ARRIS International plc EBITDA jumped on 10.1% and EBITDA Margin increased slightly on 0.72 pp from 9.0% to 9.7%
02/21/2019 • About ARRIS International plc (
$ARRS) • By InTwits
ARRIS International plc reported 2018 financial results today. Here are the key drivers of the company's long term financial model:
- ARRIS International plc has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.0%. At the same time it's in pair with industry average of 7.6%
- CAPEX is quite volatile: $14m in 2018, $12m in 2017, $4m in 2016, $6m in 2015, $6m in 2014
- In the last 5 years the company invested considerably less than D&A: $315m vs. $2,060m. In 2018 this situation was still the same: CAPEX was 64 while D&A was 475
- The company has potentially unprofitable business model: ROIC is 3.5%
- It operates with medium-size leverage: Net Debt/EBITDA is 2.1x 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 slightly on 1.9%. Revenue growth showed acceleration in 18Q4 - it increased 2.8% YoY. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased slightly on 1.6 pp from 20.0% to 21.7% in 2018. During 2014-2018 EBITDA Margin bottomed in 2016 at 8.9% and was growing since that time.
Gross Margin increased on 3.3 pp from 25.2% to 28.5% in 2018. During 2014-2018 Gross Margin bottomed in 2016 at 25.0% and was growing since that time. SG&A as a % of Revenue increased on 2.7 pp from 7.2% to 9.9% in 2018. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in 2018.
Net Income margin showed almost no change in 2018. During the last 5 years Net Income margin bottomed in 2016 at 0.27% and was growing since that time.
Investments (CAPEX, working capital and M&A)
ARRIS International plc's CAPEX/Revenue was 0.94% in 2018. CAPEX/Revenue showed almost no change from 2015 to 2018. It's average CAPEX/Revenue for the last three years was 1.0%.
Accounts receivable as a % of Revenue showed almost no change in 2018. Inventories as a % of Revenue decreased slightly on 1.5 pp from 12.5% to 11.0% in 2018. Accounts payable as a % of Revenue increased on 2.3 pp from 24.4% to 26.7% in 2018.
ARRIS International plc has spent
$1m on M&A in 2018 which accounts for 0.017% of revenue.
Return on investment
The company operates at low ROIC (3.5%) and ROE (3.7%). ROIC increased slightly on 1.2 pp from 2.3% to 3.5% in 2018. ROE increased slightly on 0.80 pp from 2.9% to 3.7% in 2018. During the last 5 years ROIC bottomed in 2017 at 2.3%. During the last 5 years ROE bottomed in 2016 at 0.73% and was growing since that time.
Leverage (Debt)
Debt level is 2.1x Net Debt / EBITDA and 3.2x Debt / EBITDA. Net Debt / EBITDA dropped on 0.8x from 2.9x to 2.1x in 2018. Debt decreased on 3.8% while cash jumped on 49.7%.
ARRIS International plc has questionable short term financial stability: Interest coverage ratio (ICR) is only 1.9x. ARRIS International plc has no short term refinancing risk: cash is higher than short term debt (870.4%).
Average interest expence paid by the company was 4.5% in 2018.
Valuation and dividends
ARRIS International plc's trades at EV/EBITDA 10.5x and P/E 48.2x.
Management team
CEO total compensation was
$4,980,929 in 2018 which included
$906,250 salary and
$37,000 annual bonus.
Insider ownership is 0.18%. Insider ownership didn't change in 2018.
At the end of financial year the company had 7,900 employees. The number of employees decreased on 9.2%. Average revenue per employee in 2018 was
$853,499 and it jumped on 12.3%.
Financial and operational results
FY ended 12/31/2018
ARRIS International plc ($ARRS) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 5,323 | 4,798 | 6,829 | 6,614 | 6,743 | 1.9% |
| Gross Profit | 1,582 | 1,419 | 1,708 | 1,666 | 1,919 | 15.2% |
| SG&A | 411 | 417 | 454 | 475 | 667 | 40.3% |
| EBITDA | 657 | 514 | 606 | 594 | 654 | 10.1% |
| EBIT | 341 | 211 | 111 | 123 | 179 | 45.4% |
| Interest expence | 63 | 71 | 80 | 87 | 95 | 9.2% |
| Tax | -88 | 23 | 15 | -45 | -24 | |
| Net Income | 327 | 92 | 18 | 92 | 114 | 23.6% |
