Allegion plc (ALLE) — Q2 2023 Earnings Call Transcript

Thank you, everyone. Good morning, everyone. Thank you for joining us for Allegion's second quarter 2023 earnings call. With me today are John Stone, President and Chief Executive Officer; and Mike Wagnes, Senior Vice President and Chief Financial Officer of Allegion. Our earnings release, which was issued earlier this morning and the presentation which we will refer to in today's call, are available on our website at investor.allegion.com. This call will be recorded and archived on our website. Please go to Slide 2. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Please see our most recent SEC filings for a description of some of the factors that may cause actual results to differ materially from our projections. The company assumes no obligation to update these forward-looking statements. Today's presentation and commentary include non-GAAP financial measures. Please refer to the reconciliation in the financial tables of our press release for further details. Please go to Slide 3, and I'll turn the call over to John.

Thanks, Jobi. Good morning, everyone. Thanks for joining us today. My, how time flies. It's hard to believe this time last year, I was joining you for my first Allegion earnings call. I shared then my belief in our company's mission, our people, our culture, and my excitement around this chapter that we're writing in Allegion's history together. One year in, I'm even more energized about Allegion's future and even more proud of our global team who has just delivered another quarter of outstanding operational performance. Let's go to Slide 3 and talk about some of the highlights. The Allegion team delivered 18% total growth and we drove strong margin expansion. In Q2, we increased margins across the Americas and international business segments, both sequentially and year-over-year, resulting in a 130 basis-point increase in adjusted operating income margin for the quarter. We see electronics continuing to be a key growth driver for Allegion. Demand was strong for our electronic solutions in the second quarter, fueling Allegion's overall revenue growth. In Q2, strength across both residential and nonresidential business in our Americas segment totaled nearly 40% electronics growth over the prior period. We also saw a strong electronics and software solutions performance in our international segment. As we work to shape the transformation taking place in our industry, we continue to see electronics as key to our overall growth. Our nonresidential markets remained stable and electronics demand continues to be a bright spot in both Americas and international segments. However, we did see some softness in nonresidential and mechanical demand as customers and distribution partners adjust their ordering patterns to our reduced lead times due to much improved supply chain and operational execution. The Americas residential business was bolstered by very strong electronics sales, but we're still seeing soft mechanical demand. Certain international end markets, particularly in the portable security business, also remained soft. Overall, our team delivered another strong quarter, resulting in a solid first half 2023. We are operating at a high level, and as a result, are raising our outlook for the year for adjusted EPS, which is now expected to be in a range of $6.70 to $6.80. I'm very proud of the Allegion team's operational performance. I'll provide more color on the outlook later in the presentation. Please go to Slide 4. Now let's move to our vision and strategy. This is a slide we talked through at our Investor Day and while it's a simple overview, it reflects an important foundation for our company. Our vision of enabling seamless access in a safer world. What does that mean? It means if you have the right credentials, whether that's a metal key, an encrypted proximity card, or a digital identity in a mobile wallet, we will provide you the most convenient and secure experience possible. Why is this the right strategy and why is this the right strategy now? Because our world is increasingly digital, mobile, and connected. Because touchless and contactless experiences in technology will clearly live well beyond COVID. Because digital credentials and smart hardware not only provide more seamless access experiences, they also provide richer data to the end user customer and added layers of security. We feel this transformation has a long runway ahead. Our vision is supported by our strategy of creating value as a pure-play provider of security and access solutions. This is how we differentiate our company and drive innovation for a safer world forward. Building on our legacy, delivering new value and access, being the partner of choice, and operating with excellence. Please go to Slide 5. So, this month also reflects the first anniversary of the Stanley Access Technologies acquisition. Acquiring the Access Technologies business was a direct reflection of our seamless access strategy, making the world more accessible, expanding our presence in access and security markets and unlocking greater long-term value for our customers, our shareholders, and our employees alike. In year one, our teams have integrated very well together. We've taken very good care of our customers, and you can see this in our results, which reflect operational performance in line with the business plan. Access Technologies generated revenues of approximately $385 million, which represented approximately 10% growth. This was $0.11 accretive to adjusted EPS in its first 12 months. In addition, when we made this acquisition, which is our largest to date, we committed to deleveraging quickly. You can see the results. Our leverage ratios are back to pre-acquisition levels. Overall, we feel great about this highly strategic combination. The automatic doors product portfolio is a hand-in-glove fit with our demand creation and specification engine. This acquisition has greatly enhanced Allegion's service capabilities and we look forward to much more long-term profitable growth opportunities together. I'll ask Mike now to walk you through second quarter financial results, and I'll be back to discuss our updated 2023 outlook.

