Q1 2022 National Instruments Corp Earnings Call
Okay.
Good day and thank you for standing by welcome to the Q1 2022, and GI 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 one on your telephone. Please be advised that today's conference is being recorded.
You require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Marissa Vidaurri head of Investor Relations and I'm.
Please go ahead.
Good afternoon. Thank you for joining our Q1 2022 earnings call I'm joined today by Eric <unk>, 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 question.
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 product supply chain constraints backlog impacted more in Europe .
19, and related shutdowns and our software licensing model transition.
Tesla integration of the acquisitions and future results of acquired companies execution on our strategy and achievement of our financial target.
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 22nd 2022.
These documents contain and identify important factors that could cause our actual results to differ materially from those contained in our forward looking statements. 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 Dot.
Dot com functionality.
You can find the press release and quarterly presentation to supplement today's discussion on our website and I Dot com slashdot.
On March 31st we announced the definitive agreement to purchase the test systems business Oppressor automation, a G. A European leader in providing holistic customer solutions for electric vehicles. We believe that this investment along with others. We've made in this space will help accelerate our ability to serve customers in the high growth area.
A vehicle electrification.
The acquisition is expected to add 2% revenue growth during calendar year 2022 .
We purchased the test systems business of Cracker for approximately $59 million.
We view this business as the tuck 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 'twenty 'twenty three data revenue synergies.
And I will fund this transaction through cash drawn premise existing revolving credit facility. The deal is subject to statutory approval and is expected to close in May 2022 with approximately 200 employees joining eni.
In the coming months and I management will be hosting meetings at the conference is for Cowen and Bank of America. Please visit and I got Palm slashing Audi for presentation times, we look forward to speaking with you.
With that I will now turn the call over to Chief Executive Officer, Eric start with.
Thank you Marissa and good afternoon, I appreciate everyone joining us today and.
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 attribute.
Apart from our competition.
Driven our recent growth and that we believe will fuel our growth into the future.
Carey will then discuss overall financial performance in the first quarter as well as provide guidance for Q2 and beyond.
Come back to provide an update to our long term model that focuses on our 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 the 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 the result of our strategy well.
While demand was very strong we reported revenue at the low end of our guidance.
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.
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 the 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.
We're truly differentiate tonight 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 that is extensive modular capability provides the fastest performance and lowest cost of test available today.
This isn't a central capability, especially for those customers in markets, where that technology is quickly changing such as electric and autonomous vehicles wireless communications and new space technology.
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 and ice hardware as well as the instruments from our peers and competitors.
The software enables our customers to automate their test processes increasingly complex and fast changing devices require a 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 built.
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 onto 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 <unk> and wireless communications drive roughly half of semi and electronics 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 will exceed 50% of our transportation business later this year.
One example of a recent customer win was that Neil a Chinese multinational automobile manufacturer, where they're leveraging it is hardware in the loop systems to test the Adas functionality for an upcoming vehicle with level four autonomy.
Based on these systems, new expects to shorten 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.
This success was led by strength in defense applications, and new space technology investments like launch vehicles and satellites.
And our portfolio of business, which represents the majority of our broad based customers achieved record revenue for 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 to both R&D validation and 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 are 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, Sharon Thanks, Eric.
Hello, everyone.
Q1, GAAP 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 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 GAAP operating income and $66 million of non-GAAP operating income a record for a first quarter translating into non-GAAP operating margin of 17% for the quarter the highest operating margin for our first quarter and more than 10 years.
Q1, non-GAAP 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.
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 overtime.
We reported Q1, GAAP net income of $25 million and diluted earnings per share of <unk> 19 cents.
We reported record Q1, non-GAAP net income of $54 million and record diluted non-GAAP earnings earnings per share of 41 cents, an increase of 28% year over year.
The actions, we've 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 continued to build inventory for future revenue.
In the first quarter, we returned $68 million to shareholders through dividends and share repurchases, we repurchased approximately 772000 shares at an average price of $40.74, keeping our share count essentially flat to Q1 2021 .
And my Board of Directors approved a quarterly dividend of 28 cents per share payable on May 31, 2022 to stockholders of record on May nine 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 aligned to the business in order to accelerate growth.
Now shifting to guidance for Q2.
Demand outlook remains strong for the second quarter with over 20% order growth to date here in the second quarter, but we expect the Q1 revenue headwind.
