Keysight Technologies Reports Fourth Quarter 2019 Results
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Keysight Technologies Reports Fourth Quarter 2019 Results

Achieved Record Orders, Revenue and Operating Margin

SANTA ROSA, Calif. — (BUSINESS WIRE) — November 26, 2019 — Keysight Technologies, Inc. (NYSE: KEYS) today reported financial results for the fourth fiscal quarter of 2019 ended October 31, 2019.

“Keysight delivered a very strong finish to the year with both revenue and earnings exceeding the high-end of our guidance for the quarter. Record-setting quarterly and annual revenue was driven by growth across our portfolio of differentiated solutions, and broad-based momentum across multiple end markets. We continued to execute on our strategy and growth initiatives, while exceeding our commitments to customers and shareholders,” said Ron Nersesian, Keysight president and CEO.

Fourth Quarter Financial Summary

Fiscal year 2019 Financial Summary

Reporting Segments

CSG reported record revenue of $706 million in the fourth quarter, up 7 percent, driven by continued strength across the 5G wireless ecosystem and strength in US aerospace, defense and government investment.

EISG reported revenue of $284 million in the fourth quarter, up 3 percent, driven by strength in the broad portfolio of products that serve our general electronics market and on-going investments in next-generation automotive and energy technologies, partially offset by semiconductor measurement solutions.

ISG revenue grew 15 percent in the fourth quarter to $132 million. Double-digit revenue growth in both network test and network visibility solutions was driven by investments in 400GE and enterprise networks.

Outlook

Keysight’s first fiscal quarter of 2020 revenue is expected to be in the range of $1.045 billion to $1.065 billion.

Non-GAAP earnings per share for the first fiscal quarter of 2020 are expected to be in the range of $1.04 to $1.10, 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 fourth quarter FY2019 financial results and its first 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 “ Q4 2019 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 4447158.

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 4447158.

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, 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, 2018 and Keysight’s quarterly report on Form 10-Q for the period ended July 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 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:

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 October 31, 2019, and fiscal year 2019. 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, Keysight blog, 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

 

 

October 31,

 

Percent

2019

 

2018(a)

 

Inc/(Dec)

 

 

 

Orders

$

1,194

 

$

1,124

 

6

%

 
 

Net revenue

$

1,120

 

$

1,047

 

7

%

 

Costs and expenses:

Cost of products and services

 

455

 

 

462

 

(2

)%

Research and development

 

176

 

 

160

 

11

%

Selling, general and administrative

 

286

 

 

311

 

(8

)%

Goodwill impairment

 

-

 

 

709

 

 

Other operating expense (income), net

 

(5

)

 

(15

)

(72

)%

Total costs and expenses

 

912

 

 

1,627

 

(44

)%

 

 

Income (loss) from operations

 

208

 

 

(580

)

 

 

Interest income

 

6

 

 

4

 

70

%

Interest expense

 

(20

)

 

(20

)

1

%

Other income (expense), net

 

9

 

 

12

 

(22

)%

 

 

Income (loss) before taxes

 

203

 

 

(584

)

 

 

Provision (benefit) for income taxes

 

8

 

 

(470

)

 

 

 

Net Income (loss)

$

195

 

$

(114

)

 

 

 

 

Net income (loss) per share:

Basic

$

1.04

 

$

(0.61

)

Diluted

$

1.02

 

$

(0.61

)

 

Weighted average shares used in computing net income (loss) per share:

Basic

 

187

 

 

187

 

Diluted

 

191

 

 

187

 

 

(a) Restated to include the impact of adoption of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, on November 1, 2018. There is no impact to net income or net income per share.

