TS03 Inc Trust Units TSTIF

RE:Canaccord Genuity Research Report of 2016.11.08

[echo2]

Canaccord also noted in their update:

Q3 review: A steady quarter

TSO3 reported steady Q3 results, highlighted by the shipment of 30 VP4 low- temperature sterilizers to partner Getinge (compared to our estimate of 28). Revenue for the quarter was $3.5 million, higher (should read "lower") than our estimate of $4.1 million, which was likely due to variability in sales mix and pricing relative to our forecasts. Although TSO3 does not provide data on its sales mix, it has indicated that VP4 usage is trending higher than originally estimated, suggesting upside to our long-term consumables estimate and gross margin forecasts.

Figure 1: Actual vs. estimated Q3/16 financial results

$000's Fiscal YE Dec 31 Q2/16A Q3/16A Q3/16E 2016E
Total Revenue $ 2,977	$ 3,507	$ 4,115 $ 14,180
Cost of sales Research & Development Selling, General and Admin $ 2,143 $ 804 $ 1,529	$ $ $ 2,368 806 1,841	$ 2,649 $ 9,134 $ 820$ 3,038 $ 1,776 $ 7,047
Adj. EBITDA $ (1,128)	$ (977)	$ (883) $ (3,432)
Adj. EBITDA Margin nmf Depreciation & Amortization $ 103 Interest expense (income) $ - Other	nmf $ 148 $- (30)	nmf nmf $ 103 $ 436 $ (30) $ (120) 0
Total Expenses $ 2,333	$ 2,617	$ 2,566 $ 9,966
EBT EBT Margin Income Taxes $ (1,499) -50.3% (12)	$ (1,458) -41.6% 15	$ (1,130) $ (3,402) -27.5% nmf --
Net Income $ (1,487)	$ (1,473)	$ (1,130) $ (3,402)
Net Margin nmf Weighted average shares o/s 96,738	nmf 97,366	nmf nmf 96,738 96,738
EPS $ (0.02)	$ (0.02)	$ (0.01) $ (0.04)

Source: Company Reports, Canaccord Genuity estimates

Operating expenses in the third quarter were generally lower than our forecasts, which largely offset the variance on the top-line. For the quarter, adjusted EBITDA was ($1.0 million, in line with our estimate of ($0.9 million). Net loss was ($1.5 million) or ($0.02) per share in Q3, compared to our estimate of ($1.1 million) or ($0.01) per share.

TSO3 likely to focus more on driving longer-term growth

Following the quarter, we have made a few modest changes to our estimates. Based on commentary from the quarterly call, we expect the company to increase its marketing spend through 2017 as it focuses more on acquiring customers and driving longer-term revenue. We have also made modest adjustments to our estimated revenue mix. Our updated forecasts are highlighted below.

Buy unchanged Target Price C$5.25 unchanged | 8 November 2016

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Biomedical Devices and Services 2

TSO3 Inc. Estimates Revised

Figure 2: Estimate revision summary

FY2016	Old Estimates	New Estimates
# of units sold Revenue Adj. EBITDA EPS	112 $15,138 ($3,181) ($0.03) 195	114 $14,180 ($3,432) ($0.04) -0.04
FY2017	Old Estimates	New Estimates
# of units sold Revenue Adj. EBITDA EPS	195 $31,142 $2,776 $0.02	195 $27,225 $1,575 $0.00