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: November 20, 2018 |
• | GAAP revenue grew 19 percent to reach $1,047 million, when compared with $878 million last year. Non-GAAP revenue, which excludes the impact of fair value adjustments to acquisition-related deferred revenue balances, grew 16 percent to reach $1,051 million. Non-GAAP core revenue, which also excludes the impact of foreign currency changes and revenue associated with businesses acquired or divested within the last twelve months, increased 17 percent. |
• | GAAP net loss was $114 million, or $0.61 per share, compared with a GAAP net loss of $38 million, or $0.20 per share, in the fourth quarter of 2017. Fourth quarter 2018 GAAP net loss reflects a non-cash goodwill impairment charge partially offset by a benefit from tax planning initiatives within the quarter. |
• | Non-GAAP net income was $193 million, or $1.01 per share using 191 million weighted average shares, compared with $135 million, or $0.71 per share using 189 million weighted average shares in the fourth quarter of 2017. |
• | As of October 31, 2018, cash and cash equivalents totaled $913 million. |
• | GAAP revenue grew 22 percent over last year and totaled $3.9 billion. Non-GAAP revenue grew 20 percent to reach $3.9 billion. Non-GAAP core revenue grew 13 percent year-over-year. |
• | GAAP net income was $165 million, or $0.86 per share, compared with $102 million, or $0.56 per share in fiscal 2017. Non-GAAP net income was $618 million, or $3.24 per share, compared with $462 million, or $2.53 per share in fiscal 2017. |
• | Under the $350 million share repurchase authorization implemented in March 2018, Keysight acquired approximately 2 million shares in the open market at an average share price of $57.91, for a total consideration of $120 million during fiscal year 2018. Keysight has $230 million remaining under the current share repurchase authorization. |
• | Communications Solutions Group (CSG) |
• | Electronic Industrial Solutions Group (EISG) |
• | Ixia Solutions Group (ISG) |
• | Services Solutions Group (SSG) |
• | Non-GAAP Revenue |
• | Non-GAAP Core 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 | |||||||||
October 31, | Percent | ||||||||
2018 | 2017 | Inc/(Dec) | |||||||
Orders | $ | 1,124 | $ | 1,027 | 9% | ||||
Net revenue | $ | 1,047 | $ | 878 | 19% | ||||
Costs and expenses: | |||||||||
Cost of products and services | 460 | 404 | 14% | ||||||
Research and development | 154 | 139 | 12% | ||||||
Selling, general and administrative | 308 | 294 | 4% | ||||||
Goodwill impairment | 709 | — | — | ||||||
Other operating expense (income), net | (15 | ) | 2 | — | |||||
Total costs and expenses | 1,616 | 839 | 93% | ||||||
Income (loss) from operations | (569 | ) | 39 | — | |||||
Interest income | 4 | 2 | 70% | ||||||
Interest expense | (20 | ) | (22 | ) | (9)% | ||||
Other income (expense), net | 1 | 11 | (91)% | ||||||
Income (loss) before taxes | (584 | ) | 30 | — | |||||
Provision (benefit) for income taxes | (470 | ) | 68 | — | |||||
Net loss | $ | (114 | ) | $ | (38 | ) | 208% | ||
Net loss per share: | |||||||||
Basic | $ | (0.61 | ) | $ | (0.20 | ) | |||
Diluted | $ | (0.61 | ) | $ | (0.20 | ) | |||
Weighted average shares used in computing net loss per share: | |||||||||
Basic | 187 | 186 | |||||||
Diluted | 187 | 186 |
KEYSIGHT TECHNOLOGIES, INC. | |||||||||
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS | |||||||||
(In millions, except per share amounts) | |||||||||
(Unaudited) | |||||||||
PRELIMINARY | |||||||||
Year ended | |||||||||
October 31, | Percent | ||||||||
2018 | 2017 | Inc/(Dec) | |||||||
Orders | $ | 4,082 | $ | 3,406 | 20% | ||||
