Keysight Technologies Reports Fourth Quarter and Fiscal Year

Keysight Technologies Reports Fourth Quarter and Fiscal Year 2022 Results

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Source: IR-KEYS

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

	Three months ended
	October 31,						Percent
		2022			2021		Inc/(Dec)

Orders	$	1,570		$	1,491		5	%

Revenue	$	1,443		$	1,294		11	%

Costs and expenses:
Cost of products and services		533			457		17	%
Research and development		215			196		10	%
Selling, general and administrative		321			295		8	%
Other operating expense (income), net		(5	)		(3	)	79	%
Total costs and expenses		1,064			945		12	%

Income from operations		379			349		9	%

Interest income		10			1		1817	%
Interest expense		(20	)		(20	)	(1	)%
Other income (expense), net		(1	)		7		–

Income before taxes		368			337		9	%

Provision for income taxes		69			55		25	%

Net income	$	299		$	282		6	%


Net income per share:
Basic	$	1.67		$	1.54
Diluted	$	1.66		$	1.52

Weighted average shares used in computing net income per share:
Basic		179			183
Diluted		180			186


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

	Year ended
	October 31,						Percent
		2022			2021		Inc/(Dec)

Orders	$	5,984		$	5,356		12	%

Revenue	$	5,420		$	4,941		10	%

Costs and expenses:
Cost of products and services		1,970			1,872		5	%
Research and development		841			811		4	%
Selling, general and administrative		1,283			1,195		7	%
Other operating expense (income), net		(8	)		(17	)	(53	)%
Total costs and expenses		4,086			3,861		6	%

Income from operations		1,334			1,080		24	%

Interest income		16			3		676	%
Interest expense		(79	)		(79	)	–
Other income (expense), net		14			6		105	%

Income before taxes		1,285			1,010		27	%

Provision for income taxes		161			116		39	%

Net income	$	1,124		$	894		26	%


Net income per share:
Basic	$	6.23		$	4.84
Diluted	$	6.18		$	4.78

Weighted average shares used in computing net income per share:
Basic		180			185
Diluted		182			187


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

	October 31,			October 31,
		2022			2021

ASSETS

Current assets:
Cash and cash equivalents	$	2,042		$	2,052
Accounts receivable, net		905			735
Inventory		858			777
Other current assets		429			270
Total current assets		4,234			3,834

Property, plant and equipment, net		690			650
Operating lease right-of-use assets		220			227
Goodwill		1,582			1,628
Other intangible assets, net		189			272
Long-term investments		62			70
Long-term deferred tax assets		667			711
Other assets		454			389
Total assets	$	8,098		$	7,781

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	348		$	287
Employee compensation and benefits		333			355
Deferred revenue		495			478
Income and other taxes payable		96			74
Operating lease liabilities		39			41
Other accrued liabilities		96			74
Total current liabilities		1,407			1,309

Long-term debt		1,793			1,791
Retirement and post-retirement benefits		58			167
Long-term deferred revenue		197			187
Long-term operating lease liabilities		186			191
Other long-term liabilities		296			352
Total liabilities		3,937			3,997

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; 199 million shares at October 31, 2022, and 197 million shares at October 31, 2021 issued		2			2
Treasury stock at cost; 20.5 million shares at October 31, 2022 and 15.1 million shares at October 31, 2021		(2,274	)		(1,425	)
Additional paid-in-capital		2,333			2,219
Retained earnings		4,554			3,430
Accumulated other comprehensive loss		(454	)		(442	)
Total stockholders' equity		4,161			3,784
Total liabilities and equity	$	8,098		$	7,781


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

	Year ended
	October 31,
		2022			2021

Cash flows from operating activities:
Net income	$	1,124		$	894
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		117			117
Amortization		106			176
Share-based compensation		125			103
Deferred tax expense (benefit)		7			(53	)
Excess and obsolete inventory-related charges		27			27
Loss on settlement of pension plan		—			16
Unrealized loss on investment in Equity Securities		31			—
Other non-cash expense (income), net		11			6
Changes in assets and liabilities:
Accounts receivable		(204	)		(122	)
Inventory		(125	)		(43	)
Accounts payable		56			53
Employee compensation and benefits		(17	)		50
Deferred revenue		79			96
Income taxes payable		(14	)		34
Retirement and post-retirement benefits		(19	)		7
Other assets and liabilities		(160	)		(39	)
Net cash provided by operating activities ^(a)		1,144			1,322

