Parker-Hannifin Corporation (PH) Earnings Call Transcript & Summary

Hi. Good afternoon, everybody. We're moving on to the second afternoon session. I'm very pleased today to have Parker-Hannifin here with us. We have Chairman and CEO, Tom Williams. Tom, thank you for being here. I know you have some slides that you'd like to step through at the start of our conversation. Then we'll kick off some Q&A.

That sounds good. Thank you, Joe, and it's great to be at the conference. So if you go ahead and advance to the next slide. I think everybody's familiar with the forward-looking statement. Go to Slide 3. So this is our breadth of technologies, which is distinctive versus everybody else. This combination -- this interconnecting relationship that we have between these technologies allows us to solve problems at a much greater level than any of our competitors and create value for our customers. In particular, this breadth of technology is uniquely positioned to win as things move to a more clean technology world. And one of those examples I mentioned at the earnings call is the electric vehicles, and this is really kind of a great example of our purpose and action. We've always been in the factories helping to make the automobiles, but now our onboard content is much more significant. If you look on the left-hand side of the slide, you've got the applications that are changing when you have it go from a combustion engine into an EV. And on the right-hand side, you've got the Parker technologies that match up to those applications, whether it's safety, weight, thermal management or critical protection. The key point of this slide is we're clearly positioned to win with a more sustainable package of technologies that will also help us to grow faster as well in the future. This is a graph that shows adjusted EPS versus global PMI. So the PMI is the blue line. The adjusted EPS is the gold bars. In particular, I'd call your attention to that dotted green line, which really kind of speaks to the transformation of the company and what's changed over a 5-, 6-year period of time. So over this period of time, you've seen, based on these numbers, EPS more than double and EBITDA margin, which you can't see on the slide but is one of the things that drove this change, grow by 600 basis points. So a significant improvement, a big difference between other company performance and a divergence from where our performance is versus the PMI. Really, 3 things drove it. It's in the takeaway box on this slide. It's our people and that alignment, that focus, that ownership, the engagement of our people around the world, the portfolio. And the portfolio will really be 2 things: that interconnected breadth of technologies that I mentioned on the prior slide; and then also the capital deployment we've done, buying 3 great companies over this period of time that were accretive on growth, margins and cash flow. And then lastly, the performance changes which all start with The Win Strategy. We launched 2.0 in FY '16 and 3.0. Those 3 things is really what drove the step change in performance. Go ahead. And then my last slide is -- I want to talk about 3.0. And I could spend a lot of time on 3.0 but I'd just try to give you the CliffNotes on some of the key changes. And I'll go bullet by bullet for a second here. So simplification, you're familiar with this and sort of what we've been doing with that. It's 80/20, and it's also adding Simple by Design with the understanding that about 70% of your product costs are tied up in how you design the product. So Simple by Design goes after some basic design principles that have changed with this concept, a complexity assessment that we'll do in addition to a technology assessment and the use of AI. So what we want with this is that we want design excellence and operating excellence to help drive a step change in product cost. Then, on innovation. So Winovation is our stage-gate process. We made 2 key changes there. We have a new metric, PVI, which is product vitality index, which measures the percent of revenue that comes from our new-to-world products overall in the 5-year period of time. And obviously, we're looking to continue to improve that over time. And then a more outside-in focus or a process we call new product blueprinting, training our engineers to focus on our customers and our customer's customer and what their needs are. Digital leadership is a big change with 3.0, it's digital products, digital operations, digital customer experience and digital productivity, which under that we put AI. We're going to continue to expand and grow distribution like we've done, especially with international. We introduced Kaizen with 3.0. And it's really the power of Kaizen, combined with our high-performance team structure, lean and I would add, safety as well, that's created a step change in engagement as well as productivity in our factories. We have an opportunity with acquisitions with a much stronger balance sheet to continue our great track record of buying great companies. And then we changed the incentive plan. We're in the process of rolling that out over the next year or 2, called annual cash incentive plan. And it's going to have 3 metrics: cash flow, earnings and growth. Much easier, simpler to explain, clear alignment, more growth orientated, will drive the right kind of behaviors. So it's been the one strategy, and the second and third changes as well as our purpose, that's going to propel our performance in the future. And with that, Joe, I'll turn it back to you to start the questions.

