Top Image Systems Ltd. :TISA-US: Earnings Analysis: Q3, 2016 By the Numbers : November 21, 2016

Top Image Systems Ltd. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Top Image Systems Ltd. – Attunity Ltd, CYREN Ltd. and Mitek Systems, Inc. (ATTU-US, CYRN-US and MITK-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 7.68 million, Net Earnings of USD -0.30 million.
  • Gross margins narrowed from 51.12% to 45.54% compared to the same period last year, operating (EBITDA) margins now -5.60% from -5.30%.
  • 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:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 7.68 8.49 8.46 6.63 8.98
Revenue Growth (%YOY) -14.49 -14.4 2.37 -33.97 -16.05
Earnings (mil) -0.3 -0.18 -2.12 -6.1 -1.57
Earnings Growth (%YOY) 80.94 -148.91 -112.76 -3150 67.1
Net Margin (%) -3.89 -2.12 -25.03 -91.98 -17.47
EPS -0.02 -0.01 -0.12 -0.34 -0.09
Return on Equity (%) -5.03 -3.01 -33.85 -84.49 -19.28
Return on Assets (%) -3.04 -1.8 -20.93 -57.67 -13.73

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Market Share Versus Profits

Revenues History
Earnings History

TISA-US‘s change in revenue this period compared to the same period last year of -14.49% 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 TISA-US is holding onto its market share. Also, for comparison purposes, revenues changed by -9.49% and earnings by -66.11% 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 earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 45.54% to 51.12% for the same period last year, while operating margins (EBITDA margins) went from -5.60% to -5.30% over the same time frame.

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

TISA-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 32.02 days from 90.58 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -11.03% to -7.21% and (2) one-time items. The company’s pretax margins are now -9.41% compared to -16.61% 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

Top Image Systems Ltd. engages in the provision of enterprise content management solutions. It offers technology to automatically transform any information into electronic data. It involves in the development and marketing of platform and software which provides information recognition system and technologies and automated documents capture solutions to flow the information within and between organization. Its customers include banking, insurance, healthcare, government and other industries. The company was founded by Izhak Nakar in March 1991 and is headquartered in Ramat Gan, Israel.

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