UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE) 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2023

OR 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 

FOR THE TRANSITION PERIOD FROM              TO        

 COMMISSION FILE NUMBER: 001-36334

 KEYSIGHT TECHNOLOGIES, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware		46-4254555
(State or other jurisdiction of		(IRS employer
incorporation or organization)		Identification no.)
1400 Fountaingrove Parkway
Santa Rosa	California	95403
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (800) 829-4444

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	KEYS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a)of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒ 

The number of shares of common stock outstanding at May 26, 2023 was 178,367,757.

TABLE OF CONTENTS

			Page Number
Part I.	Financial Information		3
	Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
		Condensed Consolidated Statement of Operations	3
		Condensed Consolidated Statement of Comprehensive Income	4
		Condensed Consolidated Balance Sheet	5
		Condensed Consolidated Statement of Cash Flows	6
		Condensed Consolidated Statement of Equity	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
	Item 4.	Controls and Procedures	33
Part II.	Other Information		33
	Item 1.	Legal Proceedings	33
	Item 1A.	Risk Factors	34
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
	Item 6.	Exhibits	49
Signatures			50

2

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in millions, except per share data)

(Unaudited)

	Three Months Ended				Six Months Ended
	April 30,				April 30,
	2023		2022		2023		2022
Revenue:
Products	$	1,108	$	1,092	$	2,222	$	2,102
Services and other	282		259		549		499
Total revenue	1,390		1,351		2,771		2,601
Costs and expenses:
Cost of products	384		402		789		760
Cost of services and other	97		90		190		178
Total costs	481		492		979		938
Research and development	222		210		449		420
Selling, general and administrative	337		319		675		645
Other operating expense (income), net	(4)		3		(8)		—
Total costs and expenses	1,036		1,024		2,095		2,003
Income from operations	354		327		676		598
Interest income	22		1		41		2
Interest expense	(20)		(19)		(39)		(39)
Other income (expense), net	5		(2)		14		10
Income before taxes	361		307		692		571
Provision for income taxes	78		49		149		84
Net income	$	283	$	258	$	543	$	487
Net income per share:
Basic	$	1.59	$	1.42	$	3.04	$	2.67
Diluted	$	1.58	$	1.41	$	3.02	$	2.65
Weighted average shares used in computing net income per share:
Basic	178		181		178		182
Diluted	179		183		179		183

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)

	Three Months Ended				Six Months Ended
	April 30,				April 30,
	2023		2022		2023		2022
Net income	$	283	$	258	$	543	$	487
Other comprehensive income (loss):
Gain (loss) on derivative instruments, net of tax benefit (expense) of zero, $(9), $6 and $(10)	1		36		(20)		40
Amounts reclassified into earnings related to derivative instruments, net of tax benefit (expense) of zero	(1)		(2)		(3)		(2)
Foreign currency translation, net of tax benefit (expense) of zero	(11)		(65)		70		(86)
Net defined benefit pension cost and post retirement plan costs:
Change in net actuarial loss, net of tax expense of $1, $2, $2 and $4	3		8		8		16
Other comprehensive income (loss)	(8)		(23)		55		(32)
Total comprehensive income	$	275	$	235	$	598	$	455

    

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in millions, except par value and share data)

(Unaudited)

	April 30, 2023		October 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	2,498	$	2,042
Accounts receivable, net	864		905
Inventory	948		858
Other current assets	454		429
Total current assets	4,764		4,234
Property, plant and equipment, net	746		690
Operating lease right-of-use assets	224		220
Goodwill	1,661		1,582
Other intangible assets, net	198		189
Long-term investments	82		62
Long-term deferred tax assets	669		667
Other assets	364		454
Total assets	$	8,708	$	8,098
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	302	$	348
Employee compensation and benefits	317		333
Deferred revenue	568		495
Income and other taxes payable	80		96
Operating lease liabilities	42		39
Other accrued liabilities	113		96
Total current liabilities	1,422		1,407
Long-term debt	1,793		1,793
Retirement and post-retirement benefits	62		58
Long-term deferred revenue	222		197
Long-term operating lease liabilities	188		186
Other long-term liabilities	316		296
Total liabilities	4,003		3,937
Commitments and contingencies (Note 12)
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 April 30, 2023 and 199 million shares at October 31, 2022 issued	2		2
Treasury stock at cost; 21.2 million shares at April 30, 2023 and 20.5 million shares at October 31, 2022	(2,399)		(2,274)
Additional paid-in-capital	2,404		2,333
Retained earnings	5,097		4,554
Accumulated other comprehensive loss	(399)		(454)
Total stockholders' equity	4,705		4,161
Total liabilities and equity	$	8,708	$	8,098

 The accompanying notes are an integral part of these condensed consolidated financial statements.

