Donaldson Company, Inc. (DCI) Earnings Call Transcript & Summary

All right. Good afternoon, everyone, and thank you for joining me. For those who don't know me, name is Angel Castillo. I'm the U.S. machinery and construction analyst here at Morgan Stanley. And before we get started, I just want to read a quick disclaimer. So for important disclosures, please see Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative. And with that, it's my pleasure to host here today. So we have Rich Lewis, recently named COO of Donaldson; as well as Brad Pogalz, CFO; and Sarika Dhadwal, Senior Director and IR and ESG as well. Thank you all for joining us today. Maybe just a good place to start, I guess, for those of who may be not as familiar with name, we could start hopefully with a little bit of kind of opening remarks and setting the stage. You just reported earnings recently and had record results, record sales despite a macro environment that's pretty challenging. So just help us understand what makes Donaldson be able to deliver that in this backdrop.

Yes. So maybe a little bit of information about Donaldson. We are a filtration company, 110 years old. We're based out of Minnesota. Essentially, we're a diverse group of products, applications, end markets, very global. We're underpinned by a really strong R&D function. So we have a very deep R&D bench. We released hundreds of patents every year, really trying to own the science of the materials itself and the conversion of those materials into an end product. As Angel mentioned, we just released our earnings. We had a record top line and bottom line year. We've released guidance for fiscal year '26, which started at the beginning of August. Again, expecting another record year. Part of why we're sort of resilient through the cycles as we do have a large percentage of our revenue is replacement parts. So we tend to do well through the cycles. I think 9 out of the last 10 years, we've grown the company. And generally, we grow profits faster than we do our top line. So our incrementals have been historically very good and very reliable.

Great. Maybe we can start there actually. And just a reminder for the audience, if anyone has any questions, just raise your hand and we'll get a mic to you. But maybe just on the aftermarket piece because I think that's a very core differentiator to Donaldson and your business overall. Can you just kind of walk or talk a little bit more about kind of the underlying drivers of the low single digits growth that you've had in aftermarket? And just kind of what is the kind of biggest driver of that performance as you think about that business?

Yes. So our aftermarket business, you're specifically talking mobile, I take it.

Yes, sorry, Mobile Solutions.

Yes. So it's -- we have 2 channels. We sell through our OEM and their channels. And then we also have an independent channel as well. A large portion of the incremental growth there is intellectual property, where we have filtration products that solve problems for our customers. But really, there's not very much alternatives in the marketplace. We've also been growing our share in our independent channel through larger deals like NAPA, but also a lot of smaller deals around the world where we take over small portions of the business. There's a natural growth to that market, plus there's an incremental pricing. And then on top of that, we would have share gains as well.

Can you maybe expand on that? Because I think that's one of -- one of the areas that's maybe a little bit harder from my seat to kind of quantify just the share gains whether it's NAPA or the one you just kind of indicated with out of your second -- or out of your last quarter. What is allowing you to take market share in those businesses? Anything kind of shifting in the competitive environment? Is it something about your product? And how do you kind of see that evolving in terms of the longer-term kind of tail to the opportunity on market share gains?

Yes. I would say one thing that has been unique historically about Donaldson is we do have a very strong position on the OEM equipment side. And if you look back over probably like the last couple of decades, those customers have put a greater emphasis on their service part businesses. We brought technology and intellectual property that have allowed them to secure more of that market share on their channel. So that channel has actually grown quite rapidly. And so we've been able to use both our technology and our position on the first-fit side. On the independent side, it's really a story of availability, having a broad product coverage and having inventory in the right places around the world. We've invested in demand planning. We put our entire company on Oracle a few years ago, really to have a good integrated network and have good information management so we can know where our customer demands at, where our inventory is at and be able to optimize that basically globally. And we've used our strong balance sheet to make investments in inventory to take care of our customers through some very difficult supply chain challenges. And I think that reliability has also been a big factor in our share gain.

And as you think about just the Mobile Solutions kind of steady growth, particularly in the aftermarket. So obviously, we talked about the market share gains dynamic. What about just the underlying kind of normal degree of demand in that business? How do you kind of see that over time? And is there any aspect to that where if you're seeing weakness in On-Road, Off-Road, where there's maybe some strength? How does that ebb and flow and as you think about the broader cycle for Mobile Solutions?

