Watsco Inc (WSO) 2023 Q1 法說會逐字稿

Good day, and welcome to the Watsco First Quarter 2023 Earnings Conference Call. (Operator Instructions) Please also note that today this event is being recorded. I would now like to turn the conference over to the Chief Executive Officer, Albert Nahmad.

Good morning, everyone. I hope you all got to see the Spaceship StarLink launch a few minutes ago, biggest spaceship in the history of our country or probably in the history of the world to climb in our orbit. In any event, welcome to our first quarter earnings call. This is Al Nahmad, Chairman and CEO. And with me is A.J. Nahmad, President; Paul Johnston, Barry Logan and Rick Gomez. Now before we start, a 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 Watsco delivered an exceptional first quarter, especially in light of last year's impressive first quarter. Last year, same-store sales were up 25% and EPS was up 109%. Let me say that again, this quarter compares to last year that last year's sales were up 25% and earnings per share was up 109%.

This quarter, sales grew 2% to a record $1.55 billion. Gross margins of 28.9%, reflects our mindset around price and continued progress in our investments in pricing, technology to help our leaders in the field optimize margins.

You will recall that last year's first quarter gross margins also benefited from OEM pricing actions in response to unprecedented inflation. We are happy with the quarter's result given the reduced level of OEM pricing actions during this first quarter of this year compared to last year.

SG&A increased 1%, reflecting early progress with cost containment and gains in operating efficiency that builds on what we achieved -- started to achieve last quarter. Operating income was $165 million. Operating margins remained in double digits at 10.6% and earnings per share was $2.83 for the quarter. As per cash flow, this is the time of the year will be to build inventory for the upcoming selling season. And we are seeing supply chains ease in certain product segments versus last year. I must say not all OEMs are over the supply chain problem yet, but they're improving.

Cash used during the quarter improved $54 million year-over-year despite an unprecedented shift in inventory to new higher cost systems as a result of the change in efficiency standards that took place on January 1. We expect further progress in terms of improved inventory turns and cash flow as the year goes on. All in all, our balance sheet remains strong with almost no debt. This provides us the flexibility to invest in virtually any opportunity as we continue to build scale in a very fragmented $50 billion-plus North American market. We continue to look for acquisitions as Watsco is a great home for family businesses. We sustained cultures, invest in people and provide technology to secure and build on their great legacies.

That's something we love doing, building great legacies of companies that we acquire. Looking beyond the short term, our press release today provides critical details that support Watsco's long-term growth trajectory. We have an immense technology advantage, and we're investing to grow that advantage. These technologies are increasing customer engagement, reducing attrition, creating market share gains and supporting margin. Watsco's broad array of products and brands is a competing -- is a competitive, I should say, a competitive advantage that allows us to serve contractors in most environments. We also have a leading market share position in Sun Belt market that provide stability and higher growth rates.

In addition, there are several important regulatory and industry catalysts for growth that will play out in the next few years. 2023 saw the introduction of federally mandated high efficiency standards for HVAC equipment, which will deliver price benefits in 2023 and beyond. 2025 will also mark the introduction of new refrigerant standard, which historically has made it harder to repair existing systems and favors more demand for replacements. We also see continued movement towards electrification and greater adoption of heat pumps, which generally come at higher prices and higher margins. Sales of heat pumps increased 7% in our company during the first quarter, outpacing overall growth rates.

Finally, we also expect new Inflation Reduction Act to provide enhanced tax credits and incentives for efficiency upgrades and electrification in the years ahead. All of these catalysts would benefit the industry in the coming years. And we certainly believe our scale, technology and financial strength position us to capture the new market share opportunity.

With that, let's go on to questions and answers.

(Operator Instructions)

And our first question here will come from Ryan Merkel with William Blair.

I guess first off, can you comment on trends so far in April? Just trying to figure out if things are continuing at this pretty healthy pace.

Well, that's just a few days to start, but I'll let Barry provide some -- an answer to that.

I think really the first 4 months of the year are all pretty consistent in a very and a very (inaudible) there's not volatility. There's not a lot of change. It's been pretty consistent, as we -- all 4 months as we start the year. But I would very critically and importantly say that May and June and the rest of the third quarter is where the big seasonal increases for the quarter, for example, May and June would probably be 80% of the earnings of the quarter. So an early read in April, I'll give you some inference, but it's not representative of what the rest of the season looks like yet. But so far, so good. If I make it say -- if I say it more simply.