Yes. Thanks, Tom. Appreciate that, as always. And congratulations on the success, right? It's -- Win 2.0, Win 3.0, both obviously have shown tremendous improvement in the overall profitability of the organization. I guess as you think about the white space, right, you've mentioned some of those, whether it's Simple by Design, whether it's the innovation pipeline or M&A. Where do you expect to see -- or Kaizen, right? Like where do you expect to see the stronger margin expansion from -- coming from here? And then I'll ask you a specific question around the targets because it seems like you're bumping up against those targets this year, but maybe start there.

Yes. So that's a good problem to have, that we've kind of beat our own targets out here, so we like that problem. But 3.0 is just getting started, really started before COVID. And clearly, Kaizen is a big enabler for us. We've seen tremendous amount of engagement and involvement of our people, productivity, quality improvements with Kaizen, the whole digital leadership piece, which -- the customer experience all the way to the use of AI. And I would characterize AI as kind of lean in the office. It's a step change, how we can improve processes in the office and inter relationships of data, it's very powerful. I think it will probably be the strongest element of the digital leadership piece. One part I don't really -- haven't talked much about but we're working on is that 0 defect process. In particular, we're focused on piloting that within aerospace and our Motion Systems groups because these are the 2 groups that have all the motion technologies as a company and tend to have more impact on a customer from a reliability standpoint that we're focused on 0 defects, but those areas obviously will translate that across the board. Simple but, as I should mention, continue to change the mix of distribution. The innovation piece, one thing that's been interesting is that PVI metric has doubled over the last 5 or 6 years as far as a percentage of the company. And I haven't disclosed what that percentage is, but it's grown by a factor of 2. And what that allowed us to do is be more resilient through this down cycle because it's easier to sell innovative products and they have higher margins as well. So there's a lot of things -- I don't know if I'd characterize one as being the single one. If I had to pick one, I would say Simple by Design's probably got the most horsepower to it, but it's going to be a multifaceted approach on the margin. And then on the targets, right now, we're top quartile, but we're right on that edge at top quartile. So I think as we look at making those adjustments to new targets, we're going to want to pick a target that puts us deep into the top quartile. And if you look at what we've done over the last 6 years, there's a pattern here, and you can kind of guess what's going to happen. We started at 15. We went to 17, on to 19, on to 21. So you can kind of look ahead to what might happen there as far as this target.

Yes. I -- well, I mean, clearly, 23 sounds like the next one, although mid-20s probably seems more feasible just given the performance that you're going to put up this year and the fact that the cycle -- you're doing this all without the cycle tailwind to your back. So with the cycle tailwind coming, I don't know, mid-20s seems pretty feasible to me. How are you thinking about the restructuring actions like to meet these targets going forward? Because, historically -- I think in 2021, you put up roughly $50 million to spend on restructuring. I mean is that -- should we be thinking about restructuring spend in that ballpark going forward? Or how are you thinking about it more longer term?

I think that's a good number still. I think if anything, probably a little bit lighter than that as we move into a period of time which is going to be more growth orientated. We've done a lot of heavy restructuring. I think a company of our size has to have a certain amount that you do just as part of normal productivity and normal improvements. But it's probably going to be $50 million, maybe a little bit less than that going forward. Obviously, if we buy a company, any of those kind of restructuring would be tied into the cost to achieve.

In your -- that's helpful, Tom. In your prepared comments, you did mention kind of EVs and electrification and clean energy and how you guys are really kind of focused on that area as well. I guess when you think about Parker and you think about your exposure to, let's call it, ESG-friendly end markets, I don't think like, typically, Parker is top of mind for a lot of investors. And so I'm just curious, like when you think about your own portfolio and like how you're levered to these technologies, how much of your business is ESG-friendly? And how big is renewables for you? Maybe we'd start there, and then we'll go from there.

