Keysight Technologies

Transcription

1 Keysight Technologies Institutional Investor Meetings June 2015

2 Safe Harbor This presentation contains forward-looking statements (including, without limitation, 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 results of Keysight to differ materially from management s current expectations. 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, other risks that the company faces in running our operations include the ability to realize fully the benefits of our separation from Agilent Technologies Inc., the ability to execute successfully through business cycles; the ability to adapt successfully our cost structures to continuing changes in business conditions; ongoing competitive, pricing and gross margin pressures; the risk that our cost-cutting initiatives will impair our ability to develop products and remain competitive and to operate effectively; the impact of geopolitical uncertainties on our markets and our ability to conduct business; the ability to improve asset performance to adapt to changes in demand; the ability to introduce successfully new products at the right time, price and mix; and other risks detailed in the company s filings with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 4, You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. The company assumes no obligation to update the information in this presentation in light of new information or future events. This presentation and the Q&A that follows include forward-looking, non-gaap measures. Non- GAAP measures generally exclude the impacts of acquisition and integration costs, future restructuring costs, asset impairment charges, separation costs, stock based compensation, and non-cash intangibles amortization. Also excluded are tax benefits or expenses which 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. Page 2

3 Introduction to Keysight Technologies Page 3

4 Keysight at a Glance NET REVENUE IN FY14 $2.9 billion ( ~64% from outside the US) EMPLOYEES ~9,600 PRESIDENT and CEO Ron Nersesian GLOBAL HEADQUARTERS Santa Rosa, California CUSTOMER LOCATIONS 100+ countries MANUFACTURING AND R&D LOCATIONS U.S., Europe, Asia Pacific EXCHANGE LISTING NYSE: KEYS Shares Outstanding (at distribution) million Page 4

5 Keysight Overview Unlocking measurement insights for 75 years Global electronic measurement technology and market leader Strong financial profile Deep and loyal customer base ~75% of revenue via direct channel 12 R&D centers across the world Financial Metrics FY14 Revenues $2.9B FY 14 Operating Margin (1) 20.5% FY14 ROIC (2) 35% Headcount ~9,600 FY14 Revenue by Geography Europe Headcount Europe Americas 36% 19% Americas 35% 13% 45% Asia Pacific 52% Asia Pacific (1) Non-GAAP measure. Excludes stock-based compensation. See reconciliation to GAAP financial measures in Appendix. (2) Non-GAAP measure. Calculation included in Appendix. Page 5

6 Financial Highlights Q2 FY15 Q1 15 Q2 15 Q3 15 Guidance (1) Revenue $701M $740M $655M Core Revenue Growth (2) +7% +3% -10% Gross Margin (3) 55.6% 57.1% - Operating Margin (3) 17.1% 20.3% - EPS (3) $0.56 $0.70 $0.44 Operating Cash Flow $92M $68M - Q2 Highlights & Q3 Guidance EPS at high end of guidance range Currency headwinds on revenue had no material impact on operating profit Strong earnings driven by favorable revenue mix and lower expenses Soft orders and reduced backlog tempers Q3 outlook and guidance Actions initiated for $25M in structural savings to mitigate separation dis-synergies (1) Midpoint of guidance as of May 19, 2015 (2) Core growth is reported growth adjusted for the effects of M&A and FX (3) Presented on a non-gaap basis; reconciliations to closest GAAP equivalent provided for actual results Page 6

7 Keysight Technologies Value Creation Favorable trends in our end markets Communications explosive mobile data growth Aerospace/Defense defense modernization Industrial, Computers & Semiconductors electronic content proliferation Transforming our portfolio in segments with highest growth opportunities Wireless Communications - Evolving wireless standards drive investment in emerging networking standards and technologies Modular Solutions - Ability to leverage industry-leading feature-rich instrument capabilities into modular solutions Software Solutions - Value migration to software solutions that link the simulated world to the real instrumentation world Growth and sustainable cash flows to create long-term value for shareholders Page 7

