Good day, ladies and gentlemen, and welcome to the Keysight Technologies Fiscal Second Quarter 2023 Earnings Conference Call. My name is Elisa, and I will be your lead operator today. [Operator Instructions] The call is being recorded today, Tuesday, May 16, 2023 at 1:30 p.m. Pacific Time. I would now like to hand the call over to 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 2023. Joining me are Keysight’s President and CEO, Satish Dhanasekaran, and our CFO, Neil Dougherty. In the Q&A session we will be joined by Chief Customer Officer, Mark Wallace. The press release and information to supplement today’s discussion are on our website at investor.keysight.com under the financial information tab and quarterly reports. Today’s comments 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 J.P. Morgan, Baird, and UBS. And now, I will turn the call over to Satish.

Thank you, Jason. Good afternoon, everyone and thank you for joining us today. Keysight delivered a solid second quarter performance caping of a record first half of the year. Our consistent execution as we navigate near-term macro dynamics reflects the resilience of our diversified business and the differentiation of Keysight solution portfolio. My comments today will focus on three key headlines. First, our strong financial performance in the second quarter demonstrated the depth and the breadth of Keysight solutions and operating discipline. Revenue was at the high-end of our guidance and earnings per share exceeded our guidance range as we delivered record gross margin and record free cash flow. Second, orders in the second quarter were stable and consistent with our expectations. As near term macro dynamics play out, we're capitalizing on growth opportunities across our end markets with particular strength in automotive and global aerospace defense. And third, we remain confident in the long-term secular growth trends in our markets. While the current environment is uncertain, we are continuing to prudently invest for the future to build on our leadership positions and to deliver on the long-term strategy that are laid out at our Investor Day in March. Now, let's take a deeper look at our second quarter results. Orders declined 10% or 8% on a core basis. Record Q2 revenue grew 3% or 5% on a core basis. Operational excellence combined with favorable software and services mix resulted in record gross margins of 67%, operating margin of 30%, record free cash flow of 370 million and earnings per share growth of 16%. Turning to our business segments. The Electronic Industrial Solutions Group delivered record Q2 orders, driven by demand in automotive and general electronics, representing 33% of the total company revenue, EISG revenue was an all-time high and…

Thank you, Satish, and hello everyone. We delivered exceptionally strong financial performance in Q2 demonstrating the resilience of our business model. Revenue of $1,390 million was at the high-end of our guidance range and grew 3% or 5% on a core basis. Macroeconomic uncertainty continued to impact demand in the second quarter and orders of $1,319 million declined 10% or 8% on a core basis. We ended the quarter with over $2.4 billion in backlog. Turning to our operational results for Q2, we reported record gross margin of 67% and operating expenses of $504 million, resulting in operating margin of 30%. We achieved net income of $380 million and delivered $2.12 in earnings per share, which was above the high-end of our guidance. Our weighted average share count for the quarter was 179 million shares. Moving to the performance of our segments. Our Communications Solutions Group generated revenue of $937 million, down 3% or down 1% on a core basis. Commercial Communications revenue of $627 million was down 7%. Aerospace Defense and Government revenue of $310 million increased 7%, driven by investments in defense modernization. Altogether, CSG delivered record gross margin of 68% and operating margin of 28%. The Electronic Industrial Solutions Group generated second quarter revenue of $453 million, up 17% or 19% on a core basis with double-digit revenue growth in automotive, general electronics, and semiconductor demonstrating the diversity of our markets. EISG reported gross margin of 64% and operating margin of 35%. Moving to the balance sheet and cash flow. We ended our second quarter with $2.5 billion in cash and cash equivalents, generating cash flow from operations of $423 million and free cash flow of $370 million or 27% of revenue, which includes $107 million in one-time proceeds from the unwind of an interest rate swap. Now, turning to our outlook. In this challenging macro environment, the scenario we laid out last quarter for first half demand levels to persist through the remainder of the fiscal year is playing out. However, given the strength of our operating model and the actions we have taken to date, we now anticipate better earnings performance than previously communicated, with strong mid-single-digit EPS growth expected for the full-year. Turning to our third quarter guidance. We expect revenue to be in the range of $1.370 billion to $1.390 billion, and Q3 earnings per share to be in the range of $2.00 to $2.06 based on a weighted diluted share count of approximately 179 million shares. Despite ongoing uncertainty, Keysight's durable and resilient financial model positions us well to outperform in the current economic environment. Over the longer-term, we remain confident in the underlying demand drivers for our markets and our ability to execute and achieve our new raised long-term targets, as presented at our Investor Day in March. With that, I will now turn it back to Jason for the Q&A.

