Keysight Technologies(KEYS) - 2025 Q1 - Quarterly Report

Part I. Financial Information This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of Keysight Technologies, Inc Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents Keysight Technologies, Inc.'s unaudited condensed consolidated financial statements, including the Statement of Operations, Comprehensive Income, Balance Sheet, Cash Flows, and Equity, along with detailed notes explaining significant accounting policies, acquisitions, revenue disaggregation, share-based compensation, income taxes, goodwill, fair value measurements, derivatives, debt, retirement plans, supplemental financial information, commitments, contingencies, and segment information for the period ended January 31, 2025 Condensed Consolidated Statement of Operations This statement provides a summary of Keysight's revenues, costs, and net income for the three months ended January 31, 2025 and 2024 Condensed Consolidated Statement of Operations (in millions) | Metric (in millions) | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | YoY Change | | :------------------- | :-------------------------- | :-------------------------- | :--------- | | Products Revenue | $983 | $952 | +3.3% | | Services & Other Revenue | $315 | $307 | +2.6% | | Total Revenue | $1,298 | $1,259 | +3.1% | | Total Costs & Expenses | $1,080 | $1,038 | +4.0% | | Income from Operations | $218 | $221 | -1.4% | | Net Income | $169 | $172 | -1.7% | | Diluted EPS | $0.97 | $0.98 | -1.0% | Condensed Consolidated Statement of Comprehensive Income This statement details Keysight's net income and other comprehensive income components, including foreign currency translation adjustments Condensed Consolidated Statement of Comprehensive Income (in millions) | Metric (in millions) | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | | :------------------- | :-------------------------- | :-------------------------- | | Net Income | $169 | $172 | | Other Comprehensive Income (Loss) | $(79) | $24 | | Total Comprehensive Income | $90 | $196 | - Foreign currency translation resulted in a loss of $73 million in Q1 2025, compared to a gain of $27 million in Q1 2024, significantly impacting total comprehensive income[10] Condensed Consolidated Balance Sheet This statement presents Keysight's financial position, including assets, liabilities, and equity, as of January 31, 2025, and October 31, 2024 Condensed Consolidated Balance Sheet (in millions) | Metric (in millions) | Jan 31, 2025 | Oct 31, 2024 | QoQ Change | | :------------------- | :----------- | :----------- | :--------- | | Total Current Assets | $4,456 | $4,257 | +4.7% | | Total Assets | $9,387 | $9,269 | +1.3% | | Total Current Liabilities | $1,509 | $1,427 | +5.7% | | Total Liabilities | $4,200 | $4,164 | +0.9% | | Total Stockholders' Equity | $5,187 | $5,105 | +1.6% | - Cash and cash equivalents increased from $1,796 million to $2,060 million QoQ[13] Condensed Consolidated Statement of Cash Flows This statement summarizes Keysight's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statement of Cash Flows (in millions) | Metric (in millions) | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | YoY Change | | :------------------- | :-------------------------- | :-------------------------- | :--------- | | Net Cash from Operating Activities | $378 | $328 | +15.2% | | Net Cash from Investing Activities | $(33) | $(511) | +93.5% | | Net Cash from Financing Activities | $(74) | $(548) | +86.5% | | Net Increase (Decrease) in Cash | $263 | $(723) | N/A | - The significant decrease in cash used in investing activities (from $511 million to $33 million) was primarily due to the absence of large business acquisitions seen in the prior year[15] - The substantial decrease in cash used in financing activities (from $548 million to $74 million) was mainly due to the prior year's acquisition of non-controlling interests in ESI Group[15] Condensed Consolidated Statement of Equity This statement outlines changes in Keysight's total stockholders' equity, including net income, other comprehensive income, and treasury stock transactions Condensed Consolidated Statement of Equity (in millions) | Metric (in millions) | Jan 31, 2025 | Oct 31, 2024 | | :------------------- | :----------- | :----------- | | Total Stockholders' Equity | $5,187 | $5,105 | | Net Income | $169 | N/A | | Other Comprehensive Income (Loss) | $(79) | N/A | | Treasury Stock, at cost | $(3,497) | $(3,422) | - Treasury stock repurchases amounted to $75 million for the three months ended January 31, 2025, compared to $93 million in the prior year[17] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Overview and Summary of Significant Accounting Policies Keysight Technologies, Inc. is a global innovator in the computing, communications, and electronics market, providing design and test solutions. This note outlines the basis of presentation for the unaudited financial statements, principles of consolidation, use of estimates, and updates on significant accounting policies and new accounting pronouncements. No material changes to accounting policies were reported, but the company is evaluating the impact of new FASB ASUs on segment reporting and income tax disclosures - Keysight's mission is "accelerating innovation to connect and secure the world" by providing design and test solutions[20] - No material changes to significant accounting policies were reported for the three months ended