Achieved Record Second Quarter Revenue, Record
Gross Margin and Free Cash Flow
Strong execution drove above guidance non-GAAP
EPS
Keysight Technologies, Inc. (NYSE: KEYS) today reported
financial results for the second fiscal quarter ended April 30,
2023.
“Keysight delivered a strong quarter with record second quarter
revenue, record gross margin, record free cash flow, and above
guidance earnings per share demonstrating the resilience of our
increasingly diversified business,” said Satish Dhanasekaran,
Keysight’s President and CEO. “While navigating near-term macro
dynamics, we continue to capitalize on growth opportunities and
customer investments across multiple markets.”
Second Quarter Financial Summary
- Revenue grew 3 percent to reach $1.39 billion, compared with
$1.35 billion last year, or 5 percent on a core basis, which
excludes the impact of foreign currency changes and revenue
associated with businesses acquired or divested within the last
twelve months.
- GAAP net income was $283 million, or $1.58 per share, compared
with $258 million, or $1.41 per share, in the second quarter of
2022.
- Non-GAAP net income was $380 million, or $2.12 per share,
compared with $334 million, or $1.83 per share in the second
quarter of 2022.
- As of April 30, 2023, cash and cash equivalents totaled $2.50
billion.
Reporting Segments
- Communications Solutions Group (CSG)
CSG reported revenue of $937 million in the
second quarter, down 3 percent over last year, reflecting a 7
percent decline in commercial communications, while aerospace,
defense, and government increased 7 percent driven by radar,
spectrum operations, space and satellite, and research in 5G and 6G
technologies.
- Electronic Industrial Solutions Group (EISG)
EISG reported revenue of $453 million in the
second quarter, up 17 percent over last year, driven by growth
across general electronics, semiconductor solutions, and
next-generation automotive and energy technologies.
Outlook
Keysight’s third fiscal quarter of 2023 revenue is expected to
be in the range of $1.37 billion to $1.39 billion. Non-GAAP
earnings per share for the third fiscal quarter of 2023 are
expected to be in the range of $2.00 to $2.06. Certain items
impacting the GAAP tax rate pertain to future events and are not
currently estimable with a reasonable degree of accuracy;
therefore, no reconciliation of GAAP earnings per share to non-GAAP
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 second
quarter FY2023 financial results and its third quarter FY2023
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 “Q2 2023 Keysight Technologies Inc.
Earnings Conference Call” to participate or dial 1-833-470 1428
(U.S. only) or 1-404-975-4839 (International) and enter passcode
418906. The webcast will remain on the company site for 90
days.
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. The words “expect,” “intend,”
“will,” “should,” and similar expressions, as they relate to the
company, are intended to identify forward-looking statements. 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, predictions, future guidance, projections, beliefs, and
expectations about the company’s goals, revenues, financial
condition, earnings, and operations 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, impacts of global
economic conditions such as inflation or recession, slowing demand
for products or services, volatility in financial markets, reduced
access to credit, increased interest rates, supply chain
constraints; impacts of geopolitical tension and conflict outside
of the U.S., export control regulations and compliance; net zero
emissions commitments; customer purchasing decisions and timing;
and order cancellations.
In addition to the risks above, other risks that Keysight faces
include those detailed in Keysight’s filings with the Securities
and Exchange Commission on Keysight’s yearly report on Form 10-K
for the period ended October 31, 2022, and Keysight’s quarterly
report on Form 10-Q for the period ended January 31, 2023.
Segment Data
Segment data reflect the results of our reportable segments
under our management reporting system. 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:
- Core Revenue
- Free Cash Flow
- Non-GAAP Net Income/Earnings
- Non-GAAP Net Income per share/Earnings per share
Net 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 April 30, 2023.
