Achieved Record Third Quarter Revenue,
Operating Margin and Record Non-GAAP EPS
Keysight Technologies, Inc. (NYSE: KEYS) today reported
financial results for the third fiscal quarter ended July 31,
2023.
“Keysight delivered solid third quarter results, demonstrating
the strength of our portfolio and the resilience of our financial
model,” said Satish Dhanasekaran, Keysight’s President and CEO.
“Despite near-term macro challenges, Keysight’s diversified
business, strong customer engagement through our differentiated
solutions portfolio, and durable operating model give us confidence
in our ability to capitalize on the long-term secular growth trends
of our markets, as well as outperform in a variety of market
conditions.”
Third Quarter Financial Summary
- Revenue of $1.38 billion was flat compared with last year, and
grew 1 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 $288 million, or $1.61 per share, compared
with $338 million, or $1.87 per share, in the third quarter of
2022.
- Non-GAAP net income was $393 million, or $2.19 per share,
compared with $363 million, or $2.01 per share in the third quarter
of 2022.
- As of July 31, 2023, cash and cash equivalents totaled $2.57
billion.
Reporting Segments
- Communications Solutions Group (CSG)
CSG reported revenue of $918 million in the
third quarter, down 5 percent over last year, reflecting a 12
percent decline in commercial communications, while aerospace,
defense, and government increased 11 percent driven by technology
modernization, space and satellite, radar, and research in 5G and
6G technologies.
- Electronic Industrial Solutions Group (EISG)
EISG reported revenue of $464 million in the
third quarter, up 14 percent over last year, driven by growth
across semiconductor solutions, general electronics, and
next-generation automotive and energy technologies.
Outlook
Keysight’s fourth fiscal quarter of 2023 revenue is expected to
be in the range of $1.29 billion to $1.31 billion. Non-GAAP
earnings per share for the fourth fiscal quarter of 2023 are
expected to be in the range of $1.83 to $1.89. Full-year 2023
revenue at the midpoint of our guidance is $5.45 billion. Full-year
2023 earnings per share at the midpoint of our guidance are $8.19.
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 third
quarter FY2023 financial results and its fourth 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 “Q3 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
204698. 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 April 30, 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
- 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 both the three and nine months ended
July 31, 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 July 31,
Percent
2023
2022
Inc/(Dec)
Orders
$
1,244
$
1,461
(15)%
Revenue
$
1,382
$
1,376
—
Costs and expenses:
Cost of products and services
486
499
(3)%
Research and development
215
206
4%
Selling, general and administrative
319
317
—
Other operating expense (income), net
(3
)
(3
)
17%
Total costs and expenses
1,017
1,019
—
Income from operations
365
357
2%
Interest income
29
4
599%
Interest expense
(19
)
(20
)
(1)%
Other income (expense), net
14
5
139%
Income before taxes
389
346
12%
Provision for income taxes
101
8
1169%
Net income
$
288
$
338
(15)%
Net income per share:
Basic
$
1.62
$
1.89
Diluted
$
1.61
$
1.87
Weighted average shares used in computing net income per share:
Basic
178
179
Diluted
179
181
Page 1
KEYSIGHT TECHNOLOGIES, INC. CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS (In millions, except
per share data) (Unaudited) PRELIMINARY
Nine months ended July 31,
Percent
2023
2022
Inc/(Dec)
Orders
$
3,863
$
4,414
(12)%
Revenue
$
4,153
$
3,977
4%
Costs and expenses:
Cost of products and services
1,465
1,437
2%
Research and development
664
626
6%
Selling, general and administrative
994
962
3%
Other operating expense (income), net
(11
)
(3
)
268%
Total costs and expenses
3,112
3,022
3%
Income from operations
1,041
955
9%
Interest income
70
6
1113%
Interest expense
(58
)
(59
)
(1)%
Other income (expense), net
28
15
73%
Income before taxes
1,081
917
18%
Provision for income taxes
250
92
171%
Net income
$
831
$
825
1%
Net income per share:
Basic
$
4.66
$
4.56
Diluted
$
4.63
$
4.52
Weighted average shares used in computing net income per share:
Basic
178
181
Diluted
179
182
Page 2
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (In millions, except
par value and share data) (Unaudited) PRELIMINARY
July 31, October 31,
2023
2022
ASSETS Current assets: Cash and cash
equivalents
$
2,572
$
2,042
Accounts receivable, net
893
905
Inventory
975
858
Other current assets
462
429
Total current assets
4,902
4,234
Property, plant and equipment, net
754
690
Operating lease right-of-use assets
222
220
Goodwill
1,655
1,582
Other intangible assets, net
175
189
Long-term investments
96
62
Long-term deferred tax assets
656
667
Other assets
366
454
Total assets
$
8,826
$
8,098
