Terex Corporation (TEX) Earnings Call Transcript & Summary

Okay. Thanks, everyone. Excited to have the team from Terex, again at our conference. We appreciate the loyal support over the years, John. And John Garrison, Chairman and CEO, to my left; Julie Beck, CFO, to his left, so thank you both for being here. And we'll have -- we'll just do Q&A. Hopefully, we can make it interactive with the audience. But before we go to that, I think John had a few slides he's going to whip through. So over to you, John.

Yes, thanks. Thanks, Tim. And first of all, on behalf of the entire Terex team, thank you for your interest in Terex. We've got a couple of slides that we used during our investors call, and as well as our Investor Day that I'd like to just quickly run through, as Tim said. Forward-looking statements. We will be making forward-looking statements, so please take a look at that. We start every meeting at Terex with our Zero Harm safety and our Terex Way values. The purpose, to improve lives of people around the world. We can't do that if we can't keep our team members safe. And up until the pandemic period of time, you'll see dramatic improvement in our year-over-year safety improvement. We've plateaued a little bit and actually went backwards. That's something we're focused on as a team. But I also think, it's another good indicator of the level of disruption that we're experiencing in our manufacturing operations. When you have to do consistent rework, do things multiple times, it creates the opportunity for injuries to occur and that level of disruption has shown. And you can actually see it also in the overall machinery manufacturing average index as a result. So we've got work to do there. We're not -- we're proud of our progress overall, but we're not on the path that we need to be. And part of that is the ability to overcome disruption. I'm incredibly proud of the team especially around citizenship of what they've been able to do in the world over the last couple of years that have been very dynamic and very challenging. In 2022, we implemented our Execute, Innovate and Grow strategy. And I think the team -- hat's off to the team. They did a great job really being resilient and adaptable in a very dynamic environment and really managing the supply chain, labor constraints, the challenges that we had, to produce as much as we could to meet the needs of our customers. So it drove improved execution in a very challenging operating environment, continue to be zealots around managing expense and cost in the business, and I think that was reflected in our SG&A spend, while at the same time, investing significantly in the business. Our biggest CapEx investment is our Genie Mexico facility and we'll talk about that. Also continued to invest, part of our growth has come from -- we've got a very active Vitality Index, where we continue to invest in our products and services to make sure that they're leading the industry, in terms of the solutions that we offer to our customers. We had some first -- the industry's first all-electric bucket truck. We announced new electric drive systems for our Genie products and continued, and this is an ongoing investment that we continue to make around digital and interfacing with our customers, with our dealers digitally to improve the performance of our business as we go forward. On the growth side, we did have strong organic growth, up overall 14%, but we also started back in the mergers and acquisitions to grow the business via inorganic activity. We required -- we acquired ProAll, a volumetric mixer up in Canada, a nice add-on for us in that space. We have also made some investments in technology investments. And let me be clear, these are technology investments to enhance our product offering, and our capabilities for our products. We also get the upside from an equity standpoint but that's not why we're making the investments. We're making investments to grow our technology and to improve our offering, to our customers as we go forward. And we were successful with several there. Overall, ended up being a strong year, with sales up, operating income up substantially. EPS of $4.32, up 41% year-over-year. And Tim, we used to talk about quality of earnings and one of the things we're proud of now, is that there's no as adjusted, as reported. That's GAAP earnings and that's what we report. Returned another $130 million to shareholder, various share repurchase and dividends. And the other thing that we're proud of as an industrial company is, we think return on invested capital is incredibly important. And over time, we've dramatically improved the return on invested capital deployed in Terex. So we think that's an important metric, and we measure ourselves and compensate ourselves based on the improvement that we drive there. In our Investor Day, we kind of laid out, looking a little bit longer term, what can the next couple of years look like? And where do we think there's opportunity for us to grow? And the first, we call it capitalizing on megatrends, circular economy. Basically, what is that? Its recycling, it's repurposing materials around the world. We have a line of equipment that helps to do that. Electrification, both in terms of our products, our utilities business, we can do that. And then the world, and I'll show a slide, continues to invest substantially in infrastructure in the U.S. as a major infrastructure bill. And frankly, it's catching up to