Keysight Technologies Inc. · NYSE:KEYS
Keysight Technologies — Investor Day (March 2018)
152 slides from Keysight Technologies's investor day presentation, Mar 6, 2018
Slide 1: Investor Day March 6, 2018
KEYSIGHT TECHNOLOGIES Investor Day MARCH 6, 2018 TECHNOLOGIES
Slide 2: Forward-looking statements and non-GAAP notice
This communication contains forward-looking statements as defined in the Securities Exchange Act of 1934 and is subject to the safe harbors created therein. These forward-looking statements involve risks and uncertainties that could significantly affect the expected results and are based on certain
Slide 3: Agenda
Introduction and Opening Remarks Jason Kary | VP, Treasurer and IR 8:30 AM Company Overview and Strategic Direction Ron Nersesian | President and Chief Executive Officer Technology Leadership Jay Alexander | SVP and Chief Technology Officer Communications Solutions Satish Dhanasekaran | SVP, Preside
Slide 4: Ron Nersesian, President and CEO
Ron Nersesian President and Chief Executive Officer 4
Slide 5: Key messages: industry leader, aligned to growth themes
1 2 3 4 5 6 Industry leader Deeply Aligned to critical Accelerated R&D Executed three- Well-positioned to with 75+ years’ knowledgeable, industry growth investment to year strategy ahead achieve higher experience experienced and themes and innovate ahead of of plan; balanced growth, operating at the
Slide 6: FY'17 Key Statistics and Revenue Mix
FY’17 KEY STATISTICS FY’17 REVENUE MIX Headquarters Santa Rosa, CA 8% Spin-off Date1 November 1, 2014 13% 32% Market Capitalization2 ~$8.5B $3.2B Free Cash Flow3 $241M Total Revenue4 26% Operating Margin 4 19% 21% Total Customers5 >32,000 Commercial Communications: $1.04B7 Aerospace, Defense and Gov
Slide 7: Business groups overview
Communications Electronic Industrial Ixia Services Solutions (CSG) Solutions (EISG) Solutions (ISG) Solutions (SSG) Serves customers spanning Serves electronic industrial Helps customers worldwide Provides worldwide worldwide communications end markets, focusing on high validate performance and the
Slide 8: Keysight Technologies Senior Leadership
KEYSIGHT TECHNOLOGIES SENIOR LEADERSHIP Neil Dougherty Jay Alexander Ingrid Estrada Marie Hattar Steve Williams 1 SVP - CFO SVP - CTO SVP - CP&AO SVP - CMO SVP - Gen. Counsel Ron Nersesian President and CEO Satish Dhanasekaran Gooi Soon Chai John Page Mark Pierpoint Mark Wallace 2 SVP, President - C
Slide 9: Transformation of the organization
Transformed organization from product-focused to industry-focused Create differentiated solutions combining Hardware, Software and Services; enable customer success through new Go-to-Market and R&D strategies Increased investment in R&D process Began investing earlier in the cycle to be first-to-mar
Slide 10: From product-focused to complete solutions
FROM TO • Individual Products with hardware bias • Complete Solutions: Hardware + Software + Services • Faster customer commitments and solution • Slower, complex decision-making due to multiple development; one decision owner owners interfacing with customers • Incentivized and compensated on total
Slide 11: Revised growth initiatives and progress
Be First in Enter New Verticals Expand Leadership in Win in Grow Services 50% 5G Wireless (e.g., Automotive) Design and Test SW Modular by 2020 • First-to-market with 5G • 70+ auto and IoT • >$500M software • >$200M modular • Disciplined M&A led to 1 design solutions solutions introduced portfolio s
Slide 12: Smart technology connects the world
WIRELESS SMART TECHNOLOGY CONNECTS THE WORLD INNOVATION IS EVERYWHERE NETWORKING / AUTOMOTIVE CLOUD ✓ Devices ✓ Infrastructure ✓ Cities ✓ Defense ✓ Vehicles ✓ Wearables Transforming from AEROSPACE / Hardware-centric Product to IOT DEFENSE Software-centric Solutions Company ACCELERATING INNOVATION TO
Slide 13: Core strengths and competitive differentiators
CORE STRENGTHS COMPETITIVE DIFFERENTIATORS • Aligned to critical industry Experienced leadership; globally recognized growth trends in attractive and technologists and expertise; institutionalized diversified end markets knowledge and IP • Strong culture of execution Depth of technology, proprietary
Slide 14: Our global presence
OUR GLOBAL PRESENCE • 12,600 employees worldwide1 • Operating in over 100 countries around the world; naturally-hedged expenses and Global Headquarters Santa Rosa, CA revenues • Aligned with our customers’ local needs across all regions % FY’17 38% 18% 44% REVENUE2 AMERICAS EUROPE ASIA-PACIFIC 1 As
Slide 15: Corporate Social Responsibility and Governance Vision
OUR Corporate Social Build a better planet by accelerating innovation to connect and secure the world and Responsibility and employing a global business framework of ethical, environmentally sustainable and Governance VISION socially responsible operations Selected Recognitions Ethical Governance Ou
Slide 16: Customer coverage and leading positions
CUSTOMER COVERAGE1 (2017) BREADTH OF CUSTOMERS3 LEADING POSITIONS4 ADI Hittite • Alphabet • Amazon • Arris • AT&T 10 of 10 Top Telecom Equipment Companies Software Revenue BAE Systems • Boeing • Broadcomm • Cisco 10 of 10 Top Semiconductor Suppliers Continental Auto • Daimler • Datang • Delphi #1 Fo
Slide 17: $15.5B served addressable market
Network Visibility Network Test Commercial $15.5B Comms 3-5 % Services Served Served Addressable Addressable Avg. Market Growth Market1 Market Rate3 Aerospace, Defense & Electronic Gov’t Industrial 2 Keysight Market Share: ~22% KEYSIGHT WELL-POSITIONED FOR CONTINUED SHARE GAINS 1 Per Company estimat
Slide 18: Sustain and accelerate organic growth
Deepen Balanced Sustain and Leadership Capital Allocation Accelerate Organic Position through to Drive Growth Differentiated Shareholder Value Business Model 18
Slide 19: Aggressively pursue opportunities
