Earnings call transcript Q3 2023

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Operator

Good day, ladies and gentlemen, and welcome to the Keysight Technologies Fiscal Third Quarter 2023 Earnings Conference Call. My name is Cole, and I'll be your lead operator today. [Operator Instructions] This call is being recorded today, Thursday, August 17, 2023 at 1:30 P.M. Pacific Time.

I would now like to hand the call 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 session, financial under are The discussion and reports. by our are Keysight's quarterly Customer information press President and Neil Chief website that In tab CEO, release Dougherty. on and and the supplement Mark our the Q&A Officer, we'll information joined CFO, be Wallace. Satish today's Dhanasekaran; investor.keysight.com at

comments Today's refer financial to measures. will non-GAAP

excludes The make the acquisitions and also We GAAP website reference comparisons on our movements within growth, which and financial on of to and noted. are impact will a or the core currency last most metrics completed basis, divestitures year-over-year are otherwise all XX reconciliations months. directly-comparable unless

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

to in Lastly, scheduled by and Citi. participate Goldman is upcoming hosted investor Deutsche management Bank, conferences Sachs,

I over call And turn to Satish. will now, the

Satish Dhanasekaran

reported for portfolio the and solid everyone, today. of quarter, the Good afternoon, results our third joining resilience strength us the thank and you in our Keysight demonstrating of financial model.

commitments and shareholders customers to in executing are our macro-environment. and our on challenging on We delivering strategy a

key three My will headlines. on comments focus today

of strong operating quarter performance another and discipline. portfolio, delivered we execution, Keysight's First, financial demonstrating diversified strong

our record our expectations, range. earnings while per Third exceeded quarter guidance revenue in-line share with was

our R&D communications. government automotive in growth for while saw expectations, low dynamic the stability and aerospace, defense AV We've full-year related now our primarily in Second, our outlook positive EPS commercial growth in orders expectations end Growth backdrop manufacturing. while other This at continued came and EISG semiconductor in and QX, has partially customer steady and our solutions, we into spending softness revenue. EV factored incremental and to this and of near-term X%. in and of orders tempered for offsetting Asia, and expecting

Third, durable operating confidence as give long-term of of outperform to our in despite solutions, ability capitalize in the business, growth differentiated secular us market the a well conditions. on challenges, markets, diversified near-term and trends Keysight's model as our variety

Now let's take at third our a deeper results. quarter look

up While orders a core was declined for and billion third revenue a basis X% XX%, quarter. $X.XX of the record on

in all-time share, of delivered gross Our operating resulted high. XX% an margin We margin and differentiation which XX%. was and per earnings in strong record execution of $X.XX

steady EV Turning we demand R&D to to in government environment, continue communications, see solutions. the and and defense automotive programs investment commercial in aerospace, strategic

view long-term over fact, programs, seen In position our as validation We commitments future past related technologies of in automotive strategic this growth and customer in ADG. in we've a us important key meaningful us an for it well growth. strategy, the strong puts year, a large and positions particularly to in emerging

next was semiconductor, markets this year. many cases deferred electronics, general incrementally in quarter customers into weaker and as automotive in well manufacturing-related Demand in Asia spending

demand the detail. more customer discuss moderating our soft with together, in Taken revenue program increase fourth will in which near-term environment in combined Neil investment quarter, strategic the is

manufacturing. to was EISG regions. revenue growth. another to driven double-digit strong grew of all segments. semiconductor XX and Solutions and markets business orders revenue and third in trended the performance lower, across Turning Industrial particularly growth our by Group the quarter double-digit Electronic XX% record in consecutive The quarter quarterly financial

they're remain high planned for, in long-term and invest engagements as continue key to customer strategic Our initiatives.

demand. silicon a forward are photonics new strong the term, such planning AI environment. capacity, applications for customers near-term spending prioritizing In and in semiconductor, industry despite the near In capital marching a demand as pullback wafer future the to for address is

this a silicon see inter-parameter wafer photonics remain we slowdown and test test for high. demand As proprietary did Keysight's systems our significant solutions, in result, while new quarter

continue to few dynamics next these expect over quarters. the We

In automotive, EV investments to be in and continued strong. AV technologies

PathWave another win our secured PathWave large and working in be OEM European system testing we're This with and quarter software communications, test automated Test that for with customer their for platform. supporting on industry software. tracking implemented leaders Autotalks for address includes EV program also to and we battery goals. third an C-VXX diagnostics quite XXXX excited support Lab RF wireless Keysight vehicle supply needs announced This chipsets be a To strategic connected automation our will to Executive

our companies growing universities digitalization is electronics, and in the advanced of engagement to customer and collaboration industry. in general digital research. expanding on solutions the investment driving requirements for connectivity our further growing this solutions support In between health also We're

Turning large strong a threat declined scenario led with XX% capabilities Force to contract continued X%, while and emulation overall signal QX. environment government in demand and from Communications to the demand government Group, US stable revenue defense, differentiated Aerospace, and primes. quarter-to-quarter. Keysight's generation revenue grew Air Solutions US