Cash flows from investing activities:
Investments in property, plant and equipment		(185	)		(174	)
Acquisition of businesses and intangible assets, net of cash acquired		(33	)		(178	)
Purchase of investments		(33	)		(1	)
Net cash used in investing activities		(251	)		(353	)

Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans		63			59
Payment of taxes related to net share settlement of equity awards		(74	)		(53	)
Treasury stock repurchases		(849	)		(673	)
Other financing activities		(1	)		(4	)
Net cash used in financing activities		(861	)		(671	)

Effect of exchange rate movements		(43	)		3

Net increase (decrease) in cash, cash equivalents and restricted cash		(11	)		301
Cash, cash equivalents and restricted cash at beginning of year		2,068			1,767
Cash, cash equivalents and restricted cash at end of year	$	2,057		$	2,068


^(a) Cash payments included in operating activities:
Interest payments	$	75		$	75
Income tax paid, net	$	191		$	130


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

	Year-over-year compare							Year-over-year compare
	Q4'22			Q4'21		Percent Inc/(Dec)		FY22			FY21		Percent Inc/(Dec)
Revenue	$	1,443		$	1,294	11	%	$	5,420		$	4,941	10	%
Adjustments:
Revenue from acquisitions or divestitures		(3	)		—				(11	)		—
Currency impacts		51			—				116			—
Core Revenue	$	1,491		$	1,294	15	%	$	5,525		$	4,941	12	%



Please refer last page 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
	Q4'22		Q4'21		% Chg
Revenue	$	992	$	919	8	%
Gross margin, %		66%		66%
Income from operations	$	289	$	262
Operating margin, %		29%		28%


Electronic Industrial Solutions Group					YoY
	Q4'22		Q4'21		% Chg
Revenue	$	451	$	375	20	%
Gross margin, %		60%		66%
Income from operations	$	142	$	135
Operating margin, %		32%		36%


Segment revenue and income from operations are consistent with the respective non-GAAP financial measures as discussed on last page.


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

	Three months ended										Year ended
	October 31,										October 31,
	2022				2021						2022						2021
	Net Income		Diluted EPS		Net Income			Diluted EPS			Net Income			Diluted EPS			Net Income			Diluted EPS

GAAP Net income	$	299	$	1.66	$	282		$	1.52		$	1,124		$	6.18		$	894		$	4.78
Non-GAAP adjustments:
Amortization of acquisition-related balances		25		0.14		27			0.14			103			0.57			174			0.93
Share-based compensation		23		0.13		20			0.11			126			0.69			104			0.56
Acquisition and integration costs		2		0.01		1			0.01			9			0.05			9			0.05
Restructuring and others		20		0.12		(1	)		(0.01	)		54			0.30			26			0.14
Adjustment for taxes ^(a)		17		0.08		9			0.05			(28	)		(0.16	)		(43	)		(0.23	)
Non-GAAP Net income	$	386	$	2.14	$	338		$	1.82		$	1,388		$	7.63		$	1,164		$	6.23

Weighted average shares outstanding - diluted		180				186						182						187


^(a) For both the three and twelve months ended October 31, 2022 and 2021, management uses a non-GAAP effective tax rate of 12%.

Please refer last page for details on the use of non-GAAP financial measures.


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

	Three months ended						Year ended
	October 31,						October 31,
		2022			2021			2022			2021
Net cash provided by operating activities	$	398		$	368		$	1,144		$	1,322
Less: Investments in property, plant and equipment		(58	)		(73	)		(185	)		(174	)
Free cash flow	$	340		$	295		$	959		$	1,148


Please refer last page for details on the use of non-GAAP financial measures.


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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:


�nbsp;	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.

�nbsp;	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.

�nbsp;	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, 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.

�nbsp;	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 quarter of fiscal 2023 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.
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