National Instruments Corporation

Good day, and thank you for standing by. Welcome to the Q1 2022 NITI Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Marissa Vaddari, Head of Investor Relations and I. Please go ahead.

Good afternoon. Thank you for joining our Q1 2022 earnings call. I'm joined today by Eric Starkloff, President and Chief Executive Officer, and Karen Rapp, Chief Financial Officer. We will start with an update on our performance in the quarter before opening up for your questions. Our discussion today will include forward-looking statements, including without limitation, those regarding revenue, earnings, gross margin, operating expenses, capital allocation, targets, and future business outlook and guidance, including expected demand for our products, supply chain constraints, backlogs, impact of ROAR in Europe, COVID-19, and related shutdowns in our software licensing model transition. successful integration of the acquisitions and future results of acquired companies, execution on our strategy and achievement of our financial targets. We wish to caution you that such statements are just predictions and that actual events or results may differ materially and could be negatively impacted by numerous factors. We refer you to the documents that the company files regularly with the Securities and Exchange Commission, including the company's annual report on Form 10-K, filed on February 22, 2022. These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward-looking statement. We assume no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations. A reconciliation of our non-GAAP financial measures disclosed in this call to the most directly comparable GAAP financial measures or related disclosures are contained in our press release and on ni.com slash natty. You can find the press release and quarterly presentation to supplement today's discussion on our website at ni.com slash natty. On March 31st, we announced a definitive agreement to purchase the test systems business of Crasser Automation AG, a European leader in providing holistic customer solutions for electric vehicles. We believe that this investment, along with others we have made in this space, will help accelerate our ability to serve customers in the high-growth area of vehicle electrification. The acquisition is expected to add 2% revenue growth during calendar year 2022. We purchased the test systems business of Kratzer for approximately $59 million. We view this business as a tech-in with no immediate cost synergies. However, this acquisition does contribute to our software technology roadmap, and we believe puts us in a leadership position for vehicle electrification test systems. The deal is expected to be accretive to our financial results in the calendar year 2023 due to revenue synergies. NI will fund this transaction through cash drawn from its existing revolving credit facility. The deal is subject to statutory approval and is expected to close in May 2022 with approximately 200 employees joining NI. In the coming months, NI Management will be hosting meetings at the conferences for Cohen and Bank of America. Please visit ni.com slash natty for presentation times. We look forward to speaking with you. With that, I will now turn the call over to Chief Executive Officer Eric Starkloff.

