希悅爾 (SEE) 2006 Q1 法說會逐字稿

Good day and welcome to this JohnsonDiversey 2006 first quarter earnings results conference call. Today's call is being recorded.

At this time for opening remarks and introductions, I'd like to turn the conference over to Ms. Lori Marin, Vice President and Corporate Treasurer. Please go ahead, ma'am.

Good morning, everyone. This is Lori Marin, Vice President and Corporate Treasurer of JohnsonDiversey. I would like to thank everyone for joining our investor call this morning.

Today, we will discuss our results for the quarter ended March 31, 2006. I'm joined on this call by Ed Lonergan, our President and Chief Executive Officer, Joe Smorada, our Executive Vice President and Chief Financial Officer, and Clive Newman, our Vice President and Corporate Controller.

On this call, we intend to provide an update on the general status of the business and the financial results for the quarter ended March 31, 2006, an overview of the balance sheet at March 31, 2006, an update on our restructuring program, and an update on the results for JohnsonDiversey Holdings.

Some of the statements that will be made in this presentation are not historical facts and are forward-looking. These forward-looking statements are subject to risks and uncertainties some of which are beyond our control.

Please refer to the risk factors and cautionary statements concerning forward-looking statements in the JohnsonDiversey registration statement on Form S-4 that was declared effective by the SEC on November 27th of 2002, in the JohnsonDiversey Holdings, registration statement on Form F-4 that was declared effective by the SEC on January 8, 2004, and in our Form 10-Q and Form 10-K reports for certain risks and uncertainties that we face.

The discussion today includes references to EBITDA for various periods. EBITDA is a non-GAAP measure within the meaning of the SEC's Registration G.

In accordance with Regulation G, our Form 10-Q report includes a reconciliation of EBITDA for the quarter ended March 31, 2006 to net cash provided by operating activities which we believe to be the GAAP financial measure most directly comparable to EBITDA.

Our Form 10-Q reports for JohnsonDiversey and JohnsonDiversey Holdings were filed with the Securities and Exchange Commission on May 11th of 2006. They are also posted on our Web site at johnsondiversey.com and can be accessed by clicking on the Investor Relations link and selecting the relevant Company.

JohnsonDiversey Holdings is a holding company whose sole asset is its share of JohnsonDiversey. Other than differences in net income due to interest expense for the JohnsonDiversey Holdings senior discount note, provision for income taxes and dividends received, the consolidated financial results for the two companies are the same. Accordingly, we will address the results of both companies on this call.

I would now like to turn our call over to Ed Lonergan, our President and Chief Executive Officer for a general business update.

Thanks Lori, and thank you all for joining us today.

I'm pleased to report that we're seeing real momentum building in our business. This momentum is visible in terms of our sales results, successful cost containment as well as our progress in our restructuring program.

Our sales continue to show growth resulting from a combination of new pricing and increased volume. Our net sales increased year-over-year by just under 6% when additionally adjusted for one-time effects, including the lease accounting change made in the first quarter of 2005.

This growth is driven by strong performance in our core business in North America, upper single and double-digit growth in most developing markets, and steady growth in Western Europe. In particular, I'd like to highlight the progress we're seeing in North America and in Europe.

Our core business in North America grew by double-digits in the first quarter and has consistently grown for the past several quarters. We're driving this growth on the strengthen our best in class floor care portfolio, our unique dilution and dispensing technologies and some of the strongest distributor relationships in the industry.

Our overall net sales in North America grew by 8% in the quarter even after the decision we announced in March to move to a new model for selling kitchen-related products.

Our Europe, Middle East and Africa business grew net sales by over 5% in the quarter after one-time adjustments. We're seeing signs of resurgence in Western Europe and we're generating double-digit growth in Eastern Europe, the Middle East and in Africa.

In fact, nearly all of our operating companies in the region grew net sales in the quarter and this is particularly strong performance considering the sluggish economies that we're seeing in Western Europe.

In addition to solid performance in North America and Europe we continue to enjoy strong growth in Latin America and in Asia Pacific led by sales into the lodging and the food and beverage sectors. In Japan results were softened by the ongoing effects of a challenging economy as well as a change in our mix.

The net sales growth across the Company reflected the benefits of both pricing and of volume. While we continue to fight the effects of raw material cost and margin pressure, our internal cost control efforts are catching hold and beginning to deliver results.

