Okay, great. Thank you everybody for joining us on the fourth and final day of our Communacopia and Technology Conference. My name is Mark Delaney. I have the pleasure of covering Keysight, and yet again this year, I'm really happy to have Keysight with us at the conference. With us from Keysight, we have Satish Dhanasekaran, Keysight's President and CEO, and Neil Dougherty, the CFO. Thank you both for joining us. Thanks for having us. Thank you. Keysight's a really fascinating company, provides design, emulation, and test solutions across both hardware and software. A large percent of the company's over $7 billion of annual revenue is tied to customer R&D applications. Maybe, Satish, you can start. Talk a bit about what's allowed Keysight to be so successful and be a key part of customer workflows in end markets that includes communications, aerospace defense, auto, and industrial. Well, thank you, Mark. Again, this is a case of a business that has been around for 80 years, from HP and Agilent, but really got reinvented as we were able to spin out and be independent and invest in our future. The core of the strategy has always been, how do we take a business that was largely hardware-oriented business and a product business, and transform it into a solutions business? Not an easy thing to do, but that's the journey we've been on. That involved protecting the core right to win and right to play for your customer base, which has known you for the core measurement tools and the metrology, but also pursuing a smart diversification strategy to add into applications that are much more mission-critical and more valuable for our customers. That invariably involved adding more software and solutions content. Going higher in the stack that you described from physical layer to application layer and into protocol layer and application layer really allows us to provide that cohesive portfolio. What we really benefit from with the breadth we have is the ability to take that R&D investment that we make towards the portfolio and monetize it over multiple end markets. Because ultimately, we serve engineers. Electrical engineers are our customers around the world. Well, we've seen evidence of the success the company's having with the last few earnings reports. Last two quarters', orders a bit over $2 billion in each quarter. Company said orders could grow sequentially again next quarter. What's driving that growth? Yeah, we're seeing a confluence of end markets that are inflecting simultaneously. We started to see that first with the wireline parts of our market that was starting to grow with AI. Defense technology is becoming a bigger priority in today's geopolitical environment. Europe investing in its own sovereign technology as a trend. Our industrial end markets, which tend to sort of have a bigger exposure to manufacturing and PMI, is also doing very well with all of the build-outs that are happening globally. We're benefiting from a number of tailwinds. We invested to have the portfolio and the differentiation, and we're benefiting from having the right portfolio meeting great markets at this moment. Neil, maybe one for you on this topic. As you think about the guidance you gave into the fourth quarter, some sequential growth, given how strong demand is, and we've been hearing all week around the data center market in particular being quite robust and you guys have been seeing that too, is there a reason that orders shouldn't grow more than normal sequential seasonality in 4Q? Yeah, Mark, I guess my first response to that is you're already seeing that strength in the $2 billion quarters that we've just put up already in the year-over-year growth that we put up through the first three quarters of the year. I think that strength continues. Do we see a further acceleration at this point? Maybe, but right now our base case is that you're going to see the strength continue, which should result in a normal seasonal uplift as we move from Q3 to Q4. Neil, staying with you, as you think about modeling revenue. You had orders of $2 billion. That's a nicely positive book to bill. Should investors be anticipating that at some point next year, revenue hits that $2 billion level as well? Yeah, certainly that's the trajectory we're on. We're a little bit supply chain constrained at the current environment. We guided Q4 to $1.94 billion of revenue, which is up almost $100 million from where we were in Q3. That's clearly the trajectory. Given the supply chain situation, things are a little bit nonlinear. We expect them to be a little bit nonlinear, so exactly when we burst through that $2 billion limit, or $2 billion revenue per quarter threshold is a little uncertain, but certainly that's the trajectory that we're on. Yeah. Satish, maybe talk a little bit more around the supply chain constraints. It was a topic on the last earnings call, but any color you can share on that? Yeah. I think we're executing very well, is the headline. I do think that every time we plan for a certain supply level, the demand keeps coming in harder, and that's a good problem to have. When you look at the macro supply environment today, whether it's for PCBs or components, you're often in environments where larger players are sucking up big chunks of capacity from the supply chain. The flexibility to respond in the short term just is not there. We're planning ahead. That's why I said on the earnings call, we're taking an 18-month view of supply and making some investments with our supply chain and in our own internal supply chain, to be able to meet the demand across these markets. We feel really good about