Good day, ladies and gentlemen and welcome to the Keysight Technologies Fiscal Fourth Quarter 2020 Earnings Conference Call. My name is Chris, 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, Wednesday, November 18, 2020 at 1:30 PM Pacific Time. I would now like to hand the conference over to Jason Kary, Vice President, Treasurer and Investor Relations. Please go ahead, Mr. Kary.

Thank you and welcome everyone to Keysight's fourth quarter earnings conference call for fiscal year 2020. Joining me are Ron Nersesian, Keysight's Chairman, President and CEO; and Neil Dougherty, our CFO. Joining us in the Q&A session will be Satish Dhanasekaran, who was recently appointed our Chief Operating Officer; and Mark Wallace, Senior Vice President of Worldwide Sales. 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 the Financial Information tab. There you will find an investor presentation along with Keysight's segment results. Following this conference call, we will post a copy of the prepared remarks to the website. Today's comments by Ron and Neil will refer to non-GAAP financial measures. We will also make references to core growth, which excludes the impact of currency movements and acquisitions or divestitures completed within the last 12 months. 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 on today's call. 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. Lastly, I would note that management is scheduled to participate in upcoming virtual investor conferences in December hosted by Credit Suisse, Wells Fargo, Barclays, and Cowen. And now, I will turn the call over to Ron.

Thank you, Jason, and thank you all for joining us. Keysight delivered an outstanding quarter to finish our fiscal year driven by strong execution and broad-based demand for our differentiated solutions. Despite COVID-related macro challenges, it was a record year for orders, gross margin, operating margin, earnings per share, and free cash flow. Today, I'll focus my comments on three key headlines. First, we delivered exceptional fourth quarter results driven by strong execution as demand for Keysight's next-generation technology solutions continued, and end-market demand began to recover. Second, record profitability and cash flow again demonstrated the durability and strength of our financial operating model despite a challenging macroeconomic environment. And third, our long-term outlook for revenue and earnings growth is strong, and we haven't wavered from our pre-COVID long-term financial commitments and growth expectations announced in March of this year. The power of Keysight's leadership model and our execution this year underscore our ability to deliver on these commitments which includes 46% long-term core revenue growth and achieving 26% to 27% sustainable annual operating margin by no later than fiscal year 2023. Now, let's take a deeper look at the strength of our fourth quarter and fiscal year 2020 financial performance. In the fourth quarter, broad-based demand for Keysight's solutions drove strong results across the business as the economic recovery in certain sectors gained momentum. Record orders of $1.2 billion exceeded revenue and grew 3% year-over-year and 15% sequentially. We achieved fourth quarter revenue growth of 9% year-over-year with growth across all regions. Both, the Communications and Electronic Industrial Solutions Groups achieved record revenue in the quarter. The resilience of our financial operating model resulted in an all-time high profitability and cash flow. In Q4, we delivered gross margin of 66% and operating margin of 29%, and earnings of $1.62 per share, and free cash flow of $308 million. For the year and despite COVID-related macro challenges and supply chain disruption, orders grew to $4.5 billion, an all-time high for Keysight. As you recall, in Q2, we responded to government directors to limit the spread of coronavirus and closed the majority of our offices worldwide, including our order fulfillment and manufacturing operations. We then ramped back up our production capacity in Q3. Despite this significant disruption, full year revenue of $4.2 billion declined only 2% year-over-year. Even in a difficult operating environment, we continue to deliver on our margin expansion commitments. Both, gross margin and operating margin improved by over 100 basis points generating a record $4.85 per share in earnings in fiscal year 2020. Turning to our markets; the Communications Solutions Group record quarterly revenue was driven by growth across the aerospace, defense and government, and commercial communications. Aerospace, defense and government revenue increased 13% year-over-year in Q4, driven by strength in the Americas and Asia, as defense modernizations continues to drive investments in technology with the focus on electromagnetic spectrum operations, space, and new commercial technologies like 5G. In Commercial Communications, 5G technology is scaling and drove strong demand across the design lifecycle from development to deployment. Keysight has the industry's most comprehensive range of 5G design and test solutions enabling the global buildout of networks and devices. 5G has been a strong growth driver for us for over the past three years, and we continue to see new use cases and ongoing innovation as the ecosystem scales and adapts to a new technology. A recent example of our 5G solutions approach includes collaboration on O-RAN with many industry leaders. Investment continues across the Commercial Communications market spanning wireless and wired technologies in data centers, and also in the cloud. This quarter, we announced a new high performance PXIe modular 5G base station solution. It is enabling network equipment manufacturers and small cell vendors to accelerate their time to market. This solution also incorporates enhancements from our PathWave software platform that help automate some of the current workflow limitations. Within Electronic Industrial Solutions Group, orders and revenue for our broad portfolio of general electronics solutions, both grew double-digit driven by gradual economic recovery across most regions and improvement in the education market. Demand for our semiconductor measurement solutions was again strong this quarter as investment in next-generation process technologies continued. In automotive, while macro-driven weakness continues to weigh on the sector, strategic investment in the advanced automotive technology is a market priority; we saw improvement from last quarter as orders grew double-digit sequentially across all regions. Our Scienlab electric vehicle test solutions are expanding in Asia and Europe where government mandates are driving the electrification of vehicles. We continue to add to our solutions portfolio and [pressing] [ph] challenges in the development of Advanced Driver Assistance Systems or ADAS, and ensuring compliance to important standards. In Q4, we introduced a new radar target simulator for ADAS being developed to enable autonomous driving, as well as a new solution for testing automotive Ethernet standards compliance for in-vehicle networks. We also recently announced collaborations with SGS and Qualcomm to advanced testing of cellular vehicle-to-everything or C-V2X technology. Turning to software and services, combined they were one-third of total Keysight revenue for this year after another quarter of solid growth. In addition, recurring revenue increased from 18% of total in FY '19 to 21% in FY '20. On an annualized basis, recurring revenue grew high-teens over last year. Software and services are important elements of our solution-centric strategy and differentiation, and further strengthened the durability of our business model. In Q4, we launched new and enhanced solutions to tap the power of cloud-based processing and advanced analytics to speed design simulation, validation and manufacturing test. These include several new PathWave software solutions targeting advanced design, compliance test, automation, and measurement and manufacturing analytics. Increasingly complex designs and the volume of data associated with their validation are driving demand for Keysight solutions. Keysight's execution and financial performance this year is a testament to Keysight's leadership model, our values, and our commitment to corporate social responsibility. A year ago, I shared with our teams my top priorities for the company. One of these priorities was a specific focus on increasing our inclusion and diversity efforts. In support of this priority, I appointed a new Senior Director of Inclusion and Diversity, who has been working with Keysight leaders and external organizations to increase representation of diverse groups within our workforce. We place a high value on inclusion and diversity at all levels of our organization, including the Board of Directors. We continue to make progress, and I'm pleased to share that as of today, over 30% of our U.S. executives are diverse in gender, race, and/or ethnicity. Before I turn the call over to Neil, I'd like to sincerely thank all of our Keysight employees for their relentless commitment, engagement, and dedication to our success over the past year. Our people and culture are truly a competitive differentiator. Thanks to their efforts, and in the face of unprecedented challenges, Keysight exits this year stronger than ever and is very well positioned to capitalize on our growth opportunities ahead. Now, I will turn it over to Neil to discuss our financial performance and outlook in more detail.

