Earnings reports are useful for measuring financial milestones, but they don’t tell the whole story.
Siyata Mobile (NASDAQ: SYTA, SYTAW) released their Q2 earnings on an October 15th call that included CEO Marc Seelenfreund, VP of Corporate Development Daniel Kim, and VP of Sales Glenn Kennedy. Five-star analyst, Jack Vander Aarde of the Maxim Group and Tim Moore from Zacks were also present.
With a heavy reliance on mobile unit sales to fleet services that are still not at full capacity, the numbers were expected to be low. CEO Marc Seelenfreund summed it up best. “While we are disappointed with our financial performance for the quarter, we continue to believe that we are on path for strong organic growth and higher gross margins in the coming quarters.”
2021 Six-Month Revenues Comparable to Q2 Last Year
Revenues for the first six months of 2021 came in at $4.39 million, which is comparable to the $4.41 million posted at the end of Q2 last year. The company would have posted a 25% increase since actual sales totaled $5.5 million, but a one-time merchandise return of $1.1 million brought the number down.
“Just after Q2, we received three purchase orders for our in-vehicle rugged handsets,” reported VP of Sales Glenn Kennedy. “Those orders total more than $2.5 million across multiple clients, including first responders, a defense contractor, and a cellular distributor. This shows continued demand for our unique solutions.”
The Uniden UV350, a 4G/LTE all-in-one fleet communications device, is the company’s flagship product. With the release of new rugged handsets with push-to-talk over cellular (PoC), sales are expected to increase this year.
Sales Pipeline is Filling Up in All Product Categories
Siyata Mobile’s primary product lines are in-vehicle devices, rugged PoC handsets, and cellular boosters. Marc Seelenfreund reported in this earnings call that the pipe of business is growing and “robust” in all three product categories. When the volatility of the pandemic starts to slow down, the company is anticipating accelerated growth.
"We have created a strong customer base for the company with a multi-million-dollar pipeline," Marc reports. "We are also very excited to deliver our next-generation solutions to this expanding market. Our team believes that the SD7 will be a game-changer that will capture new customers and drive sales through 2021 and beyond."
Another development not mentioned until the end of the earnings call is an approval that Siyata Mobile received this week from Telstra, Australia’s leading cellular carrier. Beginning in Q3 2021, they will be able to market the UV350 throughout Australia. The new market should increase current sales projections.
In their in-vehicle devices category, Siyata Mobile is continuing to conduct trials with projects that have been put on hold in 2020 due to COVID-19. They have initiated new proof-of-concept trials with several state and local government agencies in the United States.
Expanding Markets Contributed to Q2 Losses
Net loss for Q2 was $10.9 million, with an adjusted EBITDA loss of $4.6 million. That's significantly more than Siyata’s loss in the second quarter of 2020, but the number does not paint an accurate picture. It includes an inventory impairment of $1.8 million, an intangible impairment of $4.3 million, and a goodwill impairment of $0.8 million. The adjusted net loss was $3.9 million.
Some of this is the result of a shift from international markets to expanding operations inside the United States. Cellular booster sales in the U.S. are up 152% for the first six months of 2021. Rugged handset sales, with PoC technology that operates on 4G/LTE, are expected to increase, particularly in the first responder space.
The SD7 is the first rugged handset that Siyata will offer in North America. FirstNet, America's dedicated cellular network for first responders, announced in July that they now have 2.5 million connections and over 17,000 subscribing agencies. The SD7 is a push-to-talk over cellular (PoC) device, a next-generation solution versus traditional land mobile radios (LMRs).
Posting losses during an expansion is common. Minimizing those losses during a global pandemic is a monumental task. Building a robust pipeline in multiple product categories and connecting with well-known distributors like Telstra are two clear indicators that Siyata Mobile could post positive earnings in the next few quarters.
Zacks, Maxim Group Remain Bullish on Siyata Mobile
Zacks analyst Tim Moore, who was on the earnings call this week, published an updated report that is still bullish on Siyata Mobile. The stock was trading at $2.86 the day the report was released, but Zacks has set its valuation at $10.50. The report clearly states that the low Q2 earnings were “due to a customer refund and weakness from the pandemic.”
Maxim Group, which also covers Siyata Group, released a note on October 19, 2021, that reiterates its "buy" rating and $10.00 price target on the company.
It’s important to note that the pandemic, even as it winds down, is still affecting manufacturing and distribution companies on a global level. New product launches have been delayed due to materials shortages and supply chain issues. Fleet services, a primary market for Siyata, are still not at full capacity. All of these were contributing factors to a down quarter for this company.
On a positive note, the Zacks report highlights the 152% increase in U.S. booster sales, the Q4 launch of the SD7 in North America, and the recent purchase orders and agreements which will increase the visibility of their product lines. Zacks is estimating that the company will reach break-even adjusted EBITDA profitability in 2022, at which point the stock will be re-rated.
Zacks is forecasting $2 million in revenues from the SD7 in 2022 based on a $300 price point and projected 3% market share. The North American sales potential for the product in 2023 is estimated by Zacks to be closer to $5 million. Tim Moore is predicting that Siyata’s first cellular network partner in the U.S. is likely to be AT&T because of their ties to FirstNet.
All factors considered, Zacks has Siyata Mobile listed with above-average risk, yet they're setting a valuation that is four times the company's current value. This shows the analyst’s belief that the company has an opportunity to capitalize on its growth objectives. With the early sales and distribution rebound seen in the third quarter and early fourth quarter, Siyata could be positioning for a breakout in 2022.
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