Achieves above guidance results; full-year
outlook improved
Keysight Technologies, Inc. (NYSE: KEYS) today reported
financial results for the third fiscal quarter ended July 31,
2024.
“Keysight delivered revenue and earnings above the high end of
our guidance in market conditions that were stable and consistent
with our expectations,” said Satish Dhanasekaran, Keysight’s
President and CEO. “The funnel of opportunities supports our
outlook for second half orders to be above first half orders,
followed by a more gradual recovery in 2025, barring any further
macroeconomic degradation."
Third Quarter Financial Summary
- Revenue was $1.22 billion, compared with $1.38 billion in the
third quarter of 2023.
- GAAP net income was $389 million, or $2.22 per share, which
includes a 94-cent year-to-date benefit due to a change in
effective tax rate, compared with $288 million, or $1.61 per share,
in the third quarter of 2023.
- Non-GAAP net income was $275 million, or $1.57 per share, which
includes a 16-cent year-to-date benefit due to a change in non-GAAP
tax rate, compared with $393 million, or $2.19 per share in the
third quarter of 2023.
- Cash flow from operations was $255 million, compared to $241
million last year. Free cash flow was $222 million, compared to
$196 million in the third quarter of 2023.
- As of July 31, 2024, cash and cash equivalents totaled $1.63
billion.
Reporting Segments
- Communications Solutions Group (CSG)
CSG reported revenue of $847 million in the
third quarter, down 8 percent from the prior year, reflecting a 6
percent decline in commercial communications, while aerospace,
defense, and government decreased 10 percent.
- Electronic Industrial Solutions Group (EISG)
EISG reported revenue of $370 million in the
third quarter, down 20 percent from the prior year, reflecting
continued restraint in general electronics, automotive, and
manufacturing-related customer spending.
Outlook
Keysight’s fourth fiscal quarter of 2024 revenue is expected to
be in the range of $1.245 billion to $1.265 billion. Non-GAAP
earnings per share for the fourth fiscal quarter of 2024 are
expected to be in the range of $1.53 to $1.59, based on a weighted
diluted share count of approximately 174 million shares and a
non-GAAP tax rate of 14%. 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 FY2024 financial results and its fourth quarter FY2024
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 FY24 Keysight Technologies Inc.
Earnings Conference Call” to participate. The call can also be
accessed by dialing 1-404-975-4839 or 1-833-470-1428 toll-free
(access code 711647). 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 "assume," “expect,”
“intend,” “will,” “should,” "outlook" 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, uncertainty relating to national elections and
election results in the U.S. and U.K., slowing demand for products
or services, volatility in financial markets, reduced access to
credit, increased interest rates; 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, 2023, and Keysight’s quarterly
report on Form 10-Q for the period ended April 30, 2024.
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:
- Non-GAAP Net Income/Earnings
- Non-GAAP Net Income per share/Earnings per share
- Free Cash Flow
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, 2024. 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.
KEYSIGHT TECHNOLOGIES, INC. CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (In millions, except per share
data) (Unaudited) PRELIMINARY Three
months ended Nine months ended July 31, July
31,
2024
2023
2024
2023
Orders
$
1,249
$
1,244
$
3,688
$
3,863
Revenue
$
1,217
$
1,382
$
3,692
$
4,153
Costs and expenses: Cost of products and services
462
486
1,361
1,465
Research and development
226
215
686
664
Selling, general and administrative
329
319
1,052
994
Other operating expense (income), net
(5
)
(3
)
(10
)
(11
)
Total costs and expenses
1,012
1,017
3,089
3,112
Income from operations
205
365
603
1,041
Interest income
19
29
60
70
Interest expense
(21
)
(19
)
(61
)
(58
)
Other income (expense), net
10
14
15
28
Income before taxes
213
389
617
1,081
Provision (benefit) for income taxes
(176
)
101
(70
)
250
Net income
$
389
$
288
$
687
$
831
Net income per share: Basic
$
2.23
$
1.62
$
3.94
$
4.66
Diluted
$
2.22
$
1.61
$
3.92
$
4.63
Weighted average shares used in computing net income per
share: Basic
174
178
174
178
Diluted
175
179
175
179
Page 1
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (In millions, except
par value and share data) (Unaudited) PRELIMINARY
July 31, 2024 October 31, 2023
ASSETS Current assets: Cash and cash equivalents
$
1,632
$
2,472
Accounts receivable, net
802
900
Inventory
1,026
985
Other current assets
536
452
Total current assets
3,996
4,809
Property, plant and equipment, net
776
761
Operating lease right-of-use assets
234
226
Goodwill
2,391
1,640
Other intangible assets, net
637
155
Long-term investments
107
81
Long-term deferred tax assets
678
671
Other assets
504
340
Total assets
$
9,323
$
8,683
LIABILITIES AND EQUITY Current liabilities:
Current portion of long-term debt
$
600
$
599
Accounts payable
280
286
Employee compensation and benefits
262
304
Deferred revenue
537
541
Income and other taxes payable
85
90
Operating lease liabilities
43
40
Other accrued liabilities
142
189
Total current liabilities
1,949
2,049
Long-term debt
1,196
1,195
Retirement and post-retirement benefits
71
64
Long-term deferred revenue
207
216
Long-term operating lease liabilities
197
192
Other long-term liabilities
