Avnet, Inc. (AVT) Earnings Call Transcript & Summary

Welcome to the Avnet Fourth Quarter Fiscal Year 2022 Earnings Call. I would now like to turn the floor over to Joe Burke, Vice President, Treasury and Investor Relations for Avnet.

Thank you, Paul. Earlier this afternoon, Avnet released financial results for the fourth quarter and fiscal year 2022. The release is available on the Investor Relations section of the company's website. A copy of the slide presentation that will accompany today's remarks can be found via the link in the earnings release as well as on the IR section of Avnet's website. Some of the information contained in the news release and on this conference call contain forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Avnet's most recent Form 10-Q and 10-K and subsequent filings with the SEC. These forward-looking statements speak only as of the date of this presentation, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this presentation. Today's call will be led by Phil Gallagher, Avnet's CEO; Tom Liguori, Avnet's CFO; and Ken Jacobson, Avnet's Corporate Controller and incoming CFO this September. With that, let me turn the call over to Phil Gallagher. Phil?

Thank you, Joe, and thank you, everyone, for joining our fourth quarter and fiscal year 2022 earnings conference call. What a year has been for Avnet? On the heels of our centennial anniversary, we built on the prior year's momentum to deliver robust financial results, including a record EPS year, nearly reaching $7 for the fiscal year. Our sales for the fiscal year were up nearly 25% year-over-year. This was supported by a strong year for Electronic Components and notably, a record revenue year for Farnell. We had a great performance from both operating groups and we're really excited about the revenue synergies we are seeing between the 2 as well. As announced earlier in the year, we also achieved and surpassed our near-term operating margin targets, and we're pleased to cap off the fiscal year with operating income margins of 4.5% this recently ended quarter and 3.9% for the fiscal year. Beyond the numbers, we were excited to host our Investor Day in June, where we had the opportunity to see many of our stakeholders in person in New York. We also announced a couple of key executive succession this fiscal year, including the appointment of Dayna Badhorn, a 24-year veteran of Avnet as the new Americas leader for Electronic Components. And more recently, the appointment of Ken Jacobson who has been a key contributor in our finance organization for 9 years to CFO effective in September. These moves are part of our succession planning process, which ensures continuity in executing our strategic plan. We've continued to make investments in inventory, including SKU additions at Farnell and in field application engineers and online design tools that have delivered meaningful value and growth. Additionally, we continue to make investments in our employees and are kicking off fiscal 2023, with a compensation increase across our employee base and merit-based rewards to acknowledge strong performers and remain competitive in a challenging labor market. As I've mentioned throughout the year, we've been immensely proud of our team's commitment to executing on our strategy amid an increasingly complex macro environment. Their contributions have enabled us to grow share and secure exciting new business opportunities, enhance the value proposition of our supply chain engagements and high-service Farnell offerings. Provide uninterrupted support to our customers and suppliers looking to decrease risk in their supply chains. And lastly, to surpass our near-term operating margin targets sooner than anticipated. Our teams are unmatched in terms of experience, expertise and diligence and their efforts are instrumental to Avnet's success and role at the center of the global technology supply chain. We have a strong foundation to build upon in the coming fiscal year and are well positioned to deliver value and adapt even if market conditions change in the future. From a demand perspective, this past quarter, we saw continued strength in the industrial, automotive, transportation and aerospace and defense segments. Additionally, we expect some applications like EV charging and other alternative energy applications to pick up based on current energy supply concerns. Lingering COVID-19 impacts, inflation and impacts from the conflict in Ukraine continue to have some ripple effects on supply chains. While supply some of the parts has modestly improved, we expect supply chain challenges to persist throughout the remainder of this calendar year. It's in these types of environments that our role as a distributor is particularly critical. As we've proven over the years, the value of Avnet in a complex operating environment is our ability to serve as a control tower for our customers, helping them proactively manage their supply chains. We expect customers and suppliers to leverage these solutions more fully in the coming years. Now turning to our Electronic Components and Farnell highlights. Electronic Components had a strong year, reaching nearly $23 billion in sales. We were pleased to maintain robust sales this quarter following a very strong third quarter. These results were primarily driven by another record quarter of demand creation engagements, expanded sales in Asia and solid sales in the Americas and EMEA regions. Notably, this was our fifth consecutive quarter of growth in Asia, which enabled us to reach a near-term milestone of $10 billion in sales for the region for the fiscal year. And we saw year-over-year growth this quarter of over 34% in both the Americas and EMEA on a constant currency basis. Our book-to-bill ratios at the end of the quarter remained above parity. Lead times are mixed. Some remain extended, particularly for controllers, while some lead times of other products have been moderating. We continue to effectively manage our backlog. We brought our inventory levels up this quarter to support the ramp-up of sales in Asia into the seasonally strong first fiscal quarter. As a distributor, we pride ourselves on our ability to meet and support strong customer demand, and I am proud of the success we have had in managing key relationships with customers and supplier partners to get the right parts in the right place at the right time. From a demand creation standpoint, we again had a solid quarter of design and engineering activity across all regions. High levels of design registrations and wins in prior quarters resulted in yet another quarter of record demand creation sales and gross profit. Demand creation revenue as a percentage of total electronic components increased to 31.2% for the year. Now moving on to Farnell. As I mentioned earlier, it was a record revenue year for Farnell with full year revenues increasing 20.2% year-over-year with demand indicators remaining fairly consistent. We continue to make investments in Farnell, adding over 18,000 new inventory SKUs in the quarter. Our investment in Farnell's e-commerce platform and improving the user experience continues to yield meaningful results. Nearly 56% of Farnell's total sales and 72% of total orders transacted were placed through Farnell's e-commerce platform this quarter. We expect to continue to see increased traffic and new customer acquisitions in quarters to come. As we continue to improve our digital capabilities, we expect Farnell's value proposition to increase and enhance the synergistic collaboration between Farnell and Electronic Components. This collaboration allows us to serve our customers from new product introduction to mass production and is a key differentiator for Avnet. As we head into fiscal year 2023, we see opportunity for Avnet to leverage and build upon the value of its demand creation capabilities, supply chain services, embedded products and Farnell offerings. We're a different and much more resilient company today due to the durable changes we've made to our business. There has never been a greater need for global distributors, and we remain confident in our ability to meet those opportunities. Before I turn it over to Tom to dig deeper into the financials, I'd like to take a moment to thank Tom for his immense contributions to Avnet. Over the past 4.5 years, Tom has been a big part of our transition into a stronger, more profitable and resilient company. Our balance sheet hasn't been this strong in decades. Tom and his team have built a high-quality finance organization, and importantly, he has served as an invaluable partner to me since my transition into the CEO role. I'm going to miss working alongside Tom and having him join me on these calls. But I'm absolutely confident we are in excellent hands with our incoming CFO, Ken Jacobson. Ken is a seasoned Avnet executive, who many of you have already met. He has served as our Corporate Controller and has been a critical leader in our financial organization for the past 9 years. So with that, let me pass it over to Tom.

