technology, European Commission Case Study 44