5

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

(Unaudited)

	Six Months Ended
	April 30,
	2023		2022
Cash flows from operating activities:
Net income	$	543	$	487
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	59		59
Amortization	49		53
Share-based compensation	84		77
Deferred tax expense (benefit)	(2)		13
Excess and obsolete inventory-related charges	13		13
Unrealized loss (gain) on equity and other investments	(5)		13
Other non-cash expense (income), net	1		9
Changes in assets and liabilities:
Accounts receivable	61		(84)
Inventory	(93)		(54)
Accounts payable	(41)		31
Employee compensation and benefits	(35)		(41)
Deferred revenue	81		90
Income taxes payable	(32)		(26)
Retirement and post-retirement benefits	(4)		(14)
Interest rate swap agreement termination proceeds	107		—
Prepaid assets	(27)		(78)
Other assets and liabilities	30		(26)
Net cash provided by operating activities	789		522
Cash flows from investing activities:
Investments in property, plant and equipment	(113)		(95)
Acquisition of businesses and intangible assets, net of cash acquired	(85)		(17)
Purchase of investments	(7)		(30)
Net cash used in investing activities	(205)		(142)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans	33		31
Payment of taxes related to net share settlement of equity awards	(47)		(74)
Treasury stock repurchases	(125)		(484)
Other financing activities	(1)		—
Net cash used in financing activities	(140)		(527)
Effect of exchange rate movements	13		(21)
Net increase (decrease) in cash, cash equivalents, and restricted cash	457		(168)
Cash, cash equivalents, and restricted cash at beginning of period	2,057		2,068
Cash, cash equivalents, and restricted cash at end of period	$	2,514	$	1,900
Supplemental cash flow information:
Interest payments	$	37	$	37
Income tax paid, net	$	180	$	122
Investments in property, plant and equipment included in accounts payable	$	23	$	19

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(in millions, except number of shares in thousands)

(Unaudited)

	Common Stock					Treasury Stock
	Number of Shares	Par Value		Additional Paid-in Capital		Number of Shares	Treasury Stock at Cost		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
Balance as of January 31, 2023	199,382	$	2	$	2,378	(21,247)	$	(2,399)	$	4,814	$	(391)	$	4,404
Net income	—	—		—		—	—		283		—		283
Other comprehensive income (loss), net of tax	—	—		—		—	—		—		(8)		(8)
Issuance of common stock	16	—		—		—	—		—		—		—
Taxes related to net share settlement of equity awards	—	—		(1)		—	—		—		—		(1)
Share-based compensation	—	—		27		—	—		—		—		27
Repurchase of common stock	—	—		—		—	—		—		—		—
Balance as of April 30, 2023	199,398	$	2	$	2,404	(21,247)	$	(2,399)	$	5,097	$	(399)	$	4,705
Balance as of October 31, 2022	198,569	$	2	$	2,333	(20,536)	$	(2,274)	$	4,554	$	(454)	$	4,161
Net income	—	—		—		—	—		543		—		543
Other comprehensive income (loss), net of tax	—	—		—		—	—		—		55		55
Issuance of common stock	829	—		33		—	—		—		—		33
Taxes related to net share settlement of equity awards	—	—		(47)		—	—		—		—		(47)
Share-based compensation	—	—		85		—	—		—		—		85
Repurchase of common stock	—	—		—		(711)	(125)		—		—		(125)
Balance as of April 30, 2023	199,398	$	2	$	2,404	(21,247)	$	(2,399)	$	5,097	$	(399)	$	4,705
Balance as of January 31, 2022	198,195	$	2	$	2,231	(16,223)	$	(1,631)	$	3,659	$	(451)	$	3,810
Net income	—	—		—		—	—		258		—		258
Other comprehensive income (loss), net of tax	—	—		—		—	—		—		(23)		(23)
Issuance of common stock	34	—		—		—	—		—		—		—
Taxes related to net share settlement of equity awards	—	—		(1)		—	—		—		—		(1)
Share-based compensation	—	—		24		—	—		—		—		24
Repurchase of common stock	—	—		—		(1,878)	(289)		—		—		(289)
Balance as of April 30, 2022	198,229	$	2	$	2,254	(18,101)	$	(1,920)	$	3,917	$	(474)	$	3,779
Balance as of October 31, 2021	197,248	$	2	$	2,219	(15,094)	$	(1,425)	$	3,430	$	(442)	$	3,784
Net income	—	—		—		—	—		487		—		487
Other comprehensive income (loss), net of tax	—	—		—		—	—		—		(32)		(32)
Issuance of common stock	981	—		31		—	—		—		—		31
Taxes related to net share settlement of equity awards	—	—		(73)		—	—		—		—		(73)
Share-based compensation	—	—		77		—	—		—		—		77
Repurchase of common stock	—	—		—		(3,007)	(495)		—		—		(495)
Balance as of April 30, 2022	198,229	$	2	$	2,254	(18,101)	$	(1,920)	$	3,917	$	(474)	$	3,779

