Analysts here at Wells Fargo. Pleased to have with us Neil Daugherty, the Executive Vice President and CFO of Keysight. Neil, if you don't mind, I'm going to jump right in.
Absolutely.
We've talked quite a bit, and so Keysight's story is...
Could you turn down the mics just a touch? Thank you. Sorry about that.
No problem. Maybe it's me. Maybe let's just start at a high level. Can you talk about the CSG, the EISG, unpack those businesses a little bit? Because that's a common question I get. What's the drivers? So let's start there high level, and we walk through maybe the drivers. We'll talk about AI, we'll talk about the end markets. But maybe for the audience here and online, let's maybe unpack the model just a little bit on revenue.
Yeah. So business is organized into two operating segments: Communication Solutions and Industrial Solutions. On the communication side, we really have two businesses: one that's focused on commercial end markets, and then one that's focused on aerospace, defense, and government end markets. And those might not seem like they belong together, but the solutions that we're primarily providing into the defense and government space are communications in nature. So there's a lot of technology overlap between those two segments. And then if you kind of further break that down on the commercial side, you could largely think of that as there's a wireless business and a wireline business. And this has been a historic area of strength for Keysight, going back all the way to the days of Hewlett-Packard and Agilent. But back in history, we were really a physical layer tools provider.
Over the course of our 10-year history as an independent company, we made an exerted effort to move up the protocol stack, add increasing levels of software into those Communication Solutions. In 2015, we did an acquisition of a company called Anite that got us protocol layer solutions for wireless. In 2017, we bought a company called Ixia that got us protocol layer solutions for wireline. Now we really do service that communications ecosystem kind of end to end in both wireless and wireline, from the folks who make components and chipsets and kind of the underlying subcomponents that go into these systems to the folks that are making devices, whether that's wireless devices like tablets and handhelds, or it's network equipment like routers and network equipment that the Ciscos and Junipers make. Lots of touch points: network equipment, components, connectors, hyperscalers.
These are all customers of ours. And again, physical layer all the way up through the protocol layers. And then I was just going to touch on the industrial side. The industrial side of our business, we kind of manage in three smaller subgroupings. We have a semiconductor business, we have a business in automotive, and then we have kind of a catch-all group, which we call General Electronics, which really captures all the other industries that would be hiring electrical engineering talent and needing electrical engineering-based tools, hardware and software tools. And you could think of kind of the digitalization of all industries that is really the driver of that broader industry group.
So let's start on CSG. Let's go down wireless, wireline, the mix of that business between those two buckets today. And how do you think about the, how would you characterize the demand dynamics that you're seeing in the market? Because one thing, I'll put this out there, is that one thing that's always impressed me about Keysight is the diversity of your business is extremely remarkable.
Probably underappreciated.
Underappreciated. But wireless versus wireline and the growth vectors that you see there.
Yeah. So again, we have commercial communications, a wireless and a wireline business. The wireline business, I think, is our greatest area of strength in the current market environment, clearly inflecting positively with AI as the underlying driver of demand across the wireless wireline ecosystem. So again, we're selling to folks that are making network silicon. We're selling to the folks that are enabling transceiver development, the Lumentum, Eoptolink, and Coherent of the world. We're selling to the network equipment manufacturers like Cisco and Juniper. We sell to the hyperscalers. We sell to the connector guys like Amphenol and TE Connectivity. So the point that I'm trying to make there, and I'll make the same point in a minute when we talk about wireless, is lots of touch points across that ecosystem. We're helping with what I would call kind of underlying development.
By that, I specifically mean that the evolution of Ethernet speeds from 100 gigabit to 400 gigabit to 800 gigabit to 1.6 terabit, and now we're talking about 3.2 terabit Ethernet. But we're also helping directly with AI-specific applications. For example, with the hyperscalers today, we sell tools that help them model network data flows across the network in a lab environment before they make these big investments to deploy data center so that they can optimize those data flows and ultimately end up deploying a smaller but more efficient, i.e., less expensive network into operation.
That wireless versus wireline, that mix today is in that business?
