Steel Connect, Inc. CAPEX surged on 10,210% and Revenue jumped on 47.8%
11/01/2018 • About Steel Connect, Inc. (
$STCN) • By InTwits
Steel Connect, Inc. reported FY2018 financial results today. Here are the key drivers of the company's long term financial model:
- Steel Connect, Inc. spends a lot for Stock Based Compensation (SBC): average SBC/Revenue for FY2014-FY2018 is 0.0%. Average EBITDA Margin for the same period was -0.4%
- Steel Connect, Inc. has high CAPEX intensity: 5 year average CAPEX/Revenue was 16.1%. At the same time it's in pair with industry average of 20.0%
- CAPEX is quite volatile: $488m in FY2018, $5m in FY2017, $8m in FY2016, $9m in FY2015, $4m in FY2014
- The company has unprofitable business model: ROIC is -2.3%
- It operates with high leverage: Net Debt/EBITDA is 12.6x while industry average is 2.6x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue surged on 47.8%. Revenue growth showed acceleration in FY18Q4 - it increased 102.7% YoY. During the last 5 years Revenue growth bottomed in FY2015 at -22.4% and was accelerating since that time. Revenue growth happened at the same time with EBITDA margin expansion. EBITDA Margin increased on 7.1 pp from -2.6% to 4.5% in FY2018. During FY2014-FY2018 EBITDA Margin bottomed in FY2016 at -7.1% and was growing since that time.
Gross Margin increased on 7.4 pp from 8.3% to 15.7% in FY2018. During the last 5 years Gross Margin bottomed in FY2016 at 5.4% and was growing since that time. SG&A as a % of Revenue increased on 3.4 pp from 12.4% to 15.8% in FY2018. SG&A as a % of Revenue stuck to a growing trend at 1.3 pp per annum in the last 5 years.
Net Income margin surged on 11.6 pp from -5.9% to 5.7% in FY2018. During the last 5 years Net Income margin bottomed in FY2016 at -13.4% and was growing since that time.
Investments (CAPEX, working capital and M&A)
Steel Connect, Inc.'s CAPEX/Revenue was 75.6% in FY2018. Steel Connect, Inc. showed fast CAPEX/Revenue growth of 74.1 pp from 1.5% in FY2015 to 75.6% in FY2018. It's average level of CAPEX/Revenue for the last three years was 26.1%. To secure its fast growth Steel Connect, Inc. made large investments to CAPEX (1,695% of EBITDA).
Return on investment
The company operates at negative ROIC (-2.3%) and low but positive ROE (41.5%). ROIC surged on 12.2 pp from -14.5% to -2.3% in FY2018. ROE jumped on 76.2 pp from -34.7% to 41.5% in FY2018. During FY2014-FY2018 ROIC bottomed in FY2016 at -21.6% and was growing since that time. During the last 5 years ROE bottomed in FY2016 at -53.2% and was growing since that time.
Leverage (Debt)
Company's Net Debt / EBITDA is 12.6x and Debt / EBITDA is 15.8x. Net Debt / EBITDA jumped12.6x from to 12.6x in FY2018. Debt jumped on 659% while cash dropped on 16.7%.
Steel Connect, Inc. has no short term refinancing risk: cash is higher than short term debt (164.5%).
Valuation and dividends
The company's trades at EV/EBITDA 16.3x and P/E 2.9x.
Management team
The company's CEO is Warren G Lichtenstein. Warren G Lichtenstein is a founder and has 14 years tenure with the company. Louis J Belardi "Lou" is a the company's CFO. Louis J Belardi "Lou" has spent 11 years at the company.
