01—Abstract
Summary
Summary of the 8-K filed May 19, 2026. Cited figures are marked; the original filing is the authoritative source.
Keysight reported a record second fiscal quarter 2026 (ended April 30, 2026).
Revenue rose 31% year over year to $1.72 billiona, and orders reached $2.05 billion, roughly 56% above the prior-year quarter. GAAP net income was $349 million ($2.02 per diluted share) versus $257 million ($1.49) a year earlier. Non-GAAP net income was $497 million ($2.87 per share) versus $295 million ($1.70).
Operating cash flow was $501 millionb and free cash flow was $472 million. Communications Solutions Group (CSG) drove most of the growth, with revenue up 35% and an operating margin of 33%. Electronic Industrial Solutions Group (EISG) grew 24%, and its operating margin expanded to 33% from 23%.
Quality of earnings deserves attention. Q2 includes a net pre-tax benefit from IEEPA tariff refunds. Keysight recorded a $100 millionc receivable, with $93 million offset in cost of sales, $4 million in SG&A, and $3 million in interest income.
It also recorded a $40 milliond reduction in revenue for surcharges refunded to customers. The net effect is a benefit of roughly $60 million pre-tax, with about $57 million flowing through operating income. The non-GAAP reconciliation contains no adjustment for this item, so the benefit appears to be included in the reported non-GAAP EPS of $2.87.
Investors should consider this one-time benefit when assessing the underlying run rate. Gross margin improved sharply, and the refund contributed to that improvement. Management raised its fiscal 2026 expectations.
For Q3 FY26, it guided revenue to $1.730 billion to $1.750 billion, a midpoint implying about 29% year-over-year growth, and non-GAAP EPS of $2.43 to $2.49 on about 173 million diluted shares. Balance sheet changes are modest: cash of $2.41 billion against total debt of about $2.53 billion, with $699 million classified as current.
Six-month share repurchases were $310 million. The filing is preliminary and unaudited.
02—Key points
Key Highlights
- Record quarter: revenue of $1.717 billion (+31% YoY) and orders of $2.051 billion, with all-time highs for revenue, EPS and free cash flow.
- CSG revenue of $1.231 billion (+35%), with commercial communications up 40% and aerospace, defense and government up 24%; CSG operating margin reached 33% versus 26%.
- EISG revenue of $486 million (+24%), with operating margin expanding to 33% from 23%.
- GAAP diluted EPS of $2.02 (vs. $1.49) and non-GAAP diluted EPS of $2.87 (vs. $1.70); the non-GAAP figure appears to include the net tariff refund benefit of roughly $60 million pre-tax.
- IEEPA tariff refund accounting: a $100 million receivable (mostly a $93 million cost of sales offset) and a $40 million revenue reduction for customer surcharge refunds, a net pre-tax benefit of about $60 million.
- Q3 FY26 guidance: revenue of $1.730 to $1.750 billion (about 29% growth at midpoint) and non-GAAP EPS of $2.43 to $2.49.
- Liquidity and capital return: $2.43 billion in cash and restricted cash, $879 million six-month free cash flow, and $310 million in six-month share repurchases; $699 million of debt is current.
03—Questions
Frequently Asked Questions
How much of the Q2 earnings improvement came from the one-time tariff refund?
The filing records a net pre-tax benefit of roughly $60 million from IEEPA tariff refunds: a $100 million receivable with offsets of $93 million to cost of sales, $4 million to SG&A and $3 million to interest income, less a $40 million reduction in revenue for surcharges refunded to customers. Against Q2 GAAP net income of $349 million, the after-tax effect is meaningful, though the filing does not quantify it. The non-GAAP reconciliation contains no adjustment for it, so it likely remains in the reported $2.87 non-GAAP EPS.
Is the Q3 guidance consistent with Q2 momentum?
Q3 revenue guidance of $1.730 to $1.750 billion is essentially flat with Q2 revenue of $1.717 billion, a modest sequential increase. Guided non-GAAP EPS of $2.43 to $2.49 is slightly below Q2's $2.87, which likely reflects the non-recurring tariff benefit in Q2 and normal seasonality. Year-over-year growth of about 29% at the midpoint is still strong. Orders of $2.05 billion in Q2 and management's comments about a robust pipeline support the outlook, though the filing gives no segment-level guidance.
What does the orders figure signal for future revenue?
Orders of $2.051 billion in Q2 exceeded revenue of $1.717 billion, a book-to-bill ratio of about 1.19. Six-month orders of $3.696 billion compare with revenue of $3.317 billion, a ratio of about 1.11. Orders running above revenue point to a growing backlog and support near-term growth, though the filing does not disclose backlog levels or order timing.
How strong is Keysight's balance sheet and cash generation?
Cash and cash equivalents were $2.41 billion at April 30, 2026, up from $1.87 billion at October 31, 2025. Total debt is about $2.53 billion, with $699 million current. Six-month operating cash flow was $942 million and free cash flow was $879 million, versus $803 million a year earlier. Keysight returned $310 million through share repurchases in the first half. Net debt is close to neutral, and cash generation comfortably funds buybacks and debt service.
Were the segment margin gains structural or temporary?
CSG gross margin rose to 74% from 67%, and EISG gross margin rose to 68% from 59%. Part of the cost of sales improvement reflects the $93 million tariff refund offset, which is largely booked in cost of sales and does not repeat. Higher revenue volume also leveraged fixed costs. Investors should separate the one-time refund from underlying operating leverage, which the filing does not quantify by segment.
04—Continue