The speaker, Jason Kary, introduces the conference call and the participants. He discusses the non-GAAP financial measures and core growth of the company. He also mentions that the company will make forward-looking statements and encourages listeners to review their SEC filings for more information. Satish Dhanasekaran, the President and CEO, will focus on three key headlines in his comments.

In the second quarter, Keysight performed well despite a largely unchanged market environment. Revenue and earnings exceeded expectations, and orders were in line with the previous quarter. The company's strong customer relationships and collaborations give them confidence in long-term growth trends. The pace of innovation is increasing, and Keysight is investing to capitalize on future technology trends. Revenue and orders normalized from the previous year, but remained stable on a sequential basis. The Communications Solutions Group saw a decline in revenue compared to the previous year, but orders were flat year-over-year and grew sequentially. Investment in defense modernization and demand for AI data center solutions drove growth in the aerospace, defense, and government and wireline segments.

In the third quarter, the company announced a new AI test platform and deepened their collaboration with NVIDIA. They also saw strong demand for AI infrastructure solutions and demonstrated their network innovation at a conference. In the wireless sector, there were signs of improvement and the company secured key wins with customers in the U.S. for their 5G solutions. In the aerospace, defense, and government sector, the company saw healthy demand and expects an increase in spending for research and development.

The demand for electromagnetic spectrum operation applications has led to significant wins for U.S. and European prime companies. This trend is expected to continue into the second half of 2025. The Electronic Industrial Solutions Group has seen a decline in orders and revenue, but this was expected due to market conditions. The semiconductor industry outlook is improving, with a projected recovery in 2025 and a decrease in inventories. In the automotive sector, there is steady demand for both EV and AV solutions, and Keysight has expanded its battery test footprint and added ESI to its portfolio. ESI has also expanded its collaboration with Volkswagen Group.

Keysight's collaboration with EMVision in Australia will advance automotive simulation technology and drive new industry standards. The company also continues to see growth in digital health and advanced research, and is investing in software and services to enhance their solutions strategy. In the chip domain, Keysight's simulation and emulation software capabilities are helping customers address the increasing complexity of system level design. The company is also investing in future technology waves and inflections through organic investment in R&D and M&A.

In the second quarter, Keysight announced its intent to acquire Spirent Communications and completed the acquisition of Riscure. The company's employees were thanked for their contributions to customer and shareholder value. Despite uncertain market conditions, the company remains disciplined and focused on long-term growth. Revenue and orders were slightly above expectations, with muted seasonality due to the ESI business. Excluding ESI, orders grew and revenue remained consistent. The company ended the quarter with a backlog of $2.3 billion.

In the second quarter, the company reported a gross margin of 65% and a 2% decrease in operating expenses. Despite a 14% decline in core revenue, the operating margin only declined by 400 basis points, demonstrating the financial resilience of the business. Net income was $247 million with earnings of $1.41 per share. The Communications Solutions Group saw a decline in revenue of 10%, while the Electronic Industrial Solutions Group saw a decline of 17%. The company ended the quarter with $1.7 billion in cash and generated $110 million in cash flow from operations. Share repurchases totaled 302,000 shares. The outlook for the company is positive.

The company expects third quarter revenue and earnings per share to be in a specific range based on a weighted diluted share count. They also anticipate a mid-single digit increase in revenue from Q3 to Q4, resulting in full year revenue of approximately $4.9 billion. The company remains focused on customer needs and investing in growth opportunities, and is confident in their ability to outperform in various market conditions. The Q&A portion of the call will be led by Jason Kary. The first question is about the company's base case for the year, which remains intact. The typical seasonality of the business is expected to result in a slight downtick in orders and revenue in the third quarter, with an upturn in the fourth quarter. This is attributed to book and ship processes, as well as factors such as COVID, recovery, and supply chain issues.

The typical seasonality of the sales cycle has been observed, with a mid-single digit uptick in the fourth quarter due to the NVAR annualized sales cycle and strength in the aerospace defense business. The wireline business has seen an inflection point with the adoption of AI, but it is still in its early stages. Keysight's breadth of portfolio in networking, computing, storage, and interconnects is making contributions, but they are just getting started.