 
 

Page 1

 

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

PRELIMINARY

 
 

Year ended

 

 

October 31,

 

Percent

2019

 

2018(a)

 

Inc/(Dec)

 

 

 

Orders

$

4,441

 

$

4,082

 

9

%

 
 

Net revenue

$

4,303

 

$

3,878

 

11

%

 

Costs and expenses:

Cost of products and services

 

1,769

 

 

1,767

 

 

Research and development

 

688

 

 

624

 

10

%

Selling, general and administrative

 

1,155

 

 

1,205

 

(4

)%

Goodwill impairment

 

-

 

 

709

 

 

Other operating expense (income), net

 

(20

)

 

(33

)

(40

)%

Total costs and expenses

 

3,592

 

 

4,272

 

(16

)%

 

 

Income (loss) from operations

 

711

 

 

(394

)

 

 

Interest income

 

23

 

 

12

 

90

%

Interest expense

 

(80

)

 

(83

)

(3

)%

Other income (expense), net

 

61

 

 

54

 

16

%

 

 

Income (loss) before taxes

 

715

 

 

(411

)

 

 

Provision (benefit) for income taxes

 

94

 

 

(576

)

 

 

 

Net Income

$

621

 

$

165

 

277

%

 

 

 

Net income per share:

Basic

$

3.31

 

$

0.88

 

Diluted

$

3.25

 

$

0.86

 

 

Weighted average shares used in computing net income per share:

Basic

 

188

 

 

187

 

Diluted

 

191

 

 

191

 

 

(a) Restated to include the impact of adoption of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, on November 1, 2018. There is no impact to net income or net income per share.

 
 

Page 2

 

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(In millions, except par value and share amounts)

PRELIMINARY

 
 

October 31,

October 31,

2019

2018

(unaudited)

 

ASSETS

 

Current assets:

Cash and cash equivalents

$

1,598

 

$

913

 

Accounts receivable, net

 

668

 

 

624

 

Inventory

 

705

 

 

619

 

Other current assets

 

244

 

 

222

 

Total current assets

 

3,215

 

 

2,378

 

 

Property, plant and equipment, net

 

576

 

 

555

 

Goodwill

 

1,209

 

 

1,171

 

Other intangible assets, net

 

490

 

 

645

 

Long-term investments

 

46

 

 

46

 

Long-term deferred tax assets

 

755

 

 

750

 

Other assets

 

332

 

 

279

 

Total assets

$

6,623

 

$

5,824

 

 

 

LIABILITIES AND EQUITY

 

Current liabilities:

Short-term debt

$

-

 

$

499

 

Accounts payable

 

253

 

 

242

 

Employee compensation and benefits

 

278

 

 

276

 

Deferred revenue

 

334

 

 

334

 

Income and other taxes payable

 

55

 

 

42

 

Other accrued liabilities

 

83

 

 

69

 

Total current liabilities

 

1,003

 

 

1,462

 

 

Long-term debt

 

1,788

 

 

1,291

 

Retirement and post-retirement benefits

 

357

 

 

224

 

Long-term deferred revenue

 

176

 

 

127

 

Other long-term liabilities

 

295

 

 

287

 

Total liabilities

 

3,619

 

 

3,391

 

 

 

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; 194 million shares at October 31, 2019, and 191 million shares at October 31, 2018, issued

 

2

 

 

2

 

Treasury stock at cost; 6.5 million shares at October 31, 2019 and 4.4 million shares at October 31, 2018

 

(342

)

 

(182

)

Additional paid-in-capital

 

2,013

 

 

1,889

 

Retained earnings

 

1,909

 

 

1,212

 

Accumulated other comprehensive loss

 

(578

)

 

(488

)

Total stockholders' equity

 

3,004

 

 

2,433

 

Total liabilities and equity

$

6,623

 

$

5,824

 

 

 

 

Page 3

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

Year ended

October 31,

2019

 

2018(a)

(unaudited)
Cash flows from operating activities:
Net income

$

621

 

$

165

 

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

 

96

 

 

103

 

Amortization

 

212

 

 

207

 

Share-based compensation

 

82

 

 

59

 

Deferred tax benefit

 

(2

)

 

(789

)

Excess and obsolete inventory related charges

 

27

 

 

25

 

Gain on sale of assets and divestitures

 

(1

)

 

(20

)

Goodwill impairment

 

-

 

 

709

 

Pension curtailment and settlement loss

 

2

 

 

1

 

Other non-cash expenses (income), net

 

(4

)

 

15

 

