Good day, ladies and gentlemen, and welcome to the Keysight Technologies Fiscal Second Quarter 2022 Earnings Conference Call. My name is Tia, and I will be your lead operator today. Please note that this call is being recorded today, Tuesday, May 17, 2022, at 1:30 p.m. Pacific Time. I would now like to hand the conference over to your host, Jason Kary, Vice President, Treasurer and Investor Relations. Please go ahead, Mr. Kary.

Thank you and welcome, everyone, to Keysight's second quarter earnings conference call for fiscal year 2022. Joining me are Satish Dhanasekaran, President and CEO; and Neil Dougherty, our CFO. In the Q&A session, we will be joined by Mark Wallace, Senior Vice President of Global Sales. You can find the press release and information to supplement today's discussion on our website at investor.keysight.com. While there, please click on the link to quarterly reports under the Financial Information tab. There, you will find an investor presentation along with Keysight's segment results. Following this conference call, we will post a copy of the prepared remarks to the website. Today's comments by Satish and Neil will refer to non-GAAP financial measures. We will also make references to core growth, which excludes the impact of currency movements and acquisitions or divestitures completed within the last 12 months. You will find the most directly comparable GAAP financial metrics and reconciliations on our website. All comparisons are on a year-over-year basis unless otherwise noted. We will make forward-looking statements about the financial performance of the Company on today's call. These statements are subject to risks and uncertainties and are only valid as of today. The Company assumes no obligation to update them. Please review the Company's recent SEC filings for a more complete picture of our risks and other factors. Lastly, I would note that management is scheduled to participate in upcoming investor conferences hosted by JP Morgan, Baird and UBS. And now, I will turn the call over to Satish.

Thank you, Jason, and thank you all for joining us. Welcome to the second quarter 2022 earnings call and my first as the CEO of Keysight. I am humbled and honored to be Keysight's CEO and excited about the future. I would like to thank Ron Nersesian for his visionary leadership of the Company, which has provided us a solid foundation to build on. Over the last decade, I've had the honor of working closely with Ron and benefited greatly from his experience in many different roles I've held since joining the Company 16 years ago. This is a great time to be at Keysight as we remain focused on our core purpose of accelerating innovation to connect and secure the world. Keysight delivered exceptional results in quarter two, driven by strong execution and broad-based demand across the business. The team focused on innovating and solving customers' design and test challenges while successfully navigating the ongoing supply chain and geopolitical challenges. I will focus my comments today on 3 key headlines. First, we delivered record quarter two orders, capitalizing on the robust end-market demand for Keysight's high-value differentiated solutions. Our focus on delivering first-to-market solutions is enabling us to uncover new emerging applications, adding to our momentum. Second, we achieved record revenue, strong operating margin performance, resulting in record earnings per share, which grew 27%, demonstrating the durability and resilience of our business. Third, we are raising our outlook for the year based on our strong performance in the first half and continued momentum. We now expect to achieve revenue growth approaching 8% and earnings per share growth in the range of 14% to 15% for the fiscal year. Let's now take a deeper look at our results for the quarter. Second quarter orders grew 9% to $1.46 billion and…

Thank you, Satish, and hello, everyone. Our performance this quarter once again demonstrated the resilience of our business. We delivered on our commitments and exceeded expectations as we powered through multiple challenges and new headwinds in the quarter. In the second quarter of 2022, we delivered revenue of $1,351 million, which was above the high end of our guidance range and grew 11% or 12% on a core basis. We generated $1,458 million in orders, up 9% or 11% on a core basis. During the quarter, we suspended our operations in Russia and canceled our entire backlog of Russian orders. Core growth adjusted for Russia was 13%. Demand again outpaced supply, and we ended the quarter with over $2.4 billion in backlog. Turning to our operational results for Q2. We reported gross margin of 65% and operating expenses of $489 million, resulting in an operating margin of 29%. The strength of our results highlights the resiliency of our business and our team's ability to execute despite significant supply, cost and currency headwinds within the quarter. We achieved net income of $334 million and delivered $1.83 in earnings per share, which was above the high end of our guidance. Our weighted average share count for the quarter was 183 million shares. Moving to the performance of our segments. Our Communications Solutions Group generated record revenue of $963 million, up 10% or 11% on a core basis. CSG delivered gross margin of 66% and operating margin of 28%. Within CSG, commercial communications generated revenue of $672 million, up 11% with double-digit revenue growth in the Americas, driven by strong demand for 5G device and component development as well as network test, O-RAN and terabit R&D. Aerospace, defense and government revenue of $291 million grew 7%. Our backlog for this end market remains…

Thank you, Neil. Tia, will you please give the instructions for the Q&A?

