Silicon Laboratories Inc. (SLAB) Q2 2023 Earnings Call Transcript

Hello. My name is Sarah, and I will be your conference operator today. Welcome to Silicon Labs Second Quarter Fiscal 2023 Earnings Call. I will now turn the call over to Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead.

Thank you, Sarah, and good morning, everyone. We are recording this meeting, and a replay will be available for 4 weeks on the Investor Relations section of our website at silabs.com/investors. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are Silicon Labs President and Chief Executive Officer, Matt Johnson; and Chief Financial Officer, John Hollister. They will discuss our second quarter financial performance and recent business activities. We'll take questions after our prepared comments, and our remarks today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the Investor Relations section of the Silicon Labs website. I'll now turn the call over to Silicon Labs Chief Executive Officer, Matt Johnson.

Thanks, Giovanni, and good morning, everyone. Despite a challenging market environment, Silicon Labs' team delivered solid second quarter revenue and non-GAAP earnings per share in line with our guidance. However, during the quarter, we saw further market erosion. Broad demand weakness and elevated customer inventory continue impacting both of our business units, although our industrial and commercial business showed resilience, achieving record revenue in the quarter. This demonstrates the strength of our position and the favorable impact of our strong design win momentum. So far, in the first half of 2023, our design win pipeline is up 23% year-over-year. Looking ahead, we've continued design with production ramps in the second half of the year that will offset the ongoing market headwinds to some level. However, how much is difficult to call, given the dynamic market environment. It's important to note that even with these short-term market challenges, we are confident in our mid and long-term revenue growth potential, and we are excited by the continued strong design win growth and an expanding opportunity funnel, which now stands at over $18 billion, up 17% over the same time last year. I'll now hand it over to John to cover the financials.