the portfolio as well. Through 2023 and 2024, we made some continue to make investments in R&D towards this future that we saw with wider bandwidths and more complex systems. The portfolio that we are now starting to launch is meeting great customer demand. The demand for our new introductions have been a lot stronger right off the gate, which also compounds the ability to ship revenue in the near term. But we're working through it, and I'm confident in a couple of quarters we'll get through it, and I hope the demand continues to be more challenging in a couple of quarters, and we'll continue to work on the supply side. It's a good problem to have. Yes. Absolutely. So yeah, hope over the next few quarters. Then maybe one for you, Neil. Any way to quantify how much revenue maybe you are not able to meet at the moment given the supply situation? Yeah. First and foremost, again, I think given our differentiation in the marketplace, what we are really talking about is delaying the recognition of revenue or ability to ship, not that we are walking away from business given the supply chain constraints. I think, just as a way to think about it, we busted through the $2 billion order level in Q2 with approximately 2050. I think it was 1 or 2 million above or below that. In general, we have a six-month order acceptance policy. So normally you would expect that $2 billion plus of orders to ship by Q4. We have guided to 1940. You would say, "Hey, maybe there is $100 million in there that is pushing out beyond our normal shipment window." In practicality, it is probably less than that because we have deferred revenue from software, some longer-dated programs, but I think $100 million is a way to kind of bound it at this point in time. Okay. I know double ordering is hard to know when that is happening, and I remember one CEO said to me at CES, he is like, "It would be great if when orders came in, if there was a little memo saying this is a double order." I know it does not really work that way, but how does Keysight assess the risk that some of this $2 billion is because of supply chain constraints and double ordering? As you said, it's hard to really know, but to the extent that we see, we have line of sight to what our customers are needing our products for. As I mentioned on the call as well, in some cases, we're also having line of sight to what the entire ecosystems need are from likes of NVIDIA to their supply chain to what the hyperscalers are ordering. We feel like all of this is towards real demand that's going into the AI data center. There's not a lot of risk, and history in this business would also suggest that we have had very low cancellations historically. Our customers are needing our products out of the gate, and they will take them if we could ship more right now. Yeah, if I could add to that. We're not seeing broad supply chain problems across a broad section of the portfolio. It's pretty concentrated. 20, 30 SKUs focused on this data center ecosystem, and if you look at those 20 or 30 SKUs, they're very highly differentiated in the marketplace. In some cases, there isn't really another equivalent alternative in the marketplace for them to double book if they wanted to. Okay. Very helpful context. Some of this demand, of course, coming from market, but a lot of it has to do with everything that Keysight's been working on. You mentioned, Satish, this transition to being a full solutions provider and in so many ways you're helping customers solve their engineering problems. You see that in the financials. Software and services, 33% of revenue last quarter. Recurring revenue, you guys estimated was just under a quarter of total sales. As you think longer term, where could those ratios get to? Oh, definitely higher. One of the things that we think about is how do we make our portfolio more valuable to our customers and differentiate it, and I even use the word unique in some cases. When we have that type of portfolio and we can connect that and offer solutions to a customer, you're really helping them with their time to market. When you have that dynamic, it allows you to also have a conversation about the value you're bringing to the equation. You start to see our gross margins go up sequentially also this year and to record levels of 68%, which we're very happy with. We still see more opportunity to grow that. Equally, as we sell solutions, we are also able to service the customers over a longer period of time, that is where the services attach rates are important, that is recurring revenue for us, the software parts of the portfolio are important. What we are seeing this year is a little bit of more manufacturing business that we are winning in the AI data center, so that numbers of the recurring revenue you quoted reflects the mix shift that you are seeing. I think over the long term, we remain confident that we will continue to grow that ARR and services as our solutions get more adopted. On the theme of AI, I know it is driving a lot of the demand for your products, but do you see risk of AI disrupting any of the products you provide? Not really. I think AI has really been a tailwind for us from an AI data center market perspective. Even when we look broader, I think customers are changing the way they are thinking about the engineering workflow. Any time there is change, I think there is an opportunity for us to be a consultant and partner with them and help them rethink how things get done, add more content to our own portfolio, which we are in the process of doing to make it easier so that it fits into their workflow pretty well. The simulation