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

KEYSIGHT TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview. Keysight Technologies, Inc. ("we," "us," "Keysight" or the "company"), incorporated in Delaware on December 6, 2013, is a technology company that helps enterprises, service providers and governments accelerate innovation to connect and secure the world by providing electronic design and test solutions that are used in the simulation, design, validation, manufacture, installation, optimization and secure operation of electronics systems in the communications, networking and electronics industries. We also offer customization, consulting and optimization services throughout the customers' product development lifecycle, including start-up assistance, asset management, up-time services, application services and instrument calibration and repair.

Our fiscal year-end is October 31, and our fiscal quarters end on January 31, April 30 and July 31. Unless otherwise stated, these dates refer to our fiscal year and fiscal quarters.

Basis of Presentation. We have prepared the accompanying financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP") have been condensed or omitted pursuant to such rules and regulations. The accompanying financial statements and information should be read in conjunction with our Annual Report on Form 10-K.

In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly our financial position as of April 30, 2023 and October 31, 2022, results of operations for the three and six months ended April 30, 2023 and 2022, and cash flows for the six months ended April 30, 2023 and 2022.

Use of Estimates. The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates.

Update to Significant Accounting Policies. There have been no material changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.

Reclassifications. Beginning in fiscal year 2023, to align the presentation of revenue with the manner in which management reviews such information, the presentation of "products" and "services and other" revenue and the presentation of "costs and expenses" in the condensed consolidated statement of operations were reclassified to move revenue and costs and expenses primarily related to bundled licenses and technical support services from products to "services and other." This resulted in reclassification of $20 million and $40 million, respectively, from "products" revenue to "services and other" revenue for the three and six months ended April 30, 2022, and $2 million and $5 million, respectively, from "cost of products" to "cost of services and other" for the three and six months ended April 30, 2022 to conform to the current presentation. This change had no impact on reported total revenue, income from operations and net income in our condensed consolidated statement of operations.

New Accounting Pronouncements. Amendments to GAAP that do not require adoption until a future date are not expected to have a material impact on our condensed consolidated financial statements upon adoption.

2.    REVENUE

Disaggregation of Revenue

We disaggregate our revenue from contracts with customers by geographic region, end market, and timing of revenue recognition, as we believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Disaggregated revenue is presented for each of our reportable segments, Communications Solutions Group ("CSG") and Electronic Industrial Solutions Group ("EISG").

8

	Three Months Ended
	April 30,
	2023						2022
	CSG		EISG		Total		CSG		EISG		Total
	(in millions)
Region
Americas	$	424	$	93	$	517	$	468	$	95	$	563
Europe	128		101		229		131		87		218
Asia Pacific	385		259		644		364		206		570
Total revenue	$	937	$	453	$	1,390	$	963	$	388	$	1,351
End Market
Aerospace, Defense & Government	$	310	$	—	$	310	$	291	$	—	$	291
Commercial Communications	627		—		627		672		—		672
Electronic Industrial	—		453		453		—		388		388
Total revenue	$	937	$	453	$	1,390	$	963	$	388	$	1,351
Timing of Revenue Recognition
Revenue recognized at a point in time	$	775	$	390	$	1,165	$	805	$	335	$	1,140
Revenue recognized over time	162		63		225		158		53		211
Total revenue	$	937	$	453	$	1,390	$	963	$	388	$	1,351

	Six Months Ended
	April 30,
	2023						2022
	CSG		EISG		Total		CSG		EISG		Total
	(in millions)
Region
Americas	$	876	$	202	$	1,078	$	872	$	174	$	1,046
Europe	275		$	211	486		274		170		444
Asia Pacific	725		$	482	1,207		695		416		1,111
Total revenue	$	1,876	$	895	$	2,771	$	1,841	$	760	$	2,601
End Market
Aerospace, Defense & Government	$	620	$	—	$	620	$	585	$	—	$	585
Commercial Communications	1,256		—		1,256		1,256		—		1,256
Electronic Industrial	—		895		895		—		760		760
Total revenue	$	1,876	$	895	$	2,771	$	1,841	$	760	$	2,601
Timing of Revenue Recognition
Revenue recognized at a point in time	$	1,552	$	770	$	2,322	$	1,535	$	657	$	2,192
Revenue recognized over time	324		125		449		306		103		409
Total revenue	$	1,876	$	895	$	2,771	$	1,841	$	760	$	2,601