Aggressively Be First-to-Market Moving from Innovate Ahead of Pursue with Differentiated Hardware-centric to Emerging Opportunities Technology Software-centric Technologies and Aligned with Strong Solutions via Approach; Advance Extend Industry Macro Growth Superior Innovation Intimate Solution Lead
Slide 20: Profitable growth, financial management, capital allocation
PROFITABLE GROWTH • First-to-market CAPITAL ALLOCATION • Differentiated solutions • Focus on ROIC • High software content • Flexible, balanced approach • Sustained leadership FINANCIAL MANAGEMENT OPERATIONAL DISCIPLINE • High profit leverage • Laser cost focus (Lean+) • Cost structure flexibility •
Slide 21: Return of capital phases
Phase 3 We Are From 2015 Return Capital Here Investor Day Balanced Return of Capital Phase 2 Return of Capital Return to Growth • Appropriate leverage and commitment to investment Sustained 4% CAGR grade credit metrics over Cycle Phase 1 • Disciplined M&A Separate • M&A as priority use of cash ✓ Sci
Slide 22: Capital allocation priorities
1 Reinvestment to Drive Organic Growth 2 De-Lever Post Ixia Acquisition 3 Disciplined M&A 4 Return of Capital OPERATING PRINCIPLE – MAINTAIN FLEXIBILITY AND LIMIT EXCESS CASH 22
Slide 23: Previous and new targets
Previous Target NEW Target (2015 Investor Day) Core Revenue Sustainable Sustainable Growth1 4% CAGR 4-5% CAGR Operating 18-19% 22-23% Margin1 EPS 8-10% ≥10% Growth1 1Non-GAAP measure. Core revenue growth excludes the impact of acquisitions and currency 23
Slide 24: In summary
IN SUMMARY Growth and Meeting and Keysight is Differentiated momentum exceeding our An exciting transformed; business driven by commitments, time at accelerating model focus on and raising Keysight… profitable growth enabling our customer our target significant with balanced superior success and ope
Slide 25: Jay Alexander, SVP and Chief Technology Officer
Jay Alexander Senior Vice President and Chief Technology Officer 25
Slide 26: Technology leadership key messages
1 2 3 4 Increased R&D investment Improved R&D efficiency Expanding our leadership Executing on strategic from ~12% of revenue to with industry-focused on all three dimensions of software initiative – added over 15% in 3 years; solutions groups that Keysight’s differentiation: $125M1 of incremental e
Slide 27: From product-focused divisions to solution-centric groups
FROM TO • Product-focused divisions • Solution-centric business groups • Internal goals • Customer-driven specifications and timetables • One form factor • Multiple implementations (feature-rich box, modular, handheld) • Product line run-rate funding • Strategic Keysight growth investments OLD NEW C
Slide 28: Keysight Labs, central teams and R&D centers
Solutions Groups 3 Partner with leading customers to create high-value solutions with faster time-to-market R&D Centers than previously possible of Excellence 2 Create hardware and software solution components that can address many Keysight Labs applications, focusing on deep competency Central Team
Slide 29: Customer insight and workflow solutions
CUSTOMER WORKFLOW SOLUTIONS SOFTWARE AND SERVICES HARDWARE TECHNOLOGY PORTFOLIO DEEP EXPERTISE / STANDARDS BODIES MARKET TRENDS AND CUSTOMER NEEDS CUSTOMER INSIGHT 29
Slide 30: Typical measurement process
TYPICAL MEASUREMENT PROCESS Probe / Connect Digitize and Measure Analyze Report / Decide Software and Value-Added Services Leading-Edge Hardware • Critical foundation for world-class measurements; • Hundreds of high-value SW application packages needs to be 10X better than what is being measured • >
Slide 31: Industry-leading technologists
INDUSTRY-LEADING THOUGHT EMBEDDED WITH TECHNOLOGISTS LEADERSHIP MARKET LEADERS • ~3,000 R&D engineers, over • Active in 30+ standards bodies • Diverse and deep customer 1/3 with M.S. or Ph.D. degrees and industry consortia relationships around the world • Deep connections with leading • 3,000+ paten
Slide 32: Hardware + software + people = insights
Fleet, United Kingdom Bucharest, Romania Network emulation solutions Network test, visibility and security software Santa Rosa, CA Beijing, China Custom analog chipsets, Worldwide wireless test modules, interconnect software Santa Clara, CA Böblingen, Germany Keysight Laboratories Atlanta, GA Optica
Slide 33: Added capabilities and served market
ADDED CAPABILITIES COMMUNICATIONS SOLUTIONS 2 Wireless protocol development test, Increased full stack network test, visibility and security Served Market 1 by $3.5B+ ELECTRONIC INDUSTRIAL SOLUTIONS and Added Automotive battery, power system, and charging infrastructure test New Growth Vectors SERVI
Slide 34: Vertically integrated for differentiated technologies
KEYSIGHT FAB KEYSIGHT SOFTWARE DESIGN CENTER Santa Rosa, CA Atlanta, GA • Proprietary chips, modules, and interconnects, purpose-built for • Platform software developed with Agile methods; used by Keysight advanced solutions such as 5G businesses to speed customers’ time-to-market by connecting the
Slide 35: Software engineering key initiatives
KEY INITIATIVES ~1,800 SOFTWARE ENGINEERS • Consolidated core software technology development under CTO (Nov. 2015) • Advanced our software leadership with acquisitions of software-centric businesses • Anite (Aug. 2015) • Ixia (Apr. 2017) • Opened Atlanta Software Design Center (Oct. 2016) FY'14 FY'
Slide 36: Core Keysight software across lifecycle phases
SIMULATE PROTOTYPE VALIDATE MANUFACTURE OPTIMIZE Electronic Design Automation (EDA) Software Simulate designs before they are built to find and fix issues Customer productivity killer: Graphical Test Software Inability to share test software, Allows non-programmers to design and execute tests specif
Slide 37: PathWave design and test software platform
SIMULATE PROTOTYPE VALIDATE MANUFACTURE OPTIMIZE Lifecycle Phases A breakthrough design and test software solution that accelerates the overall workflow from simulation of early concepts through manufacturing and optimization of deployed systems • Integrates Keysight’s leading software solutions, in
