DEF 14A: Keysight Reports Strong FY25, Proposes Board Declassification

Keysight Technologies announces its 2026 Annual Meeting agenda, highlighting strong FY25 financial results and proposals for board declassification and director elections.

Summary

• The 2026 Annual Meeting of Stockholders will be held virtually on Thursday, March 19, 2026, at 8:00 a.m. Pacific Time, with a record date of January 20, 2026.
• Key proposals for the meeting include the election of three directors, ratification of PricewaterhouseCoopers LLP as the independent auditor, a non-binding advisory vote on executive compensation, and a proposal to amend the Certificate of Incorporation to declassify the Board of Directors.
• The Board recommends AGAINST a stockholder proposal regarding the ability to call for a special shareholder meeting with a 10% ownership threshold.
• Fiscal Year 2025 financial performance highlights include GAAP Revenue of $5,375M (+8% YoY), GAAP Net Income of $850M (+38% YoY), Non-GAAP Net Income of $1,240M (+13% YoY), GAAP EPS of $4.91 per share (+40% YoY), and Non-GAAP EPS of $7.16 per share (+14% YoY).
• The Board declassification will be phased in over a three-year period, with all directors subject to annual election for one-year terms starting at the 2027 Annual Meeting of Stockholders.
• Paul A. Lacouture will retire from the Board at the conclusion of the 2026 Annual Meeting, reducing the Board size from eleven to ten members.
• Keith F. Jensen was appointed as a new director in November 2025.
• Executive compensation is heavily performance-based, with approximately 94% of the CEO's and 87% of the average NEOs' total direct compensation being at-risk.
• For the Fiscal Year 2023-2025 Long-Term Performance Plan (LTP) PSU grants, the Total Shareholder Return (TSR) relative to the S&P 500 resulted in a 0.0% payout (Keysight TSR 1.45% vs S&P 500 76.0%, 74.55 percentage points below index), while Non-GAAP Operating Margin (OM) achieved a 100.3% payout.
• Fiscal Year 2022 Stabilization Awards, one-time performance-based retention awards tied to cumulative non-GAAP EPS, achieved a 100% payout.
• Keysight is committed to achieving net-zero greenhouse gas emissions for scopes 1 and 2 by FY2040 and a 42% reduction by FY2030 (from a FY2021 baseline).
• A new AI Governance Policy was introduced in December 2025, establishing an AI Governance Committee and aiming for ISO 42001 certification for AI management systems by the end of FY2026.

Sentiment

Score: 7

Explanation: The company reported strong financial growth in revenue, net income, and EPS for FY2025, and demonstrated robust corporate governance and CSR commitments. However, the significant underperformance in Total Shareholder Return (TSR) relative to the S&P 500 for the FY2023-FY2025 period is a notable negative, impacting long-term incentive payouts.

Positives

• Reported strong Fiscal Year 2025 financial performance with GAAP Revenue up 8% to $5,375M, GAAP Net Income up 38% to $850M, Non-GAAP Net Income up 13% to $1,240M, GAAP EPS up 40% to $4.91 per share, and Non-GAAP EPS up 14% to $7.16 per share.
• Successfully completed three major strategic acquisitions in Fiscal Year 2025 to enhance offerings and position businesses for near-term growth.
• Demonstrated a decade-long track record of consistent value creation through technology evolutions and market cycles.
• Successfully transforming the company from hardware-centric products to software-centric solutions.
• Maintains robust corporate governance practices, including a majority independent Board (9 of 11 directors), separate CEO and Board Chair, a Lead Independent Director, and independent standing Board committees.
• Received strong stockholder support for executive compensation, with 90% approval in 2025 and 91% in 2024.
• Executive compensation program is heavily performance-based, with 94% of the CEO's and 87% of the average NEOs' total direct compensation being at-risk.
• Achieved a 100.3% payout for Non-GAAP Operating Margin under the Fiscal Year 2023-2025 Long-Term Performance Plan.
• Achieved a 100% payout for Fiscal Year 2022 Stabilization Awards based on cumulative non-GAAP EPS.
• Exceeded Fiscal Year 2025 Corporate Social Responsibility (CSR) key impact goals, committing over $319M to communities (vs. $250M goal) and engaging over 3.5M students in STEM education (vs. 2M+ goal), with zero material negative impacts to the income statement.
• Committed to achieving net-zero greenhouse gas emissions for scopes 1 and 2 by FY2040 and a 42% reduction by FY2030 (from a FY2021 baseline), with a virtual power purchase agreement expected to cover 100% of US and Canada electricity consumption by Q1 FY2027.
• Maintains high cybersecurity ratings, including an 'Advanced' category rating from Bitsight and an 'A' rating from SecurityScorecard as of October 31, 2025.
• Proactively implemented a new AI Governance Policy in December 2025, including an AI Governance Committee and efforts for ISO 42001 certification by the end of FY2026.
• Exhibits strong employee retention with an average employee tenure of 12.4 years and a three-year average employee turnover rate of approximately 6.2%.
• All non-employee directors have achieved or exceeded the recommended stock ownership levels within the allotted five-year timeframe.

