bsm technologies inc. (gps-v) - beacon securities · 12/11/2014 · bsm provides real-time asset...

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BSM Technologies Inc.

(GPS-V) Time for Investors to Get Into

the Driver’s Seat

December 11, 2014

Vahan Ajamian, CPA, CA, CFA (416) 643-3879

[email protected]

We are initiating coverage of BSM with a Buy rating

and a target price of $2.20. In summary, our

recommendation is based on the following:

The telematics market (real-time transmission of

data surrounding mobile or fixed assets) is a fast

growing and fragmented space.

BSM’s focus is on a few specific verticals with

large and financially healthy clients which have

an affinity for big data – primarily the railroads.

BSM has been growing at 10%-20% organically,

which we expect to continue. This growth has

been supplemented by acquisitions, including

three this year alone.

It has undoubtedly been a tough year for BSM’s

shareholders. However, we expect EBITDA

margins to rise towards previous levels over the

next 12 months on the back of what we would

view as conservative revenue growth

assumptions. We also see the potential for BSM

to acquire more firms, and ultimately be

acquired itself. In our view, the positive macro

backdrop and expectations for improved

financial performance combined with a share

price and trading multiple which have retreated

significantly over the past year, make this an

excellent time to invest in BSM.

BUY $2.20$1.19

$2.20

85%

$1.15-$3.45

YE: Sep 30 FY14E FY15E FY16E

Revenue ($MM) $28.3 $32.0 $36.0

EBITDA ($MM) $4.3 $4.1 $6.5

FD EPS $0.01 $0.02 $0.05

FY14E FY15E FY16E

EV/Sales 1.6x 1.4x 1.2x

EV/EBITDA 10.3x 10.7x 6.8x

P/E 104.3x 73.1x 22.2x

Basic 47.1

FD 48.2

Market Cap

Basic $56.1

FD $57.4

Net Cash $12.1

Enterprise Value $44.0

About the Company

BSM prov ides real-time GPS fleet and asset

management solutions in North America. The company

is headquartered in Toronto, Canada, and has traded

on the TSX Venture Exchange since 1997.

All figures in C$ unless otherwise indicated.

Stock Performance

52 Week Price Range

Estimates

Valuation

Stock Data (MM)

Shares Outstanding

Initiating Coverage

Prev ious Close

12-month Target Price

Potential Return

Dec Feb Apr Jun Aug Oct

1

1.5

2

2.5

3

3.5

0

500

1,000

1,500

2,000Volume (Thousands) Price (CAD)

mailto:[email protected]

December 11, 2014 | Vahan Ajamian| 416.643.3879 | [email protected]

theScore, Inc. BSM Technologies Inc.

Table of Contents

Investment Thesis .......................................................................................................................... 3

Industry Overview ......................................................................................................................... 4

Company Overview ..................................................................................................................... 5

Revenue Model and Forecast .................................................................................................... 7

Competitive Landscape ........................................................................................................... 14

Q4/FY14 Preview ......................................................................................................................... 15

Valuation: What’s It Worth? ...................................................................................................... 16

Key Risks ....................................................................................................................................... 18

Initiating Coverage with a Buy Rating and a $2.20 Target Price ......................................... 19

Appendix A: Financial Statements ........................................................................................... 20

Appendix B: Management and Director Holdings and Select Biographies ...................... 23

Appendix C: Rail Industry Highlights ......................................................................................... 26




Investment Thesis

Companies in certain industries need to invest heavily in their assets to

maintain a competitive edge. These assets are often mobile and/or far

from management’s offices. Recent technological developments have

made it more accessible and affordable for firms to gather data around

these assets’ location, status, use and performance.

With BSM’s solutions, companies can obtain real-time data regarding their

assets, which managers can use to identify and implement ways to drive

efficiencies and respond faster to emergencies. The company earns

hardware revenue up front which is then followed by a Software as a

Service (SaaS) contract for a three year term. BSM’s approach has been

to focus on key verticals where large fleets exist and there is a strong need

for data to improve operations. BSM claims that its solutions have helped

reduce its clients’ average fuel spend by 10%-15%, and improve driver

performance by 30%, in addition to providing other benefits such as

reduced fines from compliance breaches, the ability to right-size their

fleets and increased driver safety.

BSM has been growing revenue at 10%-20% organically, which has been

supplemented by acquisitions (including three this year). We expect

double-digit revenue growth ahead and see a few catalysts, including

rolling out new products for railroad customers in 2015. Also, we expect

EBITDA margins to recover to the lower level of management’s 15%-20%

target range by the end of FY15 on the back of: improved gross margins

on hardware revenue as the company fully outsources the process; larger

share of higher gross margin recurring revenue; a scaling back of the

current heightened level of expenses as BSM’s investment cycle winds

down; and the benefits of increased scale.

BSM’s larger fleet management competitors currently trade at an

average EV/Forward EBITDA multiple of 15.2x. Despite having a similar top

line growth outlook to these firms, BSM trades significantly lower, at an

EV/2015E EBITDA multiple of 10.7x. Our target price is derived by applying

an EV/2016E EBITDA multiple of 13.5x. We note that the company’s shares

traded at an EV/Forward EBITDA multiple greater than 20x a year ago.

BSM’s share price is down over 60% year to date. Combined with an

outlook which we view as positive, we believe this is a good time to start

accumulating shares. We are initiating coverage of BSM with a Buy rating

and a $2.20 target price.




Industry Overview

Telematics – A High Growth, Yet Fragmented, Industry

BSM operates in the telematics industry – the real-time transmission of data

surrounding mobile or fixed assets (location, speed, fuel remaining etc.)

Supported by technological improvements and lower costs, telematics

has seen significant increases in adoption and is expected to remain a

high growth industry going forward. Given the lack of significant barriers

to entry, and the fact that it is a relatively new industry, this market is

comprised of a large number of smaller players. Consolidation has been

a theme in this industry, and we expect this to continue as firms look to

benefit from cross-selling opportunities and economies of scale.

We reference the following three recent industry reports to support our

view:

1) In October 2014 Berg Insight published its expectations for the number

of fleet management systems deployed in North America to grow at a

CAGR of 15.3% from 4.0MM in Q4/FY13 to 8.1MM in Q4/FY18, and for

the Latin American market to grow marginally faster (16.1% CAGR) off

of a smaller base. Berg Insight believes that the consolidation trend

will continue as the industry “still remains overcrowded” and envisions

the market across the Americas eventually being dominated by a

handful of providers, each with millions of subscribers.

2) In a report also published in October 2014 by ABI Research, the firm

calls for telematics subscriptions to ramp up at an accelerating rate,

with global subscriptions tripling between 2014 and 2019.