8 Investment Highlights Page 8

9 Investment Highlights 1 Focused Team with Deep Electronic Measurement Roots 2 Attractive End Markets 3 Market Leadership 4 Deep Customer Relationships 5 Portfolio Transformation for Growth 6 Strong Operating Model Page 9

10 1 Focused Team with Deep Electronic Measurement Roots Executive staff with 29 years average industry experience Test & Measurement Experience Ron Nersesian President & CEO Previously Agilent President and COO Transformed Agilent s Electronic Measurement Group to deliver double digit-profit throughout the business cycle and delivered the highest EM operating margin in Agilent history. 30 years Neil Dougherty CFO Previously Agilent VP and Treasurer Guy Séné Measurement Solutions & Worldwide Sales SVP Previously Agilent President of EM Mike Gasparian Customer Support, Services, & Marketing SVP Previously Agilent VP of Marketing for EMG Gooi Soon Chai Order Fulfillment & Infrastructure Previously Agilent President OF and Supply Chain Jay Alexander Chief Technology Officer Previously VP of Agilent s Oscilloscope and Protocol Division within EMG Led global treasury organization, including corporate finance, cash management, foreign currency exchange and risk management. Led Agilent s largest business group and has 26 years experience in sales and marketing in Europe and Asia. Ran divisions and business units in Agilent, as well as worldwide sales and service organizations. Consolidated and streamlined electronic measurement infrastructure; managed diverse portfolio of EM business lines. Responsible for key growth and profit increases in Agilent with deep R&D background and business experience. 18 years 37 years 34 years 29 years 28 years Page 10

11 2 Attractive End Markets Evolving market segments present opportunities Market Size (1) : $12B Long Term Market Growth (1) : 3-4% Communications (3) Aerospace Defense Industrial, Computers, Semiconductors Revenue Mix (2) 34% 22% 44% Market Size (1) $4B $3B $5B 3-Year Market Growth (1) 4-6% Flat 3-5% Growth Drivers Transformation Opportunities Explosive Mobile Data Growth Mobile devices drive data growth and new standards (LTE-A, 5G) Wireless everywhere Increasing complexity of chipsets Cloud applications Internet of Things Wireless R&D and Manufacturing Solutions Defense Modernization Growth outside U.S. and western Europe Growth in radar and satellite Strength in intelligence, surveillance, and reconnaissance (ISR) Modular Solutions Software Electronic Content Proliferation Increasing electronic content Demand for business and consumer Cloud computing Research and education demand Alternative energy and power management High-density memory (1) Per Company estimates (2) Percentage of FY14 Keysight revenue (3) Excludes network assurance Page 11

12 3 Market Leadership Technology core fuels portfolio transformation Core Platforms Electronic Design Automation Software Network Analyzers Signal Analyzers Signal Sources Leadership Position Highest performance design software used by 2/3 of the world s RF/Microwave designers Highest performance, broadest offering, including industryleading PNA-X microwave network analyzers Highest performance signal analyzer family, including the flagship PXA X-Series Highest performance signal generators led by the industrystandard PSG performance signal generator Oscilloscopes Product leadership in high-performance oscilloscopes with proprietary technology and application expertise One Box Testers Two new R&D (UXM) and manufacturing (EXM) platforms for 4G and beyond Page 12

13 4 Deep Customer Relationships Most Fortune 1000 electronics companies are Keysight customers Diverse customer base with no single customer accounting for more than 10% of revenues (1) 75% of customer revenue via direct sales channel coverage, including all of Keysight s top customers Indirect sales channel with over 600 indirect partners worldwide Communications Key Customer Facts Typical Keysight Customers Base station and handset manufacturers, electronic component suppliers, chipset suppliers Aerospace and defense Governments, prime contractors, component suppliers Industrial, Computers, and Semiconductors General electrical engineering, semiconductor foundries, computer and tablet suppliers FY14 Revenue by End Market Industrial, Computer & Semi 44% Americas 36% Communications 22% 19% 45% 34% Aerospace Defense FY14 Revenue by Geography Europe Asia Pacific (1) FY11-14 revenues Page 13

