Keysight Technologies Reports Second Quarter 2024 Results

Rhea-AI Summary

Keysight Technologies (NYSE: KEYS) reported financial results for the second fiscal quarter ending April 30, 2024. Revenue was $1.22 billion, down from $1.39 billion the previous year. GAAP net income was $126 million ($0.72 per share), compared to $283 million ($1.58 per share) in Q2 2023. Non-GAAP net income was $247 million ($1.41 per share), down from $380 million ($2.12 per share) last year. Cash flow from operations fell to $110 million from $423 million.

CSG revenue declined 10% to $840 million, while EISG revenue dropped 17% to $376 million. Keysight's Q3 2024 revenue is expected to be between $1.18 billion and $1.20 billion, with non-GAAP EPS between $1.30 and $1.36. The webcast of the earnings call is available on the company’s investor site.

Positive

• Revenue for Q2 2024 reached $1.22 billion, above the high end of guidance.
• GAAP net income was $126 million, reflecting strong execution.
• Non-GAAP net income was $247 million.
• Cash and cash equivalents totaled $1.66 billion as of April 30, 2024.
• Full-year outlook remains unchanged.

Negative

• Revenue decreased from $1.39 billion in Q2 2023 to $1.22 billion in Q2 2024.
• GAAP net income dropped significantly from $283 million in Q2 2023 to $126 million in Q2 2024.
• Non-GAAP net income fell from $380 million to $247 million year-over-year.
• Cash flow from operations declined from $423 million to $110 million.
• Free cash flow decreased from $370 million to $74 million.
• CSG revenue declined 10%, and EISG revenue fell 17%.

Insights

Financial Analyst

Keysight Technologies experienced a notable decline in several financial metrics during the second quarter of FY2024 compared to the same period last year. The 1.22 billion in revenue marks a 12% decrease year-over-year, indicating potential weaknesses in the demand for their products within the Communications Solutions Group (CSG) and the Electronic Industrial Solutions Group (EISG). The reduced revenue from these segments, particularly the 17% decline in EISG revenue, underlines the challenges faced in semiconductor and manufacturing sectors, reflecting broader industry trends of constrained capital expenditure.

The 126 million GAAP net income, down from 283 million a year ago, translates to a significant drop in profitability. This reduction could be a direct consequence of the decreased revenues and potential cost-related pressures. Additionally, the significant dip in free cash flow from 370 million to 74 million might raise concerns about liquidity and operational efficiency, especially when customer spending continues to show signs of constraint.

Despite these declines, it’s important to note that Keysight delivered results above the high end of their guidance, suggesting efficient management and cost control initiatives. Their unchanged full-year outlook, expecting modest order growth in the second half, indicates management’s confidence in stabilizing and slightly improving the current situation. While the near-term outlook remains tepid, the company’s substantial cash and cash equivalents of 1.66 billion provide a safety net to navigate through this turbulent phase.

From an investor's perspective, the ongoing revenue and profitability challenges might temper short-term enthusiasm, but the company's strategic positioning in growth segments like aerospace and defense could present long-term potential, provided market conditions improve.

Market Research Analyst

The report from Keysight Technologies presents a mixed bag of insights for investors. The 10-17% declines in revenue across their key segments reflect pronounced sectoral weaknesses. Within the Communications Solutions Group (CSG), the 10% decline in commercial communications and 11% in aerospace, defense and government revenue underscore the varied market dynamics impacting the company's key markets.

The Electronic Industrial Solutions Group (EISG) witnessed an even sharper revenue decline, driven by continued constraints in semiconductor and manufacturing-related customer spending. This is reflective of industry-wide trends where semiconductor shortages and supply chain disruptions have been prevalent. For retail investors, it's critical to understand these market conditions as macroeconomic factors continue to impact these sectors.

Despite these challenges, management’s ability to deliver results above guidance thresholds suggests robust internal controls and market responsiveness. The steady outlook for the remainder of the fiscal year points towards cautious optimism from the company’s leadership, based on achievable modest order growth.

For investors, the key takeaway is to monitor these sector-specific trends closely. Understanding how Keysight navigates these headwinds, particularly in its high-growth potential markets like aerospace and communications technology, will be important for evaluating its long-term prospects.