The first question is from the line of David Ridley-Lane with Bank of America. Please go ahead, sir.

Good afternoon. Wondering if you have seen an uptick in any supplier decommitments over the last few months. Obviously, China shutdowns have impacted a lot of electronic manufacturing, component suppliers and so forth. Wondering if you have seen any of that show up in your operations.

Yes. Hi, David. Thanks for the question. As you saw from our results this quarter, we had a very strong quarter from a revenue perspective. We're very pleased with the strong execution progress of the team. And the five-point program we've been running around strengthening our relationships with suppliers, finding alternate sourcing, being nimble in this environment has really paid rich dividends, along with some of the other initiatives we have. And while the supplier environment remains, in our view, pretty challenging, but we have found a way to find more upside. I would say that the demand from our customers is robust. And our customers want the products as quickly as we can make them, and we're shipping them as quickly as we can. So, the supply situation does remain challenging to the point you made, but we've been able to find a way around it. Thank you.

And as a quick follow-up to that, have your own lead times, the time to -- expected to ship the product, have those actually started to decline, or are they stabilizing at elevated levels? Thank you.

Yes. Obviously, we saw in a situation where -- this is Neil, by the way, where demand is outpacing supply. And so, we have not at this started to pull lead times back down. I would call our lead times generally stable. I'd say, they're slightly creeping north at this point with demand continuing to outpace supply. But by and large, on average, we see a lot of stability in lead times currently with the goal to work them down over time as the supply chain situation ultimately starts to loosen.

The next question is from the line of Matt Niknam with Deutsche Bank.

So first, on the fiscal 3Q revenue guide. Maybe, Neil, if you could talk about what's driving the expected sequential decline in revenues. And then maybe how you're thinking about core constant currency trends relative to any FX headwinds that are embedded in next quarter's guide. And then just secondly, on Europe and Asia Pac, I'm just wondering if you've seen any change in customer demand or buying patterns, given the Russia-Ukraine conflict that may be impacting Europe or even in Asia Pac, given the sort of the reemergence of lockdowns in China in recent months. Thanks.

I'll take the first part of that, the question about the guide. As we've already stated, our revenue situation is still highly constrained by the supply environment. And we had significant outperformance in Q2 as we navigated the tight supply environment and did better than we expected. And so, -- but what you can read into that is that a significant portion of our Q2 outperformance was shipment of orders that we had originally or going into the quarter had scheduled to be in Q3. And so, that's great news, and we're pleased with that. But that -- on a quarter-over-quarter basis, that can be a significant impact. I would say that the guidance reflects our best estimate as we see it at this point in time. This quarter-to-quarter perturbations can be very difficult to call in this environment. We certainly have the backlog to do better if -- depending on how incoming supply works. And I think the point that we want everybody to focus on is that we are taking up the full year guidance significantly from 6% to 7% growth to approaching 8%. And that 8% growth, as you noted, has kind of new and significant FX headwinds. We saw a very significant strengthening of the dollar within our fiscal second quarter. We now have a 2-point year-over-year headwind in the second half that we're baking into account. And on the full year basis, we have a 1.5-point relative of FX. Just from November, when we put out the 6% to 7% guide to where we are today, saying approaching 8%, there's a new 1.5% FX headwind baked into that. And so, we feel very good about the situation as it currently sits and are pleased to be raising estimates for the year.

