Microchip Technology Incorporated (MCHP) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone. I'm Chris Caso, at Raymond James, semiconductor analyst. Welcome back to our technology conference. Our next presentation is Microchip. With us from Microchip is Eric Bjornholt, their CFO; and also Sajid Daudi, the relatively new investor relations person. So welcome to both of you. Thank you for joining.

Thanks, Chris. Thanks for having us.

Well, great. Eric, you said you want to make some opening comments. So I want to give the floor to you to start out.

Thanks a lot, Chris. Appreciate you hosting us today. So just normal disclaimer during the course of this discussion. I'll be making projections and other forward-looking statements regarding the future financial performance of Microchip. I wish to caution you that such statements are predictions and actual events may differ materially. And I refer you to our filings with the SEC that identify important risk factors about the company. Yes, I just wanted to start out by making a few points. Our business remains very strong with demand increases continuing to outpace supply increases. We expect the supply and demand imbalance to persist with us for much of 2022 and possibly into 2023. And we expect to be in a position to support revenue growth for at least the next 4 quarters as Ganesh Moorthy, our CEO, alluded to on our last earnings call. We're continuing to pay debt down at a strong rate. And as of the end of September, our leverage ratio dropped below 3 at 2.99. And with that strong business outlook, combined with the results of the debt pay down, both Moody's and Fitch upgraded Microchip to an investment-grade rating. And as we walk through in our Investor and Analyst Day, that is the triggering point for us to start a higher capital return strategy where we are now returning 50% of free cash flow to shareholders through a combination of our dividend, which last quarter was about 23% of free cash flow. And now the addition of the share buyback, and we are actually in the market buying shares this quarter. So that program has now kicked off. So the other point to make is we are really transitioning away from what was the last 10 years of Microchip 2.0, where over that decade, we added significantly to Microchip's product portfolio and build scale and through the acquisitions that we made, various public companies, private companies and integrated those and through that scale, increased the product portfolio as well as improved our gross and operating margins over time as we became more efficient and made the companies that we acquired more efficient. Today, that leads us to Microchip 3.0, where we are really focused on organic growth. We believe that we can grow at approximately 2x the industry growth rate with our focus on selling total system solutions to our customers, and being focused on the key megatrends in the industry, which we'll likely touch on later on in the Q&A session with Chris. We've updated our gross and operating margin targets. Our gross margin target at the midpoint is 68% on a long-term basis. In the current quarter, we expect to be at about 66%. From an operating margin perspective, we updated our model to be at the midpoint, 45%. So really a world-class business model, producing incredible results and spinning off a lot of cash. And now we're moving to -- although we're going to continue to pay down debt, now do that at a rate where we can and increase the shareholder returns by adding this share buyback program into the mix. Our capital intensity is changing modestly. We are forecasting to have CapEx as a percentage of revenue on a long-term basis to be between 3% and 6%. That's up from kind of the historical 3% to 4% that we've seen, and we're taking some more control of our own destiny by making some investments in manufacturing, which we can also talk about through the discussion with Chris. And over time, we'd like to build some inventory on the balance sheet. That's really not possible in today's environment of supply constraints. But over time, we'd like to take where we're at today, which is about 112 days of inventory and grow that to 130 to 150 days. And we've got very long life cycle products. We don't really face a true inventory obsolescence risk. And with that, these are investments that make sense for us to make in the business over time to support the growth of our customers and have competitive lead times. And I guess lastly, we're going to be able to achieve all this through the company foundation that we have that's built on culture and sustainability. So with that, let me pass it back to Chris.

All right. Thank you, Eric. And that was a very good overview, and you've anticipated a lot of questions that we'll ask, and we'll dig into a number of those points. At the top of everyone's mind right now is obviously some of the supply constraints and it's important because it's constraining where your revenue numbers are going. Maybe you could start with explaining what you're doing to address these constraints? What is the pace of capacity additions internally and externally as you go through next year? Is this going to be pretty evenly distributed as we go through the year as you get to the end of the year, where possibly we get into balance?

