Keysight Technologies Reports Third Quarter 2022 Results

Rhea-AI Summary

Keysight Technologies reported record revenue and earnings per share (EPS) for Q3 2022, exceeding guidance expectations. Total revenue increased by 10% year-over-year, reaching $1.38 billion, while orders grew 12% to $1.46 billion. GAAP net income was $338 million ($1.87 per share), compared to $254 million ($1.36 per share) last year. The Communications Solutions Group drove significant revenue with strengths in 5G and related technologies. Keysight expects Q4 revenue between $1.38 billion and $1.40 billion, with non-GAAP EPS projected at $1.94 to $2.00.

Positive

• Q3 2022 revenue rose 10% YoY to $1.38 billion.
• GAAP net income increased to $338 million, resulting in EPS of $1.87.
• Orders grew by 12% YoY, reaching $1.46 billion.
• Strong performance in Communications Solutions Group with 11% revenue growth.
• Guidance for Q4 revenue between $1.38 billion and $1.40 billion.

Negative

• None.

Achieved Record Revenue and EPS; Raises Fiscal Year Outlook

SANTA ROSA, Calif.--(BUSINESS WIRE)-- Keysight Technologies, Inc. (NYSE: KEYS) today reported financial results for the third fiscal quarter ended July 31, 2022.

“Keysight delivered an exceptional third quarter, with both revenue and EPS exceeding the high end of guidance. Our outperformance reflects the effectiveness of our strategy, outstanding execution by our teams around the world, and the strength of our operating model,” said Satish Dhanasekaran, Keysight’s President and CEO. “Keysight’s deep customer engagements with industry leaders, and high value, differentiated solutions continue to drive broad-based demand across key technology mega trends.”

Third Quarter Financial Summary

• Orders grew 12 percent to reach $1.46 billion, compared with $1.31 billion last year, or 14 percent on a core basis, which excludes the impact of foreign currency changes and orders associated with businesses acquired or divested within the last twelve months.
• Revenue grew 10 percent to reach $1.38 billion, compared with $1.25 billion last year, or 13 percent on a core basis, which excludes the impact of foreign currency changes and revenue associated with businesses acquired or divested within the last twelve months.
• GAAP net income was $338 million, or $1.87 per share, compared with $254 million, or $1.36 per share, in the third quarter of 2021.
• Non-GAAP net income was $363 million, or $2.01 per share, compared with $286 million, or $1.54 per share in the third quarter of 2021.
• Keysight acquired approximately 1.6 million shares in the open market at an average share price of $139.46, for a total consideration of $228 million.
• As of July 31, 2022, cash and cash equivalents totaled $1.85 billion.

Reporting Segments

• Communications Solutions Group (CSG)

CSG reported revenue of $970 million in the third quarter, up 11 percent over last year, with strength in 5G, O-RAN, 400G, 800G, and high-speed digital applications, as well as cyber, space and satellite solutions.

• Electronic Industrial Solutions Group (EISG)

EISG reported revenue of $406 million in the third quarter, up 10 percent over last year, driven by general electronics, semiconductor measurement solutions, and next-generation automotive and energy solutions. EISG reported growth across all regions.

Outlook

Keysight’s fourth fiscal quarter of 2022 revenue is expected to be in the range of $1.38 billion to $1.40 billion. Non-GAAP earnings per share for the fourth fiscal quarter of 2022 are expected to be in the range of $1.94 to $2.00. Full fiscal year 2022 revenue growth is expected to approach 9 percent. At the midpoint of fourth quarter guidance, non-GAAP earnings per share growth for fiscal year 2022 is expected to be 20 percent. 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 third quarter FY2022 financial results and its fourth quarter FY2022 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 “Q3 2022 Keysight Technologies Inc. Earnings Conference Call” to participate or dial +1-844-200-6205 (U.S. only) or +1-929-526-1599 (International) and enter passcode 993594. 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 “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 current supply chain constraints; impacts of geopolitical tension and conflict outside of the U.S., including the war between Russia and Ukraine and increasing tensions between China and Taiwan; export control regulations and compliance; net zero emissions commitments; increases in attrition and our ability to retain key personnel; changes in the demand for current and new products, technologies, and services; 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, 2021, and Keysight’s quarterly report on Form 10-Q for the period ended April 30, 2022.

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:

• Core Revenue
• Non-GAAP Net Income/Earnings
• Non-GAAP Net Income per share/Earnings per share

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 the three months ended July 31, 2022. 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

Keysight delivers advanced design and validation solutions that help accelerate innovation to connect and secure the world. Keysight’s dedication to speed and precision extends to software-driven insights and analytics that bring tomorrow’s technology products to market faster across the development lifecycle, in design simulation, prototype validation, automated software testing, manufacturing analysis, and network performance optimization and visibility in enterprise, service provider and cloud environments. Our customers span the worldwide communications and industrial ecosystems, aerospace and defense, automotive, energy, semiconductor and general electronics markets. Keysight generated revenues of $4.9B in fiscal year 2021. For more information about Keysight Technologies (NYSE: KEYS), visit us at www.keysight.com.