That's to continue into Q2 as our ability to procure all necessary components remains constrained for.
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 $40 million.
Acquisition.
While this is a fluid situation.
Book to predict and quantify with precision our guidance assumes a sharp.
So Vic 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 finally see the growth in backlog as a revenue timing issue only our confidence in customer demand and our ability to ultimately realize this revenue in the supply chain disruptions ultimately he's remained 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.
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 some of them are capable 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 million to $10 million sequentially from Q1 due to a full quarter of salary increases the return of our in person customer event.
Our recent acquisitions, we expect Q2 to be the peak for operating expenses for the year as we drive additional scale during the year.
We expect GAAP diluted earnings per share will be in the range of a penny to 15 cents for Q2.
With non-GAAP diluted earnings per share expected to be in the range of 25 to 39 cents.
A decrease of 9% year over year at the midpoint.
We expect our tax rate in 2020 to be between 16% to 17%.
Given the temporary headwinds, we have 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.
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 carry over 'twenty 'twenty three 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 a 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 would 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 the originally communicated schedule given the strength we've seen in the structural changes we've.
Made it 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-GAAP 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.
Working tirelessly to make our customer 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 cross star one on your telephone to withdraw your question press the pound key.
We also you please limit yourself to one question and one follow up question you are welcome to get back into the queue. If you have any further question.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of meta Marshall from Morgan Stanley . Your line is now open.
Great. Thanks, I appreciate that.
Maybe a first question for me.
Just maybe isolating the Russia in Shanghai.
Wins.
And it may be separating that from the supply chain. If we could just kind of isolate what you would identify as kind of both of those buckets.
Through throughout the quarter, and then just kind of what the accompanying gross margin headwind would be for maybe those two different buckets.
That's the first question Yeah sure. This is Karen hi.
We had guided a midpoint of about $400 million revenues for Q1, and 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.
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.
<unk> had ways to 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 not being able to offset those.
Yes.
Those two factors.
Yeah.
From a gross margin perspective.
Generally you have a pretty consistent gross margin.
Across so there's not a 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 four.
Percent of the decline we saw in gross margin in Q1, and we do expect that to continue into the into Q2 and beyond.
Got it and so then when we think about just kind of the reduction in the range growing or the widening of the range going forward.
Would you attribute most of that to supply chain or or shall we say 100 basis points of that is also Russia I just I just wanted 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 we sized dress it 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 it.
I wouldn't ascribe too much to the to the Russia situation. It was more of a short term surprised that happened in Q1, we hadn't built guidance without knowing that that was going to change them and I think that was 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.
And similar to comment on that.
Is it similar to your question on the on the quarter, you know the 1% impact from Russia.
$15 million from Russia, and China.
Our demand was higher than expected and has remained higher than expected and so all things being equal we would be more optimistic about about the revenue for the year. So it really doesn't the yen to come down to the supply constraint is the thing that's primarily constraining in than we want it to be kind of particularly transparent in its.
In this environment and that's why we.
Lower end on the range that as we said in the prepared remarks assumes.
This situation that got worse and concentrated around a particular supplier in Q1 minute remains that bad for the rest of the year and Thats. What would result in the low end of that range.
Okay, perfect I will I'll 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.
Oh, 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 and to make whatever product. They were supposed to suppliers or is there. Some other underlying cause that was causing them to under deliver.
Yeah, Mark it's Karen.
As far as we know it is not attributable to Shanghai or that situation.
It's a it's a handful of parts things like S. P. G as in programming programmable logic devices.
Things that you see others also having having trouble.
Meeting that level of demand right now so I don't I don't think we're alone in.
And 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 is the issue.
Okay, and then I guess in terms of the elevated broker purchases.
We saw in the quarter was that it was it broad based across a number of components or is that also kind of associated with you. These handful of policy. You thought you were going to get and you didn't get the obviously you had to try and offset it with some.
Broker buys and I'm trying to figure out how link those or Oregon or is the broker by more of a broad based.
Phenomenon that certainly it was certainly related to the ones that we were not able to receive but it is a little broader right. There is there still continues to be shortfalls occur.
Across the supply chain and we felt like we were in a good position for the 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 the ones that we couldn't get.
