Watsco Inc (WSO) 2016 Q1 法說會逐字稿

Good morning and welcome to the Watsco first-quarter 2016 earnings conference call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to conference over to Albert Nahmad. Please go ahead.

Good morning, everyone. Welcome to our first-quarter conference call. This is Albert Nahmad, CEO; and with me are AJ Nahmad, President; Paul Johnston; and Barry Logan.

And as usual, first the cautionary statement: this conference call has forward-looking statements as defined by SEC laws and regulations that are made pursuant to the Safe Harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements.

Now let's get onto our results. We achieved another solid first quarter and are off to an excellent start for the year. We are operating at record levels, and at the same time we are continuing to make significant investments in technology to transform our business into the digital age.

Our annual run rate for tech spending is now approximately $22 million. The incremental tech spending during the first quarter had a $0.03 impact on our results.

It is very early, but we are already seeing benefits. They include: customers are beginning to use our mobile apps. They are also adopting e-commerce to gain speed and efficiency. Our supply chain initiatives are gradually improving inventory turns. Our 565 locations are implementing technology that fulfills orders more efficiently and saves our customers time.

Our employees have better insight into their operations from using our business intelligence platform. All said, we are excited about what is happening and the spirit of creativity and innovation at Watsco is at an all-time high.

We are also delighted with our results in comparison to the strength of last year's first quarter, when operating profits was up 32%; operating margins were up 110 basis points; and EPS increased 35%. Now, although it is early in the year and not yet the summer selling season, we believe our momentum will continue and expect 2016 will be a record year.

And now for the details for the quarter: a 9% increase in earnings per share to a record $0.71; an 8% increase in operating income to a record $51 million; a 20 basis point expansion in operating margins to a record 6%; a 20 basis point reduction in gross profit margins; and a 40 basis point decline to a record low in SG&A as a percentage of sales. Sales during the quarter increased 5% to a record $851 million. HVAC equipment sales increased 7%, including 10% growth in the United States, reflecting good unit demand, pricing, and a richer mix of higher efficiency systems. Sales of other HVAC products increased 4%, and commercial refrigeration products increased 6%.

First-quarter cash flow was the best ever by achieving a record $42 million versus a use of $17 million last year, a positive swing of $59 million. And I like this one: debt was reduced by over $100 million compared to last-year comparable period. Our balance sheet remains conservative, with a debt-to-EBITDA ratio of under 1 times.

We raised our annual dividend 21% to $3.40 per share in January. We hope to continue our policy of increasing dividends as we generate strong cash flow while maintaining a conservative financial position and a low cost of capital.

As has been our policy, we will not provide an outlook for the year at this time due to the seasonality of our business. With that said, AJ, Barry, Paul, and I will be happy to answer your questions.

(Operator Instructions) Steve Tusa, JPMorgan.

What are you seeing on the mix front? How do you kind of see the 13 SEER stuff playing out? I know it's early in the selling season, but maybe -- what's kind of the feedback from the channel on how long that inventory will be around for the 13 SEER?

That's not too early, Steve, because there is a mandate about when you have to sell it. So I'll let Paul answer that.

Yes, we're seeing the runoff in a very orderly fashion right now. And we saw our 13 SEER sales drop significantly, which we expected. And we're seeing that being reflected in our 14 SEER sales increase.

And I guess on the 14 SEER pricing for the new 14 SEER products, I think we were at least hearing kind of around double digits, maybe perhaps a little bit less than that. What do you guys feel is kind of the appropriate price for the new entry-level 14 SEERs when all of that settles out?

The question is about price for the 14 SEER?

Yes, over the -- yes, the price premium of that entry-level 14 SEER over the 13 SEER.

No, I don't care. I think every manufacturer has different spreads. But what we're suggesting to you is that there is price integrity. No one is yet hurting market price.

Right. And you are seeing a pretty smooth transition from all of the OEMs when it comes down to supplying you guys with the product you need?

Yes, very much so.

Okay. And then how's April trending so far?

April -- well, it's growing. I would say in the mid-single-digit right now, and -- which is what we did in the first quarter.

Okay. Got it, okay. And then, Al, one more question: you don't really seem to ever worry about much. (laughter) Other than the weather. Other than the weather, what are you from an end market -- you know, from a market perspective, this cycle seems to be playing out pretty smooth, and actually maybe even smoother than it was when housing was red-hot. It seems like a much more rational, steady-state, good, solid tone on demand type of cycle.

