Keysight Technologies Reports Fourth Quarter and Fiscal Year

Keysight Technologies Reports Fourth Quarter and Fiscal Year 2021 Results

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, 2021 and fiscal year 2021. 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 delivers advanced design and validation solutions that help accelerate innovation to connect and secure the world. Keysight’s dedication to speed and precision extends to software-driven insights and analytics that bring tomorrow’s technology products to market faster across the development lifecycle, in design simulation, prototype validation, automated software testing, manufacturing analysis, and network performance optimization and visibility in enterprise, service provider and cloud environments. Our customers span the worldwide communications and industrial ecosystems, aerospace and defense, automotive, energy, semiconductor and general electronics markets. Keysight generated revenues of $4.9B in fiscal year 2021. For more information about Keysight Technologies (NYSE: KEYS), visit us 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 data)
(Unaudited)
PRELIMINARY

	Three months ended
	October 31,						Percent
		2021			2020		Inc/(Dec)

Orders	$	1,491		$	1,231		21 %

Revenue	$	1,294		$	1,220		6 %

Costs and expenses:
Cost of products and services		457			464		(2)%
Research and development		196			193		2 %
Selling, general and administrative		295			287		3 %
Other operating expense (income), net		(3	)		(2	)	118 %
Total costs and expenses		945			942		-

Income from operations		349			278		26 %

Interest income		1			-		(22)%
Interest expense		(20	)		(19	)	-
Other income (expense), net		7			7		(2)%

Income before taxes		337			266		27 %

Provision for income taxes		55			49		12 %

Net income	$	282		$	217		30 %


Net income per share:
Basic	$	1.54		$	1.17
Diluted	$	1.52		$	1.15

Weighted average shares used in computing net income per share:
Basic		183			186
Diluted		186			188


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

	Year ended
	October 31,						Percent
		2021			2020		Inc/(Dec)

Orders	$	5,356		$	4,528		18 %

Revenue	$	4,941		$	4,221		17 %

Costs and expenses:
Cost of products and services		1,872			1,688		11 %
Research and development		811			715		13 %
Selling, general and administrative		1,195			1,097		9 %
Other operating expense (income), net		(17	)		(44	)	(61)%
Total costs and expenses		3,861			3,456		12 %

Income from operations		1,080			765		41 %

Interest income		3			11		(81)%
Interest expense		(79	)		(78	)	1 %
Other income (expense), net		6			63		(90)%

Income before taxes		1,010			761		33 %

Provision for income taxes		116			134		(14)%

Net income	$	894		$	627		43 %


Net income per share:
Basic	$	4.84		$	3.35
Diluted	$	4.78		$	3.31

Weighted average shares used in computing net income per share:
Basic		185			187
Diluted		187			189


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

	October 31,			October 31,
		2021			2020

ASSETS

Current assets:
Cash and cash equivalents	$	2,052		$	1,756
Accounts receivable, net		735			606
Inventory		777			757
Other current assets		270			255
Total current assets		3,834			3,374

Property, plant and equipment, net		650			595
Operating lease right-of-use assets		227			182
Goodwill		1,628			1,537
Other intangible assets, net		272			361
Long-term investments		70			61
Long-term deferred tax assets		711			740
Other assets		389			368
Total assets	$	7,781		$	7,218

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	287		$	224
Employee compensation and benefits		355			289
Deferred revenue		478			391
Income and other taxes payable		74			64
Operating lease liabilities		41			43
Other accrued liabilities		74			70
Total current liabilities		1,309			1,081

Long-term debt		1,791			1,789
Retirement and post-retirement benefits		167			362
Long-term deferred revenue		187			175
Long-term operating lease liabilities		191			149
Other long-term liabilities		352			365
Total liabilities		3,997			3,921

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; 197 million shares at October 31, 2021,
and 196 million shares at October 31, 2020, issued		2			2
Treasury stock at cost; 15.1 million shares at October 31, 2021 and
10.7 million shares at October 31, 2020		(1,425	)		(752	)
Additional paid-in-capital		2,219			2,110
Retained earnings		3,430			2,536
Accumulated other comprehensive loss		(442	)		(599	)
Total stockholders' equity		3,784			3,297
Total liabilities and equity	$	7,781		$	7,218


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

	Year ended
	October 31,
		2021			2020

Cash flows from operating activities:
Net income	$	894		$	627
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		117			104
Amortization		176			222
Share-based compensation		103			92
Deferred tax expense (benefit)		(53	)		41
Excess and obsolete inventory-related charges		27			29
Loss on settlement of pension plan		16			-
Gain on insurance proceeds received for damage to property, plant and equipment		-			(32	)
Other non-cash expense (income), net		6			(10	)
Changes in assets and liabilities:
Accounts receivable		(122	)		75
Inventory		(43	)		(73	)
Accounts payable		53			(33	)
Employee compensation and benefits		50			2
Deferred revenue		96			41
Income taxes payable		34			5
Retirement and post-retirement benefits		7			(108	)
Other assets and liabilities		(39	)		34
Net cash provided by operating activities ^(a)		1,322			1,016

