Viavi Solutions Inc. reports 128% Net Income decline in 2018 while 8.5% Revenue growth
08/14/2018 • About Viavi Solutions Inc. (
$VIAV) • By InTwits
Viavi Solutions Inc. reported FY2018 financial results today. Here are the key drivers of the company's long term financial model:
- EBITDA Margin is quite volatile: 10.1% in FY2018, 8.8% in FY2017, -1.5% in FY2016, 7.3% in FY2015, 8.2% in FY2014
- Viavi Solutions Inc. motivates its personel by high Stock Based Compensation (SBC): average SBC/Revenue for FY2014-FY2018 was 5.4% while average EBITDA Margin was 6.5% for the sames years
- Viavi Solutions Inc. has medium CAPEX intensity: 5 year average CAPEX/Revenue was 7.2%. At the same time it's in pair with industry average of 7.4%
- CAPEX is quite volatile: $43m in FY2018, $39m in FY2017, $36m in FY2016, $102m in FY2015, $100m in FY2014
- In the last 5 years the company invested considerably less than D&A: $318m vs. $483m. In FY2018 this situation was still the same: CAPEX was 43 while D&A was 83
- The company has potentially unprofitable business model: ROIC is 0.3%
- It operates with high leverage: Net Debt/EBITDA is 2.5x while industry average is -0.5x
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 increased on 8.5%. Revenue growth showed acceleration in FY18Q4 - it increased 33.3% YoY. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased on 7.9 pp from 16.0% to 8.1% in 2018. During FY2014-FY2018 EBITDA Margin bottomed in FY2016 at -1.5% and was growing since that time.
Gross Margin decreased on 4.0 pp from 59.9% to 55.9% in FY2018. During the last 5 years Gross Margin topped in FY2016 at 60.7% and was declining since that time. SG&A as a % of Revenue showed almost no change in FY2018. SG&A as a % of Revenue stuck to a declining trend at -1.5 pp per annum in FY2014-FY2018. Stock Based Compensation (SBC) as a % of Revenue decreased slightly on 0.63 pp from 4.1% to 3.5% in FY2018. SBC as a % of Revenue stuck to a declining trend at -1.0 pp per annum in FY2014-FY2018.
Net Income margin dropped on 25.8 pp from 20.6% to -5.2% in FY2018.
Investments (CAPEX, working capital and M&A)
In FY2018 Viavi Solutions Inc. had CAPEX/Revenue of 4.8%. CAPEX/Revenue decreased on 6.8 pp from 11.6% in FY2015 to 4.8% in FY2018. It's average CAPEX/Revenue for the last three years was 4.5%.
Accounts receivable as a % of Revenue increased on 9.9 pp from 14.8% to 24.7% in FY2018. Inventories as a % of Revenue increased on 4.6 pp from 5.9% to 10.5% in FY2018. Accounts payable as a % of Revenue increased on 4.3 pp from 10.0% to 14.3% in FY2018.
Viavi Solutions Inc. has spent
$510m on M&A in FY2018 which accounts for 57.9% of revenue.
Return on investment
The company operates at low but positive ROIC (0.3%) and negative ROE (-6.1%). ROIC decreased slightly on 0.60 pp from 0.91% to 0.31% in FY2018. ROE dropped on 28.7 pp from 22.6% to -6.1% in FY2018.
Leverage (Debt)
Debt level is 2.5x Net Debt / EBITDA and 9.4x Debt / EBITDA. Net Debt / EBITDA surged on 3.5x from -1.0x to 2.5x in FY2018. Debt dropped on 10.5% while cash dropped on 39.1%.
Viavi Solutions Inc. has questionable short term financial stability: Interest coverage ratio (ICR) is only 0.1x. Viavi Solutions Inc. has no short term refinancing risk: cash is higher than short term debt (222.1%).
Average interest expence paid by the company was 5.7% in FY2018.
Management team
Viavi Solutions Inc.'s CEO is Oleg Khaykin. Oleg Khaykin is a founder and has 3 years tenure with the company. CEO total compensation was
$4,953,900 in FY2018 which included
$750,000 salary. The company's CFO is Amar Maletira. Amar Maletira has 3 years tenure at the company.
Insider ownership is 0.68%. Insider ownership didn't change in 2018.
The company has 3,500 employees. The number of employees jumped on 29.6%. Average revenue per employee in FY2018 was
$251,543 and it dropped on 16.3%.
