Keysight Technologies Reports Second Quarter 2018 Results

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Source: IR-KEYS


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


	Three months ended
	April 30,						Percent
		2018			2017		Inc/(Dec)

Orders	$	987		$	805		23	%


Net revenue	$	990		$	753		31	%

Costs and expenses:
Cost of products and services		447			340		31	%
Research and development		156			119		30	%
Selling, general and administrative		299			256		17	%
Other operating expense (income), net		(12	)		(4	)	230	%
Total costs and expenses		890			711		25	%

Income from operations		100			42		140	%

Interest income		2			2		27	%
Interest expense		(21	)		(24	)	(13	)%
Other income (expense), net		2			2		(41	)%

Income before taxes		83			22		282	%

Provision (benefit) for income taxes		19			(27	)	(168	)%

Net income	$	64		$	49		31	%


Net income per share:
Basic	$	0.34		$	0.28
Diluted	$	0.34		$	0.27

Weighted average shares used in computing net income per share:
Basic		188			177
Diluted		190			179

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

	Six months ended
	April 30,						Percent
		2018			2017		Inc/(Dec)

Orders	$	1,951		$	1,500		30	%


Net revenue	$	1,827		$	1,479		24	%

Costs and expenses:
Cost of products and services		857			662		29	%
Research and development		302			227		33	%
Selling, general and administrative		588			469		26	%
Other operating expense (income), net		(15	)		(83	)	(82	)%
Total costs and expenses		1,732			1,275		36	%

Income from operations		95			204		(53	)%

Interest income		5			3		57	%
Interest expense		(43	)		(36	)	20	%
Other income (expense), net		3			3		28	%

Income before taxes		60			174		(65	)%

Provision (benefit) for income taxes		(98	)		16		(724	)%

Net income	$	158		$	158		0	%


Net income per share:
Basic	$	0.84		$	0.91
Diluted	$	0.83		$	0.90

Weighted average shares used in computing net income per share:
Basic		187			174
Diluted		190			176

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


	April 30,			October 31,
		2018			2017
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	784		$	818
Accounts receivable, net		579			547
Inventory		597			588
Other current assets		229			224
Total current assets		2,189			2,177

Property, plant and equipment, net		546			530
Goodwill		1,891			1,882
Other intangible assets, net		754			855
Long-term investments		59			63
Long-term deferred tax assets		203			186
Other assets		281			240
Total assets	$	5,923		$	5,933

LIABILITIES AND EQUITY

Current liabilities:
Current portion of long-term debt	$	-		$	10
Accounts payable		240			211
Employee compensation and benefits		241			217
Deferred revenue		347			291
Income and other taxes payable		47			28
Other accrued liabilities		78			62
Total current liabilities		953			819

Long-term debt		1,789			2,038
Retirement and post-retirement benefits		309			309
Long-term deferred revenue		119			101
Other long-term liabilities		230			356
Total liabilities		3,400			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 April 30, 2018 and 188 million shares at October 31, 2017, issued		2			2
Treasury stock at cost; 3.1 million shares at April 30, 2018 and 2.3 million shares at October 31, 2017, respectively		(102	)		(62	)
Additional paid-in-capital		1,837			1,786
Retained earnings		1,205			1,041
Accumulated other comprehensive loss		(419	)		(457	)
Total stockholders' equity		2,523			2,310
Total liabilities and equity	$	5,923		$	5,933

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

	Six months ended
	April 30,
		2018			2017

Cash flows from operating activities:
Net income	$	158		$	158

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		157			73
Share-based compensation		34			31
Debt issuance expense		-			9
Deferred tax benefit		(237	)		(13	)
Excess and obsolete inventory-related charges		11			6
Gain on sale of assets and divestiture		(8	)		(8	)
Pension curtailment and settlement gains		-			(68	)
Asset impairment		-			7
Other non-cash expenses, net		5			1
Changes in assets and liabilities:
Accounts receivable		(31	)		10
Inventory		(18	)		(10	)
Accounts payable		20			(17	)
Employee compensation and benefits		23			-
Income taxes payable		125			(7	)
Retirement and post-retirement benefits		(22	)		(6	)
Deferred revenue		71			30
Other assets and liabilities		(6	)		(32	)
Net cash provided by operating activities ^(a)		282			164

Cash flows from investing activities:
Investments in property, plant and equipment		(58	)		(33	)
Proceeds from sale of property, plant and equipment		-			8
Change in restricted cash and cash equivalents, net		-			1
Proceeds from sale of investments		-			4
Acquisition of businesses and intangible assets, net of cash acquired		(3	)		(1,622	)
Proceeds from divestiture		12			-
Net cash used in investing activities		(49	)		(1,642	)

Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans		33			21
Proceeds from issuance of common stock under public offering		-			444
Payment of taxes related to net share settlement of equity awards		(16	)		(11	)
Treasury stock repurchases ^(b)		(28	)		-
Proceeds from short-term borrowings		40			170
Proceeds from issuance of long-term debt		-			1,069
Payment of debt issuance costs		-			(16	)
Repayment of debt and credit facility		(300	)		-
Net cash provided by /(used in) financing activities		(271	)		1,677

Effect of exchange rate movements		4			1

Net increase (decrease) in cash and cash equivalents		(34	)		200

Cash and cash equivalents at beginning of period		818			783

Cash and cash equivalents at end of period	$	784		$	983


^(a) Cash payments included in operating activities:
Income tax payments, net	$	(11	)	$	(34	)
Interest payment on borrowings	$	(41	)	$	(22	)

^(b) For the six months ended April 30, 2018, we repurchased 773,352 shares of common stock for $40 million, held as treasury stock and accounted for at trade date using the cost method. There were $12 million stock repurchases pending settlement as of April, 30 2018.

