Howmet Aerospace Inc. (HWM) Earnings Call Transcript & Summary

Okay, we are live. Good morning, everybody. It's Noah Poponak from Goldman Sachs aerospace and defense equity research here, very happy to have with us for our next presentation out of my sector coverage Howmet. With me from the company, on your screen here, you have John Plant, CEO. You have Tolga Oal, the co-CEO. You have Ken Giacobbe, CFO. And then from investor relations, we have PT Luther. So first of all, thanks to all of you for joining us today. We really appreciate it.

Thanks, Noah. Looking forward to chatting with you.

Excellent. I'm going to turn it over to PT, who's going to lead us here with an opening disclaimer. And then we'll jump into my questions. If anybody watching here has questions, you can follow the instructions on the screen. They'll send them in. They'll come through to my inbox. Otherwise, I'll go through all of mine, but with that, I'll turn it over to PT.

Thanks, Noah. So today's discussion may contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed on our website, under the Events and Presentations section of the Investors tab; and in our most recent 2020 Form 10-K.

Awesome, okay. So let's jump into commercial aerospace. And as we've gone through the March quarter earnings season here, different suppliers are at different places in terms of being synced up to the OEMs. We've seen some suppliers have sequential growth in aftermarket, but we've even seen some have sequential growth in their original equipment business. It seemed like the Howmet business was maybe a little bit less synced up to the OEMs. And so one, is that the case? Where are you above or below and not synced up? And how -- when do we get to a place where it's all sort of lined up with Boeing and Airbus?

Okay. It's difficult for me to comment, Noah, about other suppliers and where they specifically are. I would say I really don't have any information that would illuminate on that at all. All I'll note is that -- the way we've called out our baseline guidance for the year and also for the quarter. Essentially, if you look at what we've given, starting in the third quarter of last year, fourth quarter and then Q1, we've been pretty much in line with those statements. And so I think credibility around how we see the market is there. And essentially we thought that our first quarter would be essentially in the same -- similar sort of run rates that we saw in the last 3 quarters of 2020. Indeed, when you look at the industry, whether it's Airbus building at rate 40s for A320s or they -- I'll say, at least their fairly stable position on wide-body or even Boeing restarting the 737 7-a-month, I don't see that there's any reason for those trajectories of revenues to be fundamentally different during this period of time. I think the only case for seeing fundamental change is either a change in spares demand, which we currently said we don't see in our first or second quarters and indeed for the production of aircraft. We see no changes in terms of wide-body. We see no changes in Q1 or Q2 in narrow-bodies. And therefore, we have no view that those should change in terms of commercial aerospace. Obviously we can talk about other sectors, but the question really was around commercial. What we did do was give a very clear call that we saw that -- as we exited the second quarter, that there was an inflection point. And we did see growth in our third and fourth quarters of the year. And we witnessed those statements with confidence that we were going to recruit or bring back from furlough several hundred workers in our second quarter, which obviously again is an indicator of confidence regarding an inflection point and so -- but again, no change for Q1 and Q2. And can't see any reason why there'd be any fundamental market dynamics which would cause thus, apart from just innate volatility where any particular supplier might be on specific parts. And so I just think there's just it's -- currently it's really directionless until we see the second half of this year, when I think we're going to see some improvements of both -- narrow-body production both for Airbus and Boeing. I think we're going to see some small improvements in the spares demand as well, albeit for us that's not the biggest part of our business. And then hopefully, as I try to think about that going forward, I do see that we should enjoy above-norm growth in '22, '23 and '24 before maybe reverting back to the more of the aerospace norm. And happy to talk about that later, but that was not the central part of your question.

Yes. I guess, is the Howmet business just a little bit further downstream, longer-lead-time type of business such that -- at a time like this where everything is just pretty volatile, that there's maybe a little bit more WIP in the business than some other shorter-cycle businesses?