Thank you, Marissa. Good afternoon. Appreciate everyone joining us today. In addition to reviewing our performance in the first quarter, we plan to discuss a few other items on the call today. First, I'll take some time to talk about the technology attributes that set NI apart from our competition, that have driven our recent growth, and that we believe will fuel our growth into the future. Karen will then discuss overall financial performance in the first quarter as well as provide guidance for Q2. And then I'll come back to provide an update to our long-term model that focuses on revenue growth, outpacing the test and measurement market, and a commitment to a steady and sustained increase in operating margins. But before we get into those details, I want to share about our performance in Q1. Demand for our products was exceptionally strong. The proof point for this strong demand can be seen in our year-over-year order growth during the quarter, which accelerated to 27% growth year-over-year over a strong Q1 2021 and was well ahead of our expectations. Our bookings growth was a record for first quarter and is a leading indicator of our business and a result of our strategy. While demand was very strong, we reported revenue at the low end of our guidance. The unplanned suspension of business in Russia, as well as the pandemic-related shutdown in Shanghai at the end of the quarter, caused our revenue to be below the midpoint. A shortfall in delivery of specific components from one of our key suppliers limited our ability to offset these headwinds. Despite the unplanned top-line challenges, we delivered record revenue for our first quarter with 15% growth year-over-year and 28% growth in non-GAAP earnings per share. The strong demand, double-digit revenue growth, and strong earnings growth in Q1 was a continuation of our strengthening performance over the past five quarters. So I'd like to spend a moment to explain why we believe our business is strong and resilient and why we believe the momentum will continue. What truly differentiates NI and what's been driving our recent performance is our focus on two key factors. First, we provide flexible and modular test solutions that enable our customers to increase their ability to constantly evolve their testing systems and get to market faster. We believe NI's extensive modular capability provides the fastest performance and lowest cost of tests available today. This is an essential capability, especially for those customers in markets where the technology is quickly changing, such as electric and autonomous vehicles, wireless communications, and new space technologies. We believe we have the best product architecture to adapt to these changing customer needs, and it's our focus on these high growth areas that we expect will provide resiliency and contribute to our ability to grow faster than the test and measurement market. Second is our open and interoperable software offering, which sits atop both NI's hardware as well as the instruments from our peers and competitors. This software enables our customers to automate their test processes. Increasingly complex and fast-changing devices require highly automated test systems to ensure their functionality and quality. This comprehensive automation capability is unique to NI and enables our customers to rapidly bring their products to market and evolve them over time. We have the largest footprint of this test automation software in our industry. We plan to build upon this foundation to fuel our growth today and into the future. Now on to our industry results for the first quarter. Our areas of intentional focus are exceeding our expectations. We believe this is a proof point that we're focused on the industries with the highest growth potential. In the first quarter, we delivered double-digit order growth across all business units and across all regions. Semiconductor and electronics had record revenue for Q1 at $103 million, up 4% year-over-year, with orders up 38% year-over-year. The focus areas of 5G and wireless communications drives roughly half of semi-electronic business. Transportation had record revenue for Q1, both organically and all-in, at $63 million, up 32% year-over-year. Order growth in transportation was 38% year-over-year. Our shift in focus to electrification and ADAS, where our customers are making significant investments, has changed the trajectory of this business. In Q1, EV and ADAS represented approximately 40% of our transportation business, and we expect we'll exceed 50% of our transportation business later this year. One example of a recent customer win was at NIO, a Chinese multinational automobile manufacturer, where they are leveraging NIS hardware in the loop systems to test the ADAS functionality for an upcoming vehicle with level 4 autonomy. Based on these systems, Neil expects a shortened time to market for the mass production of this upcoming vehicle platform. Aerospace defense and government revenue was $93 million, up 22% year-over-year, with orders up 20% year-over-year. This business remains a steady and profitable growth engine and delivered record orders and record revenue for first quarter. The success is led by strength in defense applications and new space technology investments like launch vehicles and satellites. And our portfolio business, which represents the majority of our broad-based customers, achieved record revenue for a first quarter of $127 million, up 13% year-over-year, with orders up 16% year-over-year. Our focus on optimizing our digital channel and utilizing global distribution to better position our offerings to these broad customers has gained traction, further providing leverage and scale in this portion of our business. And our transition to software subscription is also improving the resiliency and the long-term growth opportunities in this business. Across the industries we serve, our business is well positioned in both R&D validation and in production test. We estimate that approximately 60% of our business is in R&D, with 40% in production. Our software and data analytics platform enable us to uniquely drive value across those areas. Now more than ever, our customers are facing fast-paced technology shifts, and our highly flexible and modular test solutions and the increased need for software automation gives us confidence in our ability to continue to outpace the test and measurement market. With that, I'll turn it over to Karen to discuss our Q1 results as well as our outlook for Q2. Karen?