Financial and operational results
FY ended 06/30/2018
Viavi Solutions Inc. ($VIAV) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 926.9 | 873.9 | 906.3 | 811.4 | 880.4 | 8.5% |
| Gross Profit | 527.8 | 520.1 | 549.7 | 486.0 | 492.2 | 1.3% |
| SG&A | 384.8 | 376.3 | 351.1 | 300.5 | 324.5 | 8.0% |
| EBITDA | 75.9 | 64.2 | -13.7 | 71.3 | 88.5 | 24.1% |
| EBIT | -55.6 | -75.8 | -84.3 | 13.6 | 5.1 | -62.5% |
| Interest expence | 29.4 | 33.3 | 35.7 | 43.2 | 47.3 | 9.5% |
| Tax | -11.2 | 26.1 | 4.5 | 21.3 | 13.4 | -37.1% |
| Net Income | -17.8 | -88.1 | -99.2 | 166.9 | -46.0 | -127.6% |
| Stock Based Compensation | 64.1 | 66.9 | 44.0 | 33.2 | 30.5 | -8.1% |
Balance Sheet
|
|---|
| Cash | 297.2 | 334.5 | 482.9 | 1,004.4 | 611.4 | -39.1% |
| Accounts Receivable | 296.2 | 152.3 | 148.4 | 120.4 | 217.5 | 80.6% |
| Inventory | 153.3 | 53.8 | 51.4 | 48.0 | 92.3 | 92.3% |
| Accounts Payable | 137.1 | 42.0 | 47.0 | 32.6 | 55.5 | 70.2% |
| Short Term Debt | 0.0 | 0.0 | 0.0 | 0.0 | 275.3 | |
| Long Term Debt | 536.3 | 561.6 | 583.3 | 931.4 | 557.9 | -40.1% |
Cash flow
|
|---|
| Capex | 99.8 | 101.5 | 35.5 | 38.6 | 42.5 | 10.1% |
| Acquisitions | 216.0 | | 0.9 | | 509.9 | |
Ratios
|
|---|
| Revenue growth | -44.7% | -5.7% | 3.7% | -10.5% | 8.5% | |
| EBITDA growth | -36.6% | -15.4% | -121.3% | -620.4% | 24.1% | |
|
|---|
| Gross Margin | 56.9% | 59.5% | 60.7% | 59.9% | 55.9% | -4.0% |
| EBITDA Margin | 8.2% | 7.3% | -1.5% | 8.8% | 10.1% | 1.3% |
| EBIT Margin | -6.0% | -8.7% | -9.3% | 1.7% | 0.6% | -1.1% |
| SG&A, % of revenue | 41.5% | 43.1% | 38.7% | 37.0% | 36.9% | -0.2% |
| SBC, % of revenue | 6.9% | 7.7% | 4.9% | 4.1% | 3.5% | -0.6% |
| Net Income Margin | -1.9% | -10.1% | -10.9% | 20.6% | -5.2% | -25.8% |
| CAPEX, % of revenue | 10.8% | 11.6% | 3.9% | 4.8% | 4.8% | 0.1% |
|
|---|
| ROIC | -4.3% | -4.7% | -5.7% | 0.9% | 0.3% | -0.6% |
| ROE | -1.5% | -7.7% | -11.1% | 22.6% | -6.1% | -28.7% |
| Net Debt/EBITDA | 3.2x | 3.5x | | -1.0x | 2.5x | 3.5x |
| Interest coverage ratio (ICR) | | | | 0.3x | 0.1x | -0.2x |
| Interest expence / Average debt | 5.5% | 6.1% | 6.2% | 5.7% | 5.7% | -0.0% |
People
|
|---|
| Insider ownership | 0.7% | 0.7% | 0.7% | 0.7% | 0.7% | 0.0% |
| Employees | 5,100 | 4,900 | 3,000 | 2,700 | 3,500 | 29.6% |
| Revenue/Employee, th. $ | 182 | 178 | 302 | 301 | 252 | -16.3% |
Viavi Solutions Inc. ($VIAV) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 191 | 205 | 219 | 264 | | -9.4% | -0.5% | 11.6% | 33.3% |
| EBITDA | 22 | 38 | 20 | 24 | | -11.9% | 79.0% | | -9.6% |
| Net Income | -8 | -1 | -11 | -29 | | -109.7% | -102.2% | -141.2% | -310.2% |
Balance Sheet
|
|---|
| Cash | 793 | 753 | 534 | 611 | | 67.1% | 48.9% | -44.6% | -39.1% |
| Short Term Debt | 443 | 437 | 420 | 275 | | | | | |
| Long Term Debt | 359 | 362 | 366 | 558 | | -39.3% | -39.5% | -61.8% | -40.1% |
Ratios
|
|---|
| Gross Margin | 59.0% | 58.1% | 56.4% | 51.6% | | -0.3% | -2.3% | -3.3% | -8.6% |
| EBITDA Margin | 11.7% | 18.6% | 9.1% | 8.9% | | -0.3% | 8.3% | 9.8% | -4.2% |
| Net Income Margin | -4.0% | -0.5% | -4.9% | -10.9% | | -41.0% | -24.4% | -18.2% | -17.8% |
Peers in Communications Equipment
Below you can find Viavi Solutions Inc. benchmarking vs. other companies in Communications Equipment industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Ribbon Communications Inc. ($RBBN) | | | | 30.6% | 75.2% |
