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The call conveyed a strongly positive operational and financial performance with record orders, revenue, EPS, and free cash flow coupled with raised full-year revenue expectations and robust AI and wireline momentum. Management highlighted broad-based demand across communications, semiconductors, aerospace/defense and industrial markets, a strong funnel, and progress on acquisition synergies. The main negatives were tariff-related one-time accounting impacts complicating comparability, a modest sequential Q3 midpoint dip, higher near-term CapEx to support ramps, and questions about the sustainability of elevated incremental margins and the timing of acquisition revenue pickup.
Keysight guided Q3 FY2026 revenue of $1.73–$1.75 billion (midpoint $1.74B, ~29% year‑over‑year growth at the midpoint) and Q3 EPS of $2.43–$2.49 (midpoint $2.46, ~43% YoY growth at the midpoint) based on a weighted diluted share count of ~173 million shares; for the full year they now expect revenue growth in the high‑20s percent range with a historically typical sequential revenue increase into Q4, increased FY2026 capital expenditures of $200 million, about $375 million of FY2026 revenue contribution from recent acquisitions, more than $100 million of cost synergies and operational efficiencies (with roughly 80% of those synergies expected on a run‑rate basis exiting the fiscal year), and said acquisition integrations remain on track.
Keysight reported its best quarter in company history and a record first half: Q2 orders $2.05B (up 56% reported; core +48%), Q2 revenue $1.72B (up 31% reported; core +24%) and reported EPS $2.87 (Satish noted EPS growth of 69%).
Excluding one-time tariff impacts, Q2 revenue was $1.76B (up 35% YoY), adjusted gross margin 67.6% (up 300 bps YoY) and adjusted EPS $2.58 (up 52% YoY). Net income was $497M.
Record operating cash flow $501M and record free cash flow $472M. Ending cash & equivalents $2.41B. Repurchased ~780k shares for ~$220M at an average $283 per share.
Company raised FY26 revenue expectation to 'high-20s percent' growth. Q3 revenue guide $1.73B–$1.75B (~29% YoY at midpoint) and Q3 EPS guide $2.43–$2.49 (~43% YoY at midpoint).
CSG revenue $1.23B, up 35% reported and up 27% core. CSG gross margin 74.1% and operating margin 33.4%. Broad strength across commercial communications and aerospace/defense.
EISG delivered a record quarter with revenue $486M (up 24% YoY) and operating margin 33.1%, with strong performance across general electronics, semiconductors, and automotive & energy.
Management reported AI-related business in 1H26 already surpassed full-year 2025 levels (AI portion sized at ~$500–$600M for the first half). Wireline delivered record orders driven by AI data center expansions, new scale-up and interconnect solutions, and 1.6T/3.2T technology adoption.
Software and services represent ~36% of revenue and annual recurring revenue ~27% of mix. Management reported strong operating leverage (49% operating leverage) and unusually high incremental margins in the quarter (incrementals near ~50% on a core basis) driven by high growth and tight expense management.
Management reiterated FY26 contribution target of ~$375M revenue from recent acquisitions and >$100M in cost synergies, with ~80% of cost synergies expected to be realized on a run-rate basis exiting FY26.
Management emphasized a broad, accelerating funnel and higher funnel velocity and conversion rates, with momentum across AI, semiconductors, aerospace/defense, and wireless (including NTN/LEO and 6G research).
Good day, ladies and gentlemen, and welcome to Keysight Technologies Fiscal Second Quarter 2026 Earnings Conference Call. My name is Abby, and I will be your operator today. 0. This call is being recorded today, Tuesday, May 19, 2026 at 01:30 p.m. Pacific time. I would now like to hand the call over to Liz Morali, vice president of investor relations. Please go ahead, Ms. Morali.
Good afternoon, and thank you for joining us for Keysight's Second Quarter Earnings Conference Call for Fiscal Year 2026. Joining me on today's call are Satish Dhanasekaran, president and CEO Neil Dougherty, executive vice president and CFO Kailash Narayanan, president of the Communication Solutions Group, Jason Carey, president of the Electronic Industrial Solutions Group, and Sung J. Yoon, senior vice president of global sales. Following the prepared remarks from Satish and Neil, we will take your questions. The press release and information to supplement today's discussion can be found on our Investor Relations website investor.keysight.com. During today's discussion, we will make forward looking statements. About the financial performance of the company. Actual results may differ materially from those mentioned in these forward looking statements as a result of risks and uncertainties.
Information about these risks and uncertainties can be found in our most recent Forms 10-K and 10-Q filings with the SEC. We do not intend to update any forward looking statements. In addition, we will refer to non GAAP financial measures. and reference core growth, Which excludes the impact of acquisitions or di...