Industrial Services of America, Inc. :IDSA-US: Earnings Analysis: Q1, 2017 By the Numbers : May 24, 2017

Industrial Services of America, Inc. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Industrial Services of America, Inc. – Perma-Fix Environmental Services, Inc., Casella Waste Systems, Inc. Class A, Waste Management, Inc. and Republic Services, Inc. (PESI-US, CWST-US, WM-US and RSG-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 13.01 million, Net Earnings of USD -0.27 million.
  • Gross margins widened from -2.95% to 7.16% compared to the same period last year, operating (EBITDA) margins now 3.57% from -13.77%.
  • Year-on-year change in operating cash flow of 41.98% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

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

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 13.01 10.49 9.9 10.12 6
Revenue Growth (%YOY) 116.92 1690.1 -14.32 -36.13 -67.04
Earnings (mil) -0.27 -0.24 -0.94 -0.63 -1.43
Earnings Growth (%YOY) 80.98 93.33 20.98 47.75 54.05
Net Margin (%) -2.08 -2.29 -9.48 -6.2 -23.76
EPS -0.03 -0.03 -0.12 -0.08 -0.18
Return on Equity (%) -8.92 -7.75 -28.95 -18.38 -39.31
Return on Assets (%) -4.99 -4.53 -17.66 -12.09 -28.16

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Market Share Versus Profits

Revenues History
Earnings History

IDSA-US‘s change in revenue this period compared to the same period last year of 116.92% 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 IDSA-US is holding onto its market share. Also, for comparison purposes, revenues changed by 24.03% and earnings by -12.92% 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 earnings growth was influenced by year-on-year improvement in gross margins from -2.95% to 7.16% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -13.77% to 3.57% compared to the same period last year. For comparison, gross margins were 7.58% and EBITDA margins were 3.69% in the last reporting 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

IDSA-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 11.99 days from 29.21 days for the same period last year.

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.

IDSA-US‘s change in operating cash flow of 41.98% 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

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -22.94% to -0.85% and (2) one-time items. The company’s pretax margins are now -2.03% compared to -23.74% for the same period last year.

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

Industrial Services of America, Inc. engages in the provision of waste management services and trade of steel products. It purchases ferrous and non-ferrous scrap materials and stainless steel from industrial and commercial steel generators, scrap dealers, and peddlers; processes it through sorting, cutting, baling, and shredding; then sells it to steel mini-mills, steel makers, and foundries. The company was founded by Harry Kletter in October 1953 and is headquartered in Louisville, KY.

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