KEYS - Earnings call transcript Q3 2020 | Keysight Technologies, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Keysight Technologies Fiscal Third Quarter 2020 Earnings Conference Call. My name is Chris, and I'll be your lead operator today. [Operator Instructions]. Please note that this call is being recorded today, Wednesday, August 20, 2020, at 1:30 Pacific Time. I would now like to turn the conference over to Jason Kary, Vice President, Treasurer and Investor Relations. Mr. ahead, go Please Kary.

Jason Kary

welcome, Fiscal Keysight's Year and Conference Quarter Call for XXXX. everyone, you, Third to Earnings Thank

Joining me and are CEO; and Ron Nersesian, Keysight's Dougherty, Senior Chairman, Keysight's Vice President CFO. Neil President and

session Joining us President Worldwide Communications and Sales; be the Wallace, Dhanasekaran, of Group. Senior of President will Satish Solutions in Vice Mark Q&A the

You can our and at investor.keysight.com. release website supplement to find information the press on today's discussion

presentation reports you'll please there, click investor with While find the There Information tab. link results. quarterly on segment Financial under for an along Keysight's the

the Following financial a this Neil conference copy of call, non-GAAP Today's we measures. will the post prepared comments remarks website. to and Ron by will refer to

completed growth, will excludes and of the within make XX impact divestitures movements the months. to We last also core which currency or references acquisitions

find on comparable metrics GAAP You most directly financial our will and the website. reconciliations

financial forward-looking company filings them. and the statements the SEC subject for to the We risks risks call. company's complete of and Please as a will today. our on about valid These factors. uncertainties performance other to picture make recent update today's no only obligation of are of and review statements more company assumes are The

management virtual Lastly, Bank. hosted that scheduled note over Ron. the in call I to will upcoming now is And I Jefferies, participate Citibank investor would to September, in Deutsche conferences team by and turn the

Ron Nersesian

you quarter the I'll challenges. my and for quarter. for commitments on key us. three stronger-than-expected in and joining thank macro operating despite team Jason, formal all environment of of for row partners comments ongoing proud a resilience the I delivering exceptional focus to demonstrating on Today, customers, our Keysight new how Thank our the the shareholders. to our quarter a rapidly adapted you, headlines results, while Keysight delivered am business third second

margin. record First, margin we with third operating quarter solid stronger-than-expected and delivered results gross

nearly exceptional capacity we differentiated demand our ramp operational solutions was and to through XXX% end. steady quarter, by execution as Our drove quarter production the

leadership Second, secular ongoing resilience uncertainty, Keysight remain pandemic have The confident the differentiated durable of we trends long-term achieve in our growth third, growth revenue quarters competitive long disruption, the a markets. near-term And we the our year-over-year and fourth term. despite believe the two despite to quarter. in driving demonstrated macro and model, which advantage expect the the leadership we provides for position past earnings

take operating was, of record financial commercial of communications, the we gross our financial the let's results the look Now for QX macro-environment, Despite third quarter. challenging and XX% The platform. continue year-over-year year-over-year flexibility Orders exceptional differentiated through to XX% and our XX% seasonality. sequentially, X% was as Keysight's of cost with deeper million. and free declined into within in delivered line our increasing QX our while of dynamics again, the sequentially. cash declined market flow of XG the and steady X% solutions model Keysight's typical of a the margin global demand X% durability adoption and quarter. Revenue operating quarter to structure $XXX we margin see In

development strong, large-scale in from track in by Our deployments. to the Asia. product be driven high-value for commercialization domain design end-to-end estimated wireless subscribers and continue are progressing XG manufacturing cycle Device wired the life is the XXXX. from add investments development to and R&D solutions and XG scale to ecosystem million both XXX an on across enabling and and to ramps

the network and access Keysight's used are R&D. test helping quarter, to innovations virtualization deployment accelerate XG With adoption test now the customer by strength to and XG first-to-market As worldwide. and open as radio test our is test this in announcements access expands see Keysight's of leading gain the leadership house enable of we solutions several network the the also further all interest, XG houses platforms radio technologies. ongoing being design continue are rapid and solidified

demand We and in positioned rollouts driven uptick well for digital and to Keysight capitalize also mainstream is XXXG. saw an on our R&D optical manufacturing, high-speed strong in solutions investments expansion by and commercial XXXG deployments.

