Technical Communications Corp. :TCCO-US: Earnings Analysis: 2016 By the Numbers : December 28, 2016

Technical Communications Corp. reports financial results for the year ended September 30, 2016.

We analyze the earnings along side the following peers of Technical Communications Corp. – Motorola Solutions, Inc., Acorn Energy, Inc., Cisco Systems, Inc., CalAmp Corp. and Orbit International Corp. (MSI-US, ACFN-US, CSCO-US, CAMP-US and ORBT-US) that have also reported for this period.

Highlights

  • Gross margins narrowed from 56.63% to 20.19% compared to the same period last year, operating (EBITDA) margins now -112.19% from -28.20%.
  • Year-on-year change in operating cash flow of 52.02% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

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 2.52 5.94 6.14 6.25 8.12
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings -2.47 -1.82 -2.56 -0.71 -0.84
Earnings Growth (YOY) -35.7 28.97 -259.16 15.07 -137.05
Net Margin -97.99 -30.66 -41.78 -11.43 -10.36
EPS -1.34 -0.99 -1.39 -0.39 -0.46
Return on Equity -40.24 -22.16 -25.04 -6.07 -6.58
Return on Assets -36.66 -20.44 -23.15 -5.67 -6.08

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Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 56.63% to 20.19%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from -28.20% to -112.19% in this time frame. For comparison, gross margins were 56.63% and EBITDA margins were -28.20% 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

TCCO-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 757.42 days, compared to last year’s level of 418.00 days.

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?

TCCO-US‘s change in operating cash flow of 52.02% 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

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

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

Technical Communications Corp. engages in designing, developing, manufacturing, marketing and selling of communication devices, systems and services. Its products are sold to governments, military agencies, telecommunications carriers, financial institutions and multinational corporations. The company was founded in 1961 and is headquartered in Concord, MA.

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