Keysight Technologies Inc.

Good day, ladies and gentlemen, and welcome to the Keysight Technologies Fiscal Fourth Quarter 2024 Earnings Conference Call. My name is Joel, and I will be your lead operator today. If at any time during the conference you need to reach an operator, please dial star zero. This call is being recorded today, Tuesday, November 19th, 2024, at 1.30 p.m. Pacific time. I would now like to hand the call over to Paulina Sims, Director of Investor Relations. Please go ahead, Ms. Sims.

Thank you and welcome everyone to Keysight's fourth quarter earnings conference call for fiscal year 2024. Joining me are Keysight's president and CEO, Satish Dhanasekaran, and our CFO, Neil Doherty. In the Q&A session, we will be joined by Chief Customer Officer, Mark Wallace. The press release and information to supplement today's discussion are on our website at investor.keysight.com under financial information and quarterly reports. Today's comments will refer to non-GAAP financial measures. We will also make reference to core growth, which excludes the impact of currency movements and acquisitions or divestitures completed within the last 12 months. The most directly comparable GAAP financial metrics and reconciliations are on our website, and all comparisons are on a year-over-year basis unless otherwise noted. 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. We assume no obligation to update them and encourage you to review our recent SEC filings for a more complete view of these risks and other factors. Lastly, management is scheduled to participate in upcoming investor conferences hosted by Wells Fargo and Barclays. And now, I will turn the call over to Satish.

Good afternoon, everyone, and thank you for joining us today. my comments will focus on three key headlines. First, Keysight executed well and delivered fourth quarter revenue and earnings per share above the high end of our guidance range under market conditions which remain consistent with our expectations. Orders finished slightly above our expectations and grew 1% year-over-year and 8% sequentially, driven by ongoing strength in AI and strong year-end bookings in our U.S. aerospace, defense, and government business. Second, strong execution and cost discipline drove full-year revenue of $5 billion and earnings per share of $6.27, which were down from record highs of 2023. Results were paced by gradual improvement throughout the year with better performance in the second half as expected. Under challenging market conditions, we demonstrated the resilience of our business model by delivering 26% operating profit and over $900 million in free cash flow. We also returned approximately 50% of free cash flow to shareholders through repurchases. Third, we progressed our software-centric solution strategy by investing to realize organic growth opportunities through innovation and industry collaborations while expanding the breadth of our solutions through selective M&A. As we look ahead, the strength of our differentiated portfolio, deep engagement with customers, and the accelerating pace of technology innovation gives us confidence in our ability to outperform as markets recover. Now let's begin with an overview of Keysight's fourth quarter business performance. Communication Solutions Group revenue was flat year-over-year and grew 6% sequentially, with growth across both commercial communications and aerospace defense and government. CSG orders returned to growth for the full year, reflecting AI momentum in wireline, stability in wireless, and consistent strength in ADG. In wireline markets, demand remained strong due to ongoing expansion in AI data center infrastructure, even as telco investments continue to be muted. As the timeline for 800 gig and 1.6 terabit adoption accelerates, the industry is investing in advanced technologies, including silicon photonics, chiplets, and high-speed electrical and optical interconnects. Keysight continued to expand its portfolio of solutions across the technology stack, to enable customers in both R&D and manufacturing. At the Open Compute project in San Jose, Keysight showcased our newly introduced AI workload and system emulation solution in collaboration with Academia and Hyperscalers. Our solution provides high-fidelity emulation of AI model training and inferencing workloads to optimize training time and benchmark AI infrastructure performance. At ECOC conference, Keysight showcased physical and protocol layer solutions with industry leaders to enable 800 gig interoperability with critical optical and electrical interface technologies. In wireless, demand was stable as smartphone industry nears the end of its inventory correction and telco capex normalizes from peak levels. Investment continues in Open RAN, expansion, ongoing standards progression with emphasis on non-terrestrial networks, and early 6G research. This quarter, we announced multiple ORAN collaborations with industry leaders such as NTT DoCoMo, DISH Networks, and Pegatron. We also collaborated with Qualcomm to establish industry's first end-to-end interoperability and data connection in the candidate frequency band for 6G, FR3. We're also well poised to drive industry innovation forward with our differentiated full-stack solutions. Turning to aerospace, defense, and government, stronger-than-expected seasonality drove orders to an all-time high. The funnel of opportunities remains strong. The U.S. defense budget is expected to grow low single digits, while government investment in defense modernization in Europe and Asia is projected to increase. Customer engagements on electromagnetic spectrum operations, radar, and advanced communication use cases remains high. Satellite communication investments is expected to continue as more LEOs constellations are launched over the next few years. Keysight is capitalizing on the growing investment in defense modernization around the globe. At the recent European Microwave Conference, we showcased our leading capabilities in phased array, over-the-air compact antenna design and test in collaboration with analog devices. We also highlighted our latest flagship performance network analyzer. Its differentiated and industry-leading capabilities include wide band, high dynamic range, pre-selected receivers for faster S-parameter measurements to enable customers' high-frequency component design. Turning to electronic industrial solutions group, revenue was down year-over-year as expected, but grew mid-single digits sequentially. Orders were mixed with year-over-year growth in semi and general electronics, offset by automotive market headwinds. In semiconductor, robust demand drove strong order growth for our parametric wafer test solutions. We saw broad-based foundry investment to expand capacity and address leading-edge applications driven by AI. This included advanced DRAM technologies such as high-bandwidth memory and DDR5, as well as silicon photonics. Enabling further advances in power semiconductor production and efficiency, this quarter Keysight introduced an innovative single-pass, three-kilowatt high-voltage wafer test solution. In automotive, The industry is facing challenges and we expect the headwinds to continue in 2025. This quarter, production-related demand was sequentially stable while we saw incrementally cautious pending due to slowing EV sales and battery oversupply. Even with near-term headwinds, we remain focused on customers' emerging innovation and design needs. Our R&D engagements for software-defined vehicle as well as broader electrical and physical design applications remain high. ESI grew its solution business this year through steady renewals and new customer additions. Over this period, the ESI team also made significant contributions through the use of AI to improve product performance simulations and offering workflow solutions with immersive visualization to validate assembly and servicing. In general electronics, we saw stable manufacturing demand, albeit at lower levels, and a modest sequential improvement in consumer and industrial high-speed connectivity applications. Public and private sector investment in support of advanced research and technology workforce development grew this quarter, and digital health application demand was again strong. Turning to software and services, revenues grew 8% this quarter and accounted for 39% of total Keysight revenue. Annual recurring revenue from software and services also grew 16% to approximately $1.5 billion and accounted for roughly 30% of Keysight overall. We saw solid growth in our design engineering software portfolio in 2024, reflecting the expansion of virtual prototyping across a broad range of industries. As a recognized thought leader in RFEDA, Keysight was selected to lead a U.S. government joint public and private sector effort to leverage AI and machine learning to automate and bring efficiencies to complex RF integrated circuit designs. In summary, Keysight has continued to sustain strategic progress and momentum through the downturn. The flexibility and discipline of our operating model has proven our ability to deliver strong financial results and healthy cash flows in a variety of economic conditions. We have positioned the business to emerge stronger as markets recover, to capitalize on the opportunities ahead of us, and to create value for all stakeholders. Before I conclude, I'd like to sincerely thank our employees once again for all their outstanding contributions, commitment, and strong track record of execution under a variety of market conditions. With that, I'll turn it over to Neil to discuss our financial performance and outlook.