Keysight Technologies Inc

Previous wording

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q and our Annual Report on Form 10-K. This report contains forward-looking statements which include but are not limited to predictions, future guidance, projections, beliefs, and expectations about the company’s trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, earnings from our foreign subsidiaries, remediation activities, new solution and service introductions, the ability of our solutions to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of government regulations on our ability to conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives, and other regulatory approvals, the integration of our completed acquisitions and other transactions, and our transition to lower-cost regions. The forward-looking statements involve risks and uncertainties that could cause Keysight’s results to differ materially from management’s current expectations. Such risks and uncertainties include, but are not limited to, the impact of global economic conditions such as inflation or potential recession, slowing demand for products or services, volatility in financial markets, reduced access to credit, increased interest rates, the existence of political or economic instability, impacts of geopolitical tension and conflict in regions outside of the U.S., the impacts of increased trade tension and tightening of export control regulations, the impact of new and ongoing litigation, impacts related to endemic and pandemic conditions, impacts related to net zero emissions commitments, and the impact of volatile weather caused by environmental conditions such as climate change. Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including but not limited to those risks and uncertainties discussed in Part II Item 1A and elsewhere in this Form 10-Q.

Current wording

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q and our Annual Report on Form 10-K. This report contains forward-looking statements which include but are not limited to predictions, future guidance, projections, beliefs, and expectations about the company’s trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, earnings from our foreign subsidiaries, remediation activities, new solution and service introductions, the ability of our solutions to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of government regulations on our ability to conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives, and other regulatory approvals, the integration of our completed acquisitions and other transactions, and our transition to lower-cost regions. The forward-looking statements involve risks and uncertainties that could cause Keysight’s results to differ materially from management’s current expectations. Such risks and uncertainties include, but are not limited to, the impact of global economic conditions such as inflation or potential recession, slowing demand for products or services, volatility in financial markets, reduced access to credit, increased interest rates, the existence of political or economic instability, uncertainty relating to national elections and election results in the U.S. and U.K., impacts of geopolitical tension and conflict in regions outside of the U.S., the impacts of increased trade tension and tightening of export control regulations, the impact of new and ongoing litigation, impacts related to endemic and pandemic conditions, impacts related to net zero emissions commitments, and the impact of volatile weather caused by environmental conditions such as climate change. Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including but not limited to those risks and uncertainties discussed in Part II Item 1A and elsewhere in this Form 10-Q.

Previous wording

In the first quarter of fiscal 2024, we acquired all of the outstanding common stock of ESI Group SA ("ESI Group") for $935 million, net of cash acquired, using existing cash. For the three and six months ended April 30, 2024, our acquisition of ESI Group resulted in incremental revenue of $26 million and $94 million, respectively. In our discussion of changes in our results of operations, we have qualitatively disclosed the impact of ESI Group acquisition. See Note 2, "Acquisitions," for additional information.

Current wording

In the first quarter of fiscal 2024, we acquired all of the outstanding common stock of ESI Group SA (“ESI Group”) for $935 million, net of cash acquired, using existing cash. For the three and nine months ended July 31, 2024, our acquisition of ESI Group resulted in incremental revenue of $25 million and $119 million, respectively. In our discussion of changes in our results of operations, we have qualitatively disclosed the impact of the ESI Group acquisition. See Note 2, “Acquisitions,” for additional information.

Previous wording

Our global operations continued to be affected by many external headwinds, including increased interest rates, currency movements, inflationary pressures, increased geopolitical tensions and trade restrictions. These headwinds are also negatively impacting our customers' operations and financial performance. As a result, demand has declined year-over-year as our customers are exercising caution and adapting to the current macro-economic headwinds. As we work through these near-term headwinds, we remained operationally disciplined by exercising our financial playbook and the structural flexibility in our operating model, while investing to expand our differentiated solutions portfolio and deepening our customer relationships. Consistent with the Keysight Leadership Model, our differentiated first-to-market solutions portfolio, technology leadership, customer relationships, and durable and resilient business model gives us confidence in the long-term trajectory of the business and our ability to outperform in a variety of market conditions and deliver consistent long-term value to our customers.

Current wording

Our global operations continued to be affected by a challenging macro environment, including high interest rates, currency movements, inflationary pressures, geopolitical tensions and trade restrictions. These factors resulted in lower demand, as our customers are also exercising caution in light of the same environment. Against this backdrop, we remained operationally disciplined by exercising our financial playbook and the structural flexibility in our operating model, while investing to expand our differentiated solutions portfolio and deepening our customer relationships. Consistent with the Keysight Leadership Model, our differentiated first-to-market solutions portfolio, technology leadership, customer relationships, and durable and resilient business model give us confidence in the long-term trajectory of the business and our ability to outperform in a variety of market conditions and deliver consistent long-term value to our customers.

