Keysight Technologies Reports Fourth Quarter and Fiscal Year 2023 Results

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Keysight Technologies Inc (0A7N)

UK 100

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

	Three months ended
	October 31,						Percent
		2023			2022		Inc/(Dec)

Orders	$	1,327		$	1,570		(16)%

Revenue	$	1,311		$	1,443		(9)%

Costs and expenses:
Cost of products and services		467			533		(12)%
Research and development		218			215		1%
Selling, general and administrative		313			321		(2)%
Other operating expense (income), net		(4	)		(5	)	(27)%
Total costs and expenses		994			1,064		(7)%

Income from operations		317			379		(16)%

Interest income		32			10		194%
Interest expense		(20	)		(20	)	—
Other income (expense), net		(53	)		(1	)	1510%

Income before taxes		276			368		(25)%

Provision for income taxes		50			69		(27)%

Net income	$	226		$	299		(24)%


Net income per share:
Basic	$	1.28		$	1.67
Diluted	$	1.28		$	1.66

Weighted average shares used in computing net income per share:
Basic		176			179
Diluted		177			180

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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
		2023			2022		Inc/(Dec)

Orders	$	5,190		$	5,984		(13)%

Revenue	$	5,464		$	5,420		1%

Costs and expenses:
Cost of products and services		1,932			1,970		(2)%
Research and development		882			841		5%
Selling, general and administrative		1,307			1,283		2%
Other operating expense (income), net		(15	)		(8	)	80%
Total costs and expenses		4,106			4,086		1%

Income from operations		1,358			1,334		2%

Interest income		102			16		518%
Interest expense		(78	)		(79	)	(1)%
Other income (expense), net		(25	)		14		—

Income before taxes		1,357			1,285		6%

Provision for income taxes		300			161		87%

Net income	$	1,057		$	1,124		(6)%


Net income per share:
Basic	$	5.95		$	6.23
Diluted	$	5.91		$	6.18

Weighted average shares used in computing net income per share:
Basic		178			180
Diluted		179			182

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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,
		2023			2022

ASSETS

Current assets:
Cash and cash equivalents	$	2,472		$	2,042
Accounts receivable, net		900			905
Inventory		985			858
Other current assets		452			429
Total current assets		4,809			4,234

Property, plant and equipment, net		761			690
Operating lease right-of-use assets		226			220
Goodwill		1,640			1,582
Other intangible assets, net		155			189
Long-term investments		81			62
Long-term deferred tax assets		671			667
Other assets		340			454
Total assets	$	8,683		$	8,098

LIABILITIES AND EQUITY

Current liabilities:
Current portion of long-term debt	$	599		$	—
Accounts payable		286			348
Employee compensation and benefits		304			333
Deferred revenue		541			495
Income and other taxes payable		90			96
Operating lease liabilities		40			39
Other accrued liabilities		189			96
Total current liabilities		2,049			1,407

Long-term debt		1,195			1,793
Retirement and post-retirement benefits		64			58
Long-term deferred revenue		216			197
Long-term operating lease liabilities		192			186
Other long-term liabilities		313			296
Total liabilities		4,029			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; issued and outstanding shares: 200 million and 199 million, respectively		2			2
Treasury stock, at cost; 25.4 million shares and 20.5 million shares, respectively		(2,980	)		(2,274	)
Additional paid-in-capital		2,487			2,333
Retained earnings		5,611			4,554
Accumulated other comprehensive loss		(466	)		(454	)
Total stockholders' equity		4,654			4,161
Total liabilities and equity	$	8,683		$	8,098

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

	Year ended
	October 31,
		2023			2022

Cash flows from operating activities:
Net income	$	1,057		$	1,124
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		120			117
Amortization		92			106
Share-based compensation		135			125
Deferred tax expense (benefit)		(3	)		7
Excess and obsolete inventory-related charges		27			27
Unrealized loss (gain) on investments in equity securities		(5	)		31
Other non-cash expenses (income), net		4			11
Changes in assets and liabilities, net of effects of businesses acquired:
Accounts receivable		14			(204	)
Inventory		(148	)		(125	)
Accounts payable		(62	)		56
Employee compensation and benefits		(43	)		(17	)
Deferred revenue		61			79
Income taxes payable		(40	)		(14	)
Retirement and post-retirement benefits		(8	)		(19	)
Interest rate swap agreement termination proceeds		107			—
Prepaid assets		7			(124	)
Other assets and liabilities		93			(36	)
Net cash provided by operating activities^(a)		1,408			1,144

