Watts Water Technologies - Q1 2020

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by, and welcome to the Watts Water Technologies First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Timothy McPhee, Treasurer and Vice President of Investor Relations for Watts Water. Thank you. Please go ahead.

Timothy MacPhee (VP of Investor Relations)

Thank you, and good morning, everyone. Welcome to our first quarter earnings conference call. With me today are Bob Pagano, CEO and President, and Shashank Patel, our CFO. During today's call, Bob will offer insights into our response to the COVID-19 pandemic and discuss the current state of the markets, our operations, and liquidity. Shashank will discuss details of our first quarter performance and provide assumptions about the outlook for the second quarter. Following the prepared remarks, we will address questions related to the information covered during the call. Today's webcast is accompanied by a presentation which can be found in the investor relations section of our website. We'll reference this presentation throughout our prepared remarks. Any reference to non-GAAP financial information is reconciled in the appendix to the presentation.

Before we begin, I'd like to remind everyone that during the course of this call, we will make certain comments that constitute forward-looking statements. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially. For information concerning these risks and uncertainties, see Watts' publicly available filings with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that, I will now turn the call over to Bob.

Robert Pagano (CEO)

Thank you, Tim, and good morning, everyone. Please turn to slide 3 to begin. Before we get started, I'd like to commend the healthcare and first response workers for their amazing efforts during the COVID-19 crisis. Their unwavering commitment to help people in their time of need is truly heroic. We also would like to thank those people that are behind the scenes, the plumbers, the maintenance teams, and so many others, as the work they do has never been more essential, and we salute their efforts. Finally, I wanna thank my Watts colleagues around the world for their unwavering support in meeting our customers' critical needs during this extraordinary period. COVID-19 has upended every aspects of our lives, and throughout this ordeal, our team has been committed to ensuring that the essential water and heating products we manufacture are available for our customers.

Particularly affected by the pandemic to different degrees. I'll provide an update on both the markets and ... Our response to COVID-19 has been timely and comprehensive. As the pandemic spread, we were able to incorporate many of the early learnings from our China operations to the other regions. In February, we established a COVID-19 task force made up of a cross-section of functional leaders. One was to ensure we addressed employee safety, which is our number one concern, enacted global policies and procedures around social distancing, including working from home, the use of personal protective equipment, temperature monitoring, and other recommended protocols by the CDC and local country governments. There are several other important facets of our COVID-19 response that I'll speak to in more depth momentarily.

As for the first quarter financials, our performance was solid given the early headwinds from COVID-19 in China and later in Europe and the Americas. We estimate that first quarter sales were negatively impacted from COVID-19 by about $10-$15 million, in line with the range we had provided in February. Adjusted operating margin exceeded expectations as proactive cost actions mitigated some of the top-line softness. The second quarter will be very challenging, as the global effect of the pandemic is expected to have a significant impact on our worldwide businesses. Shashank will review details of our first quarter results and second quarter assumptions in a few minutes. As you may have noted in last evening's press release, we are withdrawing the full year outlook we provided in February. We've said many times that the predictabilitybook and forecast beyond the next quarter is limited at best.

We usually rely on leading indicators for insight beyond the next quarter. However, given uncertainty regarding the length and full impact of COVID-19, we believe those indicators are lagging at this point and that it is prudent to temporarily suspend our 2020 outlook. I'd like to provide an update on COVID-19's impact on our end markets and our operations. Recently, we have seen the lockdowns start to loosen, which hopefully is a sustainable trend. Our end markets have all been affected by government-imposed lockdowns. APMEA was first to feel these effects, as evidenced in their first quarter results. Europe and Americas didn't feel the impact until the latter half of March. These lockdowns have affected new construction. New projects are being delayed given the uncertainties and potential financing concerns.

We have not seen project cancellations to date, but we could see more challenged verticals like hotels, restaurants, and the retail move in this direction in the future. Where allowed, we expect that projects already started will continue, but at a slower pace due to social distancing requirements. Many channel partners have begun destocking efforts to preserve cash, which we believe will continue. Most vertical end markets are slow, with COVID-19-related healthcare and education projects... In Europe, we saw significant wholesale store closures in many key countries in March and April. Just recently, we started to see them coming back online. In late March, both Europe and the Americas were performing well. Sales and orders started to soften in the last 6-7 work days of the month.

