Keysight Technologies Reports Fourth Quarter 2019 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
	October 31,						Percent
	2019			2018^(a)			Inc/(Dec)

Orders	$	1,194		$	1,124		6	%


Net revenue	$	1,120		$	1,047		7	%

Costs and expenses:
Cost of products and services		455			462		(2	)%
Research and development		176			160		11	%
Selling, general and administrative		286			311		(8	)%
Goodwill impairment		-			709		‒
Other operating expense (income), net		(5	)		(15	)	(72	)%
Total costs and expenses		912			1,627		(44	)%

Income (loss) from operations		208			(580	)	‒

Interest income		6			4		70	%
Interest expense		(20	)		(20	)	1	%
Other income (expense), net		9			12		(22	)%

Income (loss) before taxes		203			(584	)	‒

Provision (benefit) for income taxes		8			(470	)	‒

Net Income (loss)	$	195		$	(114	)	‒


Net income (loss) per share:
Basic	$	1.04		$	(0.61	)
Diluted	$	1.02		$	(0.61	)

Weighted average shares used in computing net income (loss) per share:
Basic		187			187
Diluted		191			187

^(a) Restated to include the impact of adoption of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, on November 1, 2018. There is no impact to net income or net income per share.


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


	Year ended
	October 31,						Percent
	2019			2018 ^(a)			Inc/(Dec)

Orders	$	4,441		$	4,082		9	%


Net revenue	$	4,303		$	3,878		11	%

Costs and expenses:
Cost of products and services		1,769			1,767		‒
Research and development		688			624		10	%
Selling, general and administrative		1,155			1,205		(4	)%
Goodwill impairment		-			709		‒
Other operating expense (income), net		(20	)		(33	)	(40	)%
Total costs and expenses		3,592			4,272		(16	)%

Income (loss) from operations		711			(394	)	‒

Interest income		23			12		90	%
Interest expense		(80	)		(83	)	(3	)%
Other income (expense), net		61			54		16	%

Income (loss) before taxes		715			(411	)	‒

Provision (benefit) for income taxes		94			(576	)	‒

Net Income	$	621		$	165		277	%


Net income per share:
Basic	$	3.31		$	0.88
Diluted	$	3.25		$	0.86

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

^(a) Restated to include the impact of adoption of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, on November 1, 2018. There is no impact to net income or net income per share.


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


	October 31,			October 31,
	2019			2018
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	1,598		$	913
Accounts receivable, net		668			624
Inventory		705			619
Other current assets		244			222
Total current assets		3,215			2,378

Property, plant and equipment, net		576			555
Goodwill		1,209			1,171
Other intangible assets, net		490			645
Long-term investments		46			46
Long-term deferred tax assets		755			750
Other assets		332			279
Total assets	$	6,623		$	5,824

LIABILITIES AND EQUITY

Current liabilities:
Short-term debt	$	-		$	499
Accounts payable		253			242
Employee compensation and benefits		278			276
Deferred revenue		334			334
Income and other taxes payable		55			42
Other accrued liabilities		83			69
Total current liabilities		1,003			1,462

Long-term debt		1,788			1,291
Retirement and post-retirement benefits		357			224
Long-term deferred revenue		176			127
Other long-term liabilities		295			287
Total liabilities		3,619			3,391

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; 194 million shares at October 31, 2019, and 191 million shares at October 31, 2018, issued		2			2
Treasury stock at cost; 6.5 million shares at October 31, 2019 and 4.4 million shares at October 31, 2018		(342	)		(182	)
Additional paid-in-capital		2,013			1,889
Retained earnings		1,909			1,212
Accumulated other comprehensive loss		(578	)		(488	)
Total stockholders' equity		3,004			2,433
Total liabilities and equity	$	6,623		$	5,824


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

	Year ended
	October 31,
	2019			2018 ^(a)
	(unaudited)
Cash flows from operating activities:
Net income	$	621		$	165

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		96			103
Amortization		212			207
Share-based compensation		82			59
Deferred tax benefit		(2	)		(789	)
Excess and obsolete inventory related charges		27			25
Gain on sale of assets and divestitures		(1	)		(20	)
Goodwill impairment		-			709
Pension curtailment and settlement loss		2			1
Other non-cash expenses (income), net		(4	)		15
Changes in assets and liabilities:
Accounts receivable		(26	)		(89	)
Inventory		(92	)		(61	)
Accounts payable		13			22
Employee compensation and benefits		-			63
Deferred revenue		112			75
Income taxes payable		(16	)		181
Retirement and post-retirement benefits		(37	)		(127	)
Other assets and liabilities		11			16
Net cash provided by operating activities ^(b)		998			555

Cash flows from investing activities:
Purchases of property, plant and equipment		(120	)		(132	)
Proceeds from the sale of assets and divestitures		2			29
Acquisition of businesses and intangible assets, net of cash acquired		(88	)		(5	)
Proceeds from the sale of investments		7			-
Other investing activities		3			-
Net cash used in investing activities		(196	)		(108	)

