Flex Ltd. (FLEX) Earnings Call Transcript & Summary

Okay. Great. Thank you, everybody, for joining us. My name is Mark Delaney, and I cover Flex for Goldman Sachs. I'm very pleased to have with me today, Michael Hartung, President and Chief Commercial Officer; and David Rubin, the VP of IR. Thank you both for joining.

Good to be here. Thanks.

Five years ago, Revathi became CEO of the company. And at that time, the company had an EBIT margin of a little over 3%. Last year, it was 4.8%. And David, let me direct this one to you. What has changed at the company in the last 5 years to allow for that type of profit improvement?

Yes. So -- if we go back to the beginning of our kind of first stage of our transformative strategy, there was really 3 goals that we started out with. The first was to focus on the end markets and the businesses that made the most sense that we thought that there was long-term strong secular drivers where we could differentiate, and along with that was to quickly get out of businesses that we frankly had no business being in, right? They didn't make financial or strategic sense. The second piece was to align our operational model with the end markets that we're going to focus on. And the third was to set the stage for Flex moving to a more desirable long-term business model. And if you followed our Investor Day, this is when we first talked about it, our Flex product -- I'm sorry, EMS plus product plus services strategy, which I'll get into more in a minute. But if you go back to those early days, one of the first things we did was exit almost $1.4 billion in revenue in business that, again, we -- that just didn't make sense for us to be in. So we moved quickly on that. Second is as we realign the company along the lines of the agility and reliability reporting segments. And then we simplified the business units to align specifically to the end markets that we're going to focus on. And then underneath that, we realigned the operations teams to support those individual markets. And so it made a more efficient and agile company in that process. And if you again take those efficiencies, agility, plus the focus on the right markets in the portfolio, that did a lot of the heavy lifting to get us from that 3 handle to 4.8% margins that we did last year. And as we've given guidance for this year for a 5 handle and then ultimately a 6-plus handle, we're not done yet. And so this change in strategy that we were building on over the last 5 years, is what's going to get us there. And again, the EMS part -- our foundation is in EMS. We have -- we're in the right markets. And the diversity of those markets also helps us through when there are some various cycles in the market. The second part, the product piece of that strategy. This is predominantly data center and -- not to be cliched, but we literally manage power solutions from where the power comes in from the grid at the edge of the data center, all the way down to the power management solution on the server board powering the chip. And in most cases, this is our IP. This is our Flex product. And then we -- also in automotive, we have power solutions, both for hybrid and EV. And then the services part, again, we'll talk more about this, but the services speed is adding -- layering in on other value-added services that allow us to do more. So if you look at the last 2 products and the power, both of those expand our market, expands our TAM. It expands our profitability because both of those are above -- both above corporate margins. And so you take these together, and again, what we've done to lay the foundation and now the more offensive strategy that we have, that's how we're going to continue that process.

That's very helpful. And a lot of things for us to dig into during the discussion today. Michael, one for you. You recently took on a role as Chief Commercial Officer with responsibility for both the reliability and the agility segment. What are the benefits of having oversight of both segments? And what are your key priorities?

Yes. Thanks, Mark. First, I'd just like to say it's an exciting opportunity for me personally, but also it's happening at a time that's really exciting for the company as well. And I think the good news, Mark, is that we're not fixing anything that's broken, right? We're actually building the organization on a strong foundation. It's been in the works for the past 5 years under Revathi's leadership. And we're really looking to fine-tune it, really for the simple purpose of to better align our market strategies with what we see as changing market opportunities and bottom line, we're doing it to accelerate growth. And so there's probably 2 or 3 areas to dig into in the organization. The first is an obvious one. We have a common system. It will help accelerate our efforts towards commercial excellence. We've made a reputation as an execution engine in the industry and commercial wants to do their part as well. We've simplified the organization, and we've done that, so it's easier for our groups to collaborate. Now I know that sounds like cliche, and that's an overused word collaboration, but it's actually really important. Because the third area that we're looking to drive is a more integrated go-to-market strategy, because we do believe there's transformational opportunities available to us in the marketplace. And so what I mean by that is more and more our customers are faced with increasingly complex problems, they're looking for more sophisticated solutions, they want a broader portfolio of products and services to bring to bear to those. And so we really needed to create a more nimble commercial organization that could reach across all of our products, reach across all of our services, across all our business units and bring a much more integrated solution to the market. So simple answer, build on the strength of our existing organization, fine-tune and simplify under one organization and the bottom line is we're looking to accelerate growth.