We a from operation key Canadian electromagnetic for applications. contractors spectrum leading also won contract prime

for placed that modernization delivery their goals support XG addition, for as solutions in XXXX orders investment in XG our and radar continued research as robustly and and beyond. systems the defense demand demand and grew In well. prime Government contractors

service activity was datacenter by support Customer investments in cloud network and our increased and digitization, in high-speed R&D supply concerns. remains as by cautious cyber rising satellite by provider for heavier XX% Enterprise provider Demand sequentially and networks driven declined and AI/ML-driven investments technology driven spending and PC, engagements weaker networking design applications chain. loads, XG due and hyperscaler smartphone, they and with security strong their and communications. wireline XG steady, component revenue Communications customer manufacturing key Commercial customers to AI for to investment workloads. improved key ML

networks steady RedCap We and University standards enabled non-terrestrial satellite, XG targeted also integrated XX XG circuit advance and Stuttgart investment our solutions. and In we of and of terrestrial Early XG-SANDBOX future. wireless, engagements continued the quarter. satellite between this agreement XG the progressing integrate the Keysight IoT further the capability research Open R&D consortium at the in to Space sub-Terahertz are Agency to saw XG/XG networks XG European with led and research Release RAN, industrial applications. technologies to

continued our strengthen we innovation. the technology customers' and to in our leadership quarter, industry enable This

flagship portfolio we extended amplifier power industry's capabilities by applications. integrated our and for example, network first component introducing vector analyzer design For with platform analysis component and

to industry's announced as applications that also for up multi-speed AI. gigabit supporting platform such ethernet critical data interconnects We data-intensive most ethernet performance comprehensive center are XXX

networks. Keysight new Skylo of like satellite protocol And Release partner XX XGPP with continuing validation to for to lastly, networks operators the deployment enabled satellite is conformance and non-terrestrial accelerate

services of solution software and company strategy for and accounted part software-centric one our reflecting integral grew third of Software of revenue again the remain total solutions. expansion our services an year-over-year continued and revenue. Overall,

ESI and stages moving system our in trend solutions line laid secular remain The software of quarter of and addition R&D the software Investor automotive a Group, with for intensive design our customers' virtual simulation cycles prototyping software strategy out upstream opportunity our the broadens our into confident the leader intent and physical of this that into of We our process. capabilities growth In in furthers earlier to in I this acquire applications, at ESI we customers' particularly aerospace markets. announced long-term earlier development simulation our Day, March

waves a competitive industrial investments continued Keysight's uncertainty, technology multiple macro significant advantage. we in Despite technology see driven current leadership innovation and connectivity and players industry by and deep R&D needs. digitalization remains of collaboration with broad-based

to trends, organization throughout efficiencies invest this these growth and continuing the disciplined in secular driven year. While long-term have remain we incremental cost

this the winning financial market fiscal strength to X% are finish current first-to-market altogether EPS us resilient portfolio, year for expectations Keysight's our exemplifies Our our performance durable and positions guidance which the well and growth with We X% and culture growth. of model, believe differentiated continued outperformance. XXXX business solutions revenue

that, discuss to turn call With outlook. and performance Neil financial I'll the our to

Neil Dougherty

financial $X.X performance and basis. quarter just Satish, billion of backlog. range, you, on of of QX. core flat billion up in the in a and $X.XXX a core delivered We above with X% $X.XXX hello, declined was and on basis. We guidance the billion Orders ended Revenue XX% everyone. our Thank reported midpoint year-over-year solid

Turning achieved of of We operating $X.XX at million, of margin to expenses for income results record delivered share. $XXX $XXX our QX. million earnings and We margin per in gross and reported operating record of XX%. net XX% operational resulting

count the quarter share was shares. weighted-average XXX Our for million

Moving to the performance of our segments.

by margin X% while Our delivered down margin Communications Group of million, Communications modernization. driven on increasing and Solutions budgets revenue record was in reported technology of XX%, and operating defense gross core defense CSG million worldwide XX% $XXX aerospace, revenue of and XX%, basis. Commercial a government declined of $XXX revenue generated Altogether, $XXX up million XX%. investments and of

growth margin up in general generated and of The record gross XX% Electronic EISG operating revenue core a or XX% on revenue Group million, basis and XX% reported electronics, with Industrial XX%. $XXX double-digit Solutions of automotive, margin of semiconductor.

our We $XXX and cash consideration to Moving $X.X for of generated repurchases $XXX approximately revenue. operations the ended of flow shares billion share in million third quarter price of from Share equivalents, average at this flow. total cash $XXX and totaled sheet of cash-flow XXX,XXX cash or million. free XX% quarter a balance of and million $XXX cash with an

Exiting stability of regard softening. the the with was with growth pockets of mixed as demand Satish partially environment incremental our outlook. quarter offsetting to Now and mentioned, and areas

over the In of addition, has composition mix the changed our order past year.

in at of innovate meaningful of year this approximately our and deliver These QX strategic year. commitments, to will were long-term commitments has differentiated approximately ability are and orders the periods. which growth revenue last orders X% Our in deliver year-to-date year-to-date customers resulted year of and customer pace over multi high-quality solutions X%

guidance midpoint which billion at billion. to growth. Turning expect factors, $X.X the be $X.XXX to guidance, our is the to billion, range we our revenue in of Full-year fourth $X.XXX X% quarter these revenue representing incorporates of

QX to count the $X.XX, approximately on earnings share XXX representing range diluted year per be per at X% to shares. share of of of earnings our expect is share a guidance $X.XX in $X.XX Full midpoint the weighted million growth. We based

increase to now on beginning by R&D, tax XX%. offshore estimate the rate guilty As range next minimum in to of fiscal in rate with that tax tax-rate our non-GAAP establish XXXX global OECD a efforts XX% be we pending XX%, earnings, and capitalization the to in corporate the year of will we of look the year the

I to it With Jason for that, now the turn will Q&A. back

Jason Kary

the please Cole, for you, directions Thank Neil. the Q&A. give

Operator

Chatterjee first from question Our of comes Morgan. [Operator Of Samik the J.P. Instructions] line with course

Your line is now open.

