Earnings Call Transcript - FELE Q2 2021

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the Franklin Electric Reports Second Quarter 2021 Sales and Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to hand the conference over to your host, Jeff Taylor, Chief Financial Officer.

Jeff Taylor, CFO

Thank you, Whitney, and welcome everyone to Franklin Electric's second quarter 2021 earnings conference call. I'm excited to be joining you on my first call as Franklin Electric's Chief Financial Officer. With me today is Gregg Sengstack, our Chairperson and CEO; and John Haines, our former Chief Financial Officer. On today's call, Gregg will review our second quarter business highlights, and I will review our second quarter financial results in more detail. When we're through, we'll have some time for questions and answers. Before we begin, let me remind you that as we conduct this call, we'll be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the company's Annual Report on Form 10-K and in today's earnings release. All forward-looking statements made during the call are based on information currently available, and except as required by law, the company assumes no obligation to update any forward-looking statements. With that, I will now turn the call over to our Chairperson and CEO, Gregg Sengstack.

Gregg Sengstack, CEO

Thank you, Jeff, and thank you all for joining us. We are very pleased with our robust performance in the second quarter. From a financial perspective, we delivered record sales, operating income and EPS for any quarter in the history of Franklin Electric driven by strong organic sales growth across all of our segments. We continue to benefit from the sustained momentum that delivered record earnings for the last four quarters, thanks to a strong demand environment. At the end of the second quarter, we had record open-order balances. We continue to capitalize on inorganic opportunities as well. In the second quarter, we completed the acquisitions of two water treatment companies Puronics and New Aqua, growing our water treatment position in the US and Canada. We now believe that this platform has reached critical mass north of $150 million in annualized revenues, establishing a meaningful foothold in the growing North American water treatment market. As the water treatment market continues to consolidate, our focus on our key factors will help us to stand out among the pack as we continue to build upon our position and add the runway to do so, leveraging our expertise to manufacture and distribute complete water systems from the well to the faucet. Despite supply chain and COVID-related headwinds facing much of the globe, we have reached new records and delivered value for our shareholders, customers, and other valued stakeholders. We are confident that our current strategy will take us far as we continue to grow as a global provider of water and fuel systems through geographic expansion and product line extensions while leveraging our global platform and competency in system design. Our Water Systems business had record revenue for any quarter, generating overall revenue growth of 39% and organic revenue growth of 23%. In the US, strong housing and agricultural demand combined with continued dry weather drove a 16% increase in groundwater pumping systems revenue in the quarter. Overall organic growth in US Water Systems was 17%. Demand continues to be strong across the globe as well, thanks to a recovery in global commodity prices and robust demand in developing regions. Outside the US, organic water systems growth was 30% led by our businesses in Latin America, Europe, and the Middle East, all of which continue to see pandemic recovery demand. Despite our record revenues, our Water Systems segment had an unprecedented amount of open orders at the end of the second quarter in total over $130 million. This compares to about $40 million at the end of the second quarter 2020 to about $25 million at this time in both 2019 and 2018. Our US distribution business also delivered record performance for any quarter in Franklin's history, producing overall revenue growth of 57% and organic revenue growth of about 41%, underscoring this segment's role as a catalyst for future growth for our company. Headwater operating income reached $16 million in the second quarter. Quarter-after-quarter throughout the pandemic, Headwater's topline has grown and profitability improved. When faced with the same supply chain constraints facing much of the global economy, we leveraged our expertise in this space to build a strong hold that will translate current success into further opportunity over the long term. Our Fueling Systems business saw increased momentum in the second quarter as well, producing overall revenue growth of 29% and organic revenue growth of 27%. This growth was led by strong performance in the US and Canada with revenue up 40% along with sustained strength in our EMEA and Latin American markets. We have a strong business in developing regions and have positioned ourselves to capitalize on post-COVID recovery as it occurs in those regions. At the end of the quarter, open orders increased to about $45 million from less than $10 million at the end of the last three second quarters. Looking forward, Fueling Systems and Grid Solutions will continue to play a vital role in many regions across the globe over the coming years thanks to growing energy demand and the build-out of the electrical grid globally. Throughout the quarter, we generated strong free cash flow that will allow us to capitalize on many opportunities that will emerge while continuing to maintain our strong balance sheet, enabling us to reinvest capital in our business. To that end, we see organic and inorganic opportunities across every one of our segments, and we look forward to continually growing our presence and updating you on future development. I am extremely proud of our global team for this outstanding performance, especially considering the significant headwinds and challenges we face. The global supply chain is still recovering from the post-COVID demand surge. Availability of raw materials and other components is a critical issue for us and it appears that it will remain so through the balance of the year. Additionally, we continue to see rapidly increasing input costs both for materials and components and also for freight, which has skyrocketed in the current environment. Jeff will address these issues more in a moment, but our Water Systems business in particular was not able to fully offset the inflation we experienced with price in the quarter. This in part explains our Water Systems operating income margin decline. In response, we have announced additional price increases to be effective in the second half of the year. For some of our business units, this is a third increase in price so far in 2021. Despite the robust demand environment, we are maintaining our current year earnings guidance of earnings per share before restructuring in a range of $2.85 to $3.05, given the rapid increases in cost and supply chain uncertainties. Looking forward, we are excited about the strong foundation we have built by staying rooted in Franklin's five key factors for success: quality, availability, service, innovation, and cost. We continue to see customers return due to the elevated experience in superior products we deliver. We are also excited to position ourselves for success over the long term, providing innovative products for customers and bringing more sustainable practices to the industry. We believe that our ESG initiatives outlined in our recently updated sustainability report are integral to our future success. We look forward to continually involving our stakeholders in our sustainability journey and providing further updates on our progress over the long term. Now, before I turn the call over to Jeff, I want to go a little bit off script here, and just recognize John Haines. John, as it has been noted, has retired from the company. John started with Franklin Electric in 2008 right before the financial crisis. He steered us through that as our CFO, through a number of acquisitions, the creation of our Headwater Distribution segment, the standup of a new water treatment business, and a number of other acquisitions across our segments. And most recently, John has navigated us through the global pandemic. And so I just want to take a moment to say thank you to John. A number of you on this call have been following us and with John over the years. So I think I'm saying that thanks for you all as well. And so I just want to do that, before I turn the call over to Jeff. So thank you again, John.