Slide 38: Keysight's solutions make the 5G revolution possible
• In order to achieve its performance goals, 5G is far more complex than 4G • Higher frequencies; to 28 GHz and beyond • Advanced modulation (signal processing) • Multi-element antennas using beamforming • Requires detailed simulation, prior to building a prototype and then validation of actual perf
Slide 39: Investment priorities
Leverage Continue Accelerate Technology Enable Diversified High-Return Investment Synergies Growth Beyond Investments to in Software from Ixia Communications Extend Lead in 5G Acquisition • Solutions for higher layers in the • Custom chips for higher • Leverage Keysight hardware • Differentiated Aut
Slide 40: In summary
IN SUMMARY Furthering our Accelerating our software Global R&D capabilities unmatched value platform and solutions with central Keysight Labs proposition: investments to continue fueling first-to-market Hardware + Software + introducing breakthroughs innovations and solutions People = Insights such
Slide 41: Satish Dhanasekaran, President - Communications Solutions Group
Satish Dhanasekaran Senior Vice President, President - Communications Solutions Group 41
Slide 42: CSG key messages
1 2 3 4 5 #1 position in CSG Transformed Established first- Well-positioned with Strong operating end markets with organization to mover advantage in industry leaders; model to deliver on ~24% share1 industry focus, 5G through early relationships financial commitments creating a go-to- investments a
Slide 43: CSG FY'17 highlights
Commercial FY’17 HIGHLIGHTS Communications Recognized leadership in 5G trials and standards • Provide end-to-end solutions beyond the physical layer for $1.7B mobile chipsets, smart sensors/devices, wireless base Revenue1 -1% YoY stations, networks, data centers and cloud $1.0B • Solve challenges ar
Slide 44: Observations, actions and accomplishments
INITIAL ACTIONS TAKEN OVER SIGNIFICANT OBSERVATIONS PAST 18 MONTHS ACCOMPLISHMENTS • 5G technology wave drives • Transformed to industry-focused Commercial Communications growth across the solution-centric organization - • 3 consecutive quarters of double- communications ecosystem launched 50 new so
Slide 45: Value: expertise, workflow, measurement platforms
VALUE • Expertise brings customer 100 industry experts insight, workflow analysis, 300 R&D hardware engineers and improved business EXPERTISE 550 R&D software engineers outcomes • PathWave leverages PATHWAVE measurement platforms WORKFLOW to enable customer workflows SOFTWARE Electronic 5G Network C
Slide 46: Large, growing market
LARGE, GROWING MARKET Market Commercial Aerospace and Defense Dynamics Communications Communications Total Market1 Size1 $4B $3B $7B Growth Rate2 3-5% 2-3% Drivers • Explosive data growth • Global defense and effective use modernization in of spectrum response to emerging threats • New business mode
Slide 47: CSG strategy: win in 5G, grow, focus
WIN in 5G GROW WIN IN 5G GROW FOCUS by enabling the by enabling by enabling the by enabling on operational ecosystem defense ecosystem defense excellence workflow modernization workflow modernization • Win the technology waves • Extend market leadership • Deliver solutions with leverageable • Advanc
Slide 48: 5G, edge computing and emerging applications
ELECTRONIC 5G EDGE COMPUTING WARFARE EMERGING INDUSTRY 4.0 CONNECTED APPLICATIONS (VIRTUAL REALITY, AI, BIG DATA, AUTONOMOUS DRIVING) SMART CLOUD SIGNAL DEVICES (IoT) MONITORING 48
Slide 49: Commercial Communications
Commercial Communications 49
Slide 50: Commercial communications attractive industry attributes
COMMERCIAL COMMUNICATIONS Attractive Industry Attributes Technology Waves: 5G, WLAN, MIPI1 400G, Terabit, Optical • Business focused on technology advancement for the Information and Communications Technology industry Value Chain • Industry leaders invest for time-to-market advantage, which creates
Slide 51: 5G acceleration drives momentum
sub-6GHz mmWave Spectrum 0.6GHz 2.5GHz 3.4 – 3.7GHz 4.4 – 4.9GHz 28GHz 39GHz GEOGRAPHY NTT NTT Verizon Verizon DoCoMo NTT DoCoMo Orange China DoCoMo CARRIERS T-Mobile Sprint Mobile SK AT&T SoftBank AT&T Vodafone SoftBank T-Mobile T-Mobile KT SK | KT COMMERCIAL 2019 Late ‘19 TBD 2020 2020 Mid-2020 2H
Slide 52: Increasing software content across stack layers
Mobile Network Core Data Chipsets Devices Access Network Center Comms “Stack Layers” Increasing Software Content Layers 5, 6, 7 Management Mobile Network and Application Drive Test Experience Customer Keysight Emulation Network Testing, Visibility and BTS1 Mobile Device Test Security Anite Acquisiti
Slide 53: Keysight 5G solutions
KEYSIGHT SOLUTIONS 1 Protocol Design MIPI Digital Test 5G Waveforms INDUSTRY FIRSTS Uniquely • 5G full stack connection enables • Demonstrated 5G data rates Channel Keysight Beamforming WiFi Coexistence >4Gbps, Over-the-Air Emulation to deliver • Solution for narrow-band IoT customer deployments suc
Slide 54: 5G phases and Keysight value proposition
5G PHASES 2010 - 2015 2016 - 2019 2020 - 2025+ Prototyping, Research Commercialize, Deploy & Ramp Standards and Trials KEYSIGHT 5G VALUE PROPOSITION SIGNIFICANT PROGRESS 1. Invested early in broad set of ✓ >60% 5G order CAGR over past 3 years differentiated technology to enable 5G ✓ Strong order res
Slide 55: Aerospace, Defense and Government Communications
Aerospace, Defense and Government Communications 55
Slide 56: Aerospace and defense attractive industry attributes
Attractive Industry Attributes AEROSPACE AND DEFENSE COMMUNICATIONS • Mission-critical requirements demand extreme performance and highest reliability • Security challenges multiply as commercial technology proliferates • Multi-decade programs require multi-decade support and service DoD/ Prime Publ
Slide 57: Solutions across aerospace and defense workflow
