Good day, ladies and gentlemen, and welcome to the Keysight Technologies Fiscal Fourth Quarter 2022 Earnings Conference Call. My name is Dante, and I will be your lead operator today. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded today, Thursday, November 17, 2022, at 2:00 PM Pacific Time. I would now like to hand the conference over to Jason Kary, Vice President, Treasurer and Investor Relations. Please go ahead, Mr. Kary.

Thank you, and welcome, everyone to Keysight's fourth quarter earnings conference call for fiscal year 2022. Joining me are Keysight's President and CEO, Satish Dhanasekaran; and our CFO, Neil Dougherty. In the Q&A session, will be joined by Senior Vice President of Global Sales and Chief Customer Officer, Mark Wallace. You can find the press release and information to supplement today's discussion on our website at investor.keysight.com under the Financial Information tab and quarterly reports. Today's comments by Satish and Neil will refer to non-GAAP financial measures. We will also make reference to core growth, which excludes the impact of currency movements and acquisitions or divestitures completed within the last 12 months. The most directly comparable GAAP financial metrics and reconciliations are on our website, and 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. We assume no obligation to update them. Please review our recent SEC filings for a more complete picture of these risks and other factors. Lastly, management is scheduled to participate in upcoming investor conferences hosted by Credit Suisse and Wells Fargo. We hope to see many of you there. And now, I will turn the call over to Satish.

Thank you, Jason, and thank you all for joining us. Keysight reported strong fourth quarter results, which exceeded the high end of our guidance and drove a strong finish to the year. Before we get into the quarter, I want to highlight our exceptional performance for fiscal year, which illustrates continued progress we're making in transforming the Company to a software-centric solutions provider. We set new records for orders, which grew 12% to $6 billion, a new record for revenue, which was up 10%, and a new record for earnings per share, which increased 22%, all the while returning capital through $849 million in share repurchases or 89% of free cash flow. In addition, we continue to invest in next-generation technologies for long-term differentiation and see a high level of engagement and activity with our customers around their future needs. Today, I'll focus my comments on three key headlines. First, we delivered an all-time record revenue and earnings per share in the fourth quarter ahead of expectations enabled by outstanding execution by Keysight teams who successfully navigated supply chain, geopolitical and macro dynamics. Second, we achieved record orders of $1.6 billion with steady bookings throughout the quarter and a book-to-bill of 1.09. While our customers' multiyear road maps remain unchanged, they are exercising more caution given the macro backdrop, which we anticipate will moderate demand in the near term. Third, as we enter fiscal '23, we remain confident in our ability to outperform the market based on the differentiation of our solutions, our strong R&D customer value proposition and the robust backlog position we have entering the year. And as we look longer term, the secular innovation trends in our end markets remain strong. Now let's take a deeper look at the strength of the fourth quarter. Record orders of…

Thank you, Satish, and hello, everyone. We delivered an outstanding fourth quarter of 2022 with record revenue of $1.443 billion, which was above the high end of our guidance range and grew 11% or 15% on a core basis. Our strategies to navigate the ongoing supply constraints continue to be effective. While the supply chain situation improved within the quarter, it continues to moderate our near-term revenue expectations. Record orders of $1.570 billion increased 5% or 9% on a core basis, and we entered fiscal year 2023 with over $2.5 billion in backlog. Looking at our operational results for Q4, we reported gross margin of 64%, which, as expected, was down 80 basis points sequentially due to inflationary pressures and increased shipments of lower-end instruments, enabled by the improving supply chain. Operating expenses of $494 million were well managed, and we generated operating margin of 30%. Net income was a record $386 million, and we achieved $2.14 in earnings per share, which was $0.14 above the high end of our guidance. Our weighted average share count for the quarter was 180 million shares. Foreign exchange impact on our earnings was negligible, thanks to a full natural hedge provided by our global footprint, which was then supplemented by our financial hedging program. Moving to the performance of our segments. The Communications Solutions Group achieved record revenue of $992 million, up 8% or 11% on a core basis. CSG delivered gross margin of 66% and operating margin of 29%. Commercial communications generated revenue of $681 million in the fourth quarter, up 10% driven by strength across the 5G ecosystem, increasing O-RAN adoption and investment in 800 gigabit and 1.6 terabit R&D. Aerospace, defense and government achieved record revenue of $311 million, up 4%, driven by double-digit growth in Asia Pacific and Europe.…

Thank you, Neil. That concludes our formal remarks. Dante, could you please give the instructions for the Q&A?