January 31, 2025[26] - The company is evaluating the impact of new accounting pronouncements (ASU 2023-09 on Income Taxes and ASU 2024-03 on Expense Disaggregation) on its consolidated financial statements and disclosures[29][30] Note 2. Acquisitions This note details Keysight's acquisition of ESI Group SA, where it acquired 50.6% in November 2023 for $477 million and the remaining share capital in January 2024 for $458 million. Pro forma operating results are provided for the three months ended January 31, 2024, for informational purposes - Keysight acquired 50.6% of ESI Group SA for $477 million in November 2023 and the remaining share capital for $458 million in January 2024[32] Pro Forma Operating Results (in millions) | Pro Forma Metric (in millions) | 3 Months Ended Jan 31, 2024 | | :----------------------------- | :-------------------------- | | Net Revenue | $1,259 | | Net Income | $186 | | Net Income per Share - Basic | $1.07 | | Net Income per Share - Diluted | $1.06 | Note 3. Revenue This note disaggregates revenue by geographic region, end market, and timing of recognition for the Communications Solutions Group (CSG) and Electronics Industrial Solutions Group (EISG). It also provides details on contract balances, including contract assets, costs, and liabilities, and remaining performance obligations Revenue Disaggregation by Region and End Market (in millions) | Category | Segment | Jan 31, 2025 (in millions) | Jan 31, 2024 (in millions) | | :------------- | :------ | :------------------------- | :------------------------- | | Region | | | | | Americas | CSG | $448 | $417 | | | EISG | $103 | $97 | | | Total | $551 | $514 | | Europe | CSG | $137 | $132 | | | EISG | $122 | $123 | | | Total | $259 | $255 | | Asia Pacific | CSG | $298 | $290 | | | EISG | $190 | $200 | | | Total | $488 | $490 | | End Market | | | | | Aerospace, Defense & Government | CSG | $311 | $295 | | Commercial Communications | CSG | $572 | $544 | | Electronic Industrial | EISG | $415 | $420 | | Timing | | | | | Point in time | Total | $1,046 | $1,000 | | Over time | Total | $252 | $259 | - Contract assets increased from $88 million to $116 million QoQ[36] - Remaining performance obligations (excluding contracts < 1 year) were approximately $550 million as of January 31, 2025, with 47% expected to be fulfilled in the remainder of 2025[40] Note 4. Share-Based Compensation This note details the share-based compensation expense recognized for RSUs, ESPP, and performance share awards. Total share-based compensation expense increased to $62 million for the three months ended January 31, 2025, from $50 million in the prior year, with changes in valuation assumptions for TSR-based awards Share-Based Compensation Expense (in millions) | Category | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of products and services | $11 | $8 | | Research and development | $16 | $13 | | Selling, general and administrative | $35 | $29 | | Total | $62 | $50 | - The volatility assumption for Keysight shares used in TSR-based performance awards valuation increased from 29% in 2024 to 32% in 2025[43] Note 5. Income Taxes This note provides details on income before taxes, provision for income taxes, and the effective tax rate. The effective tax rate decreased to 15.3% in Q1 2025 from 24.5% in Q1 2024, primarily due to lower foreign earnings tax rates and a decrease in GILTI tax. Keysight has filed a lawsuit seeking a $107 million tax refund related to GILTI deductions Income Tax Details (in millions) | Metric | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | | :-------------------- | :-------------------------- | :-------------------------- | | Income before taxes | $199 | $229 | | Provision for income taxes | $30 | $57 | | Effective tax rate | 15.3% | 24.5% | - The lower effective tax rate in Q1 2025 was primarily due to a lower effective tax rate on foreign earnings and decreases in GILTI tax, partially offset by U.S. taxes on foreign earnings and Pillar Two minimum taxes[44][46] - Keysight filed a lawsuit seeking a $107 million tax refund related to GILTI tax deductions for intangible asset amortization, which could materially impact the effective tax rate if unsuccessful[47] - Tax incentives in Singapore (expires July 31, 2029) and Malaysia (expires October 31, 2025) decreased income taxes by $12 million for the three months ended January 31, 2025[49] Note 6. Net Income Per Share This note presents the calculation of basic and diluted net income per share, which remained stable at $0.97 (diluted) for the three months ended January 31, 2025, compared to $0.98 in the prior year Net Income Per Share Calculation (in millions, except per share data) | Metric | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $169 | $172 | | Basic weighted-average shares | 173 | 175 | | Diluted weighted-average shares | 174 | 176 | | Net income per share - basic | $0.97 | $0.98 | | Net income per share - diluted | $0.97 | $0.98 | Note 7. Goodwill and Other Intangible Assets This note provides the goodwill balances for CSG and EISG segments and details other intangible assets. Goodwill decreased slightly due to foreign currency translation impact, and there were no impairments. Amortization of other intangible assets was $32 million for the current quarter, with future amortization estimates provided Goodwill Balances (in millions) | Segment | Oct 31, 2024 | Jan 31, 2025 | Change (QoQ) | | :------ | :----------- | :----------- | :----------- | | CSG | $1,240 | $1,229 | $(11) | | EISG | $1,148 | $1,125 | $(23) | | Total | $2,388 | $2,354 | $(34) | - Goodwill decreased by $34 million due to foreign currency translation impact[53] - Amortization of other intangible assets was $32 million for the three months ended January 31, 2025, down from $38 million in the prior year[54] Future Amortization of Intangible Assets (in millions) | Fiscal Year | Amortization Expense | | :---------- | :------------------- | | 2025 (remainder) | $93 | | 2026 | $113 | | 2027 | $101 | | 2028 | $98 | | 2029 | $89 | | 2030 | $15 | | Thereafter | $25 | Note 8. Fair Value Measurements This note discusses the fair value hierarchy (Level 1, 2, 3) and presents financial assets and liabilities measured at fair value on a recurring basis. Money market funds and equity investments are primarily Level 1, while derivative instruments and deferred compensation liability are classified as Level 2. Net unrealized gains on equity investments increased significantly year-over-year Fair Value Measurements (in millions) | Asset Category (Jan 31, 2025) | Total | Level 1 | Level 2 | Level 3 | Other | | :---------------------------- | :---- | :------ | :------ | :------ | :---- | | Money market funds | $1,361 | $1,361 | $— | $— | $— | | Derivative instruments | $8 | $— | $8 | $— | $— | | Equity investments | $116 | $116 | $— | $— | $— | | Investments - other | $31 | $— | $— | $— | $31 | | Total assets | $1,516 | $1,477 | $8 | $— | $31 | - Net unrealized gain on equity and other investments still held was $38 million for the three months ended January 31, 2025, compared to $7 million in the prior year[63] Note 9. Derivatives This note explains Keysight's use of derivative instruments, primarily forward contracts, to hedge foreign currency exchange rate and interest rate exposures. It distinguishes between cash flow hedges and non-designated hedges, noting a significant unrealized loss on non-designated foreign exchange contracts related to a planned acquisition - Keysight uses foreign exchange contracts to hedge forecasted operational cash flow exposures and monetary assets/liabilities[65][68] - A deferred gain of $107 million from terminated interest rate swap agreements (related to 2034 Senior Notes) is being amortized to interest expense[67] - For the three months ended January 31, 2025, a net unrealized loss of $68 million on non-designated foreign exchange forward contracts (related to a planned acquisition of 1.2 billion pounds sterling) was recorded in "other income (expense), net"[69] Derivative Instruments by Currency (in millions) | Currency | Cash Flow Hedges (Buy/Sell) | Not Designated as Hedging Instruments (Buy/Sell) | | :-------------- | :-------------------------- | :----------------------------------------------- | | Euro | $17 | $9 | | Pounds Sterling | $15 | $1,578 | | Singapore Dollar | $33 | $28 | | Malaysian Ringgit | $110 | $6 | | Japanese Yen | $(136) | $(57) | | Other currencies | $(41) | $26 | | Total | $(2) | $1,590 | Note 10. Debt This note summarizes Keysight's debt components, including Senior Notes and credit facilities. Total debt remained stable at $1,790 million. The company has a $750 million Revolving Credit Facility and a Bridge Facility of up to 1,232 million pounds sterling for a planned acquisition, with no outstanding borrowings under either Debt Components (in millions) | Debt Type | Jan 31, 2025 | Oct 31, 2024 | | :---------------- | :----------- | :----------- | | 2027 Senior Notes | $698 | $698 | | 2029 Senior Notes | $498 | $498 | | 2034 Senior Notes | $594 | $594 | | Total Debt | $1,790 | $1,790 | - The fair value of debt was approximately $1,732 million as of January 31, 2025[76] - Keysight has a $750 million Revolving Credit Facility (expires July 30, 2026) and a Bridge Facility of up to 1,232 million pounds sterling for a planned acquisition, with no outstanding borrowings under either as of January 31, 2025[77][78] Note 11. Retirement Plans and Post-Retirement Benefit Plans This note details the net pension and post-retirement benefit costs for Keysight's U.S. and non-U.S. plans. The net periodic benefit cost for U.S. Defined Benefit Plans increased, while non-U.S. plans showed a benefit. The company expects to contribute $7 million to non-U.S. defined benefit plans for the remainder of 2025 Net Pension and Post-Retirement Benefit Costs (in millions) | Plan Type | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | | :------------------------ | :-------------------------- | :-------------------------- | | U.S. Defined Benefit Plans | $4 | $2 | | Non-U.S. Defined Benefit Plans | $(5) | $0 | | U.S. Post-Retirement Benefit Plan | $(1) | $(1) | - The company expects to contribute $7 million to its non-U.S. defined benefit plans for the remainder of 2025, with no expected contributions to U.S. plans[82] Note 12. Supplemental Financial Information This note provides additional details on selected balance sheet items, including cash, cash equivalents, restricted cash, inventory, leases, standard warranty accruals, and other current assets, offering a more granular view of these financial components Cash, Cash Equivalents, and Restricted Cash (in millions) | Category | Jan 31, 2025 | Oct 31, 2024 | | :------------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $2,060 | $1,796 | | Restricted cash included in other assets | $17 | $18 | | Total cash, cash equivalents, and restricted cash | $2,077 | $1,814 | Inventory Details (in