I don't think it's more work in progress than anywhere else. In fact, when we benchmark our inventory terms and performance, I don't think we're anything but in the upper half or, if not, upper quartile in terms of inventory management. I just think there's no -- there's just been no fundamental reason for commercial aero why there will be any different demand patterns from Q2, 3 and 4 and then Q1 to this year apart from any change in the inventory positions. I mean clearly the way I've laid out the future is that we do see different patterns of growth for the different segments of our business. So those businesses with longer lead times, if -- let's talk about our engine business there. We see that as one of the earlier areas for demand recovery, followed by our structures business and then really with our fasteners business being at the tail end of that. And so we're not really expecting growth in that business until we turn the calendar year going to 2022. And that is borne of they are not scheduled in quite the same way as some of those -- the other parts in -- let's say a structural part or an engine part, which is parts specifically linked to, let's say, specific demand of aircraft but more on min-max systems with re-averaging that goes through. I talked about that on the earnings call last week but happy to amplify if it's unclear on why that would be the case. So different strokes for different segments of the business, led by the longer-lead-time items and now reinforced by letters and by schedule releases for some of those longer-lead-time parts.

So the fastener business -- just to make sure we're all on the same page on that. So it's significantly less sale to a specific aircraft type or a specific unit and it's more sold into a pool. Or it's just kind of unclear where it's ultimately going, and that can create more of an inventory WIP.

Yes. So you can -- I mean, if you think about an aircraft, you can count specific bulk heads or wingspans or this sort of thing. And therefore, the part-specific numbers, you can correlate them much more easily. When you get a fastener, where there can be 50,000 or more parts to an aircraft and on min-max systems, which basically uses a re-averaging approach to when production is going down compared to when it's going up -- and so you can get more inventory distortions which affect the linkage of the -- a specific build to the demand [ part than us ]. So if you think about it. During 2020, the order intake that we would see would be re-averaged off a far higher base that we had in '19 and the start of 2020, and that takes time to correct as we go through. And then as you begin to see the inflection point in aircraft builds -- because on the look-back on these things, they will be looking back to a period of, say, limited aircraft builds. And so they tend to be at the lower end, and suddenly you get a huge sluicing through of demand because people realize they've got to catch up. So there's possibly -- I'm saying the word "possibly" because I don't know enough yet. There could be a very sharp inflection in the earlier part of the first half of '22, at some point, regarding fastener demand because of the potential for more of a bullwhip effect depending upon the trajectory of build chain too. If -- for example, if we were going to go from 7 a month on the MAX currently to 30-odd a month in the middle of '22, if that was the case -- so 4x the demand, when that all gets re-averaged, we would suddenly see very substantial order influx for those parts because of the re-averaging system today to the way their ERP works for those particular parts.

That makes a lot of sense. In the wide-body market, there's been -- there have been a few other suppliers that have mentioned that the -- but obviously the Boeing situation has been very unique on the [ 87 ], but even specifically on the A350, that Airbus is pulling at a slower rate than its stated production rate. Are you seeing that in the wide-body market?

[ I mean ] clearly wide-body has been difficult for everybody not just in the demand data but also in the specific builds and inventory management because, when you have fairly small numbers, and they are fairly small numbers of build, then you can get the distortions we've already talked about around inventory management. So your comments, I think, around innate volatility are there. Personally I don't really see much changing for the next 12 months; and really beginning to hope that, come the second half of '22, there will be some, let's say, strengthening of sentiment off the fact that we will see increasing international travel, hopefully, starting up in the summer of this year. But I think it will take a full 12 months then to feed that through to demand for aircraft. And maybe it's even longer than that. Maybe it will be a 2023 item.

Okay, that's helpful. How much of your aerospace business is aftermarket? And what trends are you seeing there?

