Keysight Technologies Inc.

Ladies and gentlemen, and welcome to the Keysight Technologies Fiscal First Quarter 2021 Earnings Conference Call. My name is Sidarius, 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, Thursday, February 18th, 2021, 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 2021. 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 Dhanasekaran, chief operating officer, and Mark Wallace, cinvestor.keysight.com. While there, please click on the link for quarterly... ...tab. There you will find an investor presentation along with key site 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. All comparisons are on a year-over-year basis unless specifically noted otherwise. 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 March, hosted by Susquehanna, Credit Suisse, and UBS. And now I will turn the call over to Ron.

Thank you, Jason, and thank you, everyone, for joining us. Seaside delivered another outstanding quarter. Our consistent performance illustrates the strength of our differentiated solutions, broad-based momentum across diverse end markets, and the durability of our business model. Today, I'll focus my comments on three key headlines. First, we achieved record first quarter orders driven by growth across all regions despite China trade headwinds. Second, strong execution by the Keysight team delivered revenue and earnings multiple end markets and confidence in our revenue and earnings growth trajectory for the year. Despite a short-term expectation of elevated expenses from variable compensation, which is due to the high near-term revenue growth, we expect to achieve mid to high-teens earnings growth in fiscal 2021. Now let's take a deeper look into our first quarter results. We delivered record first quarter orders of $1.2 billion, which again exceeded revenue and grew 7%. First quarter revenue grew 8% to $1.2 billion. As previously discussed, we faced strong year-over-year headwinds in the first quarter due to China trade restrictions. Adjusting for this impact, both orders and revenue grew solid double digits. We continue to make strong progress towards our long-term financial targets with consistent execution and enabled by the strengthened discipline of the Keysight leadership model. We delivered first quarter gross margin of 64%, operating margin of 27%, which increased 210 basis points and free cash flow of $267 million. Turning to our markets, aerospace defense and government achieved record first quarter orders and revenue. 20% revenue growth was driven by continued investment in electromagnetic spectrum operations, space, and the new commercial technologies like 5G and early 6G research. In commercial communications, we achieved all-time record orders in total, as well as for 5G, while revenue declined 3%. Adjusting to the transient impact of unfavorable trade restrictions, commercial communications orders grew double digits and revenue grew high single digits. Strength was driven by ongoing global 5G deployments and the rollout of new 5G devices and continued investment in 400G and 800G Ethernet for data centers. Keysight's end-to-end solutions portfolio is enabling the rapid progression of new technologies, both in the wireless and wired systems of the communications network, where our value proposition remains strong. Keysight continues to lead the industry in 5G powered by years of close collaboration with market makers and standards bodies. We are advancing our 5G strategy to capture emerging opportunities in the application layer as momentum builds ahead of deployments in 2021. We made great progress this quarter as broad industries embrace our 5G platform and new applications emerge. For example, O-LAN continues to be an area of active investment for our customers. We recently introduced a suite of end-to-end solutions for O-LAN vendors and mobile operators. Our solutions are used to verify the interoperability, performance, conformance, and security of multi-vendor 5G networks. We also announced strategic partnerships in the expanding O-RAN space with industry leaders like Xilinx, Radasys, Arraycom, and AltioStar. In addition, we continue to accelerate Keysight's capabilities to provide industry-leading solutions through strategic acquisitions. In Q1, we acquired Sanjale, a leader in wireless test and measurement solutions for protocol decoding and interoperability. Sanjale's offerings complement our end-to-end solutions portfolio, providing problem-solving tools that extend from inside the wireless network out through over-the-air analytics. Record revenue for our electronic industrial solutions group was driven by double-digit growth in semiconductors and general electronic solutions. Record semiconductor revenue was fueled by ongoing investment in next-generation process technologies, bolstered by new customer wins in China as we successfully redeployed our sales force to capitalize on new opportunities. General electronic strength reflected continued economic recovery with growth across all regions and improvement in the advanced research education market. In automotive, despite ongoing macro challenges, end demand is stabilizing as strategic investments in advanced technologies have accelerated in Asia and in the Americas. In Europe, we continue to expand our presence and recently announced a collaboration with Elring Klinger, one of the world's leading system partners to the automotive industry. They chose Keysight's battery test solution to advance e-mobility in the field of battery development for electric vehicles. Software and services each delivered double-digit order and revenue growth. Combined, they were approximately one-third of total Keysight revenue, contributing significantly to our software-centric solution strategy and differentiation, and further strengthening the durability of our business model with increasing recurring revenues. In summary, I'd like to thank our Keysight employees around the world who have reacted dynamically to a challenging environment to deliver exceptional results for our customers and shareholders. We are pleased with their first quarter performance and encouraged by the broad-based momentum across our market entering the year. Now, I would like to turn it over to Neil to discuss our financial performance and outlook in more detail.