3) In December 2013, MarketsandMarkets released a study calling for the

fleet management market to grow from $10.91B in 2013 to $30.45B in

2018 (22.8% CAGR).




Company Overview

BSM provides real-time asset monitoring solutions, for both mobile and

stationary assets allowing them to be better managed by their customers.

The company was founded in 1996 and began trading on the TSX Venture

Exchange in 1997. The company has over 160 employees, half of whom

are based in the company’s headquarters in Toronto.

BSM’s solutions typically involve a sale of hardware, which is installed on

the asset being monitored, followed by a software contract for three

years or more. As such, the company operates on a SaaS basis, with

recurring revenue accounting for about two-thirds of total revenue.

The company’s flagship product is Sentinel FM. Sentinel simultaneously

monitors various aspects of an asset such as location, speed,

acceleration, braking, fuel level, idle time and door sensors and transmits

this data in real-time (up to every 15 seconds) to BSM’s servers through

cellular, Wi-Fi or satellite networks. Customers can then access this

information through a web browser on any device connected to the

internet (does not require custom software to be installed). Data

transmitted can be integrated into the company’s systems (ERP, payroll

etc.)

Key features of the Sentinel solution include:

Fleet & Asset Tracking – Sentinel allows users to zero in on the

location/status of a single asset, or take a wider view and assess their

entire fleet at once. Sentinel can support a wide variety of different

asset types (one of BSM’s clients uses the product to monitor over 35

types of assets), and also can provide history logs for each asset

tracked. The solution can also be set up to send immediate alerts for

certain occurrences, such as if an asset has entered/left a specific

geozone or exceeded a prescribed speed limit.

Fuel & Maintenance – Sentinel allows users to track fuel used and

odometer readings for each vehicle. It also provides information on

driver behaviour (speeding, harsh acceleration/braking, idling etc.)

which clients can use to identify good drivers and those needing

attention. Sentinel can also be integrated with fuel card systems and

help identify fuel fraud. Overall, BSM claims that clients have saved

10%-15% on their fuel costs by using their solutions.

Safety & Compliance – Sentinel allows firms to identify when assets are

being used outside of prescribed hours/locations. Its Hours-of-Service

offering automates driver logs to make sure firms remain compliant

with relevant regulations. In terms of safety, in addition to the features

highlighting unsafe driving noted above, Sentinel offers lone worker

protection which can automatically dispatch emergency services to

assist workers alone in remote areas when appropriate. Finally, BSM

offers the ability to generate a Panic Alert notifying their company of




an emergency situation by activating a Panic Button inside a vehicle,

via wireless remote or as part of a lone worker solution.

Machine to Machine – BSM’s hardware can integrate with Garmin

devices to ensure drivers are taking the most efficient route to their

destination and provides two-way messaging with dispatchers.

Sentinel also offers a Driver ID option to provide accurate reports

regarding the identity of vehicle drivers.

Preventative Maintenance – Customers can set up their fleets to track

their vehicles’ maintenance based on odometer levels, engine hours

or time. Sentinel can provide a vehicle’s maintenance history,

schedule of upcoming maintenance events and send alerts for

services that are due. We believe these features can help customers

manage their fleet.

BSM also carries other products. Most notably iTrax which offers storage

tank monitoring solutions. This allows customers to be able to monitor the

status of their remote fuel tanks (volume, pressure etc.) from their office in

real-time and save trips to visit the tanks themselves. iTrax also offers

automatic alerts. This is currently a minor (10%-15%) part of BSM’s revenue,

although the company recently expanded its capabilities and reach with

the acquisition of JMM. We see opportunities for BSM to now cross-sell

fixed asset monitoring solutions to existing mobile asset monitoring clients.

Rather than try to be “all things to all people”, BSM’s approach is to focus

on a small number of verticals comprised of large, financially healthy

customers with an affinity for big data.

Railroads account for 35%-40% of consolidated revenue. BSM serves five

Class I railroads in North America: Canadian National Railway Co. (CNR-T,

CNI-US, not covered); Union Pacific Corp. (UNP-US, not covered);

Canadian Pacific Railway Ltd. (CP-T, US, not covered); Burlington

Northern; and CSX Corp. (CSX-US, not covered), as well as several smaller

players. BSM’s focus had previously been on rail support vehicles, with

~10,000 subscribers. However, with the company’s acquisition of Lat-Lon,

BSM’s product line expanded to rail cars and locomotives, which, in our

view, provide meaningful cross-selling opportunities. We believe the rail

industry is on a very sound financial footing and that a number of

opportunities exist for BSM to further penetrate different aspects of this

market in 2015. For more information please refer to Appendix C.

Construction accounts for 20-25% of revenue. Clients include Aecon

Group Inc. (ARE-T, not covered) and Graham Construction. Other major

verticals served by BSM include utilities and energy services.




Revenue Model and Forecast

Exhibit 1. Financial Highlights

Y/Y Change

FY12 FY13 FY14E FY15E FY16E FY13 FY14E FY15E FY16E

Financial Highlights

Recurring Revenue (MM) $9.5 $11.7 $17.3 $21.0 $23.8 24% 48% 21% 13%

Hardware & Other Revenue (MM) $4.4 $7.5 $10.9 $11.0 $12.2 71% 46% 1% 11%

Consolidated Revenue (MM) $13.8 $19.2 $28.3 $32.0 $36.0 39% 47% 13% 12%

Gross Margin (MM) $9.2 $12.0 $16.4 $19.1 $22.2 30% 36% 17% 16%

EBITDA (MM) $2.0 $3.7 $4.3 $4.1 $6.5 85% 15% -3% 57%

EPS (f.d.) $0.05 $0.29 $0.01 $0.02 $0.05 452% -96% 41% 229%

Gross Margin % 66.7% 62.5% 57.9% 59.7% 61.6% -416 bps -468 bps 188 bps 186 bps

EBITDA Margin % 14.5% 19.3% 15.1% 12.9% 18.0% 477 bps -419 bps -222 bps 513 bps

Note: FY13 EPS (f.d.) benefitted from a $9.7MM deferred tax recovery.

Source: Company reports, Beacon Securities.

Hardware Leads Recurring Software Revenue

BSM’s typical sale involves an initial hardware component for the product

that is attached to the asset being tracked, followed by a software

contract for three years or longer. BSM does not sell hardware without a

subsequent software contract. Depending on the size of a deployment, it

can take up to six months for hardware sales to translate into recurring

revenue.

Exhibit 2. Revenue Streams

% of Revenue

Revenue Activities Covered Typical Timing of Recognition

Trailing Gross

Margin Range FY14E FY15E FY16E

HardwareHardware sales & harware portion of bundled sales

Includes development, project management and installation feesWhen hardware is shipped to a customer 24% - 35% 39% 34% 34%

Recurring Monthly application service provider and monitoring fees Monthly as services are delivered 76% - 78% 61% 66% 66%


BSM earns hardware revenue at the start of a subscription contract.

