Neonode, Inc. :NEON-US: Earnings Analysis: 2016 By the Numbers : March 29, 2017

Neonode, Inc. reports financial results for the year ended December 31, 2016.

We analyze the earnings along side the following peers of Neonode, Inc. – Invensense, Inc., Cypress Semiconductor Corporation, Semtech Corporation and Analog Devices, Inc. (INVN-US, CY-US, SMTC-US and ADI-US) that have also reported for this period.

Highlights

  • Gross margins widened from 65.99% to 87.01% compared to the same period last year, operating (EBITDA) margins now -47.57% from -68.12%.
  • Year-on-year change in operating cash flow of 22.46% 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 2015 2014 2013 2012
Relevant Numbers (Annual)
Revenues 10.21 11.12 4.74 3.72 7.14
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings -5.29 -7.82 -14.23 -13.08 -9.29
Earnings Growth (YOY) 32.34 45.06 -8.82 -40.84 45.83
Net Margin -51.81 -70.36 -300.3 -351.9 -130.12
EPS -0.12 -0.19 -0.36 -0.37 -0.28
Return on Equity -177.31 -306.49 -295.99 -181.06 -85.31
Return on Assets -67.7 -107.65 -141.82 -110.66 -64.5

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Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 65.99% to 87.01% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -68.12% to -47.57% compared to the same period last year. For comparison, gross margins were 65.99% and EBITDA margins were -68.12% 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

NEON-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 81.90, compared to last year’s level of 73.97 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

Cash Versus Earnings – Sustainable Performance?

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

NEON-US‘s change in operating cash flow of 22.46% 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 -69.80% to -51.09% and (2) one-time items. The company’s pretax margins are now -51.72% compared to -69.65% 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

Neonode, Inc. develops and licenses user interfaces and optical interactive touch solutions. It offers solutions for handheld, small to midsized industrial electronic devices. The company business activities are conducted through original equipment manufacturers and original design manufacturer who develop and sell electronic devices that use touchscreen technology. It develops and licenses the next generation of user interfaces and optical multi touch solutions for some of the world’s consumer brands, including Sony, Barnes&Noble, Kobo, Oregon Scientific, Alpine, Sonim and Amazon. The company’s products cover zForce and multi-sensing technology which applies into household’s appliances, mobiles and others. Neonode was founded by Thomas Eriksson on September 4, 1997 and is headquartered in Stockholm, Sweden.

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