Thanks, Eric. Hello, everyone. Q1 gap revenue was a Q1 record at $385 million, up 15% year over year, and better than historic seasonality. Approximately 3% of Q1 revenue was from our recent acquisitions. Demand was strong, with record orders for a Q1 up 27% year-over-year on a strong compare. For the first quarter, orders were up 40% year-over-year in the Americas, up 22% year-over-year in EMEA, and up 17% year-over-year in Asia Pacific. We ended the quarter with backlog just over $200 million, with competitive lead times of approximately seven to eight weeks. We continue to see minimal cancellations in our backlog, which provides confidence that this backlog will ultimately translate into revenue. In Q1, we generated $31 million of gap operating income and $66 million of non-gap operating income, a record for a first quarter, translating into non-gap operating margin of 17% for the quarter, the highest operating margin for a first quarter in more than 10 years. Q1 non-gap gross margin was 71%, down 4% year over year, driven primarily by broker pricing for difficult to find components. We expect these temporary headwinds to continue while the supply chain remains constrained. We also continue to incur higher than normal freight costs due to global logistics challenges resulting from the pandemic. We have offset approximately 100 basis points of gross margin headwinds through increases in pricing. While we expect our software transition to subscription-based licenses to increase our recurring revenue and cash flow over time, We do expect approximately $30 million of negative impact to our sales and operating profits during 2022, and we've built that into our guidance. We're on track with the transition so far as our customers recognize the value of our software. The learnings over these last couple of months have given us confidence in our ability to continue to convert our customers as their licenses renew throughout the year. Additionally, we believe this transition has the potential to increase software revenue over time. We reported Q1 gap net income of $25 million and diluted earnings per share of 19 cents. We reported record Q1 non-gap net income of $54 million and record diluted non-gap earnings per share of 41 cents, an increase of 28% year-over-year. The actions we have taken to increase scale into our business model enabled us to deliver earnings growth that exceeded our revenue growth year-over-year in Q1. Now let me comment on capital management. Our balance sheet remains strong with $143 million of cash at the end of the first quarter. Cash flow from operations was minus $4 million in the first quarter. Our variable compensation plans pay out in Q1, and we continue to build inventory for future revenue. In the first quarter, we returned $68 million to shareholders through dividends and share repurchases. We repurchased approximately 772,000 shares at an average price of $40.74, keeping our share count essentially flat to Q1 2021. The NI Board of Directors approved a quarterly dividend of $0.28 per share, payable on May 31, 2022, to stockholders of record on May 9, 2022. Our capital allocation strategy remains balanced. We will continue to invest in organic capabilities to ensure we stay ahead of our customers' technology needs. We will also prioritize inorganic investments that strategically align to the business in order to accelerate growth. Now shifting to guidance for Q2. Our demand outlook remains strong for the second quarter with over 20% ordered growth to date here in the second quarter. But we expect the Q1 revenue headwinds to continue into Q2 as our ability to procure all necessary components remains constrained. For the second quarter of 2022, we expect revenue to be in the range of $370 million to $410 million.

At the midpoint, this represents 12% revenue growth year-over-year and includes approximately $4 to $6 million for the practice or acquisition.

While this is a fluid situation that's both difficult to predict and quantify with precision, our guidance assumes that the short delivery of specific components from one of our key suppliers does not improve for the duration of the quarter. Our guidance takes into consideration the best information we know today about the deliveries from our suppliers. We firmly see the growth and backlog as a revenue timing issue only. Our confidence in customer demand and our ability to ultimately realize this revenue when the supply chain disruptions ultimately ease remains strong. Because our solutions are a capital expense and provide unique capabilities for our customers, We do not typically incur any double ordering risk and have not seen anything that would indicate a change to that historic pattern. We expect Q2 gross margin to decline 100 to 150 basis points from Q1. Our acquisition mix adds approximately 120 basis points of decline in addition to the continued headwinds from broker component pricing and increased freight costs. We're taking numerous actions to mitigate these headwinds, including increasing prices, adding new suppliers, redesigning products to use available components, and promoting alternate products with similar capabilities. We continue to increase the portion of our operating expenses that are variable and are actively managing costs to drive improved efficiency across the business. We expect operating expenses to increase $8 to $10 million sequentially from Q1 due to a full quarter of salary increases, the return of our in-person customer event, and our recent acquisitions. We expect Q2 to be the peak for operating expenses for the year as we drive additional sales during the year. We expect GAAP diluted earnings per share in the range of a penny to 15 cents for Q2 and with non-GAAP diluted earnings per share expected to be in the range of $0.25 to $0.39, a decrease of 9% year-over-year at the midpoint. We expect our tax rate in 2022 to be between 16% to 17%. Given the temporary headwinds we've encountered and the resulting impact on our Q1 and Q2 results, I want to comment on our full outlook for the year for 2022. At the midpoint of our guidance for Q2, revenue growth would be 14% year over year for the first half. We expect demand to remain strong, but found specific components to be more of a constraint than we originally expected. Given that constraint, we are widening our range for revenue growth for the full year to 12% to 18%. We still believe we have line of sight to the top end of the range. The low end of the range assumes supply constraints, and in particular, the highly constrained supply from one of our key suppliers remain as challenging as we experienced in Q1. Given the strong demand, at the low end of the range, we would expect significant additional backlog to carry over 2023 revenue. We remain confident in our strategy, the resiliency we are creating in our business, and the stability of our backlog. We also remain focused on delivering leverage in the business, and we are committed to 100 basis points improvement in non-GAAP operating margin in 2022. This would achieve approximately 20% operating margin at the low end of our revenue outlook. Eric, back to you.