Yes. I think I'll keep it at the higher level with your first question, what percentage is ESG-friendly. I would start with this is part of what we're going to try to help people along the line here, is to give them examples, like we did in the last earnings call, of our portfolio in action and the amount of clean technologies that we do. So as we looked at that, we're roughly about 2/3 of portfolio, I would say, that's ESG-friendly. I would say almost all of it is sustainable. It's helping the environment and all those kind of things. But in a pure ESG-friendly standpoint, it's probably about 2/3. But the other 1/3, over time, is going to become ESG-friendly. As you think about as the combustion engine moves to an EV, as a construction piece of equipment moves to fuel cells or battery or hybrid, our portfolio is going to probably gradually get to 100%. When you look at the mix of technologies, it's why I'm so excited about the breadth of the technologies. Virtually, all filtration is ESG-friendly. You look at all of our engineered materials. If you look at hydraulics, which people probably don't realize in a more electrified world, hydraulics will still be needed in valves and pumps. Instead of being driven by an engine, it will be driven by either a battery or a fuel cell or a combination thereof. And so we still need all these technologies. And our ability to be more e-enabled with all of these is really important to people. And so that's -- we're actively working on this. So that transformation that you saw on the EV slide for an automobile will happen, with a construction vehicle will happen, with an ag vehicle will happen, with a forestry vehicle, and we'll be there to help people through that journey. And we've been adding to the portfolio with motors, motor controllers, software, inverters, et cetera, to just help us be able to enable that transformation.

Got it. No, that's super, super helpful. So I mean it sounds to me like as we proceed along this energy transition, you're already well positioned, whether it's an EVs, hydrogen, I don't know if it's necessarily in modernizing the grid, but perhaps there's a play there as well. Do you feel like your technologies are already there and well positioned to benefit?

Yes, I do. And we just recently joined the Hydrogen Council. And hydrogen is, obviously, a longer-term play, not going to happen in the next couple of years. But if you go out, say, 10 years, I think hydrogen will become a bigger element, especially for more heavier applications, hydrogen fuel cells, et cetera. And our technologies that we have, related today on CNG, LNG and cryogenics, gives us a natural kind of foundation to move towards a more hydrogen world. We've formed a hydrogen team inside the company, multi-technology team. And actually, that's morphed into a broader climate team. And the participation in the Hydrogen Council allows us to talk to customers, other suppliers and to be there kind of at the beginning of this journey, help influence what's going to happen. And we're excited about that.

No, that's great. Going back to just your commentary earlier around EVs versus ICE. I think you talked on the most recent earnings call that you have like 10x the amount of content on EVs. Can you just elaborate on that a little bit and help -- just help level-set us on how big your EV exposure is today?

Yes. I'll give you more of the technologies that are under -- one thing that there's a lot of customer sensitivities -- you probably have seen this historically. We don't disclose bill of materials for an ag equipment or what we got on the 787. Or -- this tends to be a customer-sensitive item. However, I would say what's happened on EVs is we already had a base that we started with engineered materials before we bought LORD, and that was on anti-collision technologies, really using the EMI shielding, electromagnetic interface shielding. So your phones, electronics don't work without that shielding technology to take the noise out of the system. We had our own base of thermal management gels and coatings, et cetera. And with LORD, we added much deeper on thermal management. We added vibration control. We added coatings, adhesives and structural pieces. And these are all things that are needed. So now when we go to a customer, we have -- from sealing to shielding, we've got the whole kit and caboodle. One thing that people don't realize is when you take away engines, you create systems where they're noisier, people can hear. The engine had a way of kind of drowning out background noise, and so vibration control is a lot more important. And that was the technology that LORD has, both what I would call passive vibration control, which doesn't use counterforces, to active vibration control, which you would use for like a helicopter. With -- the rotors of a helicopter need that kind of active vibration control. So we're very excited. This is clearly -- my belief on acquisitions, it's always 1 plus 1 equals 3 is what we're trying to do. And clearly, with Lord, we've done that.