Okay. Well, I'll take that and appreciate that, yes, we're not in the season yet. And then turning to gross margin. Was the quarter hurt by inventory profits rolling off year-over-year? And I guess really my question is, are inventory profits out of your gross margin at this point?

That's a great accounting question, Mr. Logan.

Yes. I mean it's funny for my 30-year career, it's always been a first quarter question and never a question beyond the first quarter because that's generally the timing of pricing. So I'll take a shot at it, Ryan, because it's been anything but normal over the last couple of years. So a year ago, OEMs had near double-digit price actions effective January 1. This year, they did not. This year, the pricing action is on March 1, and it's less than double digit. So there's clearly a cost as you -- to use your term, which is really, I wouldn't call it a cost, I would say there's clearly an impact in the short-term margin this quarter, could be 150, 200 basis points in the quarter because of that algebra in the equation.

And obviously, our margins didn't go down by that amount because there are -- everything we've been saying now for a year or about the entrepreneurial culture, the team, the technology, the culture, working with our OEMs, all the heavy lifting going into the margin and pricing development in the last 2 years, you can see offset some of that short-term cost and margin. So that's the difference between short term and long term. In the short term, yes, there's an algebraic impact in the quarter. Long term, the benefits you can see and you've been seeing it now for the last 2 or 3 quarters in a pretty significant way.

Got it.

And our next question here will come from Dave Manthey with Baird.

I was wondering if you could talk about the OpEx a little bit here. Is it true to say that your increased investment in driving sales for key OEMs via selling and marketing expenses is being offset by tight cost control of the business operating unit level. Any color you could provide on those offsetting OpEx factors?

Well, we certainly hope so, but let me have Barry explain that.

Yes, Dave, well, again, I'd like to look at things over a longer time line, just to tell the story conceptually more than just short term. So the last 2 years, it's pretty remarkable, I think, that head count is up about 15%. That's 800 people, say, $60 million, $70 million in cost added to our network, to serve customers, to deal with the environment we're in, to sell more products, to bring more technology, whatever it might be. And it's a remarkable number and that's part of the investment that we talk about in growing the market, growing the business, the 2-way street of economics that we've been looking for to grow business long term. And that's in the numbers.

And if I dial into the quarter and be, again, more surgical about it, for example, we saw fixed cost increase this quarter, high single digits. And that goes with the people and the investments that are made were variable costs, some of the variable selling costs went down double digits in the quarter. So that's a little bit of what we expected, right? We're not going to shut off investments. We're going to keep investing some of the variable or transitory costs of what's been going on in the last 2 years if that eases and as that eases, we would expect cost reduction. So everything I've just said is playing out in 673 locations in very different ways. But culturally, you can see over the last 6 months, there's a big impact going on in SG&A, not just the quarter.

Yes. Okay. And second, at a recent investor conference, Carrier said that they believe they're underrepresented in their aftermarket. Do you have any idea what they mean by that?

No, that's [news] to me. I've never heard that really.

I think this OEM is now -- has been looking for an increase in their aftermarket share, and it's something that all OEMs are after. And so again, as time goes on, we'll find out how we can motivate the contractor to do more repair parts than they've done in the past. But there's a trade-off to that. Obviously, you want replacement units and parts. I don't think that 2 necessarily go hand in hand.

And Dave, I think -- I don't know the answer, but I'll add my editorial to it, is -- now there's a commercial element to that discussion probably that's pretty significant. I don't know market share in the commercial applied aftermarket parts business, but I have a feeling it's a pretty complex machine. And my guess is that some of this long-term development can come there. And as Paul said, it's been elusive, I think, for all the OEMs in that sector.

Our next question here will come from Jeffrey Sprague with Vertical Research Partners.

You sound a little under the weather, I hope you're feeling okay.

It's by spring cold, you know every spring, I have to weather this cold. It's just a simple cold, but thank you for asking.

Yes. Obviously, a lot of cross currents going on, on the revenue line. I just wonder if you could unpack that a little bit for us, right? We got carryover price. We got new price. We got the SEER change. I mean it's clear, clear volumes are down, right? But can you give us a little bit of granular detail on the interplay of volume, price and mix?

Yes, I would say that all the things that you mentioned are positive for us. I don't see anything in front of us other than good things. And we have the scale to take advantage of that. But let's get a little more granular with you and -- Barry and Paul, anybody else, Rick, if you want to jump in as well.

