NN Inc (NNBR) 2018 Q2 法說會逐字稿

Good day, and welcome to the NN, Inc. Second Quarter 2018 Earnings Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Paul Taylor. Please go ahead.

Thank you, operator. Good morning, everyone, and thanks for joining us. I'm Paul Taylor, Vice President of Marketing and Investor Relations. I'd like to welcome you to NN's Second Quarter 2018 Earnings Conference Call. Our presenters this morning are President and Chief Executive Officer, Rich Holder; and Senior Vice President and Chief Financial Officer, Tom Burwell. If anyone needs a copy of the press release or the supplemental presentation, please contact Abernathy MacGregor at (212) 371-5999, and they'll be happy to send you a copy.

Before we begin, I'd like to ask you to take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation and in the Risk Factors section in the company's 10-K for the year ended December 31, 2017. The same language apply to comments made on today's conference call, including the Q&A session as well as the live broadcast -- webcast.

Our presentation today will contain forward-looking statements regarding sales, margins, foreign exchange rates, cash flow, tax rate, acquisitions, synergies, future operating results, performance of our worldwide market and other topics. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside of the company's control.

The presentation also includes certain non-GAAP measures as defined by SEC rules. A reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation.

First, we will give an update and an overview of the second quarter. Then afterwards, we'll open up the line for questions.

With that said, Rich, I'll turn the call over to you.

Thanks, Paul. Good morning, everyone, and welcome to our Q2 call. As usual, I will go through the highlights. Tom will then take you through the financials and the specific segment financials, and then we will provide guidance and open it up for questions.

Just maybe one administrative note. If you can take Page 9 on the deck and move it to the last page, the summary will be the last page on the deck. With that, let me jump right into the highlights for Q2 2018.

Our sales were $196.3 million. This was $38.4 million or 24% sales growth. It was largely driven by the acquisition of Paragon, and we also continue to display our appropriate organic growth as a part of that growth number.

From an adjusted EBITDA perspective, we were at $36.3 million. I will tell you that our operating performance in the quarter was as expected. The business continues to execute as we expect. But I'll also provide some note that our acquired businesses, that would be DRT, Bridgemedica and Paragon, are still performing at pre-synergy margins. And so we still have work to do, and we're very excited and satisfied with the operating performance of the business.

Our adjusted diluted earnings per share was $0.38. This is $0.06 higher than the prior year. Of note, this was impacted to the tune of $0.03 to $0.05 of headwinds between new program startups, I'll say unplanned new program startups and the impact on the foreign earnings tax that continues to accelerate, and we'll talk about that a little bit when Tom gives his portion of the financials.

With the closing of Paragon, the redeployment of proceeds from the PBC divesture is complete. We're excited to say that we've strengthened our technical capabilities and expanded our product offerings, not only in the Life Sciences space but also in the Aerospace and Defense space. I think you may have seen a press release from us earlier this month around the enhanced technical ability within that space. The Paragon integration is proceeding as expected. Everything is on track and on time. So we feel pretty good about that.

As we move down to the commentary around Mobile Solutions, we continue to make multiyear investments in growth -- in the growth of that business, right, and that's impacted us to the tune of about $0.03, $0.035 in the quarter. The way you should think about this holistically is on a normal year basis, we launch about 5 programs within that business.

This year, we are launching 13 programs within that business. So said another way, what we are doing is essentially refreshing almost 1/3 of that enterprise through 2022, 2023. So we look at this as an extremely positive thing for the business going forward.

As you turn to Page 3, again, adjusted earnings per share at $0.38. Again, the impact of $0.03 to $0.05 between new program startups and foreign earning tax or better known as, I guess, the GILTI tax impact. Net sales of $196.3 million. Again, I talked to this earlier, 24% growth compared to prior year. So the enterprise continues to function from a top line perspective as we expect.

As we move over to Page 4, gross margin of 24.3% compared to 27.5% the previous year. The way to think through that is if you eliminate the impact of M&A cost, margins, new program investment, on a relative basis, our gross margin should be about 28%. So that's kind of what you should look forward to going -- as we think about this enterprise performance going forward. Adjusted margin at 12.6%, which is up year-on-year.

As we move over to Page 5, from an EBITDA perspective, again, EBITDA of 18.5% compared to 18.7% in '17. Again, you see the effects of the headwinds, most notably of the investments and to a lesser extent the foreign tax impact.