Thank you, Ron, and hello, everyone. Before I begin, please note, that all comparisons are on a year-over-year basis, unless specifically noted otherwise. As Ron mentioned, we delivered an outstanding quarter and despite a challenging macro environment, we continued to make great progress towards our long-term annual financial targets. In the fourth quarter of 2020, we delivered record revenue of $1.220 billion, which was above the high-end of our guidance range, and grew 9% or 7% on a core basis. Q4 revenue growth was driven by continued demand in areas such as 5G, semiconductor measurement, and aerospace defense where we have leading positions and differentiated solutions. Demand for general electronics improved significantly in the quarter driven by regional economic recovery, particularly in Asia. Total Keysight orders exceeded revenue in Q4 with the book-to-bill just over 1 [ph]. We delivered a record $1.231 billion in orders, up 3% or 1% on a core basis. Looking at our operational results for Q4; we reported gross margin of 66% and operating expenses of $446 million resulting in operating margin of 29%, an all-time quarterly high. Net income was a record $305 million, and we achieved $1.62 in earnings per share which was well above the high-end of our guidance, and an increase of 22% year-over-year. Our weighted average share count for the quarter was 188 million shares. Moving to the performance of our segments; our Communication Solutions Group generated record revenue of $901 million, up 8% while delivering record gross margin of 66% and record operating margin of 29%. In Q4, commercial communications generated revenue of $605 million, up 5% driven by strength across the 5G ecosystem from development to early manufacturing, Gen5 high-speed digital applications and data center related 400 gigabit and 800 gigabit technology. Aerospace, defense and government achieved record revenue of $296 million, an increase of 13% versus a prior all-time high in Q4 last year. Growth was driven by strength in the Americas and Asia with improvement in Europe. The Electronic Industrial Solutions Group generated fourth quarter revenue of $319 million, up 12% or 7% on a core basis, driven by strength in general electronics and semiconductor. EISG reported gross margin of 65%, an increase of 230 basis points year-over-year and record operating margin of 30%. Given the challenges that we faced this year, we are very pleased with our full year results. FY '20 revenue totaled $4.2 billion, down 2% year-over-year or 3% on a core basis impacted by supply chain disruptions and macro challenges caused by the pandemic. Despite this small revenue decline, gross margin improved 140 basis points year-over-year to 65%. While continuing to invest in R&D at 16% of revenue or nearly $700 million for the year, operating margin improved 130 basis points to 25%. This year-over-year improvement demonstrates strong progress towards our annual operating margin target of 26% to 27% which we expect to achieve by fiscal 2023. FY '20 non-GAAP net income was $919 million or $4.85 per share for the full year. Moving to the balance sheet and cash flow, we ended our fourth quarter with $1.8 billion in cash and cash equivalents, and reported cash flow from operations of $338 million and record free cash flow of $308 million. Free cash flow is net of a $100 million funding contribution to our U.S. pension plan in the quarter, which provides a tax benefit in the current year and a pension expense benefit in FY '21. Total free cash flow for the year was $899 million, representing 21% of revenue and 98% of non-GAAP net income. Under our prior share repurchase authorization, we were opportunistic in deploying capital during the quarter. We acquired approximately 2.2 million shares on the open market at an average price of $96.55 for a total consideration of $215 million and exhausting our $500 million share repurchase authorization from May of 2019. This brings our total share repurchases for the year to approximately 4.3 million shares at an average share price of $95.90 for a total consideration of $410 million or 46% of free cash flow. As announced earlier today, the Keysight Board of Directors has approved a new share repurchase authorization of $750 million, effective immediately. Before moving to FY '21 modeling and our Q1 guidance, I'd like to provide a brief update on global trade concerns. We admittedly have a tough order comp in Q1 due to China trade restrictions and the pending U.S. administration change, which has historically dampened government business during the transition. Despite these headwinds, we have started to see gradual improvements in many of our markets and are entering the year in a strong backlog position giving us confidence in our ability to navigate these near-term perturbations. Looking to FY '21, we expect quarterly revenue seasonality to be more muted than in the past due to ongoing COVID-19 and macro-related uncertainty. Just as we flexed expenses down this year, flexible spending and variable compensation is expected to increase in FY '21 to more normal levels, with Q2 expenses seasonally higher than all other quarters. In addition, FY '21 pension expenses reflected in the other expense line are expected to increase by $5 million per quarter. Interest expense is expected to be approximately $78 million and capital spending is expected to be in the range of $170 million to $180 million as we begin a two-year project to increase the resiliency of our supply chain. Regarding our tax rate, we are modeling a 12% non-GAAP effective tax rate for FY '21. Now turning to our outlook and guidance; we expect first quarter 2021 revenue to be in the range of $1.140 billion to $1.160 billion, and Q1 earnings per share to be in the range of $1.32 to $1.38 based on a weighted diluted share count of approximately 188 million shares. In closing, our solid outlook for revenue and earnings growth coupled with the durability of our business model give us confidence in our ability to deliver on the long-term financial commitments that we outlined in March prior to COVID. Despite the challenges of this past year, we continue to make good progress towards our long-term targets of 4% to 6% core revenue growth and annual operating margin of 26% to 27%. With that, I will now turn it back to Jason for the Q&A.

