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Talkpool: Q3 comment, unexpected loss
Talkpool reported net sales of EUR 5.83m in Q3, which was in level with our estimate EUR 5.9m. Costs were, however, larger than expected, leading to an unexpected loss. The company states that it is explained by temporary IoT investments during the quarter, which thus should be regarded as one-offs.
Net sales amounted to EUR 5.83m in Q3 (estimate: EUR 5.9m), where Haiti and the Middle East (Pakistan and Saudi Arabia) accounted for EUR 1.97m and EUR 1.83m respectively. Talkpool mentions that its “moderate revenue growth” in Pakistan is not reflected due to exchange rate effects, where its sales in Pakistan decreased 13% compared to Q2. As expected, it shows an uptake in Saudi Arabia, which should increase additionally going forward following the recently announced USD 5m agreement with Ericsson.
The gross margin was 19.8%, which was much lower than our estimate of 25%. According to Talkpool, this is explained by extraordinary costs related to the roll-out of its IoT solutions in Haiti. The lower gross margin resulted in a gross profit of EUR 1.15 (vs. estimate EUR 1.47m).
Administrative, selling and other expenses totaled EUR 1.35m, which also was higher than expected (our estimate: EUR 1.05m). This resulted in an operating result of EUR -0.2m, compared to our forecast of EUR 0.4m.
The cash flow from operating activities amounted to EUR -1.24m, where EUR 0.87m are explained by net working capital change (primarily Haiti and Saudi Arabia). Investments were EUR -0.11m, while financing activities amounted to EUR 1.89m, which is related to the debt issue and repayment of existing debt. Hence, Talkpool held EUR 1.6m in cash by the end of Q3.
CEO Strömstedt states that several customers have evaluated Talkpool’s IoT solutions, and mentions that the customers now are approaching the phase where orders are to be expected. We look forward to following up on this as we regard the IoT offering to offer the most promising long-term opportunities.
All in all, the Q3 report was characterized by unexpectedly high temporary costs, resulting in a loss during the quarter. Our interpretation is that the higher costs are to be regarded as one-offs and that the gross margin should return to normal levels going forward. As of now, we do not expect to make any more significant adjustments in our upcoming update.