Espial Reports Second Quarter 2017 Results

OTTAWA, Ontario--()--Transforming the viewing experience worldwide, Espial® Group Inc. ("Espial" or the "Company"), (TSX:ESP), today announced its second quarter financial results for the three month period ended June 30, 2017.

Highlights

  • Second quarter revenue of $7.8 million, an increase of 72% over the same period in 2016.
  • Second quarter adjusted EBITDA loss was $2.8 million which included $1.3 million of one-time costs. Excluding these costs, adjusted EBITDA loss was $1.5 million.
  • Aamir Hussain, Executive Vice President and CTO of CenturyLink - the 3rd largest Telecom Operator in the US - joined the Espial Board of Directors along with Brian McLaughlin who is a partner at Hydra Capital Partners Inc., a Toronto based investment firm.
  • Announced Elevate IPTV and signed a SaaS agreement for this cloud-based service with a North American cable operator, previously announced to be in trials.
  • Signed new services agreements with both Tele Columbus and NOS for continued enhancements on their next generation Pay TV services.
  • Wide Open West, a US based cable operator, launched Netflix across their subscriber set-tops powered by Espial Elevate cloud service.
  • Tele2, a European mobile and IPTV operator, deployed an updated premium video user experience to its IPTV subscribers in the Netherlands, powered by the Espial Media Service Platform back-office and Espial set-top client solutions.

“In Q2, revenues increased 72% over the same quarter last year”, said Jaison Dolvane, CEO, Espial. “We saw good momentum with current customers like WOW and Tele2 who enhanced their services with features like Netflix and premium user experiences. We also expect to see our other customers, including NOS and Tele Columbus continue to deliver new capabilities and improvements to drive further subscriber expansion. In Q2, we signed a SaaS agreement for our cloud based Elevate IPTV platform, and continued to invest in our cloud and device products. As we look to the second half of the year, we anticipate continued subscriber growth, while we focus on achieving new wins and growing our SaaS revenues. Our Q2 achievements and product investments are important milestones to strengthen our pipeline and position us well in this quickly evolving market.”

Financial Summary

For the three-month period ended June 30, 2017, revenue was $7.8 million compared with revenue of $4.5 million for the three months ended June 30, 2016. Adjusted EBITDA loss for the second quarter of fiscal 2017 was $2.8 million which included $1.3 million of one-time costs related to proxy matters and costs for headcount reduction. Excluding these items, adjusted EBITDA loss was $1.5 million compared to adjusted EBITDA loss of $2.1 million for the second quarter of fiscal 2016. Net loss for the quarter was $3.8 million, compared with a net loss of $2.9 million for the second quarter of fiscal 2016.

Q2 Financial Results

  • Second quarter revenues were $7,809,765 compared with revenues of $4,548,770 in the same period a year ago. Second quarter software license and royalty revenues were $3,724,373 compared to $2,499,924 in the second quarter of fiscal 2016. Professional services for the second quarters of 2017 and 2016 were $1,915,529 and $776,708 respectively. Maintenance and support revenues for the second quarter were $2,169,863 compared to $1,272,138 last year.
  • North American revenues were $4,741,854 in the second quarter of 2017 compared to $687,216 in 2016. Asia revenues were $823,868 in the second quarter of 2017 compared to $854,997 in 2016. European revenues were $2,244,043 in the second quarter of 2017 compared to $3,006,557 in 2016.
  • Gross margin for the second quarter of fiscal 2017 was 73%; unchanged from the second quarter of fiscal 2016.
  • Operating expenses in the second quarter of fiscal 2017 were $9,380,973 compared to $6,039,219 in the second quarter of fiscal 2016.
  • Earnings before interest, foreign exchange, taxes, stock compensation, depreciation and amortization (adjusted EBITDA) for the second quarter of fiscal 2017 was a loss of $2,830,355, including $1.3 million of one time costs. Excluding these items, adjusted EBITDA loss was $1.5 million compared to a loss of $2,092,712 in fiscal 2016.
  • Net loss, which includes non-cash items like depreciation, amortization of intangibles and stock compensation, in the second quarter was $3,806,565 compared to a loss of $2,945,976 last year.

Cash and cash equivalents on June 30, 2017, was $41,786,884

A complete set of financial statements and management’s discussion and analysis for the period ended June 30, 2017 will be available at http://www.sedar.com.

