Parker-Hannifin Q1 2023 Earnings Call Transcript

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Provided by Quartr
November 3, 2022

Key Takeaways

  • Parker reported record Q1 sales of $4.2 billion, up 12% year-over-year with 14% organic growth, and segment operating margin expanded 70 bps to 19.8% (22.7% adjusted).
  • The Meggitt acquisition closed and is on track for integration, shifting the portfolio toward longer-cycle and aftermarket businesses and supporting a raised FY 2023 sales growth target of 11–14%.
  • Q1 free cash flow was 8.8% of sales (96% conversion) despite transaction costs, with full-year free cash flow expected in the mid-teens, a quarterly dividend increase to $1.33, and leverage at 3.8× gross EBITDA, reinforcing the deleveraging plan.
  • A leadership transition was announced: CEO Tom Williams will shift to Executive Chairman through 2023 and be succeeded by COO Jenny Parmentier as CEO on January 1, 2023.
  • Management cautioned that second-half volume growth may moderate amid macroeconomic uncertainties and improving supply chains, with pricing actions still needed to offset ongoing cost inflation.
AI Generated. May Contain Errors.
Earnings Conference Call
Parker-Hannifin Q1 2023
00:00 / 00:00

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Operator

Thank you for standing by, and welcome to the Parker-Hannifin fiscal 2023 first quarter earnings conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press Star one one on your telephone. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Mr. Todd Leombruno, Chief Financial Officer. Please go ahead, sir.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Thank you, Jonathan. Good morning to everyone, and thank you for joining Parker's fiscal year 2023 Q1 earnings release webcast. As Jonathan said, this is Todd Leombruno, Chief Financial Officer speaking. Joining me today is our Chairman and Chief Executive Officer, Tom Williams, our Vice Chairman and President, Lee Banks, and our current Chief Operating Officer and Chief Executive Officer-elect, Jennifer Parmentier. We will be addressing forward projections and non-GAAP financial measures today. Slide 2 provides details to our disclosure statement in these areas. Actual results could vary from our projections for the items listed in these forward-looking statements and also detailed in our SEC filings.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

The presentation today will address non-GAAP measures and reconciliations for those non-GAAP measures are available in this presentation, and all of this is available on the investor section at parker.com and will remain available for one year. Tom is gonna begin the call today with a couple highlights on the quarter and also provide an update to the Meggitt integration. I'll follow with a brief summary on the financials and review the increase to our guidance that we issued this morning. We'll touch on the leadership transition that we announced last week, and we'll finish the call with Q&A. If I could ask you to reference Slide 3, and I'll hand it over to Tom to begin.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Thank you, Todd, and good morning, everybody. Thanks for joining the call today. We had an impressive first quarter. Seven first quarter records, sales, net income, EPS, and several margin records. We closed the Meggitt acquisition, which was a big accomplishment. If you look at this slide, the first bullet, safety is our top priority. We leveraged the high-performance teams, Lean and Kaizen. We had a 17% reduction in incidents versus the prior year. If you look at that on a safety incident rates, that'd be number of incidents per 100 team members, that would put us in the top quartile versus our proxy peer group, which is fantastic results. Sales were $4.2 billion, an increase of 12% versus the prior year. Organic was very strong and a +14% versus the prior, and we had strength across all regions and segments.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Segment operating margin was 19.8% as reported or 22.7% adjusted. We had a 70 basis point improvement versus prior year. Again, excellent improvement in pretty tough conditions. As I mentioned, we completed the Meggitt acquisition, integration is well underway. We're off to a good start. I'll talk more about that in a second. If you look at the quarter, I mean, there's a profound shift in our sales mix, and that's what you see illustrated on these pie charts at the bottom here. If you look at where we were in FY 2015 and you go out to FY 2027 on an illustrated basis, you'd see that we'd have 85% of the company, either industrial aftermarket or a longer cycle.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

That mix shift is what has allowed us to change our FY 2027 target on growth to grow 4%-6% organically over the cycle. Go to Slide 7. If I was only allowed 1 slide on these earnings calls, this would probably be the slide I'd show you. It demonstrates that the company is distinctively different and better over quite a period of time here. On the left is adjusted EPS, and we've updated that for the FY 2023 guide. You see the $18.95 at the midpoint. The adjusted EBITDA margins on the right-hand side, an almost 800 basis point improvement over this period of time. You know, this slide really speaks for itself. It's hard to make metrics go at a 45-degree angle to the right, but it's a fantastic job by our people, portfolio changes, and the strategy of the company.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Arguably, the most improved industrial company over this period of time, and a great company to invest in. With that, I'm gonna hand it over to Todd to talk more about the quarter.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Thanks, Tom. I'm gonna start on Slide 9. Obviously, it was an impressive quarter. Tom mentioned that it's a really strong start to our fiscal year. Our team members just really globally continue to execute and deploy the Win Strategy, and we're very proud of the results that they were able to put up. Tom mentioned this, but sales are up 12.5% versus the prior year. That was a record of $4.2 billion. The organic growth really well. All in, this is really a fantastic start to our fiscal year. If you go to Slide 10, this is just a bridge on the year-over-year EPS improvement. You know, I've already mentioned it, but the strong Q1 operating performance, obviously the main driver there.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

We generated $133 million or 16% additional segment operating income, Q1 versus Q1 last year. That equated to $0.80 of the earnings per share improvement. Incrementals were extremely strong, excluding acquisitions and divestitures. Total company did about 36% incrementals. When you look at everything else, the net of corporate G&A, other, tax and shares outstanding, all of that nets to $0.03. You can see the big line there, interest expense is $0.35 headwind, but 100% of that is related to the Meggitt acquisition. All in, that's $4.74. That's 11% increase from prior year.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