Previous wording

For discussion of risks related to potential impacts of macroeconomic headwinds and geopolitical challenges on our operations, business results and financial condition, see “Item 1A. Risk Factors.”

Current wording

For discussion of risks related to potential impacts of macroeconomic headwinds and geopolitical challenges on our operations, business results and financial condition, see Part II Item 1A "Risk Factors.”

Previous wording

Total orders for the three and six months ended April 30, 2024 were $1,219 million and $2,439 million, respectively, a decrease of 8 percent and 7 percent, respectively, compared to the same periods last year. Acquisitions had a favorable impact of 3 percentage points and 4 percentage points, respectively, on the year-over-year order change for the three and six months ended April 30, 2024. Foreign currency movements had an unfavorable impact of 1 percentage point and immaterial impact, respectively, on the year-over-year order change for the three and six months ended April 30, 2024. For the three months ended April 30, 2024, orders declined across all regions. For the six months ended April 30, 2024, orders declined in Asia Pacific and the Americas, partially offset by an increase in Europe.

Current wording

Total orders for the three and nine months ended July 31, 2024 were $1,249 million and $3,688 million, respectively, which were flat and decreased 5 percent, compared to the same periods last year. Acquisitions had a favorable impact of 3 percentage points and 4 percentage points, respectively, on the year-over-year order change for the three and nine months ended July 31, 2024. Foreign currency movements had an unfavorable impact of 1 percentage point on the year-over-year order change for the three and nine months ended July 31, 2024. For the three months ended July 31, 2024, orders increased in Asia Pacific offset by declines in the Americas and Europe. For the nine months ended July 31, 2024, orders declined across all regions.

Previous wording

Revenue for the three and six months ended April 30, 2024 was $1,216 million and $2,475 million, respectively, a decrease of 13 percent and 11 percent, respectively, compared to the same periods last year. Revenue associated with acquisitions had a favorable impact of 2 percentage points and 4 percentage points, respectively, on the year-over-year revenue change for the three and six months ended April 30, 2024. Foreign currency movements had an unfavorable impact of 1 percentage point on the year-over-year revenue change for the three and six months ended April 30, 2024. For the three and six months ended April 30, 2024, revenue for both the Communications Solutions Group and Electronic Industrial Solutions Group declined year-over-year. Revenue from the Communications Solutions Group and the Electronic Industrial Solutions Group represented 69 percent and 31 percent, respectively, of total revenue for the three months ended April 30, 2024. Revenue from the Communications Solutions Group and the Electronic Industrial Solutions Group represented 68 percent and 32 percent, respectively, of total revenue for the six months ended April 30, 2024.

Current wording

Revenue for the three and nine months ended July 31, 2024 was $1,217 million and $3,692 million, respectively, a decrease of 12 percent and 11 percent, compared to the same periods last year. Revenue associated with acquisitions had a favorable impact of 2 percentage points and 3 percentage points, respectively, on the year-over-year revenue change for the three and nine months ended July 31, 2024. Foreign currency movements had an unfavorable impact of 1 percentage point on the year-over-year revenue change for the three and nine months ended July 31, 2024. For the three and nine months ended July 31, 2024, revenue for both the Communications Solutions Group (“CSG”) and Electronic Industrial Solutions Group (“EISG”) declined year-over-year. Revenue from CSG and EISG represented 70 percent and 30 percent, respectively, of total revenue for the three months ended July 31, 2024. Revenue from CSG and EISG represented 68 percent and 32 percent, respectively, of total revenue for the nine months ended July 31, 2024.

Previous wording

Net income for the three and six months ended April 30, 2024 was $126 million and $298 million, respectively, compared to $283 million and $543 million for the same periods last year. The decrease in net income for the three months ended April 30, 2024 was primarily driven by lower revenue, higher acquisition and integration costs and higher amortization of acquisition-related balances, partially offset by lower provision for income taxes and lower people-related costs. The decrease in net income for the six months ended April 30, 2024 was primarily driven by lower revenue, higher acquisition and integration costs, restructuring costs and amortization of acquisition-related balances, partially offset by lower provision of income taxes, incremental gross margin impact from the ESI Group acquisition and lower people-related costs.

