ITT Inc. (ITT) Earnings Call Transcript & Summary

Welcome to the afternoon -- first afternoon session. With us, we have ITT, the management of ITT, Luca Savi and Emmanuel Caprais. And we also have the IR team here as well. One of the best operators in the space. One of the -- usually one of the most insightful presentations. So will set the bar high. But it's a pleasure to have you guys back in London. I believe you have some slides to talk about, and thank you for being here.

Thank you.

Thank you, Andrew.

And so our presentation and comments may contain forward-looking statements, which are based on our best view of the world and our businesses as we see them today. These assumptions and expectations can change, and we ask you, yes, that you view them in that light. We encourage you to review the latest risks and uncertainties in our Form 10-K and other SEC filings available on our website.

Okay. Thanks, Emmanuel, and good afternoon, everybody. Let me spend a couple of minutes on ITT, because everybody knows the name, but not many people know what we do, which tells something about our marketing skills really. But what we do is really components for harsh environment. We're an engineering and technology company, and we are working across different sectors, being automotive, rail, energy and the general industrial. So the products that we do are brake pads. So if you were driving on the M25 this morning, and you had to use your brake suddenly, its chances are that the brakes pads that kept you safe are ITT brake pads. We make connectors, connectors that are used for transfer of data or power, in medical or the EV charger connectors. And also pumps and valves. So these are really the products that we're making. Across automotive, as you can see, automotive is probably our largest portion in terms of markets that we are working in. But then is oil and gas, is aerospace and defense, and general industrial, roughly a $3 billion company. And last year, we had our first Investor Day where we communicated our long-term targets, which when it comes to growth is a 5% to 7% organic growth. This doesn't take into account acquisitions, margins of 20% long-term targets and adjusted EPS growth of 10% and a free cash flow margin between 11% and 13%. And when you look at 2022, we are on our way there with some of the businesses, the pumps and valve business, the connector business that will probably get to their long-term targets earlier than predicted. And Motion Technologies that we get there probably towards the end of the range that we communicated to investors, which was 3 to 5 years. One thing that from a commercial point of view that we just communicated yesterday in terms of press release is a $1 billion agreement that we agreed with Continental, is our partner in the independent aftermarket in automotive. This is a contract that will stand for the next 10 years, and it comes for the European aftermarket business for brake pads in automotive. And with that, I pass it over to you, Emmanuel, for Q1.

Thank you, Luca. So a quick update on Q1. So I would say broadly, Q1 is shaping up as expected. We continue to see nice order growth. In Q4 last year, we had close to 12% growth year-over-year, and we continue to grow in Q1 year-over-year. And this is really coming from, obviously, a positive industrial market, but also outperformance in share gains. We continue to gain share in automotive. We continue to gain share in pumps and valves. And then so that $1 billion -- a little bit more than $1 billion backlog that we had at the end of last year, we are working hard to convert it, especially when it comes to our pumps business, our aerospace business and in general industrial products. Price recovery is going well. And we're really focused on making sure that we recover this cost inflation that we faced over this 2-year cycle. And we are really invested in making sure that over the product rejuvenation cycle, we are able to get those costs back through the price. And so this is working for Motion Technologies, obviously. And Motion Technologies is going to be price/cost positive this year. And then our industrial process business is also doing well as well as CCT. From a cost inflation standpoint, the commodities and the energy prices are in line with what we were expecting. And a lot of it is due to the fact that we were able to hedge those costs for the year 2023, both for steel, copper, tin, but also energy, electricity and gas earlier this year. And then so as a result, we have a certain level of certainty for 2023. We also see pockets of activity that is slowing down, especially in our industrial connectors, our distributors are facing destocking mandates. And as a result, we see a little bit of demand slowing down from their part, but it's really a lot of destocking that's probably going to happen in Q1 and also in Q2. We are also very much constrained by supply chain in aerospace. And so this is not new. Aerospace in general, has been struggling with supply chain, and this is impacting us as well. But overall, I would say Q1 is going as we were expecting. We expect an EPS growth of a little bit north of 15% year-over-year.

Excellent. So thanks so much. So maybe I'll start with your update because I think one of the previous -- actually, a couple of speakers have sort of said the supply chain is improving. And I think Honeywell early in the day, sort of they actually highlighted material improvement. They said aerospace supply chain is getting better. So how much of it just things are in line with you forward -- just maybe a little bit more color on what you're seeing on the supply chain.

