Breaking Down Keysight Technologies, Inc. (KEYS) Financial Health: Key Insights for Investors

Understanding Keysight Technologies, Inc. (KEYS) Revenue Streams

Understanding Keysight Technologies, Inc. Revenue Streams

This section provides a detailed analysis of the revenue streams for Keysight Technologies, Inc. as of 2024, focusing on the breakdown of primary revenue sources, year-over-year growth trends, and contributions from various business segments.

Breakdown of Primary Revenue Sources

Keysight Technologies operates through two main segments: Communications Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG). The revenue breakdown for the three and nine months ended July 31, 2024 is as follows:

Year-over-Year Revenue Growth Rate

The total revenue for the three months ended July 31, 2024, decreased by 12% compared to the same period last year. For the nine months ended July 31, 2024, total revenue decreased by 11%.

Contribution of Different Business Segments to Overall Revenue

For the three months ended July 31, 2024, the contribution of each business segment to total revenue was:

• CSG: 70%
• EISG: 30%

For the nine months ended July 31, 2024:

• CSG: 68%
• EISG: 32%

Analysis of Significant Changes in Revenue Streams

In the three months ended July 31, 2024, revenue from CSG decreased by 8% year-over-year, while EISG revenue fell by 20%. For the nine months, CSG revenue decreased by 10% and EISG by 14%.

The decline in revenue is attributed to macroeconomic challenges, including inflation and high interest rates, which have resulted in reduced investment in the manufacturing sector. Despite this, customer engagement remains high, with ongoing investments in strategic initiatives such as next-generation electric vehicles, industrial IoT, and advanced semiconductor technologies.

Geographic Revenue Performance

The year-over-year change in revenue by geographic region for the three and nine months ended July 31, 2024 is summarized in the following table:

Revenue declines were noted across all regions, with Asia Pacific experiencing the most significant drop. This reflects broader economic conditions affecting customer spending patterns.

A Deep Dive into Keysight Technologies, Inc. (KEYS) Profitability

A Deep Dive into Keysight Technologies, Inc.'s Profitability

Gross Profit Margin: For the three months ended July 31, 2024, the gross margin was 62.0%, compared to 64.8% for the same period in 2023, a decrease of 3 percentage points. For the nine months ended July 31, 2024, the gross margin was 63.1%, down from 64.7% in 2023, reflecting a 2 percentage point decline.

Operating Profit Margin: The operating margin for the three months ended July 31, 2024 was 16.8%, a decrease from 26.4% in 2023, marking a 10 percentage point drop. For the nine months ended July 31, 2024, the operating margin was 16.3%, down from 25.1% in 2023, which is a 9 percentage point decline.

Net Profit Margin: Net income for the three months ended July 31, 2024 was $389 million, compared to $288 million for the same period in 2023. For the nine months ending July 31, 2024, net income was $687 million, down from $831 million the previous year.

Trends in Profitability Over Time

Comparing the profitability metrics from the previous year, there has been a noticeable decline in both gross and operating margins, primarily due to lower revenue volume and increased acquisition-related costs. The net profit margin showed a year-over-year increase for the quarterly results but a decline for the nine-month results, indicating fluctuations in profitability influenced by operational and macroeconomic factors.

Comparison of Profitability Ratios with Industry Averages

The gross margin of 62.0% for the three months ended July 31, 2024, is slightly below the industry average of 65%. The operating margin of 16.8% is also lower than the industry average of 20%, suggesting that the company is facing challenges compared to its peers.

Analysis of Operational Efficiency

The increase in operational expenses, particularly in research and development, which accounted for 19% of revenue for the nine months ended July 31, 2024, compared to 16% in the previous year, indicates a strategic focus on innovation despite declining margins.

The data indicates a decline in gross and operating margins, while net income showed variability, reflecting the impact of market conditions and operational decisions.

Debt vs. Equity: How Keysight Technologies, Inc. (KEYS) Finances Its Growth

Debt vs. Equity: How Keysight Technologies, Inc. Finances Its Growth

This section provides an overview of the financial structure of Keysight Technologies, focusing on its debt levels and equity structure as of 2024.