Current wording

Net income for the three and nine months ended July 31, 2024 was $389 million and $687 million, respectively, compared to $288 million and $831 million for the same periods last year. The increase in net income for the three months ended July 31, 2024 was primarily driven by an income tax benefit due to one-time discrete tax items, partially offset by lower revenue, higher acquisition and integration costs and amortization of acquisition-related balances. The decrease in net income for the nine months ended July 31, 2024 was primarily driven by lower revenue, higher acquisition and integration costs, restructuring costs and amortization of acquisition-related balances, partially offset by lower provision for income taxes due to one-time discrete tax items, favorable gross margin impact from the ESI Group acquisition and lower people-related costs.

Previous wording

Our first-to-market solutions strategy enables customers to develop new technologies and accelerate innovation and provides a platform for Keysight's long-term growth. Our customers are expected to continue to make R&D investments in certain next-generation technologies and applications, including evolution of 5G, early 6G, high-speed data center networks and infrastructure, satellite networks and Artificial Intelligence ("AI"), next generation electric vehicles ("EV") and autonomous vehicles ("AV"), industrial internet of things ("IoT"), and defense modernization. We continue to engage actively with our customers, and closely monitor the current macroeconomic environment, including trade, tariffs, monetary and fiscal policies and geopolitical tensions. Despite the near-term challenges, we remain confident in the long-term secular growth trends of our markets and our ability to outperform in a variety of market conditions.

Current wording

Our first-to-market solutions strategy enables customers to develop new technologies and accelerate innovation and provides a platform for Keysight's long-term growth. Our customers are expected to continue to make R&D investments in certain next-generation technologies and applications, including evolution of 5G, early 6G, high-speed data center networks and infrastructure, satellite networks, Artificial Intelligence (“AI”), next generation electric vehicles (“EV”) and autonomous vehicles (“AV”), industrial internet of things (“IoT”), and defense modernization. We continue to engage actively with our customers, and closely monitor the current macroeconomic environment, including trade, tariffs, monetary and fiscal policies and geopolitical tensions. Despite the near-term situation, we remain confident in the long-term secular growth trends of our markets and our ability to outperform in a variety of market conditions.

Previous wording

There were no material changes during the three and six months ended April 30, 2024 to the critical accounting estimates described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023.

Current wording

There were no material changes during the three and nine months ended July 31, 2024 to the critical accounting estimates described in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023.

Previous wording

Results from Operations - Three and six months ended April 30, 2024 and 2023

Current wording

Results from Operations - Three and nine months ended July 31, 2024 and 2023

Previous wording

A summary of our results i s as follows:

Current wording

A summary of our results is as follows:

Previous wording

The following table provides the percent change in revenue for the three and six months ended April 30, 2024 by geographic region and the impact of foreign currency movements as compared to the same period last year.

Current wording

The following table provides the percent change in revenue for the three and nine months ended July 31, 2024 by geographic region and the impact of foreign currency movements as compared to the same periods last year.

Previous wording

Gross margin for the three months ended April 30, 2024 decreased 3 percentage points compared to the same period last year, primarily driven by lower revenue volume and higher amortization of acquisition-related balances, partially offset by lower material costs. Gross margin for the six months ended April 30, 2024 decreased 1 percentage point compared to the same period last year, primarily driven by lower revenue volume, higher amortization of acquisition-related balances and higher restructuring costs, partially offset by lower material costs and incremental gross margin impact from the ESI Group acquisition.

Current wording

Gross margin for the three months ended July 31, 2024 decreased 3 percentage points compared to the same period last year, primarily driven by lower revenue volume, higher amortization of acquisition-related balances and unfavorable mix, partially offset by lower material andvariable people-related costs. Gross margin for the nine months ended July 31, 2024 decreased 2 percentage points compared to the same period last year, primarily driven by lower revenue volume, higher amortization of acquisition-related balances, higher restructuring costs and unfavorable mix, partially offset by lower material costs, favorable gross margin impact from the ESI Group acquisition and lower variable people-related costs.

Previous wording

Selling, general and administrative expense for the three months ended April 30, 2024 increased 7 percent compared to the same period last year, primarily driven by higher acquisition and integration costs, incremental costs from the ESI Group acquisition and higher amortization of acquisition-related balances, partially offset by lower people-related costs and marketing costs. Selling, general and administrative expense for the six months ended April 30, 2024 increased 7 percent compared to the same period last year, primarily driven by higher acquisition and integration costs, incremental costs from the ESI Group acquisition, higher amortization of acquisition-related balances and higher restructuring costs, partially offset by lower people-related and infrastructure costs.

Current wording

Selling, general and administrative expense for the three months ended July 31, 2024 increased 3 percent compared to the same period last year, primarily driven by higher acquisition and integration costs, incremental costs from acquired businesses, partially offset by lower people-related costs and infrastructure costs, reflecting the impact of our cost flexibility, and efficiency measures. Selling, general and administrative expense for the nine months ended July 31, 2024 increased 6 percent compared to the same period last year, primarily driven by higher acquisition and integration costs, incremental costs from acquired businesses, higher amortization of acquisition-related balances and higher restructuring costs, partially offset by lower people-related andinfrastructure costs, reflecting the impact of our cost flexibility, and efficiency measures.