It's a very small part of the business. So in 2019, when let's say run rate revenues were about $7 billion, it was just over $800 million of revenue. And really I need to bifurcate that into half of it was around defense and IGT, and that continued to see growth as we moved throughout 2020. And therefore, if half of it was -- $400 million was attributable to that segment, we saw that grow to, let's call it, $450 million, $470 million, $480 million or on run rate [ case again ] to $500 million. Conversely, commercial aerospace collapsed, and so demand for it was very low last year. So compared to the $800 million in 2019, a similar number for last year would have been in the low 500s just because of the collapse in commercial aerospace in Q2, 3 and 4. [ Have seen and planned ] for no increase in production in Q1 and Q2 this year. And at the moment, if we can accept it, it's possible that we're going to see a 15% to 20% improvement in that demand bouncing off Q1 and Q2, but because the numbers are so small for the first half of this year, it doesn't really register. And so while as a percentage it sounds impressive, because of the scale of the business currently, it just doesn't move the needle in any regard for us. And so I just note that it's strengthening and should be therefore beneficial and should be even more beneficial moving into 2022.

Okay, got it. And then maybe just kind of rounding out the aerospace and defense drivers of business, maybe level set us on, in the defense piece of the business, the largest programmatic drivers. And what kind of growth do you expect from there moving forward?

Yes. So the -- of our sales to defense, about 40% is for the F-35. The balance is, let's say, F-15, 16s, 22s; also to -- for turbines for tanks and this sort of things. So quite widespread; and also plus rotor programs for, say, the military helicopters. So we have a very broad-based defense business, but clearly the change in F-35 demand influences the aggregate because of its size within the -- within defense at 40%. So if I comment on that: It seems as though build is fairly solid for this year and next year, according to Lockheed. And if anything, it seems that we maybe still are slightly behind on the engine side, if we want to read from Pratt & Whitney. And so my expectation is -- for that program, that we see steady OE demand for next 2 or 3 years. And basically any -- if there was any weakness, it will be more than compensated by spares production. I think spares demand will increase clearly over '22, '23 and '24. So that's the way I think that program goes. I think, the rest of it, we are seeing some interesting demand on F-15s and 16s. And I think then it's going to depend upon general funding for certain programs. So for example is the heavy-duty lift helicopter and that re-engining. Is that going to go ahead? Or in what sort of volumes? And so it's in the variability of the defense budgets and what programs get sanctioned.

Okay.

In terms of trajectory, maybe I'll just comment here because our fourth quarter was so strong last year in defense. And there's always a seasonal aspect to it in it always tends to be a little bit lower in the first half, a bit more in the second half just as budgets are used up. I think the trajectory of growth will be -- year-on-year, by time we get to the fourth quarter, will be lower, but that's just because I'm thinking more of a bit of an abnormality in Q4 of last year, and then basically steady growth as you go into '22.

Okay, excellent. John, it -- this -- it's always a little tough to answer this with some moving targets and maybe some uncertainty even from the end customer, but I would just love to hear you shed whatever light you can on what -- how is Howmet investing in new engine technology? Do Boeing and Airbus, especially Boeing, know what they want to do next? Or is that still undecided? It's often certainly the engine players need to have a role in that process if there is going to be a new airplane or new airplane types. How are you managing that? And how are you investing as a supplier into that process?