If we go to Slide 11, just looking at the segments, you could see organic growth, again, very strong in the quarter. Orders remain positive in every segment despite some notably tough comps versus prior year. Total company orders are up 5%, and we continue to see broad-based demand across all the end markets that we serve. Strong incrementals drove that margin expansion, that 70 basis points margin expansion versus prior year. Our team members just really continue to be agile in the current environment, and I'm very proud that they were able to generate record sales and operating margins. Looking at North America, the organic growth was extremely strong in North America, nearly 18%. Sales came in at $2.1 billion.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Significant margin expansion, 200 basis points over prior year that reached 23.4%. Volumes obviously were a big driver here, but again, we've talked over the last couple quarters about the specific regional supply chain challenges. Our team has just been very resilient, working on our operational efficiencies, and that really is the main driver on driving this strong margin performance. Incrementals in North America ex acquisitions were 38%. Orders are positive at +3%, and again, just operating on all cylinders in North America, broad-based demand. Looking at the International businesses, organic growth, again, strong there, 12% organic growth. Sales reached $1.4 billion. Organic growth was positive low- to mid-teens% in every region in our International businesses.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Adjusted operating margins expanded 30 basis points from prior year and reached 23.1%. That's all in light of some currency headwinds that obviously more heavily impact this segment. Our Asia Pacific team continues to outperform. You know, we've talked about that. They have done a great job recovering from those shipment delays that were a result of COVID shutdowns, and we feel that that is kind of mostly played out in Q1 here. Orders are positive in the International business to +6%, and that clearly reflects a rebound, obviously from China as well. Looking at Aerospace Systems, sales are $746 million now. That's obviously up 26%.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

If you remember, about 82% of the Meggitt transaction does get reported in this segment. There's about $150 million of sales for Meggitt in Q1 in our Aerospace Systems segment. That makes up 19.5% of the sales increase. If you look at organic growth, very strong there as well, 7.4%. We just continue to see strong OEM and MRO commercial volumes continuing throughout the year. When you look at operating margins, that was impacted really by Meggitt coming in, Wheel and Brake coming out, and then there were some non-recurring program timing charges that were with respect to our OEM business. All in, that's a one-time issue, and we don't see that continuing going forward.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

If you look at Aerospace orders on a 12-month rolling basis, it's +5%. You remember we've talked about these multiyear military orders. That will anniversary next quarter. If we adjust for that, orders were +29% in Aerospace. Aerospace dollars continue to remain at extremely high levels. All in, great performance across all of our segments. We're really happy with the way the team performed there. Looking at cash, another good story here. If you look at our cash flow from operations, that was 10.8% of sales. Free cash flow was 8.8% of sales. Our CapEx did hit 2% as we have been signaling, and free cash flow conversion was 96%.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

You know, the transaction cost that we've talked about did impact CFOA and free cash flow pretty significantly in the quarter. It's about 450 basis points of impact. Those will minimize as we go on throughout the year, but I just wanted to call it out that that was a drag on our Q1 cash flow. We do still expect free cash flow for the year to be in the mid-teens, so no worries on that. Slide 13, I just wanna give you a couple updates on capital deployment. I'm sure everyone has seen this. Last week, our Board approved a quarterly dividend payout of $1.33 per share. That is our 290th consecutive quarterly dividend payment.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

You know, our record of continuing to increase the dividends paid is now at 66 years. I wanna address leverage 'cause I know that's a number that's been on people's mind. At the end of Q1, leverage now reflects all Meggitt-related debt from the transaction. If you look at our gross debt to adjusted EBITDA, it's 3.8%. Net debt is 3.6%. Those numbers are presented on a trailing 12-month basis, and they do not include any Meggitt's pre-closed EBITDA. That is basically base Parker adjusted EBITDA, doesn't really include any Meggitt EBITDA, and we fully expect that to improve as we go throughout the year and we start to include that Meggitt EBITDA.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

We are fully committed to our delevering plan, and I'm really proud to say, you know, since we made this announcement last August, or really August 2021, we've applied over $2 billion of cash towards the purchase price of Meggitt. So great work on that. Okay, looking at guidance. You saw this. We are now including the Meggitt acquisition, and we are excluding the Aircraft Wheel & Brake divestiture in our guidance. We're providing this on an as reported and an adjusted basis. Tom mentioned this, we're increasing the sales growth range now to a range of 11%-14% or 12.5% at the midpoint. Organic growth forecast is being increased to 6% at the midpoint.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Acquisitions, net of that divestiture is gonna be +11%. We do see currency being a larger headwind now. We are now increasing that unfavorable impact of currency to 4.5%, and that is using spot rates as of September thirtieth. When you look at adjusted segment operating margins, the range is now 21.7%-22.1%, or 21.9% at the midpoint. That is all in, includes Meggitt and excludes Wheel and Brake, obviously our strong Q1 performance. Just a few other items to note, on an adjusted basis, corporate G&A is expected to be $207 million. Interest expense, that's all in, including everything for Meggitt is $510 million. The other income expense line is actually gonna be income of $23 million for us.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Really no change to the tax rate. We expect that to be 23%. You can see the full-year as reported EPS is now $13.20 at the midpoint or $18.95 adjusted, and there's a range of $0.35 on either side of that. Just looking a little bit more forward into Q2, we see adjusted EPS to be $4.46 at the midpoint for our second quarter. Lastly, all the adjustments that we've been talking about on a pre-tax level are listed in this table, which now includes at least the current estimate we have for the Meggitt related intangible amortization of $220, so you can see the total is now $520.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