Revenue includes the price of the hardware shipped, as well as any other

initial fees, such as installation. As orders from large customers can vary,

hardware revenue tends to be somewhat lumpy. For example, over the

last four quarters hardware revenue has ranged from $1.2MM to $3.9MM.

Gross margins earned on hardware had previously exceeded 40%.

However, like several other players, BSM has experienced significant

deterioration in its hardware margins, from 39% in Q3/FY13 to a low of 24%

in Q3/FY14. While BSM currently performs the final assembly, testing and

configuration of its hardware products itself, it is in the process of

completely outsourcing its hardware, which we believe will lead to a

gradual recovery in gross margins – reaching the high 20’s% by H2/FY15

and 30% by H2/FY16. Hardware prices depend on the sophistication of

the product purchased, but typically range from $300 to $1,000 per unit.




BSM recognizes recurring revenue monthly over the life of a contract.

Given this straight-line nature of revenue recognition, combined with

increasing subscriber levels, BSM’s recurring revenue has been consistently

growing over time. Recurring revenue gross margins have been

remarkably stable at 75%-80%. Monthly charges per subscriber range

from $20-$25 for fleet management clients, or $10-$12 for monitoring

stationary assets. We expect recurring revenue’s share of the total to rise

to 66% in FY15 from 61% in FY14.

Exhibit 3. Revenue Breakdown

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

Recurring Revenue Hardware & Other Revenue

Source: Company reports, Beacon Securities estimates.

Given their long-term nature, more consistent levels and significantly

higher gross margins, we believe recurring revenue should be of greater

interest to investors than hardware revenue. We take comfort in the fact

that gross margins earned on recurring revenue alone have historically

exceeded all of BSM’s cash overhead, and we expect this to continue to

be the case.

Acquisitions Likely to Continue to Play a Role in Growing the

Company

Acquisitions have provided a boost to revenue in the past. Below we

highlight the company’s four most recent acquisitions:




Exhibit 4. Highlights of Recent Acquisitions

Estimated Annual

Initial

Consideration

Potential

Consideration

Total

Consideration

Target

Date

Closed Description

Revenue

(MM)

EBITDA

(MM)

Cash

(MM)

Share

Value

(MM)

Subtotal

(MM)

Cash

(MM)

Share

Value

(MM)

Subtotal

(MM)

Cash

(MM)

Share

Value

(MM)

Total

(MM)

Praxis Transportation

Solutions Inc.08-Aug-14

Provides driver compliance solution to a Class I railroad

customer - driver vehicle inspection reporting, driver

qualification and background checks, regulatory guidance

consulting etc.

Based in Alberta.

n/a n/a $0.3 $0.0 $0.3 $2.0 $1.0 $3.0 $2.3 $1.0 $3.3

JMM Management

Group, LLC30-Apr-14

Provides storage tank management and compliance

solutions.

Based in Illinois.

US$2.0 US$0.0 US$2.0 US$1.0 US$1.5 US$2.5 US$3.0 US$1.5 US$4.5

Lat-Lon L.L.C. 31-May-14

Provides wireless GPS tracking and monitoring solutions

with a specific focus on the railroad industry - particularly

locomtives and railcars. Had 9,000 units upon acquisition.

Baesd in Colorado.

US$6.2 US$0.0 US$6.2 US$6.0 US$0.0 US$6.0 US$12.2 US$0.0 US$12.2

Autovision

Wireless Inc.31-May-13

Provides fleet management, GPS tracking, mobile data

communications and telematics.

Strong presence in Western Canada and in energy, utility

and construction sectors.

$8.1 $2.3 $5.7 $1.0 $6.7 $5.0 $3.0 $8.0 $10.7 $4.0 $14.7

US$10.7 US$2.5


Acquired in May 2013, AutoVision Wireless was a transformational

acquisition for BSM. AutoVision provides fleet management and other

services primarily to energy, utility and construction clients in Western

Canada. The acquisition increased BSM’s recurring revenue and

consolidated revenue run rates by more than 50% overnight.

BSM has also made three acquisitions so far this year. Concurrent with the

release of Q2/FY14 results the company announced the acquisitions of

Lat-Lon and JMM. Lat-Lon significantly increased BSM’s exposure to the

rail sector, adding products to serve locomotives and railcars (with 9,000

subscribers) to the company’s existing leadership position among rail

support vehicles. The acquisition of JMM expanded the company’s

storage tank monitoring business. We calculate that these two firms

added approximately 33% to BSM’s annual revenue run rate.

Concurrent with the release of Q3/FY14 results BSM also announced the

acquisition of Praxis Transportation, a provider of driver compliance

solutions to a Class I railroad customer, which we believe is CN. Based on

the up front purchase price ($0.3MM in cash), we do not expect Praxis’

existing cash flows to be meaningful. However, management’s objective

is to sign a long-term contract with this customer, and offer Praxis’ solutions

to other railroads as part of an integrated suite of products.

While it may take some time to fully integrate the three companies

recently acquired, we expect BSM to continue engaging in acquisitions.

Given the uncertainty regarding their timing and size, we have elected to

not include any future acquisitions in our forecasts until such

announcements are made – thus offering upside to our forecast. BSM’s

approach is to acquire companies with a complimentary offering and the

opportunity for cross selling. BSM typically acquires firms for 6x-8x EBITDA.

BSM pays no more than two-thirds of the cost of an acquisition up front

with the remainder subject to earnouts over subsequent years. We

believe this helps mitigate the risk of acquisitions not performing to

expectations. BSM has also paid some of the purchase price in shares –




although we suspect it may choose to avoid doing so in the near-term,

given the current weakness in its share price.

Approximately 75% of BSM’s sales are directly generated by its sales staff

of 15 people. The remainder of the company’s sales are sourced though

its resellers. BSM’s largest reseller is Bell Mobility. Others include ARI,

Wright Express and Sprint.

The vast majority of BSM’s revenue historically had been earned in

Canada. However, buoyed by the Lat-Lon and JMM acquisitions, the

share earned in the U.S. rose to 38% in Q3/FY14.

Value of a Subscriber Significantly Exceeds Cost to Acquire

We calculate the initial value of a typical subscriber signed by BSM to be

a little over $700, comprised of: a gross margin of ~25% earned on the

initial hardware component of ~$400 ($100); a gross margin of ~78%

earned on a 36-month recurring revenue contract at $22/month ($618).

