TIO Networks (TSXV:TNC) missed the consensus topline revenue estimate in its recently reported second quarter, but the company made up for it with improving margins, says PI analyst Pardeep Sangha.
Yesterday, TIO reported its Q2, 2015 results. The company lost $252,230 on revenue of $15.30-million, a topline that was up 53% over the same period last year, but fell below the street consensus revenue expectation of $17-million.
“We had another strong quarter as positioned by the significant organic and inorganic growth experienced in the last 12 months,” said CEO Hamed Shahbazi. “In the second quarter, we maintained record investment levels and made significant progress towards our integration milestones. We are now realizing real synergies and positioned well to unlock the value of our combined businesses.”
Sangha says the culprit for the revenue miss was a change in revenue recognition for Cricket customers migrating to the AT&T GSM network. He notes, however, that this migration is almost 90% complete. What’s more, says the analyst, the move has caused a “significant” increase in gross margin, from 29.2% in Q1, 2015 to 38.6% in Q2.
The analyst says he expects revenue to decline, sequentially, in the company’s third quarter before recovering in Q4.
In a research update to clients today, Sangha maintained his “Buy” rating and one year target of $1.70 on TIO Networks.
“We are forecasting lower revenue than previously, but with improved gross margins and lower operating expenses, resulting in minimal effect to our FY16 Adj. EBITDA forecast,” said the analyst.