安朗杰 (ALLE) 2018 Q1 法說會逐字稿

Good morning, and welcome to Allegion Q1 Earnings Conference Call.

(Operator Instructions) Please note this event is being recorded.

I now would like to turn the conference over to Michael Wagnes.

Please go ahead, sir.

Thank you, Keith.

Good morning, everyone.

Welcome, and thank you for joining us for Allegion's First Quarter 2018 Earnings Call.

With me today are Dave Petratis, Chairman, President and Chief Executive Officer; and Patrick Shannon, Senior Vice President and Chief Financial Officer of Allegion.

Our earnings release, which was issued earlier this morning; and the presentation which we'll refer to in today's call are available on our website at allegion.com.

This call will be recorded and archived on our website.

Please go to Slide #2.

Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law.

Please see our SEC filings for a description of some of the factors that may cause actual results to vary from anticipated results.

The company assumes no obligation to update these forward-looking statements.

Please go to Slide #3.

Our release and today's commentary include non-GAAP financial measures, which exclude the impact of restructuring and acquisition expenses in current year and prior year results.

We believe these adjustments reflect the underlying performance of the business when discussing operational results and comparing to the prior year periods.

Please refer to the reconciliation in the financial tables of our press release for further details.

Dave and Patrick will discuss our first quarter 2018 results, which will be followed by a Q&A session.

(Operator Instructions) We will do our best to get to everyone given the time allotted.

Please go to Slide #4.

And I'll turn the call over to David.

Thanks, Mike.

Good morning, and thank you for joining us today.

As you saw in the morning's press release, Allegion got off to a solid start in 2018 delivering double-digit top line growth and earnings per share expansion.

For the first quarter, revenue was $613 million, an increase of 11.7%, reflecting organic growth of 3.3%.

Benefits from acquisitions and foreign currency tailwinds contributed to the top line growth.

All regions grew organically.

Americas saw organic growth of 2.7% in the quarter against a tough comparable, supported by solid price and high-teens growth in electronics.

The Americas business continues to see strong end market fundamentals, although labor availability continues to impact the timing of the completion of projects and thus causes some choppiness in the timing of orders and shipments.

This results in a healthy construction backlog, which we see across the U.S. According to the Associated Builders and Contractors, Inc., backlogs in the construction channel are at highs for the decade, which we believe leads to a longer cycle.

The EMEIA region continues its rebound and delivered robust organic growth of 5.9% driven by favorability across most products and geographies.

Asia Pacific organic growth was essentially flat, growing 0.2%.

Adjusted operating income of $104.2 million increased 2.8% versus the prior year.

Adjusted operating margin decreased by 150 basis points due to inflationary pressure, incremental investments and expected margin dilution related to our recent acquisitions completed in Q1 2018.

Adjusted earnings per share of $0.80 increased $0.07 or 9.6% versus the prior year.

Additionally, we are reaffirming our full year revenue, EPS and available cash flow outlook.

Please go to Slide 5. Before I turn the call over to Patrick, I want to take a moment to talk about an issue that has surfaced far too often over the past couple of decades, and that is school security.

The voice of Allegion's customers continue to be a source of innovation for our teams across the globe.

In response to a market need for improved K-12 perimeter security, Von Duprin announced a launch of its new remote locking and monitoring product innovation in February.

At ISC West earlier this month, we were honored with the Judges' Choice Award for these solutions during the 2018 Security Industry Association new product showcase.

These latest Von Duprin solutions were designed to enhance perimeter security in K-12 facilities by enabling remote daily lockup, centralized emergency lockdown and door status monitoring.

They are retrofit solutions that expand a school's reach of the electronic access control system to secondary openings that would traditionally go unaddressed because of the costs and complexities of running wires.

Without electronic access control, these openings may be left unlocked or propped open, compromising security and limiting a school's ability to effectively lock down the facility in response to an emergency.

We know America's 100,000 K-12 public schools are on average more than 40 years old.

Many haven't been supplied with the mechanical and technological advancements created to better protect students, teachers and administration.

Allegion is working with industry organizations, law enforcement officials, educators, parents and others to drive recognition of school security infrastructure needs among government officials at the state and federal levels.

Patrick will now talk, walk you through the financial results.

And I'll be back to discuss our full year 2018 outlook.

Thanks, Dave.

And good morning, everyone.

Thank you for joining the call this morning.

If you would please go to Slide #6.