Note that while this is the approximate value of a subscriber to BSM upon

signing, it does not incorporate any potential future revenue arising after

the completion of the 36-month term, even though given the sticky nature

of the company’s offering, most customers will opt to continue on a

monthly basis. Management estimates annual customer churn at 6%-8%,

which we view as being relatively low. The Sentinel platform has a lower

churn, while acquired older platforms can have a higher level.

In contrast, the amount of sales and marketing dollars historically spent to

acquire a subscriber have been much lower, at ~$250. While our

calculated base value of a customer (for just the 36-month initial term) is

almost triple its acquisition cost, we believe the metrics are just as

impressive on a payback basis. The gross margin on the hardware

component of a new subscriber ($100 in this typical example) is

recognized up front, allowing BSM to immediately recover almost half of a

subscriber’s acquisition cost. Subsequently, BSM realizes $17/month of

recurring revenue gross margin allowing it to fully recover its acquisition

cost after just 10 months.

Revenue Forecasts

Our forecasts call for BSM to generate $32.0MM of revenue in FY15,

followed by 12% growth in FY16 to $36.0MM. With no acquisitions in our

forecast, we note that our organic growth forecast for FY16 is on the low

end of management’s goal of 10%-20%.

Regarding the nearer term outlook, please refer to Exhibit 5 below. At the

end of Q3/FY14, BSM had 64,565 fleet management subscribers paying

$20-$25/month and 12,396 stationary asset subscribers paying $10-

$12/month. At the midpoints of these ranges, we calculate that BSM




ended the quarter with an annual recurring revenue run rate of $19.1MM.

Over the past four quarters, the company also generated hardware

revenue of $9.5MM. We therefore calculate BSM’s “base” consolidated

annual revenue run rate at the end of Q3/FY14 to be $28.6MM. In this

context, we believe our consolidated revenue forecast for the next 12

months (i.e., Q4/FY14–Q3/FY15) are quite conservative. We note the

following:

Our forward recurring revenue forecast of $20.3MM is only 6% above

the midpoint annual rate the company already had in hand at the

end of Q3/FY14 of $19.1MM. This is below what may be expected

given the company’s stated goal of continuing to generate 10%-20%

organic growth y/y.

Our expectations for hardware revenue of $10.8MM for the next 12

months is only 13% above what the company generated over the past

12 months – towards the low end of management’s goal of 10%-20%

organic growth y/y. While hardware revenue has been lumpy on a

sequential basis, when analyzed y/y, quarterly hardware revenue

growth has consistently been positive.

On a consolidated basis, our revenue expectation of $31.1MM is only

9% above the company’s current “base” annual revenue run rate.

While it may be relatively minor in magnitude, BSM will generate some

revenue over the next 12 months from the Praxis acquisition which

closed subsequent to the end of Q3/FY14. Further, revenue

generated from Praxis could be more significant if the company is

successful in selling its solutions to more customers.

With BSM having made two more meaningful acquisitions which

closed during Q3/FY14 (Lat-Lon and JMM), we expect there to be

significant low hanging fruit in terms of revenue synergies the

company can realize by cross-selling new services to customers.

Exhibit 5. Annual Run Rate Given Subscribers as at Q3/FY14

Beacon Est. (000's)

Annual ARPU Annual Revenue (000's) Q4/FY14E -

# Subscribers Low High Mid Low High Mid Q3/FY15E Vs. Mid

Fleet Management 64,565 $240 $300 $270 $15,496 $19,370 $17,433

Stationary Asset 12,396 $120 $144 $132 $1,488 $1,785 $1,636

Total Recurring Revenue 76,961 $16,983 $21,155 $19,069 $20,293 6%

Hardware Revenue - LTM $9,511 $9,511 $9,511 $10,775 13%

"Base" Annual Revenue $26,494 $30,666 $28,580 $31,068 9%





Currently Undergoing an Investment Cycle to Support Future

Growth – Margins to Start to Normalize by the End of FY15

BSM’s EBITDA margins in the past two quarters have declined from levels

seen previously (Exhibit 6). The company has been making investments in

its overhead to be able to handle expected growth ahead. As this

investment cycle winds down, we are forecasting EBITDA margins to return

to the low end of management’s targeted range of 15%-20% by Q4/FY15

and end FY16 at 19.4%.

Exhibit 6. EBITDA (MM) and EBITDA Margin % – History and Forecasts

0%

5%

10%

15%

20%

25%

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

$2.0

EBIT

DA

Mar

gin

%

EBIT

DA

(M

M)

EBITDA (MM) EBITDA Margin %


The main drivers of our expectation of higher EBITDA margins are: an

increase in the share of higher margin recurring revenue; increases in

hardware gross margins (expected to remain well below historical levels);

declines in marketing, advertising and promotion expenses and research

and development expenses as a percentage of revenue as the

company’s investment cycle winds down (again, still forecast to be

above historical levels); and a reduction in general and administrative

expenses as a percentage of revenue achieved through increased scale.




Exhibit 7. Key Items Expressed as a Percentage of Revenue

Y/Y Change

FY11 FY12 FY13 FY14E FY15E FY16E FY15E FY16E

% of Revenue - Recurring 64.2% 68.5% 61.1% 61.4% 65.6% 66.2% 425 bps 54 bps

% of Revenue - Hardware 35.8% 31.5% 38.9% 38.6% 34.4% 33.8% -425 bps -54 bps

Gross Margin - Recurring 73.0% 78.0% 78.0% 76.9% 77.1% 78.0% 21 bps 87 bps

Gross Margin - Hardware 28.0% 38.0% 38.0% 27.6% 26.5% 29.5% -105 bps 299 bps

Gross Margin - Consolidated 57.1% 66.7% 62.5% 57.9% 59.7% 61.6% 188 bps 186 bps

% of Revenue

Marketing, Advertising and Promotion 15.1% 14.2% 12.0% 13.2% 13.9% 12.9% 73 bps -103 bps

Research and Development 8.6% 11.9% 11.1% 13.9% 14.9% 13.8% 94 bps -107 bps

General and Administrative 29.9% 30.0% 24.8% 23.6% 25.6% 23.6% 195 bps -194 bps


Strong Balance Sheet Can Support More Acquisitions

GPS ended Q3/FY14 with $24.9MM of cash on hand and $12.8MM of long-

term debt, for net cash of $12.1MM. The company also had an estimated

$6.8MM of liabilities representing contingent consideration for previously

closed acquisitions (62% of this is long-term). Subsequent to the quarter

end, BSM announced the acquisition of Praxis which required a $0.3MM

payment upon closing.




Competitive Landscape

As indicated, fleet management is a fragmented industry. Rather than

consistently facing the same competition, BSM tends to see different

competitors for different assets. That said, companies active in this space

include: Trimble Navigation Limited (TRMB-US, not covered), Telogis;

Fleetmatics Group Ltd. (FLTX-US, not covered); and Webtech Wireless Inc.