And anything you're seeing out there that worries you at all on the consumer side? Or, I don't know, anything that worries you structurally about how the industry is shaping up here kind of as we move through this new cycle?

Well, first of all, we are not a major player in residential construction, as we have mentioned several times. So we are primarily in the aftermarket, and that's very consistent demand year after year. And, of course, we being the largest in that, we enjoy that. Paul, you want to add any color to that?

No, Steve, everything right now -- you know, I'll be rosy with Al on this. Right now everything is transitioning pretty much as if it was supposed to be this way. And I'm very happy to say that.

Al, I had one thought, too.

Yes.

Al, just one thought on that, to build on that.

Go ahead, Barry.

One of the big assets we manage is accounts receivable, and it has 88,000 customers in it that pay us money every day. And it really is the healthiest we've seen that portfolio from an exposure point of view, from a payment point of view, especially entering a season. So that's always a great kind of indicator of what's going on in the end market. And it's been a very healthy asset these days.

That's good. Okay, great.

One more quick question. How is the acquisition environment out there? You guys have taken debt down now. You guys haven't done a biggie in a while. Maybe -- what's the pipeline like on the acquisition front? Any change there?

Well, we're very much in tune with you. We like the biggie. Can you help us get one of them? Because that's what we're trying to do. We think we've got a lot to offer.

I'll get our bankers on that. (laughter) But no real change -- no real change in the tone out there?

I could use that help, Steve. Okay. (laughter)

Okay. All right, guys. Thanks a lot. Good quarter. Thank you.

Matt Duncan, Stephens.

First question I've got is just on the SG&A side. It's a pretty impressive drop in SG&A as a percent of sales year over year, despite the technology investments. Can you talk a little bit about sort of specifically what kind of costs you guys were managing there? Or is this just really sort of across-the-board efficiency?

Barry?

Well, first, we have leaders across the Company that are paid to grow EBIT each year. And they're going to always manage the business to grow margin and EBIT in a way that produces opportunity for them. So it really is a granular, local management process throughout the Company -- culturally dealt with through how we incentivize people.

So I think it's a good quarter for us, a good start to the year. But there would be 1,000 answers to the question, not a single answer in the way -- in terms of how it's managed across the Company.

Sure. Okay, that makes sense. And then on the gross margin, the 20 basis point drop there, is that really just noise/mix? Is there any one thing you would attribute that to? And sort of where do you think gross margin ought to come in for the year? Is it going to be up or down versus last year?

Gee, I don't know that we even could tell you that; we don't know. But in terms of what's already occurred, perhaps Paul or Barry could add to that.

Yes. I mean, Matt, I think what you saw on the first quarter -- we had a very strong equipment mix in our sales. And that really constituted the great majority of that 20 basis point change. So if that trend continues, I don't know where that would bring us. But I think we're in good shape.

Okay. That makes sense.

I would just add this from a trend. I mean, sequentially margin is up. If we look at probably a couple-of-year period, margin is up nicely. So a single data point this quarter is something you want to read into. And equipment growth simply is the basis of that change quarter over quarter.

Okay. Yes, obviously, it's been trending up. That's what I was getting at. I was just making sure there's nothing that is sort of changing in the business. And it sounds like the answer is no. So that is good.

No. No, there isn't.

Okay. And then last thing: what kind of price increase are you seeing year over year so far on the equipment side?

Those were announced some time ago. Paul?

Yes, those were announced. What we're seeing is 2% to 4%.

Okay. Yes, I was just making sure the price realization was where this --.

Yes.

So the same as the announcements, basically.

Right, yes.

Okay, all right, guys. Thanks. I'll hop back in queue.

Robert McCarthy, Stifel.

I guess, not to be pedantic, but could you talk a little bit -- did the Easter shift cause a little bit of perhaps lower-than-expected revenues going into March? And then do you think you got some kind of benefit going into April? Or would you just say that's fairly minor in terms of the impact?

Well, I don't know how to answer that. Paul, have you got an idea?

(laughter) I'm not that smart to know if the Easter shift caused anything. That's pretty tough to answer, I think.

Well, I think some of your comments was -- you know, just obviously the tough compare of 1Q.

Our earnings per share last year for the first quarter were up 35%. So we are up 9%, and we think we're doing pretty good.