Additional information about Keysight Technologies is available in the newsroom at www.keysight.com/go/news and on Facebook, LinkedIn, Twitter and YouTube.

Source: IR-KEYS

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
(Unaudited)
PRELIMINARY
	Three months ended
	July 31,								Percent
		2022				2021			Inc/(Dec)
Orders	$	1,461			$	1,310			12	%
Revenue	$	1,376			$	1,246			10	%
Costs and expenses:
Cost of products and services		499				458			9	%
Research and development		206				207			(1	)%
Selling, general and administrative		317				302			5	%
Other operating expense (income), net		(3	)			(5	)		(44	)%
Total costs and expenses		1,019				962			6	%
Income from operations		357				284			26	%
Interest income		4				1			660	%
Interest expense		(20	)			(20	)		(1	)%
Other income (expense), net		5				5			1	%
Income before taxes		346				270			29	%
Provision for income taxes		8				16			(50	)%
Net income	$	338			$	254			33	%
Net income per share:
Basic	$	1.89			$	1.38
Diluted	$	1.87			$	1.36
Weighted average shares used in computing net income per share:
Basic		179				184
Diluted		181				186
Page 1

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
(Unaudited)
PRELIMINARY
	Nine months ended
	July 31,								Percent
		2022				2021			Inc/(Dec)
Orders	$	4,414			$	3,865			14	%
Revenue	$	3,977			$	3,647			9	%
Costs and expenses:
Cost of products and services		1,437				1,415			2	%
Research and development		626				615			2	%
Selling, general and administrative		962				900			7	%
Other operating expense (income), net		(3	)			(14	)		(80	)%
Total costs and expenses		3,022				2,916			4	%
Income from operations		955				731			31	%
Interest income		6				2			271	%
Interest expense		(59	)			(59	)		—
Other income (expense), net		15				(1	)		—
Income before taxes		917				673			36	%
Provision for income taxes		92				61			52	%
Net income	$	825			$	612			35	%
Net income per share:
Basic	$	4.56			$	3.31
Diluted	$	4.52			$	3.27
Weighted average shares used in computing net income per share:
Basic		181				185
Diluted		182				187
Page 2

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share data)
(Unaudited)
PRELIMINARY
	July 31,				October 31,
		2022				2021
ASSETS
Current assets:
Cash and cash equivalents	$	1,847			$	2,052
Accounts receivable, net		882				735
Inventory		837				777
Other current assets		395				270
Total current assets		3,961				3,834
Property, plant and equipment, net		668				650
Operating lease right-of-use assets		225				227
Goodwill		1,606				1,628
Other intangible assets, net		216				272
Long-term investments		73				70
Long-term deferred tax assets		661				711
Other assets		442				389
Total assets	$	7,852			$	7,781
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	328			$	287
Employee compensation and benefits		275				355
Deferred revenue		496				478
Income and other taxes payable		63				74
Operating lease liabilities		40				41
Other accrued liabilities		110				74
Total current liabilities		1,312				1,309
Long-term debt		1,792				1,791
Retirement and post-retirement benefits		131				167
Long-term deferred revenue		200				187
Long-term operating lease liabilities		192				191
Other long-term liabilities		305				352
Total liabilities		3,932				3,997
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; 199 million shares at July 31, 2022 and 197 million shares at October 31, 2021 issued		2				2
Treasury stock at cost; 19.7 million shares at July 31, 2022 and 15.1 million shares at October 31, 2021		(2,148	)			(1,425	)
Additional paid-in-capital		2,311				2,219
Retained earnings		4,255				3,430
Accumulated other comprehensive loss		(500	)			(442	)
Total stockholders' equity		3,920				3,784
Total liabilities and equity	$	7,852			$	7,781
Page 3

