Aptiv PLC (APTV) Earnings Call Transcript & Summary

All right. Good morning, everyone. Welcome to day 2 of the UBS Industrials Conference. Very pleased to kick off today with Aptiv. With us today from Aptiv, we have Kevin Clark, CEO. We also have new CFO, Varun Laroyia, in the audience as well joined by the IR team. Going to just kick it off with a little fireside chat and then, hopefully, we'll take some questions.

Kevin, I guess, just to start, I want to reflect on the past year or so. And it's obviously been a challenging year for the industry, Aptiv included. And what were some of the challenges that you expected, those that weren't expected? And how would you sort of rate how Aptiv fared? What are some of the things that you feel have done well and where are the areas for further improvement?

Sure. Great. First, Joe, thanks for having us here. So really appreciate it. I really appreciate it. I think as Joe had stated, obviously, the industry is going through transition, and this year has had some very, very unique challenges. I'd say if we were to characterize at a high level, heading into the year, our outlook as it related to overall growth from a vehicle production standpoint was relatively -- was viewed as relatively conservative. I would say the area that we probably underestimated was the choppiness of vehicle production, especially what we saw in the second and third quarters of this year. So we saw tremendous volatility across, for us, principally 4 or 5 OEMs. And it spanned the multinational joint ventures in China where we were significantly impacted; one of the global European-based OEMs where we were impacted in Europe, but significantly in North America, especially in the third quarter; as well as another North American OEM in the U.S. market. So those were some of the big swings we saw as it relates to vehicle production. What did we do well? Consistent with how we've operated in the past, we're very focused on -- we operate in an industry that's very focused on cost, that requires a flexible cost structure. We headed into the year with a very intentional strategy to continue to reduce our cost structure. So we actually reduced salary payroll by 10% heading into the year to get in front of any concerns that we had as it related to vehicle production. We're very aggressive as it relates to what we're doing, in addition to that part of the cost structure, what we're trying to do from a material cost reduction after a number of years of material inflation. Our sourcing team did a great job working with the supply base, working with our engineering organization to engineering in lower-cost solutions that we would benefit from financially and share a portion of that with our customers. I think what it translated to is our outlook for the year -- our revenue is down 2%. Our current outlook for vehicle production is down 4% globally, so some growth over market, most of that coming here in the fourth quarter. Year-over-year earnings growth, operating income and EBITDA growth of actually 10% in that environment. EBITDA margin expansion of 170 basis points, EPS growth of almost 30% and really, really strong cash flow growth. So we'll generate almost $1.3 billion of free cash flow this year, so again, up almost 30% on a year-over-year basis. So from an operational standpoint, in a volatile environment or dynamic environment, our machine operated extremely well. So from a positive standpoint, I'd say, Joe, that's one of the areas that we're very proud of.

Yes. That's super helpful. Now I guess you mentioned some of the strong growth over market that's sort of expected in the fourth quarter. We're sitting now in December. Has -- we've seen some announcements of production changes here and there, a little bit in the U.S., maybe a little bit more in Europe. Is that sort of mostly -- has that mostly played out as you sort of expected?

Yes. By and large, fourth quarter vehicle production schedules, we've seen some variability across OEMs, as there always is. So I would say slightly more downward pressure in North America and Europe, stronger growth schedule in China, so -- but both offsetting each other.

Yes. And I guess just to sort of react to maybe some sort of more recent news we've sort of seen in the headlines in the industry as it relates to customers anyway. One is some of the VW strikes. I know they've been sort of very spotty and limited to date. Is that something you're monitoring? And sort of how do you prepare for some of that? You obviously have a lot of experience with -- in the UAW over the past year or so. But how do you plan the business on that?

Yes. So that's something that we're very focused on. As you can imagine, it's not only day-to-day, it's hour-to-hour contact and making sure that we're aware and we're in a position to react. At present, that situation seems to be under control and in line with what our expectations had been. But that's something that we watch very closely. To the extent we see something that causes us greater concern, we have ability to flex our cost structure in response to that. Some of that we've done in advance, quite frankly, of the start of the fourth quarter as we headed into the fourth quarter. But we feel like at this point in time, we have that pretty well under control and managed.

Okay. I know we'll have to wait until sort of early next year for official '25 guidance. But at a high level, I know you've given some prior commentary that you think LVP could be flat to maybe down a little bit next year. Is that sort of -- we've had some more -- a little bit more data points. We've had some geopolitical news as well, I guess, election here in the U.S. Has that changed at all? Or is that still sort of roughly how you're beginning to...