[Operator Instructions] Our first question comes from the line of Samik Chatterjee.

This is Angela Zhang on for Samik Chatterjee. Congrats on the strong quarter and outlook. My first question is sort of related to what you mentioned briefly in the prepared remarks on sort of macro slowdown and perhaps some pullbacks. I'd like to dig in a little more there. Given that we've seen commentary from other companies indicating that there's a pullback in telco CapEx, are you seeing any impact on their R&D budget? And then I have a follow-up.

Thank you, Angela. Yes, we're very pleased with the quarter. And in consideration of this environment, pretty strong results and also a strong finish to the year. And as I stated, we saw a steady level of spend from a demand perspective through the quarter. All our regions from a sales perspective grew. So it was broad-based. And going into a little bit on the end market color, I would say 5G continues to remain strong. We grew our 5G orders double-digit, strength in R&D. And also with the inflections that we're seeing in deployments around some parts of the world, even some of the manufacturing spend there remains strong for us this quarter. And we did see pockets of weakness in the broad component ecosystem, and that was an area we obviously watch carefully, and that is related to the smartphone demand. And if you look at the cloud and data center markets in wireline, while some of the cloud -- direct cloud spend from cloud providers was pushed out -- service providers was pushed out, the broad spend to adopt 400 gig and 800 gig continues to remain strong. So they focus on R&D, and new innovations remain strong. Moving on to aerospace and defense business, obviously, it was still a strong quarter for us, but we did not see the typical year-end surge that we would expect given the budget appropriations process. And then moving to EISG end markets, all of the markets remain strong, right? Automotive, we had strong double-digit growth as continued investments and inflection from EV and AV are playing out. Semiconductor is an area we watch carefully. But because of our exposure into the wafer stage equipment process and new node -- specifically new nodes, that remains strong. And lastly, the general electronics business, which typically gets -- part of its spend from PMI continued to remain strong from a demand perspective. So I would say we're doing well, and the customer activity with our customers and engagements remain strong and quite pleased with the -- with our quarter in this environment.

Great. And then just for my follow-up, you posted 10% revenue growth this year. And I know your long-term guide is sort of mid-single-digit revenue growth. Just what are you thinking sort of broad strokes for fiscal '23 revenue growth where you -- did you see a pull forward with supply easing? And so could there be an air pocket in fiscal '23? Or do you still expect to sort of perhaps trend above your typical long-term range?

Yes. We remain confident, Angela, with what we see so far. Obviously, it's an uncertain environment. So, we're guiding one quarter at a time. You see the confidence reflected in our Q1 guide, which we feel good about. And as we look forward, we'll look at the demand environment, and we'll keep you updated as we go.

Our next question comes from the line of Chris Snyder with UBS. Your line is now open.

I just kind of want to follow up on those comments on the market demand commentary. I mean orders were -- I think you said steady each month of the quarter and up 9% year-on-year. So what should we make of the commentary that maybe customers are being a bit more cautious because, Satish, you just kind of ramp through all the different subsegments and businesses. And it seems like everything is going quite strong. Should we take this as maybe an indicator that fiscal Q1 orders are easing a bit? And ultimately, does this push the growth profile back to that 4% to 6% normalized range? Or should it sink below that?

Chris, this is Mark. I'll take that and add a little bit more detail here. So as Satish said, our order level was steady throughout the quarter. So, we're watching this, right, because if customers are taking more time to make decisions, you would look for orders to slow down. They did not. As a matter of fact, October was very strong. It was a record October for us in terms of orders. So that's good. You've heard us talk about before the addition of new customers. We've added about 450 this quarter again for nearly 2,000 new customers across the whole year. So that creates more diversity and durability to our business, and I see that paying off. Our top 20 customers in the quarter were up strong double digits as well. So, all of that continues to translate to the fact that we did not see an impact to our business because of the customers taking more time. And I think it also has to do with the fact that we are so biased toward R&D and design optimization. And as we've seen through other waves in the recent term where market slowed, the advanced technology development continues. So that's what we see, but we look around and we do see some macro uncertainty. And from my seat, what I see in terms of order or in terms of customer activities is very active customers. Our six-month funnel continues to grow, but customers are taking more time to make ultimate CapEx decisions.

