NetScout Systems, Inc. reports 140% Net Income growth in 2018 while 15.1% Revenue decline
05/03/2018 • About NetScout Systems, Inc. (
$NTCT) • By InTwits
NetScout Systems, Inc. reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- NetScout Systems, Inc. spends a lot for Stock Based Compensation (SBC): average SBC/Revenue for FY2014-FY2018 is 3.7%. Average EBITDA Margin for the same period was 17.7%. In FY2018 SBC/Revenue was even higher: 4.8%
- NetScout Systems, Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.6%. At the same time it's a lot of higher than industry average of 13.3%.
- CAPEX is quite volatile: $16m in FY2018, $30m in FY2017, $25m in FY2016, $13m in FY2015, $13m in FY2014
- In the last 5 years the company invested considerably less than D&A: $96m vs. $492m. In FY2018 this situation was still the same: CAPEX was 16 while D&A was 154
- The company has unprofitable business model: ROIC is -0.1%
- It operates with medium-size leverage: Net Debt/EBITDA is 1.5x 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 dropped on 15.1%. Revenue decline showed acceleration in FY18Q4 - it was 26.2% YoY. During FY2014-FY2018 Revenue growth topped in FY2016 at 111% and was decelerating since that time. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased on 4.0 pp from 19.2% to 15.1% in FY2018.
Gross Margin increased on 2.2 pp from 70.2% to 72.4% in FY2018. SG&A as a % of Revenue increased on 4.3 pp from 38.5% to 42.8% in FY2018. Stock Based Compensation (SBC) as a % of Revenue increased slightly on 1.4 pp from 3.4% to 4.8% in FY2018.
Net Income margin increased on 5.2 pp from 2.9% to 8.1% in FY2018.
Investments (CAPEX, working capital and M&A)
NetScout Systems, Inc.'s CAPEX/Revenue was 1.6% in FY2018. The company's CAPEX/Revenue decreased slightly on 1.2 pp from 2.8% in FY2015 to 1.6% in FY2018. Average CAPEX/Revenue for the last three years was 2.3%. CAPEX as a % of Revenue followed a declining trend at -0.36 pp per annum in the last 5 years.
Accounts receivable as a % of Revenue decreased on 3.7 pp from 25.3% to 21.6% in FY2018. Inventories as a % of Revenue showed almost no change at 3.5% in FY2018. Accounts payable as a % of Revenue showed almost no change in FY2018.
NetScout Systems, Inc. has spent
$8m on M&A in FY2018 which accounts for 0.84% of revenue.
Return on investment
The company operates at negative ROIC (-0.1%) and low but positive ROE (3.5%). ROIC decreased on 2.2 pp from 2.1% to -0.14% in FY2018. ROE increased on 2.2 pp from 1.4% to 3.5% in FY2018.
Leverage (Debt)
Debt level is 1.5x Net Debt / EBITDA and 4.0x Debt / EBITDA. Net Debt / EBITDA surged on 1.6x from -0.022x to 1.5x in FY2018. Debt surged on 100% while cash surged on 21.3%. Net Debt/EBITDA stuck to a growing trend at 0.6x per annum in the last 5 years.
The company has no short term refinancing risk: short term debt is zero.
Valuation and dividends
NetScout Systems, Inc.'s trades at EV/EBITDA 17.8x and P/E 30.5x.
Management team
The company's CEO is Anil K Singhal. Anil K Singhal is a founder and has 18 years tenure with the company. CEO total compensation was
$2,612,997 in FY2018 which included
$456,250 salary. Jean A Bua is a the company's CFO. Jean A Bua has spent 7 years at the company.
Insider ownership is 3.8%. Insider ownership didn't change in 2018.
The company has 3,019 employees. The number of employees decreased on 3.0%. Average revenue per employee in FY2018 was
$326,859 and it dropped on 12.4%.
