Keysight Technologies : Second Quarter 2025 Quarterly Results Presentation

Published: 2025-05-20 16:15:12 ET KEYS

Published on 05/20/2025 at 16:15

May 20, 2025

Revenue and earnings per share above high end of guidance range

Q2 revenue of $1.3B (+7% y/y) and earnings per share1 of $1.70 (+21% y/y).

Second consecutive quarter of overall revenue growth.

Continued momentum in CSG (+9%) and return to growth in EISG (+5%).

Core operating margin1,2 of 25.6% increased 140 basis points y/y.

Raised full-year outlook based on strong first half execution and backlog heading into H2

Third consecutive quarter of order growth (+8%).

Strong demand for AI solutions and healthy aerospace, defense and government order growth.

Robust order growth in semiconductor with continued lower, but stable, automotive.

Full-year revenue growth expected at the midpoint of 5-7% long-term target.

FY25 non-GAAP EPS growth expected to be slightly above 10% long-term target.

Executing our strategy and delivering on customer and shareholder commitments

Software and services revenue was 36% of overall Keysight; recurring revenue was 28%.

$457 million free cash flow1 and strong cash flow conversion in the quarter.

Q2 share repurchases totaled ~1 million shares for a total consideration of $150M.

Spirent acquisition regulatory clearances are progressing.

Well-positioned to navigate dynamic operating environment and tariffs

Resilient global supply chain with minimal exposure to China.

Actions underway to reduce incremental tariff impact.

Annual exposure estimated at ~$75 - $100 million given current actions and tariff levels.

Majority of tariff impact expected in Q3, with full mitigation by the end of the fiscal year.

1 Non-GAAP measure. Reconciliations to the closest GAAP equivalent provided for the current period. 3

2 Core excludes the impact of currency, acquisitions or divestitures closed in the last twelve months; reconciliations included.

Orders

Revenue

Operating Margin

EPS

$1.316B

$1.306B

25.2%

$1.70

+8%y/y (+8%core*)

+7%y/y (+8% core*)

+100 basis points y/y

+21%y/y

* Core excludes the impact of currency, acquisitions or divestitures closed in last twelve months; reconciliations included. Reconciliations to closest GAAP equivalent provided for current period for all non-GAAP 4

measures. For prior periods, please refer to investor.keysight.com.

+4% y/y (+4% core*): Revenue growth in CC and EI with modest decline in ADG.

-2% y/y (-2% core*): EI revenue declined. Revenue growth in ADG and CC was flat.

+16% y/y (+17% core*): Revenue growth in CC, ADG, and EI.

* Core excludes the impact of currency, acquisitions or divestitures closed in last twelve months; reconciliations included.

Key:

ADG - Aerospace, Defense & Government 6

CC - Commercial Communications

EI - Electronic Industrial Solutions

Revenue

+9% y/y (+9% core*)

Operating Margin

-60 basis points y/y

Commercial Communications: Revenue grew y/y for a third consecutive quarter. Double-digit order growth reflected sustained demand for AI data center network solutions and applications

Aerospace, Defense & Government: Revenue grew driven by strength in Asia and steady demand in Europe. Orders increased y/y and q/q, reflecting continued investment in defense modernization.

Revenue

$393M

+5% y/y (5 core*)

Operating Margin

23.4%

+430 basis points y/y

Automotive: Revenue and orders declined, while business has largely stabilized, and OEM engagement remains steady.

Semiconductor: Revenue and orders grew with strong foundry and IDM demand. AI performance requirements is driving investment in advanced nodes and packaging, high-bandwidth memory and silicon photonics.

General Electronics: Revenue returned to growth after six quarters of declines. Orders grew for a third consecutive quarter, although at a lower rate.

Commercial $612M

+9%

Aerospace, Defense & $301M

+9%

Electronic Industrial $393M

+5%

Total $1,306M

+7%

End Market Revenue YoY %

Communications

Government

Solutions

$1.63 - $1.69

Non-GAAP Earnings per share

$1.305B - $1.325B

Revenue

Q3'25 Guidance

Q3'25 Financial Assumptions

Interest Income, Interest Expense and Other Income/Expense: ~$13-15M net income per quarter

Non-GAAP tax rate of 14% for Q3'25 and FY25

Guidance assumes Q3 weighted average diluted share count of approximately 173M shares

FY25 capital expenditures expected to be approximately $150M

Three months ended Six months ended April 30, April 30,

Percent

2025 2024

Inc/(Dec) 2025 2024

Inc/(Dec)

Revenue $ 1,306 $ 1,216 7% $ 2,604 $ 2,475 5%

Adjustments:

Revenue from acquisitions or divestitures

(4)

(10)

Currency impacts

Core Revenue

$ 1,310

$ 1,216

$ 2,612

$ 2,475

Year-over-Year

Revenue

Revenue from acquisitions or divestitures

Currency

Adjustments Core Revenue

YoY %

Revenue by Segment

Q2'25

Q2'24

Chg.

