Keysight Technologies Inc. reports 108% EBITDA decline in 2018 and 15.5 pp EBITDA Margin decline from 14.6% to -0.93%
11/20/2018 • About Keysight Technologies Inc. (
$KEYS) • By InTwits
Keysight Technologies Inc. reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- EBITDA Margin is declining: -0.9% in FY2018 vs. 14.6% in FY2017 vs. 18.9% in FY2014
- EBITDA Margin is quite volatile: -0.9% in FY2018, 14.6% in FY2017, 18.5% in FY2016, 18.6% in FY2015, 18.9% in FY2014
- Keysight Technologies Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.9%. At the same time it's in pair with industry average of 3.6%
- CAPEX is quite volatile: $89m in 2018, $46m in 2017, $38m in 2016, $18m in 2015, $19m in 2014
- In the last 5 years the company invested considerably less than D&A: $457m vs. $852m. In FY2018 this situation was still the same: CAPEX was 132 while D&A was 310
- The company has unprofitable business model: ROIC is -8.0%
- It operates with medium-size leverage: Net Debt/EBITDA is 1.3x while industry average is -0.8x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Keysight Technologies Inc.'s Revenue jumped on 21.6%. Revenue growth showed slowdown in FY18Q4 - it was 19.2% YoY. During FY2014-FY2018 Revenue growth bottomed in FY2015 at -2.6% and was accelerating since that time. Despite revenue decline the EBITDA margin expanded. EBITDA Margin increased on 7.4 pp from 23.1% to 30.6% in 2018. EBITDA Margin followed a declining trend in FY2014-FY2018.
Gross Margin increased slightly on 1.3 pp from 53.4% to 54.7% in FY2018. SG&A as a % of Revenue decreased on 2.3 pp from 32.9% to 30.6% in FY2018. During the last 5 years SG&A as a % of Revenue topped in FY2017 at 32.9%. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in FY2018. During FY2014-FY2018 SBC as a % of Revenue topped in FY2016 at 1.9% and was declining since that time.
Net Income margin increased slightly on 1.1 pp from 3.2% to 4.3% in FY2018.
Investments (CAPEX, working capital and M&A)
In FY2018 Keysight Technologies Inc. had CAPEX/Revenue of 3.4%. CAPEX/Revenue showed almost no change from FY2015 to FY2018. It's average level of CAPEX/Revenue for the last three years was 2.9%.
Accounts receivable as a % of Revenue decreased slightly on 1.1 pp from 17.2% to 16.1% in FY2018. Inventories as a % of Revenue decreased on 2.5 pp from 18.4% to 16.0% in FY2018. Accounts payable as a % of Revenue showed almost no change in FY2018.
Keysight Technologies Inc. has spent
$11m on M&A in FY2018 which accounts for 0.28% of revenue.
Return on investment
The company operates at negative ROIC (-8.0%) and low but positive ROE (7.0%). ROIC dropped on 14.8 pp from 6.8% to -8.0% in FY2018. ROE increased slightly on 1.6 pp from 5.3% to 7.0% in FY2018. ROIC stuck to a declining trend at -9.4 pp per annum in FY2014-FY2018. ROE declined at -10.8 pp per annum in the last 5 years.
Leverage (Debt)
Company's Net Debt / EBITDA is 1.3x and Debt / EBITDA is . Net Debt / EBITDA dropped on 2.7x from 2.7x to in FY2018. Debt dropped on 12.6% while cash jumped on 11.6%.
Keysight Technologies Inc. has no short term refinancing risk: cash is higher than short term debt (183.0%).
Average interest expence paid by the company was 4.6% in FY2018.
Management team
Ronald S Nersesian "Ron" is a Keysight Technologies Inc.'s CEO. Ronald S Nersesian "Ron" is a founder and has spent 5 years with the company. CEO total compensation was
$10,240,253 in FY2018 which included
$995,833 salary. Keysight Technologies Inc.'s CFO is Neil Dougherty. Neil Dougherty has 5 years tenure at the company.
Insider ownership is 0.67%. Insider ownership didn't change in 2018.
The company has 12,900 employees. The number of employees increased on 2.4%. Average revenue per employee in FY2018 was
$300,620 and it jumped on 18.8%.