| Extreme Networks, Inc. ($EXTR) | | 6.4% | -4.4% | 13.2% | 64.4% |
| Optical Cable Corporation ($OCC) | | -11.3% | -12.2% | -0.8% | 37.0% |
| ParkerVision Inc ($PRKR) | | | 37,601.2% | -97.5% | 35.0% |
| Network-1 Technologies, Inc. ($NTIP) | | 34.6% | 292.9% | -74.7% | 34.4% |
| |
|---|
| Median (66 companies) | | 0.7% | 7.6% | 5.6% | 2.8% |
|---|
| Viavi Solutions Inc. ($VIAV) | | -5.7% | 3.7% | -10.5% | 8.5% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| F5 Networks, Inc. ($FFIV) | 82.1% | 82.7% | 83.1% | 83.1% | 83.3% |
| Radware Ltd. ($RDWR) | 82.1% | 82.4% | 81.8% | 81.3% | 82.2% |
| Radcom Ltd. ($RDCM) | 63.2% | 76.8% | 69.6% | 71.8% | 74.0% |
| Casa Systems, Inc. ($CASA) | | 70.8% | 69.1% | 73.4% | 73.4% |
| NetScout Systems, Inc. ($NTCT) | 78.7% | 79.2% | 65.6% | 70.2% | 72.4% |
| |
|---|
| Median (67 companies) | 41.4% | 41.3% | 43.7% | 41.0% | 40.5% |
|---|
| Viavi Solutions Inc. ($VIAV) | 56.9% | 59.5% | 60.7% | 59.9% | 55.9% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Network-1 Technologies, Inc. ($NTIP) | 35.5% | 33.7% | 50.6% | 37.8% | 42.8% |
| InterDigital, Inc. ($IDCC) | 50.8% | 58.1% | 73.6% | 67.3% | 41.9% |
| EchoStar Corporation ($SATS) | 25.7% | 39.7% | 40.3% | 38.1% | 37.4% |
| Ubiquiti Networks, Inc. ($UBNT) | 34.7% | 25.5% | 37.3% | 34.3% | 32.8% |
| Ituran Location and Control Ltd. ($ITRN) | 32.4% | 30.5% | 29.9% | 29.9% | 30.4% |
| |
|---|
| Median (65 companies) | 5.3% | 4.7% | 5.9% | 6.0% | 4.6% |
|---|
| Viavi Solutions Inc. ($VIAV) | 8.2% | 7.3% | -1.5% | 8.8% | 10.1% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Resonant Inc. ($RESN) | | | 132.5% | 124.8% | 245.2% |
| ViaSat, Inc. ($VSAT) | 22.8% | 26.5% | 26.7% | 33.0% | 32.1% |
| Applied Optoelectronics, Inc. ($AAOI) | 31.5% | 30.1% | 19.0% | 17.5% | 26.9% |
| EchoStar Corporation ($SATS) | 19.7% | 43.8% | 39.9% | 30.9% | 26.5% |
| Finisar Corporation ($FNSR) | 11.3% | 11.9% | 9.4% | 9.7% | 16.8% |
| |
|---|
| Median (65 companies) | 2.2% | 2.2% | 1.9% | 1.8% | 1.6% |
|---|
| Viavi Solutions Inc. ($VIAV) | 10.8% | 11.6% | 3.9% | 4.8% | 4.8% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| F5 Networks, Inc. ($FFIV) | 33.9% | 40.8% | 43.1% | 46.9% | 47.9% |
| Ubiquiti Networks, Inc. ($UBNT) | 61.4% | 31.5% | 41.5% | 38.5% | 39.1% |
| Motorola Solutions, Inc. ($MSI) | -16.1% | 18.9% | 26.4% | 39.5% | 35.3% |
| Ituran Location and Control Ltd. ($ITRN) | 50.9% | 46.8% | 50.1% | 48.5% | 35.1% |
| Casa Systems, Inc. ($CASA) | | | 43.2% | 39.7% | 21.9% |
| |
|---|
| Median (70 companies) | 2.1% | 2.3% | 2.4% | 2.2% | 0.7% |
|---|
| Viavi Solutions Inc. ($VIAV) | -4.3% | -4.7% | -5.7% | 0.9% | 0.3% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Extreme Networks, Inc. ($EXTR) | | | -2.2x | -1.5x | 7.1x |
| ViaSat, Inc. ($VSAT) | 3.4x | 2.5x | 3.2x | 2.5x | 5.8x |
| CommScope Holding Company, Inc. ($COMM) | 2.3x | 9.6x | 4.3x | 4.6x | 4.4x |
| Inseego Corp. ($INSG) | | | | | 3.9x |
| Finisar Corporation ($FNSR) | -0.3x | 0.2x | -0.5x | 1.6x | 3.8x |
| |
|---|
| Median (45 companies) | -0.8x | -0.8x | -0.9x | -0.6x | -0.3x |
|---|
| Viavi Solutions Inc. ($VIAV) | 3.2x | 3.5x | | -1.0x | 2.5x |