It also includes integration costs to achieve specifically for Meggitt of $70 million for the remainder of the year. Especially with acquisition expenses to date, we've adjusted for all of those. The majority of those are over, but we will adjust those as they come through. Okay, last on the guidance bridge, let me just give you some details to that. Obviously, we started the year with our initial guidance of $18.50. We had the call at the end of September, which included Meggitt and excluded Wheel and Brake, so that was another $0.33 of additional EPS that we saw for the year. That got us to the $18.83.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Really our strong Q1 is a little bit of moving pieces here because of Meggitt coming in and Wheel & Brake coming out. We calculate that to be about a $0.54 beat to our original guide. For the remainder of the year, we've really increased the Q2 organic growth just slightly, and we've held the second half to exactly what we said in our original guidance. We have incorporated the recent currency rates and their estimated impact on the segment operating income. Right now, we feel like that's a $0.42 headwind. Really, there's nothing else notably changed to our guide for the full-year. All in, we increased our full-year adjusted EPS guide to $18.95 at the midpoint.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

With that, I'll hand it back to you, Tom, and it's all yours.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Thank you, Todd. On Slide 16, we've got the leadership transition. As you saw last week, we announced several leadership changes. In coordination with the Board, I've been planning my transition for many years. I happen to be turning 64 years old tomorrow. It's my birthday, so my early birthday present is my last earnings call. I've been CEO for 8 years and believe this is the right time to step down from the CEO position effective end of this calendar year. I've always had 8 years in my mind. I've used kind of the two-term U.S. President as kind of the length of tenure that I thought felt about right. Now's the right time for me to step aside.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

To help facilitate a smooth transition, I plan to continue as executive chairman from January 1st of next year to December 31st, 2023, at which time I plan to intend to retire from Parker and the Board. It's truly been an honor to lead this great company, and if you'll indulge me, I have a few thank yous I wanted to mention. First, to our shareholders that are listening in, thank you for the confidence you've shown me to lead the company on your behalf. My thanks to the Parker Board of Directors for just great advice and counsel, not just to me, but to our management team. To the analysts who pretty soon are gonna ask me lots of questions, thank you for an open and constructive and a transparent relationship.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

I've known a number of you for many years, and I've always appreciated the relationship. To all the Parker team members, just incredible people who take ownership in everything that they do. It's our culture, it's our people that are the secret behind our success. To the Parker leadership team, without a doubt, the best leadership team that I've had a chance to work with. It's a very deep and talented team that our shareholders should take a great comfort in. To the office of Chief Executives, the people who are sitting around the table with me today, Lee, Jenny, Todd, and now Andy, thank you for helping me lead the company. You know, business leadership is a team sport, and I appreciate their help. A special thanks to Lee. For 19 years, we've been business partners.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

We've helped each other, and together we've helped Parker be a better company. I really appreciate that Lee's gonna continue on as Vice Chairman and President going into the new year. I think it's gonna be a big help to the team. If you go to Slide 17, you know, one of the most important responsibilities of the board and myself is CEO succession planning. As you saw, the Board elected Jennifer Parmentier as our next CEO, effective January first. Jenny will report to the Board of Directors and be a member of the board as well.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Jenny's currently Chief Operating Officer, has been a Group President twice and a General Manager twice. She's a great person and a great leader, proven track record of success, and I have complete confidence in Jenny to lead the company in the future. With that, I'm gonna turn it over to Jenny to make a few comments and finish the presentation.

Jennifer Parmentier
Jennifer Parmentier
COO and CEO-Elect at Parker-Hannifin

Thank you, Tom. I am honored and proud to be appointed the next CEO of Parker-Hannifin and very excited about our future. I'm grateful to both Tom and Lee for the support and mentorship over the last several years, and to our Board of Directors for their confidence in my leadership. Moving to Slide 18. Effective January 1st, this is the office of the chief executive. Lee, Todd, and I have been part of this team for some time, and we welcome Andy to the role of Chief Operating Officer. Andy will report to Lee, as I do now in my current role. This is a seasoned leadership team that has been part of the company's transformation and an integral part of developing and implementing Win Strategy 3.0. This team will continue to deliver record results well into the future. Moving to Slide 19.

Jennifer Parmentier
Jennifer Parmentier
COO and CEO-Elect at Parker-Hannifin

As I look to the new calendar year and the second half of our fiscal year, my priority is to build upon the success of Parker's transformation. We are focused on integrating Meggitt into the Parker family, achieving the synergies we've committed to, and delivering a record FY 2023. Win Strategy 3.0 will continue to accelerate our performance across the company, and our portfolio transformation, coupled with the secular growth trends, makes us more than confident in achieving our FY 2027 goal. Before we go back to Todd for Q&A, Lee has a few comments.

Lee Banks
Lee Banks
Vice Chairman and President at Parker-Hannifin

Okay, I know everybody's anxious to get to Q&A. We're gonna get there quickly, but we've got one more thank you to have happen here. Tom, on behalf of 60,000+ teammates around the world, our management team, and really from myself, thank you for eight exceptional years as leadership and our Chief Executive Officer. When you came into that role, you had a great vision, and you boiled that vision down to three key deliverables. You said we're gonna be the safest company in the industry, and we're gonna have the highest engaged team that thinks and acts like an owner. Since your time in office, we've reduced our incident rate by 73%, and we annually qualify and measure as one of the top engaged workforces amongst our peers.