where the rest of the world is. We have our Materials Processing segment. It represents 60% of the operating earnings of Terex, and it's incredibly important. It's consistently delivered over a period of time, and it does a great job of growing into adjacencies, product categories, geographics. We've got a great distribution organization in MP, and we leverage those relationships to expand our offering around the world. And what are the dealers carrying gives us ideas and opportunities for future M&A activity, and we continue to invest in innovation. For Genie, it really is about optimizing our through margins, optimizing and improving our margins through cycle. And that's what the team has been focused on, the last couple of years to continue to drive improvement. And we think over time that we can return that business to a 12% to 14% level of operating margin, as we go forward with a series of significant initiatives that we have to drive Genie forward. We made a sizable investment in our utilities business in Watertown, South Dakota plus service centers. Why? The investment required in the U.S., in North America, really in the globe but especially in North America to achieve the electrification objectives, the net zero objectives is significant. And so we think there's real opportunity for us to grow and profitably grow there, and then looking to grow internationally in places like China with our offering, places like India as we go forward. And last but certainly not least, parts and service. We've invested in that, digital capabilities, enhancing that customer experience. We produce capital goods that go to work. For the customer to get a return on their capital, when they utilize our solutions, it has to operate. The parts and service side is critically important to the customer. And it helps us, too, because it's countercyclical, and we do enjoy reasonable margins on that part of the business, as we go forward. So as we look out, that's what we think there's opportunity to grow the Terex portfolio as we go forward. And then what we talk about this concept of megatrends. At the center of that is sustainability around the world and how the world has to fundamentally alter the way in which we operate. Around that sustainability megatrend is things like infrastructure investments. And if you look at that, that's a global number. Sizable infrastructure investments here in the United States that we think is going to be a tailwind for our business for the next several years. We spoke about electrification. The simple math is we have to invest in generation. We have to invest in transmission and distribution, in order to achieve the electrification goals that have been set out. Digitization around the world, the onshoring here of chip manufacturing plants into the U.S. market, all things digital, major construction required. And then for our Genie business, there's a lot of Genie products that work long term in data centers, in chip manufacturing area. So we think that's a growth opportunity. And last but certainly not least is waste and recycling. As the world begins to realize that we just can't dump everything into landfills as we've done historically. There's opportunity to recycle that. Europe started the push. We've been successful there. The world is changing in terms of regulatory requirements, for waste and recycling. We offer a full line of product solutions that help in that circular economy, waste and recycling. So we believe we're in a good place with our portfolio with some tailwinds of these megatrends that position us, for some sustained growth as we go forward. And these were the financial targets that we laid out in December for now through 2027. We think we can grow at a $6-plus billion company. As we said, it's about 7.5% CAGR. It won't always be linear but the starting point and the ending point. And again, let me talk -- this is all organic. We think we can drive the operating margins, consistent performance in that 15%, 15.5%, 16% range in our MP business. But drive the AWP segment up higher, so the overall company, we're at 13% to 14%, $8 to $9.50 in EPS and ROIC of north of 25% return on invested capital. On top of this, we think we could add another $1 to $1 -- $3 or so -- $1 to $3 in terms of inorganic growth because underlying this, our balance sheet is in great shape. We've got less than 1x net debt to EBITDA, good cash flow generation. And we've generated 21% return on invested capital, while investing substantially into the business. So just a couple of things, Tim, that we laid out in Investor Day about where we are, where we're going. I know we're always focused on the here and now, as we have to be. But as we look out into the future, we think there's some good sustained tailwinds for us and for this business, and we think we're well positioned to capture that, as we go forward.

Good, good. That gives us a good amount of stuff to kind of unpack. Maybe we'll start with just kind of operating segments. I think you've done a much -- or done a good job in terms of shining a brighter light on MP. I think certainly, I think it has helped the investment story. But maybe John, start with, I think you mentioned 7.5% CAGR in terms of revenue growth. I think that's what you outlined for MP specifically. What are some of the levers you have underneath that, or that you see driving that kind of growth which is, I think, higher than what the business has done historically?

