Keysight Technologies Q1 Fiscal Year 2026 Results February 23, 2026 Safe Harbor This communication contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbors created therein. Statements preceded by, followed by, or that otherwise include the words "anticipate," "assume," "plan," "estimate," "expect," "guidance," "intend," "implied," "target," "believe," "outloo ...

Financial Data and Key Metrics Changes - Keysight reported a revenue increase of 11% year over year to $1.4 billion and earnings per share of $1.72, exceeding guidance [6][21] - Orders increased by 7%, with growth across both the Communication Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG) segments [6][21] - Gross margin was reported at 64%, with operating expenses of $526 million and an operating margin of 25%, reflecting a 60 basis point increase year over year [21] Business Segment Data and Key Metrics Changes - The Communication Solutions Group generated revenue of $940 million, up 11% year over year, with commercial communications revenue of $644 million, also up 13% [23] - The Electronic Industrial Solutions Group reported revenue of $412 million, an increase of 11% year over year, with growth across automotive, energy, semiconductor, and general electronics [23] - Software and services accounted for approximately 36% of total revenue, with annual recurring revenue at 28% [24] Market Data and Key Metrics Changes - The aerospace, defense, and government sectors showed robust demand due to elevated defense spending globally, particularly in the U.S. and Europe [11][12] - The wireless business remained stable, with momentum in non-terrestrial networks and continued R&D activity in 5G Advanced contributing to steady demand [10] - The semiconductor business experienced double-digit growth, driven by demand for wafer test solutions and advanced node technologies [17][92] Company Strategy and Development Direction - Keysight is capitalizing on opportunities in the AI ecosystem, focusing on advanced physical layer solutions and silicon photonics capabilities to enhance R&D workflows [8][9] - The company is engaged in early 6G research and shaping standards for its implementation, collaborating with industry leaders to drive innovation [11][86] - Keysight's strategy includes mitigating tariff impacts through supply chain optimization and pricing actions, while maintaining operational flexibility to invest and adapt [22][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, noting that orders have accelerated and are slightly better than initial expectations [30][31] - The company anticipates continued growth in the aerospace and defense sectors, supported by robust backlogs and government budgets [55] - Despite challenges in the automotive sector, management remains optimistic about long-term growth driven by AI and other technological advancements [32][44] Other Important Information - Keysight generated cash flow from operations of $322 million and free cash flow of $291 million in Q3, with year-to-date free cash flow at $1.1 billion [25] - The company repurchased approximately 300,000 shares at an average price of $164, totaling $50 million [25] - The pending acquisition of Spirent is expected to close in the fiscal fourth quarter, with regulatory reviews progressing [25][80] Q&A Session Summary Question: Can you help investors understand your view of the end markets now? - Management noted strong order growth and positive customer activity despite geopolitical challenges, with AI and aerospace defense showing momentum [30][31] Question: What is supporting the revenue outlook into Q4? - Management indicated that timing of large deals impacted Q3 performance, but they expect more normal sequential seasonality in Q4 [34][35] Question: How should we think about the long-term growth rate? - Management suggested that while they initially expected low-end growth, recent performance has been better than expected, indicating bullish sentiment for fiscal 2026 [39][40] Question: What is the impact of tariffs on your business? - Management confirmed that tariffs are being mitigated through various strategies, and they expect to fully address the tariff impacts in the coming quarters [52][53] Question: Can you provide insights on the aerospace and defense market? - Management expressed confidence in ongoing programs and robust backlogs, with expectations for continued growth driven by government budgets [54][55] Question: What is the outlook for the semiconductor business? - Management highlighted strong demand for wafer test solutions and advanced technologies, indicating favorable growth prospects [92] Question: How is the mix between R&D and production testing evolving? - Management noted a shift towards more manufacturing exposure while still maintaining a strong R&D focus, benefiting from supply chain improvements [93][96]

Financial Data and Key Metrics Changes - Keysight reported a revenue increase of 11% year over year to $1.4 billion and earnings per share of $1.72, exceeding guidance [5][20] - Orders increased by 7%, with growth across both the Communication Solutions Group (CSG) and Electronic Industrial Solutions Group (EISG) segments [5][20] - Gross margin was reported at 64%, with operating margin at 25%, reflecting a 60 basis point increase year over year [20] Business Segment Data and Key Metrics Changes - CSG generated revenue of $940 million, up 11% year over year, with commercial communications revenue of $644 million, also up 13% [22] - EISG revenue reached $412 million, an 11% increase year over year, with growth across automotive, energy, semiconductor, and general electronics [22] - CSG delivered a gross margin of 67% and an operating margin of 26%, while EISG had a gross margin of 57% and an operating margin of 22% [22] Market Data and Key Metrics Changes - The aerospace, defense, and government sectors saw robust demand due to elevated defense spending globally, particularly in the U.S. and Europe [11][12] - The wireless business remained stable, with momentum in non-terrestrial networks and continued R&D activity in 5G Advanced [10] - Demand in the automotive sector improved sequentially, with stable year-over-year performance [15] Company Strategy and Development Direction - Keysight is capitalizing on the ongoing AI momentum and investing in advanced physical layer solutions and silicon photonics capabilities [6][7] - The company is focused on leading the industry into the next generation of innovation, particularly in 6G research and development [10][11] - Keysight's strategy includes enhancing collaboration with customers and leveraging a solid pipeline of opportunities [6][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the evolving trade and tariff environment while maintaining healthy margins and strong free cash flow [19] - The demand environment remains resilient despite macroeconomic uncertainties, leading to an upward revision of the full-year growth outlook [25] - Management noted that while some end markets are recovering, challenges remain in sectors like automotive [29] Other Important Information - Keysight's cash flow from operations was $322 million, with free cash flow of $291 million for the quarter [23] - The company repurchased approximately 300,000 shares at an average price of $164, totaling $50 million [23] - The pending acquisition of Spirent is expected to close in the fiscal fourth quarter, with regulatory reviews progressing [23][24] Q&A Session Summary Question: Can you help investors understand your view of the end markets now? - Management noted strong order growth and positive customer activity despite geopolitical challenges, indicating a better-than-expected performance [28][29] Question: What is supporting the revenue outlook into Q4? - Management highlighted the timing of large deals and expected more normal sequential seasonality in orders compared to revenue [31][32] Question: How should we think about the long-term growth rate? - Management indicated a bullish outlook for fiscal 2026, with a focus on executing Q4 and navigating tariff impacts [38] Question: What is the contribution of AI to Keysight's story? - Management emphasized that AI is driving demand across multiple end markets, particularly in wireline, with expectations for continued growth [40][41] Question: Can you outline the tariff impacts? - Management clarified that tariffs are expected to increase exposure by approximately $75 million annually, with mitigation strategies in place [48][51] Question: What is the outlook for the aerospace and defense market? - Management expressed confidence in ongoing demand due to robust backlogs and government budgets, with a steady growth trajectory expected [52][54] Question: How is the semiconductor business performing? - Management noted strong growth in the semiconductor business, driven by advanced nodes and increased customer interest in silicon photonics [90][91] Question: What is the impact of tariffs on orders? - Management stated that there has been no material pull-in of orders due to tariff changes, and demand profiles remain stable [104][105]