Ahead of merger, Ottawa’s Espial cuts costs as revenues inch up

Espial
Espial CEO Jaison Dolvane. File photo.

Ottawa video software provider Espial’s shift to a subscription-based model continued to pay off in the first quarter of 2019, with the company’s SaaS revenues doubling year-over-year as it prepares to merge with a southern Ontario firm.

Espial (TSX:ESP) ​– which announced in late March it has agreed to be acquired by Markham-based Enghouse Systems for $56.5 million in cash ​– said last week its revenues for the first three months of 2019 were nearly $6.1 million, up slightly from $5.9 million a year earlier.

While revenue from software licensing dropped from just over $2 million last year to $1.94 million, Espial’s subscription revenues jumped 88 per cent from $1.2 million to $2.2 million.

“Our focus over the last number of quarters has been to grow our SaaS revenues,” CEO Jaison Dolvane told analysts on a conference call after the firm released its Q1 results late last week.

“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.”

Espial, which develops television and video platforms for cable operators and streaming services, cut its expenses and losses considerably in the first quarter compared with 2018.

Thanks largely to reductions in its marketing and R&D budgets, Espial’s expenses plunged from $8.5 million to $5.5 million. The firm reported a net loss of $1.5 million in the first quarter, compared with a loss of $3.7 million a year earlier.

Dolvane told analysts the pending agreement with Enghouse will give his firm the sales and marketing muscle it needs to ramp up its growth.

Under the agreement, Enghouse Systems (TSX:ENGH) will pay $1.57 per share for Espial, a 39 per cent premium on the Ottawa company’s closing price on the TSX before the deal was announced in late March. The transaction still requires the approval of regulators and shareholders of both firms and is expected to close in the second quarter of this year.

Enghouse generated revenues of more than $340 million in fiscal 2018 and has a market capitalization of nearly $1.8 billion.

“With the added financial capability and scale that Enghouse brings, I believe that Espial will be well-positioned to be an industry leader as video service providers fundamentally evolve their pay-TV business,” he said.

Espial’s share price surged immediately after the deal was announced, rising from a closing price of $1.13 on the week ending March 22 to $1.55 on March 26, the day the agreement was made public. Shares were unchanged at $1.56 early Monday morning on the Toronto Stock Exchange.