20160301 March Investor Deck
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September 2017 Keysight Technologies Investor Presentation
Transcript of 20160301 March Investor Deck
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September 2017
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Keysight TechnologiesInvestor Presentation
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Safe HarborThis 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 key assumptions. Due to such uncertainties and risks, no assurances can be given that such expectations will
prove to have been correct, and readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as
of the date hereof. The forward-looking statements contained herein include, but are not limited to, information and future guidance on the
company’s goals, priorities, revenues, demand, growth opportunities, customer service and innovation plans, new product introductions,
financial condition, earnings, the company’s ability to pay dividends, ability to access capital markets, the continued strengths and expected
growth of the markets the company sells into, operations, operating earnings, and tax rates) that involve risks and uncertainties that could
cause Keysight’s results to differ materially from management’s current expectations. Such risks and uncertainties include, but are not
limited to, unforeseen changes in the strength of our customers’ businesses; unforeseen changes in the demand for current and new
products, technologies, and services; customer purchasing decisions and timing, and the risk that we are not able to realize the savings or
benefits expected from integration and restructuring activities. The words “anticipate,” “plan,” “estimate,” “expect,” “intend,” “will,” “should,”
“forecast,” “project,” and similar expressions, as they relate to the company, are intended to identify forward-looking statements.
In addition to the risks above, other risks that Keysight faces include those detailed in Keysight’s filings with the Securities and Exchange
Commission, including our Form 10-K for the fiscal year ended October 31, 2016, and Keysight’s quarterly report on Form 10-Q for the
period ended April 30, 2017.
Forward-looking statements are based on the beliefs and assumptions of Keysight’s management and on currently available information.
Keysight undertakes no responsibility to publicly update or revise any forward-looking statement.
This presentation includes a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall
performance of the business, for making operating decisions and for forecasting and planning for future periods. Non-GAAP measures
exclude primarily the impacts of share-based compensation, restructuring and related costs, separation and related costs, acquisition and
integration costs, acquisition-related fair value adjustments, asset impairments and non-cash intangible amortization. Also excluded are tax
benefits or expenses that are not directly related to ongoing operations and which are either isolated or cannot be expected to occur again
with any regularity or predictability. Most of these excluded amounts pertain to events that have not yet occurred and are not currently
possible to estimate with a reasonable degree of accuracy. Accordingly, no reconciliation to GAAP amounts has been provided. The
definitions of these non-GAAP financial measures may differ from similarly titled measures used by others, and such non-GAAP measures
should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. Keysight generally
uses non-GAAP financial measures to facilitate management’s comparisons to historic operating results, to competitors’ operating results
and to guidance provided to investors. In addition, Keysight believes that the use of these non-GAAP financial measures provides greater
transparency to investors of information used by management in its financial and operational decision-making.
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Agenda
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Executive Overview
Growth Initiatives
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• Diversified tail winds across 5G, IoT, Auto, Software, Services and Networking
• Organizational realignment to end markets
• Proven track record of operational excellence following separation
• R&D investment up over 200bps as percent of revenue since FY2014(3)
• Market share gains since 2014(1)
• Multiple levers to drive long-term 8-10% EPS(4) growth
• Ixia acquisition adds $485M(5) to the topline and $2.5B in incremental SAM
– $60M combined annual cost synergies;– $40M achieved in 12 months (Q3’18)
– $100M revenue synergies by year 5
• #1 market position in key software & hardware verticals(1)
• $15.5B electronics and communication SAM(2)
• 20%+ market share in core end markets(2)
Market Leader in Attractive Markets
Aligned to Critical Industry Growth
Themes
Strong Culture of Execution
Attractive Financial Model
Compelling Investor Value PropositionCommitment to Growing Long-Term Total Shareholder Returns
(1) Per Prime Data. Keysight core products
(2) Per company estimates for FY16. $15.5B SAM represents combined Keysight and Ixia SAM
(3) Non-GAAP measure. Refer to appendix for reconciliation
(4) Non-GAAP measure.