Roughly 45% wireline today, 55% wireless. You can think of roughly $1 billion of wireline, excuse me, and a little bit north of that on the wireless side of things, and then just go ahead and switch to wireless. So similar type of environment where we sell broadly across the ecosystem to folks that are making components like Qualcomm and Broadcom and Murata and these folks. We sell to the device manufacturers like Samsung and Google and OPPO and Vivo and Xiaomi, all of the folks that are making handsets. We sell to the network equipment manufacturers, previously to Nokia, Ericsson, Huawei. Obviously, we don't sell to Huawei anymore, but it was kind of a three-player market. But with the advent of O-RAN, there are many, many more players that are now playing in that network equipment space.
And then we have a small business with the service providers as well. So that's kind of how that plays out. Primarily, both of those businesses, wireline and wireless, skew heavily towards R&D, more heavily than the company average, which itself is 55% R&D, but more R&D focused on the comms side than in the rest of the business.
70/30?
70/30, maybe 65/35, but in that range. That's the right way to think about it.
Yep, and the growth, before we go to the industrial side, because I'm ultimately kind of thinking about, because it's very hard to just talk about Keysight from just a total growth perspective, top down. I think you got to almost think about the verticals that you're in.
That's right.
And so, to me, and I had the opportunity to be on the road with you not too long ago, it sounded to me like we were at a point where the wireless businesses, call it, stabilized, and the wireline business has got a vector of growth right around this AI narrative. So, how do you think about CSG and total commercial communications growing, recovering after what we saw through COVID?
It's almost a reversal of what we were seeing a couple of years ago, where it was wireless that was driving the growth, and it was more stability and wireline. And we're now kind of on the other side of that, where it's this AI-driven investments in data center that is driving significant growth on the wireline side of things, whereas the wireless business, there's still a lot of investment going. This is a north of a $1 billion business for us. There's a lot of investment going into satellite communications, into O-RAN, into the additional revs of the standards. 18's recently been frozen, 19's underway. So they're working towards essentially 5G Advanced. So if you think back to, we did 3G, 3.5G, 3.9G, LTE Advanced, LTE Advanced Pro. We're still kind of on the first instantiation of 5G.
5G Advanced is coming, and people are investing to get ready for those things, and then early 6G research has also started, so there's a lot of investment that's happening in wireless right now. It's just stable. It's not growing currently. We'll see what the inflection is that kind of gets that going, but in the meantime, the commercial comms section's growing nicely because of the growth that we're seeing on the wireline side of the house, and I think that gets back to the diversification point you were making earlier.
Yeah, exactly. And it's hard for probably Keysight to, like, it feels like the AI narrative's there, but it's maybe hard to really say, like, AI is X% of your business. That's a fair point.
Yeah, that's right. I mean, we talk about wireline, and AI is the underlying driver of this roughly $1 billion wireline business. And there certainly are insertion points in there that are very clearly supporting the AI agenda. I've talked about what we're doing for the hyperscalers to help them model their data flows. There are things that we're doing into the NVIDIA ecosystem that are clearly tied to this. But a lot of it is also just kind of structural, right, to enable the overall evolution of wireline networks.
Yep. And we're bouncing all over the place here a little bit, and I can appreciate you sticking with me on this. The wireless business is stable. But if I look out over the next two years or three years, whatever that time horizon might look, is it O-RAN that becomes a growth driver? Is it a release cycle of 5G? Because these release cycles don't necessarily drive base station growth or anything like we saw in 5G. But are there things that actually you could see that say, hey, wireless goes from being stable to maybe growing?
I mean, I think there are definitely things that we could see. What it actually turns out to be will remain to be seen. But certainly, we're seeing waves of investment in O-RAN. We're seeing waves of investment in satellite communication. I think we're looking forward to AI at the edge could create a wave of investment. The Chinese are still talking about deploying millimeter wave. Whether or not they actually do it or not will be a question. But that could certainly create a wave of investment around higher frequency 5G. And then, of course, the revs of the standards. Rev 19 really focused on this 5G advanced that's going to create waves of investment as well. And then, again, 6G is already ramping for us. I would just characterize it as research rather than development. So capital R, little d, driven initially by academia, government institutes.
But we are starting to see market-making commercial customers start to staff teams focused on early 6G research as well. So nice growth coming from that as well.
Shifting over to the industrial piece of the business, the EISG business, maybe same kind of line of questions. Can you unpack that business? How much is auto? How much is semis? How do we break those end markets out a little bit?
