Credit Suisse 7th Annual Industrials Conference

Dec 4, 2019

Slides

Thank you so much. We are so pleased to have Corporation joining us. I'm Dan Levy, the lead autos analyst at Credit Suisse. Very pleased to have Lear Corporation joining us. And on stage with us are Jason Cardew, the recently newly minted CFO of Lear. You've been with Lear since 1992. That's right. So you've been around. And John Abbasmeyer, CTO, joined Lear last year after spent some time at Harman, Delphi, so well familiar with the auto tech landscape as well. Also from the team is Alicia Davis and David Lim from IR. Very pleased to have them. So we're going to jump right into fireside chat. I have some prepared some questions. But to the extent you have any questions, feel free to interject. Also, you can e mail my colleague, Rob Moon, robert. Mooncredit suisse dot com, and he can also ask on your behalf. So let's just start, and this is a standard question I've been asking everyone Let's just start very basic end markets because I think that's been dictating a lot of the investor conversations. What's the latest update in terms of puts and takes in 2020? How should we be thinking from an end market perspective on North America, Europe, China? Yes. So maybe start with 2019 and how we see the rest of the year playing out and then talk a little bit about 2020 as well. So on our third quarter earnings call, we talked about the fact that we're in the middle of the GM strike and we had made some assumptions in regards to when that strike would end. And as it turns out, the strike did end the day of our earnings call. And so it ended up being about a six week impact. And the high end of our range had contemplated seven weeks of lost production. We ended up with about six point five weeks of lost production. So at the high end of our range, we had expected sales to be down due to the GM strike by about $420,000,000 That ended up at about $350,000,000 And so as a result of that, we would expect to come in just above the high end of our guidance range. But just more generally on the markets, I think they've it's still a challenging environment globally, but they have stabilized a little bit. We've seen some modest positive improvements from what we had assumed on the third quarter earnings call. So there's a bit of a stabilization happening, albeit at a lower run rate than we started the year. As we look out to 2020, if you look at what IHS is suggesting, I think they have the market as roughly flat globally with North America up and China and Europe flat. If you look at our platforms, we see a pretty nice tailwind in North America due to the non recurrence of the GM strike. GM is a big customer for us. And so the fact that there won't be another strike next year, we're going see a positive tailwind from that. However, in Europe and in China, we see our platforms down probably about 5%. And if we were to call a global number, global production number for next year, I'd expect when we give guidance in January to talk about something like 2% to 3% in global production decline overall. Great. And so that's, I think, the sort of the end market look. When we talk about things that are more Leer specific, how do we think about maybe some of the factors that were onetime in 2019 that are non repeat or any discrete items? So GM strike, any inefficiencies related to that? Any launch costs? I know there were some stuff with Mercedes on the GLE, pricing actions on E Systems. How do we think about any of these sort of Leer specific actions? Yes. Maybe it helps just to give you a sense of what we see in terms of the operating margins of the segments next year. We would expect, given the production outlook that I just described, that our E Systems business would continue to run-in the kind of mid-7s, maybe perhaps a little bit better than that next year in terms of adjusted operating margins and our Seating business to continue running around 8%, which is what both those businesses are running at in the second half of this year if you exclude the impact of the GM strike. In addition to that, just sort of some of the puts and takes starting on the positive side, we have the fact that the GM strike is not going to reoccur and the revenue benefit associated with that is pretty significant, particularly on the Seating side. We have the benefit of our restructuring program. We've invested $200,000,000 We talked before about roughly $60,000,000 of savings associated with that. So that will be helpful. Also launch costs will be lower in 2020 than they were this year in both segments. On the negative side, and I talked a little bit about this on the third quarter earnings call, but we have higher incentive compensation expense next year to the tune of about $60,000,000 That's really because we missed our financial targets this year due to the steep reduction in industry production volumes. And so that will be a headwind for us for next year and that will show up both in the headquarter strip and in the segments. And then also on the positive side, we have a backlog rolling on next year that will help offset the lower production volume that we see in Europe and China. Our backlog, at this point, we see at about $800,000,000 to $850,000,000 So that is lower than what we had initially anticipated for 2020, but that's our current outlook for the backlog for next year. And I guess one more negative to point out is the continued strength of the U. S. Dollar will weigh on revenue as well and operating income to a lesser extent next year too. You said the backlog 800,000,000 to $850,000,000 for next year versus the prior outlook was? So, when we issued our backlog in January, we had called next year's backlog 1,425,000,000 And so it is down pretty significantly. And it's down in both segments. The biggest driver of that biggest single driver, there's a program that's launching towards the