platform provides and to lesser entire Our orders offset investment Europe, end-to-end that enable in comprehensive strong throughout were solutions In cycle. innovation by aerospace lower Asia. customer in extent, in life a XG U.S., defense the government, and the

solutions demand satellite to XG. space, for threat and see as platform our as strong electromagnetic continue We spectrum for simulation well radar,

we initiatives increase be sector, persists. U.S., their In we addition, will the enable and automotive a electronic in believe multiyear chain continue opportunity. weakness In to customers' which reliability the to supply our capacity macro-driven

the drivers strategic a vehicle in long-term be technologies continue the and for investment industry to autonomous electric However, fundamental priority. our

driver-assisted for measurement and is our investment growth processors, Demand priority being order for high-speed data modular center This As the high-performance emulation. collaboration in firmly autonomous and the test applications Strategic and with work-from-home the recently autonomous Nordsys resulted in validation double-digit a to advanced year-over-year driving. technology customers. in change Keysight is solutions tremendous of next-generation new jointly remains adapts IPG and by drive process trend a multiyear driven semiconductor systems a for for with will economy. to semiconductor first-to-market engaged multiple disruptions, players. investing networking This market technology to solutions. platform functions develop smartphone industry announced serve in key accelerate Automotive remains We XG

Software quarter. and solid services, again, revenue delivered this growth

software solutions durability mix Services continue such Our consulting to is greater value-added increasing while our customers. business of our than strategy revenue higher and XX% strong and improving optimization as gross our offerings. margins. the model total to services software-centric recurring to value and KeysightCare, At of and providing support, to growing expand of contributing is revenue,

Keysight ahead of simulation and bulk software new PathWave manufacturing days, to solutions. with integrated a performance, accelerates suite. infrastructure us a XG early the accuracy an software of improves leading with This ensures collaborate still market. commercialization arena, workflows recently continues that to XG verification XXXX manufacturing time design, opportunity cloud-based the its XG design speeds our In solution PathWave design With in millimeter-wave and and launched we advanced customers,

of end Keysight the customers software is strategic addressable existing increase execution. now Eggplant's the to test layer provide test layer overlapping capability company continue intelligence uses test solution and customer creation platform technology growing a only and the physical that artificial automate this market. or base software wide user layer the while test experience, to from acquisition, markets. and test into new We Keysight's application an application can the UX. through in opportunities range expanding into sectors span differentiated extending Eggplant, We our differentiation to our analytics acquired expanding Eggplant's With industry-leading automation provider. recently acquisitions, with

durability released two pillars back values our the social model. We Model fronts. the our Leadership exemplifies of past excellence extends quarters, Looking on operational multiple report performance also KLM core beyond CSR operating in and our responsibility. Keysight accountability annual corporate the at of demonstrated foundational and our financial with financial of We latest aligns the May.

impact We are proud education including on have progress environmental surpassed community making goals social goals, and our in to climate our governance while and change.

racial inclusion further recent diversity Lastly, advance as of taking a to our programs we actions and to expand result equality. events, are

recruiting working colleges strategy. and For with black academic diversity to historically including our reinforce universities example, institutions, are we

reflection To businesses to the We a make customers difference. commitment of that technology innovation, are part same their of and values racial of while, commitments to Keysight's work prouder for the makes couldn't the team. committed deliver comments, do be to to I have continue accelerating our execution in at respect. risen with up our our my Keysight culture values the wrap solutions is passion to the execute first-to-market upholding time, a and equality They this to occasion a environment and challenging inclusive will Keysight and diverse, and ownership, on a quarter customer challenges. environment

will I detail. turn discuss it our in and performance Neil financial outlook to Now over to more

Neil Dougherty

for operating cash during performance preserve our second unless also is challenging proved Thank as supply a the and which you, flow. financial comparisons quarter demonstrated steady everyone. and execution. playbook, environment the solid times. financial noted record challenging durability Keysight solid This chain Despite of hello, operational of on and reported a to in performance and disruption, and row, delivered basis, our designed margins quarter, operating and all that margin a thanks effectiveness specifically generation otherwise. are model our demand economic strong a Note the Ron, year-over-year cash to

For reported and a the X% third basis. quarter core of XXXX, down we delivered on revenue $X.XXX of billion,

continues the recovery. to in stabilize basis reported Our team sequential supply stronger-than-expected executed U.S., quarter and the and managing and capacity Asia while growth lagged revenue as their of steady a demand in began $X.XXX ramping well Orders to resulted through which and in in down hamper accelerated production core on chain X% in XX%. billion Regionally, Europe were were the economic pandemic of constraints, aggregate.

as offsetting for Expenses improved results reported and XX% benefited initiated strong mix lower Net impact On delivered for on the the million. XXX operational XX%. structure we revenue. record was flexible quarter. the specific of a our share earnings discretionary shares. income of average lower to Turning We in quarter our weighted well actions million combination and we of of from we the margin quarter last basis, performance gross discipline spending, The that margin expense gross managed of count and resulted operating with QX. margin cost $X.XX $XXX in third per-share in were

and node by strength operating in weaker margin in in manufacturing in Exceptional well and of execution and across automotive, performance both saw next-generation XX% the legacy semiconductor government discipline spending and double-digit markets, Regarding as of and technologies, electronics which This communications, strength international, XX%. drove expense we in continued respectively. as general our margin resulted markets. growth order was EISG both CSG segments, XG R&D of operating defense offset aerospace investments,

quarter liquidity flow. revolving with in Moving of credit $XXX facility. under billion our million cash We available equivalents, and with ended sheet the balance additional third to $X.X cash our and cash undrawn

million repurchase did the of balance million of impact acquisition cash Our end reported flow and reflects the any We during cash net operations shares from of $XXX We quarter. cash cash flow quarter of $XXX Eggplant. $XXX not of million. free the

outlook Turning and to our guidance.