Yes. I think if we were to call the ball today, and we're not calling the ball today, and you're right, there's some dynamics here. I'd say we would envision vehicle production likely to be down a bit, so down 1 to 2 points globally. It's how we would call it. Roughly down 1% to 2%, let's say, in Europe and North America, with North America being impacted by some of the inventory issues that you've been reading about and watching among the D3. So how they deal with bringing inventory down in the fourth quarter will somewhat determine how next year plays out from a vehicle production standpoint. And looking at China right now, a view that China is roughly flat from a vehicle production standpoint.

Any view on -- is that sort of more of a macro call on the Chinese economy? Or any view on sort of whether stimulus for vehicles is extended?

It's a mix of both. I mean part of it is a concern that it's not extended, and we have a bit of a pull forward into this year. So we'll wait and see. The government is very focused on hitting GDP targets, not only 2024, but also 2025. So it is quite likely that incentives continue to get extended, especially around new energy vehicles. So there'll be some element of that. But we want to be, to some extent, conservative on it.

Yes. So I guess in that backdrop, in the past, you've sort of hinted that in a sort of flattish environment, you think you could sort of grow mid-single digits over. There's a number of different sort of factors underneath that, though, right, customer mix, EV penetration there. So like how should investors -- again, without sort of official guidance, just sort of how should investors think about the different points for potential growth or outgrowth, I should say, for Aptiv over the coming years?

So we have roughly 5 customers that when you look at this year in our guidance, their reductions in vehicle production or their impact on Aptiv from a revenue standpoint was worth roughly 5 points of revenue growth. And we've walked through those in the past. I won't walk through them again. But we have a couple who had significant reductions in their production schedules, significant reductions in their revenues. And they are a -- those customers were a big percent of our total sales. They are amongst our top 5, 6 customers. So from a mix standpoint, we're significantly impacted. I think there's an element of -- from a reasonable standpoint, my view that it's hard to envision a situation where we were impacted like we were this year. So I'd say that's one. The second is our outlook for things like -- areas like active safety. So we'll grow close to almost 20% year-over-year from an active safety growth. So still strong, strong growth within that product area. We think there'll be some amount of balance as it relates to electrification. And we'll benefit from the ongoing trend for vehicle electrification, albeit at a slower rate than where we've been historically. We're experiencing very strong growth in adjacent markets, so those areas that are outside of nonautomotive, that those will continue. And then again, this year, we'll have a record year for new program launches. We'll launch almost 2,300 new programs, that's up almost 10% year-on-year. We'll get the benefit of those new programs being launched as we head into 2025.

Yes. I guess just on those customers, is stabilization of those customers, what -- will that allow you to sort of show some growth? Or do you actually need a rebound in those customers?

No, stabilization would drive the sort of growth relative to vehicle production we're talking about.

Okay. You touched on EVs, and I guess we could sort of talk a little bit about this by region because it seems like there's sort of 3 diverging points. Let's, I guess, start in Europe where there are more stringent CO2 standards coming in. There -- that means a mandate for a higher percentage mix of EVs. Now there's a myriad of ways maybe automakers will -- can try to sort of attack that, maybe selling less size, maybe incrementally pushing some EVs. As we are in December now, and I think sort of first quarter planning from these customers is starting to sort of trickle in, what are we -- how are you planning for these -- for the changes in CO2 regulation?

Sure. So Europe right now, all the OEMs that are our customers that we're dealing with are operating under the assumption they have to hit the CO2 targets for 2025. That's -- they have to. So that's how they're operating. They're working with their governments as it relates to the cost of not meeting those targets and how that gets managed through. But all of them are -- from a vehicle production schedule and mix standpoint, that's how they're operating. It's important to us because when you look at BEV vehicles, for instance, we have roughly 2x of the content opportunity than we do on an internal combustion engine. So that mix has a significant impact. So that's something that we're working closely with those OEM customers. Obviously, given what we've gone through this year, there's an element of scrutiny as it relates to their schedules and what we're base-lining from an overall planning standpoint. So there's some incremental conservatism that we're building into our outlook regardless of what their production schedules say. But sitting here now, that's how they're approaching the market.

And from an Aptiv perspective, given that content differential, even if there is some lower ICE volumes, is that still, do you think, a net positive for you from a...

Yes, that would be a net positive.

And unlike some other companies where some of the EV product is less profitable or unprofitable, for you, it's -- there's no sort of margin differential or is there even a margin benefit onto that front?

