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

Welcome to the afternoon session. Thanks so much. I'm absolutely delighted to have with us Parker's new CEO, Jennifer Parmentier. Very, very happy to have her. I think it's one of your first appearance...

It is. It is.

On the conference circuit. So I think Parker has an incredible tradition of very strong culture and very strong leaders. So welcome.

Thank you.

And we're very, very glad to have you in London, and I hope it's the first of many, many visits.

Me, too.

Thanks so much. I believe Jenny has some slides, and then we'll go to fireside chat. Thank you.

Thank you, Andrew. It's great to be here, and we're glad to have you back covering Parker. The team missed you, Andrew. So it's a real pleasure to be here today, and thank you to all of you for attending. I want to share a couple of slides. I think most of you are familiar with Parker, but I'd like to just give you a little bit more insight. So starting out. So today, in this presentation, I'll be making some forward-looking statements and refer to some non-GAAP financial measures. So just taking a look at Parker Hannifin at-a-glance. So this year, we're going to be a little over $18 billion in sales, and that puts us in the #1 position and $135 billion motion and control industry. We do have operations in 45 countries across 6 continents. Today, we have 13% market share recently updated to reflect the Meggitt acquisition, and we have a goal to reach 20% market share. We have a powerhouse of interconnected solutions with all of our technologies, and today, 2/3 of our revenue comes from customers who purchased 4 or more of those technologies. Our independent distribution network is second to none, and we have a decentralized operating structure that we're very proud of. It's the foundation of a lot of our success. And along with that, we've demonstrated over time that we are great generators and deployers of cash. That is one of our performance drivers. And I would be completely remiss if I didn't talk about the Parker business system. So we're on Win Strategy 3.0. It is our business system. It has been for over 20 years. It's focused on the fundamentals. It's a proven strategy. We trust the process. And as I like to say, very simply, it works. At the bottom of the slide, you see our purpose statement. We launched this purpose statement in the fall of 2019, enabling engineering breakthroughs that lead to a better tomorrow. And I think it's safe to say that over the past several years, this has been our North Star and our guiding light. It has been a lot to our team and a lot to us and our customers. So my predecessor, Tom Williams, would tell you that this is his favorite slide, and obviously, there's a reason for that. There's a lot to be proud of here. Over the last 8 years, the adjusted EPS has grown 2.7x and adjusted EBITDA over 800 basis points. So something that we're very proud of, a lot of strong execution of the Win Strategy over several years and a lot of good work from our people. So I wanted to talk a little bit about how we continue that performance. How do we stay on that trajectory? And first of all, I'd just like to say, with a transformed portfolio, we are really positioned for growth with these secular trends that are out there today. Many of these are familiar to you. Aerospace, obviously, the up cycle the industry is in right now, all things digital, whether it's digital products, building out the 5G infrastructure network, all things digital today that we see in the marketplace. And electrification, a very big area for us with the acquisition of LORD. We've really seen some nice growth in passenger vehicle applications. And when there's an alternate energy source or we're going electric or hybrid, that increases our bill of material 1.5 to 2x. So really a lot of upside with this secular trend. And then clean technology. One of our priorities is to make sure that we're working with our customers to make sure that they have the products they need to meet their climate goals. And today, 2/3 of our portfolio already enables clean technologies, and we're working with many of our big customers for the products that they need for the future. So let's just take a look at what this means. Transforming the portfolio, secular trends, where we've been, where we are now and where we're going. So if you look at FY '15, we're just looking at our portfolio between longer cycle, shorter cycle and industrial aftermarket. In FY '15, almost half of the portfolio was shorter cycle. So we've really had an on-purpose plan over the last 8 years to transition more to longer cycle business along with that industrial aftermarket. So at the end -- by the end of this fiscal year here, in the next quarter or so, the portfolio will be more balanced between these 3. So remember, we've had the CLARCOR addition to our Filtration Group. We've done LORD to our Engineered Materials Group, and then Exotic and Meggitt to our aerospace group. So looking forward to FY '27, with those secular trends that I just talked about, we believe that a little over half of the business will be tied to longer cycle and supporting those secular trends. And over 85% of the business then with adding the industrial market will be in those longer cycle higher margin type businesses and portfolios. So a really, really nice path to FY '27. So if we think about building on the strength of the transformation that we've done over the last 8 years, you can see where we're going. Like I said before, we're really proud of that slide I just showed you with all the growth on adjusted EPS and adjusted EBITDA, but we do have new targets for FY '27. And on adjusted EPS, our current guide, $19.45, we're going to go to $30 by FY '27. And then on adjusted segment operating margin, we're going to increase that about 300 basis points to 25%. The path to that is really in the 4 bullet points on the right. We're going to deliver the Meggitt synergies. We're confident about where we're at for this first year, and we're confident about delivering the full amount by the end of the synergy period. And then it's early days for Win Strategy 3.0. We still have a lot of capacity to lift up in the company, and we're going to accelerate -- continue to accelerate our performance with Win Strategy 3.0. With our new goals, we changed from more of a GIPI plus 150 basis points to organic growth over the cycle. So we changed that to 4% to 6% over the cycle, and we see a clear path to that. And then as always, we're going to focus on top quartile performance. We're a better company today than we were, and we're on our path to be best. So the final comment that I make about this slide is, these are FY '27 targets. This is our path, but this is not our final destination. That's the last slide.

