Axalta Coating Systems Ltd. (AXTA) Earnings Call Transcript & Summary

It's a pleasure for me to host this next session with Axalta. This is a business that I've been familiar with for a long time back from when it was part of DuPont, but the changes since then have been dramatic, and I would say, especially in the last 2 years. So it's a pleasure to have Carl Anderson up here with me. He's been with the company not quite 2 years. And so it will be good to drill into all of the changes. Carl was previously at Meritor, along with Chris, the CFO and Tim, 3 of you were together for many, many years.

Yes, yes.

So that's a very interesting part of the culture here. Prior to that, you were at General Motors. So good background, Carl.

Yes, thanks.

Why don't you give us a start off here from your perspective, coming into this company from the outside, you've been there a couple of years. There's been a lot of change that you guys have implemented. From my perspective, it's -- a lot of it is cultural. The event that you hosted last fall down in the Naval Yard, which was very useful. It was very apparent to us that there has been a meaningful cultural change. And maybe share your views with me on from kind of a new member in the organization when you came in, was it obvious to you that this was an opportunity? And how would you characterize it going forward from here?

Yes. Well, Steve, thanks for the invite. Very happy to be here. But yes, I would say the Axalta -- when I was actually -- when I left Meritor, I was the CFO of XPO for about 9 months before Chris recruited me over to Axalta. As I was evaluating it, one of the intriguing things to me was it was a beat up stock. It had a ton of turnover at the C-suite, especially the CEO. I think Chris was like the fifth CEO in a very short amount of time period. But the assets and the capability of the company was extremely strong from a technology perspective. And so as we started the journey, it became very apparent very quickly that we had to focus on culture in the company. And what does that mean? Well, some examples are when I first joined, if it was a $50,000 request to spend money, it'd come to the CFO. And I'm like, why am I getting this type of request coming in? I should not be the one making this decision. That should be down in the organization. But it was set up was it was -- there was no decision-making capability that was given to the teams. I think we overcomplicated the business in how we were structured. For example, we had operations was always a direct report to the CEO. The businesses, even if you ran a business, you didn't own 100% of your P&L. Maybe you own the sales, but you didn't owned the operation -- fixed costs, variable costs, that was somebody else. And it created an environment where there is no accountability within the organization. And so we quickly made an organization change where operations was now part of the business. So if you were a President of business, you own your P&L. We changed the delegation of authority limits for all the teams to empower the teams. And again, back to the $50,000 example, where President has now had real authority to make decisions and we empowered it. And we just -- and then it created an environment where people were bought in making decisions and they felt they were part of something, right? And so those were some of the small things that we did right away. We also had -- we used to have 35 different bonus plans in the company for our size. So think about that, 35 different bonus plans. And it created this tension between teams where we weren't looking out for the greater good of Axalta. And so now we have one. And so these are some of the things that we've done very, very quickly. The team is beginning to perform, I would say, from a -- in the past the -- to put it in perspective, the payouts for long-term incentive plans, rightfully so, were abysmal, right, because the stock didn't do anything for years. But these were payouts were 0% or 2%. So there was no long-term kind of dollars out there for the team. And so we began to evolve and change that now. And now I would say the last couple of years, short-term bonuses have been paid out. There's more buying in the company. And so all of that is -- you're getting some momentum. And I think a lot of that is you're starting to see in the results. So it's been a good start. We're just -- in many ways, we're just in the beginning phases of the turnaround, but we're pretty happy with the performance.

The other takeaway I had from the event down in Philadelphia was it wasn't just at the business unit leaders, there was this view throughout the organization from when we toured labs and so forth, it seemed like there was this view from everyone we spoke to that they had a voice in productivity or something, there was more of a responsible role.

Yes.

How did you do that?

Again, it was -- we try to be out there and whether it's Chris, whether it's Tim, myself or the executive team, we spend a lot of time listening to the organization. And then once we have ideas that are kind of provided, we act on them very quickly. And so it would so -- I mean, so part of it was the feedback loop was very, very quick, and that allowed people to have a little bit more buy-in and they started running with it. And so that was fundamentally one of the things that we attempted to do. So I think moving with speed with kind of #1 in our process.

How do you incent -- if you got one bonus plan, how do you incent someone to really be creative and innovative about driving productivity in their own business when it's one bonus plan?

