Why did GAAP net income rise so much when pre-tax income was flat?

GAAP net income reached $281 million versus $169 million, but income before taxes was essentially unchanged at $198 million versus $199 million. The difference comes from the tax line, which was a benefit of $83 million this quarter compared with a $30 million provision a year earlier. Investors should treat the tax benefit as a non-operating driver of GAAP earnings growth rather than evidence of stronger underlying profitability.

What drove the revenue growth, and is it broad-based?

Growth was driven mainly by commercial communications (up 33%) within CSG, which was up 27% overall. Aerospace, defense and government grew 18%, and EISG grew 15% with double-digit growth across automotive and energy, general electronics and semiconductor. Revenue growth was broad across segments, though the commercial communications surge is the largest contributor.

Does the guidance account for tariff risk?

No. The outlook explicitly excludes potential impacts from the February 20, 2026 Supreme Court ruling on IEEPA tariffs and any subsequent actions by the U.S. administration. Tariff and trade policy changes are also listed among the risks in the forward-looking statements, so future guidance revisions could reflect this exposure.

How much of the non-GAAP earnings beat depends on adjustments?

Non-GAAP net income of $376 million adds back amortization of acquisition-related balances ($73 million), share-based compensation ($77 million), acquisition and integration costs ($29 million) and restructuring and others ($60 million), less a $144 million tax adjustment that applies a 14% non-GAAP tax rate. Share-based compensation and amortization are recurring costs, so investors may want to weigh GAAP results alongside the non-GAAP figures.

Is Keysight's cash generation keeping pace with earnings?

Operating cash flow was $441 million, up from $378 million, and free cash flow was $407 million, up from $346 million. Cash conversion was helped by a $70 million increase in deferred revenue and a $33 million decrease in receivables, partly offset by a $53 million increase in income tax receivables and a $61 million decline in employee compensation accruals. Cash and equivalents increased to $2.18 billion from $1.87 billion at fiscal year-end.

KEYS 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed February 23, 2026. Cited figures are marked; the original filing is the authoritative source.

Keysight Technologies reported first fiscal quarter 2026 results (quarter ended January 31, 2026) that showed strong top-line growth.

Revenue rose 23% year over year to $1.60 billion^a from $1.30 billion, led by Communications Solutions Group (CSG) revenue of $1.12 billion (up 27%) and Electronic Industrial Solutions Group (EISG) revenue of $476 million (up 15%). Orders were $1.645 billion, above revenue, which points to a book-to-bill of about 1.03. Non-GAAP diluted EPS was $2.17, up from $1.82, and GAAP diluted EPS was $1.63, up from $0.97.

The GAAP earnings increase is less clean than the headline suggests. Income before taxes was roughly flat at $198 million^b versus $199 million, and the GAAP net income gain came largely from a $83 million income tax benefit compared with a $30 million provision a year earlier. Other expense also widened to $37 million, including a $53 million unrealized loss on equity securities, and interest expense rose to $29 million from $20 million.

Income from operations grew about 14%, to $248 million^c from $218 million. Free cash flow was $407 million, up from $346 million, and cash and equivalents ended at $2.18 billion, up from $1.87 billion at fiscal year-end. Management guided fiscal Q2 2026 revenue to $1.69–1.71 billion, implying roughly 30% year-over-year growth at the midpoint, and non-GAAP EPS of $2.27–2.33 on about 173 million diluted shares.

The outlook excludes potential effects of the February 20, 2026 Supreme Court ruling on IEEPA tariffs and any subsequent administration actions. Investors should weigh the strong growth and guidance against the tax-driven GAAP benefit, the non-GAAP tax rate assumption of 14%^d, and the tariff uncertainty not reflected in guidance.

02—Key points

Key Highlights

Revenue of $1.60 billion, up 23% year over year, with commercial communications up 33% to $758 million and aerospace, defense and government up 18% to $366 million
GAAP diluted EPS of $1.63 (vs. $0.97) and non-GAAP diluted EPS of $2.17 (vs. $1.82); GAAP net income was boosted by an $83 million tax benefit, while pre-tax income was flat at $198 million
Operating income rose to $248 million from $218 million; other expense of $37 million (including a $53 million unrealized equity securities loss) and higher interest expense of $29 million offset the operating gain
Orders of $1.645 billion exceeded revenue, implying a book-to-bill of about 1.03 and supporting the outlook
Free cash flow of $407 million (vs. $346 million), with operating cash flow of $441 million; $87 million spent on share repurchases and $16 million on acquisitions
Q2 FY2026 guidance of $1.690–1.710 billion revenue (about 30% growth at midpoint) and $2.27–2.33 non-GAAP EPS, excluding IEEPA tariff ruling impacts
Balance sheet: cash and equivalents of $2.18 billion; long-term debt unchanged at $2.53 billion; goodwill up to $3.47 billion following acquisition activity

03—Questions

Frequently Asked Questions

Why did GAAP net income rise so much when pre-tax income was flat?
GAAP net income reached $281 million versus $169 million, but income before taxes was essentially unchanged at $198 million versus $199 million. The difference comes from the tax line, which was a benefit of $83 million this quarter compared with a $30 million provision a year earlier. Investors should treat the tax benefit as a non-operating driver of GAAP earnings growth rather than evidence of stronger underlying profitability.
What drove the revenue growth, and is it broad-based?
Growth was driven mainly by commercial communications (up 33%) within CSG, which was up 27% overall. Aerospace, defense and government grew 18%, and EISG grew 15% with double-digit growth across automotive and energy, general electronics and semiconductor. Revenue growth was broad across segments, though the commercial communications surge is the largest contributor.
Does the guidance account for tariff risk?
No. The outlook explicitly excludes potential impacts from the February 20, 2026 Supreme Court ruling on IEEPA tariffs and any subsequent actions by the U.S. administration. Tariff and trade policy changes are also listed among the risks in the forward-looking statements, so future guidance revisions could reflect this exposure.
How much of the non-GAAP earnings beat depends on adjustments?
Non-GAAP net income of $376 million adds back amortization of acquisition-related balances ($73 million), share-based compensation ($77 million), acquisition and integration costs ($29 million) and restructuring and others ($60 million), less a $144 million tax adjustment that applies a 14% non-GAAP tax rate. Share-based compensation and amortization are recurring costs, so investors may want to weigh GAAP results alongside the non-GAAP figures.
Is Keysight's cash generation keeping pace with earnings?
Operating cash flow was $441 million, up from $378 million, and free cash flow was $407 million, up from $346 million. Cash conversion was helped by a $70 million increase in deferred revenue and a $33 million decrease in receivables, partly offset by a $53 million increase in income tax receivables and a $61 million decline in employee compensation accruals. Cash and equivalents increased to $2.18 billion from $1.87 billion at fiscal year-end.

04—Continue

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