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
At Keysight (NYSE: KEYS), we inspire and empower innovators to
bring world-changing technologies to life. As an S&P 500
company, we’re delivering market-leading design, emulation, and
test solutions to help engineers develop and deploy faster, with
less risk, throughout the entire product lifecycle. We’re a global
innovation partner enabling customers in communications, industrial
automation, aerospace and defense, automotive, semiconductor, and
general electronics markets to accelerate innovation to connect and
secure the world. Learn more at Keysight Newsroom and
www.keysight.com.
Source: IR-KEYS
KEYSIGHT TECHNOLOGIES, INC. CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (In millions, except per share
data) (Unaudited) PRELIMINARY
Three months ended
April 30, Percent
2023
2022
Inc/(Dec) Orders
$
1,319
$
1,458
(10
)%
Revenue
$
1,390
$
1,351
3
%
Costs and expenses:
Cost of products and services
481
492
(2
)%
Research and development
222
210
6
%
Selling, general and administrative
337
319
6
%
Other operating expense (income), net
(4
)
3
—
Total costs and expenses
1,036
1,024
1
%
Income from operations
354
327
8
%
Interest income
22
1
1999
%
Interest expense
(20
)
(19
)
(1
)%
Other income (expense), net
5
(2
)
—
Income before taxes
361
307
18
%
Provision for income taxes
78
49
59
%
Net income
$
283
$
258
10
%
Net income
per share: Basic
$
1.59
$
1.42
Diluted
$
1.58
$
1.41
Weighted average shares used in
computing net income per share: Basic
178
181
Diluted
179
183
Page 1
KEYSIGHT TECHNOLOGIES, INC. CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (In millions, except per share
data) (Unaudited) PRELIMINARY
Six months ended April 30,
Percent
2023
2022
Inc/(Dec) Orders
$
2,619
$
2,953
(11
)%
Revenue
$
2,771
$
2,601
7
%
Costs and expenses: Cost of products and
services
979
938
4
%
Research and development
449
420
7
%
Selling, general and administrative
675
645
5
%
Other operating expense (income), net
(8
)
—
—
Total costs and expenses
2,095
2,003
5
%
Income from operations
676
598
13
%
Interest income
41
2
2394
%
Interest expense
(39
)
(39
)
(2
)%
Other income (expense), net
14
10
36
%
Income before taxes
692
571
21
%
Provision for income taxes
149
84
78
%
Net income
$
543
$
487
12
%
Net income per share: Basic
$
3.04
$
2.67
Diluted
$
3.02
$
2.65
Weighted average shares used in computing net income
per share: Basic
178
182
Diluted
179
183
Page 2
KEYSIGHT TECHNOLOGIES, INC. CONDENSED CONSOLIDATED
BALANCE SHEET (In millions, except par value and share
data) (Unaudited) PRELIMINARY
April 30, October 31,
2023
2022
ASSETS Current assets:
Cash and cash equivalents
$
2,498
$
2,042
Accounts receivable, net
864
905
Inventory
948
858
Other current assets
454
429
Total current assets
4,764
4,234
Property, plant and equipment, net
746
690
Operating lease right-of-use assets
224
220
Goodwill
1,661
1,582
Other intangible assets, net
198
189
Long-term investments
82
62
Long-term deferred tax assets
669
667
Other assets
364
454
Total assets
$
8,708
$
8,098
LIABILITIES AND EQUITY
Current liabilities: Accounts payable
$
302
$
348
Employee compensation and benefits
317
333
Deferred revenue
568
495
Income and other taxes payable
80
96
Operating lease liabilities
42
39
Other accrued liabilities
113
96
Total current liabilities
1,422
1,407
Long-term debt
1,793
1,793
Retirement and post-retirement benefits
62
58
Long-term deferred revenue
222
197
Long-term operating lease liabilities