Thanks, Matt, and good morning. Second quarter revenue was $245 million, above the midpoint of our guidance range and down 7% year-on-year. ASPs in the quarter declined slightly on a sequential basis. Unit volume was up sequentially. During the quarter, we saw strength in the Industrial and Commercial business unit, which ended at $165 million, up 15% from the same period of last year. All three segments of our I&C business performed well. In the Industrial segment, the connected equipment category was strong. In the commercial and retail space, we had a strong quarter. In electronic shelf labels and in smart cities, we saw strength in smart metering. The Home & Life business unit declined 33% year-over-year to end at $80 million. High levels of customer inventory continue to impact shipments for Home & Life. Geographically, during Q2, we saw the greatest strength in Europe, which was up 14% year-on-year. Revenue for APAC and the Americas was down year-on-year. Distribution revenue was 77% for the second quarter. That mix is down from the first quarter due to stronger shipments in Q2 to direct customers. DSI was stable in Q2 at 79 days. Our largest customer was under 4% of revenue in the quarter, and our top 10 customers were about 24% of revenue, consistent with our historical results. Non-GAAP gross margin ended lower than expected at 58.9% on product mix. There were no price increases in the quarter, and we experienced no major changes in manufacturing input costs. The sequential decline in gross margin from the first quarter is largely due to the one-time effect of price increases at the beginning of this year, combined with product mix. Non-GAAP operating expenses were lower than we expected for the quarter, ending at $104 million. This was primarily due to lower variable costs based on our expectations for the year combined with specific favorable items such as lower fringe expenses in the quarter in the United States. Non-GAAP operating income was $40 million or 16.3% of sales. Our non-GAAP effective tax rate was slightly higher than we expected; the requirement to capitalize research and development costs for tax purposes continues to have an inflationary impact on our tax rate. We estimate that a normalized long-term non-GAAP effective tax rate without the effect of the R&D capitalization requirement would be in the high teens. Earnings per share on a non-GAAP basis ended slightly above the midpoint of our guidance range at $1.04, primarily on the upside in revenue and favorability in OpEx. On a GAAP basis, gross margin ended at 58.7%. GAAP operating expenses were $127 million. Our GAAP pretax income was favorable to the midpoint of our guidance range by around $3 million. However, due to the capitalization of R&D expenses and the timing of forecasted income for the year, our GAAP tax expense was unfavorable by about $5 million. Accordingly, GAAP earnings per share were $0.33 for the quarter, slightly below our guidance range. Turning to the balance sheet. We ended the quarter with cash and investments of $506 million. Our accounts receivable balance grew in the quarter to $98 million, with days sales outstanding of 36 days. We added about $12 million in net inventory in the quarter to a total of $146 million as we continue to leverage the softer market to accumulate strategic die bank based on the strong design win momentum we've seen for the past few years. Inventory turns ended at 2.8x. During the second quarter, we finalized the redemption process on our 2025 convertible notes. As expected, we funded the par value of the notes, which was $535 million in cash. We settled the in-the-money component with shares, the total shares issued around 900,000. We were also active in the buyback market in Q2, executing about $184 million, retiring around 1.3 million shares. The net result of these activities in the quarter was a reduction of our share count. Our fully diluted shares outstanding in Q2 ended at just under 33 million shares, which is an all-time low share count since our IPO. On July 20, the Board of Directors authorized an incremental $100 million purchase of the company's common stock, bringing the total amount authorized through the end of 2023 to $116 million. At this point in time, we have fully deployed the excess capital of the company from the divestiture of our I&A business 2 years ago, and we are in a normalized pattern for capital deployment. To partially fund these various cash outlays in Q2, we drew $80 million from our revolving credit facility, and we also renewed the facility with the existing banking syndicate for a new 5-year term. Overall, the balance sheet remains very healthy, and we have ample financial capacity to execute the business strategy. Before I turn the call back over to Matt, I will cover guidance for the third quarter. As Matt indicated in his opening comments, over the past several weeks, we have experienced very low levels of bookings. This has impacted both of our business units. Accordingly, we are guiding revenue for the third quarter in the range of $190 million to $210 million, and we expect both business units to decline in Q3. Given the uncertainty in this market environment, we are temporarily expanding the range to plus/minus $10 million from the midpoint. We expect non-GAAP gross margin to be slightly higher in the third quarter at 59%. We are taking additional interim steps to control our OpEx in the third quarter. Accordingly, we are expecting non-GAAP operating expenses in the third quarter to decline to $95 million. We expect the non-GAAP effective tax rate to be approximately 23% in the third quarter. The lower tax rate includes a one-time discrete benefit of approximately $3 million related to a pronouncement from the IRS last week, delaying the effectiveness of certain unfavorable rules related to foreign tax credits. Our non-GAAP earnings per share are expected to be in the range of $0.45 to $0.73. On a GAAP basis, we expect gross margin to be 59%. We expect GAAP operating expenses to be approximately $120 million, and we expect GAAP rates per share to be between a loss of $0.08 and $0.20 income per share. I will now turn the call back over to Matt.