No. Actually, it's consistent. We've actually done a little -- a little higher than that. So that is not -- that is, I would say, the -- one of the things we like about the MP business is consistent revenue and consistent operating margin growth. And that really continues that consistency as you go forward. So MP is really a portfolio of businesses. The biggest segment is our aggregates business, so about 50% of the overall segment is aggregates. We are the world's leader in mobile crushing and screening with our Powerscreen, in our Finlay brands, Ecotec brands, EvoQuip. And so that's a segment of the market that's growing globally. Aggregates are at the core of everything that needs to occur from an infrastructure standpoint. We have great specialized global distribution, where we're important to the dealer and the dealer is very important to us. And that combination enables us to grow into new markets around the world. We continue to add new product offerings around the world, and there will be opportunity in M&A. We made a small acquisition of a heavy trommel company in Ireland last year. We've substantially been able to grow that business, taking that product offering and putting it through our global distribution. So that's the aggregate side of MP, a true global leader. We also do modular systems, Terex Washing Systems. One of the other things about -- we always hear about shortage of computer chips. One of the things there's a shortage of, is silicon sand to make the silicon chips. We have an offering, Terex Washing Systems, where we actually can take recycled material and create sand of the high enough quality, that it can be used in chip manufacturing. Another example of a segment within the broader MP within aggregates that we think can grow. The other part of that business that the team has done a good job is what we call our handling business. That's really our Fuchs business. And again, above-market growth there tied to the scrap steel markets, but also we're diversified that business now into other applications, into timber, into port handling and as a waste handler that we combine with our Ecotec brand to offer a solution to municipal waste handling operations where we provide a complete solution. Again, seeing real nice growth with that business. So that's on the material handling side. Our concrete business is a North American business within that segment. It is of the businesses that's perhaps more tied a little bit for the residential construction strike, at least historically, our Terex Advance business, still seeing strength. ProAll, more on the infrastructure side. So we've got a nice concrete business, that we think is going to grow and then our lifting business. And that's really 3 businesses that are global for us. The most exceptional is our Franna business down in Australia. It's a great business, wonderful market position, wonderful operating margins, wonderful capital return business. And in that, we also have our tower crane business and our RT business, that service Middle East, which has been a strong market for us, and Europe, which has been a bit of a challenge. So altogether, those segments come together in the MP segment. Those businesses come together in MP segment. And historically, that's the level of growth we've been able to drive. And we think, given those underlying megatrends, that we can continue to do that. And then the other thing, Tim, that I think is really important is even in the depths of the pandemic, MP delivered 11% operating margins. At the depth, they delivered 11% operating margins. So that consistency through time is something, we think that we're talking a lot more about. We positioned it in the front of everything, not after, because we think it's been a great part of the Terex story for a long time, but it was just covered by other less-performing businesses. And now we've kind of taken that away and shine the light on what's been a great business for a consistent period of time and we think consistently grow as we go forward.

Yes. Going back to aggregates that like all of MP is a pretty diverse geographic business. So maybe highlight IIJA in the U.S. would seem like a pretty big opportunity for the business. So maybe start there and...

Yes. So start -- so the U.S., North America, across our business portfolio for the next couple of years. We think, is going to be a very strong market. Clearly, we'll help MP but we also -- it's going to help Genie and utilities as well. Why is that? The Infrastructure Act, my predecessor warned me, says, "John, don't ever talk about an infrastructure bill because I've been doing this for 25 years and it never happened. But the infrastructure bill finally did happen, and that's a tremendous amount of stimulus that's going to be spent. The timing of it is always a question because you've got government contracts and you've got permitting, but that is a tailwind that we're going to see. The next...

Have you seen funds...