SG&A at $26.6 million. This does include $6 million of integration and transition expense as well as $2 million in added from acquisitions. The way to think about this going forward is SG&A will be about between, let's call it, 10% and 12% of sales on a normal run rate basis now that we've settled the enterprise. So for those of you who are modeling, I think that's the right way to think about it.

As we move to Page 6, I'll turn it over to Tom to talk about the segments.

Thank you, Rich, and good morning. I'll take a moment to remind everyone we implemented a new enterprise reporting and management structure to more closely align our segments with our vertical end markets. There was an 8-K that was filed this morning that has the recasted historical financial information that incorporates in the new segment structure. This will provide information on the full year 2016 and each quarter of 2017 to get an idea of historically how the segments operated and prospect -- compared to the current quarter and prospectively moving forward.

Now turning specifically to the segments. Within the Life Sciences segment, we get a first look at the newly constituted Life Sciences segment inclusive of Paragon. Now it is important to note that Q2 does not include an entire quarter of Paragon. It only includes it from May 7, the date in which we owned it. So roughly 60% of a full quarter.

The growth in the quarter was driven primarily by the acquisition of Paragon. And even within the acquisitive numbers, Paragon has been growing about 10% -- more than 10% of organic sales growth in their comparative period to the prior year. So they had really good growth, and they've actually grown at a higher rate than what we originally expected when we put Q2 together.

But even beyond the acquisition of Paragon, we continue to see growth with our largest customers within the segment of the expected growth rates of between 8% to 10%, partially offset by the end of program on a large drug delivery program in that [end] market.

Turning to the operating margin. As the sales growth was experienced primarily with the acquisitions, the costs associated with those sales are at a fully absorbed cost as opposed to an incremental cost. So that's why the margins are slightly down year-over-year. It's also important to note that we're comparing a pre-synergy Paragon to a post-synergy and fully integrated PEP business, Life Sciences business because at the time of 2017, we had owned the PEP business for almost 2 years.

The operating results of the newly constituted Life Science are as we expected. In fact, they are better than we expected going into the quarter, and they'll continue to improve over the next several quarters as we realize synergies and improve the operating performance that will grow to the mid-20% level post-synergies.

Turning to page 7, the Mobile Solutions segment. The Mobile Solutions group continues to see sales in the CAFE portion of the automotive market globally. It is important to note that very little of the large new multiyear sales program that Rich mention is included in our sales in Q2. These programs are expecting to really start to see sales from those in late Q4 and into the first half of next year. And as Rich mentioned, we really are refreshing approximately 1/3 of the company sales and investing in programs that will pay returns in the next 5 to 7 years.

Turning to the operating margins. The segment continues to be impacted by the operating expense impact of investments for these new multiyear sales programs. The segment, as Rich mentioned, is essentially starting up double the amount of new sales wins within a typical year. And these new program start-up costs can be lumpy in part because they are dependent on customer time lines and customer actions. And in general, the level of spending is not different than what we expected to the continuum of time, it's just different in the timing in which it happened and in some cases has been usually pulled forward from later quarters.

Turning to Slide 8. The Power Solutions division continues to grow as expected. The growth is both in the electrical end market and also the aerospace market as we continue to ramp up growth and start new production programs -- sales programs in our Aerospace end market. We are nearing completion of our West Coast Aerospace plan and are working on developing our East Coast Aerospace plan. That should be ready by the end of the year.

The adjusted operating margin shows improvement year-over-year due in part to the flex productivity on the additional sales volumes within that segment and also operational improvements that have been made by the newly -- the leadership team of the newly constituted segment from the beginning of the year.

Turning to the guidance for the third quarter. As mentioned in my comments in the Life Sciences, in Q2, we're really only seeing about 60% of the sales and operating impacts of the Paragon group for a quarter. In Q3, we see the first full quarterly guidance of Paragon. So the sales reflect the full quarter of Paragon plus some planned sales increases from start of production within the quarter. Margins continue to improve, both from the acquisition of Paragon compared to our regular base business. Their margins are higher than the average margin within NN and from the flex productivity on the sales growth.

Turning to the full year guidance on Page 11. It's important to note we are holding our guidance for the entire year sales and operating margin. And then on a EPS basis, as Rich mentioned, we're being -- we're seeing continual impacts from the foreign earnings or new GILTI tax, as we learn more about the tax and the IRS publishes more regulations on this. When we've redone the calculations, we believe we'll incur some additional cost on this, and it's reflected in our effective tax rate for the quarter and going forward. Additionally, we've included in it some impact from Paragon and, therefore, on operations.