millions) | Category | Jan 31, 2025 | Oct 31, 2024 | | :-------------------------------- | :----------- | :----------- | | Finished goods | $380 | $375 | | Purchased parts and fabricated assemblies | $659 | $647 | | Total inventory | $1,039 | $1,022 | - Operating lease cost remained flat at $15 million, while variable lease cost decreased from $7 million to $5 million YoY[85] - Standard warranty accrual decreased from $36 million to $30 million YoY[88] Note 13. Commitments and Contingencies This note discusses legal proceedings, including patent infringement lawsuits by Centripetal Networks, and a tax refund lawsuit against the U.S. government related to GILTI tax deductions. The company is aggressively defending these cases, and the outcome of the tax refund claim could materially impact its effective tax rate - Centripetal Networks filed patent infringement lawsuits against Keysight in Federal District Court in Virginia, Germany, and the Unified Patent Court. The ITC investigation was terminated in Keysight's favor, but Centripetal appealed[91] - Keysight filed a lawsuit against the U.S. government seeking a $107 million tax refund related to GILTI tax deductions for intangible asset amortization, believing the Treasury exceeded its regulatory authority[92][93] - The outcome of the tax refund claim is uncertain, and an unsuccessful defense could result in a material increase in the effective tax rate and income tax liability[94] Note 14. Stockholders' Equity This note details the stock repurchase program and changes in accumulated other comprehensive loss. The board authorized a $1,500 million stock repurchase program, with $410 million remaining as of January 31, 2025. Accumulated other comprehensive loss increased significantly due to foreign currency translation losses - Keysight repurchased 448,413 shares for $75 million in Q1 2025, with $410 million remaining under the $1,500 million stock repurchase program[99][97] Accumulated Other Comprehensive Loss (in millions) | Component | Oct 31, 2024 | Jan 31, 2025 | Change | | :-------------------------------------- | :----------- | :----------- | :----- | | Foreign currency translation | $(136) | $(209) | $(73) | | Net defined benefit pension cost and post-retirement plan costs | $(317) | $(317) | $0 | | Gains (losses) on derivatives | $89 | $83 | $(6) | | Total | $(364) | $(443) | $(79) | - Foreign currency translation losses significantly contributed to the increase in accumulated other comprehensive loss[101] Note 15. Segment Information This note reports financial results for Keysight's two reportable segments: Communications Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG). Segment income from operations is measured after excluding share-based compensation, amortization of acquisition-related balances, acquisition and integration costs, restructuring costs, interest income, interest expense, and other items Segment Financial Performance (in millions) | Segment | 3 Months Ended Jan 31, 2025 Revenue | 3 Months Ended Jan 31, 2024 Revenue | 3 Months Ended Jan 31, 2025 Income from Operations | 3 Months Ended Jan 31, 2024 Income from Operations | | :------ | :---------------------------------- | :---------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | CSG | $883 | $839 | $240 | $226 | | EISG | $415 | $420 | $114 | $129 | | Total | $1,298 | $1,259 | $354 | $355 | - CSG revenue increased by 5% YoY, while EISG revenue decreased by 1% YoY[104] - Total reportable segments' income from operations remained stable at $354 million in Q1 2025 compared to $355 million in Q1 2024[104] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) This section provides management's perspective on Keysight's financial performance and condition for the three months ended January 31, 2025. It covers an executive summary, detailed results from operations for both segments (CSG and EISG), and an analysis of financial condition, including liquidity, cash flows, debt, and future cash requirements. The company reported increased orders and revenue but a slight dip in net income, while continuing strategic R&D investments and managing significant acquisitions Basis of Presentation This section outlines the basis for presenting the unaudited financial information, emphasizing its relation to the annual report - The financial information presented is unaudited and should be read in conjunction with the Annual Report on Form 10-K[106] - Keysight's fiscal year ends October 31, with fiscal quarters ending January 31, April 30, and July 31[106] Overview and Executive Summary This section provides a high-level overview of Keysight's mission, key financial performance metrics, and strategic investments - Keysight's mission is "accelerating innovation to connect and secure the world" through design and test solutions[107] Key Financial Metrics (in millions) | Metric (in millions) | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | YoY Change | | :------------------- | :-------------------------- | :-------------------------- | :--------- | | Total Orders | $1,263 | $1,214 (implied from 4% increase) | +4% | | Total Revenue | $1,298 | $1,259 | +3% | | Net Income | $169 | $172 | -2% | - Net income decreased primarily due to losses on derivative instruments, unfavorable mix, and higher R&D expense, partially offset by higher revenue, lower income taxes, and net gains on equity investments[111] - Keysight continues to invest in R&D for next-generation technologies and