Lee Banks
Lee Banks
Vice Chairman and President at Parker-Hannifin

You mentioned it in your slides earlier, you drove us to be a top quartile financial performer. Nearly 800 basis points increase in EBITDA margin during your time, and a 2.7x increase in adjusted earnings per share. Lastly, I remember us talking about this, we're gonna be great generators and great deployers of cash. Excluding today's numbers, your time in office, we've increased the enterprise value of this company by $30 billion, $48.8 billion. Total shareholder return, not including today, 180%. A dividend increase, quarterly dividend increase, a 111% increase from $0.63-$1.33. Capital deployed during this time period, $25 billion. I think most importantly, Tom, is you're leaving us with a company not only in management talent, but portfolio that's structured to have its best days ahead of it.

Lee Banks
Lee Banks
Vice Chairman and President at Parker-Hannifin

With that, thank you very much.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Thank you.

Lee Banks
Lee Banks
Vice Chairman and President at Parker-Hannifin

Now we'll turn it over to Todd.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Should've retired sooner. All right, Jonathan, we're gonna go to the Q&A. I'll let Tom catch his breath here a little bit, but I wanna make one clarification. I called out an incorrect number on our Q2 EPS. I read last year's number. The number that we're looking for for FY 2023, Q2 is $4.31 at the midpoint. With that, Jonathan, we are ready for Q&A. I'll turn it back over to you.

Operator

Certainly. Once again, as a reminder, if you have a question at this time, please press Star one one on your telephone. Our first question comes from the line of Scott Davis from Melius Research. Your question, please.

Scott Davis
Scott Davis
Chairman and CEO at Melius Research

Good morning, guys, and congrats everybody. Tom, a high integrity eight years, I think that's the greatest compliment I could probably give you. It's just, was exceptional.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Thank you. Excellent.

Scott Davis
Scott Davis
Chairman and CEO at Melius Research

Jenny, what does the board want you to do differently, if anything? If you can start with that.

Jennifer Parmentier
Jennifer Parmentier
COO and CEO-Elect at Parker-Hannifin

Thank you, Scott. Well, my priority, as I said, is to build upon the success of the Parker transformation that is well underway. Our key focus is integrating Meggitt, bringing them into the family and achieving the synergies that we've committed to. We're obviously gonna continue on our journey to top quartile performance and delivering long-term value for the shareholders. I don't expect that we're gonna see big changes in the day-to-day run of the operations, and Tom and I are both committed to a very smooth transition.

Scott Davis
Scott Davis
Chairman and CEO at Melius Research

Jenny, maybe just to follow-up on that, I mean, how would you compare your kind of leadership style or differences or strengths and weaknesses versus Tom, if you will?

Jennifer Parmentier
Jennifer Parmentier
COO and CEO-Elect at Parker-Hannifin

Well, I think that we have a lot of the same leadership style. I don't know that I wanna get into my weaknesses just yet, but I've had two good mentors here who have helped me develop some strengths over time. From a leadership perspective, very passionate about safety and our team members, just the same as Tom is. I'm very, very passionate about providing a customer experience that stands out among our competition and very focused on organic growth in the future and delivering the performance that we've delivered in the recent past and even more so in the future.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Scott, it's Tom, if I could just chime in for a second.

Scott Davis
Scott Davis
Chairman and CEO at Melius Research

Yeah.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

You know, one of the things that Lee and I did when we were changing The Win Strategy, whether it was 2.0 or recently 3.0, this was very much an inclusive process where it wasn't the two of us holed away in a corner, you know, coming up with all the answers. It was very much bottoms up. Obviously, you know, we had to guide it, but it was very much lots of input, and Jenny was part of that. Jenny was part of all those changes, and she's very capable of driving the ship going forward.

Scott Davis
Scott Davis
Chairman and CEO at Melius Research

Okay. Well, I'll pass it on. Best of luck to all of you folks, and best of luck, Tom, in your next chapter.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Yep. Thank you.

Lee Banks
Lee Banks
Vice Chairman and President at Parker-Hannifin

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Andrew Obin from Bank of America. Your question, please.

Andrew Obin
Andrew Obin
Managing Director of Equity Research at Bank of America

Yes. Good morning.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Morning, Andrew.

Andrew Obin
Andrew Obin
Managing Director of Equity Research at Bank of America

Once again, wanna extend my thanks to Tom, and congratulations to Jenny.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Thank you, Andrew.

Jennifer Parmentier
Jennifer Parmentier
COO and CEO-Elect at Parker-Hannifin

Thank you, Andrew.

Andrew Obin
Andrew Obin
Managing Director of Equity Research at Bank of America

I'm gonna ask sort of a more near-term question. You know, there are a couple of companies this earnings season that have called out sort of, I think, some clouds on the horizon in terms of short cycle and, you know, frankly, these management teams that I do respect. You know, how do you think. I appreciate you have second quarter guidance, but as you look at your order activity, as you look at lead times, as you look at the backlogs, how do you see the interplay of perhaps improving lead times, perhaps improving supply chain? You know, what does it do to the orders, and how do you think about inventory, your inventory, and what's happening to the inventory in the channel? Thank you.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Andrew, it's Tom. Inventory in the channel went up a little bit. I'm referring to our distributor channel, but nothing really sequentially all that material. I think a lot of our distributors are gonna probably wait to see how their fiscal year ends and how the new year begins. Maybe, you know, what you're getting at in so many words is kind of what's our thinking about the rest of the guidance period, you know, what gives us confidence, et cetera. You know, we were pleased that the order entry was positive against some very tough comps from the prior year. The dollar volume that we saw through the quarter was pretty consistent across all the regions and segments.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