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

[Operator Instructions] Our first question is from Mehdi Hosseini with Susquehanna. Your line is open.

Yes, thanks for taking my question. I want to go back to your booking and better understand specific to Commercial Communication, how should I think about orders for 5G, specifically millimeter wave, and how does the networking, like fiber for 800-gig, compare to millimeter wave related orders? And I have a follow-up.

Yes, thanks, Mehdi. This is Satish, I'll take it. Our Commercial Communications group had a record revenue this quarter and second consecutive quarter of sequential improvement and a large part of these results were driven by strength in both the wireless and wireline ecosystems, specifically from a trend perspective, 5G and 400-gig were big drivers of growth for us. I would say, in 5G while -- we observed three things, the commercialization is ramping, a large part of that is low frequency or mid-band frequency networks; the standardization of the technology continues to progress; and the big theme is the ecosystem is expanding. So these are three big trends that are enabling both wireless and wireline technologies to be strong for us. As far as the millimeter wave is concerned, we view the -- we have long viewed and we continue to view the millimeter wave opportunity as very favorable for us because of the upgrade potential it represents and our traditional strengths in millimeter wave technologies play out. Even this quarter, specifically, we continue to see a steady ramp in customer interest as they re-tool their engineering flow to adapt to the millimeter wave technology. On the wireline side, we captured pretty strong ramps that occurred for 400-gig in Asia throughout the year and we are starting to see increased activity in R&D for 400-gig and 800-gig Ethernet this quarter.

Okay, just a quick follow-up, as we look into FY 2021, 5G goes into production, how should I think about the software content? This question actually ties into the last question, as we go into production, should we expect continued strength in R&D, specifically R&D that is software-heavy and, in that context, would the gross margin hold up as we go into production 5G, should we expect some gross margin headwind? Thank you.