14 4 Keysight Customer Support and Service Founded on deep customer relationships and trust Global Reach & Capability Service centers in 30 countries repair and calibrate customer test equipment Consistent support for multi-national customers at 50+ sites worldwide Broad Service Offering Designed and delivered by a global team of experts Mobile on-site calibration services Trade-in and certified used product sales Deep Domain Expertise Experts in the science of electrical and physical dimensional measurements Affiliated with 35 calibration standards bodies in 17 countries Competitors Independent test labs Original equipment manufacturers Page 14

15 5 Portfolio Transformation for Growth Focus on opportunities with above-market growth rates Wireless Communications Explosive mobile data growth and evolving wireless standards are driving investment in emerging networking technologies Keysight recently introduced two new wireless R&D and manufacturing platforms to support 4G and beyond Modular Solutions Ability to leverage industry-leading feature-rich instrument capabilities into modular solutions Only company to provide top technology in customers form factor of choice Software Solutions Value migration to software solutions that link the simulated world to the real instrumentation world Consistency of measurement science across instruments, modules, and software Page 15

16 6 Strong Operating Model Superior and stable financial performance throughout cycle Disciplined expense and capital management ensures rapid response to macro environment Specific levers and management process enable strong financial performance throughout the cycle Minimal fixed cost growth Outsourced lower-level manufacturing and on-going gross margin improvement through value engineering Indirect channel and flexible sales structure H1 15 Profitability & Capital Efficiency Metrics (1) Operating Margin 18.7% Adj. EBITDA Margin 21.7% Free Cash Flow: $129M (includes $28M in Agilent payments) Flexible operating expenses and technology leverage Variable and incentive pay programs scale with business results ROIC 34% Initiated $25M in structural cost reductions in Q215 to offset separation-related dissynergies within 24 months Strong margin and ROIC performance generates sustainable cash flows across the cycle (1) Source: Prime Data Market Research (1) Non-GAAP measures. See reconciliation to GAAP financial measures in Appendix Page 16

17 Keysight Technologies Liquidity and Capital Structure Our Top Priority is Growth Capital structure as of April 30, 2015 Cash and equivalents of $894M Majority of cash is generated offshore with sufficient free cash flow accessible in the U.S. $1.1B debt (tranches of $500M and $600M maturing in 2019 and 2024 respectively) 1H Adjusted EBITDA (1) $312M Total Debt / Adjusted EBITDA (1,2) 1.6x Sources of liquidity Unsecured revolving credit facility of $300M Priority uses of cash Invest for growth Return of capital as and when appropriate (1) Non GAAP Measure. See reconciliation to GAAP financial measures in Appendix (2) The ratio is based on an adjusted Non GAAP EBITDA from Q2 14 to Q2 15. Page 17

18 Recent Quarterly Financial Results* (adjusted for stock-based compensation) Electronic Measurement Group of Agilent Keysight Technologies $M (except per share amounts) Q1 14 Q2 14 Q3 14 Q4 14 Q1'15 Q2'15 Revenue Cost of Goods Sold Gross Margin GM% 56.1% 56.6% 55.5% 56.1% 55.6% 57.1% R&D SG&A Income from Operations OM% 17.5% 21.1% 20.9% 22.1% 17.1% 20.3% Other income (expense) net (5) (5) Income before Taxes Provision for Income Taxes Net Income Shares outstanding Non-GAAP Diluted EPS $0.59 $0.80 $0.80 $0.86 $0.56 $0.70 * Presented on a non-gaap basis; reconciliations to closest GAAP equivalent provided. Page 18

19 Appendix Page 19

20 An Overview of Keysight s End Markets A market leader in electronic test and measurement solutions Communications Aerospace and Defense Industrial, Computer, and Semiconductor Page 20

