Keysight Technologies Reports Third Quarter 2018 Results

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 and Keysight’s quarterly report on Form 10-Q for the period ended April 30, 2018.

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 Revenue
  • Non-GAAP Core 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 July 31, 2018 and for projected non-GAAP revenue amounts for the three months ended October 31, 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  FacebookGoogle+LinkedInTwitter and  YouTube.

Source: IR-KEYS

 
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
     
Three months ended
July 31, Percent
  2018     2017   Inc/(Dec)
 
Orders $ 1,007 $ 879 15%
 
 
Net revenue $ 1,004 $ 832 21%
 
Costs and expenses:
Cost of products and services 439 421 4%
Research and development 151 132 14%
Selling, general and administrative 289 286 1%
Other operating expense (income), net   (3 )   (3 ) 6%
Total costs and expenses   876     836   5%
 
Income (loss) from operations 128 (4 )
 
Interest income 3 2 58%
Interest expense (20 ) (22 ) (11)%
Other income (expense), net   2     (1 )
 
Income (loss) before taxes 113 (25 )
 
Provision (benefit) for income taxes   (8 )   (7 ) 34%
 
Net income (loss) $ 121   $ (18 )
 
 
Net income (loss) per share:
Basic $ 0.64 $ (0.10 )
Diluted $ 0.63 $ (0.10 )
 
Weighted average shares used in computing net income (loss) per share:
Basic 188 186
Diluted 191 186
 
 
Page 1
 
 
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
     
Nine months ended
July 31, Percent
  2018     2017   Inc/(Dec)
 
Orders $ 2,958 $ 2,379 24%
 
 
Net revenue $ 2,831 $ 2,311 22%
 
Costs and expenses:
Cost of products and services 1,296 1,083 20%
Research and development 453 359 26%
Selling, general and administrative 877 755 16%
Other operating expense (income), net   (18 )   (86 ) (79)%
Total costs and expenses   2,608     2,111   24%
 
Income from operations 223 200 11%
 
Interest income 8 5 57%
Interest expense (63 ) (58 ) 8%
Other income (expense), net   5     2   111%
 
Income before taxes 173 149 16%
 
Provision (benefit) for income taxes   (106 )   9  
 
Net income $ 279   $ 140   100%
 
 
Net income per share:
Basic $ 1.49 $ 0.78
Diluted $ 1.46 $ 0.78
 
Weighted average shares used in computing net income per share:
Basic 187 178
Diluted 191 180
 
 
Page 2
 
 
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share amounts)
PRELIMINARY
   
July 31, October 31,
  2018     2017  
(unaudited)
ASSETS
 
Current assets:
Cash and cash equivalents $ 742 $ 818
Accounts receivable, net 597 547
Inventory 609 588
Other current assets   234     224  

Total current assets

2,182 2,177
 
Property, plant and equipment, net 549 530
Goodwill 1,888 1,882
Other intangible assets, net 702 855
Long-term investments 54 63
Long-term deferred tax assets 186 186
Other assets   285     240  
Total assets $ 5,846   $ 5,933  
 
LIABILITIES AND EQUITY
 
Current liabilities:
Current portion of long-term debt $ - $ 10
Accounts payable 231 211
Employee compensation and benefits 213 217
Deferred revenue 333 291
Income and other taxes payable 45 28
Other accrued liabilities   78     62  
Total current liabilities 900 819
 
Long-term debt 1,790 2,038
Retirement and post-retirement benefits 220 309
Long-term deferred revenue 122 101
Other long-term liabilities   201     356  
Total liabilities   3,233     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; 191 million shares at July 31, 2018 and 188 million shares at October 31, 2017, issued

2 2

Treasury stock at cost; 3.7 million shares at July 31, 2018 and 2.3 million shares at October 31, 2017.

(142 ) (62 )
Additional paid-in-capital 1,876 1,786
Retained earnings 1,326 1,041
Accumulated other comprehensive loss   (449 )   (457 )
Total stockholders' equity   2,613     2,310  
Total liabilities and equity $ 5,846   $ 5,933  
 
 
Page 3
 
 
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
   
Nine months ended
July 31,
  2018     2017  
 
Cash flows from operating activities:
Net income $ 279 $ 140
 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 78 70
Amortization 155 83
Share-based compensation 48 44
Debt issuance expense - 9
Deferred tax benefit (227 ) (43 )
Excess and obsolete inventory-related charges 20 12
Gain on sale of assets and divestiture (8 ) (8 )
Pension curtailment and settlement gains - (68 )
Asset impairment - 7
Other non-cash expenses, net 9 1
Changes in assets and liabilities:
Accounts receivable (55 ) 14
Inventory (43 ) 10
Accounts payable 13 (17 )
Employee compensation and benefits (2 ) (33 )
Income taxes payable 96 8
Retirement and post-retirement benefits (116 ) (10 )
Deferred revenue 65 58
Other assets and liabilities   8     (12 )
Net cash provided by operating activities (a)   320     265  
 
Cash flows from investing activities:
Investments in property, plant and equipment (98 ) (54 )
Proceeds from sale of property, plant and equipment - 8
Proceeds from sale of investments - 42
Acquisition of businesses and intangible assets, net of cash acquired (11 ) (1,642 )
Proceeds from divestiture   12     -  
Net cash used in investing activities   (97 )   (1,646 )
 
