Things are looking up for Vecima Networks, PI says

Watch for Vecima Networks (Vecima Networks Stock Quote, Chart, News TSX:VCM) to have a big 2020, according to PI Financial analyst David Kwan, who updated clients in an earnings report on Thursday, saying that the outlook for Vecima’s Entra line of products is looking more optimistic.

Victoria, BC’s Vecima Networks reported its fiscal first quarter 2020 on Thursday, featuring revenue of $20.1 million, down six per cent year-over-year and three per cent from the previous quarter, with adjusted EBITDA of $1.8 million.

The company says that while its Content Delivery and Storage segment showed strong year-over-year growth, there was declining demand for its legacy products in its Video and Broadband Solutions segment as customers get set for the next generation of DAA platforms.

“Fiscal 2020 got off to a fast and productive start as we moved closer to commercial rollout of our Entra family of Distributed Access Architecture (DAA) products, benefitted from growing demand for our MediaScaleX family of Content Delivery and Storage solutions, and continued to expand our product ecosystems in line with the growing opportunities in DAA and IPTV,” said Sumit Kumar, Vecima’s President and CEO in a press release.

The company’s earnings were better than expected, while its balance sheet showed free cash flow of negative $2.6 million. VCM ended the quarter with $34.0 million in net cash, down from $42.4 million the previous quarter.

Kwan says Vecima’s top line was above his estimate of $19.2 million as was the $1.8-million in adjusted EBITDA which beat his negative $0.1-million estimate.

Overall, Kwan judged the quarterly results as having a “slightly positive” impact.

“VCM is finally seeing good progress with Entra, with CY20 potentially the start of a new multi-year upswing in the business driven by a new major product cycle (that could also be augmented by TerraceIQ, its new IPTV platform),” Kwan writes.

“There are 19 operators (versus 16 last quarter), including six Tier 1’s, that are in lab and field trials with Entra DAA products, including the previously announced Tier 1 operator that signed a master purchase agreement (field trial is finished and they are in the deployment planning phase),” he writes.

Kwan says that the brighter-looking future for Entra is cause for an upward revision of his forecasts, which now call for fiscal 2020 revenue of $93.3 million (was $90.2 million) and adjusted EBITDA of $9.6 million (was $6.8 million). For fiscal 2021, the analyst is calling for revenue of $126.0 million (was $118.0 million) and adjusted EBITDA of $23.1 million (was $19.5 million).

With the update, Kwan left his rating at “Neutral” but increased his price target from $9.80 to $10.20 per share, which represented a projected 12-month return of 0.8 per cent as of press time.

After a poor 2018, VCM has had a bounce-back year, gaining almost 24 per cent year-to-date in 2019. Along with the quarterly report, Vecima also announced this week a quarterly dividend of $0.055 per share, with its yield currently at 2.1 per cent.