Sure. So I think that aerospace for us is -- continues to be difficult, but we're seeing a general improvement in the supply chain. But aerospace is something -- is an area where it's not improving as fast as we would like. We are in line from an order acquisition. So from a customer standpoint, we are in line with our expectations, just our suppliers have difficulty ramping up. Between the suppliers that shut down during the COVID period and that we're making maybe a part that we had in -- hadn't made in 2 to 3 years with some suppliers who have difficulty securing casting parts for instance. It's a little bit difficult, but I would say not materially different from what we were expecting.

Okay. No, that makes a lot of sense. And can I just ask you, and I think you did talk about specifically just talking anything on the connector side. But just generally, what do you feel about inventory? Because I think our view was that as lead times start normalizing, we would have expected people sort of to take down inventory in the channel. Instead, I think just broadly speaking, top down, we saw industry build up inventory in the fourth quarter. Our take was that a lot of it had to do with concern about China reopen, so people built more of a buffer stock. So what are you seeing just generally on inventory to stocking, order activity, not related to underlying demand, but more about this bullwhip and I'm aware that I think on the connector side, it is probably maybe demand related, and it's -- let's take the connectors aside right, because I'm very much aware of how you think about it. But yes, what are your thoughts just generally connection between lead times, orders and inventories. How do you see that?

So in auto, we saw in Q4 a significant adjustment of our customers' inventory. They really stopped the factories earlier in the month of December. And the Tier 1s, which had accumulated inventory, really used that longer period to reduce inventory. And that was not specifically China. It was probably more Europe and the U.S. And so we see that this is largely behind us right now. So we're not seeing any type of buffer between us and the OEMs. From a pump standpoint, our baseline pump distributors are reporting that they don't have more inventory than normal. So we don't see a problem here. We don't see also the growth rates materially changing also. So they feel that there's no reason to adjust the inventory from their side. And connector, we talked about. And Aerospace, I think, Aerospace, they can't put their hand on enough products, unfortunately.

Yes. No, that's great. So maybe we can talk about sort of longer-term stuff just to shift. So over the next 3, 5 years, how do you think about the platforms that will drive market outgrowth for ITT and what are the big structural trends that will support growth at ITT over the next 3 to 5 years?

Okay. So when you look at the structural trend that will support the growth in the next few years, I start with the second part of the question. Well, if you look at automotive, automotive was still quite depressed. When you look at 2022 with roughly 82 million vehicles produced. So in the next few years, the automotive market will grow. And in that is the electrification. So -- and electrification is good for ITT. We may talk about it later, where we are winning more than our fair share. So that is something that will feed our growth. Then the second component is the capital investment, the CapEx in terms of projects. We have seen the project orders growing in the last few quarters of 2022. At the earnings call, we shared also an important order that we won in January in terms of projects. So those projects are fed by ensuring or reinvestment is something that we keep on feeding our growth in pumps and valves. And last but not least, is the recovery in Aero, which is there and it's good. It's probably to be better than what we expected and also the recovery in aero wide-body where we're probably a little bit more exposed, that's good. And I would say also unfortunately, the growth in defense, right? That will be a tailwind for ITT as well. That is in terms of macro trends. In terms of the outgrow in the market, when you look at automotive, we outperformed the market in the last 10 years by roughly 800 and 900 basis points. Now of course, that becomes more and more challenging as our market share has grown substantially. So what we communicated to the market is that we continue to outgrow the market in the next few years by 400, 500 basis points. And because we have won the awards in the last 2 years that will start production in 2 or 3 years from now, we can say confidently that, that will happen. And then when it comes to our pumps and valves business is pure proper and flawless execution on the projects. Think about it, our factory in Saudi, in Dammam, making projects for the Middle Eastern region had a performance in 2022 of 100% on-time delivery on projects. And if you work in that region, I can tell you, it's not that easy. And having that type of performance will guarantee you the customer loyalty. And this is what will feed our outgrow performance market.

Excellent. So maybe we can talk about the EV, right? So can you just talk about why it -- how is it different from a regular car? How is the per vehicle content for brakes different from the traditional ICE platform? And why is that important for you? Why are you taking it -- what's different and why are you taking share?

