Keysight Technologies, Inc. (KEYS) Earnings Call Transcript & Summary

Welcome, everybody. We're delighted to have Keysight here with us here today. I'm going to read a brief disclosure, and then we'll kind of get started on the introduction.

Perfect.

For important disclosures, please see the Morgan Stanley research website at morganstanley/research disclosures. If you have any other questions, please reach out to your sales rep. For those of you who don't know me, I'm Meta Marshall. I cover the networking space here at Morgan Stanley. We're delighted to have Keysight here today, Neil Dougherty, CFO; and Kailash Narayanan, President of CSG. And I'm sure I butchered some last names there, but that's what I do at the conference.

All right. So you just reported fiscal Q1 earnings with maybe a more cautious view on demand returning across the portfolio over the next couple of quarters versus maybe what investors were expecting. Just how do you think about this cycle playing out versus maybe how you did 6, 12 months ago? And just what gives you confidence that these are more normal cycles just maybe on the longer end of normal cycles?

Yes. I mean I think -- as you suggested, we've gotten a little bit more cautious about the timing of recovery as we progressed. And I think that's fundamentally right now a function of what we're not seeing. And that we're not seeing in the early -- we're not seeing the early signs of recovery in the funnel over the next 3 to 6 months which we would expect to be seeing by now if, in fact, that recovery was going to come in time to meaningfully impact our revenues in the back half of our fiscal year. That being said, we believe the underlying long term secular growth drivers in the industry remain intact. I think a little bit of an abnormal lead into this cycle with the supply chain disruptions. First, you had COVID, then you had the COVID recovery, which was contributing kind of abnormal backlogs, which were then further exacerbated by the supply chain disruptions over the last 24 months or so, which have now normalized. And I think that that's maybe exacerbated a little bit of the volatility and might serve to elongate the cycle, at least on the order side of things because our revenues remain partly in a stronger for -- a couple of quarters longer than the order side of things. So we're watching it carefully. But I think, again, long-term drivers exist across the portfolio, and we feel very good about how our position longer term.

Okay. Maybe just building on that kind of last year, just at Mobile World Congress last week, Clearly, there's a lot of R&D still happening. Like how does that inform how you think about these cycles just in terms of what still needs to happen as you think about.

Yes. We've -- as we've outlined in our Investor Day across the comms ecosystem as well as aerospace defense, we're enabling these long-term technology drivers, technology innovation. You look at wireless, that is about 5G and going into 6G. And we see customers continuing to spend on their long-term strategic programs. There has been a pullback on some of the quick turn product cycles like version B of the product that you launched in the previous year. That's where we've seen the pullback, but not the strategic long-term programs, right? And then now on the wireline side, there is a tremendous amount of investment driving the AI/ML infrastructure. And we're seeing a lot of growth in our 400G, 800G and terabit business. So net-net and then aerospace defense, you see investment in SatComs, in electronic warfare, electromagnetic spectrum operations, radar technologies and that's a secular driver for us as well. So just from a thematic perspective, we're not seeing any slowdown in terms of advancing technology waves in all of these different segments.

Okay. I mean, clearly, I think we can all tell there's a lot of development still going on. But what are the signposts that you're kind of looking for to gain a sense of that these down cycles are concluding?

Yes. So why don't I start a little bit about the EISG signals and then you can talk a little bit more looking for on the comp side. So in the electronic industrial side of the business, it's certainly semi. We're watching that very, very carefully. And there's 2 parts to our business, right? There's the parametric test, which is kind of tied to production volumes and new fab construction is the driver there. That business has been relatively soft but we're watching that time lines, which are still pushing out. The good news is they're not canceling. And I think if you follow the industry news, it does feel like there's a bow wave that's forming and a lot of people are looking into calendar '25 as being a strong recovery year for semi. So we're watching that. The other portion of our business, the lease on our [ parametry ] piece really more tied to these big photolithography machines, particularly has moved to 2 and 3 nanometer. And you can look at the backlog for the producers of that kind of equipment and see that they have robust backlogs. And so that portion of the business has been relatively more stable. Moving through the segments. On the automotive side, by far, the softest portion of that business has been roughly the 1/3 that's tied to auto manufacturing. So we'll be watching and our auto manufacturing tools support both ICE vehicles as well as electric vehicles because we really tested the control units, there's a lot of electronics in both types of vehicles. So we'll be watching kind of the broader auto industry dynamics, which I think not will provide potential uplift to that manufacturing piece but when the business is going better, you'll see more dollars flowing into the R&D side of things as well. The engagement on the EV and charging side has remained quite robust. We've seen bit of a pullback on the investments in the autonomous driving. So that's kind of how that has played out. And then the last part is general electronics. And I think if you had a Venn diagram and you could kind of overlay our general electronics business with the broader manufacturing space and with China, there's a lot of shared territory in there in the middle. So coming out of supply chain people, a lot of investments in capacity in the '22 -- '21, '22, early '23 time frame supply chains now normalize. But you see across a wide range for industries, people now sitting on excess capacity. So we're trying to watch and see how that gets absorbed and when that kind of next wave of investments are going to happen to things like PMI, our indicators. And then the broad China macro as well has been a challenge, and we'll be watching that on those as well and then on the CSG side.