year-over-year And of we limited in represents result, mentioned, based and the growth disruption earnings the or range we weighted of to to from earnings X% QX million of of on $X.XX shutdowns progress wave shares. share Ron range year-over-year At supply the X% growth. this to revenue be a $X.XX fourth expectations a in make pandemic. revenue and to constraints These incremental expect or chain share continued As $X.XXX expect QX. the $X.XXX a additional to assume second count quarter be average midpoint, billion as XXX in per

near remain the challenging, markets the remains growth term intact. trends in our long-term While secular

R&D solutions. long-term leading-edge success first-to-market our We invest focus and strategy on continue through in to customer enabling of

confidence us in back last strong mentioned long-term to growth to balance our I X% the and of XX%. turn operating core Q&A. leadership for of quarter, revenue As our generation, of and will durability now to that, cash Jason X% steady the margin sheet With give it target target model, XX% market I business

Jason Kary

you, give the Thank Chris, Neal. will the Q&A, please? for you instructions

Operator

first [Operator the with Instructions]. JPMorgan. question from And Samik comes Chatterjee

Samik Chatterjee

start I order about changes kind maybe color a if it outside with would to more the seeing as what quarter? I example, of bit that basis, did largely in off the a you are can have markets follow-up. of you're commercial trends. order markets, order you If have example, or slightly asking what I share how for the on For magnitude in can And the trends And for for terms sequential trends of the some but there? referred on declines a just and of automotive, Orders moderate know seasonality? trends seeing weak, communication, you're end are normal insights in the in seasonal, order

Ron Nersesian

to Ron. to can your communications Head questions. Mark going Satish also towards is some trends color then more Sales, first. the think ask about Wallace, this talk Samik, And I'm of I add commentary order commercial the

Mark Wallace

Thanks, Samik, your for Ron. question. thanks Okay.

mentioned. were orders next-generation we've we with in in And actually, technologies been XG. increase very throughout to impact So But investment already growth they quarter. seen certain saw COVID-related order That's strong steady the continued as diminish. areas, some trended in the of

Our our strength to technologies, regions. very And been XXX-gigabit all strong. X-nanometer world continue expansion, the and with saw including solutions to support has the customers of around semiconductor, optical data high-speed particular, digital advanced And semiconductor we EUV, center the extreme across very be is which in strong. process ultraviolet.

basis, and we Principally due for So U.S., where the came the they but by weakness And that COVID was COVID restarting defense and many conditions effects and affected was started and May in was us a aerospace slowly part there up some on some Asia. because impact, economies disruption larger a Europe, in Europe. certainly the Asia across other The saw across I reopening in June. some mix was offset would the in say, was all Continental out least countries regions, that to late of relative first. impact and

remains So our where general and government electronics, funding AV strong priority continues our was EV in We indirect from in this very some for had top and in automotive like But and we soft. saw And the channels it industry, Ron see a redirected be the macro research. quarter. do in customers then impact? the education in noted, customer where as several large new areas wins for and we impact of to

by next-generation also the for help the solutions built XG, their Much delivered way engagement and relied COVID-XX we our on as support to remained And our would overall, high. customers there to So headwinds, growth strong and and orders funnel quarter. customer steady throughout summarize of grow. KeysightCare very services this strong as, delivered semi. And and that operations well. from were delivered us XXX-gig, of along productivity for I what we was as We the a but demand continues sales improving growth adoption

I'll you and on comments back make costs. can further some you hand to Satish, So commercial it

Satish Dhanasekaran

Yes.

see it. covered offerings. you Mark, XG was continue broad, think, we that I strength strong the our say to just I'll and our for demand maybe in

Samik Chatterjee

based sequential somewhere maybe Okay. in incremental your on and the look Neil. think margin. more margins margin in a implying I for follow-up on If is when close I it just it's on the fourth to guidance Neil, basis quarter at question on more implied a operating can XX% I and of calculating of But this XX%

that's low. in might It So you does some changes that. OpEx from. does I a reductions as if have realistic just benefiting Particularly, sound of cost wanted level temporary made the really to ramp check wanted bit the imply of you're to I structure some well given on that your un it check cost the in as the

Neil Dougherty

that. Yes. we about even a some now Sorry Yes, My normal typically see mic in is -- and -- on.

