Welcome to ITT's 2021 Fourth Quarter Conference Call. Today is Thursday, February 10, 2021. [Operator Instructions] Today’s call is being recorded and will be available for replay beginning at 12 PM ET. It is now my pleasure to turn the floor over to Mark Macaluso, Vice President of Investor Relations. You may begin.

Thank you, Charlie, and good morning. It's my pleasure to welcome you to ITT's Fourth Quarter 2021 Earnings and 2022 Outlook Conference Call. Joining me here this morning as always are Luca Savi, ITT's Chief Executive Officer and President; and Emmanuel Caprais, Chief Financial Officer. Today's call will cover ITT's financial results for the three and 12-month period ending December 31, which were announced yesterday evening. Today's remarks may contain forward-looking statements that are subject to certain risks and uncertainties, including comments relating to company performance, strategic priorities, business mix, market conditions and the effects of COVID-19 on ITT. These statements are not a guarantee of future performance or events and are based on management's current expectations. Actual results may vary materially due to, among other items, the factors described in our 2020 annual report on Form 10-K and other recent SEC filings. ITT is not under any and expressly disclaims any obligation to update these forward-looking statements, whether a result of new information, future events or otherwise. Except where otherwise noted, the fourth quarter and full year results we present this morning will be compared to the fourth quarter and full year 2020 and in both cases based on non-GAAP financial measures. These adjusted results exclude certain non-operating and nonrecurring items, including, but not limited to, asbestos-related charges, restructuring, asset impairment, and acquisition-related items and certain tax items. All adjustments in the quarter and for the full year 2021 are detailed along the reconciliation of such measures to the most comparable GAAP figures in our press release and presentation, both of which are available on our website. It is now my pleasure to turn the call over to Luca, who will begin on Slide 3.

Thank you, Mark. And good morning, 2021 was a challenging year. And I would like to thank our shareholders, our customers and our suppliers for their continued support and investment in ITT. I'm humbled by what our team accomplished in 2021. Thanks to all our ITT-ers, the shop floor employees who have been continuously working safely day in and day out, while diligently following our health protocols, and our teams in the office that have been at work in person since May 2020 despite the challenges we all know. At ITT, it is our firm belief that we're all in this together. As we strive to make ESG an integral part of our business model, safety is the number one priority. Building on our progress in 2020 more than 50% of our facilities had zero incidents for the prior 12-months. We continue to improve our safety performance this year, our injury frequency rate and our injury severity rate both declined compared to 2020 despite more output. We will continue to drive better safety performance with diligence and passion and to all our sites not just 50% and zero incidents. Our focus will deliver a better and more sustainable operational performance over the long term. And above all, is simply the right thing to do. Before discussing highlights from 2021, let me share some details about the environment we've been living in the past few months. Like most industrials, our operations have been significantly constrained by supply chain disruptions. During Q4, I experienced firsthand the mess the global supply chain is in today. When I was in [Waynes] at Germany just before year end, the team there to deal with a brand new machining center for contacts there was idle just because the semiconductor chip was missing. We were also impacted…

Thank you, Luca, and good morning. Looking at the quality results, motion technologies’ sales growth was tempered by an unusually strong Q4 in 2020, when friction OE grew 19% organically and due to the ongoing OE chip shortage this year. Vehicle inventory levels remain at historic lows in North America and Europe. We suggest that as the chip situation improves, growth will accelerate in MT. The team in MT continues to drive price realization in partnership with our customers. Price was a positive 250 basis points in the fourth quarter as Luca and I can tell you, this is not an easy task. It shows the persistence of our team and the value our customers plays on the performance and quality of our brake pads. Despite our efforts, we estimate that supply chain disruptions lowered top line growth by over 450 basis points, with the most pronounced impact industrial process. And based on what we saw in January, this dynamic is continuing into 2020. In Connect and Control, strength in distribution and conversion of our healthy backlog drove a 26% organic revenue increase in connectors. Our teams drove productivity in the quarter of roughly 350 basis points to a combination of shop floor and sourcing actions, which partially offset 500 basis points of material inflation. As Luca mentioned earlier, margins and EPS were impacted by higher growth investments, which we are always happy to do. From an earnings perspective, we grew EPS by 5% versus 2020 and 7% versus 2019 despite 5% less revenue, growth investments were more than offset by lower share counts, foreign currency and tax rate. While our segment operating income was higher our working capital requirements given the supply chain disruptions continued to weigh on our free cash flow generation. Still, we delivered 11% adjusted free…