SIMULATE PROTOTYPE VALIDATE MANUFACTURE SUSTAIN Solutions Across Aerospace and Defense Communications Workflow Defense Modernization Requires ELECTRONIC SIGNAL SUPPLY OPERATIONS Broad WARFARE AND MONITORING CHAIN Solutions RADAR Threat Simulation Public Safety Subsystems Field and Service • Mission
Slide 58: Threat simulators selected by U.S. DoD
REAL WORLD RF ELECTRONIC WARFARE SIMULATION LAB Keysight threat simulators selected by U.S. DoD for hardware-in-the-loop simulation 58
Slide 59: Creating value through operational excellence
EXECUTING A RIGOROUS RELENTLESS FOCUS ON LEVERAGEABLE CUSTOMER EXPERIENCE SUPPLY CHAIN EXCELLENCE PLATFORM STRATEGY AND QUALITY MANAGEMENT • Developing solutions on • Maximizing margins through • Certified by: ISO9001:2015, PathWave software framework cost reductions, supply chain ISO17025:2005, ISO
Slide 60: Customer quotes
“We need a leading partner with your “You are ahead of the competition attributes.” in the 5G space - very different than what we are used to from you in 4G.” “Keysight is a strategic partner and we want to outsource test activity to you.” “The whole chipset ecosystem is embracing you for mmW.” “We
Slide 61: In summary
IN SUMMARY Organization Portfolio Acquisitions focused on 5G Strong momentum repositioned to augmented solutions and exiting FY’17 in a focus on higher solution portfolio defense $7B market margin R&D and expanded modernization solutions SAM challenges 61
Slide 62: Mark Pierpoint, President - Ixia Solutions Group
Mark Pierpoint Senior Vice President, President - Ixia Solutions Group 62
Slide 63: Ixia key messages
1 2 3 4 5 We make networks Be first and best in Integration cutover On-track to deliver Keysight + Ixia and applications the markets we for people, systems $40M annual combination drives stronger serve and processes savings ($10M/qtr) customer completed starting Q3’18 expansion and new - Expanding f
Slide 64: 2H'17 highlights
2H’17 HIGHLIGHTS KEY METRICS REVENUE BY REGION3 15% Revenue 1 $0.24B Employees 1,871 Americas 20% Asia Pacific 65% Europe R&D Gross Margin2 77% 818 Employees REVENUE MIX3 Operating Software $0.04B >90% Income2 Engineers 37% Product Operating 10-yr. Revenue Support 18% 10% 63% Margin2 CAGR 1 Net reve
Slide 65: Network test, visibility and security
Network Design TEST VISIBILITY Harden infrastructure Eliminate blind spots Validate app performance Real-time intelligence Verify provisioning Optimize network tools SECURITY Identify vulnerabilities Network Provide resilient security Network Operations Reduce attack surface Rollout WE CHALLENGE THE
Slide 66: Ixia solutions
WIRELESS CLOUD / WAN LAN DEVICES SECURITY DATA CENTER NETWORKS DEPLOYMENTS DEPLOYMENTS WiFi Performance Wireless / LTE Infrastructure Security SDN / NFV Application QoE / Reliability Performance Resilience Migration Hyper Scale DC Performance IxVeriwave LTE IxLoad/IxChariot PerfectStorm IxNetwork Ix
Slide 67: Network test case study
NETWORK TEST Financial Services Company Chief Information Officer Fortune 1000 financial derivatives marketplace CUSTOMER needed to evaluate Distributed Denial of Service Technology Leadership (DDoS) mitigation and ensure DDoS attack NEED • Scale, performance, density response • First-to-market: 10G
Slide 68: Network packet brokers
THE DATA CENTER Solutions Network Solutions Network Operations Acquire Taps and Packet Bypass Brokers Switch Application Acquire Operations Distribute • Aggregation Switch Security • Filtering Acquire • Load Balancing Admin • SSL Decryption • NetFlow Servers Analyze and Decide Forensics 68
Slide 69: Network visibility case study
NETWORK VISIBILITY Director of Banking IT Operations Executive Large European bank needed to analyze suspect CUSTOMER traffic entering network and ensure high availability NEED of security tools Massive Scale and Performance • Single pane of glass Deployed iBypass 40-10 with inline Network • Physica
Slide 70: Customer base continues to grow and diversify
REVENUE MIX ENTERPRISE OPERATORS NEMs 86% 75 45 15 OF FORTUNE 100 OF TOP 50 CARRIERS OF TOP 15 NEMS 66% 60% • Overall revenue has grown >50% since 20111 40% 34% • Digitization is impacting every business 14% • Added solutions and capability to address Enterprise segment CY'11 FY'17 FY'20 Target Ente
Slide 71: Addressable market and growth drivers
$2.5B TOTAL 1 MARKET ADDRESSABLE MARKET GROWTH DRIVERS Network Test Network Visibility CLOUD NETWORK SECURITY 90% 36% $1B $1.5B Mobile Data Traffic Moves Growth in Global Security 2 to Cloud Apps by 20194 Incidents 2015 to 20165 CAGR 3 $0.5B CAGR 3-5% 10-15% 3 BIG DATA IoT 25GB 20B Our Share of Data
Slide 72: Implications of data growth and digitization
Massive Data Growth Digitization Pervasive Shift to the Cloud Challenges Drives New Technologies Across Businesses Existing Business Models Higher speeds and wider Pressure on costs and Restructuring of the market bandwidths scalability • Consolidations • 400G+ • Virtualization | Cloud | • New, non-
Slide 73: Combined Keysight and Ixia solution stack
WiFi / Cellular Interworking Customer Experience Layers 2-7 Network Test, Visibility, BTS1 Emulation Mobile Network Mobile Device Management Security Drive Test Test Test 5G Network Stress Testing RF/uW Converter Base Station Layer 1 Electrical, Optical, and Wireless Test Channel Emulation Channel I
Slide 74: Extend, complete integration, expand customer base
EXTEND COMPLETE EXPAND Product to Solution Integration and Customer Leadership Realize Synergies Base 74
Slide 75: Extend product to solution leadership
• Be first-to-market with market-leading speeds and performance: 400G+, 5G, 802.11ax and SSL • Streamline hardware platforms with fewer more scalable offerings across portfolio • Leverage key software platforms for virtualization and cloud as networking evolves – new business models • Develop source
Slide 76: Ixia integration status and synergies
