Pilat Media, the London based supplier of business process management software for broadcasting companies, missed Q3 as the ‘hungry task’ of upgrading clients to its new IBMS V6 product took its toll on revenue and profitability. Investors responded by knocking 5% off the company’s shares.
Q3 revenue fell 3.6% to £5.32m, but operating profits, even before the nasty bits fell 62.5% to £90k, pushing the margin down to 1.6% vs. 4.4% last time. After tax, Pilat Media tumbled into a £20k loss vs. a £370k profit last time. Over the nine month period, revenues were in line with expectations, albeit down 3.5% to £15.8m. After tax profits were £24k vs. a £1.33m loss last time. The one bright spot was the cash generation, which rose to £7.77m in Q3 - net of loans and the OTTilus investment made in June (see Pilat expands via joint venture) - up from £6.32m at the end of Q2.
Despite the disappointing Q3, management are upbeat. Having now got most of the upgrades out of the way, it should be able to focus on new opportunities where it is seeing strong demand for its software and services. It expects for instance to complete licence renewal negotiations with a number of its existing clients in the next few weeks, which it said will generate license fees in Q4, making it a ‘strong and profitable quarter’.
That said, Q4 will also be the first quarter Pilat (and partner SimpleStream) start to see the financial impact of their investment in OTTilus, as costs begin being charged to direct to the JV. Work on the platform isn’t due to complete until Q1 2013, so sales are unlikely to commence until after then. Further investments are also being made in new functionality for its core IBMS platform, as well as in IBMS-Express, a SaaS out-of-the-box version of IBMS.
Pilat is right to be investing for future growth in this nascent space for on-demand and over-the-top TV and media platforms. But it will very likely hold back profitability in the near term. Focusing resources on revenue growth also has to be a key priority.