Thanks Emmanuel. ITT performed extremely well throughout 2021. We reached new records for adjusted segment margin and adjusted EPS, which were both comfortably above 2019 prior to the pandemic, this will not have been possible without the resilience of our ITT-ers. We are seeing demand across the portfolio continue to increase. We saw these in order rates throughout the year and exiting 2021. And we are entering 2022 with a very healthy backlog of orders to convert. And while we run our capital deployment in 2021, deploying two times to our adjusted free cash flow to asbestos based divestiture, dividends and share repurchases. There is still much more to do with a heightened and intense focus on M&A, we are building and cultivating an active pipeline of acquisition candidates. And we have the right team in place to execute these deals. Lastly, I'm happy to announce that finally, ITT will host the Capital Markets Day for investors on June 16 in New York City. This is ITT’s first event like this since 2011. And you don't want to miss it. As ever, it has been my pleasure speaking with you all this morning, and we will happily take your questions now. Charlie, please open the line for Q&A.

[Operator Instructions] Our first question comes from Andrew Obin of Bank of America.

Oh, yes. Good morning, Luca and Emmanuel, Mark. Pretty impressive operational performance by the ITT team, particularly given the volume headwinds, kudos to everybody. The question I have how are you and the board are looking at the future sort of specifically growth costs investments, you did highlight the second point you made raising R&D and CapEx, as you talk to the board, Luca, how different do you think the world will look like over the next several years versus the prior cycle? And as I said, how sustainable should we think these increases in R&D and CapEx and what else can you do? Thank you.

Okay. Thank you, Andrew. So this is a conversation that we have regularly with the board, we have one event on the early days, which is a strategic plan review that we had in September, October. And then every meeting with the board, we're actually reviewing the strategy of the different businesses. So this is a discussion that happens on a regular basis. So when we look at the business that we're in, and the business that we have, we feel positive, as most of our business are actually at the very beginning of a growth cycle. So we have good investments that are going to feed these growth, there is a lot of conversation on innovation, this is really probably the biggest conversation that we're having with the board and our investment in innovation. And you will have seen the probably in our presentation, there is one specific venturing that we are doing internally, that we are detaching from the business. And we were managing center, we use rightly in order to give the proper focus and the proper attention. And that you've seen also our starting of the venture investment of ITT in external companies. So this is a regular conversation, I will add to that, that a lot of attention with the board is also on China and the geopolitical environment. This is something that we are discussing. And we're also looking for external speaker coming and talking to us.

And Andrew, just to put a finer point on what Luca was saying. So a lot of our 2022 assumptions include a step up in CapEx roughly from around $90 million to more than $150 million of CapEx and in some of that is dedicated to growth, and to R&D because it's really important for us to be able to maintain the gap that we have with the competition, and to maintain our competitive advantages. So we're going to be expanding in R&D in Italy, also in China. And we have many initiatives like Luca said to really invest in innovative products.

Thank you. And just a follow up question. Specifically on slide 9, you highlighted supply chain disruption in industrial process. And I'm just comparing your outlook on chemical and industrial pumps versus energy. What specifically are you facing on chemical and industrial pumps versus energy? Because it seems more conservative outlook for the first half? And on the energy side, is it as simple as just the difference the connectors as a difference? Just provide some color as to exactly what's happening in the supply chain. Thank you.

So in IP we're facing, I'd say the supply chain disruptions across the board. If you look at what has happened in Q4, unfortunately, the impact was worse than what happened in Q3. You remember in Q3, we had a 350 basis points of top line impact. And that was -- a lot of it was due to IP, unfortunately, in Q4, that situation worsen. And more than 450 basis points top line impact that we had due to supply chain and labor availability was mostly due to IP. So roughly $25 million to 30 million of revenue was missed in IP. And we think, unfortunately, that this situation is not going to abate and it's not going to improve until the end of the first half of 2022. So those supply chain disruptions are impacting a lot of our end market.

If I may add just one brief point, Andrew, if we look at the Q4 revenue for IP, the most impacted one was the project revenue. Our revenue for projects in Q4 was the lowest that we had in the last couple of years was on the short cycle was the highest revenue that we had in the last couple of years. Also because the short cycle you're probably more in control of your supply chain. So that is probably the biggest difference that you will be able to see, big projects are more difficult to manage.

Your next question comes from Joe Giordano of Cowen.

