Fortive Corporation (FTV) Earnings Call Transcript & Summary

Good afternoon. My name is Andrew Obin and I'm BofA's multi-industrial analyst. And we're having -- next, we're having management from Fortive, and we have the company's Senior VP and CFO, Chuck McLaughlin and Elena Rosman, who is Vice President, Investor Relations. Thank you so much for being here. You guys have been an anchor of this conference for many, many, many years. So thank you for being here again. I believe you, Elena, you're going to have some remarks, and then we're going to go to Q&A. Thanks so much.

Thank you, Andrew. I think as you said, it's always a pleasure to be here. And I think we're really excited about 2024, relative to the strategy that has really been playing out over the last couple of years for Fortive, which has been about building a higher, more durable growth company. You'll see the forward-looking statement. I think you all know the comments we'll make today are as of today, and we will update you on our next webcast. So really when you think about what Fortive is? I think this has been a conversation that we've had several times today. We talk about the growth strategy having played out across our 3 segments demonstrating, I think, the durability of the portfolio, the strength of our execution, which is really allowing us to deliver on differentiated core growth on exceptional margin expansion, earnings and free cash flow growth again in 2024. When we talk about what Fortive is, we really talk about Fortive being a $6 billion company that's playing in a $60 billion addressable market. We're leveraging our expertise, our domain knowledge in hardware, our niche software positions and data analytics really to help our customers harness the power of emerging technologies streamline crucial workflows and help to embrace the energy transition. Today, when you look at that -- these 5 growth platforms really aligned across our 3 segments. You see in 2024, our IOS segment, which comprises the three, is really seeing positive global trends on a POS basis and really benefiting from consistent, strong high single digit software growth. The PT segment, which, for 2024, we've guided will be our lower core growth segment, but that's really on the backs of very strong growth over the last couple of years, both at Tektronix and Sensing Technologies as the power and the energy demand for those -- within those segments is really helping to offset some normalizing industrial end market demand over the last 5 or 6 quarters. And in healthcare, we're seeing the benefits of a return to very strong consumables growth. Consumables represent about half of our health care segment and another $200 million of software within health care. So overall, very durable, about 70% recurring revenue in our health care business really driven from the benefits of productivity and higher quality -- and the work that we do to drive higher quality patient outcomes in hospitals and ASCs at lower cost to serve. So the general theme in terms of Fortive, we've, again, had a lot of conversation about. This is about how we focus the company around these 5 growth platforms, really improving the overall durability. So what you see in the chart represented here is about half of the company really comprised of software, recurring revenue and health care and the other half of the company in what we call our hardware products or nonrecurring products businesses. I think the real standout takeaway here is about half of the hardware products business is really Fluke, which has continued to see growth in orders and in revenue. despite the, what, 17 months of PMI is below 50. And the other -- you think about 1/3 of this part of the business is fairly favorably aligned to the secular trends that you see here on the chart. I really remissed if we were talking about Fortive without talking about what's underpinning our abilities to sustain differentiated financial performance over the last 5 years, and that's the Fortive Business System. It remains sort of the center of everything that we do. It's a key driver to our multiyear success. It's ingrained in our culture and how we work. And it fuels breakthrough innovations relentlessly helping to drive continuous improvement as we really look to improve every aspect of the business quarter-after-quarter, year-after-year. Big topic of conversation, I know also today, has been about capital deployment. So for those of you that are a little less familiar with Fortive, we operate, what we would refer to as a pretty asset-light, an efficient operating structure, which helps us deliver industry-leading free cash flow. That free cash flow as a percentage of revenue has gone from 14%, a number of years ago, to now 21%. We reinvest our free -- we look to reinvest our free cash flow. So last year, we generated $1.2 billion. If we look to reinvest that in our businesses, obviously, both organically and inorganically. Most recently, we just completed 5 acquisitions in the last 5 months. So 4 of those were tuck-in, bolt-on acquisitions, 2 hardware, 2 software and data acquisitions. And then we also just completed the acquisition of EA, Elektro-Automatik, which is enhancing our position in the power segment in test and measurement integrated into Tektronix. And there, you see EA is really serving a broad array of multi-industry end markets that are benefiting from investments in higher power technology. So the need for high-power applications and data centers and energy storage in addition to, obviously, the tremendous growth that they've seen in the development of EVs, e-mobility and the grid. So in summary, we can open it up for questions. We really believe in our ability to deliver value is a function of the power of our flywheel, which is the Fortive formula for value creation. It really -- if you look at the multiyear financial performance, right, we've been true to mid-single digit core growth through cycle that enables us to improve our operating margins by at least 75 basis points per year, which is about a 40% incremental. And then with that, right, the ability to drive free cash flow. And we've seen an average compounded growth rate on free cash flow in the high teens over the last 5 years. And so when you play that forward and you think about what's possible for Fortive over the next 5 years, we remain committed to our 2025 targets in 2028, which we introduced at our 2023 Investor Day. Achievement of these targets, I think, again, underscores not only what we've been able to achieve over the last 5 years, but the continuation of the accretive benefits of the portfolio transformation that we've really undertaken over the last 8. So with that, we can take questions. Andrew?