Thanks, John, and good morning, everyone. Thank you for joining today's call. Please go to Slide Number 6. Allegion delivered another strong quarter, with both top- and bottom-line growth as well as improving cash flows. Revenue for the second quarter was $912.5 million, an increase of 18% compared to 2022. Organic growth of 5.6% was driven by price realization along with strong growth in electronics, offsetting lower volumes in mechanical products. Our Access Technologies acquisition contributed approximately 12% to total growth. Adjusted operating margin and adjusted EBITDA margin in the second quarter increased by 130 basis points and 110 basis points, respectively. These increases were attributable to strong operational execution and favorable price and productivity, which more than offset inflation and investments. Excluding our acquisition of Access Technologies, adjusted operating margin was up 270 basis points. Adjusted earnings per share of $1.76 increased $0.33, or approximately 23%, versus the prior year. Operational performance drove 20% earnings per share growth with additional earnings per share growth coming from acquisitions, offset by the unfavorable impact of anticipated higher interest. Details of our earnings per share performance versus the prior year are in the appendix. Year-to-date available cash flow was $190.1 million, up nearly 125% versus last year. Please go to Slide Number 7. I will start by reviewing the revenue results for the enterprise here before turning to our respective regions. In Q2, we delivered 5.6% organic growth, driven by price realization across the portfolio. Strong volume growth in electronics was more than offset by volume declines in our mechanical products. Our Access Technologies acquisition served as the primary driver of our 12.5% growth in net acquisitions and divestitures. Currency pressure were minimal in the quarter, bringing total reported growth to 18%. First half organic revenue growth was 10.2% overall, driven by strength in electronics. Americas operating growth was nearly 15% and international was down 3%. Please go to Slide Number 8. Our Americas segment continued to deliver strong operating results in the second quarter, with revenues of $727.2 million, up 23.8% on a reported basis and up 7.7% organically. During the second quarter, we achieved double-digit price realization. Our electronics growth for the Americas was nearly 40% as we continue to see both improvements in our supply chain and strong demand. Electronic component availability was significantly challenged in the first half of 2022, making the quarter an easier comparison versus the prior year as our supply chains are much healthier now. In the second quarter, we saw soft mechanical volumes as customers adjust to our reduced lead times due to our improved supply chain and operational execution. Organic growth was up high-single-digits for both our nonresidential and residential Americas businesses. As John mentioned earlier, Access Technologies has now been part of Allegion for just over a year, and we are pleased with the ongoing integration and results. This business had pro forma revenue growth of approximately 9.5% versus Q2 2022, and contributed over 16% to the Americas reported growth. Our adjusted operating income of $205.9 million increased 32.9% versus the prior year period, while adjusted operating margin and adjusted EBITDA margin for the quarter were up 190 basis points and 180 basis points, respectively. Excluding Access Technologies, our Americas segment drove a 460 basis-point improvement in operating margin versus the prior year. Our team is executing well and we were able to drive price and productivity in excess of inflation and investments to deliver the strong margin expansion. Please go to Slide Number 9. Our international business had a solid second quarter, with revenues of $185.3 million, flat on a reported basis and down 1% organically. In the quarter, price realization was more than offset by lower volumes, primarily associated with our Global Portable Securities business. As we've discussed previously, this business benefited from a COVID-related demand surge in the first half of last year. We expect this market will normalize and be less of a headwind to our international segment in the second half of this year. Our electronics and software solutions are performing well and continued to be a growth driver for our international segment. In addition, currency was a slight tailwind this quarter and positively impacted reported revenue by 0.6%. International adjusted operating income of $20.9 million increased 2% versus the prior-year period. We saw a significant improvement in adjusted operating margin and adjusted EBITDA margins of 30 basis points and 40 basis points, respectively, when compared to last year. The margin improvement was primarily driven by favorable price and productivity in excess of inflation and investment, reflecting strong execution by the team. Please go to Slide Number 10. Year-to-date available cash flow came in at $190.1 million, up $105.6 million versus the prior year. This increase is driven by higher earnings and lower cash used for net working capital, primarily offset by higher capital expenditures. Working capital as a percent of revenue increased versus the prior year, partially driven by our Access Technologies business, which was not owned in the first half of last year. Working capital management remains a priority of our company as we efficiently turn earnings to cash. As committed, we deleveraged following the acquisition of Access Technologies, and our net debt-to-adjusted EBITDA is back down to 2.1 times. We repaid $60 million on our revolving credit facility in the second quarter and the remaining $30 million outstanding was repaid in the month of July. This means we have completed our repayments of short-term borrowings for the acquisition, demonstrating our ability to effectively deploy capital and maintain an investment-grade credit rating. Our business continues to generate strong cash flow and our balance sheet continues to be in a healthy position. I will now hand it back over to John for an update on our full-year 2023 outlook.