Currently, all our plants in both the Americas, and we did see sporadic plant closures caused by a combination of supply chain concerns and government intervention. The late March sluggishness continued in the Americas and Europe, as activity in April was well below the prior year. Operations are mixed in APMEA, with China opening back up, and the Middle East and New Zealand recently emerging from lockdowns. Our China plants came online in March, as expected, and the markets are improving. We have seen China orders recover during April. If you turn to slide five, I want to speak briefly about how we have remained engaged with customers during the pandemic. We realized that healthcare vertical was particularly vulnerable during the pandemic. We established a mission-critical project hotline that elevated COVID-19 related requests within our company. On the slide, you'll see three examples of our efforts.

While people are isolated, we are also emphasizing virtual training for customers, reps, and employees. Since January first, engineers have completed over 15,000 online courses, and during the quarter, our U.S. sales teams trained over 1,000 customers through virtual lunch and learn programs. Moving to slide 6, this summarizes the cost actions we have taken and are taking to mitigate the expected impact of COVID-19 on our 2020 results. Our cost reductions include discretionary spending, ceasing variable factory overheads, and renegotiating material costs. Also, due to the severity of the crisis, we have had to take several actions which directly affected our employees. The board of directors and I have taken voluntary and temporary base pay reductions of 25%. My direct reports have taken 15% pay reductions, and lower temporary pay reductions have been cascaded throughout the company.

In addition, we have initiated reductions in force, merit deferrals, and furloughs. In light of the fact that the COVID-19 has had a direct impact on our employees' personal lives, the decision to take these actions was extremely difficult, but necessary, given the impact that the pandemic is having on our end markets and ultimately our business. We are also taking actions to preserve cash through the end of the year. We expect to reduce planned 2020 capital spending, suspend the planned share repurchase program through at least the second quarter, and take advantage of the CARES Act legislation by deferring employer FICA taxes into 2021 and 2022. We remain committed to maintaining our dividend at current levels. We'll adjust our actions as needed to meet any unforeseen market changes. Finally, on slide 7, let me review our current liquidity position.

Our balance sheet remains strong at March quarter end. Since 2016, we have aggressively paid down debt using both repatriated cash and funds from operations. Over that time, we've also restructured our portfolio and become a more efficient organization, driving more profits and cash into the business. We have plenty of room under our credit facility covenants to borrow, and we have ample liquidity. In April, we renegotiated our line of credit, expanding it by $300 million to $800 million and extending it a year through February 2022. We used the revolver to pay off the $225 million term loan and expect to pay off the $75 million of senior notes due in June with revolver borrowings as well.

The revised credit agreement also expanded our liquidity by $75 million, and the credit extension gives us time to renegotiate a longer-term agreement once the capital markets have settled down. During the first quarter, we also drew down a portion of our line of credit as a precautionary measure to ensure that cash was available, if needed, into the next quarter. With that, let me turn the call over to Shashank to talk more about our first quarter results and our second quarter assumptions. Shashank?

Shashank Patel (CFO)

Thanks, Bob. Please turn to slide 8, which shows the first quarter's consolidated comparative results. Obviously, underlying markets have changed dramatically over the last 2 to 3 months, and therefore, I will only make some brief comments about the quarter, as the results are no indication of how the remainder of 2020 could play out. Sales of $383 million were down 2% on a reported basis and down 1% organically. Organically, we estimate sales were impacted by a $10 million-$15 million headwind due to COVID-19. Foreign exchange, primarily driven by a weaker euro, decreased year-over-year sales by roughly $4 million, or 1%. As mentioned in February, both the Americas and Europe were impacted by 1 less workday, which negatively impacted sales by approximately 1% as compared to the first quarter of last year.

Acquisitions accounted for $2.6 million of incremental sales year-over-year. Despite the sales drop, adjusted operating profit was flat as compared to last year, and adjusted earnings per share were up 1% to $0.95. Adjusted operating margin of 12.6% was up 20 basis points as price, productivity, and recent cost actions more than offset volume loss, incremental investments, and inflation.... As Bob mentioned, we took some timely actions to reduce our cost base, which were reflected in the results. The adjusted effective tax rate of 28.2% is 70 basis points higher than the first quarter of 2019, and relates primarily to the greater impact from nondeductible tax items in 2020.