Sure. Jeff. Yes, I mean, first, units are down in the quarter. We expected that. The industry expected that. It's single -- mid-single digits in terms of decline. Pricing was up very high single digits, which is just more of a mix benefit this quarter. Again, the OEM pricing is -- came later and we'll actually have some carryover benefit into the second quarter. But this quarter, pricing is largely mix and near double digits. And as far as commercial and that type of thing, commercial is up well into double-digit territory, which is probably 2.5 years now of trend.

And to give you some sense of that. I think if you look out into the season, you still have a lag in the full market converting to the new higher tier, higher steer systems. The northern part of the market catching up to the Sunbelt with new systems at higher prices. Manufacturers will all be asked further pricing actions this year. But as a group, most were effective March 1, which carries into the second, third quarter. And what I was referencing is, 2023 has really 3 things going on that are remarkable too, which is the refrigerant change, the heat pump growth and tax credits and so on that could play a role and influence this.

If I had a fourth one that I think is somewhat unique to Watsco, our ductless business, which is a big business for us. It's not centric, so to speak to the U.S. OEMs, but it's a growing part of the market. There's a lot of growth, a lot of investment, a lot of new territories for us in that market. So I think all in all, it's -- once we get past some of this early comparable difficulty that we have, yes, that's again, that's Al's frame of mind is, as we're pretty optimistic about the rest of the year.

If I can just -- I can add on to that a little bit. The impact of 25C with the tax credits coming in for the high-efficiency product really wasn't in our mix in the first quarter. We really didn't see a lot of evidence of a lot of tailwind coming from the tax credit. So we're looking forward to that second and third quarter as we start seeing more of that. And then exactly what Barry is saying. The sell-through of the existing heat pumps is still going through, and we really haven't seen the benefit of the high-efficiency heat pumps, have not yet flowed through into the marketplace. So we've got some good upsides that we're looking at for Q2 and Q3.

And maybe just a clarification on refrigeration. Are you saying you think the refrigeration change that happens in 2025 will already have some kind of positive impact on '23, in terms of prebuy or things like that? Or were you kind of referring to something else?

No, we are preparing to when the rule comes in.

We are not interested in that.

That's not going to impact us until late '24.

Yes. Okay. That's what I thought. I just wanted to clarify that.

And our next question will come from Nigel Coe with Wolfe Research.

I think the answer is yes.

Sorry, I was on mute there. I hope you feel better today. Quick question on inventory. So a much bigger build in inventory than certainly what we'd expected. So I'm just wondering, was that magnitude of inventory build intentional? Are there any other factors you need to bear in mind?

Well, part of it, as I suggested in previous calls is the supply chain issues that we would get in a system just part of one system, and we got the inventory until we get the rest of the system. And that still lingers. We still have inventory of that sort. It's good inventory. Eventually, we'll get into the pipeline and into the market. And I do believe we have more inventory at the moment than I'd like to see, but we're going into the season. So it's not a bad problem to have. As I said earlier, some OEMs are still having issues with supply, the product that we need. But it's good inventory, and eventually, I think we'll get it rightsizing, we'll increase turns. That improves cash flow even beyond where we are today, as you know, our cash flow has performed very well to date. Any commentary from the team?

This is A.J. I'll just add that while year-over-year inventories of $7, there are inflation -- there is inflation in those numbers. And if you look at units, they're actually down. So there are supply chain issues that keep us in, if you will, at a higher inventory position than ideal, but certainly weighs on those numbers. But I agree with what was just said is that here comes a season and we should be in pretty good shape to sell through what we've got.

Yes. Okay. That's helpful. And then maybe, Barry, could I just go back to your comments on the gross margin? Obviously, there is a price increase, came through later in the quarter than normal. So as we then trip into 2Q, does that mean that 2Q gross margin should be -- maybe a little bit higher than we would expect to see normally? Any color on how we should expect gross margin to kind of, I guess, trend for the (inaudible) would be helpful.

Yes. Again, we're speaking in basis points here, not percentages, so don't get carried away with it. But yes, there is a benefit that will flow into the second quarter that is going to benefit gross profit because of the timing of the price increases. But it's in basis points. It's not a -- I wouldn't get carried away with the analysis.

Can you put -- sorry, please go ahead.