Thanks, Mike. Please go to Slide 11. And as we look at the remainder of 2023, we're tightening our full-year revenue outlook, while also increasing our earnings per share outlook. We now expect the Americas segment to be between 15% to 16% for total growth and 7.5% to 8.5% organically. Within the Americas, we expect to see nonresidential organic growth up high-single to low-double-digits. We expect the residential business to be relatively flat as electronics growth is expected to offset mechanical weakness in that segment. As a reminder, our supply chain challenges in our Americas business began to recover in the second half of last year. So, we'll have a tougher comparable period in the second half of 2023. Additionally, due to our improved lead times this year and their impact on our nonresidential customers' ordering patterns, seasonality is expected to be somewhat flatter than what Allegion's history would imply. For international, we expect revenue to be down 1% to flat in total and down 1% to 2% organically. The comparison for the international business is somewhat easier in the second half of 2023 as weaker market conditions really started to set in during the second half of last year. All in, for the company, our growth outlook reflects total revenue growth to be between 11.5% to 12.5%, with organic revenue growth of 5.5% to 6.5%. As a result of our team's strong operational execution and favorable first half margin performance, we're raising our adjusted EPS outlook for the year and believe it will be between $6.70 and $6.80, which is approximately 12% to 13.5% over the prior-year period. And as you heard from Mike, this is primarily driven by operations execution. Lastly, we're increasing our outlook on available cash flow for 2023 to be in the $500 million to $520 million range. Please go to Slide 12. So, in summary, Allegion delivered a solid first half of 2023. And like we said at Investor Day, we've returned to a high operating level. Our teams are executing very well. Also at Investor Day, we laid out the Allegion operating model that I'd like to go back and revisit a little bit, about driving organic growth, compounding that organic growth with both margin expansion and capital deployment, resulting in double-digit EPS growth. And I feel we're well on track to deliver all of that for 2023. Our end markets are stable, demand is steady, electronics will continue to fuel our overall revenue growth as we stay focused on our vision of enabling seamless access in a safer world. I'm confident in our outlook and very proud of what our team and our distribution partners delivered this quarter and in my first year with Allegion. So, with that, we can open up the Q&A.

Hi, good morning. Maybe just a first question to try and understand the organic sales guidance development first off. So, you raised the guidance in late April on organic sales and you've taken it down a little bit today. So, was it that you saw channel partners and customers suddenly start to destock sort of late in the second quarter? Maybe help us understand sort of what the process was behind that guidance revision. And then also on the nonresidential market, specifically, it seems that the macro drivers in the Americas are still very good. So, perhaps a little bit puzzled that you're not seeing new orders coming in to sort of offset the destocking that seems to be happening in some areas.

Yes, Julian. If you think about the guide, the last few years, we really struggled with lead times and we got considerably better at the end of last year. Our channel partners were maybe a little late to adjust to our reduced lead times. So, what we saw in the second quarter is they're starting to adjust that ordering pattern to our reduced lead times. Especially on the mechanical side, they're back down to normal as of March 31. It took a little longer for them to adjust their ordering. So, they're burning through some of the work that they previously ordered. As you know, we're mostly a made-to-order business, but channel partners will order based on what they think manufacturers can provide product at. And so, we did have some of that choppiness in the second quarter that you saw. When you think about the business in general, I talked about this at Investor Day, expect for us to be total company roughly 50-50 first half to back half. And as you look at our guide right now, you would say it's roughly 50-50 as a company. So, I do think in the second quarter, we did see that channel partners are adjusting to our improvement operationally, which is great because we put a lot of effort into getting back to operating at a high level. And then the second part of your question related to markets, I'll kind of let John answer that.