parts of our tools that we have are highly differentiated, they are very focused on providing the most complex physics capabilities, whether it is in RF or high-speed digital or photonics. We are not involved in any of the areas where we feel like that is a risk because of AI. Okay. I think software is over 20% of your revenue overall. To what extent is that software running on equipment of other test companies? Most of our software runs on our hardware. I would sort of characterize it as there's a software that's an app that really enables our customers to derive insights in our physical layer. The emulation platforms that we have have a higher software mix, and they allow the customers to emulate real-world conditions in a lab. That's another differentiated capability. Then we have the simulation business, which is all software. I suppose it can run on any server. Okay. Very helpful. I wanted to talk around your exposure to R&D relative to production tests. Keysight's always been more on the R&D test side, but talk about where you are today, how that ratio may vary by end market. Yeah. We still think a majority or 50%+ of our business historically has been in the R&D labs, and that's been an intentional part of the strategy. We've also added some operational piece to the portfolio with the acquisitions of Ixia and some of the Spirent businesses that we have, building more differentiation as we go through our strategy. I think what we're seeing now with the AI data center ramping, simultaneous capacity ramps that are occurring in our prime contractors in our defense business, and also the China Plus One Strategy that's occurring in Southeast Asia, there's a lot more manufacturing activity, and we're winning there. It's good margin business. We're winning. But we recognize that some of that is episodic. But over the long term, we continue to focus on growing that R&D parts of our portfolio because it builds more sustainability to our revenue stream. As you were saying, you have some operational exposure too. So as manufacturing parts of these industries grow, you still participate at least selectively where you can get the right profit margins. Absolutely. Yeah. High-value manufacturing. We spoke on emulation and simulation already, and I think those have been strategic initiatives to get even bigger there, as you described at the last Investor Day. Maybe talk a bit more around how those parts of the portfolio perhaps could grow in the longer term. Yeah. We're quite excited by even as we're winning in the physical layer of AI, as infrastructure is getting rolled out, people are testing the physics associated with electrical and optical signals, and we're agnostic to that. From a portfolio, we're working to characterize how these AI data centers would behave under a range of conditions, under different LLMs and other things. Those kinds of use cases are growing in today's world where customers are using a very heterogeneous stack of hardware and software capabilities. The ability to emulate how those would behave in the real world, how the data would flow, where the bottlenecks are, I think those are the kinds of things that we're working on right now, and we feel good about that part of the portfolio. As 6G, which is again, the next generation of communication technology and wireless, is going to ramp, that's going to be another tailwind to our emulation part of our portfolio. On the simulation side of the business, we historically had just a small presence in the RF part of the portfolio. We've then built out high-speed digital simulations. On top of it, we've added multiphysics capabilities with acquisitions of ESI, and most recently with the optical, we've really built a nice set of portfolio of tools for our entire simulation business, which will exceed $0.5 b illion this year for the first time and will be a high recurring revenue from that part of the portfolio. We feel good about it, and as we bring those assets together, our ability to solve many more challenges for our customers just goes up because we now have the full stack there. The $0.5 b illion number, that is just simulation or simulation and emulation? It is just simulation. Simulation. Okay. Just want to make sure. Well, let us double-click on the Communication Solutions Group. It is your biggest segment as a percentage of revenue, a little under half the total company, typically on an annual basis. On the 2Q call, the company has said that in the first half of the year, AI revenue already had surpassed all of what had been done in fiscal 2026, so in that $500 million-$600 million range. Last quarter, you talked about AI accelerating even more. What specifically from an AI standpoint is driving that kind of strength in the CSG segment? Yeah, we sort of refer to our AI exposure in our wireline business. Historically, if you look at our commercial communications segment, two components, wireless and wireline. Wireless was slightly bigger than wireline. For the first time this year, I think we said wireline has actually exceeded wireless. That shows you the demand in the AI parts of the business is just going up. The first half was strong, and by all indications, the second half could be stronger than the first half, from everything I see today. I would say the R&D part of that portfolio is growing nicely. Equally, the manufacturing exposure that we have from all of the infrastructure build-outs ramping up and our portfolio being in a great place. We are seeing more demand for both parts of the portfolio there for the AI data center. As you think about the AI part of the business within