Le Lézard
Classified in: Science and technology, Business
Subjects: EARNINGS, Conference Call, Webcast

Keysight Technologies Reports Third Quarter 2022 Results


Keysight Technologies, Inc. (NYSE: KEYS) today reported financial results for the third fiscal quarter ended July 31, 2022.

"Keysight delivered an exceptional third quarter, with both revenue and EPS exceeding the high end of guidance. Our outperformance reflects the effectiveness of our strategy, outstanding execution by our teams around the world, and the strength of our operating model," said Satish Dhanasekaran, Keysight's President and CEO. "Keysight's deep customer engagements with industry leaders, and high value, differentiated solutions continue to drive broad-based demand across key technology mega trends."

Third Quarter Financial Summary

Reporting Segments

CSG reported revenue of $970 million in the third quarter, up 11 percent over last year, with strength in 5G, O-RAN, 400G, 800G, and high-speed digital applications, as well as cyber, space and satellite solutions.

EISG reported revenue of $406 million in the third quarter, up 10 percent over last year, driven by general electronics, semiconductor measurement solutions, and next-generation automotive and energy solutions. EISG reported growth across all regions.

Outlook

Keysight's fourth fiscal quarter of 2022 revenue is expected to be in the range of $1.38 billion to $1.40 billion. Non-GAAP earnings per share for the fourth fiscal quarter of 2022 are expected to be in the range of $1.94 to $2.00. Full fiscal year 2022 revenue growth is expected to approach 9 percent. At the midpoint of fourth quarter guidance, non-GAAP earnings per share growth for fiscal year 2022 is expected to be 20 percent. 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 FY2022 financial results and its fourth quarter FY2022 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 2022 Keysight Technologies Inc. Earnings Conference Call" to participate or dial +1-844-200-6205 (U.S. only) or +1-929-526-1599 (International) and enter passcode 993594. 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 current supply chain constraints; impacts of geopolitical tension and conflict outside of the U.S., including the war between Russia and Ukraine and increasing tensions between China and Taiwan; export control regulations and compliance; net zero emissions commitments; increases in attrition and our ability to retain key personnel; changes in the demand for current and new products, technologies, and services; 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, 2021, and Keysight's quarterly report on Form 10-Q for the period ended April 30, 2022.

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:

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 July 31, 2022. 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
July 31, Percent

 

2022

 

 

2021

 

Inc/(Dec)
 
Orders

$

1,461

 

$

1,310

 

12

%

 
Revenue

$

1,376

 

$

1,246

 

10

%

 
Costs and expenses:
Cost of products and services

 

499

 

 

458

 

9

%

Research and development

 

206

 

 

207

 

(1

)%

Selling, general and administrative

 

317

 

 

302

 

5

%

Other operating expense (income), net

 

(3

)

 

(5

)

(44

)%

Total costs and expenses

 

1,019

 

 

962

 

6

%

 
Income from operations

 

357

 

 

284

 

26

%

 
Interest income

 

4

 

 

1

 

660

%

Interest expense

 

(20

)

 

(20

)

(1

)%

Other income (expense), net

 

5

 

 

5

 

1

%

 
Income before taxes

 

346

 

 

270

 

29

%

 
Provision for income taxes

 

8

 

 

16

 

(50

)%

 
Net income

$

338

 

$

254

 

33

%

 
 
Net income per share:
Basic

$

1.89

 

$

1.38

 

Diluted

$

1.87

 

$

1.36

 

 
Weighted average shares used in computing net income per share:
Basic

 

179

 

 

184

 

Diluted

 

181

 

 

186

 

 
Page 1
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
(Unaudited)
PRELIMINARY
 
Nine months ended
July 31, Percent

 

2022

 

 

2021

 

Inc/(Dec)
 
Orders

$

4,414

 

$

3,865

 

14

%

 
Revenue

$

3,977

 

$

3,647

 

9

%

 
Costs and expenses:
Cost of products and services

 

1,437

 

 

1,415

 

2

%

Research and development

 

626

 

 

615

 

2

%

Selling, general and administrative

 

962

 

 

900

 

7

%

Other operating expense (income), net

 

(3

)

 

(14

)

(80

)%

Total costs and expenses

 

3,022

 

 

2,916

 

4

%

 
Income from operations

 

955

 

 

731

 

31

%

 
Interest income

 

6

 

 

2

 

271

%

Interest expense

 

(59

)

 

(59

)

?