to me. a the related year So expenses, as QX, in as in some it's the push get to of as QX to the do of field you migrate year hear see to back is to typically we typical probably from easier uptick to even is We is term finish and where be half some where XX% the that there that quarters quarters The we're incremental, below, quarter-to-quarter, we're never above strong. medium we've do. year intended over been is the committed incremental but achieving we're and to something that able which going the are to something be to long to XX%

said, very we're that think perspective. well I positioned that So from

Operator

question our Brandon is Couillard And with Jefferies. next from

Brandon Couillard

total? orders elaborate X% you in remind China could terms saw quarter, third the of X% in in Neil, or Ron or just that restrictions Maybe the impact quarter core And the of were was what us on in the revenues? in total what and about trade you

Ron Nersesian

going make to out obviously, comments I'm I Huawei but this because some news think this can China sales, regards who he is new manages, pass Mark, to Brandon, also week. Ron. came this with over to

Mark Wallace

Ron. Thanks, Yes.

where revenue is So to some customers growth business saw during much throughout in in we of the as of XG within steady my And the the lot of this QX We China ecosystem, well a high-speed strength order a of quarter. growth. comments Again, we market as selling strong. was earlier, We data centers the with increasingly flow longer to this manufacturing, like saw and continued growth around our tail saw semiconductor with leaders optical saw invest capability. And by world. in data global some this customers in defense. QX from driven did again, demand impact or some from the China and influence center digital mainly directly, from other world as an and COVID, see of aerospace China the opposed We in macroeconomic in automotive. from to parts headwinds business

end-user As June around you that some in were late regulations new that may there in announced recall, place military was were into put May customers.

we quarter. because later So it small effect a the was in saw

broader rebound But that quarter, week, recovery. starting of were COVID, to show electronics, earlier the starting new of the to some signs outside describing technology some published. of there affected was And see general have regulation referenced the U.S., are for a products, this a this was on in manufactured some the which Huawei or entity Ron software by are markets the U.S.-based and increased this of outside that sale some was We early but like restrictions as of part list development.

and that well the to an than impact. There some restrictions affiliates tighter to sales were shift as much Huawei added limit affiliates. will additional of some don't made this So regulation announcements on have their additional previous

quantitative to the one we in we're redirecting will as it very more digest say, looking So though, adversity faced priorities we to we've focus pass continue our and the China I'm to at Neil information. in I some been effective is at The challenges thing that and going and make comments. past, to and certainly that

Neil, So on comment I you to further the you, pass FX. don't why it can

Neil Dougherty

to quantification I this news. impact wanted of Yes, some new specific the Huawei likely just more give of

So we talked in we then, closer that. exceeding again, a about the previous increased X% we double rounds Huawei of restrictions which they've based sales in that third Huawei and that had to to QX, here to be rate said been previously, with expected X% quarter. They're customer. on actually Year-to-date, to

it As these does look restrictions are we comprehensive. look forward year, to next like pretty new

Huawei And be already long but it for be if so to forward, to a them term, customer about to expecting very we we us going from X% customer. were again X% think small expect you a

what we've bigger are minor So up over been bit a term, long But expecting. X%. next from little the year, headwinds potentially to a adjustment the pretty it's

Brandon Couillard

That's very helpful.

of a primary end markets Can or you of sort business the the and business, It acquisition some to for to of dilutive one rate Ron margin on sounds the pretty whether maybe asset. the like near-term the growth profile not? of speak acquisition. the Eggplant is and EPS that interesting Just

Ron Nersesian

acquisition us. to this Eggplant exciting or in and Again, is firmware software-centric in right is products products. is hardware with of an more think test using so interface as to tests Sure, user test this products test software, to end for our really most the a test Brandon. about This to software. more we're customers' And used of And way strategy. solutions. our finally This we move fits particular, within our software or development. lot our

when effective be something that how and do get user interface can will that someone's through really it's and interface, a new you user it have So know experience. developing customers the good

financial a customer lot unique set digits. existed potential the is is into a PathWave acquisition. that growing of It it's it So to even architecture. of experience type web. we any that's there our double and by the is future The in area base aerospace of user defense, instance, has a on But AI but growing it accretive community. special Keysight with marry of particular, is broad that It's in us. for sells, even the where one with and, roughly It anybody small sales, tremendous as it's creates the rest

Operator

Next question with is John from Stifel. Marchetti

John Marchetti

over guess, list come technology? the their see some not saw efforts Huawei, of face. broader out entity looking we're we're much, us enforcement there several you -- more a But bit just more maybe strength headwind of a to if you more you I look some I we gave Huawei? to wondering bit see and going the numbers be a broadly as quarters, China, expected on like Do little just as potential you and the mentioned maybe U.S. that. was in particular. I next How just the this we you're to against things some Neil, to is if broadly that about back headwind in this could little know independent than semiconductor

Mark Wallace

So John, answer I'll this is part that of Mark. question.

said test So because of those, diverse serve this, very as business one affected broad, right? on -- us are first multiple as segments. solutions outside and before, the the that put new are is Now engineered regulations by were very we manufactured you of And based we've semiconductor systems out, semi not regulations just and for a all, U.S. directly the our a China, mentioned parametric is these test

these to watching only or capacity world continued leading path. and impact chips is again, But possible technologies. what foundries. technologies, from next-generation demand in So around the driven are reduced looking monitoring XG through see other from a by situation forward-looking the at we We're investments not China, we process the support that but the for expect to

John Marchetti

when geographies. quarter should maybe it. some these we Got over about maybe think how next And of the we look or out so, then if

you saw improvements, post-COVID. some said You obviously,

maybe a get to bit North some order on of in Europe and, As America, the easy of that about getting expect that here a question strength back order into momentum line? you to little little down a better back of year-over-year some continues bit in worse do Samik's the hopefully, Just again basis, come sort or sequentially.

