Keysight Technologies Reports First Quarter 2020 Results

Record First Quarter GAAP Revenue of $1.095B Grew 9 Percent

GAAP Earnings Per Diluted Share Grew 43 Percent

SANTA ROSA, Calif. — (BUSINESS WIRE) — February 24, 2020 — Keysight Technologies, Inc. (NYSE: KEYS) today reported financial results for the first fiscal quarter of 2020 ended January 31, 2020.

“Keysight delivered another outstanding quarter and a strong start to the year with both revenue and earnings exceeding the high end of our guidance. Revenue growth in the quarter was driven by ongoing strength in 5G-related investments and increased spending in aerospace defense and semiconductor measurement," said Ron Nersesian, Keysight president and CEO. "Our consistent financial performance illustrates the strength of our differentiated solutions targeting a diverse set of end markets,” said Nersesian.

First Quarter Financial Summary

  • GAAP revenue grew 9 percent to reach $1.095 billion, when compared with $1.006 billion last year.
  • Non-GAAP core revenue, which also excludes the impact of foreign currency changes and revenue associated with businesses acquired or divested within the last twelve months, increased 8 percent.
  • GAAP net income was $163 million, or $0.86 per share, compared with GAAP net income of $114 million, or $0.60 per share, in the first quarter of 2019.
  • Non-GAAP net income was $240 million, or $1.26 per share, compared with $176 million, or $0.93 per share in the first quarter of 2019.
  • As of January 31, 2020, cash and cash equivalents totaled $1.691 billion.

Reporting Segments

  • Communications Solutions Group (CSG)

CSG reported record first quarter revenue of $818 million in the first quarter, up 9 percent, driven by continued investments in the 5G ecosystem and broad-based growth across all regions in aerospace, defense and government.

  • Electronic Industrial Solutions Group (EISG)

EISG reported revenue of $277 million in the first quarter, up 8 percent, driven by semiconductor measurement solutions and next-generation automotive and energy technologies, with growth across all regions.

Outlook

Keysight’s second fiscal quarter of 2020 revenue is expected to be in the range of $1.138 billion to $1.178 billion.

Non-GAAP earnings per share for the second fiscal quarter of 2020 are expected to be in the range of $1.28 to $1.38, which exclude items that pertain to future events and are not currently estimable with a reasonable degree of accuracy. Therefore, no reconciliation to GAAP amounts has been provided. Further information is discussed in the section titled “Use of Non-GAAP Financial Measures” below.

Webcast

Keysight’s management will present more details about its first quarter FY2020 financial results and its second quarter FY2020 outlook on a conference call with investors today at 1:30 p.m. PT. This event will be webcast in listen-only mode. Listeners may log on to the call at www.investor.keysight.com under the “ Upcoming Events” section and select “ Q1 2020 Keysight Technologies Inc. Earnings Conference Call” to participate or dial +1 833-245-9654 (U.S. only) or +1 647-689-4226 (International) and enter passcode 5071173.

The webcast will remain on the company site for 90 days. A telephone replay of the conference call will be available at approximately 4:30 p.m. PT after the call and remain available for one week. The replay may be accessed by dialing +1 800-585-8367 (or +1 416-621-4642 from outside the U.S.) and entering passcode 5071173.

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, impacts of US export control regulations, 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; the risk that we are not able to realize the savings or benefits expected from integration or restructuring activities; and impact on the supply chain and slowdown in customer purchasing caused by epidemic and pandemic conditions. 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, 2019.

Segment Data

Segment data reflects the results of our reportable segments under our management reporting system. Segment revenue excludes the impact of fair value adjustments to acquisition-related deferred revenue balances. Segment data are provided on page 5 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 Net Income
  • Non-GAAP Net Income per share

Income per share is based on weighted average diluted share count. 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, 2020. 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 $4.3B in fiscal year 2019. 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, 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

2020

2019

Inc/(Dec)

 
Orders

$

1,141

 

$

1,016

 

12

%

 
 
Net revenue

$

1,095

 

$

1,006

 

9

%

 
Costs and expenses:
Cost of products and services

 

440

 

 

428

 

3

%

Research and development

 

187

 

 

173

 

8

%

Selling, general and administrative

 

300

 

 

288

 

4

%

Other operating expense (income), net

 

(35

)

 

(4

)

799

%

Total costs and expenses

 

892

 

 

885

 

1

%

 
Income from operations

 

203

 

 

121

 

68

%

 
Interest income

 