John Haines, Former CFO

Thank you, Gregg.

Gregg Sengstack, CEO

Jeff?

Jeff Taylor, CFO

Again, thank you, Gregg. Our fully diluted earnings per share were a record for any quarter in the company's history at $0.83 for the second quarter of 2021 versus $0.52 for the second quarter of 2020. Second quarter EPS before the impact of restructuring expenses was also $0.83 compared to the 2020 second quarter EPS before restructuring of $0.54. Restructuring expenses in the second quarter of 2021 were $0.2 million and were related to various manufacturing realignment activities in the Water segment, and had no impact on earnings per share. Restructuring expenses in the second quarter of 2020 were $0.9 million, primarily related to various manufacturing realignment activities in the Water segment and resulted in a $0.02 impact on earnings per share in the second quarter of 2020. Second quarter 2021 sales were $437.3 million compared to the 2020 second quarter sales of $308.3 million. The sales increase from acquisition-related sales was $38.9 million. Sales revenue increased by $6.1 million, or about 2% in the second quarter of 2021 due to foreign currency translation. Water Systems in the US and Canada were up by about 42% compared to the second quarter of 2020, due to acquisition-related sales, volume, and price. In the second quarter of 2021, sales from businesses acquired since the second quarter of 2020 were $23.8 million. Water Systems organic sales in the US and Canada were up 17% in the second quarter. Sales of groundwater pumping equipment increased by about 16%. Sales of dewatering equipment were up about 90%, and sales of surface pumping equipment increased by about 13% versus the second quarter of 2020, all due to strong end market demand and in part resulting from lower sales last year due to the pandemic. Water Systems sales in markets outside the US and Canada increased by 34% overall. Foreign currency translation increased sales by 4%. Outside the US and Canada, Water Systems organic sales increased by 30%, driven primarily by higher sales in Latin America, Europe, and the Middle East and Africa markets. Water Systems operating income was $34.6 million in the second quarter of 2021 compared to $28.7 million in the second quarter of 2020. Operating income margin for the second quarter of 2021 was 14% compared to the prior year quarter operating income margin of 16.1%. Operating income margin decreased in Water Systems primarily due to two items: first about $3 million of higher shipping and freight costs, which have not been fully offset by price increases mostly in North America. Contributing to these freight costs are pile product delivery issues across all points of the supply chain that also resulted in more frequent shipment expediting, along with many suppliers instituting surcharges to cover their increased costs for drivers insurance and fuel. As a result, the Water Systems unit in the US and Canada has initiated its third price increase of 2021 effective August 1. And second, general and administrative costs of about $2 million for transaction, legal, and other charges incurred in the second quarter. These two items combined resulted in a lower Water Systems operating income margin of about 200 basis points in the second quarter. Distribution sales were a record at $144.8 million in the second quarter of 2021 versus the second quarter of 2020 sales of $92.1 million. Sales from businesses acquired since the second quarter of 2020 were $15.1 million. The distribution segment organic sales increased 41% compared to the second quarter of 2020, and revenue growth was driven by broad-based demand in all regions and product categories. The distribution segment operating income was a record at $16.0 million compared to the second quarter of 2020 operating income of $6.8 million. Operating income margin increased to 11% in distribution primarily due to revenue growth and operating leverage. Fueling