Well, first of all, clearly it's probably easier for Boeing and Airbus to answer those questions for the way they see those markets. We try to keep abreast of it and be knowledgeable, so we look at what's the potential for electrification. And indeed will it be a hybrid solution whereby there may be some, let's call it, "battery powered but supplemented by fossil fuel" engines? Or is it indeed some sort of again hydrogen or a blend of hydrogen and fossil fuel engine? So I don't think anybody is able to be certain about any of this at this point in time. I think the most informed reports -- so if you look at the energy density, for example, for jet fuel compared to battery storage capabilities, then fossil fuel is clearly the winner. I expect the same trajectory to occur in the next 30 years. That's happened over the last 30 years in automotive engines, which is basically more talk than reality of implementation. And indeed with the current energy densities, I see it's -- that's the potential for electrification is going to be at very small, very short-haul aircraft, [ all right? So I ] just can't believe that any of the solutions [ of energy density weight ] have been or will be solved in the short term regarding, let's say, larger aircraft. So the propensity to reduce emissions by increasing temperatures and increasing pressures within aircraft engines, I think, are the order of the day for the next 2 or 3 decades, more than we probably realize today. And I think that's -- the way we've tried to position Howmet for that is really very good in the fact that, if you look at the most exacting engines in the industry, they tend to be in the defense area. We note the operating temperatures, for example, of the F-35 are 1,000 degrees Fahrenheit higher than the average commercial jet even though the commercial jet is clearly running hotter because of again fuel compression and need for emissions improvements because of, let's call it, being -- let's say you have a reduced carbon footprint. And currently our technologies lend themselves to that performance level. In fact, we are the only supplier that has been able to operate and supply those engines with those temperatures because of the -- let's call it, the sophistication of the airflow that we are able to manufacture at scale with their airfoils and then the finishes that are able to be applied to them. And so that technology, because it's proven, because we have it -- and clearly we're in a position to meet the challenges of any additional temperature requirements and pressure points within those commercial engines for the foreseeable decades to come. So I think one of the really great things about Howmet is that not only are we positioned well, but we're a facilitator to reducing carbon footprint for the aircraft industry. And therefore, I will say part of our ESG or the environmental part of our credentials is high. And that's not talking about the energy efficiency of our plants. it's Just what we allow and enable, I think, for improved emissions and emissions of greenhouse gases going forward.

Okay, that's really interesting detail, appreciate that. Let's move over to the wheel business and commercial transportation. Maybe just level set us on the current penetration of aluminum into that market and how that can evolve going forward. And how high can it go?

Okay. So different penetration rates according to the different regions around the world. So for example, in, let's say, the U.S., maybe Japan, maybe Australia, as an example, it will be more in that 70%-plus area of penetration, [ right, for ] steel. In Europe, it would be more in that 20%, 25%. So there is still a lot for us to be able to increase penetration each year. So we normally talk about 1 percentage point of additional penetration per year. Clearly the opportunity is greater in Europe, where essentially we've been the bottleneck to the industry in that penetration because of the inability of truck manufacturers to be able to get more wheels from us. We cured that by the capacity increases that we made in our plant in Hungary and indeed have continued to expand that facility. So penetration rates, still room for improvement. And then when you know it, but assuming that there will be increased electrification of trucks going forward, then the penetration appears to be almost 100% on electric trucks compared to fossil fuel trucks. And there's, I think, clear reasons for that in terms of, if you're going to go to the costs of putting in, let's say, battery electric power, and obviously that has a weight consequence for those trucks, then clearly putting in aluminum wheels, which can save almost 1,500 pounds of weight, is very significant. And also they look so much better. The cosmetics shouldn't go unnoticed and underappreciated.

Okay, that's helpful. All right, let's jump into profit margins, moving to cash flow as well, obviously a huge focus for the company and a big part of the value creation proposition here. So maybe let's start on the pricing side, as that obviously is a revenue driver but flows to the margins. Just level set us on what you've been able to do. And how much more room is there in pricing? And to me it looks like there's like a catch-up piece to maybe what could have been done in the past but wasn't. And then beyond that, there is some version of sustainable maybe low single-digit type of annual pricing. It's a business that should have pricing power. How do you see that playing out from here?

I -- [ it's something ] I don't really like talking about that much. And I don't really have any views about the past because, a, I can do nothing about it. All I can do is influence the future. And so basically I felt as though we are in a reasonable position commercially. I think the percentages that we've talked about are consistent and similar. I think just the -- any changes, it just goes with the renewal of the size of book of business for the year. I'm hopeful that we're able to continue with the path that is set, where we examined that price is an opportunity each year. And fundamentally I don't see why it's a price deflationary industry. I don't think it's commoditized in any way that you would say from maybe parts of the automotive industry. And so that's about it really. I mean nothing else to add.

