Financial News

Keysight Technologies Reports First Quarter 2023 Results

Record First Quarter Revenue and Earnings Per Share

Strong execution and operational discipline drove above guidance results

Keysight Technologies, Inc. (NYSE: KEYS) today reported financial results for the first fiscal quarter ended January 31, 2023.

“Keysight delivered strong first quarter financial results, with revenue and earnings per share exceeding the high end of guidance. Our consistent performance is due to the resilience of our business, deep customer collaborations, and differentiated solutions portfolio,” said Satish Dhanasekaran, Keysight’s President and CEO. “With demand moderating, we are staying disciplined and remain confident in the secular, long-term growth trends of our markets.”

First Quarter Financial Summary

  • Revenue grew 10 percent to reach $1.38 billion, compared with $1.25 billion last year, or 14 percent on a core basis, which excludes the impact of foreign currency changes and revenue associated with businesses acquired or divested within the last twelve months.
  • GAAP net income was $260 million, or $1.45 per share, compared with $229 million, or $1.24 per share, in the first quarter of 2022.
  • Non-GAAP net income was $363 million, or $2.02 per share, compared with $305 million, or $1.65 per share in the first quarter of 2022.
  • Keysight acquired 711 thousand shares in the open market at an average share price of $176.44, for a total consideration of $125 million.
  • As of January 31, 2023, cash and cash equivalents totaled $2.23 billion.

Reporting Segments

  • Communications Solutions Group (CSG)

CSG reported revenue of $939 million in the first quarter, up 7 percent over last year, with strength in 5G, O-RAN, 800G, and terabit communications solutions, as well as increased U.S. government spending and strength in space and satellite, including new applications for non-terrestrial networks. CSG reported growth across all regions.

  • Electronic Industrial Solutions Group (EISG)

EISG reported revenue of $442 million in the first quarter, up 19 percent over last year, driven by growth in next-generation automotive and energy solutions, and general electronics. EISG reported growth across all regions.

Outlook

Keysight’s second fiscal quarter of 2023 revenue is expected to be in the range of $1.37 billion to $1.39 billion. Non-GAAP earnings per share for the second fiscal quarter of 2023 are expected to be in the range of $1.91 to $1.97. 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 first quarter FY2023 financial results and its second quarter FY2023 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 2023 Keysight Technologies Inc. Earnings Conference Call” to participate or dial +1-844-200-6205 (U.S. only) or +1-929-526-1599 (International) and enter passcode 688219. 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 “expect,” “intend,” “will,” “should,” 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, slowing demand for products or services, supply chain constraints; impacts of geopolitical tension and conflict outside of the U.S., export control regulations and compliance; net zero emissions commitments; increases in attrition and our ability to retain key personnel; 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, 2022.

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:

  • Core Revenue
  • Non-GAAP Net Income/Earnings
  • Non-GAAP Net Income per share/Earnings per share

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 the three months ended January 31, 2023. 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 delivers advanced design and validation solutions that help accelerate innovation to connect and secure the world. Keysight’s dedication to speed and precision extends to software-driven insights and analytics that bring tomorrow’s technology products to market faster across the development lifecycle, in design simulation, prototype validation, automated software testing, manufacturing analysis, and network performance optimization and visibility in enterprise, service provider and cloud environments. Our customers span the worldwide communications and industrial ecosystems, aerospace and defense, automotive, energy, semiconductor and general electronics markets. Keysight generated revenues of $5.4B in fiscal year 2022. For more information about Keysight Technologies (NYSE: KEYS), visit us at www.keysight.com.

