Keysight Technologies Inc.

Q4 2021 Earnings Conference Call


spk_0: the radio can gentlemen welcome to the key site technologies just go fourth quarter twenty twenty one earnings conference call my name is catherine be lead operator today after the presentation the work that a question and answer session if you like to ask a question please by star older than him a one on the telephone keep that to withdraw your question please press the pound sign if it any time during the conference in each region operator please press the star far by zero least another two days call it being recorded today monday of a bridge when she said get when she twenty one and one thirty pacific time i would not know like to hand the call over states and carry vice president treasure as you're an investor relations please go ahead with you carry
spk_1: thank you and welcome everyone vicky sites fourth quarter earnings conference call for fiscal year two thousand and twenty one joining me around your stephen king so it's german president and ceo and doggy are cfl joining us in the queue and a session will be city's gonna shake shaker on chief operating officer and mike wallace senior vice president of global say sales you can find the press release and information to supplement today's discussion on our website and investor that key site dot com while there please click on the link for quarterly reports under the financial information tab there you will find an investor presentation along with key side segment results following this conference call we were post to copy of the prepared remarks to the website today's comments by ron and the will refer to non gap financial measures we will also make references decor growth which excludes the impact of currency movements and acquisitions or divestitures completed within the last twelve months you will find the most directly comparable gap financial metrics and reconciliation on our website all comparisons are on a year over year basis unless otherwise noted we will make forward looking statements about the financial performance or the company on today's call these statements are subject to risks and uncertainties and are only valid as of today the company assumed no obligation to update them please review the company's recent fcc filings for a more more complete picture of are risks and other factors lastly i would note that management is scheduled to participate in upcoming investor conferences in december hosted by credit suisse wells fargo and barclays and now i will turn the call or with iran
spk_2: aggregating and thank you all for joining us can deliberate a record quarter and fiscal year strong demand for our portfolio differentiated solutions as fuel and continued momentum across all of our and markets today of focus my comments on forty at life
spk_1: first the man for keepsakes differentiated solutions continues to be very strong that ordered exceeding expectations a standing order growth a twenty one percent in the fourth quarter topped off an excellent fiscal year or be group eighteen percent
spk_2: the man continues to be balanced across our business with double digit games across all and market and wages
spk_1: both in the fourth quarter and for the full fiscal year second we delivered outstanding coupon resolve despite a tightening supply environment exceptional execution by keith thought employs around the world resulted in the record revenue gross margin operating margin and earnings per share for the fourth quarter and for the fiscal year two twenty twenty one third the enter twenty twenty two with strong momentum robust and market demand and record backlog assuming a loosening up the supply situation in the second half of the calendar year we expect fiscal year two thousand and twenty two revenue growth of six to seven or so a while delivering ten percent earnings growth the on twenty twenty two we're increasingly confident in our ability to go under sustained above market result the the establish a strong track record of execution and are competitive position or and over the past seven years of investment and transformation has only grown stronger lastly given the strength of our cat position and generation to continue to see tremendous opportunity for value creation to difficult investment in organic capabilities targeted acquisitions and accordingly today we announced a new share repurchase authorization of one point two billion dollars now let's take a deeper look at the strength about fourth quarter and the fiscal year twenty twenty one financial performance in the fourth quarter which i continued my mentor the mid demanded by than orders exceeded expectations and grew twenty one percent year over year revenue grew six percent with growth across all regions operational excellent resulted in record profitability as we delivered gross margin of sixty six pretty as an operating margin of thirty one percent and earnings of one dollar and eighty two cents per share fourth quarter results to have a very strong finish to an excellent ear and twenty twenty one we overcame five percentage points of china trade headwinds and deliberate eighteen percent of order grow to outpace the overall market which continues to be strong despite a tightening supply environment we ended the year with seventeen percent revenue growth and achieved record profitability with gross margin of sixty five percent operating margin of twenty eight percent and earnings of six dollars and twenty three cents per share compared to prepare that had fiscal year two thousand and nineteen orders and revenue had grown twenty one and fifteen percent respectively over it's two year period highlighting the continued strong demand for market leading solutions for bates growth across multiple dimensions of the business demonstrates the black about customer base we added more than two thousand customers and twenty twenty one and more than nineteen hundred and twenty twenty as we continue to expand our footprint adding to the stability and durability of our business law
spk_2: despite the headwinds be faith and twenty twenty one we delivered annual double digit order and revenue growth in both it affects the electronic industrial solutions group cheap it's fifth consecutive quarter of record maddening threatened by double digit growth in semiconductor salute
