Standard Motor Products, Inc. Q3 FY2020 Earnings Call

Good day, everyone, and welcome to today's Standard Motor Products' Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. Please note this call is being recorded. It is now my pleasure to turn today's program over to Larry Sills. Please go ahead.

Well, good morning everybody and welcome to our third quarter conference call. We thank you all for attending. With me today, I have Eric Sills, President and CEO; Jim Burke, Chief Operating Officer; Nathan Iles, Chief Financial Officer; and myself, Larry Sills, Executive Chairman. Here is the agenda for today. Eric will begin by reviewing the highlights of the quarter, then Jim will give a brief review of operations, Nathan will go into a more detailed review of the numbers, and then I will have a short wrap up before we open it for questions. So with that, let me turn it over to Nathan for the forward-looking statement. Thank you.

Okay, thank you, Larry. Before we begin this morning, I'd like to remind you that some of the material we will be discussing today may include forward-looking statements regarding our business and expected financial results. When we use words like anticipate, believe, estimate or expect, these are generally forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they are based on information currently available to us and certain assumptions made by us, and we cannot assure you that they will prove correct. You should also read our filings with the Securities and Exchange Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from our forward-looking statements. I'll now turn the call over to Eric.

All right. Thanks, Nathan, and good morning everybody, and thank you for joining us today. I'd like to open by thanking all of our employees for going above and beyond in these difficult times. As part of an essential industry, we had to jump through many hoops to stay operational, so that our people could come to work safely and I'm just so appreciative of everyone's dedication, intelligence and skills that led us through this unprecedented experience. A special thanks goes out to the frontline employees in our factories and distribution centers, who are working countless hours to take care of our customers. These folks are the true heroes. Okay. So on to business, as mentioned on our last call, we came out of the second quarter experiencing strong demand. And I'm pleased to say that the trends continued throughout the third quarter. Let me discuss each of the divisions separately, starting with Engine Management. Engine Management sales were up 6.7% for the quarter, clawing back about a third of our sales shortfall from the first half. Consumer demand has been robust, which we believe reflects the deferred maintenance from the early days of the pandemic when cars were idled in driveways, but we're also experiencing a general surge in the aftermarket as a result the people staying at home and working on their vehicles, which we believe was a special impact of the DIY sector. Good evidence of this is a strong performance of a wire and cable business. It fits older vehicles and is relatively easy to install, which are two hallmarks of the DIY business. While this line has recently been trending down about 7% per year due to where it is in the lifecycle, it spiked up 10% in the quarter, which we have to assume is a temporary phenomenon. Customer orders for all of Engine Management have been consistently solid and this has continued into October. That said our forecast remains low single digit growth over the long term. Our Temperature Control division was up 25% in the quarter driven by two dynamics: the first is related to timing. If you recall, pre-season orders from our customers were very light this year. In fact, our first half was down almost 20%. And then it got hot out, creating a surge in demand across the country. These two factors combined for a very strong quarter; though year-to-date we are slightly behind last year. This is why we always suggest looking at Temperature Control on a full-year basis. There are often quarterly anomalies, but they typically balance themselves out. Moving to earnings, we are pleased to report that the quarter set an all-time record for SMP. Jim and Nathan will provide some detail on the drivers. So I just want to take a moment to speak to COVID-related savings. As we have mentioned in the past, we put in place short-term cost reduction measures, ratcheting back various discretionary expenses as well as cutting executive and board compensation. We do plan to assess what we've learned and identify areas where we believe the savings can be sustained; however, we do recognize that many of these reductions will, in fact, be temporary. We had also taken steps to conserve cash, including suspensions of both our quarterly dividends and our share repurchase plan. We are pleased to reinstate both of these programs as they are core aspects of how we return value to our shareholders. So in summary, needless to say, it's been a roller coaster of a year. After a mediocre first quarter and a truly difficult second quarter, we were able to make up much of the lost ground with a very strong third quarter. We've always experienced a certain amount of volatility period to period, and while this year it has been substantially more exaggerated, it does show that our business tends to balance over time and we do expect that to continue going forward. Before I hand this off, I would just like to make a few comments about the future. First, we were delighted, but not surprised to see our industry once again show its resilience. The basic fundamentals are solid and there are many favorable trends taking us forward. The crisis is certainly not over, but we are confident that we're smarter now than we were before. Our teams are stronger as a result of managing our way through it, and we are well equipped to tackle whatever has been thrown at us. And with that I'll hand it over to Jim, who will talk about our operations.