Financial and operational results
FY ended 07/31/2018
Steel Connect, Inc. ($STCN) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 723.4 | 561.7 | 459.0 | 436.6 | 645.3 | 47.8% |
| Gross Profit | 74.7 | 54.5 | 24.8 | 36.4 | 101.3 | 178.5% |
| SG&A | 72.0 | 59.7 | 57.6 | 54.2 | 101.7 | 87.8% |
| EBITDA | 8.8 | -5.0 | -32.5 | -11.6 | 28.8 | |
| Net Income | -16.3 | -18.4 | -61.3 | -25.8 | 36.7 | |
Balance Sheet
|
|---|
| Cash | 183.5 | 119.4 | 130.8 | 110.7 | 92.1 | -16.7% |
| Short Term Debt | 0.0 | 0.0 | 0.0 | 0.0 | 56.0 | |
| Long Term Debt | 73.4 | 77.9 | 57.2 | 59.8 | 397.4 | 565.0% |
Cash flow
|
|---|
| Capex | 4.5 | 8.5 | 7.9 | 4.7 | 487.6 | 10,209.6% |
Ratios
|
|---|
| Revenue growth | -4.1% | -22.4% | -18.3% | -4.9% | 47.8% | |
| EBITDA growth | -168.0% | -156.7% | 548.5% | -64.4% | -349.0% | |
|
|---|
| Gross Margin | 10.3% | 9.7% | 5.4% | 8.3% | 15.7% | 7.4% |
| EBITDA Margin | 1.2% | -0.9% | -7.1% | -2.6% | 4.5% | 7.1% |
| SG&A, % of revenue | 10.0% | 10.6% | 12.5% | 12.4% | 15.8% | 3.4% |
| Net Income Margin | -2.3% | -3.3% | -13.4% | -5.9% | 5.7% | 11.6% |
| CAPEX, % of revenue | 0.6% | 1.5% | 1.7% | 1.1% | 75.6% | 74.5% |
|
|---|
| ROIC | -2.7% | -6.1% | -21.6% | -14.5% | -2.3% | 12.2% |
| ROE | -9.9% | -11.7% | -53.2% | -34.7% | 41.5% | 76.2% |
| Net Debt/EBITDA | -12.5x | | | | 12.6x |
Steel Connect, Inc. ($STCN) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 103 | 154 | 194 | 202 | | -15.5% | 30.8% | 98.0% | 102.7% |
| EBITDA | -2 | 2 | 15 | 13 | | | 284.4% | | |
| Net Income | -5 | 60 | -10 | -8 | | | | | |
Balance Sheet
|
|---|
| Cash | 120 | 106 | 100 | 92 | | 13.8% | -6.9% | -10.9% | -16.7% |
| Short Term Debt | 0 | 6 | 69 | 56 | | | | | |
| Long Term Debt | 61 | 448 | 385 | 397 | | 4.6% | 677.8% | 555.5% | 565.0% |
Ratios
|
|---|
| Gross Margin | 8.9% | 10.3% | 20.1% | 18.5% | | 1.2% | 0.8% | 11.4% | 11.2% |
| EBITDA Margin | -1.9% | 1.4% | 7.8% | 6.7% | | 1.1% | 0.9% | 11.2% | 11.8% |
| Net Income Margin | -5.1% | 38.9% | -5.3% | -3.7% | | 1.9% | 41.4% | -0.2% | 5.6% |
Peers in Data Processing & Outsourced S
Below we provide Steel Connect, Inc. benchmarking against other companies in Data Processing & Outsourced S industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Verra Mobility Corp ($VRRM) | | | | | 167.8% |
| StoneCo Ltd ($STNE) | | | | 74.3% | 106.0% |
| PagSeguro Digital Ltd. ($PAGS) | | 107.1% | 68.7% | 121.7% | 71.8% |
| Payment Data Systems, Inc. ($PYDS) | | 7.4% | -16.0% | 20.7% | 71.7% |
| StarTek, Inc. ($SRT) | | 12.8% | 8.9% | -4.8% | 66.4% |
| |
|---|
| Median (55 companies) | | 7.1% | 7.7% | 11.8% | 7.4% |
|---|