 

Other income (expense), net

 

15

 

 

(1

)

?

 

 
Income before taxes

 

917

 

 

673

 

36

%

 
Provision for income taxes

 

92

 

 

61

 

52

%

 
Net income

$

825

 

$

612

 

35

%

 
 
Net income per share:
Basic

$

4.56

 

$

3.31

 

Diluted

$

4.52

 

$

3.27

 

 
Weighted average shares used in computing net income per share:
Basic

 

181

 

 

185

 

Diluted

 

182

 

 

187

 

 
Page 2
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share data)
(Unaudited)
PRELIMINARY
 
July 31, October 31,

 

2022

 

 

2021

 

 
ASSETS
 
Current assets:
Cash and cash equivalents

$

1,847

 

$

2,052

 

Accounts receivable, net

 

882

 

 

735

 

Inventory

 

837

 

 

777

 

Other current assets

 

395

 

 

270

 

Total current assets

 

3,961

 

 

3,834

 

 
Property, plant and equipment, net

 

668

 

 

650

 

Operating lease right-of-use assets

 

225

 

 

227

 

Goodwill

 

1,606

 

 

1,628

 

Other intangible assets, net

 

216

 

 

272

 

Long-term investments

 

73

 

 

70

 

Long-term deferred tax assets

 

661

 

 

711

 

Other assets

 

442

 

 

389

 

Total assets

$

7,852

 

$

7,781

 

 
LIABILITIES AND EQUITY
 
Current liabilities:
Accounts payable

$

328

 

$

287

 

Employee compensation and benefits

 

275

 

 

355

 

Deferred revenue

 

496

 

 

478

 

Income and other taxes payable

 

63

 

 

74

 

Operating lease liabilities

 

40

 

 

41

 

Other accrued liabilities

 

110

 

 

74

 

Total current liabilities

 

1,312

 

 

1,309

 

 
Long-term debt

 

1,792

 

 

1,791

 

Retirement and post-retirement benefits

 

131

 

 

167

 

Long-term deferred revenue

 

200

 

 

187

 

Long-term operating lease liabilities

 

192

 

 

191

 

Other long-term liabilities

 

305

 

 

352

 

Total liabilities

 

3,932

 

 

3,997

 

 
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 July 31, 2022 and 197 million shares at October 31, 2021 issued

 

2

 

 

2

 

Treasury stock at cost; 19.7 million shares at July 31, 2022 and 15.1 million shares at October 31, 2021

 

(2,148

)

 

(1,425

)

Additional paid-in-capital

 

2,311

 

 

2,219

 

Retained earnings

 

4,255

 

 

3,430

 

Accumulated other comprehensive loss

 

(500

)

 

(442

)

Total stockholders' equity

 

3,920

 

 

3,784

 

Total liabilities and equity

$

7,852

 

$

7,781

 

 
Page 3
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
 
Nine months ended
July 31,

 

2022

 

 

2021

 

 
Cash flows from operating activities:
Net income

$

825

 

$

612

 

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

 

88

 

 

87

 

Amortization

 

80

 

 

149

 

Share-based compensation

 

102

 

 

83

 

Deferred tax expense (benefit)

 

19

 

 

(49

)

Excess and obsolete inventory-related charges

 

18

 

 

20

 

Loss on settlement of pension plan

 

-

 

 

16

 

Other non-cash expense (income), net

 

30

 

 

7

 

Changes in assets and liabilities:
Accounts receivable

 

(166

)

 

(64

)

Inventory

 

(88

)

 

(30

)

Accounts payable

 

41

 

 

10

 

Employee compensation and benefits

 

(81

)

 

(12

)

Deferred revenue

 

69

 

 

86

 

Income taxes payable

 

(59

)

 

8

 

Retirement and post-retirement benefits

 

(21

)

 

5

 