Mehdi, as far as R&D, we continue to see a robust pipeline for demand for R&D with release 16 features coming out next year. So I would continue to see strength there. With regard to our production test opportunities, we're starting to see the deployments are actually driving ramps in the supply chain and we're benefiting from them and in fact, this quarter we referenced a pretty sizable win for our PXIe, a release of our PXIe modular solution, which also has software content associated with it. So, we'll continue to see a steady improvement there, as well.

Yes, I'd certainly expect any margin impact from a migration towards manufacturing to be more or less undetectable at the Keysight level when you think about $4.5 billion of revenue and the progress we're making generally, as a company around software and services and other areas. So, not something that we're concerned about.

Thank you.

Our next question is from Samik Chatterjee with J.P. Morgan. Your line is open.

Hi, good afternoon. Thanks for taking the question. If I can just start off with Commercial Communications as well, and just following up on Satish's commentary here on 5G momentum being strong. I just wanted to see if you can outline how to think about maybe acceleration in terms of 5G, the revenue momentum and how does that play into what declines to expect on the 4G revenue side, any thoughts as we look into the next couple of years on that front? I think one of your competitors has also talked about some of the 5G release delays driving order weakness, have you seen anything on that front?

Yes, there is no doubt there has been some implementation delays in some quarters of the ecosystem. If it were not for this -- given the momentum that the industry is sustaining, we would be further along. Having said that, we saw strong orders for our business, the quarter and for the full year in 5G and we see a robust pipeline for release 16 in R&D and for production-related expansions that customers are planning for. So we continue to believe that 5G represents a long-term opportunity for us, especially as we have talked about our portfolio being broad starting with the physical layer where we have millimeter wave -- bulk of the millimeter wave opportunity in front of us and then, we have the protocol layer where release 16 and release 17 to follow where there has been some delays in release 17 that you referenced, but release 16 is very high impact in terms of its expansion into new use cases that we're very excited about. And lastly, I would say that we saw strong growth in the application layer opportunity where we've expanded our 5G strength even beyond commercial comps into aerospace and defense, with security applications, into our general electronics business through multiple industries, and into automotive with C-V2X. So you piece that altogether, we continue to believe that this is still very early innings in 5G as we stated at Investor Day.

Okay. Satish, if I can just follow-up, what are you seeing in terms of activity on the 4G side, are we at a point where some of these revenue declines moderate on the 4G side?

Yes, I think we've -- obviously the year-over-year, if you looked at last year, we saw some expansions in traditional smartphone driving up the legacy of 4G business and so, comparatively things declined sharper this year given that customers prioritized 5G, but again, I would go back to saying we have a very broad breadth of tools for the labs that we offer and in many cases, customers delayed that spend and we expect that to stabilize and ramp back up, as customers return and recover from COVID.

Okay, thank you. Thank you for taking my questions.

Our next question is from Tim Long with Barclays. Your line is open.

Thank you. If I could just follow-up with one on the 5G side, then ask on optical. Just talk a little bit about the pricing and competitive environment as some of the competitors try to play a little catch up there. Any changes of note? And then secondly, you mentioned some strength in the data center 400-gig, 800-gig. Could you expand on that a little bit? Where do you think we are in that cycle and if you could also talk into the service provider opportunities as they transition to 600 and 800-gig, as well? Thank you.

Yes, thanks. I think our differentiations front, I would say, continues to be strong. You look at the standards-based test cases that we offer and you can see that we're leading and that we are staying on the cutting edge and that's what our customers appreciate. So on the edges, we don't see any material change to our competitive position with regard to these advanced technologies and we have continued to invest this year in R&D to keep our differentiation strong. So that's the point I'll make. With regard to how this is all playing out, you might say, if you just think of the smartphone use case, there is about 7,200 band combinations in 5G that have been defined and to-date only 1,500 of them are being tested. So the latest devices that we have account for 1,500. So you start to see that there is considerable runway just in the smartphone use case and with release 16 that is in front of us, there are new expansion opportunities for industrial applications and automotive applications that creates a healthy pipeline for us. With regard to the wireline, the first phase of the 400-gig deployments have largely been in, what I would consider, East-West traffic that flows in a data center and with more to come, as operators start to deploy this technology when the price on the transceivers start to become more affordable. So that's the second wave we expect, but there is continued evolutions of 400-gig and 800-gig that have started, which feeds into our R&D strength.

Thank you.

Our next question is from John Pitzer with Credit Suisse. Your line is open.

Yes, good afternoon. Congratulations on the solid results. A couple of questions. Just when we think about the year-over-year compares on both revenue and orders to the fiscal first quarter guidance, can you just remind us how much of a headwind Huawei should represent fiscal first quarter to fiscal first quarter? And sticking on the China topic, I'm just curious, when you think about the 5G strength, how important has China been over the last several quarters? More importantly, as you look into the first half of the year, what are you expecting from China? I guess the underlying question is, do you feel as though China will continue to deploy 5G at a relatively healthy clip despite the Huawei ban, or do you think there is some potential for digestion there before re-acceleration?