Yes, Julian, thanks for the question. We observe some of the same trends, especially when breaking down the Americas non-residential sector. The institutional segment is showing notable signs of resilience, particularly in healthcare, education, and airports, which are likely benefiting from the Infrastructure Bill that supports airport terminal renewal. The institutional segment still demonstrates positive indicators, and that's where our business is quite focused. However, there are noticeable weaknesses in major metropolitan areas, especially in commercial office spaces, which has certainly been soft. This isn't surprising, but we are in a late-cycle phase and are heavily invested in the institutional segment, which appears to be quite resilient. Overall, we believe our exposure in the non-residential sector remains stable, with the end markets showing stability.

That's helpful. Thank you. And then just my follow-up, just to make sure we sort of calibrated properly within the second half. Clearly, seasonality is abnormal this year. Your revenues were down sequentially in Q2, which is unusual. And you talked in the prepared remarks about flatter seasonality this year. So, should we assume that you have a much narrower sort of variability between the third and fourth quarter earnings as we look at that, and maybe sort of sales and margins also not that different across the two?

Yes. Thanks for the question, Julian. Historically, you know us, we don't guide quarters. But if you think about our business, usually we have a step-down in Q4 versus Q3 in the Americas, and it's reverse in international. If you think of the Americas this year, we would expect that to be more flatter than normal. So, the way you're thinking about it without giving numbers is correct. You shouldn't see as big a drop-off from Q3 to Q4 when you model this versus, let's say, historical norms.

Hi. Good morning. Thanks very much. I guess, in terms of that last point, and as we think about what's going on with channel partners and volume trends and the swing from Q1 to Q2, as we think about the back half of the year and how you're thinking about channel inventory levels, and given maybe not as much seasonality from Q3 to Q4, is that based on sort of an expectation that at the end of the third quarter, these channel inventories are sort of roughly normalized, or just any views on timing of when those channel inventories get to a more or less normal state?

Yes, Joe, I think you'll notice that our channel checks and customer visits reveal a very wide range of responses. Our two-step distribution partners and wholesalers may provide different insights compared to traditional contract hardware distributors. Similarly, integrated hardware distributors might have varied responses. Overall, we consistently hear that aftermarket activity remains very strong, particularly in the non-residential space, and the leading indicators suggest that the institutional segment is still fairly resilient. We continue to observe good levels of sell-through, although the inventory state will vary across the channel. In summary, you can consider what Mike mentioned and view our outlook for 2023 as roughly split between the first half and second half.

And then on the Americas margin ex-Access Tech, the 31%, clearly, a really strong margin level. I guess, just sort of framing that relative to some of the comments at the Investor Day and targets to grow margins 50 bps to 100 bps kind of annually, is there anything about the mix that you're seeing or price-cost dynamics that make kind of growing off of this space a little bit more challenging? Just kind of want to understand some of the strength behind that margin in the quarter.

Yes. So, Joe, a great question. As you know, obviously, the back half of the year won't have as much margin expansion year-over-year as first half just because the back half of last year was pretty strong. And so, as a result, we still expect to see margin expansion in the back half in total. But it won't be as strong as what you saw in the last two quarters just due to the prior year comp. If you think of last year, we started to really pick up operationally in the back half. Long-term on Investor Day, I talked about that 50 basis-point to 100 basis-point improvement, that's part of our operating model, and we still believe on a long-term basis, we can deliver margin expansion in those levels. Quarter-to-quarter, it could change by a prior-year comp. But think of the operating model where we're going to drive price and productivity to offset and fund that inflation and investment, drive some expansion with that and the volume leverage. So, in total, the operating model I talked about in length at Investor Day still holds, and we feel good about the progress we've made in our operational execution over the last four quarters.

Thanks. Good morning, everybody. And John, congrats on the one-year anniversary.

Thank you, my friend.

Yes. Let's begin with pricing. It was notably strong this quarter, with the Americas seeing an increase of around 10%, and international pricing actually gained momentum in Q2. Could you provide some insights on what to anticipate as we move further into the year and if you're planning any additional pricing adjustments in either region?

