Keysight Technologies Q1 Fiscal Year 2017 Results February 16, 2017
Safe Harbor This presentation contains forward-looking statements (including, without limitation, information and future guidance on the company’s goals, priorities, revenues, demand, growth opportunities, customer service and innovation plans, new product introductions, financial condition, earnings, the company’s ability to pay dividends, ability to access capital markets, the continued strengths and expected growth of the markets the company sells into, operations, operating earnings, and tax rates) that involve risks and uncertainties that could cause Keysight’s results to differ materially from management’s current expectations. Such risks and uncertainties include, but are not limited to, unforeseen changes in the strength of our customers’ businesses; unforeseen changes in the demand for current and new products, technologies, and services; customer purchasing decisions and timing, timing and ability to close Ixia acquisition, and the risk that we are not able to realize the savings or benefits expected from integration and restructuring activities. The words “anticipate,” “plan,” “estimate,” “expect,” “intend,” “will,” “should,” “forecast,” “project,” and similar expressions, as they relate to the compa ny, are intended to identify forward-looking statements. In addition, other risks that Keysight faces include those detailed in Keysight’s filings with the Securities and Exchange Commission, including our Form 10-K for the fiscal year ended October 31, 2016. Forward-looking statements are based on the beliefs and assumptions of Keysight’s management and on currently available information. Keysight undertakes no responsibility to publicly update or revise any forward-looking statement. This presentation and the Q&A that follows include forward-looking, non-GAAP measures. Non-GAAP measures exclude primarily the impacts of share-based compensation, restructuring and related costs, separation and related costs, acquisition and integration costs, acquisition-related fair value adjustments, Japan pension settlement gain and non-cash intangible amortization. Also excluded are tax benefits or expenses that are not directly related to ongoing operations and which are either isolated or cannot be expected to occur again with any regularity or predictability. Most of these excluded amounts pertain to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy. Accordingly, no reconciliation to GAAP amounts has been provided. Page 2
Q1’17 Highlights – Strong First Quarter • Revenue of $726M at the mid-point of guidance; EPS of 57 cents, above guidance • Continued momentum in next-generation technology solutions • Order rate tempered due to softness in the Aerospace Defense and Government end market – Executing on Keysight’s growth strategy with the proposed acquisition of Ixia • An industry pioneer in Network Test and leader in Network Visibility • Increases Keysight’s served addressable market by $2.5B Page 3
Q1’17 Financial Highlights Orders 900 • Orders : $695M, +2% y/y (+2% core*) 806 761 800 707 695 679 700 • Non-GAAP Revenue** : $726M, 0% y/y 600 $ millions (0% core*) 500 400 300 • Non-GAAP Operating Margin** : 17.7%, 200 -10 basis points y/y 100 0 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Non-GAAP EPS ** Non-GAAP Revenue** 800 751 $0.66 735 726 726 718 $0.64 700 $0.64 $0.63 600 $0.62 $0.61 $0.60 500 $ millions $0.57 $0.58 400 $0.56 $0.55 300 $0.54 200 $0.52 100 $0.50 0 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 * Core growth excludes the impact of currency and acquisitions ** Reconciliations to closest GAAP equivalent provided Page 4
Q1’17 Revenue Distribution Q1’17 Revenue: $726M Split by Segment Split by Region SSG 14% Americas Asia 36% Pacific EISG 44% CSG 26% Measurement 60% Solutions 87% Europe 20% Page 5
Q1’17 Non -GAAP Revenue Distribution by Region Q1’17 Y/Y Non -GAAP Revenue Growth** Americas 350 • Americas -5% (-5% core*): Strength in CC and SS offset 293 by softness in ADG and EIS 300 274 269 261 258 250 • Asia Pacific ex-Japan +3% (+3% core*): Driven by $ millions strength in EIS (parametric test) offset by softness in ADG 200 and CC. 150 • Europe +1% (+4% core*): Driven by strength in CC and 100 SS partially offset by softness in EIS. 50 • Japan +6% (0% core*): Driven by strength in ADG, CC 0 and SS Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Asia Pacific Europe 400 160 144 143 340 137 330 327 321 140 128 309 122 300 120 $ millions 100 $ millions 200 80 60 40 100 20 0 0 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Key: ADG – Aerospace, Defense & Government * Core revenue growth excludes the impact of currency and acquisitions CC – Commercial Communications ** Reconciliations to closest GAAP equivalent provided EIS – Electronic Industrial Solutions Page 6 SS – Services Solutions