Yes. I'm literally looking up. I'm trying to date myself, and I'm trying to see if I was in the business. Oh Sorry.

That's okay.

If I was in the business when your stock price was actually $30 versus the earnings of $30 that you're targeting. And in fact, when I came out of business school, your stock was around $30. So that's pretty good.

Okay. What year was that, Andrew?

That was '02.

Okay.

And back in the '90s, when I was a layman, I think it was well below that.

Okay.

So I guess the first question -- look, I think what differentiates Parker very much is incredibly strong culture and philosophy and going back to Don and with Tom, look, you've been set up to be the successor to Tom, having spent 15 years at Parker included most recently as the COO and held a variety of role at Parker Industrial. New CEO, same foundation. Philosophically, how do you differentiate yourself from Tom? And what unique spin or flavor or however you want to define it, right? Because you are in charge now. Are you looking to put on Parker's very successful strategy that has been -- the chart you showed, we have it in one of our reports going back 20 years, and I think we have it going back to 8% margin.

Yes.

So over the same period, like you've tripled the margins consistently over 20 years. So yes, that's a...

Yes. So it's a common question, right? But first, I would start out by saying where you started. I did join the company 15 years ago, and I've been very fortunate to have had exposure to multiple operating groups and divisions, right? So very, very much a nice development plan for me. I entered the company into what used to be our Climate Industrial Controls Group, and then on to fluid connectors and then to Engineered Materials, Motion Systems. And as you said, most recently, COO and my current position. So really have been very fortunate to get all of that exposure in really a short period of time, 15 years, but a short period of time. So first, I would just say that safety is my #1 priority. That first pillar of the Win Strategy, engaged people, that is the pillar that drives our business. That's why we've been able to do what we have done over the past 8 years. So safety, it has been a priority. It's not going to be different. It's going to be our #1 priority. A big part of what we need to focus on is achieving the Meggitt synergies, right? So we're committed to the $60 million this year and the $300 million by the end of FY '26. So that is a big priority for me. And then those FY '27 targets I just talked about, making sure that we continue to accelerate our performance with Win Strategy 3.0. I'll say again, it's early days. There's a lot of capacity to lift up the company even further. That slide that I showed you, 80% of that improvement came from the base business, and 20% of it came from the acquisitions. You have higher margin and EPS accretive, but still a lot of opportunity to use Win Strategy 3.0. If I look at the Win Strategy and I think about where I'd like to focus, first of all, in that first pillar after safety, high-performance teams. I have been, as we said, with Parker for 15 years. I've been fortunate that I got to be part of the team that made the first revision in 2015, and then part of the team that made the revision to 3.0, and our most recent revision with the FY '27 targets. So I like to say that my fingerprints are all over it. So it's just as much my strategy as it was Tom's or any other Parker team member. So high-performance teams big driver for me, used it in previous roles. We have a lot of new people in the business over the last couple of years and with Meggitt. So we have a big opportunity to make sure everyone is trained on chartering teams and continuous improvement, and that's a big area of focus for me.

Excellent. Well, one day, there'll be laminated 4.0 strategy probably.

Yes, there will be. Yes, there will be at the right time.

Is it going to be a 2-sided or 1-sided.

It will be 2 sided. It would be 2-sided.