And then on the CSG side, let me start with commercial comms. If we look at wireless, clearly, we're watching the semiconductor index and that has started to grow over the last few months on a month-over-month basis. So that bodes well just for new chipset SKUs coming out and those chipsets have to get into devices, those devices have to get deployed on networks and so forth. So that's something that we watch. We're also very closely tied with all of our major customers, and we know what their strategic long-term programs are and what they're doing in the short term. So -- that's something that we are closely monitoring. We're seeing new applications. We're paying close attention to new applications, potentially on the wireless devices. These could be IoT type of devices. These could be other smart devices that might incorporate technology like AI in the future. We have devices coming up with satellite connectivity. Those are trends that we look at. To see segments that have sort of bottomed in some sense that have seen this inventory spike and things that have bottomed out mostly on the contract manufacturing side. So we look at those trends. On the wireline side, we look telecom and data center CapEx that has been on the rise, and it is projected to increase over the next several years, driven by AI/ML and cloud expansion cybersecurity concerns. So telecom and data center CapEx is something that we watch. And on the aerospace defense side, clearly, the worldwide military expenditure is up, it's not just up in the U.S., but globally as well, driven by not just your defense modernization spend but by new applications, Block 3, which is the next generation GPS satellites, radar and coexistence of satellites with the new LEO constellations. And then there is research going on in areas like Quantum and 5G, 6G as well on the aerospace defense side. Now that's a business that's hard to call on a quarter-by-quarter basis because of the way the budget appropriations, et cetera, work. And this is an election year. Obviously, there might be issue -- dynamics associated with that, but we see that business on a secular growth path going forward.

Okay. So you both basically listed out 10, 15 different growth drivers over the long term. And so I think I kind of already know the answer to this. But has anything about your experience over the past, call it, 12, 18 months, where we've started to be into this down cycle, change your view on kind of the 5% to 7% longer-term growth rate?

No, we stand by that, and we believe that we're going to establish a bottom and we can get back to that long-term growth rate. Obviously, we outgrew it for a period of years. We've now had a bit of a correction, we can get back on trend line.

Okay. And so what is your kind of base case recovery scenario. Do you view this as more of kind of a gradual recovery or a stronger kind of rebound once we start to see some of that activity...

Yes. So we're deliberately actually not calling at this point because we don't have visibility. As Satish did say -- our CEO did say on our earnings call last night, the historical evidence suggests that quite often downturns like this are followed by some type of an above-market rate balance, but we, at this point, aren't seeing the indications of that. So I think from a -- just a general way, we'll manage our business, I think we will tend to be cautious. We don't want to get spending ahead of demand. And so we'll tend to, at least in our base case, think about a more gradual climb out and from a sales perspective, from a technology perspective, we're going to be fully ready to participate in the uptick, whatever the inflection that comes. But just from a cautious standpoint, our base case have been built about something that's more conservative and if we get the upside, that's great.

Okay. I mean that's tended to follow your kind of guidance philosophy in the past as well.

Right.

Okay. Investors can kind of that over consumption digestion taking place on EISG where, I guess, we get a lot more concerns is on the 5G side and whether -- how to think about kind of how this cycle plays out differently than the 4G cycle and why it is different. Is there any way to kind of contextualize for investors how to think about what are the differences between how you see the 5G cycle playing out than you did the 4G?

