Slide 1: Keysight Technologies Investor Presentation September 2017
Keysight Technologies Investor Presentation September 2017 Page 1
Slide 2: Safe Harbor
Safe Harbor 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
Slide 3: Agenda
Agenda Executive Overview Growth Initiatives Page 3
Slide 4: Compelling Investor Value Proposition
Compelling Investor Value Proposition Commitment to Growing Long-Term Total Shareholder Returns • #1 market position in key software & hardware verticals(1) Market Leader in • $15.5B electronics and communication SAM(2) Attractive Markets • 20%+ market share in core end markets(2) Aligned to Critica
Slide 5: History of Leadership and Innovation
History of Leadership and Innovation Unlocking measurement insights for over 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: K
Slide 6: Keysight Today: Market & Technology Leader
Keysight Today: Market & Technology Leader Business Overview FY16 Key Statistics • Worldwide leader in high value, mission critical Revenue Mix electronic design and test solutions Services Solutions Group $0.4B, 14% • Relied on by the world’s leading technology companies Electronic Communication In
Slide 7: Our Value to Customers – Unmatched in the Industry
Our Value to Customers – Unmatched in the Industry Accelerating innovation to connect and secure the world WIRELESS NETWORKS AEROSPACE AUTOMOTIVE, ENERGY, COMMUNICATIONS AND CLOUD AND DEFENSE AND IOT Customer’s Product Lifecycle Simulate Prototype Manufacture Optimize Page 7
Slide 8: A Strong Financial Framework for Value Creation
A Strong Financial Framework for Value Creation Driving shareholder returns Organic Mergers & Business Model Return of Capital Growth Acquisitions • Cost Structure • R&D Investment • Strategic Alignment • U.S. Cash Flexibility Generation • SAM Expansion • Growth • Cost Reductions • Appropriate • Pro
Slide 9: Organized to Grow
Organized to Grow First to Trusted Aligned with End Markets Market Advisor Corporate Electronic Communications Ixia Services Planning and Industrial Worldwide Sales Solutions Group Solutions Group Solutions Group Technology Solutions Group Jay Satish Soon Chai Bethany John Mark Alexander Dhanasekara
Slide 10: Strong Progress on Growth Initiatives
Strong Progress on Growth Initiatives • Triple-digit 5G order growth in FY16 Be First in 5G • Positioning Keysight as the market leader in 5G Wireless • Collaborating with leading consortiums, universities, and research institutes to define 5G standards and technologies Expand • Double-digit order g
Slide 11: Disciplined approach to capital investment
Disciplined approach to capital investment Phase 3 Return Capital Balanced Return of Capital Phase 2 Return Return to Growth • Return of capital tied to US cash generation of Sustained 4% CAGR • Appropriate leverage and Capital over Cycle commitment to investment Phase 1 grade credit metrics • M&A a
Slide 12: Disciplined and Well-Defined Criteria for Acquisitions
Disciplined and Well-Defined Criteria for Acquisitions The Example • Aligns with strategic growth priorities Strategic Alignment • Delivers higher gross margin R&D or software solutions • Expands Served Addressable Market (SAM) Growth • Focuses on faster growing market segments or adds key technolog
Slide 13: Long-Term Expectations
Long-Term Expectations Revenue Op Margin Profitability Growth Incremental Over the Cycle 40% on Average Sustainable growth of 4% operating margin 4% CAGR or greater of >20%* Committed Return of Capital Yields 8-10% EPS* Growth * Non-GAAP Page 13
Slide 14: Agenda
Agenda Executive Overview Growth Initiatives Page 14
Slide 15: Leadership in Attractive Markets
Leadership in Attractive Markets Electronic Services Communications Industrial Ixia(1) Segments Solutions Group Solutions Solutions Solutions Group Group Group Aerospace, Commercial Electronic Network Network End Markets Comms Defense & Industrial Services Test Visibility TOTAL Government Revenue(2)
Slide 16: Market Leader in Key Software & Instrument Platforms
Market Leader in Key Software & Instrument Platforms Core Solution Platforms Market Position(1) Simulation Software(2) #1 Ixia(3) Network Test #1 Ixia(3) Network Visibility #2/3 Network Analyzers #1 Signal Analyzers #1 Signal Sources #1 Oscilloscopes #2 (1) Per Prime Data, IHS Technology, and Compan
Slide 17: Multiple Growth Drivers Provide Diversification
Multiple Growth Drivers Provide Diversification Growth Drivers • Evolving standards – 5G Commercial Communications • All data, all the time • Internet of Things (IoT) • Rapidly expanding cloud data and apps Network Test & Visibility • Growing security risks Aerospace, Defense & • World instability G
Slide 18: Growth Strategies Aligned to Key Market Themes
Growth Strategies Aligned to Key Market Themes Growth Strategies Growth Strategies Software-centric solutions | Organic R&D investments | Strategic M&A Be first in Expand leadership in Grow services Extend into network 5G wireless T&M software business test and visibility Page 18
Slide 19: First in 5G Wireless
First in 5G Wireless Unprecedented Wireless Demand Accelerated Industry 5G Deployment Timeline 30bn+ connected devices by 2020 Pre-commercial North American deployment mid-2017 10x mobile data in five years Worldwide carrier trials begin 2H 2017 • IoT consuming exponential amount of instantaneous da