Excluding the impact of restructuring-related one-time spending we absorbed internal inflation pressures and maintained SG&A spending at 2005 levels, and we're moving to enact further efficiency programs to solidify our growth in profits. Some of these opportunities are similar to projects I've successfully implemented in prior companies, such as applying well-established global sourcing strategies.

Our restructuring program continues to progress as planned as evidence by last weeks announcement of our agreement to sell our polymer business to BASF. This is a critical pillar in our restructuring and this agreement is clear evidence of the progress we're making.

The net proceeds from the 470 million sale will predominantly be used to repay debt. This will gives us the financial flexibility we need to pursue opportunities for growth in our core business.

Joe and Clive will speak more about the restructuring in a moment, but let me say, I'm impressed with the planning and the discipline of this effort and I'm confident we'll succeed.

Of course, we still face many of the same challenges that dampened our results for the past year. Not all oil and gas production has come back online in the Gulf in the aftermath of last year's hurricanes, and there's still a premium for oil because of worldwide supply risks.

All of this has kept our costs of raw materials and transportation at historic highs. In spite of these continued challenges, however, I'm seeing clear signs of traction across our entire Company.

Our sales growth is strong, our restructuring program is on course, and we're preparing some exciting innovations for launch into the marketplace. We intend to build on this momentum as we move through the year.

So now I'd like to turn it over to Joe Smorada for more detailed comments on our financial results.

Good morning. Thank you, Ed.

We'd like to remind everyone that a reconciliation of EBITDA to net cash provided by operating activities can be found in our 10-Q reports for the quarter ended March 31, 2006 which can, of course, be accessed from our Web site.

On an as report basis net sales in the first quarter of 2006 were $786 million as compared to 804 million in the same period last year. This decrease in net sales was entirely due to the strengthening of the U.S. dollar against the euro and other foreign currencies.

On a constant currency basis and after adjusting for acquisitions and divestitures, net sales for the first quarter of 2006 increased 3.7% compared to the first quarter of 2005. And after adjusting for a lease accounting change we made in the first quarter of 2005 our net sales actually increased year-over-year by 5.8%.

In our professional segment, sales in North America grew by 8% in the first quarter versus the same period a year ago. This reflects the impact of price increases in 2005 and in the first quarter of 2006 and strong growth in all of our core business units.

This growth has more than offset the impact of the announcement on March 7th of our intent to withdraw from the majority of the underperforming service-oriented laundry and wear washing businesses in the United States.

In our Europe, Middle East and Africa region, first quarter net sales were flat compared to the same period a year ago. This was primarily due to the impact of a correction in the accounting treatment for certain equipment leases that increased net sales in the first quarter of 2005 by $15.3 million.

Excluding the impact of this adjustment, net sales in the region grew by 5.3%. This growth was widespread throughout the region with double-digit increases in both Germany and Denmark and in our Eastern Europe, Africa and Middle East region.

Both the Asian Pacific and Latin America regions showed solid growth in the quarter. Asia Pacific posted sales growth of 6.9% led by growth in the food and beverage business and the lodging and quick service restaurant sectors.

Latin America grew by 7.8% in the first quarter where favorable economic conditions contributed to growth in the food and beverage business and distribution offsetting lower health and hospitality sales in Mexico where tourism continues to be adversely affected by hurricane damage.

In Japan, net sales decreased by 7% in the first quarter primarily due to the restructuring of the service relationship of the core Japanese retail customer, the discontinuance of low margin filter sales in our food and beverage business, and a change from direct selling to a joint venture for sales and distribution of select food service customers in the Tokyo metropolitan area.

Our polymer business delivered 10.3% net sales growth in the quarter. This growth was due to a combination of price increases and volume.

Our gross margins in the first quarter declined as compared to the same period a year ago. On a consolidated basis our first quarter 2006 gross margin was 39.3% as compared to gross margin of 40.8% in the first quarter of 2005.

As we have been discussing in considerable detail for the past year, this result was, this was a result of raw material and transportation cost increases that were not fully offset by price increases taken either in 2005 or in the first quarter of 2006. We continue to be confronted with rising raw material and freight costs and in response we continue to implement price increases to recover these costs to the fullest extent possible while we aggressively pursue further cost reduction initiatives.

After adjusting for period costs attended to our restructuring program, our SG&A expenses were 33.6% of net sales in the first quarter, $3.6 million below prior year levels. Excluding these adjustments, SG&A expenses as a percent of net sales were 40.9% in the first quarter of 2006 as compared to 35.5% in the same period last year.