Thank you, Karen. I'd like to turn now to our longer-term business model. As we discussed on several prior calls, we expect that the strength in our markets and our operational focus is allowing us to reach our 2023 financial goals a year ahead of their originally communicated schedule. Given the strength we've seen and the structural changes we've made in our business to enable better scale and leverage, we have set our sights on our next set of long-term business objectives. It's outlined on slide eight in our investor presentation. We remain focused on margin expansion and see an opportunity to meaningfully increase our operating margins over time based on the changes we've made. In our model, we are committing to an increase of our non-gap operating margin of 100 basis points each year from 2022 through 2025. Our focus on high-growth areas such as electric and autonomous vehicles, wireless communication, and new space technology brings us confidence in our ability to grow faster than the overall test and measurement market. The flexible modular test solutions we provide built on our leading interoperable software that enables customers to automate their test processes and bring their products to market faster and with higher quality. We take our commitments to shareholders seriously and considered a wide range of market scenarios when drafting these targets. Despite the short-term headwinds to reported revenue from the supply chain issues, we remain confident in our forward long-term growth trajectory and our ability to deliver sustainable share gains. I'm confident we can achieve the operating leverage goal, for example, even in a scenario that contains a meaningful downturn. I'll end by thanking our employees for their hard work and perseverance. They are working tirelessly to make our customers successful and are driving incredible demand for our products and systems. And our employees in manufacturing and operations in particular are dealing with unprecedented challenges to manage a difficult supply chain situation while continuing to deliver for our customers. Thank you all. With that, we'll now take your questions.

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound keys. We ask that you please limit yourselves to one question and one follow-up question. You are welcome to get back into the queue if you have any further questions. Please stand by while we compile the Q&A roster. Our first question comes from the line of Mehta Marshall from Morgan Stanley. Your line is now open.

Great. Thanks. I appreciate that. Maybe as a first question for me, you know, just maybe isolating the the Russia and Shanghai headwinds, and maybe separating that from the supply chain, if we could just kind of isolate what you would identify as kind of both of those buckets throughout the quarter, and then just kind of what the accompanying gross margin headwind would be from maybe those two different buckets as the first question.

Yeah, sure. This is Karen. Hi. We had guided a midpoint of about $400 million revenue for Q1 and came in about $15 million short to that. The impact of not being able to ship into Russia and shutting down that business as well as the COVID shutdowns that happened in Shanghai at the very end of the quarter contributed to the majority of that miss. So that did represent that in normal quarters when supply is not constrained, we'd have had ways to use other levers to offset that, and unfortunately we ran into a situation where we had a supplier who – under delivered on what we were expecting this quarter, and that shortfall caused us to not be able to offset those misses from those two factors. From a gross margin perspective, our products generally have a pretty consistent gross margin across So there's not a significant gross margin impact for those specifically. The gross margin impact this quarter was almost entirely due to broker pricing being much higher than what we would see for average prices on our parts. And that flowed through at about, that was the 4% of the decline we saw in gross margin in Q1. And we do expect that to continue into Q2 and beyond.

Got it. And so then when we think about just kind of the reduction in the range going or the widening of the range going forward, would you attribute both of that to supply chain or should we say 100 basis points of that is also Russia? I just want to make sure that we're kind of attributing things correctly throughout the year just as we think about the remainder of the year in your guide.

Yeah, we sized Russia. So last year, the revenue we shipped into Russia was about 1% of our revenue. In the scheme of things, the supply chain impact outweighs that. So, you know, whether... I wouldn't ascribe too much to the Russia situation. It was more of a short-term surprise that happened in Q1. We had built guidance without knowing that that was going to change. And I think that was what we were trying to get to there, is that there was some unexpected things that happened in Q1. Now that we're aware of those situations, we've built that into the future.

it's similar just to comment on that meta um it's it's similar to your question on the on the quarter you know the one percent impact from russia the sort of 15 million from russia and china um you know our our demand was higher than expected and and has remained higher than expected and so all things being equal you know we would be more optimistic about uh about the revenue for the year so it really does in the end come down to the supply constraint is the thing that's primarily uh constraining and then we wanted to be kind of particularly transparent in this environment, and that's why, you know, we put a lower end on the range that, as we said in the prepared remarks, assumes that this situation that got worse and concentrated around a particular supplier in Q1, that it remains that bad for the rest of the year, and that's what would result in the low end of that range.