spk_1: him and in automotive another quarter a record semiconductor reddening was fueled by ongoing investments in advanced technology know and capacity expansion to address pent up demand in automotive we achieved record orders for the third consecutive quarter of double digit order and revenue growth in desperate remain strong and be and ab technologies gets caught or we announced the collaboration with neo one of china's top eighty automakers who selected keith site five g and feeding to act network emulation solutions
spk_2: strong demand for general electronic solution was driven by continued investments in digital transformation industry i'll t digital health industrial four point out and advanced academic research the communication solutions groups delivered double digit order growth and record revenue in the fourth quarter for the year orders and revenue good double digits despite the impact trying to trade restrictions
spk_1: commercial communications achieved all time record orders and reading in the fourth quarter to four with another record quarter for five g driven by the strength of our platform continued over and adoption
spk_2: and new industry applications in addition we saw ongoing investments and four hundred g eight hundred g r and d across the entire communications ecosystem
spk_1: increase spending a data centers and network security drug double digit order growth in network has been disability in aerospace defense and government double digit order growth has driven by ongoing investments in technology with the focus on space and new commercial technology like by g the recently announced the collaboration at lockheed martin to advance by g in support of the mission critical communications for aerospace a
spk_2: in defence applications tickets first the market solutions are enabling the rapid progression of new technologies and wounding engagement with industry leader is like x p any food and media tech and keyboard which like google cloud partner initiative to support actual orchestration of innovative by g services at the network edge
spk_1: our end end solutions portfolio continues to capture new opportunities at the five g blood cycle progressing and expanded to aerospace defense and government automotive and industrial applications we can to to accelerate he said capability to provide industry leading felicia there is to teach acquisitions and recently added on the or technologies towards offer eccentric solutions portfolio scale about the provider of death in class network simulation solutions to model and in like communication network and cyber guides for aerospace defense and government customers
spk_2: we're excited to welcome the skeletal cream for kids like
spk_1: a software center solutions and higher value services continue to drive differentiation strengthen our competitive position and capture a higher percentage of our customers wallet you're a fiscal year twenty twenty one software and services not only been over double digit order revenue growth off of outrage keepsake overall growth combine they represented just over one third a keep such total revenue for the year he also continue to grow analyze recurring revenue which now exceeds one billion dollars the growth of software and services as well as the recurring revenue father strengthens the door ability and resilient three of our business model while at the same time contributing to keep a margin expansion keep such focus on first the market software center solutions and operational excellent try to arkansas and execution we've been strong track record and performance and proven to cause resiliency since inception as a public company seven years ago he had achieved the ten percent compound annual revenue growth rate expanded gross margin by over a hundred basis points increased operating margin by nearly one thousand basis points and generate sixteen percent and you're like at growth
spk_2: all white significantly increasing investment in the indian fails to dry future growth over the same period we had nearly tripled the size of a software revenue and more than doubled recurring revenue while growing services seventy five percent these accomplishments or cabinet the key for leadership model our values and or people i would like to thank all teeth are employed for the exceptional execution and dedication we continue to capitalize on the multiple ways of technology innovation and long term secular growth times across multiple market we exited here in a strong competitive position and expect the continue to deliver sustained above market profitable growth now i will turn over to kneel to discuss or financial performance and outlook in more detail
spk_1: happy thanksgiving thank you on and whole everyone as one mentioned we delivered an outstanding quarter and fiscal year and the fourth quarter of twenty twenty one we delivered record revenue of one billion two hundred ninety four million dollars which was above the height of our guidance range and grew six percent or five percent on a core basis despite a tightening supply environment the further contraction of the supply chain with in the quarter tempered total revenue results and was more tackle on the communication solutions group businesses with demand up hitting supply we delivered a record one billion four hundred ninety one million dollars in orders of twenty one percent on reported and for basis and enter fiscal year twenty twenty two with over two billion dollars and backlog which will position as well as the supply chain situation improves looking at or operation was outs for queue for reported record gross margin of sixty six percent and operating expenses a four hundred fifty six million dollars resulting in operating margin of thirty one percent and all time high net income was a record three hundred thirty eight million dollars and we achieved one dollar eighty two cents in earnings per share which was well above the high of our guidance are weighted average your account for the quarter was one hundred eighty six million shares moving to the performance of our segments are communication solutions group generated record revenue of nine