Gartner, Inc. (IT) Earnings Call Transcript & Summary

Okay. Good morning. And thanks, everybody, for being here. I'm Gary Bisbee. I'm the lead business and information services equity research analyst here at BofA Securities. And I'm really excited to bring today the BofA Virtual Information Services Conference to you. We think we've got a really strong lineup. 9 companies, leading companies in the space, where we'll have fireside chat discussions with senior execs, and we've got a panel. Also looking at consolidation and convergence in the financial space, including financial exchanges and other players, broader than just my information services group. It's been an interesting 15 years covering this information services space in addition to business -- core business services for me. I think back to what were a couple of good businesses, but really viewed as one-offs 15 years ago, and the growth in emergence into today, what's 15 mid and large-cap companies that are really above-average businesses, in my view. Over time, the group has pretty meaningfully outperformed the market. And I think they've done that because the growth prospects range from good to very good, depending on the company. Strong margins, they're capital-light business models. So we've got strong return on capital, a very strong cash flow conversion. And I think those attributes have been increasingly understood by the market, which has led valuations to rise over the last few years. I think now as today is an interesting time to be doing work on this space. And I say that because year-to-date, the number of the names have underperformed and pulled back a bit. I'm happy to say my 2 top picks for the year, Gartner and Thomson Reuters, both well ahead of the market. But a number of these stocks are down double-digit percentages. And I think that what we've seen is just some of the rotation that's happened to value and maybe more cyclically geared names. A number of them, in some ways, were COVID winners last year, holding up much better. And so in some way, they're less attractive, maybe COVID recovery names. But it's interesting to see that many of the companies in this space currently trade below the average valuations in the last few years, which is obviously in contrast to the market in a lot of sectors that are well above average. So we do think that it remains a really good time to look at the group. And as I said, we're really excited to bring you 9 leading companies, and we think an interesting panel, over the course of today as we get into it. I'm happy to kick the day off with Gartner, which has been my top pick since the beginning of the year. And despite good performance, continues to be my top pick from here. I think the company has a good combination of some cyclical recovery aspects to the story, but also with the margin commitments they've made, a very cash-generative business model and evaluation that on a multiple of free cash flow, we think, is pretty attractive. We think positions this business both to compound earnings and cash flow at very high rates in the next few years and also to get some multiple expansion. So we think it's a real good idea here. I'm pleased to have with me from the company, CFO, Craig Safian. And Craig, welcome. Thanks for joining us.

Thank you for having me, Gary. Good to see you, and let's get into it.

Yes, absolutely. Only 35 minutes. So this may feel like I'm firing aggressively, but trying to get through a lot here. So let's start with your research business, the key asset in the company. One thing, as I look back over 2020 and the pandemic performance of Gartner, Research contract value has held up much better than I would have expected 9 months ago and better than the company's performance in the last recession. And so what do you attribute the relative resilience to? Is it just that the pandemic was somewhat different? Or are there some active strategies that you've been following that have led to what's remained positive year-over-year contract value, really pretty impressive?

Yes. I mean, I think every downturn is unique. But certainly, the business has been more resilient than people expected when we headed into the downturn. I think, just a few points I'd make on that. One is following the last downturn, we learned a lot from that, and we made a number of improvements with the goal of really increasing our stickiness and increasing our resilience. And so a couple of things we did is we broadened our library, and we have just this time around a much broader research library and research assets around all things, but most notably on cost optimization. And the pandemic -- and again, there were winners and losers and companies that invested and companies that pulled back, but everyone was looking for opportunities to optimize or reduce costs. And we had plenty of assets that could be brought to bear for that. The second thing is we really extended the Gartner Sales Excellence playbook to help our salespeople retain and sell more effectively in downturns. As we've talked about over the last several years, while we haven't had anything as broad as the 2008, 2009 recession, we have had challenges in regions or industries, and we continue to learn and iterate and evolve and innovate on our Sales Excellence playbook. And so we had a much more robust set of plays ready to go to deploy across the entire sales force. And the third thing, and again this is something we've learned the hard way in 2008-2009, was that we've completely almost eliminated subscriptions that we sell that are unused. And so in good times, back in the last decade, we would sell 10 subscriptions to a company. They would deploy 7 of them, 3 would sit unused. When it came time for renewal, they'd say, "Yes, let's renew those 10 and we'll add 2 more." Well, in a downturn, the first thing people do is cut those 3 seats. And we've made sure that all those seats are deployed. And we believe that all these things help in a down economy, but they help in a steady economy and they help in an up economy as well. And again, I think when we look at our performance over the last year, and we talked about this in detail on the fourth quarter call, yes, the business was more resilient. The one thing that kept us from growing even more, to your point, the Research business was up 4.5% in the year 2020, in a very challenging year. The one thing that limited our growth was really, normally, we're generating a huge amount of growth from existing clients. That was a little muted during the downturn. But again, we feel like we have the opportunity to get that humming again as the economy stabilizes and improves.