Samik Chatterjee

many my Satish. me? Hi, Can thanks you taking for question. Hi, hear so Yeah.

Satish Dhanasekaran

hear Yes. you. We can

Samik Chatterjee

you me? Yes. hear Can Hi. Hi.

Satish Dhanasekaran

you, can We Yes. hear

Samik Chatterjee

you So, ecosystem wireline, have below we versus still average a where the EISG all wireless a further could if demand more. remains in concerns been in Maybe of that interested if into that maybe you dive there. demand smartphone have particularly given bit sort start you seeing side? weakness dig in can of terms the trends there of uplift trends there be the that are wireline a if bit the any And of on that applications more I sort or because order into from seeing Thank with said stable. really can are in What follow-up. you. uptakes understanding terms Just you're AI demand

Satish Dhanasekaran

Samik. Sure,

me profitability. performance. we Based on just executed well these Let in we're on Keysight X% and the for that see under quarter deliver revenue you reflected maintaining very our team the X% solid guide saying, to by year-to-date the and expect strong EPS start growth year, conditions, and

sort of that's baseline. So the

the till that up this transient. orders, on of came at for we the which first well which it's you And slowdown business based quarter customer is including Greater which from obviously holding want look few that stress were again, that fabs were in that down this XX% with, when year-over-year operations we situation And engage to that they more to last think we the A to continue the half. were temporary our playing part looked with the actually dynamic believe was production, quarters, pretty impacted at out. reported, down orders we engagements, a in year-over-year big expect we then the I that associated a China all And is and that our the right decline EISG of orders QX, when now XX%. the

sort want a to I elevate to of will of also question. get at perspective, the Now regional because this core it your

Defense again, of Our was a year Americas EV go AV. and next ago, And grew, in driven be to get little I'll segments. strength and the as perspective, to declined. quarter I bit by Europe business top a the and communications back on continued different I'll and a QX EISG, commercial before, grew incrementally into segment record stable Aerospace this stable, and mentioned

right? declines yes, what in uptick correlated and And manufacturing the in be general business is really smartphone From resulting earnings that that or more in those R&D back perspective, R&D performance a market, R&D. we see smartphone expected volumes. investments the of associated robust I our But some investments commercial any premiumization is, that the trigger -- communications again customers -- actually to the innovation And is get in of stable. still come than and regard reconfirmation that's are smartphone in with want driver pulled to was is are think continued to the some smartphone components base-case better the XG here this your driving And of much that the thinking to improvements customers the with have yet needs on and in investments our don't their have behind. of with

to uptick as the want gig, the XXX the again, number AI investments to make and business business trend, their influenced very we're share. starting were by far don't look the too started or quite Security and business, has our On well and up breadth year the of hyperscalers one been I row, we're the would also holding communications by in Application of to Network end-to-end I quarter Keysight's pretty to portfolio of was formerly center. but a two say lens Security in to I some quarters a think encouraged making also doesn't the is given we're Ixia investments and at I We us continuing the dynamics draw wireline conclusions, the in preliminary, economics. in through believe through outperform. see Network that ecosystem And are to AI AI enabling side, which a contributions take data stability the

part second the for your question. wait I'll of

Samik Chatterjee

Yes, that. please. Thank Thanks you. for

get outlook revenues For orders have in thoughts in have orders and to able in thinking for particularly see your -- terms to back pretty to what relatively revenue growth into on -- sort of Keysight the we historically, think, if to orders long-term side, of what sort I and next orders orders to, to be the -- that of relation been need you going relation correlated. tightly on year again your

terms thing you in terms fully So one of is, orders? of about how didn't need Neil in thinking order sort you're the what of mentioning comprehend really And clarify implication to I what maybe is would you year? Is a long-term next divergence that translating please? on orders trends into from strategic that customers. versus more Any your thoughts revenue necessarily between that, what of see on

Satish Dhanasekaran

make some comments. Well, I'll high-level just

environment don't we're execution, is, having of the markets able this a a but Obviously, of function the also we First the successes breadth are all company and control of different but that of which macro, we aerospace, outperform. in to and the out end maximize, we bit function uptick an serve. to with strengths is on and figure we're we're a is the where able capitalize able in automotive there as and in such defense AV EV, and to going and market through the is

system guide about made business he I'll and about comments implications Neil our revenue the associated and there. integration just speak let the