Yes. I'll add my comments and then maybe Brad can jump in. But I think if you look across that entire business, think about the equipment side as sort of GDP. The aftermarket side is GDP plus a couple of points with pricing, and then you can layer on another point or 2 of market share. So that's how the algorithm works internally to the company. I don't know, Brad, if you want to add anything else?

I think that's it for the algorithm. The side that I'd say for the share gains is we're looking for opportunities around the world. So the thing that favors Donaldson is as technology moves up its curve -- or excuse me, as equipment moves up the technology curve, there's big opportunities because then there's a new need for more advanced filtration. So over time, some of these lower tax, smaller regional players just end up being consolidation of share in these specific markets that gives us new market -- excuse me, new growth in specific places.

And maybe just diving into some of the end markets specifically within On-Road and Off-Road, I think you had guided to a little bit of a rebound here in fiscal year 2026. I think high single digits in On-Road, mid-single digits in Off-Road. Just -- can you just give us a little bit more insight into what you're seeing in those markets? And what gives you confidence in that kind of recovery throughout the year, whether it's something you're hearing from your customers or kind of the shape of that?

Yes. I think it's -- obviously, those equipment markets are cyclical. The interesting thing is the sort of the shape of the cycles is fairly predictable. The timing of them, not always easily to predict. Essentially, what we're looking at is age of vehicles. We're looking at channel inventories. On the farming side, it's obviously farmer income, commodity prices. It's a little bit of a bet on the On-Road side, we'll see the market recovery. But we also know when that market recovers, it's generally 40% or 50% to peak to trough and trough to peak. We're putting in high single digits. So it's -- we're planning on a late fiscal year, kind of mid-calendar year sort of rebound. We'll see if it happens. The degree of impact for our company is relatively small. It's a small portion of our business. We believe we have plenty of other offsets in the plan that if that doesn't happen, we'll be okay to our guide. The ag market it's a little bit more moderated in our expectations, but we do believe that -- and we're hearing from a lot of our customers that they believe they're at trough, and they're slightly optimistic going into next year.

Got it. No, that's helpful. And I guess as you think about -- you mentioned the OE side is still ultimately the first-fit OE side is still a small part. I guess how should we think about the recovery of -- or as you start to see recovery in some of these first-fit, the implications to the aftermarket? Is there any kind of nuance there on the growth of the aftermarket side?

Yes. I think it's changed. Over the time I've been involved in the business, I would say they were fairly bifurcated on how they performed. But what we've seen in the last couple of cycles is as there's been an uptick in equipment demand, there's been an early maybe getting to the top end of their stocking levels on their replacement parts because they want to make sure they are well positioned for the replacement part cycles that they're expecting also to be good. We didn't see that in the past, and they would tend to sort of keep those things pretty much segregated. But the last couple of times on the way down, we've seen a little bit of inventory cut. I think post COVID, people have been protecting their inventories a little bit more because of the supply chain challenges that went on. But generally, we would see a little bit of uptick in replacement part demand as they get ready for hopefully better utilization rates.

Got it. Okay. That's helpful. And maybe just to kind of round out the Mobile Solutions side. Can you just remind us how you kind of -- your content per vehicle differs in within Mobile Solutions, I guess, as you evolve across diesel or battery or hydrogen fuel cell. I know there's been a lot of challenges perhaps on the clean energy side of the equation for transportation, but just ultimately, how you kind of see that world and maybe any implications of a slowdown in penetration on your business?

Yes. So I mean, content per vehicle will vary dependent on the end technology. We obviously follow this very, very carefully. We model it at an excruciating level of detail, plus we have other third-party sources of information. Everything that we've seen since the timing of this would be further out than we originally anticipated. So we're still thinking in terms of it's a decade plus on the equipment side to reach peak. The replacement parts side is much longer given the age and the length of the -- these vehicles are in the field. If you look at a fuel cell application, we would actually have a higher level of content than we would a diesel engine. If you think about combustion engines using lower carbon fuel sources, more or less the same content. And then if it's a battery-powered vehicle, we would have a smaller amount of content. We do have products that would be applicable there, but it would be a lower content.

And I think you had the partnership with Daimler on the Freightliner SuperTruck. Just curious, I guess, in that collaboration, any learnings about that? Or how are you seeing kind of the willingness of partners to kind of invest in some of these future technologies?