Yes. So our EV product portfolio includes both high voltage as well as low voltage in a battery electric vehicle. So when you think about the low voltage mix, it's comparable to what we have in an ICE vehicle. The high-voltage product portfolio, the margins tend to be slightly higher than what we have on the traditional low voltage. So slightly margin accretive.

Great. If we shift gears to the U.S. or North America, we've obviously seen a slowing growth in EV penetration. I don't think necessarily maybe too different from what you had sort of laid out a number of years ago, but definitely lower than, I think, sort of more recent expectation if we go back 18, 24 months ago. Now we have the election. It seems -- and nothing is official, of course, but it seems high probability that at least consumer credits get pulled away. There could be a relooking at EPA. California will need to be dealt with as well. I'm not asking you for it to sort of opine on what you think will happen. But what I am curious about is, have conversations with your customers started about how they will sort of try to sort of plan for their portfolio here over the coming 0.5 decade?

Yes, absolutely. I'll start with, clearly, EV adoption in North America has slowed. OEMs -- our OEMs in North America, I would say, are focused on a couple of things. One, they're continuing down the path of building BEV platforms. I'd characterize it as a pace at which they're moving. All of them are focused on developing incremental solutions around hybrid, plug-in hybrid. And they're doing that because when you think about a North American product cycle, it's typically solutions are developed today and they're launched 5 years from now, as an example for an OEM customer. So they have to operate through election cycles. So electrification is continuing, it's slowing though. So all of them are continuing down that path. I would say the one variable is how aggressively they're pushing towards full BEV versus augmenting their existing product lineup with things like plug-in hybrids. And it varies a little bit. So that's something we're working with them very closely on. It's something they're trying to navigate. It's something that we're having a lot of dialogue with members of what will be the new Trump administration in terms of what are their plans, how are they dealing with things. And then also, there is an element of the population in North America, let's set aside government regs, that they prefer an electric vehicle, whether it be for performance or for the overall environment to global warming. And we have strong positions with customers that have very strong positions in North America as well as Europe and China, and we'll continue to benefit from it.

So let's take a hypothetical customer who is, let's say, going down more of a BEV path, and now they're reevaluating and maybe adding plug-ins or range extender type vehicles. Is some of the work you've done with them on the BEV side or even on the legacy ICE side, since they're both in there, is that leverageable into sort of helping them get to the plug-in solution?

Yes. So our product portfolio, we have a very broad electrification portfolio from wire harnesses to busbars to connectors to cable management solutions. So we really run the full gamut. And whether it's a hybrid solution, a plug-in hybrid solution or a battery electric vehicle, we have the product portfolio. And the positive is on a hybrid, we have roughly 1.5 the content as we have on an ICE vehicle. On a plug-in hybrid, it's almost 2x. BEV, it's more than that. So we benefit from that mix if it's our customer.

Okay. And is the -- just to clarify, is the pace of those conversations accelerating now? Or has it sort of been pretty steady? And like what's the tone of those conversations?

I would say over -- during 2024, the pace has been accelerating as the North American OEMs were challenged with BEV platforms that previously they've been really focused on, more so than hybrid. There was a mindset in the industry, broadly speaking, that when you go back 10 years, the transition would be ICE to hybrid to battery electric vehicles. There was an element of the industry that viewed stopping at that hybrid, whether it be mild hybrid, plug-in hybrid, at the end of the day was incremental investment of a new system race towards BEV, save that investment. Starting last year, there was some rethinking that's going on. So I'd say the pace has picked up.

Maybe just sticking with the U.S., and since you sort of touched on the election, obviously, tariffs have been a big focus of the market and investors throughout auto. Your footprint is obviously pretty heavily Mexico-based, as is really the entire industry. So can you just sort of, I guess, a, sort of go over the footprint; b, what kind of recourse you would have if tariffs were put in place? And I guess maybe even just to start, if you could just sort of, at a very high level, like help clarify like if tariffs were to come into place tomorrow and you are shipping from Mexico for final assembly in the U.S., who actually bears the responsibility of that tariff contractually right now? I understand it will end up in a negotiation, but like as it stands.