So it's reasonable for an investor to expect this business to have decent positive annual [ pricing ].

I think so. I mean more important to me is having good margins. And I think that's, when you're in that 20%-plus EBITDA, you're in a pretty good part of the industry. I look at the comparator companies which are in that zip code, and there are a few. And really where I see [ how ] Howmet has differentiated itself, we've taken an awful lot of performance and cost actions and commercial but really tried to reposition ourselves that -- with 20%-plus and, as you saw last quarter, just over 22%. So as we've come out of the and experienced the agonies of demand destruction through the pandemic is that we've tried to put ourselves back to where we were and position the company for really healthy outcomes on the upswing. And so in the same way as, I think, I view that we've tried and did indeed differentiate ourselves on the way through the -- that difficult period after the pandemic really began to roar. Now it's all about how we differentiate ourselves on the upswing. And indeed those are the internal conversations we're having in the company. And that's what -- it was our focus of our last quarterly reviews, is so -- how do we approach the management of the upswing such that we can continue to differentiate ourselves? And that's some of the things. Obviously I haven't talked about everything yet but some of the things we've talked about: bringing labor back, getting ready for the inflection point, having great quality and improved delivery compared to a few years ago and ensuring we do the right thing and continue not only to have technology as a differentiator for us but also our supply and quality performance as well. I think that helps with all of the performance characteristics and margin profile of the company. So our mission is to differentiate ourselves now on the upswing and try to navigate what's another difficult period. I mean it is not like the steadiness of seeing a business moving at maybe 4% revenue increases per year or 5%, I mean, revenue increases per year. As you know, air miles were increasing around the world. This has been probably the most stressful period in several decades for the aerospace industry -- commercial aerospace to go through. And it's stressful on the way up as well. And it's for -- our job is to manage that in a way that gives those differentiated and good results.

Yes, yes. That's a great point. So your adjusted EBITDA margin in the first quarter essentially matches that from 4Q '19. It was really kind of 1 quarter, if looking at the adjusted EBITDA margin, where you can't even tell there was a pandemic if all I was looking at every day was your financial statements. And you're achieving what you're achieving now with significantly lower volume than pre pandemic obviously, so where -- how much differentiation can you have during the upturn? Where can these margins go? I mean it's a hard question to ask because I know you're not going to give specific guidance, but just any way...

But you're hoping that I do.

You know. [ I know you're not going to tell me realistic ] but if there's a way to speak to the order of magnitude of how much more positive change you could still have ahead of you in your margin rate.

Yes. So I think in these terms. I mean clearly, the structural costs, we've taken out of the company. Our mission is to not have those return. Now I mean to some extent that's a little bit unrealistic. There'll be some points where we say, yes, we should do that. At the same time, I think we can try to offset those with other savings. That's what we do. And therefore, my base planning assumption is that, the structural costs, we took out. So I think it was a couple hundred million last year and with a carryover into this year. Those don't return. I'm also hopeful. And part of the planning to try and to differentiate ourselves is that, as we move up the volume curve, even those costs in the variable cost part of the P&L accounts -- that those are also as sticky on the way up as they were sticky on the way down because clearly, when the demand change came last March, April, we clearly could not flex those variable costs instantaneously. It took time. The people -- let's say people answer back. And there's representation. And there's different rules in Europe to the U.S. and other parts of the world, so it takes a longer time for those costs to move out. I think we've done it effectively. We've taken account of both labor, let's say, reduction as well as, let's say, the opportunity to take time off, using government plans as well in Europe. Then on the upswing, I think we need to be careful on bringing people back. So we recognize that there'll be different flex points, so adding some overtime or adding some people to a shift is fairly straightforward. When we have to then introduce a whole new shift pattern in our plants because of change, and those shifts have to be staffed, as well as bringing production works in, therefore it's not linear. So the -- I think the earlier part, we do see probably stronger incrementals but still strong incrementals throughout. So then it's basically the margin rate will depend upon what the revenue change rate will be, keeping the structural costs out, and then the degree of, I'll say, stickiness on the flex-up of variable costs. So I think the potential is there to provide differentiation. And clearly we would like to see improvements in the margin rate and -- but it's still to be done. So it's a long way of saying I'm avoiding the question if it's like tell us what the margin is going to be next year or in 2 quarters time. I've already given you guidance for the year, so you can backwards engineer it for this year and what those incrementals might be. And then I think the big thing we're playing for is how well do we enter '22; and indeed what's the margin rate that we can apply to that revenue recovery in '22, which I think is the biggest change, flex change, we're going to see year-on-year, albeit there will be -- we're approaching some annualized benefits in the second half of this year.