So maybe we can talk about sort of the reinvestment in the business. I would argue, given what's happening probably your topline could prove to be conservative, but you are guiding 7% organic growth at the midpoint. EPS growing at 4%. Look, Meggitt transaction-related high interest expense contributed to some year-over-year headwinds. But historically, there's been more leverage. You've grown EPS between 2, 3x revenue growth. So -- and I think it's a question we're asking a lot of companies, that's not just Parker, right? How do you think about operating leverage broadly in a higher growth environment? Where you do have to probably support more sustained growth, was more maybe working capital right? Incremental R&D, SG&A I think you've stated pretty clearly what you're doing on CapEx, but just in terms of the cost structure. And I would say, look, structurally, you are spending 30% more in CapEx. It's still a small number, but it's -- on a percentage basis, it's a material bump. So how do you think about cost structure that goes along with this high-growth environment?

Yes. So well, first of all, just to answer your question a little bit on EPS, we've had a strong history in growing EPS with our guide that's out there for the end of this year. Our 5-year CAGR will be 11%. So -- and our targets for FY '27, as you saw on that slide, we're going to -- we're committed to growing that 10% plus every year. So we're very committed to that, and we don't see a problem with that. When you look at investing in the growth for the future, we don't see a lot higher R&D expense. We think that's going to be where it's at. We are increasing our CapEx. We're at 2%. We've been at 1.5% historically. So we're doing some investment in our factories, doing some capacity increases. We're investing in the supply chain. We're doing some automation. So that's where we're putting our CapEx to work, and I think that we -- as I said before, we still have a lot of opportunity with Win Strategy 3.0 that will help us continue to expand margins.

Excellent. And maybe on working capital, I think initially, the whole thesis on Parker was that if we didn't know what Parker did for a living and if we look, you're working at your cash flow generation, it was incredibly -- this was before your earnings became less cyclical. But I think if you go back 10, 15 years, right, the cash flow was the first sign that Parker was really, really changing. Where your cash flow consistency was really that of a much high-quality, multi-industrial name, and I'm going back to where you were more cyclical. But at the same time, how are you thinking about working capital in the current environment, right? When does your cash flow normalizes. And also now you do have an Aerospace business, which longer cycle investment, so how does Meggitt and higher Aerospace mix impact the way you manage and approach working capital?

Yes. So first of all, you're right. We've been -- long been great generators and deployers of cash, right? So we expect to be mid-teens by the end of this year. FY '27, 16% is our goal. We're committed to hitting that. 20-plus years of over 100% free cash flow conversion. So really in a good position. With that higher aerospace mix and working capital, Aerospace tends to have a little more inventory than the industrial side of the business, but we have the ability and we have leveraged the tools from that side of the business to work down that inventory. Meggitt, obviously, inventory has gone up for us just like it has with the previous couple of deals, and we'll use the Win Strategy tools, and our supply chain toolbox and get that down to the levels that we have in the past. And there's opportunity on AR and AP with Meggitt. So we'll make that happen as well.

That's fine I will talk about it later, but I think Nick, he did this 50x podcast, and he's sort of said that Meggitt was like the last TransDigm type deal where you can really step up margins and returns left in the industry, and you ended up getting it. So speaking about Meggitt, any updates? What's happening? Because I think we had a couple of companies with aerospace exposure, provided an update. What are you seeing at Meggitt? How is the integration going? If you can provide any color there.

Well, first of all, Meggitt is a great company. We couldn't be happier with the talent, caliber of people. The integration is going well. Just a great transaction. We have a dedicated integration team, which is part of our playbook, our M&A playbook, and we have high talent leaders in the leadership roles for the integration. One of the things that we do, which is part of the playbook that we've built over time is, we put leaders in charge of each synergy bucket. So there's dedicated leadership over each bucket. And then we have our functional leaders in the corporation that have built some strong muscle on integration, right, over the past 5 years. So going really well, very centralized structure in Meggitt. So going in, we thought there were a lot of opportunities, right, with SG&A synergies, and we've been pleased with what we found since we closed. So going really well.

And as you have grown aerospace right to mid-20s, 30%. Does aerospace fundamentally require because you clearly haven't -- you've been in aerospace for a long, long time. But aerospace at scale, does it require a different playbook from sort of core Parker playbook? Or are there differences?

No, it's the same playbook. I mean, obviously, different customers. It's a different industry, but with all of these acquisitions, Meggitt included, we can accommodate it well because we're putting it on top of an existing infrastructure. We're not creating a new group. We haven't created any new groups within any of these acquisitions. We have common customers, channels. There are markets that we are familiar with. So it's the same playbook, and with each acquisition, we've just made it better. And I'm sure we'll come up with some new stuff with Meggitt that will go into the future.

