Operator: 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. [Operator Instructions] This call is being recorded today, Tuesday, November 19th, 2024 at 1:30 PM Pacific Time. I would now like to hand the call over to Paulenier Sims, Director of Investor Relations. Please go ahead, Ms. Sims.

Paulenier 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 Dougherty. 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.

Satish Dhanasekaran: 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 US 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 solutions 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. Communications 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 remains 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 AI 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 O-RAN 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 remain strong. The US 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. It's differentiated and industry-leading capabilities include wide band, high dynamic range, pre-selective receivers for faster S-parameter measurements to enable customers' high-frequency component designs. 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 3 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 to 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 RF EDA, Keysight was selected to lead a US 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.

Neil Dougherty: Thank you, Satish, and hello, everyone. Fourth quarter revenue of $1,287 million was above the high-end of our guidance range and down 2% or down 5% on a core basis. Orders of $1,345 million were up 1% as reported or down 1% on a core basis. Backlog increased $53 million in the quarter to finish at $2.4 billion. Looking at our operational results for Q4, we reported gross margin of 64.5%. Operating expenses of $497 million were up 5% year-over-year. Q4 operating margin was 26% or 28% on a core basis. Turning to earnings, we achieved $288 million of net income and delivered earnings per share of $1.65. Our weighted average share count for the quarter was 174 million shares. For the full-year, Keysight generated revenue of $4,979 million, down 9% as reported or down 12% on a core basis. Gross margin was 65% down 60 basis points versus the prior year. We sustained investment in R&D at $871 million or 17.5% of revenue, while driving further operating efficiencies in SG&A, which declined 7% excluding acquisitions. Full year core operating margin of 26.5% was down 370 basis points continuing to outperform Keysight's down cycle model and demonstrating the financial resilience of the business. Net income of $1.1 billion resulted in earnings per share of $6.27. Moving to the performance of our segments. The Communications Solutions Group generated fourth quarter revenue of $894 million flat as reported or down 2% on a core basis. Commercial Communications revenue of $591 million grew 4% while Aerospace, Defense and Government revenue of $303 million declined 6%. Altogether CSG delivered gross margin of 67% and operating margin of 28%. The Electronic Industrial Solutions Group generated revenue of $393 million down 6% or 11% on a core basis. EISG reported gross margin of 58% and operating margin of 21%, an increase of approximately 100 basis points versus the prior quarter. Moving to the balance sheet and cash flow. We ended the quarter with $1.8 billion in cash and cash equivalents generating cash flow from operations of $359 million and free cash flow of $328 million. Share repurchases this quarter totaled 974,000 shares at an average price per share of approximately $154 for a total consideration of $150 million. Full-year share repurchases totaled $439 million or 49% of the $905 million in free cash flow generated this year. Now turning to our outlook. We expect the demand environment to remain mixed and for recovery to occur gradually through the year, barring any further macro degradation. Our base case assumptions for FY'25 are for revenue growth at the low end of our 5% to 7% long-term target and earnings growth in line with our 10% target. As a reminder, the timing of ESI's annual contract renewals typically results in 40% to 45% of their full-year revenue being recognized in our fiscal first quarter with the balance recognized relatively evenly over the remainder of the fiscal year. For the rest of the business, we are modeling the typical mid-single-digit seasonal decline in revenue from Q4 to Q1. As a result, we expect first quarter revenue to be in the range of $1,265 million to $1,285 million and Q1 earnings per share in the range of $1.65 to $1.71 based on a weighted diluted share count of approximately 174 million shares. Now a few modeling considerations for the full-year. Given the annual ESI contract renewals in Q1, we expect a material sequential decrease in ESI revenue in Q2. And over the same period, we expect a low-single-digit increase in core Keysight revenue. At current debt levels, annual interest expense is expected to be approximately $70 million, capital expenditures are expected to be approximately $150 million and we are modeling a 14% non-GAAP effective tax rate for FY'25. With that, I will now turn it back to Paulenier for the Q&A.

Paulenier Sims: Thank you, Neil. Operator, will you please give the instructions for the Q&A?

Operator: Absolutely. [Operator Instructions] The first question comes from the line of Aaron Rakers from Wells Fargo. Your line is now open.

