Echelon Wealth Partners analyst Rob Goff sees ongoing business conditions for D-Box Technologies (D-Box Technologies Stock Quote, Chart, News TSX:DBO) to remain challenging but his long-term thesis on the company remains intact.
In a Wednesday update to clients, Goff reviewed the motion systems and immersive entertainment company for its latest quarterly results, reaffirming his “Speculative Buy” rating but lowering his D-Box Technologies price target from $0.32 per share to $0.25.
Longueuil, Quebec’s D-Box on August 7 announced its fiscal first quarter 2020 results for the period ended June 30, 2019, coming in with total revenues of $7.5 million, down 21 per cent year-over-year, and adjusted EBITDA of $0.2 million compared to $1.2 million a year earlier. Those numbers were lower than what Goff had expected, which was revenue of $9.3 million and EBITDA of $0.5 million.
Goff noted that most of the revenue miss came from the company’s Entertainment segment which produced $5.3 million versus Goff’s forecast of $7.5 million. In Entertainment, the decline came from a decline of 21.0 per cent year-over-year from motion system sales at theatres, which compared to the company’s Simulation and Training market which was up 14 per cent for the quarter to $2.2 million.
The analyst says that he is encouraged by the pipeline prospects for D-BOX, which added 29 screens over the Q1 against his estimate of 20, pointing out that the company now has presence in 42 countries and has 776 screens installed or in backlog from 720 screens a year earlier.
“We remain cautious of the slowdown in the Entertainment segment due to slower growth in new screen additions and lower-than-expected adoption of VR technology. This decline will slow down D-BOX’s growth in the coming quarters,” writes Goff.
“To remain on the cautionary side, we continue to await greater traction in North America where we track its penetration of chains, theatre screens, and the size of in-theatre deployments. We remain hopeful about the mid/long term prospect of the Company’s ability to partner and leverage its technology for VR related experiences and increased penetration into the home entertainment applications. Increasing global recliner adoption in theatres is also working in favour of the Company,” he writes.
Goff says that with declining attendance at theatres worldwide, theatres are looking to increase revenues per patron, making D-Box a “strong differentiator” supporting both overall attendance and patron yields.
The analyst has trimmed his fiscal 2020 revenue and EBITDA forecasts by $2.0 million and $0.3 million, respectively, now calling for a $34.8-million top line and EBITDA of $2.1 million. His $0.25 target represents a projected return of 92 per cent at the time of publication.
D-Box, which currently has a market capitalization of $22.9 million, has seen its share price steadily drop over the past three years. Year-to-date, the stock is down 23 per cent.
In June, D-Box announced its first contract with Spanish theatre operator Cinesa, a subsidiary of ODEAN Cinemas Group, Europe’s largest cinema operator.
“After the incredible success we’ve experienced with moviegoers in 12 countries across Europe, it was only a matter of time before our motion technology would be leveraged by exhibitors like ODEON who understand the impact it will have on the Spanish movie-going market,” said D-BOX CEO Claude McMaster in a press release.