Okay, perfect. I will hand it off.

Thanks. Thank you.

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

Yes, good afternoon, and thank you very much for taking the questions. I was hoping to better understand the underlying cause of the supplier, the key supplier that was unable to ship to you. Is this a situation where they're located in Shanghai and they couldn't get their employees in to make whatever product they were supposed to supply, or is there some other underlying cause that was causing them to underdeliver?

Yeah, Mark, it's Karen. As far as we know, it's not attributable to Shanghai or that situation. It's a handful of parts, things like FPGAs and programmable logic devices, things that you see others also having trouble meeting that level of demand right now. So I don't think we're alone in that. In not getting that supply, it was just the impact of it was a fraction of what we had expected to get. It was a significant miss to what we were expecting to get is the issue.

Okay. And then I guess in terms of the elevated broker purchases that we saw in the quarter, was that broad-based across a number of components, or was that also kind of associated with these handful of parts that you thought you were going to get and you didn't get them, so you had to go try and offset it with some broker buys? I'm trying to figure out how linked those are, or again, or is the broker buy more of a broad-based phenomenon?

Yeah, it was certainly related to the ones that we were not able to receive, but it is a little broader, right? There still continues to be shortfalls across the supply chain, and we felt like we were in a good position for the rest of those parts to meet our guidance for Q1. It was really not being able to fill that full gap on the ones that we couldn't get.

Mark, just a comment. If we zoom out kind of consistent with commentary we've given before, if you recall that we started off this thing five, six quarters ago. It was a really broad-based set of shortages that we had, 1,000-plus shortages. Our team's done a really good job kind of managing that situation, getting ahead of that situation, building inventory to address that situation. Over the past couple of quarters, we've characterized it as a smaller and smaller number of components. I think I said a couple of handfuls, maybe on the last call. So that's continued to be the environment. As Karen said, these broker buys tend to be on those couple of handfuls. And then we have this sort of particular situation with a set of parts from one supplier that was fairly acute in this quarter. But I think that's consistent with the way the trajectory of the way this has evolved over time. It just did affect us more in Q1 than our expectation coming into the quarter.

If I could just take one last question. The acquisition, the 2% of revenue, I assume that's just the part of the year as part of NI. So could you just size what that is for the full year on a revenue basis, and then what are the gross and EBIT margins of the acquisition so we can think through the modeling of that?

Thank you. Mark, it is actually on the full year. The 2% I sized is 2% of the total year revenue. just to put it in context, even though it's not intended to close until Q2. So we also did say that it won't be accretive in Q1. It's not terribly negative, but it won't benefit on the bottom line. In 2022, it's actually when we start seeing the benefit of the synergies on the revenue side. We believe we talked about how this is a software solution in electric vehicles. They bring a services capability that takes us to the next level and really puts us in a leading position across the entire EV platform. The revenue synergies that we're expecting from this are going to show primarily in 2023, and at that point it becomes accretive to the bottom line and more in line with what we expect across NI overall.

Thank you.

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

Yes, good evening. Thanks for taking the question. I just wanted to be clear. You know, we've talked about Russia, China in group order. And are you actually – and China happened – you know, the shutdowns happened late in the quarter. Are you actually dialing in any kind of headwind from China? Are you having difficulty – you know, having revenue recognized or shipping into that region?

Yeah, this is Karen. There's some of that built into the guide. We do anticipate Shanghai opening up within the quarter. What's hard to predict is what happens after that in China. But what's helpful is that it's region by region and not broad-based overall China. The situation we had at the end of the quarter is Shanghai is our main hub for customs. The in and out that goes through there was a significant impact at the end of the quarter. What we aren't able to size is what might happen in Q2 if anything extends there or has an impact in a different way.

I guess the question is, how did you account for that in the guidance?

It's one of the reasons we widened the range, because of the uncertainty that we see there.

Okay. The thing that impacted us so much in Q1, Rob, was that it hit right at the end of the quarter. And so, you know, if it had happened mid-quarter, we feel like that sort of would have been a disruption we could have overcome. But it was obviously the last six weeks or four weeks of the quarter, so that was pretty challenging.