Aaron Rakers: Yeah, thanks for taking the question and congrats on the results. I guess my first question is, I want to ask you about the wireless piece of the business. It seems to be recovering. I think it was kind of mid-single-digit if I'm correct from the presentation order growth in the quarter. I'm just curious of how you, I guess, the past conversations suggested that's more of a stabilizing business as we move through this year. Has that started to change? Has your view of growth kind of recovery in that business started to evolve or deepen as we look through this next fiscal year?

Satish Dhanasekaran: Yeah, thank you, Aaron. Indeed a good quarter. We executed well and capitalized on the opportunities we saw. Specific to your question on wireless, we continue to feel more confident, I would say, after two quarters where the business has stabilized. And we're seeing more strengths on the infrastructure side where there's more activity from customers around Open RAN and 6G research. So that drives that. And on the devices side, it's lagging a little bit where customers still continue to be focused on ongoing standards evolutions. So, I mean, at this point, we continue to believe that the business will remain stable in '25. We'll call it when we see it. But we continue to feel good about the ongoing momentum we're seeing in our wireline business that's driven growth for commercial communications.

Aaron Rakers: Yeah and then as a quick follow up kind of sticking with looking at some of the segments. The Aerospace and Defense segment, I'm curious because this question come up with some investors. It sounds like you're pretty confident that, that business continues to progress on the growth profile that you outlined. But have you seen any areas of concern or any kind of churn in programs, et cetera, around some of the federal dynamics of spend? Any uncertainties around that, that you would point to?

Satish Dhanasekaran: Yeah, I think the Aaron, the long-term trajectory of that business is actually the one that is easiest to forecast given the budget clarity that typically gets and the priorities that get set both in the US and in allied nations. And if you look at electromagnetic spectrum operations, space and satellite and other areas, those are the areas where defense modernization investments are moving to and we feel good about our position. Relative to the year, obviously, orders were slightly down year-over-year, but off of a record compare from a year-ago. And some of the wins that we had were systems wins, which take us a little longer to ship. So you haven't yet seen that in the revenue line. But as we look ahead, obviously, the short-term with the administration change in the US does bring some uncertainties. But even at times like in 2016 where that happened, we just had some business more out between quarters and so we'll monitor the situation, but we feel good about the current situation with regard to our business there.

Aaron Rakers: Yeah. Thank you.

Operator: Thank you. The next question is from Rob Mason with Baird. Your line is now open. I apologize. The next question is from Tim Long with Barclays. Your line is now open.

Tim Long: Thank you. Yeah, two for me as well. First, could you -- you mentioned AI leading the strength in wireline, obviously a lot going on there, a lot of activity. Could you maybe expand a little bit on how big that business is getting for you and maybe some examples of newer areas that Keysight is being pulled into because of the move in AI? And then the second one, I just wanted to follow-up on the software services up to 39% of revenues here. Maybe just talk a little bit about that evolving part of the business model and how Keysight is going to be able to move that number further and maybe impact on gross margin as that moves higher as well? Thank you.

Satish Dhanasekaran: Thank you, Tim. Clearly, the wireline business has gained momentum this year driven by AI, but this is one of the examples of proof-of-concepts that I highlighted at Investor Day of last year. And so we're quite pleased with the way the opportunity has progressed. Our wireline business has exceeded over $1 billion in orders this year, growing at double-digit rates. And we service a broad set of customers in that industry, right. You think about silicon designers, system integrators, NEMs, hyperscalers and contract manufacturers. So it's actually a broad set of customers. But what's driving the activity in AI right now is actually a concentrated set of customers from hyperscalers that are investing in large infrastructure upgrades. So that's the effort. And the supply chain right now continues to be constrained. So investments are being made to unlock the supply chain to enable the scale to build. And so we're involved in that. We're capitalizing on that. But as we think about the future, we participated in some forums like the OCP and ECOC earlier this year and you can start to see the scale expand. It's not yet reflected in the results yet, but we start to build scale around compute, whether it's centralized or at the edge, power and thermal being very big issues for companies. Networking technologies are being adopted, maybe even faster than they were being adopted before this AI became a big trend. And our opportunities we're excited about are not just in the physical layer, but in the protocol layer, allowing customers to emulate how traffic flows through an AI infrastructure and therefore optimize their investments. So we're pretty excited about the opportunities long-term here and capitalizing on the near-term strength.