Yes. So as I said in my opening remarks, we don't really see the supply and demand imbalance correcting itself anytime in the early part of 2022, and it might even persist into 2023. We are making investments in our own factories. We've increased our targets for the percentage of our manufacturing that we expect to do internally. On the wafer fab side, today, we're kind of in the low 40% type of range. And we said that over time, we expect that to go to about 45%. We are doing that through a number of things. We've got product growth within what we're building in our factories. We've actually taken a license to some technology from a foundry partner and are bringing that internally into our organ fab because we didn't feel that our partner was going to be able to invest at what we needed to for the growth of products that are on this technology for the next 10 to 15 years. So that's an investment our manufacturing teams are working on. We've increased the percentage target that we'd like to do in assembly and test internally also. And we've made really excellent progress over the last year in increasing that, but we've taken those targets higher and expect to take assembly to roughly 70% of the total. Today, it's about 60%, not quite 60%, and test, which is about 63% or 64% of the total, take that to 80% over time. So these are investments that make sense. They are gross margin accretive and give us a little bit more control of our overall manufacturing supply chain, which helps us better service our customers.

And where is this -- are the supply constraints pretty evenly distributed between front end, back end? Or are there areas -- I mean is it possible to generalize in this chaotic environment?

So I would say we have made a lot of progress on the back-end manufacturing, and we have less constraints on back end today, whether it's internally or what we're doing through our subcontractors. And some of that is just driven by equipment lead times and the complexity that's required to bring that capacity online is less than what is required on the front end where there's much more material investments that need to be made, equipment lead times are longer. So there's more constraints today on the front end, both internally and through our external partners. We've talked pretty extensively that we don't feel that our third-party foundry partners are investing at the rate that we would like them and need them to make on what we would refer to as trailing edge technology. They are investing the majority of their capital dollars on kind of the leading or bleeding edge. And the vast majority of Microchip's products don't require that type of capacity. So if that bleeding-edge technology comes on board, we could be faced with the situation where products that are on the high end are available, but the trailing edge technologies for microcontroller and analog, the capacity just isn't there, so systems can't be completed. So I think over time, market forces will correct this and the right capacity will come on board, but it takes time. Capacity does not really come on in big chunks. It's gradual. We've got increases in capacity coming on every month, and we are making progress, and that gave Ganesh confidence to speak about being able to have capacity in place to support revenue growth for the next 4 quarters, but we'd like to have a lot more than we have today.

So that being the case, if revenue grows in the next 4 quarters, that assumes that some incremental capacity comes on each quarter as you go through the year and then hopefully by 2023, we're more in balance. What about the commitments that you've had to make to some of these external partners. And that's something that's been interesting to me because what we've seen is some of these cascading obligations and commitments from your customers to you during the -- with PSP program, your commitments to some of the external suppliers, foundries and others. And then we even -- we've seen is material suppliers into the manufacturing also making sure there's enough wafer supply, for example. How is that different than what's happened in the past?

Well, maybe let me start by saying that we do business with almost 20 different foundries. TSMC, UMC and GlobalFoundries have the largest area of the foundry market, and we are represented correspondingly in that market share. But our foundry business relationships are covered by confidentiality agreements. We have different business engagement models with different foundries. And we believe we have the business agreements required to do business with them over multiple years and support our customer base. You mentioned PSP, we can talk about that more later. But we also believe that through our customer PSP program and other customer-specific supply programs that we have adequately covered the inventory risk inherent in our foundry business agreement. So it's definitely a new era in semiconductors, one that I've been in this industry for 26 years now, and I haven't seen anything like it in my past. And both of my bosses and Ganesh and Steve say the same, and they've been in the industry for 40-plus years. So it's interesting times. It's a good time to be in semiconductors. They have way more demand than what you can supply. But we know over time that these things will correct. And I think we are looking at this as the potential to be a prolonged cycle particularly for our products that are on more trailing edge technologies because capacity there is coming on slower than where it is in other areas within the industry.

Right. And in these times, there's always a fear given the cyclicality of the industry that customers have some incentive to order more than what they need. I think it's probably -- customers are probably ordering more than they can need -- they need right now. But I guess the other question is the industry is availability to fulfill it? What's your view of your visibility into your customer inventory levels? And are there perhaps some pockets of inventory or oversupply that may be out there, whereas other areas may be in undersupply?

