Keysight Technologies Reports Second Quarter 2018 Results

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Source: IR-KEYS

     
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
 
 
Three months ended
April 30, Percent
  2018     2017   Inc/(Dec)
 
Orders $ 987 $ 805 23 %
 
 
Net revenue $ 990 $ 753 31 %
 
Costs and expenses:
Cost of products and services 447 340 31 %
Research and development 156 119 30 %
Selling, general and administrative 299 256 17 %
Other operating expense (income), net   (12 )   (4 ) 230 %
Total costs and expenses   890     711   25 %
 
Income from operations 100 42 140 %
 
Interest income 2 2 27 %
Interest expense (21 ) (24 ) (13 )%
Other income (expense), net   2     2   (41 )%
 
Income before taxes 83 22 282 %
 
Provision (benefit) for income taxes   19     (27 ) (168 )%
 
Net income $ 64   $ 49   31 %
 
 
Net income per share:
Basic $ 0.34 $ 0.28
Diluted $ 0.34 $ 0.27
 
Weighted average shares used in computing net income per share:
Basic 188 177
Diluted 190 179
 

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KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
     
Six months ended
April 30, Percent
  2018     2017   Inc/(Dec)
 
Orders $ 1,951 $ 1,500 30 %
 
 
Net revenue $ 1,827 $ 1,479 24 %
 
Costs and expenses:
Cost of products and services 857 662 29 %
Research and development 302 227 33 %
Selling, general and administrative 588 469 26 %
Other operating expense (income), net   (15 )   (83 ) (82 )%
Total costs and expenses   1,732     1,275   36 %
 
Income from operations 95 204 (53 )%
 
Interest income 5 3 57 %
Interest expense (43 ) (36 ) 20 %
Other income (expense), net   3     3   28 %
 
Income before taxes 60 174 (65 )%
 
Provision (benefit) for income taxes   (98 )   16   (724 )%
 
Net income $ 158   $ 158   0 %
 
 
Net income per share:
Basic $ 0.84 $ 0.91
Diluted $ 0.83 $ 0.90
 
Weighted average shares used in computing net income per share:
Basic 187 174
Diluted 190 176
 

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KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share amounts)
PRELIMINARY
   
 
April 30, October 31,
  2018     2017  
(unaudited)
ASSETS
 
Current assets:
Cash and cash equivalents $ 784 $ 818
Accounts receivable, net 579 547
Inventory 597 588
Other current assets   229     224  
Total current assets 2,189 2,177
 
Property, plant and equipment, net 546 530
Goodwill 1,891 1,882
Other intangible assets, net 754 855
Long-term investments 59 63
Long-term deferred tax assets 203 186
Other assets   281     240  
Total assets $ 5,923   $ 5,933  
 
LIABILITIES AND EQUITY
 
Current liabilities:
Current portion of long-term debt $ - $ 10
Accounts payable 240 211
Employee compensation and benefits 241 217
Deferred revenue 347 291
Income and other taxes payable 47 28
Other accrued liabilities   78     62  
Total current liabilities 953 819
 
Long-term debt 1,789 2,038
Retirement and post-retirement benefits 309 309
Long-term deferred revenue 119 101
Other long-term liabilities   230     356  
Total liabilities   3,400     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 April 30, 2018 and 188 million shares at October 31, 2017, issued

2 2

Treasury stock at cost; 3.1 million shares at April 30, 2018 and 2.3 million shares at October 31, 2017, respectively

(102 ) (62 )
Additional paid-in-capital 1,837 1,786
Retained earnings 1,205 1,041
Accumulated other comprehensive loss   (419 )   (457 )
Total stockholders' equity   2,523     2,310  
Total liabilities and equity $ 5,923   $ 5,933  
 

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KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
   