tail end of 2020 that we had initially anticipated launching at the 2020. That's about $200,000,000 of revenue that's getting pushed out to 2021. So we look at 2021, we see a really strong backlog coming there, and we'll describe that in more detail in January on the fourth quarter earnings call. But I would expect looking at 'nineteen, 'twenty, 'twenty one, still to have about $1,000,000,000 per year in average revenue over that time period, which is very much in line with our historical backlog run rate, perhaps a little bit better. Great. And then just on a segment basis, within that, so you said 800 to $850,000,000 for next year is how we should think of it. How do we think about that in E Systems versus Seating? E Systems, obviously, you called out sort of incremental or a sharper downturn there versus Seating, where you at least had some Conquest business. So how do we think about sort of the puts and takes around those two segments? Yes. So E Systems backlog for next year is looking around $250,000,000 and Seating at the high end would be 600,000,000 So that would be the composition of the $850,000,000 And so both segments were impacted, as I mentioned, by that program that was delayed. It's about $100,000,000 in each segment. That's the biggest contributor. All right. Why don't so I think that sort of starts the discussion on the segments. Why don't we start, I guess, with the convergence of the segments? And so I think we've gotten some good updates on the financial outlook from you, Jason. John, on the tech side, I think we've heard a lot about the convergence of Seating and E Systems, obviously, Intelligent Seating. So could you just give us a sense of the latest update on your view on synergies between these two segments? How real do we look at Intelligent Seating? Is that something that's sort of a nice concept, but it's not going to show up? Or is this something that's actually starting to materialize now? Yes. It is starting to materialize. And if you think about the evolution of the car, the in vehicle I don't know if I have a connection. The in vehicle user experience is becoming the key differentiator in the car. So the seat in particular is obviously the cradle of that experience in the car. And as we think about the menu Hold on. Sorry. I'm having difficulties. Paul does? So as we think about the evolution of the user experience of the car, the seat becomes a much more important part of that. In terms of personalization, customization and what it takes to do that is embedding technology into the seat. So bringing more electronics into the seat, more software defined functions into the seat, more sensors into the seat and of course, the electrical architecture, so the wires for power and signal that are coming into the seat. And so to get back to the question of whether it's real, we now have production programs for the product we call SoundZone, which is one of our Intu products. That's bringing the sound into the seat. So that's audio domain control, noise cancellation, individual audio in the seat. We also have production programs for our Configure Plus product, which is a powered rail system so that the seat is untethered from the vehicle and can be moved and configured for different use cases in the vehicle. And then we have development programs on the other Intu products with OEMs. So our BioBridge, which is a biometric sensing device, that's being used for driver distraction, for drowsiness and even for measuring comfort levels so that we can implement our proactive capability, which is adjusting the seat to make subtle adjustments so that it keeps you comfortable before you know you're uncomfortable. So we have development programs with all those, but maybe another one that's quite important. We announced in January a partnership with Gentherm. And so we have our modular heat and cool program with Gentherm where we're, for the first time ever, doing a highly integrated version of heat and cool in the seat. This is extremely important as electrification becomes more dominant for improving the efficiency of the vehicle overall. Instead of just blowing hot or cold air into the cabin of the car, now we can cool or heat the individual to their needs. And so this is now getting traction as well in the market. And this will be the first time that we have very efficient heating and cooling much faster times to cool you down or to heat you up and targeted at certain points on the body to make it more effective. Great. And then if we're thinking about the two segments, should we think about Seating basically being the engine that's funding E Systems growth and providing sort of a source of stability? I mean because it's very clear that E Systems, there's clearly with electrification and connectivity, you are pushing more outside of the bounds of what was your traditional product set. Seating is still very much steady as it goes. Do you view Seating as the engine that funds E Systems and that's sort of the harmony between the two? Well, really, both segments are generating free cash flow. So our E Systems business can fund its own capital requirements, its own engineering requirements. So both businesses are high return businesses that can support themselves. And so I look at those sort of independently. And then when taken together, we're generating significant free cash flow for the company overall. And we've described our philosophy around capital allocation in the past and we have a strong track record of returning excess cash to shareholders. So both businesses can support their own growth needs with the cash that they're generating. And from a tech development standpoint, is there any sort of joint have the tech teams merged in any way or a consolidation of resources, put it that way? Yes. So our Seating organization leverages our E Systems organization for electronics, software and architecture