Neil Dougherty

on months. some demand quarter time and we've the is as we and this into into of over Samik. disruptions put you to that think period likely work first orders in quarters as look-forward, Yes, rate the the Thanks, pressure some been COVID of backlog to we've at we up this supply-chain this the run last And of that obviously, orders, move Hi, a level going was revenues then of built XX degradation so QX. year, order we Yes. environment XX the as the to that about seen as materially higher incoming through than we QX able the through

to to based backlog is this about through outpaced We've revenues so, of at ability our about drive burnt rate becoming incrementally And -- million challenging, revenue right? backlog on continue so burnt that's have the year, $XXX far which orders. million $XXX

it strategic that so mix it's we're our talked And portion an about much it which been than longer-dated haven't then towards of change talk kinds over it's that X% invest was in on we in are this where system, a extended our last small three three larger-scale less through business about programs year. time consistently as we is positive orders of roughly period working business, to delivered this customers about view of X% to X% our I And because year, of are our those that projects, very of quarters customers. portion of through orders continuing quarters

the of means we and backlog turned addition backlog. $XXX essentially an -- another it a $XXX is to we million backlog million we've into that burnt, short-dated what taken long-dated And

QX, you a as set those our ability QX. scheduled guidance the have deliver into into about of -- view portion think we quarter for so, turn and to essentially that our into to and of next on the revenue our the orders coming it's backlog own And for built quarter, orders within

Satish Dhanasekaran

just time this bring-ups more making are think I strategy large us EV what of gigafactory. all in especially comprehensive automation validating application, and these And our Neil power automotive and as complete Samik, companies roughly, customers management with with to long-range looking solutions and those their projects and aerospace offering Yes. solutions, tandem their further AV, high-quality defense software -- workflow that $XXX with for for total regard Neil including them. that think commitments, are add referenced in these to looking of us of systems. million to to the those we're to can are take said, to them -- towards you And provide

rate. customers. coordinated, our I to this a applications with us penetration giving the growth strategic highly further highly view they're as So long-term And supporting new

Samik Chatterjee

Thanks taking you. my for Thank it. Got questions.

Satish Dhanasekaran

Samik. you, Thank

Operator

from next SIG. with Mehdi question is Hosseini Our

is Your now open. line

Mehdi Hosseini

for taking my two for me. And Thanks Yes. question.

I wanted follow-up I a projects. R&D full inherent of to the backlog of get some terms context, in better into and business And normalization Just with would of normalization, then also your to the driven it's the prior but understanding, the orders just pluses should hear we you remain just to commentary backlog backlog that minuses that especially to good guide, follow-up. your a and a backlog question. of to is against that assume the longer-term strategic is as of And see by And is in have not could parts start some a understand how normalization better And I trending a I'm the level want gear? order for various of code? business. post-COVID in asking in two-zip

Neil Dougherty

Yeah, I I've largely abnormal backlog. the the million think burnt that's we've turns million another like three had excuse -- essentially essentially into year million Mehdi, fact stated, as what through $XXX call then I I and this year correct, we about over felt $XXX right. And short-dated to long-dated backlog that talked that $XXX for $XXX past of of backlog through million built just we me we of quarters converted programs. these

So abnormal don't handle worked in a I materially our this this environment that assume unrealistic have backlog kind point backlog two through view think of on that that will level it. we've at I it's normalized and to

Satish Dhanasekaran

to our Mehdi for to even point be of environment the in software reflecting stronger thank customer I to the relationships. we also strength I and us, think again continue services, you're alluding is this

is balance deferred is two leads a And factor that so zip-code calculation you elevated have. the the also to that

Mehdi Hosseini

has the do Okay, my with great. semi-mix. And to follow-up

if the X the nanometers? And case, weak in or year semi-bookings semi-related of to quarter. we should the we due year, XXXX? tape-outs orders delayed the fiscal that's a for as with the fiscal start in were that that mentioned you new think I assume Is new orders rebound ramp

Satish Dhanasekaran

from wafer especially public Yes, been of associated think back, the parametric feed fabs and of legacy typically probably around memory some have pulled test what investments which you've seen capacity, systems, so with technologies back around fabs our applications. Mehdi, I announcements pulling the major

today's had. a have that that about as advanced translates it's rebound. world the the photonics because So we tale such to given Again, words also But visibility focused expect that good which two areas relationships development, application can silicon is capacity us is of customer this rebounds, new you to we area an long-standing customer in about relentlessly AI. have same node as base where with

have And working And another there for the of in we've is technologies. also are enabling demand two that we sort talked this business with customers about there, because nanometer we inter-parameter in technology. around systems on no past change making

near So, temporary transient. But is term. yeah, stress pullback this again, to there is want I a in and the

Mehdi Hosseini

next to I would increase just want your have tape-out year impact for X-nanometer a semi-business? understand positive

Satish Dhanasekaran

Wallace I'll have take Mark that.

Mark Wallace

that Yeah. market of as the at many despite these with process Hi, Mehdi. customers aspects continued. their financials. customers in advanced a as X-nanometer technologies, short-term, X-nanometer, the looking the What I including have are can our managing engagement their X-nanometer, And well on is pullback variety of of say

examples, construction of of A build-out customer the couple a have fab US one some is the issues. we has in because that delayed of

-- quarters. So we couple correct the that to will expect next in itself of we

quarters. node project technologies, We stories. has who CapEx but a have total they're those US spreading several working lot advanced and customer, and another and again, over maintaining on their sizes of these there's in Asia, plan in and the locations And the investment,

So, we of are XXXX. this to yes, to me answer feels phase But impact it a like your question the pullback. in positively expect our through we business to going is, really

Mehdi Hosseini

Thank you.