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

Source: IR-KEYS

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
(Unaudited)
PRELIMINARY
 
Three months ended
January 31, Percent

 

2023

 

 

2022

 

Inc/(Dec)
 
Orders

$

1,300

 

$

1,495

 

(13

)%

 
Revenue

$

1,381

 

$

1,250

 

10

%

 
Costs and expenses:
Cost of products and services

 

498

 

 

446

 

12

%

Research and development

 

227

 

 

210

 

8

%

Selling, general and administrative

 

338

 

 

326

 

3

%

Other operating expense (income), net

 

(4

)

 

(3

)

20

%

Total costs and expenses

 

1,059

 

 

979

 

8

%

 
Income from operations

 

322

 

 

271

 

19

%

 
Interest income

 

19

 

 

1

 

3148

%

Interest expense

 

(19

)

 

(20

)

(2

)%

Other income (expense), net

 

9

 

 

12

 

(20

)%

 
Income before taxes

 

331

 

 

264

 

26

%

 
Provision for income taxes

 

71

 

 

35

 

105

%

 
Net income

$

260

 

$

229

 

14

%

 
 
Net income per share:
Basic

$

1.46

 

$

1.25

 

Diluted

$

1.45

 

$

1.24

 

 
Weighted average shares used in computing net income per share:
Basic

 

178

 

 

183

 

Diluted

 

180

 

 

184

 

 
Page 1
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share data)
(Unaudited)
PRELIMINARY
 
January 31, October 31,

 

2023

 

 

2022

 

 
ASSETS
 
Current assets:
Cash and cash equivalents

$

2,228

 

$

2,042

 

Accounts receivable, net

 

920

 

 

905

 

Inventory

 

909

 

 

858

 

Other current assets

 

441

 

 

429

 

Total current assets

 

4,498

 

 

4,234

 

 
Property, plant and equipment, net

 

728

 

 

690

 

Operating lease right-of-use assets

 

222

 

 

220

 

Goodwill

 

1,611

 

 

1,582

 

Other intangible assets, net

 

166

 

 

189

 

Long-term investments

 

75

 

 

62

 

Long-term deferred tax assets

 

679

 

 

667

 

Other assets

 

469

 

 

454

 

Total assets

$

8,448

 

$

8,098

 

 
LIABILITIES AND EQUITY
 
Current liabilities:
Accounts payable

$

325

 

$

348

 

Employee compensation and benefits

 

257

 

 

333

 

Deferred revenue

 

554

 

 

495

 

Income and other taxes payable

 

164

 

 

96

 

Operating lease liabilities

 

42

 

 

39

 

Other accrued liabilities

 

123

 

 

96

 

Total current liabilities

 

1,465

 

 

1,407

 

 
Long-term debt

 

1,793

 

 

1,793

 

Retirement and post-retirement benefits

 

61

 

 

58

 

Long-term deferred revenue

 

217

 

 

197

 

Long-term operating lease liabilities

 

186

 

 

186

 

Other long-term liabilities

 

322

 

 

296

 

Total liabilities

 

4,044

 

 

3,937

 

 
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 January 31, 2023 and 199 million shares at October 31, 2022 issued

 

2

 

 

2

 

Treasury stock at cost; 21.2 million shares at January 31, 2023 and 20.5 million shares at October 31, 2022

 

(2,399

)

 

(2,274

)

Additional paid-in-capital

 

2,378

 

 

2,333

 

Retained earnings

 

4,814

 

 

4,554

 

Accumulated other comprehensive loss

 

(391

)

 

(454

)

Total stockholders' equity

 

4,404

 

 

4,161

 

Total liabilities and equity

$

8,448

 

$

8,098

 

 
Page 2
KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
 
Three months ended
January 31,

 

2023

 

 

2022

 

 
Cash flows from operating activities:
Net income

$

260

 

$

229

 

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation

 

29

 

 

30

 

Amortization

 

24

 

 

27

 

Share-based compensation

 

54

 

 

50

 

Deferred tax expense (benefit)

 

(1

)

 

9

 

Excess and obsolete inventory-related charges

 

6

 

 

6

 

Unrealized loss (gain) on equity and other investments

 

(6

)

 

3

 

Other non-cash expense (income), net

 

 

 

2

 

Changes in assets and liabilities:
Accounts receivable

 

6

 

 

25

 

Inventory

 

(44

)

 

(32

)

Accounts payable

 

(19

)

 

(4

)

Employee compensation and benefits

 