Slide 20: Expand Leadership in T&M Software
Expand Leadership in T&M Software • $2B market for electronic test software, ~7% CAGR(1) • Double digit order growth in FY16 Business Update • Software revenues over $400M • New software design center staffed ahead of schedule 1 Expand simulation business — Address growth opportunities in High-Speed
Slide 21: Grow Services Business by 50%
Grow Services Business by 50% 2016 2020 $402M Revenue $600M Revenue (9% order growth) Used Used Equipment Equipment Calibration Calibration “Plus” Repair Repair Grow Core Add New Services Leverage Portfolio Expand Multi-Vendor Build and Deploy Professional Launch and Calibration Business Services Ex
Slide 22: Extend into Network Test and Visibility
Extend into Network Test and Visibility Creating a compelling innovation engine with Ixia to drive growth A Combination of Complementary Strengths A global leader in Industry pioneer and A global leader in measurement recognized leader in communications with the instrumentation and network test; a l
Slide 23: Keysight as a Platform for Accelerated Growth
Keysight as a Platform for Accelerated Growth High-value capabilities across the communications network and throughout the stack Components Stack Layers & Chipsets Devices Base Stations Hyperscale and Data Centers Enterprise Customer Experience Management Mobile BTS* Emulation Drive Test Layers 2 -
Slide 24: Synergistic Combination with Ixia
Synergistic Combination with Ixia Driving the Opportunity in Visibility(1) Financial Impact and Outlook Ixia FY16 Revenue • Accretive to top-line growth Network – SAM expansion and go-to-market leverage driving Visibility $50M in revenue synergies by year three and 28% $100M by year five $485M Netwo
Slide 25: FY16 Combined Financial Overview
FY16 Combined Financial Overview $2.9B Revenue(1) $3.4B Revenue(1) 58% Gross Margin(1) 14% R&D % of Revenue(1) 61% Gross Margin(1) 15% R&D % of Revenue(1) 19% Operating Margin(1) $325M Free Cash Flow(1) 18% Operating Margin(1),(2) $397M Free Cash Flow(1) Note: Figures represent non-GAAP measures. Co
Slide 26: Key Messages
Key Messages Transformation Objectives Leader in Technology and market leader in Over the Cycle* profitable market ever-evolving technology market ✓ 4% revenue CAGR Transform Target fast growing areas for and expand Served Addressable ✓ Deliver >20% growth Market (SAM) operating margin ✓ 8-10% EPS g
Slide 27: Modular Form Factor
Modular Form Factor KEYSIGHT TECHNOLOGIES Page 27
Slide 28: Fast Growing Modular
Fast Growing Modular Small Portion of Total Market 2016 Total Modular Solutions Market 2016 Total Design & Test Market $1.2 Billion* $13 Billion* 18 16 14 12 37% $750M* $B 10 Other PXI/AXIe Modular 63% Modular 8 PXI/AXIe PXI/AXIe Modular 13% CAGR* 6 Modular to 2020 4 13% CAGR** 2 0 2016 2017 2018 20
Slide 29: Investments Leveraged into Multiple Form Factors
Investments Leveraged into Multiple Form Factors Provides Competitive Differentiation Form Factor Customer Best For “X-Chips” Chipset Feature Rich Box • R&D • Full measurement set • Highly integrated • One-button • Validation • High performance measurements • Complex device • Low power manufacturing
Slide 30: Reconciliations
Reconciliations KEYSIGHT TECHNOLOGIES Page 30
Slide 31: Keysight Non-GAAP gross margin reconciliation
Keysight Non-GAAP gross margin reconciliation Year Ended October 31, 2016 Gross Margin % ( in millions) GAAP Gross Profit $ 1,624 56% Intangible amortization 38 Share-based compensation 11 Acquisition and integration costs 2 Acquisition related fair value adjustments 12 Other 2 Non-GAAP Gross Profit
Slide 32: Keysight Non-GAAP operating margin reconciliation
Keysight Non-GAAP operating margin reconciliation Year Ended October 31, 2016 ( in millions) Income from operations, as reported $ 406 Intangible amortization 44 Share-based compensation 49 Acquisition and integration costs 18 Acquisition-related fair value adjustments 12 Separation and related cost
Slide 33: Keysight Non-GAAP research and development expenses reconciliation
Keysight Non-GAAP research and development expenses reconciliation Year Ended October 31, 2016 October 31, 2014 ( in millions) Research and Development expense, as reported $ 425 $ 361 Share-based compensation (8) (7) Acquisition and integration costs (1) - Separation and related costs - (2) Restruc
Slide 34: Keysight Non GAAP revenue by end market reconciliation
Keysight Non GAAP revenue by end market reconciliation Acquisition- related GAAP Revenue fair value adjs Non-GAAP Revenue FY16, (in millions) Aerospace, Defense & Government $ 740 — $ 740 Commercial Communications 1,000 12 1,012 Electronic Industrial 776 — 776 Services 402 — 402 Total Keysight Reven
Slide 35: Keysight Non GAAP revenue and Free cash flow reconciliation
Keysight Non GAAP revenue reconciliation FY16, (in millions) GAAP Revenue $ 2,918 Acquisition-related fair value adjustments 12 Non-GAAP Revenue $ 2,930 Keysight Free cash flow reconciliation Year Ended October 31, 2016 (in millions) Net cash provided by operating activities $ 416 Less: Investments