Achieves above guidance results on strong execution; full-year outlook unchanged

SANTA ROSA, Calif.--(BUSINESS WIRE)-- Keysight Technologies, Inc. (NYSE: KEYS) today reported financial results for the second fiscal quarter ended April 30, 2024.

“Keysight executed well and delivered second quarter results above the high end of our guidance in a market environment that was consistent with the prior quarter,” said Satish Dhanasekaran, Keysight’s President and CEO. “We saw pockets of growth and stability across multiple end markets even as customer spending remained constrained. Our full-year outlook is unchanged and assumes modest order growth in the second half."

Second Quarter Financial Summary

• Revenue was $1.22 billion, compared with $1.39 billion in the second quarter of 2023.
• GAAP net income was $126 million, or $0.72 per share, compared with $283 million, or $1.58 per share, in the second quarter of 2023.
• Non-GAAP net income was $247 million, or $1.41 per share, compared with $380 million, or $2.12 per share in the second quarter of 2023.
• Cash flow from operations was $110 million, compared to $423 million last year. Free cash flow was $74 million, compared to $370 million in the second quarter of 2023.
• As of April 30, 2024, cash and cash equivalents totaled $1.66 billion.

Reporting Segments

• Communications Solutions Group (CSG)
  
  CSG reported revenue of $840 million in the second quarter, down 10 percent from the prior year, reflecting a 10 percent decline in commercial communications, while aerospace, defense, and government decreased 11 percent.

• Electronic Industrial Solutions Group (EISG)
  
  EISG reported revenue of $376 million in the second quarter, down 17 percent from the prior year, reflecting continued constraint in semiconductor and manufacturing-related customer spending.

Outlook

Keysight’s third fiscal quarter of 2024 revenue is expected to be in the range of $1.18 billion to $1.20 billion. Non-GAAP earnings per share for the third fiscal quarter of 2024 are expected to be in the range of $1.30 to $1.36, based on a weighted diluted share count of approximately 175 million shares. 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 second quarter FY2024 financial results and its third quarter FY2024 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 “Q2 FY24 Keysight Technologies Inc. Earnings Conference Call” to participate. The call can also be accessed by dialing 1-404-975-4839 or 1-833-470-1428 toll-free (access code 996630). 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 "assume," “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, volatility in financial markets, reduced access to credit, increased interest rates; impacts of geopolitical tension and conflict outside of the U.S., export control regulations and compliance; net zero emissions commitments; 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, 2023 and Keysight’s quarterly report on Form 10-Q for the period ended January 31, 2024.

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:

• Non-GAAP Net Income/Earnings
• Non-GAAP Net Income per share/Earnings per share
• Free Cash Flow

Net 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 both the three and six months ended April 30, 2024. 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

At Keysight (NYSE: KEYS), we inspire and empower innovators to bring world-changing technologies to life. As an S&P 500 company, we’re delivering market-leading design, emulation, and test solutions to help engineers develop and deploy faster, with less risk, throughout the entire product lifecycle. We’re a global innovation partner enabling customers in communications, industrial automation, aerospace and defense, automotive, semiconductor, and general electronics markets to accelerate innovation to connect and secure the world. Learn more at Keysight Newsroom and www.keysight.com.

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
(Unaudited)
PRELIMINARY
	Three months ended								Six months ended
	April 30,								April 30,
		2024				2023				2024				2023
Orders	$	1,219			$	1,319			$	2,439			$	2,619
Revenue	$	1,216			$	1,390			$	2,475			$	2,771
Costs and expenses:
Cost of products and services		453				481				899				979
Research and development		228				222				460				449
Selling, general and administrative		361				337				723				675
Other operating expense (income), net		(3	)			(4	)			(5	)			(8	)
Total costs and expenses		1,039				1,036				2,077				2,095
Income from operations		177				354				398				676
Interest income		18				22				41				41
Interest expense		(20	)			(20	)			(40	)			(39	)
Other income (expense), net		—				5				5				14
Income before taxes		175				361				404				692
Provision for income taxes		49				78				106				149
Net income	$	126			$	283			$	298			$	543
Net income per share:
Basic	$	0.73			$	1.59			$	1.71			$	3.04
Diluted	$	0.72			$	1.58			$	1.70			$	3.02
Weighted average shares used in computing net income per share:
Basic		174				178				175				178
Diluted		175				179				175				179
Page 1

