ViXS Systems: it seems different this time, says Cormark

A series of false starts and promised recoveries that have disappointed investors has characterized the past couple years for ViXS Systems (TSX:VXS). But after the conference call following the company’s recent quarterly results, Cormark analyst Richard Tse thinks things may actually be different this time.

Yesterday, ViXS reported its Q3, 2016 results. The company lost (U.S.) $3.19-million on revenue of revenue of $5.1-million, less than half of last year’s third quarter topline.

“As a company, we have refocused our efforts to stabilize revenue and engage with both existing and new economy customers in the changing video delivery ecosystems. We are focused on creating video platforms which enable our customers to get to market in a short time period,” said ViXS CEO Sohail Khan. “In addition, with the full support of the board and senior management, we are in the midst of a strategic review, including focusing our resources on our core business and the potential sale of certain non-core assets with the goal of enhancing shareholder value.”

Tse says investors have every reason to be skeptical of ViXS, but thinks the company may finally be on the path to a recovery.

“After a string shortfalls and disappointments and two CEO departures, it sounds as though ViXS could be in the early innings of a sustainable turnaround even if it comes with heightened risk given the company’s historical track record,” says the analyst. “What we did not appreciate until last night’s conference call and our post call conversations with Management is that there are some substantive changes underway which could accelerate ViXS’ revenue contributing design wins over the next 12-24 months. Like you, we have heard that before which makes us skeptical. But it sounds different this time…”

In a research update to clients today, Tse maintained his “Buy (Speculative)” rating and one-year price target of $1.50 on ViXS Systems.

On Tuesday, ViXS announced it had received an independent valuation of its portfolio of 510 patents and applications from the San Francisco-based Black Stone IP, LLC, an investment bank focused on valuing and trading intellectual property and technology assets. The assessment valued ViXS patents at between (U.S) $43-million and $109-million.

“It is clear from Black Stone IP’s valuation and the interest of third parties in our patents received by the company from time to time, that the ViXS portfolio has substantial monetization value based on mainstream shipping features,” said Khan “In addition, the portfolio’s relevance to important next-generation functions opens up the potential for higher licensing value going forward. This is an important first step in our IP monetization strategy.”

Tse says much of the recent momentum around ViXS comes from the Black Stone independent valuation. He notes that while the valuation assumes the company can be successful in monetizing its patent portfolio, it underscores the value in the name and is one of the reasons he has maintained a “Buy (Speculative) rating on it throughout this period of turmoil.