Achieved Record Orders, Revenue, Gross Margin,
Operating Margin, Free Cash Flow
Announces $750 Million Share Repurchase
Program
Keysight Technologies, Inc. (NYSE: KEYS) today reported
financial results for the fourth fiscal quarter of 2020 ended
October 31, 2020.
“Keysight delivered an outstanding quarter and finish to our
fiscal year, driven by strong execution and broad-based demand for
our differentiated solutions. Despite COVID-related macro
challenges, it was a record year for orders, gross margin,
operating margin, earnings per share and free cash flow," said Ron
Nersesian, Keysight’s Chairman, President and CEO. “Our people and
culture are a competitive differentiator and, in the face of
unprecedented challenges, Keysight exits this year stronger than
ever, and well-positioned to capitalize on our growth opportunities
ahead.”
Fourth Quarter Financial Summary
- Revenue grew 9 percent to reach $1.22 billion, when compared
with $1.12 billion last year. Non-GAAP revenue grew 7 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 $217 million, or $1.15 per share, compared
with $195 million, or $1.02 per share, in the fourth quarter of
2019.
- Non-GAAP net income was $305 million, or $1.62 per share,
compared with $254 million, or $1.33 per share in the fourth
quarter of 2019.
- Keysight acquired approximately 2.2 million shares in the open
market at an average share price of $96.55, for a total
consideration of $215 million, exhausting the $500 million share
repurchase authorization from May 2019.
- As of October 31, 2020, cash and cash equivalents totaled $1.76
billion.
Fiscal Year 2020 Financial Summary
- Revenue declined 2 percent over last year and totaled $4.22
billion. Non-GAAP revenue declined 3 percent on a core basis.
- GAAP net income was $627 million, or $3.31 per share, compared
with $621 million, or $3.25 per share in fiscal 2019. Non-GAAP net
income was $919 million, or $4.85 per share, compared with $902
million, or $4.72 per share in fiscal 2019.
- Keysight acquired approximately 4.3 million shares in the open
market at an average share price of $95.90, for a total
consideration of $410 million during fiscal year 2020, exhausting
the $500 million share repurchase authorization from May 2019.
Reporting Segments
- Communications Solutions Group (CSG)
CSG reported revenue of $901 million in the
fourth quarter, up 8 percent over last year, driven by continued
strength in next-generation commercial communications technologies
and increased global aerospace defense and government
investment.
- Electronic Industrial Solutions Group (EISG)
EISG reported revenue of $319 million in the
fourth quarter, up 12 percent over last year, driven by strength in
our broad portfolio of products that serve the general electronics
market and continued strong demand for semiconductor measurement
solutions.
Share Repurchase Program
Keysight also announced today that its Board of Directors
authorized a new share repurchase program for up to $750 million of
its common stock. The new repurchase program is effective
immediately. Shares may be purchased from time to time, subject to
general business and market conditions and other investment
opportunities, through open market purchases, privately negotiated
transactions or other means. The repurchase authorization may be
commenced, suspended or discontinued at any time at the company’s
discretion.
Outlook
Keysight’s first fiscal quarter of 2021 revenue is expected to
be in the range of $1.14 billion to $1.16 billion. Non-GAAP
earnings per share for the first fiscal quarter of 2021 are
expected to be in the range of $1.32 to $1.38, 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 FY2020 financial results and its first quarter FY2021
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 2020 Keysight Technologies Inc.
Earnings Conference Call” to participate or dial +1 833-968-2178
(U.S. only) or +1 778-560-2837 (International) and enter passcode
7488342. 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,” “forecast,” 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, information and future
guidance on the company’s goals, revenues, financial condition,
earnings, impacts of US export control regulations, 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, government mandated shutdowns, disruption in the supply
chain, and labor shortages caused by pandemic conditions; changes
in the demand for current and new products, technologies, and
services; customer purchasing decisions and timing; order
cancellations; increased trade tensions and tightening of export
control regulations.
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 quarterly report on Form 10-Q
for the period ended July 31, 2020.