We were also really happy that international saw mid-single-digit order growth, and we saw that in EMEA and in Asia, and we had mid-teens in Latin America. You know, so we've got aerospace in there at around +7% as we think about the full-year. The industrial markets are very positive. We had over 90% of our end markets were in a growth phase. Our guidance really utilizes that input, our backlog, the AI model, feedback from obviously customers and distributors. You know, we still see broad-based growth. However, to the point you were getting at, it's gonna moderate as the fiscal year progresses. Yes, supply chain is healing, but I would say it's healing slowly.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

It's not really making, I would say, that big a difference on lead times, at least not yet. So as a result, we did bump up our guidance, or again, I'm referring to organic sales guidance. We took our first half; if I compare the prior guide to now, it was 5.5%. We bumped it up to 10.5%. What we left the same was the second half. We left the second half basically around 2%, organic growth. I think for us, even though we've got the backlog and we've got this broad-based strength, you know, we're cautiously optimistic.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

The reason why I say that is that we'd like to see how the year ends. I'm talking about the calendar year ends for our OEMs, and how do they start with their order patterns, in particular, their demand signals to us in January. Most of our OEMs are fiscal year, calendar year type of companies, and so we wanna see how they're all running hard to finish. I think the start of a new year will be a good indicator, which is why we didn't change this. In general, we're still very positive, and we have a lot of things going for us when we think about the secular trends, the changes we've done from acquisitions.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

In general, I think there's a decade of better CapEx investments for industrial, so I feel very bullish in the long-term. I think we're just being a little careful in the near-term given some of the macro uncertainties out there.

Andrew Obin
Andrew Obin
Managing Director of Equity Research at Bank of America

Yeah, no, look, our survey work is fairly consistent with what you're seeing, but obviously you have a live view. My follow-up question is, you know, clearly cash flow has been one of the strongest suits at Parker for a long, long time, and I know you're laser focused on cash conversion. With rising interest expense, right, it seems that, you know, floorplan financing is getting more expensive, right? You know, just running inventories is more expensive both for your customers and your distributors. What things can you do or what things are you doing to continue to have this, you know, very strong cash conversion going forward as, you know, both your customers and your suppliers and your distributors are probably gonna be more conservative with their cash, right?

Andrew Obin
Andrew Obin
Managing Director of Equity Research at Bank of America

Just because, you know, it's more expensive to flow working capital and inventory, et cetera. Thank you.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Yeah, Andrew, I'll take that. This is Todd. Obviously, the cash flow generation profile of the company is something that we all work extremely hard on, virtually every day. We feel like we can do better on inventory. We've been vocal about that. You know, we have weathered the supply chain challenges globally, extremely well, but you know, we have tools in place to further reduce that inventory as we go forward. As we bring Meggitt into the company, we see opportunities there on payment terms and receivables terms, so we see activity on that as well. You know, the other thing that I would note is as we've talked about the AVIP conversion, right? Our Annual Variable Incentive Plan.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

You know, the company is now 100% on that plan. All of our team members across the globe are all incentivized on achieving their cash flow plans for their respective businesses. Yeah, I think you'll see us continue that. I feel confident in telling you that we see free cash flow in the mid-teens number, and that is all a part of our commitment to that delevering plan that we spoke about. I feel really strong about our ability to deliver on that.

Andrew Obin
Andrew Obin
Managing Director of Equity Research at Bank of America

Thank you, Todd. Thank you, everybody, once again. Tom, thank you. Jenny, congratulations. Look forward to working with you. Thank you.

Jennifer Parmentier
Jennifer Parmentier
COO and CEO-Elect at Parker-Hannifin

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Jeff Sprague from Vertical Research. Your question, please.

Jeff Sprague
Jeff Sprague
Managing Partner at Vertical Research

Thank you. Good morning, everyone. Well, I don't wanna lay it on too thick. I don't wanna tear anybody up here and, you know, get all choked up or anything, but Tom, really, congrats and thanks, and Jenny, best of luck. Look forward to watching your tenure here. I wonder if we could.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Jeff.

Jeff Sprague
Jeff Sprague
Managing Partner at Vertical Research

Yeah.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

We don't mind if you lay it on thick. It's okay.

Jeff Sprague
Jeff Sprague
Managing Partner at Vertical Research

I love my people in Cleveland, as you know. I wonder if we could talk a little bit just about price costs, where we're at now. You know, I think Tom, you said supply chain's healing a little bit, not materially. Kind of just interested in you know, kind of the friction that might still be going on, both on a price cost standpoint and also just kind of the factory and efficiency side of kind of the ongoing whack-a-mole, how much maybe you know, pain you had to absorb in Fiscal 2022 and how you think that might play out in 2023.

Lee Banks
Lee Banks
Vice Chairman and President at Parker-Hannifin

Jeff, it's Lee. I'll take a stab at that. Look, the slope of the curve on price cost is moderated, but cost is still a real issue. You know, there's some commodities that have come down off their peaks. They're still high if you look on a historical level. There's still a lot of friction in the supply chain, where even though raw commodities may have peaked, the finishing of those raw commodities before they get to us sometimes are real supply chain issues. There's still lots of inflation up and down, you name it. You can see it from just your MRO supplies coming into our facilities to food to wages, et cetera. We're on top of it, as you know.

Lee Banks
Lee Banks
Vice Chairman and President at Parker-Hannifin

I mean, we measure this like crazy, not only just raw commodity costs, but also total inflation costs. We've got great visibility on how we're doing on pricing to make sure that we stay margin neutral. I would say in the factories, again, the slope of the complexity has gotten better. For me to tell you that labor availability is still a non-issue, I would be kidding you. It's still a little bit of a deal. You know, I think the thing that helps us through a lot of this is we just use our Parker Lean system, and we go in and we just figure out how we're gonna reconstruct the value stream and wring out the efficiencies and get better throughput, et cetera. We're addressing it.