On the last earnings call, Flex noted mix trends by end market with strength in cloud and autos, the softness in core industrials and consumer devices. Is there any update on the broader demand backdrop that you can share?

Yes. So -- maybe the best way to do that is to go through each of those and talk about where most things have changed. There's been a little bit of change. When we talked about power and cloud, so that's our data center portfolio, we talked about being very strong. That continues. It's very strong. No changes there. No change to health solutions and consumer markets. They're performing as expected. Non-cloud networking comms. So nothing touch in the cloud. We said that would remain weak. No change there. We're -- I know there's been some discussions, we're not really seeing any balance yet, but we didn't expect it for the year. Where we might be seeing a little bit of change is in auto, we are seeing some general weakening in volume outlooks, really even starting in Q3. This is more than just the EV changes that people have seen sentiment get a little sour and EV, particularly in North America and some in Europe. I think this is more cyclical driven. I think interest rates are catching up with spending. And you're the expert in here. I think they haven't cut prices the way they normally do and all those sorts of things, so some inventories backing up. So no, just change in volumes wise. And then in industrial, so core industrial, that includes renewables, maybe just a little softer than we had expected 30, 40 days ago, whatever. And again, this is looking towards the back half of the year. So there could be some volume pressure there. But I think the important point is that given our improving mix and our continued strong cost management that you've seen us do for multiple quarters now. don't expect any pressure on profitability or EPS with that if that scenario plays out. I would add also that this is an important proof point. When we talk about transformation in our model, this is the proof point that shows that things have changed, right? Volumes will fluctuate up and down. But what you've seen consistently over the last multiple years now is steady margin improvement and mid -- sorry, double-digit EPS growth. And so we continue to expect that this year. So again, you're seeing us -- cycles are going to come and go, but we are better managing that. We're mixing up. We're being more efficient, more agile.

And when you think about being able to sustain the profitability and the earnings outlook even if there is some fluctuation in certain end markets. Is there incremental restructuring you're doing? Or is this more of the way the business is evolving? I think we talked about how maybe EMS companies can charge for unused capacity in ways they couldn't before or more of a partnership approach or just you brought broader restructuring of operations to mix between different program areas where there's strength or weakness. Just maybe help me understand how you maintain that target.

Yes. We'll unpack that a little bit. I mean, step 1 is don't just go out and jam a bunch of capacity when things are good and then all of a sudden, you're stuck with excess capacity. We've managed that. And frankly, the industry has done a much better job of managing capacity, making sure that you don't get down the rabbit hole of that. Second, remember, what we said we aligned our operations to support each of the individual business units. And so some businesses should have higher variable cost models that can respond very fast. Other businesses will have more fixed cost models, but there's also -- there's management that we can do there to make sure. And then of course, the underlying piece is also make sure that you're moving towards higher value markets that even when there's less fluctuation, the mix is stronger.

That's helpful. The company had several program launches that it expected for the second half of this fiscal year. Maybe you can talk about how those are tracking?

Do you want me to take that one?

Sure.

Yes. So I'd say, we talked about ramps really in two of our growth markets, one around automotive, one around cloud. I think in the automotive businesses, the ramps are on track. I think, though, consistent with what the news has been in the larger macro that unit volumes are down, EV pushouts are taking place. So I'd say that the volumes that we were expecting on those ramps has been slightly pressured in automotive, maybe more than we thought, but the ramps are executing as we had planned from the beginning. When you talk about the cloud business, and you look at our first half and second half, a lot of the growth that we were expecting was coming out of the strength in our data center business, and those ramps are proceeding on track, on time and supporting the margin profile and the revenue profile in the second half.

Yes. Okay. That's helpful. As you think about the longer-term margin objectives, you spoke about a target of north of 5% for this year, 6% plus longer term, how far along are you in the journey in terms of the things the company needs to do in order to execute on that?