Negatives

• Total Shareholder Return (TSR) for the Fiscal Year 2023-2025 performance period was 1.45%, significantly underperforming the S&P 500 Total Return Index of 76.0% by 74.55 percentage points, resulting in a 0.0% payout for the TSR component of Long-Term Performance Plan PSU grants.
• The Board opposes Stockholder Proposal 5, which seeks to allow 10% of stockholders to call special meetings, potentially indicating a more conservative stance on shareholder activism compared to some investor preferences.
• Mr. Soon Chai Gooi's Keysight ESI Revenue Plan performance was 88.2% for H1 FY25 and 82.1% for H2 FY25, leading to a 0.0% payout for this specific metric in his short-term incentive plan.
• Mr. Soon Chai Gooi's overall Short-Term Incentive (STI) payout was 56.05%, notably lower than other Named Executive Officers.
• Charles Dockendorff serves on the audit committee of four public companies, which the Board considered for potential impairment of his ability to effectively serve, although they concluded it does not impair his ability.

Risks

• Cybersecurity threats and incidents pose a continuous risk to operations, business strategy, financial condition, or results of operations, despite current robust management programs.
• The cyclical nature and volatility of markets can impact the achievement of financial objectives and short-term incentive payouts.
• Integration risks are associated with strategic acquisitions, specifically in achieving targeted cost synergies and revenue growth from the Spirent Communications, PLC acquisition.
• A low threshold for stockholders to call special meetings could lead to operational inefficiencies and disproportionate influence by special interest groups, diverting focus from strategic priorities (Board's argument against Proposal 5).
• Reliance on third-party director search firms for identifying and screening non-employee director candidates.
• Potential loss of institutional knowledge as experienced employees become eligible for retirement, requiring structured knowledge transfer programs.
• Compliance with evolving global expectations and business needs in ethical conduct and environmental regulations.
• Misuse of products that could contribute to human rights violations, necessitating enhanced customer screening processes.
• Risks associated with the adoption and use of Artificial Intelligence (AI), requiring robust governance and controls to ensure responsible, transparent, and ethical AI use.
• Potential for 'golden parachute excise tax' under Section 4999 of the Code in change of control scenarios, although the company has a 'better after-tax provision' to mitigate this.

Future Outlook

Keysight Technologies remains confident in its ability to outperform markets and deliver EPS growth through the business cycle, driven by its software-centric strategy and alignment with key technology investments. The company is focused on accelerating innovation, enhancing customer experience, and improving productivity through AI integration, aiming for ISO 42001 certification for AI management systems by the end of FY2026. Environmental goals include achieving net-zero greenhouse gas emissions for scopes 1 and 2 by FY2040 and a 42% reduction by FY2030 from a FY2021 baseline. A virtual power purchase agreement is expected to cover 100% of US and Canada electricity consumption by Q1 FY2027.