Yeah. So if you thought about it, we haven't really sized them in a while, but if you thought about them as being roughly a third, a third, a third: general electronics, semiconductor, automotive, you wouldn't be far off. I think, particularly given the pullback that we've seen in automotive, you're probably maybe auto's a little bit smaller than a third, general electronics a little bit bigger than a third is kind of the way that I'd be thinking about that. And again, stepping through those end markets, I'll start with automotive since we've talked about that. I think that's the one area where we are seeing some significant weakness. You could think about our auto business itself. We could even further subsegment into three groups: manufacturing, which has been weak for a year or so, but as auto volumes are turning, we're somewhat agnostic. It doesn't need to be EV.
It could be EV. It could be hybrid. It could be ICE. As manufacturing volumes in auto come back, we would expect that business to rebound. Then the EV piece is experiencing some significant weakness. We're just selling R&D tools into battery lab development, is primarily what's happening. And I think low-cost Chinese batteries are disrupting that investment thesis for some of the OEMs. So I think over time, we'll see what happens with EV battery development, but there certainly will be opportunities in that space around charging infrastructure, around distributed grid, those types of things I think will continue to drive an opportunity.
The last piece is kind of a little bit of a catch-all, but in it, we would include things like autonomous driving, which I think over the longer term is going to be a big opportunity for Keysight, as well as all of the other electronic content that goes into the vehicle itself, whether that's infotainment systems or airbag triggers or eCall, tire pressure sensors. All of that electronic content needs to be designed, developed, tested.
Okay. So aerospace still weak.
Still weak.
We're looking for signs of stabilization, but not really seeing it at this point. The semiconductor business, sounds like there might be some improvement?
Yeah. Some improvement. I think we've seen some early signs of what will hopefully turn out to be a broader inflection. I think we're very much following kind of the industry commentary from the big foundry, the big semi-capital equipment manufacturers who are all signaling, you know, kind of calendar 2025 is a likely time for inflection. Now, we don't know whether that means January or November, but we're looking to calendar 2025. And again, we're starting to see some early signs of strength there. So we'll be watching. This business has a little bit more of a manufacturing focus versus R&D in a lot of the other segments. So we'll be watching new fab timelines, additional capacity in existing facilities. Those types of things would be the indicators that will ultimately drive that turnaround in semi.
And in that business, there's really kind of two bigger pieces that drive that. There's the test side.
That's right.
You've got a component piece of it.
Yeah. So we have two businesses within our semi offering. We make something called a parametric tester, which is a necessary step in the fab production process. And you can kind of think of it as the last step that gets done, almost like a check on the production process itself. Before they go and test the actual functional performance of the chips that they've manufactured, we're agnostic to that. They actually make some tests of the wafer itself, tests for how current flows across the wafer. It's almost a backward check on whether or not they've retained the recipe in their fab environment. And we have a highly differentiated position in that. And then we actually make a subcomponent that goes into these big photolithography machines.
It's essentially a 3D guidance system so that these things that are laying down the image know where they are across all dimensions vertically and in both directions on the horizontal plane.
I'm going to kind of wrap all this together. The question ultimately I get to is that you've got a long-term model framework, 5%-7% growth. You're coming off of a period of time where you, not different from other companies, had this abnormal backlog build and normalization. We've seen now a quarter or so where you've got order growth returning.
Yeah.
Right? So I mean, the sustainability of order growth in your mind is in a good place, and ultimately, 5%-7% growth, I mean, on a recovery basis, why couldn't it be more? Is what I'm getting at.
Yeah.
What's the vectors that could possibly on a recovery drive?
Yeah. It's a great question. So first of all, we just announced our Q4 FY24 earnings. We put out guidance for Q1, and we gave some indication as to how we're thinking about fiscal 2025. And our base case right now is around 5% revenue growth. Again, just to give an indication of how we're thinking about it. And the first thing I would say is relative to where we were even six months ago, it just feels like the business is a little bit less hand-to-mouth than we were, right? There's more degrees of freedom. Our funnels are improving. The rate of flow-through of transactions through our funnel is improving. Distributor inventories are improving. So there's these signs of improvement out there that give us confidence as we enter fiscal 2025.
At the same time, as we've just discussed, as you go through our end markets, there are areas of strength: wireline, aerospace defense, areas where we're bullish, optimistic about semiconductor. But that's kind of coupled with stability in wireline, which is, or wireless, which is a big business, pessimism in automotive, and general electronics, again, a heavily manufacturing business. We know a lot of capacity went in in 2021, 2022 that needs to be absorbed. And so it just right now doesn't feel like all of those markets are going to be in phase to enable growth significantly above that 5% in the immediate timeframe. Now, history would suggest in our business, when we do see a pullback, there often is more of a snapback in business. So we can't rule it out.