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:
- Non-GAAP Core Revenue
- Non-GAAP Net Income
- Non-GAAP Net Income per share
- Free Cash Flow
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, 2020
and fiscal year 2020. 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 $4.2B in fiscal year 2020. More information
is available 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
amounts) (Unaudited) PRELIMINARY
Three months ended October 31, Percent
2020
2019
Inc/(Dec) Orders
$
1,231
$
1,194
3%
Net revenue
$
1,220
$
1,120
9%
Costs and expenses:
Cost of products and services
464
455
2%
Research and development
193
176
9%
Selling, general and administrative
287
286
-
Other operating expense (income), net
(2
)
(5
)
(70)%
Total costs and expenses
942
912
3%
Income from operations
278
208
34%
Interest income
-
6
-
Interest expense
(19
)
(20
)
(3)%
Other income (expense), net
7
9
(27)%
Income before taxes
266
203
31%
Provision for income taxes
49
8
486%
Net Income
$
217
$
195
11%
Net income per share: Basic
$
1.17
$
1.04
Diluted
$
1.15
$
1.02
Weighted average shares used in computing net income per
share:
Basic
186
187
Diluted
188
191
Page 1
KEYSIGHT TECHNOLOGIES, INC. CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS (In millions, except
per share amounts) (Unaudited) PRELIMINARY
Year ended October 31, Percent
2020
2019
Inc/(Dec) Orders
$
4,528
$
4,441
2%
Net revenue
$
4,221
$
4,303
(2)%
Costs and expenses:
Cost of products and services
1,688
1,769
(5)%
Research and development
715
688
4%
Selling, general and administrative
1,097
1,155
(5)%
Other operating expense (income), net
(44
)
(20
)
118%
Total costs and expenses
3,456
3,592
(4)%
Income from operations
765
711
8%
Interest income
11
23
(51)%
Interest expense
(78
)
(80
)
(3)%
Other income (expense), net
63
61
2%
Income before taxes
761
715
6%
Provision for income taxes
134
94
42%
Net Income
$
627
$
621
1%
Net income per share: Basic
$
3.35
$
3.31
Diluted
$
3.31
$
3.25
Weighted average shares used in computing net income per
share: Basic
187
188
Diluted
189
191
Page 2
KEYSIGHT TECHNOLOGIES, INC. CONDENSED
CONSOLIDATED BALANCE SHEET (In millions, except par value
and share amounts) (Unaudited) PRELIMINARY
October 31, October 31,
2020
2019
ASSETS Current assets: Cash and cash equivalents
$
1,756
$
1,598
Accounts receivable, net
606
668
Inventory
757
705
Other current assets
255
244
Total current assets
3,374
3,215
Property, plant and equipment, net
595
576
Operating lease right-of-use assets
182
-
Goodwill
1,537
1,209
Other intangible assets, net
361
490
Long-term investments
61
46
Long-term deferred tax assets
740
755
Other assets
368
332
Total assets
$
7,218
$
6,623
LIABILITIES AND EQUITY Current liabilities: Accounts
payable
$
224
$
253
Employee compensation and benefits
289
278
Deferred revenue
391
334
Income and other taxes payable
64
55
Operating lease liabilities
43
-
Other accrued liabilities
70
83
Total current liabilities
1,081
1,003
Long-term debt
1,789
1,788
Retirement and post-retirement benefits
362
357
Long-term deferred revenue
175
176
Long-term operating lease liabilities
149
-
Other long-term liabilities
365
295
Total liabilities
3,921
3,619
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; 196
million shares at October 31, 2020, and 194 million shares at
October 31, 2019, issued
2
2
Treasury stock at cost; 10.7 million shares at October 31, 2020 and
6.5 million shares at October 31, 2019
(752
)
(342
)
Additional paid-in-capital
2,110
2,013
Retained earnings
2,536
1,909
Accumulated other comprehensive loss
(599
)
(578
)
Total stockholders' equity
3,297
3,004
Total liabilities and equity
$
7,218
$
6,623
Page 3
KEYSIGHT TECHNOLOGIES, INC. CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS (In millions) (Unaudited)
PRELIMINARY Year ended October 31,
2020
2019
Cash flows from operating activities: Net income
$
627
$
621
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation
104
96
Amortization
222
212
Share-based compensation
92
82
Deferred tax expense (benefit)
41
(2
)
Excess and obsolete inventory-related charges
29
27
Gain on insurance proceeds received for damage to property, plant
and equipment
(32
)
-
Other non-cash expense (income), net
(10
)
(3
)
Changes in assets and liabilities: Accounts receivable
75
(26
)
Inventory
(73
)
(92
)
Accounts payable
(33
)
13
Employee compensation and benefits
2
-
Deferred revenue
41
112
Income taxes payable
5
(16
)
Retirement and post-retirement benefits
(108
)
(37
)
Other assets and liabilities
34
11
Net cash provided by operating activities(a)
1,016
998
Cash flows from investing activities: Investments in
property, plant and equipment
(117
)
(120
)
Acquisition of businesses and intangible assets, net of cash
acquired
(357
)
(88
)
Insurance proceeds received for damage to property, plant and
equipment
32
-
Proceeds from sale of investments
-
7
Other investing activities
-
5
Net cash used in investing activities
(442
)
(196
)
Cash flows from financing activities: Proceeds from issuance
of common stock under employee stock plans
58
67
Payment of taxes related to net share settlement of equity awards
(53
)
(26
)
Treasury stock repurchases
(411