Okay, thank you, Eric. I will provide an overview of our business from an operational perspective. I plan to touch on the basics from supply chain manufacturing through distribution. As we have all experienced, the past six to seven months have been challenging and demanding. Our baseline was a 40% decrease in volume in April. This was followed by a relatively quick rebound in customer POS numbers in May and June that turned into increased orders to us in June and July. This momentum has increased as we progress through Q3 and remain steady. From a supply chain view, this meant working feverishly with our vendors to be able to meet our materials demand. Overall, with a few exceptions, our vendors and supply team have been able to keep supply flowing to our factories. Turning to our manufacturing base, we faced surging demand with a significant mix shift towards older technology SKUs driven by our customers' sales in the DIY channel. Early in the third quarter, we were hampered with a shortage of available labor, a combination of higher demand and the COVID impact with high-risk employees out and disruptions from contact tracing. I'm happy to report that we have been able to secure additional manpower along with the return of our high-risk employees. What is the result of the surge in demand? Production levels are significantly up in all our manufacturing facilities generating favorable overhead absorption, which can be seen in our very strong Q3 gross margins of 31.5% for Engine Management and 29.2% for Temperature Control. These higher margins were generated from the surge in production volume, which we expect to level off. While this favorable momentum should carry into Q4, we expect sales and production to return to normal in 2021. Our longer-term gross margin targets would be Engine Management 30% plus and Temperature Control 26% plus. We are fortunate to have a substantial manufacturing footprint in North America, including three low-cost operations in Mexico, reducing our China exposure. I will note that, on occasion, we have transferred production back to the U.S., benefiting from automating previous manual assembly processes. Quickly looking around the globe, our Poland operations, which is our coil manufacturing center of excellence, along with other switches and sensors, has steadily grown in size and value. Over the past year, we have approved added capacity for Poland to meet our increasing ignition coil demand. Our three China joint ventures, all in the temperature control product categories, recovered very early from the pandemic at the start of the year. All three JVs provide us with a steady source of supply whereby we can control costs, quality and lead times. Finally, our North American distribution centers are our last touchpoint with our products. Our Q3 surge in demand presented challenges for our DC shipping performance. Similar to our manufacturing operations, we experienced a shortage of available labor to meet demand. The impact was slower turnaround time in our DCs to ship orders. During this period, our DCs were working six and seven days per week to keep up. Tremendous efforts were put forward by our DC employees to satisfy our customer needs. We have made great strides in securing additional headcount, and I'm happy to report that we are current again and meeting our shipping turnaround goals. In summary, we are very fortunate to be in a resilient industry that bounced back so quickly. Unfortunately, this is not the same for many other industries that have suffered dearly. I commend our frontline heroes that were on the job six and seven days per week to satisfy the customer. Customer satisfaction is ingrained in our SMP culture and we just do it. Congratulations, and thank you to our 5,000 employees around the world. I will now turn the call over to Nathan.