But right now, we're just not seeing kind of the stars align, if you will, across all of the end markets to drive that kind of a bounce back.
Yeah. That's a great explanation. So in the context of all your businesses too, and I should have maybe asked this earlier, is that the administration change that's happened and you are exposed to some of the government spending dynamics, how do you see that? I think when we talked a month or two ago, there's cautiousness around projects change, and is there things in flux there?
Yeah. I mean, I think as you think about the Trump administration coming in, probably the number one thing we'll watch is really more short-term than anything else, which is we do know that at change of administration, there can be some disruption to aerospace defense end markets. The good news is it doesn't tend to be demand destruction. It just is the new president comes in, they bring in their own teams, it can slow things down for a quarter or two. The good news is in the instances where that's happened in the past, there tends to be a catch-up, and so you don't actually lose that business. It's just kind of a short-term perturbation. We'll also be watching trade very carefully, and it's hard to know what's actually going to happen. Obviously, President-elect Trump has said some things about some pretty high levels of tariffs.
We'll see whether or not he implements tariffs at those levels or something that's more scaled back, and we'll be watching that carefully. I think the good news is we don't have a China-based supply chain. We don't manufacture ourselves in China. So at least from that perspective, I think we're somewhat protected, and we'll take a wait-and-see approach, and we'll evaluate as some of these broad campaign-based statements migrate from campaign statements to something that's more of implementable policy.
How about Mexico? Any supply chain?
No significant supply chain in Mexico either. Yeah.
Perfect. So from there, I want to go to kind of like one thing, Neil, we've talked about in the past. The company, when you go into downturn, I think it took a lot of pride in the fact that you could flex this business model, right? You had variable comp that makes up, I think the number is 10%. Walk us through, we see 5% growth this year. What do we have to think about in terms of getting back to that kind of longer-term operating margin model, which I think 31%-32%? How do you think about the factor of incremental leverage through the P&L?
Yeah. So I mean, I guess if there is a silver lining from a downturn, it's that for the first time as an independent company, we've been able to test our downside model, and we actually outperformed relative to the model that we put out there. Revenues, we had talked about a 10% downside model and organically we were down 12%. So we're down a little bit more, but managed within the operating margin parameters because of the flexibility of our cost structure. And so kind of a check-the-box, the model performed as or better than expected. I think as we now inflect back upwards or look forward to inflecting back upwards, we need to be on the lookout for some of those costs that flex down on the downside of the equation coming back in.
The variable pay programs will turn back on, and that'll become a little bit of a headwind from an expense standpoint. But as you saw in our comments and our most recent quarterly announcement, we guided the street to not a guide, but we talked about our base case scenario for the year being 5% revenue growth, 10% EPS growth. So aligned with the long-term model that we put out there. You had referenced some of the numbers that we put out at Analyst Day, 66%-67% gross margin, 31%-32% operating margin. And unfortunately, at the time that we made those statements in March of 2023, we didn't foresee what the subsequent 18 months were going to look like from a market perspective. So we are a little bit behind. Gross margins have held up pretty well considering the revenue pullback, but we're 26% operating margins today.
So I do think we're going to owe the street an update at some point. I think the good news is we're not backing away from those targets. I think we're going to likely have to push out the timeline on which they're realized, and that's ultimately going to be a function of the timing and shape of this recovery, which is just now starting to form. So I don't think we have enough information to put out a new timeline, but when the time is right, we'll do so.
Yeah, and I think you always, I think we've talked about the flex down works good when it's maybe a shorter duration of time, and now that it's maybe a little bit longer than what you thought as far as a downturn, it takes a little bit longer to get back up.
Yeah. There's two challenges, right? So there's great flex in the model, but you can't flex the same dollar twice. So that first year, you're taking a lot of cost out. When you get into the second year, there's not a further flex down. So we're now about six quarters in, and we're continuing to manage it. So the reason why we've had to take some incremental actions, I think our headcount, excluding the acquisitions that we've done, was down about 4% last year. So we've been taking some incremental actions to ensure performance to model. But now these things are going to turn back on and become a little bit of a headwind. But I think over the longer term, we stand by the model that we've put about, that we've talked about.
