Keysight Technologies Reports Second Quarter 2020 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
	2020	2019		Inc/(Dec)

Orders	$1,089	$	1,121	(3)%


Net revenue	$895	$	1,090	(18)%

Costs and expenses:
Cost of products and services	379		442	(14)%
Research and development	166		171	(2)%
Selling, general and administrative	251		300	(16)%
Other operating expense (income), net	(3)		(8)	(57)%
Total costs and expenses	793		905	(12)%

Income from operations	102		185	(45)%

Interest income	4		6	(37)%
Interest expense	(20)		(20)	(2)%
Other income (expense), net	22		22	3%

Income before taxes	108		193	(44)%

Provision for income taxes	37		40	(6)%

Net Income	$71	$	153	(54)%


Net income per share:
Basic	$0.38	$	0.81
Diluted	$0.37	$	0.80

Weighted average shares used in computing net income per share:
Basic	187		188
Diluted	189		191

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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
	2020		2019		Inc/(Dec)

Orders	$	2,230	$	2,137	4%


Net revenue	$	1,990	$	2,096	(5)%

Costs and expenses:
Cost of products and services		819		870	(6)%
Research and development		353		344	3%
Selling, general and administrative		551		588	(6)%
Other operating expense (income), net		(38)		(12)	208%
Total costs and expenses		1,685		1,790	(6)%

Income from operations		305		306	-

Interest income		10		10	(5)%
Interest expense		(39)		(40)	(2)%
Other income (expense), net		34		37	(6)%

Income before taxes		310		313	(1)%

Provision for income taxes		76		46	65%

Net Income	$	234	$	267	(12)%


Net income per share:
Basic	$	1.25	$	1.42
Diluted	$	1.23	$	1.40

Weighted average shares used in computing net income per share:
Basic		188		188
Diluted		190		191

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


	April 30,		October 31,
	2020		2019

ASSETS

Current assets:
Cash and cash equivalents	$	1,841	$	1,598
Accounts receivable, net		485		668
Inventory		756		705
Other current assets		211		244
Total current assets		3,293		3,215

Property, plant and equipment, net		575		576
Operating lease right-of-use assets		153		-
Goodwill		1,217		1,209
Other intangible assets, net		382		490
Long-term investments		57		46
Long-term deferred tax assets		726		755
Other assets		354		332
Total assets	$	6,757	$	6,623

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	182	$	253
Employee compensation and benefits		241		278
Deferred revenue		391		334
Income and other taxes payable		25		55
Operating lease liabilities		38		-
Other accrued liabilities		72		83
Total current liabilities		949		1,003

Long-term debt		1,788		1,788
Retirement and post-retirement benefits		344		357
Long-term deferred revenue		167		176
Long-term operating lease liabilities		124		-
Other long-term liabilities		300		295
Total liabilities		3,672		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; 195 million shares at April 30, 2020, and 194 million shares at October 31, 2019, issued		2		2
Treasury stock at cost; 8.5 million shares at April 30, 2020 and 6.5 million shares at October 31, 2019		(537)		(342)
Additional paid-in-capital		2,044		2,013
Retained earnings		2,143		1,909
Accumulated other comprehensive loss		(567)		(578)
Total stockholders' equity		3,085		3,004
Total liabilities and equity	$	6,757	$	6,623

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

	Six months ended
	April 30,
	2020		2019

Cash flows from operating activities:
Net income	$	234	$	267

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		50		48
Amortization		109		103
Share-based compensation		54		50
Deferred tax expense (benefit)		27		(2)
Excess and obsolete inventory related charges		12		13
Gain on insurance proceeds received for damage to property, plant and equipment		(32)		-
Other non-cash expenses (income), net		(10)		(3)
Changes in assets and liabilities:
Accounts receivable		178		(28)
Inventory		(63)		(53)
Accounts payable		(67)		1
Employee compensation and benefits		(36)		5
Deferred revenue		51		85
Income taxes payable		1		(8)
Retirement and post-retirement benefits		(6)		(23)
Other assets and liabilities		(7)		6
Net cash provided by operating activities ^(a)		495		461

Cash flows from investing activities:
Investments in property, plant and equipment		(55)		(60)
Insurance proceeds received for damage to property, plant and equipment		32		-
Acquisition of businesses and intangible assets, net of cash acquired		(5)		-
Proceeds from divestiture		-		2
Proceeds from sale of investments		-		7
Other investing activities		-		2
Net cash used in investing activities		(28)		(49)

Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans		26		39
Payment of taxes related to net share settlement of equity awards		(50)		(24)
Treasury stock repurchases		(196)		(69)
Net cash used in financing activities		(220)		(54)