Well, it's one bonus plan, but as it rolls up, right, there's -- obviously, each business has its own targets, right, when we kind of put together the next 12-month plan. Embedded in there, I would tell you there's a lot of -- we don't accept, "Hey, the markets are going to be down 2%. So I'm going to let my EBITDA go down." It's the opposite. It's what are we doing to continue to drive the performance of the business. And I would say, if you think about this year alone, the end markets are not great being -- they're challenged. We fully expect to kind of drive our EBITDA up at least 5%, 6% year-on-year. But more importantly, we expect to drive earnings per share up close to about 10%. And so that's kind of the plan that we're operating with. I would tell you the internal plan is even higher than that. That's what we're doing external, and that's how we're kind of setting it up. So I think it is -- when people start getting the last 2 years, it's been north of 100% kind of annual bonus payments based off the performance of the company, you quickly start getting people buying in, right? Hey, if I -- now I really want to drive that incremental $2 million of productivity because that's going to go right to the bottom line, and we will all win as a team.

And that delta between the EBITDA growth and the earnings per share is some of that share repo? Or what is driving that?

There's a little share repo, but it's also just our interest expense, sort of [indiscernible] is here as our Treasurer. He's done a really nice job. We expect interest expense to be down probably $20 million, maybe $25 million year-on-year. And so that's also part of the driver that we're seeing.

This A plan that you have for 2026, what would you say is like the primary driver in that? And do you expect to roll out another one beyond that?

Yes. So I think when we put that out in May of last year, I think it was important for us to put together a 3-year plan that was credible that if we delivered on it, there was value creation, but it was also something that was achievable as well, right? And so I know kind of how we're tracking. It was like, hey, 1 year, you're already -- you're hitting 4 of the 5 targets. That was purposeful because I do think we had a credibility challenge historically as a company just based off of from an investor perspective. So we purposely wanted to make sure that the plan that we could deliver on. And so that's how it was kind of set up. So I would say a big focus is obviously on EBITDA margin, earnings per share. Those are kind of the 2 key tenets of that business of the plan. We put forward a greater than 21% adjusted EBITDA margin target. We actually delivered that last year, we did 21.2%, as you know. Earnings per share was -- we put -- it was a 60% 3-year improvement in earnings per share. So it wasn't a layup by any means. But last year, we had a 40% increase in our earnings per share. So I think we feel very good about the plan. I think return on invested capital is also part of the story where we're trying to get close to 15%. I think we finished last year about 14.6%. So we saw that up 200 basis points plus on a year-over-year basis. That will be critical for us as we kind of go forward. I think the only one that is a little behind is on revenue. So the revenue target we put forward was $500 million of revenue growth off of '23. We're probably tracking a little bit north of $200 million of that at this point. But keep in mind, that includes about $100 million of FX headwinds going against us. So more work to do on revenue. But I would say of the other ones, I think we're on a pretty good pace to -- some of it that we achieved last year, some we expect to achieve this year. And we do plan on putting out the next 3-year plan, hopefully, a year from now.

Your end markets are not exactly robust.

Right.

What is your view on the intermediate term on your key businesses?

Yes. So our focus is we're controlling what we can control at this point. So we have a lot of cost opportunities still left in the business that we're driving and taking out costs. But if you look at the end markets for us, we start with Refinish. Refinish, we were just looking at data the other day, insurance claims are down anywhere mid-single digits, in some cases, high single digits, not -- in North America and Europe. So I do think you're seeing that is having an impact just on the repair business in the body shop activity. In fact, I think insurance premiums here in the U.S. were up for consumers, 20% last year, right? And so that is having -- there is an impact that we're seeing. So we are planning for our Refinish global markets to be flat -- this is a volume point, flat to down low single digits for this year. And that's before any of our other initiatives that we're working on. I would say our industrial business, that's been challenged really the last several years. We have it pegged about flat to up low single-digit percent this year on a global basis. We are beginning to see a little bit of improvement in our building products business here in -- at least in the month of January, it's still early days, but Europe continues to be weak. And even general industrial part of our business here in North America, although still challenged at this point. And then mobility, the mobility business is -- for us, it's light vehicle, commercial vehicle. We have light vehicle globally flattish to down low single digits on production. And we have our commercial vehicle business is about -- we expect flat production year-over-year. So to your point, there's not a lot of tailwinds coming from the end market. So that's why here in the near term -- and this year, we continue to be very focused on cost, and that will be part of our story.

You and Chris and Tim have worked together for how long?

Over 20 years.