Meaning the rate of change -- if we're looking at the last 2 years and the next 5 years [ as a ] large window, '22 is going to have the largest rate of change.

I think so. Year-on-year rate of change will be the largest, I think; still going to be outsized in '23 and '24, I think. I just see that the thing for us is that, when I talk about exit rate trajectories, I don't mean just margin rates. I also mean revenue rates. So we are still calibrating and recalibrating what our third and fourth quarters will be. Then obviously you can just simply just annualize them by multiplying the final quarter by 4, adding on the additional aircraft build and then say this is our revenue for '22. I mean at its simplest. And trying to work through that at the moment and what it might be. And that's an important part of us thinking about the angle or slope of growth and then how we face off to our variable cost management in those scenarios.

But basically it's you've done what you've done on the costs side. You will continue to work it, but you've done what you've done. You've done what you've done on pricing. You will continue to work it, but you've implemented what you've implemented. And then 2022 will just have your largest rate of change in volume coming off of this flattish period, and therefore just the incremental will be the strongest in that year.

I think so. I mean it's -- and then it's going to be how successfully do we manage all of that. And it's -- again it's not necessarily easy to manage an upswing because many things can get screwed up during that. And I'm very cognizant of getting behind again the whole production inefficiencies that you can get in the plant as you're chasing volume, chasing metal; chasing that, plus customer screaming and changing parts up in sequencing and then expediting freight. There's -- enormous costs can get chewed up in all of that, and it's best not to. Say if we plan it well and -- which is what we're trying to do, but if we plan it well and are successful, then I think it's the opportunity to differentiate ourselves again.

Okay. If I attempt to translate these revenue and profits into cash flow: You have just some, below the -- outside of the segment, moving pieces on the cash flow statement with cash tax, the pension piece, the AR securitization piece. And so how can I think about where your free cash flow dollars can go? What's a realistic, ambitious goal for you 2, 3 years down the road?