Net revenue | $ | 3,878 | $ | 3,189 | 22% | ||||
Costs and expenses: | |||||||||
Cost of products and services | 1,756 | 1,487 | 18% | ||||||
Research and development | 607 | 498 | 22% | ||||||
Selling, general and administrative | 1,185 | 1,049 | 13% | ||||||
Goodwill impairment | 709 | — | — | ||||||
Other operating expense (income), net | (33 | ) | (84 | ) | (60)% | ||||
Total costs and expenses | 4,224 | 2,950 | 43% | ||||||
Income (loss) from operations | (346 | ) | 239 | — | |||||
Interest income | 12 | 7 | 61% | ||||||
Interest expense | (83 | ) | (80 | ) | 3% | ||||
Other income (expense), net | 6 | 13 | (60)% | ||||||
Income (loss) before taxes | (411 | ) | 179 | — | |||||
Provision (benefit) for income taxes | (576 | ) | 77 | — | |||||
Net income | $ | 165 | $ | 102 | 61% | ||||
Net income per share: | |||||||||
Basic | $ | 0.88 | $ | 0.57 | |||||
Diluted | $ | 0.86 | $ | 0.56 | |||||
Weighted average shares used in computing net income per share: | |||||||||
Basic | 187 | 180 | |||||||
Diluted | 191 | 182 |
KEYSIGHT TECHNOLOGIES, INC. | |||||||
CONDENSED CONSOLIDATED BALANCE SHEET | |||||||
(In millions, except par value and share amounts) | |||||||
PRELIMINARY | |||||||
October 31, | October 31, | ||||||
2018 | 2017 | ||||||
(unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 913 | $ | 818 | |||
Accounts receivable, net | 624 | 547 | |||||
Inventory | 619 | 588 | |||||
Other current assets | 222 | 224 | |||||
Total current assets | 2,378 | 2,177 | |||||
Property, plant and equipment, net | 555 | 530 | |||||
Goodwill | 1,171 | 1,882 | |||||
Other intangible assets, net | 645 | 855 | |||||
Long-term investments | 46 | 63 | |||||
Long-term deferred tax assets | 750 | 186 | |||||
Other assets | 279 | 240 | |||||
Total assets | $ | 5,824 | $ | 5,933 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Short-term and current portion of long-term debt | $ | 499 | $ | 10 | |||
Accounts payable | 242 | 211 | |||||
Employee compensation and benefits | 276 | 217 | |||||
Deferred revenue | 334 | 291 | |||||
Income and other taxes payable | 42 | 28 | |||||
Other accrued liabilities | 69 | 62 | |||||
Total current liabilities | 1,462 | 819 | |||||
Long-term debt | 1,291 | 2,038 | |||||
Retirement and post-retirement benefits | 224 | 309 | |||||
Long-term deferred revenue | 127 | 101 | |||||
Other long-term liabilities | 287 | 356 | |||||
Total liabilities | 3,391 | 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; 191 million shares at October 31, 2018 | |||||||
and 188 million shares at October 31, 2017, issued | 2 | 2 | |||||
Treasury stock at cost; 4.4 million shares at October 31, 2018 and | |||||||
2.3 million shares at October 31, 2017, respectively | (182 | ) | (62 | ) | |||
Additional paid-in-capital | 1,889 | 1,786 | |||||
Retained earnings | 1,212 | 1,041 | |||||
Accumulated other comprehensive loss | (488 | ) | (457 | ) | |||
Total stockholders' equity | 2,433 | 2,310 | |||||
Total liabilities and equity | $ | 5,824 | $ | 5,933 |
KEYSIGHT TECHNOLOGIES, INC. | |||||||
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS | |||||||
(In millions) | |||||||
PRELIMINARY | |||||||
Year ended | |||||||
October 31, | |||||||
2018 | 2017 | ||||||
(unaudited) | |||||||
Cash flows from operating activities: | |||||||
Net income | $ | 165 | $ | 102 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation | 103 | 92 | |||||
Amortization | 207 | 133 | |||||
Share-based compensation expense | 59 | 56 | |||||
Debt issuance expense | — | 9 | |||||
Deferred tax expense (benefit) | (789 | ) | (47 | ) | |||
Excess and obsolete inventory-related charges | 25 | 16 | |||||
Gain on sale of assets and divestitures | (20 | ) | (8 | ) | |||