Okay. I didn't know Tim, but I met him at your event, and I really had his ear for quite a while. I got to tell you, I got the impression from him that with respect to the -- all of the initiatives on cost cutting that you're just scratching the surface. Do you -- would you agree with that?

I do. I agree with that on a couple of different reasons. I think, one, historically, if you look when you start kind of talking about covering off when Axalta was part of DuPont, I think it's pretty clear that if even back then, there's been an underinvestment in our plants in -- for 10-plus years, minimum. And so if you think about what's in front of us, we think there's enormous amount of productivity opportunities we have in our network. A lot of that's focused on -- there's automation opportunities, there's throughput opportunities. And the return profile of that is significant, right? For these productivity projects, that's our best return on capital. It's 20-plus percent kind of IRRs that we would expect 3-year type paybacks. This is something that we're going to be very focused on. We are actually increasing our CapEx quite a bit this year, up about $50 million. And we expect that to run at those levels in the next 3 years. So at a minimum, we should be driving $20 million of productivity savings year in and year out for a multiyear time period. So you put a 3-, 4-year stack on that, you're talking $80 million of opportunities pretty quickly. And that's just on productivity. If I look at other initiatives that we have, we're spending a lot of time on just how we manage our freight movement or what we call our freight optimization, how we move products internally, plant to plant, how we move it externally. There's significant savings opportunities we have with that, that the team is working on. We have too many warehouses as well within the company. So I think there's an ability to consolidate that. And even in our industrial business with Tim taking that over, I think we have 25 facilities that we operate in today, and there's probably some further consolidation opportunity we have there.

Any concerns about raw material cost inflation from here and/or the impact from tariffs?

We're planning for raw materials right now and embedded in the guide to be up our basket up low single-digit percent, call it, 2% to 3% this year. We do have very specific productivity programs internally with our purchasing team to offset all of that.

All of that.

All of that. So we're kind of planning for a net flat impact on raws. I do think if you look at our business, a lot of that raw material is really being -- it's a demand -- supply-demand story as well. So if demand continues to be weak, I think that 2% to 3% begins to kind of come down. This is tariffs aside, but I would say that's kind of how we're evaluating at this point. And then on the tariff side of the story, we did put out in our earnings that we had a direct impact of about $10 million. So not a meaningful number based off of the incremental 10% increase from China that's active today and the 25% pending Mexico, Canadian tariffs that will go into place. So that's kind of the direct impact. What's unclear, of course, will be the indirect or what the market response will be, especially within light vehicle from a production perspective.

Where do you see opportunities for M&A?

Well, I do think M&A is going to be the next part of the Axalta's story. I think we've done a couple -- since I've been here in the last 18 months, we've done 2 deals, one a Refinish play in Switzerland, where we took out a distributor, very high-margin business, allowed us to convert kind of non-Axalta products to Axalta products. And it was a premium of premium markets for us in Refinish. So that was -- that transaction has gone extremely well for us. The other one was we bought into the economy part of our Refinish business, a company called CoverFlexx here based in the U.S., also has Canadian operations. And that was -- we have about 10%, 11% market share in economy, Refinish today, and this is an ability now for us to kind of grow that business. And so that was very critical for us. But as we look at M&A, we do believe we have the right to be -- play offense. There will be smaller bolt-on deals that will continue on, and we call it this distributor roll-up strategy in Europe and Asia. So I think there's an ability to get closer to the customer to -- and I think these distribution -- eliminating that middleman, the margins are actually better than what people think they are. And we also have an ability to convert whatever they're doing with non-Axalta paint just like we did in Switzerland to Axalta. And the valuations are come at a level that we trade a lot lower than where we do today. So it's kind of a win-win-win as we think about that. There are some medium-sized and even larger deals that I think that are under evaluations as well. Kind of given where our leverage is, we have an ability now to lever back up. I think we have -- in talking -- we've been on the Florida circuit the last 2 weeks. I do think we have support from not only our equity investors, but our debt investors that if we do see something that is meaningful where we can even move leverage and turn up, I think there's a good story for us here because we've shown we can delever very, very quickly. And so I think we will look at those type of deals. A lot of it will be close to home in what we do today, whether it's in refinish area or aftermarket. But I think even if we think about transformational type deals, we will evaluate that because I do think we have a position to be -- we're in a different spot now than we have been historically as a company.

So the M&A would be primarily in refinish?

Generally speaking, yes. Yes.