You grow our business mid-single digits, we can deliver 40% operating leverage, can continue to grow our operating margins, and if we do get a snapback, as you suggested, why can't it be higher? We'll see. Maybe it will be, but if we do get something that's a higher level of growth, then I think there's an opportunity for us to deliver upside.
Yep. That's perfect. Maybe I'll shift to the capital structure. Maybe I'll start by you're working through a larger acquisition. I'm not going to ask about that right now. But how do you think about you recently bought the Optical Solutions Group from Synopsys? How do you guys think about capital return versus balancing that on an M&A perspective? And then I'm going to ask you, how do you think about leverage on the balance sheet in that context as well?
Yeah. Happy to address it. So first of all, I like the word balance, right? We try and balance return of capital with M&A. And there was a period of time in the 2021, 2022 timeframe, while we had a robust funnel of opportunities, we really struggled to find targets of size that were actionable at price levels that enabled us to meet our return hurdles. So we were a little bit quieter for a period of time because there's a strong software bias to our M&A funnel, and you know what some of those software multiples are. And so even though as we entered what was a little bit of a down cycle for our own business, we started to see some targets that were actionable at more reasonable valuations.
We bought ESI, a pure software company, high recurring revenue for something closer to seven times revenue about a year ago, right? And so we want to make sure that we maintain that dry powder, that we're ready to execute on opportunities when they present themselves and when they meet our return hurdles. And that's what I think you saw us do with ESI. It's what you've seen us do with Spirent, a deal that's pending. And it's what you've seen us do with the Optical Solutions Group out of Synopsys, also a deal that's pending. I think as we look forward, we do have these acquisitions that we need to settle. I think we'll remain committed to at least two buybacks at the anti-dilutive level.
And then to the extent that we would do opportunistic buybacks above that, it's really going to be a function of how do we evaluate the benefit of doing that versus starting to stockpile some cash so that we can bring more cash to closing on these transactions. From a leverage perspective, you touched on that as well. We've talked about targeted gross leverage of approximately two turns of leverage. We're closer to one turn today. So there's a lot of capacity that exists within the business. And so we'll be trading all of those things off as it comes time to settle these acquisitions.
You'd be comfortable going above that leverage ratio for a period of time?
Yeah. Certainly for a period of time. I'd go back to the time that we bought Ixia back in 2017. We levered up to just over three times leverage. But within, I don't know, 12 or 14 months, we were back down to our two-times target. So we will step over our leverage target from time to time, but always with a plan to get back into the targeted leverage range within a relatively finite period of time.
So again, there's some things going on with the pending Spirent deal, so I'm not going to go down that path. But can you tell us a little bit about the Synopsys? What does that give you? What's the incremental opportunity you see in that Optical Solutions?
Yeah. Happy to talk about it. So if you went back to our Analyst Day again, March of 2023, we have a little bit over a $20 billion SAM that we currently play in. But Satish had highlighted four areas that were kind of targeted areas for our M&A strategy: data analytics, network analytics, software tests, and engineering software. We did an acquisition of a company called Eggplant in the software test space. We did an acquisition of ESI in the engineering software space. This Optical Solutions Group that we're going to get out of Synopsys is another engineering software tool, right? So Keysight has long had a presence in this space with our RF and microwave EDA tools. And what we recognize in the marketplace is that our engineering customers want to do more work in software before they build expensive prototypes.
And so we're trying to build a larger suite of emulation and simulation tools so that they can build more complete, more robust models and software before they build expensive prototypes. And so as we said, we had RF and microwave EDA. We got physical modeling tools in the computer-aided engineering space with the ESI acquisition. And now we're getting optical capability with this business that we're buying from Synopsys.
Yep. And how much is software of your business today?
Software and services combined are about 40%. Close to 25% of that is coming from software, and about 15% of that is coming from services.
The software component is predominantly what, subscription, like SaaS-able?
It's between the subscription license and the service component. We're probably approaching 60% ratable, and then a big chunk of the services business is ratable as well. So we estimate that across software and services, we have about 30% recurring revenue in the company. It's a mix of software and support.
That's perfect. So when we look at Keysight, I've always struggled a little bit because your competitive landscape is fairly fragmented, right? How do you characterize the competitive landscape? I know National Instruments oftentimes is referenced. They got bought by Emerson, but you didn't see them that much.
Yeah. They weren't. We didn't see them that much.
Who is your competitor?