Yes. So maybe the follow-on there before we start talking end markets and trends and all that stuff. Like on the M&A side, you had done a few very big acquisitions over the last few years. You're delevering the balance sheet very well now. Like how are you thinking about M&A at this juncture across your key technologies of your portfolio?

Yes. Our preference is clearly M&A over share repurchase. First will be dividends, so the nice increase we did, 70% dividend increase just last quarter; and then funding CapEx for organic growth and productivity. But then we have a lot of free cash flow left over to decide between acquisitions and discretionary share repurchase. The acquisition pipeline is active. It's also a very fluid situation out there, and valuations are fairly high. If you look -- just look at how the valuations have trended over the last 5, 7 years for industrials. They moved up. So it's all a matter of finding a willing seller and a willing buyer combination. We like -- we're not perfect, but we're pretty good. And we believe we're a pretty good home for these technologies. You'll see us stay within our space and try to be a consolidator of choice first. The 4 groups that I've talked about investing in historically is still our focus: aerospace, instrumentation, filtration, engineered materials. Obviously, with LORD, it expands kind of our purview of engineered materials. It adds more near adjacencies, and that whole near-adjacency concept is another sweet spot for us. So it would be consolidator of choice, those 4 groups and then near adjacencies. If I just go back 20 years ago -- or no, go back into the '80s. We bought our first filtration business. So we've recognized we had this system that sure helped to filter and was starting to filter hydraulics, and we moved into air, water and biopharma, et cetera. 20 years ago, we moved into mobile hydraulics as a near adjacency. And then of course, LORD was another example. Exotic got us into more engine work on aerospace. So our sweet spot tends to be complementary technologies into channels and customers that we know today, and I think you'll see us do more of the same.

Makes sense, Tom. I know we're going to -- I was going to get into end markets anyway. But we got a question from the audience, specifically around what end markets do you think will be strongest for the company over the next 6 to 18 months. It sounds like EV could be one of them, but what are some of the others?

Well, I'll probably just read you the -- because right now, this is a fun time for me because...

Everything is positive?

I have a very long list of positives, but I'll just read for you the -- what I'll call the stronger positives, not just the minor ones. So semiconductor, of course, you can't read anything without hearing what's going on with semiconductor. So we play in that, so that helps us. Life sciences has been strong for us, construction, ag. Auto is what you're referring to with the EV. Auto is strong just in general but will continue to have a lot of legs as the mix shift changes to more EV. Forestry, the whole packaged goods phenomena, machine tools which is really supporting auto and then aerospace, military, both OE and MRO, telecom, 5G and the whole expansion there, refrigeration. So those are the strong positives. What's nice is that you didn't hear me mention distribution, which is not an end market, but it's a channel which covers half the industrial piece. So distribution is low single digits, and that will move to be more stronger. So that will be a positive as we move out into the next several quarters. So on the question of the next 6, 18 months, I will look for all of these to do well. And the ones that are soft right now will move to positives. In fact, the only ones that I see being a slower turn are the ones that are obvious, oil and gas and commercial aerospace. But we are -- in particular, with commercial aerospace, we're positioned well today to win in that environment. Our margins are holding up well, as everybody has seen, and that space is going to turn. And it's seeking bottom, it's bouncing along bottom, and we'll start to see a turn. And we'll participate in an upturn.

Yes. That -- those all make sense. Tom, I guess, it's interesting. We've heard some restocking across several different channels. It is kind of interesting that the industrial distribution channel is one channel where we haven't seen a lot of restocking at least heretofore. And you've seen some selective restocking across your businesses. I guess how are you thinking about industrial distribution and whether there will be a restock there as well where inventory levels are? Any commentary around that?

Yes. I think our distributors right now are trying to do 2 things. They're trying to keep up with current demand since they're placing orders for current demand, and they're placing orders for what they think is going to happen in the next quarter or 2. Now whether they're able to actually build inventory will depend on the growth rates of orders. So their anticipation might just keep them abreast of it, which could lead to future restocking opportunities, or maybe they will be in a position to start building stock. But I think your question in a broader sense is, I think, there is going to be restocking opportunities. The distributors now are trying to keep up with demand and trying to get with future demand. They're probably not in a position yet to really put a lot on the shelf because of the demand upswing that we've seen.