And that distribution channel to acquire there, you get share gains and then you can also sell some of these other products that you have, not necessarily just coatings.

Yes, that's right. Yes, there's accessories that we can kind of -- whether you think of the putties, the tapes and everything else that we can kind of push through that channel as well. We are also seeing some pickup in the DIY market for us, right? So the do-it-yourself market, where we are beginning to get more shelf space with some of the large aftermarket retailers that are out there as well with some of our aerosol coatings. And so that's also a big initiative for the company. We're leveraging an acquisition we did about 4 years ago with U-POL, really to help grow that business. And so even if you look at last year, I think the refinish market was probably down about 3%. We grew revenue refinish about 4%, right? And so part of that is M&A, part of that's the organic wins. And so that's -- we believe that type of growth profile is out there for us as we go forward.

I got to tell you, I've never heard of refinish being DIY.

Yes. I think you're seeing -- you're going to see more of that. I mean, so think of economy, so those that maybe there's no insurance and people are taking those body shops, but also if there's little touch-ups that people need to do, right, with their vehicle, especially kind of just given the cost situation that's out there, we think that's something that has an ability to grow.

Okay. How about the current rollout status and your outlook for the Irus technology? And is that really only on the premium level or it will expand?

It is. Yes, it's currently at the premium level. So what this is, is Irus, it's an automated mixing machine, where if you -- a technician, if you bring the car in, they can kind of have an instrument that will take a kind of 4-dimensional picture of the car from a color perspective, automatically feeds into this machine and the coating get automatically mixed for the painter. And so it's seamless. It provides an ability for labor hours to be much more efficient in a body shop as well. There's a lot of back-end opportunities that gets us as well because if you think about the amount of paint -- we know exactly when they're kind of running low. And so the reordering happens pretty quickly. We're tying this into as well as what we call our Nimbus strategy, which is we will have data now that we can provide the body shops. Maybe Steve, you're the best painter we have. I would be lower on the list. And so we can get down to the absolute painter from a productivity perspective, so we can get that data back into the body shop owners. So I think this digital story is just beginning in many ways. But the rollout to date, we've done about close to 300 machines in Europe. We're just beginning to bring those over into the U.S. So we expect to roll out at least 500 to 600 of these Irus Mix machines here this year. So we're just beginning to kind of build out that ecosystem.

And that 500 to 600, is that U.S. only? Or is that...?

It's still both, but you will see hopefully a couple of hundred plus in the U.S.

And what fraction of the refinish market is really eligible for this mixing machine? Do they -- does it really require enough pink booth throughput to warrant the investment?

Again, the investment isn't all that much, right? At the end of the day, these machines are running, call it, $35,000, right? So it's not -- I mean, it's a number, but it's not a large. And the paybacks are very, very quick on these things, too. So we think the market is probably bigger where we should be talking definitely in the thousands or tens of thousands at some point as far as this type of rollout. We do think it will be the early part of this in the next probably 3, 4 years will definitely be premium-focused body shops kind of at this point. And we'll see how it evolves over time.

The move of Tim Bowes into industrial, is there more opportunity to accelerate earnings growth in that business with him running it? Is that part of the change?

Yes. I think what Tim brings -- so he's a seasoned executive. We were joking before, I call him a good -- I think use the word a-whole, right, a guy that you want in that role, right? He's a cost guy. But I would say what he will bring to the table is the team did a good job last year. We grew margins by almost 300 basis points, but it's still off a lower number and range where it should be. So Tim will definitely bring a cost-centric view of how we should be running the business. I think he'll also provide a more holistic view of part of that business is -- there will be an open question is, should we be the owner of that? Or should we be looking at divesting some of that business? And so I think there's a portfolio assessment that he'll be able to kind of bring to the table pretty quickly. But to your point on margins, yes, I think there's definitely more margin opportunity we have in that business. I think under the A plan, we assume that we'd grow margins 400 basis points. Well, we're almost 75% of the way there. So there's more upside as we think about driving industrial margins. So I think it's the right move at the right time as we think about this. But I would -- I'm a big believer in the company and especially who we compete against, we need scale. So before we start divesting, I think we need to definitely be adding new business in the portfolio before we start going down that path.

And would you invest -- acquire new businesses within industrial or back to...

I think it starts with refinish. Having said that, though, there could be some interesting -- industrial is such a large space that there could be some interesting opportunities that we have to do to add into that, where the margin profile is a lot better than what we have today.