Yes. And I think what we're seeing across all of our customers is even though the technology change has been pushed out, they're still investing as a strategic part of their long-term technology development. So I don't think anybody is pulling back. I think maybe there's more partnerships we're seeing because people need to sort of hedge these costs. Also, the big play is going to be what other diesel emission regulations come into play while this is being pushed out. Generally, those have been good for us because it usually means a higher level of technology required on the filtration side. So yes, there's a little bit of uncertainty on that, but I think, clearly, they're committed to the technology, and we'll continue to partner with them across multiple product lines.

Yes. Can you just expand on that a little bit? I guess as we think about the EPA 27 being under review and all these other EPA emissions regulations, I guess, what are the implications to your business if it -- if one of these gets delayed if they get pushed out if they get repealed. Any kind of puts and takes? Or are you just kind of indifferent from that?

I don't want to say we're indifferent. Clearly, it will drive a cycle in some of the businesses. We've seen that multiple times. What I've seen is historically, every emission regulatory change that we've been involved with, we've expanded market share. We've generally upped the requirements of the filtration across the portfolio of products that we sell. I know one particular product line I was running a business, I don't know, 10, 12 years ago, we were really kind of a niche player with the equipment manufacturers. The lead competitor had not been investing in technology. Regulatory change came in, higher technology filtration required. We actually had something on the shelf for another business, an industrial business that we were able to leverage and move over to the mobile side. And we quickly built pretty close to $100 million business in one quoting cycle. And so that's a good example of where we actually don't mind regulation in that particular area. It's generally been good for us.

That's very helpful. And then maybe switching over to Industrial Solutions. Can you just remind us here on the Power Generation side? I guess, ultimately, how are you impacted by everything that's happening with powering AI data centers? How does Donaldson play into that world? And ultimately, what are you seeing the trends and the impact to Donaldson?

Yes. I think if you look at data centers, it's just another usage of power off the grid. We've seen a continued up cycle natural gas-powered demand. So it's not specific that we are naturally tied to those. But as it pulls power, it requires more gas turbines. And clearly, it's been good for our business. All of our customers are, I would say, trying to secure capacity for the next couple of years, and we're booked out pretty solid in our plants. We do have some upside in capacity, but the utilization is probably as high as it's been in a long, long time.

And can you just maybe elaborate a little bit more, I guess, on -- because a lot of, I think, the OEMs ultimately manufacturing these turbines are backlogs out a couple of years. So does that mean your utilization will run at those levels for a longer period of time? Are there any other kind of, I guess -- what is the competitive dynamic in this market? Are you seeing others be attracted by the growth and look to enter it a little bit more? Just a little bit more color there would be helpful.

Yes. I don't think so. The -- I mean, these are fairly intensive engineered to order custom design products per application, the depth of application knowledge, the base technology required, it would be hard for somebody to enter. Even going from a non-pulse sort of technology, which is half the market. We tend to play on more of the pulse side. Even jumping across there is not easy. Different applications, different expertise required. I think probably the biggest thing will be if this cycle continues on and continues to grow, how much capacity will people bring on to deal with it. Right now, everybody seems to be in position for the most part from what we can see.

Yes. Okay. That's helpful. And then I guess maybe just on the connected parts side, I think you mentioned a goal to grow the number of connected parts by 30% in this business. So can you just talk about a little bit more of kind of your go-to-market strategy here? And just what attachment rate you're seeing kind of new parts and what that has been?

Yes. So on the industrial side, it's -- it's a different business than our aerospace and defense and our OEM side where you compete really hard, you win a big program, you're on that program for 8, 10, 12 years. Every day, we're out hunting on the industrial side. So we have a lot of dust collectors in the field. Our competitors have a lot of dust collectors in the field. Our ability to connect those, predict when they're going to have maintenance issues, provide the stickiness to the customers that we believe based on data we have helps us win new first-fit business, but also helps us have better retention rates on the replacement parts. Our connected base right now is sort of low single digits in percentage terms. We're adding thousands every year, but it's a slow process. All of our new collectors where the technology works. We're sending out into the field when we control that. When we design the full system with the controller, we're sending those out connected. So there's a high percentage of those going out every year and then we're also trying to retrofit collectors that are in the field. We're also adding the service element on to it as well. So it's like, hey, you have a problem here. We see an alert. We send out a technician. We can put you on a maintenance contract. So we're using both connected solutions and services to create better stickiness with the customer, a more intimate relationship and hopefully, better demand generation over time.