hundred ninety million dollars or two percent cst deliver gross margin of sixty six percent and operating margin of twenty eight percent in queue for commercial communications generated revenue of six hundred twenty two million dollars or three percent driven by strength across the five ecosystem oh man adoption and investment and four hundred gigabit and eight hundred gigabytes or indy aerospace defense government achieve record revenue of two hundred ninety seven million dollars up slightly from the same quarter last year as solid growth in asia pacific was offset by supply chain constraints it impacted revenue and the us and europe electronic industrial solutions group generated fourth quarter revenue a three hundred seventy five million dollars of eighteen percent on reported and core basis during by strength and semiconductor and automotive yeah it's year for the record gross margin of sixty six percent and record operating margin of thirty six percent given tightening supply chain constraints and trade headwinds we're very pleased with our full your results and f y twenty one revenue total four point nine billion dollars up seventeen percent year over year or fifteen percent on a core basis gross margin improve forty basis points year over year to sixty five percent we continue to invest in our indie at sixteen percent of revenue or seven hundred eighty eight million dollars for the year while operating margin improved two hundred sixty basis points to twenty eight percent on the strength of this performance we've achieved our long term operating margin target of twenty six to twenty seven percent two years ahead of plan f y twenty one non gaap net income was one point two billion dollars or six dollars twenty three cents per share of twenty eight percent moving to the doubt cashflow we entered our fourth quarter with two point one billion dollars in cash and cash equivalents generated castle from operations of three hundred sixty eight million dollars and free cash flow of two hundred ninety five million dollars total freak hassle of for the year was one point one billion dollars representing twenty three percent of revenue
spk_3: you and ninety nine percent of non gaap net and
spk_1: as announced earlier today be key said board of directors has approved and you share repurchase authorization of one point two billion dollars effective immediately under a pyre share repurchase authorization we acquired approximately two point one million shares in the quarter and an average share price of one hundred seventy one dollars for total consideration of three hundred fifty three million dollars this brings or total share repurchase for the year to approximately four point four million shares and an average share price of one hundred fifty four dollars for total consideration of six hundred and seventy three million dollars or fifty nine percent of free cash flow
spk_3: now turning your lucky guidance despite a strong demand backdrop supply chain constraints continue to moderate shipment expectations
spk_1: as a result we expect first quarter twenty twenty two revenue to be in the range of one billion two hundred twenty five million dollars to one billion two hundred forty five million dollars and que one earnings per share to be in the range of one dollar fifty cents to one dollar fifty six cents based on a weighted deluded your account of approximately one hundred eighty five million shares looking forward to twenty twenty two weeks back supply chains remained tight and the first half of the year assuming a loosening of the supply situation in the second half weeks back full year revenue growth to be in the range of six to seven percent while delivering ten percent earnings growth interest expense is expected to be approximately seventy eight million dollars in capital expenditures are expected to be in the range of two hundred forty million to two hundred and sixty million dollars with increasing capacity and technology investments regarding our tax rate we are modeling at twelve percent non gap effective tax rate for f y twenty two which assumes no change to current us tax policy in closing we're entering the fiscal year with strong momentum a record backlog position and a strong track record of operational laptops were encouraged by the strong dynamics are crossed our and markets and are competitively position to drive sustainable and profitable growth going forward with that i will now turn it back to jason are the key una thank you neil catherine way please give the instructions for the tuna
spk_0: if you have a question press style one on a charge and keep against i went for a question if first question actually to make turkey like jp morgan
spk_4: hi the interpreter belong for sonic on like coffins consensus around the for your god say getting a full year to sixty seven percent growth and understand the fact that with your commentary a lot quarter around that expectations around and one need a t the naughty ah for to other that expectation felt stands true in so does that imply that we should expect to get the no kidding to reading as he did and it's got twenty one or there something i'm not appreciating air at i think about getting a chance for the for years but it may be to benefit the most of it's i can get the at the back at the
spk_1: yeah to make it to integrate question so yeah as as we mentioned on the call we did see the like a situation tightened during the quarter and our guide and does assume that we will see some relaxation and that environment in the back half of the year so i was thinking about the seat and algae up for f y twenty two i'd say today
spk_2: things that the first logic we'd expect a revenue to build as we move throughout the year and and you know maybe the think about it a trump's of year over year growth right where where we were our guide or six or seven percent for the full year i would thinking about that i'm a quarter by quarter basis and be extracting go growth rate in the first half of the year that are below that like that seven percent level and growth rate in the back half of the year that are slightly above that that them percent level so the we average that for the foyer