Sure. So the industry -- let me give context. The industry imports from Mexico into the U.S. roughly $80 billion per year of products, right, that go into assembly plants in the U.S. In addition, several of the OEMs actually have assembly plants in Mexico that brings product into the U.S. So the dollar amounts of flows are significant. And it's USMCA and its predecessor, NAFTA, that was negotiated, I don't know, 25 years ago. The industry supply chain has been built, has been developed and is really efficient between Mexico and the U.S. and operates extremely well. So the flow of goods is significant. We import from Mexico principally in the wire harness area, principally when you think about it, roughly $4.5 billion of goods into the U.S., $4.5 billion, $4.6 billion of goods. So depending upon tariff, if tariffs were applied, contractually, we don't have automatic offsets with our customers. So that's something that we'd have to go and we'd have to negotiate with them. Obviously, when you think about the size of the imports into Mexico -- from Mexico into the U.S., you'd have a massive industry, automotive industry challenge that would add thousands of dollars to the price of a vehicle, right, thousands of dollars. So you think back in 2016 in the Trump administration, the concept of border taxes and items like that, which was a similar sort of discussion between U.S. and Mexico and the impact on vehicle prices and the impact ultimately on production in the U.S., which translates to employees at the OEMs, more rational, saner heads prevailed. And our view is this is a similar situation. There's been a lot of rhetoric. There's actually, and we stay obviously close to this, a lot of discussion already between what will be the Trump administration and President Sheinbaum's administration in Mexico. Mexico is very focused on avoiding tariffs. They're very focused on being responsive. They understand the benefit of employment in Mexico. So we think this is something -- like we've dealt with previously, that's something that will get addressed. There'll be changes made from an immigration and other standpoint. And ultimately, the industry will continue to operate as it has in the past.

Okay. Always something that keeps us on our toes. The -- if I could just go back to actually some of the conversations that you're having with the customers and sort of over the past year, you said sort of a little bit more focused on plug-in hybrid solutions, other sort of other types of solutions away from a straight BEV. Like in the past, you have stated when you sort of think about a smart vehicle architecture or a zonal architecture that it can be done on any type of vehicle, but it probably made sense to look at it as you sort of completely shift to EVs. Has that changed? Are they still looking to adopt some of the zonal architecture features if they don't go full battery electric?

Yes, definitely. So OEM customers, what Joe is alluding to in the past, as we talked about vehicle architecture and you talk about -- you think about an OEM that historically has developed ICE platforms, it's a big change going to an electric platform. So it provides them with an opportune time to really rethink vehicle architecture, right? They start with a clean sheet of paper. And that continues, quite frankly, to be true from a clean sheet standpoint. But as OEMs look at complexity going into the car, content going into the car, whether it's a mix of hybrid or EVs and the desire to simplify, standardize, take out weight mass from a wire harness and vehicle architecture standpoint, whether it's ICE with hybrid content added or EVs, they're all focused on it. I mentioned on our, I think, our third quarter earnings call, 3 years ago -- 2 or 3 years ago, our OEMs -- the number of OEMs that were working on really re-architecting the vehicle was actually relatively small. Today, it's north of 25. And it's China, it's Europe and it's North America. And it's all focused on, how do they reduce weight, how do they reduce mass, how do they make it easier to package and, obviously, how do they take out cost. So the opportunity obviously remains there.

And how -- if you think about a plug-in hybrid solution versus a zonal architecture versus, I don't know, a pure BEV, presumably, there's got to be sort of another box maybe for the combustion part. But otherwise, are they fairly similar setups? Or...

Yes, fairly similar. I mean you could end up with a basic zonal sort of architecture where you're consolidating some of the power distribution in zones to make it more efficient, reducing the amount of wire harness, length of wire harness on a copper in a car. So you can go from relatively simple to more complex.

Okay. China, so obviously, this has been a big area of focus. And I think when you look back, you had a lot of exposure to some customers that have faced some fairly [ drastic ] declines. We even saw today the write-off that one of your customers is sort of taking there. Not a big surprise, right? But it also seems like you're making some progress on the domestic side. So maybe just talk a little bit about the nature of that business, the competitive dynamics. Is it different than what happens in the Western world? And like why would a domestic automaker choose in an Aptiv versus a local supplier, especially -- I know this is sort of further down on the supply chain, but now we're sort of seeing more and more, I don't think these are demands, but push from the government to sort of try to use more local suppliers?