Thank you, Neil. Elisa, could you please give the instructions for the Q&A?

Absolutely. [Operator Instructions] Our first question comes from the line of Samik Chatterjee with J.P. Morgan. Your line is now open.

Hi, thanks for taking my questions. I guess, if I start with the strong operating performance, I think, Neil, you were mentioning in your prepared remarks. Just maybe give us a bit more color there? Obviously, record gross margins, very strong operating margins in the context of sort of how the top line is playing out and how the macro is? What are the drivers behind the gross margin improvement? And overall, how much of this is just, sort of some of the supply pressures easing versus something that you, as you said, you've taken actions and sort of that's driving some of the improvement? If you can lay that out for us in terms of how sustainable that is? And I have a follow-up.

Yes. Samik, it's a great question. And to some extent, it depends on what your compare is over the past couple of quarters. A big driver of the sequential improvement from the last couple of quarters comes from the improvement in the supply chain. And in fact, I would tie it to the reduction in the third-party premiums that had, kind of peaked in the back half of this year and last year and into the first quarter of this year. On a year-over-year basis, it's really far more mix. We had significantly favorable mix relative to the mix that we saw in the same quarter a year ago. As to sustainability, I think obviously, we set a new – raised a gross margin target for this business of 66% to 67% over the longer-term. I think this is a great proof point in terms of showing our ability to achieve those kinds of levels. I don't necessarily know that we're ready to operate at this level continuously going forward, but we also raised the EPS guidance for the year relative to the scenario we laid out last quarter. And certainly, the operating margin performance – excuse me, the gross margin performance and the easing of the supply chain constraints and costs are a factor that led to that increased EPS guidance.

This is Satish here. If I can add to Neil's points, quite pleased with the financial performance in this environment. Obviously, both CSG and EISG showed gross margin improvements. In EISG, a lot of it was linked to volume, but if you look, the business model is solid, right? You look at the software and services, have been steadily outpacing the business – overall business growth for a long time now, and we expect that trend to continue. And I would say that that gives us confidence, as Neil pointed out, that as we continue to execute our strategy of going up the stack all the way from physical protocol and application layers, we'll continue to have more opportunities moving forward.

Got it. And Satish, if I can follow up with you on the demand side for Commercial Communications. You talked about the sort of customer spending patterns last quarter. Have you seen any more sort of broadening out of the weakness? I know some of your peers have talked about even some of the base station testing, et cetera, being a bit weaker. But have you seen any broadening beyond, sort of just the smartphone ecosystem of players and that weakness that you're seeing? And even interested in hearing what you're seeing from your customers in relation to, do you really see, sort of your Commercial Comms hit, sort of hitting a trough already and now starting to sort of stabilize at these levels? Because that's what the numbers are indicating, but interested to hear how you're thinking about it. Thank you.

Yes. So, I think the headline on demand, I think, in orders has been stability, right? I think that's sort of the theme and it holds true even in Commercial Communications where, obviously, we discussed the dynamics of customers working through inventory corrections. Some of them are in a place where they're starting to think about next year's programs. They're starting to think about other programs. But then some of them are still working through the inventory correction situation in their business. So it's really dependent on different customers. But broadly, I would say, if you look at our 5G business, the R&D parts of the opportunity continues to hold up better, and there are different drivers there. And then you referenced the base station side, actually, was also holding up in-line with quarter one. And I think on the networking side, we had slightly down quarter-over-quarter. But all-in-all, it's holding up well at this time. I don't know that I would go as far as calling a trough or calling a bottom, but I – we remain focused on delivering to our customers' road maps. And we're seeing high engagement with our customers, particularly in comms after the OFC and Mobile World Congress, I think people are starting to think about what the future might bring, and there's tremendous opportunity to innovate and nobody wants to fall behind.

And if I was just going to add on to that, I mean, just kind of catching on to that theme of stability that Satish mentioned. I think as we look at demand and turn that lens forward, we're thinking about second half demand that's largely in-line with what we saw in the first half, albeit with some seasonality attached to it. Typically, we would see Q3 tick down and Q4 tick up, not just because of the way we manage our sales compensation programs, but also particularly in this scenario, where one of the growth drivers that we're seeing in this market is aerospace defense and the fact that those markets tend to skew up in our fourth quarter.

