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Edited Transcript of ESP.TO earnings conference call or presentation 2-May-19 9:00pm GMT

Q1 2019 Espial Group Inc Earnings Call

OTTAWA May 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Espial Group Inc earnings conference call or presentation Thursday, May 2, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carl Smith

Espial Group Inc. - CFO

* Jaison Dolvane

Espial Group Inc. - Co-Founder, President, CEO & Director

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Conference Call Participants

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* Steven Bain

GMP Securities L.P., Research Division - Associate

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Welcome to Espial's Q1 2019 Conference Call. (Operator Instructions) Alternatively, analysts, investors and members of the media may direct their inquiries to Carl Smith, Chief Financial Officer, at (613) 230-4770, extension 1127. (Operator Instructions).

Today's conference call may contain forward-looking statements, including those related to the industry, market, partnership and customer opportunities. The company cautions that these statements are based on current expectations that are subject to risks and uncertainties. Actual results may differ due to factors such as customer demand, product shipping schedules, product mix and competitive products and pricing pressures. Additional information identifying risks and uncertainties are contained in the company's filings with the Ontario Securities Commission. The company will not update any information in the foregoing reports until the effective date of future reports required by the securities laws. A copy of the company's Q1 2019 financial results press release can be found on its website www.espial.com.

I would like to remind everyone that this conference is being recorded on May 2, 2019, at 5:00 p.m. Eastern Standard Time. On the call today from Espial are Carl Smith, Chief Financial Officer; and Jaison Dolvane, President and Chief Executive Officer. I will now turn the call over to Espial's President and CEO, Jaison Dolvane. Please go ahead, Mr. Dolvane.

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Jaison Dolvane, Espial Group Inc. - Co-Founder, President, CEO & Director [2]

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Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us today. Given the pending acquisition of Espial by Enghouse, we will be doing a shorter version of this call today. I will begin with a brief review of our business highlights from the first quarter and then turn it over to Carl Smith, our CFO, to discuss the financial results. To finish, we will open the call up for questions. Let's quickly review some of our highlights in Q1.

First quarter revenue was $6.1 million. Annualized recurring SaaS revenue increased 62% to $7.6 million from $4.7 million at the end of Q1 2018. Our first quarter adjusted EBITDA was a loss of $600,000. We continue to progress innovation on our Elevate SaaS platform in Q1. In line with this, we completed a bulk certification of Amazon Alexa voice navigation for Elevate's next-generation video services for operators. This is an industry's first, demonstrating the benefits that operators receive from a Software as a Service platform. The historical alternative was for each operator to spend resources to achieve individual integrations and certifications.

In Q1, Espial was also named one of the 20 Most Promising Media and Entertainment Solution Providers for 2019 by CIO Review. Espial and Enghouse Systems Limited jointly announced that they have entered into an arrangement agreement pursuant to which Enghouse has agreed to acquire all of the issued and outstanding common shares of Espial.

A little more about Q1. In Q1, we were able to grow our annualized year-on-year SaaS revenues to $7.6 million from $4.7 million last year. Our adjusted EBITDA for the quarter was a $600,000 loss. Our focus over the last number of quarters has been to grow our SaaS revenues. We are pleased that we have made progress on this and indications are that the pay TV industry is increasingly inclined to move in this direction over the traditional model of building, owning and maintaining their own systems through its life cycle. We remain early in this market transition still.

In Q1, we signed a definitive agreement with Enghouse to acquire Espial. Our Q1 costs included some expenses related to this transaction. Regarding this transaction, our shareholders will receive an immediate cash benefit of an approximately 40% premium on our trading price immediately prior to the date of this announcement. For our customers, this will provide us with more scale and capability to better serve them. As part of a larger company, our customers will have added financial comfort and will benefit from the larger operations, sales and marketing organization behind them as part of Enghouse networks. The service provider group at Enghouse, which today accounts hundreds of service providers, will acquire these customers and serve them with a broad portfolio of products that address the needs of fixed and wireless operators globally.

I'd like to provide a brief update on our SaaS business and then an update on our solutions business. Our Elevate cloud TV platform is a cloud-based TV-as-a-Service video platform that allows operators to manage, deliver and monetize compelling video experiences across any cable, IP or OTT network and on any device. It is a single platform that can allow operators to evolve to streaming TV solutions using low-cost set-top boxes and app TV services across a broad range of mobile and consumer-owned devices, such as iOS, Android, Roku, Amazon Fire TV, smart TVs and Apple TV.