And Matt, hi. This is Mark. I'll address your second question on the kind of customer dynamics in Europe and Asia. So, in Asia Pac, we had double-digit order growth again as well as in China, where, as you noted, we had the COVID protocol restrictions and lockdowns. And it’s really a continuation of our ability to dynamically pivot and work with customers while both, in a face-to-face as well as a virtual remote nature. So, it's a testament to the broad strength and demand of our business across multiple industries and segments. In Asia, in particular, we saw strong continued demand and growth in automotive and semi, 400 gig, 800 gig, terabit, all of those things. So, very stable there. In Europe, we did see an impact, obviously, from the Russia cancellations. So, we had double-digit order growth in all regions except for Europe. But again, the demand continues. We saw a robust demand for our semiconductor solutions, again, automotive, our commercial comms across the European region. So, the broad interactions and dynamics with our customers so far remain pretty much unchanged.

The next question is from the line of Mark Delaney with Goldman Sachs.

Yes. Good afternoon. Thank you very much for taking the questions. And Satish, nice to be speaking to you in your new role. I was hoping to start first on the auto business. You mentioned some strong growth there on your prepared remarks today. Maybe you could talk about how big that is now relative to the Company overall. And given some of the drivers, like autonomy and electric vehicles, how big do you think the auto business for Keysight could become in the coming years?

Yes. Thank you. I think, the auto business is very exciting for us for more than one reason, I would say. First, very strong quarter, obviously, building on many quarters where we've seen a very strong uptick in the business, primarily driven by this decade-plus long trends of electrification, autonomous driving. And we're actually feeding a number of these engineering labs with our tools and capabilities and solutions designed for this end market. We're engaging with the OEMs globally. We've had some successes, as I reported, in this quarter. And we're also working with the entire ecosystem with the Tier 1, Tier 2 suppliers, the semiconductor houses that feed the auto and the test labs that are just growing across the world. So, it's a growing ecosystem. We're expanding our portfolio into EV, particularly around battery test, charging test, in-vehicle network testing as an example. And in AV, we're very excited by the new solution that we have offered for autonomous drive emulation, which is enabling in-loop, real-time, synchronized sensor evaluations, and this is a build on our 5G platform and capability. So, we're very pleased with the progress we're making, and we know that we have a long runway ahead with automotive.

That's very helpful. Thanks. And my follow-up question was on the EPS guidance. If I look at the midpoint of the 3Q guidance and also the midpoint of the full year EPS guidance, it would imply that fourth quarter EPS at the midpoint would be something like $1.89. And that would imply that the growth rate would be slowing from mid-teens year-on-year through the first three quarters on average to more like mid-single digits in the fourth quarter. So, I was hoping you could better contextualize the implied fourth quarter EPS guidance for us. And is there anything in terms of supply chain cost or mix that's perhaps impacting the rate of EPS growth in the fourth quarter? Thanks.

Yes. So, I think you need to take a close look at our Q4 performance in FY21, which was a bit of an outlier at 31% operating margin, a full almost 4 points higher than the prior -- the sequential quarters leading up to that. And so, I think as you -- and the other -- one of the big drivers within the fourth quarter of last year, if you look at it, we had a sequential decrease in R&D investment that was quite substantial going from Q3 to Q4. And that is atypical. And so, we would expect increasing investments on a sequential basis as we move from Q2 to Q3 and then again as we move from Q3 to Q4 as we invest in the future and the future growth of our business. And so, again, we remain optimistic about our business. And some of these quarter-to-quarter perturbations can be difficult to call, but we are raising our both, revenue and EPS guidance for the year quite substantially and are focused on executing.

The next question is from the line of Samik Chatterjee with JP Morgan.

Satish, congratulations on your first earnings call in the CEO role. I guess, in your prepared remarks, you did mention the higher defense budgets, and if I could start with that. I mean, when should we be realistically expecting the higher defense spending budgets to start impacting sort of your order trends? What is the typical sort of time line that you see -- have seen in the past in terms of when you start to see the flow-through of that into your order trends? And I have a quick follow-up.