The company is experiencing strong growth in their wireline business and an uptake in the second quarter. They are engaged in standards bodies and are playing a critical role in the heterogeneous environment. The market environment remains unchanged and they are assuming modest order growth in the second half of the fiscal year. The demand environment is stabilizing, with strong wireline inflections and stability in the aerospace defense and EISG businesses. The company is managing OpEx in response to the volatile end-markets.

Neil Dougherty discusses the company's expected OpEx spending for the year, which is projected to be down 3% from the previous year due to cost-saving measures and investments in R&D. The company has also reduced headcount by 5% through attrition and offered incentives for retirement. In the EISG segment, the company is seeing delays in fab projects, but remains optimistic about the potential for chip-to-chip interconnect simulation opportunities.

In response to a question about the size of Keysight's semi business, the company stated that it makes up about 10% of their total business. They also mentioned that they have been closely monitoring the delays in fab expansions and expect to see some signs of CapEx spend towards the end of the year. Additionally, they highlighted the importance of interconnect technologies for data centers and how Keysight's differentiated technologies play a critical role in this area. Another question was asked about ESI, but the transcript does not mention any response from the company.

The company is pleased with the performance of the recently acquired ESI and views it as a long-term strategic priority. The culture fit between the two companies has been seamless and the focus is on accelerating revenue by targeting aerospace defense in the U.S. and increasing exposure with Asian auto manufacturers. The sales team is executing a plan to work closely with ESI and has already seen progress in their funnel.

The paragraph discusses the recent acquisition of Spirent by Keysight and the strategic rationale behind the deal. It also mentions the financial benefits for both customers and shareholders. Additionally, the paragraph touches on the softness of free cash flow in the quarter but notes that it is still above $350 million for the first half of the year.

The company experienced higher tax payments in the second quarter due to seasonality, and the timing of revenue collection was not ideal. This resulted in lower accounts receivable compared to the previous quarter. The slow start in February also affected revenue collection. The company's allowance for bad debt is low and there are no major concerns with accounts receivable. However, inventory has significantly increased due to supply chain issues and the company's decision to delay refreshing their demo portfolio. The company is confident that inventory will decrease over time, but it is dependent on market recovery.

The company is confident in their recovery timeline and is focusing on execution. Customers are doubling down on projects and there are signs of improvement in the macro factors. The pipeline supports the expectation of modest improvement in H2 orders, with growth in new business and continued demand in key areas. The company hopes to see a lift from the U.S. defense budget and velocity is key in showing customer confidence.

The speaker asks about the restructuring costs and is told that they were expanded actions and were also affected by a legal settlement. Another question is asked about the EISG segment and the speaker explains that while they expect improved demand in the second half, revenue may still face headwinds due to long-dated backlog items. The speaker also highlights three factors impacting EISG profit, including seasonality and a sharp decline in revenue.

The speaker believes that the company's revenue will remain stable and that the operating margin will not change significantly. They also mention that the EISG businesses and business in Asia will make the compares easier in the second half. In terms of the AI data center opportunity, the company is currently in the early stages and has collaborations underway. They are focused on early R&D, maintaining diversity in applications, and feel confident in their competitive position.

Satish Dhanasekaran, the speaker, is confident in the long-term growth expectations for the business. They have a three-pronged growth strategy that includes technology trends, transforming industries, and market dynamics. Despite the current downturn, they are still investing in R&D and focusing on where their customers need the most help. The timeline for their revenue target may be pushed out due to the decline in 2024.

The company is closely monitoring the timing of the recovery and expects a strong uptrend in orders. Software and services make up 40% of the company and they are selective in their strategy for acquisitions. The company's focus is on organic growth and creating long-term value with their customers. The free cash flow is expected to return to historical levels over time, but in the short-term, the company aims for a high conversion of non-GAAP net income into free cash flow. However, there may be non-standard cash flow items that can impact this conversion.

The speaker discusses potential short-term drains on the company's free cash flow, such as restructuring and M&A costs, particularly related to the integration of ESI and Spirent. However, they believe that these costs will ultimately lead to higher free cash flows in the future. The call is then turned back to the moderator to conclude the call.

This summary was generated with AI and may contain some inaccuracies.