Thank you, Phil. It's been a pleasure working alongside you and the entire Avnet team. I want to personally thank the finance team at Avnet for their support and friendship during my time here. They are a talented group of professionals and enjoy to work with. And to echo your point, Phil, Avnet will be in very capable hands with Ken as CFO. I look forward to seeing Avnet's continued success under your leadership. We are very pleased with both our fourth quarter results and the record earnings year we've just completed. I will share some of the highlights from the quarter and full year before turning it over to Ken, who will discuss first quarter 2023 guidance. In the fourth quarter, our revenues were $6.4 billion, up 21.9% year-over-year and at the top end of our guidance range. Adjusted EPS exceeded guidance coming in at $2.07 compared with $1.12 in the prior year quarter. For the fiscal year, we achieved sales of $24.3 billion, up 24.5% year-over-year. A record GAAP EPS of $6.94 and a record adjusted EPS of $6.93. Job well done to the entire Avnet team. Throughout the year, our teams continue to improve execution and efficiency while also managing expenses. We achieved and surpassed our near-term operating margin targets, resulting in fiscal year '22 operating margins of 3.9% for total Avnet. This was supported by operating margins of 3.9% for Electronic Components and 13.4% for Farnell. Turning to the income statement. Our revenue comparisons are affected by changes in foreign currency rates. Our reported revenues for the fourth quarter are $6.4 billion. Changes in foreign currencies had a negative impact on our sales of $150 million sequentially and $326 million year-over-year. Gross margin of 12.2% was down just slightly on a sequential basis. For the total year, gross margin of 12.2% was up by 73 basis points from the prior year. Both evidence that we are effectively managing pricing in the supply-constrained market. In the fourth quarter, we continued to process many price increases. Adjusted operating expenses of $492 million for the quarter were down 3.4% sequentially. Adjusted operating expenses as a percentage of gross profit dollars was 63% in the fourth quarter. This is a substantial improvement from the 76% in the prior year fourth quarter, illustrating the disciplined expense management of our global teams. On the nonoperating front, interest expense in the quarter was $30 million, up $4 million sequentially due to higher levels of debt within the quarter as well as a slight increase in short-term borrowing rates. We booked a 20.5% adjusted tax rate in the fourth quarter and ended the total year with a 21.9% adjusted tax rate. Farnell achieved revenues of $442 million in the fourth quarter and operating margins of 14.2%. Revenues declined sequentially due to product shortages of semiconductors, single board computing and test equipment. As a result, Farnell ended the fourth quarter with a record customer order backlog. On a total year basis, Farnell achieved record revenues of $1.8 billion. Farnell's fourth quarter operating margin of 14.2% benefited favorably from higher year-over-year pricing, which contributed 180 basis points of margin. Without the pricing benefit, Farnell operating margins would have been 12.4%, consistent with the 10% to 15% range through the cycle that we discussed during Investor Day. We are very pleased with Farnell's results and expect to build upon this momentum as we continue to make investments in SKUs, analytical tools and the e-commerce platform. Farnell is a large part of our plan to target upward of 50% of gross profit dollars from higher-margin business. Electronic Components achieved revenues of $5.9 billion in the fourth quarter, up 23.9% year-over-year and down 1.5% sequentially. The sequential decline was mainly EMEA due to currency rates. However, Avnet EMEA fourth quarter revenues were 34% higher in constant currency than the year ago quarter. Operating margins were 4.3%, a 122 basis point improvement from last year. Our Electronic Components Group's performance this quarter was driven by another record quarter of demand creation engagements as well as very strong sales in Asia and Americas. Turning to cash, liquidity and the balance sheet. Our liquidity position remains strong. We ended the quarter with cash and equivalents of $153.7 million and $1.4 billion of available lines of credit. We are seeing an improvement in our ability to bring in inventory, which increased this past quarter. This was primarily to support strong sales and bookings in Asia and was accompanied by a corresponding increase in accounts payable. Sales in Asia have grown sequentially for 5 quarters, and we require the right inventory to support current demand. Our total Avnet inventory is 64 days on hand, which is still slightly below our normal 65. Total net working capital days at year-end were 69, down from 74 in the prior year. We remain committed to disciplined working capital management and to maintain our strengthened balance sheet. We are pleased with our debt position with debt coming in at $1.6 billion and net debt at $1.5 billion. Our gross debt leverage was 1.4x and net debt leverage was 1.3x. Moving on to capital allocation. In the fourth quarter, we returned $25 million to shareholders in dividends, representing an 18% increase in the per share dividend payment year-over-year. As we said at Investor Day, share repurchases remain a meaningful part of our capital allocation strategy. This quarter, we repurchased $102 million of shares, up from $45 million last quarter. Moving forward, we remain committed to increasing shareholder value by delivering a reliable, increasing dividend and continued share repurchases. With that, I'll now turn it over to Ken to discuss outlook for the first quarter of 2023. Ken?