(WEW-V, not covered).

In a typical sales process, BSM’s customers would issue an RFI and likely

shortlist a few candidates for an RFP while conducting some trials.

Decisions are usually made based on a combination of price and

capabilities. Being able to customize a solution to a customer’s requested

format is particularly important for some of the larger organizations BSM

sells to. A full enterprise sales process can take 9-12 months to complete,

although smaller deployments could be shorter.




Q4/FY14 Preview

BSM will be reporting Q4/FY14 results after market close on December 15,

2014, and hold a conference call at 8:30 am (Eastern) on December 16,

2014. We are expecting recurring revenue of $4.8MM – up 9% sequentially

(21% y/y) supported by the company’s three recent acquisitions. We are

forecasting BSM to recognize $2.6MM of hardware and other revenue,

which is just above the company’s four-quarter average of $2.4MM.

We are expecting recurring revenue gross margins of 77% and hardware

gross margins of 24% – both equal to the levels earned in Q3/FY14. Our

Q4/FY14 EBITDA estimate is $668K, up 30% sequentially but down 32% y/y.

Exhibit 8. Q4/FY14 Expectations

Quarter Q4/FY14E Q4/FY13 Q3/FY14 % Change

Ended Sep-14 Sep-13 Jun-14 Y/Y Q/Q

Revenue (000's)

Recurring Revenue $4,815 $3,970 $4,417 21% 9%

Hardware & Other Revenue $2,600 $1,193 $2,033 118% 28%

Total Revenue $7,415 $5,163 $6,450 44% 15%

Gross Margin (000's) $4,331 $3,484 $3,891 24% 11%

EBITDA (000's) $668 $986 $515 -32% 30%

Net Income (000's) -$72 $9,843 -$389 nmf (neg) nmf (pos)

EPS (f.d.) $0.00 $0.28 -$0.01 nmf (neg) nmf (pos)

Gross Margin % 58.4% 67.5% 60.3% -906 bps -191 bps

EBITDA Margin % 9.0% 19.1% 8.0% -1,009 bps 102 bps

Cash Flow From Operations (000's)

Before Changes in Non-Cash Working Capital $805 $693 -$270 16% nmf (pos)

From Changes in Non-Cash Working Capital -$547 $426 -$1,208 nmf (neg) nmf (pos)

Cash Flow From Operations - Total $258 $1,119 -$1,477 -77% nmf (pos)

Cash, Ending Balance (000's) $23,955 $10,251 $24,897 134% -4%

Note: Q4/13 EPS (f.d.) benefitted from a $9.7MM deferred tax recovery.





Valuation: What’s It Worth?

Exhibit 9. Market Comparables

2014E 2015E 2016E NTM 2014E 2015E 2016E

BSM Technologies Inc. GPS-TSX $1.19 $56 $44 47% 13% 12% 12.5x 10.3x 10.7x 6.8x

Descartes Systems Group Inc. DSG-CAN $17.15 $1,294 $1,125 24% 13% 10% 17.4x 19.2x 16.5x 14.5x

FleetMatics Group Ltd. FLTX-USA $36.96 $1,395 $1,259 30% 25% 20% 14.5x 17.8x 13.9x 11.6x

Garmin Ltd. GRMN-USA $54.94 $11,413 $10,107 8% 2% 3% 13.5x 13.1x 13.2x 12.6x

Trimble Navigation Limited TRMB-USA $27.00 $6,993 $7,604 6% 7% 12% 15.6x 16.5x 14.7x 13.8x

CalAmp Corp. CAMP-USA $19.26 $697 $671 7% 16% 18% 15.1x 18.0x 13.7x 9.6x

Group Average 15% 13% 12% 15.2x 16.9x 14.4x 12.4x

Key Fleet Management Comps

Fleet Management Companies

Sales Growth EV/EBITDA

Last PriceTicker CompanyMarket Cap

(MM)EV (MM)

2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016E 2013A 2014E 2015E 2016E

BSM Technologies Inc. $19.2 $28.3 $32.0 $36.0 $3.7 $4.3 $4.1 $6.5 $0.29 $0.01 $0.02 $0.05

Descartes Systems Group Inc. $157 $195 $221 $244 $44.2 $58.6 $68.1 $77.4 $0.73 $0.59 $0.64 $0.69

FleetMatics Group Ltd. $177 $231 $288 $345 $54.9 $70.8 $90.3 $108.6 $0.86 $0.95 $1.22 $1.61

Garmin Ltd. $2,632 $2,854 $2,920 $2,993 $652.8 $771.2 $766.5 $802.9 $2.62 $3.13 $3.25 $3.37

Trimble Navigation Limited $2,288 $2,419 $2,598 $2,903 $464.5 $461.7 $515.9 $552.2 $1.40 $1.48 $1.60 $1.95

CalAmp Corp. $236 $253 $292 $345 $26.4 $37.3 $49.1 $69.9 $0.77 $0.91 $1.18 $1.36

Fleet Management Companies

Key Fleet Management Comps

Sales (MM) EBITDA (MM) EPS (FD)

Company

Note: BSM has a September year end. Descartes and Trimble have a January year end. CalAmp has a Feburary year

end. All other companies have December year ends. Financial information is in CAD for BSM and Descartes and in USD

for all other companies.

Source: Company reports, FactSet, Beacon Securities estimates.

BSM currently trades at EV/2015E EBITDA multiple of 10.7x. This is well below

the group of telematics comps above, which currently trade at an

average EV/Forward EBITDA multiple of 15.2x – despite having a similar

top-line growth outlook.

Our $2.20 target price is derived by applying an EV/Forward EBITDA

multiple of 13.5x to the company’s EBITDA for the 12 months ended

Q4/FY16. We expect the shares’ trading multiple to rise over the next year

as the company executes on our forecasts. However, we note that our

target multiple is below where the company’s peers trade and well below

where BSM traded earlier this year (over 20x EV/Forward EBITDA in January

2014).




Exhibit 10. Calculation of Target Price

FY16E EBITDA Estimate (MM) $6.5

Target Valuation Multiple 13.5x

EV (MM) $87.6

Forecast Net Debt (Net Cash) (Sep 2015, MM) -$15.9

Equity Value (MM) $103.5

Shares Outstanding (ending Sep 2015, MM) 47.1

Target Price (Rounded) $2.20

Implied Return 85%

Source: Beacon Securities.

Exhibit 11. Expected Changes in Key Metrics Over the Next 12 Months

Valuation Metrics Operational Metrics - Forward

EV/Forward EBITDA EV/Trailing EBITDA EV/Forward Sales Revenue (MM) EBITDA (MM)

Current 10.7x 10.6x 1.4x $32.0 $4.1

Target 13.5x 24.8x 2.4x $36.0 $6.5

Implied Increase 26.9% 134.4% 77.5% 12.4% 57.2%

Current represents the last reported quarter. Forward represents the upcoming calendar year. Target incorporates our

share price and balance sheet expectations as at the quarter ending Q4/F15.

