Keysight Technologies Reports Third Quarter 2016 Results

About Keysight Technologies

Keysight Technologies (NYSE: KEYS) helps customers bring breakthrough electronic products and systems to market faster and at a lower cost. Keysight’s solutions go where the electronic signal goes, from design simulation, to prototype validation, to manufacturing test, to optimization in the network. Customers span the worldwide communications ecosystem, internet infrastructure, aerospace & defense, automotive, semiconductor and general electronics end markets. Keysight generated revenues of $2.9B in fiscal year 2015. More information is available at www.keysight.com.

Additional information about Keysight Technologies is available in the newsroom at www.keysight.com/go/news.

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
		2016			2015		Inc/(Dec)

Orders	$	707		$	685		3	%


Net revenue	$	715		$	665		7	%

Costs and expenses:
Cost of products and services		309			295		4	%
Research and development		104			90		15	%
Selling, general and administrative		200			183		9	%
Other operating expense (income), net		(4	)		(3	)	9	%
Total costs and expenses		609			565		8	%

Income from operations		106			100		6	%

Interest income		1		─			—	%
Interest expense		(11	)		(12	)	(8	%)
Other income (expense), net		1			(1	)	182	%

Income before taxes		97			87		11	%

Provision for income taxes		6			17		(65	%)

Net income	$	91		$	70		28	%


Net income per share:
Basic	$	0.54		$	0.41
Diluted	$	0.53		$	0.41

Weighted average shares used in computing net income per share:
Basic		170			169
Diluted		172			172



The preliminary income statement is estimated based on our current information.



Page 1



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


	Nine Months Ended
	July 31,						Percent
		2016			2015		Inc/(Dec)

Orders	$	2,147		$	2,073		4	%


Net revenue	$	2,167		$	2,106		3	%

Costs and expenses:
Cost of products and services		963			937		3	%
Research and development		320			282		14	%
Selling, general and administrative		607			581		4	%
Other operating expense (income), net		(22	)		(14	)	50	%
Total costs and expenses		1,868			1,786		5	%

Income from operations		299			320		(7	%)

Interest income		2			1		117	%
Interest expense		(35	)		(35	)	—	%
Other income (expense), net		2			1		202	%

Income before taxes		268			287		(7	%)

Provision for income taxes		25			51		(52	%)

Net income	$	243		$	236		3	%


Net income per share:
Basic	$	1.43		$	1.40
Diluted	$	1.41		$	1.38

Weighted average shares used in computing net income per share:
Basic		170			169
Diluted		172			171



The preliminary income statement is estimated based on our current information.



Page 2



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


				July 31,			October 31,
					2016			2015
				(unaudited)
ASSETS

Current assets:
	Cash and cash equivalents			$	664		$	483
	Accounts receivable, net				415			398
	Inventory				479			487
	Deferred tax assets				—			74
	Other current assets				153			137
		Total current assets			1,711			1,579

Property, plant and equipment, net					522			518
Goodwill					738			700
Other intangible assets, net					217			246
Long-term investments					56			70
Long-term deferred tax assets					317			295
Other assets					114			100
		Total assets		$	3,675		$	3,508

LIABILITIES AND EQUITY

Current liabilities:
	Accounts payable			$	156		$	209
	Employee compensation and benefits				158			168
	Deferred revenue				192			175
	Income and other taxes payable				33			50
	Other accrued liabilities				62			84
		Total current liabilities			601			686

Long-term debt					1,100			1,099
Retirement and post-retirement benefits					235			280
Long-term deferred revenue					73			61
Other long-term liabilities					69			80
		Total liabilities			2,078			2,206

Total 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; 172 million shares at July 31, 2016
		and 170 million shares at October 31, 2015, issued			2			2
	Treasury stock at cost; 2.3 million shares at July 31, 2016 and zero				(62	)		—
		shares at October 31, 2015
	Additional paid-in-capital				1,233			1,165
	Retained earnings				857			614
	Accumulated other comprehensive loss				(433	)		(479	)
		Total stockholders' equity			1,597			1,302
			Total liabilities and equity	$	3,675		$	3,508



The preliminary balance sheet is estimated based on our current information.



