Delaware | 001-36334 | 46-4254555 | ||
(State or other jurisdiction | (Commission | (IRS Employer | ||
of incorporation) | File Number) | Identification No.) |
1400 Fountaingrove Parkway Santa Rosa CA | 95403 | |
(Address of principal executive offices) | (Zip Code) |
KEYSIGHT TECHNOLOGIES, INC. | ||
By: | /s/ Jeffrey K. Li | |
Name: | Jeffrey K. Li | |
Title: | Vice President, Assistant General Counsel and | |
Assistant Secretary | ||
Date: May 30, 2018 |
• | GAAP revenue grew 31 percent to reach $990 million, when compared with $753 million last year. Non-GAAP revenue, which excludes the impact of fair value adjustments to acquisition-related deferred revenue balances, grew 32 percent to reach $999 million. Non-GAAP core revenue, which also excludes the impact of foreign currency changes and revenue associated with businesses acquired within the last twelve months, increased 18 percent. |
• | GAAP net income was $64 million, or $0.34 per share, compared with $49 million, or $0.27 per share in the second quarter of 2017. Non-GAAP net income was $158 million, or $0.83 per share using 190 million weighted average shares, compared with $114 million, or $0.64 per share using 179 million weighted average shares in the second quarter of 2017. |
• | As of April 30, 2018, cash and cash equivalents totaled $784 million. |
• | GAAP revenue grew 24 percent to reach $1,827 million, when compared with $1,479 million last year. Non-GAAP revenue grew 25 percent to reach $1,855 million and non-GAAP core revenue increased 8 percent. |
• | GAAP net income was $158 million, or $0.83 per share, compared with $158 million, or $0.90 per share last year. Non-GAAP net income was $255 million, or $1.34 per share using 190 million weighted average shares, compared with $212 million, or $1.20 per share using 176 million weighted average shares in the 2017 period. |
• | Cash flow from operations was $282 million. Deployed capital by repaying $260 million of pre-payable debt and repurchasing 770,000 shares for $40 million under the $350 million share repurchase program authorization. |
• | Communications Solutions Group (CSG) |
• | Electronic Industrial Solutions Group (EISG) |
• | Ixia Solutions Group (ISG) |
• | Services Solutions Group (SSG) |
• | Non-GAAP Core Revenue |
• | Non-GAAP Revenue |
• | Non-GAAP Net Income |
• | Non-GAAP Diluted EPS |
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 |
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 | —% | ||||
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 |
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 |
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 | ) |
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 acquisition included in segment results | (84 | ) | — | (219 | ) | — | |||||||||||||||||||||
Currency impacts | (20 | ) | — | (31 | ) | — | |||||||||||||||||||||
Non-GAAP Core Revenue | $ | 895 | $ | 758 | 18% | $ | 1,605 | $ | 1,484 | 8% |
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 | % |
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 |
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% |
• | 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. |
• | 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 transaction and certain other cash 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. |
• | Separation and Related Costs: We exclude all incremental expenses incurred to effect the separation of Keysight from Agilent. We exclude expenses that would not have been incurred if we had no plan to spin-off including, among other things, branding, legal, accounting and advisory fees, costs to resize and optimize our infrastructure and other costs to separate and transition from Agilent. 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. |
• | Restructuring and Related Costs: 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 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. |
• | Northern California wildfire related costs and Other Items: We exclude certain other significant income or expense items that may occur occasionally and are not normal, recurring, cash operating 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 would not anticipate occurring as part of our normal business on a regular basis. While not all-inclusive, examples of certain other significant items excluded from non-GAAP financial measures would be: costs related to unusual disaster like Northern California wildfires, significant realized gains or losses associated with our employee benefit plans, gain on sale of assets and small divestitures etc. |
• | 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 third fiscal quarter of 2018 to the GAAP equivalent. |