Financial and operational results
FY ended 10/31/2018
Keysight Technologies Inc. ($KEYS) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 2,933 | 2,856 | 2,918 | 3,189 | 3,878 | 21.6% |
| Gross Profit | 1,620 | 1,587 | 1,624 | 1,702 | 2,122 | 24.7% |
| SG&A | 790 | 787 | 818 | 1,049 | 1,185 | 13.0% |
| EBITDA | 553 | 530 | 540 | 464 | -36 | -107.8% |
| EBIT | 469 | 431 | 406 | 239 | -346 | -244.8% |
| Interest expence | 3 | 46 | 47 | 80 | 83 | 3.8% |
| Tax | 83 | -125 | 31 | 77 | -576 | -848.1% |
| Net Income | 392 | 513 | 335 | 102 | 165 | 61.8% |
| Stock Based Compensation | 39 | 51 | 54 | 56 | 59 | 5.4% |
Balance Sheet
|
|---|
| Cash | 810 | 483 | 783 | 818 | 913 | 11.6% |
| Accounts Receivable | 357 | 398 | 437 | 547 | 624 | 14.1% |
| Inventory | 498 | 487 | 474 | 588 | 619 | 5.3% |
| Accounts Payable | 173 | 209 | 189 | 211 | 242 | 14.7% |
| Short Term Debt | 0 | 0 | 0 | 10 | 499 | 4,890.0% |
| Long Term Debt | 1,099 | 1,099 | 1,093 | 2,038 | 1,291 | -36.7% |
Cash flow
|
|---|
| Capex | 70 | 92 | 91 | 72 | 132 | 83.3% |
| Acquisitions | 11 | 574 | 10 | 1,702 | 11 | -99.4% |
Ratios
|
|---|
| Revenue growth | 1.6% | -2.6% | 2.2% | 9.3% | 21.6% | |
| EBITDA growth | -3.5% | -4.2% | 1.9% | -14.1% | -107.8% | |
|
|---|
| Gross Margin | 55.2% | 55.6% | 55.7% | 53.4% | 54.7% | 1.3% |
| EBITDA Margin | 18.9% | 18.6% | 18.5% | 14.6% | -0.9% | -15.5% |
| EBIT Margin | 16.0% | 15.1% | 13.9% | 7.5% | -8.9% | -16.4% |
| SG&A, % of revenue | 26.9% | 27.6% | 28.0% | 32.9% | 30.6% | -2.3% |
| SBC, % of revenue | 1.3% | 1.8% | 1.9% | 1.8% | 1.5% | -0.2% |
| Net Income Margin | 13.4% | 18.0% | 11.5% | 3.2% | 4.3% | 1.1% |
| CAPEX, % of revenue | 2.4% | 3.2% | 3.1% | 2.3% | 3.4% | 1.1% |
|
|---|
| ROIC | 31.4% | 21.8% | 16.9% | 6.8% | -8.0% | -14.8% |
| ROE | 38.9% | 49.5% | 23.8% | 5.3% | 7.0% | 1.6% |
| Net Debt/EBITDA | 0.5x | 1.2x | 0.6x | 2.7x | |
| Interest expence / Average debt | 0.3% | 4.2% | 4.3% | 5.1% | 4.6% | -0.5% |
People
|
|---|
| Insider ownership | 0.7% | 0.7% | 0.7% | 0.7% | 0.7% | 0.0% |
| Employees | 9,600 | 10,250 | 10,300 | 12,600 | 12,900 | 2.4% |
| Revenue/Employee, th. $ | 306 | 279 | 283 | 253 | 301 | 18.8% |
Keysight Technologies Inc. ($KEYS) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 837 | 990 | 1,004 | 1,047 | | 15.3% | 31.5% | 20.7% | 19.2% |
| EBITDA | 73 | 165 | 204 | -492 | | -62.4% | 98.8% | 168.4% | -543.2% |
| Net Income | 94 | 64 | 121 | -114 | | -13.8% | 30.6% | | |
Balance Sheet
|
|---|
| Cash | 980 | 784 | 742 | 913 | | 9.4% | -20.2% | -15.0% | 11.6% |
| Short Term Debt | 20 | 0 | 0 | 499 | | | -100.0% | -100.0% | 4,890.0% |
| Long Term Debt | 2,028 | 1,789 | 1,790 | 1,291 | | 85.5% | -17.0% | -12.6% | -36.7% |
Ratios
|
|---|
| Gross Margin | 51.0% | 54.4% | 56.3% | 56.1% | | -4.6% | -0.4% | 6.9% | 2.1% |
| EBITDA Margin | 8.7% | 16.7% | 20.3% | -47.0% | | -18.0% | 5.6% | 11.2% | -59.6% |
| Net Income Margin | 11.2% | 6.5% | 12.1% | -10.9% | | -3.8% | -0.0% | 14.2% | -6.6% |
Peers in Electronic Equipment & Instrum
Below we provide Keysight Technologies Inc. benchmarking against other companies in Electronic Equipment & Instrum 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 |
|---|
