Simpson Manufacturing Co., Inc. Q1 FY2020 Earnings Call

Greetings and welcome to Simpson Manufacturing's First Quarter 2020 Earnings Conference Call. Please note this conference is being recorded. I will now turn the conference over to your host, Kim Orlando with Addo Investor Relations. Thank you, you may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's first quarter 2020 earnings conference call. On this call, the company may discuss forward-looking statements, such as future plans and events. Forward-looking statements like any prediction of future events involve risks, uncertainties, and assumptions that could cause actual results to differ materially from these statements. Some of these factors and cautionary statements are discussed in the company's public filings and reports, which are available on the SEC or the company's corporate website. Please note that the company's earnings press release, which was issued today at approximately 4:15 Eastern Time. The earnings press release is available on the Investor Relations page of the company's website at www.simpsonmfg.com. Today's call is being webcast and a replay will also be available on the Investor Relations page of the company's website. Now, I would like to turn the conference over to Karen Colonias, Simpson's President and Chief Executive Officer.

Thanks, Kim, and good afternoon, everyone. I'm pleased to discuss our results with you today. I'd like to first begin with a high-level summary of our first quarter financial performance and will then turn to a more detailed discussion on the Coronavirus pandemic, the impact it has had on our business and the actions we are taking to address this unprecedented situation. We delivered a solid first quarter, operationally and financially. Sales of $283.7 million increased 9.4% over the first quarter of 2019 and were driven by higher sales volume in North America. Sales volumes increased primarily due to the milder weather conditions in our key markets compared to a year ago which was an unusually cold and wet winter. Sales were partially offset by weaker conditions in Europe, which was impacted by the COVID-19 beginning in mid-March. Our gross profit margin was strong at 45.7%, an improvement of 320 basis points year-over-year. This was largely due to sales mix and decreased material costs. Our gross margin coupled with the relatively flat operating expenses helped generate operating income of $49.4 million, up 64.4% year-over-year and strong earnings of $0.83 per diluted share, up 56% year-over-year. Brian will provide additional details on our Q1 performance shortly, but now let me turn to the discussion of the COVID-19. Our hearts go out to all of those who have been impacted by the Coronavirus pandemic. I would like to sincerely thank all of the first responders for their selflessness and courageous efforts to help those in need as well as extend my gratitude to our over 3,300 employees for their cooperation and commitment to help ensure Simpson remains a safe workplace. The health and safety and well-being of our employees, their families, our customers and our communities is our top priority and is at the forefront of every decision we make. We took immediate action at the onset of this crisis to enact rigorous safety protocols in all of our facilities, by improving sanitation measures, implementing mandatory social distancing, reducing on-site staff to staggered shifts and scheduled and remote working where possible and restricting visitor access to our location. As of today, all of our U.S. manufacturing facilities remain operational in accordance with the applicable shelter-in-place orders as suppliers of businesses deemed essential, including hardware store and other building material companies. However, two of our larger European operations in the United Kingdom and France were ordered to cease nearly all operations in late March, forcing us to temporarily furlough many of those affected employees. We have every intention of being able to bring those employees back to work, when the timing is right. Over the years, we've built a strong brand reputation with a loyal customer base and talented group of employees, and we have every intention of protecting that to ensure we can continue to service our customers, while operating in accordance with local government regulations. Importantly, we have not experienced any supply chain disruptions related to the COVID-19 and have been able to meet our customer needs. In the month of April, sales declined compared to March levels due to lower demand from the anticipated slowdown in housing starts and general construction activities. While this situation is highly unique and unlike any other downturn we've experienced in the past, we believe we are well positioned to emerge on the other side from a position of strength. If you look back to 2008 and 2009 during the financial crisis, which was accompanied by a drastic decline in U.S. housing starts and a simultaneous 28% drop in sales, you'll see that our strong balance sheet played a major role in supporting our business through this recovery period. Today, our balance sheet provides us with ample liquidity to support our day-to-day operations. We ended the quarter