Executive Summary

Q1 FY25 revenue of $1.298B and non-GAAP EPS of $1.82 both exceeded the high end of company guidance; core revenue returned to growth (+3% YoY), led by CSG strength and stabilization in EISG .
Segment mix: CSG +5% YoY to $883M on AI-driven wireline and stable wireless; EISG -1% YoY to $415M with mixed demand across end markets .
Q2 FY25 outlook: revenue $1.27–$1.29B and non-GAAP EPS $1.61–$1.67; management still expects a gradual 2025 recovery with ESI seasonality muting typical Q1→Q2 patterns and a 14% non-GAAP tax rate .
Estimates context: S&P Global consensus was unavailable at the time of analysis; therefore, beat/miss vs Street cannot be determined. However, management stated Q1 results were above the high end of guidance, a likely positive trading catalyst pending consensus confirmation .

What Went Well and What Went Wrong

What Went Well
- CSG growth and AI tailwinds: “Core revenues grew for the first time in 6 quarters... strength in the Communications Solutions Group,” with record orders in wireline on AI data center networking; software/services reached ~40% of revenue and ~31% recurring .
- ADG momentum: First-quarter record revenues in aerospace, defense and government (ADG); U.S. and Asia strength with a robust funnel despite order timing issues .
- Profitability resilience: Gross margin 65.8% and operating margin 27%, aided by software mix and cost discipline; free cash flow of $346M .
What Went Wrong
- Automotive softness: EV battery test and manufacturing-related activity remained muted; upsell in auto within ESI was unfavorably affected by auto market weakness .
- ADG orders timing: Orders were impacted by continuing resolutions and administration transition timing despite strong long-term demand and contractor backlogs .
- Mix pressure on margins: Consolidated GM YoY comparables were less favorable due to mix versus a backlog-driven prior-year compare; EISG GM fell vs Q1’24 (61% vs 65%) on mix .

Financial Results

Sequential trend (oldest → newest)

Metric	Q3 2024	Q4 2024	Q1 2025
Revenue ($USD Billions)	$1.217	$1.287	$1.298
GAAP EPS	$2.22 (tax effect included)	($0.42) (tax item)	$0.97
Non-GAAP EPS	$1.57	$1.65	$1.82
Gross Margin %	64.0%	64.5%	65.8%
Operating Margin %	24%	26%	27%
Orders ($USD Billions)	$1.249	$1.345	$1.263
Backlog ($USD Billions)	$2.3	$2.4	$2.3
Free Cash Flow ($USD Millions)	$222	$328	$346

Year-over-year comparison (oldest → newest)

Metric	Q1 2024	Q1 2025
Revenue ($USD Billions)	$1.259	$1.298
GAAP EPS	$0.98	$0.97
Non-GAAP EPS	$1.63	$1.82
Cash From Operations ($USD Millions)	$328	$378
Free Cash Flow ($USD Millions)	$281	$346

Segment breakdown

Segment	Q3 2024 Revenue ($M)	Q4 2024 Revenue ($M)	Q1 2025 Revenue ($M)	Q1 2024 Revenue ($M)	GM % Q1’25	OM % Q1’25
Communications Solutions Group (CSG)	847	894	883	839	68%	27%
Electronic Industrial Solutions Group (EISG)	370	393	415	420	61%	27%

KPIs and mix (oldest → newest)

KPI	Q3 2024	Q4 2024	Q1 2025
Software & Services as % of Revenue	39%	39%	~40%
Recurring Revenue as % of Total	~29%	~30%	~31%

Non-GAAP adjustments (Q1 2025)

Amortization $33M ($0.19), Share-based comp $62M ($0.36), Acquisition/integration $98M ($0.56), Restructuring and others $(24)M [$(0.14)], Tax adjustment $(21)M [$(0.12)] → Non-GAAP net income $317M ($1.82) .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	Q2 FY25	N/A	$1.27B–$1.29B	New
Non-GAAP EPS	Q2 FY25	N/A	$1.61–$1.67	New
Non-GAAP Tax Rate	Q2 FY25	N/A	14% assumption	New
Diluted Shares	Q2 FY25	N/A	~174M	New
Seasonality/Qualitative	Q2 FY25	N/A	ESI cadence will mute typical Q1→Q2 seasonality	New