Other assets and liabilities

 

(111

)

 

26

 

Net cash provided by operating activities(a)

 

746

 

 

954

 

 
Cash flows from investing activities:
Investments in property, plant and equipment

 

(127

)

 

(101

)

Acquisition of businesses and intangible assets, net of cash acquired

 

(33

)

 

(136

)

Purchase of investments

 

(30

)

 

-

 

Other investing activities

 

-

 

 

(1

)

Net cash used in investing activities

 

(190

)

 

(238

)

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

 

63

 

 

59

 

Payment of taxes related to net share settlement of equity awards

 

(74

)

 

(53

)

Treasury stock repurchases

 

(723

)

 

(320

)

Payment of acquisition-related contingent consideration

 

-

 

 

(2

)

Other financing activities

 

-

 

 

(1

)

Net cash used in financing activities

 

(734

)

 

(317

)

 
Effect of exchange rate movements

 

(27

)

 

4

 

 
Net increase (decrease) in cash, cash equivalents, and restricted cash

 

(205

)

 

403

 

Cash, cash equivalents and restricted cash at beginning of period

 

2,068

 

 

1,767

 

Cash, cash equivalents and restricted cash at end of period

$

1,863

 

$

2,170

 

 
 
(a) Cash payments included in operating activities:
Interest payments

$

37

 

$

37

 

Income tax paid, net

$

157

 

$

100

 

 
Page 4
 
KEYSIGHT TECHNOLOGIES, INC.
SEGMENT RESULTS INFORMATION
(In millions, except where noted)
(Unaudited)
PRELIMINARY
 
Communications Solutions Group YoY
Q3'22 Q3'21 % Chg
Revenue

$

970

 

$

875

 

11

%

Gross margin, %

 

67

%

 

66

%

Income from operations

$

288

 

$

224

 

Operating margin, %

 

30

%

 

26

%

 
 
Electronic Industrial Solutions Group YoY
Q3'22 Q3'21 % Chg
Revenue

$

406

 

$

371

 

10

%

Gross margin, %

 

61

%

 

64

%

Income from operations

$

127

 

$

115

 

Operating margin, %

 

31

%

 

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 compare
Q3'22 Q3'21 Percent Inc/(Dec)
Revenue

$

1,376

 

$

1,246

10

%

Adjustments:
Revenue from acquisitions or divestitures

 

(2

)

 

-

Currency impacts

 

33

 

 

-

Core Revenue

$

1,407

 

$

1,246

13

%

 
 
 
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,

2022

2021

2022

2021

Net Income Diluted EPS Net Income Diluted EPS Net Income Diluted EPS Net Income Diluted EPS
 
GAAP Net income

$

338

 

$

1.87

 

$

254

 

$

1.36

 

$

825

 

$

4.52

 

$

612

 

$

3.27

 

Non-GAAP adjustments:
Amortization of acquisition-related balances

 

26

 

 

0.14

 

 

33

 

 

0.18

 

 

78

 

 

0.43

 

 

147

 

 

0.79

 

Share-based compensation

 

26

 

 

0.14

 

 

19

 

 

0.10

 

 

103

 

 

0.56

 

 

84

 

 

0.45

 

Acquisition and integration costs

 

2

 

 

0.01

 

 

2

 

 

0.01

 

 

7

 

 

0.04

 

 

8

 

 

0.04

 

Restructuring and others

 

13

 

 

0.07

 

 

2

 

 

0.01

 

 

34

 

 

0.19

 

 

27

 

 

0.15

 

Adjustment for taxes(a)

 

(42

)

 

(0.22

)

 

(24

)

 

(0.12

)

 

(45

)

 

(0.25

)

 

(52

)

 

(0.28

)

Non-GAAP Net income

$

363

 

$

2.01

 

$

286

 

$

1.54

 

$

1,002

 

$

5.49

 

$

826

 

$

4.42

 

 
Weighted average shares outstanding - diluted

 

181

 

 

186

 

 

182

 

 

187

 

 
 
(a) For both the three and nine months ended July 31, 2022 and 2021, 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
 
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 and 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.
 
Page 8
 

 


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