with $305.8 million in cash on hand, after drawing down $150 million on our revolving credit facility as a precautionary measure to preserve financial flexibility and ensure our working capital needs will be met in light of the current uncertainty, stemming from the COVID-19 pandemic. Importantly, following the 2009 crisis, we made significant strategic changes to our business, to ensure our foundation will be even stronger in the event of a future recession. These actions included diversifying our business to be less reliant on U.S. housing starts, by making key investments in adjacent products and markets. More recently, we've taken significant steps to rationalize our cost structure over the past three years in connection with our 2020 plan goals. We've been able to operate more efficiently, as evidenced by our 250 basis points improvement in our total operating expenses as a percent of sales for the first quarter of 2020 compared to the first quarter of 2019. Given the level of uncertainty regarding the long-term impact of COVID-19, including market conditions and demand trends, we have proactively taken additional measures to ensure we maintain our strong financial position. Beginning in the second quarter, we've implemented a hiring freeze and will focus on employee retention and adjust employee hours based on lower production levels in the near term. In addition, our discretionary expenses including employee travel and spend on certain consultant-related projects have been significantly reduced, as we abide by the shelter-in-place orders throughout our operations. Turning to capital allocation. Our strategy has shifted in recent months to focus more on cash preservation until this crisis passes. As a result, we are reducing our planned capital expenditures to be used only for projects that are required for repair or maintenance or to address potential safety issues in our factories. In addition, we are being highly selective in regard to inventory purchases in the current environment in line with our goal to improve our inventory balance through careful management and purchasing practices. That said, you will notice inventory dollars on our balance sheet at March 31st increased compared to the level at December 31st. This is primarily to support the rollout of a significant new customer in the second quarter of 2020. Absent the impact of this new customer, our total inventory dollars and pounds on-hand, including finished goods, would have been down compared to the levels as of December 31st. We look forward to providing more details on this rollout on our upcoming second quarter conference call. In regard to stockholder return activities, year-to-date as of April 25, we paid over $20 million in dividends to our shareholders and repurchased more than 900,000 shares of our common stock at an average price of $59.46 per share for a total of $62.7 million. However, given cash conservation is our priority in this current environment, we are suspending our share repurchase program until further notice. Finally, before I conclude, I'd like to highlight that we completed the final phase of the SAP implementation in our major U.S. sales organization during the first quarter of 2020 with the successful onboarding of our Stockton manufacturing facility. We now have all of our U.S. based sales organizations transitioned over to SAP. As of today, we still anticipate a companywide completion goal at the end of 2021; however, we will continue to monitor and update our timeline should stay-at-home orders remain in place for a prolonged period of time. In summary, we are pleased that we have delivered strong first quarter results. Since the COVID-19 pandemic began towards the end of the first quarter, we've begun to operate in a highly difficult and unpredictable environment that has shaken our global economy. As announced in our earnings press release issued this afternoon, due to the significant level of uncertainty regarding future market conditions surrounding COVID-19, we've chosen to withdraw our previously issued annual 2020 outlook as well as our financial targets from our 2020 plan at this time. In terms of our 2020 plan, while the operating environment has made it difficult to predict, with these financial targets remaining achievable by the end of the fiscal 2020, we continue to execute based on the same underlying principle of focusing on operating efficiencies and cost savings to guide us through this pandemic as we move forward. In a world filled with so much uncertainty, I can say that we believe our business is very well-positioned to weather the current storm as a result of our focus on elements that we can control, including upholding a best-in-class customer experience and manufacturing high-quality trusted products, maintaining overall financial flexibility by ensuring we have ample liquidity, and remaining conservative in our capital allocation approach with a focus on cash preservation in the near-term. I'd like to again thank all of our employees for their passion and commitment to their health and safety and our excellent customer service. And I'd now like to turn the call over to Brian, who will discuss our first quarter financials in detail. Brian?

