Keysight Technologies, Inc. (KEYS)·Q4 2024 Earnings Summary

Executive Summary

• Q4 revenue $1.287B and non-GAAP EPS $1.65 both exceeded the high end of guidance; GAAP EPS was ($0.42) due to a $315M tax expense tied to a new Singapore incentive and deferred tax asset reduction .
• Orders rose 1% year over year and 8% sequentially to $1.345B; backlog increased $53M to ~$2.4B, supported by AI-driven wireline demand and a strong U.S. ADG year-end close .
• Segment mix: CSG revenue $894M (flat YoY; strong commercial comms offset ADG -6%), EISG revenue $393M (-6% YoY amid manufacturing restraint); software and services were 39% of revenue and ARR grew ~16% to ~$1.5B .
• FY25 Q1 outlook: revenue $1.265–$1.285B and non-GAAP EPS $1.65–$1.71; modeling FY25 non-GAAP tax rate 14%, interest expense ~$70M, capex ~$150M; ESI seasonality drives Q1 revenue mix .

What Went Well and What Went Wrong

What Went Well

• Above-guidance execution: “delivered fourth quarter revenue and earnings per share above the high end of guidance” (CEO) .
• Commercial communications up 4% YoY, wireline momentum tied to AI data center upgrades (800G/1.6T, silicon photonics, high-speed interconnects) .
• Free cash flow of $328M in Q4 and $905M for FY24; returned ~$439M (49%) of FY24 FCF via repurchases; management highlighted resilient operating model and strong cash generation (CFO) .

What Went Wrong

• GAAP net loss ($73M) in Q4, driven by a $315M tax expense related to new Singapore tax incentive and deferred tax assets decrease .
• EISG revenue down 6% YoY (manufacturing restraint); automotive headwinds (EV battery test and infrastructure projects delayed) persisted into 2025 outlook .
• Gross margin down YoY for FY24 (65%, -60 bps) and core operating margin down ~370 bps; management cited acquisition mix and lower volumes as near-term drags on operating margin versus long-term targets (CFO) .

Financial Results

Consolidated P&L and Margins (Quarterly)

Notes: Q4 GAAP loss driven by tax item; non-GAAP EPS excludes amortization, SBC, integration, restructuring, and adjusted taxes .

Segment Breakdown (Quarterly)

End-Market Revenue (YoY and Recent Periods)

KPIs and Cash Flow

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Keysight executed well and delivered fourth quarter revenue and earnings per share above the high end of guidance… the accelerating pace of technology innovation gives us confidence in our ability to outperform as markets recover.” — Satish Dhanasekaran, CEO .
• “Orders finished slightly above our expectations and grew 1% year-over-year and 8% sequentially, driven by ongoing strength in AI and strong year-end bookings in our U.S. aerospace, defense and government business.” — CEO .
• “We achieved $288 million of net income and delivered earnings per share of $1.65… Backlog increased $53 million… Share repurchases totaled $150 million.” — Neil Dougherty, CFO .
• “Our wireline business has exceeded over $1 billion in orders this year, growing at double-digit rates… opportunities not just in the physical layer, but in the protocol layer, allowing customers to emulate how traffic flows to an AI infrastructure.” — CEO .

Q&A Highlights

• Wireless outlook: Business stabilized; infrastructure momentum around Open RAN and 6G; devices side lags; expect stability into FY25 .
• ADG dynamics: Strong year-end seasonality; long-term trajectory easiest to forecast given budget clarity; some short-term program timing uncertainty with U.S. administration changes .
• AI opportunity scale: Hyperscaler-led, concentrated near-term; expanding across compute, power/thermal, networking, and protocol/emulation; content growth expected across layers .
• FY25 modeling: Gross margin upside in Q1 from ESI seasonality; OpEx higher from salary admin and variable pay programs resuming; sequential ESI revenue decrease in Q2 .
• Capital returns/M&A: Maintain at least anti-dilutive buybacks while preparing cash for Spirent close; disciplined, bandwidth-aware approach to deals .

Estimates Context

• S&P Global Wall Street consensus for Q4 2024 (EPS and revenue) was unavailable at the time of analysis due to data access limits; therefore comparisons are anchored to company guidance rather than consensus [GetEstimates error].
• Q4 results were above company guidance (revenue and non-GAAP EPS high end), implying a likely positive delta versus typical intra-quarter expectations, but consensus-specific beats/misses cannot be confirmed without S&P data .

Key Takeaways for Investors

• Clear execution beat vs guidance in Q4 with improving orders/backlog—AI-driven wireline and ADG seasonality were key catalysts .
• Mix shift toward software/services (39% of revenue; ARR ~$1.5B, +16%) supports margin durability into recovery; protocol/emulation offerings deepen strategic positioning in AI infrastructure .
• EISG remains the swing factor: manufacturing/auto headwinds persist, but semi wafer test and foundry AI-related investments point to gradual improvement through FY25 .
• FY25 setup: Q1 guided flat-to-down sequentially ex-ESI seasonality; modeled 14% non-GAAP tax rate, ~$70M interest expense, ~$150M capex; watch Q2 sequential impacts as ESI revenue steps down .
• GAAP volatility from tax events (Q4 Singapore incentive impact) highlights the importance of non-GAAP lens for core performance and cash generation .
• Near-term trading: narrative likely anchored on AI wireline momentum, ADG funding cadence, and confirmation of gradual demand recovery; monitor Spirent regulatory close and any policy-driven tariff/tax changes .
• Medium-term thesis: durable growth drivers across AI networking, defense modernization, semi test, and SDV/AV—combined with high cash conversion and disciplined capital allocation—support return to long-term targets as volumes normalize .