Yes. So we service 125,000 customers. And I can't sit here and tell you that none of those 125,000 aren't in an over-inventory situation or none of them are over-ordering or double ordering, as you call it. But our ability to double fulfill at this point in time, I think, is very limited. I don't get any sort of real-time reports from our direct customers in terms of their inventory levels. But we tend to measure these things in a couple of different ways. One is just the number of customer screening phone calls, I need product next week or by the end of next month or I'm going to go lines down manufacturing. The number of those calls and the intensity of those calls is increasing today for Microchip. So it's not subsiding. So that -- so customers escalating towards upper management, I need help -- that continues to grow. The other thing that we speak to publicly is what we call our unsupported backlog, which, as you know, is backlog that is requested in the current quarter that we can't fulfill to a future quarter. And the unsupported backlog continues to grow each quarter. We believe that with our PSP program, this is a program that customers were asking for. And I know you have some questions on that. But we think in giving us 12 months of noncancelable, nonreschedulable backlog, that customers are much more thoughtful in terms of how they place their orders, thinking through their demand. And if it doesn't make sense for the customer to beyond PSP, they don't join the program, right? It's an optional program. And we've got over 50% of our backlog that's on PSP today. It gives us a very good look into what's coming in the future. And so at some point in time, when the supply and demand imbalance gets more in line, we would expect that customers -- we'll be able to get early signals from customers in terms of what they're seeing in their demand picture, right? They might be a customer that's buying 200,000 units per month. They've done that consistently for 12 months and then maybe they don't place that 13th month order at all or maybe they reduce it from 200,000 to 100,000. And one customer won't tell the story there. But as we collect that information from all the customers that are on PSP, I think it will allow us to navigate what I would call a soft landing by adjusting how we're investing in people, in capital, in materials, and have some runway to be able to make those adjustments over time. We also are in a situation today where distribution cannot get the inventory that they want and need to support their customers and distribution inventory is at an all-time low of about 19 days. And so at some point, that inventory will need to restock as well as restocking the inventory on our own balance sheet. So I think that gives us some flexibility and a pretty good possibility of landing this thing softly when supply and demand come back into balance.

Yes. That's a good point. And we've heard -- I think the sort of bull and bear case from investors on that is that there's some degree of skepticism on noncancelable, non-reschedulable orders that when business eventually slows and I asked it one day that maybe not all of that will be enforceable or that there'll be some sort of negotiation to avoid the customers building inventory. But the other side of the more bullish case in that is that it's better to have a contract and have visibility then to not. And I guess your point is looking forward that at least you have that visibility going out a year, you will see us changing probably earlier than you would have in a prior downturn, I guess, is what you're saying?

Yes. If we were sitting here and just had a 60-day or 90-day noncancelable window, we have just a massive amount of orders stacked up in month 3, 4 and 5, and that just continually get pushed by customers. Here, it gives our manufacturing team the visibility to know what they need to go invest in, people, materials, capital equipment and be able to support the customers the best that we can. So we think it's a great program. Customers like it. They can see the difference that it is making for them and being able to get the product that they need. And ultimately, that's our goal is to support our customers the best that we can and keep them up and running.

The other thing I want to run about you is this concept of alternate designs. And there's been some discussion here and there within the industry of customers actually taking what I would consider an extraordinary step of revising some of their designs in order to accommodate parts that they can get. And that's certainly something we haven't seen before because it's so expensive to do so. Do you think that's a widespread practice now? Is that something to be concerned? And is it even feasible at this point that a customer could modify parts of the design just because you can get Part A but not Part B?

So I would say that customers are being creative, right? I mean if we or one of our competitors can't supply a $2 or $3 microcontroller and that's keeping them from building a $50,000 automobile or a $2,000 appliance, right? They're going to get creative. And so I think the ability to do it on a large scale is small because everybody has extended lead times, right? But there's pockets of inventory and slower moving product that has shorter lead times. And so we know that we are benefiting that -- from that to some degree. But we can't sit here with our eyes closed and say it's not happening on the other side because we have extended lead times for a large portion of our product portfolio also. So I don't think it's widespread, but it's definitely happening. And if we can help a customer or a competitor with redesign and we have product to do it, we're going to do it. But I think it goes in both directions.

Yes. And I guess, the concern there is if the customer was pursuing an alternative design, probably they're not canceling the order on the other side if -- and you be carrying sort of 2 designs and seeing what products you'd wind up getting, I suppose, would be the risk.

Yes. There's probably some risk of that. But again, the supply is so tight right now, there's not a lot of that inventory with short lead times that's available. So I think it's a minor issue.