(5) Based on FYE Dec-31, 2016 revenue4
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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 launched
Focused singularly on electronic design and test solutions
History of Leadership and InnovationUnlocking measurement insights for over 75 years
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Keysight Today: Market & Technology Leader
Note: FY16 Key Statistics are not pro forma for Ixia acquisition (exclude Ixia)
(1) Free Cash Flow calculated as Operating Cash Flow less Capital Expenditures
(2) Non-GAAP measure. Refer to appendix for GAAP reconciliation. See non-GAAP Income from Operations divided by non-
GAAP revenue to derive operating margin
(3) Includes indirect channels
(4) Sites with greater than 70 manufacturing employees
FY16 Key Statistics
Electronic
Industrial
Solutions
Group
$0.8B, 26%
Services Solutions Group
$0.4B, 14%
Communication
Solutions Group
$1.7B, 60%
$2.9B
Business Overview
• Worldwide leader in high value, mission critical
electronic design and test solutions
• Relied on by the world’s leading technology
companies
• 75+ years of innovation, measurement science
expertise and deep customer relationships
Complementary Ixia Acquisition
Revenue Mix
• Industry pioneer and technology leader in network
test and visibility
• 400+ US and foreign patents issued or pending;
approximately 60% software related
• 700+ Software engineers
15 of the
Top 15 NEMS 47 of the
Top 50 Carriers 77 of the
Fortune 100
Customers
~30,000Number of customers(3)
100+Countries served
13Countries with R&D centers
3Manufacturing sites(4)
$325M Free Cash Flow(1),(2)
19%Operating Margin(2)
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Our Value to Customers – Unmatched in the Industry
Customer’s Product Lifecycle
Accelerating innovation to connect and secure the world
Simulate Prototype Manufacture Optimize
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NETWORKS
AND CLOUD
AEROSPACE
AND DEFENSE
WIRELESS
COMMUNICATIONS
AUTOMOTIVE, ENERGY,
AND IOT
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Driving shareholder returnsA Strong Financial Framework for Value Creation
• U.S. Cash
Generation
• Appropriate
Leverage
• Strategic Alignment
• Growth
• Value Creation
• Cost Structure
Flexibility
• Cost Reductions
• Margin Expansion
• R&D Investment
• SAM Expansion
• Profit Leverage
OrganicGrowth
Business ModelMergers &
AcquisitionsReturn of Capital
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•Commercial
Communications
•Aerospace,
Defense &
Government
•Automotive
•Energy
•General
Electronics
•Semiconductor
•Calibration
•Repair
•Remarketing
• Americas
• Europe
• Asia
• Japan
• Software
Technology
• Hardware
Technology
Organized to Grow
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Communications
Solutions Group
Electronic
Industrial
Solutions Group
Services
Solutions Group
Soon Chai
Gooi
John
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Worldwide Sales
Mark
Wallace
Corporate
Planning and
Technology
Jay
Alexander
Aligned with End MarketsFirst to
Market
Trusted
Advisor
•Network Test
•Network Visibility
Ixia
Solutions Group
Bethany
Mayer
Satish
Dhanasekaran
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Strong Progress on Growth Initiatives
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Expand
Leadership in
T&M Software
Grow Services
Business by 50%
• Triple-digit 5G order growth in FY16
• Positioning Keysight as the market leader in 5G
• Collaborating with leading consortiums, universities, and
research institutes to define 5G standards and technologies
• Double-digit order growth in FY16
• Anite acquisition materially expanded software business
• Staffing of new software design center ahead of schedule
• 9% order growth in FY16
• New opportunities in multi-vendor support, asset
management, systems integration and training
• Continuing to win new multi-vendor business
Be First in 5G
Wireless
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Disciplined approach to capital investment
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Completed 3 - 4 Years Beyond
Return
of
Capital
Stabilize asIndependent Company
• Completed April 30, 2015
• 6 months ahead of schedule
Phase 1
Separate
Sustained 4% CAGRover Cycle
• M&A as priority use of cash
– Ixia (closed April 2017)
– Anite (closed Aug 2015)
– Electroservices (closed Aug 2015)
Phase 2