Excellent. Well, Thank you, thank you so much for being here. So -- maybe -- look, I mean, I think various companies sort of been saying various stuff about macro, maybe a good place to start. What are you guys -- you do touch a lot of markets around the world? Maybe just a broad statement. What are you guys seeing out there?

Well, I think that what -- at this point, basically what we saw is -- coming into the last year and what we talked about it at the guide, I think there's a -- you want to get to the other side of Chinese New Year to really see how the China market plays out. But really, you got to get through this quarter to make a call there. So -- but I think that, what we did -- what we have expected there is that we would see year-on-year slowing, but more in the mid-single-digit area for us going forward. Keep in mind, we've had some -- when you look at the double-digit -- the last 2 years, you're talking about double-digit, strong double-digit growth there. So coming off some really strong comps work. When you click down a level maybe in China, it's not the same story across the board. Our health business is actually growing. We still got good -- positive point of sale in Fluke. And then you got PT and sensing that's been moderating is digesting some really big -- 2-year stack kind of growth rate. So not really different than what we expected at this point. I think the U.S. remains. We expect it to be the strongest and best position in markets with Europe somewhere in between.

Got you. So maybe we can just chat about your '24 framework. I think the '24 guide includes 100 bps of margin expansion. And I think you highlighted medium-term model more like 75 bps. So what's driving above-average performance this year?

Well, in any year that we would have mid-single-digit growth, we'd expect 75 basis points. But last year, we did some productivity restructuring and so I think that's probably the easiest point what to point saying on mid-single we'd end up with 100 basis points this year.

Seeing -- I'd just add to that, a little bit stronger, right, conversion rates or incremental margins in health care. So we're targeting about 125 basis points of margin expansion in health care this year. And some of that is obviously the benefit of a lot of the self-help initiatives that have been underway, certainly also the benefit of stronger growth.

Got you. And just sort of talking about the top line outlook, you saw 2%, 4% organic revenue guidance for '24. What's the biggest swing factor between 2% and 4%? Is it just Tek orders in second half? Is that as simple or anything more nuanced?

It's still early in the year, Andrew. So that might be the biggest swing factor, but...

Yes. I think obviously, we have a step-up in core growth first half to second half, maybe not so much if you look at the seasonality of how much revenue we're expecting top line revenue in the first half versus the second half. But we think that's actually pretty normal. But I think as Elena said, a lot of room to go in the year yet. Let's see how it plays out.

And just thinking about sort of accelerating this 2%, 4% to sort of medium-term target. Is it just sort of exiting the year at or above what are the medium-term target? Is it as simple as that?

That's right.

I think that's a good way to think about it. A more complex way would be to think about health care is really going to be mid-single digit going forward. We would expect that IOS is going to continue along those lines. And so it's really about first half of PT. We thought, what, is going to be -- seeing that recovery into the second half is probably the biggest swing factor. But the exit rate, we feel pretty confident of.

Got you. And $4.50...

I showed it on the chart too...

$4.50 adjusted EPS for '25. So how much implied assumption from future M&A is there between the '24 and '25 targets?

Well, I think that the benefit that $0.25 of accretion really shows up, I think, with the EA, that's already there. I mean that's going to deliver a $0.25 accretion there. I think that we intend to take our cash flow and deploy it and what will happen is that really about '26 and '27 going forward.

Got you. And just sort of maybe, can we just talk about price? And just what has been your experience so far '24? And how do you see inflationary pressures going into '24, '25. I think a couple of companies have sort of noted that they are seeing labor inflation. I think we recently had a meeting with the company that sort of highlighted they're seeing labor inflation in excess of material inflation, which is somewhat unprecedented. I think there was another company earlier today sort of talking about a similar phenomena. What has been your experience and how do you see just pricing, inflation just going forward versus pre-COVID?