21 Keysight Technologies in Communications Market size (1) : $4B Long-term market growth (1) : 4-6% End Market Growth Drivers Mobile data traffic growing at double-digit rates each year Components and chipsets increasing complexity 4G and 5G technology and standards evolution How We Win Market reach and customer trust Global footprint with R&D in US, Europe and Asia Leader in electronic test and measurement Leadership in standards bodies Broadest range of solutions across ecosystem Components and chipsets Simulation tools, Network Analyzers Handsets One-Box Testers for R&D and manufacturing Base Stations Signal Analyzers, Sources Wireline / Optical Optical Modulation Analyzers Key new products Combination of bench-top and modular to deliver best solutions Highly differentiated wireless R&D and manufacturing platforms launched in 2014 Select Competitors Anritsu National Instruments Rohde & Schwarz Teradyne (Litepoint) (1) Market size and growth data per Company estimates Page 21

22 Keysight Technologies in Aerospace and Defense Market size (1) : $3B Long-term market growth (1) : Flat End Market Growth Drivers Growth of intelligence, surveillance, and reconnaissance Growth outside US (China, India, Middle East) driven by new satellites and radar technologies How We Win Market reach and customer trust Largest installed base World-class, long-term service and support Network of system integrators and in-house capabilities Leading technology and application solutions Direct wideband radar X-Series Oscilloscopes Wideband radar simulation Arbitrary Waveform Generator Lowest phase noise for radar Performance Signal generators Best amplifier characterization for satellite communications PNA-X Mission-critical network surveillance unique contribution Key new products Leading High-Performance Oscilloscopes with proprietary technology RF and microwave modular products with lab-quality measurements Industry s highest performing handhelds Select Competitors Cobham (Aeroflex) Danaher (Tektronix) Rohde & Schwarz (1) Market size and growth data per Company estimates Page 22

23 Keysight Technologies in Industrial, Computers, Semiconductor Market size (1) : $5B Long-term market growth (1) : 3-5% End Market Growth Drivers Electronic content in industrial segment continues to proliferate Mobile computing driven by smartphones, tablets, and notebook PCs Cloud computing requires high-performance infrastructure Semiconductor R&D-driven innovation Strategic investments in education and research in emerging countries How We Win Market reach and customer trust Award-winning products plus expanded indirect channel Leadership in high-speed digital standards: PCI Express, USB, HDMI Leading technology, application solutions Industry-leading PCI-Express Gen3 Oscilloscopes, Bit Error Rate Testers (BERTs), Protocol Analyzers Premier battery drain characterization Source Measure Units (SMUs) First THz materials research solution Performance Network Analyzers Key new products Differentiated oscilloscope offering with ease-of-use innovation and value integration Select Competitors Danaher (Tektronix) Teledyne (LeCroy (1) Market size and growth data per Company estimates Page 23

24 Opportunities to Accelerate Growth Three key areas of focus Wireless Modular Solutions Software Page 24

25 Transforming Product Portfolio for Growth: Wireless New wireless communications R&D and manufacturing platforms Growth Opportunity Explosive mobile data growth and evolving wireless standards drive investment in emerging networking technologies How Keysight will Win Organic and inorganic (AT4 acquired 2012) investments driving new world-class platforms Multi Format Tester R&D Platform Designed for R&D and conformance; supports multiple generations and formats with the highest performance and flexibility Initial Results In Q1, Keysight introduced two new solutions for wireless R&D and manufacturing. The multi-format architecture supports 4G standards and can be upgraded as standards evolve Manufacturing Platform Reduces capital cost, shrinks footprint and power consumption, and increases uptime Page 25

26 Transforming Product Portfolio for Growth: Modular Solutions Significant focus area to drive growth Growth Opportunity Increasing demand for flexibility and form factor options. Modular solutions are growing faster than overall EM market How Keysight will Win Leveraging industry-leading feature-rich instrument capabilities into modular solutions Only company to provide top technology in customers form factor choice Keysight s Fast-Growing Modular Portfolio Initial Results Significant growth since launching strategy 100+ PXI and AXIe products launched since 2010 Page 26