Sure. So first of all, when you look at content, you have 8 brake pads in an internal combustion engine, you have 8 brake pads in an electric vehicle. So the content is roughly the same. What will happen that the revenue, the dollars or the pounds per vehicle might be a little bit higher, simply because the electric vehicle is heavier. And therefore, when you brake, the braking surface between the rotor and the brake pad needs to be a little bit larger to ensure that your braking performance is exactly the same. So you have a bigger brake pad and therefore the dollars per vehicle is a little bit high. That's in terms of content per car. In terms of why is it different and why we -- we are winning more than the market share that we currently have because it's substantially a different problem. And because of that, 1 of our strength, which is R&D is able to bring home the orders. Why? If you have an internal combustion engine, you're using your brake all the time, which means that your brake pad is actually hot. And therefore, for 80 years, the industry has worked to guarantee a performance, knowing that the material science between the tribology between the brake pad and the rotor is at that kind of temperature and you always study that way. Today, with electric vehicles, you don't use the brake pad all the time. That brake pad is cold. So the material is some -- performs completely different, but the performance that you want is exactly the same. So because it's a new problem, is something new that nobody has faced before. If you have a strong R&D, which is 1 of the way that we differentiate ourselves, you solve the problem faster and better than the competition. And this is the reason why our win rate in electric vehicles and electrified platforms is substantially higher than our market share exists in today.

And so if you think about that, Andrew, in terms of long-term expectations, you have a global auto market that today is around 80 million to 83 million cars. At the peak, it was higher than 90 million. So you're going to have that growth in terms of recovery of the initial production. You have the EV segment that grows disproportionately faster than the ICE segment. And then on top of that, we have a win rate for ITT, which is higher on the EV side, and you have a price that is also higher. So if you think about the compounding effect on the revenue for ITT, it's going to be very interesting.

Can we just talk about your exposure to IRA and we did a report EV battery plants. And Mark pointed out that you had a press release that I missed. So I will acknowledge it and ask about it. So because how should we think about on -- particularly on the flow side, right? Because we sort think about not just electrification, but we do think an unappreciated aspect of the ROA is decarbonization, which is carbon storage, hydrogen, so what's your exposure? And what's your ability to play in that part of the industry? What conversations are you having? And then let's talk about the EV plant because...

Sure. Let me give you a couple of examples, and Emmanuel please feel free to build on those. So I talked before about this big order that we won in January for flow. That is in order for an independent oil company for decarbonization. What this company had in this part of it, not with [ IRA ], but in Africa, is that they had wells, they were extracting oil, it comes up with oil, water and gas. They were separating. They pump the oil and the flare the gas, which is bad, where some of our pumps, the Bornemann Pumps, which are twin screw pumps, that are able to do multi-face pumping, are actually enabling to stop the flaring. And this is a $30 million order that we won in January, where in this country in Africa, we will put these 2 pumps that will be able to pump everything, gas, water, oil to a distribution station down the line, 60 miles down the line, where you can separate and then you can sell the gas. So that is a part of the decarbonization, and we are 1 of the 2, 3 companies that can offer that type of solution. When it comes to the reshoring and some also of the investment in new energy, or that you see in the U.S., we've been able to win some nice orders, if it is in a recycling of the battery in upstate New York. And I would say, last year, our orders growth in those businesses were roughly 50%.

So for green -- let's say, green projects, our orders grew by 50%. And I think that the projects you were referring to is the auto manufacturing plants that is being built in the South where we are -- we got the order for the pumps that are going to be directed to the battery manufacturing plant here.

And so if you were to size the green business, however you define it, how big is it today, life if you were...

So if we look at IP, in terms of orders, around $30 million that grew 50% compared to 2021. Obviously, if you think about the EV business in Motion Technologies, it's around 20% of our own sales, which are EV business already, which is higher than the current production -- the global production. And then the other thing is that for CCT, we sell those EV connectors. And those EV connectors actually grew in 2022, 100% and this is roughly a $40 million business that we created from 0. So it's not yet a huge pace, but it's growing really, really fast.

Got you. And before sort of just staying in the process space, given sort of the volatility in the oil prices, what's the feedback from the customer? Because I think at BofA, we do, on the downstream, I think BofA is very bullish about sort of downstream cycle over the next several years, energy crisis in Europe. I think you should have nice visibility on LNG. Can you just talk about the visibility because I think people really focus on near-term oil price fluctuations. But what kind of visibility do you have and what are the conversations like with your customers in the face of this volatility?