Thanks, John. Disciplined execution remains a top priority as we navigate the current environment. As John mentioned, we've taken deliberate but temporary actions to appropriately manage expenses in a way that doesn't impact our mid- or long-term potential or ability to service all the new business we've secured. We are confident that our Series 2 portfolio of products is capturing market share, and we have invested in securing strategic inventory ahead of our expectation for a market recovery. In the second quarter, we continued to expand our industry-leading Series 2 portfolio products. We announced a new bill band FG-28 SoC which addresses key customer needs for developing and deploying low-power wide area networks. The FG-28's dual-band capabilities allow for multiple protocols on a single design, including radios for Bluetooth low energy and sub-gigahertz, which supports device communications over one month, and enables new edge applications in growth segments like smart agriculture, smart cities, and neighborhood networks like Amazon Sidewalk. The FG-28's built-in AIML hardware accelerator is the industry's first and a sub-gigahertz SoC, bringing artificial intelligence to machine learning at the edge. The FG-28 also offers energy efficiency ideal for battery-powered nodes as well as Silicon Labs secure vault support, allowing designers to choose the level of security they need for their applications. Within our product portfolio, a standout feature is our industry-leading security and our PSA Level 3 certification serves as an advantage for Silicon Labs. The recent announcement from the Biden administration about the development of a cybersecurity certification and labeling program, coupled with the commitment of numerous device manufacturers and retailers to enhance cybersecurity in their products, positions us favorably to offer the most secure connectivity solutions in the market. We have already seen customers proactively adopting higher levels of security for their products, and we anticipate a growing trend of more customers following soon. Also in the quarter, we opened registration for our fourth annual Work with Conference, which attracts over 8,000 IoT developers every year. The virtual conference will be held on August 22, '23 and will feature more than 40 in-depth technical sessions covering every major IoT protocol and ecosystem. The conference is incredibly popular with our developer community and they will come away with practical knowledge and skills to accelerate their product development. In my opening keynote at the conference, I'll share a preview of Silicon Labs' next-generation Series 3 platform. The Series 3 platform represents a major leap forward for the IoT and our already industry-leading Series 2 platform. The developer conference will also feature a keynote from our CTO, Daniel Cooley, who will address what is needed to achieve the full potential of cloud-connected embedded computing and the challenges that lie ahead. Silicon Labs’ Senior Vice President, Manish Kothari, will also showcase real-world examples of the IoT being harnessed for the greater good, such as caring for the planet and our health in other novel use cases that we never would have imagined a decade ago. In May, we hosted a highly successful grand opening event for our connectivity lab at our Boston site, bringing together a wide range of important customers and industry partners. Our connectivity lab serves as a cutting-edge simulation of a modern smart home, showcasing a diverse array of IoT devices, applications, ecosystems, and networks. With the aim of assisting developers and expediting the launch of their matter products, the lab offers an ideal testing environment and allows them to assess prototypes within real-world scenarios accommodating a wide range of protocols and device brands. This invaluable resource empowers developers to refine their products efficiently, ensuring seamless integration into the market. In closing, we are focused on maximizing the significant mid- and long-term growth potential ahead of us despite the current industry challenges. Our strong market positioning and incredible product portfolio allow us to capture this opportunity while maintaining profitability. Despite short-term headwinds, we are confident in our ability to outperform the market through the effective execution of our long-term strategic plan. I'll now hand it back over to Giovanni for Q&A.

Thank you, Matt. Before we open the call for Q&A, I'd like to announce our participation in two upcoming conferences, Keybanc Capital Markets Annual Technology Leadership Forum in Vail on August 7 and Citi's 2023 Global Technology Conference in New York City in early September. We'll now open the call for questions. To accommodate as many people as possible before the market opens, I ask that you limit your time to one question and one follow-up if needed.

For my first question, I'm trying to understand if you could share insights on the two segments in light of the delta and outlook. Specifically, the Home & Life segment peaked at around $125 million a quarter, which seems to have involved some over-shipping. I assume you'll be under shipping for a while to clear out inventory. Could you provide an assessment of the end markets in that segment and what a steady-state sell-through looks like, along with expected normalized revenue once inventory issues are resolved?

Yes, Matt, I understand. It's hard to call it since where we are right now. We do think there's excessive inventory in the channel as you indicated. And I think that our market is in a period of digesting that and clearing a dollar. Suffice to say, over the mid and long term, as we indicated, we feel good about the business. I see a 20% long-term CAGR as the goal that we have for ourselves to see that as a very realistic outcome. As we talked about in the past, the industrial and commercial business has a market that in and of itself is growing slightly higher than the home online business over time, and we expect that trend to persist. But we do have some very exciting new wins and applications in the life business, in particular, like in medical applications as well.

Just to follow up there, John. Anything on the guidance split between the segments?

It's roughly split, Matt, in terms of what we're seeing sequentially for the third quarter.

The only addition I'd add to that, Matt, and what John said is as we've been saying, we're not immune to macro and we're definitely seeing that here, but we do expect that over time, that will definitely perform better. And that's what we're seeing in industrial and commercial. And that's what we saw in Q2. But we're definitely seeing each of those end segments have their own unique experience. Home definitely most impacted with that consumer exposure, Life showing itself to be, I think, more resilient. And then within Industrial and Commercial, overall, performing stronger than Home and Life, but still within, it depends. The broad industrial is softer than the other spaces where you see more strength on big trends within those like metering continuing to grow, ESL continuing to grow. So each of those, big picture, home and life weaker, industrial commercial stronger, both being impacted overall by the market. And then underneath the next level, it varies by the subsegments, if you will.

Got it. Matt, maybe a bit longer term, you're going to be ramping all the Series 2 stuff, and you talked about strength in design wins. So what I'm trying to get an idea about is the inventory burn that needs to happen of current generation and maybe legacy products versus how quickly the design wins for the new programs can ramp and really contribute to revenue and what that balance looks like. So just kind of time to revenue across the different segments for the Series 2 platform as you've secured design wins? Any color there would be helpful.

