An analysis on the Q2 numbersHere's my analysis on the Q2 numbers:
- Q2 revenue was up only slightly over Q2 of last year, but one has to keep in mind that last year's revenue was at an all time high, as is this year's.
- There is no issue in my mind over gross margin percentage. Over the prior 9 quarters, the GM% has bounced around quite a bit, but stayed in the 49-62% range, with the median being 51.9%. That's very close to Q2's 51.5%. I don't think any one quarter's GM% for this company tells you anything. (And, yes, if you were wondering, they have used product mix as an explanation before.)
- Selling expenses were also quite typical at $106k. Over the prior 9 quarters, this has ranged from $81k to $137k, with the median being $101k.
- At $228k, Engineering & Product Development expenses were way up. These have ranged from $95k to $200K over the prior 9 quarters, with the median being $159k. I took a look at quarterly statements going back to FY 2009 and found that, each time this line item goes up dramatically, it always comes back down. According to the company, the increase relates to one time items. History supports this explanation.
- General & Admin was up $55k. Part of that increase, according to the company, was for a search for the new company President. Looking at both quarterly and annual numbers going back to 2009, one can see that G&A costs have gone down most of the time and are lower both annually and quarterly than they were in 2009, leading one to conclude that the company has controlled these costs very well over the years.
My conclusion is that, while Q2 results were better sequentially than Q1, the year-over-year numbers being down is no big deal. When I bought my shares, my investment thesis was that the shares were priced reasonably and the company's growth prospects were good. Nothing has changed my mind in either regard.
I would like to conclude with a comment about foreign exchange and hedging. I found information on this going back almost 2 years and it seems they have a rolling hedging program in place so that they know their exchange rate going out 10 to 12 months into the future. This seems entirely reasonable to me. I can remember some years ago, when the Cdn dollar was trading at about 65 cents US, the talking heads were warning about a 50 cent dollar. Not that long ago, when the Canadian dollar was trading at a premium to the US dollar, some pundits were predicting a Cdn dollar at $1.20 US. It might be popular wisdom that the Cdn dollar will fall further, but I don't think it wise for the company to engage in foreign exchange speculation by eliminating the hedging program and gambling on the direction of the currency. Some companies hedge and some don't; as long as they remain consistent in their approach, FOREX changes will tend to even themselves out. Speculation on FOREX, on the other hand, is in my opinion a mugs game at best and I don't think such speculation would be in the best long term interests of either the company or its shareholders.
That's my 2 cents.