Got it. Maybe -- and maybe switching over to Life Sciences. Maybe just to start out, I guess, you used to actually work with that business. Just good insight there. I guess, help us understand what you've seen kind of under the hood of happening in there because there's a lot of kind of moving pieces. But if you could maybe unpack that from a Disk Drive perspective, from an F&B and separately kind of bioprocessing.

Yes. Well, you hit on it, Life Science is really a collection of different reporting units -- what makes them sort of have some commonality as the base technology. The filtration technology that we use across all of those is usually a polymer-based filtration technology. It's a little bit different than what we would use in some of our other markets. It started with Disk Drive. That was the first one. We came into Food and Bev. We also sell membranes into medical applications. And then now we're getting into bioprocessing. I think if you look across that portfolio, they're all in different levels of maturity. So Disk Drive is a very mature business. Food and Bev is a business that's still growing and rapidly expanding and then bioprocessing is a business where the modalities that we're focused on, we're at the very beginning of their journey. So it's -- we're at different points of the life span of these businesses across this portfolio.

And maybe from a growth standpoint or kind of a top line or even margin standpoint, what does it mean for Disk Drive to be a little bit more mature? It's actually feel -- I feel like that's been an area that's been seeing good growth of late, a good level of recovery. So help us understand what that means for just the steady growth of that business going forward.

Yes. Just to give you an example, it's not completely apples and apples applicable, but I was at a heavy-duty business form when I was running our mobile business, and it was right after COVID. And one of the guys, he has a business where he was selling basically laptops with a software into the heavy-duty space. And he -- I think he said he had like 3 years worth of laptops. He didn't have any and then he had too many. We saw the same thing with our Disk Drive business. Coming out of COVID, it was pretty hectic. We saw that business compress down cyclically for 2 years in a row. It's come back in the last 2 years, been really nice step-ups. I'd say we're back at a steady state kind of normalized performance level. So we would expect that business to continue to grow sort of low maybe mid-single digits. Kind of like power gen, there are some capacity constraints in the market, not necessarily with us, but with some of the supply chain pieces to that market. Food and Bev is a faster-growing business, a more mature -- or less mature business, obviously growing more high single digits and then bio is pretty early.

Perfect. And then I wanted to, I guess, touch on Bioprocessing a little bit more. So just there's been a little bit of a push out of some of the demand there in that business. As you think about -- particularly as you were running that business, what are kind of some of the learnings, some of the positives, some of the negatives that you see both kind of either things that you would do -- would have done differently or maybe opportunities that still make you really excited about this business?

Well, we like the end market, and I think about it as an advanced industrial market. At the end of the day, whether we're selling into microelectronics, food and bev, dust collection, we're helping them protect their manufacturing processes. We're helping them get better quality, better productivity. If they're making a drug, it's a more regulated process. Clearly, it's a longer process to bring a drug to market than some of the other products that we sell into. It has pushed out. Sort of post COVID, the environment was very open to any changes that would improve the processes. And I think it's settled back into kind of normal follow the regulations, follow the drugs through the process. But we like that market. It's a market that values technology, and it's a market that continues to evolve very rapidly. So we think it fits with kind of our core strengths. Clearly, the companies we bought are early stage, and they're also pointed to early-stage therapies that are still developing the science behind those. And so we think it's a longer-term candle burn than maybe what we originally thought. But we still like ultimately the market, and we'll continue advance our technologies. And if they're really hitting home in the market, we'll be putting more money behind them than pressing them. And if they're not, then we'll sort of scale back, just like we would on any investment across our portfolio. If you think about the one we just talked about Disk Drive, if you go back in Disk Drive 40 years ago, that business really didn't exist. And I know for like the first 5 years of its existence, it wasn't clear whether that market was a good market, a bad market, but we sort of stuck with it and kept advancing the technology, the market took off. And we see bio is kind of the same thing, just kind of stay with it, plant the seeds. It's just going to take longer to sort of see some of these mature.

And I want to come back to the capital allocation point that you made in a little bit. But just maybe first, how do you kind of see the structural or longer-term margin opportunity for this business as both cost improvements that you might be making as well as a recovery as well as the longer-term opportunity in bioprocessing? What does that kind of look like over time?

Yes. It's above company average for sure. And think about growth rates that are high single digits and margins -- operating profit margins in the 20s.

And I guess, is that just macro recovery or what aspects from a self-help that you can do to kind of get it closer to that level?