applications, including 5G/6G, high-speed data centers, AI, industrial IoT, defense modernization, and EV/AV[112] Critical Accounting Policies and Estimates This section discusses the critical accounting policies and estimates used in preparing Keysight's financial statements - No material changes to critical accounting estimates were reported in the current quarter[113] Adoption of New Accounting Pronouncements This section refers to detailed information on new accounting pronouncements and their potential impact on financial reporting - New accounting pronouncements are detailed in Note 1, "Overview and Summary of Significant Accounting Policies"[114] Currency Exchange Rate Exposure This section describes Keysight's strategies for managing foreign currency exchange rate exposures using derivative instruments - Keysight uses derivative instruments, primarily forward contracts, to hedge short-term (up to twelve months) foreign currency exchange rate exposures[115] - The hedging program is not designed to offset currency movements in every category of revenues, expenses, monetary assets, and liabilities, leading to some fluctuations[115] Results from Operations - Three months ended January 31, 2025 and 2024 This section provides a detailed analysis of Keysight's operational performance for the three months ended January 31, 2025, compared to the prior year, covering revenue, gross margin, operating expenses, and net income. Total revenue increased by 3%, but gross and operating margins declined due to unfavorable mix and higher R&D, leading to a slight decrease in net income Results from Operations Summary (in millions) | Metric | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | YoY Change | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | | Revenue | $1,298 | $1,259 | +3% | | Gross margin | 63.1% | 64.6% | (1) ppt | | Research and development | $249 | $232 | +7% | | Selling, general and administrative | $361 | $362 | — | | Income from operations | $218 | $221 | (2)% | | Operating margin | 16.8% | 17.6% | (1) ppt | | Net income | $169 | $172 | (2)% | Revenue Total revenue increased by 3% year-over-year to $1,298 million. Americas showed 7% growth, Europe 1% growth, and Asia Pacific a 1% decline, with foreign currency movements having an unfavorable impact of 1 percentage point on total revenue Revenue by Geographic Region | Geographic Region | Actual YoY Change | Currency Impact (Unfavorable) | | :---------------- | :---------------- | :---------------------------- | | Americas | 7% | — | | Europe | 1% | (1) ppt | | Asia Pacific | (1)% | (1) ppt | | Total revenue | 3% | (1) ppt | Gross Margin, Operating Margin and Income Before Taxes Gross margin decreased by 1 percentage point due to unfavorable mix. R&D expense increased by 7% due to investments in growth opportunities and acquired businesses. Operating margin decreased by 1 percentage point, driven by gross margin declines. Other income (expense), net shifted from a $5 million income to an $18 million expense, primarily due to derivative losses - Gross margin decreased by 1 percentage point due to unfavorable mix, partially offset by lower restructuring costs[120] - R&D expense increased by 7% due to continued investments in key growth opportunities and leading-edge technologies, and incremental costs from acquired businesses[121] - Other income (expense), net, shifted from a $5 million income in Q1 2024 to an $18 million expense in Q1 2025, primarily driven by losses on derivative instruments[125] - Headcount decreased slightly from approximately 15,500 at January 31, 2024, to 15,400 at January 31, 2025[126] Income Taxes The effective tax rate decreased to 15.3% from 24.5% year-over-year, primarily due to a lower effective tax rate on foreign earnings and decreases in GILTI tax, partially offset by U.S. taxes on foreign earnings and Pillar Two minimum taxes. Keysight is monitoring Pillar Two developments and has filed a lawsuit for a $107 million GILTI tax refund Income Tax Details (in millions) | Metric | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | | :-------------------- | :-------------------------- | :-------------------------- | | Income before taxes | $199 | $229 | | Provision for income taxes | $30 | $57 | | Effective tax rate | 15.3% | 24.5% | - The lower effective tax rate was primarily due to a lower effective tax rate on foreign earnings and decreases in GILTI tax, partially offset by U.S. taxes on foreign earnings and Pillar Two minimum taxes[127][129] - Keysight filed a lawsuit seeking a $107 million tax refund related to GILTI tax deductions for intangible asset amortization, which could materially impact the effective tax rate if unsuccessful[130] Segment Overview Keysight operates in two segments: Communications Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG). Segment profitability excludes certain corporate charges and acquisition-related costs. CSG saw revenue growth driven by AI and defense investments, while EISG experienced a slight decline due to mixed demand in industrial markets Communications Solutions Group ("CSG") CSG revenue increased by 5% year-over-year to $883 million, driven by higher investments in high-speed networks for AI capabilities and aerospace/defense solutions. Revenue grew across all regions and in both commercial communications and aerospace, defense, and government end markets. Gross margin was flat, and operating margin remained stable at 27.2% CSG Revenue Performance (in millions) | Metric | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | YoY Change | | :------------ | :-------------------------- | :-------------------------- | :--------- | | Total revenue | $883 | $839 | +5% | - CSG revenue growth was driven by increased investments in high-speed networks for AI capabilities and higher investment in aerospace and defense solutions[139] - Commercial Communications revenue increased 5% YoY, driven by R&D investments in terabit solutions and expanding 400G/800G transceiver manufacturing capacity for AI[140] - Aerospace, Defense & Government revenue increased 5% YoY, driven by strong growth in space and satellite solutions and continued investments in radar and spectrum operations[141] CSG Operating Performance | Metric | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | YoY Change | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | | Gross margin | 68.0% | 68.4% | — | | Research and development | $168 | $152 | +10% | | Selling, general and administrative | $198 | $197 | +1% | | Income from operations | $240 | $226 | +6% | | Operating margin | 27.2% | 27.0% | — | Electronic Industrial Solutions Group ("EISG") EISG revenue decreased by 1% year-over-year to $415 million, reflecting mixed demand with declines in automotive and energy, partially offset by semiconductor measurements. Gross margin decreased by 4 percentage points due to unfavorable mix, leading to an 11% decline in income from operations and a 3 percentage point drop in operating margin EISG Revenue Performance (in millions) | Metric | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | YoY Change | | :------------ | :-------------------------- | :-------------------------- | :--------- | | Total revenue | $415 | $420 | (1)% | - EISG revenue decline was due to mixed demand, with decreases in automotive and energy markets, partially offset by increases in semiconductor measurements[146] - Customer engagement remains high for long-term strategic initiatives like R&D for software-defined vehicles, autonomous driving, industrial IoT, digital health, fab capacity, and AI-driven demand for advanced semiconductor technologies[146] EISG Operating Performance | Metric | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | YoY Change | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | | Gross margin | 61.1% | 64.9% | (4) ppts | | Research and development | $62 | $62 | +1% | | Selling, general and administrative | $79 | $82 | (4)% | | Income from operations | $114 | $129 | (11)% | | Operating margin | 27.4% | 30.6% | (3) ppts | - Gross margin decreased by 4 percentage points due to unfavorable mix[147] Financial Condition This section discusses Keysight's liquidity, capital resources, and cash flow activities, highlighting an increase in cash from operating activities and a significant decrease in cash used for investing and financing activities compared to the prior year, primarily due to fewer large acquisitions. The company maintains substantial cash balances and plans for future capital expenditures and strategic acquisitions Liquidity and Capital Resources Keysight's liquidity is influenced by global economics and market fluctuations, with cash balances held worldwide. The company uses various funding strategies, including an offshore cash pool and local credit lines, to ensure cash availability for its operations - Liquidity is affected by global economic conditions and market fluctuations[150] - Keysight utilizes various funding strategies to ensure worldwide cash availability, including an offshore cash pool and local credit lines[162] Overview of Cash Flows This section provides a high-level summary of Keysight's cash flows from operating, investing, and financing activities for the three months ended January 31, 2025, and 2024 Cash Flow Summary (in millions) | Activity | 3 Months Ended Jan 31, 2025 | 3 Months Ended Jan 31, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $378 | $328 | | Net cash used in investing activities | $(33) | $(511) | | Net cash used in financing activities | $(74) | $(548) | Operating Activities Net cash provided by operating activities increased by $50 million during the three months ended January 31, 2025, compared to the prior year. This increase was primarily driven by changes in derivative assets/liabilities, lower variable compensation, and increased deferred revenue, partially offset by lower income and other tax accruals - Net cash provided by operating activities increased by $50 million YoY[152] - This increase was primarily due to changes in derivative assets and liabilities, lower variable compensation, and an increase in deferred revenue, partially offset by lower income and other tax accruals[156] Investing Activities Net cash used in investing activities decreased significantly by $478 million during the three months ended January 31, 2025, compared to the prior year. This substantial decrease was primarily due to the absence of the large ESI Group acquisition ($477 million) that occurred in the prior year - Net cash used in investing activities decreased by $478 million YoY[154] - The decrease was primarily driven by the prior year's $477 million acquisition of ESI Group shares[154] Financing Activities Net cash used in financing activities decreased by $474 million during the three months ended January 31, 2025, compared to the prior year. This was mainly due to the prior year's $458 million acquisition of non-controlling interests