Yes. And let me focus more on the commercial strategy piece, otherwise you want to come -- the structural piece as we can come back to that. But all over simplify our strategy. It's really to combine as many products and services into each opportunity that we can to execute those products and services and market focused factories that are already operating at global scale. And that's really important because the first part of that statement is around products. So we've come out and said our data center business is about $3 billion, $1 billion of that is our power business, and that's a product business to utilizes Flex IP to bring power solutions to the data center. And that business is one of our fastest-growing businesses. And you would expect margin profiles to more closely resemble product level margin as opposed to EMS-type margins. So the product emphasis, I think, is really important, especially when you consider that we're gaining share in a rapidly expanding market. The other part on our manufacturing services is, look, I don't think we're expecting a sea change of what EMS can charge customers for putting stuff together. Our strategy is really to build more products and services on top of the base. And so what I mean by it is we have a value-added services strategy with things like sheet metal enclosures, private label electronic components, private label mechanical components, global services that really focus on post production, value-added fulfillment of delivering products, reverse logistics with repair, refurbishment, recycling to help achieve sustainability objectives. Our strategy in that area is to continue to layer on more and more value-added services because each one of those value-added services that I articulated already operate at a margin profile that's higher than the corporate average. So if we're successful at what we're doing in combined products and services, we should be able to mix up each customer engagement and end up with the margin outlook that we've provided.

One of the ways the company has improved margins historically was pruning less profitable businesses. You mentioned the $1.4 billion that you exited historically. But as you're evaluating the market as it stands today, do you think you need to engage in any higher level of product pruning than is typical as you think about this year or the next few years?

No, we don't. I think we've done a lot of the heavy lifting there that was the early stages. Now what the focus is, is much what Michael described is making sure that you're mixing up in every one of those end markets that you're going after the right deals Revathi's talked about that a lot, where you're going after the right kind of growth, that means profitable growth, making sure that you're having the right engagements, deeper engagements. So all of that is what's going to get us to these goals not cutting down there.

Michael, you mentioned products and in particular, data center has been one of the areas where you've been able to sell some of these power products that have much higher margins, a little bit of a different business model rather than building something for somebody else. You're selling the product to these customers. Maybe talk about how that may evolve going forward? Do you see that becoming a bigger focus either organically or through M&A like Anord Mardix in the past?

Well, I'd say if you're talking about the data center particularly, I mean, if you look at what we've said, we cover about 80% of the infrastructure spend available in the data center today. And so the 20% that we're not going to focus on are, gosh, I would loosely call standard construction facilities type items. So we're not going to develop our own HVAC system. There's plenty of companies that can do that. We can't add much value. We're really happy with the portfolio that we have on the 80%. That 80% is comprised of power products that you mentioned. It's both embedded power and critical power. So I think that's important to understand here is that from an embedded power standpoint, we're delivering solutions that help regulate power both at the board level and at the rack level. So think about DC to DC converters that go into server board. Think about power supplies or power shelves that go into a data center rack. So embedded power is focused on the rack level solutions. On the other hand, a critical power business is focused on the infrastructure of the data center itself in really 2 ways. The first way is providing reliability in power systems to the real estate itself. I think low-voltage switch gear, as an example. We also have a power pod business, where we provide essentially turnkey power solutions in a box. We land containers at the construction site with critical power systems already ready to plug in. That helps speed construction time, it helps lower cost. So for sure, we think the power business is ripe for more growth. And again, that's going to be at margin profiles that are more attractive than the overall. When you think about the manufacturing services business, for sure, we're going to continue to compete in traditional EMS, traditional rack integration services. And like I said before, I don't think we expect any sea change in what we can charge the market. We're going to continue to look at value-added services as a way to differentiate sheet metal enclosures, 5 label components, global services. I'd say that although we're really happy with the portfolio we have, that portfolio can support the 20% CAGR that we've said for the foreseeable -- for the next few years, we're always on the lookout. If there is an opportunity out there to gain a new technology, a new capability that helps address some of the challenges we're seeing in the market, whether it be power-related, heat-related, scale related. We'll certainly take a look at those items. But with the portfolio we have, we think we continue to grow the business.

So you have 20% target within the data center business, $3 billion of revenue in total. Maybe you help us better understand how much of your data center business is tied to AI?