Just order for trying trends sense feeling the how business. to the of about overall a get you're

Mark Wallace

Yes.

America So quarters. if supply the how you're referring still constraints on be end QX, the specifically, by coming particularly More going to sequential broadly, conditions in improving in be Europe, geographies. those based that in that impacted particular. saw see in at markets. We clearly acceleration improvement we will North much two continue occurs are somewhat of and to seeing business expect the the demand of we in COVID semi during Europe, market rebound The some the in to in there's early and was

as U.S. you being as that And surge seasonal large much expecting in occur, to we now. again, aerospace is defense we're we stand the QX, the and see Asia through effects get end some that pretty government's fiscal the have with to of then year. in

Operator

Barclays. with Long Tim from is question Next

Tim Long

up just equipment of more manufacturing quarter. But manufacturers strong kind ramp the the a manufacturing just traction like bit you Could about ask to the little in on and bit to are you XG where on in R&D you're side, see it both on color on little to starting touch How Could transition the wanted How for of would to were much little and a data as be talk is then wireline manufacturing is much business. a sounded side secondly, could That could end start if we on the much market? where growing I of the us How It positive complexion XXX-gig. is side. that the to in demand give kind traditional sounds center? meet telco? the and just we and great. pretty you the XXX-gig touch Ixia businesses. China

Satish Dhanasekaran

Thanks. Yes.

I I have progress remains say that world, others. a industry perspective, some year. in to a XG our been the in at that think, from are actually acceleration outlook continues and the both be first, want long-term of pushouts going to Net-net, parts look this very and devices There deployments of it strong to manner. view some in unchanged, from number we the manufactured and

reflected strong manufacturing on for strong point that view. basis, our And we uptick our very we solutions, from a for that in increasing had solutions. R&D pretty strength a So of demand see but also year-over-year

manufacturing strong With components, growth. offerings, referenced resonating the has I area business, modular especially to our business had before, in strong continues funnel and very is had our well. that station third XXX-gig as quarter straight where that We've with are this offerings. regard differentiated think to the and I well base be strength

done companies awaiting. and by been web to in continue the a demand lot centers, so scale that You're will right has data driven is think which not we the accelerate far and the into industry of

this continue innovation out. majority out production bulk to on playing we're metro-based there's share And see of XG stand-alone on from in well the underway the operator-based to that's front. that XXX-gig is perspective that or industry versions XXX-gig as use and of of progresses and the a more we'll capturing cases, opportunity play a the Asia, So especially of as more and

we overall the strong as wireline opportunity about So feel well.

Ron Nersesian

very double-digit I serve at performance when with you the add and sampling would which we're look our were includes look our too. optical that this oscilloscope, with relative in competitive basis, growth scopes results on we And a very that a market, comment, at orders. just performance. happy When strong

Operator

is with question Mehdi from Next Hosseini Susquehanna.

Mehdi Hosseini

asking the the with but to just flattish past one double funnel to if for has beginning sequential look conference suggest materialize, your have booking behind business job to And or take midpoint first year-over-year by done digit of and seems you guide. up else call to to years, on great. I X.X. especially book-to-bill I X opportunities keeping would on My wondering us. guide anything the not X guide, basis. a be a When it? were a do out your last of would right will follow-up. about this that me a I'm And is booking, then with basis have think the add a it way I'm COVID of laid kind it you have to is And be that to revenue earnings can you to And And that I great a above at of

Ron Nersesian

don't we you Mehdi. as we on Sure, orders haven't orders, and Yes obviously, commented general. know, in guide

far position have we see in manufacturing, that all our supply we going based at Quarter-by-quarter, backlog on performance environment. it QX order as how are. far this that, as our book-to-bill what's pleased the were orders, And have and as given very That's on our that. the come clearly leave the go over see up the where happens. area with in we'll good. past as some I'll quarter that last backlog roughly very pleased takes external remaining But Keysight's that built in We going as from same with things forward. to and We in we quarters. And and constraints we're puts we

Mehdi Hosseini

into it perhaps on how acceleration tailwind It you XXX wondering this you us group, there and seems peer to dive me between networking and And the the your is to wanted just Ixia. could on see I and remind minimize networking XXX. of split that And comment R&D Got I'm just the it. to for based could on R&D if XXX-gig production.