Thank you, Samik. Of course, aerospace and defense business has been historically, as we have talked about, a GDP-plus business for us. It's very broad with 50% of the business tied to the U.S. or North America. And we're excited by the number of new areas that we're applying our technology to, space and satellite being one of them. And 5G and 6G adoption into this sector is a new opportunity for us. So, independent of the budgets, we're pleased with the traction we're making in applying our technology to offer new solutions. The budget is obviously a huge stability. I think the fact that you have bipartisan support for the defense budget growth in RDT&E line item for this year and then subsequent growth also projected for 2023, we view as a favorable sign. I think these geopolitical tensions tend to provide more stability not only in the U.S., but we're also expecting a similar uptick in Europe, and therefore, technology spend. But as we know, this business is an average over the long term, and we have been doing better than GDP, and our intent is to continue to do that and offer new solutions. With regard to the quote activity, I'll let Mark make a few comments.

Yes. Samik, this is Mark. I think just to add to Satish, the budget in the U.S. was approved. It was increased. And as we've been watching our customers, both the direct government and the prime contractors, we expect some of that funding to start flowing to new program starts here in our second half. So, we look forward to that. And as you probably know, as many of the programs nowadays are multiyear, this will flow into the fiscal year '23 and beyond. And you've been following what's going on in Western Europe as well with increased spend from the NATO nations, we'll see how that flows through. We expect that to be favorable as well. And then, I think the last thing I'll just mention is there are other aspects of this industry segment that are representing new growth opportunities for us around space. Commercial space in particular is a very hot area for us we continue to focus on. And then, the continuing modernization that we've been talking about for many quarters or years is a long-term trend that we're very excited about. We see a strong funnel of opportunities going into the future.

And for my follow-up, I guess this is more for Neil. But Neil, I mean, your 8% revenue growth guide for the year implies about a $150 million sort of half-on-half revenue performance, which is very similar to what we saw last year. I'm just wondering what you're capturing there in terms of improvements in the sort of supply environment in general versus your own capacity increases. And where would there be sort of more modest or sort of upside potential if supply of components are better? Just trying to understand sort of what's embedded because it seems very typical of -- compared to last year that your guidance is.

Yes. So, in prior quarters, we've talked about an expectation or thinking that we would see some material improvement in the supply chain situation in the second half of this year. To this point, we have not seen that. And in fact, I think if you look broader across the tech industry, there's an argument that things got incrementally worse in Q2, are more challenging, driven by the Russia-Ukraine conflict as well as the COVID shutdowns in China, even though those COVID shutdowns don't impact us directly. I think for us, we look at the items that we can control, our own capacity both for finished goods as well as for the subcomponents that come out of our fab and technology centers that feed our instrumentation. We look at our relationships with our suppliers, some of the engineering efforts that we have to quantify -- or to qualify new parts or secondary sources to open up new sources of supply. Those things are paying dividends for us and have contributed to the revenue performance that we've been able to deliver. And so, -- but as we look forward, and you asked specifically about the guide for the second half, we are still very much supply chain-constrained. And so, what that really bakes in is kind of our direct line of sight to delivery of the piece parts that we need to get products out the door and into the hands of our customers. It's a situation that's being very actively managed, but I think we're doing a good job of getting product into the hands of our customers on a time line that is acceptable to them.

Yes. Samik, this is Satish. Just to add on to what Neil mentioned. We have a very solid backlog position, over $2.4 billion. The demand continues to outpace supply. We know the challenges out there, but we feel very confident, and we're very prudent in our guide to ensure that we execute flawlessly. And we are continuing to be nimble and agile. And as Neil mentioned and I mentioned earlier, to execute to our commitments, we take it very seriously.

The next question is from Meta Marshall with Morgan Stanley.

A couple of questions for me. One, OpEx. Despite the revenue, the OpEx kind of came in about as expected. And so, I just wanted to see how you guys are managing, either T&E coming back or just inflationary pressures on OpEx, and where you're kind of finding some of those efficiencies. And then, as a follow-up, you guys mentioned the new win in silicon photonics test. Obviously, it seems like a good long-term opportunity. Just time to ramp and whether you've already seen interest from other customers as you've kind of made progress in that? Thanks.