Starting to. When you talk, especially to the rental customers, they're starting to see funds flow, especially at the state level on infrastructure that support. So yes, you're beginning to see funds flow in that area. The other area is the CHIPS Act and that beginning to see some major projects be announced on the reshoring or the onshoring of chip manufacturing back here to the States. And that -- those are multiyear, multibillion-dollar construction projects. And after they're up and running, our type of equipment is present in the operations of those as we go forward. So the U.S. market, we think is -- again, we can't be pollyannish, but there's a lot of positive tailwinds that are setting up for our business globally but especially here in the U.S.

But Europe, from memory, is as bigger, an even bigger chunk of the aggregates business for you. What are you seeing there?

Comparable. Yes. So aggregates has actually held up pretty nicely in Europe. As we called out on our earnings call, if we've seen any weakness, it really has been in Europe. I will say that I'm pleasantly surprised, it's remained as strong as it has. But we did see some softness in orders in our tower crane business and our RT business and some of the Fuchs business. Some of the Fuchs was really more around timing of large dealer orders, so we're seeing some of that come back here in Q1. So we have seen some slower softness in Europe. But when we look at our backlog position, our -- versus history, it still remains quite strong, despite all the challenges that exists right now in Europe.

Yes. To the point on backlog, I mean, what can you do to kind of test the legitimacy of that backlog? Because everyone's fear that we wake up and X percentage of those disappear.

We've all been in the cycles [indiscernible] and that's a really good question. And for us, it really is the leading indicator. It's not just bookings or orders. It's really what is transpiring in the backlog. So we're staying hypervigilant on that. And so what do we look for? The first thing you look for and we actually have our teams have to report out on it, are you seeing pushouts? Are you seeing a dealer that said, I wanted it on February 15 but now push that out to me. Are you seeing a rental company say, "I don't want it now. Push that out." So that's the first sign potential of things "softening." We're not seeing any of that. The next sign would be outright backlog cancellations. And again, we're not seeing cancellations in our backlog. Frankly, right now, if there is anything canceled, we can immediately take it and sell it elsewhere. So those -- it will be pushouts, cancellations, order rates. But again, we have historically high backlogs. Our backlogs need to come down. I mean, our lead times are excessive based on historical norms. And so I've said this to a couple of investors today. We booked $1.8 billion in Q1 of orders last year. Probably not going to book $1.8 billion in first quarter of this year. The world is not ending. Our backlog will probably still be up even though we had lower bookings for the quarter.

Got it. Parts is -- Target has parts becoming a bigger piece for both businesses. I would think that's probably a little easier but less of a stretch on the MP side. Is it relative to Aerials? And so what have you -- what can you do in terms of, is that a function of fill rates? Is it a function of capturing more of your own i.e., less well fitters, and just what can drive that?

And Tim, you're absolutely spot on, if you just look at the 2 pictures. Obviously, the Materials Processing, you have wear parts, you have physical contact. So just the application generates more parts than a Genie, in that case, a Genie boom lift. So you're right, part of the growth and margin opportunity in MP has hit a higher percentage. We don't publicize it, but a higher percentage of the overall revenue within the segment does come from the parts and service. One of the initiatives that we've had as a corporation in improving our parts and service business and the MP team is the one that led it was what we call connected dealer inventory. So that was a program and a system where we actually would go in and manage the dealer channel inventory with our inventory to improve first-time fill for our end customers. And we started it as a pilot with some of the more influential dealers. You can imagine that created a little bit of consternation to start. But what the dealers found out is they had more sales, we had more sales, customers more satisfied. And so we're rolling that technology out across the globe, across the MP, not just in aggregates but across the MP business. So that's one area where we've been able to drive, as you say, improved fill rates, first-time fill for the end customer, overall fill rates and then we capture the -- a bigger percentage of that parts availability when you're there. You're reducing the leakage you say to the gray markets and to the well fitter. So that team has done a really nice job there, and that's helped drive some top line growth. It definitely helped drive some margin growth for the MP segment. Similar to the Genie team doing similar type activity. And then we've invested in some information technology that helps us optimize especially in the parts. We were very dynamic in parts pricing in this inflationary environment. So the technology that we had enabled us to do pricing real-time to scrape markets, understand what other market pricings were. And also helped us to drive material planning. And we actually slightly improved some of our fill rates, despite the supply chain challenges that we saw. So it's been a focus. Team has done a good job. And we think it can continue to provide the growth that we need going forward.