Good morning. This is Michael [Indiscernible] on for Joe. Great. This is a two parter. So looking at the MT mentioned that was an asset sale that help margins for the quarter can quantify that sale and what exactly it's related to?

Yes, Michael, so every quarter as there are time items that affect our results. And also we highlight those in the segment margins on a regular basis. In Q4, there was a lot of one -- there was one time items in MT, including the land sale that we refer to and roughly $1 million to $2 million was above our forecasts. And we had included this benefit in our budgets from the beginning. This and this added you should look at versus our, what we were expecting our forecast this added roughly 50 basis points of margin to MT in Q4. For the full year, the net of all let's say the non-operational items is around the 10 basis points benefits so really minimal and immaterial.

Great, thank you for the color there. And one more time you mentioned that the company is poised for organic growth. What areas are you finding most favorable at this time? And what do you see in terms of the market multiples and such? Thank you.

Sure, maybe I started addressing the first part of the question and Emmanuel if you want to follow up. Yes, we are ready with asbestos out of the way we can really focus on M&A. We have a talented and experienced team. And we have a good strategic deals at different stages in the funnel and mature opportunities. When you look at the different areas with a good pipeline in all the three businesses, Michael, we're talking about rail. We're talking also about flow and good opportunities in CCT on the connector’s side of the business. So now, we always follow our rigorous process to ensure that both strategically and financially, we will create value, but those are the areas.

The next question comes from Scott Davis of Melius Research.

Good morning, guys. I wanted to ask about an i-ALERT just because of trying to get a sense of how broad that product can go. You talk about pipelines but what are you measuring and standard stuff, vibration, temperature, electricity usage, is it is a pretty standard and how are you kind of aggregating that data and getting paid for it?

Okay, sure. Thanks for asking the question because I'm very proud and excited about these win, Scott. As a matter of fact, our six ITT-ers in AP that work on this deal, won the customer centric ITT award in 2021, they did a fantastic job. It launched this i-ALERT few years ago and took some time to take traction. And the reason why it took time to take traction is because when you install it, you need to have a maintenance team at the customer side but also your maintenance team be able to read that data, you need vibration analysts that look at the data be able to interpret analyze them and see what is behind the data and create value than for the customer. So it took a little bit of time to get to gain traction, but this i-ALERT works on every rotating equipment, right, so as a matter of fact, all these pumps are not good pumps, which makes it even more nicer, I would say and we have a vibration analyst engineer based in our Houston pro shop that is looking at the data analyzing the data, look what can -- is going wrong and provide the report to the customer. You're right is a really measuring the vibration and the temperature. And is working on really more than 10,000 routes based on a partnership with a company that we have on the northeast. And as I said, it can work on every rotating compressor and anything.

Okay, that's helpful. And then are you sending out digital twins when you send out a big project and custom pomp? Are you sending out a digital twin with add? Is that something that you're already doing or something that you envision doing in the future?

Yes, in most of our project, most of our pump actually the frame is really shaped in a way that i-ALERT has got the exact position on that. And it's almost by default position -- the default -- is by default.

And so we offer this to our customers, whether they are requested or not. I think that over the past few months, because of the chip shortage, we haven't been able to do that necessarily on every pump. But as soon as this abate, where we turn to putting one i-ALERT for every pump that we ship.

The next question comes from Jeff Hammond of KeyBanc.

Hey, good morning, guys. So just back on MT margins, I guess even if you adjust for the game, really nice sequential improvement, and I'm just trying to get a better sense of given all the moving pieces, kind of how you're thinking about margins in MT sequentially. And then just on friction supply chain, we're hearing kind of optimism from some OEMs and pessimism from some OEMs. And maybe just kind of what you're really seeing out there in terms of the auto supply chain, starting to get better and why you think it gets better.

Okay, so let me start addressing the supply chain, and then Emanuel, you can take the margins. So, as a matter of fact, the supply chain in Q4 was worse than what we saw in Q3. I gave you some example in the prepared remarks. But I can tell you also, that I've seen in budget, some lines that were completely stopped, either because of the supply chain, or because of the absenteeism, as Omicron added massive impact in December and in January. So I haven't seen that situation improving in Q4, and not necessarily in the January. Now considering all of that the fact that our friction team was able to deliver 100% on time delivery made the results even more remarkable. We expect that situation on supply chain probably to improve towards that the second half at the end of Q1 and in Q2, and the much better in the second half, Jeff.