Satish Dhanasekaran

Yes.

between think good have into I R&D and and sort that portfolio with into solutions, And as on early about is commercial start We wireline they with life we have back it, operators. and both the a diverse think get communications. a deployments breadth to Mehdi, each way customers and follow feed side, in get production, cycle production other. the for they

it's of has wireline augmented say, on steady So maintain And three solution been from pretty capabilities we to layer a that two, let's whole, steady the side, that and particular, acquisition. layer allows business by addition franchise the a the lot have that more Ixia the business. in the us

So driving demand. data yes, now, XXX-gig right centers is

and start, then telecom the demand simultaneously with serial-based production. being then expect and XXX-gig will pick that up goes to We instantiation first into XXX-gig the

continue So these us communications in and give of commercial our a lot waves outlook. stability

Mehdi Hosseini

is that that being does next the But include the for scaled generation? R&D

Satish Dhanasekaran

Absolutely. Yes.

Operator

Next Goldman Delaney Sachs. is Mark from question with

Mark Delaney

First production when ramping of at that the the EISG and ISM back But business. understanding wondering the you factors comments about vehicle up segment? growth, indicators translate some is auto industrial the The back your to better when that growth continuing. remarks I some to think for may has and quickly. Index in in just demand better commented year-over-year autonomous EISG and electric investment the look those of seen prepared in been pretty about into that company I'm weakness understand the company something made automotive segment outlook portions your

Ron Nersesian

Ron. is this Mark,

would a upturn. Keysight. in With of rates that, into rate the we're all, is more and We're of the where very should industry, on role. auto where into or into the the not us. and rate is that's cash at to automotive have point the to to call I growth your we you you say, which the And growth First positive lessening, covering seen big second the although derivative, We've ready -- not for second automotive, much thank a R&D we're feed new funds. still with industry, the negative congratulations more happy decline translating regards believe order

going a and play we're that's in capitalize to the a of this any So on EV, ready, it us. lot you through AV strategic And of we time, period for cautiously really obviously, see big new spending are where spending to priority there. it's

tremendous see multiyear And us. the this ones and have we a for solutions we we're in of potential are that We have working on. lot that market, over other scenario,

Mark Delaney

And want for margins, XX% I I my was for EBIT did also, understand model EBIT to thank other nice quarter, believe the the question, do this company non-GAAP And you margin on XXXX. a welcome. target for which

well again you this can about you of may next XXXX, potentially and Or think margins? sustain? above coming you now the of between you're operate this you today? even profitability margin can how you as certainly be with at implied think about to something can margins. Maybe respect think sustainable those at quarter. level levels your Is levels of that So your in target EBIT talk kind be you ahead already But plan to

Neil Dougherty

and just times. we to the my to get of put times clearly Obviously, over normal quarter. those do term, hit be not expect And to out Yes. highly longer this I we as to ability comments prepared long-term our are nor said Obviously, XX% things. quarter normal in sustain margins XX% those These confident target XX%. next in are we've we

us working to XXX% flow on for and in our there, allows single significant unique the the of component a and tough allowing of as home, clamp margin. drivers portion to model pay around operating driven the areas NKWs organic on we've things to a our variable that's is engineers model temporary which significantly, that so as whether the generation see well of operating areas is other -- direct result project those A Obviously, decreased put that times. people. workers materials other from one, spending. We maintain spending and that's R&D discretionary have profitability growth by biggest with our travel, types has of obvious right the specific a We component and COVID, is of really cost me, organic actions us growth economic save which an key in excuse now, structure, money employees, situation taken macroeconomy cash is

over So committed very longer pleased with to term, results to in We're again, short the getting XX% the we're XX%. the we're run.

'XX, being into As levels, we're pension carefully increase as some we go interest we things at face we of expenses are is one those the low costs year. pension back other next expense. historically With our as rates watching expenses very expecting to come

push operating sustaining to towards run direction way bit XX% little going XX% trend to of in back So on probably things well those there a but the our be in a that the going margins. are us and to to are turn, other some long-term we're short getting

Ron Nersesian

Yes.

pay managing, in cetera. said, The et of takes had As cuts. overall everything that a environment. we expenses from that puts Neil we're pension lot said, there on things, travel, We comp interest rate executive are basis, he and a as this low salary variable had temporary

the higher? could want solutions competition the balancing from shape it's note it And margins the competitive a in short-term little have the to can profitability profitability. look my sure chair, But as value a at we model versus between worthwhile growth. as differentiated, a is we and balance provide all out, take we bit And to they make customer we good with always the and investment investing at this look return. very to think as give we're for to margins, that we're However, we a most shareholders, create this, short-term long-term Yes. advantage we

