Keysight Technologies Reports Third Quarter 2024 Results

Rhea-AI Summary

Keysight Technologies (NYSE: KEYS) reported Q3 2024 financial results, with revenue of $1.22 billion, down from $1.38 billion in Q3 2023. GAAP net income was $389 million ($2.22 per share), including a 94-cent year-to-date tax benefit. Non-GAAP net income was $275 million ($1.57 per share), including a 16-cent year-to-date tax benefit. The Communications Solutions Group (CSG) revenue decreased by 8%, while the Electronic Industrial Solutions Group (EISG) revenue fell by 20%. For Q4 2024, Keysight expects revenue between $1.245-1.265 billion and non-GAAP EPS of $1.53-1.59. The company reported improved cash flow and a strong cash position of $1.63 billion.

Positive

• Q3 revenue and earnings exceeded guidance
• GAAP net income increased to $389 million from $288 million YoY
• Cash flow from operations improved to $255 million from $241 million YoY
• Free cash flow increased to $222 million from $196 million YoY
• Strong cash position with $1.63 billion in cash and cash equivalents
• Full-year outlook improved

Negative

• Q3 revenue decreased to $1.22 billion from $1.38 billion YoY
• Non-GAAP net income declined to $275 million from $393 million YoY
• Communications Solutions Group revenue down 8% YoY
• Electronic Industrial Solutions Group revenue down 20% YoY
• Continued restraint in customer spending across various sectors

Insights

Financial Analyst

Keysight's Q3 results paint a mixed picture. While revenue of $1.22 billion exceeded guidance, it's down 11.6% year-over-year. The GAAP EPS of $2.22 includes a significant tax benefit, masking underlying performance challenges. The non-GAAP EPS of $1.57 is more indicative of core operations, down 28.3% from last year.

The free cash flow of $222 million shows resilience, up 13.3% YoY. However, both key segments saw revenue declines, with EISG particularly hard-hit at -20%. The Q4 outlook suggests continued headwinds, with revenue guidance of $1.245-1.265 billion implying another YoY decline.

While management sees a gradual recovery in 2025, investors should watch for sustained order improvements and margin pressures in the near term.

Market Research Analyst

Keysight's results reflect broader industry challenges. The Communications Solutions Group's 8% decline signals ongoing caution in telecom and defense spending. More concerning is the Electronic Industrial Solutions Group's 20% drop, indicating significant weakness in automotive and general electronics markets.

The company's outlook for a gradual recovery in 2025 aligns with industry forecasts but remains cautious. The projected second-half order improvement will be important to watch, as it could signal the beginning of a market turnaround. However, the caveat of "barring further macroeconomic degradation" underscores lingering uncertainties.

Investors should monitor Keysight's ability to navigate this downturn and position itself for the anticipated recovery, particularly in emerging technologies that could drive future growth.

Tech Expert

Keysight's performance reflects the current tech industry slowdown, particularly in semiconductors and electronics. The 6% decline in commercial communications suggests ongoing 5G deployment challenges and potential delays in 6G research investments. The 10% drop in aerospace, defense and government is noteworthy, possibly indicating budget constraints or project delays in these typically resilient sectors.

The sharp 20% decline in EISG is concerning, as it encompasses critical areas like automotive and general electronics. This could signal a deeper industry-wide inventory correction and reduced capital expenditure in manufacturing.

Looking ahead, Keysight's ability to capitalize on emerging technologies like quantum computing, AI and next-gen wireless will be important for its long-term growth trajectory as the market gradually recovers.

Achieves above guidance results; full-year outlook improved

SANTA ROSA, Calif.--(BUSINESS WIRE)-- Keysight Technologies, Inc. (NYSE: KEYS) today reported financial results for the third fiscal quarter ended July 31, 2024.

“Keysight delivered revenue and earnings above the high end of our guidance in market conditions that were stable and consistent with our expectations,” said Satish Dhanasekaran, Keysight’s President and CEO. “The funnel of opportunities supports our outlook for second half orders to be above first half orders, followed by a more gradual recovery in 2025, barring any further macroeconomic degradation."

Third Quarter Financial Summary

• Revenue was $1.22 billion, compared with $1.38 billion in the third quarter of 2023.
• GAAP net income was $389 million, or $2.22 per share, which includes a 94-cent year-to-date benefit due to a change in effective tax rate, compared with $288 million, or $1.61 per share, in the third quarter of 2023.
• Non-GAAP net income was $275 million, or $1.57 per share, which includes a 16-cent year-to-date benefit due to a change in non-GAAP tax rate, compared with $393 million, or $2.19 per share in the third quarter of 2023.
• Cash flow from operations was $255 million, compared to $241 million last year. Free cash flow was $222 million, compared to $196 million in the third quarter of 2023.
• As of July 31, 2024, cash and cash equivalents totaled $1.63 billion.

