Sign in

You're signed outSign in or to get full access.

OC

OMNIQ Corp. (OMQS)·Q3 2016 Earnings Summary

Executive Summary

  • Q3 revenue of $13.56M declined 18.8% year over year due to order timing shifting into Q4; gross margin held at 19.6%, and Adjusted EBITDA was positive ($0.19M) for the second consecutive quarter .
  • Reported net loss from continuing operations was $2.47M, including $1.2M of non‑recurring charges (asset write‑off $0.5M; line‑of‑credit termination fees $0.5M; restructuring $0.1M; FX loss $0.1M); discontinued operations loss was $3.92M tied to the pending divestiture of Quest Solution Canada Inc. .
  • Liquidity actions: converted $12.4M of accounts payable into a secured promissory note and initiated cost reduction programs (annualized headcount savings ~$0.4M to date), supporting positive Adjusted EBITDA despite a softer revenue quarter .
  • Near‑term catalysts: closing the sale of the Canadian operations (expected in Q4, effective 9/30/2016) to simplify operations and improve cash flow; supplier financing extension and ongoing restructuring aimed at margin and cost improvements .

What Went Well and What Went Wrong

What Went Well

  • Positive Adjusted EBITDA for the second consecutive quarter ($0.19M in Q3), indicating early benefits from cost actions despite lower revenue .
  • Supplier credit extension converted $12.4M of accounts payable into a structured note, stabilizing supply and working capital while management negotiates maturity extensions .
  • Management expects Q4 sales uplift from order timing; “For Q4 we will remain focused on continuing to drive sales and realizing additional cost efficiencies across the enterprise.” — Tom Miller, Interim CEO .

What Went Wrong

  • Revenue fell 18.8% YoY to $13.56M as customer orders shifted into Q4, compressing operating leverage in the quarter .
  • Non‑recurring charges ($1.2M) and elevated interest expense ($1.11M in Q3) drove a $2.47M continuing operations loss; total net loss was $6.39M including discontinued operations .
  • Discontinued operations (Canada) generated a $3.92M loss in Q3 as the business was classified “held for disposal,” highlighting the drag being addressed via divestiture .

Financial Results

Quarterly Comparison (Q1–Q3 2016)

MetricQ1 2016Q2 2016Q3 2016
Revenue ($USD)$18,394,562 $18,896,354 $13,564,151
Gross Profit Margin (%)20.8% 21.0% 19.6%
Adjusted EBITDA ($USD)$(160,427) $399,597 $190,437
Net Loss ($USD)$(1,502,729) $(4,317,518) $(6,386,465)

Q3 Year-over-Year Comparison (Q3 2015 vs Q3 2016)

MetricQ3 2015Q3 2016
Revenue ($USD)$16,711,339 $13,564,151
Gross Profit Margin (%)19.1% 19.6%
Net Income (Loss) from Continuing Ops ($USD)$697,415 $(2,467,290)
Adjusted EBITDA ($USD)$753,256 $190,437
EPS from Continuing Ops – Basic ($USD)$0.02 $(0.07)

KPIs and Balance Sheet Highlights

KPIQ1 2016Q2 2016Q3 2016
Net Deferred Revenue ($USD)~$1.4M ~$1.4M ~$1.3M
Cash Flow from Operations (YTD) ($USD)$1.5M $2.6M $5.4M
Accounts Payable Converted to Note ($USD)Not disclosed Not disclosed $12.4M
Backlog ($USD)$5.6M (as of 3/31/2016) Not disclosed Not disclosed

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2016~$90M (“sales plan supports achieving an estimated $90 million in revenue”) No quantitative update in Q3 press release Maintained (no update provided)
EBITDAFY 2016Positive EBITDA targeted No quantitative update in Q3 press release Maintained (no update provided)