Source: Beacon Securities estimates.

Having created a strong niche within a number of key verticals, we

believe BSM could be an acquisition target at some point down the road.

For a representative acquisition of a publicly traded company, we point

to XRS Corporation, which provides fleet management and compliance

software solutions to the trucking industry. XRS was acquired last month by

Omnitracs (which itself was acquired by Vista Equity Partners a year prior).

XRS was acquired at an EV/Trailing EBITDA multiple of 14.7x. Simply

applying this multiple to our FY16 forecasts for BSM would result in a

transaction price of $2.48. However, we note that, unlike BSM, XRS’

business was shrinking, having experienced negative y/y revenue growth

in 14 of the last 15 quarters prior to the acquisition. Accordingly, we

believe a higher multiple could be justified for BSM.




Key Risks

Executing and Managing Growth. There is a risk that the company is not

able to meet our revenue forecasts and/or properly manage this growth.

Acquisition Risk. BSM recently closed three acquisitions and we expect

the company to engage in more in the future. There is a risk that BSM

does not successfully integrate acquisitions and/or that acquired

companies do not perform as expected (goodwill was $13.3MM at the

end of Q3/FY14).

Key Person Risk. We attribute substantial value to BSM’s management

team and Board of Directors (see Appendix B for details). The company

may not be able to meet our forecasts should it lose the services of its key

personnel.

Technological Risks: While we are forecasting BSM to spend increasing

amounts on research and development to continually enhance its

product offerings, there remains a risk that competitors build a superior

software, or that the industry itself becomes less relevant. Additionally, the

company would likely be subject to reputational loss in the event of a

security breach leading to the unauthorized access or a loss of

information.




Initiating Coverage with a Buy Rating

and a $2.20 Target Price

We are initiating coverage of BSM Technologies with a Buy rating and a

$2.20 target price, representing a projected total return of 85%. In

summary, our recommendation is based on the following:

Fleet management is a high growth and fragmented industry and we

expect BSM to continue to participate in its consolidation.

We believe BSM is well positioned given its focus on a few large

verticals and has significant room to penetrate them further.

We expect BSM to generate double-digit revenue growth with

improving EBITDA margins over the next two years. We believe our

forecasts are arguably conservative and that future acquisitions (we

have forecast none) could be meaningful.

BSM’s share price and trading multiple have come under significant

pressure during 2014. Given our positive outlook for the company and

expectations for improving financial results, we believe this is a great

time to be establishing positions in this name.




Appendix A: Financial Statements

Income Statement


Consolidated Statement of Comprehensive Income (Loss)

Years Ended September 30

('000s - except per share amounts) 2012 2013 2014E 2015E 2016E

Revenue

Recurring Revenue $9,455 $11,736 $17,349 $21,003 $23,807

Hardware & Other Revenue $4,357 $7,471 $10,918 $11,000 $12,175

Total Revenue $13,812 $19,207 $28,267 $32,003 $35,982

Gross Margin $9,211 $12,011 $16,356 $19,118 $22,163

Operating Expenses

Marketing, Advertising and Promotion $1,962 $2,301 $3,729 $4,457 $4,639

Research and Development $1,650 $2,128 $3,937 $4,756 $4,965

General and Administrative $4,149 $4,761 $6,673 $8,178 $8,496

All Other Operating Expenses $0 $2,615 $1,041 $800 $900

Total Operating Expenses $7,762 $11,804 $15,379 $18,191 $19,000

EBITDA - Ex-Unusuals $2,007 $3,708 $4,272 $4,127 $6,487

Net Interest Income (Expense) -$11 $93 $364 $4 -$96

Income (Loss) Before Taxes $1,541 $201 $710 $1,023 $3,364

Income Tax Expense (Recovery) $0 -$9,323 $225 $256 $841

Net and Comprehensive Income (Loss) $1,541 $9,524 $485 $767 $2,523

EPS - Basic & Diluted $0.05 $0.29 $0.01 $0.02 $0.05

Shares Outstanding 28,579 37,995 47,119 47,119 47,119

Key Operational Data

Gross Margin - Recurring Revenue 78% 78% 77% 77% 78%

Gross Margin - Hardware & Other Revenue 38% 38% 28% 27% 30%

Gross Margin - Consolidated 67% 63% 58% 60% 62%

EBITDA Margin % 15% 19% 15% 13% 18%





Cash Flow Statement


Consolidated Statement of Cash Flows



Cash Flows From Operating Activities

Net Income (Loss) $1,541 $9,524 $485 $767 $2,523

Items Not Afffecting Cash

Amortization of property and equipment $74 $128 $238 $300 $320

Amortization of intangible assets $235 $671 $1,573 $2,000 $2,000

Amortization of financing costs $0 $11 $36 $0 $0

Loss on sale of asset $1 $3 $0 $0 $0

Current and Deferred tax expense $0 -$9,769 $117 $0 $0

Accreted interest on contingent consideration $0 $0 $420 $508 $508

Fair value adjustment on contingent consideration $0 $87 -$449 $0 $0

Share-based compensation expense $0 $815 $658 $800 $900

Cash Flows From Operating Activities - Before Changes in Non-

Cash W/C $1,851 $1,471 $3,078 $4,375 $6,251

Changes in Non-Cash W/C $43 $491 -$6,075 $799 -$552

Cash Flows From Operating Activities $1,894 $1,962 -$2,997 $5,174 $5,699

Cash Flows From Financing Activities

Repayment of Long-Term Debt $0 $6,518 $5,638 -$2,400 -$2,400

Issuance of Common Shares -$379 $8,152 $20,395 $0 $0

Options and Warrants Exercised $0 $0 $1,327 $0 $0

Capital Lease Payments -$8 -$2 $0 $0 $0

Cash Flows From Financing Activities -$386 $14,668 $27,360 -$2,400 -$2,400

Cash Flows From Investing Activities

Acquisition of intangible assets -$286 -$54 -$42 $0 $0

Acquisition of property, plant and equipment -$155 -$88 -$758 -$1,000 -$1,000

Restricted cash related to contingent consideration $0 -$2,500 $0 $0 $0

Acquisition of subsidiaries, net of cash acquired $0 -$6,761 -$9,860 $0 $0

Cash Flows From Investing Activities -$441 -$9,404 -$10,660 -$1,000 -$1,000

Net Cash and Cash Equivalents Inflow (Outflow) $1,067 $7,226 $13,703 $1,774 $2,299