Neil Dougherty: Yeah. And then as it relates to Software and Services, obviously continuing to see a nice mix-shift towards those portions of our business. And as I think the part of your question address gross margin, there could be, software portions of those businesses are accretive to Keysight's average gross margin, the services portions are slightly dilutive to Keysight's average gross margin, but overall both the service business has a lower expense structure, so both contribute nicely to profitability when you think about it from the operating margin line.

Mark Wallace: And then, Tim, I would just add, this is Mark. As far as the expansion, we've shown that it's more resilient to the current macro. Customers continue to invest in new methods shifting left on virtual simulation and emulation of their systems to help reduce costs and increase efficiencies and we're seeing that. And then the second part, of course, is the further leverage of some of our new assets like ESI, it being exposed to more of our customers in different regions, the US for Aerospace, Defense parts of Asia with a broad Keysight footprint in those regions. We see that as a driver for additional growth as we go forward.

Tim Long: Okay. Thank you.

Satish Dhanasekaran: Thank you, Tim.

Operator: Thank you. The next question is from Rob Jamieson with Vertical Research Partners. Your line is now open.

Robert Jamieson: Hey, guys. Congrats on the quarter. Just a couple of quick ones from me. Just first on the Communications business. Just what kind of benefit could we see from the funding just in second half of '25? I mean is there much benefit there if that funding does get actually released and finally comes to fruition? And then I guess also any potential risk of that being reversed just given some of Trump's advisors at this point that have been anti-BEAD funding?

Satish Dhanasekaran: Yeah, I think the good thing about Keysight's business model in comps and in fact rest of our business is the broad set of customers we serve. That diversity and breadth is a source of great strength during times of change. And so while we do pick up some incremental business every year from new logos that come up because they're funded directly or indirectly there are some direct funding from government at times that flows into Open RAN. We've called some of those wins out and even the CHIPS Act, but we're not heavily tethered to any one of those things. So I would just say that those are incremental in some ways, but not as material as maybe the headlines enthusiastic especially because we're more involved in the R&D side of those labs and so we feel good. I think the momentum we see because of our renewed focus on go-to-market expansion that we had put in place with marketing is the continued attraction of new logos that we see across our business. It continues to be the focus for us moving forward as well.

Robert Jamieson: That's really helpful. I appreciate that. And then I guess just on tariffs just real quick. And just -- you guys have been dealing with this in one way or another for over eight years. Can you just talk about your previous strategies around your pivots in the APAC region, just whether it's been Huawei, ZTE or even the Trump tariffs, just how you've kind of managed that in the past?

Satish Dhanasekaran: Yeah, I would just say it's probably, it's a question behind the question if I'm understanding you right is what are the implications of the US elections and therefore the policy changes that might ensue. And so like everybody, we're monitoring three areas, tax, trade, both tariffs and trade restrictions, right, the areas and along with defense spending that might ensue. It would be premature for us to comment on them, except to say that we've been pretty agile in ensuring compliance when there is a new government restriction and pivoting our sales resources to go after new opportunities. A potential offset could be and again I'm breaking my rule and speculating a little bit is if there were to be tariffs of the orders being discussed, many companies are looking to more of China into other areas in Southeast Asia and we remain prepared to capitalize on the opportunities if should that occur.

Robert Jamieson: Got it. Similar to like what we saw with reshoring and everything during supply chain disruptions, the benefit that we saw there.

Satish Dhanasekaran: Exactly.

Robert Jamieson: Great. Thank you very much.

Satish Dhanasekaran: Thank you.

Operator: Thank you. The next question is from Rob Mason with Baird. Your line is now open.

Robert Mason: Good afternoon. And again nice jump on the quarter. Just with respect to your thoughts around 2025 revenue. Satish, I know you covered some of the segments, but just at a high-level I mean is it fair to think you think all of your major, I'll say segments, again we're talking wireline, wireless, automotive, general electronics, some of these verticals. Would all of them have an opportunity to grow in '25 do you think within the kind of mid-single-digit profile that you're talking about? Automotive sounds like maybe it was the most challenge, but I'd just like to get your thoughts there around all.

Satish Dhanasekaran: Yeah, that's good. Look, our job number one, Rob, was to stabilize the business and return to order growth, which we set out as a priority for the second half and I'm quite pleased that we've executed to that. Now looking at the facts, you'd say CSG has returned to growth in the -- for the full-year from an order perspective and EISG is yet to do that. So that sort of summarizes the mix demand environment. And just projecting forward, we expect continued sort of slow gradual recovery as we move into 2025. We're not baking in, in our base case all segments inflecting. And should that happen, we'll be prepared to capitalize on it. But our base case that Neil's called out at -- in his outlook section is for 5% revenue growth and 10% EPS growth for the year.