Earnings Call Themes & Trends

TopicQ1 2016 (Previous Mentions)Q2 2016 (Previous Mentions)Q3 2016 (Current Period)Trend
Cost reduction & restructuringPlan to reduce G&A/overhead by ~$1M in 2016; executive pay down 20% Headcount reductions; $0.6M restructuring charge; facility transfer to reduce costs Ongoing right‑sizing; $0.4M annualized savings to date; $0.1M restructuring in Q3 Improving cost structure
Balance sheet actionsBoard‑approved debt conversion into Series C Preferred Stock; targeting ~$4M conversion Converted ~$4.5M into Series C; additional $0.6M forbearances; expect interest expense reductions Converted $12.4M AP into secured note; negotiating maturity extension De‑risking liabilities
Product mix & marginsGross margin 20.8%; strategy to expand consumables and value‑added services Gross margin 21.0%; margin pressure from customer/product mix Gross margin 19.6%; stable YoY despite competitive conditions Stable to slightly pressured
Cloud/technology initiativesPartnerships in mobile cloud analytics; Apex lockers; retail shelf analytics; yard mgmt Not specifically updated in release Focus on core mobility/data capture; press release does not update cloud initiatives Narrative shift to core + simplification
Canadian operationsBacklog includes Canada; integration of ViascanQData Goodwill impairment related to ViascanQData ($2.3M) Decision to divest Canada; discontinued ops loss $3.9M; deal expected to close Q4 Exit non‑core, simplify ops

Management Commentary

  • “Included in the net loss from continuing operations of $2.5 million in the third quarter, were $1.2 million of non‑recurring charges… For Q4 we will remain focused on continuing to drive sales and realizing additional cost efficiencies across the enterprise.” — Tom Miller, Interim CEO .
  • “Revenues increased by 39%… We also took proactive steps to improve our balance sheet and capital structure… With an increasingly solid balance sheet, a streamlined capital structure and strong sales and delivery organizations, we are well‑positioned to grow our business profitably.” — Gilles Gaudreault, CEO (Q2 release) .
  • “We began 2016 with a sales plan that supports achieving an estimated $90 million in revenue with positive EBITDA for the full year… we remain on track to achieve these targets.” — Gilles Gaudreault, CEO (Q1 call) .

Q&A Highlights

  • Path to profitability and cost actions: Management targeted ~$1M 2016 overhead reductions and highlighted debt conversions to reduce non‑cash charges; tone was focused on executing synergies and cost control .
  • Demand generation via partnerships: Management outlined Apex mobile asset lockers, retail shelf analytics, and yard management cloud initiatives as near‑term growth drivers .
  • Capital structure and share programs: Discussion of employee stock purchase plan utilizing repurchased shares; legal and market constraints on insider purchases were noted .
  • Investor outreach: Management planned potential non‑deal roadshows with IR support to broaden awareness post‑integration .

Estimates Context

  • Wall Street consensus estimates (S&P Global) for Q3 2016 EPS and revenue were unavailable via our data access at this time; therefore, comparison to consensus and any beat/miss analysis cannot be provided. Estimates may need to be recalibrated for timing‑related revenue shift to Q4 and the impact of divesting Canadian operations .
  • Note: S&P Global consensus data was not retrievable for Q3 2016 during this session; if required, we can refresh and incorporate when accessible.

Key Takeaways for Investors

  • Q3 softness was largely timing‑driven with orders shifting to Q4; watch for sequential revenue rebound and potential working capital release as deferred revenue/costs amortize .
  • Cost actions and supplier financing materially de‑risk near‑term operations; continued positive Adjusted EBITDA amid lower revenue is a constructive sign for operating discipline .
  • Divestiture of Canadian operations should remove a loss‑making unit and simplify the story; the effective date (9/30) and expected Q4 close are near‑term catalysts .
  • Interest expense remains elevated; management expects reductions following capital structure changes (Series C conversions, forbearances); monitor Q4 interest line .
  • Gross margin stability despite competitive conditions suggests customer relationships remain intact; mix‑driven variability should normalize as consumables/value‑added services grow .
  • Without consensus visibility, traders should anchor on Q4 execution and disposal closing; PMs should reassess FY 2016 revenue/EBITDA trajectories once Q4 prints and the discontinued ops impact is removed .