Return to Growth
Balanced Returnof Capital
• Return of capital tied to US cash generation
• Appropriate leverage and commitment to investment grade credit metrics
• Opportunistic M&A
Phase 3
Return Capital
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The
Example
Disciplined and Well-Defined Criteria for Acquisitions
• Aligns with strategic growth priorities
• Delivers higher gross margin R&D or software solutions
• Expands Served Addressable Market (SAM)
• Focuses on faster growing market segments or adds key technology
• Expected ROIC materially above cost of capital
• Expected to be quickly accretive
• Valuation aligns with appropriate market multiples
Strategic
Alignment
Value
Creation
Growth
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Long-Term Expectations
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RevenueGrowth
Op MarginIncremental
ProfitabilityOver the Cycle
Sustainable
4% CAGR
40% on
growth of 4%
or greater
Average
operating margin
of >20%*
Committed Return of Capital
Yields 8-10% EPS* Growth
* Non-GAAP
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Agenda
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Executive Overview
Growth Initiatives
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Leadership in Attractive Markets
SegmentsCommunications
Solutions Group
Electronic
Industrial
Solutions
Group
Services
Solutions
Group
Ixia(1)
Solutions Group
End MarketsCommercial
Comms
Aerospace,
Defense &
Government
Electronic
IndustrialServices
Network
Test
Network
VisibilityTOTAL
Revenue(2) $1B $0.7B $0.8B $0.4B $0.35B $0.14B $3.4B
Market
Size(3,5)$4B $3B $4B $2B $1B $1.5B $15.5B
Market
Share(3)25% 23% 20% 20% 35% 9% 22%
Long-term
Market
Growth(4)
1-2% 2-3% 2-3% 2-3% 3-5% 20-25% 4-5%(6)
(1) Per Ixia filings and company estimates
(2) FY16 presented on a Non-GAAP basis. Refer to appendix for GAAP reconciliation
(3) Per Company estimates for FY16
(4) Market growth per Company estimates; average over 3-5 years
(5) Includes network test; excludes network assurance
(6) Weighted-average growth rate of end markets15
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(1) Per Prime Data, IHS Technology, and Company estimates
(2) RF/Microwave design simulation software
(3) A Keysight Company
Market Leader in Key Software & Instrument Platforms
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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
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Growth Drivers
Commercial Communications• Evolving standards – 5G
• All data, all the time
• Internet of Things (IoT)
Network Test & Visibility• Rapidly expanding cloud data and apps
• Growing security risks
Aerospace, Defense &
Government
• World instability
• Defense modernization
Automotive & Energy• Evolving battery technologies
• Connected car
General Electronics • Consumer electronics demand
Semiconductor• Technology evolution
• China investment
Services • Customer outsourcing
Multiple Growth Drivers Provide Diversification
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Be first in
5G wireless
Growth Strategies
Expand leadership in
T&M software
Grow services
business
Extend into network
test and visibility
Growth Strategies
Software-centric solutions | Organic R&D investments | Strategic M&A
Growth Strategies Aligned to Key Market Themes
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First in 5G Wireless
Source: Company estimates and Cisco Visual Networking Index forecast, Mobile World
Congress 2017, 3GPP
Unprecedented Wireless Demand Accelerated Industry 5G Deployment Timeline
Keysight Positioned to Lead
30bn+ connected devices by 2020
10x mobile data in five years
• IoT consuming exponential amount of instantaneous data
• Disruptive auto and medical applications
• Public service sector services (fire, police) adopting wireless
technologies
• Triple-digit 5G order growth in FY2016
• >10 targeted simulation and prototype 5G solutions launched in
the last year
• Collaborating with 30+ partners worldwide on research and trials
• Frost & Sullivan 2016 Global T&M: Company of the Year Award
5G Deployment expected 2019
Pre-commercial North American deployment
mid-2017
Worldwide carrier trials begin 2H 2017
5G standards set by 2018
5G in 2019
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Expand Leadership in T&M Software
(1) Per Company estimates
Business Update
Growth Strategy
