Keysight Technologies Reports First Quarter 2018 Results

Financial Statements
Financial Tables (51KB)

SANTA ROSA, Calif., March 1, 2018

Keysight Technologies, Inc. (NYSE: KEYS) today reported financial results for the first fiscal quarter of 2018 ended Jan. 31, 2018.

"We delivered another outstanding quarter with both revenue and earnings exceeding our guidance. Our better than expected results were driven by continued strong order growth across our markets and our ability to recover from the Northern California wildfires faster than we had planned," said Ron Nersesian, Keysight president and CEO.

"Order growth accelerated to 39 percent overall and 16 percent on a core basis driven by strength in our key focus areas including 5G, automotive & energy and aerospace and defense. Our transformation strategy is delivering results, and we are pleased with our performance and growing leadership position in the market." Nersesian added.

First Quarter Financial Summary

GAAP revenue grew 15 percent to reach $837 million, when compared with $726 million last year. Non-GAAP revenue, which excludes the impact of fair value adjustment to acquisition-related deferred revenue balances, grew 18 percent to reach $856 million. Non-GAAP core revenue decreased 2 percent, reflecting the disruption in production from the Northern California wildfires.
GAAP net income was $94 million, or $0.50 per share, compared with $109 million, or $0.63 per share in the first quarter of 2017. Non-GAAP net income was $97 million, or $0.51 per share using 189 million weighted average shares, compared with $98 million, or $0.57 per share using 173 million weighted average shares in the first quarter of 2017.
As of Jan. 31, 2018, cash and cash equivalents totaled $980 million.

Reporting Segments

Communications Solutions Group (CSG)

CSG revenue was $420 million in the first quarter, compared to $434 million in the prior year first quarter. CSG revenue was most impacted by the disruption in production due to the Northern California wildfires; however, order growth for this segment was strong across both of its end-markets, resulting in growing backlog.

Electronic Industrial Solutions Group (EISG)

EISG revenue grew 6 percent to $203 million in the first quarter, compared to $192 million in the first quarter of 2017. Growth was led by automotive & energy and semiconductor measurement solutions, offset by a slight decline in general electronics measurement.

Ixia Solutions Group (ISG)

ISG revenue was $127 million in the first quarter. ISG saw increased shipments for its high-speed Ethernet 400G test solutions and overall, support renewals reached a new record.

Services Solutions Group (SSG)

SSG revenue grew 6 percent to $106 million in the first quarter, compared to $100 million in the first quarter of 2017. Revenue growth for SSG was driven by an increase in sales for remarketed solutions and calibration and overall regional strength in the Americas and Asia Pacific.

Outlook

Keysight provides guidance based on current market conditions and expectations and is raising its guidance for the first half of 2018.

Keysight's first half of 2018 GAAP revenue is expected to be in the range of $1,777 million to $1,807 million and non-GAAP revenue for the first half of 2018 is expected to be in the range of $1,805 million to $1,835 million. The midpoint of this first half 2018 guidance implies second quarter 2018 GAAP revenue of $955 million and non-GAAP revenue of $964 million.

Non-GAAP earnings per share for the first half of 2018 are expected to be in the range of $1.27 to $1.37 and, at the midpoint, imply second-quarter non-GAAP earnings per share of approximately $0.81. Given the new U.S. tax law under the Tax Cuts and Jobs Act, Keysight estimates that its annual non-GAAP tax rate will decrease by 200 basis points to 15 percent. Non-GAAP earnings per share as projected for the first half and second quarter of fiscal year 2018 and the estimated annual non-GAAP tax rate 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 "Non-GAAP Measures" below.

Webcast

Keysight's management will present more details about its first quarter FY2018 financial results and its second quarter FY2018 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 "Q1 2018 Keysight Technologies Inc. Earnings Conference Call" to participate or dial +1 866-393-4306 (U.S. only) or +1 734-385-2616 (International). The webcast will remain on the company site for 90 days.

A telephone replay of the conference call will be available at approximately 4:30 p.m. PT, March 1 through March 8 by dialing +1 855-859-2056 (or +1 404-537-3406 from outside the U.S.) and entering pass code 2165159.

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. 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, priorities, revenues, demand, financial condition, earnings, the continued strengths and expected growth of the markets the company sells into, operations, operating earnings, and tax rates 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, changes in the demand for current and new products, technologies, and services; customer purchasing decisions and timing, and the risk that we are not able to realize the savings or benefits expected from integration or restructuring activities. The words "estimate," "expect," "intend," "will," "should," "forecast," and similar expressions, as they relate to the company, are intended to identify forward-looking statements.