Yes. And this is Neil. I just give you a little bit maybe more quantification of the situation going into Q1. So while we don't guide orders, I would point out that we have a bit of a difficult compare here in the first quarter. A year ago, in Q1, that was the first time in Keysight's history that we'd ever posted order growth moving from the end of Q4 into the first quarter of the new fiscal year. So we've got a tough compare from that perspective. In addition, as you all know, the U.S. dollar began to strengthen pretty significantly in the back half of this year. We estimate the FX headwind in our first quarter to be a full five percentage points. And so we've got a five-point FX headwind. And we estimate another two to three points of headwind from the recent increase in China trade restrictions as well as the loss of our Russia business, which happened in the second quarter of last year. So those things combined give us a seven- to eight-point headwind just coming out of the gate here as we enter the first quarter.

Appreciate that. And on the commentary that customers are taking longer to order, maybe they're ordering slower, how do you separate kind of the supply chain element of that from the demand element? Because if supply chains are generally moving in the right direction, I think that maybe customers will not kind of order with the same lead times or urgency that we saw last year.

Yes. Chris, I think you're right. I think as the supply chain continues to ease and the delivery duration that it takes for us to fulfill an order continues to pull in, you would expect some level of normalization as well. And we -- the reason we also put out the demand environment is moderating is we're starting to also see some of our customers who earnings -- whose earnings has fallen also put additional scrutiny on spend, right? And so that takes a little bit more time to close the deal as they go through their process. So those are some factors. Neil, I don't know if you want to -- I know you've commented on the normalization before.

Yes. I guess the only other point that we make around that level is, if you look at our last three years, we've averaged a book-to-bill over the last three years of 1.09 driven first by COVID, obviously, then by the supply chain disruption that's happened over the last, say, 18 months. And so we've known for some time that, that book-to-bill had to normalize. And as our lead times come in, we would expect that normalization to occur. And so, as I think about it -- and again, we're not guiding orders, but a move of our book-to-bill back to a more normal level, something approaching one is not something that's going to impact our ability to continue to grow revenue.

Our next line of questions comes from the line of Mehdi Hosseini of SIG. Your line is now open.

Two follow-ups. I want to go back to CapEx to 250. Should I assume that capital intensity will remain around 3% in fiscal year '23?

Yes. So I mean one of the things that's happening with our CapEx is our capital purchases in this fiscal year were definitely impacted by the broader supply chain environment. And so we guided at the beginning of the year -- I'm talking about fiscal '22 now -- to CapEx that was close to $250 million, and we significantly underspent that from a cash flow perspective. But what you can't see is that our commits were very much in line with our original expectations. It just took longer for things to be delivered. And so, what we're seeing as we go into next year is a pretty dramatic scaling back of new capital purchases, but with a little bit of a cash flow overhang as we go into next year. And so that's what's going to carry our capital purchases up to that $250 million level in fiscal '23.

So, I shouldn't use your CapEx guide to come up with some revenue guide or revenue growth expectation for fiscal '23? There is some cash flow as per the CapEx, right?

That's right.

Okay. And then, I want to go back to China. The APAC region as a percentage of revenue has remained in the low 40% over the past several years, including the headwind from Huawei. Should I assume that you're growing outside of China so much should extend that you're able to offset increased restriction on shipment to China? Is it just a mix within the APAC region that makes China kind of neutralized?

Yes. I think maybe as we have spoken before, we have a broad-based business in China. And despite the ongoing geopolitical situation, we have a demonstrated ability to pivot and address customers in that region. And given the focus there on technology development, I think we're seeing good demand in the region, but we're also seeing multinational companies that are creating -- that are moving out of China in some ways and into rest of Asia Pac and other parts of the world, including onshoring moves into North America, and we're successfully capturing some of that spend as well.

Okay. So the fact that the supply chain is moving out sort of China, that's positive. Now if I may, just a quick follow-up. So you do have more than 50% exposure to your customers' R&D budget. On top of that, there is a structural changes happening with the supply chain that is also positive. And those two factors on aggregate could offset some of the cyclicality nature or production-related sensibility or volatility. Is that the right way to think about this?

I think that's what's playing out right now for us, yes.

Our next line of questions comes from the line of Matthew Niknam with Deutsche Bank. Your line is now open.

Two, if I could. First on backlog. So you mentioned you ended the year at about $2.55 billion. I think our math would suggest something about $100 million higher, just relative to the 2.5 you mentioned last quarter. I'm just wondering if there's any order cancellations to be aware of or if there's an FX component affecting this? And then secondly, on the China trade restrictions, I think you'd called out a two to three percentage point headwind from those restrictions. I'm just wondering, is that incremental in fiscal 1Q? And is this primarily an EISG? Or could it show up elsewhere?