Operator

question next Investment Citigroup Suva The from with is Research. Jim

Jim Suva

ask have time. two the questions, at and I'll same I them

rates Then could year-over-year? the into the it order next revenues still them you being for think bridge better about growth look at my will was I that order just organic the rate going quarter? any trying impact you those can higher want outlook is And about it rate. acquisition that a down how your X% you little metrics? kind quarter that understand orders? you Eggplant fundamental yet for I'm on negative does regarding the us just also your second is, there. question contribution you this about year-over-year, which did? reported, Or So help I bit be between connection Eggplant not you what's of do two Kind see quarter at your revenues you to your us reported to closed, growth to wanted. answer for you can talk of the But order the

Neil Dougherty

Yes.

first Eggplant. with the to question regard take me Let

about our growth We've now impacting and been our the areas is position. COVID As you third and of were are Keysight of they that of of on months As It's the know, industry order last puts that and in have basis, growth every of of the with essentially go-forward backlog macroeconomy or long-term a the as of at our strong into order We're coming we relative numbers, where or competitive in would and areas the on we line ship only confident it we've trends Eggplant relative driving an impact the a down seeing was on growth on, said, a position end can markets. going in that but the a obviously, uncertain. we weakness, as rates. quarter. But magnitude. it's we about that's building course more revenue reported, in part growth point a are and a X in into a are X-point relatively Obviously, a being small on business. highly to But equally, the of revenue technology add basis. expect basis, on over par we strength the the COVID, where were With to before less orders either our level situation core up, and for capacity as said, position to driving relative be we go-forward still secular over a kind is and to the strength Mark but a revenue business continuing portion of year-over-year sequentially or remain QX regard so to report

Operator

is Eastman with Next Rick question Baird. from

Rick Eastman

tremendous A quarter.

A&D? math a Keysight quarter. the in quarter. the Obviously, question X a here Just for you the the just around give the X.XX than us at was greater book-to-bill in book-to-bill in Could is sense, EISG and

Neil Dougherty

segment orders the we're Obviously, not reporting at level. Yes.

not of we're level information granularity. that Keysight, have into the for just You going and

Rick Eastman

book-to-bill general assume EISG Okay. question. there some another the business? stabilizing and at you orders, same And and we're ask potentially, aerospace Well, the this me of defense. in stabilization at I the there orders, dollar When around sense just Is is lower the EISG you look overall defense absolute look mean, at let of aerospace the and level? question we one. amount that a

Neil Dougherty

the similarly investing our we've talked negative an as auto I'll then within the EISG business was got other well is through the industry, technology, the and industry. portion, the about pretty demand. specifically have take difficult me let side, CSG or very segments Satish clearly address and a semiconductor you are you've industry an times defense in now selling flip impacted, impact the auto and doing question. that directly seeing, which and some And we you're is that right? various Let going more And things the in above-average so I'd EISG, EISG. aerospace macro say, are macro severe impact right auto driving process XG EISG, within folks At semi have into

talked And the the And is we've about seeing a of you're general business. that's not being semi weakness. us, GDP-linked most so most but piece our just the in kind and one macro-tied, third often broad even macro industry, of across then electronics relative that strength time as being

general we to there, our largely mirror broader of I recover going economy think business with see COVID. And the electronics what performance you're as so happens the from

you on comment do to Satish, aerospace want So defense?

Satish Dhanasekaran

Sure.

and five line look But the business. down aerospace you think you for was orders, highest the defense the the revenue was years. at QX I obviously, this second see the So last when in

actually for satellite well. well is the the that as of to holding orders through year, position operations, and business the in the you it very increase prime up that with also own to strength strong strong. future spectrum And And respect and sort is portends with our So backlog continued couple indicator space XG a when contractor electromagnetic has U.S. with

Rick Eastman

kind curious just or Okay. orders then as around of puts in adoption a sneak curves I'm if thing. demand impact and I is there Satish, lots takes Open the Keysight's and could And wave. one maybe either millimeter I RAN into for that on if more for sub-X efforts, measurable measurable know don't revenue? or those be gaining it be demand, on impact be again, seems whether what but having to orders content of And would is traction. any some development

Satish Dhanasekaran

version Ron and ecosystem across XG the say applications, all, on whole continues would call wireless along sort I the that of the XX be next has want to the the so version our of to it with of range standard and wireline, just of before. business just driver a platform demand of end-to-end wave, first passed mentioned the XG, to millimeter well in say stand-alone we had release July. I both continues we platform, do of then as got Well, to in adoption and

RAN going with drivers compound business. the stations we RAN you or macro going virtualized concerns some for security core the purpose on stack, including to a we that So we're able then of technology now test have that's this around lot strong And that Open with When situation to address this network interest. opportunity. Ixia's capabilities has base total fact have it got for the clearly

In Open quarter, toolkit fact, to enable just our developers RAN we launched this there.

participating we're Open in While there the emerging market needs standards, as and in lot player that's yet some there's needs. emerging and to of customers. starting broader O test RAN, space big a different It's with isn't We're a orders book interoperability that's well. already RAN

Operator

question Thompson, Next with Davis. Adam is from Thalhimer

Adam Thalhimer

really for segments? driven Curious see revenue is communications? both up do QX, by Or in for the revenue your you growth outlook

Neil Dougherty

sequentially talking or year-over-year? you Are

Adam Thalhimer

Year-over-year.