Thank you, Karen, and good afternoon, everyone. I'm glad to share our first quarter financial results with you today. I want to clarify that unless otherwise noted, all financial figures I discuss today relate to the first quarter of 2020, and all comparisons will be year-over-year compared to the first quarter of 2019. Now, regarding our results. As Karen mentioned, our consolidated sales were strong, up 9.4% to $283.7 million. In North America, sales rose 12.5% to $249.1 million due to increased sales volume supported by stronger housing starts compared to the wet winter conditions we saw last year. U.S. housing starts grew 22% in the first quarter compared to the same period last year, particularly in the west and south where we have a significant presence, with home starts up 27% and 19%, respectively, year-over-year. In Europe, sales were down 8.5% to $32.7 million, mostly due to reduced sales volume in our concrete business. First quarter sales were also slightly affected by our facilities in France and the United Kingdom, which faced government-mandated operational restrictions in March due to safety precautions related to COVID-19. As a result, these locations operated at minimal capacity to comply with the orders. Additionally, Europe sales were negatively impacted by $1.0 million due to foreign currency translations from European currencies weakening against the U.S. dollar. In local currency, Europe sales decreased by about 5.5% for the quarter. Wood Construction products made up 86% of total sales compared to 84%, while Concrete Construction products accounted for 14% of total sales compared to 16%. Gross profit climbed 18% to $129.7 million, leading to a gross margin of 45.7%. Gross margin improved by 320 basis points, mainly because of lower material and factory overhead costs as a percentage of sales due to increased production, partially offset by higher labor, warehouse, and shipping costs. In North America, our gross margin increased to 47.7%, up from 44.4%. In Europe, our gross margin saw a slight rise to 32.7% from 32.3%. By product, our gross margin for wood products rose to 45.4% compared to 42.3% in the prior year quarter, while concrete products improved to 42.5% from 39%. Now, let's discuss our costs and operating expenses for the first quarter. Research and development and engineering expenses increased by 9% to $13.4 million, mainly due to higher personnel costs and cash profit sharing expenses. Selling expenses rose nearly 2% to $28.5 million, primarily driven by increased personnel costs and commissions in cash profit sharing, offset in part by reduced stock-based compensation and lower advertising and promotion expenses. Selling expenses in North America increased by 2%, while in Europe, they also rose nearly 2%. General and administrative expenses fell by 3% to $38.5 million, largely due to lower professional and legal fees and reduced stock-based compensation. This decrease was partially offset by rises in personnel costs, cash profit sharing, bad debt reserves, and intangible amortization expenses. On a segment level, general and administrative expenses in North America decreased by 5%, while in Europe, they increased nearly 6%. Total operating expenses reached $80.4 million, a slight rise of $0.5 million or about 1%. As a percentage of sales, total operating expenses were 28.3%, an improvement of 250 basis points compared to 30.8%. Within our first quarter operating expenses, SAP implementation and support costs amounted to $3.4 million compared to $2.4 million in the previous year quarter. Since the project's inception, we've capitalized $19.7 million and expensed $29.3 million in total as of March 31, 2020. Our robust gross margins contributed to a 64% increase in consolidated income from operations to $49.4 million compared to $30 million. In North America, income from operations grew 63% to $53.6 million due to higher sales and lower operating expenses. However, in Europe, the loss from operations amounted to $1.7 million compared to a loss of $0.4 million, largely due to decreased sales and heightened severance and amortization costs. On a consolidated basis, our operating income margin climbed to 17.4%, an increase of roughly 580 basis points. The effective tax rate decreased to 21.3% from 22.5%. Consequently, net income reached $36.8 million or $0.83 per fully diluted share, compared to $22.7 million or $0.50 per fully diluted share previously. Now, let's look at our balance sheet and cash flow. As of March 31, 2020, our cash and cash equivalents totaled $305.8 million, an increase of $192.4 million compared to March 31, 2019, primarily due to our decision to draw down $150 million from our revolving credit facility. This move was a prudent step to bolster our cash position and maintain financial flexibility in light of the current uncertainties due to the COVID-19 outbreak. The borrowed funds will be available for working capital, general corporate expenses, or other allowed purposes as per the Credit Facility, with approximately $150 million remaining available for borrowing. We generated cash flow from operations of $16.8 million for the first quarter of 2020, an increase of $7.1 million or 74%. We invested about $6.8 million in capital expenditures, which included a minimal amount for our ongoing SAP implementation project. We also distributed $10.2 million in dividends to our shareholders. On April 23rd, our Board of Directors declared a quarterly cash dividend of $0.23 per share, payable on July 23rd to shareholders of record as of July 2nd. Before we open the floor for questions, I want to reiterate Karen's comments regarding our 2020 financial outlook. At this point, there is still a substantial amount of macroeconomic uncertainty linked to the Coronavirus pandemic, including a general lack of visibility into future market conditions, especially regarding U.S. housing starts, which are crucial for a significant part of our business. Given these factors, we have decided to withdraw our previously provided full year 2020 outlook and the associated financial targets outlined in our 2020 plan. In conclusion, we are very happy with our first quarter results. I want to express my gratitude to all our employees worldwide for their commitment to working safely and supporting our customers during these challenging times. We believe that our strong market share, geographic presence, diverse product offerings, combined with ongoing cost-saving initiatives from our 2020 plan, a strong balance sheet, and short-term focus on cash preservation will position us well when shelter-in-place orders begin to lift. We are confident in our ability to sustain operations during this tough time as long as we can continue to serve essential businesses, and we are well prepared to meet future demand trends once the COVID-19 pandemic is over. Thank you for your attention today. Now, I would like to open the call for questions. Operator?