Right. Okay. How about how this extends into the pricing environment? And you folks have been pretty clear, you've raised prices in lockstep with a higher cost this year. I mean, one question is how much of that is sort of backward looking than forward-looking analog devices, for example, the other said, what they said on their call is, they've absorbed some of the price increases, but from their suppliers, but we'll be passing those along to customers in the future? It sounds like Microchip has taken a little bit of a different approach.

Well, we've had a couple of price increases throughout 2021. And if the environment requires it in the future, which is probably likely, right? You've heard publicly about foundries increasing prices and those being staged over time. And so it's likely that we'd have to do that. So customers understand it in this environment that we're not going to eat our supply chain increases in costs, and we're going to pass that on to them and margin it up. And what margining up, I just mean, not having it negatively impact our gross margin percentage. So it's a benefit to operating in gross margin dollars. So you know that we've been very focused on just maintaining average selling prices, not giving price declines to customers for a number of years now and have been quite successful with that. We view these changes in supply chain costs is really being permanent. I don't think they're transitory in nature. There's no equipment -- no used equipment out there for us to buy to put into our factories. So capital equipment costs have increased. Our labor costs internally and that our partners has increased. So -- and just general inflation in the economy is driving costs up. And we are committed to the gross margin model but we provide the stream and are passing those on to customers. We're being fair with them. We're not price gouging anybody. And customers get it. And they would much rather than absorb that cost and pass it on to their customers as we're seeing in the inflation, that we're seeing in the marketplace than not service the market at all. So whenever we do a price increase, and we get this question on PSP quite a bit, is PSP a pricing program or a supply program? And it's a supply program. So any customer in the PSP, even though they give us 12 months of noncancelable backlog, if we have a price increase, their backlog is subject to the price increase. Now any time we do a price increase, a customer has 5 days to determine, do they accept the price increase or do they reject it. If they reject the price increase, it then comes back to Microchip and we have a decision to make, do we ship at the old price, do we negotiate with the customer or do we just allocate that product to the long line of customers that's standing waiting for that product for another market. So we haven't really seen any customers give pushback on pricing increases. They understand the environment. They're starving for supply. And if price increases continue in the supply chain, we'll have to have more price increases in the future.

Right. And I think -- myself and I think many of the investors understand that the costs are truly going up. And there's a degree of permanence to the price increases and the cost increases that have happened. But what about over time? Do you think that the industry has changed such that typically, and especially for big customers and big industries, the customer would come every year and look for a couple of percentage points of annual price reduction as you reduce your own cost? Is that to at an end such that -- I guess there's 2 scenarios. One is we ratcheted prices higher because of the current environment, and then we go back on a cost curve going forward or maybe is that long-term cost curve change for the industry?

It's a good question. Purchasing managers are always going to be incentivized to beat their suppliers up on price. So I don't think that's going to go away. But I think through this latest shortage, which is like nothing we've ever seen before, that customers are understanding that semiconductors aren't a commodity, right? These are proprietary products and are essential for them to be able to manufacture and do the things that they need to do with their products. So maybe it changes to some degree. We'll always have some pricing pressure from purchasing discussions. But ultimately, we are trying to sell our products based on the value that we are delivering to our customers. And the engineering community absolutely understands that even if sometimes the purchasing groups don't.

Got it. I'll pivot now to some more product-specific questions. And to start on that -- and historically, Microchip has been about the microcontroller franchise that you've built up over the years and years. But the past number of years later on a lot of different products and a lot of different segments. And I guess the question is how it'll all fits together? And should we still consider Microchip, the center of the company, be the microcontroller franchise and you're layering other products on around it, but your FAEs and distributors not kind of still lead with the microcontroller. And how does that work? And ultimately, how does it deliver your competitive advantage?

So I think it depends on the application, right? I mean we have -- we've done a lot of acquisitions, as you know. And so I can take an example of an FPGA, which is something we did not have in the product portfolio pre-Microsemi. Many times that FPGA product is going to be the central feature on the board, and then there's opportunity -- cross-selling opportunities for Microchip in analog connectivity, timing, security around the FPGA. And so that is different than what it was 4 years ago pre-Microsemi. We also have specific products in data center, which might be kind of the central chip that we're selling into an opportunity. And then we're populating other things on the board around those chips. So it depends, I would say, in kind of a normal embedded controller application. We still kind of view that microcontroller is the first thing that an embedded design engineer is picking for their design, and that gives us a great leading indicator in terms of what else the customer is going to need in their system to be able to position the rest of the portfolio around it, whether that is analog, timing, security, memory, any sort of connectivity. And that's really what we've built up on the portfolio over the last dozen years of doing acquisitions, is completing that portfolio, feeling what we have, what we need today to provide this total system solution to our customers and be a more value-added partner.