Okay. Good. And then looking forward, I guess it would seem logical to me that having held up better the pathway back to your long-term targets of double-digit contract value and revenue growth in Research could happen more quickly or certainly the pace of the recovery in the recession seems like a reasonable guide from where we are today. Is that a fair way to think about the recovery?

Yes. Well, we have not come off our medium-term objectives for both the GTS and GBS, the 2 elements of our Research business. And our medium-term guidance is for at least 12% growth in each of those segments. And we fully expect to return to double-digit growth in the medium term. We haven't given a view on the exact timing. Our teams are really focused on making sure we're delivering great value to our clients, working on renewals, driving new business, all of that. In fairness, and this is an obvious statement, but I'll make it anyway, but compares do get a little easier starting in Q2. Q1 last year was really 2 months of almost normal activity and half a month or a full month of pandemic impact. We really felt the full brunt of the impact in Q2. So the compares do start getting easier as well. And as we talked about on the fourth quarter call, we saw nice improvements. Q3 was better than Q2. Q4 was better than Q3. And so we fully expect to return to double-digit growth in the medium term.

Yes. Yes. And following '09, I think from the bottom, you were 10% a year later. So I -- that's me, not you saying that, but I like the outlook for the recovery starting in Q2, as you say. Well, one of the really nice surprises, I think, for me and investors, in general, coming out of the back half, second half of 2020 performance was GBS, where bookings rose sharply year-over-year, contract value accelerated sequentially in Q4. 18 months ago, that would have been hard to believe, that performance. And so when I step back, you've done a ton of things in the last few years to this business to position it for success. You have invested in product and service. You've transitioned to the seat license model, which created some challenging period but seems to really be working. You've driven sales headcount growth. When you think about that improving performance at GBS, do 1 or 2 of those stand out? Or is there -- how would you describe the most important factors to that business having such a strong last 6 months?

Yes. I mean, I think it's all of those things. But I think fundamentally, what it is, is the value proposition for our -- the markets we serve in GBS is compelling, and it's the same value proposition as the long-standing value proposition for our GTS business. And specifically, we're helping enterprise functional leaders address their most important mission-critical priorities. And those priorities can be specific to each of those individual users or subscribers, and they get to benefit from the breadth and depth of the overall scale of Gartner's expert insight and tools. And so I think fundamentally, and again, this is where there was some cognitive dissonance with investors and the investment community, was that the GBS business just can't be as strong or as compelling as GTS. And the joke that, or at least I thought -- I always thought it was a joke, was IT is exciting. I get why the tech business can be so strong, but finance is boring, Craig. HR is boring. And I think if anything, we proved over the last year that finance, while it may look boring to the outside, finance leaders have real challenges that they have to deal with in a pandemic year or otherwise. And Gartner stands in a great position to help finance leaders accomplish their most important mission-critical priorities. Again, in the same way that we do it on the tech side. And so again, I think it's the formula for growth that we've always applied on the GTS side or the traditional Gartner business, we've applied on the GBS side. And so it's that core fundamental value proposition. It's the increased sales capacity. It's the investment in products and service and sales capacity and training and tools. All of those things have led to the really strong results that we've delivered over the course of 2020 in a very challenging year. And again, I'd argue, in any year, the results would be pretty good, pretty strong in a pandemic year, exceptional and with a lot of momentum coming out of Q4 as well, where, as you mentioned, contract value growth did accelerate sequentially. And we had new business growth that was up 26% year-over-year, and it wasn't on an easy compare either. So we really do believe it's a great, strong business. We have a lot of conviction in our ability to get it to our medium-term objective of 12% to 16% growth. And we think we're well positioned to drive long-term sustained -- sustainable double-digit growth in that business as well.

Yes. Good, good. On GTS, a couple of questions. One, just -- and maybe it's sort of the math of the various metrics you provide, but contract value in GTS held up quite well relative to what was 4 quarters of new business sales declining and a bit saw -- still very strong, but a bit softer wallet retention. Is there like another element there I'm missing? Or how has CV held up so well in GTS?