And if you think about 2022. So obviously, on a sequential basis in Q1 and Q2, there's going to be a step down from the level of Q4 margins for MT. We are, as we are really working with our customers to secure price recovery. And then as you go further along the year, you're going to see the impact of compounding productivity and pricing. That's going to really help drive up margins at MT to a level that we have seen probably too high teen levels.

Okay, excellent. And then you mentioned, the labor issues in IP and I'm just wondering if that's just an Omicron absenteeism issue or if there's something broader, is it retention or adding people or is it just kind of this Omicron blip? Thanks.

No, it's more the impact of Omicron, Jeff, Q4 in January have been really challenged from an operational point of view. And Omicron wise, we don't see serious cases, which is good. The impact as I said has been massive. Just to give you an example, end of December and entire January, we had more than 200 new cases a week. To that, you're going to add probably another 200 -300 people that are quarantining every week. So you can imagine the disruption that you have in operation when you have that amount of people missing. So you're going to work on all the time, which is inefficiency. You're going to have temporary worker, which is an efficiency or you have like in the case of IP, talk to the customer in order to reschedule some shipments. So it was Omicron.

Okay, thanks, guys. Appreciate the color and term change on capital deployment. Thanks.

The next question comes from Vlad Bystricky of Citigroup.

Good morning, guys, thanks for taking the call. So maybe just following up on just last question around absenteeism and Omicron. And understanding what you saw through January. But can you talk a little bit about how you're seeing things evolve now? Have you seen Omicron sort of peak, at least here domestically? And maybe what you're seeing from Omicron and some of the other regions and how you're thinking about labor disruption is impacting 1Q?

Sure. So what would you say as I said during the month of January was about more than 200 people new cases every week. And to be honest with you, I cannot say that the peak has gone through because just last week, it was 180 new cases in the week, so sure is less than 200 but 180 new cases in the week is still very high. So it's true that Omicron came fast. And you see probably in the news and in the paper that the peak is there, but from an operational perspective is still very much there. And the region have been impacted the most are really Europe and North America.

And then from a result standpoint, you really see that in what we expect for Q1. So Q1 will be the lowest quarter in terms of growth, and revenue in terms of dollars. And this is impacting of you see our factories, but also it's impacting our customers. And as a result, the lack of absorption, the lack of volume will result in lower margins around 17% for Q1, and obviously, lower EPS as well.

Okay, that's helpful color. And then maybe just shipping to sort of – or shifting to sort of what you're seeing on the working capital from here. Obviously, you're exiting ‘21 with a bit higher inventory than is typical for you. And some of that I think you've highlighted reflects a strategic decision. But can you talk about, there's some way to parse out how much of the increase in inventory is driven by you strategically securing supply, as you're able to versus challenges around working product, working process or other products that you can't quite get out the door because of the logistical challenges.

Yes, so as Luka mentioned, supply chain is really a mess. And so this has been a big reason why we have increased our working capital, and specifically our inventory in 2021, I would say the majority of the increase is due to the higher inventory that we've taken in 2021. And that we're going to continue to take in 2022, in order to secure the shipments to our customers. In addition, I think the challenge we're going to see also from a working capital standpoint in ‘22, is we're going to have a significant increase in activity. So we're planning to have 10% increase in revenue at the midpoint. And this is obviously impacting mechanically working capital and cash obviously. And then finally, from a cash standpoint, I would add to keep in mind that we will invest, we will continue to invest in 2022 in CapEx to level around $155 million. And we have to make those investments to support our customers. The growth that our customers are expecting from us and the wins that we've had during the past few years especially in auto.

The next question comes from Joe Ritchie of Goldman Sachs.

Thank you. Good morning, everyone. So I want to focus on the chip shortages for a second. I'm just curious, Luca, what's your best guess on when some of these shortages start to ease? And then I'm curious as well, like, if you think about that growth number of sale call it 10% growth for the year, how much visibility do you have on the amount of chips that you actually need to ship your products?

Okay, so what we see and also what we get from talking to our customers is that the chip shortage is going to get better in the second half of the year. And this is also one of the reasons when look at MT is really for 2022 is the tale of two halves, right, where ,H1 is going to be more similar on to H2 of 2021. Now, so when we look at the forecast for the market in 2022, the expert there IHS is considering probably an 8.5% growth. With North America and Europe growing, China's same practically flat, we assume that is going to be a little bit less, but that growth is coming mainly in the second half of the year. But that we are counting to outperform the market, like we have done for the last 10 years. And despite all of the problems supply chain and chips, we deliver 100% on time delivery in Q4, and that we have done exactly the same as in January. So the delivery issue, I think that we have learned how to do it.