Thank you. Our first question comes from Daniel Moore with CJS Securities. Please go ahead with your question.

Thank you, Karen and Brian. Good afternoon. Hope you and your families are well and congrats on obviously strong Q1 results. Karen you mentioned this unlike any other downturn, can you elaborate a little obviously tremendous uncertainty; but what does your crystal ball say about debt duration relative to 2008/2009? How is it similar, how is it different? Just any high-level thoughts would be helpful.

Sure. Thanks, Dan, and I appreciate the compliments on the quarter. It was really a fantastic quarter until about the middle of March as everybody knows. So as we discussed, when we did have the financial crisis in the 2008/2009 timeframe, certainly a huge impact on Simpson and our business, and some of the things that we see differently today is a fairly still high demand for housing, low interest rates and not a lot of inventory on the market. So we think the demand side of the equation is still good as we look at where we are in 2020. However, we're one month into Q2 and we're certainly already seeing a significant reduction based on where we were in March, and it's very difficult to know what that timeframe will look like as some states are starting to open up and others are not. So very difficult for us to predict what the curve will look like? We're taking into account again that strong balance sheet so that we can ensure that we can be in good shape when we come out of this. But from a timing standpoint, again, it's difficult for us to know when things will pick up again.

What kind of volume declines have you experienced either sequentially or year-over-year thus far in April in North America and Europe?

From March to April, we have seen double-digit decline.

What percentage of capacity are your plants currently operating at, particularly in North America, considering Europe is somewhat more affected?

Yes, capacity is an important question. It is influenced by a few factors. First, there are our production levels and actual customer orders. Additionally, our employees' health and well-being are also affecting our capacity. Currently, we have one facility with reduced hours, while the other facilities are operating at full capacity for one shift.

I'll sneak one more and jump back into queue. In Europe, can you give us a sense for what type of either weekly or monthly operating losses we're running at, at this stage, given shutdowns in those two large facilities and any steps you might be taking to mitigate that? Thank you.

Yes. So in Europe, obviously, the pandemic hit there sooner than in the United States and we saw, as we mentioned in mid-March, reduction and actually the government shutdown on both our UK facilities and our France. As we mentioned, those are two of our largest. They represent about 5% of our revenue, company-wide revenue. Today, we're starting to see things pick up a little bit there as some of their shelter-in-place elements are being eased, and they did not have an impact on our concrete business, that was still fairly strong because of their typically commercial type of business. And the shutdown of the United Kingdom and the France location did not have an impact on our Nordic business, which is supplied by our manufacturing facility in Denmark.

Okay. I'll jump back in queue with any follow-up. Thank you.

Okay. Thanks, Dan.

Our next question comes from the line of Julio Romero with Sidoti & Company. Please proceed with your question.

Hey, good afternoon. Hope you folks are doing well?

Thanks, Julio.

Just following up on the previous question. I mean when I think about the cadence of revenue for the year, I know you mentioned that double-digit drop off from March to April. But as I think about Simpson, specifically I think about the lag from housing starts to your sales of, to think about on average three months. I mean considering that and considering house starts have kind of performed this year. I mean is it fair to expect kind of a stronger drop off in 2Q for the year?

Yes, I think what we saw in Q1 was part of that strong December/January housing starts. And obviously, the March numbers have come out, we've seen a drop off in those numbers and that's what we'll start continuing to see as we go through the second quarter. And I think that's what you're seeing already from our March to April drop off is that housing start drop off.

Can you discuss your current mix of fixed to variable costs and how it compares to your cost structure before the 2020 plan or prior to the last downturn?

Hey Julio, it's Brian. Over the past few years, we've focused on improving our operating efficiencies. While we don’t usually discuss the balance between fixed and variable costs in our business, we've started to see the benefits of our efforts as SG&A as a percentage of revenue has begun to decrease. We believe these improvements will continue to benefit us in the future, but I'm not able to provide specifics on the proportions of our fixed and variable costs right now.