Conference Call

The Company will be hosting a conference call to discuss the Q2 2017 financial results on August 8, 2017 at 5:00PM EDT and the phone number to join the results discussion is:

  • Toll Free line (Canada/US) 866-521-4909
  • Toll line (International/Local) 647-427-2311

The playback for the call will be available two hours after the call’s completion and will be available until 11:59pm ET on September 7, 2017, at the following numbers and passcode:

Toll-free line: +1-800-585-8367 or +1-416-621-4642, Passcode: 50678231

About Espial (www.espial.com)

With Espial, video service providers create responsive and engaging subscriber viewing experiences incorporating powerful content discovery and intuitive navigation. Service providers achieve ‘Web-speed’ innovation with Espial’s flexible, open software leveraging RDK and HTML5 technologies. This provides competitive advantage through an immersive and personalized user experience, seamlessly blending advanced TV services with OTT content. With customers spanning six continents, Espial is headquartered in Ottawa, Canada, with R&D centers in Seattle, Montreal, Silicon Valley, Cambridge and Lisbon, and with sales offices in North America, Europe and Asia. For more information, visit www.espial.com.

Forward Looking Statement

This press release contains information that is forward looking information with respect to Espial within the meaning of Section 138.4(9) of the Ontario Securities Act (forward looking statements) and other applicable securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or the negative of these terms or other similar expressions concerning matters that are not historical facts. In particular, statements or assumptions about, economic conditions, ongoing or future benefits of existing and new customer, and partner relationships or new board nominees, our position or ability to capitalize on the move to more open systems by service providers, existing or future opportunities for the company and products (including our ability to successfully execute on market opportunities and secure new customer wins) and any other statements regarding Espial's objectives (and strategies to achieve such objectives), future expectations, beliefs, goals or prospects are or involve forward-looking information.

Forward-looking information is based on certain factors and assumptions. While the company considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. Forward-looking information, by its nature necessarily involves known and unknown risks and uncertainties. A number of factors could cause actual results to differ materially from those in the forward-looking statements or could cause our current objectives and strategies to change, including but not limited to changing conditions and other risks associated with the on-demand TV software industry and the market segments in which Espial operates, competition, Espial’s ability to continue to supply existing customers and partners with its products and services and avoid being displaced by competitive offerings, effectively grow its integration and support capabilities, execute on market opportunities, develop its distribution channels and generate increased demand for its products, economic conditions, technological change, unanticipated changes in our costs, regulatory changes, litigation, the emergence of new opportunities, many of which are beyond our control and current expectation or knowledge.

Additional risks and uncertainties affecting Espial can be found in Management’s Discussion and Analysis of Results of Operations and Financial Condition and its Annual Information Form for the fiscal years ended December 31, 2016 on SEDAR at www.sedar.com. If any of these risks or uncertainties were to materialize, or if the factors and assumptions underlying the forward-looking information were to prove incorrect, actual results could vary materially from those that are expressed or implied by the forward-looking information contained herein and our current objectives or strategies may change. Espial assumes no obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.

Non-IFRS Financial Measures

We use Adjusted net income (loss) which removes the impact of our amortization of intangible assets and stock based compensation expense, to measure our performance as these measures align our results and improve comparability against our peers. We use Adjusted EBITDA to provide investors with a supplemental measure of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess our ability to meet our capital expenditure and working capital requirements.

Adjusted net income (loss) and Adjusted EBITDA are not recognized, defined or standardized measures under IFRS. Our definition of Adjusted net income (loss) and Adjusted EBITDA will likely differ from that used by other companies and therefore comparability may be limited. Adjusted net income (loss) and Adjusted EBITDA should not be considered a substitute for or in isolation from measures prepared in accordance with IFRS. Investors are encouraged to review our financial statements and disclosures in their entirety and are cautioned not to put undue reliance on non-IFRS measures and view them in conjunction with the most comparable IFRS financial measures. We have reconciled Adjusted net income (loss) and Adjusted EBITDA to the most comparable IFRS financial measure as follows:

 

Three months ended
June 30, 2017

 

Three months ended
June 30, 2016

 

Six months ended
June 30, 2017

 

Six months ended
June 30, 2016

Net loss $ (3,806,565) $ (2,945,976) $ (5,606,512)   $ (4,913,508)
Add
Share-based compensation 446,510 385,463 878,996 774,919
Amortization of intangibles   301,829   174,683   484,708 349,366
Adjusted net loss (3,058,226) (2,385,830) (4,242,808) (3,789,223)
Add (less)
Depreciation 103,406 80,162 203,236 148,613
Net interest (income) expense (63,980) (85,216) (126,523) (171,948)
Other income/expense 66,419 212,132 149,414 435,682
Income tax   122,026   86,040   199,143 117,663
Adjusted EBITDA $ (2,830,355) $ (2,092,712) $ (3,817,538) $ (3,259,213)


Consolidated Statements of Income and
Comprehensive Income
(In Canadian dollars)