Yes, sure. So a few things. The Series 2 ramp has already started. So I think that's important. If you step back and look at the opportunity funnel of $18 billion, it's the driver of that funnel growth over the last few years easily. If you look at our design win performance over the last few years, Series 2 has been the driver of that design win growth. And our revenue growth over the last couple of years, Series 2 has been the biggest contributor to that growth. So it's important to recognize that's already happening. That being said, it's still very early days in that rank. If you look at the funnel, if you look at the design wins, we're just at the beginning of that cycle, and there are many, many more years to come of that growth. So I think it's important to frame it that way. It's already started. I think one of the difficult things that we're seeing is as we keep saying, we're not immune to macro but we think we can do better. It's hard when we have these different ramping businesses and design wins ramping and the soft macro environment. And to synthesize those two things into the picture, that we're seeing. I think the two things that give us the most confidence are: one, if you look back over last year and even the first half of this year, I think we've performed very strong relative to other IoT businesses out there. And if you look at that design win performance, even this year in the first half, up 23% year-over-year versus last year, which was an incredible year for design wins. So that gives us confidence that not only have we been able to do that, but it gives us confidence we'll be able to continue to do that. It's just tough to reconcile with the current market environment that we're seeing right now.

Bear with me as I set up this question. Ultimately, what I'm trying to understand is by how much we're expecting revenue to trend below the long-term trend line. And so as I look at your distribution inventory, it's about 29 days above what I believe is your long-term target, which translates into about $50 million in revenue headwind, about the same amount in terms of the expected sequential revenue decrease. And so my question is, is that expected sequential decrease in revenue in the third quarter primarily rightsizing the distribution inventory? Or does it also have to do with just generally weak booking trends?

I'll start. I think you should add, John. Thanks, Gary. So a quick answer. It's more than just inventory; there's a market aspect as well. As we approached the end of Q2, we noticed a significant slowdown in bookings, and there's a lot of uncertainty with customers, which means their visibility is low. There’s a market factor involved too. Additionally, it's important to note that our days of inventory are above historical averages, but we don’t find that alarming. We are entering significant and substantial ramps that go beyond just one quarter, extending over several quarters and years. The past few years have taught us to be better prepared for such situations. Although our inventory days are higher than usual and we aren't intentionally increasing them, we are not concerned given our confidence in the future ramping business. John, do you have anything to add?

Yes, just one quick point. It's a point of clarification perhaps. But Gary, as we refer to bookings, we're talking about end customer demand. So that's really what we're referring to when we refer to weak bookings to round out Q2 and so far here in the third quarter, we are referring to end customers.

Okay. Regarding the cost side, particularly operating expenses, how much of the recent decrease is structural or permanent, and how much is variable?

John, you go first.

Yes. Sure. Yes. Gary, it is variable and temporary. We did take some limited structural actions earlier this year. But that is not comprehended at the moment. What we are referring to for the third quarter and second half is discretionary spending. We have frozen hiring. Our executives are reducing their base pay and other similar items like that, but that should be considered temporary in nature. And as we hopefully get through this downturn and start to see more of an upswing heading into next year, we would revert those items back.

Temporary in nature and temporary by design. We keep saying the design wins that we're ramping we need to be able to support them. That's why everything we're doing is setting ourselves up for that ramp, whether it's strategic inventory, having the resources to support these ramps. We don't want to do anything that diminishes that on the other side.

I have two questions. I want to understand the situation in the industrial sector, as home and life have been correcting, and it's now the fourth quarter, which usually involves working through challenges. With the industrial sector showing a significant decline in double digits, could you comment on the inventory levels in Industrial and Commercial? Is this the beginning of a longer correction?

I would characterize it a little different on the Industrial and Commercial. We've seen and we've said this multiple quarters, industrial and commercial has definitely not been as impacted as home and life. I mean, that's clear. But it has been impacted. And it's been impacted consistently even, yes, we had a record quarter last quarter. That quarter would have been way better because it has designs ramping and things that have been helping it have a record quarter, but it's still diminished from what it should have been and from wasn’t for this market environment. So I think what’s going on is not a new phenomenon, it's actually been long March, and we're continuing to see that going into Q2, I'm sorry, Q3.