Effect of exchange rate movements		(4)		5

Net increase in cash, cash equivalents and restricted cash		243		363

Cash, cash equivalents and restricted cash at beginning of period		1,600		917

Cash, cash equivalents and restricted cash at end of period	$	1,843	$	1,280


^(a) Cash payments included in operating activities:
Income tax payments, net	$	(47)	$	(48)
Interest payment on senior notes	$	(38)	$	(38)

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KEYSIGHT TECHNOLOGIES, INC.
RECONCILIATION OF NON-GAAP CORE REVENUE
(In millions)
(Unaudited)
PRELIMINARY

	Year-over-year compare
	Q2'20		Q2'19		Percent Inc/(Dec)
GAAP Revenue	$	895	$	1,090	(18)%
Amortization of acquisition-related balances		-		3
Non-GAAP Revenue	$	895	$	1,093	(18)%
Less: Revenue from acquisition or divestitures included in segment results		(6)		-
Currency impacts		3		-
Non-GAAP Core Revenue	$	892	$	1,093	(18)%

Non-GAAP core revenue excludes impact of currency and revenue from acquisitions or divestitures closed within the last twelve months.

Please refer page 10 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 ^(a)					YoY
	Q2'20		Q2'19		% Chg
Revenue	$	653	$	794	(18)%
Gross margin, %		63.1%		64.6%
Income from operations	$	114	$	190
Operating margin, %		18%		24%


Electronic Industrial Solutions Group					YoY
	Q2'20		Q2'19		% Chg
Revenue	$	242	$	299	(19)%
Gross margin, %		62.0%		61.3%
Income from operations	$	59	$	78
Operating margin, %		24%		26%

^(a) Restated for the recently completed 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 $3 million for Q2'19. Segment revenue and income from operations are consistent with the respective non-GAAP measures as discussed on Page 10.

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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,
	2020				2019				2020				2019
	Net Income		Diluted EPS		Net Income		Diluted EPS		Net Income		Diluted EPS		Net Income		Diluted EPS

GAAP Net income	$	71	$	0.37	$	153	$	0.80	$	234	$	1.23	$	267	$	1.40
Non-GAAP adjustments:
Amortization of acquisition-related balances		54		0.28		54		0.28		113		0.59		108		0.56
Share-based compensation		15		0.08		23		0.12		54		0.29		50		0.26
Acquisition and integration costs		2		0.01		1		0.01		4		0.02		3		0.02
Northern California wildfire-related impacts		-		-		-		-		(32)		(0.17)		-		-
Restructuring and related costs		1		0.01		6		0.03		3		0.01		6		0.03
Other		(12)		(0.06)		(12)		(0.06)		(11)		(0.06)		(15)		(0.08)
Adjustment for taxes ^(a)		17		0.09		8		0.04		23		0.13		(10)		(0.05)
Non-GAAP Net income	$	148	$	0.78	$	233	$	1.22	$	388	$	2.04	$	409	$	2.14

Weighted average shares outstanding - diluted		189				191				190				191

^(a) For both the three and six months ended April 30, 2020 and 2019, management uses a non-GAAP effective tax rate of 12%.

Historical amounts are reclassified to conform with current presentation.

Please refer page 10 for discussion on our non-GAAP financial measures.

Page 7

KEYSIGHT TECHNOLOGIES, INC.
NON-GAAP OPERATING MARGIN RECONCILIATION
(In millions)
(Unaudited)
PRELIMINARY

	Three months ended
	April 30,
	2020		2019

Income from operations, as reported	$	102	$	185
Amortization of acquisition-related balances		54		54
Share-based compensation		15		23
Acquisition and integration costs		2		-
Restructuring and related costs		1		6
Other		(1)		-
Non-GAAP income from operations	$	173	$	268

GAAP Operating Margin		11.4%		17.0%
Non-GAAP Operating Margin		19.4%		24.6%

Please refer page 10 for discussion on our non-GAAP financial measures.

Page 8

KEYSIGHT TECHNOLOGIES, INC.
FREE CASH FLOW
(In millions)
(Unaudited)
PRELIMINARY



	Q2'20
Net cash provided by operating activities	$	298
Less: Investments in property, plant and equipment		(23)
Free cash flow	$	275

Free cash flow as a percentage of GAAP Revenue		31%


Operating free cash flow is a non-GAAP measure which management believes provides useful information to management and investors about the amount of cash generated by the business after the acquisition of property and equipment, which can then be used for strategic opportunities including investing in the Company's business and making strategic acquisitions. Our management uses this measure which is a common one in our industry to compare ourselves to our competitors and to measure our own performance. A limitation of operating free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. Our management compensates for this limitation by monitoring and providing the reader with a complete GAAP statement of cash flows which includes net cash provided by operating activities.

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