10-QPeriod: Q1 FY2019

Keysight Technologies, Inc. Quarterly Report for Q1 Ended Jan 31, 2019

Filed March 5, 2019For Securities:KEYS

Summary

Keysight Technologies, Inc. reported strong performance in the first quarter of fiscal year 2019, ending January 31, 2019. Total net revenue increased by a significant 20% year-over-year to $1,006 million, driven by robust growth across all operating segments, particularly the Communications Solutions Group. This revenue growth was further bolstered by a 22% increase when excluding currency fluctuations and divestitures. Net income saw a healthy rise of 21% to $114 million, translating to diluted earnings per share of $0.60. The company also benefited from improved operational efficiency, with gross margin expanding by 7 percentage points and operating margin showing a substantial 14-percentage-point increase. These improvements were attributed to higher revenue volume, a favorable product mix, and a reduction in certain expenses, including a notable decrease in wildfire-related costs compared to the prior year. The company also highlighted its ongoing investments in research and development to support future growth and its strategic focus on key growth markets like 5G and automotive. Financially, Keysight maintained a solid liquidity position with $1,102 million in cash, cash equivalents, and restricted cash. The company also actively managed its capital through share repurchases, returning $40 million to shareholders in the quarter. Overall, the results indicate a company experiencing strong top-line growth and improving profitability, supported by strategic market positioning and operational enhancements.

Financial Highlights

53 data points
Beta

Revenue

$1.01B

57.5% Gross Margin

Net Income

$114.00M

11.3% Net Margin

EPS (Diluted)

$0.60

Total Assets

$5.98B

Cash & Equivalents

$1.10B

Free Cash Flow

$209.00M

Financial Statements
Beta
Revenue$1.01B
Cost of Revenue$428.00M
Gross Profit$578.00M
R&D Expenses$173.00M
SG&A Expenses$288.00M
Operating Expenses$885.00M
Operating Income$121.00M
Interest Expense$20.00M
Net Income$114.00M
EPS (Basic)$0.61
EPS (Diluted)$0.60
Shares Outstanding (Basic)187.00M
Shares Outstanding (Diluted)190.00M

Key Highlights

  • 1Net revenue surged 20% year-over-year to $1,006 million, driven by broad segment strength.
  • 2Net income increased 21% to $114 million, with diluted EPS at $0.60.
  • 3Gross margin improved significantly, up 7 percentage points to 57.4%, indicating enhanced operational efficiency.
  • 4Operating margin saw a substantial 14-percentage-point increase, reaching 12.0%, reflecting strong revenue growth and cost management.
  • 5The Communications Solutions Group was a key driver of growth, with revenue up 25% year-over-year.
  • 6The company maintained a strong cash position, with $1,102 million in cash, cash equivalents, and restricted cash.
  • 7Keysight repurchased $40 million of its common stock during the quarter, demonstrating a commitment to returning capital to shareholders.

Frequently Asked Questions

The primary driver of the significant 20% year-over-year revenue growth was strong performance across all operating segments, particularly the Communications Solutions Group, which saw a 25% increase. This growth was fueled by demand in areas like 5G and data center investments within the commercial communications market, as well as steady contributions from the Electronic Industrial Solutions Group and Ixia Solutions Group.

Keysight adopted ASC 606 effective November 1, 2018. For the first quarter of fiscal 2019, the adoption resulted in a $14 million increase in net sales, primarily due to the accounting for subscription software sales. While it impacted the timing and classification of some revenue and deferred revenue, the company stated it did not expect a material ongoing impact on net revenue for the remainder of fiscal 2019.

Keysight's outlook is positive, driven by investments in R&D and completed acquisitions that have expanded its technology portfolio and addressable market. The company remains focused on delivering differentiated, first-to-market solutions for fast-growing markets like next-generation digital and electronic technologies. They anticipate continued sales growth despite existing macroeconomic and geopolitical uncertainties.

The company demonstrated improved profitability through a combination of factors. Gross margin increased significantly due to higher revenue volume and a favorable product mix, alongside a reduction in wildfire-related expenses. Selling, general, and administrative expenses decreased slightly, partly due to lower acquisition and integration costs. Research and development expenses increased as a percentage of revenue, reflecting continued investment in innovation.