spk_4: gotta appreciate the color there and then just on my second question young yet he i have to put the record operating margin this corner
spk_2: in on the really strong just curious to hear you know what were some the big drivers or contributors to the margin their relatives operating margin and and know just curious to hear there is any one time benefits in a corner that we should consider
spk_3: and no one time benefits but i mean i i i think that the the comes immediately
spk_2: should to the forefront is obviously the extraordinarily strong revenue growth for the year with that with thirty percent revenue growth on on the year
spk_1: your the business the demand for those products has been at the very strong we've seen a very nice rebound this year and the automotive business the semi business we all are there any everybody is see the press on on the street continued strength and semi to take guy you take that strong demand picture
spk_5: and and
spk_2: you know and it we which essentially essentially allowed them to leverage their opic infrastructure and drive really high levels of operating margin in the short run at a good we look forward to your we continue to see great opportunity to continue to grow the business as well as with that and for the technology fit to serve the than market
spk_4: of as pressure the guy
spk_0: your next question and from giant picture when credit suisse
spk_6: yeah get up and guys graduating assault with all of the i'm going to be to take a little bit deeper into colors some the supply constraints that you're seeing out there are i think you said and you parent comment that hitting years he i have g stronger than coms i'm gonna carry it is this logistical constraints as it is a component constraints is it is a little bit of
spk_1: everything and any is there a dollar amount you can give us that it impacted revenue both and the fiscal fourth quarter and the fiscal first quarter yeah they john integrate questions of reply i said the opposite the the impact was greater on se businesses than any i as he i s t businesses you think about why that is to see fear
spk_3: the product tend to be more complex they have it the have a longer a you bill materials and suburb there are more parts and components that go into building those instruments on average and so that you know just by nature increases the risk and and challenges that we at the edge of the bill that supply chain i think it's also true on average that
spk_1: to see a sheet products and to be at the higher end of the technology spectrum and sure there are fewer i you know suppliers for those for those cutting edge technology products
spk_3: than than you know for for a little bit more of the mean she products that exists within within the ice sheet they give you think about the the impact it's supply chain yeah i'd i'd be the lump kobe and supply chain together as we really hinders phenomenon of the last couple years and if you're you're starting to think about you know what you know how to quantify those impact
spk_1: yeah i'd really kind of focus your attention not on any one quarter been all over time you're looking at the bull fiscal years as an example at at the at our order rate right if you look at our history but prior to it's prior to twenty twenty you know we get done pretty good job of converting our orders to remedy there's typically are you a little bit of a lag a certain percentage of each quarters worship with in the quarter another another portion shipped out into into the into the following orders
spk_3: over the path in over the past couple years in twenty twenty because of kobe than twenty twenty one because of supply chain you know we have the you know we have seen that gardner between orders an ad revenue grow and so i think we estimate that if you if you think about in terms of kind of an abnormal backlog build
spk_2: that that abnormal backlog build the over the last couple of years is in the three to four hundred million dollar range and so i think that the opportunity for us as we look forward to eventually clear that backlog once is like a situation you know it fixes itself i don't expect they will flush that in a in a quarter to i think you will it will happen over time could that the debris
spk_3: kind of the remedy to supply chain are going to happen over time as well that that does the rock magnitude of what we've what the impact as been here over a couple your beard
spk_6: a lot that's really helpful color and anonymous over the last several years we on the side of the world it have been trying to compare and contrast sort of the five g roll out what the for rollout relative to your business and i guess what i was hoping to get all the more color about the software strategy you're deploying this time around albert with seems like an incremental driver and just kind of curious you know can you size the potential tam opportunity that gives you especially as your the network morse from just being a backbone for for handset and mobile to actually being a backbone for for a lot of new incremental applications and to the extent that software and services the third of the business now so that we think about that over like the next three to five years
spk_2: wow thanks john it's very very clear that software and services continues to be a bigger and bigger percentage of her told business as we moved from a hard work product supplier to a software centric solution provider and the solutions obviously and food hardware software and services and weekend great growth obviously and or software and our services and they've outpaced the hardware growth looking overall at five g versus for g we made a decision in two thousand and thirteen new and add to the hubris spin off t side in two thousand and thirteen which we eventually good in november of two thousand and fourteen but in two thousand and thirteen it you know i started working for you or that was developing to invest in five g and make sure that we were going to be leaders in for g we were providing a lot a bit more of let's say i'm cast contribution to our joint where we were not investing as heavily in the communications were a lot of up for jane by a substantial amount so we invested earlier we invest in a greater and greater amount of now were roughly it's