Sorry, I was just going to add that, yes, it's true, the price increase came later than usual. It's also more moderate than usual or at least in the last year and it's only on our equipment business, right? The price increases on all the other thousands of SKUs that we sell have tempered relative to the last 2 years.

That's fair. And just -- sorry, just one more clarification. Do you think 20% plus is a good number to use for the second quarter and beyond?

You mean gross margin?

Yes.

Oh my goodness, it's of course, we think. Go ahead, Barry.

I didn't hear.

I think you said you think we'll do 20% or better in the second quarter in gross margin.

28%.

28%. Oh, I'm sorry, I didn't hear that right. Well, you want to speculate on that, Barry, I wouldn't want to.

Yes, I'm going to stick to what we've said now. We would value that -- a year ago or asked what are you looking at for gross margins (inaudible) we said 27% as a target -- as a baseline. Obviously, we've been exceeding that in the last 6 months, especially. But Nigel, I'm going to stick to that just until we can see the real seasonal impact of everything. We're 30%, 40% larger business, 90 days from now, just out of first seasonality. So let's be conservative and thoughtful and we'll change our mind when we have more data.

Barry, last time, you set us up for 27% last time, Barry, and we did pretty well against that goal. So maybe you should raise the bar.

And our next question will come from Josh Pokrzywinski with Morgan Stanley.

Just want to follow up on the gross margin comment. Obviously, when you see numbers that big, everyone is trying to figure out where that looks like going forward. But Barry, you mentioned that the 150, 200 basis points, I think, any other factors that we should keep in mind in there. You mentioned selling price, but anything on the freight side? And then I guess, maybe just specifically on selling price, do you think of that as more doing better on the buying side or doing better on kind of the customer selling side, obviously, both have the impact?

You brought a good point on freight. Barry, you go ahead and answer that.

Yes. Well, first, the parts of cost of sales that don't relate to the cost of the product like freight-in, shrinkage, interbranch freight things that are costs of -- within cost of sales. Over the last 6 months, again, no great variation as a basis point impact. We would hope at some point, actually freight would be a contributor to gross profit as it's been a higher cost over the last couple of years. But as a trend, those line items have had no impact on what you've seen in the results in the last months. Result comes from, again, taking 100,000, 200,000 SKUs and going through a pricing margin optimization program.

It also goes to the branch level leadership, incentivizing them or culturally giving them tools they didn't have 2 years ago. And it is also, as I said, more generically working with OEMs over the last 2 or 3 years. So I think, Josh, that there's not much to report or volatility or 1 big impact item. It's all been pretty consistent, I think, for the last several quarters now. The only variable that changes has been a level of pricing actions like we're articulating carefully today. And yes, it had a cost, but the other things had a benefit. And -- to the extent that levels out -- the OEM pricing actions levels out, the benefits will be there. And that's how we look at it. I hope that makes sense.

Got it. Certainly does. And then I know 2025 is kind of a long way off, especially with a little more macro uncertainty. But just trying to put in context that higher cost of repair that I think you guys mentioned earlier, I mean, did we see sort of a step function change, I guess, entering COVID? I know with the higher replacement rates and just the market strength over the past 2, 3 years, a lot of kind of Monday morning quarterbacking on? Or was it supply chain? Or was it people operating units more, which probably doesn't make a ton of sense, but all sorts of factors that people are trying to figure out as to why replacement has been better. But is repair just getting a lot more expensive even today before we get to 2025 that this is just kind of the new normal on that front?

Again, if I can take a cut at that, and it's not scientific, and we don't have any data yet on being able to answer that quantifiably. But yes, repair probably is going up. The cost of labor has gone up. And as you know, labor is not included in a warranty calculation. So consumers are being hit with a higher price to do warranty than they were in the past. And then the other side of it is, obviously, things like refrigerant and some of the commodities that aren't covered by a warranty also are adding to the cost of being able to do a warranty.

Warranty is not free in our world. Warranty has a definite cost to it. And it also has a timing to it that it takes longer to do a repair or replacement of a compressor than it does to replace the entire system. So there's a lot of very subjective things that go into the repair versus replace. But I think we've tried to explain away in the past with some fairly simplistic concepts that -- now I think we need to dig deeper and find out more detail as far as what really does drive that.

And our next question will come from Tommy Moll with Stephens.

Al, you mentioned that the OEMs moved a little bit later this year on their pricing initiatives. But vis-a-vis your distributor competitors, are you seeing any emerging signs of price-based competition? And if not, on a like-for-like basis, do you think pricing could actually be up again this year across the industry?