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share data)
(Unaudited)
PRELIMINARY
	April 30,				October 31,
		2024				2023
ASSETS
Current assets:
Cash and cash equivalents	$	1,657			$	2,472
Accounts receivable, net		809				900
Inventory		1,020				985
Other current assets		482				452
Total current assets		3,968				4,809
Property, plant and equipment, net		769				761
Operating lease right-of-use assets		239				226
Goodwill		2,282				1,640
Other intangible assets, net		609				155
Long-term investments		102				81
Long-term deferred tax assets		668				671
Other assets		351				340
Total assets	$	8,988			$	8,683
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	600			$	599
Accounts payable		268				286
Employee compensation and benefits		309				304
Deferred revenue		578				541
Income and other taxes payable		62				90
Operating lease liabilities		43				40
Other accrued liabilities		134				189
Total current liabilities		1,994				2,049
Long-term debt		1,195				1,195
Retirement and post-retirement benefits		68				64
Long-term deferred revenue		211				216
Long-term operating lease liabilities		201				192
Other long-term liabilities		416				313
Total liabilities		4,085				4,029
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: 201 million and 200 million, respectively		2				2
Treasury stock, at cost; 26.4 million shares and 25.4 million shares, respectively		(3,119	)			(2,980	)
Additional paid-in-capital		2,580				2,487
Retained earnings		5,909				5,611
Accumulated other comprehensive loss		(469	)			(466	)
Total stockholders' equity		4,903				4,654
Total liabilities and equity	$	8,988			$	8,683
Page 2

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
	Six months ended
	April 30,
		2024				2023
Cash flows from operating activities:
Net income	$	298			$	543
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		62				59
Amortization		76				49
Share-based compensation		82				84
Deferred tax expense (benefit)		(9	)			(2	)
Excess and obsolete inventory-related charges		18				13
Other non-cash expense (income), net		(5	)			(4	)
Changes in assets and liabilities, net of effects of businesses acquired:
Accounts receivable		121				61
Inventory		(50	)			(93	)
Accounts payable		(11	)			(41	)
Employee compensation and benefits		(26	)			(35	)
Deferred revenue		14				81
Income taxes payable		(35	)			(32	)
Interest rate swap agreement termination proceeds		—				107
Prepaid assets		(19	)			(27	)
Other assets and liabilities		(78	)			26
Net cash provided by operating activities(a)		438				789
Cash flows from investing activities:
Investments in property, plant and equipment		(83	)			(113	)
Acquisition of businesses and intangible assets, net of cash acquired		(556	)			(85	)
Other investing activities		8				(7	)
Net cash used in investing activities		(631	)			(205	)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans		33				33
Payment of taxes related to net share settlement of equity awards		(28	)			(47	)
Acquisition of non-controlling interests		(458	)			—
Treasury stock repurchases		(139	)			(125	)
Repayment of debt		(24	)			—
Other financing activities		(5	)			(1	)
Net cash used in financing activities		(621	)			(140	)
Effect of exchange rate movements		—				13
Net increase (decrease) in cash, cash equivalents, and restricted cash		(814	)			457
Cash, cash equivalents, and restricted cash at beginning of period		2,488				2,057
Cash, cash equivalents, and restricted cash at end of period	$	1,674			$	2,514
(a) Cash payments included in operating activities:
Interest payments	$	38			$	37
Income tax paid, net	$	146			$	180
Page 3