spk_1: sixteen percent on the where you do you study at approximately twelve percent of and the and we've gone from a roughly four hundred million to roughly eight hundred million dollars in or indeed spend on over this period of time but software is a key part what we did was be consolidated or hardware on are hard
spk_2: web development facilities into one organization as opposed to when separate divisions and accordingly that enabled us to basically provide software that could stay on the whole product offering and we made an acquisition for instance and a company called an eight which gave a software capability they had some capability and for g we move them over the fogey and all this together or
spk_1: investing more starting earlier having a consistent are in the and investment profile has worked really gave us the league and caused us to be a much much much stronger provider and i believe the leading provider for four five g five
spk_7: he is is still growing and the anticipated gone for years i'm going to turn over the city's you could tell you a little bit more about our results and are growth in not only two thousand twenty one but what he sees going forward if think you're on a good question i think of the at the summary big had another record quarter for five ci ah and the drivers are you know scaling deploy men but equally important the as the new application space and i think we outplayed that of a strategy the had to continue the progression from physical to pro all application and it's application areas very rich right as i look forward some of these applications faces have software a in all as a percentage of the total value proposition and a thirty forty fifty percent range and one we we have the pursue very actively i just make a few examples of these right for you can think of on the fight beside or and being a great out by data example of that on the wireline side the protocols would four hundred gag eight hundred good getting more complex you look at new emerging spaces like get the landsat the and mac sec
spk_6: in the security domain for you look at the commercial comps portfolio it's very rich in applications application federally favor our strategy of being more software centric and one worried that thing to pursue and i were generally strong results
spk_2: proper thank god congratulations
spk_1: thank you
spk_2: we're ready for the next question
spk_8: from tim silver
spk_1: citibank thank you very much harm hired to have thought about your vertical integration know you're a lot more vertically integrated than the other companies down the one the to benefit to do during the supply chain bottlenecks car they're like little things whether be plastics are connector or house
spk_2: get the held you back teaches much of each other and under china think about you know who's now cause you to in the want to be a little bit more vertically integrated arco or are you that sweet spot for the vertical integration and you
spk_1: sure gem the first thing that's probably you really important to note is that are differentiating technologies that have given us to leadership position
spk_2: the side of the software that we get developed his semiconductors that have very particular high performance capabilities and as you know we had an onsite tab that exists in santa rosa and that panic scaling are saying and an indian phosphate i'm semiconductors sell a lot of people are having trouble now getting more custom components built were and custom components built and we build a lot of those custom components in house so that is definitely helped us now again if you don't have all the parts you can't ship
spk_1: anything and we we are in relatively good shape compared to other competitors
spk_2: but and there's no doubt that we have to make sure that we get all the components and components that are needed voters ship the product we always will look for opportunities to integrate and provided that it makes financial sense before very good about what what we had in house right now now it's not so much the plastic pieces and things like that there are obviously not only components but there is the whole logistical you know shipping in issues that whole world is going through so we are impacted a little bit less than less than others and i've
spk_1: because the overall organization has done a real good job of being able to deliver during these very very challenging times
spk_9: great thank you and congratulations to you new team accuse hikes
spk_1: thank you hm great on the next question now goes to mark delaney from goldman sachs
spk_10: question as minute defense primes has spoken to slow and department of defense budget outlays and appreciate that key say there for a broad based order strength but as hoping you could title of it more i what your scene and you're eighteen g second and if you are experiencing any at a or and market can't even if and
spk_7: certain portions of that business segment
spk_2: yeah so i and again out of a pretty strong quarter for aerospace defense orders and growing double digits
spk_7: finishing off a year would double digit growth a if you look at what drove that girl did it said recovery the macro environment globally stimulus band i especially toward technology that continue to increase totally us and internationally and one where we're where capturing are we also took some concerted step last year to or two years ago in fact to to take our five ci technology stack and damn and customize it for aerospace defense applications and out as you've probably seen our our collaboration with lockheed martin the we announce the we're very pleased with the progression of the were making lead commercial technologies that are getting adopted
spk_2: it's all of these are pretty favorable ah we're observing that are right now the
spk_7: and we are under continuing resolution from a budget perspective in the us but if you look at the budget that has been put in place and if our that has been proposed and if it's approved a that call for a year or year increase and also increase spending technology or audi t any line item which we view as a favorable dynamic are better for lead a infrastructure bill that is that that is that getting through the congress had some