It's a very good question. And I'm going to go to my 2 guys, Paul, and Barry.

Yes. Regionally, and with certain customers, yes, there still is price competition going on. There always will be price competition existing in our industry among the OEMs and among distributions. I think with the changeover in products and with a lot of the other aspects that we've been talking about, it probably hasn't been as significant as perhaps it's been in the past. But still, it's there. It's always going to be there. It's a very competitive industry.

Yes, Paul, I mean one thing that sticks out and I agree, it's regionally and then kind of noise, not to signal, but we heard from one of our Northern businesses yesterday that they're later in the transition to the M1 product, the new products that some of the old products are being moved in their region at lower prices. So that would be an example of kind of a regional class, if you will, but the temporary and not material, I think, in the end of the day.

Right. And hopefully, transitory.

Right, that's right.

Yes, but the whole offering of M1 is more expensive than what they're at play for. Right. And that's just new in the market now beginning this first quarter...

Yes, so we should...

That would be impacted, yes.

Right, that's the big story. The other stories are just noise is my point.

And so maybe to put a finer point on it. Do any of these dynamics feel like they've accelerated or moderated this year in particular, just given that industry-wide volumes may be pressured? Or do you still think that net-net across the industry pricing does, in fact, move higher through this year?

Well, it's hard to predict, but we've had a pricing action that takes place now just starting and it's more moderate than it hasn't been. But it's hard for us to advise you that we expect no changes in pricing. I just don't think that's something that we have a good -- we would know if that comes from the OEM. Paul, anything to add?

Yes, I think I agree with Al completely. I mean until we start seeing a normal supply chain until we start seeing where the weather goes and what consumer dynamic is, making a prediction like that in April would be a wild guess on our part.

I think what's -- just to add a layer to that. I think this is just important educationally. We have a store in Miami here that sells more than $50 million of equipment. That's more than a Home Depot sells, right? We're selling to a couple of thousand customers at different prices. Our pricing to the market -- to our customers has variability. It has customization. It has competitive thinking to it. It has technology around it now. And what's really not well known is we're buying from our manufacturers at different prices to match and closely manage margin as we sell products in Miami.

And now let's extrapolate that 90,000 customers and 670 locations. It's a mammoth math and science equation, where pricing is that granular across that many markets and customers. So 2 points to that is there's a lot of fluidity in how we can manage margin no matter what the local market is doing or how another OEM might be behaving. It's an immense equation that is very fluid. And the good news is, and I'll say it again, third time in the call, there's now technology in place to look at all of that, to manage that, to prosecute that strategy in a way we didn't have it 2 or 3 years ago.

I appreciate the context. If I could ask one on market share. Again, just starting from the construct of industry volumes down, let's just say somewhere in the mid-single digits this year. In recent years, you've taken significant share. I presume you'll plan to repeat that again this year. But could that net to Watsco volumes flat or even up on the year, do you think?

You mean in units or in dollars?

In units?

I would certainly hope so.

Yes, give it a shot.

We've never set a goal to not increase market share in the year. That just isn't something that's in the Watsco DNA.

I think he is referring to the environment, and we're going to have the environment of growth share. The variables to that is if you get hot weather, it doesn't matter, what we want to do, the demand is going to be there because heat creates demand, hot weather creates demand.

Well, also, I think this year, what we're looking at is spicing the market into different segments. So not just looking at market share and split systems, but looking at market share in heat pumps versus straight cool versus the mini splits for the ductless-type product. So I think it's going to become a more complicated equation than we've looked at in the past. And it's also going to be probably more important that we're looking at market share in the markets that we think have got the longest legs in the longest future and that obviously is the ductless product and the heat pump product.

Appreciate the insight.

Dimension in -- right, yes, in terms of share. I think that's the correct statement of those products.

Our next question here will come from Jeff Hammond with KeyBanc Capital Markets.

This is Mitch Moore on for Jeff. It seems like the supply chain for residential equipment is pretty close to normal here. But I was just wondering if there's any areas where -- within resi, where lead times are still an issue?

Yes. We're not going to identify it, but we have an issue with the equipment still and the issues are more serious in different places and different brands. Yes, we still are overcoming shortages of equipment itself. No questions about it.