Lee Banks
Lee Banks
Vice Chairman and President at Parker-Hannifin

I can't put a number on what the difference is gonna be, but we're on top of it, and you see it in the margins in the company. We're still doing better on a year-over-year basis.

Jeff Sprague
Jeff Sprague
Managing Partner at Vertical Research

Also, maybe just kind of do this cyclical question or just macro outlook question. You know, clearly it's actually impressive the orders are positive against those comps, but I'm just wondering, you know, where the backlog stands these days. Do you have more than, you know, kind of a quarter's worth of coverage at this point? You know, just kind of any other, like, leading indicators that you're trying to, you know, stay on top of here as you try to look around the corner economically.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Yeah, Jeff, it's Tom. The backlog went up 16% year-over-year, so we're at almost $8 billion on the legacy portion of the company. Add another $2 billion+ for Meggitt, so it would be a little over $10 billion of backlog. Obviously we have well more than a quarter worth of backlog. I think the thing that we wanna watch, you know, we feel very good about aerospace backlog, and we feel good about the industrial, is my comment I was making to Andrew that I just wanna watch the demand signals to see if anything changes once we get to the new calendar year. The backlog obviously gives you a lot of confidence that you'll be fine.

Jeff Sprague
Jeff Sprague
Managing Partner at Vertical Research

Great. Thanks a lot. Congrats again.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Joe Ritchie from Goldman Sachs. Your question, please.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs

Hey, good morning, guys. Tom, I guess my comment to you is gonna echo what everybody else has already said. I think you've been such a class act, and congratulations on your two tenures.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Thank you. Thank you, Joe.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs

Okay. I guess my first question. I know we're all trying to get at this volume question really in the second half of the year. Tom, I guess as you kind of look at your curves, it still seems like the environment is healthy. Are you seeing kind of any deterioration across any of your different end markets? I'm just trying to really understand, you know, the expectation still for second half volumes to be negative, assuming that is still the expectation across the Industrial businesses.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Yeah. It's interesting, Joe, Tom, that you know, forecasting this second half, if we look at backlog and we look at the orders that we saw and what we did in the first quarter, it would tend to make you think, well, we could do more in the second half, and there's a chance we could, and we'll have to wait and see how that turns out. Given the amount of uncertainties that we see in some of the AI model data which we've been building over time, and as barring based on the data, you know, we're projecting that things are gonna moderate as we go in the second half. With price that's baked in there, by the time we get somewhere between the third and the fourth quarter, we probably are gonna have some unit volume declines.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

When we look at the outlook for 2023 on all the end markets, you know, with the exception of aerospace, military, and a little bit of weakness in HVAC, primarily because of residential, everything's, you know, either neutral to strongly positive. Just as we go deeper into the year, we have more end markets gliding to that, you know, kind of low-single-digit to neutral category, which is what makes up our forecast.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs

Got it. That's helpful and makes sense. I guess the one follow on, I know you just touched on the backlog increasing. You had another multi-industry company recently, you know, see an uptick in cancellation rates out of their backlog. I'm just curious whether you've seen any of that, any orders that are canceling at this juncture or still kind of steady as she goes.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Joe, it's Tom. Steady as she goes. We haven't seen any cancellations. That's something else that we'll be paying attention to. Most of the time, if our customers wanna make a change, they won't cancel per se. They'll just push out delivery dates. That's why my comments about watching demand signals from the OEMs at the beginning of next calendar year will be an important indicator. I mean, right now, our OEMs are very positive about the future.

Joe Ritchie
Joe Ritchie
Managing Director at Goldman Sachs

Okay. That's great to hear. Jenny, look forward to, you know, spending more time with you as well. Congratulations.

Jennifer Parmentier
Jennifer Parmentier
COO and CEO-Elect at Parker-Hannifin

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of David Raso from Evercore ISI. Your question please.

David Raso
David Raso
Senior Managing Director and Partner at Evercore ISI

Yes. I was curious for the quarter of the orders in North America. Can you give us a little split between the order patterns from distributors versus OEMs?

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

David, it's Tom. We don't split them out, but you know, given it's such a big part of the company, you know, it would mimic the orders that we reported for the 3-12.

David Raso
David Raso
Senior Managing Director and Partner at Evercore ISI

When it comes to the second half of the fiscal year, I appreciate all the commentary about just being prudent. I'm just curious, though, if you didn't see cancellations in your backlog, I guess essentially I'm asking, are you expecting some cancellations in the backlog? Just given the size of the backlog, how it looks like you're gonna start at least fiscal second half with a pretty healthy backlog. I'm just curious, what are you factoring in when you have down volumes in your base case for fiscal second half?

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Yeah. It's not down by much. It's down, you know, small. I guess it's just the lack of the unknowns. Very rarely seen a monetary policy with this kind of high inflation land the plane softly on the surface of the aircraft carrier. Hopefully it happens, and maybe it happens after, you know, maybe if there's any issues, it happens after our fiscal year, you know, later into calendar 2023. That's. I think that's what we're being cautious of. We're very positive given that the breadth of the end markets that are strong is pretty much across the board. To your point, the backlog. They won't necessarily cancel the backlog. They'll just shift dates to the right if they decide that they don't need it. That's. We're pausing to just wait to see that indicator.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

When we do our next call, it'll be in February. We'll at least have January to reflect on how did the OEMs come back from the end of their fiscal year. If they come back the same way, you know, we'll be looking to update this. That's the benefit of every quarter getting a chance to talk to you and give you new insight as to what we're seeing.

