Espial Group’s fourth quarter results were disappointing, says Haywood

A delay in launching with a major contract contributed to a disappointing quarter for Espial Group (Espial Group Stock Quote, Chart, News: TSX:ESP), says Haywood analyst Pardeep Sangha.

Yesterday, Espial reported its fourth quarter and fiscal 2015 results. In the fourth quarter the company lost $1-million on revenue of $5.2-million, down from the $5.3-million topline the company posted in the same period last year.

“In 2015, we took several strides forward in executing our strategy,” said CEO Jaison Dolvane. “We secured two additional major cable operator wins and focused efforts on progressing the implementation of our solutions towards trials and deployments. We expanded our leadership team and our delivery capability, acquired Bluestreak, and deepened our engagement with several prospective customers. Subsequent to year-end, one of our European cable operator customers began field trials with our G4 client solution. Additionally, a North American cable operator has started commercially shipping 4K ultra HD set-top boxes to their subscribers with Espial software. Both of these are already significant accomplishments in 2016,” added Mr. Dolvane. “Our priorities in 2016 are to continue supporting our current customers’ trial and deployment plans, and increase scale to address new wins. We have a good pipeline of new prospects, and believe now is the time to increase investment in our integration and support capabilities to ensure we successfully execute on this market opportunity.”

Sangha notes that Espial’s revenue fell below his estimate of $6.1-million and the more bullish street consensus of $6.7-million. He says a couple factors contributed to this shortfall.

“The disappointing quarterly results were driven primarily by a decrease in software license revenue due to delay in launching with Tele Columbus,” says Sangha. “The company also received a significant boost in one-time license revenue int he previous Q3 quarter which did not repeat in Q4. Gross margins were 66% in Q4, as a result of a decrease in high margin software license revenue. Lower end revenue and gross margins both negatively impacted Adj. EBITDA in the quarter.”

In a research update to clients today, Sangha maintained his “Buy” rating on Espial, but lowered his one-year target price on the stock from $4.40 to $4.00, implying a return of 107.3 per cent at the time of publication.