It's a nice problem to have. That's really bullish, right? That seems incredibly bullish. I guess in thinking about -- we're not at the point in the cycle necessarily where we're that concerned about it, I guess, in terms of the taking the python-type problem, where volumes are super, super strong and it's really difficult to kind of meet demand. We know -- we had that issue with -- during the CLARCOR integration. I guess how are you managing that within your own supply chain, your manufacturing facilities to make sure like, if the cycle turns out to be a robust cycle over the next 12 to 18 months, that you're able to meet demand on your end?

Right. No, that's a good question. The whole CLARCOR, for maybe those that don't remember, Joe remembers, was a phenomenon where we closed probably high-teens number of plants simultaneously while demand spiked. The difference here is we don't have that kind of plant closure activity going on. I mean there'll be -- there's always a plant closure or 2, but nothing to the extremity of a CLARCOR. So we're well positioned from a footprint standpoint. The Kaizen work that we've been doing, particularly, a lot of our Kaizens are focused on those areas where we have demand upswings. We go in there -- because, typically, a Kaizen event frees up floor space, frees up people, frees up capacity, so we're being selective on where our Kaizen activity goes to try to go to the areas that they have the steepest demand. But our supply chain has held up pretty nicely. We're not immune to the demands and pressures everybody else has seen. But I like how we've done with the job we've done there. We make, buy, sell local for local so that we are diversified in our supply chain, which allows us a little more flexibility. When all the tariff things hit, we were very minimally hit with that. It didn't hurt us at all. So I would say the supply chain is in pretty good shape. Our traditional sweet spot right now is to take share because our competitors tend to struggle with less robust supply chains than what we have, and this is an opportunity as the upstream goes. And we won't be perfect. Nobody's perfect because, if my customers are listening, they clearly like me to be better. But we will do better than our competitors, and that will allow us to take share as we go through this.

That makes sense. Tom, we got another question in from the audience. This one is around your, basically, inflation. So the question is what do material cost headwinds look like today? How are you managing that?

Yes. I would say material inflation now is probably about as bad as I've seen for the last, say, 10 years, my recent memory. And so clearly, we're very active on this. And we have a very robust process, I think, as most of the shareholders know. We have a purchase price index that we track division by division, that looks at our year-over-year pricing of materials. We have a sale price index to look at pricing of our products, and we'll stay on top of this. We've made pricing changes already. We're in the middle of doing pricing changes as we speak, and we have a good track record on this. Our -- we'll stay margin neutral. A lot people talk about covering cost. Covering cost is margin dilutive. We'll stay margin neutral on this. And we've always done that, and we'll do it on this upswing.

I guess maybe my one follow-on to that. Historically, it's been easier to get pricing from distributors, this is not necessarily a Parker comment, this is a broader industrial comment, versus your OEMs. Is there any difference that you're feeling today, either from the OEMs or from the distributors in terms of being able to put price through?

Well, I think our distributors -- nobody likes price increases. I could probably say that universally. Nobody likes -- the channel tends to do better with it because it allows them to mark things up, and they tend to do pretty well with it. But in general, people don't like price increases. Our customers don't like it. But I think they also understand the dynamics as far as what's going on now. Now with the end customers, the direct customers, we've got some contracts that are -- we have material clauses that are indexed, so that happens naturally. It tends to have a quarter lag, and that will happen based on whatever index it's built on. And then some are based on when the long-term agreements become available to renegotiate. So we work on those all the time and enter those conversations. But it's -- we have great customers that have great supply chain organizations. They're very good buyers, so we -- it's not an easy discussion.

Fair enough. I have to ask you this question about international margins because I'm a little like blown away at how -- like they basically held up very well relative to North America despite revenues being 20% to 25% less. So what's going on? Like is international structurally as good a business as your North American business?