Alright. Thank you, Jim. Looking now at the results from the P&L. Our consolidated net sales in Q3 2020 were $343.6 million, up $35.9 million or 11.7% versus Q3 last year. Our net sales for the first nine months of the year were $845.9 million, down $50.8 million or 5.7%. By segment, our Engine Management net sales in Q3, excluding wire and cable sales, were $190.9 million, up $10.1 million or 5.6%. But for the first nine months of the year were down $40.5 million or 5.7%, finishing at $498.2 million. The increase in sales during the quarter, we believe, was due to pent-up demand from earlier in the year and strong customer POS, but looking at the first nine months, the quarter increase only partially offset the declines we saw earlier in the year related to economic slowdown caused by the pandemic. Wire and cable net sales in Q3 were $38.7 million, up $3.5 million or 10%; and for the first nine months were $105.6 million, down $2.9 million or 2.6%. While the wire and cable business continues to be in secular decline, we still believe it will decline 6% to 8% on an annual basis. Sales this year have been positively impacted by an increase in DIY sales as consumers stay at home during the pandemic. Our Temperature Control net sales in Q3 2020 were $110.4 million, up $22.1 million or 25%. However, for the first nine months, sales were down $7.4 million or 3.1% versus last year, ending at $234.2 million. As noted, temp control net sales in the quarter were driven by a very hot summer across most of the U.S., aided by very light pre-season ordering earlier in the year. Net sales on a year-to-date basis in this segment are more in step with last year, down slightly from the first nine months of 2019. Our consolidated gross margin in Q3 2020 was 31.4% versus 29.9% last year, up 1.5 points for the first time. Looking at the segments; Engine Management gross margin in Q3 was 31.5%, up 0.8 points from Q3 last year, while for the first nine months of 2020, it was down 0.3 points to 29%. Temperature Control gross margin in Q3 2020 was 29.2%, up 3.2 points from 26% last year. And for the first nine months, it was up 0.5 points to 26%. Margins for the quarter reflect the strong sales volumes we experienced in both segments and the positive impact of high fixed costs absorption resulting from the compression of production into just a few short months, as Jim alluded to earlier. On a year-to-date basis, gross margins in those segments more closely aligned with long-term trends as engine management margins are really flat with last year and temp control margins ended just slightly ahead of the prior year. Consolidated SG&A expenses in Q3 were $59.5 million, down $0.4 million from Q3 2019, and came in at 17.3% of sales versus 19.5% last year. For the first nine months, SG&A spending was $163.7 million, down $16.8 million at 19.4% of net sales versus 20.1% last year. While our SG&A expenses in the quarter were roughly flat with last year, the improvement as a percentage of sales is reflective of the higher sales volumes we experienced this year. Lower SG&A expenses in the first nine months were helped by cost reduction plans put in place as a response to the impact of the pandemic and overall better leverage of expenses as a percentage of sales. Our consolidated operating income before restructuring and integration expenses and other income net in Q3 of 2020 was $48.3 million or 14% of net sales, up 3.6 points from Q3 2019. For the first nine months, it was 9.3% of net sales, up 0.5 points from last year. As we note on our GAAP to non-GAAP reconciliation of operating income, our performance resulted in third quarter 2020 diluted earnings per share of $1.59 versus $1.02 last year, and for the first nine months diluted earnings per share of $2.53 versus $2.51 in 2019. The increase in our operating profit for the quarter was mainly due to higher sales volumes, while the increase for the first nine months primarily reflects lower SG&A expenses across the company, which slightly more than offset the impact of lower sales volumes. Turning down to the balance sheet. Accounts receivable at the end of the quarter were $238 million, up $102.5 million from December 2019 and up $69 million from September 2019. The increase over year-end reflects seasonal patterns in our business. So the increase over last year reflects the strong sales we experienced in the third quarter, as well as the timing of those sales during the quarter as compared to last year. Inventory levels finished the quarter at $311.4 million, down $56.8 million from December 2019 and down $28.8 million from September 2019. The decrease from both year-end and September last year mainly reflects the sharp recovery in sales we experienced in the third quarter after having lowered production levels earlier in the year in response to general expectations of slowdown in sales. Looking at the cash flow statement, it reflects cash generated from operations in the first nine months of 2020 of $78.6 million as compared to a generation of $43.1 million last year. The increased cash generation during the first nine months of this year was driven mainly by timing, both of movements in inventory and accrued customer returns and offset by an increase in accounts receivable stemming from strong sales during the quarter. We expect this timing around cash flows to normalize once sales and production levels stabilize. During the first nine months, we continue to invest in our business and used $13.2 million of cash for capital expenditures, which was higher than the $12.3 million used in the first nine months of 2019. Financing activities included $5.6 million of dividends paid, and $8.7 million of repurchases of our common stock; both of which occurred during the first quarter. Financing activities also included $44.9 million of payments on a revolving credit facility. We've finished the third quarter with total outstanding borrowings of $12 million and available capacity under our revolving credit facility of $238 million. Finally, as noted in our release this morning, the Board of Directors has approved a reinstatement of a quarterly dividend of $0.25 per share with common stock outstanding, and we have also reinstated our share repurchase program, which had remained authorized by our Board of Directors in the amount of $11.3 million. Thank you for your attention. And I'll now turn the call over to Larry to wrap up.