Overview of the Company's Debt Levels

As of July 31, 2024, Keysight Technologies reported total debt of $1,800 million, consistent with the previous fiscal year. The breakdown is as follows:

Debt-to-Equity Ratio and Comparison to Industry Standards

The debt-to-equity ratio as of July 31, 2024, is calculated as follows:

Debt-to-Equity Ratio = Total Debt / Total Equity

With total equity reported at $5,230 million, the debt-to-equity ratio is approximately 0.34. This ratio is below the industry average of 0.5, indicating a conservative approach to leveraging.

Recent Debt Issuances, Credit Ratings, or Refinancing Activity

• On March 28, 2024, a bridge credit agreement was established for £1,232 million (approximately $1,646 million) to finance a planned acquisition.
• As of July 31, 2024, there were no borrowings outstanding under the Revolving Credit Facility.
• Credit ratings have remained stable, reflecting a strong financial position and operational performance despite macroeconomic challenges.

How the Company Balances Between Debt Financing and Equity Funding

Keysight has employed a balanced strategy of debt and equity financing to support its growth initiatives. The company has actively repurchased shares, with treasury stock repurchases amounting to $290 million in the nine months ended July 31, 2024. This indicates a preference for returning value to shareholders while maintaining sufficient liquidity for operational needs.

Additionally, the company continues to invest in strategic acquisitions to enhance its product offerings and market position, as evidenced by the acquisition of ESI Group for $935 million earlier in the fiscal year.

The following table summarizes the financing activities related to stock and debt:

These financial maneuvers reflect a strategic balance aimed at sustaining growth while managing financial risk effectively.

Assessing Keysight Technologies, Inc. (KEYS) Liquidity

Assessing Keysight Technologies, Inc.'s Liquidity

Current and Quick Ratios

The current ratio as of July 31, 2024, stands at 1.68, indicating a solid liquidity position. The quick ratio is 1.29, suggesting that the company maintains enough liquid assets to cover its current liabilities without relying on inventory sales.

Analysis of Working Capital Trends

As of July 31, 2024, working capital is reported at $1,792 million, reflecting a decrease from $2,026 million in the previous year. This change indicates a tightening liquidity position, primarily driven by increased current liabilities.

Cash Flow Statements Overview

For the nine months ended July 31, 2024, cash flows from operating activities totaled $693 million, down from $1,030 million in the prior year. Cash used in investing activities was $781 million, a significant increase from $250 million a year earlier. Financing activities also saw a rise in cash outflows, totaling $753 million, compared to $259 million in the previous year.

Potential Liquidity Concerns or Strengths

Despite a healthy current ratio, the decline in working capital and significant cash outflows from investing and financing activities may raise liquidity concerns. The operating cash flow decline of $337 million indicates potential challenges in maintaining cash generation capabilities amidst rising operational costs and acquisition-related expenditures.

Moreover, total debt remains stable at $1,800 million, with a revolving credit facility of $750 million available, providing a buffer for liquidity needs .

Is Keysight Technologies, Inc. (KEYS) Overvalued or Undervalued?

Valuation Analysis

To assess the valuation of Keysight Technologies, we will examine key financial ratios, stock price trends, dividend yield, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The P/E ratio is a crucial indicator for evaluating stock valuation. As of July 31, 2024, the company's diluted earnings per share (EPS) was $2.22. With a stock price of approximately $143.00, the P/E ratio stands at approximately 64.3.

Price-to-Book (P/B) Ratio

The P/B ratio helps investors understand the market's valuation compared to the company's book value. The book value per share is estimated at $10.00, leading to a P/B ratio of approximately 14.3.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

As of the latest reports, the enterprise value is approximately $12 billion and the EBITDA for the last twelve months is around $1.2 billion, resulting in an EV/EBITDA ratio of about 10.0.

Stock Price Trends

Over the past 12 months, the stock price has experienced fluctuations:

• 12 months ago: $145.00
• Lowest point in the past year: $120.00
• Current price: $143.00

Dividend Yield and Payout Ratios

The company has not paid dividends in the past year, maintaining a 0% dividend yield and a 0% payout ratio.

Analyst Consensus

Current analyst consensus indicates a mixed outlook:

• Buy: 10 analysts
• Hold: 5 analysts
• Sell: 2 analysts

Summary Table of Key Valuation Metrics

These valuation metrics provide insights into whether the company is currently overvalued or undervalued in the market.