in ESI Group and $18 million lower treasury stock repurchases - Net cash used in financing activities decreased by $474 million YoY[156] - This decrease was primarily driven by the prior year's $458 million acquisition of non-controlling interests in ESI Group and $18 million lower treasury stock repurchases[156] Treasury Stock Repurchases Keysight repurchased $75 million of common stock in Q1 2025 under its board-approved program. As of January 31, 2025, $410 million remained available for repurchase under the $1,500 million program - Keysight repurchased $75 million of common stock in Q1 2025[99][263] - $410 million remained under the $1,500 million stock repurchase program as of January 31, 2025[157][263] Debt Keysight's total debt (par value) remained at $1,800 million. The company has a $750 million Revolving Credit Facility and a Bridge Facility of up to 1,232 million pounds sterling for a planned acquisition, with no outstanding borrowings under either facility as of January 31, 2025 Debt Overview (in millions) | Metric (in millions) | Jan 31, 2025 | Oct 31, 2024 | | :------------------- | :----------- | :----------- | | Total debt (par value) | $1,800 | $1,800 | | Revolving Credit Facility | $750 | $750 | | Bridge Facility (GBP) | £1,232 | £1,232 | - No borrowings were outstanding under the Revolving Credit Facility or Bridge Facility as of January 31, 2025[159] Cash and cash requirements Keysight's cash, cash equivalents, and restricted cash totaled $2,077 million, with a majority held outside the U.S. The company plans to use available cash and generated funds for working capital, capital expenditures ($150 million in 2025), and strategic acquisitions, including the planned acquisition of Spirent Communications PLC ($1,463 million) and Synopsys' Optical Solutions Group Cash and Cash Equivalents by Location (in millions) | Category | Jan 31, 2025 | Oct 31, 2024 | | :-------------------------------------- | :----------- | :----------- | | Cash, cash equivalents and restricted cash | $2,077 | $1,814 | | U.S. | $650 | $626 | | Non-U.S. | $1,427 | $1,188 | - Keysight intends to acquire Spirent Communications PLC for $1,463 million and Synopsys' Optical Solutions Group, both subject to regulatory approvals[164][166] - Expected capital spending for 2025 is approximately $150 million, primarily for capacity expansion and technology investments[170] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the Annual Report on Form 10-K for detailed disclosures on market risk, stating that no material changes occurred during the three months ended January 31, 2025 - No material changes to quantitative and qualitative disclosures about market risk were reported in the current quarter compared to the 2024 Annual Report on Form 10-K[171] Item 4. Controls and Procedures This section confirms the effectiveness of Keysight's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the first quarter of fiscal 2025 Evaluation of Disclosure Controls and Procedures This section discusses the evaluation of disclosure controls and procedures - Disclosure controls and procedures were evaluated and deemed effective as of January 31, 2025[172] Changes in Internal Control over Financial Reporting This section discusses changes in internal control over financial reporting - No material changes in internal control over financial reporting occurred during Q1 fiscal 2025[173] Part II. Other Information This section covers legal proceedings, risk factors, equity security sales, and other miscellaneous information Item 1. Legal Proceedings Keysight is involved in ongoing patent infringement lawsuits filed by Centripetal Networks in various jurisdictions, which the company is aggressively defending. Additionally, Keysight filed a lawsuit against the U.S. government seeking a $107 million tax refund related to GILTI tax deductions, the outcome of which is uncertain and could materially impact the company's financial position - Centripetal Networks filed patent infringement lawsuits against Keysight in Federal District Court in Virginia, Germany, and the Unified Patent Court[175] - The ITC investigation into Centripetal's complaint was terminated in Keysight's favor, but Centripetal appealed[175] - Keysight filed a lawsuit against the U.S. government seeking a $107 million tax refund related to GILTI tax deductions for intangible asset amortization[176][177] - The outcome of the tax refund claim is uncertain, and an unsuccessful defense could result in a material increase in the effective tax rate and income tax liability[177] Item 1A. Risk Factors Keysight identifies various risks that could affect its future results, categorized into risks related to its business and risks related to its common stock. These include macroeconomic conditions, geopolitical tensions, market demand fluctuations, technological changes, operational dependencies, financial obligations, and legal/regulatory compliance, as well as factors impacting share price and corporate governance Risks Related to Our Business This section details a broad range of business risks, including economic uncertainty, international operational challenges, trade disputes, geopolitical turmoil, market demand fluctuations, technological obsolescence, supply chain dependencies, acquisition integration challenges, debt obligations, currency volatility, tax issues, catastrophic events, environmental commitments, intellectual property disputes, cybersecurity threats, personnel