A telephone replay of the conference call will be available at approximately 4:30 p.m. PT, March 1 through March 8 by dialing +1 855-859-2056 (or +1 404-537-3406 from outside the U.S.) and entering pass code 2165159.
Forward-Looking Statements
This communication contains forward-looking statements as defined in the Securities Exchange Act of 1934 and is subject to the safe harbors created therein. These forward-looking statements involve risks and uncertainties that could significantly affect the expected results and are based on certain key assumptions of Keysight’s management and on currently available information. Due to such uncertainties and risks, no assurances can be given that such expectations or assumptions will prove to have been correct, and readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. Keysight undertakes no responsibility to publicly update or revise any forward-looking statement. The forward-looking statements contained herein include, but are not limited to, information and future guidance on the company’s goals, priorities, revenues, demand, financial condition, earnings, the continued strengths and expected growth of the markets the company sells into, operations, operating earnings, and tax rates that involve risks and uncertainties that could cause Keysight’s results to differ materially from management’s current expectations. Such risks and uncertainties include, but are not limited to, changes in the demand for current and new products, technologies, and services; customer purchasing decisions and timing, and the risk that we are not able to realize the savings or benefits expected from integration or restructuring activities. The words “estimate,” “expect,” “intend,” “will,” “should,” “forecast,” and similar expressions, as they relate to the company, are intended to identify forward-looking statements.
In addition to the risks above, other risks that Keysight faces include those detailed in Keysight’s filings with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended Oct. 31, 2017.
Segment Data
Segment data reflects the results of our reportable segments under our management reporting system. Segment revenue and income from operations are consistent with the respective non-GAAP measures as explained below and in the attached supplemental schedules. Segment data are provided on page 6 of the attached tables.
Use of Non-GAAP Financial Measures
In addition to financial information prepared in accordance with U.S. GAAP (“GAAP”), this document also contains certain non-GAAP financial measures based on management’s view of performance, including:
- Non-GAAP Core Revenue
- Non-GAAP Revenue
- Non-GAAP Net Income
- Non-GAAP Diluted EPS
See the attached supplemental schedules for reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure for the three months ended January 31, 2018 and for projected non-GAAP revenue amounts for the first half 2018 and three months ended April 30, 2018. Following the reconciliations is a discussion of the items adjusted from our non-GAAP financial measures and the company’s reasons for including or excluding certain categories of income or expenses from our non-GAAP results.
About Keysight Technologies
Keysight Technologies, Inc. (NYSE: KEYS) is a leading technology company that helps enterprises, service providers, and governments accelerate innovation to connect and secure the world. Keysight's solutions optimize networks and bring electronic products to market faster and at a lower cost with offerings from design simulation, to prototype validation, to manufacturing test, to optimization in networks and cloud environments. Customers span the worldwide communications ecosystem, aerospace and defense, automotive, energy, semiconductor and general electronics end markets. Keysight generated revenues of $3.2B in fiscal year 2017. In April 2017, Keysight acquired Ixia, a leader in network test, visibility, and security. More information is available at www.keysight.com.
Additional information about Keysight Technologies is available in the newsroom at www.keysight.com/go/news and on Facebook, Google+, LinkedIn, Twitter and YouTube.