This increase was primarily due to the inclusion of period costs associated with our restructuring program of nearly $58 million in the first quarter of 2006 as compared to $6.8 million in the first quarter of 2005.

Restructuring expenses in the first quarter were $42.6 million compared to $3.4 million in the same period last year. These costs consisted of severance related and other costs also related to our restructuring program.

EBITDA reported in the first quarter of 2006 was $7.8 million as compared to $72.3 million in the first quarter of 2005. Generally, this decrease was due to a 49.3 million increase in restructuring expense and period costs recorded as SG&A costs related to our restructuring program, and the impact of the lease accounting correction that I mentioned previously, that had the effective of increasing our first quarter EBITDA by $5.8 million.

The Company reported a net loss of $112 million in the first quarter of 2006. This compares to a net loss of 7.8 million in the first quarter of 2005.

This difference was primarily due to three things. Firstly, an increase versus the prior year of approximately $90 million in restructuring expense and other period costs related to the restructuring program.

Secondly, lower gross profits due to raw material costs not fully offset by pricing actions, and lastly, increase at income tax expense.

JohnsonDiversey Holdings reported a net loss of $122 million in the first quarter of 2006 as compared to a net loss of $13.9 million in the first quarter of 2005. As previously mentioned, the main differences between the results of JohnsonDiversey Holdings and JohnsonDiversey are interest expense and related taxes on the senior discount notes as well as dividend income.

Capital expenditures in the first quarter of 2006 were $18.6 million compared to $19.8 million in the same period last year.

At this time I would like now to ask Clive Newman, our Vice President and Corporate Controller to provide you with an update on the status of our restructuring plan.

Thanks, Joe.

As we discussed, we are seeing positive momentum in our restructuring program. To briefly recap, the primary goals of the restructuring are the closure of a number of manufacturing and other facilities in order to optimize our supply chain and improve our market competitiveness, a redesign of our structure to create a lower cost, leaner, more efficient organization, the divestiture or exit from certain non-core or underperforming business units, and a workforce reduction of approximately 10% excluding planned divestitures.

Let me now tell you how we're doing. Incremental cost savings to date under the November 2005 program are estimated at $8 million which is broadly in line with our expectations. We continue to expect annual savings of approximately 150 to $175 million by the end of fiscal year 2008.

During the first quarter we announced our intention to exit the majority of the underperforming service-oriented laundry and wear wash business in the U.S. This project is proceeding in line with our expectations.

In connection with and facilitated by this action, we have also announced the closure of our manufacturing facilities in Strasburg, Ohio and Cambridge, Maryland and a rationalization of our U.S. warehouse footprint.

In addition, and as Ed has already mentioned, we recently announced the sale of Johnson Polymer to BASF at a price of $ 470 million. We expect this transaction to close by the end of June of this year and plan to use most of the net proceeds from the sale if not all to repay debt.

In terms of organizational redesign, we are in the advanced stages of reorganizing our European region around four geographic areas aimed at simplifying spans of control and increasing focus on sales and marketing. A realignment of our central and regional marketing organization is also underway.

Headcount reductions to date under the restructuring program are about 415, of which about 115 are related to cost reduction initiatives and organizational redesign, and the remainder related to the aforementioned exit of the service-oriented laundry and wear wash business in the United States. These reductions are also in line with our expectations.

First quarter costs associated with the November 2005 restructuring program include 42.8 million of restructuring expenses, primarily related to involuntary terminations associated with the withdraw of the majority of service-oriented laundry and wear wash business in the United States.

In addition we recorded $57.6 million of period costs in selling, general and administrative expenses related to the restructuring actions. Of this amount, 21 million related to tangible asset impairment and a further $19.8 million related to intangible asset impairment.

Once again, primarily related to the withdrawal from the majority of the service-oriented laundry and wear wash business in the United States. These asset impairments were recorded as adjustments to depreciation and amortization and are therefore not included in EBITDA.

Cash spending for restructuring related activities totaled 50.5 million during first quarter of 2006. Restructuring reserves at the end of the quarter were $42 million.

I will now turn the call back over to Lori Marin who will discuss the Company's cash and debt position.

Thank you, Clive.

During the first quarter of 2006 our debt balances remained constant at $1.41 billion despite an unfavorable foreign currency impact of $6 million. We held cash and cash equivalence of $147 million as compared to $162 million at December 30, 2005.