retention, and regulatory compliance - Global and regional economic uncertainty, inflation, and potential recession may lead to increased costs, reduced demand, and greater risk of excess inventory[180][182] - International operations are subject to risks such as sanctions, trade restrictions, changes in political/economic conditions, and foreign currency fluctuations[182] - Geopolitical turmoil, including regional conflicts (e.g., Russia-Ukraine, Israel-Hamas), could lead to market instability, increased energy costs, and cybersecurity risks[188] - Failure to introduce new solutions and services in a timely manner could lead to technological obsolescence and harm revenue[192] - Dependence on contract manufacturing and outsourcing, particularly in developing countries, poses risks to product delivery and reputation[195][196] - Acquisitions and strategic alliances carry integration risks, and the inability to complete acquisitions on acceptable terms could negatively impact growth[202][205] - Outstanding debt and future borrowings could increase vulnerability to adverse economic conditions and limit cash flow for other purposes[208][209] - Volatility in currency exchange rates could adversely impact financial results, as hedging programs do not eliminate all risks, especially long-term[211] - Ongoing tax examinations and changes in tax laws (e.g., Pillar Two, GILTI) could materially impact the effective tax rate and financial condition[212][213][214][215] - Keysight's commitment to net zero emissions by fiscal year 2040 and science-based targets may incur significant costs and regulatory compliance challenges[220][221][223] - Third-party claims of intellectual property infringement (e.g., Centripetal Networks lawsuits) could result in significant litigation expenses or sales restrictions[224][225] - Cybersecurity attacks or IT system disruptions could adversely affect business, reputation, and operating results, despite security measures[229][230][231][233] - Failure to retain and hire key personnel, or to comply with various international, federal, state, and local regulations (e.g., export, data privacy, anti-corruption), could lead to substantial negative financial consequences[234][235][238][240] Risks Related to Our Common Stock This section outlines risks specific to Keysight's common stock, including potential share price volatility due to various factors, the company's policy of not paying dividends, and certain corporate governance provisions that could deter or delay an acquisition, potentially impacting shareholder value - Keysight's share price may fluctuate significantly due to factors such as operating results, market conditions, competitor announcements, and geopolitical conflicts[250][251][252] - The company does not currently pay dividends on its common stock, and future dividend payments are at the discretion of the board of directors[254] - Provisions in the company's certificate of incorporation and bylaws, along with Delaware law (Section 203 DGCL), could prevent or delay an acquisition, potentially decreasing the trading price of common stock[255][257][258][259] - An exclusive forum provision designates Delaware courts as the sole forum for certain shareholder actions, which may discourage lawsuits against the company and its directors/officers[260] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details Keysight's common stock repurchases under its board-approved program for the three months ended January 31, 2025. The company repurchased 448,413 shares for $75 million, with approximately $409.7 million remaining under the program Issuer Purchases of Equity Securities This section details Keysight's common stock repurchases under its board-approved program for the three months ended January 31, 2025 Issuer Purchases of Equity Securities | Period | Total Number of Shares of Common Stock Purchased | Weighted Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program | | :-------------------------------------- | :----------------------------------------------- | :------------------------------------ | :------------------------------------------------------------------------------- | :----------------------------------------------------------------------------- | | November 1, 2024 through November 30, 2024 | 35,031 | $171.25 | 35,031 | $478,725,453 | | December 1, 2024 through December 31, 2024 | 189,011 | $166.63 | 189,011 | $447,231,060 | | January 1, 2025 through January 31, 2025 | 224,371 | $167.13 | 224,371 | $409,731,240 | | Total | 448,413 | | 448,413 | | - The stock repurchase program, approved on March 6, 2023, authorized up to $1,500 million in common stock purchases, with $409.7 million remaining as of January 31, 2025[263] Item 5. Other Information This section reports that no directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended January 31, 2025 Rule 10b5-1 Trading plans This section confirms no changes in Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers in Q1 2025[265] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and various XBRL documents for interactive data filing - The exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and various XBRL documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[267] Signatures This section provides the official signatures for the report, confirming its submission - The report was signed by Neil Dougherty (EVP & CFO) and Lisa M. Poole (VP & Corporate Controller) on March 6, 2025[270]