188
186
Other long-term liabilities
316
296
Total liabilities
4,003
3,937
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; 199
million shares at April 30, 2023 and 199 million shares at October
31, 2022 issued
2
2
Treasury stock at cost; 21.2 million shares at April 30, 2023 and
20.5 million shares at October 31, 2022
(2,399
)
(2,274
)
Additional paid-in-capital
2,404
2,333
Retained earnings
5,097
4,554
Accumulated other comprehensive loss
(399
)
(454
)
Total stockholders' equity
4,705
4,161
Total liabilities and equity
$
8,708
$
8,098
Page 3
KEYSIGHT TECHNOLOGIES, INC. CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS (In millions) (Unaudited)
PRELIMINARY Six months ended April 30,
2023
2022
Cash flows from operating activities: Net income
$
543
$
487
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation
59
59
Amortization
49
53
Share-based compensation
84
77
Deferred tax expense (benefit)
(2
)
13
Excess and obsolete inventory-related charges
13
13
Unrealized loss (gain) on equity and other investments
(5
)
13
Other non-cash expense (income), net
1
9
Changes in assets and liabilities: Accounts receivable
61
(84
)
Inventory
(93
)
(54
)
Accounts payable
(41
)
31
Employee compensation and benefits
(35
)
(41
)
Deferred revenue
81
90
Income taxes payable
(32
)
(26
)
Retirement and post-retirement benefits
(4
)
(14
)
Interest rate swap agreement termination proceeds
107
—
Prepaid assets
(27
)
(78
)
Other assets and liabilities
30
(26
)
Net cash provided by operating activities(a)
789
522
Cash flows from investing activities: Investments in
property, plant and equipment
(113
)
(95
)
Acquisition of businesses and intangible assets, net of cash
acquired
(85
)
(17
)
Purchase of investments
(7
)
(30
)
Net cash used in investing activities
(205
)
(142
)
Cash flows from financing activities: Proceeds from issuance
of common stock under employee stock plans
33
31
Payment of taxes related to net share settlement of equity awards
(47
)
(74
)
Treasury stock repurchases
(125
)
(484
)
Other financing activities
(1
)
—
Net cash used in financing activities
(140
)
(527
)
Effect of exchange rate movements
13
(21
)
Net increase (decrease) in cash, cash equivalents, and
restricted cash
457
(168
)
Cash, cash equivalents and restricted cash at beginning of period
2,057
2,068
Cash, cash equivalents and restricted cash at end of period
$
2,514
$
1,900
(a) Cash payments included in operating activities:
Interest payments
$
37
$
37
Income tax paid, net
$
180
$
122
Page 4
KEYSIGHT TECHNOLOGIES, INC. SEGMENT RESULTS
INFORMATION (In millions, except where noted)
(Unaudited) PRELIMINARY
Communications Solutions Group Percent
Q2'23 Q2'22 Inc/(Dec) Revenue
$
937
$
963
(3)%
Gross margin, %
68%
66%
Income from operations
$
266
$
271
Operating margin, %
28%
28%
Electronic Industrial Solutions
Group Percent Q2'23 Q2'22
Inc/(Dec) Revenue
$
453
$
388
17%
Gross margin, %
64%
62%
Income from operations
$
157
$
118
Operating margin, %
35%
30%
Segment revenue and income from
operations are consistent with the respective non-GAAP financial
measures as discussed on last page.
Page 5
KEYSIGHT TECHNOLOGIES, INC. RECONCILIATION OF CORE
REVENUE (In millions) (Unaudited)
PRELIMINARY Year-over-year Q2'23
Q2'22 PercentInc/(Dec) Revenue
$
1,390
$
1,351
3%
Adjustments: Revenue from acquisitions or divestitures
(6
)
—
Currency impacts
35
—
Core Revenue
$
1,419
$
1,351
5%
Please refer last page for discussion on our non-GAAP
financial measures.