Our free cash flow for the quarter was negative $8 million, as compared to negative $31 million in the first quarter of last year. The cash flow improvement was due to better working capital management. Our goal is to drive free cash flow conversion at 100% or more of net income for the year. During the quarter, we purchased approximately 175,000 shares of our common stock at a cost of $14.7 million. We expect to suspend our share repurchase program for the remainder of the second quarter and will reevaluate the program quarterly after that. On Slide 9 are the regional results. Again, I will make just a few high-level comments. In total, the estimated impact of COVID-19 on our first quarter sales was in line with our expectations.

As expected, the impact to APMEA was more significant, with a combination of lower third party and intercompany volume, driving less plant absorption, which in turn affected APMEA's profits. The Americas posted a reasonably strong quarter despite flat organic sales due to favorable pricing, productivity, and cost actions. Europe's adjusted operating margin declined slightly as gains from price and productivity were more than offset by the volume loss and investment spend. Slide 10 provides general assumptions about our second quarter operating outlook. We expect a very challenging second quarter. We anticipate that activity will recover slowly as we move through the quarter. So we see April and May as the trough, with improvements starting in June, assuming mandated lockdowns end and the markets begin to open up during May.

Given lower April sales and order rates and the market feedback from channel partners that Bob mentioned earlier, we're estimating sales for the second quarter to be down 25%-30% below the second quarter of 2019. The rate at which markets return will ultimately determine our sales level for the quarter. The dramatic drop in expected volume is going to significantly impact plant absorption levels during the second quarter. Even with the quarterly savings from our cost out programs, we estimate our adjusted operating margin would be in the mid to high single digits for the second quarter due to the high drop through on lower volume. As Bob mentioned, we refinanced our credit agreement and extended it through February 2022.

We expect to incur about $1 million more interest expense sequentially in the second quarter versus the first quarter of 2020. Current market rates are higher than we are paying under the old agreement, and we have additional debt costs and interest rate swap losses to amortize. We are planning to repatriate approximately $50 million by the end of the quarter. We intend to use a majority of those funds to pay down debt. The effective tax rate should approximate 28.5%, in line with the second quarter of last year. Foreign exchange would be a headwind when compared to the second quarter of last year, given the current euro dollar exchange rate. So with that, let me turn the call over to Bob before we begin Q&A. Bob?

Robert Pagano (CEO)

Thanks, Shashank. On slide 11, I'd like to summarize our discussion before we address your questions. COVID-19 is certainly causing enormous disruption around the globe. The speed of which the pandemic has affected our lives and commerce has been unprecedented. Our company has reacted with decisiveness and urgency, focusing on our people's safety, our customers' needs, and being fiscally responsive to changing market demand. With our experienced management team, we have recalibrated our cost structure to help navigate through these turbulent times. While COVID-19 uncertainties make predicting the future more difficult, we will continue to monitor developments daily and proactively take necessary measures based on underlying market conditions. The company is well capitalized and well positioned to make it through these challenging economic conditions. We are taking actions to optimize our cash flow to further enhance our strong balance sheet. Finally, we are a market leader.

We know we must address the many near-term challenges, but we won't lose focus on our long-term strategy by continuing to invest for the future, especially in our Smart and Connected product portfolio. We expect to come out the other end of this crisis a stronger company. So with that, operator, please open the line for questions.

Operator (participant)

Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from Jeff Hammond with KeyBanc. Your line is open.

Jeffrey Hammond (Analyst)

Can you hear me?

Shashank Patel (CFO)

Yes, we can.

Robert Pagano (CEO)

We can now.

Jeffrey Hammond (Analyst)

Oh, okay, great. Just you, you gave the really good color in your presentation. You gave the 25%-30% expectation. Can you just talk about what you actually saw in your April sales run rates? And, you know, if there's any, you know, big disparities between North America and Europe.