So dealers play different roles across the various pieces of MP. How would you -- I know it's probably -- there's no single answer for this, but how would you characterize the level of inventories across the dealer base for MP? And what is that -- I mean, it's not a big stocking, restocking business, but is that a dynamic that you think -- presumably, they're lower than average. Is that an opportunity where you say the emphasis would be on potentially post '23 to restock or rebuild inventory?

So you're absolutely spot on there, Tim. So MP, about 75% of the sales go through distribution. Most of that distribution is specialized distribution in and around specific applications, like you've seen the picture there in aggregate crushing and screening. Dealer inventories across the product offering across the globe are down. What's unique about our distribution is it's not -- I don't call it yellow-line stocking dealers. They're just not putting 100 backhoes online. They bring the product in and it immediately goes out in their -- what they call their dealer rental fleets. It really is an RPO rental purchase option type environment. And what's happened is very high demand, very high utilization. Those are converting quickly to sales and the dealers don't have any inventory. So we do have an inventory stocking tailwind that will help us if demand begins to fall off a little bit. There's still dealers that need to replenish their dealer fleets. And that's common across the platform and across the globe because there's been -- we've been -- our ability to meet customer demand is being constrained.

Got it. Maybe we can shift the discussion to AWP. And I'm interesting -- or interested to hear about the Mexico start-up is happening at a time, where supply chain -- sorry, Julie, did you want to? Got it, okay. The -- so anyways, a lot of complexity challenges within the supply chain at the same time, ramping up a new facility. So that's got a -- that could link to -- I mean, presumably, you baked in some degree of cushion into the forecast.

Spot on as usual, Tim. We did call that out in our earnings call. And this is a big year for the Genie team. First of all, the team has done a really good job. In the midst, it's been a 2-year-plus construction cycle. We moved into a temporary facility with a couple of product lines. It's about 1.5 kilometer, 2 kilometers from our permanent site. The permanent site has been on budget, on schedule. And now we're starting to move into the permanent site here, early in the second quarter. And that's going to take a while. We've got 10 or 11 product line moves, that are going to go on over the course of 2023. But also into 2024, as we ramp up and utilize the full capacity of our Mexico facility. And what's the challenge? Well, first, let me say, Genie does this. We're a global manufacturer and we do move product lines from 1 country, 1 plant to the next. So we have a very defined process. The team has done this. The challenge is doing it in a supply-constrained environment. Normally, what we do is the sending plant works over time, builds inventory, you get manufacturing efficiencies. You put it in the inventory and you sell out of inventory, while the starting-up plant, in this case, Monterrey gets down the learning curve, works out the kinks, gets the supply chain working and you have disruption there. You have positive in the sending plant. In today's world, we can't build inventory because we have inventory, we sell it. So now we have to dynamically manage, both the sending plant and the receiving plant, with a constrained supply chain. And that's the challenge for us and the team is up to the challenge, but we did indicate that we're going to see some manufacturing inefficiencies, as a result of these moves. It is the absolute right thing to do. One investor asked me, he says, why don't you just wait until the supply chain gets better? And I said, "Well, when exactly is that going to occur?" And so it's the right move and we'll navigate through it. It will be a challenge, but the team is up to the challenge. And we've tried to anticipate that, Julie, in our outlook.

Yes. And I would just add that, it's important to remember that the reason why we're moving to Monterrey, is we have a 200 basis point margin improvement. We think when that facility is up and fully running, and that will happen later in 2024. So it's the right thing to do to go and capture that margin improvement, at this point in time.

So to get the plant to scale is what, about a year? Or is it...

It's almost 2.

2 years, yes.