So with that, I'll turn it back over to Rich to conclude.

Great. Thanks, Tom. So in summary, sales growth, operating performance in the quarter is as expected. Program launches, synergy programs, the enterprise is running as we expected. And so we feel good about the quarter. The Paragon acquisition is on track and performing as expected. Fundamentally, their underlying growth rate is actually a bit better than we had planned. So we feel pretty good about that.

The investment in new multiyear programs continue. I cannot stress this enough. This is a strategic move on our part, and we feel that it is a wise move to refresh the enterprise at this point in time. When you think through our Mobile Solutions business, that business will be -- will see very little CapEx on a comparative basis in '19 and '20, and it will see very little turnover on attrition on a comparative basis in '19 through '22. So we thought that it was the right thing to do, and we continue to drive those investments for the longer-term good of the business.

As Tom mentioned, we've maintained our 2018 guidance in spite of having to, I will say, find another $0.05 or lose the efficiency of another $0.05 on EPS simply because as we get more clarity on foreign earnings tax. So you can take the implication of what EPS should have been from there.

With that, I will open the line for questions.

(Operator Instructions) Our first question comes from Rob Brown with Lake Street Capital Markets.

Just on the Mobile Solutions programs, could you give a little more color on kind of what types of programs are ramping, geographies and end markets?

Yes. So the programs are actually ramping in all of our geographies. We have new programs in Brazil. We have new programs in North America. We have new programs in -- quite a bit of new programs in Asia and certainly in Europe.

Our single biggest program is actually in Europe and requiring a substantial footprint increase and we're actually adding a significant amount of square footage to our plant in France. This is a big program. It's very strategically connected to one of the larger manufacturers -- OEMs in Europe. And it will solidify us as their kind of go forward fuel system partner and steering partner well into the future and well beyond even these programs.

Okay, great. That's good color. And then on the Paragon acquisition. Now that you've kind of gotten in there, and -- what are you seeing in terms of revenue synergy potential? And are you -- feel like you're tracking there in getting some of the synergies you wanted?

Yes. So maybe a couple things on that. Number one, we typically don't justify an acquisition on the top line. So when we look at our synergy number, that $33 million that we gave you, that wasn't a top line related synergy. So that's number one.

Number two, the types of synergies and the ability to provide sort of holistic engineered solutions into the space are definitely there. We have validated our assumptions in a big way. Customers have come to us and provided additional validation that these are the solution sets that they're looking for the design capability and the holistic sort of supply base partnering concept that we've put out there.

Number three, let me just point out, Paragon is an outstanding acquisition. It comes with great talent and great performance. But the way -- the right way to think about this is the holistic acquisition. So when we provide the solution to the marketplace, it is an engineered solution that comes from the Bridgemedica piece of the equation.

It is a manufacturing equation that comes from the Paragon. It is a testing and regulatory piece that comes from the old PEP. So this is the entire construct that we've been working on coming together to provide holistic solutions unlike any other in the marketplace.

Our next question comes from Daniel Moore with CJS Securities.

The Life Sciences, just kind of following up on the question on synergies, any sense for what type of range as -- of how much of the $33 million in synergies that you expect by 2020 are likely to be realized in '19?

So -- that we would expect by 2020 to be realized in '19. The lion's share of the synergies will be realized by the end of '19. I think we will have $8 million to $10 million kind of floating over into '20. This is probably the right way to think about it if you're modeling it.

Helpful. Just want to get...

Yes, there is a timing, Dan, of when it's realized, and then you'll see it reflected in the next rolling 12-month financials.

Indeed. And then, Rich, you mentioned 10% to 12% SG&A the right way to think about. Is that more -- can we get down to 12%? Is that a go forward in '19 or more of a 2020 and beyond once the full synergies are realized?

No, I think you need to be thinking about that number in '19.

Got it. Very helpful. And then, touched on Mobile Solutions. Of the 13 new programs this year, how many of those would you say are replacing existing programs? And how much -- how many of those are fully incremental to growth going forward?

Roughly -- and this is never a one-for-one because you have volume metric challenges and programs that are ramping down and life cycles and all those things. But at a higher level, I think you should think about roughly 5 to 6 of those programs are replacements.

And again, this is not exact one-for-one replacement. But holistically, from a revenue perspective, let's say, 5% to 6% are replacement. The balance are incremental. Certainly, the program that I talked about in Europe is an entirely incremental program.

