Orgenesis, Inc. :ORGS-US: Earnings Analysis: Q3, 2017 By the Numbers : October 17, 2017

Orgenesis, Inc. reports financial results for the quarter ended August 31, 2017.

Highlights

  • Summary numbers: Revenues of USD 2.56 million, Net Earnings of USD -0.56 million.
  • Gross margins widened from -20.98% to 10.62% compared to the same period last year, operating (EBITDA) margins now -96.29% from -96.70%.
  • Change in operating cash flow of -163.76% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth due to contribution of one-time items.

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

2017-08-31 2017-05-31 2017-02-28 2016-11-30 2016-08-31
Relevant Numbers (Quarterly)
Revenues (mil) 2.56 2.3 1.85 1.9 1.85
Revenue Growth (%YOY) 38.56 103 21.84 55.75 97.5
Earnings (mil) -0.56 -9 -2.88 -2.64 -3.89
Earnings Growth (%YOY) 85.64 -4099.56 -200.7 -63.66 -254.84
Net Margin (%) -21.82 -391.6 -155.62 -139.45 -210.49
EPS -0.01 -0.08 -0.03 -0.02 -0.04
Return on Equity (%) -5.29 -115.28 -35.38 -21.66 -26.51
Return on Assets (%) -6.07 -99.25 -33.05 -30.2 -42.48

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, ORGS-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if ORGS-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 11.49% and earnings by 93.79% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from -20.98% to 10.62% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -96.70% to -96.29% compared to the same period last year. For comparison, gross margins were 33.64% and EBITDA margins were -74.37% in the last reporting period.

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

ORGS-US’s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently -389.54, compared to last year’s level of -464.92 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.

Cash Versus Earnings – Sustainable Performance?

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

ORGS-US’s year-on-year change in operating cash flow of -163.76% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s operating (EBIT) margins contracted from -132.07% to -133.18%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from -163.12% to -59.80%.

EBIT Margin History
PreTax Margin History

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Company Profile

Orgenesis, Inc. is a biopharmaceutical company focused on developing its trans-differentiation technologies for diabetes. The company deals with the combination of cell-based therapy and regenerative medicine into clinical development. It operates through two segments: Contract Development and Manufacturing Organization and Cellular Therapy Business. The Contract Development and Manufacturing Organization segment activity includes MaSTherCell, which specializes in cell therapy development for advanced medicinal products. The Cellular Therapy Business segment activity is based on its technology that demonstrates the capacity to induce a shift in the developmental fate of cells from the liver and differentiating them into pancreatic beta cell like insulin producing cells for patients with Type 1 Diabetes. The company was founded on June 5, 2008 by Sarah Ferber and is headquartered in Germantown, MD.

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