Then I wanted to ask on the gross margin. So in June, top line was okay, but actually, you had a higher mix industrial/commercial margins, I think, were worse than your guidance. Just trying to understand, I know you mentioned the timing of pricing and cost, but I think that was something that you should have contemplated, I guess, when you gave the guidance. I'm just kind of curious what changed in June? And then when you look at September, huge revenue downfall, but the margins are flat. So can you walk me through that? And is there any further headwinds? Does it take some time for the higher-priced inventory to flow through? Can you talk about what happened in June and kind of any perspective beyond September for gross margin?

Sure, Blayne. The reason for the sequential decline was related to the recent price increases. The deviation from our guidance was primarily due to the product mix. Specifically, we shipped out more products with lower gross margins in the second quarter, while the trend stabilized in the third quarter. However, it's important to note that this aligns with our expectations and long-standing commentary that we anticipate some gradual erosion of gross margins over time, a point we haven't emphasized recently.

Yes. I mean, it seems like a long time ago now when we're in the supply chain crisis and we were getting pressure to increase margin models and these types of things, and there was some commentary in the industry that this is new normal. Our view was it was temporary, and that's what we at least are experiencing playing out that if anything, the easiest way to conceptualize things is they're back to normal now on just normal pricing pressure that we saw pre-supply chain crisis, and that's what we're seeing now. And the supply chain prices was the anomaly. I think if there was a way to look at it. And it's steady, if there's no step functions or anything like that going on. And the other dynamic that's worth pointing out that is substantial is the strength of the product portfolio and Series 2 that we keep talking about. We're going to be announcing Series 3 in a few weeks. But Series 2 is still early days in this ramp and the strength of this product cycle. And I just mentioned the FG-28, a new part that came out. Just to give you all some perspective, that part is a solution that integrates both sub-gigahertz and Bluetooth, and it brings new to industry capabilities, AIML capability, industry-leading security that has an incredible effect in helping us navigate the market while there is normal industry price pressure.

Blayne, this is John, to get one more comment. The point of emphasis again is that we see ourselves delivering a premium gross margin to the IoT market. It just felt it was important to like that.

That has been consistent throughout and hasn't changed.

John, can you clarify if you think the 7 to 9 days of DSI will be the new normal, or do you expect it to decrease somewhat over the next few quarters?

Yes. Srini, we'll monitor that over time here. Certainly, it may come in. It may go up a little bit. We're just sponsoring that and not really I do know as Matt said, not overly concerned about where that is setting. Our focus is more on the end demand, and that's really the basis of our commentary on the state of the market.

Okay. Got it. And then, Matt, maybe you can talk about the environment. It looks like the units are actually up sequentially. So obviously, you said demand is weak. Is it more of a pricing commentary? Because in a cyclical correction, we tend to see units come down quite meaningfully. So I'm just wondering, as we look through the September quarter, what does your guidance, I guess, contemplate in terms of units and ASPs? And how are you thinking about just the unit correction over the next, I guess, a quarter or two?

Yes. I think. But the easiest way to think about it is we're now in a demand-challenged environment, so that's the primary driver. We just mentioned the pricing dynamics are pretty much as we expected, and we're not seeing anything new or anomalous there. So it's really a story of end demand, which is really a story of units ultimately that we're navigating. If that helps frame it.

Yes, that's helpful. And then maybe one last one for me. Matt, obviously, you've been in the market for a few quarters now with your Wi-Fi solutions. And just curious if there's any update on the progress there? How you're thinking about that particular product line?

Yes, sure. So I guess we didn't mention that in the remarks, but if you go back, a big picture, the quick answer is good and strong, and we're happy with the progress. Let me be clear, it's never big enough, fast enough. That's the world we live in. But ultimately, as we've said, we made a focus years ago to increase our focus on Bluetooth. We've loved our progress there, fastest-growing space for the company. We expect that to continue. We have the design momentum to continue that. And then we added the Wi-Fi piece. And now we have the benefit of Wi-Fi being one of our stronger growth areas as well. So we are seeing the progress that we wanted to see there. Even with the market environment that we're in, we're still seeing strong Wi-Fi performance, and we're happy about that.