Yes. Joe, we've talked about this in the past. We fell behind starting in the back half of '21. And we put efforts in to catch up to that inflation dynamic that we struggled with in years past. I feel like we did a pretty good job and have caught up now. The last pricing actions we put in, in our non-res business were earlier this year as we discussed in previous earnings calls. So, as you think about back half pricing, you will see a step-down in the realization percentage, only because the prior-year comp started to accelerate last year. So, if you take a look at last year Q2 to Q3 to Q4, you get an idea of what happened, then you can model the price realization this year on, knowing that the pricing actions have been put in the marketplace. I think it's important to note. We drive pricing actions to kind of recover that inflationary pressures, coupled with productivity and investments. So, that four-item dynamic I've talked about over the last year, that still holds. But you will see a step-down in the realization percentage due to the prior-year comparable.

Got it. That's helpful, Mike. And my follow-on since you referenced that equation. That price and productivity net of inflation and investments is the strongest, I think, we've seen in really many years. And so, can you maybe just break down a little bit what you're seeing on the productivity versus the investment side? And again, how that's expected the cadence for that going forward through the remainder of the year?

Yes, Joe. I prefer not to provide specific numbers, but I can say that we are seeing an improvement in our productivity and efficiency. As our supply chains stabilize and we operate at a higher capacity, our productivity levels are surpassing what you observed in 2022 and 2021. We are very optimistic about the momentum we have in productivity and anticipate that it will continue as an organization. We also plan to keep investing in our business to drive top-line growth, particularly taking advantage of the significant opportunities in electronics and software. So, we will maintain our investments in the business. This quarter, you can see that we have achieved better operational efficiency and productivity, which has been a key focus for us.

Absolutely.

But just to be clear, that equation is expected to remain quite strongly positive in the second half of the year, correct?

Yes. I don't want to forecast or guide that dynamic. Just make sure you get the margin rate right as you look at our EPS guide and revenue. I kind of gave you the pricing as well so you can back into all the dynamics you need for your model. But expect to see margin expansion in the back half. And then as you look at quarters, just be cognizant of our Q3, Q4 comparables of last year as well.

Hi, thanks. Two questions from me. Any way to quantify the impact of the order pattern adjustment for mechanical for the full year? And then on electronics, when do you see the lead times normalizing there? And could we see a similar order pattern adjustment at some point there? Thank you.

Yes. So, I'll talk about the first one. If you think about our business, Ryan, I keep on talking about that roughly 50-50 first half to back half. So if you think about it for the full-year guide, that will be completed by the end of the year. So, it really won't have an impact on full year. But you could see a flatter quarter-to-quarter variance, like we talked about earlier in the call. So, for a full year, it's really not applicable. But when you think about quarterly timing, it does result in a little more smoothing quarter-to-quarter over the last three than you would normally expect. And then remind me again, your second question?

Yes, the electronics, should we expect to see a similar ordering pattern and adjustment in lead times, etc. Lead times have been coming down. I'd say that is the portion of our business where lead times are still a little bit extended, certainly down from the peaks that we saw in the middle of last year, but maybe not yet back to normal, but have been on a pretty good glide path getting back to a more normal, say, four- to six-week kind of lead time for those products. And backlogs are still a little bit elevated there. Demand is still strong. If you see our Investor Day material talking about the non-res mechanical segment being a low-single-digit growth industry, the electronics portion would be high-single-digit growth. So, I think that's the main thing, is we see that as the key growth driver. So will that same dynamic pop up in the channel? It certainly could. Yet to be seen. And I think as we all get a little bit smarter here and having gone through these quite volatile and dynamic times of the supply chain, maybe with good work, we can mitigate it, but yet to be seen. I guess, I don't have a real good detailed forecast for you there. But we'll be watching for it.

Yes. And just add, Ryan, just remember, that electronics, we talked about it extensively at Investor Day, about what a real strong long-term growth driver that is for us. So, demand there, as John mentioned, is still really strong. So, as you think about that business moving forward, that electronics business should be a double-digit growth long-term driver for us. So, this is not a couple of quarters of growth; this is a long-term growth opportunity for us.

Yes. So, good morning, everyone.

Hi, David.

Hi. I wanted to elaborate on Ryan's question regarding electronics. A 40% figure is significant, and there's considerable backlog clearance happening. Mike mentioned a high-single-digit growth underlying that. Can you break that down between institutional, commercial, and residential to give us a clearer picture of what the demand for electronics in the second half of this year is expected to look like?