Okay. So, but you're assuming it kind of reopens mid-quarter as well, right? Eric, could you color in some of the semi-test orders that look quite strong, 38%? Just provide some added color there. What parts of semi-test are you seeing the strength in?

Yeah, sure, Rob. And I think just to comment more broadly and then go into Semi, I mean, really pleased, as we said in the remarks, about the order growth and the strength of the strategy and really the places where we're focused are exceeding our expectations. You know, the 27% order growth in Q1 compares to a 19% order growth in a previous year. So really a growth on strong growth. And like I said, it's in the areas we're focused. So in SEMI, by the way, I wouldn't read a ton into the delta between orders and revenue. I know it was biggest in SEMI, but that's kind of a mix of product issue and something that will even out over time in our opinion. But the strength in SEMI was in the areas of focus around wireless. 5G and wireless, so it's 5G, but also some of the new wireless standards as well. And we've seen good, good wins in both additional production deployments. It's been very, very successful and continues to be robust. And then, you know, increasingly we have more and more focus on expanding our lab presence. And we've got some new offerings that we're bringing to market in the lab space to sort of standardize the equipment in the labs. again, for a lot of wireless and mixed signal parts, and pleased with the performance on that side of the business as well. And Semi, you know, that's a continuation of a pretty long string of successes. You know, that's been a real growth area for us for a number of years now, and so that momentum has just continued. The last comment I'll make on that is sort of the regionalization, if you will, of the Semi markets is a tailwind. In other words, the investments that are going in in different countries to build semiconductor capability, to build design capability, to build new labs and so forth, we see that as a tailwind and something that we've been able to capitalize on.

Was the 5G-related wind that you spoke to, was that mid-band or?

millimeter wave or how would you characterize that? It's mostly still in the sort of sub-six range. As we said before, we have capability in millimeter wave. We're starting to see some pickup of that. We have new capability coming. We'll actually be demonstrating some new capability with a leading customer at NI Connect coming up next month in that space. But most of the current success is still in the sub-six frequency bands. Okay. Very good. Thank you. Thanks, Rob.

Thank you. Our next question comes from the line of William Kerwin from Morningstar. Your line is now open.

Hi, all, and thanks for taking the question. I just wanted to bring it back to the Kratzer acquisition and kind of in a broader sense, you know, I know you've talked about the revenue synergies expected, but I'm curious how you see the actual software and products aligning between that and the existing NI portfolio and, if any, what applications you might now be able to target that you couldn't previously. And then I have a quick follow-up.

Okay. Thanks, William. Yeah, we're really excited about this deal. We think it's a great fit. You've seen that our strategy to focus on electrification, electric vehicles, has been something we've been investing in quite a bit organically and inorganically. What Kratzer brings is two major things. So one is a software portfolio that's fairly application-specific around battery and other EV components. And we think that is a very good match. It helps to accelerate capabilities that we were building, frankly, in that same space. And then the other capability that Kratzer has is really deep application expertise and services expertise with a very intimate relationship with top OEMs in Europe. And so they are really shoulder to shoulder with those OEMs in building these kind of systems. And so that fits very, very well with our portfolio, which now includes a whole set of software capability, analytics capability, the core test systems and measurement systems, and with the two deals that we did previously, the high-powered electronics that are used for primarily battery and inverter testing. So that's the focus. It's a high-growth market. and it's an area that we're growing significantly faster. So it's an area that's growing kind of low triple digits for us.

Excellent. And then I assume that the new guidance range is inclusive of that 2% contribution, and then also curious if there's any change to kind of the long-term thinking of the growth in the transportation business unit with that. Thank you.

Yeah, I'll take that. So, yeah, the guidance does include that, and that range includes it. And then certainly our expectations of growth are edging up in transportation. We're seeing that certainly in the performance from this quarter and then investments we're making in EV. So that is an expectation of forward performance, that that's going to be a high-growth segment for us for the next few years. I'll also just comment on the overall outlook. We said it briefly, but You know, we talked a bit about the range and extending the range on the revenue for the year. As Karen said, this is really a timing issue. It's supply constraints, timing issue. It's our position that at the low end of that range, if we were to be at the low end due to supply constraints, that that revenue would effectively shift into 2023, be recognized in 2023. So drive a higher growth rate in the out year, if you will. So that's our expectation.

