Keysight Technologies, Inc. — FY2022 Form 10-K
Business context and reporting period. Keysight sells electronic design, test and measurement solutions and related services. This annual filing covers the fiscal year ended October 31, 2022; figures are in U.S. dollars unless noted. Its two reportable segments are Communications Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG).
Financial highlights
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $5.420 billion | $4.941 billion | +10% |
| Gross margin | 63.7% | 62.1% | +1.6 percentage points |
| Operating income / margin | $1.334 billion / 24.6% | $1.080 billion / 21.9% | Income +24% |
| Net income | $1.124 billion | $894 million | +26% |
| Diluted EPS | $6.18 | $4.78 | +29% |
| Operating cash flow | $1.144 billion | $1.322 billion | Down $178 million |
| Cash, cash equivalents and restricted cash | $2.057 billion | $2.068 billion | Down $11 million |
| Long-term debt, carrying value | $1.793 billion | $1.791 billion | Broadly unchanged |
Revenue, segments and margins
- Product revenue was $4.474 billion, up 10%; services and other revenue was $946 million, up 6%.
- CSG revenue rose 8% to $3.803 billion; segment operating income was $1.085 billion and margin was 28.5%.
- EISG revenue rose 14% to $1.617 billion; segment operating income was $501 million and margin was 31.0%. EISG gross margin fell 2.7 percentage points to 61.5%, mainly from higher material costs.
- Orders increased 12% to $5.984 billion. Backlog grew to approximately $2.550 billion from $2.115 billion, reflecting order growth, supply constraints and longer conversion cycles; the company expected most backlog to convert within six months.
Liquidity, debt and capital allocation
- Current assets were $4.234 billion and current liabilities were $1.407 billion at year-end. Cash and cash equivalents were $2.042 billion; approximately $1.686 billion of cash, cash equivalents and restricted cash was held outside the U.S.
- Debt comprised $600 million of 2024 notes, $700 million of 2027 notes and $500 million of 2029 notes, at fixed rates of 4.55%, 4.60% and 3.00%, respectively. No borrowings were outstanding under the $750 million revolving credit facility, which expires in 2026.
- Capital expenditures were $185 million. Cash used in financing was $861 million, including $849 million of share repurchases. Keysight repurchased 5.44 million shares during the year and did not pay a dividend.
- Management expected approximately $250 million of FY2023 capital spending and said available cash, operating cash generation and access to capital markets and credit lines should meet foreseeable cash needs.
Material changes and unusual items
- Revenue growth and improved gross and operating margins lifted net income. Management cited higher volume, pricing, lower acquisition-related amortization and lower variable people costs as benefits; higher material costs partly offset them.
- Operating cash flow declined year over year, with working capital absorbing cash: accounts receivable, inventory and accounts payable used a net $273 million, and increased prepaid inventory deposits also weighed on cash flow.
- Keysight discontinued and is exiting Russia following sanctions. FY2022 included $13 million of pre-tax exit expenses, including $7 million of asset impairments. Russia represented approximately 1% of FY2021 revenue.
- Foreign currency movements reduced FY2022 order growth by 3 percentage points and revenue growth by 2 percentage points, according to management.
Outlook, risks and contingencies
- No specific numerical revenue, earnings or margin guidance was provided. Management expressed confidence in long-term market trends and identified customer investment areas including 5G/6G, mobility, industrial IoT and defense modernization, while monitoring macroeconomic and supply-chain conditions.
- Key risks include component shortages and longer lead times, inflation and recession risk, geopolitical tensions and export controls, China-related trade restrictions, foreign exchange exposure, cybersecurity threats, and the ability to forecast customer demand and manage non-cancellable supplier commitments.
- Centripetal Networks filed patent-infringement proceedings in the U.S. and Germany and an ITC complaint seeking potential import restrictions. Keysight disputes the allegations; management said it did not believe any pending matter was then probable and reasonably likely to have a material impact, while noting adverse outcomes could cause damages or injunctive relief.
- A 2021 export-control consent agreement imposed a $6.6 million penalty over three years, of which $2.5 million was suspended for remediation activities; the filing reported $2.1 million paid and said the suspended portion had been satisfied through qualifying compliance spending.
- Singapore and Malaysia tax incentives reduced FY2022 income taxes by $81 million; renewal is due in 2024 and 2025, respectively. A Malaysia tax dispute relating to 2008 remained under appeal, with a hearing scheduled for 2023.
- The independent auditor reported effective internal control over financial reporting and identified U.S. defined-benefit pension obligations and discount-rate assumptions as a critical audit matter.
Important facts for investors to verify
- Whether the elevated backlog converts to revenue on schedule, given supply constraints and longer order-to-revenue cycles.
- Whether material costs and supply availability improve, particularly for EISG, where gross margin declined.
- How operating cash flow and working capital evolve after the FY2022 increase in receivables, inventory and supplier deposits.
- The status and potential financial or product impacts of the Centripetal litigation and the Malaysia tax appeal.
- Renewal of the Singapore and Malaysia tax incentives and the effect of any change on the effective tax rate.
- FY2023 capital spending and the company’s ability to sustain buybacks while meeting debt, supplier and other obligations.