Reporting Segments

• Communications Solutions Group (CSG)

CSG reported revenue of $847 million in the third quarter, down 8 percent from the prior year, reflecting a 6 percent decline in commercial communications, while aerospace, defense, and government decreased 10 percent.

• Electronic Industrial Solutions Group (EISG)

EISG reported revenue of $370 million in the third quarter, down 20 percent from the prior year, reflecting continued restraint in general electronics, automotive, and manufacturing-related customer spending.

Outlook

Keysight’s fourth fiscal quarter of 2024 revenue is expected to be in the range of $1.245 billion to $1.265 billion. Non-GAAP earnings per share for the fourth fiscal quarter of 2024 are expected to be in the range of $1.53 to $1.59, based on a weighted diluted share count of approximately 174 million shares and a non-GAAP tax rate of 14%. 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 FY2024 financial results and its fourth 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 “Q3 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 711647). 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,” "outlook" 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, uncertainty relating to national elections and election results in the U.S. and U.K., 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 April 30, 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 nine months ended July 31, 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								Nine months ended
		July 31,								July 31,
		2024				2023				2024				2023
Orders		$	1,249			$	1,244			$	3,688			$	3,863
Revenue		$	1,217			$	1,382			$	3,692			$	4,153
Costs and expenses:
Cost of products and services			462				486				1,361				1,465
Research and development			226				215				686				664
Selling, general and administrative			329				319				1,052				994
Other operating expense (income), net			(5	)			(3	)			(10	)			(11	)
Total costs and expenses			1,012				1,017				3,089				3,112
Income from operations			205				365				603				1,041
Interest income			19				29				60				70
Interest expense			(21	)			(19	)			(61	)			(58	)
Other income (expense), net			10				14				15				28
Income before taxes			213				389				617				1,081
Provision (benefit) for income taxes			(176	)			101				(70	)			250
Net income		$	389			$	288			$	687			$	831
Net income per share:
Basic		$	2.23			$	1.62			$	3.94			$	4.66
Diluted		$	2.22			$	1.61			$	3.92			$	4.63
Weighted average shares used in computing net income per share:
Basic			174				178				174				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
		July 31, 2024				October 31, 2023
ASSETS
Current assets:
Cash and cash equivalents		$	1,632			$	2,472
Accounts receivable, net			802				900
Inventory			1,026				985
Other current assets			536				452
Total current assets			3,996				4,809
Property, plant and equipment, net			776				761
Operating lease right-of-use assets			234				226
Goodwill			2,391				1,640
Other intangible assets, net			637				155
Long-term investments			107				81
Long-term deferred tax assets			678				671
Other assets			504				340
Total assets		$	9,323			$	8,683
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt		$	600			$	599
Accounts payable			280				286
Employee compensation and benefits			262				304
Deferred revenue			537				541
Income and other taxes payable			85				90
Operating lease liabilities			43				40
Other accrued liabilities			142				189
Total current liabilities			1,949				2,049
Long-term debt			1,196				1,195
Retirement and post-retirement benefits			71				64
Long-term deferred revenue			207				216
Long-term operating lease liabilities			197				192
Other long-term liabilities			473				313
Total liabilities			4,093				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; 27.5 million shares and 25.4 million shares, respectively			(3,270	)			(2,980	)
Additional paid-in-capital			2,637				2,487
Retained earnings			6,298				5,611
Accumulated other comprehensive loss			(437	)			(466	)
Total stockholders' equity			5,230				4,654
Total liabilities and equity		$	9,323			$	8,683
Page 2

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
		Nine months ended
		July 31,
		2024				2023
Cash flows from operating activities:
Net income		$	687			$	831
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			94				90
Amortization			108				72
Share-based compensation			111				110
Deferred tax expense (benefit)			(21	)			10
Excess and obsolete inventory-related charges			26				19
Other non-cash expense (income), net			(5	)			(13	)
Changes in assets and liabilities, net of effects of businesses acquired:
Accounts receivable			130				32
Inventory			(51	)			(126	)
Accounts payable			(4	)			(54	)
Employee compensation and benefits			(69	)			(87	)
Deferred revenue			(35	)			41
Income taxes payable			(24	)			(28	)
Interest rate swap agreement termination proceeds			—				107
Prepaid assets			(25	)			(33	)
Long-term tax receivable			(165	)			—
Other assets and liabilities			(64	)			59
Net cash provided by operating activities(a)			693				1,030
Cash flows from investing activities:
Investments in property, plant and equipment			(116	)			(158	)
Acquisition of businesses and intangible assets, net of cash acquired			(673	)			(85	)
Other investing activities			8				(7	)
Net cash used in investing activities			(781	)			(250	)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans			65				67
Payment of taxes related to net share settlement of equity awards			(31	)			(49	)
Acquisition of non-controlling interests			(458	)			—
Treasury stock repurchases			(289	)			(276	)
Repayment of debt			(24	)			—
Other financing activities			(16	)			(1	)
Net cash used in financing activities			(753	)			(259	)
Effect of exchange rate movements			2				10
Net increase (decrease) in cash, cash equivalents, and restricted cash			(839	)			531
Cash, cash equivalents, and restricted cash at beginning of period			2,488				2,057
Cash, cash equivalents, and restricted cash at end of period		$	1,649			$	2,588
(a) Cash payments included in operating activities:
Interest payments		$	38			$	37
Income tax paid, net		$	130			$	268
Page 3