David Raso
David Raso
Senior Managing Director and Partner at Evercore ISI

I apologize if I missed this earlier, but that thought process for the fiscal second half, how does that dovetail into further price increases from here?

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

I think on the pricing, as Lee had mentioned, you know, we'll stay on top of it. You know, a lot of the pricing that we did was. We're gonna anniversary in the second half. A lot of the price increases, we were catching up to cumulative effect of the inflation. It's still there, and we're gonna have to continue to look at that and stay on top of it. If we compare the price increases, I think, 2023 to 2022, they'll be less. Not necessarily every single part number, but in aggregate.

David Raso
David Raso
Senior Managing Director and Partner at Evercore ISI

All right. Thank you very much, and obviously congratulations to everybody. Thank you.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Thanks, David.

Jennifer Parmentier
Jennifer Parmentier
COO and CEO-Elect at Parker-Hannifin

Thank you, David.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Steve Volkmann from Jefferies. Your question please.

Steve Volkmann
Steve Volkmann
Managing Director and Equity Research Analyst at Jefferies

Hi, good morning, everybody. Thanks for fitting me in. Tom, happy birthday. I cannot imagine a better present than not having to do this with us 4x a year, so.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Oh, thank you. I kinda look forward to that part of it.

Steve Volkmann
Steve Volkmann
Managing Director and Equity Research Analyst at Jefferies

Maybe this is a Jenny question, and I apologize, it may be a little bit too early, but sort of one of the couple of the feedback things that I hear relative to other sort of premier industrials is that Parker doesn't have at least quite as much an obvious sort of recurring revenue story or fast type revenue story, and secondarily, that you guys don't really do much in the way of divestitures, which have become kind of, I guess, fashionable amongst these industrial companies. I'm curious if maybe those might be a couple of areas where there could be some sort of modest change in the strategy going forward.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Well, Steve, it's Tom. In the recurring revenue, you're right. Maybe it's software as a service, but if you look at our recurring revenue, with half of our industrial business going through distribution, and that's almost all aftermarket, that's a recurring revenue stream. With Meggitt and the additions that we made there on the aerospace side, our aftermarket piece is gonna go from 36%-41%, that 500 basis points of improvement that we talked about Meggitt bringing. We've significantly increased the aftermarket. Some of you might remember from Investor Day, we talked about increasing the international distribution, which we've bumped up 100 basis points every year. That's changed.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

That mix, you know, it's been one of the key ingredients to international margins are now at parity with North America, which most people that have tracked us for a long time never thought that would happen. On the divestitures, we like. You know, I've always used this tree analogy. We like the tree. There are some branches, we'd like to trim off, and we're working on that as we speak. When we're ready, we'll announce those, but they're not gonna be materially significant. We'll continue to look at that. We do a best owner review internally, and then we share that with the Board. We'll do divestitures, but this portfolio has been very thoughtfully built in that these technologies are very well interconnected.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

The fact that 2/3 of our customers buy from four or more technologies speaks to the interconnected technologies. They like that we can come in there with a strong bill of material and drive their cost of ownership down and help them with their sustainability issues, and we couldn't do that if we were a one-trick pony. You'll see us do more on the divestiture side, but it won't be materially significant.

Steve Volkmann
Steve Volkmann
Managing Director and Equity Research Analyst at Jefferies

Super. Thanks. Best of luck, everybody.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Thanks, Steve.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Mig Dobre from RW Baird. Your question please.

Mig Dobre
Senior Research Analyst at RW Baird

Thank you. Good morning and congratulations to everyone. Tom, it's been an honor working with you over all these years. Thanks for everything.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

I remember the first dinner we had together.

Mig Dobre
Senior Research Analyst at RW Baird

Do I. My first question on your Industrial segment, Q1 came in better than you expected, and I'm trying to understand what the sources of upside were here. Is it that there's something going on with your customers in terms of the supply chain getting better and production rates increasing or what was really the variance versus your expectations?

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Well, I think in Q1, you know, we had a lot of help pretty much across the board. I'm looking at all the end markets. I'm not gonna read all of them to you. You know, everything was pretty much north of 10%. You know, I think we had guided North America to 10%, and so we were a little bit off on that. Just it turned out to be there's no single market that pulled it forward. Obviously, when distribution comes in, you know, it came in at a 15%-20% range. You know, it has, by the size of it automatically pulls a lot of the industrial numbers up. It was broad-based and, you know, everything was north of 10% in Meggitt. You know, that we had a few that were greater than 20%.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

We were pleasantly surprised, and it was a good thing. We kinda guided a little bit lower than what reality was.

Mig Dobre
Senior Research Analyst at RW Baird

Okay. You know, you're not really pointing to something going on in the channel in terms of stocking or something of that nature. I kinda ask because, again, going back to that second half discussion, it seems to me like a lot of your OEM customers have significant backlogs, and if anything, they're actually trying to increase production volumes in calendar 2023, which is a little bit at odds with how you have your guidance structured.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Yeah. On your question about distribution, so that is end market related, maybe minor inventory. Back to the point on next year, that's a possibility, what you just described. Part of what we factored in, especially when we put all the elements into the AI calculation, is just some risk around what does the macroeconomy do as interest rates go up higher and higher, and does it eventually start to temper demand? That's why we forecasted the way we did. If it doesn't, and maybe it doesn't start to temper within our fiscal year, then we'll update that guidance in February when we have more current data. That was the thinking.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Like, not that we're forecasting, we're not any smarter than anybody else, other than, you know, we just wanna get a little closer to the target before we get a little more bullish on the second half.

