Honeywell International Inc. (HON) Earnings Call Transcript & Summary

All right. Good morning, everyone. I'm Joe O'Dea. I lead the multi-industry team at Wells Fargo, and we're excited to kick off day 2 of the conference and thrilled to have Honeywell here with us this morning and welcome Greg Lewis, CFO. Thanks so much for joining us.

Thanks, Joe. Happy to be here.

Looking forward to the discussion. So I think the way we'll do this morning, Greg has got some prepared remarks, so we'll start that way, and then we'll jump into the Q&A.

So as you know, we just had our Investor Day just about a month ago. We're about 2 weeks into our new CEO's tenure. Vimal Kapur just took on the new role on June 1, as Darius steps into the Executive Chairman role. But I'm very excited just to share the outlook for Honeywell. I mean we talked about it at Investor Day. I think the financial algorithm that we have is very robust. We reconfirmed our 4% to 7% growth algorithm, 40 to 60 basis points margin expansion and added a few things to it with a gross margin target now of 40% or more. We're now about 37%, again showing a little bit of the quality of the portfolio. We get out that quite a bit, particularly with the advent of all the pricing that's happened, but I think it just demonstrates a bit of the technology differentiation that the company has. And also, we're starting to talk more about just improving our recurring revenue base. And again, today, that's about 1/3 of the portfolio and our intent is to grow that over 35%. So when you throw all that together, including our deployment of capital, over $25 billion, I think it's a pretty interesting algorithm for the company. we updated or upgraded a couple of things in that discussion. One of them was simply around our margin expectations for the company and for HBT and SPS. We've now reached already the HBT target of 25%. So we upgraded that to 27% because we see quite a bit of runway. And we also upgraded the low end of the SPS target was 18% to 20%, and we're now marching towards that 18%. And so we firmly planted around 20%. So that allowed us to take our own target up for the company to 25% plus. And then on top of that, just the demand profile for Aerospace and Defense is so strong. We raised that from MSD to MSD to HSD and also upgraded our outlook for the year to mid -- to low double digits. So really positive outcomes there. And then capital deployment continues to be an area of focus for us. We talked a lot about that at Investor Day. Anne Madden, who is our General Counsel and also leads our M&A program, really walk through the steps that we take and some of the things that we have specifically looked through to build our pipeline and we feel very good about the environment for M&A. And I'm sure we'll talk a little bit about that in this discussion. But the bottom line is our balance sheet has continued to be very strong. We have an enormous amount of firepower to deploy as much as $35 billion to $38 billion over the next 3 years. So things are in a very good place at the moment. Our thesis for the year still holds pretty strong, entered the year with a very strong backlog, a lot of tailwinds with PMT and Aero and just working through the normalization of the short-cycle businesses, but off to a good start. And looking forward to not just the rest of this year, but the next 3 to 5 under Vimal's leadership.

Terrific. So let's start on the demand front, just what you're seeing across the businesses and in particular, if you could touch on China and what you're seeing here, do you see any trends there?

Yes. Yes. I mean so China, as you recall, was one of the risks we outlined in the first quarter. It was 1 of the reasons we were being a little bit prudent in our 1Q guide because at the time, they had just released the zero-COVID policy, and there was Chinese New Year. People were concerned about folks getting sick, coming back and having some additional lockdowns, which didn't occur, which was helpful for us and for everyone. But we're starting to see China improve. We grew low single digits in the first quarter. That's accelerating here in Q2. The advent of returning of flight, obviously, is doing very good things for our Aerospace business. And we are seeing some things pick up, particularly in HBT, which is a positive. PMT has a bit of ups and downs just because of the project nature of things. So -- but overall, I think China is in a good place for us. So happy with what we're seeing there. Broadly speaking, I would say that again, the demand picture remains solid. We have more demand than we know what to do with in Aerospace. You know the story about the Aerospace supply chain challenges, and I'm sure we'll discuss it a little bit. And then I would say the short cycle is -- it's normalizing. We haven't seen it inflect up dramatically yet, but it's normalizing. It's within the parameters of our construct for the year. But we always said that we're going to wait and see how the first half goes. We're almost to the end. So June, the third month of every quarter is always half the quarter for us, frankly. So we'll take our final reading here over the next couple of weeks and have a better sense for how that portends for the back half.

And then just one related to HBT in China. With respect to some of what you're seeing pick up there, can you tie in, how much of that is stimulus-driven and what you might be seeing in terms of backlog building around that to sort of form some more visibility on growth moving forward.