development when it comes to the electrical architecture of the vehicle. So the teams leverage resources and capabilities, share resources and capabilities. Software, for example, developing algorithms, both low level and high level application software for our BioBridge product, for example, is executed together in collaboration with the E Systems team. So yes, that happens. Great. Anyone who has questions, feel free to raise your hand or e mail Rob or otherwise, we can just continue. All right. So that starts the discussion on the segments. Let's go into Seating. Now I think you said Seating next year, 8%, which is interesting because this is now that would then be basically ex GM strike this year, like the fifth year of 8% for Seating, which is pretty impressive. It's just been very, very steady even in spite of what's been a pretty choppy round of end market volatility. So what is it that's really underlying that that's allowed you to hold in that margin? Is it the mix? Is it just exceptionally Is there a vertical integration piece of this? Just execution, what's going on? Yes. It's really a combination of all those factors. And it goes back to 2011, 2012, 2013 when Ray and I were in the seating business, we really spent a lot of time building the team and focusing on earning a return in excess of our cost of capital on every program with every customer in every region. The way we broke the organization up really gave us clear visibility to where we were earning a return, where we weren't. We showed a willingness early on to walk away from business that we couldn't earn a return on. So, we're very disciplined in our plans for taking on new business. We only take business on if there's a clear pathway to earn a return in excess of our cost of capital and that's something that's in the DNA of the organization today. We've been investing in that business consistently for a long period of time. If you kind of compare us to some of the competitors that have been in the business, that have been out of the business, they've been distracted. We've had a consistent emphasis on the seating business. And I think we've built this really diverse strong foundation of customers and product segments. We're not overly reliant on any one particular customer. We have seven or eight customers that have 8% market share within our seat business. And we have a relatively small structures business, which is probably the most challenging aspect of seating. It's important to be a credible global seat maker to have some structures and mechanisms business, but it doesn't have to be a massive business. So we have what we think is the right size business there. And then we have this really strong surface materials business that I think is unique to Lear, that combination of leather, fabric and cut and fill, I think that's been a really high performing business for us as well. And it's so it's a combination of factors, I think, that has allowed us to continue running in that 8% range consistently. On the structures and surface materials, is that all Talir or are you acting as a Tier two for anyone? So on the structure side, it's primarily internal sales. We do have some external sales, but it's fairly limited. On Surface Materials, on leather, for example, it is mostly outside sales and less so internally. Right. As we think about, I guess, you're saying volume is down 2% to 3%. I mean, I think it begs the question of decremental margins. How do we think about decremental margins in a down environment for this segment? Yes. For Seating, it's 15% to 20%, largely dependent on the level of vertical integration. So our more vertically integrated programs are going to have decremental margins of around 20% to cover that, the added investment and capital structure required to support that program. The less vertically integrated programs, just in time seating programs are going to be on the lower end of that range generally. Great. Competitively, and this is a segment seating has sort of held in the growth right now on a pure dollar basis certainly. You've gotten a good amount of conquest business. What's the competitive environment that you're seeing right now? To what extent is there? I think this year, you said it was something like $1,000,000,000 plus of conquest business in the backlog and you picked up another 300,000,000 over the course of the year. Like how do we think of the limit of how much conquest business you can get? Yes. I think there's a lot of opportunity there. And so we had $300,000,000 conquest awards this year. And you probably heard Ray talk about this a lot in the past. It's customers are reluctant to resource a seating program in the middle of the program life. And so the opportunity to take advantage of missteps by the competition oftentimes takes four or five years to play out. And I think we're starting to see the benefit of our long term sustained investments in the space and strong performance, operational execution and quality. Customers recognize that and are rewarding us with conquest opportunities. We've grown our market share from 19 to 23% over the last five years. We've talked about targeting 28%. I still think that's a very reasonable longer term target. And most of that will come through conquest business, share from competitors that have misstepped. Great. And then how do you make sure clearly, share is an important part of this. How do you do this without sacrificing margins? Yes. So if we wanted to grow this business faster, we've had ample opportunity. We've had opportunities to take programs, particularly on the structure side that we just did not see a clear path to earning a return in excess of our cost of capital and we've shied away from that. And so we're going to prioritize returns over growth. We're not going to take business just for the sake of top line growth. That being said, just it depends on the type