Our point-in-time revenues are generated predominantly from the sale of various types of design and test software and hardware, and per-incident repair and calibration services. Perpetual software and the portion of term software subscription revenue in this category represents revenue recognized upfront upon transfer of control at the time of electronic delivery. Revenue on per-incident repair and calibration services is recognized when services are performed. Over-time revenues are generated predominantly from repair and calibration contracts, extended warranties, technical support for hardware and software, certain software subscription and Software as a Service ("SaaS") product offerings, and professional services. Technical support for software and when-and-if available software updates and upgrades are sold either together with our software licenses and software subscriptions, including SaaS, or separately as part of our customer support programs.

9

Additionally, we provide custom solutions that include combinations of hardware, software, software subscriptions, installation, professional services, and other support services, and revenue may be recognized either up front on delivery or over time depending upon the terms of the contract.

Contract Balances

Contract assets

Contract assets consist of unbilled receivables and are recorded when revenue is recognized in advance of scheduled billings to our customers. These amounts are primarily related to solutions and support arrangements when transfer of control has occurred but we have not yet invoiced. The contract assets balance was $60 million and $88 million as of April 30, 2023 and October 31, 2022, respectively, and is included in "accounts receivables, net" and "other assets" in our condensed consolidated balance sheet.

Contract costs

We capitalize direct and incremental costs incurred to acquire contracts for which the associated revenue is expected to be recognized in future periods. We have determined that certain employee and third-party representative commission programs meet the requirements to be capitalized. These costs are initially deferred and typically amortized over the term of the customer contract which corresponds to the period of benefit. Capitalized contract costs were $33 million and $38 million as of April 30, 2023 and October 31, 2022, respectively, and are included in “other current assets” and “other assets” in the condensed consolidated balance sheet. The amortization expense associated with these costs was $18 million and $37 million for the three and six months ended April 30, 2023, respectively, and $23 million and $45 million for the corresponding periods last year.

Contract liabilities

Our contract liabilities consist of deferred revenue that arises when we receive consideration in advance of providing the goods or services promised in the contract. Contract liabilities are primarily generated from customer deposits received in advance of shipments for products or rendering of services and are recognized as revenue when products are shipped or services are provided to the customer. We classify deferred revenue as current or non-current based on the timing of when we expect to recognize revenue.

The following table provides a roll-forward of our contract liabilities, current and non-current:

	Six Months Ended
	April 30,
	2023
	(in millions)
Balance at October 31, 2022	$	692
Deferral of revenue billed in current period, net of recognition	414
Deferred revenue arising out of acquisitions	4
Revenue recognized that was deferred as of the beginning of the period	(333)
Foreign currency translation impact	13
Balance at April 30, 2023	$	790

Of the $333 million of revenue recognized in the six months ended April 30, 2023 that was deferred as of the beginning of the period, approximately $116 million was recognized in the three months ended April 30, 2023.

Remaining Performance Obligations

Our remaining performance obligations, excluding contracts that have an original expected duration of one year or less, was approximately $552 million as of April 30, 2023, and represents the company’s obligation to deliver products and services and obtain customer acceptance on delivered products. As of April 30, 2023, we expect to fulfill 26 percent of these remaining performance obligations during the remainder of 2023, 40 percent during 2024, and 34 percent thereafter.

10

3.    SHARE-BASED COMPENSATION

Keysight accounts for share-based awards in accordance with the provisions of the authoritative accounting guidance, which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including restricted stock units ("RSUs"), employee stock purchases made under our Employee Stock Purchase Plan (“ESPP”), and performance share awards granted to selected members of our senior management under the Long-Term Performance (“LTP”) Program, based on estimated fair values. The impact of share-based compensation expense on our condensed consolidated statement of operations was as follows:

	Three Months Ended				Six Months Ended
	April 30,				April 30,
	2023		2022		2023		2022
	(in millions)
Cost of products and services	$	7	$	6	$	16	$	14
Research and development	7		5		23		16
Selling, general and administrative	15		15		45		47
Total share-based compensation expense	$	29	$	26	$	84	$	77

Share-based compensation capitalized within inventory was $2 million and zero at April 30, 2023 and April 30, 2022, respectively.

4.    INCOME TAXES

The following table provides income tax details:

	Three Months Ended				Six Months Ended
	April 30,				April 30,
	2023		2022		2023		2022
in millions, except percentages
Income before taxes	$	361	$	307	$	692	$