Yes. So this is Neil. I'll take the backlog question and then let Mark address the China question. But yes, so you're -- I mean, obviously, our orders within the quarter outpaced revenue by a little bit more than $100 million. So we do continue to add to the backlog as we've gone throughout the year.

Yes. And Matt, the specific China trade situation that went into effect on October 7. So there wasn't much effect in our Q4. We will see some effect in our first quarter, but the 1% to 2% is projecting out over a run rate of the business for the entire year based on other situations. The other thing just to note is that we have not seen any changes in our cancellations. It's been running at a historically low level for the last four quarters, and that was the case again in Q4.

Our next line of questions comes from the line of Aaron Rakers with Wells Fargo. Your line is now open.

Congrats on good execution in the quarter. I just want to at a high level go back to kind of the defensibility of the model, if I can. Can you remind us where the mix of the business stands today between R&D exposed versus, let's say, manufacturing exposed? And I guess on that same kind of thought process is that, where do you stand as far as the monetization effect of the software strategy? Where do we think that progresses to over the next year, whatever time frame you want to think about?

Yes. Thank you for the question. I think at the highest level, we're at approximately 60% R&D today, 30% manufacturing and 10% deployments. So that's the sort of mix of the business. Clearly, we believe R&D secular, you look at some of the areas in R&D that we're focused on, that involve next-generation innovations such as with 5G and then 6G and automotive and digital health, so on and so forth. And it really gives us this diversity of applications that is -- gives us a resilience in this environment for sure. With regard to the software strategy, it, again, goes congruent with our with our go-to-market approach because we're here to enable innovations to happen faster. And the way we do that is by offering more software-centric solutions. So as we deploy more solutions to our customers, increasingly, that is in the form of growing software mix. And that goes, again, synergistic with our services strategy. So you look at our software and services revenue this year will end at 3% of the total mix and our ARR, or annual recurring revenue, has reached a new high of $1.2 billion. And we'll continue to invest to grow those portions of the business and increase our resilience and durability over time as well.

Yes. And then as a quick follow-up, if I can. Just curious, when we think about the progression of backlog, and we appreciate that your backlog is only looking out on a forward six-month basis. And Neil, just curious, how should we think about what a normalized backlog level looks like?

Yes. I mean given some of the dynamics that Satish just talked about, increasing software services, recurring revenue, we have seen growth in our deferred revenue over the same three-year period of time as well as our migration towards systems rather than tools, I think, will drive our ultimate backlog level when things normalize to be significantly higher than it was, say, pre-COVID in the 2018, 2019 time frame. And so I think we'll have to see how that plays out over time. I think again, we built -- you can do the math. We built well north of $1 billion of backlog over the course of the last three years as we've had this book-to-bill that I've mentioned of 1.09. And as our lead times come in, we're going to expect ordering patterns to adjust and lead times to pull in. I've said previously that there's probably four to five weeks' worth of kind of abnormal backlog as a result of a four- to five-week extension of lead times kind of on average would be a way to think about it.

We're still in a supply challenge environment. While it's improving, supply is the constraining factor right now.

Our next line of questions comes from the line of Jim Suva with Citi. Your line is now open.

It's very noteworthy and impressive about your software and services, which I think is about 34%. Is it -- can you help us understand, like, reasonable growth as a percent of totality going forward? Because I would imagine it's very hard to ever get over 50%. Or are you looking at a point where it starts to level off around 35%? Or is that way too low, 40%? Where can this kind of feasibility go for software and services as you kind of look at adding these incremental benefits to your sales process?

Yes. Jim, I think as a strategy, as a company from -- in 2015, we've been focused on the software-centric solution strategy and really focused on our customers' most demanding and challenging problems that they have and solving this better than anyone else. And as we have continued to do that, our strategy has taken the form of not just prudency in sales, but our focus on this life cycle value creation for our customers, but also value capture for Keysight. And that's the journey we've been on. Some of the more newer solutions such as in Open RAN that we've talked about where we are seeing considerable traction, software alone is nearing 40%, 50% of the total sale value, and with a lot bigger portion of it being in the recurring category as well. So, we feel good about the continued traction we're seeing for our solutions. And so we continue to deploy the solution strategy over time, we will enter into new end market verticals. And as you've seen some examples I put out this latest earnings announcement, we've also had some successes in the automotive sector with deploying software and in the semiconductor as well with our design offerings. Mark may make some comments on the sales side.