6

 

 

4

 

37

%

Interest expense

 

(19

)

 

(20

)

(3

)%

Other income (expense), net

 

12

 

 

15

 

(19

)%

 
Income before taxes

 

202

 

 

120

 

68

%

 
Provision for income taxes

 

39

 

 

6

 

511

%

 
Net Income

$

163

 

$

114

 

43

%

 
 
Net income per share:
Basic

$

0.87

 

$

0.61

 

Diluted

$

0.86

 

$

0.60

 

 
Weighted average shares used in computing net income per share:
Basic

 

188

 

 

187

 

Diluted

 

191

 

 

190

 

 

Page 1

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(In millions, except par value and share amounts)

PRELIMINARY

 
 

January 31,

October 31,

2020

2019

(unaudited)

ASSETS
 
Current assets:
Cash and cash equivalents

$

1,691

 

$

1,598

 

Accounts receivable, net

 

670

 

 

668

 

Inventory

 

737

 

 

705

 

Other current assets

 

228

 

 

244

 

Total current assets

 

3,326

 

 

3,215

 

 
Property, plant and equipment, net

 

578

 

 

576

 

Operating lease right-of-use assets

 

155

 

 

-

 

Goodwill

 

1,215

 

 

1,209

 

Other intangible assets, net

 

435

 

 

490

 

Long-term investments

 

48

 

 

46

 

Long-term deferred tax assets

 

737

 

 

755

 

Other assets

 

347

 

 

332

 

Total assets

$

6,841

 

$

6,623

 

 
LIABILITIES AND EQUITY
 
Current liabilities:
Accounts payable

$

224

 

$

253

 

Operating lease liabilities

 

36

 

 

-

 

Employee compensation and benefits

 

215

 

 

278

 

Deferred revenue

 

363

 

 

334

 

Income and other taxes payable

 

51

 

 

55

 

Other accrued liabilities

 

93

 

 

83

 

Total current liabilities

 

982

 

 

1,003

 

 
Long-term operating lease liabilities

 

128

 

 

-

 

Long-term debt

 

1,788

 

 

1,788

 

Retirement and post-retirement benefits

 

350

 

 

357

 

Long-term deferred revenue

 

176

 

 

176

 

Other long-term liabilities

 

290

 

 

295

 

Total liabilities

 

3,714

 

 

3,619

 

 
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; 195 million shares at January 31, 2020, and 194 million shares at October 31, 2019, issued

 

2

 

 

2

 

Treasury stock at cost; 7.2 million shares at January 31, 2020 and 6.5 million shares at October 31, 2019

 

(417

)

 

(342

)

Additional paid-in-capital

 

2,031

 

 

2,013

 

Retained earnings

 

2,072

 

 

1,909

 

Accumulated other comprehensive loss

 

(561

)

 

(578

)

Total stockholders' equity

 

3,127

 

 

3,004

 

Total liabilities and equity

$

6,841

 

$

6,623

 

 
 
 
Page 2

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In millions)

(Unaudited)

PRELIMINARY

 

Three months ended

January 31,

2020

2019

 
Cash flows from operating activities:
Net income

$

163

 

$

114

 

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

 

24

 

 

24

 

Amortization

 

56

 

 

52

 

Share-based compensation

 

39

 

 

27

 

Deferred tax expense (benefit)

 

18

 

 

(12

)

Excess and obsolete inventory related charges

 

7

 

 

7

 

Gain on insurance proceeds received for damage to property, plant and equipment

 

(32

)

 

-

 

Other non-cash expenses (income), net

 

1

 

 

(4

)

Changes in assets and liabilities:
Accounts receivable

 

(3

)

 

56

 

Inventory

 

(36

)

 

(26

)

Accounts payable

 

(26

)

 

(10

)

Employee compensation and benefits

 

(63

)

 

(68

)

Deferred revenue

 

29

 

 

43

 

Income taxes payable

 

10

 

 

10

 

Retirement and post-retirement benefits

 

(3

)

 

(12

)

Other assets and liabilities

 

13

 

 

39

 

Net cash provided by operating activities (a)

 

197

 

 

240

 

 
Cash flows from investing activities:
Investments in property, plant and equipment

 

(32

)

 

(31

)

Insurance proceeds received for damage to property, plant and equipment

 

32

 

 

-

 

Acquisition of businesses and intangible assets, net of cash acquired

 

(5

)

 

-

 

Proceeds from divestitures

 

-

 