Yes. It's a good question. So just to put this in perspective, the first 5G networks were commercialized sometime in late 2019. Then COVID hit. There's been an expansion in the C-band area in 2021, 2022. And then now we've had this inventory-related correction. So when we look at the whole landscape, it's still early stages in 5G. I wouldn't even say that we're close to mid-cycle yet. And there are only about 200-plus networks around the world that are 5G ready. The quality of service and quality of experience differentiation doesn't exist today relative to 4G networks. So when you think about of 5G, every network that's going to be commissioned on a go-forward basis will be a 5G network. Nobody is going to do a stand-alone 3G network or a 4G network. So the investment that is going to happen and the mix of the investment is going to be geared towards 5G. It might not be as high as it was during the peak, but the mix of the investment is going to be on 5G. So the number of networks have to expand 200 plus to 800 plus. That's how many LTE networks you have now. And again, to put things in perspective, LTE is kind of in its 14th or 15th year. And these are long cycles. These are 10-, 15-year cycle. So we're still in the early stages. Subscribers are going to grow, and they're going to grow from 1 billion to 5 billion, 6 billion. And they'll subscribe when new devices with new capabilities are launched. And those are going to continue, especially with things like AI/ML. Then you also have to realize that what has been commercialized is the non-stand-alone version of 5G, which uses 4G kind of as an anchor. The stand-alone version of 5G has not been commercialized and that brings in more capabilities and more use cases. So that's something that's still ahead of us. You look at another thing that has been commercialized, and it's only the mobile phone use case that has been commercialized. There are other use cases, satellite connectivity, these industrial IoT, private networks. These opportunities -- these use cases have not been commercialized, they have not been monetized. And when you look at those ecosystems, they take longer to mature for industrial giant to use 5G to automate a factory, that takes more time and more investment because they're not used to cellular technology. So that sort of elongates the life cycle. And relative to where we were in 4G, which was primarily -- our focus was primarily in manufacturing -- handset manufacturing. The portfolio that we have, both the things that we've done organically as well as through acquisitions like Anite Telecom, Ixia allows us to participate more fully in this life cycle and more targeted towards R&D. The standards continue to evolve. The standards are looking at making the spectrum more efficient, making the spectrum more secure. The network is more energy efficient, more features for newer capabilities to be deployed and monetized. So all of those were able to participate in the R&D cycle. So we feel like -- and not just that as the network scale, you also have component manufacturing business, which is high-margin business that we would tap into and early research in 6G has already begun. It's a small business for us, but we already see dollars coming in from early 6G as well.

Okay. When we talk about 7G, but -- we'll all be old by then. So just -- I think we get the question a lot from investors of, okay, what's that next catalyst? Is it a future release cycle? Is it we get to a business case for 5G? Is it 6G? Like how do we think of what you see as like the nearest-term catalyst for that business. Clearly, there's a lot of room to run, but what is that kind of either the staging of that? Or how do you think of what's the next catalyst for that investment?

Yes. Like I said, the standards evolution continues and you're seeing -- we're seeing steady business related to that. There is an installed base that we can continue to monetize by selling hardware and software upgrades with these standards, which enables new use cases and new capabilities as well as makes the existing standard better. So that's number one. The satellite connectivity use case is gaining a lot of traction. Every phone that's going to come out in the future will have SatCom that's driving a lot of investment, a lot of R&D investment. And it's a little different from where mobile phones were a few years ago. Then you have new capabilities like AI/ML. AI/ML today is a data center phenomenon. But we know those -- there are going to be newer applications and newer capabilities that will be deployed on PCs and smartphones, that's going to drive data rates up, both on the wireline side as well as the wireless side. So you're going to have computation that has to occur on the phones, you're going to have -- some of that may have to be offloaded to the edge and other things may have to be done in the cloud. So we see this convergence of wireless and wireline technologies raising up the need for data rates, raising up the requirements around latency and newer capabilities, newer applications. This is going to require both on the device side and the network side to go through a lot of upgrades, R&D investment and manufacturing investment. So probably a combination of those is what I would look at as a near-term catalyst prior to 6G.

Right. Okay. So last second question entering just given the news of today, you guys gained a lot of share within 5G. Clearly, Viavi announced the acquisition of Spirent this morning. Just how do you see your competitive positioning as you kind of progress through additional cycles? And any kind of changes to the landscape you would see with any consolidation, realizing that it's...

Few hours old...

Yes. Few hours old.