APPLICATION OF KLM STATUS • Attrition rate below previous run rate Retain key talent • Sales force leverage in process • Two joint products already released Revenue synergies • On track to exceed $50M by Year 3 • New quote system live within 24 hours of prior system shutdown Migrate to single ERP sy
Slide 77: Continue strategic expansion with new solutions and enterprise
• Capitalize on sales leverage • Geographic expansion in Europe and Asia-Pacific | Aerospace, Defense and Government and Primes | Tier 2 / Tier 3 Service Providers • Increased go-to-market investment in visibility and security • Continue to develop and enhance indirect go-to-market partners and prog
Slide 78: In summary
IN SUMMARY Combination of Expanding leading capabilities Integration Powerful customer base creating ahead of plan growth drivers and market breakthrough opportunities products 78
Slide 79: Gooi Soon Chai, President - Electronic Industrial Solutions Group
Gooi Soon Chai Senior Vice President, President - Electronic Industrial Solutions Group Head of Order Fulfillment and IT 79
Slide 80: EISG key messages
1 2 3 4 5 Targeted investments Rapid expansion of Strategy in place to Deep relationships Well-positioned to win to win in our markets solutions for the continue to win and with customers to through technology with an emphasis on connected and capture profitable provide next- leadership high growth
Slide 81: Leader in test and measurement across electronic industrial markets
A Leader in Test and Measurement Solutions Across a Broad Set of Electronic Industrial End Markets FY’17 HIGHLIGHTS $4B ADDRESSABLE MARKET1 KEY CUSTOMERS $0.84B • Automotive OEMs and Revenue +8% YoY AUTOMOTIVE components suppliers $0.89B • Electronics manufacturers Orders +13% YoY GENERAL • Academic
Slide 82: Connected devices, automotive transformation, data volumes
1 2 3 PROLIFERATION OF AUTOMOTIVE INDUSTRY MASSIVE DATA CONNECTED DEVICES TRANSFORMATION VOLUMES • 20B connected devices by • Electronic content in vehicles to • 50 Trillion gigabytes of stored 20201 double by 20303 data by 20206 • Each person will be connected • 90% of new cars will be • Demand for
Slide 83: Observations, actions and accomplishments
INITIAL ACTIONS TAKEN OVER SIGNIFICANT OBSERVATIONS PAST 18 MONTHS ACCOMPLISHMENTS • Opportunities in high-value • Expanded into automotive and • Delivered 8% revenue automotive, emerging IoT emerging IoT applications by growth and 18% profit applications and China broadening solutions portfolio gro
Slide 84: Our role in the connected devices ecosystem
OUR ROLE Enabling building blocks that power the connected devices ecosystem SMART CITY INDUSTRY 4.0 CHIPSETS ELECTRONICS HEALTHCARE WEARABLE ENERGY DEVICES TECHNOLOGY SOURCES AUTOMOTIVE Providing End-to-End Solutions throughout the Innovation Lifecycle SIMULATE PROTOTYPE VALIDATE MANUFACTURE OPTIMI
Slide 85: Enable growth and technology advancement
ENABLE ENABLE ACCELERATE ACCELERATE technology technology growthin growth in the the advancement advancement andand ConnectedDevices Connected Devices expansion expansionin the in the Ecosystem Ecosystem semiconductor semiconductor industry industry • High-value automotive • Process nodes advancemen
Slide 86: Keysight differentiated solutions for connected devices
CONNECTED DEVICES ECOSYSTEM KEYSIGHT DIFFERENTIATED SOLUTIONS • Design Simulation + + + • Wireless Coexistence Smart Personal Medical Home Wearable Diagnostic • Compliance Tests • RF Over-the-Air (OTA) Test Solutions + + + • Digital Signal and Data Test Industry 4.0 Digital Healthcare Automotive • B
Slide 87: Automotive solutions introduced over past two years
INTELLIGENCE CONNECTIVITY POWER SECURITY Electronics Telematics and Battery and Charging Network and Safety Infotainment Infrastructure 70+ • • • Engine Control Unit Body Control Unit Tire Pressure • • Navigation systems Automatic emergency call • • Li-ion cell performance test Charging function and
Slide 88: Bumper-to-bumper test solutions for the connected car
Power Steering Control Hybrid Electric Vehicle Rear-view Camera (HEV) / Electric Vehicle (EV) Backup Sensors Power Seat Control Infotainment / Navigation Modules (DVD, eCalls, Hands-Free Telephony, GPS) Electronic Stability Control Module Climate Control System Fuel Injection Module Remote Keyless E
Slide 89: Automotive radar test case study
The Challenge The Solution CUSTOMER NEED Develop long-range Rapid developments in the Provided a high-accuracy, high- radar for Advanced autonomous vehicle with demand throughput test solution to simulate for greater safety features are radar targets in various realistic Driver Assistance fueling th
Slide 90: Semiconductor solutions and drivers
DRIVERS KEYSIGHT’S SOLUTIONS DESIGN VERIFICATION • Device modeling and characterization Continuously Shrinking New Device PRECISION POSITIONING Dimensions Architectures China • Nano-scale positioning supporting next-generation lithography process • Smaller, faster • 3D memory • Semiconductor and den
Slide 91: Semiconductor parametric test case study
The Challenge The Solution MARKET NEED • Advancements in device structure and State-of-the-art parametric test Address complexity of new applications require IC chipsets systems used to characterize wafer shrinking integrated that have higher performance and structure that enable customers to circui
Slide 92: In summary
IN SUMMARY Maintaining Delivered strong Broad range of Well-positioned to leadership and results: solutions and strong accelerate growth in enabling technology 8% revenue and global reach to automotive and advancement in 13% order growth in address the new emerging IoT semiconductor FY’17 connected
Slide 93: John Page, President - Services Solutions Group
John Page Senior Vice President, President - Services Solutions Group 93
Slide 94: Services key messages
1 2 3 4 5 Opportunity remains Services is an Launched several key Our competitive Well-positioned for for $600M in Services essential element in offerings and advantages include profitable organic but will take longer Keysight’s software- achieved significant unmatched solutions, growth and to than