Yes, this is Neil, why don't I take the first part of that and then maybe we will have Mark comment on China and some of our expectations there. I think the most important comment with regard to Huawei is, the situation with Huawei is not going to change our expectations as it relates to our long-term growth outlooks for our business or for our markets. We're entering the year in a very strong backlog position and I think that strong backlog position is going to enable us to essentially mitigate the impact of any short-term perturbations that may happen on the order line because of the year-over-year Huawei compares. We have an extraordinarily diverse base of customers around the world driving demand in our end markets and we're looking at that and the strengthening we've seen over the past couple of quarters relative to where we were in Q2 and we're going to keep our foot on the gas relative to those long-term targets.

Yes, John, this is Mark. I'll follow-up with that. So the business -- our orders in China in Q4 were strong and steady throughout the quarter despite some decline, obviously, impact from Huawei, that came from strengths in 5G and it is extending across the ecosystem as we scale those solutions. As Satish talked about 400-gig is hot, high-speed digital and optical manufacturing. So it's a very broad industry for us. We've also seen the economic recovery in China. They recovered first and more quickly and we've seen that show up in our automotive order growth and general electronics. And the bottom line is, as Neil mentioned, our business in China is -- we have a very broad footprint, the business is strong. We've been successful and we'll continue to be successful to deploy and redeploy our resources to continue to capture growth in 5G and across the other segments.

Thanks. Very helpful.

Our next question is from Matt Niknam with Deutsche Bank. Your line is open.

Thank you for taking the questions. One on margins, you're exiting the year a lot closer -- I think actually exceeding your longer-term target and so maybe, Neil, if you can help us think through why with a seemingly improving -- you've got a big backlog revenue trajectory should improve, the anticipation of margins maybe reverting back lower, how we should think about the different puts and takes? And then just one follow-up on orders. I know normalized order growth was about 1% and you're reaffirming the longer-term top line growth targets of 4% to 6%. Just wondering if you can call out the bigger areas that are still lagging and the path to get back to that longer-term mid-singles growth rate? Thanks.

Yes, so let me start with the margin side of that first. So first of all, we're very pleased with the margin performance of the business in the year and we look at this year and some of the challenges of this year as a great test of the operating model that we've been talking about really since the launch of the company. That being said, our operating margin targets, our margin targets in general, they are annual targets, not quarterly targets. We hit 25% this year and we've talked about getting to 26% or 27% operating margin is the target that we outlined at our Analyst Day and we are still working towards that objective. I think we're highly confident in our ability to achieve that and as we look forward to this year, I think you can look to -- obviously, in the second and third quarters, with revenue down and the corresponding expenses down, but you saw in Q4 the margin performance that we can put up with expenses returning to a more normalized level. With regard to how we get back to mid-single digits, I think we are seeing some relative strengthening across the broader markets and of economies, in general. I think a great indicator of that is what we're seeing in general electronics. We saw a strong return in our education business, which is, as I think, indicative of some recovery from the COVID situation. Even looking at businesses like auto, while auto orders were still down on a year-over-year basis, we saw very strong sequential improvement in auto. So things are getting better and I think we're going to look really across the entire portfolio for strength and just broad macro strengthening to help drive us to those levels.

Thank you.

Our next question is from Chris Snyder with UBS. Your line is open.

Thank you. You talked about the tough Q1 comp. Can you just maybe tell us what percent of Q1 [ph] orders and revenue came from Huawei just to give us a feel for what the underlying demand is?

We expect it to be about a 5 point headwind in the first half. That's roughly how we're thinking about it, but again, I think, given the backlog situation that we have coming into the year, I think that's going to be the dominant driver of our business and so I think that's going to give us the ability and give us some time to overcome what might be some short-term perturbations on the order line. We're highly confident going into the year.

Okay. Appreciate that. And I mean, is it fair to assume that 5% for the first half it's more weighted into fiscal Q1, just given that the China COVID impact hit in the fiscal Q2?

No, that's correct and I said as much in my prepared remarks, we clearly have a tough order comp in Q1, but I'd point you back to the backlog situation. We're guiding strong revenue growth in the first quarter and we're going to be in a good position as we migrate through the year. Certainly our revenue comps in Q2 and Q3 get significantly softer, obviously, but the backlog that we built over the last several quarters is going to provide a buffering for us.

Appreciate that. And then just following up on that. Some peers have talked about the ability to sell non-U.S. IP to Huawei. Can you maybe talk about any opportunity here for Keysight and have these restrictions that we've seen led to any upstream share shifts that would maybe allow you to partially offset this headwind as we move into 2021?

Let me take the first part of that and I'll let Satish maybe comment on the second part. We do have some ability to sell some small portions of our portfolio into Huawei going forward that don't include any material U.S. technology, but it is a very small portion of the portfolio. We do not expect Huawei to be a material customer for us going forward.