Management Comments

• "Since our inception over a decade ago, we have established a track record of consistent value creation through technology evolutions, market cycles and challenges such as the COVID-19 pandemic." Satish C. Dhanasekaran, President and Chief Executive Officer
• "Going forward, we remain confident in our ability to outperform our markets and deliver EPS growth through the business cycle." Satish C. Dhanasekaran, President and Chief Executive Officer
• "Our software-centric strategy remains a cornerstone of our stockholder value creation."
• "Our agility and resilience in navigating industry shifts have been instrumental in delivering consistent value to all our stakeholders, including our customers, employees, and stockholders."
• "We maintained a disciplined focus on our strategic priorities and operational excellence."
• "At Keysight, Corporate Social Responsibility (CSR) isn't just a program, its how we do business."
• "Integrity is at the heart of everything we do."
• "At Keysight, we foster an inclusive, and collaborative workplace where employees are empowered through meaningful work, continuous development, and a culture of innovation."
• "The Board believes that the current structure, with an experienced and knowledgeable Chair, our CEO and President, and a strong Lead Independent Director provides the appropriate leadership structure for Keysight and its stockholders."
• "The Board unanimously recommends a vote AGAINST this proposal [Shareholder Ability to Call for a Special Shareholder Meeting] for the following reasons: A 10% Threshold for Special Meetings Would Introduce Operational Inefficiencies and Disproportionate Influence."

Industry Context

Keysight operates in the dynamic global computing, communications, and electronics markets, characterized by rapid technological evolution. The company's strategic shift from hardware-centric to software-centric solutions aligns with broader industry trends emphasizing advanced software capabilities to address complex challenges and accelerate time-to-market. Keysight's focus on electronic design and test innovation positions it at the forefront of technology megatrends. The company's strong commitment to Environmental, Social, and Governance (ESG) initiatives, including net-zero emissions and science-based targets, reflects increasing industry and investor demand for sustainable business practices. The proactive adoption of AI governance policies is also consistent with the growing integration of AI across various sectors. Keysight's compensation benchmarking peer group, including companies like Agilent Technologies, Fortinet, KLA, Roper Technologies, and Trimble, indicates competition for talent and market share within the high-tech and industrial technology sectors.

Comparison to Industry Standards

• Board Independence: Keysight's Board is majority independent (9 of 11 directors), which is a strong corporate governance practice aligned with or exceeding many industry standards.
• Board Declassification: The proposal to phase in annual director elections aligns with a prevailing trend in corporate governance, as the Board acknowledges that "the current trend in corporate governance is in favor of annual director elections."
• Shareholder Ability to Call Special Meetings: The Board's opposition to a 10% ownership threshold for calling special meetings, noting that "among S&P 500 companies that provide stockholders with a right to call special meetings, approximately 80% set the threshold at or above 15%," suggests Keysight's current or proposed threshold is more conservative than some, but within the range of S&P 500 companies.
• Executive Compensation: The executive compensation program is heavily performance-based (94% for CEO, 87% for average NEOs), which is generally considered a best practice for aligning management and shareholder interests.
• TSR Performance: Keysight's Total Shareholder Return (TSR) of 1.45% for FY2023-FY2025 significantly underperformed the S&P 500 Total Return Index of 76.0%, indicating a substantial lag compared to a broad market benchmark.
• Cybersecurity Ratings: Keysight's Bitsight rating in the "Advanced" category and an "A" rating from SecurityScorecard as of October 31, 2025, demonstrate a strong cybersecurity posture relative to industry benchmarks.
• ESG Goals: Keysight's commitment to net-zero emissions by FY2040 and science-based targets (42% reduction in scope 1 and 2 emissions by FY2030 from FY2021 baseline) aligns with leading corporate sustainability efforts. The virtual power purchase agreement for 100% renewable electricity in US and Canada by Q1 FY2027 is a significant step towards these goals.
• Employee Metrics: An average employee tenure of 12.4 years and a three-year average turnover rate of 6.2% suggest strong employee retention and engagement, potentially outperforming industry averages in high-tech sectors.

