Keysight Technologies Inc.

Good day, ladies and gentlemen, and welcome to the Keysight Technologies first quarter 2020 earnings conference call. My name is Josh, and I will be your lead operator today. After the presentation, we will conduct a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press the pound sign. If at any time during the conference you need to reach an operator, please press star followed by zero. Please note that this call is being recorded today, Monday, February 24, 2020, at 1.30 p.m. Pacific Time. I would now like to hand the conference over to Jason Carey, Vice President, Treasurer, and Investor Relations. Please go ahead, Mr. Carey.

Thank you, and welcome, everyone, to Keysight's first quarter earnings conference call for fiscal year 2020. Joining me are Ron Nersessian, Keysight's Chairman, President, and CEO, and Neil Doherty, Keysight's Senior Vice President and CFO. Joining us on the Q&A session will be Mark Wallace, Senior Vice President of Worldwide Sales, and Satish Dhanashakaran, President of the Communications Solutions Group. You can find the press release and information to supplement today's discussion on our website at investor.keysight.com. While there, please click on the link for quarterly reports under the Financial Information tab. There you will find an investor presentation along with Keysight's segment results. Following this conference call, we will post a copy of the prepared remarks to the website. Today's comments by Ron and Neil will refer to non-GAAP financial measures. We will also make references to core growth, which excludes the impact of currency movements and acquisitions or divestitures completed within the last 12 months. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. We will make forward statements about the financial performance of the company on today's call. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please review the company's recent SEC filings for a more complete picture of our risks and other factors. As a reminder, we are hosting our 2020 Investor Day on March 3rd at the New York Stock Exchange. Management is also scheduled to participate in the Susquehanna Technology Conference in New York on March 12th. We hope to see many of you there. And now I'll turn the call over to Ron.

Thank you Jason, and thank you all for joining us. Keysight delivered another outstanding quarter. Our consistent performance illustrates the strength of our differentiated solutions, the diversity of our end markets, as well as the robustness of our business model. I will now focus my formal comments on three key headlines for the quarter. First, Keysight delivered a strong start to the year, demonstrating sustained profitable growth across multiple dimensions of our business. Both revenue and earnings exceeded the high end of our guidance and we achieved record first quarter orders, revenue, and earnings including an all-time record of gross margin of 65%. Second, our ongoing strength in 5G related investments and Keysight's leading solutions across the ecosystem resulted in record 5G orders and continued growth in commercial communications. In addition, secular growth trends are fueling broad-based momentum across our target markets. And third, we are monitoring the coronavirus situation and want to acknowledge those who have been affected. While we do see some potential for near-term impact, we remain confident in the strength of our broad portfolio of industry-focused solutions, software, and services. Now let's take a deeper look into our first quarter. We achieved $1.26 in earnings per share, which was 16 cents above the high end of our guidance and represents 36% year-over-year earnings growth. We achieved record first quarter orders that grew 12% year-over-year, reflecting the resilience of our business and extensive market reach. Revenue grew 9% year-over-year to reach a new first quarter record. First quarter revenue performance was driven by strength in commercial communications, aerospace defense and government, and semiconductor measurement solutions. In commercial communications, record first quarter revenue was driven by continued investments in 5G, fueled by the transformation of communication systems, including wireless access, infrastructure, wireline technologies, data center, and the cloud. Our success is being driven by close collaboration with key market players to innovate and create many industry firsts. For example, we recently introduced a value series channel emulation solution called PropSim FS16. This solution was enabled by the Anite acquisition and is the latest in a long line of our innovative first-to-market solutions to accelerate 5G development and commercialization. We are also excited to announce today another industry-first solution that enables customers to model 5G security threats in the lab. 5G technology innovation is enabling a massive proliferation of connected devices resulted in greater security vulnerabilities and an expanded attack surface. Keysight's 5G security testbed was made possible by the cybersecurity expertise and technology gained through the Ixia acquisitions. Recall that as of the first quarter, we integrated the Ixia Solutions Group, ISG, into our communication solutions group to accelerate solution synergies, and the teams are already getting very good traction. For the second consecutive quarter, orders for Ixia Solutions grew double digits as we saw continued strength in network visibility and 400 gigabit Ethernet investment in Layer 2, 3 protocol solutions. ICSI and our other commercial communications acquisitions, such as Anite, AT4, and Prisma, enable us to provide our customers with a broad and differentiated set of solutions that span the stack layers as 5G evolves over the years to come. We are pleased with the broad global adoption of our 5G platform as our R&D solutions continue to lead the industry. For example, we recently announced that Keysight's 5G conformance test solutions have been selected by the Korea Testing Laboratory for global 5G device certification. We are also seeing success beyond R&D with key wins this quarter in component manufacturing for base stations and devices as 5G production begins to ramp globally. Moving on to other growth factors, our strong performance beyond commercial communications reinforces our broad momentum across key sites, diverse end markets. In aerospace defense and government, our revenue grew double digits to achieve a first quarter record with broad base strength across all regions. This was the third consecutive quarter of strong year-over-year order growth in aerospace defense. Our solutions for electromagnetic spectrum operations, radar, space, and satellite continue to benefit from a favorable US spending environment and ongoing investments in technology modernization. In automotive and energy, revenue grew high single digits with increasing customer demand for key strategic applications. Our success in automotive is being driven by our first-to-market solutions and focus on next-generation technologies. For example, this quarter we achieved 3GPP validation of the industry's first CB2X, or Cellular Vehicle-to-Everything, radiofrequency conformance test case. As a result, Keysight is enabling the automotive industry to accelerate commercialization of connected cars and autonomous vehicles. We also announced a collaboration with the leading provider of battery cells on cell formation. This collaboration supports the electrification of vehicles by enabling the development and manufacture of advanced battery cells. In semiconductor measurement solutions, we achieved strong order and revenue growth driven by our customer's strategic investments in next-generation process readiness. Our software and services continue to play an increasingly important role in Keysight's differentiated portfolio of customer-centric solutions. Software orders once again grew above our overall growth rate. Notably, this quarter, Keysight was named the organizational winner of the 2020 Business Intelligence Group Award for our PathWave Test 2020 software, released just last October. Pathway Test 2020 was selected from a range of recent innovations submitted by organizations around the globe. I am also happy to report that services orders and revenue grew double digits in the quarter. We continue to see good adoption of our new support offerings, such as Keysight Care, which was also a contributor to our year-over-year gross margin expansion. In summary, we delivered another outstanding quarter and a strong start to the year. Differentiated solutions across diverse end markets, consistent execution, and strong financial performance continue to drive our value creation. We have an exciting lineup for you at our Investor Day next week on March 3rd, and we look forward to sharing an update on our strategy and our long-term expectations for the business. Now I will turn it over to Neil to discuss our financial performance and outlook in more detail.