FONAR Corp. :FONR-US: Earnings Analysis: Q4, 2016 By the Numbers : October 4, 2016

FONAR Corp. reports financial results for the quarter ended June 30, 2016.

We analyze the earnings along side the following peers of FONAR Corp. – Medtronic Plc (MDT-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 18.77 million, Net Earnings of USD 6.36 million.
  • Gross margins widened from 42.54% to 48.98% compared to the same period last year, operating (EBITDA) margins now 12.89% from 24.15%.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

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

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 16.88 17.61 18.37 18.62 18.77
Revenue Growth (%YOY) -0.86 -2.08 7.47 8.91 11.21
Earnings (mil) 5.7 2.86 3.49 3.01 6.36
Earnings Growth (%YOY) 39.77 18.66 31.41 48.84 11.69
Net Margin (%) 33.76 16.25 19.02 16.14 33.91
EPS 0.88 0.42 0.54 0.46 0.96
Return on Equity (%) 44.34 20.98 24.46 20.11 40.74
Return on Assets (%) 30.17 14.72 17.52 14.79 30.5

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Market Share Versus Profits

Revenues History
Earnings History

FONR-US‘s change in revenue this period compared to the same period last year of 11.21% 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 FONR-US is holding onto its market share. Also, for comparison purposes, revenues changed by 0.81% and earnings by 111.80% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s earnings growth has been influenced by the year-on-year improvement in gross margins from 42.54% to 48.98%. However the company’s overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company’s operating margins (EBITDA margins) showed no improvement over the same period last year.

Gross Margin Versus EBITDA Margin

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

FONR-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 138.84, compared to last year’s level of 128.43 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for FONAR Corp.

Company Profile

FONAR Corp. develops and manufactures of MRI scanners. It is engaged in the business of designing, manufacturing, selling and servicing magnetic resonance imaging scanners. The company operates through two segments: Medical Equipment and Physician Management & Diagnostic Services. The Medical Equipment segment manufactures and sells magnetic resonance imaging scanners, which utilize MRI technology for the detection and diagnosis of human disease, abnormalities, other medical conditions and injuries. The Physician Management & Diagnostic Services segment is conducted through Health Management Corp. of America, which is a wholly-owned subsidiary. It provides management, administrative, billing and collection services, office space, equipment, repair, maintenance service and clerical and other non-medical personnel to medical providers. Fonar was founded by Raymond V. Damadian on July 17, 1978 and is headquartered in Melville, NY.

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