 

2

 

Net cash used in investing activities

 

(5

)

 

(29

)

 
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans

 

26

 

 

30

 

Payment of taxes related to net share settlement of equity awards

 

(49

)

 

(23

)

Treasury stock repurchases

 

(76

)

 

(40

)

Net cash used in financing activities

 

(99

)

 

(33

)

 
Effect of exchange rate movements

 

-

 

 

7

 

 
Net increase in cash, cash equivalents and restricted cash

 

93

 

 

185

 

 
Cash, cash equivalents and restricted cash at beginning of period

 

1,600

 

 

917

 

 
Cash, cash equivalents and restricted cash at end of period

$

1,693

 

$

1,102

 

 
 
(a) Cash payments included in operating activities:
Income tax payments, net

$

(9

)

$

(1

)

 
 
 
Page 3

KEYSIGHT TECHNOLOGIES, INC.

RECONCILIATION OF NON-GAAP CORE REVENUE

(In millions)

(Unaudited)

PRELIMINARY

 

Year-over-year compare

Q1'20

Q1'19

Percent
Inc/(Dec)

GAAP Revenue

$

1,095

 

$

1,006

9

%

Amortization of acquisition-related balances

 

-

 

 

3

Non-GAAP Revenue

$

1,095

 

$

1,009

9

%

Less: Revenue from acquisition or divestitures included in segment results

 

(6

)

 

-

Currency impacts

 

(1

)

 

-

Non-GAAP Core Revenue

$

1,088

 

$

1,009

8

%

 
 
 
Non-GAAP core revenue excludes impact of currency and revenue from acquisitions or divestitures closed within the last twelve months.
Please refer page 7 for discussion on our non-GAAP financial measures.
 
 
Page 4

KEYSIGHT TECHNOLOGIES, INC.

SEGMENT RESULTS INFORMATION

(In millions, except where noted)

(Unaudited)

PRELIMINARY

 
 
 
Communications Solutions Group (a)

YoY

Q1'20

Q1'19

% Chg

Revenue

$

818

 

$

752

 

9

%

Gross margin, %

 

65.7

%

 

62.8

%

Income from operations

$

201

 

$

150

 

Operating margin, %

 

25

%

 

20

%

 
 
Electronic Industrial Solutions Group

YoY

Q1'20

Q1'19

% Chg

Revenue

$

277

 

$

257

 

8

%

Gross margin, %

 

61.1

%

 

58.9

%

Income from operations

$

73

 

$

54

 

Operating margin, %

 

26

%

 

21

%

 
 
 
(a) Restated for the recently completed organizational change to manage our Ixia Solutions Group within our Communications Solutions Group, effective Q1'20.
 
Net revenue for Communications Solutions Group excludes the impact of amortization of acquisition-related balances of $3 million for Q1'19. Segment revenue and income from operations are consistent with the respective non-GAAP measures as discussed on Page 7.
 
 
Page 5

KEYSIGHT TECHNOLOGIES, INC.

NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATIONS

(In millions, except per share amounts)

(Unaudited)

PRELIMINARY

 
 

Three months ended

January 31,

2020

2019

Net Income

Diluted
EPS

Net
Income

Diluted
EPS

 
GAAP Net income

$

163

 

$

0.86

 

$

114

 

$

0.60

 

Non-GAAP adjustments:
Amortization of acquisition-related balances

 

59

 

 

0.31

 

 

54

 

 

0.28

 

Share-based compensation

 

39

 

 

0.21

 

 

27

 

 

0.14

 

Acquisition and integration costs

 

2

 

 

0.01

 

 

2

 

 

0.01

 

Northern California wildfire-related impacts

 

(32

)

 

(0.17

)

 

-

 

 

-

 

Restructuring and related costs

 

2

 

 

0.01

 

 

-

 

 

-

 

Other

 

1

 

 

0.01

 

 

(3

)

 

(0.02

)

Adjustment for taxes (a)

 

6

 

 

0.02

 

 

(18

)

 

(0.08

)

Non-GAAP Net income

$

240

 

$

1.26

 

$

176

 

$

0.93

 

 
Weighted average shares outstanding - diluted

 

191

 

 

190

 

 
(a) For the three months ended January 31, 2020 and 2019, management uses a non-GAAP effective tax rate of 12%.
 
Historical amounts are reclassified to conform with current presentation.
 
Please refer page 7 for discussion on our non-GAAP financial measures.
 
 
Page 6

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