Usage under our accounts receivable securitization program decreased by $7.5 million to $104 million, primarily as a result of the repurchase of the Johnson Polymer receivables from the program.

JohnsonDiversey Holdings consolidated debt balance at the end of the first quarter of 2006 was $1.73 billion which includes $320 million of senior discount notes.

As of March 31, 2006 the Company had total credit availability of $168 million under our revolving credit facility and also has the ability to draw under our $100 million delay draw term loan. Of the total credit available at the end of the quarter, we could borrow this full amount and still be in compliance with our financial covenant.

This concludes our presentation. I would like to remind you that our Investor Relations Web site can be accessed at johnsondiversey.com.

We consider this Web site to be a key communication tool with the investment community and we encourage you to periodically assess the site. Documents related to the JohnsonDiversey senior subordinated notes and the JohnsonDiversey Holdings senior discount notes, as well as both companies financial results, can also be found in our Investor Relations site.

A recording of this conference call will be available for replay for the next two weeks by dialing into the numbers listed on the press release announcing this call. Please direct questions related to our financial results to Kathy Powers or to me.

John Matthews will continue to be the contact for all non-financial matters. Our contact information can be found on our Web site.

I would now like to move on to the question-and-answer session. Tom?

Thank you, Ms. Marin. The question-and-answer session will be conducted electronically. [OPERATOR INSTRUCTIONS] We'll pause just a moment. We'll take our first question from Richard Phelan with Credit Suisse.

Hi. I had three questions, if I might.

This is the first quarter in which dividends haven't been paid. I think in the first quarter of last year there was 2.6 million flowing through the cash flow statement. What kind of guidance can you provide us with respect to that line item?

The second question is related to the stockholders agreement. You noted in the filing that on May 1st, last week, the holding Company, Marga B.V. and the Company have basically amended that agreement and I'm wondering with respect to the put call options if you could review the main features of this new agreement. For example, you know, when the put option can now be exercised, an estimate of the price, will the liability now rank senior or junior to the existing senior subnotes?

Same question, will it rank senior or junior to the discount notes? Can you confirm that that liability will materialize on the balance sheet versus being reported contingent liabilities when exercised, and then discuss the treatment of the cash interest and the principle on that.

And then the third question is related to EBITDA as reported. Perhaps this is pedantic, but you mentioned that the decrease is primarily related to 49.3 million in restructuring costs and then the language goes on to say "and severance-related SG&A and raw material costs not offset by price actions."

I'm wondering, does that 49.3 relate exclusively to the restructuring cost or does it also include the severance-related, does it also include the raw material costs and, you know, and if it's inclusive of everything what's the amount which is applicable to the raw material costs not being offset by price actions?

Richard, Joe Smorada. I'll start with some of it.

Number one, we do not expect to be paying dividends certainly for the balance of this year, okay? Could you hear me?

Yes, that's great. Thank you.

Okay, thank you.

Number two, Richard, you know, the agreement, frankly, on the shareholder changes is rather voluminous and respectfully is there to be read. I will just tell you that the obligations, I will tell you this much, they are junior.

There are no contingencies to be reflected, but you know, in terms of, all of the general terms and conditions, it is a very large document and I just think that respectfully it would be prudent to read it at this point than us to go through it.

But you can confirm it's junior to both senior subnotes and the discount notes as under the new negotiated terms?

Yes, we can.

Okay.

And at this stage, being it's only a year away, can you provide an estimate on what the price might be to fulfill that obligation?

Absolutely not. There's just no realistic way to do that.

Okay.

And the last question was related to the reported EBITDA and potentially adjustments that you could make there of with respect to restructuring costs.

Richard, it's Clive Newman. Hello, Richard.

Richard, that 49.3 million you talk about, that's really the delta year-over-year related to restructuring costs and those costs that don't make the definition of restructuring into U.S. GAAP but are related to the restructuring program included in SG&A, and that's solely what that 49.3 million is. There's nothing to do with raw material cost movements in there.

Okay. So, you know, on an adjusted basis it's fair to add back the full 49.3 million?

Yes.

Okay. Great. Thank you very much.

We'll take your next question from Bob Franklin with Prudential Financial.

I think those were my three questions but let me ask a little bit different.

You mentioned 42.6 million in restructuring expenses and then 57.6 million restructuring in the SG&A of which roughly 34 or 35 million were not in EBITDA. So I guess what I'm getting at is of that 57 odd million restructuring in the SG&A how much was expensed?

