ModSys International Ltd. :MDSY-US: Earnings Analysis: Q3, 2016 By the Numbers : November 21, 2016

ModSys International Ltd. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of ModSys International Ltd. – Attunity Ltd, International Business Machines Corporation, Cognizant Technology Solutions Corporation Class A and Progress Software Corporation (ATTU-US, IBM-US, CTSH-US and PRGS-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 3.19 million, Net Earnings of USD 0.18 million.
  • Gross margins widened from 23.24% to 61.83% compared to the same period last year, operating (EBITDA) margins now 12.79% from -43.07%.
  • Year-on-year change in operating cash flow of -2.76% 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) 3.19 2.41 2.83 2.14 2.06
Revenue Growth (%YOY) 55.13 -27.59 23.67 12.83 29.05
Earnings (mil) 0.18 -0.54 -0.55 -3.14 -1.19
Earnings Growth (%YOY) 115.33 -396.3 60.33 -233.33 -52.57
Net Margin (%) 5.7 -22.25 -19.35 -146.93 -57.71
EPS 0.01 -0.03 -0.03 -0.17 -0.07
Return on Equity (%) 2.81 -8.24 -8.27 -45.96 -16.63
Return on Assets (%) 2.27 -6.66 -6.73 -37.45 -13.63

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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 55.13% 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 32.46% and earnings by 133.96% 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 23.24% to 61.83% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -43.07% to 12.79% compared to the same period last year. For comparison, gross margins were 41.97% and EBITDA margins were -12.41% 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

Cash Versus Earnings – Sustainable Performance?

MDSY-US‘s change in operating cash flow of -2.76% 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 -56.54% to 7.02% and (2) one-time items. The company’s pretax margins are now 4.89% compared to -58.77% 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

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Company Profile

ModSys International Ltd. engages in the development and provision of information technology solutions. It operates through the following segments: North America, Europe, and Israel. It offers application portfolio management, application transparency platform, tool-assisted reengineering, automated conversion, replatforming, and portfolio optimization services. The company was founded on December 1, 2014 and is headquartered in Seattle, WA.

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