Financial and operational results
FY ended 03/31/2018
NetScout Systems, Inc. ($NTCT) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 397 | 454 | 955 | 1,162 | 987 | -15.1% |
| Gross Profit | 312 | 359 | 627 | 816 | 715 | -12.4% |
| SG&A | 160 | 184 | 411 | 447 | 422 | -5.6% |
| EBITDA | 96 | 116 | 115 | 223 | 149 | -33.0% |
| EBIT | 78 | 97 | -26 | 62 | -4 | -106.5% |
| Tax | 29 | 34 | -4 | 19 | -98 | -621.2% |
| Net Income | 49 | 61 | -28 | 33 | 80 | 139.7% |
| Stock Based Compensation | 13 | 17 | 28 | 39 | 47 | 20.7% |
Balance Sheet
|
|---|
| Cash | 102 | 105 | 211 | 305 | 370 | 21.3% |
| Accounts Receivable | 61 | 82 | 247 | 294 | 213 | -27.5% |
| Inventory | 13 | 12 | 58 | 40 | 35 | -13.1% |
| Accounts Payable | 12 | 13 | 44 | 37 | 30 | -19.4% |
| Short Term Debt | 0 | 0 | 0 | 0 | 0 | |
| Long Term Debt | 0 | 0 | 300 | 300 | 600 | 100.0% |
Cash flow
|
|---|
| Capex | 13 | 13 | 25 | 30 | 16 | -46.4% |
| Acquisitions | | | -28 | 5 | 8 | 80.9% |
Ratios
|
|---|
| Revenue growth | 13.1% | 14.4% | 110.6% | 21.6% | -15.1% | |
| EBITDA growth | 17.4% | 21.0% | -1.7% | 94.7% | -33.0% | |
|
|---|
| Gross Margin | 78.7% | 79.2% | 65.6% | 70.2% | 72.4% | 2.2% |
| EBITDA Margin | 24.3% | 25.7% | 12.0% | 19.2% | 15.1% | -4.0% |
| EBIT Margin | 19.7% | 21.3% | -2.7% | 5.3% | -0.4% | -5.8% |
| SG&A, % of revenue | 40.4% | 40.5% | 43.0% | 38.5% | 42.8% | 4.3% |
| SBC, % of revenue | 3.3% | 3.7% | 3.0% | 3.4% | 4.8% | 1.4% |
| Net Income Margin | 12.4% | 13.5% | -3.0% | 2.9% | 8.1% | 5.2% |
| CAPEX, % of revenue | 3.3% | 2.8% | 2.6% | 2.6% | 1.6% | -0.9% |
|
|---|
| ROIC | 20.1% | 22.2% | -1.5% | 2.1% | -0.1% | -2.2% |
| ROE | 12.6% | 14.5% | -2.0% | 1.4% | 3.5% | 2.2% |
| Net Debt/EBITDA | -1.1x | -0.9x | 0.8x | -0.0x | 1.5x | 1.6x |
People
|
|---|
| Insider ownership | 3.8% | 3.8% | 3.8% | 3.8% | 3.8% | 0.0% |
| Employees | | 1,069 | 3,144 | 3,113 | 3,019 | -3.0% |
| Revenue/Employee, th. $ | | 424 | 304 | 373 | 327 | -12.4% |
NetScout Systems, Inc. ($NTCT) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 226 | 257 | 269 | 235 | | -16.1% | -5.6% | -11.0% | -26.2% |
| EBITDA | 4 | 36 | 76 | 33 | | -85.9% | -12.0% | 3.0% | -57.9% |
| Net Income | -24 | -2 | 90 | 17 | | | | 322.1% | -24.6% |
Balance Sheet
|
|---|
| Cash | 262 | 252 | 332 | 370 | | 24.1% | 28.7% | 35.6% | 21.3% |
| Long Term Debt | 300 | 300 | 300 | 600 | | 0.0% | 0.0% | 0.0% | 100.0% |
Ratios
|
|---|
| Gross Margin | 70.5% | 71.1% | 76.0% | 71.7% | | 2.9% | 2.2% | 3.0% | 0.8% |
| EBITDA Margin | 1.8% | 14.1% | 28.2% | 14.1% | | -9.1% | -1.0% | 3.8% | -10.6% |
| Net Income Margin | -10.7% | -1.0% | 33.3% | 7.1% | | -7.4% | -0.5% | 26.3% | 0.2% |
Peers in Communications Equipment
Below you can find NetScout Systems, 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. ($NTIP) | | 34.6% | 292.9% | -74.7% | 34.4% |
| |
|---|
| Median (66 companies) | | -0.4% | 7.3% | 5.1% | 3.5% |
|---|
| NetScout Systems, Inc. ($NTCT) | | 14.4% | 110.6% | 21.6% | -15.1% |
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% |
| Palo Alto Networks, Inc. ($PANW) | 73.3% | 72.9% | 73.2% | 72.9% | 71.6% |
| |
|---|
| Median (67 companies) | 41.4% | 41.3% | 43.7% | 41.0% | 40.5% |
|---|
| NetScout Systems, Inc. ($NTCT) | 78.7% | 79.2% | 65.6% | 70.2% | 72.4% |
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. ($ITRN) | 32.4% | 30.5% | 29.9% | 29.9% | 30.4% |
| |
|---|
| Median (65 companies) | 5.3% | 4.7% | 5.5% | 6.0% | 4.6% |
|---|
| NetScout Systems, Inc. ($NTCT) | 24.3% | 25.7% | 12.0% | 19.2% | 15.1% |
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 ($FNSR) | 11.3% | 11.9% | 9.4% | 9.7% | 16.8% |
| |
|---|
| Median (65 companies) | 2.2% | 2.2% | 1.9% | 1.8% | 1.7% |
|---|
| NetScout Systems, Inc. ($NTCT) | 3.3% | 2.8% | 2.6% | 2.6% | 1.6% |
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. ($CASA) | | | 43.2% | 39.7% | 21.9% |
| |
|---|
| Median (70 companies) | 1.2% | 2.0% | 2.4% | 2.2% | 0.7% |
|---|
| NetScout Systems, Inc. ($NTCT) | 20.1% | 22.2% | -1.5% | 2.1% | -0.1% |
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 ($FNSR) | -0.3x | 0.2x | -0.5x | 1.6x | 3.8x |
| |
|---|
| Median (45 companies) | -0.7x | -0.6x | -0.9x | -0.8x | -0.3x |
|---|
| NetScout Systems, Inc. ($NTCT) | -1.1x | -0.9x | 0.8x | -0.0x | 1.5x |
