Good day, ladies and gentlemen, and welcome to the Keysight Technologies' Fiscal Fourth Quarter 2015 Earnings Conference Call. My name is Melissa, and I will be your lead operator today. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] Please note that this call is being recorded today, Thursday, November 19, 2015, at 1:30 P.M. Pacific Time. I would now like to hand the conference over to Jason Kary, Keysight Treasurer and Vice President of Investor Relations. Please go ahead, Mr. Kary.

Thank you, Melissa, and welcome to Keysight's fourth quarter earnings conference call for fiscal year 2015. With me today are Neil Dougherty, Keysight's Senior Vice President and CFO, and Senior Vice Presidents Guy Séné and Mike Gasparian. Unfortunately, Ron Nersesian, Keysight President and CEO, is unable to join us today. He has hurt his back and he is out of the office for a few days. I will cover Ron's prepared remarks on his behalf before turning the call over to Neil for his comments. Neil, Mike and Guy will then handle the Q&A. As always, you can find the press release and information to supplement today's discussion on our website at investor.keysight.com. While there, please click on the link for Quarterly Reports under Financial Information. There you'll find an investor presentation along with Keysight's segment results. We will also post a copy of the prepared remarks following this call. Today's comments by me and Neil will refer to non-GAAP financial measures. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. We will make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. The company assumes no obligation to update them. Please review the company's recent SEC filings for a more complete picture of our risks and other factors. Now let's turn to our results for the quarter and the year. Our strong Q4 performance contributed to a solid first year as an independent company. Beginning with four headlines. First, in Q4, we delivered strong profit in a soft market by leveraging the strength of Keysight's business model. This was the seventh consecutive quarter that we delivered financial results at or above the midpoint of our revenue and EPS…

Thank you, Jason, and hello, everyone. As Jason mentioned, Q4 was a strong finish to our first fiscal year as a new company. Fourth quarter revenues of $756 million that were just above the midpoint of our guidance declined 1% year-over-year on both on as reported and core basis. Currency had a negative impact of four percentage points, offset by four percentage points of growth from acquisitions. Regionally, and on a core basis, revenue declined 6% in the Americas and 3% in Europe. Japan revenues improved 2% year-over-year, while Asia excluding Japan grew 5%. The regional mix of total revenues was consistent with prior periods, with 39% from the Americas, 18% from Europe, and 43% from Asia. Gross margins increased 190 basis points year-over-year, as our mix of R&D and software revenues improved. Expenses were well managed while we continue to invest in R&D programs in support of our growth initiatives. Operating profit performance for the quarter was good, with a Q4 operating margin of 20.7%. Non-GAAP net income after-tax was $122 million or $0.71 per share which was at the high end of guidance. Shifting briefly to GAAP results, you will note that GAAP net income was significantly higher than usual this quarter due to a material deferred tax benefit recognized in Q4. This tax benefit resulted primarily from a ruling obtained from Singapore that allows us to amortize the value of the intellectual property acquired from Agilent in the separation. In addition, this quarter, we substantially completed the purchase price accounting and IFRS to GAAP accounting adjustments associated with the acquisition of Anite. GAAP rules require us to revalue certain pre-acquisition revenue classified by Anite as deferred. Consistent with standard industry practice, we will include the amortization of pre-acquisition deferred revenue in our non-GAAP quarterly revenue reporting, which…

Thank you, Neil. Operator, will you give the instructions for the Q&A please?

[Operator Instructions] And the first question comes from the line of Brandon Couillard with Jefferies. Your line is open.

Hi, Brandon.

Thanks. Good afternoon. Neil or Jason, I guess, in the context of fiscal 2016 looking a little softer in the first half, on a full year basis, which are the three primary end markets do you view has the strongest tailwinds, or those that are facing challenges? And if I understand your comments right, are you suggesting a stronger second half outlook than perhaps you initially anticipate to get to the full year?

Yeah. So this is Neil. I'll let Guy comment on kind of our view of the markets going forward. But I think as we look at our performance in FY 2015, and our expectations going into FY 2016, that your statement about stronger second half is accurate. We obviously had a relatively weak Q3, a softer Q4 than normal giving us relatively easier compares in the second half of FY 2016 and then some headwinds here as I mentioned from macro as well as the aerospace defense situation coming out of Q4. So I'm going to let Guy comment more broadly on the market situation. Guy Séné: Yeah. Brandon, you may remember on September 1 at the Analyst Day, we gave forward-looking numbers of expectations for each of the market segments that on the long term was around 2% to 3% for our market growth, with comps being 1% to 2% and the two other segments, Aerospace, Defense and ICS being in the 2% to 3%. We also had said that we'll see fiscal year 2016 on this lower end of this, with average of 2% market growth for 2016. So as I think we said in Ron's prepared comments is that we still see this 2%. The market segments themselves are - the one that is probably slower in the first half is aerospace, defense. We have seen a slower Q4 in Aerospace, Defense, mostly driven by our budget - the end of year budget that we usually see from our government in the U.S. spending did not happen. This will mean a slower Q1 for Aerospace, Defense. The other markets [indiscernible] very well aligned with the expectation for going forward in this year.