Thank you, Tom. I will provide some color about our expectations for the next quarter. But before I begin, I'd like to thank Tom for his leadership over the past several years and on a personal note for his mentorship and coaching that has allowed me to succeed him as CFO. I look forward to getting to know some of you on this call in the weeks to come. Turning to guidance. For our fiscal Q1, we are guiding revenue in the range of $6.2 billion to $6.5 billion and adjusted diluted EPS in the range of $1.85 to $1.95. Our first quarter guidance today is based on current market conditions, including a $100 million negative impact on sales guidance at the midpoint from the recent strengthening of the U.S. dollar as compared to the fourth quarter. This guidance implies a sequential growth rate range of down 1% to up 4% and in constant currency and assumes a typical seasonal shift in sales to Asia from the Western regions. This guidance assumes an effective tax rate of between 21% and 25% and 96 million outstanding shares on a diluted basis. We have spent the last couple of years making Avnet a stronger company. One that is not only able to operate effectively in today's complex environment, but also one that can provide even greater value for our customers by proactively managing their supply chain. With the synergies we're seeing between Electronic Components and Farnell. Our investments to support future organic growth and steady progress toward our operating margin goals. We are confident in our ability to continue delivering value to our customers, suppliers and shareholders in fiscal year 2023 and beyond. With that, I will turn it back over to Paul to open it up for Q&A.