Operator

is Wells from Our Aaron Fargo. with question next Rakers

Your is now open. line

Aaron Rakers

to go And be that the I'm I coming near it want clear, asking levels questions. from taking Thanks in guess if And backlog But guys back is you this what variables for Neil, that, and believe I past back you I'm like there of of I Neil to quarter with everything basically appreciating is is that the COVID your years that what over some else seasonally, opinion. hearing confusing as look to expecting apologize this sounds is how at for I increase couple seeing normalized this. you embedded Yes. guess, I out typically just sequential XQ. you to how growth the trying basis, a see involved. in for point? are but growth and order understand seasonal in that, in fiscal fourth I or your backlog. on characterize maybe you're like growth question, order quarter book-to-bill rather your sequential fiscal at discussing expectation looks would look Or in But I'm it you a apologize I the orders? really

Neil Dougherty

Yes. a fair No, it's question.

first normalized and we We We QX the largely, absolutely rates point. at incoming at order be you're yes. is typically the expect correct. our during backlog funnel sizable a of see backlog from typical QX based say normalized, what this off, up to seasonality, do to I'd So a to answer we third of With end on and sequential the increase believe to to would we orders has move and year do believe from say materialized that QX has be pretty fiscal as sequentially I expect than significantly is, quarter. that would smaller QX. increase But weakness the we regard

Aaron Rakers

That's fair.

a improvement you're this from level alluding to? So basically is book-to-bill what

Neil Dougherty

would we I with would of expect Yes. I guess, think having as revenue to normalized, I start orders it mean, and converge. backlog to

Aaron Rakers

as do about that the That's as to far positioning acquisition. about strategic think about ask And the and you targets Okay. we expectations as thinking kind the follow-up, as helpful. maybe or far move forward? How guess of story financial we as a be should folding ESI then as quick just acquisition opportunity the we into that I what

Satish Dhanasekaran

Neil could. that, to So and if let you add, me anything have take you

excited we're all, about. would great say, strategic I First of one very a fit, it's

we focused workflows. have engaging the system customers R&D describe strategy heard you've on with to the and work especially think as in me their as do and opportunity emulation the that early a adjacency simulation customers, near with we I

And a (ph) our really company ESI margins, addition our two to it fit Financially, [SOFR] of points by it gross also So will transaction. at when to great is the it's accretive be we be least the at will there. level. percentage close we the accretive think

it's go-to-market Keysight can And now cultural the think growth leveraging involved areas. accelerate new provide further of most a complex in well. -- of that's also perspective, think deep I coming by with of engage in defense and a other simulations can applications not customers and what's crash the end-markets some only exciting but associated is very the I technology and around company important combination and testing with that with as years aerospace, in been been has that from ESI. into XX And ESI expertise for the capabilities is other

So it. this excited transaction Thank by as we you. announced very

Aaron Rakers

Thanks.

Operator

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

Your open. line is now

David Ridley-Lane

or the Wondering seeing you. driven large longer-term aerospace internally of you're OEMs? is these and this demand that just defense to if the a shift Thank and that function you're things from the is by that doing orders auto

Satish Dhanasekaran

Yes.

I some we of approach lens implementation the to our otherwise markets think sort is historically. it of products of purely of the maybe solutions what through had that was

we to customer an of industry, to over instrumentation effort and I aerospace, focused years, opportunities. think defense, David, but instruments, as the where put largely integrating base sold adding value also services we've layering past tools. few And the by more the software on more creating

also such we as but a specific acceleration go-to-market that had, demand see equally areas the push the is automotive. in we've it function of some of So in

you maybe have And couple make I'll examples a Mark a to more drill. give of

Mark Wallace

because these. it Well, just to out, -- it But better imagine might complex with it's very very these lay are be strategic, customers. to just engagements hard

business. very, then other is, chambers, really an fixturing voltage gets about aspects, us environmental equipment to site prepping or lab, we into test this the complex packs, that's exciting project there's a talking if customer's thing multiple very about testing software, management, for cool you're business. a and EV interfaces their batteries, for racks chiller cyclers, battery of and us there's then modules battery think for So And there's deeper cells communication, the low installation, safety there's the

the QX. another have over across QX, announced within the many we months, in uncovered other through customers one OEM those in As in and we have ecosystem. the QX now across And we that we won two last won visibility new labs engagement sites, three R&D opportunities deeper

finding opportunities So an new contribute. additive it to in also has terms of effect

takes So that's of a longer. why typical it example

David Ridley-Lane

Thank in fourth-quarter for this you. the just then guidance, quite high. margin about something incremental the margins year? the fourth Thank the that. unusual there on quarter you think And Is I of is implied kind

Neil Dougherty

I've got population as as the fact QX we significant No, to a the But summer portions typically QX, of move in We on holiday, I'd QX OpEx see I me. with think, uptick front of obviously from I mean, QX, in to they expect various in how factors. result, back sequential We tend as a money that as to as less volume implied a we start some the a the the spending as we're driven of fourth pickup. into of and reduction a come do in gross and getting well that little decline kind lot bit of here quarter, numbers. by margin see numbers

David Ridley-Lane

it, okay. Thank Got much. you very

Satish Dhanasekaran

you. Thank

Operator

Our Matthew Niknam is Bank. next with from question Deutsche

is line Your now open.