Systems sales were $72.2 million in the second quarter of 2021, increasing 29% versus the second quarter of 2020. Fueling Systems grew sales organically by 27% in the second quarter. Fueling Systems sales in the US and Canada increased by about 40% compared to the second quarter of 2020. The increase was due to higher demand for piping, pumping, and fuel management systems. Outside the US and Canada, Fueling Systems revenue increased by about 1%, driven primarily by higher sales in Latin America, Europe, the Middle East, and Africa offset by lower sales in China. Fueling Systems operating income in the second quarter was $18.5 million compared to $13.5 million in the second quarter of 2020, driven by higher sales. The company's consolidated gross profit was $152.2 million for the second quarter of 2021, an increase from the second quarter of 2020 gross profit of $107.1 million. The gross profit as a percentage of net sales was 34.8% in the second quarter of 2021 versus 34.7% in the second quarter of 2020 and was essentially flat, in most part due to price increases being offset by shipping and freight cost increases. Selling, general and administrative or SG&A expenses were $100.5 million in the second quarter of 2021 compared to $72.3 million in the second quarter. SG&A expenses from acquired businesses were about $10 million. Excluding acquisitions, SG&A expenses were higher by $18.3 million, about $11 million of which is variable compensation expense and commissions on higher sales. In addition, transaction, legal, and other administrative costs were about $2 million. SG&A costs as a percent of net sales were slightly below the second quarter of 2020. The effective tax rate for the second quarter of 2021 was about 19% compared to 21% in the second quarter last year. The decrease in the effective tax rate was primarily a result of net favorable discrete events. The tax rate as a percentage of pretax fundings for the balance of 2021 is projected to be about 20% before discrete adjustments. As Gregg mentioned, the company is reaffirming its guidance for the full-year earnings per share before restructuring expenses of $2.85 to $3.05. The company ended the second quarter of 2021 with a cash balance of about $82 million and generated $35.5 million of net cash flow from operations during the first half of 2021 versus $47.0 million in the same period of 2020. The decrease was primarily due to higher working capital requirements in support of higher revenues. Yesterday, the company announced a quarterly cash dividend of $0.175 per share that will be paid on August 19 to shareholders of record on August 5. The company purchased about 79,000 shares of its common stock in the open market for about $6.2 million during the second quarter of 2021. At the end of the second quarter, the total remaining authorized shares that may be repurchased is about 840,000. This concludes our prepared remarks. We'd now like to turn the call over to Whitney to lead the question-and-answer session.

Operator, Operator

Your first question is from Walter Liptak with Seaport.

Walter Liptak, Analyst

Hi. Thanks. Good morning everyone.

Gregg Sengstack, CEO

Good morning, Walter.

Jeff Taylor, CFO

Good morning, Walter.

Walter Liptak, Analyst

Hey, thanks. John, it has been a pleasure working with you, and I wish you all the best. Hello to Jeff as well. My question is regarding the distribution profit margins, which appear to be quite strong. I was wondering if the $16 million in profit is covering fixed costs and whether that level of revenue is sustainable. It seems that demand was robust across various categories, but I would like to know if there was any influence from product mix or pricing that may have contributed to that profitability. Additionally, could you share your thoughts on what profitability might look like in the latter half of the year? Are we expecting to maintain double-digit margins in distribution?