Perfect. And lastly from me, I think most critically the free cash flow guide for the full year unchanged. H2 is always typically stronger, but it does imply a big uptick in cash generation. So are you anticipating any working capital benefits in those projections? Just your kind of update on your confidence there.

Yes. No, working capital, we don't anticipate any new working capital improvements, and we always look to improve working capital as part of our NN OS Operating System.

But pretty much what's going on there is a lot of the investments we made in CapEx for these new programs is beginning to taper off. Certainly, we've made the lion's share of them through Q1 and Q2. We won't see as much CapEx investments in the second half of the year.

Our next question comes from Charley Brady with SunTrust.

I wonder if you could just give us what the -- I'm sorry if I missed it, it was in the release or not, but the organic growth rates, just excluding M&A, excluding FX for across the segments and for the organization as a whole?

Yes, it was a roughly mid-single digit. It was running about 6% sequentially.

6%. I mean -- so it grew organically 6% year-on-year or sequentially from Q1?

Sequentially Q1.

I'm just -- I'm trying to get the year-over-year growth rates -- organic growth rates what I'm really driving at.

I'm sorry. Say that again.

I'm really just trying to get your year-over-year organic growth rates for each of the 3 segments and the whole -- the entire company ex FX, ex M&A?

I think the way to think about the entire company is roughly, let's call it, 7% year-over-year on a purely organic basis. I can walk through the segments like mobile is roughly -- on a net basis, roughly about 5%, give or take. Life Sciences is high single digits, the way we have it planned out right now. And Power Solutions is about 7% or 8%.

Okay. And that was -- those numbers -- those figures are for Q2? Or is this you're telling me what your plan is for the year? I guess, I'm not clear on what you're saying.

I'm sorry. I thought you were asking the plan for the year.

No, that was coming up. So we kind of did that one first. But yes, if you have the actual figures for Q2, that would be helpful as well.

Why don't we reach out to you and get that? We don't have that figure sitting in front of us by segment, right now.

We'll get off-line, that's fine. Just on the mobile business, the spending, it sounds like the total number, the ex-dollars for the year unchanged, stuff got pulled into Q2 that you thought was going to hit in Q3 and/or Q4. So that implies then that from a margin standpoint, second half margins in mobile, we ought to see a decent size tick up in that, correct?

I think that's fair to say. We -- as Tom indicated, the spending itself and the investment itself is lumpy. We did a fair amount of spending that was pulled to the left certainly in Q2. And so when you think about it certainly from a capital perspective, there is significantly less spending going on in the second half of the year.

Great, just one more from me then on -- you've had yourselves embedded, I guess, in 2 locations at a major customer now in terms of really being inside their own walls.

Is the second one, if you remind us -- is the second site -- you on -- is that up and running right now? And are you seeing -- what sort of benefits are you really seeing on being sort of embedded in that customer?

Yes, so answer to number one is, yes, it's up and running. It's not at full tilt. We're still putting equipment in and putting headcount in, but it is up and running.

And candidly, the benefits that we're seeing getting from that is really, really early looks on new program combined with the ability to sell engineering services on some programs that sometimes don't even make it to fruition.

Our next question comes from Michael Hernandez with Stifel.

It's actually Stanley Elliott. I had a problem calling in. Quick question. On the CapEx spend in terms of what you're talking about on the mobile side, was that being pulled ahead?

And the programs and the platforms being through, let's call it, 2021-ish, does that imply that your CapEx as a percent of sales, we should think about that as going down in the out years, meaning free cash flow could and should accelerate from where we are?

That's correct.

What would be a good kind of rule of thumb or ballpark number that we should think about CapEx as a percent of sales with all of these investments that already haven't taken place?

Yes, we talked -- Stanley, we talked about 3%, 5% and 6% of sales on average once we get past this investment period. And as I mentioned in the earlier comments, really, the lion's share in the bulk of the CapEx has been made in the first half of the year for these programs.

Perfect. And then on the SG&A comment, do you think that's at kind of 10% to 12% by next year and a 28% margin? And that's basically saying 16% to 18% margins into next year, which would -- is that a pretty good acceleration, pretty good clip? Is that the right way to think about it? Or am I being too aggressive in those assumptions?

Yes, I think you're probably a little too aggressive in those assumptions.

You missed some of the depreciation too because we separately call out the depreciation of cost of sales.

Okay, perfect. And then lastly from me, could you talk a little bit about what's happening in the power business? And how the margins -- nice margin gains there. Is that mix? Is it something you're doing on the supply chain side? Is it new customer wins? Really anything to help flesh that out.