Well, you know we've been working for years to have somebody ask that question because the question used to be, "What are you going to do to fix international margins?" And so...

You fixed it.

It's remarkable progress. I would say a couple of things. We targeted years ago, a lot of restructuring for international to get it where its fixed cost would be in better shape. And then you heard us talk about there was a distinct difference in North America on the mix of distribution versus OE, and international had been working on that mix shift. And we've just got stronger organic growth in particular in Asia, which is one of our highest profit margin areas. So that's helping international as well with some of that mix shift. Simplification has been real active across the company, but probably even more so in international because there was maybe more opportunities. I think when you look at both, we would like them to be both about the same. I think North America has some distinct advantages still to be slightly higher, and so I think over time, you'll see it be slightly higher. But the fact that they're so close is a huge accomplishment.

Yes. Kudos. Yes. I remember the days when we were talking about, "When is it going to get fixed?" I guess maybe one follow-on there is are you done expanding or scaling up your distribution internationally? Or how much more room is there to go?

No, I think we've got a lot more room. We started at 35% when we started this initiative. We're at 40%. We'll give you an update at IR day, but I would expect it's going to be north of 40% when we show you that number. And so I think a round goal of 100 bps a year of margin shift there, just mix shift there is what we'd like to do. It gets harder as we get closer to 50-50. But what we've changed internationally is we have our commercial teams now organized more around this channel. As in the past, we probably had them just kind of cutting across all the markets, and now they're focused on this channel. In addition to markets and global OEMs and regional OEMS, but just focused on this channel was a best practice from North America that we did internationally. And we moved roughly 160 Parker team members into distribution, which was a huge leadership shift. And I don't like losing people, but having it go to our distribution partners is a great place for our team members to go. And so they're in leadership positions, some of them are in ownership positions. And that's part of the success as well.

Got it. That makes sense. I want to touch on aero since we haven't spoken about it. It seems like things are bottoming, but I'm just curious. Like any green shoots that you're seeing on the commercial side?

I think it's -- well, the first green shoot was just sequentially from Q2 to Q3, we did see commercial MRO get better by about 13%. It's probably a little bit early to see anything material, but I would point to things like departure -- airline departure is improving, pilots being hired back, those type of things. We're going to hit into the summer season, which is traditionally a little higher traffic, especially on the personal side. You've got the vaccine development across. In particular, the U.S. has been very strong. But across the rest of the world, I think by the time we get to the summer, it will be heavy vaccine development. So I think you'll see personal travel coming back. Business travel will take longer because of just the technology that we have right in front of us here. And we've all seen the power of that, and that will probably mute us getting back business travel at that full level, but it's going to come back. It's a question just of what's the trajectory and how long. And we'll leverage -- we've taken 25% off our team members, a difficult decision, we recognize, to do that and that'd be death by 1,000 cuts, and -- to be positioned to win for the long run in aerospace. And we feel like we are, and there'll be upside. And we can debate a lag and all those kind of things, but there'll be upside and we'll get the chance to participate in that.

If we were to see a pretty quick recovery on the commercial side of the business and we're able to get back to 2019 levels in relatively short order, call it, next 1 to 2 years, not calling the market, just saying if we were able to do that, are you going to have to hire a lot of folks to make sure that you can meet that type of demand?

What we'll have to add is -- what we'll focus on is those people [Technical Difficulty] so our direct team members, which is what we're doing on the industrial portion of the company today. We typically start, when there's a ramp-up, looking at temporary people over time for our existing team members. And then you convert either temps or you make some direct hires to add direct people. And we'll do the same thing in aerospace at the right time. Recognizing that we'll be much more selective on the SG&A side because we want to -- we've done all that hard work, and I consider that more in the fixed cost. Even though it's variable cost, I view that more as a fixed cost, and we want to be careful adding it back. We'll be very careful and selective on that piece.

Yes. And then, historically, I've just thought, the aero business typically has had very good margins relative to the rest of the portfolio, obviously depressed today. How are you thinking about like the incremental margins for this business in a recovery period?