Right. And then I guess what else I would say is in looking at the trends and what you're seeing right now kind of the mid-single-digit growth, any areas where you're doing better regionally or any geographic kind of dispersion in terms of that?

Yes, Robert, we've gotten that question in the past. And we don't answer that for competitive reasons.

Yes. Well, for obvious reasons, right.

I will say this: domestic is stronger than international.

Domestic is stronger than international. Okay.

Yes.

And then back on the acquisition front, I think there's been a suggestion -- I mean, do you think there's a possibility for you to go into and partner with, perhaps, captives -- or not captives, but OEMs that perhaps you haven't partnered in the past?

Oh, yes.

How do you think about the opportunity set there?

I would love to.

Okay.

I would love to, Robert. If they will agree, we can develop their business much as we have Carrier.

And it's nice that my sell-side brethren are critiquing me as I ask these questions. It's always nice. (laughter) So thank you all. In any event, I think I'll leave it there, and perhaps I'll circle back for a follow-up. Thanks a lot.

Sure, sure.

Ryan Merkel, William Blair.

It's Ryan Merkel, William Blair. So I guess first question: on the equipment growth rate, was there a big difference between residential and commercial?

No, they were about the same. They were about the same. Okay.

And then did the equipment mix of SEER 14 and above rise meaningfully year over year just as a percent of the mix?

Paul?

Yes, it did.

It did.

Yes.

You guys probably won't disclose any specific numbers, but I'll ask anyway.

No. We really can't. We can't on the mix.

As a market leader, we don't want to invite our competition to go where we are doing well to vice versa.

Understood, Al. Well, can I ask this: of the 7% growth rate for the equipment this quarter, how much was price mix versus volume?

Barry?

Again, in the US market, which is kind of what is dialed in on, about two-thirds of it is unit growth. The rest is price and mix.

Okay. So that's tracking about the same, right, Barry?

That's correct.

And then lastly for me, back on the OpEx. Is it fair to think that you could grow OpEx kind of in that 3% range all year? Or, maybe said differently, keep a 2-point spread between sales growth and OpEx growth?

Well, certainly, we'd like to achieve that. I think we are on the same page as you are. But we'll just have to wait and see.

Okay. All right, fair enough. Thanks.

Brett Linzey, Vertical Research.

Just wanted to circle back. Just looking at the other category -- so other HVAC products up 4% -- this is actually the best it's been in a couple years. Is there something in particular that's giving it a lift there? And any color on the quarter and how you're thinking about that category for the balance of the year?

Paul, do you want that one?

Barry, why don't you handle that?

Okay. Well, it is good news that the growth rate is higher. There is 125 product lines in that line item, by the way. And I would say as a composite, we've seen some improvement price and some of the big categories that has helped it.

Okay. And then just on Canada, what was the sales performance like in the quarter? And I guess just a general update on the spending environment in that region heading into the selling season and some of the progress at the Carrier --.

We don't break out regional stuff in the international business, either, for the same reason: the competition.

Okay. And just a final one here. So I just wanted to ask about the FASB change on stock comp. This is something that can be adopted this year. Is it being considered? And, I guess, is this change something that could be meaningful to your tax rate this year or next?

Barry?

We're certainly looking at it. The tax rate generally benefits when things vest. And in our vesting structure, if you read our filings, it takes a very long time to vest, most of the time between 10 and 15 years from today.

So it's something that will help eventually. We'll look at the standard a little bit further. But just always remember that the vesting of what we have is long into the future, and those benefits won't be derived really until then.

A little more color on that. We started several years ago a vesting period of retirement age of 62 or older. That's a very long-term view in our minds, and we like to reward people for long-term performance. So we do the vesting over the longest period of anybody that we know that's public. Generally vesting in public companies take three to five years. We're much longer than that: age 62 or older.

Okay, great. I appreciate all the color.

David Manthey, Robert W. Baird.

Yes, I can get qualitative here, too. As you look at 2016, Al, around what would you define success this year?

Well, as we stated earlier, a record performance and growth in all the major categories -- and further adoption -- as important as that, as the performance in numbers, is the adoption of our technology, which is just beginning.

I mean, David, we are in a transformation point. And that's why I'm so excited. We are getting to be a better and better service to our contractors and internally, with the information that we're generating with our business intelligence platform. It's very exciting stuff, and it's going to have a huge long-term impact. I can't quantify it for you; I'm just telling you how I feel.