In addition to the risks above, other risks that Keysight faces include those detailed in Keysight's filings with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended Oct. 31, 2017.

Segment Data

Segment data reflects the results of our reportable segments under our management reporting system. Segment revenue and income from operations are consistent with the respective non-GAAP measures as explained below and in the attached supplemental schedules. 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 Revenue
Non-GAAP Net Income
Non-GAAP Diluted EPS

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 January 31, 2018 and for projected non-GAAP revenue amounts for the first half 2018 and three months ended April 30, 2018. 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 $3.2B in fiscal year 2017. In April 2017, Keysight acquired Ixia, a leader in network test, visibility, and security. More information is available at www.keysight.com.

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Additional information about Keysight Technologies is available in the newsroom at www.keysight.com/go/news and on Facebook, Google+, LinkedIn, Twitter and YouTube.

Financial Statements for First Quarter Fiscal 2018


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


	Three months ended
	January 31,						Percent
	2018			2017			Inc/(Dec)

Orders	$	964		$	695		39	%

Net revenue	$	837		$	726		15	%

Costs and expenses:
Cost of products and services		410			322		27	%
Research and development		146			108		35	%
Selling, general and administrative		289			213		36	%
Other operating expense (income), net		(3	)		(79	)	(96	)%
Total costs and expenses		842			564		49	%

Income (loss) from operations		(5	)		162		(103	)%

Interest income		3			1		101	%
Interest expense		(22	)		(12	)	87	%
Other income (expense), net		1			1		—	%

Income (loss) before taxes		(23	)		152		(115	)%

Provision (benefit) for income taxes		(117	)		43		(371	)%

Net income	$	94		$	109		(14	)%


Net income per share:
Basic	$	0.50		$	0.64
Diluted	$	0.50		$	0.63

Weighted average shares used in computing net income per share:
Basic		187			171
Diluted		189			173



Page 1


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


	January 31,			October 31,
	2018			2017
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	980		$	818
Accounts receivable, net		454			547
Inventory		609			588
Other current assets		232			224
Total current assets		2,275			2,177

Property, plant and equipment, net		539			530
Goodwill		1,894			1,882
Other intangible assets, net		807			855
Long-term investments		61			63
Long-term deferred tax assets		204			186
Other assets		270			240
Total assets	$	6,050		$	5,933

LIABILITIES AND EQUITY

Current liabilities:
Current portion of long-term debt	$	20		$	10
Accounts payable		229			211
Employee compensation and benefits		170			217
Deferred revenue		354			291
Income and other taxes payable		35			28
Other accrued liabilities		78			62
Total current liabilities		886			819

Long-term debt		2,028			2,038
Retirement and post-retirement benefits		315			309
Long-term deferred revenue		105			101
Other long-term liabilities		232			356
Total liabilities		3,566			3,623

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; 190 million shares at January 31, 2018 and 188 million shares at October 31, 2017, issued		2			2
Treasury stock at cost; 2.3 million shares at January 31, 2018 and October 31, 2017, respectively		(62	)		(62	)
Additional paid-in-capital		1,815			1,786
Retained earnings		1,141			1,041
Accumulated other comprehensive loss		(412	)		(457	)
Total stockholders' equity		2,484			2,310
Total liabilities and equity	$	6,050		$	5,933



Page 2


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


	Three months ended
	January 31,
	2018			2017

Cash flows from operating activities:
Net income	$	94		$	109

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		78			32
Share-based compensation		19			18
Deferred tax expense (benefit)		(235	)		40
Excess and obsolete inventory related charges		6			3
Gain on sale of land		—			(8	)
Pension curtailment and settlement gains		—			(68	)
Other non-cash expenses, net		2			—
Changes in assets and liabilities:
Accounts receivable		99			40
Inventory		(20	)		(10	)
Accounts payable		14			(12	)
Employee compensation and benefits		(50	)		(36	)
Income taxes payable		115			(15	)
Retirement and post-retirement benefits		(12	)		(3	)
Deferred revenue		61			15
Other assets and liabilities		—			10
Net cash provided by operating activities ^(a)		171			115