Yes. I mean, I can't say that I can point to stimulus effects specifically at this stage. If they're there, they're not overwhelming the trends that we're seeing. So I think that still remains to be seen as to how that's going to play out.

Okay. And then one other one just related to some of the short cycle. I think one of the dynamics that's been maybe a little bit puzzling and the generalization across industrial short cycle as we see sort of 7 months of [ PMI ] sub-50, new orders still down. It seems like a lot of what we're hearing from companies is more constructive than what we're seeing in that. So just touch on maybe the demand dynamics within short cycle that you're seeing, how that kind of ties into the macro versus just backlog.

Yes. I mean, I guess what I would say is as lead times are improving, we're starting to see our past-due backlogs come down. So just as an aside, we talked a lot about our Honeywell past-due backlog, it continues to grow in Aero due to the really strong demand, even though our outputs are getting better. But we're cutting the past-due backlogs, particularly in SPS and HBT, probably in half from what they have been. So you see the lead times improving. And I think that fed into some of the order, I'm sure that people were ordering to try to get in front of line. And as that normalizes, I think what the true demand patterns will be. That's why I said it's going to take a little time to work through what the true demand patterns will be. And we've seen stability, not growth, not dramatic decline, just stability in the short cycle. And so waiting for the signal as to when that will inflect up.

And then pivoting to the supply chain side, a similar kind of approach, just sort of across businesses, some of the trends that you're seeing.

Yes. Yes. I mean the supply chain story for Honeywell has really been 2 very different things. Semiconductors, specifically amongst other parts and products in HBT, SPS and some degree, PMT. And then the Aerospace, skilled labor, supply chain challenge. And the way that I've talked about that is, on the one hand, if you think about semiconductors, that's a fairly concentrated problem to solve. You can you see demand, it's going to be solved with new investments. You can see when those investments go in and when capacity will come online. And so it's fairly simple to kind of observe the changes and when they'll come. When you think about the supply chain for Aerospace, it's a skilled labor problem up and down the supply base. And the supply base is made up of many small to medium-sized companies who have lost skilled labor in small cities and towns that may not be coming back. And so they may have cut 20%, 30%, 50% of their workforce during the pandemic and that has not recovered back to 100%. So it's getting better. It's going to go slower than people would like. For us, the signals that we look at is how much product our suppliers are committing to us and then what their de-commit rate has been. And so if you think about for us, they've actually been committing more volumes, so that's a good thing. And their de-commit rates have come down, also good. So when it peaked, they were de-committing about 20% to 25% of what they had promised. Now that's down to 15%. So bigger promise, lower de-commit, and that's turning into sequentially better output for Honeywell each and every quarter, and that's kind of the way we laid out the year as we would just get gradually better each and every quarter. And so that's why you saw for us in Q1, that gradual improvement resulted in 20% year-over-year output increase for us. And so that obviously is benefiting our customers. So I think that one is going to just take a number of years to work itself out because the problem is so distributed. On the flip side, I would say the remainder of the businesses, the supply chains are almost back to normal at this point, not quite 100% there yet, but we're getting closer.

And then on the pricing side, can you talk a little bit about the approach to pricing, the pricing tools that you have now, compare that to where you were, say, a few years ago, pre-COVID kind of environment.

So I was -- during '22, the 2 connections that we made, again, using a lot of our digital capabilities that we've built is connecting our inflation model back to our product lines. So understand the sources of inflation tying them back of product so that we knew what that was going to do to our margins by business so that we could take specific actions on a business-by-business basis. And the teams moved out at pace with putting actions in place to stay ahead of our expected inflation. That has been a tremendous tool for us and allowed us to get 10% price last year in '22. As we head into '23, inflation is now moderating. So it's not whipsawing up as it once was, it's now kind of stable in a sort of 4% to 5% type of neighborhood, now we're starting to be a little bit more precise. We're looking now at 80/20, are we going to price up on the tail of SKUs where the demand levels are lower. So we're getting a little bit more nuanced in how we're approaching the pricing algorithm. And we're also looking back around the regions where are we successful, where were we not and making sure that we can go try to address some areas where perhaps we weren't quite as successful in 2022. So it's a bit more of a nuanced approach now. But I would just tell you that my confidence level is very high that across our company, we're going to continue to have positive price/cost. We've got the visibility to be able to ensure we make closed-loop actions, and that's where the value comes from. In fact, is knowing that things that the team said that they were going to go, do actually happened. And we're now getting into also trying to be a little bit more sophisticated in things like elasticity. We're trying to monitor for demand destruction and we go too far in one market versus another. So we're getting early days in that, but I mean that's where can you think about some of the data and analytics capabilities that we're building, we're starting to apply that to a little bit more sophisticated problems so that we can be a bit more competitive in the way we address the markets we're in.