Page 3



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


			Nine Months Ended
			July 31,
				2016			2015

Cash flows from operating activities:
	Net income		$	243		$	236

Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			101			69
	Share-based compensation			39			49
	Excess tax loss (benefit) from share-based plans			4			(4	)
	Deferred Taxes			5			15
	Excess and obsolete inventory related charges			14			23
	Gain on sale of land			(10	)		—
	Other non-cash expenses, net			4			2
	Changes in assets and liabilities:
		Accounts receivable		(16	)		31
		Inventory		(23	)		(25	)
		Accounts payable		(38	)		1
		Payment to Agilent, net		—			(28	)
		Employee compensation and benefits		1			(18	)
		Income taxes payable		3			1
		Retirement and post-retirement benefits		(30	)		(29	)
		Other assets and liabilities		(20	)		(28	)
Net cash provided by operating activities ^(a)				277			295

Cash flows from investing activities:
	Investments in property, plant and equipment			(76	)		(66	)
	Acquisition of businesses and intangible assets, net of cash acquired			(10	)		—
	Proceeds from sale of land			10			—
	Proceeds from sale of investment securities			1			1
	Purchase of investments			—			(7	)
	Other investing activities			(1	)		—
Net cash used in investing activities				(76	)		(72	)

Cash flows from financing activities:
	Issuance of common stock under employee stock plans			42			23
	Treasury stock repurchases			(62	)		—
	Repayment of long term debts			(1	)		—
	Return of capital to Agilent			—			(49	)
	Excess tax benefit(loss) from share-based plans			(4	)		4
Net cash used in financing activities				(25	)		(22	)

Effect of exchange rate movements				5			(11	)

Net increase in cash and cash equivalents				181			190

Cash and cash equivalents at beginning of period				483			810

Cash and cash equivalents at end of period			$	664		$	1,000

	^(a) Cash payments included in operating activities:
		Income tax payments, net	$	17		$	35
		Restructuring payments	$	3		$	2
		Interest payments on senior notes	$	22		$	24

The preliminary cash flow is estimated based on our current information.



Page 4



KEYSIGHT TECHNOLOGIES, INC.
RECONCILIATION OF REVENUE EXCLUDING IMPACTS OF CURRENCY AND ACQUISITIONS
(In millions)
(Unaudited)
PRELIMINARY


						Percent
	Q3'16			Q3'15		Inc/(Dec)
GAAP Revenue	$	715		$	665	7	%
Acquisition related fair value adjustments		3			—	—
Non-GAAP Revenue		718			665	8	%
Currency Impacts		(3	)		—	—
Non-GAAP Revenue, net of currency impacts		715			665	7	%
Less revenue from acquisitions included in segment results		(38	)		—	—
Core Revenue	$	677		$	665	2	%

Non GAAP revenue is defined to exclude the fair value adjustments to the Anite acquisition related deferred revenue balances.

Core revenue is defined as Non- GAAP revenue excluding the impact of currency and acquisitions.

Management believes that these measures provide useful information to investors by reflecting an additional way of viewing aspects of Keysight's operations that, when reconciled to the corresponding GAAP measures, help our investors to better identify underlying growth trends in our business and facilitate easier comparisons of our revenue performance with prior and future periods and to our peers. We excluded the effect of recent acquisitions because the nature, size and number of these can vary dramatically from period to period and between us and our peers, which we believe may obscure underlying business trends and make comparisons of long-term performance difficult.

The preliminary reconciliation of GAAP to Core revenue is based on our current information.

