Illinois Tool Works Inc. (ITW) Earnings Call Transcript & Summary

Good morning again. Very happy that you are with us. We are very happy to have Illinois Tool Works, ITW. And we're very happy to have Michael Larsen with us, who is Senior Vice President and Chief Financial Officer of ITW. Just a quick introduction to Michael. He joined ITW in 2013, having previously served as President and CEO and Director of Gardner Denver. He served as Vice President and CFO of Gardner Denver from 2010 to 2013, and he also worked at GE for quite a long time, I think, 15 years as well. So Michael, maybe I'll just start off by asking you -- I've asked you, you've been with me on this podium many times, and I've asked you about enterprise strategy many times, but you continue to sort of reinvent it, another 100 basis points this year. And obviously, it all starts with 80/20. So maybe you could just sort of step back and talk about the evolution of enterprise strategy and really 80/20 and why it's been so successful for you?

Sure. Yes. And thanks for having us, Andy. I think we have certainly come a long way on our quest to position ITW for a consistent, solid grower with best-in-class margins and returns since we launched this enterprise strategy in 2012. And I think over the last 9 years, we've established ITW as one of the highest quality, best performing, most respected industrial companies. I think most people would tend to agree with that. And I'll just point to kind of the proof points in terms of the -- I mentioned the best-in-class margins and returns that we're generating, the fact that we have consistently executed on the strategy. So I think our credibility in terms of our say-do ratio is probably one of the better ones in your coverage. We've uniquely earned the right to be a diversified industrial company at a time when others had to go down a different path for various reasons. We've gone from kind of an average multiple to a consistent premium multiple. And if you look at our TSR performance since 2012, we've averaged somewhere around 19%, so -- on an annual basis. So we've really kind of positioned the company as a long-term TSR compounder over this period of time. I think given the -- to illustrate kind of the strength of the competitive advantages and the business model, the strategy, the quality of the portfolio, I'll point to kind of the performance at the peak of the uncertainty related to the pandemic in the second quarter of 2020, our margins were 17.5% EBIT margins. That's not an adjusted number. And I think our operating cash flow, we generated almost $800 million in the second quarter. And I think of the companies that are at the conference today, I think most industrials average somewhere around 16% today, right, in a strong recovery, right? So the fact that at the height of the pandemic, we were at 17.5%, and for all of 2020, we ended up at 23%, I think, illustrates kind of the differentiated performance and the resilience of the company that we've built over the last 9 years. And I think in the context, if you kind of look forward, in the context of a future that's just as uncertain, just as challenging, if not more, we're highly confident that the strength of the competitive advantages that we've built, the quality of the portfolio and consistent execution on the strategy, including the enterprise initiatives, as you mentioned, is positioning us for another 5 to 10 years of differentiated total shareholder returns and differentiated financial performance. So -- and I'll just -- I've mentioned the TSR model. I'm just, going -- to maybe set the stage, just remind everybody what we're trying to do here. The goal for the company is to grow at 4% plus organic growth. And given the levels of profitability that we've reached at this point, incremental margins of 35% to 40%, operating income dollars then grow at 7%. You add on top of that highly selective, high-quality strategic acquisitions like MTS that we just closed on in December and/or share repurchases through the allocation of surplus capital, $1.5 billion this year, that adds 2 to 3 points of EPS growth. So on top of the 7%, so now we're at like 9% to 10% EPS growth, and you add an attractive dividend yield on top of that, that grows in line with earnings over time that adds somewhere around 2 to 2.5 percentage points, depending on kind of where we're at. And you get to this TSR model, 11% to 12% long-term compounding, I would argue, low risk, high probability. And one of the reasons I say that is that, what I just walked you through, 4 to 5 points of that, the acquisitions, the buyback, the dividend are within our own control, right? So we need to deliver on organic growth, and I'm sure we'll talk about that. But this is a pretty -- in our mind, pretty compelling equation for our shareholders. And that's the company that we built. I'll just make one last point because I'm getting this question a couple of times. So if you look back over the last 9 years, I said compound annual TSR of 19%, significantly ahead of the peer group average and the broader markets. And go forward, what we're talking about is 11% to 12%, right? So the delta there is, what you're not going to get, is the 7 points of TSR we got from the multiple re-rating from like an average to a 20% plus, I think, as of last night, 24%, whatever the number is. But you're still going to get 2/3 of that same performance over the next 5 to 10 years, like I said, pretty, from our perspective, low risk, high probability in what is a really uncertain and challenging environment. So that's the company that we've built, and we're confident that this formula and the evolution, it's going to continue to evolve as we go forward. But the evolution of that, that formula will continue to deliver for the company and for our shareholders.