And I think one of the sort of general concerns out there is the amount of pricing we've seen where you see some pockets costs coming down. Does that mean that no price should follow down? And it's interesting, like the tools that you're using in terms of mapping that inflationary pressure to make sure that you're pricing properly. But how linked is that on the other way, such that are there pockets of the business where you would expect it to be a little bit more tied in where pricing could come down.

Well, again, I guess the way I would just describe it as across 38 businesses over 5 large regions, there's going to be differentiation. There will be places in the portfolio where price will have to revert. There are places that are tied to commodities and as those commodities come down, price will come down with it. But again, broadly speaking, across the whole portfolio, we're able to ensure that in most places, we're able to keep our price. Again, I would tell you that, that is highly correlated to the differentiation we have and the technology that we offer but again, if we have something coming down somewhere, we're taking actions elsewhere to be able to offset that. So I'm not concerned about our ability to retain the price that we had. If you think about Honeywell, we've always been about a 1%, maybe 2% price getter over time. And over 15, 20 years, that number has gone negative onetime for a very specific reason in one business, and we were down 1% in 1 year. But we are -- we know how to do this. We've improved our capabilities. We are a technology differentiated company and broadly across the portfolio, I'm confident we're going to manage that to be not a headwind for the company.

And then thinking about sort of organic growth and the margin expansion over the last few years, and you touched on this at the Investor Day and sort of showed the outgrowth relative to a peer said on the margin side, under growth on the revenue side. No, don't make any excuses on the revenue side. But we've obviously seen some pretty disparate trends in terms of end markets. So if you think about that and mix, just are there areas where you felt you underperformed within the business because you were focused on other things relative to just the market exposure you had, in particular, Aero?

Yes. I wouldn't say we focused on other things, and therefore, we underperformed. I mean when you think about the dynamics of how deep things went down and how fast things went up, our exposure to the Aerospace industry is pretty heavy, right? So roughly 30% of our company. And that was the hardest hit in the pandemic in particular. And again, this period that we talked about encapsulated the pandemic. So that thing went down super hard. And as you know, with, again, the supply chain constraints, it's not able to recover quite as quickly. Other peers in that group are -- definitely have a different mix of businesses and the bounce back in some cases were frankly easier to accomplish. So -- but I think what I would tell you is what we're proud of is revenue growth is important. And Darius said it when he first took over that accelerating organic growth as one of his top priorities. Vimal has doubled down on that for his tenure as well. But at what cost matters, too, right? I mean we could grow more if we were to take business that was then not profitable or very low profit or empty calories with no aftermarket stream behind it. But that's not what we're after. I mean ultimately, our share owners care about profit growth and cash generation. Revenue growth is important. But I think what you see from Honeywell is a balance of both of those things.

And I'll open it up periodically for questions. So just raise your hand if you'd like to ask one. Wanted to ask on the Accelerator operating system. So at the Investor Day, introduced the plan to implement some standard global design models across the portfolio. Can you just provide a little bit more color on that, how that's going to impact the business?