Robert Mason: Yes. Okay, that's helpful. And just as a follow up and maybe just directed to Neil just with the higher ESI revenue in the first quarter, I would assume that the gross margin will reflect that at least sequentially. Could you maybe give us a little bit of thoughts around your OpEx as you trend in from fourth quarter into first quarter, there's often some resets. I know seasonality as well influences that, but I'm just kind of curious what kind of trajectory OpEx is on as you enter the new year?

Neil Dougherty: Yeah, let me just touch on a couple of seasonality related comments since you've opened the door to that. I think, first of all, as you mentioned with regard to gross margin, with the sizable uptick in ESI revenue, we would expect some gross margin upside from that business in Q1. Similarly, though, then as you move from Q1 to Q2, you have reverse effect as that revenue comes out of the model. So just if you put it on one side, you got to take it out on the other side. With regard to OpEx, just reminding you of some things that are kind of the norm for Keysight, we do salary administration for the entire company here in the first quarter of the year. So that will be impacting the P&L starting essentially now. And then as the business inflects from a period of contraction back to a period of growth, we have essentially our variable pay programs turning back on, which will increase OpEx here starting in the first half of next year.

Robert Mason: Very good. That's helpful. Thank you.

Operator: Thank you. The next question is from Matt Niknam with Deutsche Bank. Your line is now open.

Matthew Niknam: Hey, guys. Thank you so much for taking the question. On macro, I'm curious if you can speak to how that backdrop has evolved over the last quarter? It seems like there's some pockets that are getting better yet. It seems like others like auto that are maybe a little bit softer. So any general commentary on the macro backdrop you can provide? And then just as a follow-up on Aerospace, Defense can you talk about maybe what changed later in the quarter? You mentioned a very strong closeout to the quarter, particularly around the US. I'm just curious in terms of what changed and how maybe that's trended into the start of fiscal 1Q? Thanks.

Neil Dougherty: Yeah, why don't I start maybe by making some comments about macro and then we'll let Mark Wallace make some comments about the broader Aerospace, Defense business. So first of all, as Satish mentioned in his prepared comments, the results in Q4 were marginally better than we expected coming into the quarter. And so I think that's possible. A lot of that strength itself was in Aerospace, Defense and so Mark will talk about that. But I think as you think about macro changes and the previous question alluded to this as well, I think the automotive business is where we're seeing the most pressure significant pullback in spend around EV development at this point in time, which is impacting that industry pretty significantly. I think if you look across broader strength in wireline stability, maybe not yet a strong catalyst for growth in wireless, but at least stability, a nice forward momentum in Aerospace, Defense. I think with regard to semi, it's a question of timing. When do -- I think everybody is optimistic about a turn back on in semi. The question is when does that really begin in earnest. And then the industrial end markets, maybe the biggest question mark because I think some of that is going to be tied to how a lot of that capacity that was put in place during the '21, '22, '23 supply chain disruptions. Over what time is that capacity fully absorbed and people start to once again reinvest in manufacturing capacity? So that's kind of how we're thinking through the end markets from a macro perspective.

Mark Wallace: Yeah, and Matt, I think the Aerospace, Defense as Satish talked about, the focus on defense modernization has remained a top priority in the US and allied nations. We had continuing resolution in the first part of last fiscal year, the government fiscal year '24, which put some delays on new program starts. So as we entered into the fourth quarter with the government fiscal year-end in September, we saw increased spend as we would normally see, which was not certain because of delays in the budgeting process. So that was a big positive. We see continued investments from the prime contractors as well as the direct government in the US and the prime contractors in Western Europe as well as we've been talking about for many quarters due to the geopolitical situation that continues to unfold. So those factors come together. And then longer-term I think the areas that are promising for us continue to be around EMSO space and satellite and quantum with some of the government-funded research that's occurring in all parts of the world continue to offer us opportunities over the coming quarters.

Matthew Niknam: Thank you.

Operator: Thank you. The next question is from Samik Chatterjee with JPMorgan. Your line is now open.