KEYSIGHT TECHNOLOGIES, INC.
NET INCOME AND DILUTED EPS RECONCILIATION
(In millions, except per share data)
(Unaudited)
PRELIMINARY
	Three months ended												Six months ended
	April 30,												April 30,
	2024							2023					2024							2023
	Net Income			Diluted EPS				Net Income		Diluted EPS			Net Income			Diluted EPS				Net Income		Diluted EPS
GAAP Net income	$	126		$	0.72			$	283	$	1.58		$	298		$	1.70			$	543	$	3.02
Non-GAAP adjustments:
Amortization of acquisition-related balances		37			0.21				25		0.14			75			0.43				48		0.27
Share-based compensation		36			0.21				29		0.16			86			0.49				84		0.47
Acquisition and integration costs		27			0.15				3		0.02			40			0.23				5		0.03
Restructuring and others		23			0.14				14		0.07			38			0.22				15		0.08
Adjustment for taxes(a)		(2	)		(0.02	)			26		0.15			(4	)		(0.03	)			48		0.27
Non-GAAP Net income	$	247		$	1.41			$	380	$	2.12		$	533		$	3.04			$	743	$	4.14
Weighted average shares outstanding - diluted		175							179					175							179

(a) For the three and six months ended April 30, 2024, management uses a non-GAAP effective tax rate of 17% and for the three and six months ended April 30, 2023, 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 4

KEYSIGHT TECHNOLOGIES, INC.
SEGMENT RESULTS INFORMATION
(In millions, except where noted)
(Unaudited)
PRELIMINARY
Communications Solutions Group					Percent
	Q2'24		Q2'23		Inc/(Dec)
Revenue	$ 840		$ 937		(10)%
Gross margin, %	68%		68%
Income from operations	$ 223		$ 266
Operating margin, %	27%		28%
Electronic Industrial Solutions Group					Percent
	Q2'24		Q2'23		Inc/(Dec)
Revenue	$ 376		$ 453		(17)%
Gross margin, %	58%		64%
Income from operations	$ 71		$ 157
Operating margin, %	19%		35%
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.
REVENUE BY END MARKET
(In millions)
(Unaudited)
PRELIMINARY
					Percent
	Q2'24		Q2'23		Inc/(Dec)
Aerospace, Defense and Government	$ 277		$ 310		(11)%
Commercial Communications	563		627		(10)%
Electronic Industrial	376		453		(17)%
Total Revenue	$ 1,216		$ 1,390		(13)%
Page 6

KEYSIGHT TECHNOLOGIES, INC.
FREE CASH FLOW
(In millions)
(Unaudited)
PRELIMINARY
	Three months ended								Six months ended
	April 30,								April 30,
		2024				2023				2024				2023
Net cash provided by operating activities	$	110			$	423			$	438			$	789
Less: Investments in property, plant and equipment		(36	)			(53	)			(83	)			(113	)
Free cash flow	$	74			$	370			$	355			$	676
Please refer last page for details on the use of non-GAAP financial measures.
Page 7

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 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, adjustment attributable to non-controlling interest, 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 third 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.

Page 8

Source: IR-KEYS

View source version on businesswire.com: https://www.businesswire.com/news/home/20240520584461/en/

INVESTOR CONTACT:

Jason Kary

+1 707-577-6916

jason.kary@keysight.com

MEDIA CONTACT:

Andrea Mueller

+ 1 408-218-4754

andrea.mueller@keysight.com

Source: Keysight Technologies, Inc.

FAQ

What were Keysight Technologies' Q2 2024 earnings?

Keysight Technologies reported a GAAP net income of $126 million or $0.72 per share and a non-GAAP net income of $247 million or $1.41 per share in Q2 2024.

How did Keysight Technologies' Q2 2024 revenue compare to the previous year?

Keysight Technologies' Q2 2024 revenue was $1.22 billion, down from $1.39 billion in the second quarter of 2023.

What is the revenue outlook for Keysight Technologies' Q3 2024?

Keysight Technologies expects Q3 2024 revenue to be between $1.18 billion and $1.20 billion.

What were the financial results for Keysight Technologies' CSG in Q2 2024?

The Communications Solutions Group (CSG) reported revenue of $840 million in Q2 2024, down 10% from the previous year.

What were the financial results for Keysight Technologies' EISG in Q2 2024?

The Electronic Industrial Solutions Group (EISG) reported revenue of $376 million in Q2 2024, down 17% from the previous year.

What is Keysight Technologies' non-GAAP EPS outlook for Q3 2024?

Keysight Technologies expects a non-GAAP EPS of $1.30 to $1.36 for Q3 2024.