Note: No explicit prior Q2 FY25 guidance was provided before this update; CFO reiterated ESI seasonal concentration and gradual recovery assumptions .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3’24, Q4’24)	Current Period (Q1’25)	Trend
AI/data center wireline	Wireline orders up; AI-driven 400/800G/terabit acceleration; protocol/physical layer and emulation expansion; hyperscaler concentration	Record wireline orders; AI data center expansion; DDR6, PCIe Gen7, 400G/lane demos; strong pipeline	Improving
Wireless (5G/6G/NTN/O-RAN)	Stable wireless; activity in O-RAN, Release 18, early 6G; stability expected into FY25	Stability continues; infrastructure uptick possible; launches (PNA‑X Pro), MWC themes in AI/6G/NTN	Stable to improving
Aerospace, Defense & Gov’t	Q3 ADG down YoY; timing from budget approvals; strong year-end U.S. bookings in Q4	First-quarter record ADG revenue; orders timing impacted by CRs; long-term demand intact	Positive LT; near-term timing noise
Software/Services & ESI	S&S ~39%; ARR ~29–30%; mix accretive to margins (software)	~40% S&S; ~31% recurring; ESI renewals solid; auto softness tempered upsell; traction in ADG/industrial	Mix continuing to rise
Automotive/EV	Auto headwinds; EV/battery delays; SDV/ADAS R&D resilient	EV battery test and manufacturing remain soft; SDV/ADAS R&D engagement high	Mixed; R&D resilient, EV soft
Semiconductor/fabs	Early signs of rebound; strong parametric test orders; timing the key	Third consecutive quarter of strong parametric test orders; backlog building with ~6-month conversion	Improving
China/geopolitics/tariffs	Agility in face of policy shifts; potential reshoring dynamics	Customer relationships strong; pivot to permitted sales, global shift to SE Asia/NA as needed	Managed risk

Management Commentary

“Keysight delivered strong first quarter results, reflecting year-over-year growth in revenues and orders... we are well-positioned to create long-term value for our stakeholders.” – Satish Dhanasekaran, CEO .
“Orders grew year-over-year for a second consecutive quarter, up 4%... incrementally positive signals in our sales funnel.” – CEO .
“We reported gross margin of 65.8%... Q1 operating margin was 27%... free cash flow of $346 million.” – CFO .
“We have made strategic progress in growing Software and Services which accounted for approximately 40% of Keysight revenue while recurring revenue was approximately 31%.” – CEO .
On AI opportunity: “We believe AI will be a long-term secular tailwind for the design of next-generation technologies in the network, data center and communications ecosystem.” – CEO .

Q&A Highlights

AI wireline tailwinds: Wireline demand strength driven by AI likely continues; wireless stable near term with potential infrastructure upside .
ADG orders and budgets: Continuing resolutions delayed orders; long-term defense modernization and contractor backlogs underpin confidence .
OpEx and margins: Sequential OpEx increase expected in Q2 (salary admin, variable pay); 40% incrementals as a framework when growing 5%+ .
ESI/Software cadence: Renewals consistent; auto market weakness pressured upsell; traction with ADG/industrial customers .
Auto/EV: EV battery test and auto manufacturing remain soft, SDV/ADAS R&D engagement remains healthy .
Parametric test: Backlog built over last 3 quarters with ~6-month revenue conversion window .
China exposure: Strong customer relationships; pivot to compliant business and support of customers’ global strategies .

Estimates Context

S&P Global consensus EPS and revenue for Q1 FY25 and forward Q2 FY25 were unavailable at the time of analysis due to data access limits; as such, we cannot quantify beat/miss versus Street. Values typically retrieved from S&P Global.*
Company indicated results exceeded the high end of guidance (Q1 revenue $1.298B; non-GAAP EPS $1.82), suggesting potential positive estimate revisions pending consensus updates .
Guidance (Q2 FY25: revenue $1.27–$1.29B; non-GAAP EPS $1.61–$1.67) provides a baseline for Street recalibration .

Key Takeaways for Investors

AI-driven wireline momentum is the primary growth engine; look for sustained CSG strength and mix toward software/services to support margins .
Near-term order timing in ADG is noisy (continuing resolutions), but long-term spending and contractor backlogs support multi-quarter visibility .
ESI seasonality and auto softness will mute typical Q1→Q2 uplift; watch Q2 for OpEx step-up and ESI renewal normalization .
Margins are stabilizing with GM at the high end of the last 4 quarters; 40% incrementals on 5%+ growth remain the operating framework .
Semiconductor parametric test demand and backlog build suggest improving second-half conversion; monitor fab project ramps and HBM/silicon photonics exposure .
Recurring/Software mix (≈31%/≈40%) is tracking higher, supporting durability through cycles and medium-term multiple support .
Trading setup: Above-high-end print and reiterated gradual recovery narrative could support positive sentiment; confirmation of Street beats requires consensus access restoration .

Appendix: Additional Thematic Proof Points (Q1 press coverage)

MWC demonstrations underscore AI/6G/NTN/ORAN pipeline: AI-RAN orchestration, AI-powered device test, 6G digital twins, FR3 characterization, and secure/cloud-native core testing .

Keysight Technologies, Inc. (KEYS)·Q1 2025 Earnings Summary