This slide depicts the components of our revenue growth for the first quarter.

I'll focus on the total Allegion results and cover the regions on their respective slides.

As indicated, we delivered 3.3% organic growth in the first quarter.

The modest organic growth reflects strong performance in the EMEIA region across most product and geographic segments with more modest growth in the Americas due to a tough year-over-year comparable.

Pricing was favorable in the quarter in all regions, as the company remains disciplined in taking necessary pricing actions to help mitigate the impact of rising commodity prices and inflation across the supply chain.

As a response to rising commodities and inflation, we have accelerated pricing actions in the Americas with a recently announced price increase to take effect in July.

With this action, we still anticipate price plus productivity to more than offset inflation for the year.

In addition, we are taking other necessary cost-containment actions to mitigate the impact of inflationary headwinds.

During the quarter, acquisitions contributed 4.7% growth.

And foreign currency was a tailwind, particularly in the EMEIA region.

Overall, our recently completed acquisitions from the first quarter of 2018 are performing extremely well.

They are delivering good top line performance with strong margins and are immediately accretive to adjusted earnings per share.

Please go to Slide #7.

Reported net revenues for the quarter were $613.1 million.

As stated earlier, this reflects an increase of 11.7% versus the prior year, up 3.3% on an organic basis.

Adjusted operating income of $104.2 million increased 2.8% over the same time frame from last year.

The adjusted operating margin of 17% decreased 150 basis points.

The margin decline was driven primarily by inflationary pressures, which exceeded price plus productivity.

Other headwinds to margin performance were incremental investments along with unfavorable product and geographic mix.

And while our recent acquisitions are dilutive to Allegion margins, as previously anticipated, they were accretive to adjusted earnings per share.

Please go to Slide #8.

This slide reflects our EPS reconciliation for the first quarter.

For the first quarter of 2017, reported EPS was $0.71.

Adjusting $0.02 for the prior year restructuring expenses and integration costs related to acquisitions, the 2017 adjusted EPS was $0.73.

The combination of interest expense, other income and noncontrolling interest increased EPS by $0.04, driven primarily by the reduced interest expense resulting from the company's debt refinancing that took place at the end of the prior year.

Operational results increased EPS by $0.03, as favorable price, operating leverage and productivity more than offset inflationary impacts.

The EPS increase related to acquisitions and a reduced effective tax rate, which were $0.02 and $0.01, respectively, offset the impact of incremental investments which were a $0.03 reduction.

The incremental investments relate to ongoing growth opportunities for new product development as well as channel strategies.

This results in adjusted first quarter 2018 EPS of $0.80 per share, an increase of $0.07 or approximately 10% compared to the prior year.

Continuing on, we have a $0.05 per share reduction for acquisition-related and restructuring charges.

After giving effect to these onetime items, you arrive at first quarter 2018 reported EPS of $0.75.

Please go to Slide #9.

First quarter revenues for the Americas region were $439.1 million, up 7.7% on a reported basis and 2.7% organically.

The organic growth was driven by volume and price, as we experienced another strong quarter for electromechanical products which grew high teens.

The acquisitions of TGP and AD Systems drove 4.7% growth to total reported revenue.

The Americas residential business saw mid-single-digit growth, and nonresidential products, excluding acquisitions, experienced low single-digit growth.

Americas adjusted operating income of $113.5 million increased 4.1% versus the prior year period, and adjusted operating margin for the quarter decreased 90 basis points.

The decrease in adjusted operating margin was driven primarily by the dilutive nature of the region's recent acquisitions, which was anticipated.

Unfavorable product and business mix also contributed to the margin decline.

The incremental investment headwind was offset with positive price and productivity in excess of inflation.

Please go to Slide #10.

First quarter revenues for the EMEIA region were $150.3 million, up 26.9%, and up 5.9% on an organic basis.

The strong organic growth was driven by favorability across most geographies and businesses, with particular strength in the portable security, SimonsVoss and Interflex businesses.

The reported revenue increase was boosted by currency tailwinds along with contributions from the recently acquired QMI business.

EMEIA adjusted operating income of $9 million increased 12.5% versus the prior year period.

Adjusted operating margin for the quarter decreased 80 basis points, with incremental investment headwinds and commodity inflationary pressures driving a majority of the decrease.

Also having an impact were inefficiencies and inflationary pressures related to a strike at our manufacturing location in Turkey.

