The company, which started as a hardware seller and gradually moved into the internet of things, aims to raise $13 million in its New York listing, quadrupling its cash
- Direct Communication Solutions is preparing to list on the NYSE American exchange, aiming to raise its profile as it upgrades from the Canadian Securities Exchange
- The listing could value the internet of things company at up to $37 million, as it seeks a similarly modest price-to-sales ratio compared with larger peers
By Doug Young
Direct Communication Solutions Inc. (DCSX.US; DCSI.CN) may be small by most measures, but that’s not stopping this internet of things (IoT) company from thinking big. The company that started out as a networking hardware supplier is now preparing to take one of the biggest steps in its history dating back to 2006 with plans to list on the NYSE American exchange after completing an audit of its full-year 2022 financials.
San Diego-based DCS is hoping to tap into what’s expected to be an explosion in the global IoT market, which uses the internet to facilitate real-time communication and decision-making for everything from lighting systems management to inventory control for businesses, and security monitoring for homes. The global IoT industry is expected to reach a staggering $2.5 trillion in sales by 2029, growing at an average annual rate of 26.4% in the seven preceding years, according to third-party data cited in DCS’ prospectus filed last month.
Just a tiny sliver of that can boost a company like DCS for years to come, though it will be vying with a growing field of younger, aggressive startups for a piece of that pie.
DCS’s graduation to the “big leagues” comes just three years after it first listed on the Canadian Securities Exchange. Its stock has gone through a series of peaks and valleys since then, and now trades about a third-lower than where it was at the time of its listing. But the shares have risen roughly four-fold from late 2021, indicating investors may be gaining interest in its story.
DCS is also thinking big in terms of its own worth, even as it values itself quite modestly in terms of price-to-sales (P/S) ratios compared with its peers. It plans to sell 1.85 million shares for a price range of $6 to $8 per share. That would raise around $13 million and value the company at around $29 million if the shares price at the middle of the range, nearly double its current value on the Canadian Securities Exchange. And the premium could be even larger if the shares price strongly.
All that said, the company is still a relative minnow among its peers, many of which are valued at $1 billion or more, operating on a classic formula of exploding revenue and losses often growing even faster. DCS isn’t exactly growing slowly either, posting 69% revenue growth in the first nine months of last year to $18.3 million, compared with $10.8 million in the year-ago period.
What’s more, the $13 million the company hopes to raises in the IPO would provide an adrenalin rush of cash, roughly quadrupling the $4 million in cash and restricted cash in its coffers at the end of last September. DCS says it plans to use the new funds in part for a major hiring campaign, aiming to boost its headcount by 50%, taking it from a current modest total of 27 to around 40 people over the near-term.
Presumably it believes such an investment would yield an even bigger return in terms of boosting its revenue growth.
In an internet era of hotshot startups led by 30- and even 20-somethings, DCS stands apart for its long history and experience of its top executives. These veterans tend to have stronger industry knowledge and can leverage their own business relations to grow their businesses.
DCS founder and chief executive Chris Bursey has more than 20 years of experience in telecoms, dating back to his first job as an air traffic controller in the U.S. Navy. Since founding DCS and becoming its CEO in 2008, he has seen its transformation from a hardware provider to its current form providing a mix of hardware, software as a service (SaaS), and connectivity, working with carrier partners like Verizon, AT&T and UScellular.
The company still derives the big majority of its revenue from one-time hardware sales earned from helping its customers set up new systems. But the SaaS business will presumably become a bigger piece of the pie as its customer pool grows, providing an important source of recurring revenue.
Its two main products are MiFleet, which helps companies manage their vehicle fleets; and MiSensors, which uses remote sensors to monitor things like inventory and security, reflecting two cases where companies can use IoT technologies to improve their efficiency.
Unlike most of its peers, which are still recording large losses, DCS also appears to be on the cusp of profitability. The company posted a $232,000 net loss in the first nine months of last year, sharply narrowing from its $1.1 million loss in the year-ago period. And much of the latest loss looks related to a non-cash item derived from the fair-value change in some of its assets, meaning the company quite possibly would have been profitable on an adjusted basis excluding that item.
Perhaps reflecting its modest roots and newcomer status, DCS has given itself a P/S ratio of just 0.86, based on a pricing of its shares at the middle of their range. That compares with much higher ratios of 3 for Digi International (DGII.US), which has a market cap of $1.2 billion; and an even higher 6.1 times for Tuya Inc. (TUYA.US), which is worth $1.5 billion.
At the end of the day, DCS is probably aiming low despite its big growth potential and presence in such a hot market, opting for caution over the hype that younger companies might chase. Such an approach could serve it well as it seeks to navigate such a fast-moving sector like the IoT.
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