[Operator Instructions] Our first question is from Nik Todorov with Longbow Research.

Congrats on great results. And Tom, thank you for -- it was a pleasure working with you and good luck on your new endeavors. First question, I guess, is on inventory. I guess you guys spoke about preparing for seasonal volume in Asia. But I guess, at the same time, you mentioned still some shortages impacting the Farnell business. Maybe can you talk about the composition of inventory. Where are you guys being able to build that inventory in what sections of the component business? And are you starting to see some loosening of maybe the components that were kind of mostly tied kind of the golden screw call it. That's kind of the first question I have.

Yes, Nik, this is Phil. Let me take a first crack at that. First of all, definitely very confident and comfortable with the inventory levels and the mix as well, by the way. And to meet the sales for the coming quarter, as we noted in the script, and overall days are still at 64%, which is below typical. So we're really comfortable. The quality of the inventory is good, very good, as a matter of fact. Some of the -- it's a mixed bag on the commodities and what's coming in and what's going out. So if you look at overall lead times, still in the analog discretes, MCUs, et cetera. We're 20, 24 weeks, 30 weeks plus, respectively, moderating for sure, but still above levels pre-COVID, if you will, right? So we are seeing some moderation. In some of the passive area, we're definitely starting to see some -- based on mostly due to the consumer side of the equation, starting to see some areas in the MLCC, for example, coming in on lead time. But it's really complex. It's really by product, by commodity. But overall, a lot of the inventory that did come in, come in near the end of the quarter, and we'll be looking to turn at this quarter.

Great. And the second question just around demand. I was wondering if you can provide us a little bit more color. There's obviously well-known weakness in the consumer electronics market. But recently, there's been some signs of at least in some areas of the semiconductor market that areas like data center, automotive and industrials are also starting to see signs of softening. Just what are you seeing from a booking standpoint, particularly in areas where lead times you mentioned they're starting to kind of come down?

Yes. So well, let's start with the latter part of the question. Overall, book-to-bills are, like I said, moderating, okay? They're not where they were 6 months or a year ago, but still above 1 okay, which I see is a good thing, that book-to-bill coming down a bit to began with you. So maybe back closer to a reality. As far as the -- yes, we already mentioned consumer. We don't play a whole lot there. That doesn't mean some capacity can't move from consumer products into other applications. But right now, as we sit here today, the aerospace defense still very strong, the industrial space that we see as our backlog and was booked on us, and we're taking in, as you know, quite a few MRPs and our supply chain engagements still strong in transportation. I always call automotive/transportation because the applications are so broad outside of the automotive. It's e-bikes to dump trucks, right? I mean they're all using more and more electronic components. So still seeing that. As we see it today, is still pretty steady in the backlog, okay.

Our next question is from Toshiya Hari with Goldman Sachs.

A big thank you to Tom as well for all the help over the years. I had 2 questions as well. First, on the guide, again, I just wanted to follow-up. So inventory grew, I think, 15% sequentially, and you talked about supporting growth in Asia. I get the FX headwinds in the quarter. But even the FX headwinds, you're guiding September quarter revenue up 1.5% or 2% at the midpoint. So I guess, what's the disconnect there? Should we expect further growth into December? Any color around that would be helpful.

This is Ken. I think part of that increase is the timing of sales came in later in the quarter. But if you think about EMEA and Asia, in particular, right, July is a pretty big month. If you kind of look at the prior year, I think our inventory grew like 17%, comparable level and then kind of moderated. So we feel the sales demand is there, and there is a cyclicality within the underlying quarter that we see that drive some of the higher levels at the end. And again, our net inventory days is really flattish when you take the inventory days less the AP days. So you can see a lot of that came in and it supports the near-term sales.