I'll take the first part of that, and then we'll let Satish or Mark address the silicon photonics part of the question. So, yes, with regard to the OpEx spending and the return of T&E and facilities costs, we didn't -- honest answer is, we did not see a lot of that in Q2, right? The Omicron spike, if you will, was kind of right in the middle of our second quarter, and we did not see any meaningful kind of return to -- of travel, entertainment and return to office. We have recently, more at the beginning of Q3, started to bring our employees back to our physical sites in . We are starting to see travel and entertainment not return to normal, but starting to reramp here more of a -- as more of a third quarter event. As regard to inflation, we're seeing cost of inflation in a number of different places across the P&L. And I think our action -- or our challenges with managing that is to capitalize on the differentiation that exists in our portfolio and look to monetize that where we can and continue to bring differentiated high software content solutions to the marketplace so that we can continue to manage that. I think if you look at the margin performance of the business, we're doing a good job to date managing those inflationary increases across the P&L.

Yes. Meta, I think if you look at the entire customer base of Keysight, the amount of inputs that we're getting for strong collaborations is at a record high. Customers deeper engagement with us, and they are -- very often are engaging us much earlier in the design cycle. So, we are very well positioned, given the strength of our relationships to be able to act on some of your inputs where it matches our strategy and continue to progress it. If I look at the semiconductor activity all the way from new silicon wafer starts to the cloud, there is a tremendous amount of designs that are occurring both from traditional players moving up the stack and from system players that want to verticalize and own the IP and well positioned to be working with all these customers across the wireless, wireline and even the fab to progress some of their strategies and enable them to be successful. And we're very pleased. I mean, the silicon photonic solution is very unique, it's an industry first, and we're very pleased with the design win we're getting because with each of these wins is a deeper collaboration to understand where the future is going and define it. Silicon photonics is one of the technologies that is seen as a possible solution to the high-throughput demands of a data center and cloud environment. So, it's another area where Keysight is opening up a new franchise, which will continue to position us for future growth.

Perfect. Congrats, guys. Thanks.

Thank you.

Thank you. The next question is from the line of Chris Snyder with UBS. You may proceed.

Thank you. I wanted to ask about the backlog. I think the prepared remarks disclosed it to be $2.4 billion, which is roughly 45% of the current year revenue guide, and obviously, well above where it's been historically. So, based on guidance and the commentary around supply chain, it certainly does not sound like this backlog will be released to any capacity this year. So, I guess, my question is, how should we think about the cadence of this backlog release? Any color on the good duration or impact? Like, will we see it come through or will it just be kind of tapered in over many, many quarters? Any color there is helpful.

Yes. Well, first, you're absolutely right. We do not expect that we're going to reduce backlog at all this year. In fact, we would estimate in the current supply environment, which we expect to be challenging through the remainder of our fiscal year that we're going to continue to add to backlog. I think, how the backlog eventually winds its way from where -- from its current elevated levels to a more normalized level is really a function of how the broader supply chain situation resolves itself, right? And it's only educated guesses at this point because the honest answer is we don't know what that's going to look like. But I'm not expecting that there's going to be a step-function improvement across the supply chain that allows us to flush backlog over a one- or two-quarter period. I think it's going to be much more a function of us slowly bringing our quote and lead times on products down and slowly working that -- the backlog down to more normalized levels.

And we also view this as a favorable long-term trend for our business to enter a given quarter and having higher confidence in -- with the backlog. And as we think about the growing solutions that we're engaging with customers -- and these are deeper, longer-term relationships and they tend to give us very good visibility into our business. And we're pretty bullish by the growth prospects across the wireless, the wireline ecosystem, our industrial business. We have multiple vectors of growth around these big mega trends that is driving some of this backlog as well.

I appreciate that. So, then, for my next one, maybe I'll turn back and follow up on earlier commentary around the auto business. I understand from a high level, the Company is levered into really all the great secular trends in auto, whether it's battery R&D, charging infrastructure and autonomous. But I guess my question is, what's the biggest driver of this business? And is there anything we can track or monitor to just benchmark where growth could be here, whether that's like industry battery R&D spend, EV model proliferation? Just any help on how to think about -- like just kind of conceptualize the growth potential?

Yes. I think at the simplistic level, we're tethered to the R&D spend that's occurring. And if you look at it, the entire ecosystem is spending to continually innovate on range autonomous capabilities. And it's a long-term driver. And if you look at the organic R&D investments being made by automakers, it's only poised to increase with time. So, I think that would be the closest external dynamic I would point to. I would also say, if you look back even a few years ago, the number of in-house labs to and own generation of R&D from automakers was fairly sketchy, but we're starting to see more investment there across the world as more and more cars have more of these EV features driven by the bigger ESG goals and environment concerns around the world.