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
		Nine months ended
		July 31,
			2022				2021
Cash flows from operating activities:
Net income		$	825			$	612
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			88				87
Amortization			80				149
Share-based compensation			102				83
Deferred tax expense (benefit)			19				(49	)
Excess and obsolete inventory-related charges			18				20
Loss on settlement of pension plan			-				16
Other non-cash expense (income), net			30				7
Changes in assets and liabilities:
Accounts receivable			(166	)			(64	)
Inventory			(88	)			(30	)
Accounts payable			41				10
Employee compensation and benefits			(81	)			(12	)
Deferred revenue			69				86
Income taxes payable			(59	)			8
Retirement and post-retirement benefits			(21	)			5
Other assets and liabilities			(111	)			26
Net cash provided by operating activities(a)			746				954
Cash flows from investing activities:
Investments in property, plant and equipment			(127	)			(101	)
Acquisition of businesses and intangible assets, net of cash acquired			(33	)			(136	)
Purchase of investments			(30	)			-
Other investing activities			-				(1	)
Net cash used in investing activities			(190	)			(238	)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans			63				59
Payment of taxes related to net share settlement of equity awards			(74	)			(53	)
Treasury stock repurchases			(723	)			(320	)
Payment of acquisition-related contingent consideration			-				(2	)
Other financing activities			-				(1	)
Net cash used in financing activities			(734	)			(317	)
Effect of exchange rate movements			(27	)			4
Net increase (decrease) in cash, cash equivalents, and restricted cash			(205	)			403
Cash, cash equivalents and restricted cash at beginning of period			2,068				1,767
Cash, cash equivalents and restricted cash at end of period		$	1,863			$	2,170
(a) Cash payments included in operating activities:
Interest payments		$	37			$	37
Income tax paid, net		$	157			$	100
Page 4

KEYSIGHT TECHNOLOGIES, INC.
SEGMENT RESULTS INFORMATION
(In millions, except where noted)
(Unaudited)
PRELIMINARY
Communications Solutions Group									YoY
	Q3'22				Q3'21				% Chg
Revenue	$	970			$	875			11	%
Gross margin, %		67	%			66	%
Income from operations	$	288			$	224
Operating margin, %		30	%			26	%
Electronic Industrial Solutions Group									YoY
	Q3'22				Q3'21				% Chg
Revenue	$	406			$	371			10	%
Gross margin, %		61	%			64	%
Income from operations	$	127			$	115
Operating margin, %		31	%			31	%
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.
RECONCILIATION OF CORE REVENUE
(In millions)
(Unaudited)
PRELIMINARY
	Year-over-year compare
	Q3'22				Q3'21			Percent Inc/(Dec)
Revenue	$	1,376			$	1,246		10	%
Adjustments:
Revenue from acquisitions or divestitures		(2	)			-
Currency impacts		33				-
Core Revenue	$	1,407			$	1,246		13	%
Please refer last page for discussion on our non-GAAP financial measures.
Page 6

KEYSIGHT TECHNOLOGIES, INC.
NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATION
(In millions, except per share data)
(Unaudited)
PRELIMINARY
	Three months ended														Nine months ended
	July 31,														July 31,
	2022							2021							2022							2021
	Net Income			Diluted EPS				Net Income			Diluted EPS				Net Income			Diluted EPS				Net Income			Diluted EPS
GAAP Net income	$	338		$	1.87			$	254		$	1.36			$	825		$	4.52			$	612		$	3.27
Non-GAAP adjustments:
Amortization of acquisition-related balances		26			0.14				33			0.18				78			0.43				147			0.79
Share-based compensation		26			0.14				19			0.10				103			0.56				84			0.45
Acquisition and integration costs		2			0.01				2			0.01				7			0.04				8			0.04
Restructuring and others		13			0.07				2			0.01				34			0.19				27			0.15
Adjustment for taxes(a)		(42	)		(0.22	)			(24	)		(0.12	)			(45	)		(0.25	)			(52	)		(0.28	)
Non-GAAP Net income	$	363		$	2.01			$	286		$	1.54			$	1,002		$	5.49			$	826		$	4.42
Weighted average shares outstanding - diluted		181							186							182							187
(a) For both the three and nine months ended July 31, 2022 and 2021, 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 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, 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.
■	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 fourth quarter and fiscal 2022 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

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220817005625/en/

EDITORIAL CONTACT:

Andrea Mueller

+1 408-218-4754

andrea.mueller@keysight.com

INVESTOR CONTACT:

Jason Kary

+1 707-577-6916

jason.kary@keysight.com

Source: Keysight Technologies, Inc.

FAQ

What were Keysight Technologies' financial results for Q3 2022?

Keysight reported $1.38 billion in revenue and GAAP net income of $338 million, or $1.87 EPS for Q3 2022.

How much did Keysight's orders grow in Q3 2022?

Orders grew by 12% year-over-year, reaching $1.46 billion in Q3 2022.

What is Keysight's revenue outlook for Q4 2022?

Keysight expects Q4 2022 revenue to be between $1.38 billion and $1.40 billion.

What are the projected non-GAAP EPS for Keysight's fourth fiscal quarter?

Non-GAAP earnings per share for Q4 2022 are expected to be between $1.94 and $2.00.

How did Keysight's revenue compare to last year?

Keysight's revenue for Q3 2022 increased by 10% compared to Q3 2021.