Q1’17 Communications Solutions Group Highlights • Revenue: $434M**, -1% y/y (-1% core*) • Operating Margin: 16.7%, -100 basis points y/y • Commercial Communications: Solid growth from 5G and next-generation data center technologies, offset by continued cautious spending across the wireless device value chain. • Aerospace, Defense & Government: Funding delays due to budget appropriations and continuing resolution impacting US, while Russia and China remain soft. CSG Revenue** CSG Income from Operations $84 $500 $85 $446 $440 $442 $434 $424 $400 $80 $78 $77 $ millions $ millions $300 $75 $75 $72 $200 $70 $100 $0 $65 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 *Core revenue growth excludes the impact of currency and acquisitions ** Reconciliations to closest GAAP equivalent provided Page 7
Q1’17 Electronic Industrial Solutions Group Highlights • Revenue: $192M, 0% y/y (0% core*) • Operating Margin : 21.7%, +200 basis points y/y • Semiconductor parametric test solutions order and revenue growth continued with strength in Asia Pacific ex-Japan and Japan • Automotive and energy solutions continue to gain momentum with strength in in Asia Pacific ex-Japan and Japan • General electronics was soft in the quarter due to on-going weaker global macro environment EISG Revenue EISG Income from Operations $250 $47 $50 $44 $201 $42 $193 $191 $191 $192 $40 $200 $38 $40 $ millions $150 $ millions $30 $100 $20 $10 $50 $0 $0 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 *Core revenue growth excludes the impact of currency and acquisitions Page 8
Q1’17 Services Solutions Group Highlights • Revenue: $100M, +5% y/y (+5% core*) • Operating Margin : 14.4%, +50 basis points y/y, • Year-over-year revenue growth of 5%, driven by strength in calibration services and increased sales of remarketed solutions. • Strong double-digit order growth driven by strength in the Americas and in Asia Pacific ex-Japan. SSG Income from Operations SSG Revenue $120 $108 $103 $100 $25 $96 $95 $100 $20 $19 $20 $80 $ millions $14 $ millions $13 $15 $11 $60 $10 $40 $5 $20 $0 $0 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 *Core revenue growth excludes the impact of currency and acquisitions Page 9
Q1’17 Non -GAAP Revenue Distribution By End Market Q1 End Market YoY % Revenue By End Market Commercial $254M +2% Communications Services 14% Aerospace, Defense & $180M -6% Commercial Government Communications 35% Electronic Industrial Electronic Industrial $192M 0% 26% Aerospace, Defense & Services $100M +5% Government 25% Total* $726M 0% * Reconciliations to closest GAAP equivalent provided Page 10
Q2’17 Non -GAAP Guidance Guidance Q2’17 Revenue $720M - $760M Revenue Growth -2.0% to +3.4% Earnings per share $0.54 to $0.68 Refer to our Safe Harbor slide for the risks on forward-looking statements Page 11
Reconciliations Page 12
GAAP to Non- GAAP Operating Margin reconciliations: Q1’16 & Q1’17 The preliminary reconciliation from GAAP to non-GAAP operating margin is estimated based on our current information Page 13
GAAP Net Income to Non-GAAP Net Income reconciliations: Q1’16 - Q1’17 The preliminary reconciliation from GAAP to non-GAAP net income is estimated based on our current information Page 14
GAAP Revenue to Non- GAAP Core Revenue reconciliation: Q1’17 The preliminary reconciliation from GAAP to non-GAAP core revenue is estimated based on our current information Page 15
Non- GAAP Revenue by Segment and Region: Q1’17 The preliminary reconciliation from GAAP to non-GAAP revenue by segment and region is estimated based on our current information Page 16
Non- GAAP Core Revenue by Segment and Region: Q1’17 The preliminary reconciliation of non-GAAP core revenue by segment and region is estimated based on our current information Page 17
Segment Revenue reconciliation: Q1’16 - Q1’17 The preliminary reconciliation of segment revenue is based on our current information. Page 18
Non- GAAP Revenue by Region reconciliation: Q1’16 - Q1’17 The preliminary reconciliation of GAAP to non-GAAP revenue by region is based on our current information. Page 19
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