ModSys International Ltd. :MDSY-US: Earnings Analysis: Q1, 2016 By the Numbers : June 22, 2016

ModSys International Ltd. reports financial results for the quarter ended March 31, 2016.

We analyze the earnings along side the following peers of ModSys International Ltd. – Attunity Ltd, Oracle Corporation, HP Inc. and Cognizant Technology Solutions Corporation Class A (ATTU-US, ORCL-US, HPQ-US and CTSH-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 2.83 million, Net Earnings of USD -0.55 million.
  • Gross margins widened from 14.52% to 35.62% compared to the same period last year, operating (EBITDA) margins now -11.46% from -47.86%.
  • Year-on-year change in operating cash flow of 14.70% 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:

2015-03-31 2015-06-30 2015-09-30 2015-12-31 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 2.29 3.33 2.06 2.14 2.83
Revenue Growth (%YOY) 22.18 76.87 29.05 12.83 23.67
Earnings (mil) -1.38 -0.11 -1.19 -3.14 -0.55
Earnings Growth (%YOY) -49.4 85.62 -52.57 -233.33 60.33
Net Margin (%) -60.32 -3.25 -57.71 -146.93 -19.35
EPS -0.08 -0.01 -0.07 -0.17 -0.03
Return on Equity (%) -18.53 -1.48 -16.63 -45.96 -8.27
Return on Assets (%) -15.77 -1.22 -13.63 -37.45 -6.73

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Market Share Versus Profits

Revenues History
Earnings History

MDSY-US‘s change in revenue this period compared to the same period last year of 23.67% 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 MDSY-US is holding onto its market share. Also, for comparison purposes, revenues changed by 32.29% and earnings by 82.58% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 14.52% to 35.62% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -47.86% to -11.46% compared to the same period last year. For comparison, gross margins were 28.45% and EBITDA margins were -30.79% in the last reporting period.

Gross Margin Versus EBITDA Margin

Cash Versus Earnings – Sustainable Performance?

MDSY-US‘s change in operating cash flow of 14.70% 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 growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -60.10% to -17.62% and (2) one-time items. The company’s pretax margins are now -18.61% compared to -62.16% for the same period last year.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for ModSys International Ltd.

Company Profile

ModSys International Ltd., through its subsidiary Modern Systems, engages in the provision of legacy modernization services. Its portfolio includes suite of tools and services that modernize legacy applications and databases incrementally or all at once. It also offers technologies that can be applied to source applications and databases leveraging COBOL, Natural Adabas, IDMS, and CA Coolgen. Its customers come from industries such as automotive, banking and financial services, insurance, manufacturing, and retail. The company was founded on December 1, 2014 and is headquartered in Seattle, WA.

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