Yes. I would tell you it is probably -- I mean, we've had some nice customer wins that have come online. And so these are the wins and the works that we talked about 2 calls ago that are now we're shipping product in that margin profile. So that's certainly one of them.

The other one is the newly minted management team are getting their operations in line. And for the application of the NN Operating System and the discipline around everything related to flex productivity and the like are starting to pay dividend. And so you see the improvement rising out of the business.

Our next question comes from Brian Colley with Stephens.

Kind of as you've talked to your customers following the Paragon acquisition, where do you feel like you have the -- the customers are the most excited? What are the product lines and geographies where the customers are maybe pushing for more capacity?

And then also just curious, just across the different segments kind of what the new business pipeline or how that's evolved over the past quarter?

Okay. Let me see. I'll take those in pieces. From a customer acceptance perspective and a customer excitement perspective, I will tell you we're getting it kind of from all sides.

Our customers whether they be the large OEMs that we all know and love or the smaller more tactical start-ups, they are all extremely excited to be able to partner with us given the holistic solutions or solution that we -- that we are -- we have brought online. And so that part of it is going, I feel, very safe to say a lot better than we actually thought it would go.

I think the second piece of it is the capacity request. Certainly, in the delivery systems side of the market, we are getting a lot of discussion around capacity expansion, and that is an around the world request. So that is coming as much in our China plant and our Polish plant as it is in our U.S. plants.

And so uniformly, I think, this space seems to be performing really well, and we are well positioned to continue to grow in the space maybe faster than we even thought or we even had in the plan. With that said, there's still always a timing increment around how quickly you can spin up some of these things.

What we're doing initially is, we have our NN Operating System people in line, and so we are going through a significant lean effort across all the facilities in order to immediately free up capacity through leaning out the factories and then turning to kind of planning through the CapEx model and what we need to do from that perspective.

I think the third piece was the industry in general. I think you can see from all the economics and all the data that's published, the industry is doing quite well, right. This is an industry that in the course of the last 10 years has never contracted. It's only ever slowed in growth would be the worst thing you could say.

And so I think right now, there's a lot of new products being launched. We are in some way, shape or form on board with all of those products with just about all the customers. So we think we've put together a portfolio in this space that is -- it is -- that is a really, really well positioned. We certainly have great people, and we have great leadership. And so we're feeling really confident about it.

Got it. That's all really helpful. And then just thinking about kind of margins and how they progress into the end of the year, there's some lumpiness with the program launches. But I'm just curious how we should think about the margin run rates by segment exiting 2018?

Yes. So I mean, I would -- I guess, I would direct you back to like in the case of Life Sciences, if you look at our post-synergy kind of PEP numbers, this is kind of what you should expect that in a little bit more on a long-term run basis when you look at the numbers going forward.

We are simply saying -- look, we think we'll have this business operating towards the end of the year around a 13% kind of operating margin as a corporation. We'll pick up another 1 point, 1.5 point going into '19.

As far as breaking it down into the segments, I would just refer you back to kind of the historical run rates that we published based on a post-synergy basis on any of the numbers.

Okay, got you. And then lastly, I just wanted to ask about CAFE-related revenue and how that trended in the second quarter and then kind of what's your expectation for that business over the remainder of the year?

So that business continues to trend in kind of -- on a net basis kind of the mid-single digits kind of space. We're not actually seeing any real softness in that market whatsoever.

So from a CAFE perspective, we think the business is as strong as we thought it was coming into the year, and we're launching new programs in that space. So certainly, in Asia, that -- it is experiencing even greater -- better than normal growth. So the space is solid at this point. We have almost no non-CAFE business. I can't really comment on that part.

(Operator Instructions) Our next question comes from Steve Barger with KeyBanc Capital.

You alluded to this already, but now that you have the team and the portfolio that you want, where are you in the process of training and incentivizing your customer-facing team? And just has the message of the new value proposition been pushed down into the organization so people understand that at a level that you want?

Yes, so I think we've done a really good job of teeing that up through the organization so far. But I would say we're not where we want to be yet relative to the entire front end of the organization.

We have a number of training programs and a number of exercises planned over the course of the next 2 quarters to get that -- to get that done. Additionally, we actually have a worldwide training planned for January, where literally, we will be bringing in the entire front end of the organization and 3 levels of management to drive all these things straight through the organization. And given that we are now settled in our portfolio, that will capture sort of everybody. And then we're making an alteration to our onboarding plan that will capture any new people coming into the organization.

