Electronic Systems Technology, Inc. :ELST-US: Earnings Analysis: Q4, 2016 By the Numbers : March 14, 2017

Electronic Systems Technology, Inc. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of Electronic Systems Technology, Inc. – Cisco Systems, Inc. and Finisar Corporation (CSCO-US and FNSR-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 0.24 million, Net Earnings of USD -0.09 million.
  • Gross margins narrowed from 54.40% to 33.57% compared to the same period last year, operating (EBITDA) margins now -65.81% from -89.06%.
  • Year-on-year change in operating cash flow of -224.35% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from -91.27% to -68.55%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 0.24 0.32 0.46 0.47 0.31
Revenue Growth (%YOY) -22.23 -26.79 30.45 3.95 -32.26
Earnings (mil) -0.09 -0.04 -0 -0.01 0.03
Earnings Growth (%YOY) -390.58 3.86 97.79 89.88 297.03
Net Margin (%) -35.71 -13.22 -0.61 -2.1 9.56
EPS -0.02 -0.01 -0 -0 0.01
Return on Equity (%) -13.2 -6.39 -0.42 -1.45 4.35
Return on Assets (%) -12.91 -6.2 -0.41 -1.43 4.28

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Market Share Versus Profits

Revenues History
Earnings History

ELST-US‘s change in revenue this period compared to the same period last year of -22.23% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that ELST-US is holding onto its market share. Also, for comparison purposes, revenues changed by -25.45% and earnings by -101.38% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline was driven by the drop in gross margins from 54.40% to 33.57%. This drop in earnings would have been worse were in not for operational cost control activities, which helped the operating margins (EBITDA margins) improve from -89.06% to -65.81%. For comparison purposes, gross margins were 60.69% and EBITDA margins were -12.12% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

ELST-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 889.93 days, compared to last year’s level of 746.15 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

ELST-US‘s change in operating cash flow of -224.35% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from -91.27% to -68.55%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from -19.15% to -67.30%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Electronic Systems Technology, Inc. engages in the development, manufacture, and trade of wireless modem and data radio products. Its wireless solution cater businesses such as material handling, energy, mining, oil and gas, agriculture, factory floor, public asfety, and ethernet networks. The company was founded by Thomas L. Kirchner in 1982 and is headquartered in Kennewick, WA.

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