Expand simulation business
— Address growth opportunities in High-Speed Digital and
Power design
Deliver solutions focused on growth segments
— Deliver R&D (prototype test) solutions focused on growth
segments such as 5G Communications, Power, and
Automotive
Grow subscriptions and services
— Implement software capabilities to enable revenue growth
from subscriptions and from services
1
2
3
• $2B market for electronic test software, ~7% CAGR(1)
• Double digit order growth in FY16
• Software revenues over $400M
• New software design center staffed ahead of schedule
4Pursue selective acquisitions
— Increasing overall software content
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Grow Services Business by 50%
2016
$402M Revenue
(9% order growth)
2020
$600M Revenue
CalibrationUsed
Equipment
Repair
Used
Equipment Calibration
“Plus”
Repair
Grow Core Add New Services
Expand Multi-Vendor
Calibration Business
Build and Deploy Professional
Services
Launch and
Expand Asset Management
Leverage Portfolio
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A Combination of
Complementary
Strengths
Industry pioneer and
recognized leader in
network test; a leader in
network visibility solutions
Deep expertise in IP
network assessment,
excellent customer
relationships, software-
centric business & team
Extend into Network Test and Visibility
A global leader in
communications with the
ability to deliver
end-to-end solutions
across the network and up
and down the stack
Scale and operational
excellence to drive
revenue and
profit growth
A software-centric team to
enable further
transformation and value
creation
A global leader in
measurement
instrumentation and
software for physical and
protocol layer testing
Deep expertise in wireless
technology, strong
worldwide sales
presence, proven
operational discipline
Creating a compelling innovation engine with Ixia to drive growth
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Electrical, Optical & Wireless Test
High-value capabilities across the communications network and throughout the stack
Keysight as a Platform for Accelerated Growth
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Keysight Classic Anite Ixia
Components
& Chipsets Devices Base Stations Hyperscale and Data Centers Enterprise
Electrical, Optical and Wireless TestFro
m h
ardw
are
to s
oftw
are
Layer 1
Layers 2 - 7 Network Test, Visibility and Security
Mobile
Network
TestMobile
Device
TestB
TS
* E
mula
tion
Drive T
est
Custo
mer
Experience
Managem
ent
Channel Emulation
Stack Layers
* Base Transceiver Station
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Synergistic Combination with Ixia
Driving the Opportunity in Visibility(1)
Growing the Enterprise Mix(1)
Financial Impact and Outlook
• Accretive to top-line growth
– SAM expansion and go-to-market leverage driving
$50M in revenue synergies by year three and
$100M by year five
• Annual cost savings of $60M resulting from
infrastructure rationalization and supply chain
efficiencies
– Expect to achieve $40M of cost savings in 12
months (Q3’18)
• Growth and operating model discipline drive
sustainable cash flow and superior performance
throughout the business cycle
• Commitment to rapid deleveraging and investment
grade credit
– ~2x Gross Debt / Adjusted EBITDA leverage within
24 months
Network
Test
72%
Network
Visibility
28%
Enterprise and
Government
35%
Network Equipment Manufacturers
42%
Service
Providers
23%
$485M
$485M
Ixia FY16 Revenue
(1) Refer to appendix for Ixia supplemental disclosures. Note that the enterprise sales mix information is
prepared based primarily on amounts invoiced to Ixia’s customers.
(2) Adjusted EBITDA calculated as Non-GAAP Operating Income plus depreciation, excluding amortization of
intangibles24
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FY16 Combined Financial Overview
58%Gross Margin(1)
14%R&D % of Revenue(1)
19%Operating Margin(1)
$325MFree Cash Flow(1)
$2.9BRevenue(1)
61%Gross Margin(1)
15%R&D % of Revenue(1)
18%Operating Margin(1),(2)
$397MFree Cash Flow(1)
$3.4BRevenue(1)
Note: Figures represent non-GAAP measures. Combined figures represent summation of Keysight’s FYE
October 31, 2016 and Ixia’s FYE December 31, 2016. Excludes PF transaction adjustments
(1) Non-GAAP measure. Refer to appendix for GAAP reconciliation. Gross margin, operating margin, and R&D
% of revenue excludes stock-based compensation for Ixia.