Cash flows from investing activities:
Investments in property, plant and equipment		(196	)		(185	)
Acquisitions of businesses and intangible assets, net of cash acquired		(85	)		(33	)
Purchase of investments		(7	)		(33	)
Net cash used in investing activities		(288	)		(251	)

Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans		67			63
Payment of taxes related to net share settlement of equity awards		(49	)		(74	)
Treasury stock repurchases		(702	)		(849	)
Other financing activities		(3	)		(1	)
Net cash used in financing activities		(687	)		(861	)

Effect of exchange rate movements		(2	)		(43	)

Net increase (decrease) in cash, cash equivalents, and restricted cash		431			(11	)
Cash, cash equivalents, and restricted cash at beginning of year		2,057			2,068
Cash, cash equivalents, and restricted cash at end of year	$	2,488		$	2,057


^(a) Cash payments included in operating activities:
Interest payments	$	75		$	75
Income tax paid, net	$	343		$	191

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KEYSIGHT TECHNOLOGIES, INC.
REVENUE BY END MARKETS
(In millions)
(Unaudited)
PRELIMINARY

					Percent					Percent
	Q4'23		Q4'22		Inc/(Dec)	FY23		FY22		Inc/(Dec)
Aerospace, Defense and Government	$	323	$	311	4%	$	1,250	$	1,171	7%
Commercial Communications		568		681	(17)%		2,435		2,632	(7)%
Electronic Industrial		420		451	(7)%		1,779		1,617	10%
Total Revenue	$	1,311	$	1,443	(9)%	$	5,464	$	5,420	1%

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KEYSIGHT TECHNOLOGIES, INC.
SEGMENT RESULTS INFORMATION
(In millions, except where noted)
(Unaudited)
PRELIMINARY

Communications Solutions Group							Percent
	Q4'23			Q4'22			Inc/(Dec)
Revenue	$	891		$	992		(10)%
Gross margin, %		68	%		66	%
Income from operations	$	257		$	289
Operating margin, %		29	%		29	%


Electronic Industrial Solutions Group							Percent
	Q4'23			Q4'22			Inc/(Dec)
Revenue	$	420		$	451		(7)%
Gross margin, %		61	%		60	%
Income from operations	$	127		$	142
Operating margin, %		30	%		32	%


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.
NET INCOME AND DILUTED EPS RECONCILIATION
(In millions, except per share data)
(Unaudited)
PRELIMINARY

	Three months ended								Year ended
	October 31,								October 31,
	2023				2022				2023				2022
	Net Income		Diluted EPS		Net Income		Diluted EPS		Net Income		Diluted EPS		Net Income			Diluted EPS

Net income, as reported		226	$	1.28	$	299	$	1.66	$	1,057	$	5.91	$	1,124		$	6.18
Non-GAAP adjustments:
Amortization of acquisition-related balances		19		0.11		25		0.14		90		0.50		103			0.57
Share-based compensation		25		0.14		23		0.13		136		0.76		126			0.69
Acquisition and integration costs		48		0.27		2		0.01		60		0.34		9			0.05
Restructuring and others		32		0.18		20		0.12		48		0.27		54			0.30
Adjustment for taxes^(a)		2		0.01		17		0.08		97		0.55		(28	)		(0.16	)
Non-GAAP Net income		352	$	1.99	$	386	$	2.14	$	1,488	$	8.33	$	1,388		$	7.63

Weighted average shares outstanding - diluted		177				180				179				182


^(a) For both the three and twelve months ended October 31, 2023 and 2022, management uses a non-GAAP effective tax rate of 12%.

Please refer to 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,
		2023			2022			2023			2022
Net cash provided by operating activities	$	378		$	398		$	1,408		$	1,144
Less: Investments in property, plant and equipment		(38	)		(58	)		(196	)		(185	)
Free cash flow	$	340		$	340		$	1,212		$	959


Please refer to 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:


•	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 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.

•	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 first quarter of fiscal 2024 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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