Keysight Technologies Reports Second Quarter 2020 Results

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

  April 30, Percent
 

2020

2019

Inc/(Dec)
   
Orders  

$1,089

$

1,121

(3)%

   
   
Net revenue  

$895

$

1,090

(18)%

   
Costs and expenses:  
Cost of products and services  

379

 

442

(14)%

Research and development  

166

 

171

(2)%

Selling, general and administrative  

251

 

300

(16)%

Other operating expense (income), net  

(3)

 

(8)

(57)%

Total costs and expenses  

793

 

905

(12)%

   
Income from operations  

102

 

185

(45)%

   
Interest income  

4

 

6

(37)%

Interest expense  

(20)

 

(20)

(2)%

Other income (expense), net  

22

 

22

3%

   
Income before taxes  

108

 

193

(44)%

   
Provision for income taxes  

37

 

40

(6)%

   
Net Income  

$71

$

153

(54)%

   
   
Net income per share:  
Basic  

$0.38

$

0.81

Diluted  

$0.37

$

0.80

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

187

 

188

Diluted  

189

 

191

   
Page 1
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
   
   
 

Six months ended

 

April 30,

Percent
 

2020

2019

Inc/(Dec)
   
Orders  

$

2,230

$

2,137

4%

   
   
Net revenue  

$

1,990

$

2,096

(5)%

   
Costs and expenses:  
Cost of products and services  

 

819

 

870

(6)%

Research and development  

 

353

 

344

3%

Selling, general and administrative  

 

551

 

588

(6)%

Other operating expense (income), net  

 

(38)

 

(12)

208%

Total costs and expenses  

 

1,685

 

1,790

(6)%

   
Income from operations  

 

305

 

306

-

   
Interest income  

 

10

 

10

(5)%

Interest expense  

 

(39)

 

(40)

(2)%

Other income (expense), net  

 

34

 

37

(6)%

   
Income before taxes  

 

310

 

313

(1)%

   
Provision for income taxes  

 

76

 

46

65%

   
Net Income  

$

234

$

267

(12)%

   
   
Net income per share:  
Basic  

$

1.25

$

1.42

Diluted  

$

1.23

$

1.40

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

 

188

 

188

Diluted  

 

190

 

191

   
Page 2
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share amounts)
(Unaudited)
PRELIMINARY
   
   
 

April 30,

October 31,

 

2020

2019

   
ASSETS  
   
Current assets:  
Cash and cash equivalents  

$

1,841

$

1,598

Accounts receivable, net  

 

485

 

668

Inventory  

 

756

 

705

Other current assets  

 

211

 

244

Total current assets  

 

3,293

 

3,215

   
Property, plant and equipment, net  

 

575

 

576

Operating lease right-of-use assets  

 

153

 

-

Goodwill  

 

1,217

 

1,209

Other intangible assets, net  

 

382

 

490

Long-term investments  

 

57

 

46

Long-term deferred tax assets  

 

726

 

755

Other assets  

 

354

 

332

Total assets  

$

6,757

$

6,623

   
LIABILITIES AND EQUITY  
   
Current liabilities:  
Accounts payable  

$

182

$

253

Employee compensation and benefits  

 

241

 

278

Deferred revenue  

 

391

 

334

Income and other taxes payable  

 

25

 

55

Operating lease liabilities  

 

38

 

-

Other accrued liabilities  

 

72

 

83

Total current liabilities  

 

949

 

1,003

   
Long-term debt  

 

1,788

 

1,788

Retirement and post-retirement benefits  

 

344

 

357

Long-term deferred revenue  

 

167

 

176

Long-term operating lease liabilities  

 

124

 

-

Other long-term liabilities  

 

300

 

295

Total liabilities  

 

3,672

 

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 April 30, 2020, and 194 million shares at October 31, 2019, issued  

 

2

 

2

Treasury stock at cost; 8.5 million shares at April 30, 2020 and 6.5 million shares at October 31, 2019  

 

(537)

 

(342)

Additional paid-in-capital  

 

2,044

 

2,013

Retained earnings  

 

2,143

 

1,909

Accumulated other comprehensive loss  

 

(567)

 

(578)

Total stockholders' equity  

 

3,085

 

3,004

Total liabilities and equity  

$

6,757

$

6,623

   
Page 3
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
 

Six months ended

 

April 30,

 

2020

2019

   
Cash flows from operating activities:  
Net income  

$

234

$

267

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

 

50

 

48

Amortization  

 

109

 

103

Share-based compensation  

 

54

 

50

Deferred tax expense (benefit)  

 

27

 

(2)

Excess and obsolete inventory related charges  

 

12

 

13

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

 

(32)

 

-

Other non-cash expenses (income), net  

 

(10)

 

(3)

Changes in assets and liabilities:  
Accounts receivable  

 

178

 

(28)

Inventory  

 

(63)

 

(53)

Accounts payable  

 

(67)

 

1

Employee compensation and benefits  

 

(36)

 

5

Deferred revenue  

 

51

 

85

Income taxes payable  

 

1

 

(8)

Retirement and post-retirement benefits  

 

(6)

 

(23)

Other assets and liabilities  

 

(7)

 

6

Net cash provided by operating activities (a)  

 

495

 

461

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

 

(55)

 

(60)

Insurance proceeds received for damage to property, plant and equipment  

 

32

 

-

Acquisition of businesses and intangible assets, net of cash acquired  

 

(5)

 

-

Proceeds from divestiture  

 

-

 

2

Proceeds from sale of investments  

 

-

 

7

Other investing activities  

 

-

 

2

Net cash used in investing activities  

 

(28)

 

(49)

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

 

26

 