So Michael, a couple of follow-ups there. So when you look at enterprise strategy, I mean, I know you're going to tell me there's always more to do, but is there still more to do over the next couple of years? And within that, you've talked about sort of focusing on strategic sourcing or 80/20. Like are there specific areas that you're still being more focused on than others? And are there specific segments that you might be focusing?

I think the more work we do, the more opportunity we find, right? And I think it's a combination of things. One, this really powerful proprietary ITW business model, including 80/20, is significantly more powerful today than it's ever been, right? And it's significantly more powerful than it was 3, 5 and 10 years as it continues to evolve and we continue to be better and our teams continue to be better at implementing it with a high degree of excellence everywhere across the company. I also think there's an element here of the raw material. The quality of the portfolio today is significantly higher than it's been before. And so that's a result of a series, obviously, early on in the enterprise strategy of divestitures. And then through our 80/20 front-to-back efforts, we've continued to prune our product lines and our customer relationships to a point where what's left here inside the company are these highly differentiated businesses. And when you apply this more powerful than ever business model to these businesses, this is the type of performance you get. And so I think what you're talking about is specifically the enterprise initiatives, we expect and we included that in our guidance just a few weeks ago, 100 basis points of margin expansion through a combination of front-to-back 80/20 as well as our strategic sourcing efforts. And so these are not -- that's not an aspirational goal. That's a bottom-up number that was developed really based on what our business units told us that they could do in conjunction with our bottom-up planning process. And after having a chance to review kind of the plans, the projects, the activities that go into that, we can say with a high degree of confidence that this year, again, we'll deliver another 100 basis points of margin expansion. And actually, I will just say this, if you go back to the beginning of the enterprise strategy, we've consistently done that, right? So this will be our 10th year of 100 basis points or more. And if you add it all up, it's $1.5 billion of structural cost out that the ITW team, the operating team, has delivered for the company. So it's a pretty powerful, pretty meaningful contribution. And I can tell you going into a year like this year, which I think starts out with a lot of uncertainty and challenges, I'm sure we'll talk about some of them, having 100 basis points of margin improvement kind of in your back pocket, that's a great position to be in.

So you know I'm going to ask you about the short term a little bit, but let me ask you one more follow-up there. Like 30% -- you're -- Welding, 30%, you're in high 20s for a lot of the other divisions. That's not a barrier tenant price strategy, you can still go further, right?

Yes. I think -- yes, I don't -- the mathematical answer to your question is that if the incrementals are 35% to 40% and we grow the company, margins will continue to improve. And it's not -- I think you're right. I think one of the things that's happened with this enterprise strategy is that the variation between the margin performance in all of our segments is significantly lower. I mean everybody is now in that 25% to 30% range. Auto is a little bit of an outlier right now given some of the unique challenges, but there is no magical number at which were kind of tapped out. And again, I think we said this a few weeks ago in the guidance -- as part of our guidance for 2022, we expect every one of our segments to grow, I think, in the mid- to high single digits, and it adds up to 6% to 9% organic at the enterprise level. And we expect every segment to improve margins this year. And that's not, again, a top-down number because developed by corporate, this is based on what they're telling us. And really, the only expectation is that we do a little bit better in 2022 than we did in 2021. And so based on that bottoms-up planning process, we expect every one of our businesses, including Welding that is operating at 2x the competition, I might just point out, right, and that's -- those are -- they're good competitors. They're -- we would expect Welding as well as all the other segments to continue to improve in 2022 and beyond.

So you alluded to supply chain. Maybe you can talk about sort of what you're seeing out there in the sense that you did have your earnings call 3 weeks ago, what have you, and you mentioned demand is strong across your businesses. Any of your end markets actually stand out, either good or bad? And then any improvement that you've seen in supply chain or not?