I need a follow-up for him? No, that's it. Thanks. Okay.

As a reminder, to ask a question, you will need to press star 1 on your telephone. Our next question comes from the line of Mark Delaney from Goldman Sachs. Your line is now open.

Yep. Thanks for the follow-up opportunity. The EBIT margin guidance out through 2025, you spoke about doing 100 BIPs per year. I was hoping you could help us understand how variable that may be relative to different revenue growth assumptions. Is the idea that if revenue is faster, maybe you're going to invest a bit more, or you kind of talked about the variable nature of some op-backs, so just trying to better sensitize that EBIT margin progression with revenue growth.

Yeah, I'll comment on that, and Karen, you can certainly chime in. Mark, yeah, so first of all, we wanted to be clear that we intend to meet that expectation in a range of revenue scenarios, and as I said, including a meaningful downturn. So that would include, you know, something like an industrial downturn or a turn in the cycle of the semi-industry. Those are things that are contemplated in a range of revenue scenarios that we believe we can achieve that margin growth To your point about at the higher end, you know, certainly we're going to strive for growth above the market, and we'll see what the market conditions are over the next few years. But in higher growth scenarios, we'll do exactly what you described. We'll evaluate the sort of investment opportunities for growth and the opportunity for flow through to be above that target in a higher growth scenario. But we wanted to commit to something that we could achieve in that full range.

That's helpful. And then one last one from me, if I could. Sure. And circling back on the supply constraints, you talked about FPGAs as an example, but I'm just trying to understand, is there a linkage we should be thinking of with some of the shutdowns like in Shanghai with the FPGA issue, or are those really distinct events? You mentioned that before.

Go ahead, Tara. Mark, I'm not seeing that be the cause at this point. I guess that could change depending on what part of China gets shut down in the future potentially. But at this point, that's not been the reason for the shortfall. I think it's literally just capacity shortfalls and possibly some of the older technologies that these are built on causing limitations for getting supply out.

Okay. Thank you for clarifying. I appreciate it. Sure. Thank you.

Thank you. Our next question comes in the line with Samik Chatterjee from J.P. Morgan. Your line is now open.

Hi. This is Angela Jentz on for Samik Chatterjee. I had a question sort of concerning the price increases. I saw in the presentation that you posted that there was about a 4% revenue contribution to the price increases. And so just thinking through that, are all the price increases you've implemented recently now flowing through, or are you still sort of working through that backlog and it's partly flowing through? And then plus you mentioned that you'll be implementing more price increases, but just trying to think about the cadence of that and thinking about how that might contribute to your full-year revenue outlook going forward.

Yeah, Angela, thanks. This is Karen. Yeah, you're right. It was about a 4% increase to revenue from the increases that we've already put in place. We did price increases in 2021, and we did another one in February of 2022. The one in February of 2022 will take some time to realize the full impact of that, so we will see that tailwind going through the rest of this year as a result of those increases as well.

Got it. And then just thinking about the full range of the revenue outlook, that 12% to 18%, if we strip out the acquisitions from your growth, looking at organic growth, are you expecting more of that growth to be driven by your pricing or maybe your unit volume or any color there would be appreciated? Thanks.

Sure, yeah. So we saw about 3% in Q1 from acquisitions. When I bring in the full year, the rest of Kratzer coming in, plus having a full year of NH Research and Heinzinger, the rest of the year, I'm estimating about a 6% in organic growth in revenue from the acquisitions that we've done. So depending on where we end in the range, about 6% from acquisitions. I think the price increase, you know, 4% in the first quarter will continue to expand a little bit. And then the rest of the growth will be completely dependent on supply and where that comes in with our ability to ship. I do think demand is going to continue to be strong. And as Eric mentioned, if we go out of the year at the low end of the revenue, lower at the 12% or so, we'd be potentially looking at about $100 million to $150 million more sitting in back into 2023 as revenue for that year. It really does just become a timing issue.

Got it. Yeah, that's all for me. Thank you.

Thank you.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Eric Starkloff. and I, CEO and President, for closing remarks.

Thank you all for joining us today. Thanks for your questions, and have a great afternoon.

This concludes today's conference call. Thanks for participating. You may now disconnect.