Robert Pagano (CEO)

... Yeah, you know, when you look at quarter to date, you know, we've seen about 30% reduction in the Americas and about 40% in Europe and Asia Pacific, about 30%. However, inside of Asia Pacific's number, actually, China was up 2%, which is good. However, New Zealand and Middle East were basically closed for the month. So that's what, you know, brought down the overall APMEA number. So you could see a little worse in Europe, and they, they hit the virus, you know, it hit them harder. So I think that's why we're seeing that activity.

Jeffrey Hammond (Analyst)

Okay. And then, just on the decrementals, I think, you know, if you kind of run the math, it's in that, what, 30, 30% range. Just as you start to, you know, go through the year, is that kind of the right decremental to think about, you know, 2Q and beyond?

Shashank Patel (CFO)

Yeah, so it's in that 30%-35% range. In the second quarter, it's closer to that 35% range, but as the year progresses, and hopefully the volume declines are less, it's closer to that 30% decrement range.

Jeffrey Hammond (Analyst)

Okay, great. And then just finally, can you just talk about what you're seeing in terms of, you know, deferrals beyond, you know, mandatory work stoppages or any cancellations in your, you know, kind of order book on the non-res side?

Robert Pagano (CEO)

Yeah, we've not seen cancellations. What we've seen is deferrals, push outs. I think a lot of uncertainties out there, just because of the social distancing requirements that is happening out there. And as you know, you know, places like the Northeast and the West Coast were basically shut down from a new construction point of view. So that's kind of the activity we're seeing in the marketplace.

Jeffrey Hammond (Analyst)

Okay. Thanks so much, guys.

Robert Pagano (CEO)

Thanks, Jeff.

Shashank Patel (CFO)

Thank you.

Operator (participant)

Your next question comes from Nathan Jones of Stifel. Your line is open.

Nathan Jones (Analyst)

Good morning, everyone.

Robert Pagano (CEO)

Morning, Nathan.

Shashank Patel (CFO)

Morning.

Nathan Jones (Analyst)

Apologize if I ask something you covered in your opening comments. Bob, I is a little bit late getting on. So you guys have, you know, 30-odd% decline here in the second quarter. Is there any color you can give us on what you think the split is between inventory, destocking in the channel, the decline in replacement revenue, and the decline in new construction revenue?

Robert Pagano (CEO)

Yeah, that's really difficult to see because, you know, we saw a lot of activity. I think, again, when you look at our portfolio, 65% is repair and replace. When we talk to local plumbers, et cetera, and our channels, the discussion is, you know, emergency work is continuing, you know, and repair and replacement. But a lot of the plumbers, as well as people in multifamily homes, they don't want anybody in there unless there's a material error, you know, a big issue going on right now. So I think given the shock to the system, that's why we're seeing this uncertainty. But we can tell, especially from our smaller wholesalers, you know, they're smaller, you know, they're ordering less and less.

So again, I think it's pretty much across the board at this point in time, and we think the destocking will end in May. You know, so we're seeing it in April and May, and we'll come out of the other end of that in June, once everybody starts opening up all these construction markets.

Nathan Jones (Analyst)

Okay. I guess part of my point here was on the replacement market. I mean, with these kinds of level of revenue decline, and given that two-thirds of the portfolio is replacement, there has to be a fairly significant decline in replacement revenue here. I would think that snaps back fairly quickly once we get the economy open again and things running again at a more normalized rate. Is that a reasonable expectation?

Robert Pagano (CEO)

Yeah, I think it is. I mean, look, you can only put off repair and maintenance for so long, and whether, you know, a building has one occupant or a hotel is 95% full, you still need to make sure they have good plumbing, and code-driven is gonna be even more important right now. So again, I think your assumption is accurate.

Nathan Jones (Analyst)

Did you quantify what the cost out number is for 2, for 2Q and going forward?

Shashank Patel (CFO)

So the total year is approximately $55 million. A piece of that is obviously, you know, the size reductions we talked about, which end at the end of Q3. So there's a larger portion of that $55 million that happens in the second quarter.

Nathan Jones (Analyst)

Okay. Thanks very much. I'll pass it on.

Robert Pagano (CEO)

Thank you.

Operator (participant)

Your next question comes from Ryan Connors of Boenning & Scattergood. Your line is open.

