I want to cover Keysight’s Q3 results this week and finish our quarterly calls with Autodesk’s next week. Love to go out on a positive note. For Keysight, Q3 saw Revenue of $832M and a Loss of $0.10 per share. This latter was greatly impacted by some accounting changes associated with the Ixia Acquisition and without that this would have been a Profit of $0.61 per share. Last year the Revenue was $718M and $0.63 per share. This means there was growth in Revenue but not in Profit. The Revenue Growth is associated with the Ixia Acquisition, which did just over $120M/quarter at the time of the purchase by Keysight. The Q3-2017 Revenue was also impacted by some adjustments to the Deferred Revenue that Ixia had.
So, all of this makes it hard to give one an accurate picture of what is going on. The company declared a great quarter with good year over year growth. However, I can not see how this is really a gain of 3% in Revenue year over year and slightly down in profitability. The next quarter looks to be a bit better year over year, but we will need to see it in practice. This more favorable Q4 guidance is what looks to have moved the stock from something in the $36-$38 range to the $39 – $41 range.
I want to talk about some of the things that are going on with why there are these changes in Deferred Revenue and Amortization. Companies often have policies around how things are accounted for. Though you would think accounting would have very strict rules, there are many places where their are rules that are really handled through policies. For example, when does a significant purchase count as an Expense and when as Capital Equipment. In that latter case, the Equipment is depreciated on a schedule. That schedule itself can be varied based on policy. All of this is well within the bounds of legal accounting practices. Often times companies have different policies and if they combine there are adjustments that need to be made to have their finances run under a single policy. That is one reason you might hear about “1 Time Charges”. These adjustments often flow through the Income Statement, but have little or nothing to do with the actual Cash or Profitability of a Company.
The other thing here is that the Company is clear that it is going to attempt to return the profit to the shareholders through acquisition. That can be a challenge for shareholders as many acquisitions don’t work over the long haul. The jury is still out on Anite and Ixia. The company has spent around $2B in these acquisitions. At the moment, the best I can say is that they definitely fill in gaps in the company. The question is whether they will be worth it over just giving the money back through a dividend. I suggested about 2 years ago that the company start a $0.25/quarter dividend. If that had been pursued, then $2 a share would have been given back so far. Think about that.
Have a great day!
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