Okay. And while we're talking about that, I know there's at least -- there's one OEM out there in particular that is struggling with technology and reliability. And wondering, based on that, plus your technology, if you could talk about the success you're having with share gains via getting new contractors in existing markets today?

Well, that's a good question, but one we can't answer, because we don't know that yet. We're just beginning to adopt. And whether we gain share or not, the value we bring to our contractors, we think, will be immense. And no one can do it better.

I mean, if we're going to disrupt -- we'd rather do the disruption in the industry than let somebody like Amazon do it. So we have enormous piles of data on -- I think I said it once before -- 300,000 SKUs. And that's growing. That number is growing. It will be very difficult for anybody to disrupt what we do, because of our knowledge of all the products that go into the $35 billion distribution industry, which in turn retails for $80 billion.

Okay, all right. I guess, then, we'd be remiss if we didn't bring AJ in on this thing. And maybe, AJ, if you'd talk about the apps, the supply chain, and business intelligence, those three things. Where are they in their various stages of implementation? I think apps are fully implemented. But if you would talk about where you are, early returns you have had.

Just -- it's probably too early to start asking about where the IT spending starts to plateau just yet. But if you have any thoughts on that as well?

Well, first of all, thank you for bringing me into the mix, David. I'm excited to participate. (laughter)

You're right; it is early days in a lot of these things. Some of the programs that we started earlier, like apps and e-commerce, they are live. And they are in the market, and they are getting traction. But it is still first or second inning of these things. But all the trends are positive.

We obviously want adoption of these tools. We want them to make an impact for our customers and for our businesses, and they are. And as we get more mature with these things, we'll start talking more specifically about impacts we see in dollars and whatnot.

The supply chain technologies got a later -- well, I should say we did those after apps and the e-commerce. So they're even earlier days. And while they're starting to take root in some of our subsidiaries, they're not yet fully implemented. But where it is, it's, again, very positive trends in terms of the impact that we're seeing for our businesses. And again, those touch our customers as well. So it's all very positive. Just early.

Great. All right. Fair enough. Thank you very much.

Keith Hughes, SunTrust.

To build on -- this question is for AJ again. To build onto your last answer, the supply chain initiatives -- is that the transmission back and forth the order data or billing data? Or what kind of things are you working on?

Yes, I think we spoke about this on our investor day. There's several buckets or pockets of opportunity, and huge numbers, right? I mean, last year at peak season we inventoried $900 million worth of products. There's a huge opportunity there, right? About 600 warehouses, about 13 million square feet of facilities. Those numbers, we think, are prime and ripe for doing a lot better.

So it's about getting the product in and out of our warehouses better and faster. It's about having the right product, at the right time, at the right place to serve our customers and have higher fill rates, but not have too much inventory of things that -- or optimize that whole flow; and getting customers in and out of our stores faster, so they can go back into the field, sell more jobs, and then buy more product for us. Those are kind of the big themes.

And, I mean, it sounds like there's more to do. You said it's early days on this. Should we be expecting -- this roughly $0.03 a quarter spend on tech, is that going to continue for the rest of the year? I mean, that's more or less what it was last year.

Yes, I think that's fair. You know, if we see opportunities to do more that we think will have a high return, we might do more. If we need to pull back on some things, we'll pull back on some things. Nothing is written in stone here. We are very flexible and very opportunistic.

Okay, thank you.

Josh Pokrzywinski, Buckingham Research.

Just a couple of questions for me. We've gone over a lot. First for AJ on some of the technology rollouts. Al, I think you mentioned in your prepared remarks that user rates or adoption on the mobile apps are up. Anything that you could put on that quantitatively in terms of numbers out there or where that has trended over the last couple of years?

AJ, do you have such a number?

We have numbers. Again, I'm going to be purposely vague to probably frustrate -- to your frustration, I'm sorry. But, again, the numbers are -- they are small still, but they're trending very positively.

Okay. Maybe I can help this. Is it in the hundreds or the thousands?

In the thousands, certainly in the thousands.

And how many -- I think Barry said you have 80,000-some customers that you have billing relationships with. So is that kind of -- saturation rate is some large percentage of that number?

Oh, no, no, not even close. No.

And Josh, when I say we have 88,000 customers, those guys might employ 5 to 10 people. So it is an immense user base potential beyond just the number of customers.