These margin pressures were slightly offset by favorable leverage on incremental volume during the quarter.

Please go to Slide #11.

First quarter revenues for the Asia Pacific region were $23.7 million, up 3.9% versus the prior year.

Organic revenue increased 0.2%, with the flat organic growth driven primarily by project timing.

Total revenue was supported by favorable foreign currency impacts.

Asia Pacific adjusted operating loss for the quarter was $1 million, with adjusted operating margins down 680 basis points versus the prior year period.

Unfavorable product and geographic mix, inflationary pressures and incremental investments drove the reduction in income and margin.

Please go to Slide #12.

Available cash flow for the first quarter was negative $18.8 million, which is an improvement of nearly $30 million compared to the prior year period.

The improvement is driven by the nonrecurring $50 million discretionary pension funding payment in Q1 2017, along with higher net earnings in 2018, partially offset by increased working capital and expected higher cash taxes.

Working capital as a percent of revenues and the ratio for the cash conversion cycle increased in the first quarter 2018 when compared to the prior year period.

The increase is primarily driven by working capital related to recently acquired businesses.

We remain committed to an effective and efficient use of working capital, and we'll continue to evaluate opportunities to accelerate turnover in order to minimize investments in working capital.

Lastly, we are affirming our full year available cash flow outlook of $380 million to $400 million.

I will now hand the call back over to Dave for an update on the full year 2018 outlook.

Thank you, Patrick.

Please go to Slide 13.

As noted on this slide, we are affirming the 2018 outlook given during our previous earnings call.

We are holding the total revenue outlook for growth at 10.5% to 11.5%, with organic growth at 4% to 5%.

Our view of end markets remains favorable across the globe.

If we look closer at the Americas business: End market fundamentals remain solid as we continue to see positive indicators in nonresidential verticals and expect momentum in single-family construction to continue to support solid residential markets.

However, due to the ongoing constraints across the construction supply chain, including labor, the industry is still experiencing delays in overall project construction, which has an impact on the timing of our revenue and causes choppiness from quarter to quarter.

Construction backlogs continue to be at record highs.

European markets continue to rebound nicely and are being bolstered by general macroeconomic conditions such as high consumer confidence and low unemployment that remain favorable to markets.

The GDPs in all key economies are growing, and total revenue growth continues to be assisted by FX tailwinds.

In the Asia Pacific region, timing of projects can cause large impacts on growth rates from quarter to quarter.

Indicators we see in the Asia Pacific region have not changed from prior outlook.

Similar to Europe, FX tailwinds continue to contribute to overall revenue growth.

We expect inflationary pressures to continue throughout the year.

As such, we have taken actions to mitigate the impacts of inflation and have announced price increases for significant portions of the product portfolio.

With these actions, we expect the combination of price, productivity and inflation to be a net positive for the year; however, not as much of a tailwind as in the prior year.

We are affirming our reported earnings per share outlook of $4.20 to $4.35 and adjusted earnings per share of $4.35 to $4.50.

This represents adjusted EPS growth of approximately 10% to 14%.

As Patrick just stated, we are also affirming our cash flow outlook of $380 million to $400 million.

Included in the outlook is an assumption of the full year tax rate to be approximately 16% and outstanding diluted shares of approximately 96 million.

Please go to Slide 14.

As a summary: Total revenue grew nearly 12%.

Organic revenue grew just over 3%.

Acquisitions contributed $26 million in revenue for the quarter.

Adjusted operating margins were down 150 basis points, primarily driven by inflationary pressures.

However, pricing actions are in place to mitigate.

Adjusted EPS saw nearly 10% growth in the quarter.

Now Patrick and I will be happy to take your questions.

(Operator Instructions) And the first question comes from Julian Mitchell with Barclays.

Maybe just a first question around you mentioned a couple of times that price and productivity in excess of inflation should be a tailwind for the year as a whole but less than that sort of 120 bps boost you had last year.

Maybe explain a little bit how quickly it turns around.

It was minus 50 bps in the first quarter.

Do we think it's sort of a slight negative in Q2 and then positive by Q4, that kind of trajectory?

Or how quickly do you think it reverses?

Yes.

So you got the numbers right relative to the spread, price, productivity offsetting inflation.

A little underwater this quarter, which sequentially down.

And inflationary got out in front of us a little bit more than anticipated, in particular with the rise in the commodity prices, but as we look forward for the balance of the year, as we indicated, full year, would expect to be in positive territory.