Yeah. So I would agree it's a fragmented market. And I think one of the things that really differentiates Keysight from the competitors that we play against is the breadth of our portfolio, right? We talk about being able to service these ecosystems end-to-end, up and down the stack, a broad suite of tools. We focus on bringing complete solutions to market. And in order for our customers to build analogous solutions from our competitors, they might need to work with two or three different companies. So when we do think about our competitor set, it's companies like Rohde & Schwarz, a private German company that's strong in the communications space, and Anritsu, a public Japanese company, also strong in communications, but with a particular strength around handheld instrumentation. There's the Tektronix brand, which is part of Fortive. It's strong in one particular tool category called oscilloscopes.
It's a much more fragmented presence. There isn't really a competitor out there that has the breadth and scale of Keysight.
Yep. Yep. And again, I'm going to go back to kind of the we are in a backlog's normalized. We've talked in the past couple of quarters about extended, longer-dated backlog. Just help us think about where's backlog. Remind me again where backlog is.
$2.3 billion or $2.4 billion. I can't remember to the tenth, but it's $2.3 billion or $2.4 billion.
And that's inclusive of kind of the longer lead time backlog?
It's inclusive of recurring revenue. It's inclusive of deferred revenue. It's inclusive of the longer lead time backlog as well. That's right.
Okay, and because in the past, you've talked about your backlog number was more of a six-month.
It's still well over 90% of it is still that. This longer lead time business that we saw really kind of outpaced growth during this downturn, focused in automotive, focused in semi, focused in aerospace and defense. I think the aerospace and defense and semi components of that kind of remain robust, but the automotive part was really focused on this EV space when we have seen a significant pullback in those investments in the current environment.
I'm going to end with this kind of high-level question. As you're meeting with investors, I often find Keysight's diversity, the underlying various different growth drivers, the competitive landscape, makes it unique. You're a unique company in terms of that side. When you're talking with investors, where do you feel like the two or three things that are most underappreciated in the Keysight story?
Yeah. I mean, I think the fact that we're vertically integrated, the technology that is needed to provide instrumentation into the R&D labs of the best technology companies in the world, is unique. And so a lot of times, the underlying subcomponents that are needed are not commercially available, so we run our own fab. We do our own packaging technology so that we can get the level of performance that is necessary to enable the best technology companies in the world. And not only are we vertically integrated, we have a unique breadth of portfolio that I think is truly differentiating in this marketplace. We have an ability to spend on R&D at a level that's unprecedented. We're spending close to $900 million a year on R&D. That's the revenue line, or more than the revenue line for many of our competitors in this space.
And so the ability to invest, the customer intimacy, the diversity of our end markets, the breadth of our portfolio, all of these are significant differentiators for us in this marketplace and enabled us to have a number one position in these end markets for decades. It's been a position that we've been able to sustain. And particularly over the last 10 years, as we've once again been an independent company that's singularly focused on these end markets without the distractions of other businesses, we've been able to really increase growth, increase that customer intimacy, switch to this complete solutions software-focused framework that is having an impact on gross margins, it's having an impact on operating margins, on free cash flow, and the business is stronger than it's ever been.
Yeah, and I think one of the things that I don't feel is appreciated is, you mentioned there you have your own fab. This is complex stuff, right? You're dealing with high frequency. Your ability to leverage your own fab, producing your own silicon, that is a strategic advantage?
We're primarily doing in-house. We're doing Gallium arsenide, indium phosphide. We do have our own team of Silicon ASIC designers, but we would outsource the production of those to the big silicon foundries. But we do our own Gallium arsenide, indium phosphide chips in-house.
Anything I should have asked you that I did not?
I mean, I think we've hit on the big things. It does feel like I hesitate to use the word inflection at this point, but things are clearly improving. I said earlier that it feels like the business is less hand-to-mouth. I feel like there's reason for optimism here as we enter FY25, and I think the one thing that Keysight has proven over the years is our ability to execute, and so once the markets recover, I'm confident in our ability to capture that market upside, to turn that market upside into operating leverage, deliver profit, deliver cash flow, and so a little bit of a wait-and-see game here on the timing of some of these market inflections, but we're well positioned. We've continued to invest through the downturn. We've maintained our R&D investment through the downturn.
So we've got a rich pipeline of new products that are set to come out and are really positioned well as markets start to inflect.
Perfect. Thank you so much.
Thank you.
Appreciate it.
Take care.