Skkynet Cloud Systems, Inc. :SKKY-US: Earnings Analysis: 2016 By the Numbers : February 17, 2017

Skkynet Cloud Systems, Inc. reports financial results for the year ended October 31, 2016.

Highlights

  • Gross margins widened from 94.20% to 97.93% compared to the same period last year, operating (EBITDA) margins now -97.88% from -113.35%.
  • Change in operating cash flow of 67.01% compared to same period last year is about the same as 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 1.17 1.22 0.92 0.78 0.73
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings -1.1 -1.31 -1.06 -0.24 -0.14
Earnings Growth (YOY) 16.38 -23.91 -338.28 -75.81 66.56
Net Margin -93.61 -107.44 -115.53 -30.84 -18.85
EPS -0.02 -0.03 -0.02 -0 -0
Return on Equity -311.86 -254.95 -393.6 N/A N/A
Return on Assets -197.65 -151.7 -138.36 -70.12 -57.61

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Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 94.20% to 97.93% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -113.35% to -97.88% compared to the same period last year. For comparison, gross margins were 94.20% and EBITDA margins were -113.35% 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

SKKY-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 107.38 days from 151.34 days for the same period last year.

Cash Versus Earnings – Sustainable Performance?

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

SKKY-US‘s year-on-year change in operating cash flow of 67.01% 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 earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -116.54% to -97.97% and (2) one-time items. The company’s pretax margins are now -96.49% compared to -113.81% for the same period last year.

EBIT Margin History
PreTax Margin History

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Company Profile

Skkynet Cloud Systems, Inc. provides custom development, installation support and software maintenance services. The company operates its business through wholly owned subsidiaries Skkynet, Inc., Skkynet Corp. and Nic Corporation, Cogent Real-Time Systems, Inc., which develops software and related systems and facilities for collecting, processing, and distributing real-time information over networks. Skkynet Cloud Systems was founded on August 31, 2011 and is headquartered in Toronto, Canada.

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