So it's a work in progress. We'll probably get there around first quarter of next year to have everyone done. But certainly, we are touching the strategic account managers. They have been trained across the board with the organization. We're touching our sales guys out front. We have a combination of geography and customer-facing people.

So they've been bombarded obviously with the appropriate literature and the appropriate training. I would say we're in the space right now where everyone is wise enough to know who to call even though they can't pitch it themselves.

Right. So that's good. And I guess to follow on to that you talked about having the NN operating team in place to help lean out the factories. Are you personally now able to spend more time out talking to customers? Just trying to get a sense for how fast you and the team can go after higher growth, higher margin opportunities to really start to shift the mix in a positive way?

Yes. So for sure, that is what's going on now. So I have an entire week at the end of this month dedicated to going out and having customer discussions. I actually haven't been able to do that in quite some time. So certainly, as the new segment leaders take over the operation, as we become much more stable in our day-to-day operation, my job is changing a little bit, right? I'm moving quickly to becoming a sales guy.

Good. And thinking about pricing, can you talk about the process you have in place to make sure customers understand what you bring, so you're making sure you're capturing your fair share of that value?

Yes, so we have -- we've built a fairly robust pricing model that is flexible in nature. So when we're talking -- when we're having a services conversation, it's reflective of that conversation. If we're having a purely manufacturing conversation, it's reflective of that. More often than not, most of our conversations right now are hybrid conversations where we have design, engineer services and manufacturing as a part of it.

I will tell you that we are -- the model is robust, the training on the model is ongoing. So we're probably a little inefficient in that because we now have to run it through the handful of people who know how to interpret it and -- so we don't make any mistakes out in the field. But it's more and more every day it's getting embedded in the organization.

But the model itself is there. And it's slightly different in Life Sciences than it is in the other businesses because they've all been -- they have the same on their base, but they've all been tweaked to the individual business and the solutions that they can bring. We also have a model that goes across businesses because there is some opportunity to do that as well.

So fair to say that as you look forward into '19 and '20 as this pricing model gets, I guess, perfected, you can drive upside to whatever organic growth -- the volume growth that you're expecting because of a more efficient pricing program?

Yes. So I think we feel at this point in time that with the portfolio and the solution set that we have that maybe for the first time in the organization's maybe even history that the opportunity to capture price in '19 exists. I think it's fair to say we're still working through what that looks like. But certainly, we don't think it's 0 as it has been for the last 5 years.

Our next question comes from Charley Brady.

Two follow-ups from me real quick. On mobile in 2Q, I'm just wondering relative to what your plan was going in before you saw the acceleration of these programs and they're requiring additional start-up, kind of what the expectation for margin would have been?

I'm trying to get basically how much of a margin ding did you get because you had to accelerate and pull forward some of the cost from the second half into 2Q?

Well, quick calculations probably close to 1.5, 2 points.

Okay, that's helpful. And then, last one from me on tax rate. I just want to make sure I understand. Your expectation, I guess, is for average rate for the year somewhere, I guess, in low to mid-20s. You're tracking a good bit below that first half.

So is this a function of second half we should see it tick back up. I'm just trying to square up a full year rate expectation with second half relative to where we already done in the first half?

Yes. Again, we model in the forecast and the guide a kind of low 20s rate. Some of that includes the new GILTI tax coming through in the last 2 quarters of the year. And the current rates modeled in through the first 2 months -- or first 2 quarters is right around 18%, 19%. Some of that has to do with mix and where we're earning money around the globe.

Okay. So 18%, 19% first half, full year low 20s, so kind of a mid-20s second half rate is in the ballpark?

No, it's kind of low 20% second half.

Low 20% second half. Okay, okay.

The guidance, yes, 20%.

Our next question comes from Brett Kearney with Gabelli.

Just wanted to ask, with the recent strength in stock or just any evolution in your guys' thinking about maybe strategic actions in your part potentially accelerate delevering plans for the business?

Yes, it's a great question. I don't think we're in a position to comment on that. I will simply say we're always looking at the marketplace and our situation and looking to do the appropriate thing on the shareholders' behalf.

Okay. Thank you very much for joining us on the call. You know how to get a hold of us if you want to dig in any deeper. Paul will be available. And thank you. With that, we will bring the call to an end.

Thank you, ladies and gentlemen. This concludes the presentation. You may now disconnect.