Yes. It's -- so I think the biggest thing, and I alluded to this a little bit earlier, and again, we double clicked on this on the fourth quarter call, was when we look at the elements or components of growth in our business, we're typically generating a large portion of our growth from what we call upsell to existing clients. So we land and then expand and expand and expand and expand each and every year. And that was muted during the pandemic. We still did a great job of bringing in new logos over the course of 2020, especially in the second half of the year. And again, as we talked about on the fourth quarter call, our new logo contribution to growth in the fourth quarter was actually up year-over-year compared to fourth quarter of 2019. And so it was really the -- we had less growth. We still grew our existing clients, and that's why the wallet retention was still so much higher than client retention, but we just didn't grow them as much as we historically did. And again, we believe that we'll be able to get that growth and recapture that growth moving forward. But that's fundamentally was the biggest challenge within the GTS business.

Okay. And then sales productivity has declined. And obviously, there's a big cyclical component of that in a pandemic, but it also had fallen a bit in 2019 before the pandemic. And so as we think about a GTS sales productivity recovery over the next few years, are -- is it right to think we're planning for the 2019 level? Or is -- in the right environment, is the 2017 to 2018 productivity level, which in historical context was quite high, is that really the bogey for future normalized sales productivity at GTS?

Yes. I think that over the medium to longer term, there's really no cap on what the GTS sales productivity can be even when we were in that 2017, 2018 levels, which was roughly 5-year highs. We weren't quite back to the same level we delivered in 2010, 2011 or even pre-recession in 2006, 2007. And so again, we believe through all the efforts we're doing, and we are, as you know, insanely focused on improving the productivity of our sellers, that we'll be able to get that up over time. Now the one thing I would say is our sales productivity measure, at least the one we talk about and produce for investors, it's really a derivative of contract value growth. And so it's representative of, on average, how much incremental growth each additional seller is contributing, but it really is a derivative of the overall CV growth. So it's clearly going to be impacted by macro conditions, the pandemic and a modest slowdown in the overall contract value growth rate. But we do believe that the things that we're doing and the things that we put in place back in 2019 around optimizing the way we develop territories, optimizing our training programs and continuing to develop and innovate on tools for our sellers, all those things are done with the clear sole goal of increasing and improving our sellers' productivity. And the one other thing I would mention, just as we think about that productivity metric and where pressure comes from and where there's potential upside as well, is that I think a silver lining of us slowing down a little bit on headcount growth is that as we look at the complement of our sales force. In 2021, we have a smaller proportion than normal that has less than 1 year of experience. And those are always the -- it's an investment. There are drags on overall productivity because first year associates sell less than second year associates who sell less than third year associates. And so we believe that we're finding this optimal balance of headcount growth, the -- our ability to digest that and deploy it really super productively and super profitably and leveraging all those programs I talked about to improve sales productivity over time.

Okay. Yes, that makes sense. And one thing I -- just one final one on GTS. You mentioned earlier that one of the challenges in 2020 was selling more into an existing customer. Is that really just a cyclical impacts of time in a better environment for corporate spending is -- corrects that? Or is there something else you're looking for to make that easier to do?

No. We do believe that it's mostly market-driven. And again, if you think about our client base, we have a very diversified client base from a geography perspective, from an industry perspective, and from a size perspective. But if you think about it, we've got a lot of clients in the travel industry. Not a disproportionate amount, but a decent amount of hotels and airlines. And clearly, growth was challenged there. At the same time, we have clients in pharma or on the tech side, where they were actually having very good years. And again, we took advantage of that. On average, our existing clients continue to grow with us in 2020. So it didn't go from growing to not growing. It just grew a little bit less. And again, we believe when the market does stabilize and businesses know what their outlooks are, what their operational budgets look like and what their future looks like, we'll be able to return to that similar levels of growth from existing clients that we have achieved in the past.

Okay. Good. Well, let's shift to margins, which in many ways is how your story has changed the most in the last year from my perspective that sales productivity, to me, seems like the key driver in the short term. And I guess, I wanted to frame for you how I'm thinking about the next 24 months of margins, and you can tell me if this seems reasonable. So clearly, with cyclically depressed sales productivity, as that normalizes, all else equal, that's very positive for your profitability. And so that's likely to begin and happen in 2021. I think this year, the benefit from that is probably largely offset by costs that you deferred a year ago coming back into the model. But then assuming that, that productivity continues somewhat into next year, that would be one of the levers that would allow you to deliver to your stated goal of beyond '21 having at least moderate margin expansion. Is that a fair way to think about the next 12 to 24 months?