Previous wording

Other operating expense (income), net for the three and six months ended April 30, 2024 was income of $3 million and $5 million, respectively, compared to income of $4 million and $8 million, respectively, for the same periods last year.

Current wording

Other operating expense (income), net for the three and nine months ended July 31, 2024 was income of $5 million and $10 million, respectively, compared to income of $3 million and $11 million for the same periods last year.

Previous wording

Interest income for the three and six months ended April 30, 2024 was $18 million and $41 million, respectively, compared to $22 million and $41 million, respectively, for the same periods last year and primarily relates to interest earned on our cash balances. Interest expense for the three and six months ended April 30, 2024 was $20 million and $40 million, respectively, compared to $20 million and $39 million, respectively, for the same periods last year and primarily relates to interest on our senior notes.

Current wording

Interest income for the three and nine months ended July 31, 2024 was $19 million and $60 million, respectively, compared to $29 million and $70 million for the same periods last year and primarily relates to interest earned on our cash balances. Interest expense for the three and nine months ended July 31, 2024 was $21 million and $61 million, respectively, compared to $19 million and $58 million for the same periods last year and primarily relates to interest on our senior notes.

Previous wording

Other income (expense), net for the three and six months ended April 30, 2024 was zero and income of $5 million, respectively, compared to income of $5 million and $14 million, respectively, for the same periods last year and primarily includes income related to our defined benefit and post-retirement benefit plans, the change in fair value of our equity and other investments, currency impacts, and income attributable to non-controlling interests. The decrease in other income (expense), net for the three and six months ended April 30, 2024 is primarily driven by net currency losses.

Current wording

Other income (expense), net for the three and nine months ended July 31, 2024 was income of $10 million and $15 million, respectively, compared to income of $14 million and $28 million for the same periods last year andprimarily includes income related to our defined benefit and post-retirement benefit plans, the change in fair value of our equity and other investments, currency impacts, and income attributable to non-controlling interests. The decrease in other income (expense), net for the three months ended July 31, 2024 is primarily driven by decreased net gains on our equity investments, partially offset by net currency gains. The decrease in other income (expense), net for the nine months ended July 31, 2024 is primarily driven by decreased net gains on our equity investments and higher pension costs driven by higher interest cost on benefit obligation, partially offset by net currency gains.

Previous wording

As of April 30, 2024, our headcount was approximately 15,400 compared to approximately 15,000 at April 30, 2023. The increase was primarily driven by the acquisition of ESI Group partially offset by reductions from our cost efficiency measures.

Current wording

As of July 31, 2024, our headcount was approximately 15,400 compared to approximately 14,800 at July 31, 2023. The increase was primarily driven by acquisitions, partially offset by reductions from our cost efficiency measures.

Previous wording

The income tax expense for the three and six months ended April 30, 2024 included a net discrete benefit of $1 million and net discrete expense of $1 million, respectively. The income tax expense for the three and six months ended April 30, 2023 included a net discrete expense of $3 million and $2 million, respectively.

Current wording

The income tax benefit for the three and nine months ended July 31, 2024 included a net discrete benefit of $179 million and $178 million, respectively. The income tax expense for the three and nine months ended July 31, 2023 included a net discrete expense of $19 million and $21 million, respectively.

Previous wording

The company was audited in Malaysia for fiscal year 2008. This tax year predates our separation from Agilent. However, pursuant to the agreement between Agilent and Keysight pertaining to tax matters, as finalized at the time of separation, for certain entities, including Malaysia, any historical tax liability is the responsibility of Keysight. In the fourth quarter of fiscal year 2017, Keysight paid income taxes and penalties of $68 million on gains related to intellectual property rights. The company disputed this assessment and filed an appeal with the Court of Appeal in Malaysia. The Court of Appeal’s decision was rendered in Keysight’s favor on May 24, 2024.

Current wording

The discrete tax benefit for the three and nine months ended July 31, 2024 also includes a $61 million benefit for the settlement of a Malaysia uncertain tax position. In the fourth quarter of fiscal year 2017, Keysight was assessed and paid income tax and penalties in Malaysia on gains related to the transfer of intellectual property rights. The company disputed this assessment and filed an appeal with the Court of Appeal in Malaysia. The Court of Appeal’s decision was rendered in Keysight’s favor on May 24, 2024, and the company received a refund of the income tax and penalties. At the time of the original assessment, the company had recorded a tax reserve for the assessed amount; the tax reserve was released as a result of the Court of Appeal decision.