473
313
Total liabilities
4,093
4,029
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; issued
and outstanding shares: 201 million and 200 million, respectively
2
2
Treasury stock, at cost; 27.5 million shares and 25.4 million
shares, respectively
(3,270
)
(2,980
)
Additional paid-in-capital
2,637
2,487
Retained earnings
6,298
5,611
Accumulated other comprehensive loss
(437
)
(466
)
Total stockholders' equity
5,230
4,654
Total liabilities and equity
$
9,323
$
8,683
Page 2
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In
millions) (Unaudited) PRELIMINARY Nine
months ended July 31,
2024
2023
Cash flows from operating activities: Net income
$
687
$
831
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation
94
90
Amortization
108
72
Share-based compensation
111
110
Deferred tax expense (benefit)
(21
)
10
Excess and obsolete inventory-related charges
26
19
Other non-cash expense (income), net
(5
)
(13
)
Changes in assets and liabilities, net of effects of businesses
acquired: Accounts receivable
130
32
Inventory
(51
)
(126
)
Accounts payable
(4
)
(54
)
Employee compensation and benefits
(69
)
(87
)
Deferred revenue
(35
)
41
Income taxes payable
(24
)
(28
)
Interest rate swap agreement termination proceeds
—
107
Prepaid assets
(25
)
(33
)
Long-term tax receivable
(165
)
—
Other assets and liabilities
(64
)
59
Net cash provided by operating activities(a)
693
1,030
Cash flows from investing activities: Investments in
property, plant and equipment
(116
)
(158
)
Acquisition of businesses and intangible assets, net of cash
acquired
(673
)
(85
)
Other investing activities
8
(7
)
Net cash used in investing activities
(781
)
(250
)
Cash flows from financing activities: Proceeds from issuance
of common stock under employee stock plans
65
67
Payment of taxes related to net share settlement of equity awards
(31
)
(49
)
Acquisition of non-controlling interests
(458
)
—
Treasury stock repurchases
(289
)
(276
)
Repayment of debt
(24
)
—
Other financing activities
(16
)
(1
)
Net cash used in financing activities
(753
)
(259
)
Effect of exchange rate movements
2
10
Net increase (decrease) in cash, cash equivalents, and
restricted cash
(839
)
531
Cash, cash equivalents, and restricted cash at beginning of period
2,488
2,057
Cash, cash equivalents, and restricted cash at end of period
$
1,649
$
2,588
(a) Cash payments included in operating activities:
Interest payments
$
38
$
37
Income tax paid, net
$
130
$
268
Page 3
KEYSIGHT TECHNOLOGIES, INC. NET
INCOME AND DILUTED EPS RECONCILIATION (In millions, except
per share data) (Unaudited) PRELIMINARY
Three months ended Nine months ended July 31,
July 31,
2024
2023
2024
2023
NetIncome DilutedEPS NetIncome
DilutedEPS NetIncome DilutedEPS
NetIncome DilutedEPS GAAP Net income
$
389
$
2.22
$
288
$
1.61
$
687
$
3.92
$
831
$
4.63
Non-GAAP adjustments: Amortization of acquisition-related balances
31
0.18
23
0.13
106
0.60
71
0.39
Share-based compensation
32
0.18
27
0.15
118
0.68
111
0.62
Acquisition and integration costs
16
0.09
7
0.04
56
0.32
12
0.07
Restructuring and others
6
0.03
1
0.01
44
0.25
16
0.09
Adjustment for taxes(a)
(199
)
(1.13
)
47
0.25
(203
)
(1.16
)
95
0.53
Non-GAAP Net income
$
275
$
1.57
$
393
$
2.19
$
808
$
4.61
$
1,136
$
6.33
Weighted average shares outstanding - diluted
175
179
175
179
(a) During the quarter, we amended our tax returns to reflect $165
million, an amortization deduction related to a prior-period
corporate restructuring. This reduced our effective non-GAAP tax
rate for the nine months ended July 31, 2024 from 17% to 14% and
for the three months ended July 31, 2024 to 8%. For the three and
nine months ended July 31, 2023, management used a non-GAAP
effective tax rate of 12%. Please refer last page for
details on the use of non-GAAP financial measures.
Page 4
KEYSIGHT TECHNOLOGIES, INC. SEGMENT RESULTS
INFORMATION (In millions, except where noted)
(Unaudited) PRELIMINARY Communications
Solutions Group Percent Q3'24 Q3'23
Inc/(Dec) Revenue
$
847
$
918
(8)%
Gross margin, %
67%
68%
Income from operations
$
223
$
276
Operating margin, %
26%
30%
Electronic Industrial Solutions Group
Percent Q3'24 Q3'23 Inc/(Dec) Revenue
$
370
$
464
(20)%
Gross margin, %
58%
62%
Income from operations
$
74
$
157
Operating margin, %
20%
34%
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. FREE CASH FLOW (In millions)
(Unaudited) PRELIMINARY Three months
ended July 31,
2024
2023
Net cash provided by operating activities
$
255
$
241
Less: Investments in property, plant and equipment
(33
)
(45
)
Free cash flow
$
222
$
196
Please refer last page for details on the use of
non-GAAP financial measures. Page 6
KEYSIGHT
TECHNOLOGIES, INC. REVENUE BY END MARKETS (In
millions) (Unaudited) PRELIMINARY
Percent Q3'24 Q3'23 Inc/(Dec)
Aerospace, Defense and Government
$
275
$
307
(10)%
Commercial Communications
572
611
(6)%
Electronic Industrial
370
464
(20)%
Total Revenue
$
1,217
$
1,382
(12)%
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 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, adjustment attributable to
non-controlling interest, 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 2024 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
Source: IR-KEYS
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version on businesswire.com: https://www.businesswire.com/news/home/20240820973484/en/
INVESTOR CONTACT: Jason Kary +1 707-577-6916
jason.kary@keysight.com
MEDIA CONTACT: Claire Rowberry + 1 339-200-9518
claire.rowberry@non.keysight.com
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