Sandridge Mississippian Trust I :SDT-US: Earnings Analysis: Q3, 2016 By the Numbers : November 9, 2016

Sandridge Mississippian Trust I reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Sandridge Mississippian Trust I – Viper Energy Partners LP (VNOM-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 1.86 million, Net Earnings of USD 1.15 million.
  • Gross margins narrowed from 91.17% to 87.07% compared to the same period last year, operating (EBITDA) margins now 61.91% from 76.51%.
  • Narrowing of operating margins contributed to decline in earnings.

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

2015-09-30 2015-12-31 2016-03-31 2016-06-30 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 3.32 3.08 2.51 1.9 1.86
Revenue Growth (%YOY) -60.9 -60.46 -65.04 -53.26 -43.86
Earnings (mil) 8.43 8.53 8.71 3.88 1.15
Earnings Growth (%YOY) 12.19 23.34 2 -58.14 -86.31
Net Margin (%) 253.86 276.79 347.66 204.16 61.91
EPS 0.3 0.3 0.31 0.14 0.04
Return on Equity (%) 22.98 42.31 44.15 20.11 8.42
Return on Assets (%) 22.98 42.31 44.15 20.11 8.42

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Market Share Versus Profits

Revenues History
Earnings History

SDT-US‘s change in revenue this period compared to the same period last year of -43.86% 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 SDT-US is holding onto its market share. Also, for comparison purposes, revenues changed by -1.84% and earnings by -70.23% 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 year-on-year decline in earnings was influenced by a weakening in gross margins from 91.17% to 87.07%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 76.51% to 61.91% in this time frame. For comparison, gross margins were 86.89% and EBITDA margins were 62.72% in the previous 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

SDT-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 92.00 days, compared to last year’s level of 51.57 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 76.51% to 61.91% and (2) one-time items that contributed to a decrease in pretax margins from 253.86% to 61.91%

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

ECA Marcellus Trust I is a statutory trust. It acquires and holds royalty interests for the benefit of trust unit holders. Sandridge Mississippian Trust I was founded on December 30, 2010 and is headquartered in Austin, TX.

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