Yes. So if you think about the non-bioprocessing part of the business, it runs above company average on growth rate and margin. I think the bioprocessing is really about just advancing the products, and we're releasing 2 of the products this year. So we're a little delayed in those. So as things -- as the market pulled back, we also were a little careful, but we're advancing 2 product lines this year. We have a couple that are a little bit more mature. They have several customers in clinical trials. We need those clinicals to see their way through and see those drugs get on the market.

Got it. Okay. That's helpful. And then maybe just back to the capital allocation dynamic. So you've made several kind of smaller acquisitions or tuck-ins here. Just maybe could you just talk about the appetite given a little bit of that slowdown or the push, I thought we've seen to do something near term? Or should we think about the capital allocation strategy as perhaps pivoting more towards shareholder returns or other deployments of capital, other areas where you might see opportunities aside from bioprocessing as that kind of gets a little bit further along?

Maybe Brad can cover the capital allocation strategy and broadly, and then we can talk specifically about M&A and Life Sciences.

Yes. The biggest opportunity for us still is internal investments. But we do have an appetite for M&A. We're disciplined buyers. And we -- the criteria in a lot of ways is at least directionally the same as what we've been talking about a focus on Life Sciences space. A focus on industrial, growing the service business is where we've put some money. If we can extend products or geographies within industrial, we would welcome that, too. I think as far as opportunities in M&A, it's probably something that if we're in the bio space, more specific on revenue generation or more a commercial application versus more pre-revenue. But of course, M&A is tough because there's a buyer and a seller dynamic. And so we're always starting with the technology and then thinking about how it can apply. Angel touched on an important part, though, too. So we've got this invest in the business and invest in growth is a core part. That's number one. But we have a pretty long-standing dividend policy. We've increased our dividend annually for the last 30 years in a row, a member of the S&P High-Yield Dividend Aristocrat Index. And then on top of it, we repurchase our shares as a means of giving back to shareholders. So overall, we write a pretty conservative balance sheet with the idea that we want to be prepared for acquisitions when they come along and investment opportunities in organic growth when they come along and then we would deploy the capital towards share repurchase as kind of a moderating lever. And last year, we accelerated that a bit. And now this year, in our fiscal '26, it's a little bit more of a normal level.

Got it. And I think you mentioned that conservatism, right? So your balance sheet is quite strong, and it does provide you a lot of flexibility. And the way I think about some of the deals that you could kind of do or that you've done in the past on the smaller side, just given how stable also your business is, why not, I guess, lever up to 2 turns and still have the flexibility to kind of lever up more while giving back perhaps more cash to shareholders via buybacks on kind of near term?

Well, money is less free than it was, so that's part of it. I think for us, looking at this around onetime turn is -- makes sense. We are below that. But again, the acquisition is an interesting part of an opportunity for us. And there was a year where we did a handful in the same year. And you mentioned there are tuck-ins for sure, but we want to be prepared for those moments, too, so that we're not at a point where we miss an opportunity as a function of the balance sheet. I think we're well covered on both sides.

And as you think about your pipeline today and what you're seeing from a potential M&A side, do you feel like the current environment is bringing some potential deals your way? As you mentioned, you might be dealing with privates or smaller companies, I guess, how does that pipeline -- how does that shaping out? Is there moving closer in terms of potential deals sooner? Or is that making things harder? How do you think about that?

Well, we have a fairly structured process for M&A. There's always a pipeline at different stages, sometimes it's nurturing relationships. Sometimes we might be nurturing a relationship for 5, 7 years before deal ever materializes. Some are -- we're just answering inbound inquiries. So it's a -- I would say the pipeline is a bit slower than what we would like, but we feel like it does seem like it's starting to heat up. We are -- as we said, we're positioned to do deals, but they have to be the right ones. And we're going to be disciplined about it. It has to be very strategic in nature. And I would say, as Brad pointed out, on the Life Science side, we have bets on the table. We're comfortable with those bets. If we look at other deals in that space, we would be looking for more profit generating companies at this point unless it was a very, very unique technology that was clearly going to have a large play in the market.

Got it. And I guess you mentioned, again, you've done some tuck-ins, right? But I guess with the balance sheet flexibility of firepower that you have, you could do something a little bit more transformative. As you think about that pipeline, what's kind of the mix of potential more smaller tuck-ins versus something that's a little bit more transformative for the portfolio?