I actually anticipate a big recovery in Q2 relative to Q1 and, hopefully, be flat to maybe slightly negative would be the expectation.

And then that turning more positive as we look in the second half of the year, particularly with the recently announced price increase in Americas, which should drive a big component of that going forward.

And then my follow-up question would be around the nonresidential revenue growth in the Americas region.

That was only up, I think, sort of low single digit, but you had the double-digit comp a year ago.

Do we anticipate that, that Americas nonres piece accelerates in Q2?

Or it's just too early to tell because of those labor shortages in the construction industry you mentioned.

I think, if you look at our business historically, Q2, Q3 accelerates.

Certainly, see nothing to change that.

We see markets and lead indicators like our hollow metal sales as a strong lead indicator for that revenue to come.

And the next question comes from Saliq Khan with Imperial Capital.

Guys, could you kind of talk about some of the things that you guys showcased over at ISC West most recently, the new technologies?

And what do you anticipate the penetration is going to be of those new solutions that you most recently introduced?

So I think you're talking about the RU innovation of exit device that won the award.

We think that, that product has great opportunity.

And it's partly driven by the need for connected K-12 security that can be activated from a central command.

There's money flowing in to -- for security for those overall markets.

And I hope you have an appreciation of the installed base that we have in those markets today.

We do extremely well in K-12 security in both public and private, and we think the desirability to be able to upgrade unprotected doors will drive nice growth in the exit device business.

That's extremely profitable for us going forward.

The follow-up on that will be -- is when do you anticipate the upgrade cycle is going to hit.

So rather than going out there and just selling to new customers, all the ones where they have been thinking about security but it wasn't a prime factor in their decision of being able to make things more automated a lot more easier.

But from a historical customer perspective, when do you believe that upgrade cycle come about?

I think we always see this upgrade cycle in Q2, Q3, but this is -- will not be a spike as communities embrace the need for school security and our industry partners with them to propose better solutions.

We think that's a growing opportunity for us over the next 5 to 10 years, convoluted by aging infrastructure and the need for more intelligent systems.

And the next question comes from Joe Ritchie with Goldman Sachs.

Can you maybe talk about just margin expectations for the -- just given the commodity cost headwinds that you're experiencing right now, do you think you can grow margins across any of the geographic segments this year?

So I think a way to think about it, as we had highlighted on the last quarter conference call and kind of talked a little bit about full year expectations, keep in mind, with the recent acquisitions, although accretive to earnings per share, really like what we're seeing there, and in terms of the growth in those businesses and strong performance, they are dilutive to our overall margin performance.

I would say the expectation would be, on an aggregate basis, margins to be kind of flattish for the full year year-over-year.

So that would imply, with the dilutive nature of the acquisition, that base business slightly improving given the volume leverage expectations on the organic growth as well as slight improvement on the price-productivity-inflation equation.

Got it.

That's helpful, David (sic) [Patrick].

And maybe I wanted to follow up one question on your comment around backlogs, commercial backlogs, being higher than they have been in the last 10 years.

How does that then translate into the growth framework for the second half of this year and even more importantly into 2019?

Does it give you a little bit more visibility from a longer-term perspective?

How are you guys thinking about that?

So we're net positive on that.

We think it's snow plows.

It pushes that recovery longer into the cycle.

I think it puts a challenge on us to sharpen our game and partner with the projects that will go faster.

Second is driving productivity through the entire value stream.

We've introduced tools, digital tools that help architects and our spec writers to drive productivity; and then how we can do more factory, pre-factory install ahead of the job site to take labor off.

So we think net positive.

And as I have traveled the world, I've been on 3 continents since the start of the year, I've never been more robust about what I see in terms of construction activity.

And the next question comes from Jeffrey Sprague with Vertical Research.

Dave, just to follow up on that point.

It makes sense, what you're saying about labor, right.

We can see it in the unemployment rate and shortage of truck drivers and things like that, but what maybe is a little peculiar is like we're not hearing it, for example, from like the HVAC guys and maybe some of the more skilled trades, for lack of a better term.

Is it just a kind of a -- is the bottleneck like right at the end, at the installation side of the equation?

Or is it kind of elsewhere in the project flow from a labor standpoint?

We actually do surveys of the value stream to try and get a sense; and whether it's architects, wholesale distributors, contract distributors, locksmiths.