We see inflation moderating. It's definitely lower in '24 than it was in '23. Therefore, we expect price this year to be between 2% and 3%, probably 2/3 of that is just carryover from what's already been put -- the prices that have happened. And what we'll do as we move through the year is, we'll watch some of those factors that you're talking about. And that will be the difference whether we end up closer to 3% or 2%. But speaking specifically on the labor inflation, we're light assembly and test. So that's not the biggest number. So we wouldn't expect that be the inflationary factor that would drive us to do something different.

And another thing we're sort of finding is that just taking a broader view is that, yes, there are industries, there are absolute industries were supply chain is not constrained. But broadly speaking, we do see it labor constraint. We do see supply chain constraints. How are you adopting what's your view on the evolution of the supply chain over the next couple of years? And what steps are you guys taking to sort of get there?

Are you thinking about supply being constrained, we think it's improving from last year to this year. But not pre-COVID better, but certainly, every year there's things that are getting better. And that's has to do with us the general environment getting better, lead times coming in a little bit or actually quite a bit. But also some of the things where we maybe -- where we ran into some constraints. We're getting a second vendor qualified. We're doing more local manufacturing trends in that direction. So derisk our supply chain. Those have all been going on for a while. So those things are all making for a better '24 than '23.

And when you're sort of qualifying second vendor, right, is it usually the part is identical and you just can just drop it in because you talked a lot about redesign, I think, during COVID, right. Has that made, right, because I know, obviously, job #1 is sort of service the customer. So what's the experience -- now that you've redesigned it, has that increased the complexity of the supply chain? Are you thinking of maybe redesigning stuff back. What's the or is it to drop, you drop it's identical and you know that it's a different component, but the customer doesn't really see any of it.

There's -- all of those scenarios come into play. Sometimes there's components that are just the same and you can qualify a different vendor and prove that out. But as you noted, we did some places where we needed to redesign and move on to a more current technology where there's greater supply. And so it's not exactly the same part in that case. And then others are just giving the actual -- the current suppliers, some time to increase their capacity and reduce the things around logistics that we're coming together. So all of those things are coming to make things better.

Excellent. And let's talk about EA. You closed on the acquisition in January, a pretty clear cross-selling path, right? Tech salespeople can sell EA products, how quickly can you train the sales force and start getting pull through on orders?

Well, we closed just at the earliest possible time, which was January 3. So that's always a very good sign. We have -- in the last 2 months, we have trained a lot of the tech sales force on the product. The selling cycle though, is not a 3-week selling cycle. So they're going to go out and then be engaging with customers. But there -- and I don't know that all of them might say probably at least 80% of them have been trained on the product, and then we'll keep working on that training and seeing what's effective and how that -- but that training has already happened, and they're going to market now. But this is -- these kind of products will probably have a 6- to 9-month selling cycle. So it's not a Q1 or Q1 -- or Q2 type of move the needle, but they're super excited about this.

Excellent. And what portion of EA's revenues was tied to software?

From an external -- they're software embedded, obviously, in the product similar to Tektronix, but there's no independent monetization of software in EA today. There's very much a path to build that, just like we're seeing that being built currently in Tektronix. On the software side, being able to sell, monetize software independent of hardware, but also to build a service -- to build on the service network. So roughly 20% of Tektronix is software and services. So think about that being recurring. And immediately, day 1, right, we're starting to implement a service network for EA as well. So that will build obviously, over time.

And how is EA different right now? Like what's different about EA strategy right now beyond that?

About their strategy or...

Software strategy, yes. Just -- there's a different...

I think customers are not currently -- they're currently buying hardware and they're not independently -- they're not buying software [indiscernible] hardware.

Got you. Okay. Okay. That makes sense. And EA, I think, is the first acquisition that to be at around tech since Fortive went public. So what I mean is a scarcity of available assets, high transaction multiples you guys being excited about tech, what's happening?

You mean why now and why haven't we done it before?

Right, that's right.

I think it's just the way M&A works out. We've been closed on a number of things. So it's -- and then all 3 of our segments, we think there's a lot of really good opportunities. But when you get into what deal closes and where it lines up it's not that we haven't tried or been really close here, but we're always going to remain financially disciplined, so that means you end up turning and walking away from a number of deals. And then that can look like we're choosing to not go down. That's not really the case. We've been trying to do deals in all of our segments. And I think now we were excited to do this one. But we think power has got a lot of runway here.