Page 5



KEYSIGHT TECHNOLOGIES, INC.
NON-GAAP OPERATING MARGIN RECONCILIATIONS
(In millions, except where noted)
(Unaudited)
PRELIMINARY


Reconciliation of Income from Operations to Non-GAAP Income from Operations

	Three Months Ended						Nine Months Ended
	July 31,						July 31,
		2016			2015			2016			2015

Income from operations, as reported	$	106		$	100		$	299		$	320
Intangible amortization		12			2			34			6
Share based compensation		10			7			39			49
Acquisition and integration costs		4			2			11			2
Acquisition related fair value adjustments		3			—			12			—
Separation and related costs		6			3			16			15
Restructuring and related costs		—			10			—			10
Other		(1	)		—			(7	)		—
Non-GAAP income from operations	$	140		$	124		$	404		$	402

Revenue	$	715		$	665		$	2,167		$	2,106
Acquisition related fair value adjustments	$	3		$	-		$	12		$	-
Non GAAP Revenue	$	718		$	665		$	2,179		$	2,106

GAAP Operating Margin		15	%		15	%		14	%		15	%
Non GAAP Operating Margin		20	%		19	%		19	%		19	%

We provide non-GAAP income from operations and non-GAAP operating margin in order to provide meaningful supplemental information regarding our operational performance and our prospects for the future. These supplemental measures exclude primarily the impacts of share-based compensation, restructuring and related costs, separation and related costs, acquisition and integration costs, acquisition-related fair value adjustments, asset impairments and non-cash intangible amortization. Some of the exclusions, such as impairments, may be beyond the control of management. Further, some may be less predictable than revenue derived from our core businesses (the day to day business of selling our products and services). These reasons provide the basis for management's belief that the measures are useful.






Our management uses non-GAAP measures to evaluate the performance of our core businesses, to estimate future core performance and to compensate employees. Since management finds this measure to be useful, we believe that our investors benefit from seeing our results “through the eyes” of management in addition to seeing our GAAP results. This information facilitates management’s internal comparisons to our historical operating results as well as to the operating results of our competitors.

Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.

The preliminary reconciliation from income from operations to Non-GAAP income from operations is estimated based on our current information.



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,
			2016						2015						2016						2015
			Net Income			Diluted EPS			Net Income			Diluted EPS			Net Income			Diluted EPS			Net Income			Diluted EPS

GAAP Net income			$	91		$	0.53		$	70		$	0.41		$	243		$	1.41		$	236		$	1.38
	Non-GAAP adjustments:
		Intangible amortization		12			0.07			2			0.01			34			0.20			6			0.03
		Share Based Compensation		10			0.06			7			0.04			39			0.23			49			0.29
		Acquisition and integration costs		5			0.03			3			0.02			10			0.06			3			0.02
		Acquisition related fair value adjustments		3			0.02			—			—			12			0.07			—			—
		Separation and related costs		6			0.03			3			0.02			16			0.09			15			0.09
		Restructuring and related costs		—			—			10			0.06			—			—			10			0.06
		Other		(3	)		(0.02	)		1			0.01			(7	)		(0.04	)		3			0.02
		Adjustment for taxes ^(a)		(16	)		(0.09	)		(2	)		(0.02	)		(38	)		(0.22	)		(12	)		(0.08	)
Non-GAAP Net income			$	108		$	0.63		$	94		$	0.55		$	309		$	1.80		$	310		$	1.81

Weighted average shares outstanding - diluted				172						172						172						171

^(a) The adjustment for taxes excludes tax benefits that management believes are not directly related to ongoing operations and which are either isolated or cannot be expected to occur again with any regularity or predictability. For the nine months ended July 31, 2016 and 2015, management uses a non-GAAP effective tax rate of 17%, which we believe to be indicative of on-going operations.


Historical amounts are reclassified to conform with current presentation.

We provide non-GAAP net income and non-GAAP net income per share amounts in order to provide meaningful supplemental information regarding our operational performance and our prospects for the future. These supplemental measures exclude, primarily the impacts of share-based compensation, restructuring and related costs, separation and related costs, acquisition and integration costs, acquisition-related fair value adjustments, asset impairments and non-cash intangible amortization. Some of the exclusions, such as impairments, may be beyond the control of management. Further, some may be less predictable than revenue derived from our core businesses (the day to day business of selling our products and services). These reasons provide the basis for management's belief that the measures are useful.