CSG, can you help investors think about how much may be coming specifically from optical tests, NPO and CPO type applications? Yeah, we have a broad exposure to different components and different customer types. Our breadth is really a source of strength and scale for the business. When we think about the interconnect part of the portfolio, it is a little over 1/4 of the total business from an interconnect point of view, and we do service both optical and electrical interconnects there. What we are seeing is customers are working on some complex physics problems, and there is more scale to build for the optical side of things. Right now, copper is the predominant contributor to the business. Okay. I want to talk on the hyperscale part of the business, and Keysight has been growing its direct hyperscale or revenue stream. Can you share more what products Keysight is doing when it is going directly to hyperscalers? Yeah, I think it's some of the same set of tools and portfolio. One of the things we observed in the last four or five years is an inflection in adoption of new technology driven by hyperscaler scale that they're bringing to wireline networks. The adoption rate from going from 10 to 20, 40, 80, to 100, to 400 now, and 800. You look at those curves, and what we're starting to see is those design cycles compress. Customers are going faster. The next generation waves are overlapping, really creating a nice tailwind for us to grow our contributions in this marketplace. More silicon designs coming out from the hyperscalers is another tailwind for our business. More customers to serve and more tools, which has also been another tailwind. I also think that even though we sized the AI exposure from a hyperscaler point of view to be about 10% of the total mix this year, I think that is a little bit underrepresented because of the influence downstream that the hyperscalers have with regard to their supply chain, so that number is actually a lot bigger. We're participating meaningfully in the physical layer opportunity. We're working with a number of hyperscalers in the emulation opportunity. Feel good about the runway that exists as we look ahead. Very helpful. Maybe we can turn to the wireless part of the business. Obviously, there was a downturn post some of the 5G build-out that the whole industry saw, but wireless has been growing. It grew pretty significantly in the last quarter and contributed to that $2 billion total. Can you talk a bit more about what's driving the wireless orders? Because I think 6G is still a little bit out in time. Yeah, I think we're excited by the early start we're seeing in the 6G business, so that was one of the contributors. We also see the non-terrestrial network opportunity to be potentially bigger as we look ahead. But again, another contributor to growth for our wireless business. Third, I think the supply chain of wireless, again, driven by the activity around AI, was a key contributor to growth in that part of the portfolio. On 6G, talk a bit more about when you expect 6G to become more meaningful. Yeah. The reason I mentioned this on the call this time, Mark, was a lot of things started to click for us, and we started to see the standards start to make traction. We started to see more investments from our customer base, which is all in the R&D space in 6G, but from not just research investments, which we know from universities, which tends to be episodic, but more programmatic investments from commercial customers, from NEMs, from chipset companies in the 6G space. Conversations with operators have switched from, "Let's talk about 6G later," to, "Let's discuss 6G." That was a big tone shift as the year progressed. These three factors got us even more excited. I think we've launched some industry's best channel emulators to model how channel conditions would behave in the context of 6G. That's getting broader adoption. Our non-terrestrial network work that we have done is now starting to merge in with 6G, which is another area we're really excited about. As I look at the landscape here over the next couple of years, with 2028 being a key milestone for the industry with the U.S. Olympics that's coming up, I think that serves as a really nice landmark for the industry to shoot for, and there's going to be a lot more innovation in this space that we as Keysight are excited to participate in. Yeah. How different are the products that you need to deliver for 6G relative to what you did on 5G? I think the physics is changing. The frequencies are going higher. The bandwidths are likely to be higher as well. Latency is a new dimension with 6G, especially as you start thinking about non-terrestrial network applications. I think ISAC, integrated sensing and communication for the infrastructure, is a new application area. We feel good about the physical layer opportunity, but equally, a lot more emulation use cases for us to grow into as we think about the opportunity ahead. How confident are you that Keysight's going to be in a leadership position in 6G like you were in 5G? We've invested ahead. We recognize that that's one of those things that we needed to do. So despite the downturn the wireless industry was in in 2022, we started some early investments, working with our clients, collaborating with them, building up our tech stack, and we feel good about where the execution is. We still have a long way to go, so we'll remain focused on it. We feel good about our ability to bring that solutions approach that we were so successful in 5G and carry it on into 6G as the industry ramps. The last part of the wireless portfolio that's