  Three Months Ended   Six Months Ended
June 30, 2017   June 30, 2016 June 30, 2017   June 30, 2016
Revenue
Software $ 3,724,373 $ 2,499,924 $ 8,749,724 $ 4,940,663
Professional services 1,915,529 776,708 3,501,463 2,448,733
Support and maintenance 2,169,863 1,272,138 4,222,588 2,483,356
Total revenue 7,809,765 4,548,770 16,473,775 9,872,752
Cost of revenue 2,110,892 1,242,571 4,346,912 3,171,554
Gross margin 5,698,873 3,306,199 12,126,863 6,701,198
Expenses
Sales and marketing 1,904,307 1,417,853 3,559,465 2,682,296
General and administrative 1,703,876 1,005,962 2,710,577 1,870,710
Research and development 5,470,961 3,440,721 10,756,591 6,330,937
Amortization of intangible assets 301,829 174,683 484,708 349,366
  9,380,973 6,039,219 17,511,341 11,233,309
Loss before other income (expense) (3,682,100) (2,733,020) (5,384,478) (4,532,111)
Other expense (66,419) (212,132) (149,414) (435,682)
Interest income 63,980 85,216 126,523 171,948
Loss before taxes (3,684,539) (2,859,936) (5,407,369) (4,795,845)
Income taxes (122,026) (86,040) (199,143) (117,663)
Net loss and comprehensive loss   $ (3,806,565)   $ (2,945,976)   $ (5,606,512)   $ (4,913,508)
 

Loss per common share - basic

$  (0.10)

    $  (0.08)

$ (0.15)

$ (0.13)

Weighted average number of common shares outstanding - basic

36,506,665

   37,362,471

  36,525,088

37,358,859


Consolidated Balance Sheets
(In Canadian Dollars)

    June 30, 2017   December 31, 2016
 
CURRENT ASSETS
Cash and cash equivalents $ 41,786,884 $ 43,047,878
Accounts receivable 7,182,283 10,475,563
Investment tax credits receivable 456,400 321,018
Prepaid expenses and other assets   923,378   653,055
50,348,945 54,497,514
 
Equipment 1,455,850 1,420,957
Intangible assets 1,333,359 1,818,067
Goodwill   3,632,604   3,632,604
  $ 56,770,758 $ 61,369,142
 
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 4,813,792 $ 4,542,527
Provisions 187,119 334,591
Deferred revenue   2,608,318   2,054,323
    7,609,229   6,931,441
 
Total Liabilities 5,204,810 6,931,441
 
SHAREHOLDERS' EQUITY
Share capital 124,820,391 125,362,413
Share based payments reserve 16,474,223 15,601,861
Deficit   (92,133,085)   (86,526,573)
    49,161,529   54,437,701
  $ 56,770,758 $ 61,369,142


Statements of Cash Flows
(In Canadian Dollars)

  Six Months Ended
  June 30, 2017   June 2016
CASH (USED IN) PROVIDED BY
OPERATING
Net loss $ (5,606,512) $ (4,913,508)
Items not affecting cash
Depreciation of property and equipment 203,236 148,613
Amortization of intangible assets 484,708 349,366
Share-based compensation expense 878,996 774,919
Provisions   (147,472)   -
(4,187,044) (3,640,610)
Changes in non-cash operating

working capital items

  3,712,835   (189,201)
    (474,209)   (3,829,811)
INVESTING
Purchase of equipment (238,129) (272,617)
Purchase of intangibles   -   (125,129)
    (238,129)   (397,746)
FINANCING
Options exercised 8,214 15,206
Share repurchase program   (556,870)   -
    (548,656)   15,206
Net cash and cash equivalents outflow (1,260,994) (4,212,351)
Cash and cash equivalents, beginning of period   43,047,878   49,947,096
Cash and cash equivalents, end of period $ 41,786,884 $ 45,734,745
Supplementary information:
Interest received $ 126,523 $ 171,948
Taxes paid $ (199,143) $ (117,663)

Contacts

Espial Group Inc.
For inquiries from the financial press or analysts, contact:
Carl Smith, +1 613-230-4770
Chief Financial Officer
csmith@espial.com
or
Kirk Edwardson, +1-613-230-4770 x1145
Director, Marketing
kedwardson@espial.com

Release Summary

Q2 2017 Financial Results

Contacts

Espial Group Inc.
For inquiries from the financial press or analysts, contact:
Carl Smith, +1 613-230-4770
Chief Financial Officer
csmith@espial.com
or
Kirk Edwardson, +1-613-230-4770 x1145
Director, Marketing
kedwardson@espial.com