spk_4: i'm ah
spk_2: sustain spend out late for he be and a broadband and semiconductor which we also think a favorable for us at some really have a car thank you for all those comments and and officers on the supply chain and if you could talk a bit more depth or on what is we didn't your comment oh that potential alleviation that second after this coming fiscal year ago yeah i mean i it the the supply chain situation
spk_3: it very dynamic i guess i would start by saying that and and you know we are we have very close relationships with with our keep suppliers and a convent dialogue with them during that period of time to make sure that we are you know procuring the parts that are necessary to meet the needs our customers i think it is you know our our confidence and
spk_11: your our guide reflected a neighbor
spk_1: the the start of a recovering is pledging situation in the back up and that that stems from your direct indications that we'd got from key confront p suppliers with the within our supply chain environment
spk_12: okay great
spk_1: thanks for that mark will move over to our tim long come barclays
spk_6: thank you
spk_3: i'm to if i could die maybe on that the while aside could you talk a little bit about kind of impact his feet and and current views on on millimeter wave and pretty good to see ban any impacts from
spk_13: the to the attention delays with the of a tetra
spk_7: and then secondly navy nail could you just kind of update i wish he'd been am a great period of margin and expansion can you talk a little bit
spk_2: give us an updated view on kind of leverage and incremental margin goes from operating from from these levels thank you now make a few comments on five he you know i have nice day before the i'll be continuing deployments are going on especially in the low frequency bands across the world be viewed as a favorable dynamic specifically to see band option with a near term cattle of and our we've had some strong was also that mentioned
spk_7: doubled from w growth and five g this quarter capping off a double digit growth in five g o for the full fiscal year the and i'm a big part a bad was driven by a defeat band option and been related died investments of are going on in the americas are america's business was that
spk_2: andrew good the stronger cannot five g that from a result perspective and the also saw our fr wanna low frequency of business double your where the are so very strong resolve all the while when on millimeter wave business has been pretty stable this year and as we have mentioned that before in a medium
spk_1: term were expecting that the millimeter wave adoption continues to rise in a very steady manner and that were watching for the beijing olympics
spk_2: youth case with that much from from the success of the beijing olympics that thou weeks but docker next year yeah can't your second question yeah we with august they hadn't had a great run here in terms of terms of margin expansion it's insistence the key site and he eight hundred basis points approximately two to gross margins about thousand basis points operating margins and i think he pointed that as we look up all over the longer term we continue to the opportune
spk_3: these for further further expansion margins it with indicates a portfolio i think as we look at look at next year know it's it's it's a really dynamic i'm always with supply chain pressures that you know putting a little bit of a governor on revenue i seen time you've got inflationary pressures across the broader economy and and the other thing they were looking for
spk_1: or a looking to the a little bit of a coughed up with a minute with in next year's is is hopefully a return to kind of a postcode that are pretty cool the normal in terms of our general operating environment and that includes the costs associated with the you know facilities management when we as return to the office agree travel or as as as people get back
spk_2: out surfing at the customers and conducting we're we're business in person rather than over over over zoom i think god it in made it a lot my being that guy you know that we saw with that that in argue this year just under sixty percent of revenue i think we continue to see great opportunity to invest in fact knowledge he brings you solutions in the marketplace i think you're you're likely to see are indeed
spk_1: take upward next year neck and amid sixty percent range of note perspective that they get like twenty two maybe a bit of a catch up here that over the longer term a lot of opportunity as weeks banner software portfolio expand our solutions portfolio i continue to work with that customers saw and and provide them with first market solutions to continue to drive but both gross and operating margins northward
spk_4: okay thank you
spk_2: right in the next question comes from that nickname of deutsche bank a out this is on the cancer that that's in the quarter ah so i just person wanted to talk about cat that mechanics guided picking up next yards once know what's driving not a blessing whether that you carry on to future years later like it that a law
spk_14: are there to the project that got on and have the power that's a great question that so we are we started to are we talk about in in this in the recently completed fiscal year that we expected a couple of years of have elevated cap actors result of efforts to improve the resiliency power supply chain and that in fact did a pan out with with it
spk_2: with catholics were approximately hundred seventy five million dollars a year at a in addition to continuing those investments wifi incremental investment that are necessary as we as we continue to expand around past the and that the key technologies to to drive the for the future growth of our business i think know those are additive given everything that's happening across the economic god here today there are there is no a relative to what you're seeing that time last year
spk_1: you know
spk_2: and he greets need to teach to spend money on capacity bad mature with and with with and key site and so you know i do not believe that the two hundred repugnant two hundred fifty million dollars of capek that we communicate for next year is the new steady state that is not the case
