Mitel Networks Corp. :MITL-US: Earnings Analysis: Q3, 2016 By the Numbers : November 18, 2016

Mitel Networks Corp. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Mitel Networks Corp. – ShoreTel, Inc., Microsoft Corporation and Cisco Systems, Inc. (SHOR-US, MSFT-US and CSCO-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 279.80 million, Net Earnings of USD 25.10 million.
  • Gross margins widened from 44.86% to 46.00% compared to the same period last year, operating (EBITDA) margins now 10.69% from 9.94%.
  • Year-on-year change in operating cash flow of 90.89% 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:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 279.8 307.2 276.1 342 290.7
Revenue Growth (%YOY) -3.75 10.94 11.29 13.47 6.72
Earnings (mil) 25.1 -10.8 -22.4 -6.3 -8.1
Earnings Growth (%YOY) 409.88 6.9 -522.64 -158.33 -52.83
Net Margin (%) 8.97 -3.52 -8.11 -1.84 -2.79
EPS 0.2 -0.09 -0.19 -0.05 -0.07
Return on Equity (%) 17.88 -7.5 -14.92 -4.15 -5.42
Return on Assets (%) 5.68 -2.42 -4.91 -1.36 -1.73

Access our Ratings and Scores for Mitel Networks Corp.

Market Share Versus Profits

Revenues History
Earnings History

MITL-US‘s change in revenue this period compared to the same period last year of -3.75% 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 MITL-US is holding onto its market share. Also, for comparison purposes, revenues changed by -8.92% and earnings by 332.41% 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 44.86% to 46.00% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 9.94% to 10.69% compared to the same period last year. For comparison, gross margins were 50.16% and EBITDA margins were 13.51% 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

MITL-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 47.78 days from 67.35 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?

MITL-US‘s change in operating cash flow of 90.89% 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 0.10% to 1.39% and (2) one-time items. The company’s pretax margins are now 11.79% compared to -7.09% 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

Access our Ratings and Scores for Mitel Networks Corp.

Company Profile

Mitel Networks Corp. is a provider of business communications and collaboration software, services, and solutions. It operates through the following segments: Enterprise, Cloud, and Mobile. The Enterprise segment includes selling and supporting business communications products and services. The Cloud segment offers sells and supports products that are deployed in a cloud environment. The Mobile segment involves in selling and supporting software-based telecommunications networking solutions. The company was founded by Terence Hedley Matthews in 1972 and is headquartered in Ottawa, Canada.

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