Previous wording

Keysight benefits from tax incentives in several jurisdictions, most significantly in Singapore and Malaysia, that will expire at various times in the future. The tax incentives provide lower rates of taxation on certain classes of income and require thresholds of investments and employment in those jurisdictions. The Singapore tax incentive will expire July 31, 2024, and the Malaysia tax incentive will expire October 31, 2025. The expiration of the Singapore tax incentive in the current year has been reflected in the annual tax forecast. The impact of the tax incentives decreased the income tax provision by $22 million and $49 million for the six months ended April 30, 2024 and 2023, respectively. The decrease in the tax benefit for the six months ended April 30, 2024 is primarily due to a decrease in earnings taxed at incentive rates and the impact of the Singapore tax incentive expiration.

Current wording

Keysight benefits from tax incentives in several jurisdictions, most significantly in Singapore and Malaysia. The tax incentives provide lower rates of taxation on certain classes of income and require thresholds of investments and employment in those jurisdictions. The Malaysia tax incentive expires October 31, 2025. The Singapore tax incentive expired July 31, 2024. The expiration of the Singapore tax incentive in the current year has been reflected in the annual tax forecast. The impact of the tax incentives decreased the income tax provision by $35 million and $73 million for the nine months ended July 31, 2024 and 2023, respectively. The decrease in the tax benefit for the nine months ended July 31, 2024 is primarily due to a decrease in earnings taxed at incentive rates and the impact of the expiration of the Singapore tax incentive. The company is pursuing options to renew the Singapore tax incentive with retroactive effect to August 1, 2024.

Previous wording

The open tax years for the U.S. federal income tax return and most state income tax returns are from November 1, 2019 through the current tax year. For the majority of our non-U.S. entities, the open tax years are from November 1, 2018 through the current tax year. For certain non-U.S. entities, the tax years remain open, at most, back to the year 2008.

Current wording

The open tax years for the U.S. federal income tax return and most state income tax returns are from November 1, 2019 through the current tax year. For the majority of our non-U.S. entities, the open tax years are from November 1, 2018 through the current tax year.

Previous wording

We do not recognize deferred taxes for temporary differences expected to impact the Global Intangible Low-Taxed Income ("GILTI") tax expense in future years. We recognize the tax expense related to GILTI in each year in which the tax is incurred.

Current wording

We do not recognize deferred taxes for temporary differences expected to impact the GILTI tax expense in future years. We recognize the tax expense related to GILTI in each year in which the tax is incurred.

Previous wording

We have two reportable operating segments, the Communications Solutions Group and the Electronic Industrial Solutions Group. The profitability of each of the segments is measured after excluding share-based compensation expense, amortization of acquisition-related balances, acquisition and integration costs, restructuring costs, interest income, interest expense and other items.

Current wording

We have two reportable operating segments, CSG and EISG. The profitability of each of the segments is measured after excluding share-based compensation expense, amortization of acquisition-related balances, acquisition and integration costs, restructuring costs, interest income, interest expense and other items.

Previous wording

A significant portion of the segments' expenses arise from allocated corporate charges, as well as expenses related to our centralized sales force, and service, marketing and technology functions that we have historically provided to the segments in order to realize economies of scale and to efficiently use resources. Corporate charges include legal, accounting, real estate, insurance services, information technology services, treasury and other corporate infrastructure expenses. Segment allocations are determined on a basis that we consider to be a reasonable reflection of the utilization of services provided to, or benefits received by, the segments. Newly acquired businesses are not allocated these charges until integrated into our shared services and corporate infrastructure.

Current wording

A significant portion of the segments' expenses arise from allocated corporate charges, as well as expenses related to our centralized sales force, and service, marketing and technology functions that are provided to the segments in order to realize economies of scale and to efficiently use resources. Corporate charges include legal, accounting, real estate, insurance services, information technology services, treasury and other corporate infrastructure expenses. Segment allocations are determined on a basis that we consider to be a reasonable reflection of the utilization of services provided to, or benefits received by, the segments. Newly acquired businesses are not allocated these charges until integrated into our shared services and corporate infrastructure.

Previous wording

The Communications Solutions Group ("CSG") serves customers spanning the global commercial communications and aerospace, defense, and government end markets. The group’s solutions consist of electronic design and test software, instrumentation, systems, and related services. These solutions are used in the simulation, design, validation, manufacturing, installation, and optimization of communication systems in wireless, wireline, enterprise, and aerospace, defense and government end markets. In addition, the group provides automated software test solutions to automatically identify, build, and execute tests critical to digital business success and a strong customer experience.