Goodwill impairment | 709 | — | |||||
Other assets impairment | 5 | 7 | |||||
Pension curtailment and settlement expense (gain) | 1 | (69 | ) | ||||
Other non-cash expenses (income), net | 10 | 10 | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable | (89 | ) | (11 | ) | |||
Inventory | (61 | ) | (4 | ) | |||
Accounts payable | 22 | 15 | |||||
Employee compensation and benefits | 63 | (1 | ) | ||||
Deferred revenue | 75 | 90 | |||||
Income taxes payable | 181 | 3 | |||||
Retirement and post-retirement benefits | (127 | ) | (15 | ) | |||
Other assets and liabilities | 16 | (50 | ) | ||||
Net cash provided by operating activities (a) | 555 | 328 | |||||
Cash flows from investing activities: | |||||||
Purchases of property, plant and equipment | (132 | ) | (72 | ) | |||
Proceeds from the sale of property, plant and equipment | — | 8 | |||||
Acquisitions of businesses and intangible assets, net of cash acquired | (11 | ) | (1,702 | ) | |||
Proceeds from divestitures | 29 | — | |||||
Proceeds from the sale of investments | — | 45 | |||||
Other investing activities | (2 | ) | (1 | ) | |||
Net cash used in investing activities | (116 | ) | (1,722 | ) | |||
Cash flows from financing activities: | |||||||
Issuance of common stock under employee stock plans | 64 | 51 | |||||
Issuance of common stock under public offerings | — | 444 | |||||
Payment of taxes related to net share settlement of equity awards | (18 | ) | (12 | ) | |||
Treasury stock repurchases | (120 | ) | — | ||||
Proceeds from issuance of long-term debt | — | 1,069 | |||||
Debt issuance costs | — | (16 | ) | ||||
Proceeds from short-term borrowings | 40 | 212 | |||||
Repayment of debt and credit facility | (300 | ) | (323 | ) | |||
Other financing activities | (1 | ) | — | ||||
Net cash provided by /(used in) financing activities | (335 | ) | 1,425 | ||||
Effect of exchange rate movements | (9 | ) | 4 | ||||
Net increase in cash and cash equivalents | 95 | 35 | |||||
Cash and cash equivalents at beginning of year | 818 | 783 | |||||
Cash and cash equivalents at end of year | $ | 913 | $ | 818 | |||
(a) Cash payments included in operating activities: | |||||||
Income tax payments, net | $ | (27 | ) | $ | (121 | ) | |
Interest payment on borrowings | $ | (79 | ) | $ | (64 | ) |
KEYSIGHT TECHNOLOGIES, INC. | |||||||||||||||||||||||||||
RECONCILIATION OF REVENUE GUIDANCE AND NON GAAP CORE REVENUE | |||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||
PRELIMINARY | |||||||||||||||||||||||||||
Q1'19 Guidance | Year-over-Year compare | Year-over-Year compare | |||||||||||||||||||||||||
Low end | High end | Q4'18 | Q4'17 | Percent Inc/(Dec) | FY18 | FY17 | Percent Inc/(Dec) | ||||||||||||||||||||
GAAP Revenue | $ | 962 | $ | 982 | $ | 1,047 | $ | 878 | 19% | $ | 3,878 | $ | 3,189 | 22% | |||||||||||||
Amortization of acquisition-related balances | 3 | 3 | 4 | 24 | 36 | 60 | |||||||||||||||||||||
Non-GAAP Revenue | $ | 965 | $ | 985 | $ | 1,051 | $ | 902 | 16% | $ | 3,914 | $ | 3,249 | 20% | |||||||||||||
Less: Revenue from acquisition or divestitures included in segment results | (2 | ) | (4 | ) | (230 | ) | (6 | ) | |||||||||||||||||||
Currency impacts | 5 | — | (30 | ) | — | ||||||||||||||||||||||
Non-GAAP Core Revenue | $ | 1,054 | $ | 898 | 17% | $ | 3,654 | $ | 3,243 | 13% |
KEYSIGHT TECHNOLOGIES, INC. | |||||||||
SEGMENT RESULTS INFORMATION | |||||||||
(In millions, except where noted) | |||||||||
(Unaudited) | |||||||||
PRELIMINARY | |||||||||
Communications Solutions Group | YoY | ||||||||
Q4'18 | Q4'17 | % Chg | |||||||
Revenue | $ | 566 | $ | 462 | 23% | ||||
Gross Margin, % | 63.7 | % | 62.9 | % | |||||
Income from Operations | $ | 155 | $ | 98 | |||||
