Keysight Technologies, Inc. Q3 FY2025 earnings call

• Strong execution in Q3 with 11% year-over-year revenue increase to $1.4 billion and EPS of $1.72, exceeding guidance. Orders grew 7% across segments.
• CSG saw solid order and revenue growth, with wireline capitalizing on AI and networking trends, and wireless stable with nonterrestrial networks and 6G research.
• EISG had orders and revenues growing, with strength in general electronics, digital health, automotive, semiconductor, and software renewals.
• Software and services portfolio driving innovation, with strong demand for RF-EDA and services growth, and new products showcased at the International Microwave Symposium.

Communications Solutions Group (CSG) generated third quarter revenue of $940 million, up 11% on a reported basis or 10% on a core basis. Commercial communications revenue of $644 million was up 13% driven by double-digit growth in both wireline and wireless. Aerospace, defense and government achieved revenue of $296 million, an increase of 8%. CSG delivered 67% gross margin and 26% operating margin. Electronic Industrial Solutions Group (EISG) generated $412 million in revenue, an increase of 11% on a reported basis or 9% on a core basis with growth across automotive and energy, semiconductor and general electronics. EISG delivered 57% gross margin and 22% operating margin. Software and services accounted for approximately 36% of Keysight revenue, while annual recurring revenue was 28% of the total.

• Raised full-year outlook; Q4 revenue expected in range of $1.370 billion to $1.390 billion and Q4 EPS in range of $1.79 to $1.85.
• Full-year revenue growth expected at 7% and full-year EPS growth at midpoint ~13%.
• Tariffs: Expect April tariffs fully mitigated by Q1, August tariffs mitigated by first half of FY26.

• Tariff impacts and geopolitical environment.
• Automotive and some end market dynamics.

Q: On past calls, you'd characterize your expectation for a recovery in the end markets overall as gradual. I don't think I heard you use that word today. So maybe you can help investors to better understand your view of the end markets now and to what extent it's better than you'd previously expected.

A: Yes. A strong quarter, clearly, and we're feeling good about the funnel and the customer activity despite the overhang from tariffs and the sort of geopolitical environment we find ourselves in. And if you look at the performance of our order growth, again, has accelerated as we've gone through the year. So from that perspective, we're feeling good about how the year is progressing slightly even better than what we expected at the beginning of the year. However, if you look at the end markets and you look at the multiple dimensions of the end markets and you'd say, are all end markets up into the right? Not quite, right? I would say AI has clearly been a continuing theme of momentum. Aerospace, defense, as we expected that things would recover after the administration change and other things manifest itself. And wireless is tracking slightly ahead of expectations. EISG is returning to growth. All in all, feeling good about the situation, although just the caution is that we still have challenges with the automotive and some end market dynamics.

Q: Helpful overview. My second question was just trying to better understand orders and what you're seeing and putting that into context with the revenue outlook. I think orders were up high single digits, but the book-to-bill was just below 1, and then you guided 4Q revenue up sequentially. So maybe just help us better understand what's supporting that revenue outlook into 4Q. Is there turns business or backlog that supports it? Or maybe there's some pass-through tariff revenue that's coming in. And just any more framing of what's driving the revenue in the fourth quarter compared to the bookings would be helpful.

A: Yes. I think some of that is a function of kind of the timing of big deals. We actually had a reasonably large system integration deal. We got -- where we got customer acceptance literally on the last day of Q3. So that elevated and drove some of the outperformance in the third quarter but obviously pulled that out of Q4 and muted the quarter -- the sequential seasonality from Q3 to Q4 versus what we would typically see. But I think as we look forward, we expect more normal sequential seasonality on the order front than we're going to see on the revenue front, again, because of the timing of some of these big deals.