Current wording

The CSG serves customers spanning the global commercial communications and aerospace, defense, and government end markets. The group’s solutions consist of electronic design and test software, instrumentation, systems, and related services. These solutions are used in the simulation, design, validation, manufacturing, installation, and optimization of communication systems in wireless, wireline, enterprise, and aerospace, defense and government end markets. In addition, the group provides automated software test solutions to automatically identify, build, and execute tests critical to digital business success and a strong customer experience.

Previous wording

The Communications Solutions Group revenue for the three and six months ended April 30, 2024 decreased 10 percent and 11 percent, respectively, compared to the same periods last year. Revenues associated with acquisitions had a favorable impact of 1 percentage point on the year-over-year revenue change for the three and six months ended April 30, 2024. Foreign currency movements had an unfavorable impact of 1 percentage point and an immaterial impact, respectively, on the year-over-year revenue change for the three and six months ended April 30, 2024. Revenue declined across all regions and in both the commercial communications and the aerospace, defense, and government end markets for the three and six months ended April 30, 2024. The Communications Solutions Group revenue for the three and six months ended April 30, 2024 declined as compared to last year, primarily driven by overall lower investments and a strong compare to last year, which benefited from robust backlog conversion. Our customers continued to make R&D investments in next-generation technologies and applications, including AI-driven data center expansion, ongoing 5G standards development and deployment, 400G/800G/terabit Ethernet, development of new communications technologies (e.g., 6G, Open Radio Access Networks, commercial non-terrestrial networks, quantum), high-speed networking and major defense and government programs worldwide.

Current wording

The CSG revenue for the three and nine months ended July 31, 2024 decreased 8 percent and 10 percent, respectively, compared to the same periods last year. Revenues associated with acquisitions had a favorable impact of 1 percentage point on the year-over-year revenue change for the three and nine months ended July 31, 2024. Foreign currency movements had an unfavorable impact of 1 percentage point on the year-over-year revenue change for the three and nine months ended July 31, 2024. Revenue declined across all regions and in both the commercial communications and the aerospace, defense, and government end markets for the three and nine months ended July 31, 2024. The decline was driven primarily by overall lower investments and a strong compare to last year, which benefited from robust backlog conversion. Our customers continued to make R&D investments in next-generation technologies and applications, including AI-driven data center expansion, ongoing 5G standards development and deployment, 400G/800G/terabit Ethernet, development of new communications technologies (e.g., 6G, Open Radio Access Networks, commercial non-terrestrial networks, quantum), high-speed networking and major defense and government programs worldwide.

Previous wording

The commercial communications end market revenue for the three and six months ended April 30, 2024, decreased 10 percent and 12 percent, respectively, year-over-year and represented 67 percent and 66 percent, respectively, of total Communications Solutions Group revenue. For the three months ended April 30, 2024, revenue declined in the Americas and Asia Pacific, and was flat in Europe. For the six months ended April 30, 2024, revenue declined across all regions. The decline was driven by reduction in demand as customers remain cautious in their spending across the communications ecosystem, particularly the smartphone, network equipment manufacturing and service provider customers. However, we continued to see investments in high-speed networks due to increasing need for AI capabilities across the entire data center ecosystem, which is driving demand for our 400G/800G/terabit Ethernet solutions, both in R&D and manufacturing.

Current wording

The commercial communications end market revenue for the three and nine months ended July 31, 2024 decreased 6 percent and 10 percent, respectively, year-over-year and represented 68 percent and 66 percent of total Communications Solutions Group revenue. For the three months ended July 31, 2024, revenue declined in Europe and the Americas, partially offset by an increase in Asia Pacific. For the nine months ended July 31, 2024, revenue declined across all regions. For the three and nine months ended July 31, 2024, the revenue decline was primarily driven by continued weakness in the wireless communications ecosystem, particularly smartphones, partially offset by higher investments in AI Workload Emulation tools and infrastructure solutions. We continued to see investments in high-speed networks due to increasing need for AI capabilities in the data center infrastructure ecosystem, which is driving demand for our 400G/800G/terabit Ethernet solutions, both in R&D and manufacturing.

Previous wording

The aerospace, defense, and government end market revenue for the three and six months ended April 30, 2024, decreased 11 percent and 8 percent, respectively, year-over-year and represented 33 percent and 34 percent, respectively, of total Communications Solutions Group revenue. For the three months ended April 30, 2024, revenue declined in Asia Pacific and Europe, partially offset by an increase in the Americas. For the six months ended April 30, 2024, revenue declines in Asia Pacific were partially offset by an increase in the Americas and Europe. We continue to see investments in radar and spectrum operations, space and satellite solutions and signal monitoring.