Fair enough. And maybe just my last one here is, I know you mentioned in the press release kind of tightening your belt on planned capital expenditures. I guess that along with kind of 2020 plan now and how you thought about capital allocation with that. I mean how do you think about maybe your balance sheet post-2020, and I know that there's a kind of uncertainty but assuming some type of recovery starts to happen within this year. I guess, longer-term I mean how do you think about your balance sheet and the right cash position, assuming a recovery to materialize by the end of the year?

That's a great question. Our main goal has been to maintain liquidity through the actions we've taken. We're prioritizing capital expenditures that are essential for safety or necessary equipment replacements until we have a clearer understanding of our end markets. We're continuously monitoring for indicators that suggest a shift in the situation. Currently, our focus is on safeguarding our balance sheet and postponing certain capital projects that were initially planned for our 2020 fiscal year. We're seeking to maintain flexibility until we gain better insights into market conditions. While I can't specify where we aim to have our cash positioned, the priority remains on sustaining that flexibility.

Understood. Thanks for taking the questions and stay healthy.

Thanks, you too.

Our next question comes from the line of Tim Wojs with Baird. Please proceed with your question.

Good afternoon, everyone. I hope you are all doing well. Great job on the quarter and controlling expenses. I don't want to dwell on the period from March to April, but you mentioned that April was down double digits compared to March. I assume there is typically a significant amount of stocking that occurs between those months. Usually, what kind of trend do you see from March to April in terms of growth? Would it typically be a double-digit increase or a single-digit increase?

Well, as we've always said, our typically best quarters are second and third quarter, and that's really a function of construction being able to be active based on coming out of winter months. So last year of course was an anomaly because we had a very tough winter first and second quarter. But historically, our best quarters are second and third quarters. So historically, we would have seen second quarter kicking up compared to where first quarter numbers were.

Okay, okay. And then just on the new customer you mentioned, is there any way to just kind of think about sizing or maybe where that customer is in terms of end markets and end product. The types of products that they're purchasing from you?

Yes, I mean I think we said that new customer is Lowe's. So that gives you an idea of their end market and we'll certainly be laying much more details when we finish or have our Q2 conference.

Is that a significant win in terms of overall size?

We'll give you more details on that size and product mix again when we've had that opportunity in the Q2 conference.

Okay, fair enough. And then just, I guess, when we think SG&A, you guys have done a good job controlling SG&A over the last couple of years with the 2020 plan. How should we think of just the flexibility around SG&A if you see meaningful sales decline? And I'm just trying to understand that if sales were down double-digits in the second quarter for example, would you expect SG&A to be down by a lesser amount or would you expect it to be kind of flat, anything kind of directional, I think would be helpful?

I would say slightly down or flat to slightly down. There is variable compensation involved, and with lower volumes, there is lower profitability. So, I would say it is slightly down.

Okay. From a steel perspective, looking ahead at current prices, how significant of a benefit could material costs provide for the gross margin line in your cost of goods sold?

Yes, that's a great. Go ahead, Brian.

Yes, it depends heavily on volume and other factors, and we're not ready to comment on those aspects. We are monitoring steel and the markets, and we aim to find a balance between anticipated demand and our purchasing needs before moving forward. Karen, do you have anything else to add?

Yes, I would just say that, as we mentioned, our gross margin in the first quarter was good volume, good mix, more wood products and concrete products and certainly we had some contribution from the material side. It's tough to know again, material is really a function of what that volume is going to look like and it's tough for us to get any good crystal ball at this point and certainly we'll continue tracking what's going on with the housing starts and what's going on with the R&R market. But really tough to be able to give some clarity on that right yet.

Okay. Okay, fair enough. Thanks for the time and good luck managing through all of this.

Thank you, Tim.

Thanks, Tim.

Our next question comes from the line of Steven Chercover with D.A. Davidson. Please proceed with your question.

Hi, Karen. Hi, Brian. So I was kind of late, so forgive me if there is any repetition. But it sounds like that the quarter could have been even better. How stiff a headwind or how steep was the drop-off that you experienced in the last two weeks of March?

In Europe, we noticed that drop-off around mid-March, although it wasn't as pronounced for us. We really began to feel the impact when the shelter-in-place orders were implemented in the last week of March.