If they had more labor capability prepared, they could grow their businesses, one.

Number two is I'm not -- I see the numbers coming out of [Linux] and Trane.

I think, yes, I would put out the hypothesis that during the downturn those skills held better than some of the more general skills.

I think some of that general labor went to other parts of the economy; and to rebuild that back, I think, is a challenge.

In particular, electricians, millwrights, ironworkers are in tight supply.

And it's a headwind that we'll face across construction going forward.

Makes sense.

And can you just remind us how big your educational business is as a percent of the total company?

So Jeff, if you think of our nonres business, right, in the Americas, Nonres is about 70% of Americas.

And of that nonres business, about 60% is institutional markets.

We don't disclose educational markets, but institutional is probably 60% of the nonres in the Americas.

I will just add, the next time you go on a college campus or in a K-12 school, our position there is extremely strong...

Yes.

I know that.

I'll be looking for you on Villanova campus next month at graduation.

How about that?

(inaudible).

And you know what, we're there.

All right.

And the next question comes from Tim Wojs with Baird.

So maybe just, sorry, back on the labor question.

Just as you kind of think about the projects converting today or what maybe you're calling a conversion cycle or quote to order (inaudible), what is -- what does that kind of time line look like today versus what you might consider normal?

Is it a couple months?

Is it 6 months?

Is it a year?

I'm just trying to kind of think about how some of the projects are kind of being pushed out and the timing around it.

I think you've got to go to those reports out of Associated Construction.

You see about a 3- to 4-month swell.

And what I'd say normal backlog, let's say 5 to 6 is now 10.

That's how I describe that.

Okay, okay.

And then maybe just bigger picture, within electronics growth, have you over the next -- over the last kind of 12 to 18 months, have you seen any change in the balance or mix between the residential business and the commercial business within that electronics growth rate that you disclosed?

Resi is growing faster.

And it's because of some of the new entrants.

I think -- when potential customers evaluate our products, I think we've got some excellent solutions out there.

And the overall awareness, whether it's last mile, Amazon Key, millennials moving up, it's put upward momentum.

We believe if -- if you went back to Analyst Day, we'd say the market 4% to 8% growth on resi, and it's on the high side.

And we're doing better than that.

And the next question comes from Rich Kwas with Wells Fargo Securities.

On the mix of residential growing faster than nonres, that was some of the headwind in the quarter.

Is that the right takeaway?

Yes, that's correct.

Okay.

And then on institutional, Dave, can you just comment about what you're seeing on institutional projects?

I know education got asked earlier.

Just that tends to be, I think, a little bit higher margin for you.

What's the kind of flow-through?

And is the labor constraints more relegated to that end market?

Or how should we think about that?

I would characterize it as Q2, Q3 are our best opportunity in institutional.

The activity there is setting up to be solid for us.

What we see, when I was up in the Northeast, is convergence to electronics.

And in our commercial, institutional type products, that segment of the market, you've got a window of time on a college campus or a K-12.

And those contractors tend to be maybe at a higher level of sophistication than just a commercial building.

And that's a general, but you've got to get that done in a tight time frame.

And they tend to push those projects through.

That gives us volume in Q2 and Q3.

And I'll just add.

With the anticipated improvement in those end markets, it is a favorable product mix for us because the suite of products is more Von Duprin, LCN, Schlage collectively together.

And being the leading market provider here in the U.S., that's a good trend for us.

So is that growing faster than the parts of nonres for you for this year?

Is that the anticipation?

Essentially same across all verticals, maybe a little bit improvement relative to the prior year.

And the next question comes from David MacGregor with Longbow Research.

You affirmed your previous 2018 guide, which I appreciate, but I noticed you left out kind of the regional breakout slide from the deck.

Any change in the composition of that guide by region?

So historically we don't provide kind of the regional guide in terms of margin, that type of thing.

The revenue guide, if that's what you're referring to, is the same in terms of what we gave last quarter and collectively organic growth of 4% to 5% across-the-board.

And that varies, of course, by region, but our revenue guide across the regions and in total has not changed from when we were together last quarter.

Okay.

And then secondly, just the price increases, can you just talk about what percentage of the overall portfolio will be favorably influenced by these increases?

So we are looking at improving our price position across the globe.

We have better ability to get higher pricing probably here in the Americas.

So that being, say, 70% of our portfolio, that -- it would apply predominantly to Americas.