Slide 95: Services FY'17 highlights
FY’17 HIGHLIGHTS BUILDING UPON A STRONG FOUNDATION $0.42B Traditional Offerings Revenue • Calibration, repair and refurbished equipment +4% YoY Global Reach Orders1 $0.43B • 50+ service sites in 30 countries +6% YoY • Largest installed base Deep Expertise Operating $0.07B • Regional technical suppor
Slide 96: Initial observations, recent actions and outcomes
INITIAL RECENT ACTIONS OBSERVATIONS TAKEN OUTCOMES • Top equipment manufacturers • Increased investment in multi-brand • Multi-million dollar wins for derive 20% - 40%1 of revenue service capabilities managed services contracts from services; Keysight at 13%2 • Expanded reach with new e-channels • S
Slide 97: Fragmented competition and why we win
FRAGMENTED CUSTOMER WHY WE WIN COMPETITION NEEDS Only Keysight has the total package • Single-source provider for Independent OEM Product equipment maintenance • Unmatched and complete Service Companies service solution Providers • Reduced cost of test • Largest installed customer base • Outsource n
Slide 98: Expanding service solutions for the entire lifecycle
CUSTOMER EQUIPMENT PRIOR GO-FORWARD LIFECYCLE FOCUS STRATEGY ACQUIRE Demo Equipment Resale • Add new sources for used equipment USE Intrinsic Support (Free) • New Premium Support Plans M A I N TA I N Keysight Equipment Calibration • Managed Services and Repair • Multi-brand Calibration • Test-as-a-S
Slide 99: Acquire: demo equipment resale and used equipment
ACQUIRE BEFORE NOW Demo Equipment Resale New Sources of Supply Drive Used Equipment Sales • Successful, proven and Keysight’s Premium Used refurbished test equipment commands a profitable remarketing operation premium price – “Keysight Certified” | Warranty same as new product • Growth constrained b
Slide 100: Use: new premium support plans
USE BEFORE NOW Intrinsic Support New Premium Support Plans • Free hardware-centric support • Shifting from a “free” to a “fee” model (recurring) • Launching integrated software, hardware and solutions customer support model in 2H’18 • Three levels of for-pay support that deliver more comprehensive a
Slide 101: Maintain: calibration and repair, multi-brand
MAINTAIN BEFORE NOW Keysight Only Calibration and Repair Creating the One-Stop Shop for Our Customers • Global footprint • Expand from Keysight-only equipment to Multi-brand support • Primarily Keysight repair • Expand Outsourcing Services • Complete and predictive customer equipment management • Gr
Slide 102: Optimize: new service models
OPTIMIZE Test Asset Optimization: Comprehensive Cloud-based NEW software enables new services • Utilization Monitoring SERVICE • Predictive Maintenance • Availability Assurance MODELS • Disposition and Upgrade Piloting Test-as-a-Service (TaaS): Using our equipment and expertise to enable customers t
Slide 103: Case study demonstrates our strategy in action
C A S E S T U D Y D E M O N S T R AT E S O U R S T R AT E G Y I N A C T I O N : BACKGROUND NEED • Large customer looking for full- • Outsource non-core operations service solution • Reduce cost of test by 10% • Priority on quality and trusted • Improve asset utilization partnership OUR SOLUTIONS • M
Slide 104: In summary
IN SUMMARY Customers are Early customer Services provides Opportunity to seeking broader validation that our stable, profitable increase revenue by service solutions – new services are growth and ~40% to $600M provides a large providing recurring revenue remains opportunity incremental value 104
Slide 105: Mark Wallace, SVP - Global Sales
Mark Wallace Senior Vice President – Global Sales 105
Slide 106: Global sales key messages
1 2 3 4 5 Deep and trusting Global scale, Optimizing Doubling frontline Deploying customer leverage and structure, sales capacity enhanced digital relationships capability drives compensation and without increasing demand generation high efficiency and skills for industry cost envelope capability lo
Slide 107: Global sales overview and FY'17 key statistics
OVERVIEW FY’17 KEY STATISTICS GEOGRAPHIC SALES TEAM • Large global footprint with Total Orders $3.4B 20% 2,700+ customer-facing and Asia-Pacific customer support resources >2,700 45% Americas Core Order Growth 7%1 Europe 35% • 500+ peaked solution, industry and application experts End Customers ~32,
Slide 108: Shrinking market windows and changing buying practices
SHRINKING OPERATIONAL INDUSTRY CHANGING MARKET WINDOWS DEMANDS EXPANSION BUYING PRACTICES • Invest earlier in Focused on: • More companies creating • Spend >50%1 of pre-standards R&D • Reduced costs smart, connected devices buying journey online • Require innovative • Increased asset • More complexi
Slide 109: Delivered 7% core order growth in FY'17
INITIAL ACTIONS TAKEN OVER SIGNIFICANT OBSERVATIONS PAST 18 MONTHS ACCOMPLISHMENTS • Great customer relationships, • Shift to solutions-based selling • Increased frontline sales satisfaction and loyalty • Repurposed organization to capacity by 30% • Viewed by market as trusted increase frontline sel
Slide 110: Grow new customers, accelerate solutions, expand services
GROW ACCELERATE EXPAND New Customers Solutions Services • Double selling capacity • Engage first and deeply with • Deploy new services channel • Scale industry marketing to industry leaders • Improve customers’ business results reach emerging customers • Leverage first-mover through services advanta
Slide 111: Global sales force growth
KEYSIGHT APPROACH GLOBAL SALES FORCE GROWTH • Double frontline salesforce and deploy leading-edge, digital marketing to accelerate new customer acquisition 1,000 • Hold selling costs flat through resource reallocation and 2x 800 reinvestment 650 550 500 2017 RESULTS ✓ More than doubled lead generati
Slide 112: Tier-1 account engagement