been seeing some strength, and you touched on a little bit already, has been satellite broadband. How big of the wireless portfolio is that piece of the business? Yeah, I may have sized it on one of the calls. Did I? I don't think we've sized. Oh, we have not sized it. Well, it's still a smaller part of the portfolio, but I would say when I think about the multilayer communication networks of the future, it is likely to be, whether a satellite service on its own competes with a terrestrial service, it remains to be seen. But I think when you start to build coverage and capacity together with satellite networks, that augmented model seems to be where the puck is moving to. It creates more opportunities for us to provide solutions. We did acquire Spirent, which gives us the best-in-class ability to simulate satellite constellations and how they behave in the real world under various fading and other profiles. We bring that in with our channel emulator, with our network emulator stacks. It's quite exciting. I think the view of, I've heard one of our customers describe satellites as base stations in the sky, and I think that's the way to think about it. Then you can start to think about the handovers that occur every second. It's a lot more complexity, and we love complexity. Yeah, absolutely. Maybe we could shift gears a little bit, talk about aerospace and defense. That's a business where revenue has been up year-on-year for the last seven quarters. How sustainable do you think that is, and what's driving it? Yeah, it's been, I would say, a business that we've been in for a long time. We think we understand it. It's a GDP plus marketplace, as we have called it, and we've seen a pretty meaningful shift in demand, and I think there's multiple drivers there. One is, I think, a very positive development in this unfortunate geopolitical environment is Europe's spending on defense, and I don't know that that's going to be a temporal thing. I think it sustains from every conversation we have with customers. I think they're investing, and it's not just a year or two. I think it's going to be long-term, long-range investments they're making for sovereign technology. The second one is our prime contractors today are investing in the short to medium term for capacity adds that are critical for today's situation of wars and other things. The third is our own investment in defense technology. The neo-primes have really changed the dynamic. What was once, let's call it, a longer-term business opportunity where primes would bid and the government would have to fund, and I think it's being supplemented with the neo-primes that are going faster. So those three are all happening at the same time, and we're really pleased to see the business grow at the levels it's growing. We're continuing to invest in some unique applications, which will continue to keep us differentiated in that market. It sounds like you're able to participate in the European build-out. I think historically, U.S. DoD was half the A&D segment revenue, roughly. The U.S. business. Yeah. Was half. That included the DoD spend, but also included the prime contractors as well. Yeah. But I guess you are able to participate, though, in the European spend, even though you are a U.S. company? Oh, absolutely. We have had longstanding relationships in Europe. We have R&D teams there. We have our sales and application teams, and they have customers. So yes. From a growth perspective, Europe's actually been the star. We've seen really strong growth in the U.S., and that strong growth in the U.S. has been outpaced by our growth in Europe this year. Okay. Very helpful. Well, maybe let's talk on the last business segment, the EISG portfolio. There's general electronics, industrial, semiconductor fabs, there's auto business in there. A lot of different pieces. You've been seeing some growth there. Is this sort of a one-time pickup, or do you see some sustainability to the EISG growth? Yeah, let me talk about the semiconductor. I think this is an area where even as early as 2023, we saw this big wave of silicon photonics, which again, now in hindsight, you look back and say, it all makes sense. It's the AI data centers driving a lot of the optical activity for chips. But the silicon photonics work that we did has seen tremendous uptake with a lot of the big fab providers, and we expect that demand to continue to be strong as we look at some of the forecasts from these customers in that space. When I think about the advanced nodes and other tailwinds there, I feel good about that part of the portfolio. It's in a strong place. The second part of the business, which has been a bit of a surprise for us, when we started the year, we didn't expect the auto business to be growing double digits. It's starting to recover and growing strongly as well. The third part of the business is really the general electronics part of the business, where we are participating in all of the manufacturing build-outs that are occurring. One of the applications we called out was PCB manufacturing. This was a small part of the business, but all of a sudden, PCB manufacturing, PCB is where the constraints are in the industry, and people are scaling rapidly, and we're participating in that meaningfully as well. Yeah. I think that speaks to that long tail of data center demand pulling HVAC equipment and PCBs and connector, all sorts of different industrial products. Right. On autos, we have seen the pickup. Is it more traditional auto companies, or is it robotaxis, and you do battery tests, which is also going into some energy infrastructure products, even