Yes. I mean if you think about what we've done over the last 6 years is we've created a digital infrastructure and with an initial focus that was more functionally oriented, optimize finance processes, optimize HR processes, et cetera. Now we're ready to take that next step and think about things through the lens of business models. And we run 4 predominant business models in Honeywell. We have projects businesses, we have service businesses, we have products businesses, and we have software businesses. Those things have different motions to them. The sales motion for a service business is different than a product one. So it's important that you instrument the way in which those organizations work, the metrics that they're monitoring and making that data very available. Same thing in projects. We went after projects first and created the design model on the projects business because there's a lot of risk and projects. So one of the platforms that we put in place was our project management platform. What came along with that though too, when you think about the global design model, it's processes, it's policies, it's training. We put in a very [overtraining] program around our PMs. How do we train them? How do we measure them? We put in compensation programs for project managers. So with these kinds of things where you're sort of peeling back what makes this business work, how does it make money, what are the important practices that need to be inculcated into that business. And we're going one step beyond just best practice sharing, which is what we all did the 20 years prior to digitization. We're not only documenting those practices, but then we're inculcating them into our systems. And so therefore, you're getting that out of being people dependent and you're really making that just the way in which the businesses work and sharing that across the enterprise on purpose. And so that's as we go through each of the 4 business models, they're going to have different focus areas. The aftermarket services business model, which we just kicked off, one of the biggest things we're focused on there is actually growth. What's our installed base? Do we know it? How do we go approach it with our sales force, are we creating offerings that are really service-related on purpose. It's a whole different set of questions, but then that's going to inform us in terms of the kinds of processes that we put in place and again, metrics, et cetera and incentives to get the outcomes that we're looking for. And again, that's where you start lifting up each of the businesses. If you think about all the businesses are probably on a continuum in terms of their capabilities, and we're trying to lift all those up to the best performing and the best performing up as well and just lifting the entire tide of Honeywell. That, to me, is going to provide a very different and new set of opportunities for margin expansion for growth and for cash acceleration. And this is going to be a multiyear thing. Like we're just getting started. You don't go tackle everything in one go. We haven't finished the projects business model but we're starting after sort of the use cases that are going to be of the highest value, and then we'll work our way through it. So I'm excited about it because the other thing is it's co-creation. The businesses who run these business models are the ones that are working on this stuff. So it's a little bit of -- they're going to use the thing that they create. And it's -- I think it's a really healthy thing for us to do and a great next phase of our overall operating system and digital transformation.

And from an external perspective, observing this beyond organic growth accelerating beyond margins accelerating, anything else that we'll be able to see whether from sort of a subsegment perspective in some of the businesses that you talk about? Or from your own reporting and sort of progress update.

Well, I think it's obviously going to come through in the financials because otherwise, we wouldn't -- everything's got to be anchored in some sort of a financial outcome. And so that is going to be the most obvious thing. It's actually going to be visible to customers. We're going to be easier to do business with. We're pushing e-commerce through our portal and our products businesses, it's going to make us easier to do business with. We went out a few years ago and when we transformed our customer service operations, it made us easier to do business with. So we're going to see our Net Promoter Score go up. It's going to improve delivery. And that's one of the biggest detractors from a Net Promoter Score perspective. So I think rather -- like you may not see a whole lot beyond the financial outcomes of it, but our customers will certainly feel the impact of Honeywell becoming easier to do business with.

And maybe along those lines as well, one of the things you talked about recently is going from 150 ERP systems down to 10. And I think in practice, there may be a few that are really driving the bulk of the exit.

Yes, there's literally -- 3 have about 94% of Honeywell on it. So the other 10 have little bits and pieces, but -- or the other 7 or so, but yes.

And so can you just give some examples of what that's done in terms of nimbleness within the business? What it's done from revenue opportunity or margin opportunity?

Yes. So if you think about the whole digital infrastructure that we've built, it's around these core ERPs. So imagine if we were back in 2016 with 146 or [ 148 ] or whatever the number was, and trying to integrate all that data in a way where it means the same thing and you can make sense out of it, be almost impossible. And so the easiest thing to think about is just what we talk about with pricing. The fact that we can now out of these very few ERPs, essentially ingest the pricing tables, data, information to be able to assess what's going on in our pricing organization and create things like a price desk for us to be able to do deal management. Without that smaller, simpler base to build from, it would be so complicated. We wouldn't be able to do it. It would essentially kind of crater on its own. So that's turned into value, both from a growth and a margin perspective just in the very near term. The other thing I would tell you is being able to bring all that data together allows us from a working capital perspective, to be able to improve also because again, now we're getting much more of our operations onto fewer of those platforms, and you think about the work that our Chief Supply Chain Officer, Torsten Pilz has done, really digitizing our planning network. Again, without a few core ERPs to do that from, it would be too complicated to ever really accomplished. So these are some of the things that -- the actual cost of reducing the number of applications attached to those ERPs is relatively small. Is it -- did we save $10 million or $20 million or $30 million annually by having 130 less ERPs, yes, we probably did. But actually, that's like the small part of the benefit. The bigger benefit comes with all the operational improvements that we can make and the ability to create that leverage data platform.

And then I wanted to pivot to the M&A side. You touched on it a little bit in your prepared remarks, but just sort of context around the amount of time you're spending on M&A now versus where you were a year ago and what you're seeing in the general environment and things coming forward.