Well, the 57.6 or the 58 million is predominantly asset impairments.

Right.

And then the balance of it is a potpourri of things related to consulting cost, legal fees, just some IT project work that's around the restructuring, and practically some of the work that we've done to extricate ourselves from underperforming businesses led to some increases in inventory provisions and bad debt reserves.

Those are smaller by comparison. But 40 million of the 57 is the impairments.

Okay.

The rest of it are all several millions a piece.

All right. So 40 million of the 58 did not get expensed? Is that right?

Well, it's expensed. I mean it's run through the P & L. It's not a cash charge.

Oh, I see. That's why I say it's not in EBITDA.

Right. It's just a balance sheet, you know, write-down if you will.

Okay. Got it.

So the preponderance of that number is non-cash. I mean the reserves, of course, at this point are non-cash. So of the 57 million, the vast majority of it is a non-cash charge against earnings.

Okay, great.

Okay?

Yes.

And of the proceeds from the sale of the division, you said you were going to repay debt and then you have access to the delay draw term loan. I'm trying to figure out if any of the proceeds that you use to repay debt would also be somehow drawn back up to pay for the restructuring.

Right now, our intent is, as we've indicated, is to use most if not all of the proceeds to pay down debt. Anything that we would do, Bob, respectfully on the delay draw would be subject to a different analysis. There's not a correlation between the two.

Okay.

In other words, we would be willing to reassess what our general corporate needs would be.

Well let me try it this way. I think you said that the cash costs on the restructuring were, what, 350 to 375 or so?

That's in the ballpark.

And how much have you spent so far?

About 115 or 20 million.

Okay.

But as we have suggested publicly, there are some substantial projects coming forward that we have generally indicated in our public filings.

That are beyond the 350 to 375?

No, but they're there. I mean we would expect to complete our program as we have previously suggested.

Yeah. I'm not questioning that. I'm just trying to figure out the extent to which it's, you know, the extent to which it's going to be from the cash that you generate through operations versus from asset sales versus from delay draw.

I think at this point, we would have to say that as we continue to look at the options for ourselves with respect to not just paying the restructuring costs but, you know, we have capital expenditures, we have capital expenditures that we've indicated before that we may make with respect to our restructuring program that, you know, would supplement those efforts. So I mean as we continue to progress and the results continue to improve and we get, you know, additional granularity around our programs, I think that it's hard to be more than general at this point, Bob, in terms of exactly what we would do with additional monies.

Okay.

I guess I would stick my neck out and say that on the good side it's all good stuff. It's nice to have the liquidity to have to make the decisions.

Right. I know it's always good to have bulging pockets in this case. One last question.

On the shareholders agreement, I did try reading it, by the way. Did you push out the date one year of the put and call?

We pushed out the date of the soft put, yes, from May '07 to May '08. The hard put remains at 2010.

Okay, great. Thank you.

You're welcome.

We'll take our next question from Thomas Wong with Oak Hill Advisors.

Hello, good morning, how are you?

Hello, Tom.

A couple questions if I may.

First on this top line, how much of your organic growth in North America and Europe comes from pricing?

Well just under 3% of the Company's business comes from pricing in the first quarter.

Okay, great.

And secondly, just want to understand a little bit more about all of the adjustments. If I read it correctly, on top of the 43 million of restructuring charges according to U.S. GAAP, we really should add back another 57.6 which includes the asset impairment that the long life asset impairment, the sorry, the intangible asset impairment and another 17 million of period costs. Is that correct?

Thomas, this is Clive, hi.

Yes, Thomas, you're correct. The $43 million approximately of restructuring costs and about 58 million of period costs included in SG&A associated with the restructuring program.

Right.

There is an intangible asset impairment of 21 million within that 58 and an intangible asset impairment of 19.8 within that 58, so the total asset impairments of 40.8 million, almost $41 million, those are recorded as depreciation and amortization expenses respectively so they're not included, you shouldn't add them back. They're non-cash and not included in EBITDA.

Okay.

So my second question then is, the, so it's a 21 of impairment of a long life asset impairment and the 19.8 are included in the D&A?

Yes.

Okay.

21 in depreciation and 19.8 in amortization.

Okay. So we should really add back only the 16.8 of period costs?

Right.

I see, okay.