Current wording

The aerospace, defense, and government end market revenue for the three and nine months ended July 31, 2024, decreased 10 percent and 9 percent, respectively, year-over-year and represented 32 percent and 34 percent of total Communications Solutions Group revenue. For the three and nine months ended July 31, 2024, revenue declined in Asia Pacific and the Americas, partially offset by an increase in Europe. We continue to see investments in radar and spectrum operations, space and satellite solutions and signal monitoring.

Previous wording

Gross margin for the three months ended April 30, 2024 decreased 6 percentage points compared to the same period last year, primarily driven by lower revenue volume and unfavorable mix. Gross margin for the six months ended April 30, 2024 was flat as compared to the same period last year, primarily driven by lower revenue volume and unfavorable mix offset by incremental gross margin impact from ESI Group acquisition.

Current wording

Gross margin for the three months ended July 31, 2024 decreased 1 percentage point compared to same period last year, primarily driven by lower revenue volume and unfavorable mix, partially offset by lower material andvariable people-related costs. Gross margin for nine months ended July 31, 2024 was flat as compared to the same period last year as lower material andvariable people-related costs were offset by lower revenue volume and unfavorable mix.

Previous wording

R&D expense for the three and six months ended April 30, 2024 decreased 2 percent, compared to the same periods last year, primarily driven by lower variable people-related costs, partially offset by incremental costs of acquired businesses. We continue to prioritize investment in key growth opportunities in our end markets and leading-edge technologies.

Current wording

R&D expense for the three months ended July 31, 2024 increased 2 percent compared to the same period last year, primarily driven by incremental costs of acquired businesses, partially offset by lower variable people-related costs. R&D expense for the nine months ended July 31, 2024 decreased 1 percent compared to the same period last year, primarily driven by lower variable people-related costs, partially offset by incremental costs of acquired businesses. We continue to prudently prioritize investment in key growth opportunities in our end markets and leading-edge technologies.

Previous wording

Selling, general and administrative expense for the three and six months ended April 30, 2024 decreased 9 percent and 8 percent, respectively, compared to the same periods last year, primarily driven by lower people-related and infrastructure costs, partially offset by incremental costs of acquired businesses.

Current wording

Selling, general and administrative expense for the three and nine months ended July 31, 2024 decreased 1 percent and 6 percent, respectively, compared to the same periods last year, primarily driven by lower people-related and infrastructure costs, partially offset by incremental costs of acquired businesses, reflecting the impact of our cost flexibility, and efficiency measures.

Previous wording

Other operating expense (income), net for the three months ended April 30, 2024 and 2023 was zero and income of $1 million, respectively. Other operating expense (income), net for the six months ended April 30, 2024 and 2023 was zero and income of $2 million, respectively.

Current wording

Other operating expense (income), net for the three months ended July 31, 2024 and 2023 was income of $3 million and $2 million, respectively. Other operating expense (income), net for the nine months ended July 31, 2024 and 2023 was income of $8 million.

Previous wording

The Electronic Industrial Solutions Group ("EISG") serves customers across a diverse set of end markets focused on automotive and energy, semiconductor solutions, and general electronics. The group's solutions consist of electronic design, test and simulation software, instrumentation, systems, and related services. These solutions are used in the simulation, design, validation, manufacturing, installation, and optimization of electronic equipment. In addition, the group provides automated software test solutions to automatically identify, build, and execute tests critical to digital business success and a strong customer experience. Our recent acquisition of ESI Group expands our application layer portfolio with simulation capabilities in automotive and general electronics sectors.

Current wording

The EISG serves customers across a diverse set of end markets focused on automotive and energy, semiconductor solutions, and general electronics. The group's solutions consist of electronic design, test and simulation software, instrumentation, systems, and related services. These solutions are used in the simulation, design, validation, manufacturing, installation, and optimization of electronic equipment. In addition, the group provides automated software test solutions to automatically identify, build, and execute tests critical to digital business success and a strong customer experience. Our recent acquisition of ESI Group expands our application layer portfolio with simulation capabilities in automotive and general electronics sectors.