Our SaaS revenue for Q1 was $2.2 million, which included a $300,000 fee for past services. SaaS annualized recurring revenue or ARR increased 62% to $7.6 million from $4.7 million at the end of Q1 2018 and increased slightly from $7.5 million in Q4 2018. We also added a couple of new SaaS customers in Q1 on our Elevate IPTV or streaming TV solution and also on our cable SaaS solution. Our IPTV or streaming TV customers will go to market later this year, launching new services.

On the marketing front, as we have previously discussed, we've expanded our focus on digital marketing and are investing in thought leadership initiatives to increase brand perception and focus on demand generation to grow and progress our pipeline. I am pleased with the progress we have made in this area as several of the operators we are engaged with have converted into qualified pipeline leads. Adoption of TV-as-a-Service solutions is in its early stages, and we plan to continue to focus in this area of marketing. Additionally, in Q1, we were also named one of the 20 Most Promising Media and Entertainment Solution Providers by -- for 2019 by CIO Review, which further reinforces our increasing presence and leadership in this market.

Now let me discuss the progress on the solutions part of our business. We have several customers that we deliver solutions to, which includes the combination of our client and server products that we customize and integrate for various video service providers and device manufacturers globally. Included in this are our RDK-based G4 Client products that are being deployed by operators like NOS in Portugal and Tele Columbus in Germany, and both of these customers increased their expansion in Q1.

In Q1, we also expanded our relationship with Tele Columbus and secured a new professional services contract to continue to progress road map and [teachings] of their advanced TV service. Tele Columbus continues to take a lean forward approach on marketing and promotions for their advanced TV product in Germany.

In closing, I believe the pending acquisition by Enghouse will help us to grow and capture market share. With the added financial capability and scale that Enghouse brings, I believe that Espial will be well positioned to be an industry leader as media service providers fundamentally evolve their pay TV business.

I'd like to conclude my business remarks at this point and turn the call over to Carl to discuss our financials.

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Carl Smith, Espial Group Inc. - CFO [3]

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Thank you, Jaison. First quarter revenue was $6.079 million compared with revenue of $5.932 million last year. First quarter software license revenue was $1.938 million compared to $2.024 million last year. Software subscription revenue increased to $2.194 million from $1.166 million in the first quarter of 2018.

Professional services revenue for the quarter was $656,000 compared to $906,000 last year, and maintenance and support revenue for the first quarter was $1.290 million compared to $1.834 million last year.

By geography, North American revenues were $3.854 million in the first quarter compared to $3.229 million. Europe accounted for $1.960 million compared to $1.938 million last year. And our Asian revenues were $265,000 compared to $763,000 last year.

Our gross margin this quarter increased to 73% from 71% last year.

Operating expenses for the first quarter were $5.524 million compared to $8.468 million last year.

And our adjusted EBITDA loss in the first quarter of 2019 was $591,000 compared to a loss of $1.740 million last year.

Cash at the end of the quarter was $30.7 million, and the shares outstanding were 35.465 million.

Thank you, and I'll turn the call back to Jaison.

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Jaison Dolvane, Espial Group Inc. - Co-Founder, President, CEO & Director [4]

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Thank you, Carl. To those who are participating in this call, I'd like to thank you for your continued interest in Espial and for your time this afternoon. This concludes the formal presentation, and we would like to open the call up for questions now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Mr. Dolvane, your first question is from Steven Bain from GMP Securities.

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Steven Bain, GMP Securities L.P., Research Division - Associate [2]

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I just wanted -- I just have 2 questions. Can you provide any color on the change in working capital during the quarter? And then also, are you able to provide any quantification of the additional cost relating to the proposed acquisition? And that's it for me.

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Carl Smith, Espial Group Inc. - CFO [3]

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Sure. It's Carl. So the change in working capital really is a timing difference [allowed] in our accounts receivable. In Q4, if you remember, we had a really good quarter on collections because a number of companies paid probably a little bit faster than normal for whatever reason before the end of the year. And I'd say Q1 more closely reflected our normalized DSO, which is around a little over 90 days. That will probably be the biggest change in working capital, just more or less timing, and then, of course, some use of cash as a result of the EBITDA loss. As far as the amount of transaction costs included in Q1 at this time, they're roughly the $300,000.

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Operator [4]

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And Mr. Dolvane, there are no further questions at this time.

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Jaison Dolvane, Espial Group Inc. - Co-Founder, President, CEO & Director [5]

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Okay. And thank you, everyone, for your time this afternoon, and we'll close the call then.

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Operator [6]

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Ladies and gentlemen, that concludes our conference call. Please note that a replay of this call can be accessed as of 7:30 p.m. Eastern Time today at telephone numbers 1 (416) 621-4642 or 1 (800) 585-8367 and entering passcode 8487041. This replay will be available until 11:59 p.m. Eastern Standard Time on June 3, 2019. Thank you, and you may now disconnect.