Q2'25

Q2'24

Chg.

Communications Solutions Group

$ 913

$ 840

(5)

$ 914

$ 840

Electronic Industrial Solutions Group

393

376

(3)

396

376

Total Revenue

$ 1,306 $ 1,216

$ 4

$ (8)

$ 1,310 $ 1,216

Revenue

Revenue from acquisitions or divestitures

Currency

Adjustments Core Revenue

YoY %

Revenue by Region

Q2'25

Q2'24

Chg.

Q2'25

Q2'24

Chg.

Americas

$ 510

$ 493

(1)

$ 510

$ 493

Europe

223

227

(2)%

(2)

223

227

(2)%

Asia Pacific

573

496

16%

(5)

577

496

17%

Total Revenue

$ 1,306 $ 1,216

(8)

$ 1,310 $ 1,216

Percent

Q2'25

Q2'24

Inc/(Dec)

Aerospace, Defense and Government

$ 301

$ 277

Commercial Communications

612

563

Electronic Industrial

393

376

Total Revenue

$ 1,306

$ 1,216

2025

2024

2025

2024

Gross Profit, as reported

$ 814

$ 763

$ 1,634

$ 1,576

Amortization of acquisition-related balances

Share-based compensation

Acquisition and integration costs

Restructuring and others

Non-GAAP Gross Profit

$ 844

$ 790

$ 1,698

$ 1,636

GAAP Gross margin, %

62.4%

62.8%

62.7%

63.7%

Non-GAAP Gross margin, %

64.6%

65.0%

65.2%

66.1%

Three months ended Six months ended April 30, April 30,

2025

2024

2025

2024

Income from operations, as reported

$ 207

$ 177

$ 425

$ 398

Amortization of acquisition-related balances

Share-based compensation

Acquisition and integration costs

Restructuring and others

Non-GAAP income from operations

$ 328

$ 294

$ 682

$ 649

GAAP Operating margin, %

15.9%

14.6%

16.3%

16.1%

Non-GAAP Operating margin, %

25.2%

24.2%

26.2%

Three months ended Six months ended April 30, April 30,

2025

2024

Non-GAAP income from operations

$ 328

$ 294

Adjustments:

Operating profit from acquisitions or divestitures

Currency impacts

Core Income from operations

$ 335

$ 294

Three months ended April 30,

Core Revenue

$ 1,310

$ 1,216

Core Operating margin, %

25.6%

24.2%

Three months ended Six months ended April 30, April 30,

2025

2024

2025

2024

Net

Diluted

Net

Diluted

Net

Diluted

Net

Diluted

Income

EPS

Income

EPS

Income

EPS

Income

EPS

GAAP Net income

$ 257

$ 1.49

$ 126

$ 0.72

$ 426

$ 2.45

$ 298

$ 1.70

Non-GAAP adjustments:

Amortization of acquisition-related balances

0.19

0.21

0.38

0.43

Share-based compensation

0.22

0.21

0.57

0.49

Acquisition and integration costs (benefits)

(74)

(0.42)

0.15

0.14

0.23

Restructuring and others

0.15

0.14

0.01

0.22

Adjustment for taxes(a)

0.07

(2)

(0.02)

(6)

(0.03)

(4)

(0.03)

Non-GAAP Net income

$ 295 $ 1.70

$ 247 $ 1.41

$ 612 $ 3.52

$ 533 $ 3.04

Weighted average shares outstanding - diluted

173

175

174

175

(a) For the three and six months ended April 30, 2025, management uses a non-GAAP effective tax rate of 14% and for the three and six months ended April 30, 2024, management uses a non-GAAP effective tax rate of 17%.

Please refer to the last slide for details on the use of non-GAAP financial measures.

2025

2024

Net cash provided by operating activities

$ 484

$ 110

Less: Investments in property, plant and equipment

(27)

(36)

Free cash flow

$ 457

$ 74

Three months ended April 30,

Management uses both GAAP and non-GAAP financial measures to analyze and assess the overall performance of the business, to make operating decisions and to forecast and plan for future periods. We believe that our investors benefit from seeing our results "through the eyes of management" in addition to seeing our GAAP results. This information enhances investors' understanding of the continuing performance of our business and facilitates comparison of performance to our historical and future periods.