Right. I mean one of the things in covering the company over the years that's been both a positive and also frustrating to cover is that there's no really one thing to talk about or one end market. There's a lot of companies we could talk about, 5G or cloud and that Microchip is very difficult. It's a lot of things. But at the Analyst Day, you talked about a number of megatrends, which are industry megatrends and things that you're exposed to. That changed a bit, those megatrends and the products that go in there, does that become a bigger part of the growth for the company going forward, and therefore, we've got some specific product and industry trends that we pay attention to for you?

So I think it does. As we broke out in the Investor and Analyst Day, the megatrends make up about 1/3 of our revenue today. And of that 1/3, it's heavily dominated today by IoT and data center, but there's other growing areas within that where we see lots of good growth over the next 5 to 10 years. So with the depth of the portfolio and the focus on the megatrends, I can maybe give a couple of examples here. So when you look at our data center megatrends, we have total system solutions that fit into storage and compute infrastructure, solid-state drive solutions and into the broader data center requirements like energy-efficient power supplies, precision timing, security, et cetera. And we've got a slide from our Analyst Day that you can refer to on that. And then also in the IoT megatrend, we have a range of microcontrollers, microprocessors, FPGAs, et cetera, that enable systems to be smarter, we enable them to have a range of wireless or wired connectivity solutions to make smart systems more valuable when they are connected. And we have a broad range of solutions that make smart and connected systems more secured. So our total system solutions spanned a gamut of smart, connected and secure solutions. And again, I refer you and listeners here to the Analyst Day that gives some specific examples there. But we think these megatrends are 5- to 10-year durable growth trends that we're going to see in the industry, and we're positioning the entire product portfolio and our go-to-market strategy with customers to take advantage of that.

Okay. What about with regards to the distribution strategy. And Microchip historically has been less focused on the big global distributors and more on the smaller regional distributors. Does that strategy need to change as, one, you pursue some of these megatrends? And then secondly, just because of the new makeup the product line following years acquisition?

So I don't think it needs to change. I mean there'll probably be small tweaks to how we go to market over time. But we have 3 different kinds of distributors in our channels today. We've got the global distributors, the Arrows, the Avnet, the Future Electronics. I think that's about 17% of our overall revenue. And the other 33% of the business that goes through distribution goes through what I would call either regional distributors or catalog distributors. Catalog distributors are kind of seeding the market for new designs. And then the regional distributors tend to be a bit more focused. They tend to only carry 1 microcontroller line as an example. They tend to be fully trained on our product selling strategies and be able to be proponents of Microchip in the marketplace to go out and win new designs. And so global distribution absolutely fulfills a service that customers look for, right? They're great at logistics and payment terms and kitting of products and programming and things like that. Where regional distributor is really more of an extension of our existing sales force and train to be proponents and be able to tell a customer, this is why you should choose Microchip over somebody else. So they both work well. Customers use them for various methods. We can be directly involved in the design work that happens with any of the distributors. And if we are doing the design work, they earn a lower margin. And if the distributor is actually doing the design, they earn a higher margin. So we incentivize the distributors to do that.

Right. That sounds a little different than what we've seen elsewhere. And obviously, Texas Instruments has pulled back quite a bit from distribution. Even Analog Devices when they acquired Maxim, consolidated distribution. So that sounds like that's not something you're contemplating in terms of reducing the focus of distribution within the company?

It is not. With our broad base of 125,000 customers, we really need all the feet on the street that we can to service the customer and do that through different ways. Again, the customer can still come to us to help with the design, and we'll have either online support or in-person technical support or virtual support for them to help with that. And then if they choose to buy through distribution from a logistics standpoint, perfectly okay with us and we compensate distributors for the work that they're doing.

We've got just a few minutes left and maybe pivot to capital return. And well, we've been on a lot of these virtual meetings over the past 1.5 years or so. I've asked your questions about capital return. Now we've got a little more to talk about. You're probably sick of me asking that before, but you're too polite to say that you weren't. But now we've got the program. Maybe you could talk about what the program is now, now that you've got the investment-grade rating? And then, I guess, more importantly, kind of where does this go over time?

