Keysight Technologies, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended October 31, 2021. Although the request identifies 2021 Q4, this filing reports full-year results; standalone Q4 figures are not provided in the supplied text. Comparisons are primarily with FY2020.
Business context
Keysight sells electronic design, test and measurement solutions, software and services to communications, aerospace and defense, automotive, energy, semiconductor and other electronics markets. Its reportable segments are Communications Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG). No customer accounted for 10% or more of revenue.
Financial results and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $4.941 billion | $4.221 billion | Up 17% |
| Net income | $894 million | $627 million | Up 43% |
| Diluted EPS | $4.78 | $3.31 | Up 44% |
| Operating income | $1.080 billion | $765 million | Up 41% |
| Gross margin | 62.1% | 60.0% | Up 2.1 percentage points |
| Operating margin | 21.9% | 18.1% | Up 3.8 percentage points |
| Cash from operations | $1.322 billion | $1.016 billion | Up $306 million |
- Products generated $4.050 billion of revenue, up 18%; services and other revenue was $891 million, up 13%.
- CSG revenue was $3.523 billion, up 12%; segment operating margin was 26.5%, versus 24.7%. EISG revenue was $1.418 billion, up 30%; segment operating margin was 31.3%, versus 27.1%.
- Orders rose 18% to $5.356 billion. Unfilled backlog increased to $2.115 billion from $1.709 billion; management expected most to convert to revenue within six months.
- Cash, cash equivalents and restricted cash totaled $2.068 billion at year-end ($2.052 billion cash and equivalents on the balance sheet). Total debt at par was $1.800 billion; long-term debt carrying value was $1.791 billion. No borrowings were outstanding under the $750 million revolving facility.
- Investing cash use was $353 million, including $174 million in capital expenditures and $178 million for acquisitions. Financing cash use was $671 million, including $673 million in share repurchases.
- Current assets were $3.834 billion and current liabilities $1.309 billion. The company said available cash, operating cash generation and access to credit and capital markets should meet foreseeable cash needs.
Changes versus FY2020 and notable items
- FY2021 revenue and earnings rebounded from FY2020, when COVID-related facility closures and supply-chain disruptions had reduced revenue 2%. FY2021 growth was broad across regions and both segments; foreign currency and acquisitions each added about one percentage point to total revenue growth.
- Higher revenue volume, lower acquisition-related amortization and a lower effective tax rate supported FY2021 net income. Higher variable people costs, R&D investment and acquired-business costs partly offset gains.
- FY2020 included a $32 million one-time insurance settlement gain; FY2021 did not. FY2021 also included a $16 million loss on partial settlement of the Netherlands defined-benefit plan.
- The effective tax rate fell to 11% from 18%; tax incentives reduced FY2021 income taxes by $70 million. The Singapore incentive is due for renewal in 2024 and Malaysia’s in 2025.
- FY2021 acquisitions included Sanjole ($102 million net of cash acquired) and other businesses. The prior year included the $319 million net acquisition of Eggplant.
Outlook, risks and contingencies
- Management expressed confidence in long-term secular growth and expects continued customer R&D investment in areas including 5G/6G, automotive, IoT and defense modernization. The filing gives no specific FY2022 revenue or earnings guidance.
- FY2022 capital spending was expected to be approximately $240–$260 million, with capacity and technology investments. Management anticipated $12 million of contributions to non-U.S. defined-benefit plans and none to U.S. defined-benefit or post-retirement plans.
- Supply constraints, component shortages and longer lead times were affecting manufacturing and delivery. Non-cancellable supplier purchase commitments rose to $444 million from $291 million, largely reflecting advance orders for critical components.
- Other principal risks include COVID-19 and variants, economic and market cyclicality, trade restrictions and export controls, dependence on suppliers and contract manufacturers, cybersecurity, foreign exchange, tax uncertainty, pension assumptions, litigation and climate-related operational disruption.
- Under an August 2021 ITAR consent agreement resolving alleged export-control violations, Keysight agreed to pay a $6.6 million penalty over three years ($2.5 million suspended) and employ a special compliance officer for three years. Management said other ordinary-course legal matters were not currently expected to have a material impact, while noting litigation outcomes are uncertain.
- The company committed to net-zero Scope 1 and 2 emissions by FY2040 and to developing science-based targets; execution may require added costs and operational changes.
- PwC issued unqualified opinions on the financial statements and internal control over financial reporting; it identified defined-benefit plan obligations and discount-rate assumptions as a critical audit matter.
Investor facts to verify
- Whether the $2.115 billion backlog converts to revenue on the expected schedule, given supply and delivery constraints.
- Whether FY2021 margin expansion and growth persist after the favorable recovery comparison and lower acquisition amortization.
- The cash, debt and capital-allocation position, including the November 2021 authorization of a new $1.2 billion repurchase program.
- The renewal and continuing benefit of Singapore and Malaysia tax incentives, plus outcomes of the IRS and Malaysia tax examinations.
- Compliance costs and milestones under the ITAR consent agreement, and any material developments in litigation or other contingencies.
- Future supplier commitments, component availability, capital spending and the company’s ability to deliver against its growing backlog.