Okay. Good question. So first, let's talk about what the $3 billion is comprised of, because I think we've been pretty conservative on what we've included in that market. The data center for us, what it doesn't include are some of our largest businesses within our CEC business. It doesn't include our traditional communications gear, our traditional enterprise business, although I can make a case that they're positively influenced by AI, we don't include that in our data center number. We only include a really tightly defined group of hyperscalers, colos and silicon providers, right? So when you think about that, the manufacturing services business is about $2 billion of the $3 billion, and that's largely driven by generative AI, no question. The power business is a little bit more nuanced. The embedded power business resembles that of our manufacturing services because of our focus on hyperscalers and silicon providers. So again, largely influenced by AI. I'd say the only slight difference in our critical power business is we start to weave in colos as our customer group. And that can have a little bit more influence from traditional compute. But if you sit back and think about the $3 billion and how tightly we've defined it, the vast majority of it is influenced by AI.

When you think about the companies investing the billions of dollars for these facilities, it's not that many that are the key players. So help us understand the breadth of your exposure to some major hyperscalers and then how broadly and what position do you think you may be?

Yes. I think that's an important question because there are some companies that are really dependent on, call it, greater than 10% customers. And we don't have any of those in our company today. And I think it goes back to first, again, acknowledging that we have a very broad product and services portfolio for the data center. And that enables us to compete in a little different space. So if you look at the hyperscaler environment as an example, we have engagements with multiple hyperscalers. And those hyperscalers tend to use more than one product or service offering. So diversity even within the hyperscaler segment. Well, we think about data center through 3 groups, really, you have the hyperscalers, the colos and the silicon providers. And again, think back to the portfolio that we provide. When you go to the silicon providers, we're on the lead edge of product development with our embedded power group. So we're helping customers design next-generation products at the front end. So we get engaged early. That makes it easier for us to swim behind with our traditional manufacturing services. And as a result of that, again, just like at hyperscalers, we have multiple engagements in the silicon providers using more than one service. And then the newest part of what we do is with the acquisition of Anord Mardix, we now have an entirely new customer base for colos. And so while that's primarily critical power today, if you look at how technology is progressing, and you look at how power consumption is increasing, heat generation is excessive. You look at how data center is actually going from, call it, 15 to 25 kilowatts to maybe 250 kilowatts in the not-distant future, we think customers are going to look for more integrated solutions, and we're positioned for that future given we have power products and a complete portfolio of manufacturing services.

You mentioned data center has been growing very strongly. No change to that outlook. Maybe you can help investors better understand a little bit more specifically, if you can, how to think about the data center growth for this year. I think the 20% was a 5-year CAGR. So if you can help at all over the next 12 months? And does the slower Blackwell supply ramp effect to Flex?

Yes. So I won't give any specific customers as you can understand. I'd say that think back 2 Investor Days ago, when I think we said we were going to deliver 20% CAGR for the next few years. I think in that first year, we doubled the business, right? In our last Investor Day, we came out and we reiterated that we thought that 20% over the next few years was the right CAGR to sit on. Of course, we come out and have a really strong Q1. I would say be careful about doubling the business and about 60% numbers here in the near future for a couple of reasons. One, the year-over-year comps get a little harder as we go throughout the year. But two, there's going to be some changes along the way. So fundamentally, based on the demand that we're getting from our customers, the broad set of engagements we have, we think for the balance of the year, it's probably safe to say we're in a really good position to meet our 20% or maybe even beat. But if you think about the next few years, I would really sit on that 20% CAGR number.

Okay. That's helpful. I want to talk about services. You mentioned it a few times already. It's been a theme in the last few earnings calls and at the Investor Day. Maybe help us better understand a little bit more what services you're providing, but also how do you charge for them? Because I think in the past, services were just given away in the industry, but it sounds like it's an above-average margin driver for the year.

Yes. The industry used to call strategic really giveaways. And that was to secure funny enough low-margin EMS business of all things. And so what we've done is we've really changed our mentality around that. Value-added services for us are now strategic in that they actually garner a higher margin profile than the industry average of the company for manufacturing services. And so when you think back to our simple strategy again, if we want to combine as many services as possible in each opportunity, we want more services. And so value-added services plays a key role on that. Again, it could be fabricating sheet metal, where we make greater than our company average. It could be our private label components business, whether it be electronic components like passive components or mechanical components like fasteners to be our global services business. But we think the key to the future for us is, first, to deliver more value to our customers who are seeking more complex solutions, we need to provide more products and services, but also it's a win-win because our customers get more service from fewer suppliers without paying more and we get to enjoy more margin. So it really is, for us, a win-win as far as we can tell.

Okay. So I just want to make sure some of those things like private label components and sheet metal, those are going into the services bucket, as you guys talked about that on the...