Yes. What you'll see, David, a couple of dynamics in the second quarter. And I talked about it earlier in the prepared remarks. Admittedly, Q2 last year was a little weaker. So, you do have some growth here due to a weaker previous year. But still, this is now four quarters in a row, really strong growth in electronics. We saw strength in both electronics growth in resi as well as non-res. So, both were strong in the quarter. And as we look forward to the end of the year, the back half, we expect to see good growth in electronics. The one thing I'll remind you is the comps in the back half of last year get much tougher, particularly, in electronics, right? So, if you remember last year, we threw some pretty robust numbers up in the back half. So, just make sure you take that into consideration when you model your electronics. But overall, still expect to have some good growth this year and beyond this year in electronics in both res and non-res.

Yes. A really good question, David, and we're always thrilled to talk about Access Technology. There has been a great add to the Allegion portfolio. I'd say the service side of the business has historically been about 40% of the total. It has also historically grown around the low-double-digit rate, high-single, low-double-digit rate. And so, we feel really good about that. We see lots of future opportunities and potential there as our overall, our total Allegion's service capabilities continue to expand and grow. Then, I'd say in terms of international presence with Access Technologies, it's quite small. And so, it's not zero, but it's quite small. This is mainly an Americas business, and where we really focus the investments for new product development and just really staying close to customer requirements.

Are you focused on putting more feet on the street in building this service offering in that sense, or maybe just talk about how you're investing in that business?

Yes. So, I think, certainly, it's human capital-intensive business, right? These are very highly qualified, very highly trained, very professional service technicians that go out and do this work. I'd say it's a lot of things. We've got to put better productivity tools in their hands, better diagnostic tools in their hands. We're working on a variety of technology there. And then as we work together with certain channel partners as well, making sure we've got the right coverage and the right people to take care of those customers. So, the human element is important. Absolutely. Technology is also important there.

Are you able to find those people? I'm just curious about how challenging it is to identify, recruit, and keep those individuals.

We definitely face challenges in finding these highly skilled technicians, and I won't downplay that. They are very professional and require significant investment in training and support. Therefore, we need to be selective in our hiring process since these technicians are essential for keeping our customers operational. Our focus is on hiring the best talent rather than simply increasing numbers. Thank you for your questions.

Hi, thanks. Good morning. Hi, just a question on electronics versus mechanical. I know, historically, you've said that margin profile is similar. But curious as you get more scale in that category and considering all the redesigns and the reengineering you did last year, is there headroom for the ELOC gross margin to move higher over time?

Brett, we think about gross margins for the organization moving higher over time as we drive the price productivity in excess of the inflation and investments and we leverage volume growth. So, I don't think it's just in electronics; I think as an organization, we're going to drive margin expansion. With respect to electronics, I would say there are roughly similar percentages, but with a higher selling price, electronics will give us a little more dollars per every unit of sale. That's a dynamic we've talked about in the past. So, it's great when we can upsell to an electronic device, and it's something we're focused to drive long term.

Yes. I appreciate the question because we were really proud of what the international team put up in 2Q. Flat revenues, roughly, and still driving margin expansion, to your point. Price productivity net of inflation and investments is a positive dynamic for that group. I'd say, like previous quarters, the Allegion international business is on a much more firm foundation as a business, and we're continuing to find improvement opportunities. So, Tim and the team are performing very, very well. We're proud of what they're accomplishing. And I think we're making good progress against the goals that we've got set out for international. I appreciate you calling that out.

Thanks very much. And thanks, everyone, for a really great Q&A. And just to really quickly wrap up the main themes you've heard today. Electronics continues to be a strong growth engine for us, and we believe we're in the early innings of adoption there within the industry. The driver here is the flexibility and added layers of security that are available when you adopt smart hardware and mobile credentials. Our end markets are stable, and while we saw a softening in volumes this quarter, as customers adjusted to our improved lead times, indications from our channels show steady demand, stable end markets. The Allegion team continues to deliver outstanding operational performance. Our team is controlling the things they can control and they're executing very well, in my opinion. This is marked by strong margin expansion and increased cash flow. With this, we're confident in our performance for the remainder of the year and raising our full-year EPS outlook as a result. Thanks very much. Have a nice day.