Six months ended
April 30,
  2018     2017  
 
Cash flows from operating activities:
Net income $ 158 $ 158
 

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 157 73
Share-based compensation 34 31
Debt issuance expense - 9
Deferred tax benefit (237 ) (13 )
Excess and obsolete inventory-related charges 11 6
Gain on sale of assets and divestiture (8 ) (8 )
Pension curtailment and settlement gains - (68 )
Asset impairment - 7
Other non-cash expenses, net 5 1
Changes in assets and liabilities:
Accounts receivable (31 ) 10
Inventory (18 ) (10 )
Accounts payable 20 (17 )
Employee compensation and benefits 23 -
Income taxes payable 125 (7 )
Retirement and post-retirement benefits (22 ) (6 )
Deferred revenue 71 30
Other assets and liabilities   (6 )   (32 )
Net cash provided by operating activities (a)   282     164  
 
Cash flows from investing activities:
Investments in property, plant and equipment (58 ) (33 )
Proceeds from sale of property, plant and equipment - 8
Change in restricted cash and cash equivalents, net - 1
Proceeds from sale of investments - 4
Acquisition of businesses and intangible assets, net of cash acquired (3 ) (1,622 )
Proceeds from divestiture   12     -  
Net cash used in investing activities   (49 )   (1,642 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans 33 21
Proceeds from issuance of common stock under public offering - 444
Payment of taxes related to net share settlement of equity awards (16 ) (11 )
Treasury stock repurchases (b) (28 ) -
Proceeds from short-term borrowings 40 170
Proceeds from issuance of long-term debt - 1,069
Payment of debt issuance costs - (16 )
Repayment of debt and credit facility   (300 )   -  
Net cash provided by /(used in) financing activities   (271 )   1,677  
 
Effect of exchange rate movements   4     1  
 
Net increase (decrease) in cash and cash equivalents (34 ) 200
 
Cash and cash equivalents at beginning of period   818     783  
 
Cash and cash equivalents at end of period $ 784   $ 983  
 
 
(a) Cash payments included in operating activities:
Income tax payments, net $ (11 ) $ (34 )
Interest payment on borrowings $ (41 ) $ (22 )
 
(b) For the six months ended April 30, 2018, we repurchased 773,352 shares of common stock for $40 million, held as treasury stock and accounted for at trade date using the cost method. There were $12 million stock repurchases pending settlement as of April, 30 2018.
 

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KEYSIGHT TECHNOLOGIES, INC.
RECONCILIATION OF REVENUE EXCLUDING IMPACTS OF CURRENCY AND ACQUISITIONS
(In millions)
(Unaudited)
PRELIMINARY
               
Q3'18 Guidance Year-over-year compare Year-over-year compare
Low end High end Q2'18 Q2'17

Percent
Inc/(Dec)

H1'18 H1'17

Percent
Inc/(Dec)

GAAP Revenue $ 937 $ 967 $ 990 $ 753 31 % $ 1,827 $ 1,479 24 %
Amortization of acquisition-related balances   5     5   9     5   28     5
Non-GAAP Revenue $ 942   $ 972 $ 999 $ 758 32 % $ 1,855 $ 1,484 25 %
Less: Revenue from acquisitions included in segment results (84 ) - (219 ) -
Currency impacts   (20 )   -   (31 )   -
Non-GAAP Core Revenue $ 895   $ 758 18 % $ 1,605   $ 1,484 8 %
 
 

Please refer to page 9 for discussion on our non-GAAP financial measures.

 

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KEYSIGHT TECHNOLOGIES, INC.

SEGMENT RESULTS INFORMATION

(In millions, except where noted)
(Unaudited)
PRELIMINARY
           
Communications Solutions Group YoY YoY
Q2'18 Q2'17 % Chg H1'18 H1'17 % Chg
Revenue $ 536 $ 424 27% $ 956 $ 858 11%
Gross Margin, % 61.7 % 61.3 % 61.3 % 60.9 %
Income from Operations $ 126 $ 75 $ 185 $ 147
Operating Margin, % 23 % 18 % 19 % 17 %
 
 
Electronic Industrial Solutions Group YoY YoY
Q2'18 Q2'17 % Chg H1'18 H1'17 % Chg
Revenue $ 255 $ 220 16% $ 458 $ 412 11%
Gross Margin, % 61.3 % 61.8 % 60.3 % 60.9 %
Income from Operations $ 67 $ 57 $ 104 $ 99
Operating Margin, % 26 % 26 % 23 % 24 %
 