(84

)

 

(117

)

Deferred revenue

 

62

 

 

28

 

Income taxes payable

 

56

 

 

14

 

Retirement and post-retirement benefits

 

(3

)

 

(9

)

Prepaid assets

 

(10

)

 

(42

)

Other assets and liabilities

 

36

 

 

5

 

Net cash provided by operating activities(a)

 

366

 

 

224

 

 
Cash flows from investing activities:
Investments in property, plant and equipment

 

(60

)

 

(42

)

Acquisition of businesses and intangible assets, net of cash acquired

 

 

 

(7

)

Net cash used in investing activities

 

(60

)

 

(49

)

 
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans

 

33

 

 

31

 

Payment of taxes related to net share settlement of equity awards

 

(46

)

 

(72

)

Treasury stock repurchases

 

(125

)

 

(206

)

Other financing activities

 

(1

)

 

 

Net cash used in financing activities

 

(139

)

 

(247

)

 
Effect of exchange rate movements

 

20

 

 

(4

)

 
Net increase (decrease) in cash, cash equivalents, and restricted cash

 

187

 

 

(76

)

Cash, cash equivalents and restricted cash at beginning of period

 

2,057

 

 

2,068

 

Cash, cash equivalents and restricted cash at end of period

$

2,244

 

$

1,992

 

 
 
(a) Cash payments included in operating activities:
Interest payments

$

 

$

 

Income tax paid, net

$

14

 

$

12

 

 
 
Page 3
KEYSIGHT TECHNOLOGIES, INC.
RECONCILIATION OF CORE REVENUE
(In millions)
(Unaudited)
PRELIMINARY
 
Year-over-year
Q1'23 Q1'22 Percent Inc/(Dec)
Revenue

$

1,381

 

$

1,250

10

%

Adjustments:
Revenue from acquisitions or divestitures

 

(2

)

 

Currency impacts

 

49

 

 

Core Revenue

$

1,428

 

$

1,250

14

%

 
 
 
Please refer last page for discussion on our non-GAAP financial measures.
 
Page 4
KEYSIGHT TECHNOLOGIES, INC.
SEGMENT RESULTS INFORMATION
(In millions, except where noted)
(Unaudited)
PRELIMINARY
 
Communications Solutions Group Percent Inc/(Dec)
Q1'23 Q1'22
Revenue

$

939

 

$

878

 

7

%

Gross margin, %

 

67

%

 

67

%

Income from operations

$

269

 

$

237

 

Operating margin, %

 

29

%

 

27

%

 
 
Electronic Industrial Solutions Group Percent Inc/(Dec)
Q1'23 Q1'22
Revenue

$

442

 

$

372

 

19

%

Gross margin, %

 

61

%

 

63

%

Income from operations

$

140

 

$

114

 

Operating margin, %

 

32

%

 

31

%

 
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.
NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATION
(In millions, except per share data)
(Unaudited)
PRELIMINARY
 
Three months ended
January 31,

2023

2022

 

Net Income Diluted EPS Net Income Diluted EPS
 
GAAP Net income

$

260

$

1.45

$

229

 

$

1.24

 

Non-GAAP adjustments:
Amortization of acquisition-related balances

 

23

 

0.13

 

26

 

 

0.14

 

Share-based compensation

 

55

 

0.30

 

51

 

 

0.27

 

Acquisition and integration costs

 

2

 

0.01

 

3

 

 

0.02

 

Restructuring and others

 

1

 

0.01

 

3

 

 

0.02

 

Adjustment for taxes(a)

 

22

 

0.12

 

(7

)

 

(0.04

)

Non-GAAP Net income

$

363

$

2.02

$

305

 

$

1.65

 

 
Weighted average shares outstanding - diluted

 

180

 

184

 

 
(a) For the three months ended January 31, 2023 and 2022, management uses a non-GAAP effective tax rate of 12%.
 
Please refer last page for details on the use of non-GAAP financial measures.
 
Page 6
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, 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.
 
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, 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 second 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.
Page 7

 

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