So obviously, we saw the news this morning in both Viavi and Spirent play in the same large sandbox that we plan. We know them to be good companies, and we're in the process of digesting this combination and what it means for our industry. But I think back to the heart of your question around our competitive positioning, we continue to just to think of Keysight as being very well positioned in terms of breadth of portfolio, our ability to just service wireless, wireline, industrial end markets, technology leadership, great customer relationships with banner market-making customers across multiple ecosystems. It's really a breadth of portfolio and a breadth of industries that we serve that's kind of unmatched by many of these smaller, more niche. I don't know -- niche I don't know if that's the right word, but more narrowly focused competitors in the system space.

Yes. And case in point is on things like 6G while we engage very early in 5G and established a first-to-market position based on all of our R&D investment, we're engaging even earlier in 6G because of the capabilities that we have now that we've built up during the 5G cycle, the customer engagements and relationships that we have and the R&D investment that we continue to make. And we're still the company with the broadest and deepest portfolio across the whole communications ecosystem.

Okay. Perfect. Kailash, you just brought up a little bit about kind of everything that's going on within AI and wire networks. And clearly, there's not a room in here that's not talking about investment of some sort. So just can you maybe lay out what parts of the AI ecosystem you're testing today and where are the opportunities are to kind of expand that exposure if there are any?

You bet. Yes. I mean, first of all, it's an exciting use case. We're very happy that we're able to participate in that with our capabilities. We've always talked about Keysight as enabling innovation workflows that advance next-generation technology waves, be it on the wireless side and on the wireline side. And now what we see is AI/ML developing into a compelling use case that's driving and accelerating some of that investment. Today, we are largely focused on enabling the AI/ML infrastructure, the back end, the data center infrastructure. You think of these networks having to go at very high speeds, you think about these networks having to be very low latency in terms of providing responses to the user and getting computations, high-performance compute done in an extremely fast manner. So these are the things that we enable. So when I look at AI/ML, I look at silicon, so there's going to be more AI/ML chips that are going to come out. That will need R&D spending on the various interfaces those chips have. New architectures like chiplet architectures are being conceived of to drive high-performance compute from a chipset perspective. So there's that. So that's silicon. That silicon then goes into some type of a system. So let's call it -- I mean, that could be a GPU, it could be an accelerator card, it could be motherboards and so forth. So there, we see R&D as well as CM manufacturing business. So that's silicon system. And then you go into these systems getting deployed in a network. There are going to be pools of CPUs, pools of GPUs, pools of memory that need to be connected. So that drives high-speed networking and high-speed compute businesses, PCIe Gen 6, Gen 7, 400G, 800G. There's going to be modeling of cybersecurity concerns, all of that. So that drives that portion of the business. And a newer thing that we're also seeing is customers want to model the performance of these AI/ML workloads prior to actual deployment. Today, they can only connect these GPUs together to assess the performance of their large language models and so on and so forth. For these things to be a little bit more real time, they want to see ahead of time. They want to model this in software. So we're seeing more traction on that side of things. We just recently announced some of our modeling and benchmarking capabilities for AI/ML workloads in partnership with Arista and there's going to be more of those engagements in the pipeline for us. Now that's all on the AI/ML infrastructure wireline side. But as I said before, the AI/ML applications are going to percolate more towards the devices and the PCs, there are already some projections on hundreds of millions of smartphones and PCs that are going to get launched next year and the year after that deploy AI/ML applications. What that means is you're going to have to do AI/ML type of computations on the device, at the edge and at the back end. And this is going to drive data rates throughout the network, and those are the things that we end up supporting and doing. The RAN itself or the radio access network itself will benefit with AI/ML capabilities. So in the 3GPP standards, we see AI/ML being written into that to drive the efficiency of networks to deploy spectrum more effectively to support things like millimeter wave, FR2 mobility. So those are things that will get researched and studied that where we have a play.

Okay. So again, so many different kind of areas that we just touched on there. I think investors, myself sometimes have trouble contextualizing, okay, of this wireline business, how much of that customer base is still what Ixia's customer base was versus like how much has that evolved since you had it -- or just how to think about who that customer base is for wireline today, particularly as we think of all the different areas that you just laid out of exposure.

Yes. We've certainly expanded the customer base silicon providers. We have silicon providers, we have component makers, the optical component makers, switch makers, we have the network equipment makers, Ciscos of the world, Arista Networks of the world, we have hyperscalers, we have cybersecurity companies, people that make firewalls and applications that run on that, we have CMs and ODMs that make some of these CPUs, GPUs. So it's pretty diverse -- and they -- when we acquired Ixia, it was a limited set of customers. So we've been able to participate in it fully because we have a complete full stack solution. We touch the physical layer, the protocol layer as well as the application layer. So that's clearly broadened the footprint.