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

	Q3'18 Guidance				Year-over-year compare							Year-over-year compare
	Low end		High end		Q2'18			Q2'17		Percent Inc/(Dec)		H1'18			H1'17		Percent Inc/(Dec)
GAAP Revenue	$	937	$	967	$	990		$	753	31	%	$	1,827		$	1,479	24	%
Amortization of acquisition-related balances		5		5		9			5				28			5
Non-GAAP Revenue	$	942	$	972	$	999		$	758	32	%	$	1,855		$	1,484	25	%
Less: Revenue from acquisitions included in segment results						(84	)		-				(219	)		-
Currency impacts						(20	)		-				(31	)		-
Non-GAAP Core Revenue					$	895		$	758	18	%	$	1,605		$	1,484	8	%


Please refer to page 9 for discussion on our non-GAAP financial measures.

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

Communications Solutions Group							YoY							YoY
	Q2'18			Q2'17			% Chg	H1'18			H1'17			% Chg
Revenue	$	536		$	424		27%	$	956		$	858		11%
Gross Margin, %		61.7	%		61.3	%			61.3	%		60.9	%
Income from Operations	$	126		$	75			$	185		$	147
Operating Margin, %		23	%		18	%			19	%		17	%


Electronic Industrial Solutions Group							YoY							YoY
	Q2'18			Q2'17			% Chg	H1'18			H1'17			% Chg
Revenue	$	255		$	220		16%	$	458		$	412		11%
Gross Margin, %		61.3	%		61.8	%			60.3	%		60.9	%
Income from Operations	$	67		$	57			$	104		$	99
Operating Margin, %		26	%		26	%			23	%		24	%


Ixia Solutions Group ^(a)							YoY							YoY
	Q2'18			Q2'17			% Chg	H1'18			H1'17			% Chg
Revenue	$	90		$	12		NA	$	217		$	12		NA
Gross Margin, %		75.8	%		77.1	%			75.7	%		77.1	%
Income from Operations	$	(7	)	$	(2	)		$	11		$	(2	)
Operating Margin, %		-8	%		-13	%			5	%		-13	%


Services Solutions Group							YoY							YoY
	Q2'18			Q2'17			% Chg	H1'18			H1'17			% Chg
Revenue	$	118		$	102		15%	$	224		$	202		11%
Gross Margin, %		40.6	%		40.9	%			40.5	%		40.2	%
Income from Operations	$	18		$	17			$	35		$	31
Operating Margin, %		15	%		16	%			15	%		15	%


^(a) The Ixia Solutions Group operating results for Q2'17 and H1'17 include activity for 13 days during the period, from the date of acquisition, April 18, 2017, through April 30, 2017.

Net revenue for our segment, Ixia Solutions Group and Communication Solution Group excludes the impact of amortization of acquisition-related balances of $8 million and $1 million for Q2'18, respectively, and $27 million and $1 million for H1'18, respectively. Net revenue for our segment, Ixia Solutions Group and Communication Solution Group excludes the impact of amortization of acquisition-related balances of $4 million and $1 million for Q2'17, respectively, and $4 million and $1 million for H1'17, respectively. Segment revenue and income from operations are consistent with the respective non-GAAP measures as discussed on Page 9.

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

	Three months ended				Six months ended
	April 30,				April 30,
	2018		2017		2018		2017
	Net Income	Diluted EPS	Net Income	Diluted EPS	Net Income	Diluted EPS	Net Income	Diluted EPS

GAAP Net income	$ 64	$ 0.34	$ 49	$ 0.27	$ 158	$ 0.83	$ 158	$ 0.90
Non-GAAP adjustments:
Amortization of acquisition-related balances	65	0.34	26	0.15	154	0.81	36	0.21
Share-based compensation expense	15	0.08	13	0.07	34	0.18	31	0.18
Acquisition and integration costs	17	0.09	31	0.17	36	0.19	37	0.21
Acquisition-related compensation expense	-	-	28	0.16	-	-	28	0.16
Separation and related costs	1	0.01	8	0.05	2	0.01	14	0.08
Pension curtailment and settlement gains	-	-	-	-	-	-	(68)	(0.39)
Northern California wildfire-related costs	-	-	-	-	7	0.04	-	-
Restructuring and related costs	11	0.06	1	0.01	13	0.07	3	0.01
Other	(6)	(0.03)	8	0.04	(6)	(0.03)	-	-
Adjustment for taxes ^(a)	(9)	(0.06)	(50)	(0.28)	(143)	(0.76)	(27)	(0.16)
Non-GAAP Net income	$ 158	$ 0.83	$ 114	$ 0.64	$ 255	$ 1.34	$ 212	$ 1.20

Weighted average shares outstanding - diluted	190		179		190		176


^(a) For the three and six months ended April 30, 2018 and April 30, 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 to page 9 for discussion on our non-GAAP financial measures.

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KEYSIGHT TECHNOLOGIES, INC.
GAAP REVENUE BY END MARKET
(In millions)
(Unaudited)
PRELIMINARY

					YoY
	Q2'18		Q2'17		% Chg
Aerospace, Defense & Government	$	213	$	168	27%
Commercial Communications		322		255	26%
Electronic Industrial		255		220	16%
Ixia ^(a)		82		8	NA
Services		118		102	15%
Total Revenue	$	990	$	753	31%


^(a) The Ixia Solutions Group operating results for Q2'17 include activity for 13 days during the period, from the date of acquisition, April 18, 2017, through April 30, 2017.

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