Yes. Yes. So I think when we talk about M&A, the 2 things that are really different, one, kind of associated with the time aspect. The transformation that we've been on this last 6 years is it takes an enormous amount of energy to do, what we've kind of termed as the great integration of Honeywell because that's essentially what we've been doing this entire time. And so now we're coming down the other side of the mountain on the effort associated with that part of the transformation, which just frankly frees up bandwidth for the [ GMs ] and the businesses to go do the hard work of pipeline building for M&A because it is hard work. You have to go out and meet people, research things, stay on top of it. It doesn't happen simply. So I think we've freed up the bandwidth for our teams to go out and practice that agenda a bit more aggressively. And then when you think about the external environment, money is no longer free. And so bidding for companies when hurdle rates must be higher because interest rates are 5% and frankly, brings down a level of competition and we -- and it's really advantaged Honeywell. Our balance sheet is so pristine. We went out into the debt markets right after earnings and raised another $3 billion to fortify our balance sheet further. So we're going to have an advantage against most other competitors and particularly in the private equity space. So both the capital markets environment as well as our internal environment are really turning to a place where this can and should be a much more robust set of outcomes going forward. And we're excited to do that. I mean, I would tell you that it's our intention, we would like to be able to do 2, 3, 4 deals every year and get into a routine of doing that. Now we're not going to do it just to spend the money. It's got to be -- M&A is a difficult trick to turn because you've got to get a willing -- 2 willing parties with something strategically interesting that can get through regulatory requirements and is at the right price. Those are 4 difficult things to all come together. So it's always going to be a bit of a low hit rate gain, and that's always been the way. But I feel pretty confident that we should be able to accelerate that going forward. And it's a focus area for the team.

And then shifting to the segments and starting on Aero. And if we think about kind of the cycle, I think if you look at sort of this year's organic revenue, it seems like it might be pacing, say, mid-single digits below where you were in 2019. And can you touch on the pricing side of that? Has Aero pricing sort of trended with total Honeywell and then when we think about the volume recovery moving forward, just think about kind of the multiyear path, what you see for the industry, what you see for opportunities for Honeywell to do better than the industry.

Yes. I mean, so on the pricing side, Aero is below line average in 2022 for Honeywell. And part of that is because of the contractual nature of the long-term agreements that are in place. Some of that also is in those contracts, the pricing mechanism is indexed. And so there's a lag. Inflation goes up this year, the pricing changes next year. But we -- the team has done a nice job to manage their price cost as well. What I would tell you is when you think about the good news, bad news of the supply chain challenge, the bad news is nobody is going to get what they want as fast as they wanted. The good news is you could probably plot the line of the revenue growth trajectory over a 3-year plus horizon because it's going to take a number of years for this to normalize and the demand patterns are still strong. The world is not more secure today than it was yesterday, and we haven't really seen that demand really pick up to a great extent in defense yet, but that's coming. And then you know very well what's happened -- the commercial aerospace trends. The OEMs have a very heavy appetite for product and people continue to do more travel. I mean all of us here are buying less stuff and going more places. And so travel continues to be very robust. So when I look at it, I see a very robust demand profile and revenue growth profile, again, over the next 3 to 5 years that we feel pretty confident in.

And then shifting to HBT, and could you talk about what percentage of the revenue is new construction in the U.S. And then sort of related to that, what you're seeing in credit markets and anything tightening credit that's playing out.

Yes. One of the downsides of Honeywell Building Technologies, as the name as people think about that as office buildings. And frankly, that's not the case. I mean the new build as part of our total demand is something like 10% in total, so it's small. And just in terms of office buildings, it's half of that. So we really are very much in an institutional customer set. So think hospitals, think airports, et cetera. So we're pretty diversified in terms of the places in which we play. So -- and when you think about the credit markets, I don't know that we've seen the end of the tightening, where I think there's a lag effect between what happens in interest rates. And we, of course, have that micro banking crisis, which people say there's still concerns about the future of that. I think the credit market tightening is probably going to be with us for a little while. And I haven't seen dramatic demand destruction from it at this point. But I think that -- the implications of that more broadly are probably going to play out over the next few quarters. But as we sit here today, again, we see demand stabilizing. It's not inflecting up dramatically, but we see it stabilizing. And I think that business is very well positioned, particularly from a connected perspective. It's probably one of the most connected businesses of the 4 that we have. And when you think about buildings and building management systems, people are trying to control groups of buildings, and that's something that a very few number of competitors can actually bring value props too, and we certainly think we're on the top of that list.

