By Lisa Thompson
Weyland (OTC:WEYL) reported 2016 revenues of $12.9 million right on target with estimates versus $2.6 million in 2015. Since the CreateApp business was not purchased until September 2015, the comparison with the previous year is not meaningful. However, audited revenues in 2014 were ~$10M similar to the Q4-2015 four quarter run-rate of ~$10.4M suggesting solid growth of ~$2.5M year on year. The company has a number of new relationships since Q3 was reported. It announced in December it has entered into a strategic partnership with DPEX Worldwide. The partnership will combine mobile commerce solutions with delivery logistics. It will provide subscribers with a one-stop end-to-end solution incorporating m-commerce setup and operation, payment gateways for m-commerce transactions, logistics services such as warehousing, fulfillment, cross border and domestic distribution. DPEX provides delivery of urgent documents, parcel, and freight worldwide and operates in 17 countries. It has offices in Bangladesh, Brunei, Cambodia, India, China, Taiwan, Indonesia, Malaysia, Myanmar, Nepal, Pakistan, Philippines, Singapore, Sri Lanka, Thailand and Vietnam.
The elephant in the room was the unexpected $2.9 million R&D expense that appeared in Q4 2016 as well as $700,000 in a bad debt write off which caused GAAP EPS estimates to miss by $0.21.
Until Q4, the company had been capitalizing R&D expense and amortizing it. It was decided, however, that a more conservative approach would be to expense R&D spending as incurred. As a result the capitalized development was written-off and, going forward, R&D will be expensed as incurred.
With R&D expenses being booked quarterly, operating margins will decrease considerably. Importantly, however, there should be no full-year impact to operating cash flow and margins as percentage of sales will more closely reflect industry standard levels.
The bad debt expense was a one-time write-off and eliminated accounts receivable from the company’s previous business. Excluding this expense the non-GAAP net income was $1.2 million or non-GAAP EPS of $0.07 per share.
Also a surprise in Q4, was a reversal of taxes of $230,000 that added deferred taxes to the balance sheet from tax loss carry forwards.Q4 2016 New Hires
Weyland Tech now has 12 full time employees. In Q4 2016 it announced the expansion of the management team with key hires including Thet Twe Aung as CTO, Matthew Brent, Jason Chang, and John MacNeil.
Given the company’s change in accounting for R&D we are reducing our 2017 earnings forecast significantly. We expect expensing R&D will add another ~$3.0 million to costs in 2017 relative to our earlier estimates. The company is not only continuing to improve its current product but is working on customization projects for enterprise and telco customers to support the roll out of marketplaces for their SMB customers to populate.
This will require upfront development, investment and potentially acquisition with recurring revenues following later. We believe the company may be EBITDA negative in the first part of 2017 to support its initiative.
It is in the process of a small capital raise of $2-3 million to support this cost.
We are reducing our annual revenue estimate to $18.1 million to be more conservative, still showing growth of 44%, and reducing EPS to $0.07 reflecting the new accounting for R&D.
For 2018 we are initiating a forecast of $26 million in revenues, up 40% yielding EPS of $0.20. KEY POINTS
Weyland Tech is a marketer of a successful DIY app development platform that had only been sold in Singapore until 2016.
Through a series of partnerships and agreements, it is rolling sales out to a number of other countries primarily in Asia. This increases its total addressable market (TAM) exponentially. In Asia in particular, the company has very limited competition and is potentially first to market in some locations.
Its main business was only purchased on September 1, 2015 and all financials from that point on reflect this new business. The old business was wound down on that date. Investors should focus on Q4 2015 forward as representative of the current business.
The company has high margins and cash flow due to its structure as a SaaS company that has primarily outsourced its marketing and sales and has its primary development behind it.
We expect revenues of $18.1 million and non-GAAP EPS of $0.07 in 2017 versus $13 million in revenue in 2016 and non-GAAP EPS of $0.07. By year end the stock could be worth $5.60 per share based on an industry average EV to sales of 4.0X and an estimated $26 million in sales in 2018 and a 2018 PE of at least 30Xs. READ THE FULL RESEARCH REPORT HERESUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR and to view our disclaimer.