Keysight Technologies Inc. · NYSE:KEYS
Keysight Technologies — Credit Suisse Annual Technology Conference 2014
43 slides from Keysight Technologies's conference presentation, Dec 2, 2014
Slide 1: Keysight Technologies
Keysight Technologies Credit Suisse Annual Technology Conference December 2, 2014
Slide 2: Safe Harbor
Safe Harbor This presentation contains forward-looking statements (including, without limitation, information and future guidance on the company’s goals, priorities, revenues, demand, growth opportunities, customer service and innovation plans, new product introductions, financial condition, earning
Slide 3: Introduction to Keysight Technologies
Introduction to Keysight Technologies Page 3
Slide 4: Keysight at a Glance
Keysight at a Glance NET REVENUE IN FY14 $2.9 billion ( ~64% from outside the US) EMPLOYEES ~9,600 PRESIDENT and CEO Ron Nersesian GLOBAL HEADQUARTERS Santa Rosa, California CUSTOMER LOCATIONS 100+ countries MANUFACTURING AND R&D LOCATIONS U.S., Europe, Asia Pacific EXCHANGE LISTING NYSE: KEYS Share
Slide 5: Timeline of Innovation
Timeline of Innovation Unlocking measurement insights for 75 years 1939–1998: The Hewlett-Packard years A company founded on electronic measurement innovation 1999–2013: The Agilent Technologies years Spun off from HP, Agilent became the World’s Premier Measurement Company 2014: Keysight is an Indep
Slide 6: Agilent Spin-off of Keysight
Agilent Spin-off of Keysight Strategic rationale for separation Capitalizing on its Electronic Measurement Group (Keysight), Agilent grew its Life Sciences, Diagnostics and Analytics operations to stand-alone size and competitiveness Spin-off creates two companies with greater strategic and manageme
Slide 7: Keysight Overview
Keysight Overview Unlocking measurement insights for 75 years • Global electronic measurement technology and market leader Financial Metrics • Strong financial profile • FY14 Revenues $2.9B • Deep and loyal customer base • FY 14 Operating Margin(1) 19.1% • Sales in 100+ countries • FY13 ROIC(1) 31%
Slide 8: Keysight Technologies Value Creation
Keysight Technologies Value Creation • Favorable trends in our end markets • Communications – explosive mobile data growth • Aerospace/Defense – defense modernization • Industrial, Computers & Semiconductors – electronic content proliferation • Transforming our portfolio in segments with highest gro
Slide 9: Investment Highlights
Investment Highlights Page 9
Slide 10: Investment Highlights
Investment Highlights 1 Focused Team with Deep Electronic Measurement Roots 2 Attractive End Markets 3 Market Leadership 4 Deep Customer Relationships 5 A History of “Firsts” 6 Portfolio Transformation for Growth 7 Strong Operating Model Page 10
Slide 11: Focused Team with Deep Electronic Measurement Roots
1 Focused Team with Deep Electronic Measurement Roots Executive staff with 29 years average industry experience Test & Measurement Experience Ron Nersesian Transformed Agilent’s Electronic Measurement Group to deliver President & CEO double digit-profit throughout the business cycle and delivered 30
Slide 12: Attractive End Markets
2 Attractive End Markets Evolving market segments present opportunities Market Size(1): $12B Long Term Market Growth(1): 3-4% Industrial, Computers, Communications (3) Aerospace Defense Semiconductors Revenue Mix (2) 34% 22% 44% Market Size (1) $4B $3B $5B 3-Year Market Growth(1) 4-6% Flat 3-5% Expl
Slide 13: Market Leadership
3 Market Leadership Technology core fuels portfolio transformation Core Platforms Leadership Position Electronic Design Highest performance design software used by 2/3 of the Automation world’s RF/Microwave designers Software Network Highest performance, broadest offering, including industry- Analyz
Slide 14: Deep Customer Relationships
4 Deep Customer Relationships Most Fortune 1000 electronics companies are Keysight customers Key Customer Facts FY14 Revenue by End Market • Diverse customer base with no single customer Industrial, Communications accounting for more than 10% of revenues(1) Computer & Semi • 75% of customer revenue
Slide 15: Keysight Customer Support and Service
4 Keysight Customer Support and Service Founded on deep customer relationships and trust • Global Reach & Capability LTM Financial Metrics(1) • Service centers in 30 countries repair and • Revenues $404M calibrate customer test equipment • Consistent support for multi-national • Operating Margin 22.