39

Payment of taxes related to net share settlement of equity awards  

 

(50)

 

(24)

Treasury stock repurchases  

 

(196)

 

(69)

Net cash used in financing activities  

 

(220)

 

(54)

   
Effect of exchange rate movements  

 

(4)

 

5

   
Net increase in cash, cash equivalents and restricted cash  

 

243

 

363

   
Cash, cash equivalents and restricted cash at beginning of period  

 

1,600

 

917

   
Cash, cash equivalents and restricted cash at end of period  

$

1,843

$

1,280

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

$

(47)

$

(48)

Interest payment on senior notes  

$

(38)

$

(38)

   
Page 4
KEYSIGHT TECHNOLOGIES, INC.
RECONCILIATION OF NON-GAAP CORE REVENUE
(In millions)
(Unaudited)
PRELIMINARY
   
  Year-over-year compare
  Q2'20 Q2'19 Percent Inc/(Dec)
GAAP Revenue  

$

895

$

1,090

(18)%

Amortization of acquisition-related balances

 

 

-

 

3

Non-GAAP Revenue  

$

895

$

1,093

(18)%

Less: Revenue from acquisition or divestitures included in segment results

 

 

(6)

 

-

Currency impacts

 

 

3

 

-

Non-GAAP Core Revenue  

$

892

$

1,093

(18)%

   
Non-GAAP core revenue excludes impact of currency and revenue from acquisitions or divestitures closed within the last twelve months.
   
Please refer page 10 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 (a) YoY
Q2'20 Q2'19 % Chg
Revenue

$

653

$

794

(18)%

Gross margin, %

 

63.1%

 

64.6%

Income from operations

$

114

$

190

Operating margin, %

 

18%

 

24%

 
 
Electronic Industrial Solutions Group YoY
Q2'20 Q2'19 % Chg
Revenue

$

242

$

299

(19)%

Gross margin, %

 

62.0%

 

61.3%

Income from operations

$

59

$

78

Operating margin, %

 

24%

 

26%

 
(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 Q2'19. Segment revenue and income from operations are consistent with the respective non-GAAP measures as discussed on Page 10.
 
Page 6
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,
 

2020

2019

2020

2019

  Net
Income
  Diluted
EPS
Net
Income
  Diluted
EPS
Net
Income
  Diluted
EPS
Net
Income
  Diluted
EPS
           
GAAP Net income  

$

71

 

$

0.37

$

153

 

$

0.80

$

234

 

$

1.23

$

267

 

$

1.40

Non-GAAP adjustments:          
Amortization of acquisition-related balances  

 

54

 

 

0.28

 

54

 

 

0.28

 

113

 

 

0.59

 

108

 

 

0.56

Share-based compensation  

 

15

 

 

0.08

 

23

 

 

0.12

 

54

 

 

0.29

 

50

 

 

0.26

Acquisition and integration costs  

 

2

 

 

0.01

 

1

 

 

0.01

 

4

 

 

0.02

 

3

 

 

0.02

Northern California wildfire-related impacts  

 

-

 

 

-

 

-

 

 

-

 

(32)

 

 

(0.17)

 

-

 

 

-

Restructuring and related costs  

 

1

 

 

0.01

 

6

 

 

0.03

 

3

 

 

0.01

 

6

 

 

0.03

Other  

 

(12)

 

 

(0.06)

 

(12)

 

 

(0.06)

 

(11)

 

 

(0.06)

 

(15)

 

 

(0.08)

Adjustment for taxes (a)  

 

17

 

 

0.09

 

8

 

 

0.04

 

23

 

 

0.13

 

(10)

 

 

(0.05)

Non-GAAP Net income  

$

148

 

$

0.78

$

233

 

$

1.22

$

388

 

$

2.04

$

409

 

$

2.14

           
Weighted average shares outstanding - diluted  

 

189

 

 

191

 

 

190

 

 

191

 
           
(a) For both the three and six months ended April 30, 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 10 for discussion on our non-GAAP financial measures.    
           
Page 7
KEYSIGHT TECHNOLOGIES, INC.
NON-GAAP OPERATING MARGIN RECONCILIATION
(In millions)
(Unaudited)
PRELIMINARY
 

Three months ended

April 30,

2020

2019

 
Income from operations, as reported

$

102

$

185

Amortization of acquisition-related balances

 

54

 

54

Share-based compensation

 

15

 

23

Acquisition and integration costs

 

2

 

-

Restructuring and related costs

 

1

 

6

Other

 

(1)

 

-

Non-GAAP income from operations

$

173

$

268

 
GAAP Operating Margin

 

11.4%

 

17.0%

Non-GAAP Operating Margin

 

19.4%

 

24.6%

 
Please refer page 10 for discussion on our non-GAAP financial measures.
 
Page 8
KEYSIGHT TECHNOLOGIES, INC.
FREE CASH FLOW
(In millions)
(Unaudited)
PRELIMINARY
   
   
   
  Q2'20
Net cash provided by operating activities  

$

298

Less: Investments in property, plant and equipment  

 

(23)

Free cash flow  

$

275

   
Free cash flow as a percentage of GAAP Revenue  

 

31%

   
   
Operating free cash flow is a non-GAAP measure which management believes provides useful information to management and investors about the amount of cash generated by the business after the acquisition of property and equipment, which can then be used for strategic opportunities including investing in the Company's business and making strategic acquisitions. Our management uses this measure which is a common one in our industry to compare ourselves to our competitors and to measure our own performance. A limitation of operating free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. Our management compensates for this limitation by monitoring and providing the reader with a complete GAAP statement of cash flows which includes net cash provided by operating activities.
   
Page 9




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