KEYSIGHT TECHNOLOGIES, INC.
NET INCOME AND DILUTED EPS RECONCILIATION
(In millions, except per share data)
(Unaudited)
PRELIMINARY
		Three months ended														Nine months ended
		July 31,														July 31,
		2024								2023						2024								2023
		Net Income				Diluted EPS				Net Income			Diluted EPS			Net Income				Diluted EPS				Net Income			Diluted EPS
GAAP Net income		$	389			$	2.22			$	288		$	1.61		$	687			$	3.92			$	831		$	4.63
Non-GAAP adjustments:
Amortization of acquisition-related balances			31				0.18				23			0.13			106				0.60				71			0.39
Share-based compensation			32				0.18				27			0.15			118				0.68				111			0.62
Acquisition and integration costs			16				0.09				7			0.04			56				0.32				12			0.07
Restructuring and others			6				0.03				1			0.01			44				0.25				16			0.09
Adjustment for taxes(a)			(199	)			(1.13	)			47			0.25			(203	)			(1.16	)			95			0.53
Non-GAAP Net income		$	275			$	1.57			$	393		$	2.19		$	808			$	4.61			$	1,136		$	6.33
Weighted average shares outstanding - diluted			175								179						175								179

(a) During the quarter, we amended our tax returns to reflect $165 million, an amortization deduction related to a prior-period corporate restructuring. This reduced our effective non-GAAP tax rate for the nine months ended July 31, 2024 from 17% to 14% and for the three months ended July 31, 2024 to 8%. For the three and nine months ended July 31, 2023, management used 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
	Q3'24			Q3'23			Inc/(Dec)
Revenue	$	847		$	918		(8)%
Gross margin, %		67%			68%
Income from operations	$	223		$	276
Operating margin, %		26%			30%
Electronic Industrial Solutions Group							Percent
	Q3'24			Q3'23			Inc/(Dec)
Revenue	$	370		$	464		(20)%
Gross margin, %		58%			62%
Income from operations	$	74		$	157
Operating margin, %		20%			34%
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.
FREE CASH FLOW
(In millions)
(Unaudited)
PRELIMINARY
	Three months ended
	July 31,
	2024				2023
Net cash provided by operating activities	$	255			$	241
Less: Investments in property, plant and equipment		(33	)			(45	)
Free cash flow	$	222			$	196
Please refer last page for details on the use of non-GAAP financial measures.
Page 6

KEYSIGHT TECHNOLOGIES, INC.
REVENUE BY END MARKETS
(In millions)
(Unaudited)
PRELIMINARY
							Percent
	Q3'24			Q3'23			Inc/(Dec)
Aerospace, Defense and Government	$	275		$	307		(10)%
Commercial Communications		572			611		(6)%
Electronic Industrial		370			464		(20)%
Total Revenue	$	1,217		$	1,382		(12)%
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 fourth 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/20240820973484/en/

INVESTOR CONTACT:

Jason Kary

+1 707-577-6916

jason.kary@keysight.com

MEDIA CONTACT:

Claire Rowberry

+ 1 339-200-9518

claire.rowberry@non.keysight.com

Source: Keysight Technologies, Inc.

FAQ

What was Keysight's (KEYS) revenue for Q3 2024?

Keysight Technologies (KEYS) reported revenue of $1.22 billion for Q3 2024.

How did Keysight's (KEYS) Q3 2024 results compare to guidance?

Keysight (KEYS) achieved results above guidance for both revenue and earnings in Q3 2024.

What is Keysight's (KEYS) revenue outlook for Q4 2024?

Keysight (KEYS) expects Q4 2024 revenue to be in the range of $1.245 billion to $1.265 billion.

How did Keysight's (KEYS) Communications Solutions Group perform in Q3 2024?

Keysight's (KEYS) Communications Solutions Group reported revenue of $847 million in Q3 2024, down 8% from the prior year.

What was Keysight's (KEYS) cash and cash equivalents balance as of July 31, 2024?

Keysight (KEYS) reported cash and cash equivalents totaling $1.63 billion as of July 31, 2024.