magicJack VocalTec Ltd. :CALL-US: Earnings Analysis: Q1, 2016 By the Numbers

magicJack VocalTec Ltd. reports financial results for the quarter ended March 31, 2016.

We analyze the earnings along side the following peers of magicJack VocalTec Ltd. – AudioCodes Ltd., CenturyLink, Inc., Verizon Communications Inc., AT&T Inc., Vonage Holdings Corp., Barracuda Networks, Inc., Fortinet, Inc., TEGNA, Inc. and Time Warner Cable Inc. (AUDC-US, CTL-US, VZ-US, T-US, VG-US, CUDA-US, FTNT-US, TGNA-US and TWC-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 23.70 million, Net Earnings of USD 0.73 million.
  • Gross margins widened from 62.89% to 65.36% compared to the same period last year, operating (EBITDA) margins now 21.21% from 21.36%.
  • Year-on-year change in operating cash flow of -7.95% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline largely a result of non-operational activity, pretax margins improved from 17.29% to 17.87%.

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

2015-03-31 2015-06-30 2015-09-30 2015-12-31 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 25.51 25.41 25.41 24.63 23.7
Revenue Growth (%YOY) -27.75 -13.81 -1.57 -4.22 -7.11
Earnings (mil) 1.31 6.95 3.31 1.94 0.73
Earnings Growth (%YOY) -75.41 206.39 331200 151 -43.88
Net Margin (%) 5.13 27.36 13.03 7.87 3.1
EPS 0.07 0.39 0.2 0.12 0.05
Return on Equity (%) 10.38 52.23 25.06 15.74 5.95
Return on Assets (%) 2.65 14.5 7.36 4.47 1.71

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Market Share Versus Profits

Revenues History
Earnings History

CALL-US‘s change in revenue this period compared to the same period last year of -7.11% 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 CALL-US is holding onto its market share. Also, for comparison purposes, revenues changed by -3.78% and earnings by -62.15% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s earnings declined year-on-year largely because of the increases in operating costs. Its operating margins (EBITDA margins) went from 21.36% to 21.21%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 62.89% to 65.36%. For comparison, gross margins were 68.41% and EBITDA margins 31.41% in the immediate last period.

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

CALL-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 56.12 days from 137.41 days for the same period last year.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

CALL-US‘s change in operating cash flow of -7.95% 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

Margins

The company’s earnings decline is largely a result of non-operational activity. As a matter of fact, the company showed increases in operating (EBIT) and pretax margins. EBIT margins improved from 17.38% to 17.87% and pretax margins widened from 17.29% to 17.87%.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

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Company Profile

magicJack VocalTec Ltd. engages in the provision of cloud communications and manufacture of communication devices. Its products and services include telephone home service and voice applications. It operates and distributes under the following the magicJack PLUS and magicJack GO brands. The company was founded in 1989 and is headquartered in Jerusalem, Israel.

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