Yes. Thanks, Satish. And Jim, what I would ask is the go-to-market, you mentioned that, and that is an important element of this. We are attaching upfront attached services and software. We're at about 60% for services today. I want to see that grow. So that's another stream of advancement. The other thing that you can see is we are delivering solutions more and more through updates to our software. If you think about our 5G solutions going from Release 15 to Release 16 and 17, much of that is software updates that creates additional opportunities for up-sell, cross-sell and, of course, recurring revenue as well. So there's -- and there's several elements of our go-to-market that we are deploying now to encourage that recurring growth and expansion of attachment upfront to our total solutions.

Great. And then my follow-up is on the China. I think I heard two to three points of headwind. Is that for kind of the full fiscal year? Was there any, like, in calendar -- I'm sorry, fiscal Q4, like buying ahead of the rule changes? I'm just trying to kind of triangulate around the magnitude of it. And I assume after fiscal '23, it's kind of all out of the model from the rule changes.

Yes. Jim, I think we said one to two points of headwind for the entire fiscal year '23. And again, that's based on what we estimate as the run rate of business that won't be available to us with the new trade restrictions. There will be a little bit more in Q1 as we look at some of the backlog, but that's the run rate. And then there was another -- I think Neil mentioned another point of headwind with -- from Russia.

Our next line of questions comes from the line of Meta Marshall with Morgan Stanley. Your line is now open.

In the past, you guys have talked about kind of the 5G peak was going to be much lower than kind of investors were expecting, but you kind of talked about a '23, '24 time period for the 5G peak. I just wanted to kind of get current thoughts on that and just how initiatives like ORAN or just some of the other initiatives are maybe extending that. And then maybe a second, you gave some context that you're seeing some loosening in supply chain. But just kind of what is current thinking? Is it still just a small amount of parts that you're kind of waiting to release? But just when do you see more general availability of those parts and just kind of a tightening between supply and demand?

Yes. Thank you, Meta. I think on the 5G front, I think as we have always stated, there are multiple catalysts. I think about 18 months ago, I said the first catalyst was the C-band deployments in the U.S. That's played out as we had hoped, and we have captured a lot of that spend. We are pleased with some action that's happening in Asia and India, parts of India that have made commitments to roll out 5G. So that's, again, opportunity for us that's playing out right now. But the second and the third part to this is the millimeter wave opportunity. There's still some complex challenges with millimeter wave that customers are trying to solve. That continues to be a longer-term R&D opportunity for us as that deployment has continued to push out anyway -- scale deployments anyway. And lastly, as 5G is deployed, operators are looking to further monetize by adding the SA versions and new applications such as Open RAN continue to be gain traction across the global ecosystem. And so, the opportunity that we have in R&D continues to grow, and we're well positioned with the comprehensive offerings we have to address it. I also want to point out that we have a very diversified business. Yes, 5G gets a lot of attention, but we have secular trends in wireline evolutions, which we're well positioned to capitalize on based on the acquisitions of Ixia that we have made, and we continue to see traction there. Not to mention the newer additions to our go-to-market with automotive and with next-generation semiconductor nodes. So we run a diversified business, and I think that's a source of greater stability for us and over time. And the second part of the supply chain question that you asked is, at the beginning of last year, we took a series of actions to basically redesign our products to second source components, and we had a -- we've talked about it on earnings calls. And all those actions have really enabled us to do better than we expected every quarter. But as we think about the supply chain, I speak with a number of our semiconductor supply chain partners, and they're all putting actions in place to obviously increase capacity, but it still continues to be a constrained environment. We're not back to this pre-COVID sort of supply environment yet and might take all of '23 to get there from our best information right now.

Our next line of questions comes from the line of David Ridley-Lane with Bank of America. Your line is now open.

Sure. You talked about some of the headwinds to revenue in the first quarter, but one tailwind not mentioned is pricing. And just sort of wondering how significant is pricing today versus more normal levels. I mean you're giving a couple of points tailwind from that. And then what type of volume growth is really embedded into first quarter's guidance?

What was the last part of the question? I'm sorry, David, I missed just that last part.

The type of volume growth is embedded in the first quarter guidance.