Thank you. I just want to say a few words before we open for questions. As you saw in the release, come January 1st, I'm going to be moving from Executive Chairman to Chairman of the Board, and this reflects the fact that I'll be stepping back a bit from day-to-day activities, but still remain closely connected to the company as Chairman of the Board. I believe this is an appropriate and proper move after 53 glorious years, where I had the privilege of being part of the company's growth from less than $20 million in our core business, when I began, to well over $1 billion today. We still have many plans for future growth. I'm confident this is going to be a very seamless transition, as well as our major moves have been. We have in place what I believe is the strongest and deepest management team I can remember, who have proved themselves and how well we performed during this very difficult year. So I am very confident about the future. Thank you for listening. And now we're going to move to questions. And so for this, I turn it over to the moderator. Thank you.

We'll take our first question from Scott Stember. Your line is open. Please go ahead.

Good morning guys. Congrats on a really nice quarter.

Thank you, Scott, and good morning to you.

Can we talk about POS? In the release, Eric, you talked about very strong particularly in Engine Management. Could you maybe just frame that up for us and maybe talk the cadence throughout the quarter and frame that up against what we're seeing right now in October?

Sure. Let me talk about the two divisions separately. Engine Management, what we saw pretty consistently throughout the quarter was in the highest density around high single digits touching into low double digit, preferably high single digits. And that continued throughout the quarter and has continued into October as well. On the wire and cable portion of it, we saw that in the beginning, it did start to taper off slightly in the last couple of months, still very much in the positives, but it's tapering off, which probably reflects the fact that the DIY business is going to, at some point return back to normal. Temperature control was robust throughout. It roughly matched our sales that were at around 25% or so POS throughout the entire summer. So it was very strong.

Got it. And just on the gross margins you would never know that you had some inefficiencies on the distribution side and on the labor side, just because of the strong numbers that you put up. But could you maybe quantify how much of an impact that has in the quarter and it sounds like it's mostly reversing itself in the fourth quarter, correct?

Yes. Hi, Scott. This is Jim Burke. There's so many variables going on at one time that are in there. While we had inefficiencies, volume makes up for a lot of that. As we gained leverage as a percentage of sales, that was there. I don't go into the individual details. We have cost savings that we implemented because of the COVID crisis, which will offset a lot of that inefficiencies that were there at volume really made up for a lot of it.

Got it. And then the last question, and then I'll jump back into queue. On the SG&A line, I know that there's definitely some moving pieces and some things that were taken out, a lot of stuff that was taken out over the last couple of quarters. But can you give us an idea of what we should be looking for on the fourth quarter or where that could come out? And then just when you talked about some stuff coming back next year, management comp or whether it's some of the other growth-related spending. Can you talk about that just broadly speaking for next year?

Yes, Scott. So, when you look at the SG&A line obviously, like you said, there's a lot of moving pieces this year. We always talk about this line is being 75% fixed, you know, the rest variable. We would see, I think Nathan Iles would say as we go through the fourth quarter in the next year. Obviously, we'll be looking at costs that can be controlled. As Eric noted earlier in his remarks, looking at what that might be as we go forward, but really expect something more normal looking into the future at this point.

Okay. Alright. That's all I have for now. Thank you.

Thank you, Scott.

We'll take our next question from Daniel Imbro at Stephens Inc. Your line is open. Please go ahead.

Yes. Thanks. Good morning guys, and congrats on the strong results.

Good morning.

Want to start on the Temperature Control. Jim, you know, really impressive both on the cost side and the demand side. Can you maybe talk about where inventory levels are as we exit the summer months? Obviously that helped, the lack of pre-season sales helped Q3, but how are we exiting this season and how do you think that's going to impact restocking if we get normal weather trends next year in 2021?

Good morning, Daniel. This is Eric, and I'll tackle that. As we look at the inventory position on the major distributors where we have visibility, we're actually pleased to see that their inventory really kind of held up throughout the season, which reflects the fact that they were ordering heavily from lots of them and were able to replenish their shelves. Now that we're coming out of a season and looking at the fact that September and October actually continued to be somewhat strong, we assume that our inventory is now dropping a bit. We don't have visibility yet, a snapshot of receipts inventory, but that does, as you say, tend to bode well for next year's preseason. So we'll see what comes, but I think it's a reasonable assumption.

Great. That's helpful. And then maybe following up just thinking about that next year outlook, I know you guys aren't guiding yet, but Eric did you think about demand being more resilient than we thought it would be this year? What are some of the puts and takes as we're thinking about maybe industry growth for next year? How do you see industry growth shaking out? Should there be a tailwind from seemingly in miles driven recovery? Will there be growth in the aftermarket sweet spot in any of the major factors you guys are looking at, as you're thinking about what 2021 industry growth looks like?