That's what we put into our value-added services bucket, all those things that I just mentioned.

Okay. And I know you cited on the last earnings call on the Investor Day, but maybe remind everyone how much revenue you would say comes from services but also what end markets are those being driven by?

Yes. So our value-added services and keep me honest here if I missed that. But I think we've said it's about a $1 billion business today, right? And so I think the good news on that is when you think about, call it, a $26 billion company with $1 billion of product business, operating at product level margins and $1 billion of value-added services business operating at greater than company average margins, our ability to mix up over time gives us a lot of opportunity, right? So I would say that from that perspective, we really like the position that we're in for sure.

That's helpful. Maybe you can talk more on the automotive end market. It was a $3.8 billion revenue business in fiscal '24. The company expects it to grow 10% over the next 5 years per your last Investor Day. Help us better understand what's enabling that?

Yes. So I'd start with, first, when we think about our automotive business today, think about it through the lens of technology and geography and customer diversification. So let's start with technology, right? There is a certain part of our business that is traditional manufacturing services. We tend to compete against EMS in that part of our business. But the growing part of our business is really the design-led part, where we're developing power and compute platforms that are powertrain agnostic. So whether it's EV, whether it's hybrid, whether it's combustion, we have a place to play in the market with those platforms. So from a technology standpoint, we really like where we're positioned, diversifying out of just pure manufacturing services and getting into design-led platforms. I'd say also, what's driving that is when you think about customer and geography, we tend to be overweighted by plan with market leaders in North America, followed by market leaders in Europe. And so China becomes sort of the next part of that conversation, and we talk about diversity. We have multiple engagements with Chinese automotive OEMs as well. I think that's important for 3 reasons: really we want to stay in tune to the technologies that are developing in the market, and it's hard to argue that a lot of innovation is taking place in that market. We want to have exposure to a rapidly growing market as well. But we also want to maybe temper the enthusiasm, pump the brakes, so to speak, a little bit given some of the volatility we're seeing with overall unit demand in the marketplace, some push outs in EV. And in China, in particular, just a real proliferation of automotive OEMs serving that market there's an inevitable consolidation to happen in that. But I would say, given our diversification across technology, geography and customer, we're in a real good place to sustain that growth over the next few years.

Is there a way to better contextualize how much of your revenue in automotive is tied to next-gen applications like ADAS, electrification and compute?

Yes. So what we've said before is that just over 50% of our revenue in auto comes from compute, right? And that's being driven by increasing electronics content or whether it's more ADAS, more sensors, all of that needs to be integrated domain controllers than central compute. The next piece is what we call other, I know it's a highly technical term. And that involves a variety of solutions from actuators, lighting solutions, complex wire harnessing and stuff. That also actually is, along with compute, is agnostic to the powertrain. And then the next piece is our power electronics business. So that is specifically to both EV and hybrid. It is the smallest of the 3, but it's also the fastest growing. So the important thing with that also is if we take a step back, whether it's EV or hybrid progresses over the next several years, it's still going to help drive that growth. So we're very well diversified as we talked about, geography OEM, but also in -- depending on how the different pathways towards the future play out with these two underlying trends of more electronics content and more power systems content, we're very well positioned there.

You mentioned a few things. One that you're generally more powertrain agnostic with the products that you're providing. You also mentioned earlier on in this discussion that the automotive market has gotten a little bit weaker. And we've seen EVs get pushed. But one of the things that a lot of those new EVs had is it was all the next-gen technology, including things like compute and ADAS. So as you're thinking about the auto market for you being a little bit slower this year, do you think that those new launches getting delayed? Or is it just more slower end demand?

Yes. Okay. So maybe we'll kind of atomize the time frames. In the near term, the volume adjustments in the market are kind of cyclical related even if you look at some areas where we've seen EV volumes pushed out, again, we're with OEMs that often have multiple -- they'll have multiple powertrains, excuse me. And what we saw is where they lowered maybe their EV content, and they said, "Well, hey, we want more ICE and/or hybrid models." So in that case, it's been a push. You are right that OEMs are looking to say, well, we thought we were going to ramp more EVs and maybe the demand is not there. So where you are seeing growth is in that hybrid opportunity. And so if you think about that one, that electronics content is going up in every vehicle. And almost at every price point, they're all becoming more advanced. They're integrating more driver systems, more safety. And so that's one trend that's going that we're playing into. And then the second is, yes, I don't know exactly how the EV versus hybrid will play out, but we're positioned very well for both of those. Both of those are net content increases for us. So again, I think we're positioned very well for that change.