Great. Thank you. Congrats on the execution.

Thank you, Samik.

Thank you. Our next question comes from the line of Mehdi Hosseini with Susquehanna. Your line is now open.

Yes. Thanks for taking my questions. Going back to backlog, I want to better understand how the normalization, especially post-COVID, is played out? And just for illustration, if I were to look at prior to COVID and look at like 3 years to 5 years of history, the next quarter revenue to prior quarter backlog averaged around 0.9, reflecting the nature of the business which has turned, COVID changed that. Your backlog went-up due to supply chain disruption. And as you look forward post-COVID, should we expect more of a turn business? And I have a follow-up.

Yes. I think maybe from a business model standpoint, as you know, we've been driving to increasing solutions, more software and services mix, higher ARR, and that's been part of the strategy for go-to-market and that could alter in a very moderate way, the mix. But at some point, yes, I think as demand gets back in-line, we would expect the supply and demand balance to be restored.

Sorry, Mehdi. As I think about it from a backlog perspective, I think in terms of the backlog normalization, it's happening much like we laid out last quarter, right, that orders or revenues have outpaced orders in both Q1 and Q2. We expect that largely to continue here through the remainder of the year. And while we may not work through all of what I've, kind of had described as the abnormal backlog, we're going to work through a significant portion of that, if you think of it as kind of $80 million a quarter, kind of a run rate. And you are correct. As the supply chain situation is involved, we are once again becoming more and more reliant on turns business. Not quite back to where we were pre-COVID, but some of that is the fact of the, kind of the structural changes that have occurred in our business over that period of time.

Sure. Thank you. And I certainly don't want to take away anything from the demand drivers. And in that context, maybe you could remind us what are the key demand drivers looking forward, like 600 gig Ethernet [nearly] [ph] semiconductor? And to me, those dynamics are very different than the 5G investment cycle that you went through from 2017 through 2019. And then if you could just remind us how the next couple of years could be different than prior upturn?

Yes. Thank you, Mehdi. And as you know, we have a diversified portfolio, and we have diversified end market exposure that gives us plenty of opportunity to continue to expand our share position. We still only have 25% market share in our markets, and we have additional new [SAM] [ph] opportunities that I outlined at Investor Day. But if you just look at the high level, you'd say the innovation trends across our end markets continue to accelerate. And I think what we're seeing even during this time is customers are not pulling back on their long-term priorities, especially with regard to keeping their competitiveness going. And so, that is a trend that we expect to continue, and that would bode well for – in wireless Release 17 and new innovations that are coming up. And heading into 6G, which is on a road map for the industry. And in wireline, clearly, the move to 800 gig terabit Ethernet and multiple optimizations that networks have to go through in the world of AI-ML, I think that's another diversified opportunity for us that we're pretty excited about. And then you go into aerospace defense. I think research spanned across multiple nations of the world continue to remain strong as many nations are investing in organic IP. You look at supply onshoring or reshoring or security around supply chain, that is a demand driver. And when you look at semiconductor, the move – the road map is pretty secure to actually go through the progression from 7-nanometer to 5 to 3 to 2 and so on and so forth. So, we look at across our end markets, including the General Electronics business with digital health, and I didn't talk about the one that is currently inflecting, which is automotive, with EV and AV. And all these are secular trends. And I think our focus as a company on R&D innovations, enabling customers to go faster, is definitely – will put us in a good position to capitalize.

Thank you.

Thank you. The next question comes from the line of Chris Snyder from UBS. Your line is now open.

Thank you. So, fiscal Q2 revenue came in below typical seasonality. And obviously, you guys have been talking about the cyclical slowdown, so not a surprise there. But I guess my question is, if the guidance calls for, kind of typical seasonality into the third quarter with top line largely flattish, can we take that or should we take that as a vote of confidence that the market dynamics or demand is not getting worse?

Yes. I mean, as I said, I think we largely think – albeit at a lower level, we think – we largely see things as stable here as we move from the first half into the second half, right? I just talked about how on the demand side, we expect second half orders to be on par with the first half, albeit with the seasonality that I mentioned. And I think from a revenue perspective, the same is largely correct. We delivered [13.80] [ph] in Q1, guided to [13.80] [ph] in Q2. We did a little bit better. We've guided to [13.80] [ph] in Q3. And I think if you think about a level of revenue stability at about that level, you're thinking about it the right way.