Ryan Connors (Analyst)

Great. Thanks for taking my question. Hope everyone's well. Wanted to kind of follow on with that prior question on repair, replace, and just kind of clarify and better understand the buckets here. So, so you talk about new construction, being, you know, a third and then, you know, sort of, repair, replace being the remainder. Where does sort of remodeling fit into all that, where you've got, you know, a restaurant or a hotel or even an individual household, you know, they're not—it's not a new construction, but it's not a repair—an emergency repair, it's some sort of remodeling. Which bucket would that fall in, and, and, and how have you seen that type of business impacted?

Robert Pagano (CEO)

Yeah. So again, it's early on, right? Well, you know, with April just being, you know, just, you know, happening here, we saw it across the board. But just if you look strategically inside of that, that would fall under, depending on if it's a brand new addition, maybe in the new construction, repair, replacement, if it's fixed. So it's a combination of both of those. But if you, if you just look at some of the markets that we think that are probably more apt to get hit, you know, restaurants, you know, some hotels in the short term, and let's call it just office buildings. I mean, that's less than 10% of our business, but still, as I said earlier, the, you know, they'll still need to be repaired.

It doesn't, you know, codes are gonna be more enforced than ever before, and I think there's an opportunity, you know, for people to continue to upgrade. So when you look at our core strategic themes of safety and regulation, energy efficiency, and water quality and conservation, all of those are gonna be critical in this new world. So as we go forward, also, you know, I also look at our connected product strategy, how important that's gonna be, because, you know, monitoring and making sure there's, you know, what I call less people requirements to determine whether there's issues in the system, right? So that's gonna be really important going forward. So again, that's where we're looking at, and we're watching very closely.

Ryan Connors (Analyst)

Yeah, just on that point, Bob, you know, you talked about the connected strategy. You know, I guess there's been a lot of talk about reopening these buildings, offices, and, and hotels and whatnot. And then if the, if the water's been stagnant in those systems, that there's been talk about Legionnaires' concerns and things like that. I know that is part of the connected strategy, you know, kind of monitoring for some of those things, Legionnaires in particular. Is that, is that, I mean, that's—we could spin that as a positive, but is that, is that just a longer-term thing, or, or are you seeing more demand for those type of things even now?

Robert Pagano (CEO)

Well, we're doing a lot of seminars exactly on that with our customers, engineers, et cetera. So you know, how to start up buildings, et cetera. And we believe, you know, when, you know, buildings sit idle for a while, and restaurants and everything else, once they start up, you know, they're gonna have some issues, and they need to do it the proper way to prevent, you know, Legionella and other diseases in their pipes and systems. So again, that could be an opportunity for us, but again, we're monitoring it very closely.

Ryan Connors (Analyst)

Got it. And then one last one for me, if I could. You, you made a comment in the press release about, you know, sort of renegotiating materials contracts. Can you, can you elaborate on that or the mechanics of that, to the extent you can?

Shashank Patel (CFO)

Yeah, look, so, so Ryan, this is Shashank. So on—as we all know, commodities have gone down, right? Especially copper, a little bit stainless. And we typically go long on those, so we got contracts over the next, let's say, 3, 6, 9 months. And also, the challenge we have is the volume is going down, so it's harder to negotiate price decreases with volume reductions. But that's, in fact, we're in a unique place, so we're going back, and we are having some luck in negotiating lower prices as we go forward on those material contract, contracts, as well as even on some freight contracts as well because of the lower prices on oil.

Ryan Connors (Analyst)

Got it. Okay. Thanks for your time.

Shashank Patel (CFO)

Thank you.

Robert Pagano (CEO)

Thank you.

Operator (participant)

Your next question comes from Bryan Blair with Oppenheimer. Your line is open.

Bryan Blair (Analyst)

Good morning, everyone. Hope you're staying safe and well.

Robert Pagano (CEO)

Good morning. Same with you, Brian. Thanks.

Bryan Blair (Analyst)

Thank you. Following up on your second quarter, mid to high single digit margin guide, can you break that out by region? You know, what we should expect across your segments.