spk_7: you know that that he stated it significantly lower exactly where i a little bit difficult to call this point but materially lower than the two hundred fifty million dollars that does that were advocating for era for f y twenty nine from like twenty two
spk_3: i wouldn't gonna advance and then you to cook follow up on not competitive environment or you don't be pretty pink floyd i'm just thinking none of them and with white and colored on one hand a lot of contender they're having other time and action
spk_7: the that create a positive thing and loving and then a slightly different i'm not a more none of your compatibility made some he the opposition to high think about yeah yeah chief in a competitive landscape on board
spk_2: he a very strong performance tonight yeah she bergman again strength of i mentioned in the semiconductor where you wait for starts on are really enabling us to continue to drive growth there a very strong year again building off of a strong wt or last year in semiconductors while so i i think about what we're doing their i would definitely take a share and we are considering going back to keep that portfolio growing garden and and capitalizing on the environment we see the semiconductor with regard to automotive it's been a new or market entry for us relatively speaking are we started this is ben we're very pleased with the results were seen so far and we've made god if you look at this fiscal year ah we've had and someone for the manufacturing expansions that have happened in the the ah factor and of as we shore up our a contribution for the a the market we've announced a partnership with neil as an example of what we're doing by extending our fight the technology stack and phoebe to lax
spk_15: in a in a summary all in all you look at our entire portfolio for automotive it is growing and it is much more comprehensive then at any of our traditional competitors at this point and though a we are continuing to invest in nom in growing that business so or at least words where we find ourselves with the i sheet business
spk_2: and near your second question which was getting with competitors having a little tougher time on shipment are we going ahead and taking advantage of that for pricing and the answer is no or moral must the long haul with customers in we been in a back from the original hewlett packard days
spk_1: over eighty years working with customers on when i pick an advantage of them were cough syrup in certain areas for shipments and others we will do price increases but not because of any competitive position or or have gone ability for our customers to get products plunk and the a good thing in that again thank you very much that
spk_2: next question comes from line of chris neither of us
spk_1: a you
spk_2: so the company in the past with talk to industry growth in the three to five percent range or with expectations for about a hundred to two hundred deaths of outgrowth for t side in above the industry a bully look out over the last four years now the company is in growing up ten percent organically per annum as i guy
spk_1: my question is is this level of growth more so driven by just much stronger industry growth over the last four years or just better key site i growth or combination of both a case gonna help of unpack how we get up on a bridge that gap
spk_2: i'll make a couple of comments and and then and then turn over i think it's a combination of to there's no doubt that we've seen more grow to more opportunity and five g but as we see the digitization and everything the market is there is no doubt a great place to be and we have
spk_1: a very diversified portfolio machine growth and semiconductor was saying growth in you know in industrial in strip industrial four point oh were saying growth
spk_7: all in all across our real stated growth initiatives and the market said we'd gone after so there is no doubt we'd pick markets that are winning and we have been growing faster than you know then the market in general and i think the execution of the team the investment that we have in our strategy of providing customers with total solutions
spk_1: it is unmatched in the in the industry harm others are trying to mimic it to a certain extent but i do believe with our an outstanding sales for sale support organization or overall oregon has in our organization that provides hardware software and to than you know we'll call it partnership with he market makers it makes a huge difference on how successful we are so i'll start there and cities may want wanna make another comment yeah ron i think your it up the right with regard to what we've seen the marketplace is this expanding ecosystem as we have i expanded our portfolio from just products to offering total solutions to customers the remain focused on the market sad with called out and other angle to this that mark lol of can add is the customer add that occurs at the expanding contribution that we've making yeah thanks occasionally i'm chris to add to this i think our go to market investments we'd made in sales and marketing and customer engagement is our is making a big difference as you are we had strong double digit order girls across all regions and all and markets not just for que por but for the anti your fiscal year so this is a very sustaining effect that we've had as we engage with the market leaders are it planting are are solutions engineers to help integrate with customers are largest customers had grown substantially or long tail of small and medium sized business customers at grown and the on as wrong as mentioned in a prepared statement we continue to add new customers every quarter in every year more than two thousand were added during fiscal year twenty one
spk_7: which creates sustaining opportunities for us going forward diversify it's our business and then it's not just all about our direct channel we have a very strong partnership or or partner channel with the indirect shadow distribution sales helping us reach
spk_1: get more than thirty thousand customers for year and we're seeing continued adoption and gloat from our ecommerce channels as well so we have multiple ways to serve our customers and there were these great solutions and i think that subject part of the to