Okay. That's helpful. And then just on inventory, I was wondering maybe what's a realistic source of cash from inventory kind of this year?

What would I like? Or what do we think that's going to happen? I mentioned before, I'd like to get another $200 million out of our inventory and cash flow, but we'll see what happens, but we're better prepared with that because of the -- versus supply chain as it improves, we improve our turn because of that equipment that isn't matched right now will be matched, will be cleared to sell up. And just our technology has got a lot better so that we can obviously improve the turn, that's where our goal is. So I gave you a number. It's a goal. It's not a projection.

(Operator Instructions)

Our next question here will come from Patrick Baumann with JPMorgan.

I had a quick one -- quite a few actually. But in the press release, you mentioned that unit volumes are adjusting to more conventional run rates. But what was meant by that comment? Maybe that's a Barry question.

Barry and Paul. And Patrick, may I suggest that you come visit us. We always want to have you guys come visit. Are you going to -- hope you'd be able to do that soon.

Yes, we are -- we'll be coming down there soon, we will.

Thank you for that. Okay, Barry, you want to answer that?

Yes. Yes, Patrick, I mean, if you look at 20, 30 years of data, the growth rate of the industry is right around 3% unit growth. It's been closer to 8% -- 7%, 8% the last 2 or 3 years. And so my -- the comment really is that some adjustment is going on, obviously, the last few quarters.

And I think the realignment towards that longer-term growth rate is probably what we'll see at some point. And so it's just a reset. It's not meant to tell you what we think unit growth will be short term but it's part of the reset. That's obviously has been in the cards now for probably the last year kind of taking place.

Makes sense. And then switching gears on HVAC products sales. Can you talk through what you're seeing there? The decline in the first quarter was modest. But just kind of curious if you could parse that out a little bit, whether it's volume or price or however you want to talk about it. I know there's a lot of stuff within that subset of sales? Just kind of curious if you could talk about that subset.

Patrick, I didn't hear your question.

Yes. Just want to talk a little bit about HVAC product sales, not the equipment side, the product subset of sales. So it was down 2% in the quarter. Anything you could talk about, whether it's volume or price or specific product categories, however you can talk to what's going on in that segment.

It's about 1,000 vendors, about 80 different product lines and anything from duct tape to refrigerants or replacement parts to copper tubing and so on. So no great inference on any one thing. It's a basket where a year ago, again, 25% plus, I think, same-store sales a year ago. I think that's just a reality a year later of a very tough comparable.

Also, Patrick, remember what we do, we participate in a very stable market. We're not involved that much with new construction. It's about, I don't know, about 10%, maybe as much as 15% sometime. We're in the business of helping air-conditioning and heating continue operating 12 months a year. That's what we support. And that's not going to -- it's just nice to be in that sort of the business where it's pretty stable. Sometimes it goes a little faster than others, but it's stable.

And with the millions and millions of homes and businesses that are using HVAC products, it's just something that shall we say essential, you've got to cool homes, you've got to heat homes, and that's not going to be that affected with economic trends to a large extent. Now where we think we can also help is financing if things get too expensive in terms of interest rates and inflation on the product. And so we are focused on helping the consumer with financing that we have designed probably industry-leading technology to help the contractor, help the consumer with financing these products.

Understood. And then the last one is just on the M&A pipeline. Like maybe if you could talk about how you guys are feeling about the M&A space these days, seller expectations, maybe hold that -- but maybe market uncertainty holds that back a bit. Any color you can give on that?

Well, I want to say that I think our reputation for our culture is our best selling point. Private equity entered the industry. I don't know the impact of higher rates is going to have on private equity as competitors to make acquisitions. But we're a different kind of buyer from private equity. We're in for the long term. We like building the legacies of people that created a business. We're very unique in that position.

And yes, we're always, always active in M&A. We think of that as a strategic way for us to expand our footprint throughout North America. And I don't think that that's ever going to change. That will -- private equity come and go, we'll see. But doesn't -- remember, there are over 1,000 distributors out there. It doesn't mean that we're not going to be active in it. We're always going to be active in it.

And that concludes our question-and-answer session. I would like to turn the conference back over to Albert Nahmad for any closing remarks.

Thanks, you all, for a great job, and thank you all listeners, for your interest in our company, and we look forward to having another of these calls at the end of the next -- of this quarter. Bye-bye now.

The conference has now concluded. Thank you very much for attending today's presentation and you may now disconnect your lines.