Page 6
KEYSIGHT TECHNOLOGIES, INC. NON-GAAP NET INCOME AND
DILUTED EPS RECONCILIATION (In millions, except per share
data) (Unaudited) PRELIMINARY
Three months ended Six months ended
April 30, April 30,
2023
2022
2023
2022
NetIncome DilutedEPS NetIncome
DilutedEPS NetIncome DilutedEPS
NetIncome DilutedEPS GAAP Net income
$
283
$
1.58
$
258
$
1.41
$
543
$
3.02
$
487
$
2.65
Non-GAAP adjustments: Amortization of acquisition-related
balances
25
0.14
26
0.14
48
0.27
52
0.29
Share-based compensation
29
0.16
26
0.15
84
0.47
77
0.42
Acquisition and integration costs
3
0.02
2
0.01
5
0.03
5
0.03
Restructuring and others
14
0.07
18
0.10
15
0.08
21
0.11
Adjustment for taxes(a)
26
0.15
4
0.02
48
0.27
(3
)
(0.02
)
Non-GAAP Net income
$
380
$
2.12
$
334
$
1.83
$
743
$
4.14
$
639
$
3.48
Weighted average shares outstanding - diluted
179
183
179
183
(a) For both the three and six months ended
April 30, 2023 and 2022, management uses a non-GAAP effective tax
rate of 12%. Please refer last page for details on
the use of non-GAAP financial measures.
Page 7
KEYSIGHT TECHNOLOGIES, INC. FREE CASH FLOW (In
millions) (Unaudited) PRELIMINARY Three
months ended April 30,
2023
2022
Net cash provided by operating activities
$
423
$
298
Less: Investments in property, plant and equipment
(53
)
(53
)
Free cash flow
$
370
$
245
Please refer last page for details on the use of
non-GAAP financial measures.
Page 8
Non-GAAP Financial Measures Management uses both GAAP
and non-GAAP financial measures to analyze and assess the overall
performance of the business, to make operating decisions and to
forecast and plan for future periods. We believe that our investors
benefit from seeing our results “through the eyes of management” in
addition to seeing our GAAP results. This information enhances
investors’ understanding of the continuing performance of our
business and facilitates comparison of performance to our
historical and future periods. Our non-GAAP financial
measures may not be comparable to similarly titled measures used by
other companies, including industry peer companies, limiting the
usefulness of these measures for comparative purposes. These
non-GAAP measures should be considered supplemental to and not a
substitute for financial information prepared in accordance with
GAAP. The discussion below presents information about each of the
non-GAAP financial measures and the company’s reasons for including
or excluding certain categories of income or expenses from our
non-GAAP results. In future periods, we may exclude such items and
may incur income and expenses similar to these excluded items.
Accordingly, adjustments for these items and other similar items in
our non-GAAP presentation should not be interpreted as implying
that these items are non-recurring, infrequent or unusual.
Non-GAAP Revenue generally relates to an acquisition and includes
recognition of acquired deferred revenue that was written down to
fair value in purchase accounting. Management believes that
excluding fair value purchase accounting adjustments more closely
correlates with the ordinary and ongoing course of the acquired
company’s operations and facilitates analysis of revenue growth and
business trends. We may not have non-GAAP revenue in all periods.
Core Revenue is GAAP/non-GAAP revenue (as applicable)
excluding the impact of foreign currency changes and revenue
associated with material acquisitions or divestitures completed
within the last twelve months. We exclude the impact of foreign
currency changes as currency rates can fluctuate based on factors
that are not within our control and can obscure revenue growth
trends. As the nature, size and number of acquisitions can vary
significantly from period to period and as compared to our peers,
we exclude revenue associated with recently acquired businesses to
facilitate comparisons of revenue growth and analysis of underlying
business trends. Free cash flow includes net cash provided
by operating activities adjusted for investments in property, plant
& equipment. Non-GAAP Income from Operations, Non-GAAP
Net Income and Non-GAAP Diluted EPS may include the following types
of adjustments: ■
Acquisition-related Items: We exclude the impact of certain items
recorded in connection with business combinations from our non-GAAP
financial measures that are either non-cash or not normal,
recurring operating expenses due to their nature, variability of
amounts and lack of predictability as to occurrence or timing.