Okay, that's helpful. And I guess my follow up question to that is related. When you think about your margin expectations for the year, how much of that is dependent on the volumes coming through versus the self- health and productivity improvements you're expected to make across your businesses?

Okay, so I think that when you look at the 2022 and Emmanuel, correct me if I'm wrong, but I think that the biggest challenge that we have from a margin perspective in 2022, with all the improvement, continuous improvement that you have an operation is actually pricing, Joe. And this is the main focus, this is what we have talking every two weeks with the value center, this is the main topic to discuss the performance of year and monthly basis. And why? Because if you look at 2021, we recover some, but not even closer to what we should have received. Now when it comes to 2022. I'm pleased to report that when it comes to friction, we have already closed the discussion on roughly 40% of our business, which is good because we are in February, the other side of the coin is that there are still 60% that need to be secured. And we're already in February. So that I would say probably is the biggest is challenge from a margin point of view in 2022, Joe. Did I answer your question?

The next question comes from Mike Halloran of Baird.

Good morning, everyone. So on the IP side of the business maybe just some thoughts on short cycle versus product oriented business from two perspectives. One kind of revenue cadence into the year but secondarily how you expect the orders for those two buckets to progress as we go through the year.

Okay, maybe I can tell you and I can start and then Emmanuel you jump, the Q4 was a very good quarter for the orders, 39% increase in orders and very good performance on the product side and the short cycle they are very strong. So if you look at 2021 the second offshore cycle was the strongest in Q4 was the strongest of the two quarters. And what we have seen in January which is an indicator you always look at this leading indicator is that trend has continued, that trend has continued so with very strong short cycle orders in January reflecting the same that we have seen in Q4. We are expecting project orders to come in strong in the year also because the funnel is rich and we have seen in the funnel also big projects coming. Anything to add, Emmanuel?

Yes, so I think the as Luca was mentioning the momentum, I think in orders for 2022 is going to be pretty strong, we expect to grow orders on top of really strong 2021 by roughly low single digit. The challenge, as we say, is going to be converting those orders into revenue. And I think that this is going to be a real challenge in the first quarter, and to some extent, also in the second quarter, even if things are going to improve from a top line standpoint. And then we should be in a much better place, hopefully in Q3 and Q4. And obviously, this has an impact on the margin progression at IP, because you're going to see a first quarter, which is good from a margin standpoint, which is probably going to be lower than what we achieved in 2021. And then we're going to be able to ramp up as we ramp up the volume and as we ramp up productivity as well.

Thanks for that. Some of the related follow up, but broader than just IP, does your guidance, assume backlog normalizes to more regular levels through the year? Or how should I think about what backlog normalization curve looks like, from your perspective?

What we expect, we expect IP, I am sorry, in general, so the two business where we really work backlog is really important, is IP and CCT. And we expect IP to be able to continuously grow the backlog for the year. And we expect also CCT and here the specific item is that CCT participates in the aerospace and for the aerospace, we book orders that probably have, we're going to ship over the next two to three to four years. And so we're going to continuously grow the backlog on aero that doesn't go to -- probably not going to translate in immediate revenue. But is building long term backlog anyway

The next question comes from Nathan Jones of Stifel.

Good morning, everyone. I wanted to follow up on the CapEx stuff is greater than 5% of sales. Can you just talk a little bit more detail about where the CapEx is going? Are these old growth investments, is there some refreshing the asset base that's happening, are these one year projects, should we expect elevated CapEx next year, just any more color you can give us around where that CapEx is going and how long it lasts at this level?

Sure, Nathan, so $155 million of CapEx in 2022, the majority of those CapEx are going to be for growth in R&D. So roughly 80% of those CapEx are going to be for growth in R&D. And here we have specific projects with specific expansion plans, in Mexico and in China, where we're facing a lot of increased demand from customers because of the platform wins we've had in our friction business. And then also, we're going to continue to invest in R&D, both in Italy and in China. So in those R&D centers, what we're working on is increasing our testing capabilities, to keep up with all the projects we're winning, as well as to invest in rapid prototyping to better serve our customers. And then the final aspects are with IP and TCC, where we're investing in VA/VE, so the redesign of our products, and also the increase in the product range. That is really important for future growth in TCC.

And so, I mean, are these single year projects and we should expect CapEx to return to a normal level? Is there a step function change in your long term, percentage of revenue that goes into CapEx?