of business you're winning. If you're winning just in time seating program, you might a just in time seating program, you may see a lower margin there, say 5% or 6% because that's all it takes in order to earn a return greater in your cost of capital. If you're winning business that's a combination of structures, surface materials and jet, then we're going to continue targeting that sort of 8% operating margin rate because that's what it takes to earn the return that we're after there. Okay. Let's pivot to E Systems. And we'll start on the financials, but then I want to jump into the tech because I think this is presumably, John, where you're spending a lot of your efforts. So let's start on the financial side, the 10% margin. Obviously, E Systems margins have been probably one of the core focuses for investors over the course of the year. You're at 7% right now. You're looking for 10% over the next three years. You said mid-seven percent year, and I think that sort of underscores the prior comment that the first eighteen months in that three year period, modest improvement and then more of a sort of step function change. But how much of this ramp I mean just talk through the qualitative pieces of getting from seven to 10. How much of this is product mix shift, scale, operational efficiencies? VIVO is certainly a piece of this. And how do you just give us some sense that what's the confidence in hitting the target? How end market dependent is that? Yes. I think the first step for us was to stabilize the business. And I think the pace of industry volume reductions has slowed. And we have a little bit more visibility on what the production rates are going to be going forward. And that's allowed us to restructure our facilities, take some capacity out and that's the first step to improving the margins. Now sort of working against that, we have some added engineering needs for that business. We've won $400,000,000 of electrification and connectivity business this year. It's a significant ramp up of that high growth area of E Systems, and that's going to require some engineering investment. So as I look at next year, we're not expecting anything in terms of positive from the production environment. If anything, it will be maybe slightly negative. We are expecting to roll on $250,000,000 in the backlog and that will be positive. We'll see the benefit of restructuring. We'll also start to see the first benefits of a renewed focus on terminals and connectors and other vertical integration opportunities in E Systems. So we've already identified some business that we're going to bring in house. We'll see some initial benefit from that towards the tail end of next year. And then part of it is just getting the team in place and executing the plan. And now we have the team largely in place. We're still looking for one additional piece to that puzzle, but we largely have the team in place. We have a head of E Systems in Carl Esposito that's in place. We have a new head of our E Systems business in Asia that has great relationships with the customers there and that's been a troubled part of the business for us. And we've put in a great leader in our wire and Ts and Cs business, Mike Balsey, who joined the company, formerly worked at Delphi and Aptiv and ran that part of the business for them. So we've got some of the key building blocks in place with the team and we're starting to see some traction from that as well. So those are sort of the kind of the near term building blocks to margins expanding. From a mix perspective, I think a big piece of the margin step down was the roll off of some very profitable Asia, China wiring harness business. How much of that can you just give us a sense of like how much mix were you at before? And how do we should we be comfortable that, that mix has now stabilized? Yes. In the case of China, the biggest issue we had was with Ford or CAF. And that business was roughly 30% of our Asia E Systems business. It's now percent of our E Systems sales in China. And so it's we've derisked that. Certainly, there's been an 80% reduction in revenue on those platforms over the last eighteen months. That's the single biggest factor. I think just in general, China market has been our biggest challenge, not just the lower volumes on those mature customers, but some of the new customers we've added to the portfolio where it's going take some time to work the margin up. So, I think we did the right thing in trying to improve the diversification of our customer mix in E Systems. We're growing with Volvo Geely. We're growing with FAW and SAIC. Those are important customers for the long term, but they have been a drag on the margins initially. Great. Let's talk about the tech side because I think that on the E Systems front, that's probably, John, the core of your work. And actually if you I find if you go to the Weir IR webpage, it says growth in very big text, and I assume that is probably the growth. So, let's start with just how we look at the portfolio. You've done a number of things, I'd say, in recent years. Some sort of predated you in terms of RADA and Autonet and Exo. Xevo was your deal. How do we look at the portfolio? Do you think it's complete? Is there more that needs to be done? Is there more capabilities, partnerships? How do we think about sort of how complete that portfolio is? Or what more you need to do to fill it out? Yes. Let me talk a little bit about technology, and then I'll kick it to Jason. He can talk about capital allocation and things like that. But if you think about the growth drivers, certainly Ts and Cs, as Jason talked a little bit about, are an area that we're looking at, but more on the high growth electronics and connectivity and electrification, there's a lot of focus there. And if you look at where we've been bolting on acquisitions with Autonet, Arata, EXO and Nalzivo, that's been