Cash flows from investing activities:
Purchases of property, plant and equipment		(24	)		(16	)
Acquisition of businesses and intangibles assets, net of cash acquired		(3	)		—
Proceeds from sale of land		—			8
Net cash used in investing activities		(27	)		(8	)

Cash flows from financing activities:
Issuance of common stock under employee stock plans		24			19
Payment of taxes on shares withheld on equity awards		(15	)		(11	)
Proceeds from credit facility		40			—
Repayment of credit facility		(40	)		—
Net cash provided by financing activities		9			8

Effect of exchange rate movements		9			(2	)

Net increase in cash and cash equivalents		162			113

Cash and cash equivalents at beginning of period		818			783

Cash and cash equivalents at end of period	$	980		$	896

^(a) Cash payments included in operating activities:
Income tax payments, net		(1	)		(17	)
Interest payment on borrowings		(2	)		—



Page 3


KEYSIGHT TECHNOLOGIES, INC.
RECONCILIATION OF REVENUE EXCLUDING IMPACTS OF CURRENCY AND ACQUISITIONS
(In millions)
(Unaudited)
PRELIMINARY

	Q2'18 Guidance		H1'18 Guidance				Year-over-year compare
	Midpoint		Low end		High end		Q1'18			Q1'17		Percent Inc/(Dec)
GAAP Revenue	$	955	$	1,777	$	1,807	$	837		$	726	15	%
Amortization of acquisition-related balances		9		28		28		19			—
Non-GAAP Revenue	$	964	$	1,805	$	1,835	$	856		$	726	18	%
Less revenue from acquisition included in segment results								(135	)		—
Currency impacts								(11	)		—
Non-GAAP Core Revenue							$	710		$	726	(2	)%




Please refer page 7 for discussion on our non-GAAP financial measures.


Page 4

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


	Three Months ended
	January 31,
	2018						2017
	Net Income			Diluted EPS			Net Income			Diluted EPS

GAAP Net income	$	94		$	0.50		$	109		$	0.63
Non-GAAP adjustments:
Amortization of acquisition-related balances		89			0.47			10			0.06
Share-based compensation expense		19			0.10			18			0.10
Acquisition and integration costs		19			0.10			6			0.04
Separation and related costs		1			0.01			6			0.04
Pension curtailment and settlement gains		—			—			(68	)		(0.39	)
Northern California wildfire-related costs		7			0.04			—			—
Restructuring and related costs		2			0.01			2			0.01
Other		—			—			(8	)		(0.05	)
Adjustment for taxes ^(a)		(134	)		(0.72	)		23			0.13
Non-GAAP Net income	$	97		$	0.51		$	98		$	0.57

Weighted average shares outstanding - diluted		189						173

^(a) For the three months ended January 31, 2018 and January 31, 2017, management uses a non-GAAP effective tax rate of 15% and 17% respectively. Historical amounts are reclassified to conform with current presentation.


Please refer page 7 for discussion on our non-GAAP financial measures.



Page 5


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



Communications Solutions Group							YoY
	Q1'18			Q1'17			% Chg
Revenue	$	420		$	434		(3	)%
Gross Margin, %		60.9	%		60.5	%
Income from Operations	$	59		$	72
Operating Margin, %		14	%		17	%


Electronic Industrial Solutions Group							YoY
	Q1'18			Q1'17			% Chg
Revenue	$	203		$	192		6	%
Gross Margin, %		59.0	%		59.9	%
Income from Operations	$	37		$	42
Operating Margin, %		19	%		22	%


Ixia Solutions Group							YoY
	Q1'18			Q1'17			% Chg
Revenue	$	127			—		—
Gross Margin, %		75.6	%		—
Income from Operations	$	18			—
Operating Margin, %		15	%		—


Services Solutions Group							YoY
	Q1'18			Q1'17			% Chg
Revenue	$	106		$	100		6	%
Gross Margin, %		40.3	%		39.4	%
Income from Operations	$	17		$	14
Operating Margin, %		16	%		14	%


Net revenue for our segment, Ixia Solutions Group excludes the impact of amortization of acquisition-related balances of $19 million for Q1'18. Segment revenue and income from operations are consistent with the respective non-GAAP measures as discussed on Page 7.



Page 6

Download Financial Statements for First Quarter Fiscal 2018

Financial Tables (51KB)

Contacts

Editorial Contact:

Denise Idone
+1 631-849-3500
[email protected]

Investor Contact:

Jason Kary
+1 707-577-6916
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