Yes. Sorry, can you hear me?

Yes.

Great. I have a couple of questions. First, regarding the new cybersecurity labeling, what impact do you anticipate? Is this something that will affect the next few months? When do you believe customers will begin actively seeking this type of solution? When can we expect to see a greater impact on revenue from that initiative?

Sure. Quick answer is it will be a while. I'd love to say short term, that would be awesome. But I don't think that's realistic the way these things usually play out. For anyone who's not familiar, the Biden administration cybersecurity labeling program really creates, for lack of better terms, some standardization for end markets, for consumers and companies around securing these devices, which is exactly what you'd want to see and what's needed. So to answer the question directly, I think you're going to see this take time to ramp as the industry starts to deploy it, and you're talking quarters and years of impact here. An easy way to frame the positioning is we've been betting on focusing on security now for a long time. We have the strongest portfolio and capability out there in the industry, and this is good for us. This serves us well. And we're already known for this by our customers. We win business because of this by our customers. And this will only help. It gives us a tailwind, but it won't be short term as much as I'd like it to be. And it will be a long game.

Yes, Jeremy, this is John. It's a good example once again of Silicon Labs advancing the state of the art in an important area for IoT and being recognized as a thought leader in the space.

I would think of it the same way as thinking about security. Years ago, we were offering these features and capabilities and some people were scratching their heads. Now we win designs because of it. Look, the administration is updating policies to help enable these things that are already built into our inherent capability of our entire portfolio. I think the same of AIML. We're introducing capability in devices that today, some people say, how is that going to work? That is the same concept just a few years later down the road, where you're going to see multiple applications and devices taking advantage of these processors and their efficiency to enable new capabilities on the edge. So same way, just further down the road.

Great. It's very helpful. Maybe just a quick question on geographic expectations. It sounded like Europe was quite strong in the second quarter here. How do you see this playing out in the third quarter? Is there any areas of relative strength or weakness that you can call out?

Sure, Jeremy. I think the first thing to note, and we did not talk about this in the prepared remarks, is China. Our China revenue, again, has been weak and impacted by the Chinese economy in the second quarter down around the 10% level for the full first half of the year. And we have not seen signs of recovery there. So that said, the weakness we're seeing really is global at this point. There's a widespread overall weakness in demand, and it's not isolated to a particular region.

Nick Doyle for Raj Gill. I just wanted to focus on the September margin guide again and just kind of ask more directly how you're able to keep the margin declining from declining when we're seeing such a sequential revenue drop? And is that an indication of mix or ASP strength?

Yes. Sure, Matt, it's John. As a fabless company, we really operate strictly on a variable manufacturing cost model. We do have a limited amount of internal fixed costs, but it's pretty modest compared to a full-band chip. So best to say that our gross margin really is not influenced by the revenue level; that's variable based on what we're seeing at that point in time. That's really the main explanation to your question.

Okay. Got it. For the bookings commentary, can you just expand on which markets or applications you're seeing more of that slowdown? And then also, do you think the customers are maybe hesitant to order related to this new intra-quarter cancellation policy? And could that be a positive in terms of over-ordering on the next up cycle?

I’ll begin, and then John can provide additional insights. The current bookings pattern is quite varied. It's important to note that we don't rely on one or two major customers for a significant portion of our revenue; our largest customer accounts for less than 5%. What we observe is widespread activity across various customers, channels, segments, and regions, making it challenging to identify a distinct trend. However, we do notice that customers' confidence in current demand and their ability to manage inventory is not strong. While their long-term outlook seems stable, they are navigating this uncertainty by placing orders with very short lead times. Our current backlog situation has returned to pre-supply chain and pre-pandemic levels, characterized by substantial backlog work to manage, but now with even shorter lead times due to reduced visibility and certainty. I realize this doesn't directly answer your question, but it reflects what we are experiencing.

Yes. And second part of your question, Nick, is not really – I don’t see the policy affecting things overall. Our approach is to try to gain as much visibility and confidence we can short term. But the customers are managing their inventory levels and their own experience over a longer horizon trying to position the home.

This concludes our question-and-answer session. I would like to turn the call back over to Giovanni Pacelli for any closing remarks. Thank you, Sarah, and thank you all for joining this morning. This concludes today's call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.