Source: IR-KEYS
| KEYSIGHT TECHNOLOGIES, INC. | |||||||||||
| CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS | |||||||||||
| (In millions, except per share amounts) | |||||||||||
| (Unaudited) | |||||||||||
| PRELIMINARY | |||||||||||
| Three months ended | |||||||||||
| January 31, | Percent | ||||||||||
| 2018 | 2017 | Inc/(Dec) | |||||||||
| Orders | $ | 964 | $ | 695 | 39 | % | |||||
| Net revenue | $ | 837 | $ | 726 | 15 | % | |||||
| Costs and expenses: | |||||||||||
| Cost of products and services | 410 | 322 | 27 | % | |||||||
| Research and development | 146 | 108 | 35 | % | |||||||
| Selling, general and administrative | 289 | 213 | 36 | % | |||||||
| Other operating expense (income), net | (3 | ) | (79 | ) | (96 | )% | |||||
| Total costs and expenses | 842 | 564 | 49 | % | |||||||
| Income (loss) from operations | (5 | ) | 162 | (103 | )% | ||||||
| Interest income | 3 | 1 | 101 | % | |||||||
| Interest expense | (22 | ) | (12 | ) | 87 | % | |||||
| Other income (expense), net | 1 | 1 | — | % | |||||||
| Income (loss) before taxes | (23 | ) | 152 | (115 | )% | ||||||
| Provision (benefit) for income taxes | (117 | ) | 43 | (371 | )% | ||||||
| Net income | $ | 94 | $ | 109 | (14 | )% | |||||
| Net income per share: | |||||||||||
| Basic | $ | 0.50 | $ | 0.64 | |||||||
| Diluted | $ | 0.50 | $ | 0.63 | |||||||
| Weighted average shares used in computing net income per share: | |||||||||||
| Basic | 187 | 171 | |||||||||
| Diluted | 189 | 173 | |||||||||
| Page 1 | |||||||||||
| KEYSIGHT TECHNOLOGIES, INC. | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEET | ||||||||
| (In millions, except par value and share amounts) | ||||||||
| PRELIMINARY | ||||||||
| January 31, | October 31, | |||||||
| 2018 | 2017 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 980 | $ | 818 | ||||
| Accounts receivable, net | 454 | 547 | ||||||
| Inventory | 609 | 588 | ||||||
| Other current assets | 232 | 224 | ||||||
| Total current assets | 2,275 | 2,177 | ||||||
| Property, plant and equipment, net | 539 | 530 | ||||||
| Goodwill | 1,894 | 1,882 | ||||||
| Other intangible assets, net | 807 | 855 | ||||||
| Long-term investments | 61 | 63 | ||||||
| Long-term deferred tax assets | 204 | 186 | ||||||
| Other assets | 270 | 240 | ||||||
| Total assets | $ | 6,050 | $ | 5,933 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 20 | $ | 10 | ||||
| Accounts payable | 229 | 211 | ||||||
| Employee compensation and benefits | 170 | 217 | ||||||
| Deferred revenue | 354 | 291 | ||||||
| Income and other taxes payable | 35 | 28 | ||||||
| Other accrued liabilities | 78 | 62 | ||||||
| Total current liabilities | 886 | 819 | ||||||
| Long-term debt | 2,028 | 2,038 | ||||||
| Retirement and post-retirement benefits | 315 | 309 | ||||||
| Long-term deferred revenue | 105 | 101 | ||||||
| Other long-term liabilities | 232 | 356 | ||||||
| Total liabilities | 3,566 | 3,623 | ||||||
| Stockholders' Equity: | ||||||||
|
Preferred stock; $0.01 par value; 100 million shares authorized; none issued and outstanding |
— | — | ||||||
|
Common stock; $0.01 par value, 1 billion shares authorized; 190 million shares at January 31, 2018 and 188 million shares at October 31, 2017, issued |
2 | 2 | ||||||
|
Treasury stock at cost; 2.3 million shares at January 31, 2018 and October 31, 2017, respectively |
(62 | ) | (62 | ) | ||||
| Additional paid-in-capital | 1,815 | 1,786 | ||||||