27 Transforming Product Portfolio for Growth: Software Value migration to software solutions Growth Opportunity As measurement science evolves to software, software is expected to grow faster than the electronic measurement market Customers can extend instrument life and investment with new software measurement capability and functionality How Keysight will Win Solutions that link the simulated world to the real instrumentation world Consistency of measurement science across instruments, modules, software Expertise and standards insight enables faster delivery of solutions Keysight is positioned to capture software s above-market growth rates Initial Results World leader in high-frequency Electronic Design Automation (EDA) with 10,000+ seats Leading provider of Test and Measurement applications software with 1,000+ different applications Page 27

28 Customer New Product Introduction Workflow Keysight provides innovative and leading measurement solutions at every step Simulate Prototype Manufacture I & M Simulation (R&D) Electronic design automation (EDA) software is used to virtually model the circuits of a new product prior to the development of any physical electronic hardware Prototype (R&D) Includes the development of the physical hardware and software for the new product Objective is to uncover design errors and reduce the total time to market Design validation is the last step of R&D prior to releasing a product for manufacturing when all product capabilities are rigorously tested under all conditions Manufacturing Objective is to produce the product as fast as possible at the lowest cost with few failures and performance consistent with original design Installation & Maintenance Some customer devices are deployed in outdoor field locations Technicians bring test instruments to the device in the field, requiring the same measurement capability in a compact (hand-held), rugged, weather-proof and battery-operated form factor Page 28

29 Reconciliations Page 29

30 GAAP to NON GAAP Operating profit reconciliation Q1 14 KEYSIGHT TECHNOLOGIES, INC. AND SUBSIDIARIES RECONCILIATION FROM GAAP TO NON-GAAP INCOME FROM OPERATIONS THREE MONTHS ENDED JANUARY 31, 2014 (Unaudited) NON-GAAP ADJUSTMENTS Restructuring Acquisition & Project Sapp and Other Intangible Transformational Integration Pre-Separation Share Based Others Adjustment (in millions) GAAP Related Costs Amortization Initiatives Costs Costs Compensation for Taxes Non-GAAP Net Revenue $ 671 $ - $ - $ - $ - $ - $ - $ - $ - $ 671 Costs and expenses: Cost of products and services (2) - (1) - (4) Research and development (3) (1) - 87 Selling, general and administrative (1) - (8) (10) (1) Total costs and expenses (2) (1) (1) (8) (17) (1) Income from operations 91 (3) Other Income (expense), net Income before taxes 92 (3) Provision for Income Taxes Net Income $ 74 $ (3) $ 2 $ 1 $ 1 $ 8 $ 17 $ 1 $ (1) $ 99 Net income (loss) per share - Basic and Diluted: Basic $ 0.44 $ (0.02) $ 0.01 $ 0.01 $ 0.01 $ 0.05 $ 0.10 $ 0.01 $ (0.01) $ 0.59 Diluted $ 0.44 $ (0.02) $ 0.01 $ 0.01 $ 0.01 $ 0.05 $ 0.10 $ 0.01 $ (0.01) $ 0.59 Weighted average shares used in computing net income (loss) per share: Basic Diluted Page 30

31 GAAP to NON GAAP Operating profit reconciliation - Q2 14 KEYSIGHT TECHNOLOGIES, INC. RECONCILIATION FROM GAAP TO NON-GAAP NET INCOME THREE MONTHS ENDED APRIL 30, 2014 (Unaudited) NON-GAAP ADJUSTMENTS Project Sapp Intangible Pre-Separation Share Based Others Adjustment (In millions, except per share amounts) GAAP Amortization Costs Compensation for Taxes Non-GAAP Net Revenue $ 743 $ - $ - $ - $ - $ - $ 743 Costs and expenses: Cost of products and services 328 (2) - (3) Research and development (1) Selling, general and administrative (17) (6) (1) Total costs and expenses 616 (2) (17) (10) (1) Income from operations Other Income (expense), net Income before taxes Provision for Income Taxes Net Income $ 110 $ 2 $ 17 $ 10 $ 1 $ (7) $ 133 Net income (loss) per share - Basic and Diluted: Basic $ 0.66 $ 0.01 $ 0.10 $ 0.06 $ 0.01 $ (0.04) $ 0.80 Diluted $ 0.66 $ 0.01 $ 0.10 $ 0.06 $ 0.01 $ (0.04) $ 0.80 Weighted average shares used in computing net income (loss) per share: Basic Diluted The preliminary reconciliation from GAAP to Non-GAAP net income is estimated based on our current information. Page 31