Super. And then just one more on Anite. Neil, just to confirm was 100% of the revenue contribution there captured within the Communications segment and then could you give us an update on the integration progress. Exactly where you are in terms of getting down the cost synergy pathway?

Yeah. So the answer to your first question is, yes, we captured all of the Anite revenue within the Communications segment in terms of our industry segmentation. And Guy Séné is actually heading up the integration of Anite. So let me allow him to take the second part of that question. Guy Séné: Yeah. Remember with Anite, what we're doing is really strengthen our wireless solution portfolio and expand our served addressable market. And now with 13 weeks into the acquisition for Anite, I must say we're very pleased on the overall integration. All the milestones that we have set so far being on track. We see good engagement on both sides from the employees, working on the plans. We're currently aligning our roadmaps and portfolios, so that we are completely ready to communicate this by Mobile World Congress in February. And I must say all the communication and discussions we have with customers are going extremely well. So we are very pleased at this stage.

Thank you.

Your next question comes from the line of Patrick Newton from Stifel. Your line is open.

Hi, Patrick.

Hi guys. Good afternoon. This is [indiscernible] for Patrick.

Hi, James [ph].

How is it going? Can you remind us about some of the specific drivers behind increasing service revenue to your $600 million target annually by 2020? And then also maybe quantify some of the additional costs that will be associated with building out and expanding your service to support infrastructure?

Yeah. Mike, do you want to go ahead and take that one?

Sure. Hi, [ph] James. Yeah. You're really referring to the Analyst Day presentation, where we laid out this exciting opportunity to grow this business to $600 million over the next five years. It's really a great long-term opportunity. And as Ron said in his prepared comments read by Jason, over $1 billion in new served addressable market. We did have a really solid year with 4% core growth and even better finish with 8% growth in Q4, and the drivers really remained the same. The highlight is really the opportunity in calibration. There's two parts to that. Part one is we're pursuing a very flexible approach to onsite calibration services. So we've got volume onsite calibration capability where we can go in for two days, three days a month and take care of a customer's complete calibration needs. We've got resident professionals who go onsite and actually do the calibration on the customer site. We've got mobile calibration labs in Europe. We've got local calibration centers all around the world with pick-up and delivery capability. The second part of the strategy is really related to expansion to a multi-vendor capability. And this is really driven by the customers' desire for a one-stop shop. They want somebody who can handle their electrical calibration from a variety of vendors but also cover physical, dimensional and optical and that's really what's behind our too small but very strategic acquisitions we've done in the last year with PSNA about a year ago in the U.S., and Electroservices this past quarter, both very high quality companies, great reputations and offering that multivendor capability which we were lacking. In both cases, we have immediately won larger deals, multiyear, very strong recurring revenue streams. The way this typically works, is you get in, you win one site. And then based on how well you do, you can expand within the customer base. And we've had wins both in the U.S. and Europe and this is primarily in the aerospace, defense environment. So getting to part two of your question, I feel like we're really on track. Again the primary driver to get to that $600 million in fact is going to be the expansion of the calibration play. But as you go in and you do calibration, the very next step would be asset management services. And so, we're aggressively pursuing that in different parts of the world with different capabilities and adding those capabilities into the company. We also believe there's opportunities for us in professional services. And so, those would be layered in on top of the repair and cal business that we have as a core.

So do you expect any effect on costs going through your fiscal 2016?

Yeah. [ph] James, as we think about that, the effort to grow the services business is not necessarily analogous to what we're seeing on the product side. These aren't R&D-driven programs. And so, while there is some investment that is involved, it tends to be smaller in scale than you would typically see on the product side and also it tends to be more directly linked with the revenue opportunities that are there. So you got to have some capacity ahead of demand. But I don't think you should see a material fluctuation in the profitability of this business moving forward based on the investments that are required to grow the business.

Yes. Thank you. That's helpful. Just one more quick question. Do you have any indication on semiconductor CapEx trends in 2016 given the current soft spending environment?

Guy, I don't know if you have any specific comments? Guy Séné: This is Guy. No, we don't have specific CapEx numbers different from any of the reports that you get commercially. I think what we look at is really the new technologies. If they're going to go into the sub 20-nanometers and probably sub 15-nanometers pitches that we see happening. And we expect some of this to be happening later in the year that you may know we have a big market share with some of our products in this industry.