Sure. So when you look at the LNG is that we got opportunities over there. And 1 thing I want to share with you as well is that when those investments were frozen or postponed in 2020 because of COVID, what we were able to do is work together with some of our closest customers, being end user or EPC to win engineering-only orders. So instead of the investment of $20 million, $30 million in the pumps project, we would say, okay, why don't we sit down and we win the award for $800,000, do the engineering, so that when this project comes live, you got the foot in the door. And this is actually what has happened when this investment then restarted. So there is a lot of the investment on LNG that will benefit our IP business in the near future. When you look at also oil and gas, there is a wave investment due to the lack of investment in that sector in the past years. So there has been this in the Middle East where our great performance is obviously helping in terms of our customer loyalty. But then you think about the decarbonization. The example I gave you in terms of stop the flaring. I mean, you need to expand that across the board. So that would be a great opportunity for us in terms of upstream. And then also a solution for that is that, listen, the energy transition will happen, but I think that people realize that probably it is going to take it longer than originally envisioned. So those investments are happening. We're talking with the customer, the orders you see them in the last few quarters. And I can tell you that the funnel of opportunity is still today very, very rich and the larger it has ever been.

And it's interesting. I've been to a bunch of meetings over the past literally several months. And it is a new theme that several CEOs have stated that there's this recognition that energy transition will take longer, and it does seem to be something that we're hearing more this year. I'm just -- I appreciate that it's -- from my standpoint, it is a realistic view, but it is a new theme.

Well, no, I think it's probably a touch of reality. It came down to earth.

Right. So maybe we can just talk about aerospace and defense. So anything about your base case, now about aerospace recovery, that's different or should we just look at Boeing and Airbus schedule and we should just look at that.

So for aerospace recovery were mostly driven by Boeing. We have some content with Airbus. But historically, we've been with Boeing. And so we're tracking really closely to Boeing.

And it's that aftermarket wide-bodies, right?

Yes, that's correct. It's mostly wide-bodies more than -- we do have a presence in the narrow bodies, but it's mostly wide-bodies.

And as wide-body opportunity because I think several folks have stated, I think, GE last week -- 2 weeks ago stated that that's maybe better than expected. I think Honeywell said wide-bodies better than expected.

Yes, yes. Demand is certainly pointing towards a quicker wide-body recovery, yes, that's correct. And then we have a little bit of a presence also in business jets and that has been doing really fantastic since COVID really.

And on defense, I guess, the presidential budget is out, Any surprises? Any updates from where ITT stands?

No, I would say defense is another tailwind and this across the world, right? For sure, U.S. is the biggest market, so that's great. And we are working that across in CCT, across the board, if it is the soldier modernization, if it's a Nett Warrior or if it is also in -- for helicopters with the FARA program where we're working both with balance and. So we are agnostic on who's going to win that program. But also the increase in terms of defense budget in Europe. And therefore, we have nice wins when it comes to the connector business over here in Europe and Germany as well as for our shock absorber business in terms, we had the new platform for new vehicles where our shock absorbers or our Hydroride new product are fitting very, very well.

Yes. So what should we talk about. Let's talk about self-help. So I -- yes, yes, yes. So IP and CCT very good margins this year. IP, in particular, well on its way to reach long-term targets. Motion Tech, price cost has been a headwind. Channel inventories and supply constraints that seems to be working itself through. But what self-help levers have you identified sort of continue to expand margins and reach your long-term targets? What are the big buckets that are available to ITT?

So listen, when you -- 1 thing is pricing. So when you look at the pricing is, if there is a benefit to the inflation, if you want to look at that, it's really developing the pricing muscle. This is something that was underdeveloped within ITT. And we have started, we have learned, we are learning. And therefore, that is definitely something that will continue in 2023. Think about what Emmanuel just said, the 2023 for Motion Technology will be price/cost positive. So that, as an example, is 1 level. But second is in terms of operational efficiency. So every time we go to a plant, I can tell you, and you visit the plant, you go to the plant, you get out, half smiling, possible that you still have all these improvements to make. So if I think about -- on the footprint, we communicated last year that we're going to close the foundry in upstate New York in Seneca Falls. This is where we're doing steel casting. So this is a process that is taking 2 years, because we're going to do properly without impacting our customer and our project base. This is something that will be closed by March 2024. That would be a benefit in terms of our cost base and our competitiveness. The continuous leaning of the factory is automation being on a painting line, in a pump manufacturing site or on the connector assembly line in Nogales, Mexico. So I would say foot pricing, footprint, lean and automation are the key factors that will keep on driving improvement in margin.