These amounts may include non-cash items such as the amortization
of acquired intangible assets and amortization of items associated
with fair value purchase accounting adjustments, including
recognition of acquired deferred revenue (see Non-GAAP Revenue
above). We also exclude other acquisition and integration costs
associated with business acquisitions that are not normal recurring
operating expenses, including amortization of amounts paid to
redeem acquires’ unvested stock-based compensation awards, and
legal, accounting and due diligence costs. We exclude these charges
to facilitate a more meaningful evaluation of our current operating
performance and comparisons to our past operating performance.
■ Share-based
Compensation Expense: We exclude share-based compensation expense
from our non-GAAP financial measures because share-based
compensation expense can vary significantly from period to period
based on the company’s share price, as well as the timing, size and
nature of equity awards granted. Management believes the exclusion
of this expense facilitates the ability of investors to compare the
company’s operating results with those of other companies, many of
which also exclude share-based compensation expense in determining
their non-GAAP financial measures.
■ Restructuring and
others: We exclude incremental expenses associated with
restructuring initiatives, usually aimed at material changes in the
business or cost structure. Such costs may include employee
separation costs, asset impairments, facility-related costs,
contract termination fees, and costs to move operations from one
location to another. These activities can vary significantly from
period to period based on the timing, size and nature of
restructuring plans; therefore, we do not consider such costs to be
normal, recurring operating expenses.We also exclude “others”, not
normal, recurring, cash operating income/expenses from our non-GAAP
financial measures. Such items are evaluated on an individual
basis, based on both quantitative and qualitative factors and
generally represent items that we do not anticipate occurring as
part of our normal business. While not all-inclusive, examples of
such items would include net unrealized gains on equity investments
still held, significant non-recurring events like realized gains or
losses associated with our employee benefit plans, costs and
recoveries related to unusual events, gain on sale of
assets/divestitures, etc. We believe that these costs do not
reflect expected future operating expenses and do not contribute to
a meaningful evaluation of the company’s current operating
performance or comparisons to our operating performance in other
periods. ■
Estimated Tax Rate: We utilize a consistent methodology for
long-term projected non-GAAP tax rate. When projecting this
long-term rate, we exclude any tax benefits or expenses that are
not directly related to ongoing operations and which are either
isolated or cannot be expected to occur again with any regularity
or predictability. Additionally, we evaluate our current long-term
projections, current tax structure and other factors, such as
existing tax positions in various jurisdictions and key tax
holidays in major jurisdictions where Keysight operates. This tax
rate could change in the future for a variety of reasons, including
but not limited to significant changes in geographic earnings mix
including acquisition activity, or fundamental tax law changes in
major jurisdictions where Keysight operates. The above reasons also
limit our ability to reasonably estimate the future GAAP tax rate
and provide a reconciliation of the expected non-GAAP earnings per
share for the third quarter of fiscal 2023 to the GAAP equivalent.
Management recognizes these items can have a material impact
on our cash flows and/or our net income. Our GAAP financial
statements, including our Condensed Consolidated Statement of Cash
Flows, portray those effects. Although we believe it is useful for
investors to see core performance free of special items, investors
should understand that the excluded costs are actual expenses that
may impact the cash available to us for other uses. To gain a
complete picture of all effects on the company’s profit and loss
from any and all events, management does (and investors should)
rely upon the Condensed Consolidated Statement of Operations
prepared in accordance with GAAP. The non-GAAP measures focus
instead upon the core business of the company, which is only a
subset, albeit a critical one, of the company’s performance. Page 9
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version on businesswire.com: https://www.businesswire.com/news/home/20230516005781/en/
EDITORIAL CONTACT: Andrea Mueller + 1 408-218-4754
andrea.mueller@keysight.com
INVESTOR CONTACT: Jason Kary +1 707-577-6916
jason.kary@keysight.com
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