Shashank Patel (CFO)

So the margin performance, you know, we were up 20 basis points. Americas was the strongest of the regions, so we had good and we had relatively good price performance there as well. And some of the actions, you know, we were proactive in our cost actions, so that helped the first quarter as well. So that drove the margin expansion in the Americas. In Europe, we were actually soft in the first quarter. And then, obviously, the third and then we got affected in APMEA. Now, as we think about the second quarter, though, you know, and we basically said mid to mid to high single digits on the operating margin. With the volume declines, we're talking about 25%-30%, we expect to see margin decline across all regions.

APMEA will be the most affected because their volume is going down as well as they get affected with the intercompany volume piece. But the margin decline will pretty much be similar in the Americas and in Europe.

Bryan Blair (Analyst)

Got it. Yeah, and any additional color you can offer on expected cost savings by, by region? I think you said $55 million for the year in total. And also the variable versus structural breakout there would be helpful.

Shashank Patel (CFO)

Yeah, just to take the second piece first, the structural piece is about 15% of the total, approximately $55 million we talked about. The structural piece, which is, you know, headcount, that does have an annual savings greater than what we realized in 2020. As far as the regional split of the cost savings actions, for the most part, you know, we're about 75% of that's gonna be in the Americas, and then about 20% in Europe, and the other 5% in APMEA, rough split. We do get a lot, a little bit more savings in the Americas versus Europe.

Bryan Blair (Analyst)

Okay. And what are the key metrics you're tracking to determine if additional action is needed? And what would come next if further action is warranted as we move through 2Q and into the back half?

Robert Pagano (CEO)

Well, we certainly watch orders. You know, we watch that daily, and we continue to look for leading indicators, talking to our channel partners, understanding, you know, permits and all the normal things that we've all been looking at for a while. I think what's more important as we see this country come back up and running, to see whether there's some surge of pent-up demand, et cetera. But, you know, we're looking at every, all our costs, every single piece. We're asking our teams to review every single thing in every single region. So it's across the board. We're continuing to look. We went aggressive right out of the gate, and we have detailed contingency plans when we start the year. We triggered those immediately, and we'll continue to watch these leading indicators.

Most importantly, as these shutdowns come back online, we want to see how quickly they sink in.

Michael Halloran (Analyst)

... Got it. Appreciate the color.

Robert Pagano (CEO)

Thanks, Brian.

Shashank Patel (CFO)

Thank you.

Operator (participant)

Your next question comes from Mike Halloran with RW Baird. Your line is open.

Michael Halloran (Analyst)

Hey, morning, guys.

Robert Pagano (CEO)

Morning!

Michael Halloran (Analyst)

So, it's kind of a twofold question here. You know, you've got very strong market leadership and some fragmentation, obviously, some sizable scale advantages. Your liquidity is in a very good spot, strong balance sheet. So the twofold question is, one, how are you thinking about the potential to widen that disparity versus some of the comp group with how you're thinking about your R&D spend, you know, the connected products, et cetera? And then the second piece of it is: How are you guys balancing the need for short-term management with continuing to invest and play offense, and how should we think about kind of all those things wrapped together?

Robert Pagano (CEO)

Well, Mike, as you know, we, we've been investing a lot over the last several years, and I think, as I said earlier, what we've been doing is focusing our time on, and intention on new products with safety and regulation, energy efficiency, water quality, and conservation. All of those are gonna be really important in this new economy. And then, like you said, the smart and connected products are gonna be even more critical because we just need to monitor things and not rely on people and maintenance organizations to really react. So as we look at our investments in R&D, we're gonna slightly ratchet down our investments. We, we had a plan of about $13 million. We're very aggressive on that, and, but when you take that down, we're probably gonna cut that by 40%.

And really, where we're cutting is areas like emerging markets. Right now, it's probably not, you know, we need the emerging markets to come back on that. But our Smart and Connected product, we are not cutting any costs at all on that because that's more important than ever. So, you know, that's how I look at that from an overall strategic point of view.

Shashank Patel (CFO)

Just a note on the R&D, 2019 was 2.5%. In the first quarter, we're actually at about 3%, so we're continuing that focus on the Smart and Connected side.

Michael Halloran (Analyst)

Thank you.

Robert Pagano (CEO)

Thanks, Mike. Taking the time to join us today, we appreciate your continued interest in Watts and look forward to speaking with you again at our second quarter earnings call in early August. Have a great day, and stay safe and healthy. Take care.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.