)
(159
)
Proceeds from issuance of long-term debt
-
500
Debt issuance costs
-
(4
)
Repayment of debt
(7
)
(500
)
Net cash used in financing activities
(413
)
(122
)
Effect of exchange rate movements
6
3
Net increase in cash, cash equivalents and restricted cash
167
683
Cash, cash equivalents and restricted cash at beginning of
year
1,600
917
Cash, cash equivalents and restricted cash at end of year
$
1,767
$
1,600
(a) Cash payments included in operating activities:
Income tax payments, net
$
(84
)
$
(103
)
Interest payment on senior notes
$
(75
)
$
(76
)
Page 4
KEYSIGHT TECHNOLOGIES, INC. RECONCILIATION
OF NON-GAAP CORE REVENUE (In millions)
(Unaudited) PRELIMINARY Year-over-year
compare Year-over-year compare Q4'20 Q4'19
PercentInc/(Dec) FY20 FY19
PercentInc/(Dec) Revenue
$
1,220
$
1,120
9
%
$
4,221
$
4,303
(2
)%
Amortization of acquisition-related balances
-
2
-
9
Non-GAAP Revenue
$
1,220
$
1,122
9
%
$
4,221
$
4,312
(2
)%
Adjustments: Revenue from acquisitions or divestitures
included in segment results
(10
)
-
(29
)
-
Currency impacts
(10
)
-
(5
)
-
Non-GAAP Core Revenue
$
1,200
$
1,122
7
%
$
4,187
$
4,312
(3
)%
Non-GAAP core revenue excludes impact of currency and
revenue from acquisitions or divestitures closed within the last
twelve months. Please refer last page for details on the use
of non-GAAP financial measures. Page 5
KEYSIGHT
TECHNOLOGIES, INC. SEGMENT RESULTS INFORMATION (In
millions, except where noted) (Unaudited)
PRELIMINARY Communications Solutions
Group(a)
YoY
Q4'20
Q4'19
% Chg
Revenue
$
901
$
838
8
%
Gross margin, %
66.3
%
64.3
%
Income from operations
$
261
$
211
Operating margin, %
29
%
25
%
Electronic Industrial Solutions Group
YoY
Q4'20
Q4'19
% Chg
Revenue
$
319
$
284
12
%
Gross margin, %
64.7
%
62.4
%
Income from operations
$
97
$
79
Operating margin, %
30
%
28
%
(a) Restated for the organizational change to
manage our Ixia Solutions Group within our Communications Solutions
Group effective Q1'20. Net revenue for Communications
Solutions Group excludes the impact of amortization of
acquisition-related balances of $2 million for Q4'19. Segment
revenue and income from operations are consistent with the
respective non-GAAP measures as discussed on last page. 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,
2020
2019
2020
2019
NetIncome DilutedEPS NetIncome
DilutedEPS NetIncome DilutedEPS
NetIncome DilutedEPS GAAP Net income
$
217
$
1.15
$
195
$
1.02
$
627
$
3.31
$
621
$
3.25
Non-GAAP adjustments: Amortization of acquisition-related balances
57
0.30
60
0.31
224
1.18
224
1.17
Share-based compensation
20
0.10
16
0.08
93
0.49
82
0.43
Acquisition and integration costs
1
0.01
5
0.03
12
0.07
11
0.06
Northern California wildfire-related impacts
-
-
-
-
(32
)
(0.17
)
-
-
Restructuring and related costs
1
0.01
2
0.01
5
0.03
9
0.05
Others
1
0.01
2
0.01
(19
)
(0.11
)
(16
)
(0.09
)
Adjustment for taxes (a)
8
0.04
(26
)
(0.13
)
9
0.05
(29
)
(0.15
)
Non-GAAP Net income
$
305
$
1.62
$
254
$
1.33
$
919
$
4.85
$
902
$
4.72
Weighted average shares outstanding - diluted
188
191
189
191
(a) For both the three and twelve months ended October 31,
2020 and 2019, management uses a non-GAAP effective tax rate 12%.
Historical amounts are reclassified to conform with current
presentation. Please refer last page for details on the use
of non-GAAP financial measures. Page 7
KEYSIGHT
TECHNOLOGIES, INC. FREE CASH FLOW (In millions)
(Unaudited) PRELIMINARY Q4'20
FY20 Net cash provided by operating activities
$
338
$
1,016
Less: Investments in property, plant and equipment
(30
)
(117
)
Free cash flow
$
308
$
899
Free cash flow includes net cash provided by
operating activities adjusted for investments in property, plant
& equipment. Please refer last page for details on the
use of non-GAAP financial measures. 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 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.
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.
- Northern California wildfire-related impacts and Other Items:
We exclude certain other significant income or expense items that
may occur occasionally and are not normal, recurring, cash
operating, 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 would not
anticipate occurring as part of our normal business on a regular
basis. While not all-inclusive, examples of certain other
significant items excluded from non-GAAP financial measures would
include net unrealized gains on equity investments still held, and
significant non recurring events like realized gains or losses
associated with our employee benefit plans, costs and recoveries
related to unusual disaster like Northern California wildfires,
gain on sale of assets and small divestitures, etc.
- Restructuring and Related Costs: 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 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 fiscal quarter of 2021 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
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EDITORIAL CONTACT: Denise Idone + 1 941-888-2388
denise.idone@keysight.com
INVESTOR CONTACT: Jason Kary +1 707-577-6916
jason.kary@keysight.com
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