And I think there's shorter cycle elements to HBT, but when we think about backlog, I think -- I mean, this is sort of a low single-digit growth kind of profile through the rest of the year and any differences in sort of products versus solutions?

Yes. I think the -- when you think about the products part of the business, when I talk about short-cycle and the normalization of order patterns and lead times, they're a big part of that discussion. So that's why I would say, I mean, right now, we're seeing order patterns normalize. We'll have to wait and see. The reason why we think about them as a low single-digit grower is just working through getting back to where demand is, the true demand in the market as opposed to some of the whipsaw effect of what we had through COVID and the supply constraints.

And then I want to shift over to PMT. And if we could start on the sustainable technologies side of that. I think in 2021, like $200 million of revenue, but one of the fastest-growing businesses. Can you sort of talk about some of the components of the exposures that you have there? Renewable fuels and recycling. What are going to be the growth drivers for you?

Well, I mean, you hit on -- I mean, sustainable aviation fuels, recycling technologies, carbon capture, battery energy storage, which is tied to electrification. I mean these are some of the macro trends that are really supporting the growth of that business over the coming years. And again, we've talked about bringing that to being a $1 billion business, so a meaningful chunk of PMT and meaningful for Honeywell. And this is where -- we've had many of these technologies for many years. And now the demand or application of them is becoming more and more important. That's why we talk about the energy transition. And again, the energy transition is not something that's going to happen over 1 or 3 years, it's going to happen over 5, 10 and 20 years, which is why we feel very strongly about that as a macro trend that's going to support the growth of the business for a very long time to come.

And then on the Process Solutions side, we've seen some pretty good growth the last couple of quarters. Can you talk about sort of some of the drivers you're seeing behind that. And then we've also seen sort of varying growth trajectories on discrete versus process, but anything from a structural side where you're starting to see things build up, whether we talk about hydrogen or LNG and things that would be sort of building a backlog there.

Yes. I mean, certainly, particularly with the energy security changes that have been happening, gas is a winner in some of the things that have been going on. So we participated in a lot of the natural gas investments that have happened over the last, I'd say, 6 to 18 months. So that's definitely an important one. Then if you go back to inflation for a minute as well and you think about things like labor inflation, automation in general is just becoming even more relevant than ever before. And so we're going to see a push towards that as well, which, again, Process Solutions will participate in quite strongly. So -- and there will continue to be spending in oil and gas. I mean people like to say -- I mean, the need for energy is going to continue to grow. And so while it will, we will have renewable energies coming into play. I mean traditional energy will still need to be invested in. And so that's another area that we're seeing some come back in. So it's a bit broad-based, and we feel very good about where Process Solutions is going as well. It's been one of the gems of the portfolio for a very long time.

And then moving over to SPS and sort of warehouses in particular, just sort of what you're seeing in terms of trends there. I think sort of expectations for finding a bottom in sort of revenue trends this year and sort of tied into that, by the time you get to the end of this year, what kind of visibility do you have into the next year's revenue?

Yes. So maybe just to start kind of zoom out first and then we'll zoom back in. The e-commerce macro trend is not going away. I mean it was exacerbated in a big way by the pandemic for sure. And I think that obviously contributed to some of the overbuilding in the warehouse space that we saw. And again, that's not a Honeywell comment, that's a market comment. And so this year has been -- we grew that business from $800 million to about $3 billion over a very short period of time. And we've obviously now are in this digestion period where the retailers, in particular, are having to slow down their CapEx spend. I think we're going to see the bottom here in 2023. Again, more that will reveal itself as the orders for the year pan out. When we get to the end of the year in December, we'll know a good bit about 2024. The projects there deliver over anywhere from 9 to 18 months. So lead times, obviously, are fairly long, if you will. So by the time we get to the end of the third quarter and into Q4, I think we'll have a pretty good view of what 2024 will look like. And as we always do, we're going to make sure that we make our cost envelope commensurate with the revenue side of the business. And we will take a bit by a bit. But again, the long-term confidence in that end market is very strong. I don't see anything changing in terms of e-commerce being a big driver for the way the world works.

I wish we could keep going, but unfortunately, I think that brings us to the end of the time. Thank you so much.

Well, thanks, Joe. Appreciate the time.