Vancouver-based security tech company VSBLTY Groupe Technologies (VSBLTY Groupe Technologies Stock Quote, Charts, News, Analysts, Financials CSE:VSBY) still gets the nod from Echelon Capital Markets analyst Rob Goff, but with the company’s current growing pains Goff lowered his target price in a Monday update to clients. Goff reviewed VSBLTY’s second quarter financials, saying slower-than-anticipated traction on the company’s higher margin SaaS and media revenues prompted him to push out his forecasts by 12 months and lower his near-term gross profit assumptions.
VSBLTY has security and retail analytics tech including software modules VisionCaptor for digital signage content management, DataCaptor for real time analytics and audience measurement using camera and sensor technology and VSBLTY Vector, a facial detection software module. The company also offers retail hardware solutions.
VSBLTY announced on August 25 its second quarter 2022 financials featuring revenue of $3.2 million, representing a 161 per cent sequential increase and about a tenfold year-over-year increase from Q1 2021’s $293,000 topline. The Q2 2022’s operating loss was $1.4 million, which included a non-cash charge for share-based payments of $187,000 and a recovery on inventory impairment of $354,000. (All figures in US dollars except where noted otherwise.)
“My team and I are pleased with our Q2 results as they continue to validate our category leadership and the momentum that Store as a Medium has in the marketplace,” said VSBLTY Co-founder and CEO Jay Hutton in a press release. “The company continues to battle through the various marketplace challenges day-to-day to remain on track to achieving our annual goals and commitments to our shareholders.”
Looking at the quarterly numbers, Goff said the $3.2 million in revenue was above his estimate at $1.6 million, the gross profit was lower at $0.2 million compared to his estimate at $0.6 million and the EBITDA loss of $1.2 million was better than Goff’s forecast at negative $2.1 million.
“While revenue blew away our forecasts, it was driven by the low margin revenues of hardware sales and professional services, rather than the Company’s SaaS license fees, which came in at just ~$78K, less than $2K higher than Q121’s ~$76K. We note that those SaaS revenues represented just ~2.4 per cent of total revenues on the quarter,” Goff wrote.
“We understand that a major driver of the muted q/q growth was caused by a two-month pause in Winkel store deployments during the quarter – the pause followed the completed Austin GIS (AGIS) agreement in late May when it took a couple of months for AGIS to get funds into the unit and reinitiate efforts. The Company suggests that total installed stores are still approaching ~1,700, which is around the same level as when VSBLTY reported its 2021 and Q122 results in May,” he said.
VSBLTY Groupe’s share price hit a high of around $1.80 in November 2021, but the stock has been dropping steadily since and is currently trading around C$0.20-C$0.30 per share.
But Goff sees plenty of upside from here. With the update, Goff maintained a “Speculative Buy” rating on VSBLTY while lowering his target price from C$1.20 per share to C$0.85, which at the time of publication represented a projected one-year return of 240.0 per cent.
“While Q222 revenues significantly outperformed our forecasts, our focus and thus concern, is on both the stagnant license fee revenues and its high margin media revenues counterpart, which are currently non-existent. These realities have stemmed from the underperformance at Winkel’s Project Modelorama, where installation delays on the back of VSBLTY’s AGIS agreement were a clear disappointment, despite it being largely out of the Company’s control,” Goff wrote.
Looking ahead, Goff is calling for VSBLTY to generate 2022 revenue and adjusted EBITDA of $6.6 million and negative $6.9 million, respectively, and 2023 revenue and adjusted EBITDA of $12.3 million and negative $5.4 million, respectively. On valuation, the analyst sees the company to be currently trading at 3.4x 2023’s EV/Revenue compared to its peer group at 4.9x.
Goff said he’s not placing a lot of weight on the company’s near-term valuation multiples as VSBLTY is in the early stages of its growth trajectory.
“As VSBLTY executes against its existing deployments and moves closer to profitability, we may have a better opportunity to provide a more relevant comparative valuation analysis,” Goff said. “Additionally, we highlight that most of VSBLTY’s true competitors are not publicly traded.”