A positive currency impact contributed 5.5% of the gain for the quarter and the acquisition of ScheduleALL contributed an additional 43.8% of the quarterly revenue increase. Organic year-over-year growth for the quarter was still strong at 21.3%.
Management attributed the strong organic performance to deliveries relating to the Euro 2016 Football Championship in France and the upcoming Olympics in Brazil. “We have had a great start to the year and I’m proud to present the strongest quarter ever for Net Insight” stated CEO Fredrik Tumegård at the outset of the Company’s earnings call.
Net income for the quarter was SEK 5.7 million or (0.01 earnings per share), an increase of 55.8% over Q2 2015, though a decrease of 71% against the preceding quarter, Q1 2016.
Gross margins for Q2 2016 were 62.8%, an increase above the 60.6% from the previous year’s quarter, and an improvement over the 61.7% gross margins from Q1 2016.
Operating income for the quarter was SEK 12.0 million, a 144.8% increase over the same 2015 period, and a 53.8% increase over the preceding quarter. Operating margins were 9.0% for Q2 2016, which compares favorably to the 5.3% from Q2 2015 and the 7.1% operating margin from Q1 2016.
Since Net Insight capitalizes a portion of its development expenses, not all of the development expenditures in a given quarter are recognized in operating income. This is offset by the amortization of previously capitalized development expenditures. The difference in current development expense capitalization and historical development expense amortization for the quarter was SEK 4.4 million.
Net Insight had operating expenses of SEK 71.1 million in the quarter, an increase of 38% compared to Q2 2015, and an increase of 18.5% versus Q1 2016.
Sales and marketing expense was 36.4 million, an increase of 11.6% versus Q2 2015. Expressed as a percentage of revenue, sales and market expense was 27.5% in the quarter versus 34.9% during Q2 2015. The decline in sales and marketing as a percentage of revenue is consistent with the expected sales synergies from last year’s acquisition of ScheduALL.
Administrative expenses increased by 88.6% from 7.9 million SEK in Q2 2015 to SEK 14.9 million during the current quarter. Administrative expenses represented 11.2% of revenue in the quarter, compared to 8.5% in the year earlier period.
Total Development expense (including the capitalized portion) for the quarter was SEK 38.4 million, a rise of 72.1% when compared to Q2 2015. For the quarter total Development expense was 29% of revenue versus 23.9% in Q2 2015. The increase in Development expense was caused by the integration of ScheduALL and further investments in Net Insight’s Live OTT Solution, Sye (released at the 2016 NAB Show).
Cash flow from operating activities for the quarter was SEK 7.7 million, a decrease of 48% against the year-earlier period, and a decline of 81.4% compared to the preceding quarter. Net Insight’s CFO Thomas Bergstrom attributed the decline in part to a sharp increase in account receivables of SEK 28.5 million, which was caused by sales recognized late in the quarter. Expressed in terms of trailing twelve month revenue, the accounts receivable balance on June 30, 2016 equates to 103 days of sales outstanding. This compares to a figure of 81 days sales outstanding as of December 31, 2015.
Revenue by Geography
- For the quarter, Net Insight generated sales from Western Europe of SEK 60.85 million, an increase of 4.1% versus previous year’s quarter. Western Europe was the largest contributor to total revenue, accounting for 45.7% of sales during the quarter. In Q2 2015, Western Europe represented 62.3% of overall sales.
- The Americas contributed SEK 38.7 million or 29.2% of Net Insight’s revenue in the quarter (versus 24.2% in the Q2 2015). Compared to Q2 2015, revenues from the Americas increased by 71.2%. The increase is primarily attributable to the acquisition of ScheduALL, but also deliveries associated with the 2016 Olympics in Brazil
- Rest of World sales were SEK 33.2 million, an increase of 165.6% versus the year earlier period. As a percentage of total sales, Rest of World contributed 25.4% in the quarter versus 13.4% during Q2 2015. The Company cited strong activity in both the Middle East and South Africa in its earnings release.
Revenue by Type
- Sales attributed to Net Insight’s hardware products were SEK 66.3 million in the quarter, an increase of 32.8%. As a percentage of total sales, hardware products were 50.1% of the quarter’s sales versus 53.5% during Q2 2015.
- Software licenses accounted for SEK 28.7 million of revenue in the quarter, an increase of 26.9% over the year earlier period. Software contributed 21.6% of overall revenue during the quarter versus 24.2% in Q2 2015.
- Support and services sales were SEK 35.7 million during the quarter, an increase of 66.8% versus the year earlier quarter. Support and services were 26.9% of overall revenue in the quarter, an increase from the 22.9% contribution in Q2 2015.
Revenue by Vertical
- Sales in the Broadcast & Media (BMN) business vertical were SEK 123.0 million, a 60.9% increase over the prior year’s quarter. BMN was responsible for 93% of Net Insight’s revenue in the quarter, more on a percentage basis versus the 82% in Q2 2015.
- Sales in the Digital Terrestrial TV (DTT) vertical were SEK 9.26 million, a decrease of 37.8% over Q2 2015. On a percentage basis, DTT represented 7% of overall revenue in Q2 2016, compared to 16% in Q1 2015.
- The CATV/IPTV vertical was0% of total sales in Q2 2016. It was 2% of total sales during Q2 2016.
Net Insight ended the second quarter with 202 employees, a substantial increase over the 138 employees from a year earlier, and a slight decline from the 204 employees at the end of the first quarter. The acquisition of ScheduALL is the primary cause for the year-over-year increase in headcount.
Cash and cash equivalents was SEK 195.0 million at the end of the quarter, down from the SEK 170 million balance as of March 31, 2016.
Management Commentary on Live OTT Solution Offering
During Net Insight’s earnings conference call, CEO Fredrik Tumegård talked extensively on the capabilities and potential of Sye. Net Insight is still working to secure its first commercial deployment of Sye and management was measured in setting expectations for the market adoption of the product. “The commercial tests currently underway in Live OTT are proceeding according to plan, as we’ve previously communicated, although it will be some time before revenues hit the bottom line. This is due to a naturally long sales cycle in combination with a renewed business model, where the revenue is first made visible when the viewers are using the new services. It’s important to point out that our technology is innovative and that it always takes time for new technology to gain foothold on the market” said Mr. Tumegård.
The below slide illustrates commercial progress with Sye. It is sourced from Net Insight’s Q2 2016 earnings presentation.
© Devoncroft Partners 2009 – 2016. All Rights Reserved.