Intangible amortization includes non-cash intangible amortization recognized in connection with acquisitions.

Share-based compensation includes expense for all share-based payment awards made to our employees and directors including employee stock option awards, restricted stock units, employee stock purchases made under our employee stock purchase plan (“ESPP”) and performance share awards granted to selected members of our senior management under the long-term performance plan (“LTPP”) based on estimated fair values.

Acquisition and Integration costs include all incremental expenses incurred to effect a business combination that have been expensed during the period. Such acquisition costs may include advisory, legal, accounting, valuation, and other professional or consulting fees. Such integration costs may include expenses directly related to integration of business and facility operations, information technology systems and infrastructure and other employee-related costs.

Acquisition related fair value adjustments includes business combination accounting effects from the acquisition including reduction in revenue and increase in cost of sales due to the respective estimated fair value adjustments to deferred revenue and inventory.

Separation and related costs include all incremental expenses incurred in order to effect the separation of Keysight from Agilent, including the cost of new hires specifically required to operate two separate companies. The intent is to only include in non-GAAP expenses what would not have been incurred if we had no plan to spin-off. These costs include, among other things, branding, legal, accounting and other advisory fees and other costs to separate and transition from Agilent.

Restructuring and related costs include incremental expenses incurred in the period associated with publicly announced major restructuring programs, usually aimed at material changes in business and/or cost structure. Such costs may include one-time termination benefits, asset impairments, facility-related costs and contract termination fees. and other one time reorganization costs.

Management uses non-GAAP measures to evaluate the performance of our core businesses, to estimate future core performance and to compensate employees. Since management finds this measure to be useful, we believe that our investors benefit from seeing our results “through the eyes” of management in addition to seeing our GAAP results. This information facilitates management’s internal comparisons to our historical operating results as well as to the operating results of our competitors.


Management recognizes that items such as amortization of intangibles, restructuring charges etc. can have a material impact on our cash flows and/or our net income. Our GAAP financial statements including our 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 items 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 GAAP income statement. The non-GAAP numbers focus instead upon the core business of the company, which is only a subset, albeit a critical one, of the company’s performance.

Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.


The preliminary reconciliation from GAAP to Non-GAAP net income is estimated based on our current information.



Page 7



KEYSIGHT TECHNOLOGIES, INC.
SEGMENT RESULTS INFORMATION
(In millions, except where noted)
(Unaudited)
PRELIMINARY



Communications Solutions Group
	Q3'16			Q3'15			Q2'16
Revenue	$	424		$	389		$	446
Gross Margin, %		61.7	%		59.9	%		61.1	%
Income from Operations	$	77		$	72		$	84
Operating Margin, %		18	%		18	%		19	%


Electronic Industrial Solutions Group
	Q3'16			Q3'15			Q2'16
Revenue	$	191		$	175		$	193
Gross Margin, %		60.7	%		57.3	%		59.4	%
Income from Operations	$	44		$	32		$	40
Operating Margin, %		23	%		19	%		21	%


Services Solutions Group
	Q3'16			Q3'15			Q2'16
Revenue	$	103		$	101		$	96
Gross Margin, %		42.4	%		42.7	%		39.3	%
Income from Operations	$	19		$	20		$	11
Operating Margin, %		19	%		19	%		11	%

For Q3'16 and Q2'16, our results include the acquisition of Anite which was completed on August 13, 2015.

Segment data reflect the results of our reportable segments under Keysight's management reporting system which are not necessarily in conformity with GAAP financial measures. Net revenue for Communications Solutions Group excludes the impact of fair value adjustments to acquisition related deferred revenue balances for the Anite acquisition of $3 million for Q3'16, $4 million for Q2'16, and zero for Q3'15, respectively. Income from operations of our reporting segments exclude, primarily the impacts of share-based compensation, restructuring and related costs, separation and related costs, acquisition and integration costs, acquisition-related fair value adjustments, asset impairments and non-cash intangible amortization.

The preliminary segment information is estimated based on our current information.

Page 8

« Previous Page 1 | 2 | 3 | 4 Next Page »