I guess worth noting that we had a meaningful wireline business prior to acquiring Ixia, focused in the physical layer, just like we had a meaningful physical layer wireless business before we acquired Anite. So that's kind of the transition we've been on. Historically, strengthened the physical layer, both wireless and wireline. We did the Anite acquisition and moved into the protocol layer for wireless. We did the Ixia acquisition to move into the protocol layer for wireline. And now we can service that entire ecosystem, wireless to wireline, which is converging a physical layer through the protocol layer and now into the application layer as well. That's the strategy we've been implementing over a decade now.

So I mean maybe turning to the Aerospace business. I don't think anybody here would be remiss to think, this is not an elevated geopolitical environment, which is kind of triggering a lot of funding. But how much should we think about the growth of that business being driven by kind of the environment that we're in and kind of the elevated spend environment versus just space exploration, some of these other areas within that business that have been kind of growth drivers kind of before this environment.

Yes. I think it's -- we're seeing a little bit of both. Some of the technologies that have been deployed are fairly old and is legacy. So there is this defense modernization trend that's going on, that's secular. It clearly is base by base and it's program by program, but there is clearly a trend there. And on top of that -- so this would be getting exposed to the research and development spend, if you will...

It also has bipartisan for, which is also...

Exactly. Then you also get exposed to the operational part of the business. that's due to the current geopolitical climate, right? And that would -- if you're supplying some capabilities to a foreign country to a foreign country to a foreign ally that needs to get replenished. And that stock gets replenished with more and newer capabilities, next-generation capabilities, which drives more program spend. So we get exposed to both the research and development aspect of things as well as the operational and maintenance part of the budget. There is exploration -- more exploration now on new areas like Quantum, like cybersecurity, like 5G and 6G, how can that be deployed and coexist with some of the military technologies. So I think it's a little different, and this is one of the reasons we're seeing outsized growth in our aerospace defense business, and we were confident enough to raise the growth rate by a point last year and we stand by that. It's a little challenging to call it quarter-by-quarter, but when we look at it secularly over a multiyear period, we're pretty comfortable with those rates.

Yes. Okay. Neil, maybe circling back to the auto business. There's obviously been a lot of discussion about kind of the turndown in EVs that we've seen. You kind of briefly alluded to it, but just how much of kind of that auto business is tied to kind of EV production versus other longer-term drivers?

Yes. So about 1/3 of our auto business is tied to production in general. But again, what we're testing is electronic control units, complex populated PC boards essentially. And those controlling could be going into either an ICE vehicle or an EV vehicle. So it is more volume driven across the industry than it is necessarily levered to 1 particular type of drivetrain technology. The remaining 2/3 plus of our business is tied to kind of next-generation auto, primarily EV but also to certain extent AV and other types of electronic sensor development that's happening in the R&D lab. I think by far, the most immediate opportunity and the one that's driving strength in that ecosystem over the last several years is the EV and charging opportunity. I think AV is -- there's certainly ways of investments that are happening, but it's further out. And so there's a little bit more patience that's playing out there, whereas the auto OEMs are definitely in a race right now to catch Tesla and others and get EVs on the road. And so we're supporting that again, not just from a battery development, how do you build a better battery and improve range and the life of these vehicles, but also from a charging infrastructure, which is a fundamental challenge for broader adoption of EVs across the industry.

Okay. You just made the ESI acquisition, which kind of enhance kind of the auto portion of the business. Just can you speak to kind of what the rationale was there and how that kind of fits within the auto portfolio?

Yes. I mean, I think not just Keysight, but as evidenced by a wave of acquisitions in that CAE computer-rated engineering space. Others are seeing it as well, this desire for the engineering populations at tech companies around the world to do more work in software upfront before they build physical layer prototypes, right? And so Keysight already had presence broadly in this space, but more on the EDA side of things, helping our customers simulate RF and microwave network devices in software before they build prototypes. And this moves us out into an adjacent space, EDA and CAE, we view as adjacent spaces. And with ESI, we found a CAE player that was focused very much in end markets where we're focused, primarily automotive, but we believe their technology is directly extensible into the aerospace defense end market. It's a market where they don't have a lot of direct presence today. And so it was a good fit, both dramatically around this emulation, simulation, engineering software space and from a market perspective, with the focus on auto and aerospace defense, which are markets where we're very much focused.

