Mitel Networks Corp. :MITL-US: Earnings Analysis: Q4, 2016 By the Numbers : March 3, 2017

Mitel Networks Corp. reports financial results for the quarter ended December 31, 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

  • Gross margins widened from 47.31% to 55.74% compared to the same period last year, operating (EBITDA) margins now 9.82% from 16.81%.
  • 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:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 259.8 279.8 307.2 276.1 342
Revenue Growth (%YOY) -24.04 -3.75 10.94 11.29 13.47
Earnings (mil) 13.9 25.1 -10.8 -22.4 -6.3
Earnings Growth (%YOY) 320.63 409.88 6.9 -522.64 -158.33
Net Margin (%) 5.35 8.97 -3.52 -8.11 -1.84
EPS N/A 0.2 -0.09 -0.19 -0.05
Return on Equity (%) 11.83 17.88 -7.5 -14.92 -4.15
Return on Assets (%) 3.35 5.68 -2.42 -4.91 -1.36

Access our Ratings and Scores for Mitel Networks Corp.

Earnings Growth Analysis

The company’s earnings growth has been influenced by the year-on-year improvement in gross margins from 47.31% to 55.74%. 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

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 gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 56.24, compared to last year’s level of 54.57 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

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 9.30% to 9.82% and (2) one-time items. The company’s pretax margins are now 3.54% compared to 1.55% 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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