Hey Chris, this is Mark. I'll just add one thing to what Satish just said, and that's -- it makes it harder to track for you and for everyone. But there's so many different elements of what's happening with this transformation within the whole mobility space, whether it's the electrification of the drivetrain; the connectivity to the external network or communications within the vehicle, which we just announced some solutions to, to the charging infrastructure, which is being funded heavily by multiple nations as part of this transformation, to the millimeter wave and high-frequency technology around the sensors. It's just remarkable, the computational capabilities. And that's why this is such an important space to us is it intersects with all these areas of strength. And we continue to innovate with the industry leaders around all of the global ecosystems, as we said earlier. So, it's a long, long runway with all kinds of different elements of innovation.

The next question is from the line of Mehdi Hosseini with SIG.

I have two follow-ups. I apologize if some of the questions have already been raised, since I joined the call late. One on the pricing dynamic, and I'm not asking for any quantitative color, but perhaps maybe you can explain to me on a qualitative basis. You are relatively more vertically integrated, and you have relatively more relationship with the strategic mission-critical customers. Are these two -- perhaps assuming lower input costs and higher relevancy to these mission-critical application, have they enabled you to extract more economics from your customers? And I have a follow-up.

Yes. Mehdi, thank you for the question. Absolutely. I mean, you look at our focus around offering total solutions to customers, this has been our strategy since then, and that is really separating ourself. Our strategy is very clear. We look at some of the most tougher challenges in the industry that we serve, and we offer solutions. And by definition, it has higher software content. And over time, we've layered in services, which allows us to work with customers through their life cycle needs. All of that is favorable to our ability to continue to grow margins in the business and help offset some of the inflationary pricing pressures that we face.

Okay. So, perhaps that's already reflected in your free cash flow margin that has been double digit. And I'm asking or raising this topic since the stock has been under pressure, and you've also been very active in buyback. Is there anything else with capital return that you're thinking of contemplating that would better reflect a company's ability to extract more economics and have a rather stable free cash flow? Like, would you favor paying more cash dividend rather than a buyback? And then, as a quick follow-up, has FX been dialed into your guide?

Thank you, Mehdi. I think as you heard, multiple end-market exposures we have. And as you stated, towards many critical -- mission-critical applications, we're really bullish on the long-term opportunity at Keysight to create value. And so, congruent with that, we continue to be committed to this disciplined, balanced approach for capital allocation. First priority is obviously to invest for organic growth and differentiation, and we're seeing a lot of opportunities as we engage with our customers. Second, we are disciplined with M&A and -- but we're continuing to look for opportunities. We have a strong funnel, but we remain patient to make sure that it fits our hurdle as we have done in the past. And of course, it has to make sense for our strategy. And lastly, where we see opportunities, like the current situation, we believe that we will be more aggressive and take advantage of the return of capital through share buybacks as we have done this quarter. And we'll continue to remain on it. We have $600 million of previously authorized share buyback that we can still deploy, and we'll continue to deploy it as we see opportunities at these levels.

And then, the second part of your question was have we accounted for FX in the guide. To the extent that FX has moved to date, yes, that's all baked into our guide. I had mentioned that it's about a 2 percentage-point headwind on a year-over-year basis in the second half. And relative to when we put out our original full year guide of 6% to 7% growth, there's an additional 1.5 points of unfavorable currency. So, we're raising from 6% to 7% all the 8%, but there's an additional unfavorable 1.5 points of currency baked into that, again, based on rates as at today.

The next question is from the line of Jim Suva with Citigroup.

I just have one question and that is, could you let us know a little bit about the software and services, specifically with some of these growing newer end markets like automotive and power? Is the attach rate and opportunity similar with the past? Less or more than what the past is for these newer end markets, again, services and software? Thank you.