Matthew Niknam

guys. question. Thank for taking you the Hey,

figure So, just I least like now, for guess, at sounded the to couple than seasonal know order a going current based visibility. in to though A, a we're persist at it XQ. I sounds But may as wanted this bump out maybe level fiscal relative of on get it I lower to we're quarters,

And so, excess is negative stay is, growth pathway to -- if don't billion more fiscal I'm to slightly on XXXX. want $X.XX what think it at backlog, work hard it's year. I gun at I through to the next maybe effectively we what getting of don't But we this jump is, sort negative I'm see and wondering $X.X or a billion and range

that So maybe want make if -- I to reasonable. that sure just sounds

And facing maybe, a like think tax from secondly, then pretty rate. you're EPS it seems obviously outlook, the sizable headwind about just as we growth

in any just and times some that color the margin flux terms the you've of to upside I'm in topline the curious in you maybe margin past of COVID around effectively add so, And your the of can showcased if structure pressure. ability there's

you helpful. color any would can but be question, Thanks. long-winded So, provide

Neil Dougherty

Yes.

spent order you we'll obviously, XXXX I've as through first a as here amount in on obviously, was level And time you noted, fair drive months. But So, significantly to above FY a of noted we rate. we color through three and thinking quarters that incoming three the it able at more were revenue ourselves. of give FY the XXXX,

as As comps going difficult we some result, enter a to we're revenue have XXXX.

from one the period revenue transition QX, seasonal I'm that the we the as As right I'm least into see on QX the thinking we of about thinking to move now, next. kind line about from would typical at decline

as still investments investments right? the is their seeing and in R&D XG includes research, and moving XG, now temporary capacity stuff in don't to And silicon now, first beyond going impacting X then all We're as to that for think stuff in half because has that insurance think supply Our year. said, market carbide, through I markets going the releases their we're work to that a silicon this we half forward but going been that looking drive they've second AI, delayed, forward. believe we're investment But of right quantum, side, to in the recovery investments X-nanometer, of of forward. a at inventory continued that of year of significant on they're see point the right? challenges, for AV, is that of right what's moving customers the is we a continue, the additional are communications technology major is And recovery see standards the fab moving all our photonics, look we that commercial I much catalyst nature, Satish in forward for EV,

the With regard you've comps, EPS to again, outlook in flexible seen we're tough that revenue the but tough, published year-to-date. we organization, business model tough, results disciplined that a

We're certainly we're that at to to We're are the are working impacts to going but the I our as balance, recovery about in significant. whatever us tax the same continue when can, investments to noted, the tax participate going time enable you with challenge drive it to relying is to impacts discipline for think us growth. going offset the happens, on maintain while EPS fully we the forward right? optimistic long-term,

Satish Dhanasekaran

inflation of you've and also synergy Matt, the the environments. think work reference at anyway a we've to us well. starting been And stay on for I year you plan will for we some the see even -- us that, OpEx add very accounting lot did that to can executed seen seen our and disciplined you've we want of beginning were of I that the has accelerating Just be that year-to-date, flat, I

in know short towards and the customer will over also disciplined remaining invest we're next-generation have these situation to high the prudent in So company validation the macro medium-to-long and term. that as position we technologies term, outperform we the

Matthew Niknam

you, great. both. Thank That's

Operator

Thank you, Matthew.

next is with Our from question UBS. Chris Snyder

now Your line is open.

Chris Snyder

you. Thank

softer is revenue margins points I QX. It orders margins. basis the the burn softer -- that from wanted down the appreciate puts much so in XXX, year-on-year about to sequentially. sorry, seems to and QX maybe guide But very backlog mid-XX, or I So, sequential the leading the ask to sequential so like the XXX

margin you steep. XX% fall is you. like through sharp it so why off that sequentially? very Can maybe So just an sequential Thank talk decremental seems

Neil Dougherty

margins as think showing it's factors, portion be want as you my my find you've again mean, on to more with I'm looking care calculating expecting as the as sequentially, $X.XX quite expected QX of our our -- you then, QX, favorable not I impacts time have increases we're looking some I I've dropping Yes. health from we volume And mostly related numbers, the as as OpEx of to and might with -- we gross one-time kind a you're about might to one-time repeat. to that's -- significant our in typical I'm steep -- of pages, QX highlighted OpEx down did gross -- QX sequential that. are did moment. again, as a not We across at to at not strong to at we move as OpEx have And spread effect in margin, QX. plans

Chris Snyder

tax -- XXXX think to in to we when the guide I you. cash year appreciate the I the any about maybe just for versus XX%. there appreciate Thank tax And XX% rate guess then the housekeeping non-GAAP I a one. XXXX? you. that. change I Thank on next Is wanted

Neil Dougherty

I still Outside corporate the a towards why fiscal expect cash range here listed, too to us into could in that's three that I'll of impact to [indiscernible] It's up range, year. have tax months. things on will is next bit effect for tighten taxes a little the that which I go of the move one this rate early that tell, things even

So, right quarter, now, to able I'll too that. early to tell. I'll make address some a comments better be in

Chris Snyder

you. Thank

Operator

from question next is Davis. Adam Thompson with Our Thalhimer

now is Your line open.