I was just going to say, I think the other aspect of it, right, we identified the power market. For example, at Investor Day is a multibillion dollar part of the product realization workflow, growth platform that's growing high single digit. So a lot of the innovation and product work that's happened inside of Tektronix has really been focused around how to better serve all of the power applications, which is multi-industry in terms of the breadth. And in that process, right, EA has obviously became available. At the same time, it obviously complemented the strategy within Tektronix.

So maybe just shifting to Tektronix. I think messaging has been clear. You expect Tek book-to-bill around 1 in second quarter...

By the end of the second quarter.

Right. Okay. That -- thank you. So -- but what has it been? So -- by the end of the second quarter, so what does it mean for revenue growth in the second half?

Positive revenue growth in the second half. So our expectation, right, is that for PT and obviously, Tektronix, we expect revenues to be down in the first half and then to grow in the second half.

Excellent. And China, is 10% of the total revenue. But I think you alluded, I think Tek would have a higher mix. Just maybe talk specifically more about Tek in China? Like what are we seeing? What are we expecting?

Well, I think that it like Fortive overall. It's running into some really tough comps. And so -- and when you weigh the 2-year stack, we're still in a really good position for the business that we're doing in China. But Tek's probably down a little bit more than -- Fortive of overall because you got -- like health care is actually up. And Fluke has really been resilient there. So -- but we're still in a really good place here in terms of when you think about the amount of revenue we have now the bookings that we're getting now are less than last year. And -- but when you go back 3 years ago, it's more. So I mean this -- it's just digesting. I think Elena used that out. I really like that thinking about the big strong growth that we had in those products. And so it's going to have a Europe digestion. But it's not -- there's not been an inflection change from how we've saw that, really even 6 to 9 months ago.

To put that in just in financial terms, in the fourth quarter, China revenues for Fortive were down high single digit. On a 2-year stack basis, even with that down high single digit, they are still up mid-teens to your stack. Just again, to put in perspective how much outgrowth relative to market we had in China.

That's excellent. Just if you think about just sort of zooming out a little bit, if you think about Tek's history, right, they start on the West Coast and as the U.S. electronics industry sort of moved away, so do Tek, there's a lot of talk about reshoring, right, it's a big focus. So how does this impact Tek's footprint strategy? How do you see sort of Tek playing into this perhaps newly growing ecosystem in the U.S. Does it matter, just expand because it's just very ironic, right? It was in Oregon. It sort of moved across the ocean. What's going to happen to Tek in the next 3 to 5 years?

Wow, you're going back a long time, but it was there for a lot of that time, so that's a home -- familiar groud. I'd actually see that Tek expanded. So it wasn't really shifted. I didn't go down as much domestically. But you're right. It expanded into those regions. And I think that it's -- now it's got a worldwide -- it has for a long time, worldwide footprint. So as the electrification moves all around the world where it's produced onshoring. It's really important to us like let's step back a little bit further and just say, well, more of these growth drivers around electrification for the world, and we cover the world. So I'm not as worried about being up and down as much as that is the worldwide growing. I'm not believing that necessarily that means onshoring is something is really going to take a dive down. I'm just saying, look at the big and there's a lot more factors around some of these growth drivers around data centers, for example, and that -- and power, just as Elena was talking about, wherever that's going to go, we're going to be there, and that's going to be a benefit for us.

And think about the electronics industries that Tek historically served were, they were rather PC, PC and smartphone. And now you've had the proliferation of batteries and chips and the connected everything, the electrification of everything is really driving a more ubiquitous, more diversified kind of set of growth factors that Chuck alluded to and I think that's regardless of region, I think we're in region to serve the region that we're in, which has certainly been beneficial from a tariffs and other perspective. But when you think about even the exposure that we had, if you go back to 2018, 2019, right, we stopped selling to Huawei and a large number of other companies at that time. So a lot of that -- if you think of some of the other actions that we've taken to diversify, Tektronix away from any one particular industry, I think, has also been complemented by the fact that the proliferation of these things is also giving growth in a lot of other industries.

So is it fair to say that you are agnostic and wherever the growth will come. You have the necessary footprint to support it?

Yes. I think that -- and we will -- no, it could mean some -- a little bit of tweaking and rebalancing, but we know how to do that, and we take that on. It's really -- what I was saying about that the total is growing and we'll be able to address it wherever in the world it is.