And Andrew, if you think about IP, I think it encapsulates all this because you remember IP, we -- we are now around between 18% and 20% in terms of margin. And IP really, when you think about that margin trajectory, really benefited from pricing, benefited from lean, especially in Seneca Falls. We've talked a lot about this, how this has really been able -- enabled us to really reduce the lead times and increase the throughput. And then if you think about footprint, we talked in the past about how we closed 1 site in Brazil, 1 site in U.K. and now we're closing the foundry. And all this is really coming together now and help us produce those really good margins we have in IP.

And something, Luca, you said, which I also found interesting. So the trick was inflation, I think that it's all about expectations, right? If people expect inflation and start sort of pricing it into their behavior. That's what makes it sticky. Do you find that, because you have mentioned that you've developed the pricing muscle and other way to say is that your customers are now trained to expect inflation. Do you find that people's behavior has changed in terms of inflation, broad inflation expectations as they sort of build their business models as you negotiate?

Yes. I think that there is an element of that, for sure. And just to give you an example is in automotive. I think if you look at automotive for 20, 30 years, they behaved in a certain way, where you had to give efficiency every year. I think that what -- there has been a realization because of inflation is that you have to take into account the cost of the raw materials when that you cannot compensate with pure efficiency, the cost of energy over here in Europe. And therefore, there has been more of an opening and the realization of what's going on. And as long as there is that, then it's put into the budget and then it's easier to sit down and negotiate with the customer.

And my next question, I think you've answered part of it, but maybe it's another way of asking something similar. So if we look '23 outlook, right, it's some organic growth and 6.5% EPS growth at the midpoint, your long-term targets are 10% EPS CAGR, 5%, 7% sales CAGR. So your sales is coming in at the high end, and it seems between inflation, reshoring, probably that's going to be easier to get. How do you think about sort of managing operating leverage in this environment and particularly the need to -- the need -- we did some numbers and I think the growth has been -- in our capacity expansion, has been like 1% for the past decade, right? You could just sweat the assets and get more and more of the existing assets. As we have an environment where there is potentially more growth, right? How do you think about the balance of operating leverage, but at the same time, having enough capacity, having enough right capacity to keep up with the end market?

So if you think about...

Does it make sense, what I'm asking?

Yes, no, absolutely. If you think about the incremental margins this year, they're going to be a little less than 30%, which is not the highest level we've been, but it's not -- it's really a good number. And 1 of the reasons -- 1 of the main reasons is because we're investing. So we are investing in productivity. We're investing in growth. And the growth is mainly coming from Motion Technologies with all the market share gains that are happening right now. And we need to support our customers with their increased volumes. If you think about productivity, this is mostly IP and CCT, where we really have to drive those productivity projects in order to make those margins -- the margin levels that we have sustainable and further expand upon them. There's another aspect, which is about innovation. We are investing a lot in IP and CCT with new products in addition to MT for sure. But in the past, IP and CCT were -- weren't really focused on rejuvenating the product portfolio. And so heard us talk about value analysis, value engineering, projects that are redesigned and completed the pumps, reducing the cost, increasing the performance. We are investing in new products also. We are looking at all kind of end markets where we see an opportunity. Mining is 1 of them, for instance. And then in CCT, obviously, we're investing in new products for defense. We -- Luca mentioned that we came out with a whole new suite of suite of products for the Nett Warrior program. And that's going to really lightweight connectors that are really going to help us gain share. So for us, what's really important is to make sure that we make the investments both from a process and from a product standpoint that are going to allow a long-term growth.

And just to finish on the investment side, sort of working capital, right? What do you think in this high-growth environment, what's your ability or what's the need to sort of carry a higher level of working capital and what's your ability to sort of release working capital in the near term?

So I would say when you look at working capital in 2022, our working capital increased substantially. And I would say half of it was a conscious decision in order to be able to deliver for our customers. We would not have been able to deliver 99% on-time delivery in automotive if we didn't invest in working capital and inventory. So -- but some of it was due to the supply chain constraints, also our constraint internally. So I think that there are improvements that we can make in working capital despite the growth that we will have in 2023 in the years to come.