Okay. I know it's small within the overall portfolio, but just refreshing investors on to see their contribution to growth or kind of margin impact of that acquisition?

Yes. So it's roughly $140 million of revenue generating mid-teens profitability prior to the acquisition. This is really more of a growth play for Keysight than it is a cost play. We will have the opportunity to take out some public company costs and other things. But really, we're focused, first and foremost, on implementing what was a strong internal growth plan that the ESI team was already executing and then potentially accelerating that further through expansion into aerospace defense, leveraging our own presence in the automotive industry and our opportunities. And obviously, as a pure software business, high recurring revenue gross margin well into the 80% range. Keysight is good at driving leverage when we're growing businesses. So if you can deliver the growth, we can improve profit just through leverage over the course of the next several years.

Okay. So you talked a lot about driving leverage as you grow. In this downturn, you've shown growth -- or you've shown margin resiliency, only seeing about a 300 to 400 basis point step back despite kind of a 10% pullback in revenue. What steps have you taken to kind of enable yourself to have that margin protection? And just how do those steps kind of better prepare you as we come out of this?

Yes. I think as we think about maintaining margins across the business cycle is really there for Keysight. We've done a lot of work over the years to put in structural elements that essentially systematically and automatically adjust as our business enters the downside of a business cycle. And so the single biggest component of that is obviously our variable pay programs. 100% of Keysight employees have a portion of their pay that fluctuates with business performance. And so as we do enter softer macroeconomic conditions, we get a natural governor and the single largest component of our cost structure. Beyond that, we have roughly half of our manufacturing is outsourced. We have a meaningful indirect channel on the sales force that provides further against structural protections. I think this situation is maybe a little bit different than when we had originally put the model together, primarily because of inflationary elements that are still present in the economy. And so you have seen us supplement the structural elements with some more proactive types of cost reduction. So I've referenced on the earnings call that we do expect our OpEx spending to be down year-over-year about 3%, with virtually all of that savings coming from the SG&A side of the house versus the R&D side of the house because it's one of the things that we've been very consistent in our messaging on it's our intention to maintain R&D investments across the macroeconomic cycle so that we are well positioned to participate in the up cycle that we're hitting our market windows. We have the right technologies in the marketplace at the right time. So we intend to continue to invest in R&D and we're looking to pare back on the G&A side of things in response to current macroeconomic environment.

One more point I'll make on that is just the gross margin of the business, right? One of the items that doesn't get a lot of visibility is the software content that we have in our portfolio. Despite the decline in revenue, we -- CSG as well as commercial comms achieved record gross margins, and that's all based on significant software content that we're able to sell to our installed base in the form of upgrades as these standards and technologies evolve and as customers execute their R&D programs, very different from where we were in the previous cycle.

Okay. Any questions from the audience? Perfect. Maybe just last question. How are you thinking about capital allocation and ways to be kind of advantageous and downturns to kind of better position from [indiscernible] term growth?

It's a great question, and I just touched on it, right? As we've laid out our capital allocation over the last decade, really, the #1 portion of that is to make sure that we're continuing to invest to support the organic growth of our business. And I just talked about how we intend to maintain R&D investments in this environment to facilitate that. And we believe that we're well positioned to fully participate in the upturn. We're excited about our 6G portfolio, Quantum computing, all of these areas that move to smaller process that architectures like 2 and 3 nanometer, we're making sure we're hitting those market windows. Beyond that, I think we look to strike a balance between returning capital to our investors and doing value-accretive M&A. If you just look over the past couple of quarters in the fourth quarter of the year, we bought over $400 million. So we repurchased over $400 million of own shares when there was a dislocation in our share price down into the 120s. And then here, in the first quarter of the year, we settled the ESI acquisition for between $900 million and $1 billion. So again looking at that balance. We have a robust funnel of potential M&A opportunities, but we stay disciplined as it relates to our return hurdles. And we're committed to it at a bare minimum, be anti-dilutive with our buyback program, but I think we've exhibited over the years that when circumstances dictate and that could either be value related or it could be the size and actionability of the M&A funnel, we won't hesitate to put more [ ready ] to work in terms of returning capital to investors.

Okay. Neil, Kailash sounds like great story that I still am very excited about and look forward to seeing how things come out of the downturn. So I appreciate you being here today.

Thank you for having us here.

Thank you.