Yes. Toshiya, and Asia typically in the September, December quarter does accelerate from a growth standpoint. And we're seeing that, as we sit here today, we're still seeing that.

Got it. Very helpful. And then as my follow-up, just wanted to get some context around what you're seeing from a pricing standpoint versus what you're seeing on the volume side of the equation for June, for example, your EC business grew, I think, 23%, 24% year-over-year, ex some of the foreign exchange dynamics, what was kind of the mix between volume growth versus pricing growth? And what's the outlook for the back half of the calendar year?

Yes. No, thanks. I'll take the first crack at that. This is Phil. So the bulk of the growth was still volume growth, okay? There's no question about it. And we're estimating from ASP inflation, if you will, somewhere between 7% and 8% of that was pricing inflation. And we track that by commodity and by ASP. So you say maybe take 7%, 8% on 24%. So 25%, 30% of the growth might have been due to ASP inflation. And we're still -- by the way, we still saw many price increases from the suppliers this past quarter, and we're foreseeing more coming, which is interesting.

Our next question is from Jim Suva with Citigroup.

Tom, I'm not sure you're allowed to leave. Sorry about that. But if you coach football, you might be right back just like [ Phil ]. But anyway, I'm going to miss you. I have one question, and I might just be because I'm not the smartest analyst out there, but it was asked a little bit on the prior question. But your sales outlook, again, is kind of flattish quarter-over-quarter. And if you include FX up a smidge, but your inventory. And I'm not saying inventory is bad, but your inventory is up materially, both year-over-year and quarter-over-quarter above sales. So I guess I don't understand the disconnect around why the inventory build isn't translating into a similar or even closer sales growth rate unless maybe people will say you're holding the wrong inventory or it's in the wrong place, and then it's going to hurt you. So if you can just help us bridge the gap between the inventory build and the sales outlook. Again, I know it was asked a little bit earlier, but help some of us just really conceptual and grasp the bridge there.

Yes, I'll go -- I'll take that one, Jim. This is Phil. Yes. As Ken said earlier, a similar scenario last year, right? So as we build and bring in the inventory, some of it was for, as we said, the Asia growth. Others were strategic customer opportunities that we've won in the past quarter and had to bring some inventory in. And then it was really the timing as you see the AP offset it. So as we look at the next -- we're only guiding 3 months. If we look at the next 3 to 6 months, we feel the inventory is positioned correctly for the growth that we're seeing in the marketplace through December. The quality of the inventory, let me get on that one, that is extremely good. It's our -- what we call nonmoving inventory that we calculate is at an all-time low. So the inventory that we have is the right inventory and the quality inventory. And most of the inventory, we have 2 or more and more versus even many, many years ago that we've been around -- I've been around is for customer contracts, right? We have customer contracts. We have firm supply chain engagements. So there's either backlog or contracts backed up with NCNR on top of that, we pass them through from the suppliers, and that gives us the confidence that we're in a good position and going to be just fine.

Our next question is from Ruplu Bhattacharya with Bank of America.

I'll echo the sentiment, Tom, we're going to miss you and Ken, congrats on the new role. For my first question, I'm going to ask the margin question again in a different way. So on the core side, margins were up 120 bps year-on-year. How much of that was because of ASPs going up. And you said 180 bps on the Farnell side, I guess, Phil, my question to you would be, if you're seeing prices still going up from vendors, how should we think about margins in both of these segments over the next couple of quarters? And when do you think the margins start to normalize back down to more of the levels that you've talked about on a through cycle basis. What are some of the things that can keep these margins high over the next couple of quarters?

Yes. So on the price, I'll go first and let Ken jump in or Tom. But on the ASP and the cost increases from the suppliers [indiscernible], that doesn't as much impact our margin as it does our growth, right, that we just talked about on the previous question or 2. Because we have contracts with customers. We get a price increase. We're passing that cost and increase to the customers, but it doesn't necessarily positively impact the margin, okay? So just that [indiscernible]. The balance of most of the margin [ influx ] whether it was sequentially up or moderated down is more of a mix issue, okay, more of a regional mix issue with the West being stronger in the June quarter and a little bit less in the September quarter as Asia as we forecast we'll outpace the West, and that has a different margin model. And Tom's point out before some of the appreciation we've gotten on Farnell, we have seen some positive margin impact based on the way they price things in a market that we've been in, it's been 180 bps, we think we're getting a margin impact there to the positive.