Adam Thalhimer

guys. out between good just segments segments? minus down? you revenue the that QX us both midpoint, of XX% the help how guidance Can plays Hey, you for afternoon, see do The on at

Neil Dougherty

declines Just segments. for I of across through levels -- has give certainly We three which both significantly we revenues grown pretty the see across change. which first EISG, a see we all quarters year significant see obviously revenues the second do down But me segments, one is three here. Yes. both similar mean, certainly -- through

Adam Thalhimer

about in talk defense, outlook And communication. in and It's been then you helpful. a offsetting Okay, all the at can acceleration there? weakness aerospace some well-timed

Just wondering can if as the defense aerospace strong. stay and

Satish Dhanasekaran

Yes.

I no -- security the at world, Europe around there it bipartisan think and priorities defense of put defense doubt getting five in Look are US. well. budgets next if the the is that as years. Japan, environment at spend also out doubling the you defense the spend look in spend raising security the

continue think outperform I is a And always as it. on call long-term at the this is basis, to we've a to said, So but trend. our to easy to business, harder look quarterly very goal

budgets seasonally strong to generally we expect sort come be So that end-of-the-year open. QX of the with

Adam Thalhimer

guys. Thanks,

Operator

Meta Marshall next Stanley. with Our Morgan is question from

is open. line Your now

Meta Marshall

the kind and you're have areas you a of Great, thanks. new seeing about that AI for talked Maybe lot side. traction, on guys extension me, particularly of question first

other entering space flat finding that noted, might of how into better through making or of a get kind With to sure the touch base customers OpEx channels. this leverage sense you're of that just wanted be new you've you're how with some

the portfolio. then maintenance on as kind out you consider of XG Thanks. you're percentages next-Gen of so as XG Group, what you existing would kind And of can reminder of kind a just question, as rough just kind the standard, second lay of of kind Communications versus a

Satish Dhanasekaran

can in to market AI launching side. silicon market customers networking investments, With to. the our in so continue it's long-term, Yes. own the the or regard we I would say in to as rebounds projects fully it -- of we're expect a way, medium-term preserving outperform to AI, it outperform which we whether our in the lot R&D are their

our with channel And are for plays to strength so, our higher and the lower business power interface to we XXX-gig there higher that orders helping that referenced move up is some to. a this I bit, capacity, this it there AI. set leadership Clearly, scales pick leverage ourselves there us as expect ethernet of is and per considerable all up bandwidth,

regard dynamics, would scale. the communications, say and right? commercial I deployments segment, With three are to comms to continuing

the scales as and grows. globally that there business Second,

new standard. our use around, world because yet call customer would exploration customer. address early around driving But that the one, too it's activities research Second think are XG progression, And standards then is cases too to the really Release need. it's beyond strategy XG -- it I XX think beyond fits the it I of there's XG the to R&D call the and to easy it because proliferating I

Meta Marshall

Great. Thanks.

Operator

Sachs. is next question Delaney Our from Goldman Mark with

is line Your open. now

Mark Delaney

seeing. Follow-up Thank relates some the it Yes. question you're the for you taking and AI ethernet activity as questions. to XXX-G of

orders but become may XXX-G it when in already you meaningful? described are early related a relatively reasons more that You the mentioned orders sense of still some is phases. there XXX-G you front, have on to Do AI or

Satish Dhanasekaran

Yes.

the now would definitely some out, the that which today, is play that seen core as strength and really wireless set ethernet there, we technology both And strategy, basis engagements Mark. I is say even timing sort but helping well of a abilities applications wireline that a ability of first-to-market we're exposure us of this to seeing it's waves having us put the up think be of XXX-gig that have and diversity that -- I early to we've company pursue. to the overlapping scales. industry be that hard win should capability for our

are starting for and in they're upgrade, their some reasons the I the looking just hyperscalers XXX-gig those ethernet to are As technical of out business they at coming as situation of economic mentioned.

Mark Delaney

terms accretion. already terms if mean margin you little talk missed Thank comments contribution helpful, some that apologize that integrated you of progressing Satish. on in and more were is how bit in ESI That's you. made you. then the including what EPS a it I it's when of can the gross Thank may helpful, time? But acquisition over I And this.

Neil Dougherty

G&A pretty like is then and therefore, it drive to margins, obviously business drive them the expansion infrastructure France, EPS access the EPS. breadth typically and deal synergies We in there's a can us our growth. than significant get start and of drive rely low-cost strong to expect new offshored little takes doing G&A get heavily fully leverage I can public to complexities we we grow the deal ultimately But think we to our typical a with the we force foremost, aggressively and market sales first to bit a participants that is realizing this closed, for feel on via Obviously, of begin some highly to then, Yes. margin Neil. our to business software-like that G&A, reach heavily and longer this that for do significant

Mark Delaney

it. you. Got Thank

Neil Dougherty

you. Thank

Operator

question next Rob Our is Mason from Baird. with

Your line is now open.