Thank you, Jim. As we stated, as we are starting to go beyond the core products and that engineering teams use, which is lab instruments into more solutions, they have a higher weighted average of software and then greater ability to monetize through services. So, we're still very early innings in deploying those things. The latest ADE offering that we have, we're building it on top of our 5G platform, which is rich with software. But also as we expand into the application layer, as we bring more real-world challenges in the auto industry into the lab, we'll continue to see the opportunity be bigger over time, and we're investing to realize that.

The next question is from the line of Rob Mason with Baird.

Satish, I'll just add my congratulations to your new role as well. My question was around the general electronics business. You did mention all-time record revenue there. And I was curious how the order rate performed in that piece of the business as well. I'm not sure I caught that. And then, just maybe related as well. Historically, kind of thought of the general electronics piece of the business as more PMI-sensitive. But, as you were describing that business, there seems like there's a lot of newer applications there. And I'm just curious if that's broadened out, how you're viewing that historical perspective, at least from perhaps a macroeconomic view to that part of the business.

Yes. It's a great question. I'll have Mark answer the first part of it as to how we're doing with orders. But I'll say you're right. I mean, as we have -- when we started the company and when we thought about general electronics business had a bigger correlation to manufacturing customer base. And over time, we've been adding more R&D applications and focus to the team as it has been able to bring in some newer end-market applications, such as digital health and IoT. And it continues to move up the value chain with our customers. So, over time, we would expect it to continue to be more in that direction. Another area of focus for that group is also around advanced research. As I noted, we had some announcements with the Singapore -- with a university in Singapore around quantum. We also had a major win in terahertz research associated with that business. So, we continue to ensure that we're seeking more value-added, sustainable, durable opportunities in that business, but that business historically has had a little bit more manufacturing exposure than the rest. So, I'll just hand over to Mark to speak about...

Sure. Thanks, Satish. Yes. Rob, we saw some moderating order growth during the quarter, mainly because of some softness in education. With some of the delays to the government spending and some of the other priorities that have come upon the funding, we did see some softness there. But we saw a lot of new customers in growth from R&D solutions for digital healthcare. We've added nearly 500 new customers again in the quarter, which helps to diversify our base and represents this broad base of industries across multiple segments and so forth. We saw strong demand continue across Asia with several new wins around the R&D solutions. And as Satish just mentioned, there have been some real bright spots around advanced research with our university. So, GDP markets are affected more or less with some of the activities in the geopolitical situation, which I think translates to some of the moderating growth we saw. But all in all, we see a continued demand for some of our advanced R&D solutions.

Sure. That's great color. Just as a quick follow-up, maybe for Neil. The -- is there anything, Neil, that you would call out that we should be monitoring around our margin assumptions as you convert some of the backlog just, again, taking your commentary around rising inflation, just how your -- how we should look at the price-cost dynamic within your backlog?

I mean, the backlog -- the biggest issue there is the backlog does create a little bit of a delay between the time at which we might impact a price increase and the time at which that price increase would be recognized in revenue, whereas it seems like on the input cost side, the cost increases are much more real time, particularly if you want to secure delivery of product. And so, that mismatch is something we're very actively managing, but it can cause some quarter-to-quarter perturbations if the timing gets off. But I think, generally speaking, we're doing a good job of managing in this inflationary environment and protecting margins.

The next question is from the line of Adam Thalhimer with Thompson Davis.

Good afternoon. Great quarter, guys. Quick one on M&A. On M&A, have you seen any softening in seller expectations?

Not a lot yet. Obviously, we've seen the market pullbacks, but seller expectations still seem to be kind of linked to prior valuations. So, we're watching that closely and very actively managing our funnel, staying disciplined with regard to our return hurdles and hoping that we get the opportunity to act on some of these targets. But right now, there does seem to be a little bit of a mismatch there.

Got it. And then, sorry, if you’ve fleshed this out, but what was the Russia impact, Neil?

We -- it's about 2 points. So, core order growth within the quarter was 11. Adjusted for Russia, it was 13. We canceled low-$20 million kind of backlog for Russia. It has historically been a 1% business for us.

There are no additional questions at this time. I will now pass it back to the management team for any closing remarks.

Well, thank you, Tia, and thank you all for joining us today. We look forward to speaking with many of you at the upcoming conferences, and wish you a great day.

That concludes today's conference call. Thank you. You may now disconnect your lines.