I appreciate that. And kind of taking that and following up on the guide. If my [back to] [ph] the envelope math is correct here, mid-single-digit EPS growth for the year would imply a pretty big decline in Q4, both versus Q3, but also year-on-year. And with top line seemingly at least, kind of stable, it would – it seems to be calling for a decline in margins. Any reason for that? I don't know if there's ever been a quarter where Q4 EPS came in below Q3. Thank you.

Yes. Well, again, as I said, I think if you think about the top line for Q4, stability would be the term that I'd use to describe that. When it comes to EPS, I think on a year-over-year basis, you're not incorrect at modeling a decline. While Q4 a year ago was not that dissimilar from what we just delivered here in Q2, as we look into the back half of the year, as I said, we might not be able to sustain the gross margin quite as favorably as the mix we just delivered. And then in addition, we want to see some incremental investments into some of the future technologies that are going to drive our markets as we move forward. So, I do think on a year-over-year basis, you will expect a decline in the fourth quarter.

Yes. And I think just to add to the point, right, it is an uncertain environment that's out there. And I think when we speak with customers, the engagement levels are high. But in terms of them planning for budgets, they're really relying on their underlying business to pick-up. And so there's that dynamic which results in an elongated cycle to close the pipeline, and so that's the case. And our guide, we try to be central weighted. We're not factoring in any macro recovery nor are we factoring in any recovery from China reopening into the guide. And those could be upside, but the macro could get worse too. So, that's the way we see it, and we'll keep you updated.

Thank you.

Thank you. The next question comes from the line of Aaron Rakers from Wells Fargo. Your line is now open.

Yes. Thank you for taking the question. Also congrats on the execution in the quarter. A lot of questions that I had were already answered, but I want to go back to kind of the narrative around AI and ML, and maybe you can help just unpack a little bit of the demand insertion that you're seeing? Just maybe help us appreciate where and to what extent Keysight's involved in those opportunities? I'm just kind of curious, so just helping us appreciate a little bit more of the AI narrative and the demand drivers you're seeing?

Yes. Thank you. I think AI, it's safe to say that it's been under discussion for quite a long time, and you could say machine-learning algorithms are not that new. But what we're seeing now is a tick up in networks really thinking about the way to train AI models, the way to infer in an AI environment, and that creates some opportunities for us. I think Kailash has referred to that in our presentation at Investor Day as some pilots that we have going on. And fundamentally, you look at it at the high level, you have in a typical search not so traffic in the network. And with AI-ML, you have a lot of east-west traffic. And I think modeling that and being able to train your network to perform is going to become a differentiator. And I think having the full stack in wireless and [ wireline ] allows us to go address opportunities for our customers. How big that could be, I mean, to be determined. But I do know that a lot of our customers are having discussions with us at this time, and we're continuing to invest in this new emerging opportunity.

Yes. Thank you. Very helpful. And then as a quick follow-up, I noticed this quarter, you did not repurchase any share. I think that's the first time in a little while. So, Neil, I'm just curious of how you're thinking about very strong free cash flow? How you're thinking about share repurchase, maybe M&A, just overall capital allocation given the strong balance sheet position?

Yes. There have been no changes to our capital allocation priorities. Obviously, we re-laid them out at our Analyst Day in March. We continue to look for opportunities to grow our business via value-accretive M&A. While we didn't purchase any shares during the quarter for a variety of reasons, we've been very active in the buyback markets and would expect that our – to continue to be least anti-dilutive with our buyback programs and be opportunistic on top of that. And so, we continue to believe there is ample opportunity for us to create value through appropriate capital allocation.

Yes. Thank you.

Thank you. The next question comes from the line of Mark Delaney with Goldman Sachs. Your line is now open.

This is [Will Brian] [ph] asking a question on the behalf of Mark Delaney. So, first question is, with orders down year-over-year, will easier comps in backlog be enough for the company to grow at that 5% to 7% target that you laid out next year if the macro is still similar to current conditions or would the macro need to improve at all to reach that goal?

Yes. As we said, the macro environment continues to remain highly uncertain, and we're not ready to make a call as to what the environment is going to be 6 months from now when we get to FY 2024. I think what we see right now is largely stability, and as Satish just said, we're not ready to call an upturn, but nor do we have any additional downside baked into what we're seeing currently.

Okay. That's helpful. Thank you. And my second question, I just wonder if you can comment or give some additional color around regional order trends at all? Thank you.