Yes. So we've operated in China for 30 years. We have 100% localized product portfolio and capability there. And we've served China for the China market for China customers. It's not a place that we manufacture and export into the rest of the world. Our mix today is 50 -- from a revenue standpoint, roughly 55% China local OEMs, 15% a global battery -- North American-based battery electric vehicle company, and the balance, multinational joint ventures, so the Western OEMs. Those Western OEMs have lost significant share over the last few years. Next year, putting it in perspective, we'll pick up roughly 10 points of that revenue mix will go to the locals. And what do they look for relative to what our traditional customers look for? Speed is extremely important, and it's one of the reasons we're able to change that mix so rapidly. Typically, between award and launch in China with our local OEM customers, it's roughly a year. Compare that to what we have in the West, that's roughly 3 years, so 1/3. So they move much faster. They're introducing vehicles much more quickly. And those that are the largest and have the strongest market share position are really focused also now on how do they export and how do they move production into Europe and elsewhere. And that's an area where we've been particularly focused on, how do we take our capabilities and knowledge of markets outside of China in addition to our competitive position in China and how do we support those OEMs as they grow outside. So I would say that's one, Joe. Two is speed. Speed is really, really important. And then like our OEMs across the globe, cost effectiveness, how do we do it cost effectively.

Yes. What about the inverse? Because something that's come up a lot more with investors of late is Chinese supply base moving into Europe, potentially into Mexico. Have you seen any of that? If so, what product areas would you sort of see?

Yes, we've seen some of that. Most of that, I would say, is still aspirations to build product outside of China, although there's been some progress. We've seen some of that in and around the low-voltage wire harness area, as an example, as that supply base has built up in China. But it's something, at least as of now, and obviously you need to be appropriately paranoid about that, it's something from a competitive and cost structure standpoint, we've been able to manage against. There's 50 OEMs in China. It's important we're not -- we're focused on really serving the top 10. We're not focused on serving the balance, and that's principally driven from a cost standpoint and a quality standpoint. There's a place at which we really just don't want to play. And then we've seen a lot of progress, quite frankly, working with the locals as they've been focused on exporting more and moving production outside of China.

Why don't I just pause and see if there's any questions from anyone in the audience? Otherwise, we can keep going. Anything? The -- going back to the zonal architecture, smart vehicle architecture, right, this is sort of, I think, been another area of concern. You've seen some customers try to do this themselves. You obviously saw sort of the Volkswagen-Rivian announcement. I guess, how do you see that business evolving over time? Is it really a -- is it going to be a mix of more value -- active value-added components versus sort of build-to-print type of business?

Yes, it's a good -- it will vary, right? We're focused on developing full-system solutions because we view them as more cost effective for the customer, quite frankly, and obviously more beneficial from us both from a revenue and profitability standpoint. However, we engineer all of them so that they can be separated and sold as separate components. We want to participate as long as it's at a profit level that is acceptable in that revenue opportunity. So we position ourselves to support in under either path.

And when -- I mean, what's sort of the -- if you think about the bookings or the quotings anyway, sort of what's the -- what would you say sort of the mix of that is? Like because -- and I guess if someone does come to you for a specific component, is there an effort to sort of go back and educate the benefits from using a sort of more complete system?

Yes. Yes, that's a part of the normal commercial cadence and just given our experience in and around vehicle architecture and knowledge in and around advanced compute. So that's something that naturally happens. We operate in an industry that for 100 years has been focused on how do they disaggregate. That tends to be the thinking and the approach. Our view, that translates into more complexity, quite frankly, more cost. Different OEMs have different approaches to it. Today, most of the solutions that -- or programs that we've been awarded have been that full zonal controller full solution. But as the industry adopts the new technology, we'll get a broader and broader mix, for sure.

Yes. You alluded to in sort of the opening question, some of the successes of the past year. And obviously, the margin performance, the cost control has been a bright spot. As you reassess this ever sort of changing industry landscape and, at least in the U.S., there is sort of, as you mentioned, sort of slower adoption on EV, does that change your investment profile at all, whether either from an R&D or capital perspective?

Sure. Yes. I mean we try to be reactive to where the market opportunity is. We've spent a number of a number of years fine-tuning and enhancing our product portfolio. Over the last 10-plus years, I think we've done roughly 20 acquisitions. We've sold, I don't know, a handful of business, 4 or 5 businesses. We spun off, as maybe most of you know, our powertrain business. So we're constantly looking at our product portfolio. That's something we'll continue to do, continue to evaluate. We are big believers that the world will continue to head towards electrification. We strongly believe that. It will be at a different pace by region. OEM customers certainly in the West are struggling with that transition, and players like ourselves need to support them in doing that. But obviously, we also got to be focused on where can we generate the most returns and where do we allocate capital. So it does impact it.