Yes. And I think -- so if you look back to what has happened in 2022, the working capital growth was really driven by inventory. We increased inventory roughly $100 million, which is a really large number. And then so in 2023, that -- a little less than $400 million of free cash flow that we're predicting that we're guiding for in 2023. Some of it, obviously, is driven by a higher income level, but some of it is -- we're starting to deleverage the balance sheet and then making sure that we convert some of that working capital, especially in inventory in cash. One great statistic that I think shows a little bit of the progress we've been making is that in Q4, our free cash flow was double of the first 3 quarters of 2022. And so we have created the momentum already in Q4, and we're going to continue every year and we think that by probably sometime in 2024, we should have been able to recover all the working capital excess that we had to build in 2022.

And maybe we can talk a little bit M&A priorities. A, how is the environment? We've heard an argument that recently, a lack of private equity bid sort of makes people reluctant to sort of put properties out there. From your perspective, like what -- how do you see various factors, access to capital, valuations, what's available? Can you just talk about what it is you're seeing on the M&A front? And what are ITT's priorities on M&A?

So when we look at the ITT priorities and M&A, our last acquisition was in 2022. It was a valves company based out of Israel. We bought it with -- at a multiple of 12. And when you look at the results of 2022, the real multiple was actually something between 8 and 9. So I wanted to share this because is that is the type of acquisitions that we are really looking for and cultivating and hopefully bring home. So I think that we are focusing more today on acquisition to add to that 5% to 7% organic growth, particularly now that we are asbestos-free, because we got rid of asbestos in 2021. The areas that we are looking at in terms of acquisition are really 3 areas, are pumps, valves and connectors. We like those areas that will help us to rebalance the portfolio, but also those are areas where the market is very fragmented. So there are opportunities there on the pumps, on the valves and on the connectors. And when we look at what we've been able to achieve in the pumps and valves business in terms of the profitability journey, taking them from what it was a 7% operating margin to 18.8% in 2022. And also the margin on the connector side of the business, we think that we can create a lot of value there. When it comes in terms of the opportunity we see there, true what you're saying in terms of there has been an impression that private equity was no longer there. The deals that are strategic for them to make there are still there. So that would be my feedback.

What about Rail is an area of interest for M&A, you didn't mention that.

Yes. Rail is an area which is interesting for us as well because we like the dynamic of rail. I think there is a lot of investment is going to happen in a future, 60% of the market in rail is aftermarket, and therefore, the dynamics are good. I think that what we have seen in Rail is also that we can grow organically quite a bit. So there is a major European program, which is the DAC, the digital automatic coupler, which will practically substitute the coupler in the freight industry in Europe to make it much more efficient. That is going to be -- they're going to substitute the coupler of roughly 500,000 cars in rail. There's going to be this huge investment and then continues for the next 20, 30 years. We are working with a couple of Tier 1 with the designing of specific product, which is the draft gears, the energy absorption, and therefore, we see opportunity to grow organically there as well.

Very interesting. So maybe we have a couple of minutes. I don't know if there are any questions from the audience. Okay. I have questions. So maybe, what kind of visibility do you have on reshoring both from the perspective of your customers and how you guys look at it? I know for you reshoring is North American reshoring, maybe near shoring as opposed to North America because you have material operations in Mexico which you are expanding. But what are you seeing from your customers? And how are you guys yourself thinking about sort of moving your own supply chain close to home?

So in terms of -- let me tell you the supply chain and then you can give a couple of examples on the reshoring. But in terms of the supply chain, the strategy that we've always adopted has been to be in the region for the region. So first, if you look at MT, we are in Europe for Europe. We opened the plant in Wuxi, China, for the China market, for the Asia market, then we opened a plant in Silao at Mexico for the North American market. And this is the model that we have adopted and we believe in. So having said that, there are some sourcing that we believe will stay global. So let's face it. I mean if you make pumps and you are sourcing casting, you will keep on sourcing casting out of China and India. It doesn't -- there is no way that you would be able to compete otherwise. You will still have, from a supply chain, some resiliency and develop relationships with the foundry locally in North America, in Mexico or U.S., but some supply will keep on being global. But in general, it's region for region. And on the insourcing?

Yes. So I would say on the near shoring, I can give you a couple of examples. We participated and we got the project business for the new semiconductor manufacturing facility out of Arizona. So our approach to near-shoring is really we understand the trend, but we're really asking our people to look at all the different opportunities that we have there and go after them very strategic.

[indiscernible]? Is it connectors or is it water treatment or...

Yes. It's in the water treatment.

So we have 15 seconds left. I'm going to finish it there. It's always a pleasure. Thanks so much.

Thank you, Andrew.

Thank you, Andrew.