Gregg Sengstack, CEO

Yes. Well, let me take a stab at that and then Jeff will weigh in. First, the business performed well, and we get great operating leverage. This business is seasonal as we've discussed in the past. So Q2 and Q3 are the stronger quarters. But then the margin averages out as you know Q4 to Q1 are just softer quarters. While we're now in the black in those quarters and for Q4 2020 and Q1 2021, they are lower margins if we factor that in. But certainly during the season, we've had solid execution. It's a good pricing environment. Distribution typically will act a little bit quicker than we can in manufacturing in that respect. But overall, there's great execution and getting good operating leverage off the fixed cost base.

Walter Liptak, Analyst

Okay. Great. Yes, that's right the seasonality. I also wanted to ask about some of the dewatering and the growth that you saw there. How much of that growth was from price and how much of it was from volumes when we talk about the organic growth?

Gregg Sengstack, CEO

On dewatering? I don't have the specific price volume on that product line. But overall, we've had pricing actions in the low single-digits earlier this year. And then really, most of it would be a volume pickup.

Jeff Taylor, CFO

Yes, it's more volume, Walt, for sure, than price. You recall last year in the second quarter that business was impacted meaningfully by COVID. That product line was significantly impacted. I think the other thing I would note is that we are seeing some international lift in that product in Southern Hemisphere markets like Australia, Brazil, Argentina, South Africa. So, the bulk of it is volume, but there's certainly some price in there as well.

Walter Liptak, Analyst

Okay. And is that the same for groundwater too, that most of that growth is volume-related?

Jeff Taylor, CFO

Yes. We look at this more by geography than by individual product line. But the volume change in water is about four times the price change, about that.

Walter Liptak, Analyst

Okay. Great.

Jeff Taylor, CFO

Yes, and that generally will hold through across product lines.

Walter Liptak, Analyst

Okay. And then just a quick one and I'll let someone else have a shot at questions. But the legal expense of $2 million, what was that related to? And is that a recurring charge, or is that a one-time expense?

Jeff Taylor, CFO

Yes. It was a combination of things. We view it as one-time. Walt, it was transaction-related as well. So as you know, we did these water treatment transactions in the second quarter. There were costs for banker fees. There were also legal fees for that. And then there were just other legal matters that we are dealing with in the normal course around the globe that kind of had a surge in the second quarter as well. So in total, that was about $2 million of SG&A, and we would generally characterize that as one-time.

Walter Liptak, Analyst

Okay. Great. Thanks, guys.

Operator, Operator

Your next question is from the line of Mike Halloran with Baird.

Mike Halloran, Analyst

Hey, good morning, everyone.

Jeff Taylor, CFO

Hey, Mike.

Gregg Sengstack, CEO

Good morning.

Mike Halloran, Analyst

So just some thoughts on price cost inflation. How are you guys thinking about the pricing environment, efficacy of what you're pushing through, and when do you think parity can come back into the system? Obviously, inflation pressures have been rampant. And at some point, they'll likely balance out. Just some thoughts on when you think they balance out. Is it this year? Is it next year? Any commentary around those things would be great.

Jeff Taylor, CFO

Well, I would say, Mike, that we talked about price versus inflation. And generally, I would characterize what is happening in distribution and dealing as we're advanced. We're seeing greater price than we are inflation. It's really in Water Systems, more specifically it's in the US, Canada, and even more specifically, it's the freight costs that I think were a bit surprising to us in the second quarter. When we look at our freight volume adjusted year-over-year in the first quarter, Water Systems actually seemed positive, where we were actually experiencing lower freight costs. And then sequentially that flipped in a meaningful way to negative in the second quarter. It did in Fueling Systems as well. So, as we mentioned in our comments, we're having trouble with the supply chain with our suppliers of getting inbound material and components. Also, because of that, we were falling behind in some cases on fulfilling and meeting the requirements of our customers. Therefore, we're expediting shipping activity on the outbound side, and all of that is contributing to a very significant unfavorable freight variance from the prior year. To your question, I think there are some signs of that starting to call down. I think our supply chain guys have talked about maybe the ports being in a little better shape, Long Beach, Los Angeles, but then there are more constraints in other parts of the country, for example, in shipping in the Midwest and through Chicago. So, that part of it is a little bit harder for us to gauge. We also mentioned, we have more price coming. We announced a third price increase in our US water business effective August 1, which we think is going to significantly help us in the second half of the year in offsetting some of this inflation. So, that's what's driving the biggest concern and, quite frankly, driving where the water operating income margins went in the quarter.