Excellent. So maybe we can talk about sort of Parker distribution. So compared to 2015, I think your distributor growth has outgrown the total business, and you've added, I think, 1,000 new distributors. So what key geographies are you focusing on? And can we talk about the capabilities in the U.S. versus international? A progress has been made outside of the U.S.? And how is your target to ship sales mix sort of maybe 100 bps per year is trending?

You're right, Andrew. We have had an on-purpose plan to increase international distribution 100 basis points a year. So in FY '15, we were at 35%. Now we are at 43%. So we've had an 800 basis point improvement in Europe and Asia Pacific. So doing well with that target. What we've done in Europe and Asia is to replicate what we have in the U.S. So U.S. distribution, those distributors are very familiar with our technologies. They're experts at applying the technologies. They work closely with their customers. So we're replicating that in Europe and Asia. And we're making sure that, we have all the right training for those distributors, and we still see a lot of upside in Europe and in Asia Pacific. So we'll continue that growth.

Excellent. And you've highlighted sort of the market share targets. So as you said, you have 30% market share and the goal is to reach 20%. Can you walk us through the framework to grow that share?

Sure. So it's not just one thing, right? It's many different things. First of all, we think that there's growth opportunities in all of our 8 core technologies. We just talked about distribution. That's definitely a lever for market share and international distribution. We have some tools in our toolbox, one that was just added to Win Strategy 3.0 is a tool called strategic positioning. And I would say that it's still early days for this, but our general managers are really building this skill. And what they do is, they look at their business, they segment it, they decide what they want to defend, what they want to attack, what they want to grow. But probably, most importantly, they decide what they're not going to do, right? So they can efficiently use their resources. One of the things about the Win Strategy is that it had become so powerful over time. You saw the performance. We've talked about the performance that the strategy kind of became the one strategy for everyone. So we saw the need to add something to the toolkit, strategic positioning. So there's a real intensity around growth, right? A real bias for growth. And again, early days, but a great tool. Also, we have a metric that we call PVI. It's the Product Vitality Index. It is new products as a percent of our total sales. So in FY '15, that was 9%. We've doubled that to 20%, and we see a path to 25%. So that is really a result of our engineers working very closely with customers to develop the products they need instead of maybe just developing the products that we think are kind of fun. So a real shift there and nice progress.

Now if you look at companies like Ametek and ITW, that's what they do exceedingly well. That seems to be the secret sauce.

Right. And then we have tailwind from all the secular trends that I talked about, right? We see a lot of opportunity there. There's -- think about all the infrastructure projects that have been announced, we're tracking those. And then just the under spending and capital investments, the last 5 to 10 years, we see that, that's a real opportunity for the next 5 to 10.

So maybe we can shift to sort of organic growth targets and as I say, would appreciate any sort of near-term color. But you did raise organic growth targets to 4%, 6% over the cycle. So -- and just as you moved away from the old framework, let's go back to the old framework. So how do you think about your ability to outgrow sort of GDP or CapEx growth? And how do you think about pricing as an incremental contribution to the growth targets?

So we've worked really hard the last 8 years to change the margin profile of the business. We've obviously transformed the portfolio. We put the cash to work. I mentioned the secular trends a couple of times, but we think with the transformed portfolio and the secular trends, we can achieve that 4% to 6% over the cycle. When it comes to pricing, Andrew, pricing has been part of the Win Strategy toolbox for over 20 years, right? So that's something that's going to stay in place. We have pricing leaders at every division. We have pricing leaders at the group level, and we have an executive leader over pricing. So that's a constant.

All right. Still tell people to look at the Don Washkewicz story in Wall Street Journal. I think...

I've heard that a few times.

So -- but part of the question, I think, how do you think about just pricing and impact of the inflation in this environment? When you talk to the customers, do you feel there is the sort of now built-in expectation because you have value pricing model? So that's different. As I said, that was like step one. You've been for 2 -- I don't know, almost 2 decades, let's split right. So that's when at the core what you've been doing. I think I was thinking more about sort of inflation, and how do you -- when you talk -- when you go and talk to your customers, do you find that the conversation has changed? We've had, for example, a couple of companies at this event was automotive exposure. Highlight that for the first time ever, they can talk pricing to the auto OEs, which you've never been able to do that. I think that was part of -- that's another side of the question.