Sure, Will. This is Mark. I'll talk about the region trends. So, it begins with the word stability. We talked about that many times already. Q2 orders were steady and predictable and really consistent with our expectations. We saw increased customer demand and increased customer engagements with continuing focus on their R&D programs across all four regions. This was especially shown in the case for aerospace and defense, where we saw strong growth in demand across all of our regions. We saw the demand in automotive continue with some key wins, a couple of key OEM wins, particularly in Europe. And in general, the broad base of customers and the variety of applications that we serve within General Electronics really held up strongly across most regions as well. We did see some pullback, as we saw in Q1, around commercial comms that was centered with some of our larger customers in the Americas. We saw some pullback in short-term demand with semiconductor in Asia. But in general, across all regions, we saw this continuing stability in engagements and order flow as we expected.

Thank you.

Thank you. Our next question comes from the line of Meta Marshall from Morgan Stanley. Your line is now open.

Great. Thanks. It looks like you guys bring down about 100 million of backlog this quarter and you had been kind of guiding to about $300 million of backlog for the remainder of the year, so it seems like everything is on track there. I guess I just wanted to get an update as to whether, kind of 200 million of additional backlog for the year was a good estimate? And just kind of what segment that's most concentrated on? And then just a second question, just in terms of where you're seeing some of the more cautious spending on comms? Is that legacy standards? Just kind of what projects are being potentially pushed out while, kind of emphasis is still being put on 6G, kind of new releases of 5G? Thanks.

Thank you. Meta, I'll take the second part first and then Neil will speak to the backlog. I think the – in comms, obviously, the big driver is new innovation, new technology trends. So, we saw strength in Release 17, non-terrestrial networks, all of the same themes that we've been talking about, and some increased investments around the globe around the next-generation technologies. And so, largely in R&D, the trends are holding. And in production environments, our production test environments is where we're seeing much more weakness in demand as customers are digesting this excess inventory associated with smartphones and PCs and such. And our share position, even though at a lower level, continues to be strong, and we're focused on our portfolio and our portfolio continues to grow, and we'll continue to release new products in alignment with customer needs. With regard to the backlog position, obviously, we have a backlog situation. As Neil mentioned, we have a growing deferred revenue balance with increasing focus we have placed on software services and ARR. And we also, in accordance with where we're seeing the order strength, whether it's automotive or in semiconductor or in aerospace defense, we're also providing more system type of capabilities to our customers, which have longer lead times. Neil will give you more specifics.

Yes. I think on the backlight side, you referenced our comments about expecting to burn somewhere around $300 million of backlog for the year. I mean, that statement was made last quarter when revenues outpaced orders by $80 million, and we talked about how we expected that demand environment to sustain itself for at least the next couple of quarters. And that's, in fact, what's playing out. So, if you think about kind of an $80 million backlog burn per quarter, you get to [320] [ph], and that's largely how we're thinking about it with orders and revenue largely stable into the back half of the year. And the last question you asked is, how does it skew by business? Right now, it's clearly skewing towards CSG.

Okay. Perfect. Thank you.

Thank you. The next question comes from the line of Adam Thalhimer with Thompson Davis. Your line is now open.

Hey guys. Nice quarter. Neil, the working capital was pretty negative in 2022, and it looks like it’s, kind of finally starting to swing positive in Q2. Do you expect that trend to continue in the back half cash from working capital?

Yes. I mean, it's certainly something we're watching carefully. There's a number of factors there. The supply chain situation clearly put pressure on working capital in a number of ways. First of all, inventory purchase commitments, which while things are getting better, we did make significant purchase commitments over the course of the last 4 to 6 quarters during that time frame, so think that's going to keep some pressure. And we also, to be honest, had begun to alter our processes around demos so that we could – rather than putting new units into demo inventory, we sustain the life of our demo inventory so we could deliver products into the hands of our customers. And so, as we start to normalize that, rotate that demo back out and sell that equipment via our used equipment business, I think we'll be able to bring inventory over time – down over time. And then I think on the receivables side, what's really going to help us there is, as the supply chain situation continues to improve and we can really start to linearize our revenue delivery within the quarter, that will help. And I think there is room for continued improvement there over time.

Okay. And it was slight, but the CapEx guidance came down a touch. Just wondering what drove that?