32 GAAP to NON GAAP Operating profit reconciliation - Q3 14 KEYSIGHT TECHNOLOGIES, INC. RECONCILIATION FROM GAAP TO NON-GAAP NET INCOME THREE MONTHS ENDED JULY 31, 2014 (Unaudited) NON-GAAP ADJUSTMENTS Project Sapp Intangible Pre-Separation Share Based Others Adjustment (In millions, except per share amounts) GAAP Amortization Costs Compensation for Taxes Non-GAAP Net Revenue $ 757 $ - $ - $ - $ - $ - $ 757 Costs and expenses: Cost of products and services 343 (2) (2) (2) Research and development (2) Selling, general and administrative (24) (5) Total costs and expenses 636 (2) (26) (9) Income from operations Other Income (expense), net (1) - - Income before taxes (1) Provision for Income Taxes Net Income $ 107 $ 2 $ 26 $ 9 $ (1) $ (10) $ 133 Net income (loss) per share - Basic and Diluted: Basic $ 0.64 $ 0.01 $ 0.16 $ 0.05 $ (0.01) $ (0.06) $ 0.80 Diluted $ 0.64 $ 0.01 $ 0.16 $ 0.05 $ (0.01) $ (0.06) $ 0.80 Weighted average shares used in computing net income (loss) per share: Basic Diluted The preliminary reconciliation from GAAP to Non-GAAP net income is estimated based on our current information. Page 32

33 GAAP to NON GAAP Operating profit reconciliation Q4 14 KEYSIGHT TECHNOLOGIES, INC. RECONCILIATION FROM GAAP TO NON-GAAP NET INCOME THREE MONTHS ENDED OCTOBER 31, 2014 (Unaudited) NON-GAAP ADJUSTMENTS Project Sapp Intangible Pre-Separation Share Based Others Adjustment (In millions, except per share amounts) GAAP Amortization Costs Compensation for Taxes Non-GAAP Net Revenue $ 762 $ - $ - $ - $ - $ - $ 762 Costs and expenses: Cost of products and services 343 (2) (4) (2) Research and development 91 - (2) (1) Selling, general and administrative (21) (5) (1) Total costs and expenses 632 (2) (27) (8) (1) Income from operations $ 168 Other Income (expense), net (1) - 2 Income before taxes Provision for Income Taxes (5) 27 Net Income $ 101 $ 2 $ 27 $ 8 $ - $ 5 $ 143 Net income (loss) per share - Basic and Diluted: Basic $ 0.60 $ 0.01 $ 0.16 $ 0.05 $ - $ 0.03 $ 0.86 Diluted $ 0.60 $ 0.01 $ 0.16 $ 0.05 $ - $ 0.03 $ 0.86 Weighted average shares used in computing net income (loss) per share: Basic Diluted The preliminary reconciliation from GAAP to Non-GAAP net income is estimated based on our current information. Page 33