in the software domain. And so if you think about connectivity and domain controllers, the car is going through a digital transformation. And so a lot of the smaller ECUs and electronics boxes that have been in cars as single function units are now becoming more rich, higher power controllers with more compute, more memory and with all functions defined by software. And so with connectivity and domain controllers, the acquisitions that we've made have been to augment what we've done in the past with embedded software moving into higher value application software and even out of the car into services and data monetization, bringing in things like e commerce with Xevo. And so that's where a lot of the growth that we're seeing coming in the connectivity and domain controller space. And in the electrification side, obviously, with emissions regulations getting stricter and consumers becoming more aware of and finding eco friendly transportation more important, we're seeing growth globally. It's really China and Europe leading the charge with The U. S. In third on electrification, bringing in hybrid plug in hybrid and now more recently, a very strong push towards pure battery electric vehicle. And so we are one of one supplier that has both the e architecture with low voltage and high voltage wiring in Ts and Cs as well as power electronics. And we are very strong in the energy management side of the architecture. Alir has been developing and producing onboard chargers, for example, for over a decade. We were first to market with onboard chargers with General Motors, and that's continued to be a strong point for us. Also with battery management systems, so sort of from the wall to the battery is really where we have a big differentiator and a big capability. And that's where we're growing significantly in connectivity and electrification. And then on a partnership perspective, how much more do you need to do from an M we don't see any gaps in the portfolio. We feel like we can grow those businesses organically. We're not going to turn away if there's a great opportunity in front of us. But in these uncertain times, we're going be a little bit more cautious. We're not looking to do anything transformational, certainly. But we can use partnerships and other investments, modest investments to help kind of round out our capabilities. John, maybe you can talk about Yes. Some examples of So we announced in January our Lear Innovation Ventures activity, which is a systematic approach to leveraging innovation to create business results. So as Jason said, sort of modest ways of using small amounts of money to put into start up companies or venture capital firms or work with accelerators and incubators and get access to new technology sooner and leverage that to basically accelerate our activities or educate us in what we need to do to be cutting edge and on the forefront of the changes that are happening in the car. So a few of the things that we've announced, partnerships like Gentherm, our investment in Maniv Mobility, which is an Israel based auto tech fund, our Techstars activity, which is an incubator, they've actually co located in our innovation center in Detroit. And we've done some smaller equity direct equity investments in start up companies to get access to technology and have some commercial benefit from that. How comfortable from a tech perspective are you in really going outside of your wheelhouse? Yes. I don't think we'll go far outside. I think we've focused on our core capabilities, architecture, electronics, core electronics like body domain controllers, domain controllers, electrification and connectivity. And the farthest out we've gone is bringing in those software and data and services businesses like Ekso and Xevo. And I think those are important because as hardware becomes commoditized in the long run, we have to find new value streams. And we're bringing in software and services to the OEMs that were previously unrealized value. And as domain controllers and software defined car becomes a reality, we have to make that a living product through the life of the car. So once you have software defined features on the car and you have connectivity ubiquitously across a fleet, you can now update and serve that product over a ten, twelve year cycle. On Vivo, what features about it allow it to really compete with Android Auto or CarPlay? Does it remain a relevant option for consumers? Yes, great question. It doesn't compete with Android Auto or Apple CarPlay. It lives on top of. So Android Auto and Android Automotive and Apple CarPlay are sort of a user interface and an operating system of sorts. Android Automotive is an operating system. Android Auto and Apple CarPlay are using the phone to project into the car. Xevo would reside on top of applications as an application in the user interface. And so we've talked about our business with Toyota, with General Motors and now with FCA, which recently launched. And with Toyota, it's bringing in our Journeyware product, which is really a framework to deliver apps and services in the car. With General Motors and FCA, it's a marketplace. So it's an application where the user gets recommendations for services like filling your car up with gas. And again, that's sort of an unrealized value for the OEMs and for Lear. We split the revenue with them, allowing users to fill up very easily through the dashboard of the car. Expansion beyond North America, is that We're actually already outside of North America with Toyota, but we have a big focus with several OEMs, both in China and in Europe, to expand there. Our initial focus is on getting the platform in as many vehicles as possible. We're now on 33,000,000 well, over 33,000,000 cars across the three OEMs and more coming. And that's the first step. Then it's really improving the user experience, using the data that the users are