Well, similarly there, you think – the CapEx that you're seeing there is obviously the cash flow side of things. And again, with the supply chain situation, a lot of what we're seeing on the cash flow side is – were commitments that were made many months ago and to which we're starting to get delivery. We actually have seen our new commitments actually drop even further than what you've seen on the cash flow side of things as the supply chain situation is resolved. But we do expect CapEx cash flows to be high for the remainder of the year. Higher for the remainder of the year.

Thank you.

Thank you. The next question comes from the line of Matt Niknam with Deutsche Bank. Your line is now open.

Hey guys. Thanks for taking the question. Congrats on the quarter. I want to go back to gross margins, and maybe if we can talk a little bit about some of the drivers of upside. I think there was reference to product mix, if we can just go back to that and unpack that. And I'm also curious whether there were any software license sales in there that may not recur on a go-forward basis? And then just one follow-up as well on orders, if you could talk about the linearity over the course of the quarter and how that trended by month, if possible? Thanks.

Yes. Let me take the gross margin question, and then we'll have Mark address the orders question. I think on the gross margin side, again, on a year-over-year basis, it's primarily mix. And we do see a fair amount of movement in mix. Mix within the quarter can shift. But if you think about it in this particular situation, obviously, the shift towards higher recurring revenue is helping to the extent that those software revenues are sustained and stable in a period of time where revenues are – orders and revenue and demand for hardware is generally under pressure. I think that's a favorable shift on mix. And then probably even a bigger impact than that within the quarter is within the product shipments itself, it's skewed towards higher-end systems rather than lower end tools within the quarter is the best way to describe it. And particularly versus a year ago – versus prior quarters where we maybe have had an unfavorable mix shift towards high levels of [indiscernible] shipments, some of our lower-end products or things that can skew mix the other way. So, that's what we saw within quarter.

Yes. And Matt, as far as the order flow within the quarter, I would say it was very typical for a Q2 as the second period and the 6-month performance period, we saw it ramp throughout each of the 3 months. February is a shorter month, fewer selling days. As you get to the end of the performance period with our incentive comp and sales, we do expect a stronger finish, which is exactly what we saw. What I can say though was very consistent was the, kind of elevated level of customer engagement as customers prioritized on different programs that they felt were important going forward, and we saw that really is a stabilizing factor after coming out of Q1. So, we did see a ramp, but I wouldn't read anything more into that other than the natural seasonality of the Q2.

Got it. And just on the gross margins, any sort of abnormal software license sales in there to call out?

No.

Great. Thanks.

Thank you. The next question comes from the line of David Ridley-Lane with Bank of America. Your line is now open.

Thank you. Good evening. Maybe a little bit of a strategy question. So, as you've grown your automotive and EV battery business, are there some attractive adjacencies there? Would you consider inorganic investments to, kind of round out the offering? Or do you feel that you have, kind of the solutions that you need to keep up the growth there?

Yes. I think as we mentioned, automotive has been a fairly new vertical expansion for us, one that we focused on since Keysight was formed, and we have successfully grown that to over $500 million. And we continue to see even more opportunity to expand as there's going to be ongoing innovations in EV and AV, not only in automobiles, but in other sectors as well, with the push for autonomous and electrification even in a broader set of industries. And we're continuing to build the most comprehensive portfolio all the way from design to silicon bring up to simulation, validation, compliance testing and manufacturing with more emphasis on R&D, really. And we're helping create standards, we're also working on finding new methodologies for testing that will be disruptive. And to that extent, we've made a small technology tuck-ins that have enhanced our software content and ability to make contributions to the workflow in this area. And we see, as we think about our M&A, we see a strong pipeline for opportunities and we'll continue to evaluate them against our strategic and financial hurdles, and we'll look to lean in for the right opportunity.

Thank you for that. And then just a quick follow-up. How are your own lead times – as the supply chain has improved, how are your own lead times relative to pre-COVID history? Where do we stand on that? Thank you.

Yes. So still improving. For a significant part of the portfolio, we're already back. There's another significant chunk that should work its way back to kind of pre-COVID lead times here over the third quarter. And then there will continue to be some outliers beyond that, but we're rapidly moving in the right direction.

Good to hear. Thank you.

Thank you.

Thank you. That concludes our question-and-answer session for today. I would like to turn the call back to Jason Kary for any closing comments.

Thanks Elisa, and thanks everyone, for joining us today. That concludes our call, and we look forward to seeing you at some of the upcoming conferences here in the quarter.

This concludes our conference call. You may now disconnect.