Okay, got you. And then just maybe parse out some of the technology spending. How should we think about this breaking out between bringing in folks and a spend number that is ongoing as you pay these guys regularly versus kind of one-time or small-time hardware investments, where you get up and running, and there's not as much ongoing spending?

AJ, do you want to deal with that?

Sure. I would say generally speaking, most of the big one-time spends have happened. And now it's about continuous improvement of what we have and what is in the field. And that requires probably more people over time as well, as we drive adoption and do things at bigger and bigger scales. But the big time, you know, huge purchases of software and hardware -- I mean, we didn't really buy hardware, but software -- I'd say most of those have already occurred.

Got you. And then just flipping over to the quarter. I don't know if you guys mentioned in your prepared remarks or not, but just the growth on higher efficiency product, kind of 16 SEER and above?

I don't know. Paul?

Yes, it's just noise right now. We already had a pretty good penetration, a very high penetration on 2016 and above. And it's just pretty much holding. The big news is between 13 and 14 SEER.

Got you. So I guess -- there's been a thesis out there that when you shift the base higher, that you get some accelerated growth in the high end, that your entry point is little higher. Is that something that you're seeing? Or has a lot of that shift just as the consumer feels healthier already happened?

Well, if we see that shift, we'll see it this summer once the supply of 13 SEER depletes.

Fair enough. All right. Thanks, guys.

Jeff Hammond, KeyBanc Capital Markets.

My questions have been answered. Thanks so much.

Charles Redding, BB&T.

Maybe if you could just speak a little further to current demand trends in commercial refrigeration? Certainly got a nice 6% pickup here.

And then as we think about the 2020 transition on R-22, would you expect more of the spike in replacement demand after that happens? Or does the gradual phaseout really keep that transition more measured?

All right. Paul?

Repeat the second half of your question, if you would.

Sure. Just thinking about the transition, again, in 2020 as we get post R-22, would you expect again a gradual phase here in terms of replacement? Or would this transition keep it more measured?

I think there's -- that's a wonderful question. I think there is going to be, obviously, a continuous transition away from the 22 to the 410. I don't see any sudden jerks in the road, where it's all going to stop just because the R-22 isn't available. There are other replacement products that are available, 407C being one, that you can use to replace R-22 with in the field. So I see it just continuing its gradual downslope.

Great. And then inventory turns -- obviously you have been pretty consistent, at or about 4 times. You stated the 5 times goal. Are there one or two kind of more near-term compelling opportunities that will help you push that number? Or is this, again, more of a long-term thing that we should expect as your initiatives kind of play out?

I would say it's all a long-term investment that we are making that will move the needle there.

Fair enough. I appreciate the time.

(Operator Instructions) Walter Liptak, Seaport Global.

I wanted to ask about the operating cash inflow versus last year. And it looks like most of that is coming from working capital. And wondering if it's inventory? What do you attribute it to? Is it the buildup that you had last year in 13 SEER?

Yes, that's some of it. That's a good question. But it's also just beginning; about 15% of our revenues are -- now have installed the new technology. So I expect we'll move away from the seasonality that build more into the better management of the inventory as we sophomore up the technology.

Okay. So it's just level-loading of your inventory in the branches.

Well, it's all of the above. The inventory management system is -- it's new technology that we've just installed in 15% of our revenues, and it's got a lot more to go. It covers everything: inventory in branches, inventories in districts. So it's the entire cycle.

Okay. Good. And then I wanted to ask about pent-up demand. We all know that there's probably still some pent-up demand. But wanted to hear from you if there's a way of measuring it, if you guys think about that still. Is that a factor in some of the residential HVAC growth rate that we're seeing?

Well, Barry Logan will describe it as a demand business. So, Barry, you want to develop that?

Sure. Sure. I mean, if we look at a 30-year average or probably a 40-year average, even, it's a 3% or 4% unit growth environment for replacement for one reason: the installed base has grown at that kind of rate for those 30 or 40 years.

So we've been seeing, really over the last three years, a better growth rate than that in units for replacement in the US. And that is simply the consumer having the cash and having the incentive through the energy efficiency and the contractor to close the sale at an increasing rate of replacement. And as I said, it's been about -- almost 3.5 years that we've seen a very consistent trend line along those lines.

So I think as long as the consumer continues its kind of stature and posture, those growth rates are possible. That's the way to look at it. It took a long time to build the installed base; it will take a long time to replace it again. And with the incentives and kind of the foundation of that and a good consumer, it's a very good business.