Mike Halloran, Analyst

And you mentioned the Headwater margins are very impressive. Maybe just some thoughts on sustainability there. Obviously, you're going to have seasonal upticks based on the revenue levels, but at a high level, how are you thinking about the sustainability?

Unidentified Company Representative, Representative

Yes. The first half margins in Headwater are about 7.5%. Last year's second half margins in Headwater, Mike, were about 3.9%, so just at the very low end of our expected range. We expect that to be meaningfully better in the second half this year. I think something in the high end of our expected range, 4% to 6% for the second half. So, yes, volume-adjusted, we're going to lose some leverage as we go into lower-volume periods. But the business has done a nice job on price, and they've done a really nice job, as Gregg said, on managing their costs. So, we definitely see margin expansion second half to second half. I don't think we'll get back to that first half margin of 7.5%. I think we'll be just short of that.

Mike Halloran, Analyst

And then, on the water side, obviously really strong momentum. It seems like basically pretty broad-based there. Anything that you're worried about inflation impacting demand or some sort of air pocket developing? It seems like the momentum is pretty consistent here and you feel pretty good about the trajectory on a forward basis. But just curious if there's anything else that worries you.

Gregg Sengstack, CEO

Yeah. Again we're a short-cycle business. So we learn about it later than most people. But to your point, I mean we've got almost 45 days of incremental open orders than what we normally see in the past. So we've got plenty to work our way through. As the supply chain improves, we're going to catch up through the back half of the year, as is well documented in the North America US market: strong housing, strong commodity prices. It's been very dry in the West and actually average in the East, or a little bit Mississippi but certainly dry in the West. We're seeing good demand in Latin America. We're seeing good demand in Europe, Middle East, and Africa. We had a little bit of a timing issue on some age of shipments. So we still see the Asian market as strong. So we're really not seeing anything out there in our businesses that prohibits what you're describing as an air pocket. We have commodities strong and with metal prices coming up as much as it impacted our margins. It's also a good demand for our large dewatering pumps as well. That's a smaller piece of our overall business. So we're really seeing the demand across all product lines and all geographies.

Mike Halloran, Analyst

Great. I appreciate that. And one last thing, John, I just want to say best of luck. It's been a pleasure working with you for well over a decade now. I hope everything goes great for you in the future. I really appreciate all the help over the years. Best of luck.

John Haines, Former CFO

Thanks, Mike.

Operator, Operator

Okay. Your next question is from the line of Matt Summerville with D.A. Davidson.

Matt Summerville, Analyst

Thanks. A couple of questions. And yes, John congratulations. It's been great working with you over the last 13 years or so. With respect to your comment Gregg about this open order number, I don't remember you guys historically sharing that. So can you put a little more context around that? You mentioned 45 days of backlog if you will. What is a more normal number if you go back and look at that for Franklin over a much longer term period?

Gregg Sengstack, CEO

Yeah, Matt, to your point, it isn't something that we normally talk about because we're normally a short-cycle business; we're selling and filling orders on a pretty rapid basis. Typically, at the end of the second quarter if you look back to 2018, 2019 for the company, for our manufacturing business, it'd be about $35 million. At the end of the second quarter this year, I think it was closer to $175 million. So that incremental $130 million to $140 million, if you look at our manufacturing business as being kind of a $1 billion run rate or $1.2 billion run, that's about $100 million a month. It kind of gets you to that number. So it was significant enough that we wanted to call it out that we have unfilled orders backlog as you would say that is much higher than what we've seen in the past and what we're working on catching up.

Matt Summerville, Analyst

Do you think the incoming order rates you're seeing truly reflect demand? Or do you believe that your end customers are worried about securing products due to supply chain issues and are therefore ordering more than their usual amounts? I'm trying to understand if you think this reflects genuine demand or if the channel is just trying to stock up because of supply concerns.