| Retained earnings | 1,141 | 1,041 | ||||||
| Accumulated other comprehensive loss | (412 | ) | (457 | ) | ||||
| Total stockholders' equity | 2,484 | 2,310 | ||||||
| Total liabilities and equity | $ | 6,050 | $ | 5,933 | ||||
| Page 2 | ||||||||
| KEYSIGHT TECHNOLOGIES, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS | ||||||||
| (In millions) | ||||||||
| (Unaudited) | ||||||||
| PRELIMINARY | ||||||||
| Three months ended | ||||||||
| January 31, | ||||||||
| 2018 | 2017 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 94 | $ | 109 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 78 | 32 | ||||||
| Share-based compensation | 19 | 18 | ||||||
| Deferred tax expense (benefit) | (235 | ) | 40 | |||||
| Excess and obsolete inventory related charges | 6 | 3 | ||||||
| Gain on sale of land | — | (8 | ) | |||||
| Pension curtailment and settlement gains | — | (68 | ) | |||||
| Other non-cash expenses, net | 2 | — | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 99 | 40 | ||||||
| Inventory | (20 | ) | (10 | ) | ||||
| Accounts payable | 14 | (12 | ) | |||||
| Employee compensation and benefits | (50 | ) | (36 | ) | ||||
| Income taxes payable | 115 | (15 | ) | |||||
| Retirement and post-retirement benefits | (12 | ) | (3 | ) | ||||
| Deferred revenue | 61 | 15 | ||||||
| Other assets and liabilities | — | 10 | ||||||
| Net cash provided by operating activities (a) | 171 | 115 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant and equipment | (24 | ) | (16 | ) | ||||
| Acquisition of businesses and intangibles assets, net of cash acquired | (3 | ) | — | |||||
| Proceeds from sale of land | — | 8 | ||||||
| Net cash used in investing activities | (27 | ) | (8 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Issuance of common stock under employee stock plans | 24 | 19 | ||||||
| Payment of taxes on shares withheld on equity awards | (15 | ) | (11 | ) | ||||
| Proceeds from credit facility | 40 | — | ||||||
| Repayment of credit facility | (40 | ) | — | |||||
| Net cash provided by financing activities | 9 | 8 | ||||||
| Effect of exchange rate movements | 9 | (2 | ) | |||||
| Net increase in cash and cash equivalents | 162 | 113 | ||||||
| Cash and cash equivalents at beginning of period | 818 | 783 | ||||||
| Cash and cash equivalents at end of period | $ | 980 | $ | 896 | ||||
| (a) Cash payments included in operating activities: | ||||||||
| Income tax payments, net | (1 | ) | (17 | ) | ||||
| Interest payment on borrowings | (2 | ) | — | |||||
| Page 3 | ||||||||
| KEYSIGHT TECHNOLOGIES, INC. | |||||||||||||||||||||||
| RECONCILIATION OF REVENUE EXCLUDING IMPACTS OF CURRENCY AND ACQUISITIONS | |||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| PRELIMINARY | |||||||||||||||||||||||
| Q2'18 Guidance | H1'18 Guidance | Year-over-year compare | |||||||||||||||||||||
| Midpoint | Low end | High end | Q1'18 | Q1'17 |
Percent
|
||||||||||||||||||
| GAAP Revenue | $ | 955 | $ | 1,777 | $ | 1,807 | $ | 837 | $ | 726 | 15 | % | |||||||||||
| Amortization of acquisition-related balances | 9 | 28 | 28 | 19 | — | ||||||||||||||||||
| Non-GAAP Revenue | $ | 964 | $ | 1,805 | $ | 1,835 | $ | 856 | $ | 726 | 18 | % | |||||||||||
| Less revenue from acquisition included in segment results | (135 | ) | — | ||||||||||||||||||||
| Currency impacts | (11 | ) | — | ||||||||||||||||||||
| Non-GAAP Core Revenue | $ | 710 | $ | 726 | (2 | )% | |||||||||||||||||