Changes in assets and liabilities:
Accounts receivable

 

(26

)

 

(89

)

Inventory

 

(92

)

 

(61

)

Accounts payable

 

13

 

 

22

 

Employee compensation and benefits

 

-

 

 

63

 

Deferred revenue

 

112

 

 

75

 

Income taxes payable

 

(16

)

 

181

 

Retirement and post-retirement benefits

 

(37

)

 

(127

)

Other assets and liabilities

 

11

 

 

16

 

Net cash provided by operating activities(b)

 

998

 

 

555

 

 
Cash flows from investing activities:
Purchases of property, plant and equipment

 

(120

)

 

(132

)

Proceeds from the sale of assets and divestitures

 

2

 

 

29

 

Acquisition of businesses and intangible assets, net of cash acquired

 

(88

)

 

(5

)

Proceeds from the sale of investments

 

7

 

 

-

 

Other investing activities

 

3

 

 

-

 

Net cash used in investing activities

 

(196

)

 

(108

)

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

 

67

 

 

64

 

Payment of taxes related to net share settlement of equity awards

 

(26

)

 

(18

)

Treasury stock repurchases(c)

 

(159

)

 

(120

)

Proceeds from issuance of long-term debt

 

500

 

 

-

 

Debt issuance costs

 

(4

)

 

-

 

Proceeds from short term borrowings

 

-

 

 

40

 

Repayment of debt and credit facility

 

(500

)

 

(300

)

Payment of acquisition-related contingent consideration

 

-

 

 

(6

)

Other financing activities

 

-

 

 

(1

)

Net cash used in financing activities

 

(122

)

 

(341

)

 
Effect of exchange rate movements

 

3

 

 

(9

)

 
Net increase in cash and cash equivalents and restricted cash

 

683

 

 

97

 

 
Cash, cash equivalents and restricted cash at beginning of period

 

917

 

 

820

 

 
Cash, cash equivalents and restricted cash at end of period

$

1,600

 

$

917

 

 
 
(a) Restated to include the impact of adoption of ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, and ASU 2016-18, Restricted Cash, on November 1, 2018.
 
(b) Cash payments included in operating activities:
Income tax payments, net

$

(103

)

$

(27

)

Interest payment on debt

$

(76

)

$

(79

)

 
(c) For the year ended October 31, 2019, we repurchased 2,093,570 shares of common stock for $160 million, held as treasury stock and accounted for at trade date using the cost method. There were $1 million of stock repurchases pending settlements as of October 31, 2019. For the year ended October 31, 2018, we repurchased 2,075,460 shares of common stock for $120 million, held as treasury stock and accounted for at trade date using the cost method.
 
 
Page 4
 

KEYSIGHT TECHNOLOGIES, INC.

RECONCILIATION OF NON-GAAP CORE REVENUE

(In millions)

(Unaudited)

PRELIMINARY

 
 

Q4'19

 

Q4'18

 

Percent

Inc/(Dec)

 

FY19

 

FY18

 

Percent

Inc/(Dec)

GAAP Revenue

$

1,120

 

$

1,047

 

7

%

$

4,303

 

$

3,878

 

11

%

Amortization of acquisition-related balances

 

2

 

 

4

 

 

9

 

 

36

 

Non-GAAP Revenue

$

1,122

 

$

1,051

 

7

%

$

4,312

 

$

3,914

 

10

%

Less: Revenue from acquisition or divestitures included in segment results

 

(10

)

 

(5

)

 

(19

)

 

(22

)

Currency impacts

 

4

 

 

-

 

 

37

 

 

-

 

Non-GAAP Core Revenue

$

1,116

 

$

1,046

 

7

%

$

4,330

 

$

3,892

 

11

%

 

 

 

 

 
 

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
Q4'19 Q4'18 % Chg
Revenue

$

706

 

$

661

 

7

%

Gross margin, %

 

62.9

%

 

60.1

%

Income from operations

$

199

 

$

159

 

Operating margin, %

 

28

%

 

24

%

 
 
Electronic Industrial Solutions Group YoY
Q4'19 Q4'18 % Chg
Revenue

$

284

 