Operating Margin, % | 27 | % | 21 | % | |||||
Electronic Industrial Solutions Group | YoY | ||||||||
Q4'18 | Q4'17 | % Chg | |||||||
Revenue | $ | 249 | $ | 206 | 21% | ||||
Gross Margin, % | 60.6 | % | 61.3 | % | |||||
Income from Operations | $ | 63 | $ | 45 | |||||
Operating Margin, % | 26 | % | 22 | % | |||||
Ixia Solutions Group | YoY | ||||||||
Q4'18 | Q4'17 | % Chg | |||||||
Revenue | $ | 115 | $ | 124 | (7)% | ||||
Gross Margin, % | 70.5 | % | 76.2 | % | |||||
Income from Operations | $ | — | $ | 20 | |||||
Operating Margin, % | 0 | % | 16 | % | |||||
Services Solutions Group | YoY | ||||||||
Q4'18 | Q4'17 | % Chg | |||||||
Revenue | $ | 121 | $ | 110 | 10% | ||||
Gross Margin, % | 40.9 | % | 42.6 | % | |||||
Income from Operations | $ | 16 | $ | 18 | |||||
Operating Margin, % | 13 | % | 16 | % |
KEYSIGHT TECHNOLOGIES, INC. | |||||||||||||||||||||||||||
NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATIONS | |||||||||||||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||
PRELIMINARY | |||||||||||||||||||||||||||
Three months ended | Year ended | ||||||||||||||||||||||||||
October 31, | October 31, | ||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
Net Income | Diluted EPS(a) | Net Income | Diluted EPS(a) | Net Income | Diluted EPS | Net Income | Diluted EPS | ||||||||||||||||||||
GAAP Net income (loss) | $ | (114 | ) | $ | (0.61 | ) | $ | (38 | ) | $ | (0.20 | ) | $ | 165 | $ | 0.86 | $ | 102 | $ | 0.56 | |||||||
Non-GAAP adjustments: | |||||||||||||||||||||||||||
Goodwill impairment | 709 | 3.71 | — | — | 709 | 3.72 | — | — | |||||||||||||||||||
Amortization of acquisition-related balances | 55 | 0.28 | 86 | 0.46 | 265 | 1.38 | 256 | 1.41 | |||||||||||||||||||
Share-based compensation expense | 11 | 0.06 | 12 | 0.06 | 59 | 0.31 | 56 | 0.31 | |||||||||||||||||||
Acquisition and integration costs | 7 | 0.03 | 18 | 0.10 | 49 | 0.25 | 67 | 0.37 | |||||||||||||||||||
Legal settlement | 25 | 0.13 | — | — | 25 | 0.13 | — | — | |||||||||||||||||||
Acquisition-related compensation expense | — | — | — | — | — | — | 28 | 0.15 | |||||||||||||||||||
Separation and related costs | — | — | 2 | 0.01 | 2 | 0.01 | 20 | 0.11 | |||||||||||||||||||
Pension curtailment and settlement expense (gains) | 1 | 0.01 | (1 | ) | (0.01 | ) | 1 | 0.01 | (69 | ) | (0.38 | ) | |||||||||||||||
Northern California wildfire-related costs | — | — | 16 | 0.08 | 7 | 0.04 | 16 | 0.09 | |||||||||||||||||||
Restructuring and related costs | 1 | 0.01 | 5 | 0.03 | 17 | 0.09 | 11 | 0.06 | |||||||||||||||||||
Gain on divestitures | (12 | ) | (0.06 | ) | — | — | (20 | ) | (0.10 | ) | — | — | |||||||||||||||
Other | 6 | 0.04 | (6 | ) | (0.03 | ) | 16 | 0.09 | (4 | ) | (0.02 | ) | |||||||||||||||
Adjustment for taxes (b) | (496 | ) | (2.59 | ) | 41 | 0.21 | (677 | ) | (3.55 | ) | (21 | ) | (0.13 | ) | |||||||||||||
Non-GAAP Net income | $ | 193 | $ | 1.01 | $ | 135 | $ | 0.71 | $ | 618 | $ | 3.24 | $ | 462 | $ | 2.53 | |||||||||||
Weighted average shares outstanding - diluted | 187 | 186 | 191 | 182 |
• | 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 acquirees’ 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. |
• | Goodwill Impairment charges: We exclude goodwill impairment charges from our non-GAAP financial measures, as such charges are non-recurring and do not reduce company's liquidity. In addition, the company's peer industry group companies may record impairment charges at different times, excluding such charges permits more accurate comparison of company's financial performance with those of its peers. |
• | 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, litigation settlements, 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. |