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Annual Report 2020

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Annual Report 2020 ANNUAL REPORT 2020 ACCELERATING INNOVATION TO CONNECT & SECURE THE WORLD Keysight Technologies Inc. 1400 Fountaingrove Parkway Santa Rosa California 95403 Ronald S. Nersesian Chairman, President & Chief Executive Officer January 29, 2021 To our stockholders, Keysight delivered an exceptional finish to fiscal year 2020, driven by strong execution and broad-based demand for our differentiated solutions. We faced unprecedented challenges during the year due to the Covid-19 pandemic, but remained focused on keeping employees safe and healthy, while continuing to deliver on our commitments to our customers and shareholders. Despite macro-economic and supply chain disruptions, full-year orders of $4.5 billion were a record high for Keysight, and we achieved all-time high profitability and cash flow. Revenue declined 2 percent over last year and totaled $4.22 billion and earnings per share grew 2 percent, or 3 percent on a non-GAAP basis. These results demonstrate the durability and strength of Keysight’s financial operating model. Keysight has driven strong value creation since becoming an independent public company in November 2014, having achieved compound annual non-GAAP revenue growth of 8 percent, while expanding non-GAAP gross margins by 810 basis points and increasing non-GAAP operating margin by 720 basis points. Non-GAAP earnings per share grew 14 percent on a compound annual basis over this period. Keysight’s stock has appreciated 243 percent since it began trading six years ago; a compounded annual growth rate of 23 percent. We continue to execute against our strategy of transforming from hardware-centric products to software-centric solutions. Our differentiated portfolio serves diverse end markets and enables our customers to accelerate innovation to connect and secure the world. Our ability to meet customers’ complex electronic measurement challenges has established us as the leader in our target markets. We have aligned Keysight with key long-term secular growth trends in 5G, next-generation automotive, networking, IoT, quantum, and defense modernization as part of our customer-centric solutions approach. Globally, 5G technology continues to scale as development and commercialization accelerate. Keysight offers the industry’s most comprehensive range of 5G design and test solutions, enabling the global build-out of networks and devices. We have solidified our leadership position globally across both the wireless and wired 5G ecosystem through close collaborations with market leaders, leadership in standards, and first-to-market 5G design and test solutions. 5G has been a strong growth driver for the company over the past three years and our acquisitions, including Anite, Ixia, and Prisma Telecom Testing, have enabled us to broaden the scope of our 5G solutions with increased software capability and differentiation. To capture future growth opportunities, we continue to invest in new technology initiatives such as 6G and quantum. In March of 2020, we acquired Labber Quantum, a software start-up, which presents exciting opportunities for Keysight to drive next-generation innovation in quantum technology and revolutionize computing and communications across a broad range of industries. In the automotive market, manufacturers and suppliers experienced macro-driven weakness in 2020, resulting from Covid-19. However, investments in next-generation electric and autonomous vehicle technology continue to be a market priority. Keysight’s first-to-market solutions are driving early engagement with many key market players. Software and services are critical elements of our solution-centric strategy and differentiation and further strengthen the durability of our business model. Together they comprised one-third of total Keysight revenue for the year and are a key driver of the company’s growth in recent years. Recurring revenue increased from 18 percent of total revenue in FY19 to 21 percent in FY20. This year we acquired Eggplant, an industry-leading software test automation provider. Eggplant’s differentiated technology uses artificial intelligence and analytics to automate test creation execution. With this acquisition, Keysight is now the only company that can provide test capability from the physical communications layer through the application layer and extending to the user experience. Eggplant’s customers span a wide range of sectors. We are excited about this acquisition and what we can achieve together. Throughout fiscal year 2020, we continued to exercise financial discipline and execute against our capital allocation priorities. While investing nearly $700 million in R&D, Keysight generated free cash flow of $899 million, representing 21 percent of revenue and 98 percent of non-GAAP net income. In addition, we repurchased approximately 4.3 million shares at an average price of $95.90 for a total consideration of $410 million, or 46 percent of free cash flow. At Keysight, our people and high-performance culture are competitive differentiators that enable us to continuously deliver greater value to customers, shareholders, and employees. The Keysight Leadership Model (KLM), our operating framework for continued value creation, is a core element of our culture and aligns the organization around enabling the success of our customers and executing against our operating model. Faced with unprecedented challenges in 2020, Keysight employees demonstrated their relentless commitment, engagement and dedication to the company and our success over the past year. Corporate social responsibility (CSR) is part of the KLM and remains a key component of our operating framework. In May of this year, Keysight released its annual CSR report outlining our commitments and key impact results. We ranked thirty-eighth on Barron’s 100 Most Sustainable Companies list and forty-first on the 2021 America’s Most JUST Companies list by Forbes and JUST Capital. Keysight is also part of the Dow Jones Sustainability Index and other CSR-focused indices. We are proud to be recognized again for our CSR achievements in 2020. In addition to corporate social responsibility, Keysight places a high value on inclusion and diversity and we are committed to continually making progress in this area. In early 2020, we appointed a senior director of inclusion and diversity to work with company leaders and drive a multi-year strategy to increase inclusion and diversity at all levels of the organization, including the board of directors. As we continue to make progress, we are pleased that over 30% of our U.S. executives are diverse in gender, race, and/or ethnicity. In summary, our financial performance in fiscal year 2020 demonstrates the strength of our business, and the continued broad-based demand for our differentiated solutions. The power of Keysight’s Leadership Model and our strong execution underscores our ability to deliver on the long-term financial commitments that we outlined at our Investor Day in March, prior to the disruptions caused by the pandemic. These commitments include a long-term target of 4-6 percent core revenue growth and 26-27 percent sustainable annual operating margin by no later than fiscal year 2023. Despite a global pandemic, we have not wavered in our commitment to employees, customers, and shareholders. As we look forward, we are optimistic about the growth opportunities in our end markets, and our ability to continue to create value for all of our stakeholders. Thank you for your continued support. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 2020 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 I.R.S. Employer Incorporation or organization Identification No. Address of principal executive offices: 1400 Fountaingrove Parkway, Santa Rosa, CA 95403 Registrant’s telephone number, including area code: (800) 829-4444 Securities registered pursuant to Section 12(b) of the Act: Trading Title of each class Symbol Name of each exchange on which registered Common Stock KEYS New York Stock Exchange par value $0.01 per share Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No □ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes □ No ☒ 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 and post 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 the 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 Section 13(a) of the Exchange Act.
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