Yes. I would say you are thinking about it and the margins in the right way. I think the only thing I would -- or things I would add is we are restoring costs this year. Some of that is happening later in the year in 2021. And so there's a little bit of rebalancing that will have to happen and will have an impact on 2022. Depending on when things really do "reopen," that's going to drive a lot of -- some of the incremental spending as well. And so there is the possibility that some spending won't come back all the way until 2022. But I do think, over time, and again, this is why we've got confidence in our ability to modestly expand margins while delivering really nice top line growth is that it's sort of -- it's the operating model. And so we expect to see margin expansion through operating efficiencies and a continued shift in mix to our highest margin business research. We're managing the sales costs, as we just talked, and we expect to get operating leverage out of G&A, both from growing into previous investments and being really smart about how we spend every incremental dollar of G&A to support the business.

Okay. Yes. And then maybe you just hit on the answer to this next question. But I think the second most asked question, I -- or second largest incoming question to me post your results is 2022 and beyond, other than sales productivity normalizing, which I think everybody gets the math on that, what other factors can contribute to your ability to deliver annual margin expansion over the next few years? And so you just said G&A leverage and mix shift to the highest margin business. Maybe that's the answer, but are there other factors we should be thinking about and why you've made that statement about medium-term margin expansion for the first time in a long, long time?

Yes. I think -- so we've been getting that question, too. So it's not unique to just you. I think the way we think about it is all the things we just talked about, right? So the shift in mix, the power of the operating model, continuing to get leverage, how we're managing the selling cost. I mean the other thing I would add is we came through a very significant investment cycle, '16 through first half of 2019. And we have the -- and again, that's not just salespeople. That's facilities costs, that's recruiters, that's all sorts of things to support the business. And we have the opportunity to grow into those to some extent or manage them or get leverage out of them into the future. And so I think the combination of managing those selling costs and driving modest improvements to productivity over time as well, right? So we believe what supports the double-digit top line is continuing to grow our sales force, not as fast as we did previously, but still fast, right? So even this year, we're targeting high single-digit headcount growth in sales. It's not 15%, but it's certainly not 0% either, right? And so we are putting a lot more capacity or feet or selling resources on the street and then really just managing the rest of our cost base much more effectively. And then the last thing I'd add is, there are things we learned over the course of the last 12 months during the pandemic of cost that we could avoid either permanently or can afford to spend a lot less on them in the future. And again, facilities is an example, travel is an example, and there are a host of other examples as well. And the combination of all those things is what gives us the confidence around the ability to modestly expand margins over the future.

Okay. Great. So you said earlier, sales tenure is high. And I think, just cyclically, you should have strong selling capacity today given where bookings have been and whatnot. As we think about the cadence of sales headcount, so you just said you're growing it this year, but maybe not as rapidly and presumably, productivity rises as they get more productive in a better economy. But how do we think of the cadence of headcount? Can -- are you planning to manage that much more in line with revenues such that there won't be sort of a step-up at some point that -- to keep delivering 10%, 12%, we need to really step it up. And so is it a more moderate growth and then sustaining that level of growth? I ask just because the risk is a big step-up means a step down in margins. And certainly, after the last few years, there's some fears that, that could happen again.

Yes. Well, so our goal is to grow the top line at double-digit growth and deliver modest margin expansion. So that is our stated goal, and that's how we're managing the business. I think the way that we do that is we grow the sales headcount a few -- a couple or a few points slower than CV growth. And so in a normal operating year, let's say we were at a 12% CV growth, we grow headcount 9%. If we saw CV start to accelerate to 14%, we would probably bump up our headcount growth to 11% or 12%. And so we'll move like that to make sure that we continue to add selling capacity because that is one of the key levers to us being able to sustain that double-digit growth. But we want to do so in a very profitable and productive way. And we think maintaining that slight modest gap between contract value growth and headcount growth will allow us to effectively keep cost of sale roughly flattish. But again, if we accelerate the CV growth, we will be more than happy to accelerate the headcount growth as well.

Okay. That makes a lot of sense. And then in -- from 2010 to 2017, Gartner's adjusted EBITDA margins were basically 18.5% to 20%. And prior to the 2020 pandemic cost deferral aided margin jumping back into that range, they've been several points below it for a long time. Are there any structural reasons that that's not the long-term margin trend? Again, at some point in the future or anything with mix or anything else? Or -- and I'm not asking you to commit to that, but it seems logical to me that there's a pathway to be in that range. And is there any reason we shouldn't think that?