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans 62 51
Proceeds from issuance of common stock under public offering - 444
Payment of taxes related to net share settlement of equity awards (18 ) (12 )
Treasury stock repurchases (80 ) -
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 )   (240 )
Net cash provided by /(used in) financing activities   (296 )   1,466  
 
Effect of exchange rate movements   (3 )   5  
 
Net increase (decrease) in cash and cash equivalents (76 ) 90
 
Cash and cash equivalents at beginning of period   818     783  
 
Cash and cash equivalents at end of period $ 742   $ 873  
 
 
(a) Cash payments included in operating activities:
Income tax payments, net $ (22 ) $ (43 )
Interest payment on borrowings $ (41 ) $ (24 )
 
 
Page 4
 
 
KEYSIGHT TECHNOLOGIES, INC.
RECONCILIATION OF REVENUE GUIDANCE AND NON GAAP CORE REVENUE
(In millions)
(Unaudited)
PRELIMINARY
         
Q4'18 Guidance Year-over-Year compare
Low end High end   Q3'18 Q3'17 Percent Inc/(Dec)
GAAP Revenue $ 996 $ 1,016 $ 1,004 $ 832 21%
Amortization of acquisition-related balances   4   4   4     31  
Non-GAAP Revenue $ 1,000 $ 1,020 $ 1,008 $ 863 17%
Less: Revenue from acquisitions or divestiture included in segment results (10 ) (2 )
Currency impacts   (5 )   -  
Non-GAAP Core Revenue $ 993   $ 861   15%
 
 
Non GAAP core revenue excludes impact of currency and revenue from acquisitions or divestitures closed within the last twelve months
 
Please refer page 8 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
Q3'18 Q3'17 % Chg
Revenue $ 515 $ 418 23%
Gross Margin, % 61.7 % 61.2 %
Income from Operations $ 114 $ 66
Operating Margin, % 22 % 16 %
 
 
Electronic Industrial Solutions Group YoY
Q3'18 Q3'17 % Chg
Revenue $ 258 $ 218 19%
Gross Margin, % 63.1 % 61.1 %
Income from Operations $ 74 $ 55
Operating Margin, % 28 % 25 %
 
 
Ixia Solutions Group YoY
Q3'18 Q3'17 % Chg
Revenue $ 119 $ 120 (1%)
Gross Margin, % 75.6 % 77.0 %
Income from Operations $ 10 $ 24
Operating Margin, % 8 % 20 %
 
 
Services Solutions Group YoY
Q3'18 Q3'17 % Chg
Revenue $ 116 $ 107 9%
Gross Margin, % 40.1 % 41.8 %
Income from Operations $ 17 $ 19
Operating Margin, % 15 % 18 %
 
 
 
Net revenue for our segment, Ixia Solutions Group excludes the impact of amortization of acquisition-related balances of $4 million for Q3'18 and $31 million for Q3'17. Segment revenue and income from operations are consistent with the respective non-GAAP measures as discussed on Page 8.
 
 
Page 6
 
 
KEYSIGHT TECHNOLOGIES, INC.
NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
               
Three months ended Nine months ended
July 31, July 31,
2018   2017   2018   2017  
Net Income   Diluted EPS Net Income   Diluted EPS (a) Net Income   Diluted EPS Net Income   Diluted EPS
 
GAAP Net income (loss) $ 121 $ 0.63 $ (18 ) $ (0.10 ) $ 279 $ 1.46 $ 140 $ 0.78
Non-GAAP adjustments:
Amortization of acquisition-related balances 56 0.30 134 0.71 210 1.10 170 0.95
Share-based compensation expense 14 0.07 13 0.07 48 0.25 44 0.24
Acquisition and integration costs 6 0.03 12 0.07 42 0.22 49 0.27
Acquisition-related compensation expense - - - - - - 28 0.16
Separation and related costs - - 4 0.03 2 0.01 18 0.10
Pension curtailment and settlement gains - - - - - - (68 ) (0.38 )
Northern California wildfire-related costs - - - - 7 0.04 - -
Restructuring and related costs 3 0.02 3 0.01 16 0.09 6 0.03
Other 8 0.04 2 0.01 2 0.01 2 0.01
Adjustment for taxes (b)   (38 )     (0.20 )   (35 )     (0.19 )   (181 )     (0.95 )   (62 )     (0.34 )
Non-GAAP Net income $ 170     $ 0.89   $ 115     $ 0.61   $ 425     $ 2.23   $ 327     $ 1.82  
 
Weighted average shares outstanding - diluted 191 186 191 180
 
(a) EPS impact on Non-GAAP adjustments and non-GAAP Net income is based on adjusted shares outstanding of 188 million for three months ended July 31, 2017.
 
(b) For the three and nine months ended July 31, 2018 management uses a non-GAAP effective tax rate of 15%. For the three and nine months ended July 31, 2017 management uses a non-GAAP effective tax rate of 19% and 18% respectively. Historical amounts are reclassified to conform with current presentation.
 
Please refer page 8 for discussion on our non-GAAP financial measures.
 
 
Page 7
 
 

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