Cash flows from financing activities:
Issuance of common stock under employee stock plans		67			64
Payment of taxes related to net share settlement of equity awards		(26	)		(18	)
Treasury stock repurchases ^(c)		(159	)		(120	)
Proceeds from issuance of long-term debt		500			-
Debt issuance costs		(4	)		-
Proceeds from short term borrowings		-			40
Repayment of debt and credit facility		(500	)		(300	)
Payment of acquisition-related contingent consideration		-			(6	)
Other financing activities		-			(1	)
Net cash used in financing activities		(122	)		(341	)

Effect of exchange rate movements		3			(9	)

Net increase in cash and cash equivalents and restricted cash		683			97

Cash, cash equivalents and restricted cash at beginning of period		917			820

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


^(a) Restated to include the impact of adoption of ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments , and ASU 2016-18, Restricted Cash , on November 1, 2018.

^(b) Cash payments included in operating activities:
Income tax payments, net	$	(103	)	$	(27	)
Interest payment on debt	$	(76	)	$	(79	)

^(c) For the year ended October 31, 2019, we repurchased 2,093,570 shares of common stock for $160 million, held as treasury stock and accounted for at trade date using the cost method. There were $1 million of stock repurchases pending settlements as of October 31, 2019. For the year ended October 31, 2018, we repurchased 2,075,460 shares of common stock for $120 million, held as treasury stock and accounted for at trade date using the cost method.


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


	Q4'19			Q4'18			Percent Inc/(Dec)		FY19			FY18			Percent Inc/(Dec)
GAAP Revenue	$	1,120		$	1,047		7	%	$	4,303		$	3,878		11	%
Amortization of acquisition-related balances		2			4					9			36
Non-GAAP Revenue	$	1,122		$	1,051		7	%	$	4,312		$	3,914		10	%
Less: Revenue from acquisition or divestitures included in segment results		(10	)		(5	)				(19	)		(22	)
Currency impacts		4			-					37			-
Non-GAAP Core Revenue	$	1,116		$	1,046		7	%	$	4,330		$	3,892		11	%



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

Please refer page 8 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
	Q4'19			Q4'18			% Chg
Revenue	$	706		$	661		7	%
Gross margin, %		62.9	%		60.1	%
Income from operations	$	199		$	159
Operating margin, %		28	%		24	%


Electronic Industrial Solutions Group							YoY
	Q4'19			Q4'18			% Chg
Revenue	$	284		$	275		3	%
Gross margin, %		62.4	%		58.7	%
Income from operations	$	79		$	64
Operating margin, %		28	%		23	%


Ixia Solutions Group							YoY
	Q4'19			Q4'18			% Chg
Revenue	$	132		$	115		15	%
Gross margin, %		71.7	%		70.3	%
Income from operations	$	12		$	(1	)
Operating margin, %		9	%		(1	)%


Restated for (1) the organizational change completed in Q1'19 to align our services business with its customers and end markets. With this change, services, which was previously reported as Services Solutions Group (SSG), is now reported as part of the Communications Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG); and (2) the retrospective application of ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , which the company adopted on November 1, 2018.

Net revenue for Ixia Solutions Group excludes the impact of amortization of acquisition-related balances of $2 million and $4 million for Q4'19 and Q4'18, respectively. Segment revenue and income from operations are consistent with the respective non-GAAP measures as discussed on Page 8.


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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												Year ended
	October 31,												October 31,
	2019						2018						2019						2018
	Net Income			Diluted EPS			Net Income			Diluted EPS ^(a)			Net Income			Diluted EPS			Net Income			Diluted EPS

GAAP Net income (loss)	$	195		$	1.02		$	(114	)	$	(0.61	)	$	621		$	3.25		$	165		$	0.86
Non-GAAP adjustments:
Amortization of acquisition-related balances		60			0.31			55			0.28			224			1.17			265			1.38
Share-based compensation		16			0.08			11			0.06			82			0.43			59			0.31
Acquisition and integration costs		5			0.03			7			0.03			11			0.06			49			0.25
Goodwill impairment		-			-			709			3.71			-			-			709			3.72
Restructuring and related costs		2			0.01			1			0.01			9			0.05			17			0.09
Northern California wildfire-related costs		-			-			-			-			-			-			7			0.04
Other		2			0.01			20			0.12			(16	)		(0.09	)		24			0.14
Adjustment for taxes ^(b)		(26	)		(0.13	)		(496	)		(2.59	)		(29	)		(0.15	)		(677	)		(3.55	)
Non-GAAP Net income	$	254		$	1.33		$	193		$	1.01		$	902		$	4.72		$	618		$	3.24

Weighted average shares outstanding - diluted		191						187						191						187

^(a) EPS impact on non-GAAP adjustments and non-GAAP net income is based on an adjusted shares outstanding of 191 million for three months ended October 31, 2018.

^(b) For both the three and twelve months ended October 31, 2019 management uses a non-GAAP effective tax rate of 12%. For the three and twelve months ended October 31, 2018 management uses a non-GAAP effective tax rate of 12% and 14%, respectively.

Historical amounts are reclassified to conform with current presentation.

Please refer page 8 for discussion on our non-GAAP financial measures.


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