LIABILITIES AND EQUITY Current liabilities:
Accounts payable
$
289
$
348
Employee compensation and benefits
264
333
Deferred revenue
518
495
Income and other taxes payable
81
96
Operating lease liabilities
42
39
Other accrued liabilities
144
96
Total current liabilities
1,338
1,407
Long-term debt
1,794
1,793
Retirement and post-retirement benefits
62
58
Long-term deferred revenue
229
197
Long-term operating lease liabilities
186
186
Other long-term liabilities
320
296
Total liabilities
3,929
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; 200
million shares at July 31, 2023 and 199 million shares at October
31, 2022 issued
2
2
Treasury stock at cost; 22.2 million shares at July 31, 2023 and
20.5 million shares at October 31, 2022
(2,550
)
(2,274
)
Additional paid-in-capital
2,462
2,333
Retained earnings
5,385
4,554
Accumulated other comprehensive loss
(402
)
(454
)
Total stockholders' equity
4,897
4,161
Total liabilities and equity
$
8,826
$
8,098
Page 3
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In
millions) (Unaudited) PRELIMINARY Nine
months ended July 31,
2023
2022
Cash flows from operating activities: Net income
$
831
$
825
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation
90
88
Amortization
72
80
Share-based compensation
110
102
Deferred tax expense
10
19
Excess and obsolete inventory-related charges
19
18
Unrealized loss (gain) on equity and other investments
(16
)
21
Other non-cash expense (income), net
3
9
Changes in assets and liabilities: Accounts receivable
32
(166
)
Inventory
(126
)
(88
)
Accounts payable
(54
)
41
Employee compensation and benefits
(87
)
(81
)
Deferred revenue
41
69
Income taxes payable
(28
)
(59
)
Retirement and post-retirement benefits
(7
)
(21
)
Interest rate swap agreement termination proceeds
107
—
Prepaid assets
(33
)
(97
)
Other assets and liabilities
66
(14
)
Net cash provided by operating activities(a)
1,030
746
Cash flows from investing activities: Investments in
property, plant and equipment
(158
)
(127
)
Acquisition of businesses and intangible assets, net of cash
acquired
(85
)
(33
)
Purchase of investments
(7
)
(30
)
Net cash used in investing activities
(250
)
(190
)
Cash flows from financing activities: Proceeds from issuance
of common stock under employee stock plans
67
63
Payment of taxes related to net share settlement of equity awards
(49
)
(74
)
Treasury stock repurchases
(276
)
(723
)
Other financing activities
(1
)
—
Net cash used in financing activities
(259
)
(734
)
Effect of exchange rate movements
10
(27
)
Net increase (decrease) in cash, cash equivalents, and
restricted cash
531
(205
)
Cash, cash equivalents and restricted cash at beginning of period
2,057
2,068
Cash, cash equivalents and restricted cash at end of period
$
2,588
$
1,863
(a) Cash payments included in operating activities:
Interest payments
$
37
$
37
Income tax paid, net
$
268
$
157
Page 4
KEYSIGHT TECHNOLOGIES, INC. SEGMENT
RESULTS INFORMATION (In millions, except where noted)
(Unaudited) PRELIMINARY Communications
Solutions Group
Percent
Q3'23 Q3'22
Inc/(Dec)
Revenue
$
918
$
970
(5)%
Gross margin, %
68
%
67
%
Income from operations
$
276
$
288
Operating margin, %
30
%
30
%
Electronic Industrial Solutions Group
Percent
Q3'23 Q3'22
Inc/(Dec)
Revenue
$
464
$
406
14%
Gross margin, %
62
%
61
%
Income from operations
$
157
$
127
Operating margin, %
34
%
31
%
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 Q3'23 Q3'22
Percent Inc/(Dec)
Revenue
$
1,382
$
1,376
—
Adjustments:
Revenue from acquisitions or divestitures
(4
)
—
Currency impacts
10
—
Core Revenue
$
1,388
$
1,376
1%
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 Nine months
ended July 31, July 31,
2023
2022
2023
2022
NetIncome DilutedEPS NetIncome
DilutedEPS NetIncome DilutedEPS
NetIncome DilutedEPS GAAP Net income
$
288
$
1.61
$
338
$
1.87
$
831
$
4.63
$
825
$
4.52
Non-GAAP adjustments: Amortization of acquisition-related balances
23
0.13
26
0.14
71
0.39
78
0.43
Share-based compensation
27
0.15
26
0.14
111
0.62
103
0.56
Acquisition and integration costs
7
0.04
2
0.01
12
0.07
7
0.04
Restructuring and others
1
0.01
13
0.07
16
0.09
34
0.19
Adjustment for taxes(a)
47
0.25
(42
)
(0.22
)
95
0.53
(45
)
(0.25
)
Non-GAAP Net income
$
393
$
2.19
$
363
$
2.01
$
1,136
$
6.33
$
1,002
$
5.49
Weighted average shares outstanding - diluted
179
181
179
182
(a) For both the three and nine months ended July 31,
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.
REVENUE BY END MARKETS
(In millions)
(Unaudited)
PRELIMINARY
Percent
Q3'23 Q3'22
Inc/(Dec)
Aerospace, Defense and Government
$
307
$
276
11%
Commercial Communications
611
694
(12)%
Electronic Industrial
464
406
14%
Total Revenue
$
1,382
$
1,376
—
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
fourth 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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230817370435/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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