$

275

 

3

%

Gross margin, %

 

62.4

%

 

58.7

%

Income from operations

$

79

 

$

64

 

Operating margin, %

 

28

%

 

23

%

 
 
Ixia Solutions Group YoY
Q4'19 Q4'18 % Chg
Revenue

$

132

 

$

115

 

15

%

Gross margin, %

 

71.7

%

 

70.3

%

Income from operations

$

12

 

$

(1

)

Operating margin, %

 

9

%

 

(1

)%

 
 
Restated for (1) the organizational change completed in Q1'19 to align our services business with its customers and end markets. With this change, services, which was previously reported as Services Solutions Group (SSG), is now reported as part of the Communications Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG); and (2) the retrospective application of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which the company adopted on November 1, 2018.
 
Net revenue for Ixia Solutions Group excludes the impact of amortization of acquisition-related balances of $2 million and $4 million for Q4'19 and Q4'18, respectively. 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

 

Year ended

October 31,

 

October 31,

2019

 

2018

 

2019

 

2018

Net Income

 

Diluted EPS

 

Net Income

 

Diluted EPS(a)

 

Net Income

 

Diluted EPS

 

Net Income

 

Diluted EPS

 

GAAP Net income (loss)

$

195

 

$

1.02

 

$

(114

)

$

(0.61

)

$

621

 

$

3.25

 

$

165

 

$

0.86

 

Non-GAAP adjustments:

Amortization of acquisition-related balances

 

60

 

 

0.31

 

 

55

 

 

0.28

 

 

224

 

 

1.17

 

 

265

 

 

1.38

 

Share-based compensation

 

16

 

 

0.08

 

 

11

 

 

0.06

 

 

82

 

 

0.43

 

 

59

 

 

0.31

 

Acquisition and integration costs

 

5

 

 

0.03

 

 

7

 

 

0.03

 

 

11

 

 

0.06

 

 

49

 

 

0.25

 

Goodwill impairment

 

-

 

 

-

 

 

709

 

 

3.71

 

 

-

 

 

-

 

 

709

 

 

3.72

 

Restructuring and related costs

 

2

 

 

0.01

 

 

1

 

 

0.01

 

 

9

 

 

0.05

 

 

17

 

 

0.09

 

Northern California wildfire-related costs

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

7

 

 

0.04

 

Other

 

2

 

 

0.01

 

 

20

 

 

0.12

 

 

(16

)

 

(0.09

)

 

24

 

 

0.14

 

Adjustment for taxes(b)

 

(26

)

 

(0.13

)

 

(496

)

 

(2.59

)

 

(29

)

 

(0.15

)

 

(677

)

 

(3.55

)

Non-GAAP Net income

$

254

 

$

1.33

 

$

193

 

$

1.01

 

$

902

 

$

4.72

 

$

618

 

$

3.24

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - diluted

 

191

 

 

187

 

 

191

 

 

187

 

 

(a) EPS impact on non-GAAP adjustments and non-GAAP net income is based on an adjusted shares outstanding of 191 million for three months ended October 31, 2018.

 

(b) For both the three and twelve months ended October 31, 2019 management uses a non-GAAP effective tax rate of 12%. For the three and twelve months ended October 31, 2018 management uses a non-GAAP effective tax rate of 12% and 14%, respectively.

 

Historical amounts are reclassified to conform with current presentation.

 

Please refer page 8 for discussion on our non-GAAP financial measures.

 
 

Page 7

 

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 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.

Non-GAAP Core Revenue is non-GAAP revenue (see Non-GAAP Revenue above) excluding the impact of foreign currency changes and revenue associated with businesses acquired and divested 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.

Non-GAAP Income from Operations, Non-GAAP Net Income and Non-GAAP Diluted EPS may include the following types of adjustments:

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 8



Contact:

EDITORIAL CONTACT:
Denise Idone
+ 1 631-849-3500
denise.idone@keysight.com

INVESTOR CONTACT:
Jason Kary
+1 707-577-6916
jason.kary@keysight.com