I think this is, we have -- we've won a lot of easy platforms. So obviously, we have to put a lot of new capacity, especially in North America, but I wouldn't say that this is a step function change. I think that we usually invest very much in CapEx in friction. And so that's normal – it’s normal activity. And I would say one example that stands out is the capacity investments, the end of food -- investment that we're going to be making for Wolverine, which is a large investment over several years, but I don't think that necessarily moves the needle in terms of capital.

Okay, and then I wanted to ask about the target to expand the CCT product portfolio. Can you talk about the priority areas for adding products? Are these things that you can do all internally? Can you accelerate that product development with M&A? Any color you can give us around that?

Okay, thanks, Nathan, it is a little bit of both. So just to give you an example, on the connector side of the business, practically ITT can and invented the connector, but that innovation is something that we are to reignite in our connector business. So we do that organically and we are reinforced our engineering team with some very good resources, and give the team the investment that they needed in order to come up with the new products, and testing, et cetera, that we've done that also with venturing, so we did an investment, we made an investment in a company in California, which is a part of this complementary to ours. And also we're looking in organically at some potential acquisition. So it's a little bit of both.

The next question comes from Bryan Blair of Oppenheimer.

Good morning. Thanks for squeezing me in here. Circling back on capital spending for a second, given your recent and planned CapEx in friction, at least in terms of what's baked into your 2022 guide, how much capacity are you adding to China and North America?

Okay, so I would say the beauty of the investment, Bryan, is that we're investing capacity only after we won the awards. That's the beauty of this business. So I can tell you that when you're looking at the plant in Mexico today, our plant has got probably now installed that five lines. And we could put another four, maybe five lines in it so we can get to the goal eventually in five, seven years in five years is to get to a market share in North America of probably right in 40%. So there is a still quite a while to go.

Yes, appreciate the color there, follow up question I'm not sure you're going to be willing to answer directly but any related color would be great. Obviously, CCT margin has been a good guy in the back half, you're ahead of schedule. And you're getting back to pre-pandemic margin at, if we look at the back half 10%, 11%, lower run rate sales versus 2019. So it's a good momentum there. If we look forward a couple of years maybe 2023, ‘24 timeframe, given the growth prospects and self-help fine tuning, et cetera available in their respective platforms? Are we looking at a higher entitlement margin for MC or CCD?

So just one thing, we're very happy about the financial results of CCT and we are in a continuous improvement journey. I was there in California together with Ryan in urban in Valencia, and we have opportunity to improve. Having said that, Bryan, is that exactly the reason why you don't want to miss the 16th of June Investors Day, because I'm sure that we will be able to answer that question properly. But the continuous improvement journey keeps on going. And we have room for improvement. So we're not going to stop there.

The next question comes from Damian Karas of UBS.

Good morning, everyone. Guys, I'm going to -- I'm joining late form another call. So sorry, if I missed this, just wondering on the sales guidance for the year, if you could spell out kind of what's the price, impact embedded in there versus volume is and maybe any color kind of at the statement level on that as well.

Sure, Damian. So the price recovery that we're considering in 2022 is over $100 million. This is a large impact. Obviously, it's a large task also. And this is mostly coming from MT, so probably something like 80% of that price recovery is going to be coming from MT. And we see that recovery is going to build a quarter after quarter. But we have a decent chunk already planned for Q1. As we're negotiating, Luca mentioned that we have in friction we have secured right now 40% of the expected price recovery increases for 2022, which is a good thing as we start January, but also means that we have 60% that we need to recover. So it shows how tall is the task is ahead of us. And really this is to compensate for the inflation that we see in materials, but also in all the other cost categories such as labor, and energy and general overhead.

The last question comes from Matt Summerville of D.A. Davidson.

Good morning. This is Will Jellison on for Matt today. I had a quick question for you regarding M&A. To the extent that the companies in your current pipeline that you're cultivating, are you seeing them facing any material impacts from supply chain and inflation? And to the extent that they are do you see that exerting any downward pressure on multiple potentially and maybe offering you a better price?

So absolutely, we're seeing the same impacts from a supply chain standpoint, in the companies and we look at companies, Europe and North America, and this is the same situation they're facing. I think the difference what we're looking for is how are they able to recover pricing. And so that because that gives us an idea about their pricing power. And so I think that we've seen some good examples of companies being able to retain value by really driving pricing. So we're very attentive to this. And unfortunately, this is pretty broad based. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.

Thank you, Charlie.