| Hickok Inc ($HICKA) | | -7.2% | 13.5% | 258.4% | 178.7% |
| Electro Scientific Industries, Inc. ($ESIO) | | -12.2% | 15.9% | -12.7% | 128.5% |
| Microvision, Inc. ($MVIS) | | 163.6% | 60.7% | -34.7% | 82.8% |
| Ipsidy Inc ($IDTY) | | | | | 66.2% |
| Magal Security Systems Ltd. ($MAGS) | | -17.8% | 6.4% | -5.2% | 44.0% |
| |
|---|
| Median (61 companies) | -78.5% | 4.5% | 0.3% | 3.6% | 9.1% |
|---|
| Keysight Technologies Inc. ($KEYS) | | -2.6% | 2.2% | 9.3% | 21.6% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Intellicheck, Inc. ($IDN) | 58.2% | 57.1% | 80.0% | 85.5% | 91.3% |
| Image Sensing Systems, Inc. ($ISNS) | 74.7% | 77.1% | 71.0% | 79.9% | 80.9% |
| National Instruments Corporation ($NATI) | 74.4% | 74.1% | 74.5% | 74.5% | 75.4% |
| Cognex Corporation ($CGNX) | 77.9% | 77.2% | 75.2% | 75.6% | 74.4% |
| Applied DNA Sciences Inc ($APDN) | | | 82.2% | 77.3% | 69.1% |
| |
|---|
| Median (60 companies) | 41.7% | 41.8% | 40.1% | 41.5% | 40.9% |
|---|
| Keysight Technologies Inc. ($KEYS) | 55.2% | 55.6% | 55.7% | 53.4% | 54.7% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Cognex Corporation ($CGNX) | 32.9% | 30.1% | 31.9% | 36.0% | 30.1% |
| Coherent, Inc. ($COHR) | 14.2% | 16.7% | 18.9% | 24.9% | 26.6% |
| Hollysys Automation Technologies, Ltd. ($HOLI) | 21.3% | 26.9% | 23.5% | 16.1% | 23.9% |
| Electro Scientific Industries, Inc. ($ESIO) | -10.1% | -19.1% | -2.0% | -17.8% | 23.1% |
| FLIR Systems, Inc. ($FLIR) | 20.7% | 22.8% | 21.3% | 20.0% | 21.7% |
| |
|---|
| Median (60 companies) | 5.3% | 3.9% | 3.0% | 3.0% | 4.2% |
|---|
| Keysight Technologies Inc. ($KEYS) | 18.9% | 18.6% | 18.5% | 14.6% | -0.9% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Wrap Technologies Inc ($WRTC) | | | | | 61.4% |
| ClearSign Combustion Corporation ($CLIR) | | 80.3% | 22.1% | 17.4% | 17.7% |
| LightPath Technologies, Inc. ($LPTH) | 16.8% | 5.0% | 6.5% | 7.8% | 7.7% |
| Giga-tronics Inc ($GIGA) | 1.7% | 0.1% | 1.3% | 0.3% | 7.0% |
| Applied DNA Sciences Inc ($APDN) | 8.4% | 3.9% | 16.1% | 3.1% | 6.8% |
| |
|---|
| Median (60 companies) | 1.8% | 1.9% | 2.1% | 1.6% | 2.2% |
|---|
| Keysight Technologies Inc. ($KEYS) | 2.4% | 3.2% | 3.1% | 2.3% | 3.4% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Evans & Sutherland Computer Corp ($ESCC) | | | 83.3% | 39.6% | 55.3% |
| Electro Scientific Industries, Inc. ($ESIO) | -11.7% | -19.7% | -7.1% | -22.9% | 31.5% |
| Coherent, Inc. ($COHR) | 9.9% | 13.1% | 15.6% | 24.0% | 21.5% |
| Zebra Technologies Corporation ($ZBRA) | 3.3% | 0.9% | 2.2% | 10.2% | 20.8% |
| Cognex Corporation ($CGNX) | 18.3% | 15.6% | 17.7% | 25.6% | 20.1% |
| |
|---|
| Median (72 companies) | 3.3% | 1.8% | 1.8% | 1.8% | 1.3% |
|---|
| Keysight Technologies Inc. ($KEYS) | 31.4% | 21.8% | 16.9% | 6.8% | -8.0% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Itron, Inc. ($ITRI) | 2.1x | 1.9x | 1.0x | 2.0x | 12.3x |
| Track Group Inc ($TRCK) | | | | | 12.2x |
| Mesa Laboratories, Inc. ($MLAB) | 0.7x | 1.1x | 1.7x | 2.0x | 3.5x |
| Trimble Inc. ($TRMB) | 1.3x | 1.7x | 1.1x | 1.3x | 3.4x |
| MTS Systems Corporation ($MTSC) | -0.0x | -0.4x | 5.8x | 3.9x | 3.2x |
| |
|---|
| Median (36 companies) | -0.8x | -0.9x | -0.9x | -0.8x | -0.9x |
|---|