34 GAAP to NON GAAP Operating profit reconciliation FY 14 KEYSIGHT TECHNOLOGIES, INC. RECONCILIATION FROM GAAP TO NON-GAAP NET INCOME YEAR ENDED OCTOBER 31, 2014 (Unaudited) PRELIMINARY NON-GAAP ADJUSTMENTS Restructuring Acquisition & Project Sapp and Other Intangible Transformational Integration Pre-Separation Share Based Others Adjustment (in millions, except per share amounts) GAAP Related Costs Amortization Initiatives Costs Costs Compensation for Taxes Non-GAAP Net Revenue $ 2,933 $ - $ - $ - $ - $ - $ - $ - $ - $ 2,933 Costs and expenses: Cost of products and services 1,313 1 (8) - (1) (6) (11) 1-1,289 Research and development (2) (7) (1) Selling, general and administrative (1) - (70) (26) (3) Total costs and expenses 2,464 3 (8) (1) (1) (78) (44) (3) - 2,332 Income from operations 469 (3) Other Income (expense), net (3) - 3 Income before taxes 475 (3) Provision for Income Taxes Net Income $ 392 $ (3) $ 8 $ 1 $ 1 $ 78 $ 44 $ - $ (13) $ 508 Net income (loss) per share - Basic and Diluted: Basic $ 2.35 $ (0.02) $ 0.05 $ 0.01 $ 0.01 $ 0.47 $ 0.26 $ - $ (0.08) $ 3.04 Diluted $ 2.35 $ (0.02) $ 0.05 $ 0.01 $ 0.01 $ 0.47 $ 0.26 $ - $ (0.08) $ 3.04 Weighted average shares used in computing net income (loss) per share: Basic Diluted The preliminary reconciliation from GAAP to Non-GAAP net income is estimated based on our current information Page 34

35 GAAP to NON GAAP Operating profit reconciliation Q1 15 KEYSIGHT TECHNOLOGIES, INC RECONCILIATION FROM GAAP TO NON-GAAP NET INCOME THREE MONTHS ENDED JANUARY 31, 2015 (Unaudited) NON GAAP ADJUSTMENTS Project Sapp Intangible Separation Share Based Adjustment (In millions, except per share amounts) GAAP Amortization costs Compensation Other for Taxes Non-GAAP Net revenue $ 701 $ - $ - $ - $ - $ - $ 701 Costs and expenses: Cost of products and services 318 (2) (1) (4) Research and development (4) (1) 91 Selling, general and administrative (7) (21) Total costs and expenses 620 (2) (8) (29) Income from operations Other income (expense), net (3) - (1) - (1) - (5) Income before taxes (1) Provision (benefit) for taxes Net income $ 70 $ 2 $ 7 $ 29 $ (1) $ (11) $ 96 Net income (loss) per share - Basic and Diluted: Basic $ 0.42 $ 0.01 $ 0.04 $ 0.17 $ (0.01) $ (0.07) $ 0.57 Diluted $ 0.41 $ 0.01 $ 0.04 $ 0.17 $ (0.01) $ (0.06) $ 0.56 Weighted average shares used in computing net income (loss) per share: Basic Diluted The preliminary reconciliation from GAAP to Non-GAAP net income is estimated based on our current information. Page 35

36 GAAP to NON GAAP Operating profit reconciliation Q2 15 KEYSIGHT TECHNOLOGIES, INC. RECONCILIATION FROM GAAP TO NON-GAAP NET INCOME THREE MONTHS ENDED APRIL 30, 2015 (Unaudited) NON-GAAP ADJUSTMENTS Project Sapp Intangible Separation Share Based Asset Adjustment (in millions, except per share amounts) GAAP Amortization Costs Compensation Impairment Other for Taxes Non-GAAP Net Revenue $ 740 $ - $ - $ - $ - $ - $ 740 Costs and expenses: Cost of products and services 324 (2) (4) Research and development (2) 1-95 Selling, general and administrative (5) (7) (3) Total costs and expenses 612 (2) (5) (13) (2) Income from operations Other income(expense), net (6) (1) - (5) Income before taxes Provision for taxes (1) 25 Net income $ 96 $ 2 $ 5 $ 13 $ 2 $ 1 $ 1 $ 120 Net income (loss) per share - Basic and Diluted: Basic $ 0.57 $ 0.01 $ 0.03 $ 0.08 $ 0.01 $ 0.01 $ - $ 0.71 Diluted $ 0.56 $ 0.01 $ 0.03 $ 0.08 $ 0.01 $ 0.01 $ - $ 0.70 Weighted average shares used in computing net income (loss) per share: Basic Diluted The preliminary reconciliation from GAAP to Non-GAAP net income is estimated based on our current information. Page 36