Well, so I think demand is really strong across the board. I think the -- we -- if you look at our performance last year, organic growth of 12%, this year, organic growth on top of that of 6% to 9%, right? And within that, there are 6 segments that are growing, on a combined basis, I think it was 12% in Q4. So double-digit growth in those businesses. And then Auto is the outlier. And so Auto, given some of the well-publicized shortages in the automotive industry, not related to ITW, but really challenges that our customers are dealing with, Auto was down 15% in the second half last year. And despite that, I think we delivered some pretty respectable results relative to our peers. But what I can tell you is that we just gave guidance 3 weeks ago. So if I came here to tell you things have changed, I didn't do a good job on the earnings call, right? So I think we've not seen anything that takes us off track here in terms of delivering another really strong year for the company on the -- so that's kind of the underlying demand environment. I think the other part of your question is the supply chain environment remains really challenging, right? I think more so for our customers than for ITW. I think we do a better -- we're doing a better job as a company kind of reading and reacting to signals from our customers and making sure that we take care of them, priority 1. And it's certainly really challenging, and our operating teams, I think, are doing a great job in that environment. We have some distinct advantages as ITW. One is localized supply chains. So our -- we've never jumped on the low-cost country sourcing train. We don't -- our suppliers are strategic partners, and they are close to where we operate, where we manufacture. 80/20 certainly helps us focus on the most important components. But we're certainly seeing our share of challenges, whether it be electronics, circuit -- printed circuit boards, motors, things like that are certainly difficult. I think maybe the biggest thing or a big factor that's really helping us is this decision going back to the pandemic and the strategic decision we made to stay invested in our people. And everything I talked about upfront, this fortress financial position that we've built up to take the long view when things get really challenging and others can't. And I think -- so I think that's put us in a really good position right now to take care of customers. We're not -- of course, we've got challenges every day, and it's -- but I don't think they're at the same degree as maybe some other -- some of our competitors are dealing with. And I'll point to our lead times relative to the competition in some segments, our growth rates relative to their peers compare favorably. So take Food Equipment, when other -- some of our competitors are shipping in Q3, if you place an order today, we're going to take care of you within the next 2 to 4 weeks, which we feel bad about because we're normally take the order today, ship tomorrow, but that's kind of the level of differentiation, right? And then the last piece I'll just add, we made a strategic decision last year to add more inventory really as a way to mitigate the supply chain risk. And so we're carrying a little bit more inventory now, which is a smart, in our view, use of this really strong balance sheet to take care of our customers. So you put all of that together, I think we are navigating the current environment really well. It remains challenging, and I think there is some pretty strong evidence that we're gaining share, which was really the -- one of the primary objectives of this Win the Recovery strategy that came out of the pandemic.

So let me ask you 2 follow-ups, and then I want to talk about Win the Recovery. So obviously, there's some geopolitical risk out there. It's too early probably to see much, but you're pretty big in Europe. So anything to sort of talk about in terms of where it is on Russia, Ukraine? And then you mentioned sort of your people. Omicron seems like it's been dying down here over the last months. So did you see any interruption there? Or are things getting better?

So let me start with the first part. I think one of the real competitive advantages of ITW is that we are so diversified. And so there's really not one sector, there's really not one geography that can make a big dent. I mean, obviously, we're not immune to things like the automotive challenges right now, but look at our performance despite that, right? And so we have, I think, built this -- put this company in a position where we can really outperform in any environment. And so whether it is geopolitical or economic or a global pandemic, we have the ability to power through and continue to deliver for shareholders over the long term, right, and deliver differentiated financial results. So that's how I would describe how we look at those things.

So it's been a while since you've had your last Analyst Day. But at your last Analyst Day, you talked about ITW being able to reach its full potential, right, and you just mentioned sort of Win the Recovery and taking market share, but how close are you, you think, to reaching your full potential?

Well, I think, tongue-in-cheek, like we'll never get through our full potential, right? And I'll go back to my opening comments, we've built the company over the last 9 years that -- with this -- some really strong competitive advantages, high quality portfolio, a strategy and some really, I think, consistent execution around that strategy that we believe positions us really well for the next 5 to 10 years. And so we don't need to reinvent the company, we just need to continue to execute really well on the strategic priorities. And as you know, the #1 to-do for us is the organic growth rate, and I'm sure we'll talk a little bit about that. But we've put some markers out there in 2018. We had an Analyst Day planned for, I think it was Friday the 13th, see that was a red flag to begin with, of March in 2020.

Yes. You should not have done that.