We said, Tim, yes. We said coming out of -- by 2025, we'll have most of the moves complete. We should be through all the dislocation. And the other part, it's not just our plant. We're standing up suppliers in Mexico, that will also give us a competitive advantage. But you've got that supply chain development activity that's occurring simultaneously with the move as well.

Anything from a logistics standpoint or access or proximity to your customer base? Any other things beyond just labor savings, I imagine, are fairly sizable. But are there offsets that go against that going to that equation or not material?

Yes. I don't think it's -- we're manufacturing today in Washington state so in northeast corner. So for Monterrey, for a lot of the U.S. customers will be as...

Not dramatically different. And we're moving things from Asia here, so that will shorten all supply lines for us. So yes, puts and takes. But net-net, it's going to be accretive from a margin standpoint.

So the guidance for this year, and one of your large customer reported this morning and the outlook continues to be really strong and dynamic tailwinds are there. But another competitor, that was here earlier guiding to, like, single-digit revenue growth. Is that just a function of what's potentially leave more upside for -- to the extent supply chains do get better, that maybe we can surprise to the upside? Or because it -- there's certainly a normal price in there so you're not... .

So as we think about, we have -- supply chain is the constraint right now. And so our customers would take more equipment from us, if we could get the supply chain to support it. So we've reflected in our outlook, what we think our supply chain can do. And so for the last 7 quarters or so, we've been running at that $1 billion, $1.1 billion, and our outlook for 2023 is in that $1.1 billion to $1.2 billion range, so it's slightly improved. But it's certainly supply chain has a low supply chain. On-time delivery has improved slightly. It certainly isn't what it needs to be to get all of the components and all the parts that are needed to ship a machine. So until we see that, this is the best that we can do at this point in time, based upon what our suppliers are telling us and what our experience is and what we're getting from our supply chain.

And Tim, all of my conversations with senior executives of our customers is they need more, and they're going to need more for -- they're looking out. They're going to -- because of the replacement cycle specific to the Genie side now, the replacement cycle has been delayed. If you go back, we're producing 25% less than we did in '17 and '18. And so their fleets are aging. They haven't been able to get -- they've had growth. Fleets are aging, plus you've got this -- these tailwinds on the infrastructure, the CHIPS Act. And so the market is setting up for a pretty strong buoyant run. And the replacement cycle should have started earlier, frankly, 2 years ago, but we've all been constrained we'd be the industry supply industry constrained to meet that replacement cycle. So that it's going to create some form of positive tailwind going forward.

Is anyone in the audience have any questions? We got one over here.

Regarding your margins, are you able to expand more on the -- on your long-term plan? I think you said it was a 13%, 14% because you have 9.5% last year, you're guiding to 10% and about 10.5% next year. Where -- can you clarify where that 300 basis points is coming from?

So thanks for the question. And so we have -- both of the segments have margin improvement. So our MP business continues to operate very strong. We have put in roughly 100 basis points improvement from that business as we continue to invest and grow that business and expand the margins in that business. For the AWP, part of the -- we just talked about the Monterrey facility, and we believe that, that's 200 basis points. And then the team, the Genie team has hundreds -- a couple of hundred, at least initiatives that they're working on, whether it's supply chain, redesign, value-added engineering, all sorts of things to improve margins in that business as well. So we're excited about improving the margins and the business had improved the margins. In total, Terex has improved at 500, 600 basis points in the last 7 years or so, and we look forward to continuing to expand those margins going forward.

I would also add our utilities, which we report within that AWP segment, of all of our businesses has been impacted the most by supply chain. And so their margin performance has not been up to our expectations, especially the investment expectations we made to grow. So we'll see margin growth in the utilities, which is in that AWP segment but that's it's not just Genie, it's utilities as well.

And from a customer mix standpoint, within AWP, John, has that changed as a function of -- or as a result of tight supply environment? Is there...

Not dramatically, Tim. We're -- if we look at our backlog, if we look at our sales, it ebbs and flows, but our kind of historical mix between the larger national accounts and the independents is kind of within the range. It ebbs and flows but nothing dramatically different in either the revenue side or the backlog side.

