Keysight Technologies(KEYS) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Keysight achieved total revenue of $1.6 billion in Q1 2026, representing a 23% increase year-over-year, with acquisitions contributing 8 percentage points and currency movements adding 1 percentage point. On a core basis, revenue grew 14% [16] - Orders reached $1.645 billion, up 30% on a reported basis and 22% on a core basis [16] - Gross margin improved to 66.7%, up 90 basis points, driven by a favorable product mix [16] - Operating margin was 27.4%, up 20 basis points, with net income of $376 million and earnings per share of $2.17, both up 19% [17] Business Segment Data and Key Metrics Changes - The Communication Solutions Group generated revenue of $1,124 million, up 27% reported and 16% core, with a gross margin of 68.5% and operating margin of 27.5% [18] - The commercial communications business within CSG saw revenue of $758 million, up 33%, while Aerospace, Defense, and Government achieved revenue of $366 million, an increase of 18% [18] - The Electronic Industrial Solutions Group generated $476 million in revenue, a 15% increase, with growth across general electronics, semiconductors, and automotive [18] Market Data and Key Metrics Changes - In the commercial communications sector, wireline orders surpassed wireless for the first time, driven by demand for R&D and manufacturing solutions [5] - The aerospace, defense, and government sectors saw record orders due to increased global focus on defense modernization [11] - The wireless segment experienced growth from non-terrestrial networks and 6G research, with a live NR NTN connection achieved with Samsung [9] Company Strategy and Development Direction - Keysight's strategy focuses on capitalizing on AI-driven technology transformations, next-generation connectivity, and rising semiconductor complexity [4] - The company aims to leverage its differentiated portfolio to address increasing design complexity and accelerate innovation [4] - Keysight is positioned to benefit from structural tailwinds in defense spending and the growing demand for AI infrastructure [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to outperform, citing a strong pipeline of solutions and go-to-market momentum [15] - The outlook for fiscal 2026 has been adjusted to reflect expected total annual revenue and earnings growth just above 20% [22] - Management noted strong visibility for Q2 and a robust order pipeline, although visibility decreases for the second half of the year [58] Other Important Information - The company repurchased approximately 420,000 shares at an average price of $207, totaling $87 million [19] - Keysight expects Q2 revenue in the range of $1.69 billion to $1.71 billion, representing 30% year-over-year growth at the midpoint [20] Q&A Session Summary Question: Growth drivers related to AI and wireline business - Management indicated that AI exposure is about 10% of company revenue, with robust order growth significantly above the company average [24][25] Question: Incremental operating margin leverage - Management stated that the business model is designed to deliver 40% core leverage on mid-single-digit growth, with current leverage at 41% [27][29] Question: Strength in AI orders and customer base expansion - Management noted that growth is coming from both existing customers expanding their implementations and new customers entering the market [33][34] Question: Expectations for the second half of the year - Management indicated strong visibility for Q2 but acknowledged less clarity for the second half, expecting overall growth to be just above 20% [56][58] Question: Supply chain and memory availability - Management expressed confidence in scaling operations and managing supply chain challenges, particularly regarding memory [60][61] Question: Competitive landscape in AI business - Management highlighted Keysight's solutions-oriented approach as a competitive advantage, emphasizing the importance of speed and innovation [66][68]