And then maybe. Go ahead.

I was just going to say, when we say Farnell, 180 basis points and that they're 14.2% would be 12.4% without the pricing that's an extreme, that's saying if all of the pricing went away, and that was to alleviate concerns that all of your margin -- all of our margins were based on pricing they're not. So we don't anticipate that happening. And I think we had -- the current volumes, there's no reason that margins would not stay at current or similar levels.

Okay. Maybe for my follow-up, if you can talk about CapEx expectations for the year and also your capital allocation priorities. I know you've been investing right now and you've had good e-commerce sales there. I mean how much more investment is needed in that business to get to your long-term target revenue goals for Farnell. And so if you can just talk about your investment areas and thoughts on capital allocation.

Yes, this is Ken, Ruplu. I would say, as we kind of communicated at our Investor Day, the CapEx will go up. We've been at pretty low levels in the past couple of years, part of that pandemic related. And so I think the guidance we gave there was around $100 million or kind of double where we've been. But a lot of that is focused on Farnell, right? Systems, warehouses, getting the right digital tools in place. From the rest of the capital allocation priorities, I think the thing we talked about was the $600 million of buybacks the Board authorized. And we did a fair amount in the quarter, about $100 million. And if pricing in the market continues to be favorable, we expect to continue to put some capital towards buybacks.

Yes. Ruplu, on the balance of investments we're making outside of CapEx, and we're continuing to -- which really ties your margin, right? The higher value businesses, Farnell, we're seeing terrific success and will continue to invest in the e-commerce or continue to invest in inventory there. I mean back to Jim's question on inventory, we're continuing to publicly disclose the amount of SKUs that we're adding. And we frankly, we'd like to have even more inventory at Farnell. We're doubling down our interconnect pass, electromechanical business. Much of this we talked about at the Investor Day because it's higher-margin business. Our digital offerings for not only demand creation, but supply chain and then demand creation in general, right? The field application engineers, all those things we're continuing to invest in because they drive a higher margin business and the last of which was, again, talked about Investor Day, the embedded business, which is a higher-margin business. So just to reiterate, we're still in that investment mode to drive growth and profitability to maintain those margins that we talked about.

Our next question is from Matt Sheerin with Stifel.

Phil, I'm hoping to ask another question regarding inventories in the outlook and really not just your inventories, but inventories across the supply chain. There are record levels within the EMS customer base as well as OEMs. Mike Ryan earlier this week talked about seeing an inventory correction not just in consumer, but also auto and industrial, and I know the memory market is sort of a different animal cyclically than the business that you're in. But at some point, we are going to see inventories start to come down. And I'm just wondering, are you seeing any signs at all of that? Any rescheduling? And when we do see that happen, are you likely to be the first guy to see it? Or with the direct OEM will they start to see the cancellations first?

Yes. Thanks, Matt. It's a great question because we are tracking the publicly held companies. I'm looking at the data now and you aggregate them, for sure, their inventories are up Q-on-Q and up year-on-year, whether it's EMS, OEM or in our supplier set, right? So you're absolutely right. We continue to post that with our customers and the OEM and the EMS set. As you know, we know them well, and we do most of them we're doing supply chain engagements with. And much of that inventory is being held up. I think Nicolaus mentioned what's called the golden screw. So as we post that, I was out this week with a major EMS guy and he say, the yes -- the inventory is up. It's good. I mean it's industrial, it's defense, they've got contracts for it. So we're doing the best we can to make sure that we're validating, okay, the demand. And as far as who will be first to see, that's a great question, too. We track our cancellations, okay, and our pushouts, right? So there's -- what gets canceled, what gets pushed out. We're not seeing an increase of any significance, maybe slightly in some cancellations and very little in cancellations, I'm sorry, and slightly in some pushouts. We're not -- maybe that's surprising to many, but we're not seeing that backlog to support disappear. We've got to work with our end customers to help them too. If they can't take the product right now, how do we help them with that and some of the smaller customers, et cetera. So it's very complicated as you guys can imagine, that's the questions. But we're just giving you the visibility that we see based on the data that we watch daily, multiple times per day on a global basis on what's happening. And we're not seeing those early indicators, but we're watching it very closely.