10-QPeriod: Q1 FY2018

Keysight Technologies, Inc. Quarterly Report for Q1 Ended Jan 31, 2018

Filed March 8, 2018For Securities:KEYS

Summary

Keysight Technologies, Inc. reported fiscal second quarter results for the period ending January 31, 2018. The company saw a significant increase in total orders, up 39% year-over-year, reaching $964 million, driven in part by acquisitions contributing 22 percentage points. Net revenue also grew by 15% to $837 million, with acquisitions adding 16 percentage points to this growth. This revenue increase was partially impacted by the Northern California wildfires, which disrupted seasonality and impacted the Communications Solutions Group most significantly. Despite revenue growth, net income decreased to $94 million ($0.50 diluted EPS) from $109 million ($0.63 diluted EPS) in the prior year. This decline was primarily attributed to one-time gains recognized in the prior year related to a Japan pension settlement and land sale, alongside increased amortization of acquisition-related balances, integration costs, and wildfire-related expenses in the current quarter. The company benefited from a significant income tax benefit of $117 million, largely due to changes in U.S. tax law, which offset some of the operational pressures. Keysight ended the quarter with a strong cash position of $980 million.

Financial Highlights

53 data points
Beta

Revenue

$837.00M

50.8% Gross Margin

Net Income

$94.00M

11.2% Net Margin

EPS (Diluted)

$0.50

Total Assets

$6.05B

Cash & Equivalents

$980.00M

Free Cash Flow

$147.00M

Financial Statements
Beta
Revenue$837.00M
Cost of Revenue$412.00M
Gross Profit$425.00M
R&D Expenses$150.00M
SG&A Expenses$295.00M
Operating Expenses$854.00M
Operating Income-$17.00M
Interest Expense$22.00M
Net Income$94.00M
EPS (Basic)$0.50
EPS (Diluted)$0.50
Shares Outstanding (Basic)187.00M
Shares Outstanding (Diluted)189.00M

Key Highlights

  • 1Total orders increased by 39% year-over-year to $964 million, with acquisitions contributing significantly to growth.
  • 2Net revenue grew 15% year-over-year to $837 million, with acquisitions being a key driver.
  • 3Net income declined to $94 million from $109 million in the prior year, impacted by prior-year one-time gains and current-quarter expenses.
  • 4Diluted EPS decreased to $0.50 from $0.63 in the prior year.
  • 5A significant income tax benefit of $117 million was recognized due to changes in U.S. tax law, positively impacting the bottom line.
  • 6The company experienced disruptions from the Northern California wildfires, particularly impacting the Communications Solutions Group, with ongoing recovery efforts and insurance claims.
  • 7Cash and cash equivalents increased to $980 million as of January 31, 2018.

Frequently Asked Questions

The wildfires in Northern California, which affected Keysight's corporate headquarters, caused disruptions to operations and impacted the seasonality of revenue, particularly in the first half of fiscal 2018. While direct damage to core facilities was limited, cleaning and restoration efforts were ongoing. The company incurred $7 million in costs for the three months ended January 31, 2018, net of estimated insurance recovery, and recognized $10 million in insurance proceeds received. Management expects total insurance recovery to range from $80 million to $110 million.

The acquisition of Ixia, completed in April 2017, significantly contributed to the growth in both orders and net revenue. Acquisitions accounted for 22 percentage points of order growth and 16 percentage points of revenue growth in the reported quarter. The Ixia Solutions Group was established as a new reportable segment, contributing $127 million in total segment revenue and $18 million in segment income from operations during the quarter.

The decrease in net income from $109 million to $94 million was primarily due to the absence of significant one-time gains recognized in the prior year's comparable quarter ($68 million from a Japan pension settlement and $8 million from a land sale). Additionally, the current quarter experienced increased amortization of acquisition-related balances, acquisition and integration costs, higher people-related expenses, and costs associated with the Northern California wildfires.

Keysight recognized a substantial income tax benefit of $117 million for the three months ended January 31, 2018. This was primarily driven by a discrete benefit of $115 million resulting from changes in U.S. tax law, specifically the Tax Cuts and Jobs Act of 2017. This benefit helped to offset the lower operating income and significantly improved the company's net income for the quarter.