Right. So the last couple of years have been extraordinary when it comes to inflation and all drivers of inflation, the most that I've seen in my -- over 30 years in my career. So I think we weren't just talking about material, right? We were talking about wages. We were talking about freight. We're talking about energy. So all these things are real, and I think a lot of the customers have realized that they're real. The pricing discussions are never easy, right? But we have always said and we will continue to always be margin neutral. And to do that in this inflationary times, we've had to get price more often. In the past, we've offset wage inflation -- normal wage inflation with productivity. But this was some unusual wage inflation, freight, energy that we've seen. So...

I'm talking about the customers. What are the customers saying about the state of the world? How do you see the state of the world from where you are right now?

Well, I'm a big believer that we focus on what we can control, right? And we talk to our customers a lot about the backlog. The backlog is still very, very healthy. So we're constantly doing checks to check in and make sure that, that is still the case, right? We've seen sometimes that the backlog isn't bulletproof, but we're not seeing any significant pushouts or cancellations as we talked about in our last call. So the other thing we're seeing with the customers is that they're placing orders further out into the future than they did in the past. And I think some of that is, our portfolio has transformed, more aerospace. And then some of it, I think, is wanting to make sure that the demand is out there in light of all the supply chain issues we've had.

Do you think this placing out? Because that's another big debate in the industry about sort of lead times, and we've picked up from several companies that they are trying to sort of extend lead times. It makes your life easier, makes pricing conversations easier. Do you think that is -- and I appreciate that near term, you are competing on product availability. So it's a fine balance. But is lead times becoming more of a strategy shift for the industrials? Because a number of the companies have indicated that they either manage lead times or they prefer -- now that they've gotten lead times extended, they're actually finding out it's not a bad place to be. And David on my team and I have a lot of debate about whether it's good or bad, but definitely, it hurt a little bit more about sort of extending lead times and learning to live with longer lead times. What are your thoughts there?

Well, I think in the past couple of years, really no one's had a choice, right? You've had to learn to live with them, right? So you've had to learn to schedule what you have parts for, you've had to learn to work with your customers to align those schedules. I think there has definitely been a learning to live with them, but we see lead times coming down a little bit internally. And I think it's better for the whole supply chain, if you can reduce them, but again, one of the reasons why we're investing in the supply chain.

Do you think in a year, 1.5 years from now, as things stabilize, lead times are structurally longer than they were pre-COVID?

I think that still remains to be seen, but it would be -- it would seem right now, today, it would seem a little natural that, that would be the case, right? But hard to say, hard to say right now.

Great. So maybe a shift to digital productivity solutions. What is your digital strategy? And is it mostly internally focused? How does it attract our customers because we definitely have companies with sort of explicit software strategy. So how do you think about it both internally and externally?

Yes. So we have 4 pillars to our digital strategy, digital products, digital customer experience, digital operations and digital productivity. So the 2 that are most internally focused would be our digital operations and our digital productivity. So from that standpoint, think about automation on the shop floor, collecting productivity data. And then from a productivity standpoint, you could think about some automation and some back-office situations use of artificial intelligence. When you think about the digital customer experience, the average person that goes and tries to look up a Parker product or connect with one of our distributors possibly to get a product is going to be doing that online. So we've invested in that. We've had an on-purpose plan to make sure we have the right content online, right? And that it's easy for that customer to configure product online because we have some highly configurable products in our portfolio. So that's been really important. We also put a metric in place to make sure that we're measuring that. We're measuring the digital experience. So that's big for us. Digital products, I think we had a little bit of a leg up on that. As long ago as 10 years ago, we were tagging products, the Parker tracking system, for replacement out in the field for our distributors and those have evolved over time to replace paper literature to send you to an application video, everything around making that customer experience more user-friendly. And then we have our connected products. We have a suite of connected products that we can connect some of our technologies together and give to a large customer who owns the software and the control. And then there are some customers where we can do some of that data tracking for them and help them control the products as well.

So can we shift to M&A because I think it sort of one of the transformational things about Parker. It was this more aggressive approach to capital allocation. And, a, am I correct that sort of the model do a deal, pay down debt, do another deal, deal sort of seem to get a little bit bigger over time. You get more comfortable. Maybe it was a bit more leverage over time as the machine sort of keeps going. So a, is that the right way of thinking about the model going forward? And as we think about sort of M&A priorities, what are they, given the Parker portfolio today?