And Mark if we just to comment that 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 really broad based set of shortages that we had a thousand 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 like I said, a couple of handfuls, maybe on the last call. So that's continued to be the environment. That's Karen said these broker buys tend to be on those couple of handful.
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 the trajectory of the way this has evolved over time.
It just did.
Practice more in Q1 that our expectation coming into the quarter.
That's helpful. If I could sneak one last question in the acquisition.
The 2% of revenue I assume that's just a part of the year as part of NII. 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 of the acquisition. So we can think through the modeling of that thank you.
Yeah. The market is actually on the full year, the 2% I sized it is 2% of the total year revenue just to put.
Put it in context, even though it's not intended to close until Q.
Q2 so.
We also did say that it won't be accretive in Q1, it's it's.
Okay.
It's not terribly.
Negative, but it's but it won't it won't benefit on the bottom line in.
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 our services capability that takes us to the next level and really puts us in a leading position across the entirety of the platform. The revenue synergies that we're expecting from this or are going to show primarily in 2023 and it.
That point it becomes accretive to the bottom line and more in line with with what we expect to cross and I 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.
Just wanted to be clear.
You talked about Russia, China, Inc.
And group order and.
Are you actually in China happened the shutdowns happened late in the quarter are you actually dialing in any kind of headwind from China are you having difficulty.
Having revenue recognized for shipping into that region.
Yeah, Hi, this is Karen there's there's a there's some of that built into the guide we do we do anticipate Shanghai opening up within the quarter.
What's hard to predict is what happens after that in China, but what's hopeful is that it's region by region and not broadly.
Broad based overall, China. The the situation we had at the end of the quarter in 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.
We arent.
Able to size as what might happen in Q2, if anything extends there.
Or has an impact in a different way.
I guess the question is have you 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.
It has happened mid quarter, we feel like that that's sort of but it would have been in disruption we could have.
Overcome.
But it was obviously the last six weeks four weeks of the quarter, so that was pretty challenging.
Okay. So.
But you are assuming.
Kind of reopens mid quarter as well right.
Yes, it sounds like it's I'm wondering Shanghai, Shanghai, yes, okay. Okay.
Eric could you color in some of the.
Semi test orders looked quite strong 38%.
Just.
Provide some added color there that.
You know what parts of semi test are.
Are you seeing the strength in.
Yes, sure Robyn and I think just I'll just comment more broadly I mean go into semi I mean that.
Really pleased as we said in our 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 that the 27% order growth in Q1 compares to a 19% order growth in the previous year, So really a growth on strong growth.
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 and over time in our opinion, but.
The strength in semi was in the areas of focus around wireless fiber and wireless so its five G. But also some of the new wireless standards as well and we've seen good good wins in both.
Additional production deployments has been very very successful and continues to be robust and then.
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.
In the lab space to sort of standardize the equipment and the labs again for a lot of wireless and mixed signal parts and.
<unk> been pleased with the performance on that side of the business as well and certainly 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 momentum is just continue the last comment I'll make on that is.
It's sort of job.
The regionalization, if you will of the semi markets is a tailwind for us 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 as a tailwind and something that's been.
We've been able to capitalize on.
What's the <unk> related.
Wins that you spoke to it was that.
Mid band or.
Millimeter wave for the most part you're right.
Mostly sits mostly still in the sort of sub six range of as we've said before we have capability of millimeter wave, we're starting to see some pickup of that we have new capability coming will actually be demonstrating some new capability with our leading customer at an eye connects coming up next month.
In that space, but most of the current success is still in the sub six frequency band.
Okay very good thank you.
Thanks, Rob.
Thank you. Our next question comes from the line of William Cohen from Morningstar. Your line is now open.
Hi, all and thanks for taking the question.
I just wanted to bring it back to the cracks or acquisition and kind of on a in a broader sense I know you've talked about the revenue synergies expected, but I'm curious how you see the actual software and product for lining between that and the existing ni portfolio and.
If any what applications you might now be able to target.
You Couldnt 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 <unk> seen that our strategy to focus on electrification electric vehicles is has been something we've been investing in quite a bit organically and inorganically. What <unk> brings is two major things. So one is our software portfolio that's fair.
The application specific around battery and other EV components.
And we think that that's that is a very good match. It helps to accelerate capabilities that that we were building frankly in that same space.
The other capability kratz or has is really apple deep application expertise and services expertise.