I wish we had such a good crystal ball. Its variable, at some point we believe that the industry is going to return to some level of normalcy, especially within our categories, which are non-discretionary heart failure type items. We can't really create demand on engine failure. At some point, we expect that to return to normal. We don't know when that will be, because it has continued to be robust, suggesting that there is always a certain amount of unperformed or underperformed maintenance out there that is being performed at a higher rate than historical. But once it does get back to normal, we expect that on the engine management side, it's going to revert to being a low single digit business. On temperature control, it showed weather dependence; that hot summers versus cool summers can move the needle up or down a few percentage points, so we just have to track it with the weather.

Got it. And then third one from us, maybe focusing longer term, just there's been a lot of talk in the market around EVs lately, and states like California trying to phase out the combustion engine. You guys have hard assets that are pretty aligned with the internal combustion engine. Can you update us on how you're thinking that transition looks over time and maybe what are some of the levers you guys can pull to offset some of those headwinds if they do materialize in the next, you know, five plus years with growth in EVs that are less internal combustion engineering?

It's a great question. And it's one that we spend a lot of time discussing internally, as you can imagine. You give the timeline as five years, but we think it's really going to be substantially longer than that, as it relates to first needing to pick up in terms of a percentage of new car sales. Then there's obviously a substantial lag before it starts to impact the car park, especially the sweet spot of that car park. We do believe that we have quite a few years before it has any significant implications. That said, we do believe that it is a when and not an if, and so we do need to prepare ourselves for that. As you look at our engine management business, certainly a significant portion of it targets that combustion engine, but we are looking to broaden the offering to cover a lot of other aspects of that vehicle, and we're seeing that much more as we get into safety-related devices, whether it's the advanced stuff, the ADAS type products or some of the stuff that's been on vehicles for many years, like tire pressure sensors and so on. It's becoming a bigger part of our offering, and a lot of other body control parts include lots of electrical switches and sensors throughout the vehicle. We've really broadened our portfolio to pursue a lot of that. As we look at the electric power-train itself, we hope that there are going to be some replacement parts opportunities. Right now, it's frankly too early to tell because it's such a small part of the car park, essentially a young part of the car park that we're not really seeing those failures. However, we do believe this transition will have fewer moving parts, so we do need to prepare ourselves for all the product categories, where we see plenty of product opportunities. You use our other divisions and the Temperature Control Division; while there are nuances on electric vehicles, they still basically have the same air conditioning system. So we will continue to enjoy that, plus there are a lot more cooling opportunities. We're seeing that in battery cooling components that we can explore. I would like to point out, just returning to the combustion engine side, that much of the sales growth you're seeing out there for EVs is really hybrids, and they still have a conventional powertrain on it, which we're benefiting from so far. That's a long-winded answer to say that we do know we need to prepare ourselves, but we think we have a long lead time to get there.

That's great. Thanks so much guys and best of luck.

Thanks, Dan.

We'll take our next question from Bret Jordan. Your line is open. Please go ahead.

Hey, good morning guys.

Hi, good morning, Bret.

Good morning, Bret.

And I guess just sort of looking at market share, I mean, some pretty strong numbers in the third quarter with a lot of disruption globally. Do you think you guys had the opportunity to gain any share as a result of the pandemic? And I guess the follow-up to that question, given your opening up your buyback and a dividend, would be how are you thinking about the M&A environment? Has this event created any opportunities to buy? And as you look at some of these new categories, maybe expanding beyond internal combustion, do you see yourselves being more active here in the near-term?

Well, I'll talk about market share and Jim can address the M&A question. For market share, as you know, Bret, we enjoyed strong business relationships with really everybody out there. We think that any market share movement would probably be more related to downstream market share shifts. We continue to enjoy pretty much unchanged relationships with all of our trading partners. Jim on M&A.

Yes. And Bret on the M&A front, we have a formal team that's in place and we're continuously monitoring opportunities that come up, again many of them come from our sources of supply, be it our vendors or product categories that we may acquire out of a larger company, i.e., like we did with Pollak and Stoneridge that was there. I'd say the past year things have obviously been very quiet with the whole COVID impact, but we continue to monitor; nothing to speak of yet. I think the pipeline is relatively stable, but we're focused on Engine Management and Temperature Control in that area.