Excellent. So maybe shifting to ASP. You guys have talked in the past. so this advanced -- used to be known as -- was that ever known as Advanced Sterilization, I guess it was sort...

ASP? Advanced Sterilization Products.

Yes, I guess -- was it ever known. I guess it was, back when -- yes. So Fortive has talked in the past about how a new product introduction takes longer in life sciences and health care, where are you in terms of product vitality at ASP? And outside of the U.S., what are you seeing in terms of growth rates? And are you actually making investments in these regions? A lot of questions. So let's start with product vitality for ASP.

Well, I think that in the health care market, it's true that you don't -- it's hard to change products, which means they're incredibly sticky. But at the same time, that doesn't mean there's no upgrades and things. But our -- the product that we have is in low temperature sterilization -- it's got -- which we think is one of the fastest-growing sectors and it's got the top position in terms of market share. So we like that. I think there's going to be some introductions that you'll see this year that will start to make a dent in biological indicators. That's a really nice product that in an area that we really don't have big market share, but -- so it's going to be accretive to our growth. So that we talked -- that we gave some view to. So I think that's going to happen. And I think as we move forward, maybe to the end of this year and then coming into next year, you're going to start to see some products that will come to market that will start that innovation because it does take a little bit longer or it's longer there. But that also means the products stay around for a long time as well. So it's not that -- so vitality, if you're going to compare it to the technology industry wouldn't make any sense there. It's -- but it's really what's happened in the marketplace. And these products are incredibly effective, and they have incredibly long life, which is one of the reasons we like them. But we've got some new things coming to the market.

And just from a -- maybe from a global perspective, I think ASP is one of our most global companies, we're seeing really good growth in every region, maybe with a little bit of an exception, we're seeing slower growth in China. We did have the effects of COVID still impacting China last year, for example, certainly in the first quarter of last year. But now you kind of have a little bit still of the lower procedure rates happening. We expect that to get better in the second half relative to China specifically. I think we're seeing really good growth in North America, in Europe, in other parts of Asia and certainly in Latin America as well.

Got you. And where does ASP fit in within your framework of mid-single-digit organic revenue growth, right? I mean clearly, it's a portfolio, things -- there are things that will grow faster than average, things that grow slower than average. What about ASP?

Well, the premise when we acquired ASP is that it would accelerate to mid-single digit. It had been not growing at all for a variety of reasons. But -- and we started to see that acceleration. And then, of course, pandemic happened, and it didn't get to mids. But now, we believe over the last -- even in 2023, if you look through the dealer transition, it's been growing. The end use is mid-single digit when you include that in North America. If you look outside the U.S., excluding the U.S., it's been growing mid-single digit. And that's what we would expect it to grow and have guided to it growing this year.

I think the long-term, I think way to think about growth in that business is you've got growth in the installed base, it's probably low single digit. We actually -- a lot of that growth through the pandemic. We did still grow at a roughly 3% CAGR through the pandemic and in the couple of years that followed, came from installed base growth outside of the U.S., and that was a big part of the thesis going into the acquisition. And then you've got procedures that are growing, call it, low single digits. So that adds, if you will, on top. And then on top of that innovation. So I think the mega trends are still very strong in terms of aging populations. I think the power of what ASP does. And I think the benefits even in North America to go direct -- to be -- have a tighter alignment, if you will, to overall utilization of our equipment to drive better utilization of our equipment and efficacy of the processes to ensure sterilization is happening. These are all very positive. And I think support a mid-single-digit core growth going forward for a long time.

And we've also been able to get -- price is one thing that we had to get some contracts change, it takes a bit of time, but now we're getting to the point where that consistent price, not super high, but consistent, that's going to help us as well.

And you've alluded to it as one of the growth drivers. But where are we on sort of this whole elective surgery recovery in North America, right? Because I think at some point, there was an expectation. There's one going to be like this catch-up and just -- it doesn't seem to be there's been that ultimately, people are just going to end skipping some. Well, they have a big cash right, because initially, people have strong views about it, and that is just as time goes by, seems there's less conviction on that.

Well, I don't think our point of view has changed.

No, no, no. You guys are spot on. You guys, I'll give you that. You nailed that one.

So we think that as we move forward mid-single digit is the right way to go. I think labor shortages are getting better, but they're still there. But for a lot of reasons why we said there's not a big -- it's hard to imagine how operating rooms running at 150% or even 120% of capacity. So that was our in it's played out that way. And very specifically, we think electric procedures are back to normal rate, not -- we wouldn't -- they're not constrained and we're just going to be talking about how we grow from here.