Yes. It's interesting. There's not a lot of transformative deals that are out there. I mean the market is consolidated a fair bit. There still are a few and we think there'll be some in the future. But there's nothing clear on that side. I think the smaller -- we have a business that has 4 out of 6 products, and we have a great commercial engine. There's a couple smaller to midsized companies that bring the other 2 products. We can do it organically, but it might take 5 years, or we can go and put those 2 together. I think there's more of those type of deals out there as we speak today. But that could change tomorrow.

Especially in this market right now, a lot of changes. I guess maybe just kind of bringing a full circle in terms of some of the market share gains and dynamics. You mentioned consolidation. I guess as you think about your business, where are there still pockets where you might be able to consolidate or gain more market share as you think about, again, longer term, the ability to continue to deliver record earnings as the market recovers? Because again, right now, your end markets are actually in a pretty tough spot. So as that recovers, do you kind of foresee yourself hitting a new record? And what does that kind of growth look like at that point?

It's funny. I've been with Donaldson 20 -- going on 24 years. We were having the same conversation 23 years ago.

I don't know about what I'm going to add.

The good news is we're -- generally, every market we're in, we're either the leader or we're one of the leaders. Most of our markets have natural growth tailwinds. When you layer in on top of that, some of the strategic moves we've made operationally with technology, we've been able to consistently outgrow our markets, maybe not by a huge portion, like our Food and Bev business has almost doubled the market growth rate for several years in a row. That's a good example. Some other ones, it might be a point or 2. We think the formula works. We don't see any reason why the formula won't continue to work for a long period of time. The share gains are small and they're generally incremental. And it's really about just doing the basics that we've sort of put in place really, really well. We do think if you look across all of our products, our applications, there's some -- we've got some businesses where our market share is really, really high. I don't know that it can go much higher, but that's probably the minority. Every other business, I'd say, 90%, 95% of our revenue, we're either mid-teens to mid-single digit market shares and expanding but slowly. So there's a lot of blue sky out there. We also think in some of our markets, there's going to be a fairly big shift. You think you look at the mobile market, 4 companies have half the market. The other half is very fragmented. We think over time, there's going to be a lot of consolidation there. Time will tell, but we believe we'll be a consolidator of choice on that side of the house. And then with what we're doing on the industrial from a connection service, we think we'll be able to continue to try to up the technology game and some of the smaller players that are more just hardware product focused, they won't be able to come along with it. So for the more larger companies that we do business with, we think that value add will sort of separate into 2 parts of the market, kind of a low end and high end. So yes, we're very confident. We'll continue to set records. We'll have to deal with any economic shocks like a housing bubble or COVID. But the formula, we would still see mid-single-digit growth and delivering higher levels of earnings on that growth.

Perfect. And then maybe -- yes, I think we have one question here.

[indiscernible] same trajectory when it came to clean energy transition and the transition of the transportation sector. But now those trajectories are somewhat diversed. So does that divergence in trajectory across the 3 major regions create more R&D requirements and that create less operating efficiency as you're servicing 3 different markets, which have different trajectories and different requirements and technology?

Yes. So if I understand your question, the different trajectories create inefficiencies for us. Yes. It's interesting. I would say not really. If you think about like our on-highway business, where we're strong is we're really strong in Japan. We're really strong in the U.S. We're solid in China, but it's not been a big part of our business because if you look about the trucks in China, they're significantly less cost than a European or a U.S. truck just by design. So they haven't really wanted to move up the technology chain. And so we really haven't put a lot of emphasis on. It's been more of the Off-Road and we specifically picked Off-Road there because the Chinese OEMs are going fully global. And so they want technology that competes on a global basis. And so they've tended to go higher technology straight away. And we're also like on the ag side as we see more industrial size farms coming into China. They want European and U.S. style equipment, more automation, more efficiency. So that fits perfectly into what we do. And actually, if you get into the base filter, not the first-fit systems that go on the vehicle, but the base filters, the manufacturing assets are very fungible. We can make an on-road filter and an off-road literally set up to set up. And so it's just a matter of making more of one and less of another. So no, it hasn't really created any inefficiencies for us. Actually, the agility and our global footprint and our ability to pivot is actually -- it's actually been okay for us.

I think that brings us to the end of time. So I appreciate your time. Thank you so much for coming here today.

All right. Thank you.

Thank you.

Appreciate it, Angel.