And so we didn't get a chance to do that. But I think there is very little confusion in terms of what ITW is trying to do. I think the strategy to leverage this business model to its full potential to deliver solid organic growth, best-in-class margins and returns, I think all of those things are really well understood. And so we'll continue to evolve that strategy like we said. I mean when -- in 2012, the goal was to get to margins of 20%, right? And so that became 23%. I think now we're -- the latest number we put out there is 28% margins, best-in-class returns on capital. We're somewhere around 30% right now even with the addition of MTS, Really strong, and I think relative to peers, strong cash flows and attractive dividend. I think those markers are all valid. So we're still going to continue to evolve the strategy and the execution around that.

So let's talk about the pivot to growth, Michael. So there's no question, I think the people in this room understand the margin performance that you guys have done -- accomplished. But on the pivot to growth, I mean, to your point, it looks like you're taking market share now. But at the same time, we can't -- we don't know whether it's a cycle or a sort of [ you got ]. And so if you go back to that 2018, I think you had sort of long term 3% to 5% was sort of your longer-term organic total. Does that seem logical for you now? Like do you have confidence in sort of long term.

Well, I don't know if I should say this, but I have a higher degree of confidence in our ability to deliver 4% plus than I ever had. Not that I wasn't confident at the Investor Day, right, when I said 3% to 5% -- we said 3% to 5%. But I think really inside the company, the pivot to growth started in 2016 when the first segments were really headed down this path of trying to build organic growth into a core strength of the company. And we have outgrown underlying markets and competitors in several of our segments. We're trying to do it now for the entire company. And I think to some extent, Win the Recovery helped us because it gave us the ability to stay invested and take the long view. And so everything we've built up inside the company in terms of our commercial -- our sales and marketing capabilities, our customer-backed innovation projects, all of those things we stayed the course when maybe others didn't. And so I have a, like I said, an even higher degree of confidence in our ability to deliver consistent above-market organic growth of 4%. Inside the company, I'll tell the you the way we talk about it is we want to be as good at organic growth as we are at 80/20. So that's a pretty high bar, but that's kind of the rallying cry inside the company. And I think our people have really gotten behind it. And I'll just say this, if you look at our organic growth last year, we put up 15% -- 12% organic, 15% revenue growth last year and certainly coming out of recovery, for sure. And then this year, the guidance is 6 to 9, plus another 3 points from MTS. You know better than I do how that compares to others, but my sense is we've definitely moved from kind of being maybe middle of the pack on the organic growth rate towards that -- moving towards the higher end in the industrial. And certainly, in the multi-industry space, I think those numbers compare pretty favorably.

So just for the audience, remember, you can scan your QR code to ask a question and I'll read it over here. Let me ask you one more question on the growth. And just -- if you remember '18, you said that there were 36 divisions that were sort of ready to grow. Now again, like I understand that things have changed to some extent, but did you -- did they do what you wanted them to do? So now we're sitting in a position where -- because, obviously, almost everything in ITW is growing, but like you have a different DNA now.

Yes. I mean we don't really talk about it those terms inside the company anymore. I think for -- looking in from the outside, for all intents and purposes, ITW is ready to grow and growing. And so -- now that said, with 83 divisions, you're always going to have a couple or the external environment change something, and they're dealing with some unique issues. But for all intents and purposes, the company is ready to grow and growing.

So you mentioned MTS a few times.

Yes.

So maybe you can talk about sort of what excites you about MTS because you sound excited about it.

I am really excited about MTS. I think it's an excellent strategic fit with -- for ITW. For those that are not aware, MTS is a Test & Measurement business that competes with Instron. And so it's a -- which is a business that we've owned since 2006 that is growing at 6% to 7% organically at margins that are above company average. And so what we're adding -- what we added on December 1 is a company with very similar raw material and that has the potential to grow at Instron-caliber margins and returns through the implementation of the ITW business model and which, part of what gets me really excited is that this business model, like I said earlier, is significantly more powerful than anything we've ever applied to an acquisition before. So I think that will be a really interesting process to keep an eye on. And so maybe just to round out the portfolio management commentary. We've also teed up a number of divestitures, and we're basically going to replace those revenues that cannot deliver -- that are good businesses, but they can't, in our view, deliver ITW-caliber margins and returns with MTS that can. And so that's really the -- hence, the level of excitement. I think it's going to be a great acquisition for ITW and a great return on shareholder money. We've said externally over the next 5 years, we expect to take margins at MTS from currently 6% to 7% to ITW-caliber, so mid-20s over the next 5 years through the implementation of the business model in a very deliberate and thoughtful way. There's no rush -- and generate a rate of return on an after-tax basis in the high teens. And while -- that's not the only metric, but I think this is one where it's worth our time, energy and effort to go after this opportunity. And so we're pretty excited about it. And we'll keep you posted on how things are going. I think we didn't buy the company for its contributions to ITW in year 1. This is really much more of a 5- to 10-year. Is this a company that can expand ITW's long-term growth potential and long-term earnings potential? The answer is yes. Is it a company that can grow at ITW-caliber margins and returns? The answer is yes. Is the valuation such that we can generate a rate of return that makes sense for shareholders? The answer is yes. So this one checks all the boxes, and we're just super excited to get on with it.