And you mentioned always sort of looking at the portfolio. I know in other conversations that you've sort of expressed a frustration, obviously, with the stock and sort of the multiple. What would you sort of convey to investors as sort of misunderstood either with the Aptiv story overall or the portfolio or the collection of assets you have?

Yes. I think when you look at how we're positioned within automotive, the fact that almost 20% of our revenues are outside of automotive and it's a focused growth area, that if you separate what you hear from a narrative relative to what's actually going on, a great example there is when you hear about delays in certain programs like electrification, for a player like Aptiv, that's not a zero-sum game. The reality is there are existing platforms that OEMs need to have enhanced, upgraded and modernized. So when those situations happen, the reality is there is an incremental opportunity that we have, whether it be in ADAS, in user experience or in other areas that comes into play. And we have a number of opportunities that we're working on now actually to fill that gap. As some of those OEMs go through that transition, it may have a bit of a delay period for a couple of years as they move from an ICE platform to whether it's a hybrid solution or a battery electric vehicle solution.

Maybe we could just spend a second on how you view your footprint globally in the context of a couple of things that have sort of come up already in the conversation today. One, overcapacity at the -- your customer level in Europe. And then in China, obviously, some of your customers have been in sort of almost structural decline. So how do you -- like is there work to be done in your footprint in either of those cases? And maybe if you could just go region by region...

If you go region by region, China, we have been rotating our footprint. And we have been, as we've been impacted this year in terms of customer mix, rotating, consolidating and shifting. So that's something that has been taking place that I'd say we're in front of, quite frankly, from a footprint standpoint. When you look at Europe, we're very well positioned vis-à-vis our customers and current production schedules. We'll continue to rotate out of Eastern Europe to North Africa. So that trend will continue.

For labor purposes?

For labor purposes, absolutely. Sorry. And then when you look at North America, again, for labor purposes, less for capacity standpoint, just given the demand for labor in Mexico, given what we've experienced from a labor inflation standpoint and ongoing rotation into Central America where costs are lower and supply chains are mature enough to where we can serve customers that operate in the North America market.

Can items like wire harnesses, actually, can they be transported from Central America?

Sure. Yes, absolutely.

Does that create any other logistical challenges? Or...

No, it's -- the supply chain is not mature as it is in Mexico. So there is an incremental cost from a supply chain standpoint. But they're -- the savings in labor is relatively significant. And then we've talked about it, we're working with our customers. And the only way we can do this is with customer support on how do we take effectively higher cost labor out of the manufacturing process from a wire harness standpoint, how do we automate certain aspects of the wire harness. But that requires us working very, very closely with our automotive OEMs. We have one global customer where, if you were to visit our manufacturing facility in China, it's virtually fully automated from a wire harness standpoint. But that requires starting with design of vehicle all the way through to production to enable something like that to happen.

So if your customers sort of design the vehicle, certainly, you're better able to automate your processes. Maybe just to close, you have the ASR out there. If you could sort of maybe just again update us on sort of the mechanics, maybe if the -- if it's possible to sort of understand how much the banks have sort of already bought back. And then you mentioned the strong free cash flow qualities of Aptiv. Once the ASR is done, how do you sort of view uses for that cash?

Yes. So we'll see where we are as it relates to that. ASR mechanics, simply put, we announced the ASR, stock price at that point in time was roughly $72 a share. You strike basically the mechanics of given the size of the ASR, this is the amount of shares that you effectively retire that reduce your share count. The reality, though, is how it gets exercised through the banks is they continue to buy stock at whatever point we're guaranteed to discount to the daily VWAP. So the reality today, we are buying stock at obviously a lower price than that $72 a share. So when the ASR period ends, which will be end of the second quarter, I think end of May of 2025, the reality, more shares will have been retired if you assume the share price stays where it is today than what was originally assumed at the time of the announcement of the ASR.

So the amount you retired right off the bat, which I think was 2/3, was that there will basically be -- you have the remaining 1/3 plus a true-up for the price...

Exactly, exactly. So for the same dollar value, we'll end up retiring more shares. So the benefit of the ASR will be even greater. Listen, as we look at cash flow, obviously, we'd like to continue to grow our business. We'd like to diversify the markets we serve. We'd like to be able to deploy capital in those areas. But we'll balance that versus where our stock price is trading at that point in time.

Great. With that, we're out of time. Kevin, thanks so much for joining us today.

Thanks, Joe. Really appreciate it.

Yes. Thank you.

Thanks.