Samik Chatterjee: Hi. Thanks for taking my question. I guess for my first one, Satish, if I can go back to your comments earlier about not really embedding sort of inflection in all of the businesses and your 5% growth target for fiscal '25. How should I think about what kind of recovery or what your expectations are embedded in for semi-cap and general electronics? It seems like both are a bit mixed in terms of what you're seeing, but if you can just outline how you're thinking about those two areas in particular? And I have a quick follow-up after that. Thank you.

Satish Dhanasekaran: Thank you, Samik. I think for semiconductor fabs, just based on what we're seeing and the pipeline of opportunities we see for our wafer test solutions around silicon photonics and new memory topologies and some of the higher voltage types of wafers, I think that strength continues for us in somewhat a little bit offset by and that's the bigger part of our semi business, somewhat offset by a slowdown that a number of the semiconductor equipment manufacturers have reported as well. So you put that in the mix. We still think semi grows from these levels for us. And again semiconductor is, as you know, is roughly 10% of our total revenue at the company level. From a general electronics perspective, what we have started to see and again one quarter doesn't make a trend. So I just want to caution you. But I do think in Q4, we saw stability in manufacturing, which finally resulted in the underlying strength in research spending around next-generation technologies, the broad new customer logo, all of that return that business to growth. Again, it's just one quarter, but we think that stability in manufacturing continues as we move forward as well, which should give some -- which should return -- which should put EISG on return to order growth at some point in the year, it's difficult to call at this point.

Samik Chatterjee: Okay, correct. And for my follow-up, maybe this is more for Neil. I think, Neil, a question you're getting a lot from investors is when they look at some of your previous margin targets that were a bit more longer-term for fiscal '26, you're not really that much different at this point from a gross margin perspective where the guidance was 66% to 67%, but you significantly had a gap to your operating margin target of 31% to 32%. How should we think about the drivers and sort of beyond volume leverage, how you're thinking about other drivers that get you closer to that target or is there something that sort of needs to be revaluated relative to those targets? Thank you.

Neil Dougherty: Yeah, I'd say a couple of things. So first of all, I think we're pleased with how gross margins have held up on the downside of the cycle. Obviously, we've gotten some benefit here from the addition of the ESI software business, but even if you look at the core Keysight business, the gross margins have held up pretty well in total on the downside of the cycle. I think when you start to think about those targets that we put out, 66%, 67% operating margin targets where again we're 150 basis points, 200 basis points off of that at current levels. And but we're significantly further off on the operating margin line. I think you need to look at the impact that the acquisitions are having in the short-run where we've made some acquisitions that are accretive to gross margins, but significantly dilutive to operating margins. And I think as we get those businesses integrated and start to operate them within the greater Keysight operating model, there's going to be opportunity for us to drive significant profit leverage on those acquisitions and start to close that gap on the operating margin side. Thanks.

Satish Dhanasekaran: And Samik we remain confident in the long-term growth opportunities of this business. And you've seen when we can deliver above model growth rates, the sort of earnings power and leverage we have, we continue to operate this business in a disciplined way to be able to realize those and get us back on track.

Samik Chatterjee: Sure. Thank you. Thanks a lot.

Satish Dhanasekaran: Thank you.

Operator: Thank you. The next question is from Meta Marshall with Morgan Stanley. Your line is now open.

Karan Juvekar: Hi. This is Karan on for Meta. Congrats on the quarter. So just starting on the Automotive side. Clearly, you remain quite positive on simulation. But outside of that, are there any other exposures that you have within auto that could cause a pickup in the business outside of maybe EV sales improving? And then I have a follow-up. Thank you.

Mark Wallace: Sure. Yeah, so there are several parts to automotive. The part that we're seeing, the slowdown and project delays is around EV investments that have been quite robust over the last several years with battery test labs. So we're seeing a pause in that. We're seeing manufacturing demand also stay lower levels, but that's another part of our business that as inventories normalize that we should see some increasing flow through of manufacturing test for that. The part that's remained steady is the software defined vehicles or the ADAS, the autonomy side, where we have continued innovation crossing over multiple parts of our business into communications, sensor technology and so forth, and a lot of that is software as well. So there's a lot of work being done in that frame. And the other one that doesn't get as much attention, at least from these calls, but gets a lot of attention on the news is the infrastructure. So the charging infrastructure and the standards associated with those in every region of the world represents additional opportunities that we're pursuing. So long-term drivers of growth, secular drivers around AV, the manufacturing coming back on new advanced technologies remains an area of focus for us over many years.