Our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies, including industry peer companies, limiting the usefulness of these measures for comparative purposes.

These non-GAAP measures should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. The discussion below presents information about each of the non-GAAP financial measures and the company's reasons for including or excluding certain categories of income or expenses from our non-GAAP results. In future periods, we may exclude such items and may incur income and expenses similar to these excluded items.

Accordingly, adjustments for these items and other similar items in our non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent or unusual.

Core Revenue is revenue excluding the impact of foreign currency changes and revenue associated with acquisitions or divestitures completed within the last twelve months. We exclude the impact of foreign currency changes as currency rates can fluctuate based on factors that are not within our control and can obscure revenue growth trends. As the nature, size and number of acquisitions can vary significantly from period to period and as compared to our peers, we exclude revenue associated with recently acquired businesses to facilitate comparisons of revenue growth and analysis of underlying business trends.

Free cash flow includes cash provided by operating activities adjusted for net investments in property, plant & equipment.

Non-GAAP Income from Operations, Non-GAAP Net Income and Non-GAAP Diluted EPS may include the following types of adjustments:

Acquisition-related Items: We exclude the impact of certain items recorded in connection with business combinations from our non-GAAP financial measures that are either non-cash or not normal, recurring operating expenses due to their nature, variability of amounts and lack of predictability as to occurrence or timing. These amounts may include non-cash items such as the amortization of acquired intangible assets and amortization of items associated with fair value purchase accounting adjustments. We also exclude other acquisition and integration costs associated with business acquisitions that are not normal recurring operating expenses, including gain/loss on foreign exchange contracts and legal, accounting and due diligence costs. We exclude these charges to facilitate a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.

Share-based Compensation Expense: We exclude share-based compensation expense from our non-GAAP financial measures because share-based compensation expense can vary significantly from period to period based on the company's share price, as well as the timing, size and nature of equity awards granted. Management believes the exclusion of this expense facilitates the ability of investors to compare the company's operating results with those of other companies, many of which also exclude share-based compensation expense in determining their non-GAAP financial measures.

Restructuring and others: We exclude incremental expenses associated with restructuring initiatives including those of acquired entities, usually aimed at material changes in the business or cost structure. Such costs may include employee separation costs, asset impairments, facility-related costs, contract termination fees, and costs to move operations from one location to another. These activities can vary significantly from period to period based on the timing, size and nature of restructuring plans; therefore, we do not consider such costs to be normal, recurring operating expenses.

We also exclude "others", not normal, recurring, cash operating income/expenses from our non-GAAP financial measures. Such items are evaluated on an individual basis, based on both quantitative and qualitative factors and generally represent items that we do not anticipate occurring as part of our normal business. While not all-inclusive, examples of such items would include net unrealized gains on equity investments still held, significant non-recurring events like realized gains or losses associated with our employee benefit plans, costs and recoveries related to unusual events, gain on sale of assets/divestitures, adjustment attributable to non-controlling interest etc. We believe that these costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of the company's current operating performance or comparisons to our operating performance in other periods.

Estimated Tax Rate: We utilize a consistent methodology for long-term projected non-GAAP tax rate. When projecting this long-term rate, we exclude any tax benefits or expenses that are not directly related to ongoing operations and which are either isolated or cannot be expected to occur again with any regularity or predictability. Additionally, we evaluate our current long-term projections, current tax structure and other factors, such as existing tax positions in various jurisdictions and key tax holidays in major jurisdictions where Keysight operates. This tax rate could change in the future for a variety of reasons, including but not limited to significant changes in geographic earnings mix including acquisition activity, or fundamental tax law changes in major jurisdictions where Keysight operates. The above reasons also limit our ability to reasonably estimate the future GAAP tax rate and provide a reconciliation of the expected non-GAAP earnings per share for the third quarter of fiscal 2025 to the GAAP equivalent.

Management recognizes these items can have a material impact on our cash flows and/or our net income. Our GAAP financial statements, including our Condensed Consolidated Statement of Cash Flows, portray those effects. Although we believe it is useful for investors to see core performance free of special items, investors should understand that the excluded costs are actual expenses that may impact the cash available to us for other uses. To gain a complete picture of all effects on the company's profit and loss from any and all events, management does (and investors should) rely upon the Condensed Consolidated Statement of Operations prepared in accordance with GAAP. The non-GAAP measures focus instead upon the core business of the company, which is only a subset, albeit a critical one, of the company's performance.

Disclaimer

Keysight Technologies Inc. published this content on May 20, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 20, 2025 at 20:14 UTC.