Okay. So I'll try to pick off a few of the pieces. I'm not thinking that we're going to see much change in the receivables securitization, certainly not for this year, so that's like not relevant. There is the potential that, the reduction in cash drag for our pension that we called out for this year, it could conceivably be a bit better, depending upon what we do around the availability of the [ CARES called the ARPA or obviously ] pension act. And so what do we do in that regard? Cash tax, I think it would be fairly similar, but Ken can qualify that on the way through to last year, maybe fractioning up. And then this year, our guidance calls out for something like 100% conversion of net income. Last year, it was -- if you put the AR securitization reduction to one side of 100 million, it was like over 150%. In our Investor Day last year, we gave a long-run metric for the company of converting at 90% of net income, which is -- stands up again in the top decile of the industry. And so no plan to change that at this point. I mean we just note that we've performed significantly above it last year and planning to perform above that top-decile performance this year as well. And then obviously we have to think about what working capital drag we may have in next year and the year after according to the demand trajectory. So again that's -- I think that's more of the wild card yet to plan out. If we're successful, I think that the pension cash drag will be increasingly reduced going forward, but maybe the run rate will be as good as we can get to at this year. And we'll -- things to be determined on that front yet. We did, made a few additional voluntary contributions last year to take out significant gross liabilities, which again it's all to improve the volatility of our balance sheet because it permanently eliminates exposure to, for example, mortality and interest rate risk, which is therefore fundamentally good. Because I do believe volatility both in your P&L and volatility in your balance sheet is the enemy of good returns, and so dealing with that is good. And it's a question of trying to find those most efficient points of dealing with it. And I will sort of remind you of what Ken said on the call last week, which was we'd also made changes, for example, in our provision of health care [ in our ] OPEB plans, which resulted in a very significant reduction in liability and also costs going forward. And so those things should be noted; and see it is a way of reducing those cash drags of, let's call it, the liabilities from the past. And so whether it's on pension or OPEB, it's another part of what we work at to try to make improvements to the company. And it's a long way of saying there's no straight line on these things, but generally the objective is to reduce the cash drag to improve [ our stance relative to ] volatility. And again it's all part of providing value to our shareholders.

Got it, okay. And then maybe to wrap up with the deployment of that capital: Your balance sheet leverage, if I'm looking at net debt-to-EBITDA, it's not particularly high. It's not particularly low. Certainly I think you'll grow the EBITDA in that denominator, which will grow you into a lower balance sheet leverage metric. You've announced an ASR. Maybe take us through if we're 2, 3 years down the road and things are more normalized. What are the company's thoughts around sustainable capital requirement?

So to answer the future, I'd like to -- just to cover what we've done in the last 4 months on top of all the things we did last year, but the thought going into this year was let's provide a clear runway for the next several years. And so to do that, we cleared away early the 2021 bonds and did that with no additional payments and gained the interest rate benefits there. We've just recently completed the repayment with a make-whole payment for the '22 bonds and so in itself providing the opportunity for a -- lower interest costs going forward and therefore cash drag going forward. And that means that we have 3.5 years now till our next maturity tower, and so there is no immediate need to do anything in that regard. And so on the earnings call, as you know, we felt confident enough in our cash outlook to provide a statement regarding reinstatement of the dividend. And I think that was also the right thing to do for an aerospace supplier, to provide a dividend. And it's also important for some of our institutional shareholders that look to receiving a dividend. And I think there'll be more articulation of those plans going forward. And then part of my job, I think, is not only to say where are we but where will we be. And I've never felt the need that we have to wait until [ I've made out ] where the trains arrive to take action. It's where I believe the train is going to arrive or where the plane is going to land. And so I felt confident enough in our cash flow projections over the next few quarters and year to -- that we could take action by way of reducing our share count, which clearly, earlier this week, we announced the ASR to further buy back. So it's all been trying to reduce the gross indebtedness of the company, reduce the interest drag. Because I believe it has been too high and wanted to reduce that and improve the future cash flow characteristics of the company and give the opportunity for more shareholder-friendly actions going forward. So when you get to the future deployment, clearly there's -- hopefully, 4 things occur as we see, which is we're at the inflection point with the fairly strong growth coming up. If incrementals are strong, then cash should be positive for some time or maybe forever. If it's a long time, it's forever, but therefore you turn more to so how should we deploy our cash flows because we are in a more offensive stance rather than the -- a defensive stance of protection and debt management. And so the debt side, I think, is largely done. I'm not saying completely done but largely done. And we've got years before we need to do anything. So I think we're in a really good position regarding our cash flows, and therefore we can become increasingly creative about how we think about deployment.

Excellent. Okay, well, we've gone slightly past our allotted time here, so I'm going to wrap up the session here and keep everyone on schedule, but gentlemen, thank you so much for being with us today. We really appreciate your time.

Thank you. Thanks, Noah. Thanks, everybody.

Okay. Have a good day.