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Keysight (KEYS) Q4 Earnings & Revenues Surpass Estimates

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Keysight Technologies, Inc. (KEYS - Free Report) reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.62 per share, outpacing the Zacks Consensus Estimate by 10.96%. Moreover, the bottom line improved 21.8% from the year-ago quarter.

Non-GAAP revenues grew 9% year over year to $1.22 billion surpassing the Zacks Consensus Estimate by 3.17%.

Non-GAAP core revenues (excluding the impact of currency and revenues from acquisitions in a year’s time) improved 7% on a year-over-year basis to $1.20 billion.

Improving aerospace and defense vertical, uptick in 5G test solutions on accelerated 5G deployment, and demand recovery in general electronics domain across Asia Pacific led to better-than-expected results.

Keysight Technologies Inc. Price, Consensus and EPS Surprise

Keysight Technologies Inc. Price, Consensus and EPS Surprise

Keysight Technologies Inc. price-consensus-eps-surprise-chart | Keysight Technologies Inc. Quote

Keysight improved production capacity and services operations, which contributed to the fiscal fourth-quarter performance.

Quarter in Detail

Orders improved 3% on a year-over-year basis to $1.231 billion during the reported quarter. Notably, core orders inched up 1%.

Beginning first-quarter fiscal 2020, the company’s financial reporting comprises two segments — Electronic Industrial Solutions Group (EISG) and Communications Solutions Group (CSG).  Ixia Solutions Group (ISG) segment reporting has been aligned with the CGS segment.

CSG includes commercial communications (CC) and aerospace, defense & government (ADG) end markets. CSG revenues of $901 million improved 8% year over year and 7% on a core basis. CSG contributed 74% to total non-GAAP revenues in the fiscal fourth quarter.

CC revenues of $605 million were up 5% year over year courtesy of robust 5G order growth primarily fueled by 5G investments.

5G commercial deployment led to improvement in orders from 5G device and design developers. Moreover, expansion of investments in O-RAN (or Open Radio Access Network) and virtualization technologies contributed to recovery.

Management is optimistic regarding incremental adoption of latest high performance PXie modular 5G base station test solution. The offering aids network equipment manufacturers and small cell vendors to reduce time-to-market. The solution also leverages PathWave software platform’s expertise to facilitate automation of workflows.

ADG revenues of $296 million improved 13% year over year, on higher government spending and momentum in investments aimed at defense technology modernization across the Americas and Asia. Keysight is poised to gain as economies increasingly focus on electro-magnetic spectrum operations, space, and advanced commercial technologies including 5G.

EISG revenues improved 12% year over year and 7% on a core basis to $319 million. Solid demand for the company’s solutions in next-generation process node technology testing in semiconductor end-market and strength in general electronics sector aided growth. However, macroeconomic challenges pertaining to coronavirus crisis induced softness in automotive domain weighed on revenues.

Nevertheless, increasing investment in advanced automotive technology led to double-digit growth in orders on a sequential basis across all regions. The company is witnessing uptick in ScienLab EV test solutions in Asia and Europe on government mandate-led electrification of vehicles. In a bid to capitalize on growing investments, the company rolled out a new radar target simulator for ADAS, and another solution for testing Automotive Ethernet standards compliance for in-vehicle networks during the fiscal fourth quarter. The company has also announced collaborations with Qualcomm and SGS to advance testing of Cellular Vehicle-to-Everything, or C-V2X, technology.

EISG contributed 26% to total non-GAAP revenues in fourth-quarter fiscal 2020.

Also, robust software test automation capabilities are fueling growth in Software and services revenues. This, in turn, is providing buoyancy to Keysight’s business model, which is driving recurring revenue growth and leading to expansion in gross margins.

Revenue Breakup by Geography

Americas, Europe and Asia Pacific contributed 41%, 15% and 44%, respectively, to total non-GAAP revenues in the reported quarter.

Non-GAAP revenues from Americas were $499 million, up 10% (up 8% on a core basis) year over year on robust order demand in ADG, CC and EISG domains.

Non-GAAP revenues from Europe of $185 million improved 7% (up 1% on a core basis) on a year-over-year basis. Solid order demand in CC and EISG vertical drove growth. Notably, revenues from ADG domain remained flat on a year-over-year basis.

Non-GAAP revenues from Asia Pacific of $536 million increased 8% (up 8% on a core basis) on a year-over-year basis. Strength in order demand across ADG, CC and EISG domains drove growth.

Margin Highlights

Non-GAAP gross margin expanded 210 basis points (bps) to 65.9% during the reported quarter. CSG gross margin of 66.3% expanded 200 bps, while EISG’s gross margin of 64.7% expanded 230 bps on a year-over-year basis.

Non-GAAP operating expenses climbed 4.7% to $446 million. As a percentage of revenues, the figure contracted 140 bps to 36.6%.

Consequently, non-GAAP operating margin expanded 350 bps to 29.3%.

Balance Sheet & Cash Flow

As of Oct 31, 2020, Keysight had cash & cash equivalents of $1.756 billion, compared with $1.697 billion as of Jul 31, 2020.

As on Oct 31, 2020, the company reported long-term debt of $1.789 billion, unchanged as of Jul 31, 2020.

Cash flow from operations during the quarter was $338 million compared with $183 million reported in the prior quarter.

Free cash flow was $308 million compared with the previous quarter’s $151 million.

In fiscal 2020, the company made total share repurchases worth $411 million. The company acquired approximately 2.2 million shares on the open market, at an average price of $96.55, totaling $215 million. Also, the company has exhausted $500 million share repurchase authorization from May 2019.

Notably, Keysight’s board of directors approved a new share purchase authorization worth $750 million, in effect immediately.

Fiscal 2020 at a Glance

Fiscal 2020 non-GAAP earnings of $4.85 per share, outpaced the Zacks Consensus Estimate of $4.70. Moreover, the bottom line improved 2.8% over fiscal 2019 tally.

Non-GAAP revenues of $4.221 billion declined 2% year over year. However, the top-line fared better than the Zacks Consensus Estimate of $4.18 billion.

Q1 Guidance

Keysight provided impressive first-quarter fiscal 2021 guidance on strong backlog and momentum in 5G test solutions.

For first-quarter fiscal 2021, the company anticipates revenues to be $1.14-$1.16 billion. The Zacks Consensus Estimate is currently pegged at $1.11 billion.

Non-GAAP earnings per share are projected to be $1.32-$1.38. The Zacks Consensus Estimate currently stands at $1.21.


Keysight is well poised to capitalize on rising demand of its semiconductor measurement solutions driven by allegiance of semiconductor companies to develop chips on next-generation process technologies. Markedly, management noted continued strength across semiconductor domain, which contributed to the semiconductor measurement solutions’ revenue growth in the fiscal fourth quarter.

Moreover, incremental adoption of the company’s latest innovative PathWave Test 2021 software holds promise.

Zacks Rank & Stocks to Consider

Keysight currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector worth considering are Jabil (JBL - Free Report) , Cadence Design Systems (CDNS - Free Report) and NVIDIA (NVDA - Free Report) . While Jabil and NVIDIA sport a Zacks Rank #1 (Strong Buy), Cadence carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Jabil, Cadence and NVIDIA is currently pegged at 12%, 15.4%, and 20.1%, respectively.

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