Keysight Q3 FY2026 earnings: Commercial communications drives 36% revenue growth

Keysight Technologies (NYSE: KEYS) reported fiscal Q3 2026 revenue of $1.846 billion, up 36% from $1.352 billion, while GAAP diluted EPS rose to $2.30 from $1.10. For the quarter ended July 31, 2026, commercial communications was the primary growth driver, and free cash flow increased to $403 million. Orders reached a record $2.091 billion, exceeding quarterly revenue for the second consecutive record-order quarter.

Core financial results

Revenue grew faster than major operating costs. Cost of products and services increased by approximately 22%, while research and development and selling, general and administrative expenses rose by about 25% and 26%, respectively. That operating leverage helped consolidated GAAP operating margin expand to approximately 25.0% from 17.3%.

Profit and cash generation also increased faster than revenue. GAAP net income more than doubled, while non-GAAP results excluded acquisition-related amortization, stock-based compensation, acquisition and integration costs, and other items.

Gross profit and gross margin are calculated from reported revenue less cost of products and services. Percentage changes may differ slightly from company figures because of rounding.

Commercial communications led growth and margin expansion

Communications Solutions Group, or CSG, generated most of Keysight’s growth. Commercial communications revenue increased by $362 million, accounting for approximately 73% of the company’s total $494 million year-over-year revenue increase. Aerospace, defense and government also grew, but at a more moderate 14% rate.

Electronic Industrial Solutions Group, or EISG, delivered 21% revenue growth, supported by the semiconductor, general electronics, automotive and energy markets. Both reporting segments recorded higher gross and operating margins; Keysight identifies these segment measures as non-GAAP.

The combination of faster commercial communications growth and higher margins indicates that revenue mix and cost leverage were important to the quarter’s profit expansion. Investors will need to monitor whether this mix persists as Keysight moves into fiscal Q4.

Cash generation, liquidity and non-GAAP adjustments

With quarterly capital expenditures of $34 million, most of Keysight’s $437 million in operating cash flow converted into free cash flow. Cash, cash equivalents and restricted cash totaled $2.622 billion at quarter-end.

On the balance sheet, cash and cash equivalents increased to $2.605 billion from $1.873 billion at October 31, 2025. Total debt was approximately $2.517 billion, compared with $2.534 billion, although $700 million had moved into the current portion of long-term debt. During the first nine months of fiscal 2026, Keysight spent $520 million on treasury stock repurchases, compared with $278 million in the prior-year period.

The difference between GAAP and non-GAAP earnings remained material. Non-GAAP net income was $531 million, $134 million above GAAP net income. Major adjustments included $72 million of acquisition-related amortization, $47 million of stock-based compensation and $28 million of acquisition and integration costs, partly offset by investment gains and tax adjustments.

Fiscal Q4 guidance calls for continued growth

Keysight described its full-year outlook as improved and issued quantitative guidance for fiscal Q4. The midpoint of the revenue range is $1.940 billion, which the company said represents approximately 37% year-over-year growth and would also be above Q3 revenue.

Keysight said it could not reasonably estimate certain future items affecting the GAAP tax rate, preventing a reconciliation of its non-GAAP EPS outlook to GAAP EPS.

Recent insider transactions

The supplied insider data shows 46,711 shares sold across 11 transactions and 9,304 shares acquired across 10 transactions during the reported six-month period, resulting in net sales of 37,407 shares. The acquisition entries were stock awards or grants rather than disclosed open-market purchases, so they should not be interpreted as voluntary insider buying.

The latest 10 reported transactions included seven sales and three stock grants. Individual share quantities were not included in the supplied transaction details.

Risks investors should monitor

• Dependence on commercial communications: This end market produced most of the quarter’s incremental revenue and represented more than half of total sales. Slower demand or changes in customer purchasing timing could have an outsized effect on growth.
• Margin durability: Segment and consolidated margins expanded substantially as revenue grew faster than costs. A less favorable business mix or weaker operating leverage could make those gains difficult to sustain.
• Order conversion and Q4 execution: Record orders provide a favorable demand indicator but do not guarantee the timing of recognized revenue. Keysight identifies customer purchasing decisions, order timing and cancellations as relevant uncertainties.
• Material non-GAAP exclusions: Acquisition-related amortization, stock compensation, and acquisition and integration costs created a meaningful gap between GAAP and non-GAAP profit. These costs remain relevant when evaluating total profitability and cash available for other uses.

Summary

Keysight’s fiscal Q3 2026 results reflected broad revenue growth, with commercial communications providing the largest contribution and improved cost leverage supporting higher margins and earnings. Cash generation increased, orders reached another record, and fiscal Q4 guidance calls for continued year-over-year expansion. The main issues to watch are the durability of commercial communications demand, conversion of orders into revenue, revenue mix, and the continuing gap between GAAP and non-GAAP earnings.