Key Risks Facing Keysight Technologies, Inc. (KEYS)

Key Risks Facing Keysight Technologies, Inc.

Overview of Internal and External Risks

Keysight Technologies faces a variety of risks that could impact its financial health. These include:

• Industry competition
• Regulatory changes
• Market conditions influenced by macroeconomic factors

Recent Financial Performance

For the three and nine months ended July 31, 2024, total revenue decreased by 12% and 11%, respectively, compared to the same periods in 2023. The decline in revenue reflects ongoing macroeconomic challenges, including high inflation and interest rates, which have slowed investments, particularly in the manufacturing sector.

Operational Risks

Operational risks include fluctuations in gross margins, which decreased to 62.0% for the three months ended July 31, 2024, down from 64.8% the previous year. This decline was primarily due to lower revenue volume and unfavorable mix, coupled with higher amortization of acquisition-related balances.

Financial Risks

Financial risks are highlighted in the decrease in net income, which fell to $389 million in the three months ended July 31, 2024, compared to $288 million in the same period last year. The decrease was attributed to lower revenue and higher acquisition and integration costs.

Strategic Risks

Strategic risks include potential impacts from ongoing geopolitical tensions and trade policies, which can affect supply chains and customer demand. Additionally, the integration of recent acquisitions, such as ESI Group, poses challenges that could impact operational efficiency and financial performance.

Mitigation Strategies

To mitigate these risks, the company has focused on:

• Prioritizing investments in key growth areas, such as EV and AI technologies
• Implementing cost management strategies to enhance operational efficiency
• Engaging actively with customers to maintain strong relationships and adapt to market changes

As of July 31, 2024, the company has recognized approximately $570 million in remaining performance obligations, indicating a strong future revenue stream despite current challenges.

Future Growth Prospects for Keysight Technologies, Inc. (KEYS)

Growth Opportunities

Future growth prospects for Keysight Technologies, Inc. are driven by several key factors, including product innovations, market expansions, and strategic acquisitions.

Key Growth Drivers

• Product Innovations: The company's focus on next-generation technologies such as 5G, 6G, AI, and advanced semiconductor technologies continues to be a significant growth driver. For instance, ongoing investments in R&D were $226 million for the three months ended July 31, 2024, compared to $215 million in the same period the previous year, reflecting a 5% increase .
• Market Expansions: The company is actively expanding its presence in emerging markets, particularly in Asia Pacific, which represents a significant portion of its growth strategy. Revenue from the Asia Pacific region for the nine months ended July 31, 2024, was $1,482 million, down from $1,790 million the previous year .
• Acquisitions: Key acquisitions have bolstered the company's capabilities. The acquisition of ESI Group for $935 million net of cash acquired in Q1 2024 has contributed $119 million in revenue for the nine months ended July 31, 2024 . Additionally, the acquisition of Riscure Holding B.V. for $78 million enhances automated security assessment capabilities .

Future Revenue Growth Projections

Revenue projections indicate a cautious outlook, with total revenue for the three months ended July 31, 2024, reported at $1,217 million, representing a 12% decrease year-over-year. For the nine months, total revenue was $3,692 million, down 11% from the previous year .

Earnings Estimates

Net income for the three months ended July 31, 2024, was $389 million, reflecting a 35% increase compared to $288 million for the same period last year. However, the nine-month net income decreased to $687 million from $831 million, representing a 17% decline .

Strategic Initiatives and Partnerships

The company has engaged in several strategic initiatives aimed at driving future growth, including:

• Collaborations with technology partners: This includes partnerships to enhance capabilities in areas such as AI and IoT, which are crucial for expanding market reach.
• Investment in R&D: Continued focus on R&D spending, which accounted for 19% of total revenue for the nine months ended July 31, 2024, up from 16% in the previous year .

Competitive Advantages

Keysight Technologies is positioned for growth through several competitive advantages, such as:

• First-to-market solutions: The company's strategy enables customers to accelerate innovation, particularly in high-demand sectors like automotive and telecommunications.
• Strong customer relationships: Engaging actively with customers allows the company to tailor solutions effectively, ensuring customer loyalty and repeat business.
• Diverse product portfolio: The combination of hardware, software, and services allows for flexibility in addressing various customer needs across different industries.

Table: Revenue and R&D Expenses Overview