Yeah. Thanks, guys. That's it from me.

Your next question comes from the line of Rob Mason with Robert W. Baird. Your line is open.

Yes. Good afternoon, guys.

Hi, Rob.

I had a couple of clarifications first if I could. Neil, the midpoint of your guidance with core down 1%. What are you assuming for FX and the acquisition contribution in the quarter? I may have missed that if you spoke about it?

Yeah. Hang on one minute if you would. Give me one second. I did not break it out. I have those numbers but unfortunately, I don't have them off the top of my head. Do you have a second question while I [indiscernible].

Yeah. And maybe just another clarification as well. The deferred revenue push-out, or I should say revenue recognition push-out, that you're going to deal with at Anite. Did you incur any of that in the fourth quarter? In other words, push-out some of the revenue recognition?

We did to the tune of about $3 million.

Okay. And so, the $12 million that we get pushed out, that's for the full - you said that's for the full year next year?

The $12 million is for the full year but it's consolidated in the first half of the year, because essentially you defer revenue but then that deferred revenue gets amortized. And by the second half, the amortization of the revenues that we've deferred in Q4, Q1 and Q2 will have caught up and we will essentially have gotten back to normal.

Okay. And then just maybe why you're still looking there, if I exclude Anite from your Communications revenue, it looks like maybe the core Communications business was down low double digits. And the reason there is primarily wireless manufacturing it sounds. Do you have any insight - because it sounds like China has stabilized for you but do you have any insight as to maybe how China infrastructure spending will trend into next year - wireless infrastructure?

Guy, if you would you like to comment on that? Guy Séné: Yeah. Let me comment on China in general. As you have seen, we said that China stabilized and in fact we had a slight cost in Q4. And it's now the fifth quarter where we have seen the stabilization going forward. There is no doubt that one of the delta we got with last year is the fact that we did not see the revenue from the 4G infrastructure build-out as it came down over the year now. Going forward, we're not expecting major investments coming into 4G. We're still looking for the operators like China Telecom, China Unicom that are investing in the this 4G network but we have not seen any material change in investment into infrastructure. So I'm not really counting of this going forward in this year.

Okay.

Yeah. And on your other question, it's between - sorry, on your other question, the currency impact's between 1% and 2% and the balance is acquisition.

Okay. Okay. Thank you.

We have time for one last question. And that question comes from the line of James Covello from Goldman Sachs. Your line is open.

Hi, this is Chelsea Jurman on behalf of Jim. Thanks for letting me ask a question. With the industry growth being...

Hello.

Hi - with the industry growth being less than 2% in the beginning of the year and your revenue guidance being up 3% year-over-year at the midpoint, can you just talk about what you think could drive above industry growth for you in the first quarter?

Yeah. So in the first quarter I'd just reiterate that our core growth assumption is down 1%. Our total growth assumption is up 3% but that delta is primarily driven by the addition of Anite which obviously wasn't in the year ago numbers.

Okay, great. Thanks. And then in terms of your comment on aerospace and defense earlier, can you just give a little bit more detail on U.S. government spending and why purchasing didn't come through as you might have expected?

Yeah. Guy, do you want to take that? Guy Séné: Sure. In fact, two things. One is, in the normal seasonality that we see year-over-year, we in general see a boost of investments coming up in our Q4. Most these orders that where the government is just choosing to budget that they have. This did not happen this year, and you may have seen that in fact, the whole fiscal year, we had unusual seasonality for the budget. So that's really what happened. Looking forward, we're still waiting for the budget to be signed, and we expect that the budget in the U.S. gets signed in the next two weeks. And once this is or will, this will be signed, we should start seeing the orders flow in more in the [indiscernible] Q2.

Great. Thank you very much.

Thank you. That concludes our question-and-answer session for today. I would like to turn the conference back to Jason Kary for final comments.

On behalf of Ron, I'd like to thank everyone for joining the call today. As I mentioned at the top of the call, our strong Q4 performance contributed to a very solid first year as an independent company for Keysight. Our team's operational discipline drove excellent earnings results in Q4 and throughout the year while we completed the separation and closed our first major acquisition in Anite. We also established a consistent track record of meeting our guidance commitments over the past several quarters. So going forward, we will continue to leverage our unique formula of technology leading hardware and software and our large global network of experts to create value for customers and shareholders alike. Our new organizational structure is the next step in driving increased focus on customer solutions and accelerating our growth initiatives in 2016. Thank you very much. And have a nice day.

This concludes our conference call. You may now disconnect.