Gregg Sengstack, CEO

I'm sure there is some of that. One key indicator we have is related to our distribution business in the US market. The sell-through of Franklin and Headwater exceeds the purchase rate from Headwater, indicating they are clearly working through their inventory, as are others. Globally, customers are likely trying to replenish their inventory to what they consider normal levels moving forward. The demand environment is quite strong. There may also be some anxiety about ordering from multiple suppliers, which could lead to cancellations. However, in looking at our distribution business in the US, the outlook reveals that there isn't much inventory in the system, and demand remains robust. You can see this reflected in fueling, where last year our fueling revenue in the US was down 10%. Initially, we thought the EMV initiative might not significantly impact our fueling business. However, I've learned that the companies we supply for fueling had a record revenue year last year due to EMV. This trend is now tapering off in the first quarter, and we are not experiencing a strong surge in fueling. Currently, the fueling business is up 43% for the quarter, supported by strong end market demand in the US as marketers invest their capital in areas beyond EMV. This bodes well for us. Overall, we are witnessing strong demand and there isn't a significant amount of inventory in the channel, indicating a gradual rebuilding of inventory over time. There is indeed a risk of some over-ordering as people try to secure their fair share.

Matt Summerville, Analyst

I would like to follow up on pricing. Could you recap the pricing that is already in place and the scale of the upcoming price adjustments set for August 1?

Gregg Sengstack, CEO

All of our water businesses have implemented at least one, and many have implemented two and now three price increases. In the United States, where the spread is the highest and actually went negative in the second quarter, there was a 3% price increase, followed by a 5% increase, and then another 5% increase planned for August. That's the breakdown of the three increases. Looking at businesses globally, the situation varies, but generally, we're seeing list price increases in the range of 7% to 12%.

Matt Summerville, Analyst

Got it. Thank you. I’ll leave it there and get back in the queue.

Operator, Operator

Thank you. Your next question is from the line of Chris McGinnis with Sidoti.

Chris McGinnis, Analyst

Yes, good morning. Thank you for taking my questions. John, congratulations on your retirement, and I appreciate your assistance. Could you discuss the Puronics and Aqua acquisitions and their integration process? Are they already being incorporated into Headwater, or is that part of the future plan?

Gregg Sengstack, CEO

Yes, we are currently integrating the four companies we acquired in water treatment over the past couple of years, including three in the last eight months. We will establish a common platform. Headwater is one of our customers, and the acquisition of Aqua Systems was strategic because they have a strong presence in water quality. This provides a new sales channel for both Aqua Systems and Puronics. Initially, our sales mainly targeted plumbing wholesale and groundwater dealers. Headwater will be a natural outlet for the Aqua and Puronics products in their locations. We will offer branded products under Franklin Electric and Franklin Water Treated through the groundwater channel. However, other channels remain significant, particularly the water quality dealer channel, which is substantial and one that both Aqua and Puronics have successfully navigated in the U.S. and Canada. This is a key area of focus for our company.

Chris McGinnis, Analyst

And can you just maybe talk a little bit about the M&A opportunities that are out there? And are you holding off at this point, just given the recent acquisitions or still a lot of opportunity?

Gregg Sengstack, CEO

Yes. We have always approached acquisitions in an opportunistic manner. We consider opportunities across our segments and when launching new businesses. We are actively engaged and have identified several properties that we would like to pursue if they become available. As you know, we are quite methodical in our approach to building capacity. Recalling the initial setup of the Headwater business in 2017, Davis and his team faced considerable challenges in establishing four businesses on one platform; one of those businesses used an organic pump line, which was our primary pump line in Franklin, and we encountered some setbacks. These challenges affected our profitability in the early years. However, now Headwater has successfully completed the Gicon acquisition and is integrating it rapidly. We are seeing increasing sales from Gicon, unlike our experience with Western Hydro, where we faced a sales decline in the first year due to a competitor's product line. Our improved ability to execute deals is now supported by a common ERP platform for both manufacturing and distribution. In fueling, we continue to explore opportunities in adjacent markets, including our grid business, which falls under fueling, and our water segment. We are focused on getting our water treatment platforms integrated. Don Kenney, President of our water business, has extensive integration experience from his time in Fueling. With the leadership of Aqua Systems, I am confident we will successfully integrate these businesses and will keep looking for other opportunities. I don’t foresee us taking a formal pause, but we do have some adjustments to make.

Chris McGinnis, Analyst

Great. Thanks for taking my questions and good luck in Q3.

Gregg Sengstack, CEO

Great. Thanks, Chris.

Operator, Operator

I am showing no further questions at this time. I will now turn the call back to Gregg Sengstack.

Gregg Sengstack, CEO

Thank you very much for joining us for this call today, and we look forward to speaking to you after we have our third quarter results. Everyone have a good week.

Operator, Operator

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a very wonderful day. You may all disconnect.