(2) See combined non-GAAP Income from Operations divided by combined non-GAAP Keysight revenue and
GAAP Ixia revenue to derive combined operating margin. Excludes expected synergies
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Key Messages
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Technology and market leader in
ever-evolving technology market
✓ 4% revenue CAGR
✓ Deliver >20% operating margin
✓ 8-10% EPS growth
Transformation
Objectives
Over the Cycle*Leader in profitable
market
Target fast growing areas
and expand Served Addressable
Market (SAM)
Proven operating performance
and cash generation across cycles
Transform for
growth
Strong business
model
* Non-GAAP measure
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Modular Form Factor
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0
2
4
6
8
10
12
14
16
18
2016 2017 2018 2019 2020
Fast Growing ModularSmall Portion of Total Market
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2016 Total Modular Solutions Market
$1.2 Billion*
2016 Total Design & Test Market
$13 Billion*
* Per Company estimates. Excludes SAM expansion from acquisition of Ixia
** Per Company estimates.
$B$750M*
PXI/AXIe
Modular
13% CAGR*
to 2020
PXI/AXIe
Modular
13% CAGR**
Keysight’s double-digit growth
continued in FY16
63%PXI/AXIe
Modular
37%Other
Modular
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“X-Chips” Chipset
• Highly integrated
• High performance
• Low power
Handheld
Feature Rich Box
Modular
Proprietary technology
developed by central
Keysight Labs, manufactured
at in-house semiconductor
fab, and deployed into all
three form factors
Investments Leveraged into Multiple Form FactorsProvides Competitive Differentiation
• R&D
• Validation
• Complex device manufacturing
• Full measurement set
• One-button measurements
• Shared lab equipment
• Manufacturing
• R&D
• Validation
• Small footprint
• Flexible configuration
• Multi-channel applications
• Installation
• Maintenance
• Portability
• Harsh environments
Customer Best ForForm Factor
PXI
AXI
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Reconciliations
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Keysight Non-GAAP gross margin reconciliation
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Year Ended
October 31, 2016
( in millions)
GAAP Gross Profit 1,624$ 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 1,689$ 58%
GAAP Revenue 2,918$
Non-GAAP Revenue 2,930$
Gross Margin %
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Keysight Non-GAAP operating margin reconciliation
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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 costs 24
Restructuring and related costs —
Other (7)
Non-GAAP income from operations 546$
GAAP Operating Margin 14%
Non-GAAP Operating Margin 19%
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Keysight Non-GAAP research and development expenses reconciliation
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October 31, 2016 October 31, 2014
Research and Development expense, as reported 425$ 361$
Share-based compensation (8) (7)
Acquisition and integration costs (1) -
Separation and related costs - (2)
Restructuring and related costs - 1
Other - (1)
Non-GAAP Research and Development expense 416$ 352$
GAAP Revenue 2,918$ 2,933$
R&D as a % of GAAP Revenue 14.6% 12.3%
Non-GAAP Revenue 2,930$ 2,933$
R&D as a % of Non-GAAP Revenue 14.2% 12.0%
Year Ended
( in millions)
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Keysight Non GAAP revenue by end market reconciliation
Aerospace, Defense & Government 740$ — 740$
Commercial Communications 1,000 12 1,012
Electronic Industrial 776 — 776
Services 402 — 402
Total Keysight Revenue 2,918$ 12$ 2,930$
Non-GAAP revenue is defined to exclude the fair value adjustments to the Anite acquisition-related deferred revenue balances.
FY16, (in millions)
GAAP Revenue
Acquisition-
related
fair value adjs Non-GAAP Revenue
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Keysight Free cash flow reconciliation
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Keysight Non GAAP revenue reconciliation FY16,
(in millions)
GAAP Revenue 2,918$
Acquisition-related fair value adjustments 12
Non-GAAP Revenue 2,930$
Year Ended
October 31, 2016
(in millions)
Net cash provided by operating activities 416$
Less: Investments in property, plant and equipment (91)
Free cash flow 325$