Neil Dougherty

guide don't We segment the level. at Yes.

So point in information we share think this to that's want at I time. don't

Adam Thalhimer

order growth? declines, then And single-digit hoping how just you give against high-level some could that I 'XX juxtapose low two thoughts that on maybe Okay. was 'XX thoughts, your of might given quarters

Neil Dougherty

Yes.

to recognize We less be more position think are longer difficult term, happens factors including impact of we've recovery, lot to everybody got equally. macro I and we types look our months those Again, play, going or that are the what it's a over out. call to of 'XX, continue elections marketplace. the relative of the in For factors by we as three what's things. encouraged with that at U.S. pace those even Obviously, the the COVID

going technology everything better of is And only to not position, but so most. our us weather the portfolio enable than our market to strength and our

But some specifically we're about a into got very specific FY I And the we've 'XX, operating facing that did model. other so touch than on to by encouraged Huawei. going we're that, great going that. of be headwinds

several and develops I cash how continue think will flow macroeconomy to that course that's today, matter profitability no of over the driving next and quarters. so the the strong do

Operator

David Bank of with from is question Next America. Ridley-Lane

David Ridley-Lane

in of to ship had wanted backlog So so third a million $XXX to were you built ask second quarter? I about in the how you much able quarter, that you the build,

Neil Dougherty

Yes.

see, can built backlog in the quarter. again you As here we third

of ship. reduction. not we're point, we with of see this aware did are I a we order to very meet inability is the single I not closely delivery customers their a way lost because backlog have to working our So would And guess instance answer urgent to that needs. an where most we

said, with where look continue very chain capacity revamp similar is we some constraints -- be backlog forward, all we our consistently of do to our to And suppliers, expect Ron So we today. but we're managing across position we see production to to it as as XXX% We close our some manufacturing. We're those. year. -- supply of very throughout internal actively the regard

Ron Nersesian

obvious. orders And pretty of that shipped in received think tactically, QX. it's the that QX into lot went I A backlog in were we probably

come orders typically, QX, go of However, the particular, orders that towards came QX into in the backlog. the end in the that in

in before orders doesn't from QX backlog receive and are we we're customers by QX always change a requirements on shipping $XX And It's the our or you typically, needed always the see based don't get your accounts, we to first QX. rolling didn't the and of it orders So that are things see orders. customer one customer two that million, requirement. although roughly you QX mean those ship

So it's rolling.

we of received QX, quarter, again the in in and obviously, then depending month-to-month. sort it up out, we build through seasonality way that clearing the QX. works And what are We on

David Ridley-Lane

if as all getting Got things normal of And on a sit do shipping frame you for will? you you you age, of time there's -- month a August, backlog normal six a would schedule, sort in it to, if the kind here it. think back i.e., will,

Neil Dougherty

time constraints. and capacity as managing at in close to supply XXX% Yes. very I successfully We're back other point to, chain this said,

meet overall of demand requirements So customers. an right we schedule I now for shipping are think and our the able to

David Ridley-Lane

of terms on either could. that a a there Got gross or in Was if it. just was one, drag of the mix I And unusual last one margins? revenues anything benefit

Neil Dougherty

and only obviously, to to this be at very I software in that, we a continues would thing revenue. in adding And gross tends great performance time, from had margin business, that -- say The then is recurring strong strong to semi perspective. above-average a continue be see business our point very we

if to XX% additive for services mentioned, margin of the below-average to is even the so north course separately a business, of segment reported in of you total combination, margins. is gross it look but we revenue, services and over our services, And have, also at that Software a as be used specifically, last and gross we -- us.

make the on great Over profitability. of last services continued the to months, progress course XX we've

So long we've that north services getting of term achieve over services. the up now objective we XX%, about profitability and for talked our

It's as So it's well. come as a as long it not be. dilutive way used to

Ron Nersesian

has unusual But typically gross we we our about real really no solid to the growth And And going. Yes, regard And as doubt gross that and our XX% keeps faster rest key has double also, grew it above of the been of Orders quarter, grows our produced that software is services this continues delivered relative that elements, it's nothing of what and XX%. increased And margin ARR. margin. our that. business, our Neil digits. was strategy. there's strategies. There's revenue with which business, chain part margins. one helps a our to our mentioned, a that And than to That grow. and helps

Operator

I for to turn question-and-answer our concludes session to That back Kary Jason comments. closing would today. the conference now any like for

Jason Kary

thank to have with conferences. And wish great you. forward you virtual Well, day. a that, We Chris, speaking us for today. you and thank to joining with Thank look you you, I many upcoming of at the all

Operator

our concludes This conference call.

You disconnect. may now

Keysight (KEYS) 20 Aug 202020 Q3 Earnings call transcript