Slide 16: A History of "Firsts"
5 A History of “Firsts” Industry leading R&D is key to our customers’ success in a changing world First 4G LTE X-Parameters: Breakthrough First single-slot software simulation invention enables PXI two-channel tools for design of first-ever software modular Vector chipsets, base simulation capabilit
Slide 17: Portfolio Transformation for Growth
6 Portfolio Transformation for Growth Focus on opportunities with above-market growth rates Wireless Communications Multi Format Tester • Explosive mobile data growth and evolving wireless standards are driving investment in emerging networking technologies • Keysight recently introduced two new wir
Slide 18: Strong Operating Model
7 Strong Operating Model Superior and stable financial performance throughout cycle • Disciplined expense and capital management ensures rapid response to macro environment • Specific levers and management process enable strong financial performance throughout the cycle Profitability and Capital Eff
Slide 19: Keysight Technologies Liquidity and Capital Structure
Keysight Technologies Liquidity and Capital Structure Capital structure at time of spin • Cash and equivalents of $700M(1) • Majority of cash is generated offshore with sufficient free cash flow accessible in the U.S. • $1.1B debt offering, of which $900M was distributed to Agilent • LTM Adjusted EB
Slide 20: FY15 Financial Considerations
FY15 Financial Considerations(1) • Overall market growth expectations reflect continued slow recovery with end-market growth in the range of 2.5 – 3.5% in 2015 • FY15 is a transition year as Keysight spins off from Agilent with the following financial structure changes: • Dis-synergies (~$20M) • Equ
Slide 21: Q1 FY15 Guidance
Q1 FY15 Guidance Q1’15 Revenue $675M - $715M Revenue Growth 0.6% - 6.6% Operating Margin(1) 14% - 17% (1) Non-GAAP measure Page 21
Slide 22: Recent Quarterly Financial Results
Recent Quarterly Financial Results(1) (adjusted for stock-based compensation) & Forward-looking Considerations $M Q4'13 Q1’14 Q2’14 Q3’14 Q4’14 Revenue 705 671 743 757 762 YoY % -14% -7% -2% 8% 8% Gross Margin 398 373 418 418 425 GM% 56.4% 55.6% 56.2% 55.3% 55.7% R&D 88 90 89 90 89 SG&A 176 181 181
Slide 23: Appendix
Appendix KEYSIGHT TECHNOLOGIES Page 23
Slide 24: An Overview of Keysight's End Markets
An Overview of Keysight’s End Markets A market leader in electronic test and measurement solutions Industrial, Computer, Communications Aerospace and Defense and Semiconductor Page 24
Slide 25: Keysight Technologies in Communications
Keysight Technologies in Communications Market size(1): $4B Long-term market growth(1): 4-6% End Market Growth Drivers • Mobile data traffic growing at double-digit rates each year • Components and chipsets increasing complexity • 4G and 5G technology and standards evolution How We Win Market reach
Slide 26: Keysight Technologies in Aerospace and Defense
Keysight Technologies in Aerospace and Defense Market size(1): $3B Long-term market growth(1): Flat End Market Growth Drivers • Growth of intelligence, surveillance, and reconnaissance • Growth outside US (Russia, China, India, Middle East) driven by new satellites and radar technologies How We Win
Slide 27: Keysight Technologies in Industrial, Computers, Semiconductor
Keysight Technologies in Industrial, Computers, Semiconductor Market size(1): $5B Long-term market growth(1): 3-5% End Market Growth Drivers • Electronic content in industrial segment continues to proliferate • Mobile computing driven by smartphones, tablets, and notebook PCs • Cloud computing requi
Slide 28: Opportunities to Accelerate Growth
Opportunities to Accelerate Growth Three key areas of focus Wireless Modular Solutions Software Page 28
Slide 29: Transforming Product Portfolio for Growth: Wireless
Transforming Product Portfolio for Growth: Wireless New wireless communications R&D and manufacturing platforms Multi Format Tester Growth Opportunity • Explosive mobile data growth and evolving wireless standards drive investment in emerging networking technologies R&D Platform Designed for R&D and
Slide 30: Transforming Product Portfolio for Growth: Modular Solutions
Transforming Product Portfolio for Growth: Modular Solutions Significant focus area to drive growth Growth Opportunity • Increasing demand for flexibility and form factor options. Modular solutions are growing faster than overall EM market Keysight’s Fast-Growing Modular Portfolio How Keysight will