spk_2: yeah appreciate all of that color from everybody
spk_1: i'm i guess my follow up would be am so are are in terms of the above normal industry growth in a how long can that last and is it reasonable to think that lasts until five he picks which i believe it's exactly naming the twenty three or twenty four time frame and then in addition to that is there any reason why we should expect key site outgrowth over the market the compress back to the one hundred or two hundred bits i'm good kind of guy that levels just given the are indeed scale investment advantage the company has if we were sitting at a total of lots and sixty percent market share or seventy percent market share you may say there's diminishing returns but when we look overall where we are we're in the twenty five to thirty percent range we have a lot of headroom and i believe it's gonna go away path five ci five it on whether you're talking twenty four whenever you know whatever your your perspective is on that are already investing in shape and sixty we're investing in or you know in the we're investing in eighty in there so many more opportunities that are
spk_16: the input right in front of us are that we see
spk_1: we are aiming to go ahead and outgrow the market for many many years
spk_17: going i would add to that it's our ability to spend eight hundred million dollars a year and ideas real differentiator in the marketplace and i think goes to elite to indicate ya what our ability to continued up on the broader market should be overtime
spk_18: appreciate the time gosh thank you
spk_2: thank you next question comes the line of rob nathan at bear
spk_0: a yes think
spk_1: sorry robbery
spk_2: rob year
spk_1: audio has cut out and we just thought to come can come back to you and as you basing your eyes open
spk_2: guess
spk_3: can hear me we're mean yes we enter iraq guy okay polish us or whatever
spk_2: am i did have a clarification question just on the first quarter guidance on so i guess now maybe distracted you the on is the assumption that
spk_7: good margins would be down over we're within your got it's at not sure i totally caught your to on below the line guidance
spk_19: yeah i like all i said was relative to where we just finished you for are right we finished he will be very for year if if he'd point nine percent are the investment it was a point lower the not in the fourth quarter and i think we look and see a tremendous amount of opportunity for us to invest
spk_2: are you know be a they are the line to bring new technologies market so i think over the course of of f y twenty two you could expect god i you know to return are are these been more that did sixteen percent kind of arranged to obviously you have a little bit of a of a have a crush on march and only other thing i would say is in keyboard did have extraordinary area we get a very favorable our product next within the quarter elite that we see i actually one taking shape weeks back next next
spk_20: on on it's quench basis to be a little less favorable show you know and then there's a normal items for keep like that that that also it typically and pack you are most notably that we do a company wide a salary administration in the first quarter a given the inflationary environment that were and that is a yeah you know
spk_21: a larger than typical salary increase
spk_2: is said the ski one
spk_3: as a how would the and again hats
spk_2: game as compared to queue for which was a thirty one percent operating margin that was a very very high record right
spk_1: how would you
spk_2: the expectation within ten percent type pps growth our dog
spk_1: your your assumptions around instead of compensation player or year earlier basis
spk_21: yeah was so obviously they're there to components to our incentive programs there's the ah no incentive programs for the you know the broader employee base which are driven based on the
spk_14: organic growth rate of the company as a as well as are operating margins and so those to be the to the true drivers their i think for the executive up with populations ability to grow u p s and it's editors for the cat compensation portions ability to grow be as easy as he grows up line and over
spk_1: the longer term with our primary source of variable compensation is based on told shareholder return and so you know i think as we look forward f y twenty two or thing wages up significantly as a result the kind of the the broader inflationary barman and that thing offset by a decrease in the in the broader variable a program okay okay not just a just a quick follow up with respect your capital allocation farm
spk_2: plan could you give us an update on how you'd view the emanate a pipeline tom get where you're worried maybe for your focus would be
spk_22: at this point
spk_23: yeah absolutely run
spk_1: yes again in our target market overlooking to do is provide total solutions but as we then there's no doubt if there are certain parts or components of a total solution that we need that would be the first priority the second thing that we're doing is we're expanding into it into adjacent markets
spk_4: as sit cities have mentioned earlier we started off inside you yearn for g mostly on the physical layer of going and providing solutions they're can we move up into the protocol layer and now he can see we're in the application layer and security so we continue to look for our an addition opportunities bomb also that is what we're looking at we have a very robust funnel but we also a very high hurdles and so we have the ability to not only make the acquisitions that we need to make but also to return class to the shareholders and that while the
spk_13: that's one point two billion dollars sir get back
spk_2: kroger excellent excellent thank you i thank you rob
spk_24: next question comes from line of adam paul or of thompson davis
spk_1: a good afternoon guys great quarter and take a quick one on margins i'm curious how are you guys you think about operating margin improvement by segment and if such tough he had a great year he i asked jihad is one of their create a tough cop for you
spk_0: or if can even build off that twenty one reason

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