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APV.V: Could Apivio’s L2 Wi-Fi Phone Disrupt the VOIP Phone Market?

TSX:APV.V

Apivio (APV.V), the Canadian OEM developer of IP phones, is starting to ship a new version of its Wi-Fi handset, the Liberty L2 (MSRP $198). An initial order of 2,000 units went to its wholesale distributor TeleDynamics this quarter. The phone’s main opportunity should be in workplace environments that require secure mobile communications across their Wi-Fi network and in multiple facilities, such as in warehousing, healthcare and other vertical markets. Employees can use the Liberty L2 as an office phone that can also be used away from their desks anywhere there is Wi-Fi, while maintaining connectivity to their corporate on-premise or cloud-based PBX. The L2 is a mobile desk phone with a much greater range than traditional DECT cordless phones as it can work anywhere there is a Wi-Fi signal, whether in the building, across a campus or around the world. In addition, this phone supports features such as push-to-talk and allows SMS texting, as it is VOIP-based and not POTS-based. Not only is this a less expensive telecommunications service solution for companies than cell phones, it is more secure.

The company also sees this phone as a solution for consumer and business VOIP service providers. By offering this as a branded phone to their users it is pre-provisioned for their networks and there is no need for extra hardware dongles and cords to connect the device to the Internet as it is all done wirelessly. Additionally, the customer can roam wherever Wi-Fi is found at no incremental cost. This capability, in addition to being able to text, is a highly-valued alternative to the DECT cordless phones typically found in a home. While this solution is similar to using the Vonage Extensions App, or Skype or Google Hangouts on a smartphone via Wi-Fi, it does not require a smartphone, computer or other Wi-Fi device to function. The company is now starting to trial this phone with Primus Telecommunications Canada, a full-service communications service provider, to consumers and businesses. The company has limited competition in this market and believes its new version is far more attractive and higher quality than competing Wi-Fi phone solutions.

Sales of the Monet Desktop IP Phone Should Also Grow in 2017

The other growth driver for the company is its Monet M1 phone, introduced in 2015, which is an Android-based VOIP desk phone with a large, 7-inch touch screen display. The M1 for NEC can run general Android apps or Apps written for specific corporate functions downloaded from the NEC App Store. This product is branded as the NEC UT880 ($600) by NEC in North America, and is the first Apivio product being sold by NEC. The company is negotiating an agreement with NEC in Japan versus just NEC North America (NECAM), which will allow worldwide distribution of Apivio’s products.

Last year this phone generated $3 million in revenue (5% of total sales), but has only contributed $300,000 this year to date. The company is optimistic that with the signing of the global distribution agreement with NEC sales should pick up.

Recent BroadSoft Validations Opens New Sales Channel

Beyond its current partnership with NEC of America, Apivio has recently established a large new sales channel in North America, this time with BroadSoft Inc. Apivio recently achieved compliance on BroadSoft’s BroadWorks SIP for its Liberty L2, Dexter series of desk phones, and Monet M1 devices. Apivio is now marketing to BroadSoft’s network of telcos and resellers, which spans over 600 service provider customers across 80 countries.

Korea Remains Steady and Cash-flow Positive

The rest of the company’s business is steady and comprised of traditional IP telephony products sold in Korea under the Moimstone name. 84% of total 2015 and 88% of 2016 nine month total Apivio revenues came from the three Korean telephone companies: KT Corp. (KT), SK Telecom (SKM) and LG Uplus. Business with these three customers is flat with last year.

With the stock trading at an enterprise value of $15 million, and the consensus 2016 revenues projected at $56 million, the EV/Sales multiple is only 0.3x. The company is profitable and EBITDA positive and is undervalued versus its peers. Returning to year over year revenue growth, spurred by increased sales to NEC, and/or customer adoption of the new Wi-Fi phone, could move the valuation up. Current estimates for 2017 are $77 million versus $56 million but year over year revenues have been down for the past three quarters and they are expected to be down again in Q4 2016. It may be until Q1 2017 until year over year revenue growth resumes. Until then, investors should look for news from NEC, Primus, or new large customers outside of Korea to drive the stock.

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