A quarter from BSM Technologies (TSX:GPS) than bested his expectations nonetheless contained one metric that troubles Clarus analyst Noel Atkinson.
Yesterday, BSM reported its Q2, 2016 results. The company lost $858,000 on revenue of $9.9-million, up from the $5.1-million topline the company posted in the same period a year ago.
“Our ongoing integration activities led to over $700,000 in merger-related cost reductions during the quarter. We anticipate further cost synergies will increase this total to approximately $900,000 in the third quarter of fiscal 2016,” said CEO Aly Rahemtulla. “To date, we have achieved approximately $4.0-million in merger-related cost reductions on an annualized basis, meeting the low end of our goal of $4.0[-million] to $5.0-million. Based on our progress to date, we believe that further synergies can be achieved by the second half of fiscal 2017. The result of the ongoing integration activities have led to improved operating margins for our business.
Atkinson says this was the fourth consecutive quarter that BSM’s revenue and adjusted EBITDA beat his forecast. But the analyst says BSM is struggling with subscriber growth.
“Both hardware and recurring subscriber revenue exceeded our estimates,” says the analyst. “FQ2 ARPU was seasonally strong at $22.14 per month. Subscriber churn was contained (8% annualized) but gross adds were muted so BSM ended FQ2 unchanged at 150,500 subs. We believe BSM has not reached 2,000 net sub adds per quarter since FY2014. Management noted that the sales pipeline is showing positive signs (particularly for rail maintenance vehicles, government fleets, and construction) but remained cautious about near-term sub growth. Cash operating expenses excl. one-time items were $6.3MM, nicely below our $6.7MM forecast.”
In a research update to clients today, Atkinson maintained his “Buy” rating and one-year price target of $2.00 on BSM Technologies, implying a return of 90.5 per cent at the time of publication.