• Dedicated Keysight global account teams, focused on Tier 1 industry leaders and their global ecosystems • Keysight customer engagement process 34 24% 96% harnesses Keysight’s full 5G public Organic order Top 25 Tech capability – from sales to R&D collaborations with growth in FY’17 in companies us
Slide 113: Renewals and new business
Renewals • Focused on maintaining a high renewal rate (>80%) • Customer Success Specialists: distinctive roles who are experts at process New Business • Channel tuned for new business acquisition • Skills, measures, and incentive compensation aligned to new business capture 113
Slide 114: Focused sales deployment in Bay Area
THE SITUATION Significant growth of R&D investments in communications sector in California Changed of managers, increased sellers by and application experts by THE CHALLENGE Account teams focused on established accounts, no capacity Created lab to provide new for expansion business model options to
Slide 115: In summary
IN SUMMARY Global scale and Well-positioned to Distinct Doubling frontline leverage drives capitalize on advantages enable sellers while growth shifting customer greater customer maintaining flat with low selling trends value creation selling costs cost 115
Slide 116: Neil Dougherty, SVP and Chief Financial Officer
Neil Dougherty Senior Vice President and Chief Financial Officer 116
Slide 117: Financial update key messages
1 2 3 4 5 Executed on Delivering on our Driving expansion Increasing our Transitioning to a targeted growth financial of operating margin focus on free cash more balanced initiatives and commitments flow conversion approach to capital gaining momentum allocation 117
Slide 118: Revenue, operating margin, free cash flow, EPS
Revenue ($B)1 Operating Margin %1 Free Cash Flow ($M) EPS1 $3.25 19.5% $325 19.1% $2.52 $2.53 $2.86 $2.93 18.6% $284 $241 $2.43 FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 …operating margins Growth through share gains … solid cash …and stable in-line with target and M&A… generation…
Slide 119: Commitments and progress
COMMITMENT PROGRESS Top-line On-track to achieve 4%+ core growth in FY’18 Achieve 4% revenue growth by FY’19 Growth Three consecutive years of market share gains Operating Deliver 40% OM incremental on 4% growth On-track to achieve committed incremental in FY’18 Margin1 Baseline operating margin of
Slide 120: Leverage profile and capital structure
Leverage Profile Capital Structure As of ($M) Q1’18 ($M) • ~$1.4B available liquidity Term Loan A 260 • $980M cash/cash equivalents $450M Revolving Credit Facility Undrawn • $450M revolving credit facility 3.30% Senior Notes due 2019 500 • Committed to investment grade rating 4.55% Senior Notes due
Slide 121: Cost management and structural flexibility
LASER FOCUS ON STRUCTURAL LONG-TERM COST MANAGEMENT FLEXIBILITY EVOLUTION KLM • LEAN • Minimal fixed cost • Allocate resources to growth highest return • Eliminate waste • Outsourced supply opportunities • Continuous chain • Proactive structural improvement • Indirect sales channel cost management •
Slide 122: Margin targets by 2021
PRIOR NEW TARGET IMPROVEMENT TARGET BY 2021 Gross Margin 56-58% 61-63% 500 bps DRIVERS • Improved market position R&D % 13% 15% 200 bps • Operating leverage • Favorable mix shift (SW, R&D) SG&A % 24-26% 24-25% (50) bps • Ixia synergy realization • Ongoing cost reductions Operating Margin % 18-19% 22
Slide 123: Revenue sensitivity and operating margin
Revenue Sensitivity -10% BASELINE +10% Operating Margin1 -3-4 ppts 18-19% 22-23% +2-3 ppts Current 2021 ENABLED BY STRUCTURAL FLEXIBILITY OF BUSINESS 1 Non-GAAP measure 123
Slide 124: Free cash flow conversion
Large Investments Free Cash Flow Conversion 1 Nearing Completion 100% 80–90% Target 78% ✓ Post-separation IT investments 75% 66% 52% ✓ Anite acquisition integration 50% ✓ Ixia acquisition integration to be 25% completed by Q3’18 ✓ Pension funding improved 0% // FY'15 FY'16 FY'17 FY'19 FCF CONVERSION
Slide 125: Tax rate reduction and cash repatriation
Tax Rate Increased Cash Cash Capital Reduction Availability Repatriation Deployment Tax rate1 reduced from Move to territorial Deemed repatriation Go-forward capital 17% to estimated15% in system increases provides one-time U.S. allocation strategy FY’18 projected U.S. cash cash influx of >$500M bas
Slide 126: Capital allocation priorities
1 Reinvestment in Core Business to 2 De-lever and Achieve Target 3 Disciplined M&A 4 Return of Capital Drive Organic Gross Debt-to- Growth EBITDA • Maintain R&D • Final $260M of Ixia- • Continued focus on • Driven by return to investment at ~15% of related pre-payable tuck-in acquisitions organic gr
Slide 127: M&A strategic and financial criteria
STRATEGIC CRITERIA FINANCIAL CRITERIA • Aligns with strategic growth priorities • Accretive to EPS within 18 months • Expands Served Addressable Market (SAM) • ROIC materially above WACC by year 5 • Increases/adds exposure to higher-growth • Cost and/or revenue synergies end markets • Provides high
Slide 128: Raising core growth expectations to 4-5%
End-Market Market Growth Keysight Segments End Markets Size Rates2 Revenue3 Position4 Share Commercial Communications $4.0B 3 - 5% $1.0B #1 ~25% Communications Solutions Aerospace, Defense & Gov’t $3.0B 2 - 3% $0.7B #1 ~23% Electronic Indust. Solutions Electronic Industrial $4.0B 2 - 3% $0.8B #1 ~20
Slide 129: Market leadership, technology leadership, raising the bar
MARKET GAINING MARKET INCREASING BROAD CUSTOMER LEADERSHIP SHARE RECURRING REVENUE DIVERSITY Market-leading position Three consecutive years Growing software and 32,000 end customers in diverse and growing of market share gains services solutions annually with no single end markets since separation
Slide 130: Previous and new financial targets
Previous Target New Target (2015 Investor Day) Core Revenue Sustainable Sustainable Growth1 4% CAGR 4-5% CAGR Operating 18-19% 22-23% Margin1 EPS 8-10% ≥10% Growth1 • 22-23% operating margin to be achieved in 2021 ASSUMPTIONS: • Share count maintained flat to Q2’18 1 Non-GAAP measure. Core revenue g