And just to add to what Neil said, it's too soon to call any share shifts, but we start to see the smartphone -- Tier 2 smartphone makers in China continue to invest in R&D because they see an opportunity. So that's probably one positive offset, if you will. The second one that is evolving is the resurgent interest in Open RAN technology to provide a different alternative to 5G base stations. I think if you look at -- those two things have the potential for us as we look into 2021 and beyond.

Thank you for the time. Appreciate it.

Our next question is from Adam Thalhimer with Thompson Davis. Your line is open.

Yes, hey, good afternoon. Great quarter. I have like 15 questions and I can only ask one.

Make it a good one.

Let's go with the seasonality for fiscal year 2021, Neil. I think you said less seasonality in 2021. I'm just curious what you meant by that and how you want us to model it?

Yes, we just think -- again, I'm going to bring you back to the backlog situation as we slowly work off the backlog that we built up over the last couple of quarters, we think that is going to essentially mute the impact of what would typically be more demand-driven quarterly seasonality that we've seen in prior years. We expect a much more muted revenue seasonality over the coming quarters, maybe with a slight uptick in Q4, but much more muted revenue seasonality than what is typical.

Got it. Thank you, guys.

The next question is from David Ridley-Lane with Bank of America. Your line is open. David Ridley-Lane: Thank you for taking my question. I'm just wondering what the all-in temporary cost reductions were in fiscal year 2020 that come back in fiscal year 2021? Just trying to get a sense of -- as you referenced in your prepared remarks, some of those variable cost flexing back up?

Yes, I think that the big driver is, obviously, we've talked at length in prior quarters about our variable pay programs and the flexibility of our cost model. That's probably the single biggest driver. Then there are the obvious things that impact many companies, just dramatic reductions in travel, as an example. I would point you to our Q4 expenses. I think we've largely saw our spending return to more normalized levels here in the fourth quarter of the year. Obviously, we'll continue to do administration [ph] and other things, but I think as we look forward, you could look to Q4 as a baseline and then, as we said in the prepared remarks, we do expect Q2 to be higher than the other quarters from an OpEx standpoint in FY 2021. David Ridley-Lane: Got it. Thank you very much.

The next question is from Richard Eastman with Baird. Your line is open.

Yes, thanks for the question. Neil, could you just give us the backlog number at the end of the year? I mean, at face value, it looks like it's up 22%, but I'm curious maybe was there any de-booking of orders around Huawei or anything on the defense side, or did we enter with that a step-up?

We have not seen any material and any change in de-booking. There is always some noise level of the de-bookings, but that hasn't changed at all. Obviously, we built a significant amount of backlog just looking at the difference between orders and revenue for the year, it's on the order of $300 million, a portion of which you would consider to be abnormal backlog build given the revenue disruptions or the shipment disruptions in the second and third quarter. So it's that abnormal portion of backlog build that we'll be looking to work off over the course of the next several quarters.

Okay, and then just a question around Ixia. Can you give us a sense of -- are you seeing any uptick in demand there? Just given the timing and the pacing of demand relative to the new network roll outs and infrastructure roll outs, how does Ixia look here at the end of the year and for the year, and what does the outlook look like from a demand standpoint for 2021?

Yes, Rick. So it's been a little over a year since we integrated the Ixia business into the Commercial Communications segment and we've made some excellent progress in realizing synergies with respect to solutions. I would say in the networking space, we see a 400-gig Ethernet. Our portfolio has been significantly strengthened, not only the physical layer, but also in the protocol layer with the addition of the Ixia's Layer 2, Layer 3 business. We're securing some good wins in the industry as the R&D investment flows and with the security piece of the business that we acquired, now we're able to integrate that with our 5G platform and realize greater synergies there as we position solutions for the aerospace and defence industry. So that’s another area where, not only are we addressing traditional opportunities, but also some expansion areas. With 5G now getting deployed, we’re starting to see a pick-up in demand for the visibility part of the business where just this quarter, we had a couple of big opportunities that we closed on with operators looking for enhanced application layer visibility there. So overall I would say, you look at the big trends of virtualization, cloud, and the progression that's going into the application layer, we view the portfolio to be strong and we think the outlook is favorable. Obviously, right now, everybody is recovering from COVID, so that gates that recovery.

Okay, thank you. And congrats on a very solid quarter, nice quarter. Thank you.

Rick, this is Ron. Just one other comment, this is Ron. Just one other comment, we talked about the backlog build in FY 2020. You may want to also go back and look at the backlog build in FY 2019, because it's been a very steady build that we've had for many quarters beyond FY 2020.

Okay, I will do that. Thank you.

Next question is from Jim Suva with Citigroup Investment Research. Your line is open.

