0001601046-26-000008
SEC filingKeysight Technologies reported strong Q1 2026 results with revenue of $1.60 billion, a 23% increase year-over-year. Net income surged 67% to $281 million, driven by higher revenue and a significant income tax benefit of $83 million from discrete items including a favorable audit settlement. Operating income grew 14% to $248 million, though operating margin declined 1 percentage point to 15.5% due to gross margin pressure from tariffs, higher amortization, and people-related costs. The company generated robust operating cash flow of $441 million and ended the quarter with $2.18 billion in cash. Both reportable segments showed double-digit revenue growth, with Communications Solutions Group up 27% and Electronic Industrial Solutions Group up 15%.
Keysight Technologies delivered strong financial results for Q1 2026, with revenue increasing 23% year-over-year to $1.60 billion. Net income grew significantly by 67% to $281 million, benefiting from both higher revenue and a substantial income tax benefit of $83 million. Operating income increased 14% to $248 million, though operating margin declined 1 percentage point to 15.5% due to gross margin pressure. The company generated robust operating cash flow of $441 million, up $63 million from the prior year, and ended the quarter with $2.18 billion in cash and cash equivalents. Basic earnings per share were $1.64 compared to $0.97 in the prior year period.
Revenue growth of 23% was driven by both reportable segments and benefited from acquisitions (8 percentage points) and favorable foreign currency movements (1 percentage point). The Communications Solutions Group (CSG) generated $1.12 billion in revenue, representing 70% of total revenue and growing 27% year-over-year. CSG growth was driven by demand in high-speed networks supporting AI capabilities and aerospace/defense solutions. The Electronic Industrial Solutions Group (EISG) contributed $476 million in revenue, representing 30% of total revenue and growing 15% year-over-year, driven by AI demand for advanced semiconductor technologies and software-defined vehicles. Geographically, revenue increased across all regions with Europe showing the strongest growth at 27% (including 7 percentage points from currency).
Gross margin declined 1 percentage point year-over-year to 62.2%, primarily due to the impact of tariffs, higher amortization of acquisition-related balances, and higher people-related costs, partially offset by higher revenue volume and favorable gross margin impact from acquisitions. Operating expenses increased significantly, with research and development up 22% to $303 million and selling, general and administrative expenses up 24% to $447 million, both driven by incremental costs from acquired businesses and higher people-related costs. The effective tax rate was (42%) compared to 15% in the prior year, primarily due to discrete tax benefits of $106 million from a favorable audit settlement and release of reserves.
The company generated strong operating cash flow of $441 million, up $63 million from the prior year, driven by higher net income and favorable working capital changes. Free cash flow (operating cash flow minus capital expenditures) was $397 million. Investing activities used $44 million primarily for property, plant and equipment investments ($34 million) and acquisitions ($16 million). Financing activities used $99 million, including $87 million for treasury stock repurchases. The balance sheet remains strong with total assets of $11.48 billion, including $2.18 billion in cash and cash equivalents. Total debt was $2.53 billion, and stockholders' equity was $6.21 billion.
Management noted that customers are expected to continue R&D investments in next-generation technologies including 5G evolution, early 6G, quantum computing, high-speed data center networks, AI, industrial IoT, defense modernization, and next-generation electric vehicles. The company remains confident in long-term secular growth trends but continues to monitor macroeconomic factors including tariffs, trade restrictions, and geopolitical tensions. Capital spending is expected to be approximately $160 million in 2026 for capacity expansion and technology investments. The company believes its cash, cash generated from operations, and access to capital markets will satisfy cash needs for the foreseeable future.