in support of data centers. When you say auto, maybe you could just double-click what actually is behind that. Yeah. In our automotive and energy segment, we do have an initiative around grid and the new batteries for the grid modernization and those applications. That is a smaller part of the business. We did focus on this autonomous trend and take some of our IP that we use in commercial communications and provide solutions to that marketplace. That is doing well. There is also some pent-up demand in manufacturing for auto as well with a lot of these humanoids and other things in very early stages, but we are participating in those applications in that segment. Great. We have a couple minutes left. I wanted to close with some financial questions. Neil, let me bring you in here. Let us start on some margin topics with some of the recent M&A around Spirent. In the last earnings call, you talked about getting to 80%-90% of the way there on your $100 million synergy target. You did that ahead of schedule. Put that into context. Where could the recent acquisitions get to in terms of margins relative to the corporate average over time as you execute on these? Yeah, we said at the time that we did those acquisitions, that we expected them on a post-integration basis to be operating essentially at the company average. We did the big systems integration in Q3, so we still got a lot of dollars coming out here in Q4. But as we enter 2027, we expect those acquisitions in the aggregate will be contributing operating margins north of 30%. We are well-positioned to achieve those objectives. Where were they last quarter, roughly? The two acquisitions that came out of the Spirent and Ansys acquisition, those are software businesses, pretty highly profitable. The Spirent business was operating low single-digit operating margins when we bought it 10 months ago now, and has been on a steady trajectory again towards this 30% objective, which is where we expect them to operate in fiscal 2027. Okay. So basically next year they will be in that 30% range. That is right. Yep. Okay. And that's sort of even toward the start of the year or is by the end of the year you get. No, I would think they're certainly going to be close at the start, but whether they're all the way there, but certainly very close at the start of the year. How should investors think about incremental margins more generally? I think the framework is, if I'm not mistaken, it's mid-single digit revenue growth get you 40% incrementals. Yeah. Obviously we're growing faster than that at the moment, so you've seen us deliver incrementals that are north of 50% in this environment. I did say on the call that if you think our business operationally, I expect us to exceed those 40% incrementals next year, synergy capture being one of those things. Just an important note, I inserted that word operationally in there. We did have a one-time benefit from the Supreme Court decision invalidating the tariffs, about $100 million of costs coming out in 2026. So you need to normalize 2026 for the one-time events and then apply the incremental going forward, but we'd expect it to be north of 40% in 2027. You are seeing some of the supply chain constraints because of how good demand has been, and certain components are getting more costly. Sounds like you feel like you could pass that on. We do. Either pricing or, again, a lot of these things that are constrained right now, they are not high-dollar components for us. They are constrained components, and even if the costs were to frankly go up significantly on a percentage basis, it does not meaningfully move our total material costs, and I do not expect it to impact gross margins. That being said, we do have a differentiated portfolio. We are constantly reevaluating pricing in the marketplace, and I do think we have an ability, if we do see cost pressures, to pass those on to our customers. Very helpful. Well, maybe I can close one out with one for you, Satish, on capital allocation. M&A has been part of how you have built this company to what it is around solutions and helping customers solve these complex challenges. The deals are in a good spot on the integration side. Balance sheet is in good shape. What are your thoughts from here in terms of capital allocation, organic funding? Do you think about more inorganic activity? Yeah, I think first and foremost, we have always been an organic-first company. We believe in innovation. We take a lot of pride in having folks that have compounded learning and can be really specialized in their fields that can provide these solutions. We continue to invest in the organic growth of our business, and that is gaining traction. The second one is, given the supply chain situation, we are considering looking at some of our smaller suppliers and saying maybe that capability belongs in Keysight. So that will become one of the areas where we are considering for our own acquisitions, if you will. That is different than maybe what we have done in the past. Acquisitions, we tend to look at them through a lens of discipline, as we have always done. We take a look at that we have a healthy funnel of opportunities, but we always look and say, "Can we generate a return greater than WACC?" You have seen us be patient through a cycle. I thought the timing on our Spirent acquisition relative to the 5G was a really good time to make acquisition of an asset that we long wanted to own and perfectly fits our portfolio. We will continue to remain disciplined on the valuation front. Unfortunately, we are out of time. Neil, Satish, thank you for joining. Thank you.