Okay. And I guess, Eric, to the market share question, I guess you said you're not seeing any bias to move away from import programs to North American just supply chain partners, or I guess even the inverse, are you seeing buying groups pushing more to direct source out of Asia in this environment?

But we have not really seen that over the course of this year. We do find ourselves, as you can imagine, having discussions with everybody about the security of our supply chain. As Jim went through in his prepared remarks, it's been very secure and stable. We think that our lesser reliance on the Far East does help us, but I wouldn't say that it's yielded any real benefits to us for this year.

Great, thank you.

You're welcome.

We'll take our next question from Robert Smith at the Center for Performance and Investing. Your line is open. Please go ahead.

Hi, good morning and thanks for taking my questions. So, basically, my questions have been answered already, but I do want to discuss a certain point. So you guys have a really venerable history of the company over many years, a hundred years or so. Looking at the historical record, I really think you should consider looking at a special dividend by the end of the year to make shareholders whole, the dividends I missed this year, because you would again on a historical record show a decrease in the dividends for the year. You've been very judicious in paying the dividend and raising the dividend over the long span of years. I would like you to consider this possibility. I know it's kind of late, but I don't know about a board meeting or whatever, but I think you should consider this as far as historical record. You certainly snapped back very quickly, and I think you can well afford it, and it will provide your shareholders with some extra cash to spend during the holiday season. So all in all, I think that this is a suggestion that you could consider, and I hope you will. Thanks. And as far as I do have a question with Larry stepping back, I'm not sure whether he will be present in future earnings calls like this, if not, I certainly want to wish him all the best in his future and give him a big hug over the phone.

I'll answer the second one. That's an easy one. Yes, I certainly plan to still be here, Bob, and look forward to…

Okay, great. Wonderful.

Yes. Okay. It does that. It came up. And Robert again, thank you for the question. Yes, it's a consideration. Our focus is really on opportunities and what we have first invested in the business with capital expenditures that we have there. Dividends that we go through, we address it. You're bringing up a special dividend. We look for acquisition opportunities. So we have our cash allocation. We will review opportunities with the board. We hear you as an investor and everything is always under consideration; but again, our first focus is always investing in the business.

Thanks.

Thank you.

Thank you, Robert.

We'll take our next question from Carolina Jolly. Your line is open. Please go ahead.

Hi, thank you for taking my question. I'd also like to congratulate Larry for taking a business from $20 million to $1 billion, very impressive. Just to focus on my question. First, I know you do hard parts non-discretionary business, but do you have an understanding of what kind of the underlying do-it-for-me, do-it-yourself mixes of do-it-yourself strength, especially in e-commerce? Does that affect your business in any way? Or how production is run?

Good morning, Carolina. So, you're right; our product is more tailored for professional installation and not just because they're non-discretionary hard parts, but because they're more technical in nature—not just the ability to do the repair, but in a lot of cases the ability to do the diagnostics, which is much more difficult for a DIY type consumer, especially in the newer technologies. While we do believe there was an uptick over the course of the quarter, it's still the minority of how our products are sold. So that did create a bump. It's going to come back to normal. We don't have complete visibility of our DIY versus DIFM mix. We lose that visibility as we get through the channel, but it's still certainly less than half of our products or so. Therefore, leading to your second question, if I understood it correctly, you broke up a little bit; it had to do with the implications on e-tailing, is that correct?

Yes, just that we've seen significant strength in e-tailing, just seeing if that affects your business in any way.

Right. And so you're right, they are very related topics. We do not sell directly to any pure e-tail players, the Amazons and such; our products are sold on their platforms as fulfilled by our direct customers, as well as obviously all the big national players have their own omni-channel strategies, and we support them there. So we do have a certain amount of our products that are sold online, and we've seen over the last few years a very slow increase of that. Perhaps over the course of this year, it accelerated slightly, but it's still a very small percentage of our business—it's less than 10% of our business sold that way. Again, because it is professionally installed, the name of the game is speed of delivery and having that inventory availability as close to the need as possible. We believe it will continue to be a minority part of our business.

Great, thank you and congratulations on a great quarter.

Thank you.

Thank you, Carolina.

It appears we have no further questions at this time. I will now turn the program back over to Larry.

Okay, everybody. Thank you very much. We appreciate your attendance. Thank you very much.

Okay. Bye, thank you.

Thank you. Bye-bye.

Bye.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.