Management Changes

Corporate Governance

Related Party Transactions

• The son of Mark Wallace, former Senior Vice President, Chief Customer Officer (retired June 2, 2025), is employed by Keysight as an account manager in Santa Clara, California. He received total compensation of $146,271 for Fiscal Year 2025, which was reviewed and confirmed not to exceed or fall outside pre-approved thresholds.

Stakeholder Impact

• Shareholders: Direct impact through voting on key governance proposals and director elections. Potential for increased Board accountability with declassification. Negative impact from underperforming TSR relative to the S&P 500.
• Employees: Benefit from competitive compensation, a safe and respectful work environment, continuous development opportunities, and comprehensive benefits. Strong retention rates suggest positive employee engagement.
• Customers: Benefit from customer-centric innovations, software-centric solutions, and advanced design and test solutions. Enhanced customer screening processes are in place to prevent product misuse.
• Suppliers: Expected to adhere to high standards in environmental and social responsibility, guided by global frameworks and Keysight's Supplier Code of Conduct.
• Communities: Benefit from Keysight's global community engagement, particularly in STEM education, environmental sustainability, and health and human services, with significant financial and engagement goals met or exceeded.
• Creditors: Impacted by the company's overall financial health, operational performance, and risk management practices.

Next Steps

• Hold the 2026 Annual Meeting of Stockholders on March 19, 2026, to vote on proposals.
• Elect three directors to a 3-year term at the 2026 Annual Meeting.
• Ratify the Audit and Finance Committee's appointment of PricewaterhouseCoopers LLP at the 2026 Annual Meeting.
• Approve, on a non-binding advisory basis, the compensation of named executive officers at the 2026 Annual Meeting.
• Approve an Amendment to the Certificate of Incorporation to declassify the Board of Directors at the 2026 Annual Meeting.
• Consider, on a non-binding advisory basis, a Stockholder Proposal: Shareholder Ability to Call for a Special Shareholder Meeting at the 2026 Annual Meeting.
• If approved by stockholders, the Board intends to file the Declassification Amendment with the Secretary of State of Delaware following the Annual Meeting.
• If the Declassification Amendment is effective, the Board will adopt conforming amendments to the Amended and Restated Bylaws.
• Continue annual evaluation of the CEO by independent directors.
• Continue annual board and committee self-assessment processes.
• Maintain the stockholder outreach program.
• The AI Governance Committee will oversee AI initiatives and maintain an inventory of approved tools.
• Initiate efforts to secure ISO 42001 certification for AI management systems by the end of FY2026.
• The virtual power purchase agreement is expected to achieve commercial operation in Q1 FY2027.
• Ensure 73% of customers (by emissions covering use of sold products) have science-based targets by FY2028.
• Achieve a 42% reduction in scope 1 and 2 emissions by FY2030 (from a FY2021 baseline).
• Achieve net-zero greenhouse gas emissions for scopes 1 and 2 by FY2040.

Key Dates

Recommendation

Keysight Technologies demonstrates strong operational execution with impressive FY2025 financial growth across revenue, net income, and EPS, driven by its software-centric strategy and strategic acquisitions. The company also exhibits robust corporate governance, including a move towards board declassification, and a strong commitment to ESG initiatives. However, the substantial underperformance in Total Shareholder Return (TSR) relative to the S&P 500 over the past three years is a significant concern for long-term investors. While the company's internal operational metrics are strong, the market's perception of its value creation, as reflected in TSR, lags considerably. The stock is likely fairly valued given the mixed signals of strong internal performance versus external market underperformance. Investors should monitor the effectiveness of the software-centric strategy in translating to improved TSR and the impact of AI integration, while acknowledging the solid underlying business fundamentals.

Keywords

Keysight Technologies, Proxy Statement, Annual Meeting, Corporate Governance, Financial Performance, Executive Compensation, Board Declassification, Shareholder Proposals, ESG, Cybersecurity, Artificial Intelligence, Sustainability, EPS, Revenue, Operating Margin, Total Shareholder Return, Director Elections, Auditor Ratification, Risk Management, Acquisitions