Right. So you're right. Over time, we have -- with these last 3 acquisitions, we have levered up and then we've taken about 2 years to lever back down, but we've always gone back down to where we're comfortable. So that's where we want to be. So reason why -- big priority is to pay down the current debt, right, to delever. So 100% of our free cash flow outside of dividends and our commitment to our 10b5-1 share repurchase is going to paying down that debt. So that is the biggest priority. We don't want to signal anything different than that. But our process, our acquisition pipeline, we have a discipline and a cadence around that. It doesn't stop because we just did a deal. We stay close to it and continue to build the relationships. And the next deal, it doesn't have to be as big or bigger than Meggitt, but it does have to be core to the business, fit with complementary to those 8 core technologies. Really important that it's margin accretive, EPS accretive, generates cash to return to our shareholders, higher growth. It fits in that profile, that's something for us. In the past, you're right, very on-purpose plan to exercise the balance sheet. We said we wanted to focus on EMG, Engineered Materials. We doubled the size of that group with LORD, doubled the size of filtration with CLARCOR, and now we've doubled the size of Aerospace with LORD and Exotic. But...

[indiscernible], you're going to double the size.

Yes. So we -- it could be any of the technologies. It doesn't have to be 1 of those 3, but really, really important that it meets that criteria we just talked about.

But given your history, right, if you look at LORD, Exotic, Meggitt, all these deals have been sort of in the hopper for a long time. My understanding is that well, yes, you were not the high bidder in any one of them. So that probably tells you that whatever is going to happen in 2, 3 years as it works right now. That's probably a fair comment, right?

I'd say that we keep an eye on those 2. We've been very successful at getting our top targets over time. And I think what's appealing about Parker is, first of all, relationships matter and our culture. I think our culture has a great reputation. And if you're going to become part of the Parker family, you can be guaranteed that you're going to be taking good care of.

So maybe in the remaining time, we can touch on reshoring. Clearly, a big theme. So as you talk to your customers, what sort of visibility do you have on reshoring and moving supply chain back to the U.S.? And I would love for you to answer the question both. Are you seeing anything over the next 6 to 12 months? And what kind of visibility do you have 1 to 2 years out?

Yes. So we're definitely seeing it, hearing about it. I think, obviously, the biggest area has been semiconductor, where you've seen some of those big projects that have been announced. I mentioned earlier that we're investing in the supply chain. We've long had a strategy of local for local and dual sourcing. Hasn't been 100%, but we're taking the opportunity to invest in the North America supply chain. So we're doing some of that ourselves, and we're staying in close contact with our customers on what they're doing. So I don't have any specific numbers in the next 6 to 12 months, but we're seeing it now. We're doing some of it now, and we know that our customers are, too. Nobody wants to run out of a part, right? Everybody has experienced way too much of that the last couple of years, and I think there's going to be an all-out effort to solve that problem and shorten some of these supply chains.

And outside of semiconductor fabs, are there any other verticals where you're seeing something in the near term, whether real orders happening?

No, that's the biggest place.

So we have a couple of minutes left. So maybe this is a good time to open for questions from the audience. Wow, this has been comprehensive. So I guess the question, as far as we're talking about reshoring. So how do you think for your own supply chain, right? As you think about North America as a market for your supply chain in North America, how do you think about the balance of what to make in the U.S. versus what to make in Mexico? From your perspective, what are the advantages of the U.S. and what's Mexico like?

Yes. Well, obviously, we have a presence in Mexico, and we have for many, many years. For us right now, when we're looking at one or the other, availability of labor is a big deal. So that's one of the drivers. We have great people and great operations in both locations. So what makes sense from a capacity standpoint and what makes sense from a labor availability standpoint is how we look at it.

Is there a big difference in labor availability in the U.S. and Mexico right now?

It depends on the area of the U.S., I mean, in certain areas of the U.S., certainly, it has gotten better, but there are certain areas that's still very hard to bring on new team members. And then there's areas of Mexico where the labor is pretty good shape. It's abundant.

Is Aerospace one of them? I think a lot of companies with aerospace exposure have highlighted that the biggest bottleneck in aerospace is labor availability. Is that you experienced as well?

I would say that in certain regions of the country, yes, definitely, but it's not something that has really slowed us down, right? We've had the supply chain challenges, we've had the labor challenges, but we're working through it.

Well, we're almost out of time. I think with that, I'll give you 20 seconds back, and thanks so much. Thank you, everybody, for being here, and it's a pleasure. Thank you.

Thank you, Andrew.