Cash and Cash Equivalents, Opening Balance $1,958 $3,025 $10,251 $23,955 $25,729

Cash and Cash Equivalents, Ending Balance $3,025 $10,251 $23,955 $25,729 $28,028

Other Items

Free Cash Flow $1,453 $1,820 -$3,797 $4,174 $4,699

Free Cash Flow per Fully Diluted Share $0.05 $0.06 -$0.09 $0.09 $0.10





Balance Sheet

BSM Technologies Inc.Consolidated Balance Sheet



Assets

Current Assets

Cash and cash equivalents $3,025 $10,251 $23,955 $25,729 $28,028

Restricted Cash Related to Contingent Consideration $0 $2,500 $0 $0 $0

Accounts receivable $2,389 $3,445 $6,502 $6,401 $7,196

Current portion of investment in finance leases $520 $613 $943 $943 $943

Investment tax credits receivable $0 $193 $0 $0 $0

Inventories $585 $1,919 $3,392 $3,200 $3,238

Prepaid expenses and other assets $214 $268 $1,434 $1,739 $1,810

Current Assets $6,734 $19,189 $36,225 $38,012 $41,216

Non-Current Assets

Property and equipment $392 $639 $1,238 $1,938 $2,618

Long-term investment in finance leases $461 $647 $1,613 $1,613 $1,613

Intangible assets $789 $7,772 $15,814 $13,814 $11,814

Deferred tax asset $0 $8,437 $8,327 $8,327 $8,327

Goodwill $1,179 $7,725 $13,338 $13,338 $13,338

All other $0 $0 $300 $300 $300

Non-Current Assets $2,820 $25,219 $40,631 $39,331 $38,011

Total Assets $9,554 $44,408 $76,856 $77,343 $79,226

Liabilities

Current Liabilities

Accounts payable $1,861 $2,522 $2,868 $3,478 $3,620

Accrued liabilities $1,416 $2,096 $1,721 $1,739 $1,810

Current portion of long-term debt $0 $1,400 $2,468 $2,468 $2,468

Current portion of contingent consideration $0 $2,252 $2,604 $2,604 $2,604

Provisions $648 $1,271 $868 $868 $868

All other $32 $477 $867 $1,050 $1,190

Current Liabilities $3,956 $10,018 $11,395 $12,207 $12,560

Non-Current Liabilities

Long-term debt $0 $5,129 $9,723 $7,323 $4,923

Long-term contingent consideration $0 $1,803 $4,325 $4,833 $5,341

Non-Current Liabilities $0 $6,932 $14,048 $12,156 $10,264

Total Liabilities $3,956 $16,950 $25,443 $24,363 $22,823

Shareholders' Equity $5,596 $27,458 $51,413 $52,980 $56,403

Total Liabilities and Equity $9,552 $44,408 $76,856 $77,343 $79,226





Appendix B: Management and Director

Holdings and Select Biographies

Exhibit 12. Insider Holdings

Name Title / Role Other Affiliations Common Shares

Common Shares

% of Total Options

Aly Rahemtulla President & CEO Onbelay Partners Limited 1,062,635 2.3% 270,500

Louis De Jong CFO & Corporate Secretary Credit Suisse, Sprott Securities 825,000 1.8% 325,000

Greg Rokos Director ESI Information Technologies 132,500 0.3% 60,958

Frank Maw Chairman Motorola Canada Limited 76,000 0.2% 75,000

David Yach Director Auvik Networks Inc., BlackBerry Ltd. 30,000 0.1% 40,000

Piere Bélanger Director Québecor 20,000 0.0% 60,959

Suresh Periyalwar COO BlackBerry Ltd., Nortel Networks 0 0.0% 325,000

Alban Hoxha CTO WebTech 0 0.0% 142,500

Stewart Pinos CCO SCI, UPS SCS Canada 0 0.0% 10,000

Group Subtotal 2,146,135 4.6% 1,309,917

Source: SEDI.

Select Management and Board of Director Biographies (source: company

website)

For a full list of the company’s senior management and directors, please

refer to BSM’s website.

Aly Rahemtulla – President and CEO

Mr. Rahemtulla is the President and Chief Executive Officer of BSM

Technologies Inc. (“BSM”) and served as the President of Onbelay

Automotive Coatings Corporation, a wholly owned subsidiary of Onbelay

Partners Limited (“OPL”) prior to joining BSM. Prior to forming OPL, Mr.

Rahemtulla was a consultant with the global management consulting firm

of A.T. Kearney Limited providing direction on corporate strategy to

Fortune 100 corporations. Prior to that he operated his own consulting firm

called ANR Solutions Inc. Mr. Rahemtulla holds an Honours in Business

Administration degree from the Richard Ivey School of Business at the

University of Western Ontario.

Louis De Jong – CFO and Corporate Secretary

Mr. De Jong is the Chief Financial Officer and Corporate Secretary of BSM

Technologies Inc. (“BSM”) and brings extensive financial leadership

experience. As a part of his duties, Mr. De Jong leads BSM’s M&A and

strategic growth opportunities.

After beginning his career as an account with PricewaterhouseCoopers

LLP (“PwC”), Mr. De Jong has accumulated over 20+ years of experience

in the financial and investment industries. Following his time at PwC, Mr.

De Jong has acted as the Managing Director at Jemekk Capital

Management, as the Head of Canadian Equities at Credit Suisse, and as

a member of the Institutional Sales desk at Sprott Securities. Mr. De Jong




also founded and is the Managing Partner at De Jong & Co., a boutique

merchant bank engaged in principal investment and financial advisory

services.

Mr. De Jong earned his Economics degree from the University of Western

Ontario and is also a CPA and CA Charterholder.

Stewart Pinos – Chief Commercial Officer

Mr. Stewart Pinos is the Chief Commercial Officer of BSM Technologies Inc.

(“BSM”). Stewart brings over 15 years of senior sales and marketing

experience in North America and Europe.

His career path has allowed him to lead the development and

implementation of broad strategic growth and innovation initiatives,

focused on creating distinct customer value by having a strategic

perspective on markets and marketplace opportunities. Stewart takes

ownership of the customer and the customer interface with the product

or service offering, making sure that all functions of the organization are

aligned to meet its strategic commercial objectives.

Most recently, Mr. Pinos was the vice-president of sales and marketing at

the SCI Group Inc., a leading Canadian 3PL company. Prior to SCI, Mr.

Pinos was the Vice-President of Business Development at UPS SCS Canada

and was responsible for Business Development and leading the program

management practice for a portfolio of high-profiled clients.

Suresh Periyalwar – Chief Operating Officer

Mr. Periyalwar is the Chief Operating Officer at BSM Technologies Inc.

(“BSM”) and has over 30+ years’ experience in various fields of

engineering and 18+ years in management.