I wouldn't call it pent-up demand. I think it's more subtle than that.

Okay. So there may be more of the pent-up demand with a strong consumer going on for a number of years, it sounds like.

That's the opportunity.

Okay. All right, great. Thank you.

Chris Dankert, Longbow Research.

Thanks for taking my question. Just kind of want to touch back to an earlier question on refrigeration. It's a smaller part of the business but really had strong growth the quarter. Was there anything you'd call out driving that? Or was it just good execution by your guys on the ground?

Of course you'd think the latter. (laughter) Paul, do you have an answer to that?

Yes, I'll give our people credit for that. I think our guys are doing a better job of going after the refrigeration market. We're very big in ice machines, and I know they have been doing a great job in that area.

Okay, great. Thanks. And then just quick checking-in, I guess. Any plans you'd articulate on store closings or openings in the year?

No, it's just the normal process. We add stores and remove stores. Although the technology that AJ Nahmad is leading will be able to do more with existing stores, so therefore eventually reduce the amount of space that we use in our warehouses.

Okay, great. Thanks so much, guys.

David Manthey, Robert W. Baird.

Thanks for the follow-up. We've been hearing a lot from other distributors about financing as being an important option for consumers as the equipment has become increasingly expensive. Are you and your manufacturers helping your contractors access financing options so they can sell these products to consumers sort of on a monthly payment basis rather than a lump sum? Is that something that you're involved with?

Sure, Paul. Put some out there.

Absolutely, David. We've been in this business of helping the consumer with financing for, gosh, probably the last 10 or 12 years, both independently as Watsco, setting up programs who finance companies, as well as with our various manufacturers. So this is not new. This is something that just continues.

So I would imagine as the largest, there's somewhat of a competitive advantage there, given that you probably have better access to capital than your competitors?

I wouldn't go that far, no.

Oh, come on. (laughter) All right, thanks very much.

Robert McCarthy, Stifel.

Let's try this again. You know, could you discuss -- following up on kind of the comments about the replacement cycle and pent-up demand, which you think is, I guess, a dirty word, but just given -- you know, we are going to get --.

It's not a dirty word. We cannot -- there's no way to know pent-up demand. All we can go with is the historical data, and it's a huge -- installed base is 89 million homes. And eventually those machines wear out. Now, they have a life. They have a life. Machines do wear out. And then sometimes the consumer will repair what he's got, or sometimes they replace. That's what Barry was talking about, ability to pay for it. So I suppose if the consumer is healthy, then he's going to replace more than he's going to repair.

Right. And I guess it's too hard to put too fine a point on it. Warranties are kind of -- for certain unit size of product that was probably sold in the kind of 2005 to 2007 time frame are going to come off warranty short order. The replacement cycle usually means about 10 to 12 years, just in terms of breakage.

So I guess the point is: is there -- do you think there's a thesis to perhaps acceleration in kind of 2007 to 2018 on the basis of kind of seeing kind of greater growth than what we've been seeing historically? Or you just think it's too subtle for that, and we'll see a continuation of current trends?

I wish I knew the answer. I'll let Paul try to give -- use our strategy guy!

I wish I had the answer to that, too. That's a good --.

It's a great question, but I --.

I think units have varying lives depending on where they're applied in the country, also. It's hard to just paint a brush against it and say it's all the same. A unit on the coast of Florida has a different lifespan than a unit in Phoenix, Arizona.

But I think if you -- I'm just doing this on the run here. But if the consumer is healthy, that will affect growth rates of demand for our product.

Always. Always the key driver is the consumer's financial health. Consumer feels good and is employed, they are going to buy --.

We just experienced it. Since 2008, the trend went into replacement -- I'm sorry, into repair. You probably saw our data from then. And now that data is reflecting replacement rather than repair.

Which definitely speaks to the health, yes.

Yes, yes.

And then just as a follow-up, is there anything over the horizon you're doing with -- potentially with utilities in terms of potentially stimulating demand?

Well, always. You know, sometimes we put flyers in their bills and things like that. That's a marketing channel, for sure.

Okay. Well, then, I will leave it there.

And they provide incentives, too. Maybe not as much as they used to. If you buy a high efficiency air-conditioner or furnace, they'll incentivize the consumer to do that.

Understood. Thanks for your time.

Sure.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Albert Nahmad for any closing remarks.

Well, thanks again for your interest in our Company. And we look forward to the next conference call. Bye now.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.