And we've been a little bit more aggressive there in terms of the price actions.

As indicated, we've already announced to the field a price increase on nonresidential products beginning July this year.

And I guess, just how confident are you in your ability to take pricing in the residential space?

It's our biggest headwind.

We're -- certainly got a big exposure at big box, and the opening price point part of that portfolio is under pressure.

So it's a challenge there.

We're going to work hard to try and get some price realization there.

And the next question comes from Robert Barry of Susquehanna.

I just wanted to understand a little bit better what was going on with the margin dynamic in EMEIA.

I mean you were able to offset inflation in Americas but not in EMEIA.

Curious about the impact of the Turkey strike that's kind of still ongoing.

And is that done?

And just in general, I mean, do you still think you can grow the margins there this year?

I think it was a 50 to 100 basis point expectation.

Yes.

So the strike in Turkey has been completed.

So we've reached conclusion and agreement.

The impact there, there was a retrospective adjustment and an ongoing impact, if you will.

And so we had the flow-through of the retrospective adjustment on margins.

If you were to kind of pro forma that out, you'd have margins pretty much equal to maybe slightly better than the prior year.

So going forward, we still believe we can see some margins to be slightly up year-over-year.

I like what we're seeing in the business, particularly in the volume growth.

Electronics business is growing extremely well.

And so we like what we're seeing there from a top line perspective; and would expect for the full year, as we had indicated at the beginning of the year, for margins to be slightly up even with this impact of the strike that we incurred this quarter.

Got it, got it.

And then maybe just as a follow-up, I wanted to just touch on what you said in answer to the earlier question on the pricing, especially in the U.S. with the big box partners.

I mean I know those conversations are never easy, but just given the inflation is so apparent now, I mean, is it just more of a given that there will be a de-pricing?

And are you getting that?

And in particular, if you could also just touch on you mentioned pricing pressure in the opening price point.

That's going over also into where you play.

I think you're more in the middle and the higher end.

So there's never been a better opportunity to go have those tough discussions with big box.

It's hand-to-hand combat, but the table is set.

Inflationary forces at work, it's good for them, and it's good for us.

Our portfolio is not well positioned in retail around opening price point.

We certainly have offerings, but our electronics, our Schlage [Chamberlain] brand products are the replacement product of choice, and we position there consciously.

And customers today are choosing that opening price point more than we would like.

When those products fail, we like the replacement part of it, but it's one of the challenges we have with the portfolio.

It may be pulling some volume out of the base price point, if that's what you mean.

Correct.

And the next question comes from Jeff Kessler with Imperial Capital.

This -- at the recent ISC West conference, you guys -- congratulations.

You guys did win a fairly big prize for what could be a -- in my opinion, a very high-volume type of a door closer.

And I'm wondering if you could comment on your ability to take a -- essentially what was a mechanical product, put some electronics into it and have a product that could still be mass produced for many -- for a lot of different types of institutions.

So a couple things I like about that product, Jeff, is it's got several patents that I think are unique to the industry and that product.

Number two, I think you're aware of the large installed base that we've got.

In an environment where there's a need and demand for better school security and connectivity, we think that product's got outstanding opportunities.

I was at our Von Duprin factory yesterday and extremely confident in our ability to produce a high-quality product that's we're known for and meet the demands in the marketplace.

How fast can you get that into the market?

It's really, as we roll forward, this next couple of quarter is important.

And we have a unique relationship through our field offices and our service partners to work with those schools, and I think it will move through very quickly.

Okay.

And finally, just as a quick comment.

I was on the ASSA ABLOY call this morning.

And they talked about the Americas being the single most -- the big pain point for both commodity inflation and trying to work with customers to try to get the pricing back up.

They said there was a lot of resistance at the beginning.

They're beginning to get it now.

So I would assume that the same thing, it begins to apply to you folks.

I think we are in a better position.

As a price leader here, I think we've always worked extremely hard to get the value that our specification and products demand.

You certainly see a bit of a headwind in this quarter for us, but it's more, anytime you slam tariffs down, our suppliers certainly take that opportunity.

Demand is high, but I like our position to be able to get the price that we deserve in the marketplace, Jeff.

Thank you.

And as there are no more questions at the present time, I would like to return the call to Mike Wagnes for any closing comments.

We'd like to thank everyone for participating on today's call.

Please contact me for any further questions.

And have a great day.

Thank you.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect your lines.