So structurally, there is not a ton of difference between how the business operates today and how it operated several years ago. To your point, you're not asking me to commit. I'm not going to commit to specific margin targets or range. I think what we want people to understand is that our guidance for this year of at least 17.4% is the new reference point, and we expect to modestly expand from there going forward.

Okay. All right. And one last one on margins, which I think I asked you a couple of quarters ago on the earnings call, but I feel like it's worth asking again. Just -- so in the Research business, you're a couple of points ahead of how you've historically discussed the 70% ceiling or at least sort of incremental margin level at which you'll invest $0.30 of every dollar in content, support and all these things. And how do we think about that? As part of that semi-permanent and permanent cost saves you referred to a few minutes ago within that cost of goods sold line or would it be reasonable to think that you give up some of that recent margin over the next few years as investments and deferred costs come back?

Yes. It's a combo of both, Gary, to be honest, in that line. I think it's possible to run maybe 71%, 72%. But at the same time, we did get a lot of benefit from not traveling in that line as well. And one of the things worth noting is we didn't really have to increase research analyst, research adviser capacity in 2020 because we did get a lot of time and capacity back because of the conference calendar and lack of travel and things like that. And so there's a little bit of onetime benefit that will reverse itself as well. We still would say think in roughly the 70% target margin range. Yes, is there a potential to potentially squeeze some efficiency out of that, but roughly in that 70% range is probably the way to think about it.

Okay. All right. No -- yes, I mean, it's interesting. I think my job as a research analyst evolved and this format or phone calls were a lot better. Do your -- was your team able to create the content they do effectively? Or do you see them likely to get -- itching to get back on the road aggressively as soon as they feel like they can?

Yes. Well, again, I think it's a combo of both. I think the nice thing pre-pandemic is we operated with an extraordinarily distributed and remote expert analyst workforce. And so we aim to hire the best people and the smartest people regardless of where they sit. As long as they have good broadband and are close to an airport, that works for us. And so the going to virtual, for the rest of us, was business as usual for them. And to be frank also, with being homebound, they're actually able to have even more interactions with clients, which, again, is one of the ways we deliver value to our clients, but it's also one of the great ways that we get information about the market that informs how we advise our clients and all of that. So I think conferences is an area that our analysts are the stars of that show. And when we get back to live conferences, they're going to want to be, and we want them to be the stars of that show as well. And so that will certainly come back. And I think our analysts are certainly looking forward to that.

Yes. Well, that's a good segue because I wanted to shift to Conferences. So given the success you've had with virtual, I realize it's less revenue and less profit dollars, but certainly went a lot better than I think we all expected when the pandemic hit. How are you feeling about hybrid models going forward? Are there places that will make sense? Or is there an ability to have an in-person segment, but get a broader audience as well by continuing the virtual? Just curious how that's gone and how you're thinking about the format in a post-pandemic world.

The -- we pivoted and developed this virtual conference capability really quickly, which is why I think people were surprised about how successful we were in our ability to monetize it. And actually, almost as importantly, is how successful we were in engaging our clients and getting -- delivering them value that way as well. So I think it is a very important asset that we've now developed, and we've gotten better with each subsequent virtual conference we've delivered. And it will benefit us in the future in a number of ways. That said, we are still operationally planning to get back to in-person destination conferences when we are able to. And that will be driven regionally or country or market specific, but our clients tell us they want to get back to that. Our exhibitor clients tell us they want to get back to in-person. And when it is safe, and we are able to do so, we also want to get back to in-person. That said, virtual will be an important asset that we can utilize in many, many, many ways. And I'll give you 2 quick examples. One, extension of what you described, and then one other example. So one example is, is there an opportunity to get a broader reach on our current conferences with people who don't have budget or don't feel safe traveling or what have you? Absolutely, right? And so we can absolutely figure out ways to extend the value of our conferences by leveraging our virtual platforms. The other place where it makes a lot of sense is we want to make sure when we are running in-person conferences that they have a certain level of economic return to our company and for our investors. And what that means is, in speculative places where it might be a smaller business or a smaller market, it is very difficult for us to launch a conference and take a loss on it in the first couple of years as it grows. We could potentially launch with virtual and build critical mass that way. And then when we think we have enough momentum and enough built-in client base, we can then pivot to in-person. So I'm really excited. I know the team is really excited about having this additional arrow in our quiver, if you will, that we can utilize in many ways. And 2 -- the 2 examples we just gave are just 2 illustrative examples of the many ways we can utilize this virtual capability.