Karan Juvekar: Got it. That's helpful. And then coming back to the AI side. Are there any areas that you see in your portfolio that you could maybe grow content or offer new products to sort of take advantage of the opportunity that you're seeing today? Thank you.

Satish Dhanasekaran: Yeah, good question. I think as we mentioned, the more logical areas which we have seen growth come from to date or results come from to date are associated with the physical layer tools where we provide our oscilloscopes, our sampling scopes and other tools that we provide. And what we're seeing is a bigger opportunity for our emulation platforms we're still in early pilots with customers on. Again, it's a small, it's a concentrated set of opportunities today. We expect that industry and the impact AI is going to have to be broader and we're participating in enabling the ecosystem with the right set of tools all the way from design, emulation to test and our focus is on enabling our customers in the R&D parts of the workflow and it's a pretty rich opportunity for us. Thank you.

Operator: Thank you. The next question is from Adam Thalhimer with Thompson Davis. Your line is now open.

Adam Thalhimer: Hey, good afternoon, guys. Congrats on the beat. And Mark, congratulations on your retirement.

Mark Wallace: Hey, thanks, Adam.

Adam Thalhimer: I wanted to ask first about the operating margin in Communications. I think that was your best ever quarterly operating margin. It kind of took me by surprise. Curious what drove that and what the outlook is there?

Neil Dougherty: Yeah. So obviously, we are very pleased with the results in CSG. Gross margins have held up very strong in that business. I think we see a tight, not only do we see a higher software content, higher recurring revenue from software, which obviously helps margins, but I think there's less margin diversity in the CSG portfolio than we see on the ESG side. So less impact from mix. From a profitability standpoint, I think we're very pleased that we're keeping our foot on the gas. On the R&D side, continuing to invest to position ourselves to capitalize on the upside while driving significant efficiencies and SG&A resulting in the strong profitability that we saw. So it was the strongest profitability we saw this quarter, not an all-time record, obviously, but very strong operating margins in CSG this quarter.

Adam Thalhimer: And then in EISG, as you think about the full-year, what are the growth offsets to the weakness in auto?

Neil Dougherty: You're talking about in '24 and '25?

Adam Thalhimer: For fiscal '25 what offsets in auto this year.

Neil Dougherty: Yeah, I mean, I think as Satish look forward, as we look to semi and to the broader industrial markets, there is reason for optimism with some of the fab programs and the absorption of capacity that was put in place in prior years, again, likely to be more back-end loaded. We've talked about at the Keysight level of gradual improvement through the year. And so as Satish just said we would expect there is an opportunity for EISG, which has not yet returned to order growth to do so in the back half of the year. And I think that would be with some significant increase in the strength of the semi markets and some modest recovery in industrial end markets.

Adam Thalhimer: Got it. Thanks, Neil.

Operator: Thank you. The next question is from Mark Delaney with Goldman Sachs. Your line is now open.

William Bryant: Hey, thank you for taking my question. You have Will on for Mark Delaney here. Just one on M&A. So, with the proposed Spirent transaction still ongoing, will Keysight be open to do other larger transactions in the near-term if one that made business and financial sense was available?

Satish Dhanasekaran: Yeah, I would just say, look, we have reiterated a very strong organic growth strategy that we're focused on realizing. We've also identified specific markets that we have studied to pursue a selective M&A. And at this point, while we continue to evaluate targets, we always remain disciplined and we'll look at them. But it's not a matter of capital as much as bandwidths to pursue more deals given the deals that we've already announced, which we're working through.

William Bryant: No, extremely helpful. Thank you for that. And just one more on capital allocation. How should we be thinking about buybacks for fiscal '25? Any cadence commentary or any color that you can add there would be helpful. Thank you.

Neil Dougherty: Yeah, the only thing I would say is that obviously, we look forward to the close of the Spirent transaction, which will be a significant capital outlay for the company. And but we do expect that we will at a minimum continue with our buyback program at at-least the anti-dilutive level and then we'll be trying to strike a balance between starting to get the cash ready to close the Spirent transaction traded off against what we might see as opportunistic opportunities to do more on the buyback front.

Operator: Thank you. That concludes our question-and-answer session for today. I would like to turn the call back to Paulenier Sims for any closing comments.

Paulenier Sims: Thank you, operator, and thank you all for joining us today. Have a great day.

Operator: This concludes our conference call. You may now disconnect.