And would these be expanding your share within those existing businesses or expanding into new industrial coatings?

I think there's an opportunity to do something with newer industrial coatings. And so I think that's something we're going to be spending -- especially with this change, we're going to be spending more time evaluating as well. So I think that's -- we'll see how that kind of plays out, but I do think that there is an opportunity there.

Anything else that you would highlight you could potentially do in that industrial business? I mean it's fairly fragmented.

Yes. Again, I think for us, it's a -- well, one thing is we're down -- if you look at just back to 3 years ago, our volumes are down close to 20%, right? So the question is, have we found bottom? Have we reached bottom? I think the answer is we're probably at that point. And so when that does inflect, it's not going to be inflecting up 2%, 3%. There's a lot of room to run in our industrial business. And so part of it is we have to make sure we're ready for a rebound at some point to kind of occur. As I said, a lot of that will be ensuring that our plants are kind of ready to be able to kind of provide and step up from a capacity perspective. And that's how why we're spending so much time here in the near term and reinvesting back in the business.

Okay. Let's jump to light vehicle. Where do you see the most opportunity to drive growth?

Well, we're -- so we're pretty excited about -- if you look at the mobility business, which for us, we did over 15% margins -- EBITDA margins last year. The team has done a really good job of outperforming the market. So if you look at last year, we outperformed global markets by at least 5 to 6 percentage points. And a lot of that was -- if you really do kind of peel it back, we had outsized performance in Brazil and in China. And so the China story for us has been really a phenomenal story about -- probably about 3, 4 years ago, the team strategically made a call to focus and build relationships with our Chinese -- with Chinese OEs, and that has been paying off. So if you look at the China auto production, it was up maybe 2% to 3% last year. Our business was up 20%. And the reason for that is you're seeing a massive share shift in China away from Western OEs to Chinese OEs, and we're aligned much more heavily with the Chinese OEs. So that's been a good part of the story for us, a good part of the business. In Brazil as well, as you know, Steve, we actually have benefited. We've been growing that business even last year, but then one of our big competitors, BASF decided to exit. And we were able to essentially pick up $60 million to $70 million of new business coming from their from their -- from them leaving the country. So one question we get asked, yes, they must be leaving because the margins are awful. In fact, that's not the case. And actually, the margin profile there is very attractive for us. And as you can see, part of that was coming in a little bit last year, we saw some things, and we're running at margins where we -- the team used to run 8 years ago. So I think the story for us continues to be pretty strong in mobility, especially in light vehicle. I also -- in many ways, we've been our own worst enemy with running our light vehicle business because I think of -- I've been in the auto business a long time, and everybody worries about the volatility. If you really look at production, absent like COVID or shocks, there's not a huge amount of variability year in and year out in just production. Yes, it can move a little bit. But we historically have had much more volatility in just in our margin profile. So we've done a lot within the business to, I think, narrow that volatility. So we have more raw material pass-through mechanisms in place. We're over 50%. If you go back years ago, we were like 25%. So we've doubled that. We have a team that are a bunch of auto experienced guys running the business, which makes a difference just in that space. It's a different mindset. It's a different mentality. And I think the diversification that we have around the globe has also been a pretty big beneficiary. So we're pretty excited actually about -- typically, we get hey, your mobility business is always kind of the Achilles heel of the company. I'd actually turn that a little bit. We've been outperforming. Margins are up, and we expect that to continue as we go forward.

Anybody want to jump in with a question? Well, you're coming up here, [ Sharon ], what did it take for you to gain that business in China from the OEs? What was it that enabled you to gain that business?

Well, one of it -- we did open -- we've kind of built a brand-new plant in China a couple of years ago. And so I think if you're in China, you need -- if you want to be part of China, you need to have manufacturing capability, of course, in China. And many of our competitors do. So don't get me wrong. I think for us, the differentiation was color is a big item and a big thing in vehicles made by the -- especially the Chinese OEs. And so our ability -- we believe we're the leader in color, especially in automotive. And I think that's also resonated quite significantly with many of these customers. And so it's been -- and our team there have done a phenomenal job on quality and delivery, kind of the basics, but that's also gone extremely well for us.

Considering last year's industrial industry-driven challenges in the refinish sector due to reduced collision claims in the U.S. and your recent commentary regarding maybe the volumes not improving that much in 2025. Once the market dynamics do recover, do you expect an increased level of refinish activity kind of fixing those prior collisions? Or is that cannibalized by the increased DIY?