Excellent. So maybe Fluke, for those of you, it's your handheld test measurement tools business. You launched a solar tester and made a tuck-in acquisition of solar last year. So how much have these faster growing niche areas helped overall Fluke? Because Fluke has really had steady revenue growth despite weaker PMIs and softness in several end markets.

Well, I think you're answering the question right there, like normally, when -- as you have a recession. Fluke, it's -- would show more of a downturn or even go negative, but it also be a quick recovery. And so what we've seen so far as they just haven't. They've been incredibly resilient is because of the those end markets that you talked about pointing it at better growth drivers that has given this build in that gap. That doesn't mean they haven't slowed down that from high single-digit growth that they were. That's really not where we expect them to be overall. But they've stayed into the positive territory, and that's how it looks like they'll be for through -- right through whatever however long this rolling call it, the rolling recession is going to take.

So we did this analysis a couple of -- I guess, a couple of months ago, just looking at what drives multiples and it seems like gross margin expansion is a big KPI and there are like a couple of outliers there with high gross margins and maybe multiple has not expanded as much. And clearly, people are not giving enough credit for what you've done in terms of margin and software. So maybe we can just sort of talk about software. So you -- several questions. You built out a full software offering for firms self-performing sort of Gordian [indiscernible] or using third-party service channel. So what's baked in there for '24 guidance?

In terms of growth, it's high single digit. They've grown the last couple of years, low double digit. So we see a little bit of lapping primarily Gordian coming -- going from 20% growth to somewhere in the mid-teens, which I think is a very -- still a very attractive term growth rate for Gordian, but we'll see that reaccelerate to low double digits going forward at FAL, Facility & Asset Lifecycle. And that's a collection of -- so in 2024, that will be $750 million of revenue that's growing high single digit a Rule of 40 plus business. I think even you could probably argue all of FAL -- sorry, all of IOS, it's probably a Rule of 40 which would include Fluke and environmental health and safety. So I think the -- we feel confident in that long-term trajectory.

So should we accelerate to low single digits -- low double digits?

It should reaccelerate to low double digits. We think it's growing faster than the market. I think we've been very intentional and selective about where we play within that broader, call it, end market or workflow such that I think -- and Olumide had a great statistic last week, he talked about something like 10 trillion square feet of real estate space that they look after and have data on. So I think there are a lot of really great long-term positive drivers.

You're seeing improvement in the funnel to drive this acceleration?

I am sorry?

Are you seeing improvement in the funnel to drive this acceleration?

So if you think about the business within FAL, bookings are growing in that, call it, almost teens type of growth rate. So very much indicative of sustaining that longterm...

That's where I was getting to...

And keep in mind, those acquisitions, especially the software acquisitions, growing at least 2x the rest of the portfolio as it obviously have really good gross margins. But I want to give -- are due to our hardware products. They also have really good gross margins. And so it's not just the software, we get margin expansion out of all of our businesses. And gross margin is something that [indiscernible]

So Intelex, it's your environmental health and safety software offering. So how does the Intelex team see these CCA regulations around greenhouse gas emissions reporting. I guess I have a slide, they should feel good about it, but is this a meaningful tailwind for the business?

It's not a headwind. No, I think that it's things that when they look at things like that, they're seeing the market, how it's going to evolve, and they just see this as evidence that the market is continuing to go the direction that they expect. So I don't know that it's different. I mean I thought the market was going to be pretty darn good moving forward. And I think that's what they're seeing.

And maybe last question for me. On capital return, you recently increased quarterly dividend for the first time since going public and you did about $700 million in share buybacks in '22, '23. So how are you thinking about capital return more broadly? Are you considering moving from an opportunistic to a more systematic maybe offsetting share grant dilution repurchase strategy?

I think we're going to stay where we're at now, which is being opportunistic. We think that we don't want to box ourselves in for when you're doing capital deployment. We think that it's a tool in the toolkit. It's not -- the main tool is M&A, and that remains the priority. What we did with the dividend was just trying to acknowledge that from here going forward since we're through the transformation that you should expect that to grow along with -- if we're growing our earnings per share and cash flow at mid-teens, you should probably expect that once a year or so, we'll look at that and probably grow it the same.

Excellent. I think with that, we started a little bit late, so we're going to finish on time. Elena. Thank you so much for being in London. Always a pleasure.

Thank you. Thanks for having us.