ModSys International Ltd. :MDSY-US: Earnings Analysis: 2016 By the Numbers : April 13, 2017

ModSys International Ltd. reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of ModSys International Ltd. – Oracle Corporation, HP Inc. and Progress Software Corporation (ORCL-US, HPQ-US and PRGS-US) that have also reported for this period.

Highlights

  • Gross margins widened from 28.84% to 50.01% compared to the same period last year, operating (EBITDA) margins now 0.38% from -25.35%.
  • Year-on-year change in operating cash flow of 39.96% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from -35.87% to -7.50%.

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

2016 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 10.98 9.81 7.24 8.54 10.62
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings -12.18 -5.81 -3.4 -3.63 -9.96
Earnings Growth (YOY) -109.49 -71.25 6.55 63.52 69.24
Net Margin -110.92 -59.28 -46.89 -42.56 -93.74
EPS -0.65 -0.32 -0.28 -0.34 -1.45
Return on Equity -59.45 -20.37 -15.19 -24.72 -64.91
Return on Assets -46.31 -17.18 -12.95 -19.45 -36.78

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Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 28.84% to 50.01%, while operating margins improved from -25.35% to 0.38% over this period. For comparison, gross margins were 28.84% and EBITDA margins -25.35% in the immediate last 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

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

MDSY-US‘s change in operating cash flow of 39.96% 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

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from -35.87% to -7.50%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from -62.21% to -118.06%.

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

ModSys International Ltd. engages in the development and market of enterprise legacy migration solutions and provide tools and professional services to international markets. It operates through the following geographic segments: North America, Europe, and Israel. The company was founded on December 1, 2014 and is headquartered in Dallas, TX.

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