No, I do think if you get past '25, I do think our expectations are that you'll start seeing a shift back to more normalized type of patterns. And in fact, there could be a little bit of increase as you get into next year within both North America and Europe. I think one of the things that also is impacting just more the U.S. is there is some -- we tend to sell into inventory. And as part of that, there is -- if I look at the distribution channel here in the U.S., there's been some consolidation. And so there's some inventory management that's kind of going on as well. So I think that's just affecting a little bit of the -- what we're seeing just from a volume perspective. But yes, we continue to be bullish within this business. I think we have a phenomenal team. Last year was the fourth year of record revenue. and earnings for our Refinish business. And so I think we continue to see a path forward to really continue to grow that business.

And just a follow-up. You guys recently released a new heat-resistant insulation material called Voltatex for EVs. Just wondering what you view as the market potential for that product?

Yes, that's part of our kind of go-to-market strategy within industrial for essentially energy solutions, which is kind of battery management. And so I do think as -- we'll see what the EV market kind of does a little bit more over the medium term, but these type of products is we're seeing a lot of traction for with some of our customers. So I think it's another step forward. We're somewhat indifferent between ICE and EV if you do really think about what we -- what the coatings are. But these type of improved new product launches that we have, if, again, if EV continues to kind of move up what everybody is kind of forecasting, I think that allows us to have a little bit more share as we go forward as well.

Any other industrial coatings businesses that you could see expanding into?

Yes. I don't think as I said, again, the primary focus will continue to be Refinish. I think industrial, it's an interesting -- there are interesting opportunities and maybe coatings that we just don't provide today. And so I don't want to kind of get out ahead of that. But there are some things that were being -- that we are evaluating kind of at this point, where we think if we can add into the portfolio and get more scale, it could be an interesting story.

I had the pleasure of touring that R&D center with Robert many years ago, and highlighted all about the performance of the coating. But you highlighted color, but he highlights performance of the corrosion and et cetera, and would seem logical that you could move into other industrial coatings with that technology.

Yes, yes. I think that's fair. I think in the past, we were a little bit more hamstrung candidly, just based off the balance sheet. We didn't have the right necessarily to do that. The margin profile maybe wasn't as good. So I just think we're at a position now at Axalta, which we haven't been in a very long period of time. So it is opening up. We have more optionality today than we've ever had. We just have to be very focused and make the right calls, right? So with optionality comes -- you can go a lot of different paths. And what we're here to do at the end of the day is just create value. And so that's -- if I had to kind of put something on the board, we're here for -- to create shareholder value. That's #1, #1A, #1B on our list. And it's just a matter of how we build that plan to kind of go after that.

And how about you making that R&D center, your headquarters now? Any benefits that you can say have occurred by having that group together?

I do think the -- again, I'm a little older school. I think having people in the same office at least 4 days a week, you do see a little bit of more collaboration. You see -- the one thing I think you do see is just speed in decision-making as well. And so I think both of those things, we're just beginning to kind of maybe see some of the benefits from that. But I do think that is a -- and also, if you kind of look at just the younger team kind of coming up, the analysts and senior analysts and managers of the world, getting -- those conversations having a 5-minute hallway conversation and just the mentoring that can kind of get done, I think, is extremely positive. And so it's tough to kind of quantify, but I mean, I think it does begin to pay for itself just based off of knowledge transfer and really an agility and a speed that maybe we didn't have before.

And maybe just one more for you, Carl, and that's your outlook for capital deployment. How are you going to prioritize it?

Yes. So I would say we -- the leverage story has been a very good story for us. When I joined the company, if I look at the previous year, we were always running about 3.5x levered. And so in about a 2-year period or 18-month period, now we're down to 2.5. And so I think it's kind of right at the high end of the range, this 2.5. So there's not a lot of more gross debt reduction that we need to do. We will maybe take some views from time to time. I do think interest expense, we continue lowering that is always a good thing. But I really -- the focus now is going to be between M&A opportunities, and share repurchases. And that's how we're looking at purely from a capital allocation. I think Q1 typically is our lowest free cash flow quarter. So I have a little time if I think about how we're going to deploy capital a little bit. But if we get into Q2, that's how we're going to be looking at and evaluating those 2 levers.

Awesome. All right. We're going to stop, have some lunch. We're going to have a sustainability session in the noon hour. But please join me in thanking for the presentation with Carl.

Thank you.

Thanks.