Got it. And as we think of your U.S. regions, California and Washington amongst the seismic regions are currently down. Did things really slow down a lot in your win share regions, because they seem to be a bit more liberal about getting things back and running?

Yes. As you mentioned, so regions have put these ordinances out in various phases. California did shelter-in-place and of course construction and hardware was still essential. And then some counties in California, and as you mentioned in Washington, were even restricting construction activities, although keeping hardware as essential businesses. So certainly that would have an impact as you mentioned in the western states. We've got a lot more content in those houses based on a seismic criteria. We're not seeing quite a stricter construction mandate in some of the other states, although parts of the Northeast had similar mandates where construction was not allowed in some areas in Pennsylvania market. So very quiet throughout the country.

Okay. And then, how much flexibility do you have adjusting your work hours? I mean I guess in Europe they kind of did it 40, but yes, any domestic facilities. Can you tell the rank and file. We're going to ring the bell after six hours, because we've got six hours' worth of work even though these are accustomed to doing an 8-hour shift. I mean, just how much flex is there?

Yes, that's a great question. And of course we have a very skilled workforce. And so we want to ensure that we're putting everything in place to make sure we don't have to go to reduced work hours. As I mentioned, we've only had to do that at one of our facilities, we went from a 40-hour week to a 32-hour week. And it is things that we have to work with if we're a union shop, we have to go through those processes. But again, we're doing everything as far as making sure we can look at what the production needs are, to be keeping that very skilled workforce in place.

Okay. And then switching to maybe Brian question, but the $150 million drawdown on your revolver. I mean was that just a full-blown abundance of caution kind of use it or lose it, are you concerned that somehow your bankers would withhold it or yank it from you?

Yes. Out of an abundance of caution in the early days, we wanted to ensure that we had access. This was not related to any specific banks, as they are all strong partners. However, based on lessons learned from the 2008-2009 crisis, where companies that had credit lines found them unavailable when needed, we wanted to avoid that scenario. I haven't heard of any significant restrictions this time around, but we took precautions to ensure access in case the credit markets tightened. Overall, I haven't observed any issues this time, but we wanted to be prepared.

Got it. Are you noticing any areas of strength? It seems that many decking and fencing projects, often referred to as honeydew projects, are thriving, especially if the weather is good and people have some free time. This appears to be a segment where home centers are struggling to keep up with demand. I'm curious if this trend is benefiting any of your outdoor accent products or other lines related to fencing and decking.

Yes. If I mean certainly hardware stores being essential business, we do business with the Home Depot, True Value, to invest. And all of those, I think are active and busy. Major part of our business, as we always say, is about 50% of our business is driven from homes starts. So as much as these areas are doing better than maybe a contractor distributor, there is still not a really large part of our business. So I think they are seeing some good business through those locations. But again homes starts is 50% of our revenue.

Sure. Well, I mean, let's hope that your comments at the outset that indicate that there is not an oversupply of housing inventory and that rates remain low, allows us to snap back a little bit differently than that for 2008. Thanks and stay safe.

Thank you, Steve.

Thanks, Steve.

We have a follow-up question from the line of Daniel Moore from CJS Securities. Please proceed with your question.

Thank you again. It would be a shame not to ask at least one question about Q1, considering the strength in the quarter. Brian, could you provide any insights on the 320 basis point gross margin improvement? Can you break that down between volume and raw materials or at least rank them?

Well, we definitely saw volume compared to Q1 last year. But also, as we noted, gross margin benefited from material as a percent of revenue being a little lower, absorbed more overhead, which I guess tails into that the volume question. But also one of the other elements there is mix, we had better wood margin, wood margins improved in Q1 of '20 versus last year and that wood product business was a little bit more of a percent of the total for the company. So a bit of benefit on mix, material and volume.

Okay. And lastly in terms of just getting back to capital allocation, the one thing we didn't mention was M&A, do you see potential at least for increased opportunity, given some dislocation or are we really on hold as far as that's concerned as well for the time being?

Hey, Dan. Obviously, we would keep our eyes open to see anything of interest was to come around. But certainly, we're not actively in that market.

Understood. Thank you for the color.

Great. Thanks, Dan.

Ladies and gentlemen, we have reached the end of our question-and-answer session as well as today's conference call. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.