| Stock Based Compensation | 45 | 60 | 40 | 82 | 85 | 4.5% |
Balance Sheet
|
|---|
| Cash | 566 | 864 | 980 | 488 | 730 | 49.7% |
| Accounts Receivable | 599 | 652 | 1,359 | 1,218 | 1,226 | 0.6% |
| Inventory | 401 | 402 | 552 | 825 | 740 | -10.3% |
| Accounts Payable | 480 | 515 | 1,049 | 1,207 | 1,289 | 6.8% |
| Short Term Debt | 67 | 44 | 83 | 84 | 84 | 0.4% |
| Long Term Debt | 1,449 | 1,496 | 2,180 | 2,116 | 2,032 | -4.0% |
Cash flow
|
|---|
| Capex | 57 | 50 | 67 | 78 | 64 | -18.5% |
| Acquisitions | | 98 | 340 | 761 | 1 | -99.8% |
Ratios
|
|---|
| Revenue growth | 47.0% | -9.9% | 42.3% | -3.1% | 1.9% | |
| EBITDA growth | 177.1% | -21.7% | 17.8% | -2.0% | 10.1% | |
|
|---|
| Gross Margin | 29.7% | 29.6% | 25.0% | 25.2% | 28.5% | 3.3% |
| EBITDA Margin | 12.3% | 10.7% | 8.9% | 9.0% | 9.7% | 0.7% |
| EBIT Margin | 6.4% | 4.4% | 1.6% | 1.9% | 2.7% | 0.8% |
| SG&A, % of revenue | 7.7% | 8.7% | 6.7% | 7.2% | 9.9% | 2.7% |
| SBC, % of revenue | 0.8% | 1.3% | 0.6% | 1.2% | 1.3% | 0.0% |
| Net Income Margin | 6.1% | 1.9% | 0.3% | 1.4% | 1.7% | 0.3% |
| CAPEX, % of revenue | 1.1% | 1.0% | 1.0% | 1.2% | 0.9% | -0.2% |
|
|---|
| ROIC | 10.8% | 6.5% | 2.5% | 2.3% | 3.5% | 1.2% |
| ROE | 21.7% | 5.3% | 0.7% | 2.9% | 3.7% | 0.8% |
| Net Debt/EBITDA | 1.4x | 1.3x | 2.1x | 2.9x | 2.1x | -0.8x |
| Interest coverage ratio (ICR) | 5.4x | 3.0x | 1.4x | 1.4x | 1.9x | 0.5x |
| Interest expence / Average debt | 4.1% | 4.6% | 4.2% | 3.9% | 4.5% | 0.6% |
People
|
|---|
| Insider ownership | 0.2% | 0.2% | 0.2% | 0.2% | 0.2% | 0.0% |
| Employees | 6,600 | 8,520 | 7,020 | 8,700 | 7,900 | -9.2% |
| Revenue/Employee, th. $ | 807 | 563 | 973 | 760 | 853 | 12.3% |
ARRIS International plc ($ARRS) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 1,578 | 1,727 | 1,651 | 1,787 | | 6.4% | 3.7% | -4.5% | 2.8% |
| EBITDA | 152 | 158 | 165 | 178 | | 35.4% | -44.7% | -61.7% | 55.8% |
| Net Income | -14 | 36 | 47 | 45 | | | 17.9% | -46.7% | 228.1% |
Balance Sheet
|
|---|
| Cash | 506 | 501 | 481 | 730 | | -55.1% | -62.7% | -65.2% | 49.7% |
| Short Term Debt | 84 | 84 | 84 | 84 | | 1.0% | -6.3% | -6.0% | 0.4% |
| Long Term Debt | 2,095 | 2,074 | 2,053 | 2,032 | | -3.0% | -2.8% | -2.8% | -4.0% |
Ratios
|
|---|
| Gross Margin | 30.2% | 28.9% | 28.2% | 26.8% | | 7.4% | 4.6% | 3.2% | -1.6% |
| EBITDA Margin | 9.7% | 9.2% | 10.0% | 10.0% | | 2.1% | -8.0% | -14.9% | 3.4% |
| Net Income Margin | -0.9% | 2.1% | 2.9% | 2.5% | | 1.8% | 0.2% | -2.3% | 1.7% |
Peers in Communications Equipment
Below you can find ARRIS International plc 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. ($NTIP) | | 34.6% | 292.9% | -74.7% | 34.4% |
| |
|---|
| Median (66 companies) | | 0.7% | 7.3% | 5.6% | 3.5% |
|---|
| ARRIS International plc ($ARRS) | | -9.9% | 42.3% | -3.1% | 1.9% |
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. ($NTCT) | 78.7% | 79.2% | 65.6% | 70.2% | 72.4% |
| |
|---|
| Median (67 companies) | 42.4% | 44.0% | 43.9% | 41.7% | 41.2% |
|---|
| ARRIS International plc ($ARRS) | 29.7% | 29.6% | 25.0% | 25.2% | 28.5% |
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. ($ITRN) | 32.4% | 30.5% | 29.9% | 29.9% | 30.4% |
| |
|---|
| Median (65 companies) | 5.3% | 4.7% | 5.5% | 6.0% | 4.6% |
|---|
| ARRIS International plc ($ARRS) | 12.3% | 10.7% | 8.9% | 9.0% | 9.7% |
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 ($FNSR) | 11.3% | 11.9% | 9.4% | 9.7% | 16.8% |
| |
|---|
| Median (65 companies) | 2.3% | 2.3% | 2.0% | 1.9% | 1.7% |
|---|
| ARRIS International plc ($ARRS) | 1.1% | 1.0% | 1.0% | 1.2% | 0.9% |
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. ($CASA) | | | 43.2% | 39.7% | 21.9% |
| |
|---|
| Median (70 companies) | 1.2% | 2.0% | 2.2% | 2.1% | 0.3% |
|---|
| ARRIS International plc ($ARRS) | 10.8% | 6.5% | 2.5% | 2.3% | 3.5% |
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 ($FNSR) | -0.3x | 0.2x | -0.5x | 1.6x | 3.8x |
| |
|---|
| Median (45 companies) | -0.8x | -0.8x | -0.9x | -0.8x | -0.3x |
|---|
| ARRIS International plc ($ARRS) | 1.4x | 1.3x | 2.1x | 2.9x | 2.1x |