And Michael, just sort of finishing the conversation on capital deployment. A few years ago, there was maybe a little bit of excitement about you going out and making bigger deals, but it's been pretty quiet for you guys. You've been very sort of careful. Is that how we should think about sort of M&A for you guys?

Yes. I think careful is one way to put it. I'd say we're a really disciplined acquirer, right? I mean I think if we're going to go after something, we need to have a high degree of confidence that we can deliver on everything I just walked you through for MTS. And what I can also tell you is that when we find those opportunities, you should expect us to be -- I would kind of characterize our posture as aggressively opportunistic. When we find those opportunities, you should expect us to lean in and go after them with a lot of conviction. But I think on the other hand, if we don't find those divisions that we can go add to the portfolio -- and the goal, by the way, is if we can get somewhere between 1 to 3 division size -- so a division is about $150 million, if we can add -- in revenues, if we can add 1 to 3 of those every year, that'd be a great year. But if we don't find them, we can get back to the total shareholder return model I walked you through, through the buyback program, too. So it's a real -- we're in a great position where if everything lines up, we're going to go. And if it doesn't, we can get close to the same answer by allocating that capital to the share repurchase program.

I want to ask you briefly about sort of ITW and developing markets in the sense that I remember ITW when I first started covering the company, mostly developed world, but you've built out in regions like China, for example. So maybe talk about ITW in 2022 in the developing markets, like what's changed? Because you're pretty big in China now, for example, and what's your outlook?

Yes. I mean we're close to $1 billion in China, so somewhere around 9% of our sales are in China. I think we've said this before. We're pretty agnostic in terms of geography. What really matters to us is whether the markets we compete in have these -- have favorable attributes and have the characteristics that we need for the business model to deliver ITW-caliber margins and returns. And the answer to that -- to your specific question, is China absolutely has the ability to do that. And I think one thing that may not be obvious looking in from the outside is that the margins that we generate in China are very similar to the margins we generate in North America, and the same is true for Europe. And so that's really how we look at -- I'm less interested in the geography. We're much more interested in do these markets have the characteristics that we need to deliver ITW-caliber growth rates, margins and returns. And for China, that's certainly the case.

So I want to ask you one question about price versus costs and then maybe a question or 2 about the segments. So one of the things you said is you -- last call, is that you've learned some things and are doing a better job responding with timely and appropriate price adjustments. What does that mean?

Yes. Well, I think the comparison -- this was in the context of 2018, 2019, that inflationary cycle and you have the tariffs coming in. And I think when you -- going through that experience and responding to those cost increases with price, I think we definitely learned some things that made us better this time around. So what I'm talking about is our strategy around -- in this inflationary environment is to offset any cost -- raw material cost increases with price on a dollar-for-dollar basis. So EPS neutral, which obviously puts -- maybe not so obvious, but which puts pressure on your operating margins in the near term in a pretty significant way, especially when your margins are as high as ours, right? So last year, that strategy, we actually ended up slightly EPS positive for the year, but 150 basis points of margin dilution. But we've built up -- the profitability of the company is so great that we are comfortable with that strategy and knowing that we will recover the margin down the road. The goal is not to go get as much price as you can. The goal is to partner and work with our strategic customers to make sure that those cost increases don't get passed on. And that's really all we're trying to do. And that -- for this year, we expect again to be slightly EPS positive on price/cost, a little less margin dilution impact this year relative to prior years, but that's really the strategy. And the way it works inside the company, the -- that overall direction in terms of here's what we're trying to do around price/cost, and then it's really up to the business units to go do it. And they've done an incredible job, I think, responding to a barrage of seemingly never-ending cost increases in 2021 and responding, I'd say, in a very appropriate and timely manner and working with their customers, not trying to maximize price and work with customers, not take advantage of customers. And I think we're trying to grow the company. And so I think that's something that's going to really serve us well as we come out of this at some point in the future.