Yes. So we are excited to have finally achieved the IG rating and got our leverage just under 3. We have a goal to take our net debt-to-EBITDA down to about 1.5x or lower over time. But this quarter, we've started buying back shares. And with the commitment to shareholders is that we would start this by targeting about 50% of free cash flow to be returned to shareholders either through our dividend program or through share buyback. The Board has been very specific on the dividend program that we're going to grow that at, at least 7% sequentially every quarter. And over time, probably target that being about 50% of the overall capital returning to shareholders. This quarter, I think the dividend is about $129 million, $130 million, something like that. And the rest of the free cash flow will be used through share buyback, and as I said, we're in the market buying back shares. So it's great that we've got to this point. And then from -- as we go from 3x lever to 1.5x levered, we expect to take the percentage of free cash flow returning to shareholders up really every quarter. So go from 50% to 100% over time. And Steve Sanghi was very specific in our Analyst and Investor Day, and he said, well, you should assume that 50%, then goes to 52.5% the next quarter and then 55% and then 57.5%. And so we've got a very structured program today. Obviously, the Board meets every quarter and can give us direction in terms of modifying that to some degree. But capital returns are increasing. We think this is going to be a really good thing from a shareholder perspective. We've got -- we've always had an incredible operating model. And now with the move away from acquisitions, the leverage can continue to come down, but investors can enjoy the higher returns through either share buyback or dividend. And quite honestly, Chris, we think that over time that, that will help us close the valuation gap that exists today and some of our higher-quality analog peers.

Right. And so to be clear then, what this doesn't mean is now you've got the investment-grade rating, you returned 50% and you stay there until you get to 1.5, that there's some sort of a linear relationship that you will continue to return a bigger percentage of cash flow? And then once you get to that 1.5x, at that point, you'll be at 100% return.

That is correct. That's how we're laying this out with the Board today. And I think in the early stages, we want to be very structured with it and show that gradual increase every quarter. We get feedback from investors as well, once you want to be more opportunistic over time, if something happens with the stock price in the market and be more aggressive in a certain quarter versus another. And I think that's absolutely a possibility of how it will be managed longer term. But initially, the share buyback is new to us. We want to show investors that, hey, we're serious about this, and so you should expect a steady increase for the next few quarters.

Right. So that implies for the short term as you're getting these programs started, less the dividend, about 50% of that cash flow is going to be returned within the quarter. And I suppose that would because you're buying back stock now. Were you able to do that quickly enough in order to get that implemented for the fourth quarter of this year?

So it was implemented for the quarter that we're in now, which is our third quarter, but the fourth calendar quarter, yes.

Fourth calendar quarter, right. So yes.

Yes.

And then finally, we're almost out of time, but just the reason why you're able to do this program is a view that large-scale M&A is off the table right now. Maybe talk about that? And are there still opportunities out there that you would see that -- would you still be able to do tuck-in acquisitions or small things and still pursue this strategy?

Yes. Yes. So tuck-in acquisitions will continue to happen. And we've done, I think, 4 or 5 of those over the last couple of years, and they don't move the needle from a cash flow perspective. We're typically buying intellectual property, an R&D team, some sort of -- something that's going to accelerate what we're doing in one of our business units and be able to get where we want to go faster. So those will continue. Some investors would view $100 million, $200 million, $300 million acquisition as tuck-in. And we haven't really done any of those, but our cash flow is good enough where it could if the opportunity arose. But really what we're saying is we don't see large-scale M&A in our near-term future. I mean the -- we have what we need from a product perspective. I kind of mentioned that before when I was talking about TSS. So there's no gaping hole in the portfolio that we need to fill. We think that we are set up very nicely to be able to grow at about 2x the industry growth rate organically. We obviously need to prove that out to investors over time, and we're working very hard to do that. And I think you can see in the growth that we're showing is if you look at the year-over-year results based on the December quarter guidance, I think we'll be up 29% plus year-over-year. So we feel like compared to our large-scale competitors, we are gaining share. And that would be our goal for the future. So no large-scale M&A. We don't need it in the product portfolio. We're really focused on more of a capital return strategy. And we have the size and scale to compete very effectively with our large competitors.

Got it. Well, it's been very helpful. We're unfortunately out of time now. But as always, a great discussion, Eric, Sajid. Thanks for your time.

Great. Thanks, Chris. Really appreciate it.

All right. Thanks, everyone.