I think as Joe mentioned, as well, you should add those back, but as Joe mentioned as well, there's about 4 to $5 million of increased reserves against receivables and inventory related to the North American laundry and wear washing business remaining in that 17 to 18 million.

Okay. Great.

And lastly on the, from a segment EBITDA standpoint given that you have [not] sold the polymer business, can you shed some light on first quarter '06, how much of the kind of segment EBITDA changed from between the professional and the polymer segment phase?

How much the what, Tom?

The polymer versus the professional segment, how much of the EBITDA has changed or was polymer largely flat? Just so we understand what the delta is from.

Well, without in too much detail other than what's in the queue, Tom, but I think we can generalize that the polymer business performed well in the first quarter.

Okay, thank you.

You're welcome.

We'll take our next question from David Cole, MSS Investment Management

Hi, can you hear me?

Yes, yes, we can.

Okay.

I think that I understand all of your adjustments now, so roughly speaking your adjusted EBITDA is around 68 million?

We wouldn't want to --

Okay that's fine.

As you say not talking adjusted EBITDA, David, so look, I'll leave you to do the math.

Okay, that's fine.

Have you guys in terms of the actual net proceeds after-tax on the polymer business, have you guys kind of figured out how much you're going to lose in terms of capital gains or any of the tax on the sale?

Well, the answer is yes, but in terms of what we can suggest to you, I would only suggest if you read the 10-Q closely and you look at the deferred tax assets on our balance sheet, you can see that we are likely to have opportunities to cover off any gains on our transactions.

Okay so you can offset those against NOLs?

Yes.

Okay. That's all I had. Thanks.

[OPERATOR INSTRUCTIONS] We'll go next to Caroline Brown with Blue Bay.

Hi, good afternoon.

I wondered if you could just provide any guidance as to the phasing of the cost savings that you expect from the restructuring plan? You mentioned, I think, that you've realized 8 million on the annualized basis to date and could you provide anymore guidance as to when you expect the rest to flow, how you expect the rest to through between now and 2008?

Well, we've indicated before in any numbers of public announcements that we were expecting to have a program that would manifest itself in savings of between 150 to $175 million.

No, but I understand that but in terms of the timing of, I mean you've said by 2008 for the full 150 to 175 million, but I just wondered if you could provide some more phasing in terms of how quickly you expect to achieve those savings in the three year period.

I think respectfully on given the public nature of this call that we would not choose to do that but your time frame in terms of the '08 is correct [inaudible].

Uh-huh. Okay.

In the first quarter last year I think you mentioned you had 6.8 million of period costs. Was all of that sort of cash or was any of that sort of also in depreciation and amortization?

Caroline, I'm doing this just from memory so I could be wrong, but I think it's all cash.

And the period costs that you've outlined both for fourth quarter and first quarter presumably those period costs are not included in your total 350 to 375 restructuring cost estimates for the whole plan. These are sort of in addition and above those 350 to 375 million of costs?

Caroline, they would be included. So when we talk about total costs of the program, we include both those costs that meet the definition of restructuring under U.S. GAAP [inaudible] but they are clearly associated with the restructuring program.

Okay that's helpful. Thank you very much.

You're welcome.

We'll go next to Jessica Tom with Goldman Sachs.

Good morning. I just have two quick questions.

Did the sale of the polymer business affect your restricted payment basket at all and what is the current size of it?

Jessica, I'm not aware of it affecting the restricted basket.

Okay.

So I would say that there is no effect.

Okay. And the current size is pretty minimal, right?

It is very minimal.

Okay, great. Thanks.

And we have a question from Yan Chin with Met Life.

I apologize if somebody asked this already, I had to hop off for a minutes, but looking at EcoLabs results their gross margins in general are much higher than yours around 50%. I was wondering is there anything that's structurally different about their business that would explain that?

Well, this is Ed. They do operate a slightly different business model with a strong focus on services.

Yeah. There's sort of -- their business model is much more direct than indirect too, so you would tend to see if there's a distribution mix between direct and indirect that would increase their gross margin but also increase their SG&A cost.

Okay. Thank you.

[OPERATOR INSTRUCTIONS] There are no further questions at this time. Ms. Marin, I'll turn the call back over to you foreclosing remarks.

On behalf of everyone at JohnsonDiversey and JohnsonDiversey Holdings, I would like to thank you for attending this conference call and for your continued support of our Company. We hope you have a terrific day. Thank you.

This does conclude today's conference call. We appreciate your participation. You may disconnect at this time.