Thank you very much. A question on the backlog, I heard you mentioned several times that it's strong and then you just had a clarification that it built in fiscal 2019 as well as fiscal 2020. So the question is, are you at a point where the backlog is now this most recent quarter that you just reported starting to work down or was it still growing and the duration of work down, is it two or three quarters, but you just said in fiscal 2019, it was building also. So I'm just trying to figure out the dynamics of the variable of the backlog?

Yes, so obviously, Jim, we've been a growing business here for a number of years and we would expect that our backlog would be growing in absolute terms just given the overall growth of the business. I think if you look at -- what you saw in Q4 was pretty much a reduction in the rate of growth of that backlog. We built very significant backlog in Q2 and Q3, as I previously referenced, abnormal levels of backlog because shipments were depressed because of the factory shutdown and re-ramp in Q3, while our book-to-bill was over 1, it was just a tick over 1, right? So we were more or less in a neutral position in the fourth quarter and so, as I think about going into next year, we have this backlog that is particularly focused on the abnormal amount of backlog build where we've got to get product delivered to customers. And I think on a positive note, really when we were in the process of building that backlog in Q2 and Q3, while orders remained strong because our customers' businesses were disrupted, we weren't in a situation where they were really pounding on the door saying in most cases -- we need immediate delivery of this product, and we really saw that tick up in the fourth quarter, which is what drove the revenues north of $1.2 billion and I think it's that dynamic of our customers now looking to take delivery of that backlog that was built in the Q2, Q3 time frame, that is going to be the predominant driver of revenue for the next couple of quarters.

And just housekeeping for the stock buyback, is it meant to just keep share count relatively flat and offset dilution, or is it actually meant to bring the share count down?

I'd say a couple of things about that. So first of all, obviously, we've made a commitment to at least at a minimum be anti-dilutive with our buyback programs and we will continue to do that. But just as you saw with us in Q4, and frankly, over the course of FY 2020, we will be opportunistic when those approach. And so, we were very pleased to take 4.3 million shares off the market at an average price somewhere around $96 this year bringing the share count down. And so, when we see those windows, we'll certainly do that, but at a bare minimum, you can count on us to keep the share count constant. We did say in our prepared remarks that we expect in FY 2021 our share count to be 188 million shares, which is flat. So that's our base case we're modeling. When I think about capital -- priorities for capital beyond share repurchase, we continue to have an active M&A funnel development process. We continue to look for ways to put money to work through M&A and assets that are accretive to growth, accretive to gross margin, much like the acquisition that we did of Eggplant at the end of last quarter. So, no real change for our capital allocation priorities at this point in time.

Thank you so much for the details and clarifications and good results. Thank you.

Thank you.

Our next question is from John Marchetti with Stifel. Your line is open.

Thanks very much. I wanted to ask a quick question on the semiconductor business. That's been strong now for a few quarters. So just curious to get your view of where we are in that process no transition cycle? And as we're looking out into 2021, how we should think about that that semi-business performing for years as we’re going into next year?

Yes, I'll make some comments, and maybe Mark can also chime in on the on the forward-looking demand. I would say that we had a very strong year for the semi-business. And it's been driven by the growth in the 5G devices, and the high performance computing needs that have proliferated, especially due to folks working remotely and working from home environment. And we've also captured and capitalized on the China IC spend; our position in that -- in the semi business is highly differentiated, and we continue to track the node sizes from 7 to 5, and now a new activity is starting for 3 nanometers; so we're highly differentiated there. And I'll hand it off to Mark to make some comments on forward-looking demand.

Yes. What I would add is that the leading demand that Satish talked about is continuing and the length of the process of retooling the fabs is a very long one; so we're involved in relatively long sales cycles that involve both, the process nodes and new technologies like, with extreme ultraviolet lithography and we see those opportunities continuing to drive into next year. We see continued investments in China, as well as other parts around the world, including the United States with the chips program that was announced several months ago. So the bottom line is, we could see some market constraints coming in in the next couple of quarters, but we see continuing demand for our process solutions to support these next-generation technologies.

Great. And then maybe, Neil, just a quick follow-up on the gross margin strength here. How much of that I guess is mix-related? Is it a function of that continuing growth in the recurring software piece of the business? As we look out into next year, I guess, what's the right sort of level setting for that, given some of the strengths we seen; even with some of the challenges that you had through, through this fiscal year?

Sorry, let me repeat that, because I realized my mic was off. We continue to be very pleased with the progress we're making on gross margin. And really, there is a lot that goes into that. First of all, I'd start with software content, right. During this year, our software business continued to grow -- outgrow the broader company, until we continue to see nice growth in software and we continue to make great progress in the conversion of the way our customers buy software from us towards more time-based purchasing; so we've actually saw our annualized recurring revenue grow in the high-teens during FY '20, so that's helpful. We're making great progress; I talked about this last quarter in our services margin portfolio, that's a below average gross margin business for us. But on the operating mind, we have our services business now north of 20%, which has been a long-term goal, and a lot of that improvement has come on the gross margin line. And then, I would talk about our migration towards selling complete solutions across the entire portfolio, right. As we migrate to those complete solutions, they tend to be more highly differentiated, and we can monetize that differentiation. And so you couple that with the strength that we're seeing -- the strengthening we're seeing in the markets over the last couple of quarters. I mean, I think we're very pleased with the way orders -- the strength of orders really through the entire cycle of this year. But the strengthening in Q4, the broad indications of macro recovery across large portions of our portfolio, and large geographies around the world is -- as I think very favorable as we look into FY '20 -- excuse me, FY '21.