Slide 131: Top-line growth and efficiencies drive earnings expansion
$1.85 - $2.10 $0.23- $0.34 $0.09 - $0.10 $4.00 - $4.25 $0.26 - $0.28 $(0.61) - $(0.65) $(0.18) - $(0.21) $(0.18) - $(0.20) FY21 Estimated EPS FY17 EPS TOP-LINE GROWTH AND OPERATIONAL EFFICIENCIES DRIVE EARNINGS EXPANSION 1 Non-GAAP measure 131
Slide 132: In summary
IN SUMMARY Returning Meeting or Raising Increasing capital Accelerating exceeding key financial focus on FCF driven by EPS growth financial goals commitments conversion growth 132
Slide 133: Ron Nersesian, President and CEO
Ron Nersesian President and Chief Executive Officer 133
Slide 134: Competitive advantages and attractive financial model
COMPETITIVE ADVANTAGES • Industry-leading Expertise ALIGNED TO STRONG MACRO TRENDS and Deep Talent AND BUSINESS DRIVERS • Leading Positions in Attractive Markets • Well-Capitalized to Fund Profitable Growth • Reenergized Innovation and Operational Excellence Focus ATTRACTIVE FINANCIAL MODEL1 2 • 4-5
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135
Slide 136: Appendix
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Slide 137: GAAP to non-GAAP revenue
($M) FY'17 FY'16 FY'15 GAAP Revenue $ 3,189 $ 2,918 $ 2,856 Acquisition-related Fair Value Adjustments 60 12 6 Non-GAAP Revenue $ 3,249 $ 2,930 $ 2,862 137
Slide 138: Income from operations reconciliation
($M) FY'17 FY'16 FY'15 Income from Operations, as Reported $ 239 $ 406 $ 431 Amortization of Acquisition-related Balances 256 56 23 Share-based Compensation 56 49 55 Acquisition and Integration Costs 57 18 16 Acquisition-related Compensation Expense 28 - - Separation and Related Costs 20 24 20 Pensi
Slide 139: Net income and EPS reconciliation
($M, except per share amounts) FY'17 FY'16 FY'15 GAAP Net Income $ 102 $ 335 $ 513 Non-GAAP Adjustments: Amortization of Acquisition-related Balances 256 56 23 Share-based Compensation Expense 56 49 55 Acquisition and Integration Costs 67 17 15 Acquisition-related Compensation Expense 28 - - Separat
Slide 140: Revenue by group, pro forma
Acquisition Pre-acquisition related Non-GAAP Ixia revenue on Adjusted Non- GAAP Revenue fair value adjs Revenue Pro foma basis GAAP Revenue FY17, ( in millions) Commercial Solutions Group $ 1,738 — $ 1,738 — $ 1,738 Electronic Industrial Solutions Group 836 — 836 — 836 Ixia Solutions Group 196 60 25
Slide 141: Free cash flow reconciliation
($M) FY'17 FY'16 FY'15 Net Cash Provided by Operating Activities $ 313 $ 416 $ 376 Less: Investments in PP&E (72) (91) (92) Free Cash Flow $ 241 $ 325 $ 284 GAAP Diluted EPS $ 462 $ 419 $ 432 FCF/NI 52% 78% 66% 141
Slide 142: Net income to LTM Adjusted EBITDA
Reconciliation of Net Income to LTM Adjusted EBIDTA KEYSIGHT Net Income Add: Provision (benefit) for income taxes Income before taxes Add: Interest Income Interest expense Other expense (income) Depreciation and amortization EBITDA Add back: Non-GAAP adjustments Amortization of acquisition-related b
Slide 143: Gross debt, net debt and total capital
Q1 FY18 ( in millions) Term Loan $ (260) Senior notes, par value (1,800) Gross debt (2,060) Less : Cash and cash equivalents $ 980 Restricted Cash 2 Net Debt (1,078) ($ in millions) Gross debt as above $ 2,060 Add Shareholders equity 2,484 Total Capital 4,544 143
Slide 144: Speaker Biographies
“2 “s , sl Speaker Biographies
Slide 145: Ron Nersesian
RON NERSESIAN PRESIDENT AND CHIEF EXECUTIVE OFFICER Ron Nersesian is president and chief executive officer of Keysight Technologies. In November, 2011, he was named executive vice president and chief operating officer of Agilent Technologies. The following year, in November 2012, he was promoted to
Slide 146: Neil Dougherty
NEIL DOUGHERTY SVP AND CHIEF FINANCIAL OFFICER Neil Dougherty is senior vice president and Chief Financial Officer of Keysight Technologies. As CFO Dougherty leads the company's global finance operations including tax, treasury, and investor relations. Dougherty joined Hewlett-Packard in 1996 as a f
Slide 147: Jay Alexander
JAY ALEXANDER SVP AND CHIEF TECHNOLOGY OFFICER Jay Alexander is senior vice president and chief technology officer of Keysight Technologies. Alexander leads Keysight's centralized planning and technology development team to focus on top opportunities and market trends to address unmet needs. Alexand
Slide 148: Satish Dhanasekaran
SATISH DHANASEKARAN SVP, PRESIDENT – COMMUNICATIONS SOLUTIONS GROUP Satish Dhanasekaran is senior vice president of Keysight Technologies, and president of the Communications Solutions Group (CSG). Named CSG president in July 2017, Dhanasekaran leads the $1.8 billion business which addresses the com
Slide 149: Gooi Soon Chai
GOOI SOON CHAI SVP, PRESIDENT – ELECTRONIC INDUSTRIAL SOLUTIONS GROUP Gooi Soon Chai is senior vice president, Keysight, and president of the Electronic Industrial Solutions Group which addresses the automotive, energy, general electronics, manufacturing, and semiconductor businesses. Gooi is also r
Slide 150: John Page
JOHN PAGE SVP, PRESIDENT – SERVICES SOLUTIONS GROUP John Page is senior vice president, Keysight, and president of the Services Solutions Group. Page, most recently vice president of Keysight's business finance organization, has 25 years of financial and corporate leadership, including CEO and found
Slide 151: Mark Pierpoint
MARK PIERPOINT SVP, PRESIDENT – IXIA SOLUTIONS GROUP Mark Pierpoint is senior vice president of Keysight Technologies, and president of Keysight's Ixia Solutions Group which provides network test and visibility solutions for validating, optimizing and securing networks. Before being named ISG presid
Slide 152: Mark Wallace
MARK WALLACE SVP – GLOBAL SALES Mark Wallace is senior vice president, global sales for Keysight. As the leader of the company's global sales function, Wallace is responsible for orders and customer satisfaction for the company. Most recently, Wallace was vice president and general manager of the Am