Okay. That's helpful. And Michael, you mentioned some engagements with Chinese-based OEMs, but it's the smallest of the regions for Flex. And as you think about potentially converting on some of these engagements into programs, would that be doing business in China or more as Chinese OEMs expand internationally, that's when you could intersect that to the customers.

Yes. I'd say that initially, most of the engagements that we have with Chinese automotive OEMs are in China for China. Now as they look to globalize their manufacturing, certainly, we're positioned well to help them do that. And that would follow trends that we've seen in other industries that have looked to regionalize their supply chain for whatever reason, over the last few years.

One of the questions I've been looking forward to asking you actually, apologies, one more on kind of autos, but also tied into tariffs. You've seen tariff for many years now and geopolitical issues and causing a lot of challenges, I think, for companies like Flex to work through. You've supported a lot of your customers, but help us better understand how well positioned do you think Flex is? And especially if there was sort of across-the-board tariffs or bring products in the U.S., do you have the capacity domestically to support that?

Yes. Well, I think the question of potential trade and tariff complications is a fair one. But I would just point out that we've been dealing with, what I would say, are successive shocks to the system for the past 4 or 5 years. So ironically, it started with trade wars and the resulting tariffs that came with it, but then it was followed by global pandemic, then it was followed by material constraints and then real war. So I feel like we've been operating this complexity for many years now. And during those years, we've been working really closely with our customers to re-architect their supply chains to create more resiliency, more flexibility for the next shock to the system. So when you think about Flex, in addition to having this broad portfolio of products and services, I think the more important piece of that also is that, that portfolio is already operating at global scale in every major theater of operations. So the short answer would be is regardless of the shock, whether it be to bring products back to the U.S. whether it be regionalized into Mexico or Southeast Asia or Eastern Europe, we're positioned to take our customers where they need to go.

So the question I wanted to ask you around a broader set of businesses that Flex is engaged in is around power, and there's been a lot that Goldman has written and a number of good goals of different companies around supplying enough power, be it to data center for AI or for EVs. And your company touches a number of those different end markets. So what's your view around readiness for the grid and for power in order to enable all this electrification?

Yes. Well, I would be lying if I said I was the foremost authority on the ability of the grid to supply power to the data center support growth. However, I would say that we have a fairly unique perspective given the magnitude of customers we have in the markets that we serve. I'd say the first observation that we would make is that the challenge of supplying power varies by geography, right, whether that's within the U.S. or within different countries or the like. And so for that reason, we think the global footprint is likely to proliferate for data centers. I don't think you'll see massive concentrations in any one area, given some of those constraints. And it just so happens that the more complex the industry gets, the better it is for Flex because we're operating at global scale. I'd say in terms of the ability of the market to grow and how that relates to our 20% number, although I don't think we're experts in supply of power from the grid, I think our customers are more expert than us and their demand profiles to us both near term and long term, do consider the digestion of power. And then if you consider that we've got multiple hyperscalers, multiple colos and multiple silicon providers, we should have a pretty good data set to harmonize, to rationalize how we're thinking about growth. And given all those data points, we're again, really comfortable with our 20% growth rate in the next few years.

Okay. Maybe I could just sneak one last question in, maybe for you, David. How should investors think about buybacks for this year and longer term?

Yes. So I mean by policy, we don't guide to buybacks. Q1 was a little unusual. We gave some indications just because there's a lot going on there. But that said, if you recall, in August was our AGM. And we're Singapore domicile, so we renew our buybacks every year. And so we renewed targeting $1.7 billion. But taking a step back real quick, our capital allocation strategy has been consistent, right? We're going to continue to fund organic growth, which we've said is CapEx targeting 2% of revenue, no change there. We're going to continue to opportunistically return capital to shareholders via buybacks. And we've been very active there in fiscal '24. I think we returned $1.3 billion in Q1 alone, we did $450 million. So we've been active. And then the last piece, as we talked about earlier, we're always looking for capabilities and technologies that support our strategy. So again, that's our capital allocation strategy. No changes there and will continue.

Great. Well, unfortunately, we're out of time. Thank you both for joining us.

Thanks, Mark, appreciate it.