| Please refer page 7 for discussion on our non-GAAP financial measures. | |||||||||||||||||||||||
| Page 4 | |||||||||||||||||||||||
| KEYSIGHT TECHNOLOGIES, INC. | ||||||||||||||||
| NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATIONS | ||||||||||||||||
| (In millions, except per share amounts) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| PRELIMINARY | ||||||||||||||||
| Three Months ended | ||||||||||||||||
| January 31, | ||||||||||||||||
| 2018 | 2017 | |||||||||||||||
| Net Income | Diluted EPS | Net Income | Diluted EPS | |||||||||||||
| GAAP Net income | $ | 94 | $ | 0.50 | $ | 109 | $ | 0.63 | ||||||||
| Non-GAAP adjustments: | ||||||||||||||||
| Amortization of acquisition-related balances | 89 | 0.47 | 10 | 0.06 | ||||||||||||
| Share-based compensation expense | 19 | 0.10 | 18 | 0.10 | ||||||||||||
| Acquisition and integration costs | 19 | 0.10 | 6 | 0.04 | ||||||||||||
| Separation and related costs | 1 | 0.01 | 6 | 0.04 | ||||||||||||
| Pension curtailment and settlement gains | — | — | (68 | ) | (0.39 | ) | ||||||||||
| Northern California wildfire-related costs | 7 | 0.04 | — | — | ||||||||||||
| Restructuring and related costs | 2 | 0.01 | 2 | 0.01 | ||||||||||||
| Other | — | — | (8 | ) | (0.05 | ) | ||||||||||
| Adjustment for taxes (a) | (134 | ) | (0.72 | ) | 23 | 0.13 | ||||||||||
| Non-GAAP Net income | $ | 97 | $ | 0.51 | $ | 98 | $ | 0.57 | ||||||||
| Weighted average shares outstanding - diluted | 189 | 173 | ||||||||||||||
| (a) For the three months ended January 31, 2018 and January 31, 2017, management uses a non-GAAP effective tax rate of 15% and 17% respectively. Historical amounts are reclassified to conform with current presentation. | ||||||||||||||||
| Please refer page 7 for discussion on our non-GAAP financial measures. | ||||||||||||||||
| Page 5 | ||||||||||||||||
| KEYSIGHT TECHNOLOGIES, INC. | |||||||||||
| SEGMENT RESULTS INFORMATION | |||||||||||
| (In millions, except where noted) | |||||||||||
| (Unaudited) | |||||||||||
| PRELIMINARY | |||||||||||
| Communications Solutions Group | YoY | ||||||||||
| Q1'18 | Q1'17 | % Chg | |||||||||
| Revenue | $ | 420 | $ | 434 | (3 | )% | |||||
| Gross Margin, % | 60.9 | % | 60.5 | % | |||||||
| Income from Operations | $ | 59 | $ | 72 | |||||||
| Operating Margin, % | 14 | % | 17 | % | |||||||
| Electronic Industrial Solutions Group | YoY | ||||||||||
| Q1'18 | Q1'17 | % Chg | |||||||||
| Revenue | $ | 203 | $ | 192 | 6 | % | |||||
| Gross Margin, % | 59.0 | % | 59.9 | % | |||||||
| Income from Operations | $ | 37 | $ | 42 | |||||||
| Operating Margin, % | 19 | % | 22 | % | |||||||
| Ixia Solutions Group | YoY | ||||||||||
| Q1'18 | Q1'17 | % Chg | |||||||||
| Revenue | $ | 127 | — | — | |||||||
| Gross Margin, % | 75.6 | % | — | ||||||||
| Income from Operations | $ | 18 | — | ||||||||
| Operating Margin, % | 15 | % | — | ||||||||
| Services Solutions Group | YoY | ||||||||||
| Q1'18 | Q1'17 | % Chg | |||||||||
| Revenue | $ | 106 | $ | 100 | 6 | % | |||||
| Gross Margin, % | 40.3 | % | 39.4 | % | |||||||
| Income from Operations | $ | 17 | $ | 14 | |||||||
| Operating Margin, % | 16 | % | 14 | % | |||||||
| Net revenue for our segment, Ixia Solutions Group excludes the impact of amortization of acquisition-related balances of $19 million for Q1'18. Segment revenue and income from operations are consistent with the respective non-GAAP measures as discussed on Page 7. | |||||||||||
| Page 6 | |||||||||||