And then just thinking long term, is there a role to have conferences more broadly from the GBS portfolio? I know you've done supply chain for years now, and it's been big. I know CEB had a small HR one you've been expanding. But is it reasonable to think that, over a number of years, that those verticals can become a key contributor to conferences?

Absolutely. And so as you mentioned, we do have a number of conferences already in the GBS portfolio. So supply chain, marketing, sales, HR and finance leaders. We have conferences. Now again, we haven't blown that out regionally yet, but those -- they're mostly centered in the U.S. with a couple of examples. But absolutely, as we get scale in each of those practice areas in research on the GBS side, there absolutely can be sister conferences that support that growth and add value to our clients in those segments? Absolutely.

Okay. And then I'd like to close with a couple on free cash flow and capital allocation. From my perspective, the largest positive from your Q4 results and 2020 outlook was the robust free cash flow guidance, 14% free cash flow margin. I've been looking for 11%, and I think The Street was somewhere in that ZIP code. So this was both the strongest in many years, but also way ahead of our expectations. This is the area I've gotten the single most buy-side questions is about the sustainability of this level of cash generation. And when I went back and studied it, it's interesting to note that Gartner's free cash flow margin, the way you're describing it now, was in this 13% to 15% range every year from 2008 to 2016. So we're not talking something you have not done before, right? But even with that, and I -- obviously that's encouraging when thinking about that. But what would you offer to investors to maybe add some comfort that this level of cash generation you're calling for is sustainable or likely to continue in the next few years?

Yes. No. I mean, you probably made the most important point, which is our free cash flow generation is getting back to normal. And again, 2017 through 2019 were heavy investment years, both from an operating expense perspective and from a CapEx perspective, quite frankly as well as we had to build out facilities to handle all of the growth that we were hiring in sales and in research and in service and in all sorts of other areas. And so we are just getting back to normal. And with that normal, the way I would characterize that normal is, one, a lower level of capital intensity. Our CapEx spend had popped up to 3.5% of revenues. We're down now around 2% of revenues. I think we'll run between 2% and 2.5%. But we're not going to be back in that 3.5% of revenue. And obviously, that's worth a lot of flow-through free cash flow if we don't have to put that money to work. I think the other thing is post-CEB and during the integration, we lost ground in terms of the working capital contribution to our free cash flow. And in 2000 -- back half of 2019, we got back on track. We actually got back to historical levels during 2020 in terms of what I would call our working capital pacing and collection pacing, and we see no reason why we shouldn't continue on that pacing. I mean the team is obviously focused on are there ways we can actually improve that but I think it's a combination of lower capital intensity and really getting all the benefits out of the model and getting all of the attributes out of that working capital model in and managing costs effectively as well. And so I think it's those 3 things that give us the confidence that we can generate really robust free cash flow moving forward.

And then just I'll sneak in one last one. When I think of the business before CEB and this investment cycle, share repurchases was the primary use of your cash flow. And I -- from my perspective, that was an important component of delivering very strong earnings growth consistently because you took low double digit revenue, there wasn't a ton of margin at the time. And you levered that revenue in a much faster earnings with that consistent share repurchases. Looking forward, while there's certainly capacity for some bolt-on M&A and whatnot, is -- would it be reasonable to think that, that historical capital allocation preference is the way you're going to think about the next few years?

Yes. I think as we think about our priorities from a capital allocation perspective, one is we anticipate that we will generate lots and lots of free cash flow. We did in 2020, and we're targeting that in 2021, and we expect to continue to do that moving forward. And we have a very strong balance sheet on top of that. And as we look at it, our priorities remain return of capital to shareholders through our buyback programs and strategic value-enhancing M&A. On the M&A side, though, as you highlighted, the targets or candidates are likely to be small- and medium-sized tuck-ins. And what that means is that, again, it's not an or. Is it buyback or acquisition? I think it's buyback and M&A, and that's how we're going to deploy our capital. And we're focused on making sure that we are smart and putting our capital to use, as you would note. The Board increased our repurchase authorization back in February by about $300 million. So we have $860 million authorization that we're working off of. We had a decent amount of balance sheet cash-based on the huge amount of free cash flow we generated last year, and we've got a great outlook for free cash flow this year. So we're very focused on making sure that we put that capital and cash to use on shareholder-enhancing value -- shareholder value-enhancing initiatives, I should say.

Great. Well, that gets us to the end of our window. Craig, thank you very much for your time. I appreciate it, as always.

Thank you, Gary, and thanks, everyone, for dialing in.