With a very intimate relationship with top Oems in Europe .
And so they are they are.
Really shoulder to shoulder with those Oems and building these kind of systems.
And so that fits very very well with our portfolio, which now includes a whole set of software capability nail that Aix capability the core test systems.
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 that's the focus if it's a high growth market.
And it's an area that we're we're growing significantly faster. So it's a it's an area that's growing triple low triple digits for us.
Excellent and then I assume that that the new guidance range is inclusive of that 2% contribution and then also curious if there is any change to kind of the long term thinking of the growth in the transportation business unit with that thank you.
Yes, I'll take that so yes. The guidance does include that.
Our range includes it and then certainly our expectations of growth are are are edging up in transportation, we're seeing that certainly in the performance from from this quarter and the investments we're making in.
In EV, so that as that is an expectation of Ford 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 and we've said it briefly but.
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 with supply constrained. It's a 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 revenue would effectively shift into 2023.
We recognize that 2023, so drive a higher growth rate in the out year. If you will so that's our expectation.
Great color and then you had a follow up with him.
No that's it thanks.
Right.
As a reminder to ask a question you will need to press star one on your telephone.
Our next question comes from the line of Mark Delaney from Goldman Sachs. Your line is now open.
Yeah, Thanks for the follow up opportunity.
The EBIT margin guidance out through 2025 that you spoke about doing 100 bps per year I was hoping you could help us understand how variable that may be in.
Relative to different revenue growth assumptions.
Is the idea that you have revenues faster and maybe you're going to invest a bit more or.
You know that you kind of talked about the variable nature of some opex or so just trying to better sensitize that either.
EBIT margin progressive progression with that with revenue growth.
Yeah, I'll comment on that and Karen you can certainly I'm trying to remember mark yet.
So first of all we wanted to be clear that we.
Tend to meet that expectation in a range of revenue scenarios and as I said, including a meaningful downturn.
So that would include.
Something like that.
Industrial downturn or a turn in the cycle of the semi industry. Those are things that are contemplated in our range of revenue scenarios that we believe we can achieve that.
That margin growth.
To your point about at the higher end, certainly we're going to strive for a growth above the market and we'll see what the market conditions.
Over the next few years, but in higher growth scenarios will do exactly what you described we will evaluate that 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 just one last one for me if I could.
And circling back on the.
Supply constraints.
And you talked about FPGA is as an example, but.
So just 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.
<unk>.
You've mentioned that before going into I guess, mark I'm not seeing that be the cause at this point I guess that could change depending on it.
But part of China gets shut down in the future potentially but at this point that that's not been the reason for the shortfall.
<unk>.
I think it's literally just capacity shortfalls and possibly some of the older technologies that these are built on.
Causing limitations forgetting getting supply out okay.
Okay. Thank you for clarifying I appreciate it.
Sure. Thank you.
Thank you. Our next question comes from the line of Cemig chatter from JP Morgan. Your line is now open.
Hi, This is Angela Zhao on for Sonic Chatterji.
I had a question concerning the price increase that I saw.
In the presentation that you posted that there was about a 4% revenue contribution to the price increase that.
And so just thinking through that.
All the price increases you've implemented recently not blowing through are you still sort of working through that backlog and it partly falling 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, Andrew Thanks, This is Karen.
Yeah, you're right. It was about 4% increase to revenue from the increases that we've already put in place. Those we did price increases in 2021, and we did another one in February of 2020 to the one in February in 2022, and we 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%, we kind of just if we strip out.
The acquisitions from your gross 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 we saw about 3% in Q1 from acquisitions.
When I bring in the full year the rest of the crafts are coming in plus having a full year of NH research and and Heinz Inger.
The rest of the year I'm average am estimating about a 6%.
Inorganic growth in revenue from the acquisitions that we've done so.
Depending on where we ended in the range of about 6% from acquisitions I think the price increased 4% in the first quarter, we will continue to expand a little bit.
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 and.
As Eric mentioned, if we go out of the year at the low end of the revenue is lower at the 12% or so.
We'd be potentially looking at about 102 hundred 50 million more sitting in back into.
Into 2023.
As revenue for that year.
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 am showing no further question I would like to turn the call back over to Eric Stark law.
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. Thank you for participating you may now disconnect.
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Sure.