generating by using the platform to make it seamless, make it better, and that will bring more merchants and more services to the platform. So that's the next steps with it. I'll sort of wrap up this section on tech with a broader question, and I guess this is maybe indication of the landscape. Obviously, you're coming from more of a tech background where software was very, very central. How difficult is it for you or I guess maybe this is a comment on the industry to compete with big tech software space to acquire top talent. Yes. I mean there's always huge competition for top talent. And software is one area. But I think in general, in electronics and in architecture of the vehicle and in software and in data, those are all areas where we're competing for top talent. There's a number of things that we're doing to try to foster and support that. Certainly, it starts at the top. So having Ray committed to innovation and technology helps, right? That shows the company and the people that we're trying to attract that there's real opportunity. Secondly, it's giving people interesting things to work on. It's more important than compensation, in fact. And so we have a lot of projects like with Xevo, for example, that are extremely compelling. People want to see those solutions get to market. And a car is one of the best ways to do that. You get to work on something that people use in millions of vehicles. It's very compelling to an engineer. And I would also add that we have looked at other locations for talent, right? So we acquired Xevo. They have a strong presence in Seattle. We acquired Ekso. They were Silicon Valley and Israel. So between Silicon Valley, Israel and Seattle, we are finding that we can attract the best talent in those spaces. I would say another one last thing about that is that over the past five to seven years, the automotive industry has drawn a lot more attention from talent because you get to see what you do go out in the hands of the public very easily. It's easy to say what you do. And so cars, think, as this evolution is happening with the architecture, with autonomous driving, with the connectivity, with electrification, etcetera, it's a bit more of a talent draw as well. So that's to our benefit. Great. I don't know if there are folks who have any questions. Thank you very much. I have a slightly lateral question. Talking to some of your customers, the auto OEMs, they are kind of embarking on their kind of digital journeys for their manufacturing, which they tell us will require some kind of compliance by the supply chain. So I wanted to ask whether you are working on this already. Is this kind of seen as a more of a burden or an opportunity for you? And I'm talking about things like being able to obviously feed into their PLM software systems, but also then to be able to feed straight into their IoT platforms that they're now kind of building or buying. Yes. Yes. So maybe let me make sure that I understood the question correctly. You're talking on the product side or manufacturing side or both? Well, happening, I guess, somewhat on both. So if we take one example, there's been a big announcement. Volkswagen said that they're going to build industrial cloud together with Siemens and AWS. From what I understand is that the suppliers into Volkswagen would have to feed data products into MindSphere hosted on AWS. Is this for you kind of a problem? Or is this an opportunity to maybe look at digitalizing your own manufacturing? Yes. So it is, I would say, an opportunity, although it's something that we've been working on for years. Part of my I guess, charge is cross product process and business model innovation. And so on the process front, we definitely have a lot of innovation work going into understanding the data throughout the flow of our manufacturing process and, let's say, aggregating that across the enterprise. And so I think that ultimately, that has to interact with the OEMs. And from a privacy and security perspective, we take that very seriously. And on the product side, we already now have with Vivo to comply with those regulations, GDPR, CCPA, all that sort of thing. So we yes, I mean, are contributing and participating in that. Your product, Lifespan kind of process is already digitized and you run it through kind of CADCAM PLM software that is fully compatible with that? Yes. Yes, we do. Absolutely. The normal enterprise tools. Why don't we just wrap up? I wanted to wrap up finally with balance sheet. Just leverage, I think you're at one time? Yes. I think gross debt's 1.3 times EBITDA today, about $2,300,000,000 in gross debt. So what's the upper end of the range that you're comfortable with on the leverage front? And then I guess more broadly, how do we think about you've obviously used a lot of your very strong free cash generation. You've used a lot of that towards share buybacks. Would you consider reducing share buybacks if larger acquisition opportunities come along? Yes. So our expectation in regards to debt levels, and we've talked a lot about this in the past, we want to retain our investment grade credit metrics. And for us, we look at that as 1.5 times EBITDA. So gross debt at 1.5 times, there's not a big gap between where we're at today and that level. So, we're not looking to lever up certainly, certainly not in this environment. And in terms of our capital allocation philosophy, it remains unchanged. The first thing we're going to continue to do is reinvest in our business through capital expenditures, bolt on acquisitions if there's something compelling out there that we find and then continue returning excess cash to shareholders through our dividend program and through share repurchases. So I would expect that to continue. Great. I think with that, we are out of time. Great. Jason, John, Alicia and David, thank you so much for your time. We appreciate it. Thanks, Dan.