So you get a ton of Auto questions. So I don't want to start with Auto. I just want to ask you about Food Equipment in the sense that it's your highest projected growth rate this year. And I know you do it on run rates, but it's also been a little bit more volatile, down a fair amount, now up a fair amount. So maybe just talk about the outlook in Food Equipment that you have. And I remember you had sort of an initiative to focus on service to sort of build up the service business. So tell us where you are with that as well.

Well, I think the growth rates you're talking about, to some extent, are really a function of how the pandemic influenced our customers -- impacted our customers, right? And so I think in Q4, Food Equipment was up 21%, margins are back in the -- not where they were before, but where in -- kind of in the low to mid-20s with more room to go. It is, along with Auto, 1 of 2 segments that has not fully recovered to pre-COVID levels. And so that's really what's going on. It's a really strong demand on the equipment side, and it's pretty broad-based, by the way. And I might just add, I mentioned the 21% growth rate in Q4. That is one segment where you can look at peers externally and kind of look at how we're doing relative to others because -- and the same is true on the service side. I think one thing that really stands out on the service side is that despite -- throughout the pandemic, with Delta, with Omicron, if you look at kind of our service delivery performance, that is one area where we were able to sustain our strong performance, which is pretty remarkable. Given all the turnover and some absenteeism, we've been able to take care of customers with our typical level of service. And the service business is now growing along with the equipment side. But we think both -- overall Food Equipment, including service, is really well positioned for organic growth in that 5% plus range over the long term with margins that are going to be back in the high 20s before you know it. So we're very bullish and very pleased with the performance of our Food Equipment business.

So I'm quickly running out of time, Michael. So let me ask you an Auto question, and maybe there's an audience question that I can ask in. So rate of recovery, you guys have been a little bit more cautious than IHS, as you know. So you kind of deviating a little bit from your run rate. So maybe why is that? And then incrementals seem particularly hard to forecast in Auto, which leads me to want to be kind of conservative at how I forecast. If you could address that.

So I think what you're talking about is on our guidance call -- so what we -- the way we typically do guidance is that we take kind of the current revenue per day in the prior quarter. So that's what we call kind of the run rate. We extrapolate that into the future, adjusted for typical seasonality, and that's our number. And we're very transparent around that. And so if you have a different view of Food Equipment or Automotive, you can certainly plug that into your model and come up with what you think is the most realistic outlook. The one exception this time around was the Auto business. And so the industry forecasts are for automotive production for the year somewhere around 9% to 10%. And given how dynamic and uncertain that the auto production remains, we decided to basically cut that in half. And so our base assumption, I think we said Auto 6% to 10%, somebody correct me if I'm wrong. But our base assumption is 5% builds plus our typical 2 to 3 points of outgrowth or penetration gains. And those are pretty much locked in at this point, right? So I think it's -- the variable is auto production. We can't control it. I can tell you that no matter how it plays out, we want to be -- and we're going to be in a position to take care of customers. So if that 10% for the year wants to be 15% or 20%, we are gearing up for whatever scenario -- reasonable scenario and to make sure that we're there for our customers when the recovery begins. And I might just add, since we're on Auto. I think how the team has positioned the segment, it sets itself up really well to be a strong contributor to the overall organic growth rate of ITW once these auto production issues get resolved somewhere down the road. Whether that's in Q3 or Q4, I don't think anybody really knows, but it is going to happen. And what it does, I think we're really well positioned to have that segment -- our largest segment be a significant contributor to the overall organic growth rate of the company.

So we have 2 questions here and 30 seconds to do it. So I'll weave them together.

Okay.

So basically, just opportunities that are similar to MTS out there. Anything in any particular segment that you'd focus on? And then under what circumstances would you do something bigger like an eighth segment?

So the -- it's not really a demand issue. It's more of a supply issue. So what I mean is that there are not a ton of opportunities out there that checks the boxes the way MTS did. So if you're aware of any...

We'll let you know.

Let me know. But I can tell you that as we identify those -- and we're not -- on the segment question that you keep bringing up, Andy, I think we're not afraid of size. And if the right opportunity presents itself that we have a high level of confidence and conviction around all the characteristics that I laid out in terms of strategic fit, margin improvement, reasonable valuation, we can generate a rate of return that makes sense for the company and our shareholders, I mean, we're definitely going to take a hard look at that.

Awesome. Well, we very much appreciate your time, Michael. Thank you.

All right. Thank you, Andy. Thank you.