Yes. I mean I think the pricing question -- obviously, we've had -- we've been doing our best to keep pace with inflation. We've had multiple rounds of price increases over the course of the last 12 to 18 months, and those are embedded in the backlog. Although I think you can see based on the fact that we have maintained margins over the course of fiscal '22, it's flat at 65%, which frankly, I think in this inflationary environment was a very strong result that we're basically keeping pace on a margin basis with what we're seeing in terms of increases. And so -- and right now, while on the one side, yes, we have these increases that are embedded in our backlog and will continue to yield dividends and revenue, it's not like the inflationary elements have stopped in the cost structure as well. I referenced, for example, that we are going to be doing our salary administration for next year here in our fiscal first quarter. And this will be our second consecutive year with salary increases that are materially above our historic averages. As to the volume question, given the nature of our business where we're selling instruments that literally cost, in some cases, hundreds of dollars and, in other cases, cost $1 million, that's a very difficult question to answer. There's such a high deviation of mix that -- it's really hard to get to a meaningful answer on that question.

Sure. And as a follow-up, another tailwind here is autos, right? I think last quarter, you mentioned that it's basically doubled over the last two years. This quarter, you mentioned $500 million in orders. So it's nearing close to 10% of your orders in this fiscal year. Do you feel like the trend there is kind of I don't want to say, not cyclical -- not subject to sort of macroeconomic condition, but certainly has a strong secular element to it.

David, this is Mark. I'll answer that. The growth we're seeing is coming from next generation mobility. There's some continuing R&D on the electronics side that's more conventional, but the growth in new mobility is sustaining. It is secular. And it doesn't just stop at the vehicle. It goes out into the charging infrastructure, into the underlying battery technologies. And we've seen what's happened here in the last year with different countries and different regulations pushing this further toward adoption. The adoption in Europe is very strong and growing fast, in other regions as well. And our position in the market is very strong, helping our customers design and deploy this next-generation technology from the batteries to the charging infrastructure and then add, on top of that, all the connectivity and communications and protocols, as we talked about in the prepared statement. So, this is really a great intersection of multiple strengths for us, and it has long-term secular growth drivers behind them.

Our next line of question comes from the line of Rob Mason with Baird. Your line is now open.

Neil, I wanted to just clarify, you mentioned that R&D I thought would be roughly 16% of revenue this year. I just want to make sure that's correct because that's about one point more than it was this past year in '22. And just I'm curious how that steps up. And what does an exit rate look like if that's the case?

Yes. So you're right. Obviously, our 16% or 16% plus has been our long-term target. We under spent that here in FY '22. I think a big function of that was the revenue outperformance within the year. If you remember, this time last year, we guided you to 6% revenue growth on the year, and we actually grew 12% on a core basis. And so, our R&D plans for the year were much more aligned with that lower level of revenue growth. So, I think as we go -- we certainly continue to see a large amount of opportunity for us to continue to invest in the future growth of our business, a lot of pull from our customers to do R&D work. And so, our intent is to revamp back towards 16% of revenue. Obviously, the salary administration here in the first quarter is going to help to move us in that direction. We may not get to 16% here in the first quarter, but looking at an exit rate that's at 16% or even potentially a little bit above by the time you get out to the fourth quarter is not out of the question.

Okay. Okay. That's helpful. And then to the extent the supply chain does still remain somewhat tight through the year, how are you thinking about working capital? And any ability or -- to pull that down as you go through the year, what are you thinking about working capital contribution for the year?

Well, I certainly think over the longer term that as the supply chain normalizes, there will be an opportunity for us to reduce some of the working capital that's built up over the course of the last year. We see it in terms of inventory, at least inventory via the prices that we're paying for parts. We see it money tied up in terms of commitments to buy future inventory where we paid in advance for future delivery -- has been a use of working capital that, frankly, is new over the course of the last 12 months. And then frankly, the supply chain situation has significantly impacted the linearity of our revenue within the quarter. You can imagine when you move from more of a just-in-time environment where you're just building and shipping and building and shipping. We're doing a lot more build to a certain stage, wait for parts, finish and ship. And so, our revenue is tended to be more back-end loaded, which results in us carrying more receivables at the end of the quarter than we would if we were shipping in a more linear fashion. So again, I think it's a function of how does supply chain normalize and when does that eventually happen? That is -- you need a little bit of a crystal ball to answer that question. But when it does happen, we would see -- we would expect to see an ability to reduce working capital.

That concludes our question-and-answer session for today. I would like to turn the conference back to Jason Kary for any closing remarks.

Thank you, Dante, and thank you, everyone, for joining us. As he mentioned, that concludes the call, and we wish you all a good evening and look forward to seeing you soon.

This concludes our conference call. You may now disconnect.