Benzinga | Nov 22, 2021 04:11AM EST

SYTA: 3Q21 Sales Miss and Lack of Growth Is Overlooked Because of SD7 Launch Partner Announcement & Refinancing

By T. Moore, CFA

NASDAQ:SYTA

READ THE FULL SYTA RESEARCH REPORT

Business News Update

Siyata Mobile Inc. (NASDAQ:SYTA) announced a weak topline result for its September quarter, but expects an acceleration for 4Q revenues and throughout 2022. While revenues have been disappointing over the past two quarters, we turn our focus to the company's SD7 device launch underway this quarter with Motorola Solutions as a logical partner.

We now forecast $4 million of revenues in 2022 ($2m previously) solely from the SD7 launch (mostly from North America followed by Europe in late 2022). Refinancing this week helps working capital. We estimate nearly breakeven adjusted EBITDA profitability in 2022 for a re-rating of the stock.

Motorola Solutions (MSI) recently entered into a partnership agreement with Siyata Mobile for the launch of the new SD7 handset. Motorola Solutions acts as a non-exclusive marketing and distribution partner. This was a very important hurdle to jumpstart the SD7 revenue rollout.

We remain optimistic about the revenue potential from the SD7 launch for 2022 & 2023. We like today's news of the Motorola Solutions partnership to help fill the gap for Motorola Solutions, which does not have a qualified Mission Critical Push-to-Talk (MCPTT) offering. We see this as a win-win and remind investors that Motorola Solutions is the #1 dominant market share leader with its LMR walkie talkies. Yet, it does not offer a cellular one or at an affordable price of $300 like SD7.

The company recently refinanced its convertible notes that were set to mature in mid-December. This important milestone and extended maturity of its balance debt owed likely sent a good optics signal to new potential partners. It also lowers the annual interest expense by $720,000. Yet, the trade-off was more warrants issue for share count dilution.

Highlights of the September Quarter Results

Siyata Mobile (SYTA) reported a year-over-year sales decline of -46% year-over-year for the September quarter. $1.2 million reported was significantly below our estimate of $3.2 million because of continued decline in Israel revenues from a winddown of 3G products and the stalling of 4G sales in North America. Yellow School buses have been slow in recovery and there was a gap in cellular signal boosters after fulfilling a huge order in 1Q.

Inventory impairment of $1.6 million in 3Q followed $1.8m taken in 2Q. $5.0 million of total inventory impairments over the past 12 months is concerning to us. Considering that equals the actual revenues of over the past 12 months. The bulk of the inventory impairment was tied to truckfone devices (CP100 & prior UV350) that were slow-moving and some prior version device before an upgrade to Android 10.

Gross margin of 35% improved by 300 bps from the year-ago period despite the weak topline.

Adjusted EBITDA was negative -$4.1 million.

Valuation

We value Siyata Mobile using a peer comparables valuation methodology based on EV/Sales for 2022 estimates. We typically prefer EV/EBITDA, P/E & P/FCF multiples, but this company has not achieved positive adjusted EBITDA on an annual basis.

We reach $10.00 stock price by applying the peer group average of 2.7x EV/Sales 2022. Compared to SYTA trading at 1.3x our 2022 Sales estimate & 2.4x our 2021 Sales estimate.

For now, we removed the 10% discount that we applied last month after very lackluster 2Q revenue results and write-downs. Instead, we deem the Motorola Solutions agreement for the SD7 launch as in important offset to weak revenues over the past six months and inventory impairments taken.

Stock is trading at 1.3x our calendar 2022 Sales estimate, which is a 54% discount to peer group average. This large discount appears unwarranted and could narrow if the company executes well on revenue growth and gross margin expansion in 4Q21 and 2022.

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