Mig Dobre
Senior Research Analyst at RW Baird

All right. Fair enough. Thank you, and congrats again.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Nigel Coe from Wolfe Research. Your question please.

Nigel Coe
Nigel Coe
Managing Director at Wolfe Research

Thanks. Good morning. Thanks for the question. Tom, you've had a hell of a run, so congratulations, and Jenny, congratulations as well. My question really is on the guidance. I think you took down Industrial margins by 40 basis points in both North America and international. Normally 1Q would be sort of the lower point of the year for both segments, and that's not the way that this year is playing out. Just wondering, maybe Todd, if you could just address sort of like the thinking on the margin cadence from here.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Yeah, Nigel, that's a great question. You know, obviously we specifically are including the Meggitt acquisition. You know, there's roughly 20% of that goes into the Industrial segment, 80% of it goes into aerospace. That does have a slight negative impact to our margin just for this first year as we get through the integration, as we start to realize some of those synergies. You know, also a little bit on the international side, you know, currency has been a fairly large headwind. We expect that to get a little bit bigger. You know, that is essentially the only real adjustments that we made to margins going forward.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Nigel, to

Nigel Coe
Nigel Coe
Managing Director at Wolfe Research

Okay. No, that makes sense.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

The legacy portion of the company actually goes up 20 bps on margins. The legacy portion of the company is in mid-30s% incremental margins. It's all the factors that Todd described, which is causing the slight decline versus the prior year.

Nigel Coe
Nigel Coe
Managing Director at Wolfe Research

No, that's really helpful. That makes a lot of sense. Just switching to Meggitt. You know, there's obviously, you know, hedges in place for U.S. dollar and euro versus British pound, which makes a ton of sense as a British company, but as a subsidiary of a U.S. company with the majority of its revenues in U.S. dollars, maybe not. I'm just wondering, you know, are you know, have you executed or are you contemplating any changes to the hedging policy for Meggitt?

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Yeah, Nigel, that's a great question. You know, we're learning exactly what the Meggitt process was as we get through this. You know, it's a little bit over a month now. We most likely will do something different. We're not rushing to exit out of anything that they have in place. But overall, we're happy with that structure, right? We called it out, 70% of the sales dollars are in U.S. dollars, so we feel good about that. You know, we feel really confident in our macro hedging program across you know, the legacy business. We will obviously integrate Meggitt into that process as well.

Nigel Coe
Nigel Coe
Managing Director at Wolfe Research

That's great. Thank you.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

You know, Jonathan, just for the sake of time, I think we have time for one more question. Whoever's next.

Operator

Certainly then. Our final question for today comes from the line of Jamie Cook from Credit Suisse. Your question please.

Jamie Cook
Jamie Cook
Managing Director at Credit Suisse

Hi. Good morning. Tom, I'm sure you're sick of this. Congrats. Well done. Congrats to you, Jenny, as well. We look forward to working with you. I guess just.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

You never get quite sick of this.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

No.

Jamie Cook
Jamie Cook
Managing Director at Credit Suisse

I guess just two. I don't think you've commented on trends specifically that you're seeing, you know, in Europe or in China. I think I get some pushback on you guys on just concerns over European exposure. Then my second question, obviously, you know, a lot of concerns around the macro. I'm just wondering, you know, even if the macro is a little weaker than you think, is there enough sort of cushion as you think about perhaps supply chain ends up being better, you hold more price cost or just synergies assumptions with, you know, Meggitt that if the top line's a little weaker, there's other ways to make up so that you can still maintain the guide? Thanks.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

Jamie, it's Tom. The comments on China. China in Q1 was a positive, approximately 10% organic, and the rest of Asia was about the same, 10% organic. We've kind of got Asia very similar to how we described, the company moderating to more of those low single digits as we go to end of the year. We have a lot of things we can do, to your point, if the macros were to weaken, you know, we've got the backlog we could use, supply chain. You know, I don't think supply chain can get worse, so that's probably gonna be a positive side. We've done this before where we've created an organization that's more nimble and flexible and structured differently. You've seen how we've been improving each recession.

Tom Williams
Tom Williams
Chairman and CEO at Parker-Hannifin

That one chart, just for people that have said it's my favorite one chart, that was over two industrial recessions, a pandemic, and the current supply chain issues. This team is pretty good at being flexible and more on its toes than it's on its heels when it comes to. We're already working on those things we can do to be ready in case it got worse. We're still pretty positive that we'll be okay.

Jamie Cook
Jamie Cook
Managing Director at Credit Suisse

Thank you.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Okay. Thanks, Jamie. This concludes our FY 2023 Q1 webcast. Obviously, we do appreciate all the thanks and the congratulations for Tom. He's obviously so very deserving of that. Congratulations to Jenny and Andy as well. I also wanna remind everyone of an announcement we made back in May, and that was Robin Davenport retiring, right? This is Robin's last earnings call as well. You know, she's been a big voice of our investment story really for the entire tenure that Tom has been CEO. Robin, we thank you for everything that you've done, and we wish you nothing but the best in your next chapter. A familiar face to everyone, I think everyone knows Jeff Miller, who was our Director of Investor Relations.

Todd Leombruno
Todd Leombruno
CFO at Parker-Hannifin

Jeff has agreed to take the position of Vice President of Investor Relations, starting in January, and he will lead our IR program going forward. Congratulations to both Robin and Jeff on those changes as well. Both Robin and Jeff will be here if you have questions or if you need any kind of clarification on anything we discuss today. Thanks to you. Thank you to everyone for joining. Anything we discuss today, Trust in Parker. Thank you.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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