Slide 31: Transforming Product Portfolio for Growth: Software
Transforming Product Portfolio for Growth: Software Value migration to software solutions Growth Opportunity • As measurement science evolves to software, software is expected to grow faster than the electronic measurement market • Customers can extend instrument life and investment with new softwar
Slide 32: Customer New Product Introduction Workflow
Customer New Product Introduction Workflow Keysight provides innovative and leading measurement solutions at every step Simulate Prototype Manufacture I&M • Simulation (R&D) • Electronic design automation (EDA) software is used to virtually model the circuits of a new product prior to the developmen
Slide 33: Reconciliations
Reconciliations KEYSIGHT TECHNOLOGIES Page 33
Slide 34: GAAP to NON GAAP Operating profit reconciliation - Q4'13
GAAP to NON GAAP Operating profit reconciliation - Q4’13 KEYSIGHT TECHNOLOGIES, INC. AND SUBSIDIARIES RECONCILIATION FROM GAAP TO NON-GAAP INCOME FROM OPERATIONS THREE MONTHS ENDED OCTOBER 31, 2013 (Unaudited) PRELIMINARY NON-GAAP ADJUSTMENTS Restructuring Acquisition & and Other Intangible Integrat
Slide 35: GAAP to NON GAAP Operating profit reconciliation - Q1'14
GAAP to NON GAAP Operating profit reconciliation - Q1’14 KEYSIGHT TECHNOLOGIES, INC. AND SUBSIDIARIES RECONCILIATION FROM GAAP TO NON-GAAP INCOME FROM OPERATIONS THREE MONTHS ENDED JANUARY 31, 2014 (Unaudited) PRELIMINARY NON-GAAP ADJUSTMENTS Restructuring Acquisition & and Other Intangible Integrat
Slide 36: GAAP to NON GAAP Operating profit reconciliation - Q2'14
GAAP to NON GAAP Operating profit reconciliation - Q2’14 KEYSIGHT TECHNOLOGIES, INC. AND SUBSIDIARIES RECONCILIATION FROM GAAP TO NON-GAAP INCOME FROM OPERATIONS THREE MONTHS ENDED APRIL 30, 2014 (Unaudited) PRELIMINARY NON-GAAP ADJUSTMENTS Intangible Pre-Separation Others (in millions) GAAP Amortiz
Slide 37: GAAP to NON GAAP Operating profit reconciliation - Q3'14
GAAP to NON GAAP Operating profit reconciliation - Q3’14 KEYSIGHT TECHNOLOGIES, INC. AND SUBSIDIARIES RECONCILIATION FROM GAAP TO NON-GAAP INCOME FROM OPERATIONS THREE MONTHS ENDED JULY 31, 2014 (Unaudited) PRELIMINARY NON-GAAP ADJUSTMENTS Intangible Pre-Separation Others (in millions) GAAP Amortiza
Slide 38: GAAP to NON GAAP Operating profit reconciliation – Q4'14
GAAP to NON GAAP Operating profit reconciliation – Q4’14 KEYSIGHT TECHNOLOGIES, INC. AND SUBSIDIARIES RECONCILIATION FROM GAAP TO NON-GAAP INCOME FROM OPERATIONS THREE MONTHS ENDED OCTOBER 31, 2014 (Unaudited) PRELIMINARY NON-GAAP ADJUSTMENTS Intangible Other (in millions) GAAP Amortization Non-GAAP
Slide 39: GAAP to NON GAAP Operating profit reconciliation – FY14
GAAP to NON GAAP Operating profit reconciliation – FY14 KEYSIGHT TECHNOLOGIES, INC. AND SUBSIDIARIES RECONCILIATION FROM GAAP TO NON-GAAP INCOME FROM OPERATIONS YEAR ENDED OCTOBER 31, 2014 (Unaudited) PRELIMINARY NON-GAAP ADJUSTMENTS Restructuring Acquisition & and Other Intangible Integration Trans
Slide 40: GAAP to Non-GAAP Operating Income Reconciliation
GAAP to Non-GAAP Operating Income Reconciliation Year Ended October 31, (except LTM) (1) $ in Millions 2011 2012 2013 LTM GAAP Income from operations $737 $733 $496 $467 Restructuring and other related costs - - 15 (5) Asset impairments 4 - 1 - Amortization of intangible assets 10 7 9 8 Transformati
Slide 41: Non-GAAP Adjusted EBITDA Reconciliation
Non-GAAP Adjusted EBITDA Reconciliation Year Ended October 31, (except LTM) (1) $ in Millions 2011 2012 2013 LTM Non-GAAP Income from operations $760 $751 $544 $533 Plus: Depreciation and amortization 56 65 77 79 Less: Amortization of intangible assets (10) (7) (9) (8) Share-based compensation expen
Slide 42: Free Cash Flow Reconciliation
Free Cash Flow Reconciliation Year Ended October 31, (except LTM) (1) $ in Millions 2011 2012 2013 LTM Net Cash provided by operating activities 751 724 566 497 Less: Purchases of property and equipment (95) (103) (69) (62) Free Cash Flow $656 $621 $497 $435 % of Revenue 19.8% 18.7% 17.2% 15.1% (1)
Slide 43: ROIC Reconciliation
ROIC Reconciliation Year Ended October 31 (2) $ in Millions 2013 LTM Non-GAAP Income from Operations $544 $533 Less: Taxes (84) (85) Non-GAAP Income from Operations After Taxes $460 $448 Assets (1) $1,997 $1,963 Less: Current Liabilities (536) (503) Invested Capital $1,461 $1,460 ROIC 31% 31% (1) Co
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