| Steel Connect, Inc. ($STCN) | | -22.4% | -18.3% | -4.9% | 47.8% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Verra Mobility Corp ($VRRM) | | | | 97.4% | 97.5% |
| Everi Holdings Inc. ($EVRI) | 25.8% | 38.3% | 36.1% | 34.5% | 79.9% |
| StoneCo Ltd ($STNE) | | | 69.7% | 70.8% | 79.5% |
| Paychex, Inc. ($PAYX) | 70.9% | 70.5% | 71.0% | 70.8% | 69.9% |
| Global Payments Inc. ($GPN) | 62.7% | 63.2% | 60.4% | 51.5% | 67.5% |
| |
|---|
| Median (44 companies) | 39.3% | 39.6% | 39.5% | 39.5% | 41.0% |
|---|
| Steel Connect, Inc. ($STCN) | 10.3% | 9.7% | 5.4% | 8.3% | 15.7% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Visa Inc. ($V) | 64.0% | 68.9% | 55.6% | 69.2% | 65.8% |
| FleetCor Technologies, Inc. ($FLT) | 56.1% | 50.4% | 52.0% | 50.8% | 55.9% |
| StoneCo Ltd ($STNE) | | | 31.4% | 26.0% | 53.0% |
| Mastercard Incorporated ($MA) | 57.5% | 56.3% | 56.9% | 56.5% | 51.8% |
| Everi Holdings Inc. ($EVRI) | 9.6% | 14.7% | 3.0% | 20.4% | 45.2% |
| |
|---|
| Median (56 companies) | 20.6% | 21.2% | 21.3% | 21.1% | 19.4% |
|---|
| Steel Connect, Inc. ($STCN) | 1.2% | -0.9% | -7.1% | -2.6% | 4.5% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Crypto Co/The ($CRCW) | 0.0% | 0.0% | | 1,216.6% | 853.5% |
| Everi Holdings Inc. ($EVRI) | 3.0% | 9.3% | 9.4% | 9.9% | 21.9% |
| StoneCo Ltd ($STNE) | | | 7.2% | 18.4% | 8.9% |
| Cardtronics plc ($CATM) | 10.2% | 11.9% | 9.9% | 9.6% | 8.0% |
| Worldpay, Inc. ($WP) | 4.0% | 2.7% | 3.3% | 2.8% | 7.8% |
| |
|---|
| Median (56 companies) | 3.1% | 3.0% | 3.2% | 2.9% | 3.0% |
|---|
| Steel Connect, Inc. ($STCN) | 0.6% | 1.5% | 1.7% | 1.1% | 75.6% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| GreenSky, Inc. ($GSKY) | | | | 156.4% | 93.7% |
| Mastercard Incorporated ($MA) | 63.5% | 57.5% | 57.5% | 60.6% | 64.7% |
| Paychex, Inc. ($PAYX) | 54.5% | 58.7% | 61.9% | 63.9% | 64.5% |
| NIC Inc. ($EGOV) | 64.6% | 61.2% | 63.1% | 52.1% | 39.3% |
| Automatic Data Processing, Inc. ($ADP) | 23.9% | 28.9% | 37.9% | 36.6% | 37.5% |
| |
|---|
| Median (62 companies) | 14.1% | 13.1% | 11.7% | 10.7% | 12.1% |
|---|
| Steel Connect, Inc. ($STCN) | -2.7% | -6.1% | -21.6% | -14.5% | -2.3% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| StarTek, Inc. ($SRT) | -0.1x | | 2.2x | 2.3x | 18.4x |
| Square, Inc. ($SQ) | | | | | 13.3x |
| Exela Technologies Inc ($XELAU) | | | 8.1x | | 9.7x |
| Alliance Data Systems Corporation ($ADS) | 9.3x | 9.1x | 10.7x | 10.1x | 9.0x |
| Moneygram International, Inc. ($MGI) | 5.5x | 9.5x | 4.5x | 8.0x | 8.0x |
| |
|---|
| Median (54 companies) | 0.6x | 0.6x | 1.4x | 2.3x | 2.0x |
|---|
| Steel Connect, Inc. ($STCN) | -12.5x | | | | 12.6x |