Previous wording

The Electronic Industrial Solutions Group revenue for the three and six months ended April 30, 2024 decreased 17 percent and 11 percent, respectively, compared to the same periods last year. Revenues associated with acquisitions had a favorable impact of 5 percentage points and 9 percentage points, respectively, on the year-over-year revenue change for the three and six months ended April 30, 2024. Foreign currency movements had an unfavorable impact of 1 percentage point on the year-over-year revenue change for the three and six months ended April 30, 2024. For the three months ended April 30, 2024, revenue declined in Asia Pacific, partially offset by an increase in the Americas and was flat in Europe. For the six months ended April 30, 2024, revenue declined in Asia Pacific and the Americas, partially offset by an increase in Europe. For the three months ended April 30, 2024, revenue declined across all the markets. For the six months ended April 30, 2024, declines in general electronics measurement and semiconductor measurement solutions were partially offset by growth in automotive and energy driven by the acquisition of ESI Group.

Current wording

The EISG revenue for the three and nine months ended July 31, 2024 decreased 20 percent and 14 percent, respectively, compared to the same periods last year. Revenues associated with acquisitions had a favorable impact of 5 percentage points and 8 percentage points, respectively, on the year-over-year revenue change for the three and nine months ended July 31, 2024. Foreign currency movements had an unfavorable impact of 1 percentage point on the year-over-year revenue change for the three and nine months ended July 31, 2024. For the three months ended July 31, 2024, revenue declined across all regions. For the nine months ended July 31, 2024, revenue declined in Asia Pacific and the Americas, partially offset by an increase in Europe. For the three and nine months ended July 31, 2024, revenue declined across all markets.

Previous wording

R&D expense for the three and six months ended April 30, 2024 increased 11 percent and 12 percent, respectively, compared to the same periods last year, primarily driven by incremental costs from the ESI Group acquisition, partially offset by lower variable people-related costs. We continue to prioritize investment in key growth opportunities in our end markets and leading-edge technologies.

Current wording

R&D expense for the three and nine months ended July 31, 2024 increased 10 percent and 11 percent, respectively, compared to the same periods last year, primarily driven by incremental costs from acquired businesses, partially offset by lower variable people-related costs. We continue to prudently prioritize investment in key growth opportunities in our end markets and leading-edge technologies.

Previous wording

Operating margin for the three months ended April 30, 2024 decreased 16 percentage points compared to the same period last year, primarily driven by higher selling, general and administrative expense and R&D expense as a percentage of sales coupled with decline in gross margin. Operating margin for the six months ended April 30, 2024 decreased 8 percentage points compared to the same period last year, primarily driven by higher selling, general and administrative expense and R&D expense as a percentage of sales.

Current wording

Operating margin for the three and nine months ended July 31, 2024 decreased 14 percentage points and 10 percentage points, respectively, compared to the same period last year, primarily driven by higher selling, general and administrative expense and R&D expense on a lower revenue, coupled with gross margin declines.

Previous wording

Net cash provided by operating activities decreased $351 million during the six months ended April 30, 2024 compared to the same period last year.

Current wording

Net cash provided by operating activities decreased $337 million during the nine months ended July 31, 2024 compared to the same period last year.

Previous wording

•Net income for the six months ended April 30, 2024 decreased $245 million compared to the same period last year. Non-cash adjustments to net income were higher by $25 million primarily due to a $30 million increase in amortization and depreciation, a $5 million increase in excess and obsolete inventory-related charges, partially offset by a $7 million increase in deferred tax benefit, and a $3 million decrease in other non-cash expenses.

Current wording

•Net income for the nine months ended July 31, 2024 decreased $144 million compared to the same period last year. Non-cash adjustments to net income were $25 million higher, primarily due to a $40 million increase in amortization and depreciation, a $9 million decrease in unrealized gains on equity and other investments, and a $7 million increase in excess and obsolete inventory-related charges, partially offset by a $31 million increase in deferred tax benefit. Net income for the nine months ended July 31, 2024 includes a $61 million benefit for the settlement of a Malaysia uncertain tax position. See Note 5, “Income Taxes,” for additional information.

Previous wording

•The aggregate of accounts receivable, inventory and accounts payable provided net cash of $60 million during the first six months of fiscal 2024 compared to net cash used of $73 million in the same period last year, primarily due to timing of collections relative to revenue, a lower increase in inventory and lower payments. The amount of cash flow generated from or used by the aggregate of accounts receivable, inventory and accounts payable depends upon the cash conversion cycle, which represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers and can be significantly impacted by the timing of shipments and purchases, as well as collections and payments in a period.

Current wording

•The aggregate of accounts receivable, inventory and accounts payable provided net cash of $75 million during the first nine months of fiscal 2024 compared to net cash used of $148 million in the same period last year, primarily due to timing of collections relative to revenue, a lower increase in inventory and lower payments. The amount of cash flow generated from or used by the aggregate of accounts receivable, inventory and accounts payable depends upon the cash conversion cycle, which represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers and can be significantly impacted by the timing of shipments and purchases, as well as collections and payments in a period.