Prior to joining BSM, Mr. Periyalwar was at Blackberry Ltd. (formerly known

as Research In Motion) as the Senior Vice President of Handheld Software.

Over a 10+ year period at Blackberry, Mr. Periyalwar helped develop

Blackberry’s handset business by leveraging his strengths in building high

performance teams, implementing suitable processes and procedures for

optimal growth, and doing what was needed to bring successful quality

products to market. Before BlackBerry, Suresh spent 6+ years at Nortel

Networks building up their CDMA base station business, following stints

with Newbridge Networks in network management, and as a defense

contractor, designing and implementing parallel vector processing

algorithms for detecting and tracking submarines in the North Atlantic.

Mr. Periyalwar holds a Bachelor of Science degree in Electrical

Engineering from Bangalore University in India and a Master’s Degree in




Electrical Engineering from Dalhousie University (formally Technical

University of Nova Scotia) in Canada.

Frank Maw – Chairman

Mr. Maw is the past President of Motorola Canada Limited having retired

after 35 years of senior management experience in the information &

communications technology and the consumer products industries. Mr.

Maw is a graduate of The University of Western Ontario and has served as

the Chairman of ITAC (Information and Telecommunications Technology

Association of Canada), as a director on The Toronto Board of Trade, as

the Chairman of the Canadian Wireless Telecommunications Association

and President of the original Paging Services Council of Canada. Mr. Maw

was the Chairman of Netistix Technologies Corporation which was

acquired by BSM Technologies Inc. in December 2007.




Appendix C: Rail Industry Highlights

We Believe the Railroad Industry is Very Healthy and in

Growth Mode

The railroad stocks have had a phenomenal run recently. Share prices

of the five publicly traded Class I railroads are up 39%-82% over the

past two years (average 67%). This has been driven by a combination

of record earnings expectations, as well as an average Price/Forward

EPS multiple for the group of 17.1x – well above its 10-year average of

14.7x.

While the group’s share prices and trading multiples have pulled back

somewhat over the past few weeks with the weakness in oil prices,

they remain historically very high and backed by very strong financial

results. Over the past 12 months, the industry has seen a 5% increase

in carloads shipped y/y, which has led to an 8% higher revenue.

Given the large fixed cost nature of the industry, operating ratios

(operating expenses / operating revenue) declined, leading to

significantly higher increases in net income and EPS (f.d.) of 15% and

17% respectively.

Exhibit 13. LTM Y/Y Change in Financial Metrics

LTM Y/Y Change in Financial Metrics

Carloads Revenue Operating Ratio Net Income EPS

CN 7% 13% 2 bps 14% 18%

CP 0% 7% -420 bps 37% 38%

CSX 6% 5% 115 bps -1% 1%

UNP 6% 9% -220 bps 16% 19%

NSC 5% 5% -255 bps 11% 12%

Average 5% 8% -156 bps 15% 17%

Note: Operating ratio is defined as operating expenses / operating revenue (lower is better).


Each of the publicly traded Class I railroads above is expected to

increase capex in each of 2015 and 2016. Admittedly, railroads spend

large dollars on various capital expenditures and it is not possible to

ascertain how much of these dollars would be spent on fleet

management. However, we are encouraged by the upward trend on

a consolidated basis, and believe it further demonstrates that the

industry is in ‘growth mode’.

We believe there is a great opportunity for BSM to offer more of its

existing and upcoming data solutions and expand its business with the

railroads to help them achieve further efficiency improvements.




We Believe BSM is Well Positioned to Significantly Increase

Penetration Within the Railroad Industry

Below we highlight five key areas of a railroad network and BSM’s

participation in each:

Rail Support Vehicles – BSM’s Current Area of Dominance

Rail support vehicles can operate on both rail tracks and highways.

BSM claims to have a ~90% market share. However, fleet

management solutions have only been deployed on ~10,000 of the

approximately 100,000 units available. Given this low level of

penetration and BSM’s dominance, we believe an opportunity exists

for the company to further increase its penetration in this area.

Rail Locomotives – Older Ones Have Little Technology

BSM estimates that there are approximately 40,000-50,000 locomotives

in North America. The company’s focus is on deploying its product on

the ~40% of older lower horsepower locomotives which generally

travel shorter distances and have little technology in them.

We believe BSM’s recent acquisition of Lat-Lon (which has a

locomotive solution) can produce meaningful cross-selling

opportunities.

Rail Yards – An Untapped Market

There is currently no technology deployed in rail yards.

BSM is beta testing an offering with Conrail (owned by CSX and Norfolk

Southern Corporation (NSC-US, not covered)) which includes outfitting

a rail yard with a series of sensors to help visualize what is going on in

the rail yard. With more data managers can run the rail yards more

efficiently. BSM expects to commercialize this technology in 2015.

Railcars – Another Opportunity for a New Offering

There are an estimated 1.4MM rail cars in North America. They are

owned by cargo firms, manufacturers and the railroads themselves.

Railcars can currently have RFID tags, which alert the operator only

when they pass a specific area. Operators therefore do not receive

critical information regarding the status of a railcar such as:

temperature; humidity; pressure; location; and acceleration.

The need for power in a railcar is a significant challenge to overcome

which has prevented successful advances in this area. However, BSM

has a new solar low cost solution which can operate without requiring

power. This solution is expected to be commercially available in 2015.

BSM claims to have received a very strong response from railcar

owners regarding this offering.




We believe BSM’s recent acquisition of Lat-Lon (which has a railcar

solution) can produce meaningful cross-selling opportunities.

People – Providing Mobile Technology to Those Running the Network

We believe BSM’s recent acquisition of Praxis, which offers driver

compliance solutions to CN, can be expanded to long-term contracts

with other major North American railroads.


Beacon Securities Ltd.| 66 Wellington Street West, Suite 4050, Toronto, Ontario, M5K 1H1 |416.643.3830|www.beaconsecurities.ca

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Beacon analysts are not permitted to own the securities they cover, but are permitted to have a position, either long or short, in securities covered by

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All information contained herein has been collected and compiled by Beacon Securities Limited, an independently owned and operated member of

the Investment Industry Regulatory Organization of Canada (IIROC). All facts and statistical data have been obtained or ascertained from sources,

which we believe to be reliable, but are not warranted as accurate or complete.

All projections and estimates are the expressed opinion of Beacon Securities Limited, and are subject to change without notice. Beacon Securities

Limited takes no responsibility for any errors or omissions contained herein, and accepts no legal responsibility from any losses resulting from investment

decisions based on the content of this report.

This report is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell securities discussed herein. Based on

their volatility, income structure, or eligibility for sale, the securities mentioned herein may not be suitable or available for all investors in all countries.

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