Cash flows from investing activities:
Investments in property, plant and equipment		(174	)		(117	)
Acquisition of businesses and intangible assets, net of cash acquired		(178	)		(357	)
Insurance proceeds received for damage to property, plant and equipment		-			32
Other investing activities		(1	)		-
Net cash used in investing activities		(353	)		(442	)

Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans		59			58
Payment of taxes related to net share settlement of equity awards		(53	)		(53	)
Treasury stock repurchases		(673	)		(411	)
Payment of acquisition-related contingent consideration		(2	)		-
Repayment of debt		-			(7	)
Other financing activities		(2	)		-
Net cash used in financing activities		(671	)		(413	)

Effect of exchange rate movements		3			6

Net increase in cash, cash equivalents and restricted cash		301			167
Cash, cash equivalents and restricted cash at beginning of year		1,767			1,600
Cash, cash equivalents and restricted cash at end of year	$	2,068		$	1,767


^(a) Cash payments included in operating activities:
Interest payments	$	75		$	75
Income tax paid, net	$	130		$	84


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KEYSIGHT TECHNOLOGIES, INC.
RECONCILIATION OF CORE REVENUE
(In millions)
(Unaudited)
PRELIMINARY

	Year-over-year compare						Year-over-year compare
	Q4'21			Q4'20		Percent Inc/(Dec)	FY21			FY20		Percent Inc/(Dec)
Revenue	$	1,294		$	1,220	6 %	$	4,941		$	4,221	17 %
Adjustments:
Revenue from acquisitions or divestitures		(7	)		-			(39	)		-
Currency impacts		(1	)		-			(43	)		-
Core Revenue	$	1,286		$	1,220	5 %	$	4,859		$	4,221	15 %



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


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

Communications Solutions Group					YoY
	Q4'21		Q4'20		% Chg
Revenue	$	919	$	901	2 %
Gross margin, %		66.1 %		66.3 %
Income from operations	$	262	$	261
Operating margin, %		28 %		29 %


Electronic Industrial Solutions Group					YoY
	Q4'21		Q4'20		% Chg
Revenue	$	375	$	319	18 %
Gross margin, %		65.7 %		64.7 %
Income from operations	$	135	$	97
Operating margin, %		36 %		30 %


Segment revenue and income from operations are consistent with the respective non-GAAP financial measures as discussed on last page.


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KEYSIGHT TECHNOLOGIES, INC.
NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATION
(In millions, except per share data)
(Unaudited)
PRELIMINARY

	Three months ended										Year ended
	October 31,										October 31,
	2021						2020				2021						2020
	Net Income			Diluted EPS			Net Income		Diluted EPS		Net Income			Diluted EPS			Net Income			Diluted EPS

GAAP Net income	$	282		$	1.52		$	217	$	1.15	$	894		$	4.78		$	627		$	3.31
Non-GAAP adjustments:
Amortization of acquisition-related balances		27			0.14			57		0.30		174			0.93			224			1.18
Share-based compensation		20			0.11			20		0.10		104			0.56			93			0.49
Acquisition and integration costs		1			0.01			1		0.01		9			0.05			12			0.07
Gain on insurance settlement		-			-			-		-		-			-			(32	)		(0.17	)
Restructuring and others		(1	)		(0.01	)		2		0.02		26			0.14			(14	)		(0.08	)
Adjustment for taxes ^(a)		9			0.05			8		0.04		(43	)		(0.23	)		9			0.05
Non-GAAP Net income	$	338		$	1.82		$	305	$	1.62	$	1,164		$	6.23		$	919		$	4.85

Weighted average shares outstanding - diluted		186						188				187						189


^(a) For both the three and twelve months ended October 31, 2021 and 2020, management uses a non-GAAP effective tax rate of 12%.

Please refer last page for details on the use of non-GAAP financial measures.


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KEYSIGHT TECHNOLOGIES, INC.
FREE CASH FLOW
(In millions)
(Unaudited)
PRELIMINARY

	Three months ended						Year ended
	October 31,						October 31,
		2021			2020			2021			2020
Net cash provided by operating activities	$	368		$	338		$	1,322		$	1,016
Less: Investments in property, plant and equipment		(73	)		(30	)		(174	)		(117	)
Free cash flow	$	295		$	308		$	1,148		$	899



Please refer last page for details on the use of non-GAAP financial measures.


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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.

•	Gain on insurance settlement: We exclude certain other significant income or expense items that may occur occasionally and are not normal and recurring from our non-GAAP financial measures. This represents cost and recoveries related to the 2017 Northern California wildfires.

•	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 first quarter of fiscal 2022 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.

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