Keysight Technologies Inc.

Good day, ladies and gentlemen, and welcome to the Keysight Technologies Fiscal Fourth Quarter 2020 Earnings Conference Call. My name is Chris, and I'll 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, Wednesday, November 18, 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 fourth quarter earnings conference call for fiscal year 2020. Joining me are Ron Nersessian, Keysight's Chairman, President, and CEO, and Neil Doherty, our CFO. Joining us in the Q&A session will be Satish Dhanushakaran, who has recently appointed our Chief Operating Officer, and Mark Wallace, Senior Vice President of Worldwide Sales. 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'll find an investor presentation along with Keysight 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-looking 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. Lastly, I would note that management is scheduled to participate in upcoming virtual investor conferences in December, hosted by Credit Suisse, Wells Fargo, Barclays, and Cowen. And now I will turn the call over to Ron.

Thank you, Jason, and thank you all for joining us. Keysight delivered an outstanding quarter to finish our fiscal year, driven by strong execution and broad-based demand for our differentiated solutions. Despite COVID-related macro challenges, it was a record year for orders, gross margin, operating margin, earnings per share, and free cash flow. Today, I'll focus my comments on three key headlines. First, we delivered exceptional fourth quarter results driven by strong execution as demand for Keysight's next generation technology solutions continued and end market demand began to recover. Second, record profitability and cash flow again demonstrated the durability and strength of our financial operating model despite a challenging macroeconomic environment. And third, our long-term outlook for revenue and earnings growth is strong, and we haven't wavered from our pre-COVID long-term financial commitments and growth expectations announced in March of this year. The power of Keysight's leadership model and our execution this year underscore our ability to deliver on these commitments. which includes 4% to 6% long-term core revenue growth and achieving 26% to 27% sustainable annual operating margin by no later than fiscal year 2023. Now let's take a deeper look at the strength of our fourth quarter and fiscal year 2020 financial performance. In the fourth quarter, broad-based demand for Keysight solutions drove strong results across the business as the economic recovery in certain sectors gained momentum. Record orders of $1.2 billion exceeded revenue and grew 3% year-over-year and 15% sequentially. We achieved fourth-quarter revenue growth of 9% year-over-year with growth across all regions. Both the communications and electronic industrial solutions groups achieved record revenue in the quarter. The resilience of our financial operating model resulted in an all-time high profitability and cash flow. In Q4, we delivered gross margin of 66%, an operating margin of 29%, and earnings of $1.62 per share and free cash flow of $308 million. For the year, and despite COVID-related macro challenges and supply chain disruption, orders grew to 4.5 billion, an all-time high for Keysight. As you recall, in Q2, we responded to government directors to limit the spread of coronavirus and closed the majority of our offices worldwide, including our order fulfillment and manufacturing operations. We then ramped back up our production capacity in Q3, Despite this significant disruption, full-year revenue of $4.2 billion declined only 2% year over year. Even in a difficult operating environment, we continue to deliver on our margin expansion commitments. Both gross margin and operating margin improved by over 100 basis points, generating a record $4.85 per share in earnings in fiscal year 2020. turning to our markets the communication solutions group record quarterly revenue was driven by growth across the aerospace defense and government and commercial communications aerospace defense and government revenue increased 13 year-over-year in q4 driven by strengthening the americas in asia as defense modernization continues to drive investments in technology with the focus on electromagnetic spectrum operations space, and new commercial technologies like 5G. In commercial communications, 5G technology is scaling and drove strong demand across the design lifecycle from development to deployment. Keysight has the industry's most comprehensive range of 5G design and test solutions, enabling the global build-out of networks and devices. 5G has been a strong growth driver for us for over the past three years, and we continue to see new use cases and ongoing innovation as the ecosystem scales and adapts to a new technology. A recent example of our 5G solutions approach includes collaboration on ORAN with many industry leaders. Investment continues across the commercial communications market, spanning wireless and wired technologies, in data centers, and also in the cloud. This quarter, we announced the new high-performance PXIE modular 5G base station solution. It is enabling network equipment manufacturers and small cell vendors to accelerate their time to market. This solution also incorporates enhancements from our PathWave software platform that help automate some of the current workflow limitations. Within the electronic industrial solutions group, Orders and revenue for our broad portfolio of general electronic solutions both grew double-digit, driven by gradual economic recovery across most regions and improvement in the education market. Demand for our semiconductor measurement solutions was again strong this quarter as investment in next-generation process technologies continued. In automotive, while macro-driven weakness continues to weigh on the sector, strategic investment in the advanced automotive technology is a market priority. We saw improvement from last quarter as orders grew double-digit sequentially across all regions. Our Scion Lab electric vehicle test solutions are expanding in Asia and Europe, where government mandates are driving the electrification of vehicles. We continue to add to our solutions portfolio, impressing challenges in the development of advanced driver assistance systems, or ADAS, and ensuring compliance to important standards. In Q4, we introduced a new radar target simulator for ADAS, being developed to enable autonomous driving, as well as a new solution for testing automotive Ethernet recently announced collaborations with sgs and qualcomm to advance testing of cellular vehicle to everything or c v2x technology turning to software and services combined they were one-third of total key site revenue for this year after another quarter of solid growth In addition, recurring revenue increased from 18% of total in FY19 to 21% in FY20. On an annualized basis, recurring revenue grew high teens over last year. Software and services are important elements of our solution-centric strategy and differentiation and further strengthen the durability of our business model. In Q4, we launched new and enhanced solutions to tap the power of cloud-based processing and advanced analytics to speed design simulation, validation, and manufacturing tests. These include several new pathway software solutions targeting advanced design, compliance tests, automation, and measurement and manufacturing analytics. Increasingly complex designs and the volume of data associated with their validation are driving demand for Keysight solutions. Keysight's execution and financial performance this year is a testament to Keysight's leadership model, our values, and our commitment to corporate social responsibility. A year ago, I shared with our teams my top priorities for the company. One of these priorities was a specific focus on increasing our inclusion and diversity efforts. In support of this priority, I appointed a new senior director of inclusion and diversity who has been working with Keysight leaders and external organizations to increase representation of diverse groups within our workforce. We place a high value on inclusion and diversity at all levels of our organization, including the board of directors. We continue to make progress, and I'm pleased to share that, as of today, over 30% of our U.S. executives are diverse in gender, race, and or ethnicity. Before I turn the call over to Neil, I'd like to sincerely thank all of our Keysight employees for the relentless commitment, engagement, and dedication to our success over the past year. Our people and culture are truly a competitive differentiator. Thanks to their efforts and in the face of unprecedented challenges, Keysight exits this year stronger than ever and is very well positioned to capitalize on our growth opportunities ahead. Now, I will turn it over to Neil to discuss our financial performance and outlook in more detail.