Yes. No, I think these margins -- some of it will be influenced by what the recovery trajectory looks like. But I think using, I guess, 30% incremental is always a good number over the cycle. But like we normally would do at the beginning of an upturn, you'll see that be north of 40% and then it glides down to being probably below 40% as you go deeper into it. If you just take our industrial business today as maybe a good proxy for that, we're going to put up 30% in Q4, and that's with the tough comparison with the prior comp and having all the discretionary costs and the wage reductions that we did. So we'd be at 50% if you back that out apples for apples. And so that's -- we typically see a very nice inflection and then it glides down. But again, for people that are modeling, I think a 30% is a good number over a long period of time.

Got it. And I've got another question from the audience, Tom. So some of the temporary costs are coming back this year, and you guys are managing it very well. There's a question around whether temporary costs next year are going to be a drag on earnings.

No, they won't be. I think the more difficult comparison will be Q1, a little better in the Q2. Q4 is -- if we can put up a 30% incremental in Q4, that's an indicative of what we should do in the tougher comparisons of Q1 and Q2. And then when you get to the second half of the year, of course, we haven't done FY '22, those comparables get much easier. The discretionary costs glide down. But no, the volume and the leverage we'll get on the volume will provide the incrementals that we need despite the challenging comps.

Got it. I want to go back to aero for a second. I'm just thinking about -- going back to aero being one of the M&A opportunities, one of the technologies that you talk about. When you think about the prioritization of capital between like military and commercial, like is there any particular area within aero that you'd be interested in at this point, one more so than any other?

Yes, not necessarily. I mean we -- you saw us with Exotic. We focused on the engine. We like the engine portion of the portfolio mainly because of the high MRO that's tied to engine activity. But we like what we're in. And we also would look at any kind of near adjacencies that we have as well. As far as the mix of military and commercial, we would tend to like properties that have -- that were balanced. You probably won't see us do something that's 100% commercial or 100% military. Because -- right now is a good example. We're 50-50 only because of the commercial dropping. But the military piece is -- if you look at our sales drop versus our peers, our sales drop has held up better than most of our aerospace peers because of that -- 2 things, I'd say, the commercial and military mix and then the diversity we have on end platforms as far as fixed-wing and rotary engines versus airframe, et cetera. We're fairly diverse, and so all of our eggs are not in one basket.

Yes. Makes sense. Tom, one last question for me, and it was a question actually that got asked on the earnings call. I thought it was interesting. It comes up from time to time from the investor base, regarding how you guys report information in the segments that you report in. When you think about potentially reporting by whether it's a core technology, is it too difficult to do, just given how the organization is set up? Just any thoughts around like why you would not potentially give more granularity around the different technologies within your portfolio as just a way for investors to really kind of understand, like just beyond the general buckets, like how you guys are organized?

Right. And so what we're going to try to do is maybe create a sweet spot here for shareholders and for analysts by sharing more technology applications, more purpose and action examples, so just like what we do with the EV. I think you'll see us do that -- trying to do that every quarter, where we give a little bit more technology insight. At IR day, we'll have a lot more technology insight. You've seen us do that over the last several IRs. We showed all 6 of the operating groups last time. And I read everybody else's transcripts. We -- I would say we are equal to or better on giving information than anybody else in our space. We disclose exactly how we go to market. We go to market in this combined interconnected technology. So it's not just for fun that we talk about that slide. In fact, 2/3 of our revenue comes from customers that buy 4 or more of those technologies. It is a real advantage, and that's how we win. If I was to dumb the company down into singular technologies, that would be a mistake for shareholders, and we wouldn't be creating the kind of value that we need to do for customers or our shareholders. And so we'll continue to report that way. But I do recognize that people want to have a better understanding of technology content and applications, so we're going to try to do that as well.

Love the purpose statement in the background, by the way. Great having you on today. As always, great to see you. Thanks for spending time with us, and hope you have a great rest of your week.

Thank you, Joe, and thank you for everybody listening in. Take care.

Bye, Tom.