And then the dealer own fleets have always been a relatively smaller...

Yes. I mean, for Genie globally, 95% of that business, plus or minus, is rental [indiscernible] to rental 5% to 10% depending on the month or the quarter goes through a dealer channel.

Got it, got it. With utilities, certainly a lot of secular tailwinds from a demand perspective. Have you seen -- that was impacted by supply chains. Have you seen, on the chassis side, any improvement in terms of availability?

You're right. That business from -- you remember the supply chain disruption, you got to sequence everything. So if you -- you have to have the right chassis, the right body and then the right assembly unit. And if the chassis are at a seat sink with the bodies and the assembly units, you have pieces and you don't have complete units. And that's been the world, we've been living in for the last year or so. On the chassis side, in general, where the chassis supply has improved, and we're now actually getting some chassis in inventory, when we need them rather than they're arriving late and we're trying to marry up the body in the assembly boom. So we have -- I won't mention there's one supplier that you all read about in the fourth quarter that does supply chassis for smaller units. They're still having trouble. But overall, I would say we have seen improvement in chassis, but it was very bad for the last 18 months.

Yes. If you try and take that business internationally, I mean, there's no commonality from a customer set, right?

No, no, and nor is there a commonality necessarily from an application. Where there is commonality, Tim, is if you look at the truck there, from the boom down is always going to be different. The boom up, now there's where it's commonality. So for example, we produce -- we do assembly of the boom in China and put it on a Chinese truck for the Chinese market. We send kind of the technology piece over there and we do the assembly in our Changzhou facility. So similar opportunity, we think, will evolve here in India. So, the common practice is in the United States and Canada and Mexico, we do what's called live-line work. That -- to do work in and around energized lines, you have to have insulated equipment. That's what we produce. Places in Europe don't do that type of practice. So the system of the solution they provide is very different than an insulated solution like we provide. So it does vary by region, by country.

Got it, okay. Maybe Julie, we'll bring you in on free cash flow. That's been a focus going back prior to you joining Terex. The inventory issues are pretty well known and we'll see how that evolves. But are there -- is there anything you can do or your team is doing from a payables or receivables standpoint to help drive, I mean, higher conversion or just...

Yes, the team just has done a nice job both in collections and receivables, as well as negotiating terms with our suppliers. So our DSOs and our day payables and those terms are strong. They're good. They've been -- they've gotten better over time and we've made progress there. So -- and they were relatively consistent, the last year or so, pretty consistent and strong. The big lever in working capital, as you mentioned, has been -- and use of cash has been in inventory.

Got it. But are you still 100% cash conversion this year? Is it...

No. What we had, we talked about 70% or so conversion is what we're talking about, which is improvement. And we have a big capital year this year, of course, as we invest in our Monterrey facility this year.

I will say, Tim, part of our management incentive compensation throughout the organization is on working capital. And the importance of driving working capital efficiency. And some of the businesses we divested. Part of the reason was the return on invested capital was very poor. Part of that reason was because the working capital as a percent of sales was astronomical. So we do focus on the efficiency of working capital.

Got it, okay. John, with a minute to go, what -- so summing up what we heard, continued optimism in North America, other parts of the globe. I mean, anything changing around the edges or...

No. We -- I mean, I know it's -- but we're seeing strength other than Europe that we just spoke about. We're seeing strength around the globe for our end markets based on those megatrends that we talked about. We'll continue to -- the team will continue to be adaptable and resilient and overcome and get, at some point in time, the supply chain will improve. And we'll be focused more on meeting customer demand, not building backlog as we move forward. But again, we think there's some good secular trends for our portfolio, over the coming period of time. And again, we're not being pollyannish. We understand there's a macro backdrop out there, that causes people to question. But the environment we're seeing right now has legs and has strength.

Excellent. Thank you very much, Julie and John. Thank you.

Thank you. Thank you, Tim. Thank you for your interest in Terex.