Thank you.

Our next question is from Brandon Couillard with Jefferies. Your line is open.

Good afternoon. Neil, just a quick one; you alluded to your CapEx program, I think to monetize some plants. First part, is that growth oriented or cost oriented? And should we expect a similar kind of $1.70 to $1.80 in fiscal '22?

Yes, it's a two-year program. So I'm envisioning, obviously, we're still a year away, but the FY '22 I think will be similar from a CapEx perspective. And we've essentially got some facility up; I would call it just -- kind of resiliency of our supply chain with some facility upgrades we need to do. In other cases, we're looking to get some alternative sourcing sites for some specialized productions for diversification purposes, those types of activities to just make sure that our supply chain is secure.

All right, thanks.

The next question is from Mark Delaney with Goldman Sachs. Your line is open.

Good afternoon, thanks for taking the question. Your company mentioned COVID-19 as one of the factors behind the muted seasonality this coming year. Can you elaborate a bit more on that? Now that we've unfortunately seen some increasing cases in many countries, are you seeing any customers around [ph] geographies where there is actually some push out and schedules that have been occurring? Are you more reading this as a potential risk we should be mindful about?

No, I think it's just broad uncertainty, right. Nobody knows exactly what's going to happen, and it's -- the question about seasonality; typically, we see plus or minus a couple of points as we move from quarter to quarter, you can go look at the history and see what that is. And all, I'm -- we're saying two things; one, you've got this -- you know, kind of broad overarching uncertainty around COVID, and then we've got this backlog burn that's going to be happening, and we think those are going to kind of more or less drown out the typical seasonality that we would see in a current year; so we're expecting a much more steady revenue flow over the course of the next several quarters.

Okay, that's helpful. And as a follow-up question on the geopolitical issues that Keysight has been dealing with in the China market. And we discussed Huawei are already on this call, but can you talk about any other customers where perhaps you've been doing business with and there has been some increase in sanctions, even beyond Huawei. I know that it created some potential risk for tech companies, and is there any business you may be doing separate from Huawei that you think could potentially come under additional restriction that we need to be thinking about or maybe already has? Thanks.

Yes. So I'll let Mark comment on that as well. I mean, I think we were a couple of years now into this -- kind of ongoing, back and forth around trade restrictions. And I will tell you that we've weathered it very well, our business in China continues to do very well. And so whether you're talking about the initial tariffs or companies added to the restricted party list or the situations with ZTE and Huawei; we've been through a lot of these things, and our China business continues to grow. We have a very broad portfolio, we have a very broad customer set, the types of things that Keysight does as a company is very well aligned with what's happening in China. And so, I just think that -- and Mark mentioned it, we've been very good at redirecting our own internal sales and other resources to where the market opportunities are. Mark, I don't know if you have anything that you want to add to that.

Yes. So Mark, I would just reiterate that we've already pivoted with the most recent regulations. And as a matter of fact, there were earlier ones back in June that was tied to the military and used customers in China and Russia and Venezuela that we also endured, and we made some changes associated with that. So, we're closely monitoring this thing, we'll continue to be 100% compliant as we always are, and we have built a core capability to pivot quickly and go after the additional business that's available to us. And as Neil just pointed out, for many, many quarters, we've been very successful in doing so.

Thank you.

Thank you. That concludes our question-and-answer session for today. I'd now like to turn the conference back over to you, Jason Kary, for any closing remarks.

Hi Chris, thanks for that. And I'd like to just turn it to Ron, for some closing comments.

Thank you, everyone for joining us. I -- we are very, very pleased with the results we delivered despite COVID and despite the trade environments; delivering record orders, record revenue record gross margin, record operating margin and record free cash flow. We really believe and see that we have a very strong market position with very differentiated solutions across the ecosystem. And our solutions incorporate world class hardware, very good and strong software analysis capability, as well as services. Our software content continues to increase, our services business is growing, and both of them together are giving us an even stronger business model with more recurring revenue. But our business model is strong, it was tested during the COVID period of time, and you could see the type of results that we can deliver. And last but not least, I really believe we have the best employees in the world that work very hard to bring our customers the best solutions in the world and support them as they try to innovate across their end-markets. And we are committed to create value as we've done in our first six years for our shareholders, and I really believe the best is yet to come. Thank you very much, and have a great day.

This concludes our conference call. And you may now disconnect.