 
Ixia Solutions Group (a) YoY YoY
Q2'18 Q2'17 % Chg H1'18 H1'17 % Chg
Revenue $ 90 $ 12 NA $ 217 $ 12 NA
Gross Margin, % 75.8 % 77.1 % 75.7 % 77.1 %
Income from Operations $ (7 ) $ (2 ) $ 11 $ (2 )
Operating Margin, % -8 % -13 % 5 % -13 %
 
 
Services Solutions Group YoY YoY
Q2'18 Q2'17 % Chg H1'18 H1'17 % Chg
Revenue $ 118 $ 102 15% $ 224 $ 202 11%
Gross Margin, % 40.6 % 40.9 % 40.5 % 40.2 %
Income from Operations $ 18 $ 17 $ 35 $ 31
Operating Margin, % 15 % 16 % 15 % 15 %
 
 

(a) The Ixia Solutions Group operating results for Q2'17 and H1'17 include activity for 13 days during the period, from the date of acquisition, April 18, 2017, through April 30, 2017.

 

Net revenue for our segment, Ixia Solutions Group and Communication Solution Group excludes the impact of amortization of acquisition-related balances of $8 million and $1 million for Q2'18, respectively, and $27 million and $1 million for H1'18, respectively. Net revenue for our segment, Ixia Solutions Group and Communication Solution Group excludes the impact of amortization of acquisition-related balances of $4 million and $1 million for Q2'17, respectively, and $4 million and $1 million for H1'17, respectively. Segment revenue and income from operations are consistent with the respective non-GAAP measures as discussed on Page 9.

 

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KEYSIGHT TECHNOLOGIES, INC.
NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
                   
Three months ended Six months ended
April 30, April 30,
2018 2017 2018 2017
Net Income   Diluted EPS Net Income   Diluted EPS Net Income   Diluted EPS Net Income   Diluted EPS
 
GAAP Net income $ 64 $ 0.34 $ 49 $ 0.27 $ 158 $ 0.83 $ 158 $ 0.90
Non-GAAP adjustments:
Amortization of acquisition-related balances 65 0.34 26 0.15 154 0.81 36 0.21
Share-based compensation expense 15 0.08 13 0.07 34 0.18 31 0.18
Acquisition and integration costs 17 0.09 31 0.17 36 0.19 37 0.21
Acquisition-related compensation expense - - 28 0.16 - - 28 0.16
Separation and related costs 1 0.01 8 0.05 2 0.01 14 0.08
Pension curtailment and settlement gains - - - - - - (68) (0.39)
Northern California wildfire-related costs - - - - 7 0.04 - -
Restructuring and related costs 11 0.06 1 0.01 13 0.07 3 0.01
Other (6) (0.03) 8 0.04 (6) (0.03) - -
Adjustment for taxes (a) (9)   (0.06) (50)   (0.28) (143)   (0.76) (27)   (0.16)
Non-GAAP Net income $ 158   $ 0.83 $ 114   $ 0.64 $ 255   $ 1.34 $ 212   $ 1.20
 
Weighted average shares outstanding - diluted 190 179 190 176
 
 
(a) For the three and six months ended April 30, 2018 and April 30, 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 to page 9 for discussion on our non-GAAP financial measures.

 

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KEYSIGHT TECHNOLOGIES, INC.
GAAP REVENUE BY END MARKET
(In millions)
(Unaudited)
PRELIMINARY
     
YoY
Q2'18 Q2'17 % Chg
Aerospace, Defense & Government $ 213 $ 168 27%
Commercial Communications 322 255 26%
Electronic Industrial 255 220 16%
Ixia (a) 82 8 NA
Services   118   102 15%
Total Revenue $ 990 $ 753 31%
 
 
(a) The Ixia Solutions Group operating results for Q2'17 include activity for 13 days during the period, from the date of acquisition, April 18, 2017, through April 30, 2017.
 

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