Rob Mason

that back widened good or look those have booked to booking orders. still been the on into conversation those. months in And policy evening. around around as what Have would just as sure of these the understand or schedule timing? well six I'm around order curious, kind not those you to next orders. changed ship shippable go like more the I I I'm wanted fully longer-dated Yes, timing revenue recognition strategic

Satish Dhanasekaran

say you. our never say, business I would very a small had yes. speak about Yes. I Thank it. historically, part is we've to of -- this so again, would

I'd But these As higher. are work by start than to people staff policy, our our -- inventory a which today appears order levels order complex a function presentation of to the acceptance other systems no to lower change requires today, and so deliver the customers.

on the that we are reasons. books deals the for they They're right good So feel about. high-quality

Neil Dougherty

be make. certainly standard, them but And be of defense deliver. you without the types of of that to programs months of the as in be think think kind would for they'd because auto six of the uncancelable delivery you aerospace within penalty longer can would case XX schedule, last ones to or months of could a I significant or of Generally the the from beyond months, they some it tend even lot XX us are a of part more

the are some for mentioned the to the customer. upon scheduled delivery XXXX out prepared revenue as deals of in recognition of in comments, complete we So these project

Rob Mason

the beyond R&D just follow-up. how into a as certainly very -- But just start to electrical the And you sense of think was curious close test. to from simulation. ESI and test? opportunity you of customer you about Satish, unique do standpoint -- broadly outside makes to engineering look start core base, certainly and set of it electrical around is more do regard Understood. the I'm at engineering moving physical upstream Do staying that ESI in kind Group, more or this things

Satish Dhanasekaran

at look Definitely, when need really simulate Yeah, or the very we complex to interactions ability entire physical electrical the -- simulation the system opportunities, you and emulation is what capabilities. software

to identify spot new company so strengthening entire with now company having again portfolio the a strength the assets allow the test mirror the has, will given placed and puts it portfolio very in and us use us these I our think them which that design. in to and unique system So cases serve differentially

for I transformation that aligns think with software-centric on. that as been unique this one company, we our a the very we've positioning see

accelerate with also and US and I European asset to growth greater opportunity obviously this more been focus a go-to-market has is being value. asset, really that in French there customers think France, base our create motion of a

Mark Wallace

value is add the to would I exciting part just to these one to aerospace, and important broadening our alignment thing automotive, broadening the defense, it's our verticals, footprint the customers.

Rob Mason

Very good.

Operator

Malik Citi Our Atif next question from with is Research.

open. Your now line is

Adrienne Colby

overall had I ask the wanted decline for you you Thank XX% influenced commented Malik. clarifying on Atif in a to by was for Colby Adrienne it's orders heavily Hi, the that orders, China. question question.

if and the Just you there? you rate declines saw what year-over-year hoping you in could of Americas in improvements were seeing Europe the clarify

Satish Dhanasekaran

Yes.

a -- Adrienne, I question. think I've good mentioned hi,

business and QX, Americas quarter-over-quarter -- Europe grew stable. in Our was

Adrienne Colby

And or sorry, was year-over-year? sequentially that

Satish Dhanasekaran

Year-over-year.

Adrienne Colby

that's into agreements that growing. versus number a falling this of then on Thank a factor comment And is just with up-selling to about. some I Can existing category, the regards orders sense the speaking customers multiyear of or strategic been engagements, ask if you've agreements? of long-term expanding new in to the much Just the are of you wanted get you. to trying of how growth

Mark Wallace

Yes, Adrienne.

And work more I automotive with cross-sell up-sell as other visibility the with themselves we first-time the then through parts think the are groups of it's across and the to enlarged. customers and a or oftentimes combination, as ecosystem I mentioned as capabilities into wins process, get across OEMs and organized before, long-dated these strategic they're well. the

think its think I it the terms programs longer-term as strategic about these our customers. about with simple to is we So as way get are in can

So value et other cetera. it software services, up opportunities of opens to and aspects delivering including new sell,

looking through forward it we're these and continuing to So we're vehicles. to excited about deliver

Adrienne Colby

Thank you.

Neil Dougherty

Thank you, Adrienne.

Operator

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

Jason Kary

And to a we'll it for I'm Hey, up Satish turn then going thanks comments joining for thanks, the us. wrap everyone Cole. few over call. to closing and

Satish Dhanasekaran

leave much. takeaways. very we I few today, discussed important some you with a I you to know bit want thank Yes, -- quite but

First, our we're in performance deliver maximizing the executing X% near-term tracking EPS year. to with growth very and this X% well, growth we're revenue

the should profitability you Solid in take business and that away.

markets the with Second, in near-term and priorities customer to to conditions we continue portfolio this and have strong both will differentiated that's will aligned go market and multiple change. enable us stronger outperform, end as

in portfolio reflected conditions. gross our maintain in differentiation in strong these the business see our ability margins to in You our

as balanced in before structure, that flexible operating will flow cash which maintain Fourth, had we generation business, and allocation have described position, balance a a strong well. cost the proven sheet, proven capital the and has projected we approach free Day. as strong continue play Investor our to a will in at we capabilities we we with Third, we have confident and been highly model remain to and cash out continue

the team to you've already that seen and continue will do navigating seasoned a business here management this us have balanced year. decades, and for this in and has we Fifth, environment this experience proactive in remain

I are we new our customers waves, next-generation across long-term excited of and that R&D confident underpinnings remain the incredibly secular Finally, multiple strategy. This remind and and the about that technology favorable want end-markets. around growth industries, to addressable wave everyone trends is investment

We focused grow from stronger. and positioning this are on the to emerge company environment,

I'll Thank you joining for very back this much to hand us Jason. today.

Jason Kary

day. our a concludes today. Thank you. Satish. great Have that And comments

Operator

That call. conference concludes today's

line. your disconnect now may You

Keysight (KEYS) 17 Aug 232023 Q3 Earnings call transcript