37 GAAP to NON GAAP Operating profit reconciliation H1 15 KEYSIGHT TECHNOLOGIES, INC. RECONCILIATION FROM GAAP TO NON-GAAP SIX MONTHS ENDED APRIL 30, 2015 (Unaudited) NON-GAAP ADJUSTMENTS Intangible Separation Share Based Asset Adjustment (in millions, except per share amounts) GAAP Amortization Costs Compensation Impairment Other for Taxes Non-GAAP Net Revenue $ 1,441 $ - $ - $ - $ - $ - $ - $ 1,441 Costs and expenses: Cost of products and services 642 (4) (1) (8) Research and development (6) Selling, general and administrative (12) (28) - (2) Total costs and expenses 1,232 (4) (13) (42) $ - (2) $ - 1,171 Income from operations Other income(expense), net (9) - (1) - 2 (2) - (10) Income before taxes Provision for taxes Net income $ 166 $ 4 $ 12 $ 42 $ 2 $ - $ (10) $ 216 Net income per share - Basic and Diluted: Basic $ 0.99 $ 0.02 $ 0.07 $ 0.25 $ 0.01 $ - $ (0.06) $ 1.29 Diluted $ 0.97 $ 0.02 $ 0.07 $ 0.25 $ 0.01 $ - $ (0.06) $ 1.26 Weighted average shares used in computing net income (loss) per share: Basic Diluted The preliminary reconciliation from GAAP to Non-GAAP net income is estimated based on our current information. Page 37

38 ROIC Reconciliation Year Ended October 31, (except H1'15) $ in Millions 2014 H1'15 Non-GAAP Income from Operations $ 601 $ 270 Less : Taxes (91) (35) Non-GAAP Income from Operations after Taxes $ 510 $ 235 Non-GAAP Income from Operations after Taxes (annualized) $ 510 $ 470 Assets (1) $ 1,976 $ 1,838 Less: Current Liabilities (498) (501) Invested Capital $ 1,478 $ 1,337 Average Invested Capital $ 1,445 $ 1,382 ROIC 35% 34% (1) Consists of inventory, accounts receivable, PPE, goodwill, intangibles, deferred taxes and allocated corporate assets Page 38

39 Core Non-GAAP revenue reconciliation Q1 15 & Q2 15 KEYSIGHT TECHNOLOGIES, INC. RECONCILIATION OF REVENUE EXCLUDING THE IMPACT OF CURRENCY ADJUSTMENTS (In Millions) (Unaudited) Percent Percent Q2'15 Q2'14 Inc/(Dec) Q1'15 Q1'14 Inc/(Dec) Non-GAAP Revenue $ 740 $ 743 $ 701 $ 671 Less: revenue from acquisition and divestitures included in segment results (1) (1) Less: impact if currency adjustments Core Non-GAAP Revenue $ 766 $ 743 3% $ 716 $ 671 7% The preliminary reconciliation from GAAP to Non-GAAP net income is estimated based on our current information. Page 39

40 Non-GAAP Adjusted EBITDA Reconciliation April 30, 2015 $ in Millions H1'15 (1) LTM Non-GAAP Income from Operations $ Plus: Depreciation and amortization Less: Amortization of intangible assets (4) (8) Adjusted EBITDA $ 312 $ 679 % of Revenue 21.7% Total Debt 1,099 Total Debt/Adjusted EBITDA 1.6 (1) Last 12 months ended April 30, 2015 Page 40

41 Free Cash Flow Reconciliation Six months ended April 30, 2015 $ in Millions H1'15 Net cash provided by operating activities $ 160 Less: Investments in property, plant and equipment (31) Free Cash Flow $ 129 Page 41