Watts Water Technologies Inc Q2 FY2022 Earnings Call

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2022 Watts Water Technologies, Inc. Earnings Call. It's now my pleasure to turn today's call over to Diane McClintock, Senior Vice President, FP&A and Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to our second quarter earnings conference call. Joining me today are Bob Pagano, President and CEO; and Shashank Patel, our CFO. During today's call, Bob will provide an overview of the second quarter and discuss the current state of the markets and our operations. He will also update you on our Smart and Connected product initiatives and our sustainability efforts. Shashank will discuss the details of our second quarter performance and provide our outlook for the third quarter and for the full year. Following our remarks, we will address questions related to the information covered during the call. Today's webcast is accompanied by a presentation, which can be found in the Investor Relations section of our website. We will reference this presentation throughout our prepared remarks. Any reference to non-GAAP financial information is reconciled in the appendix to this presentation. Before we begin, I'd like to remind everyone that during this call, we may be making certain comments that constitute forward-looking statements. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially. For information concerning these risks, see Watts' publicly available filings with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I will now turn the call over to Bob.

Thank you, Diane, and good morning, everyone. Please turn to Slide 3, and I'll provide an overview of our Q2 performance. Firstly, I want to thank our employees around the world who have executed through the challenges of record inflation, the effects of the Ukraine war on Europe's economy, COVID lockdowns in China and the continuing supply chain disruptions. Our success is a result of the dedication of our team to serving our customers. We continued our strong start to the year with our second quarter results significantly better than we expected. During the quarter, we benefited from incremental sales due to our decision to invest in inventory, which allowed us to better serve our customers. Our Americas team delivered another quarter of double-digit growth despite the difficult prior year comparisons due to the impact of the freeze in the South Central U.S. in the first half of last year. We were able to deliver mid-single-digit organic growth in Europe despite the impact of the Ukraine war, the exit of our business in Russia and escalating inflation. In APMEA, while lockdowns impacted several of our key markets, the team still delivered top line growth in the quarter. Adjusted operating margin exceeded expectations supported by price, volume and productivity, which more than offset inflation, incremental investments and cost normalization. We benefited in the quarter from our proactive investment in inventory at lower cost in parallel with increased price. This favorable dynamic subsides in the second half of the year when the pricing costs become more balanced. Year-to-date free cash flow has been seasonally slow due to additional working capital needed to meet the current demand and our investment in inventory. We anticipate sequential improvement through the second half due to normal seasonality. Our supply chain and sourcing teams have done a great job securing components in managing cost increases. We're beginning to see some easing in our supply chain. However, electronic component availability is still challenging. We are committed to investing an incremental $20 million during 2022 to benefit our future and our Smart and Connected strategy. Now I'd like to provide an update on our end markets. In the Americas, nonresidential new construction indicators are mixed. The ABI and Dodge Momentum Index continue to be positive. However, they have shown recent moderation. Institutional and industrial remained positive, but there is slowing in retail, hotels and office building subverticals. The North America repair and replacement market is currently holding up well despite downward revisions of GDP. New residential single-family construction is beginning to slow as rising interest rates and material inflation are starting to take effect. However, multifamily starts continue to be solid as declining single-family home affordability has bolstered rental demand. In Europe, the war and rising energy costs have triggered both a reduction in GDP forecast and concern of a potential recession. As previously communicated, we have stopped our direct shipments to Russia. The impact is estimated to be approximately $12 million annualized and approximately $3 million in the second quarter. We anticipate that the second half of 2022 will be sequentially slower than the first half for our European business. In the Asia Pacific region, our China markets were negatively impacted by the COVID lockdowns, particularly our heating business. As the lockdowns have lifted, business activity is resuming. However, there could be some continuing impact in the third quarter as job sites are slow to reopen. Now an update on our outlook for the third quarter and the remainder of the year. We expect organic sales growth and margin improvements versus the prior year in the third quarter. Price and productivity should more than offset any impact from the war in Ukraine, inflation and incremental investments. As a result of our solid start and our third quarter expectations, we are increasing our full year outlook. We expect solid demand in the Americas could buffer against the anticipated slowing European economy driven by the impact of the war in Ukraine. On Slide 4, I'd like to update you on our Smart and Connected initiative. As part of our strategic focus to grow organically, we're investing in innovative new smart and connected products, and I'd like to share a couple of them with you today. During the second quarter, the percentage of smart and connected enabled product sales to total sales increased sequentially as compared to the first quarter as well as the full year 2021. We continue to make progress towards our goal of 25% smart and connected enabled product sales by 2024. Our Sentinel leak defense system detects water leaks in pipes and prevents significant water damage in a home or business, reducing insurance costs and providing peace of mind to property owners. The system employs a smart valve and thermodynamic sensing probes to monitor flow. The valve will close preventing additional flow and a notification alert is sent via the proprietary app if the preset flow parameters are exceeded. The BLÜCHER connected roof drain provides early detection of blockages in rooftop drainage and helps prevent potential damage resulting from flooding. The system detects water levels and temperatures and will trigger a notification to the building management system or app if readings exceed certain levels. The temperature capabilities are also designed to detect snow or ice and send notifications to enable ice or snow melt controls. As you can see, our investments in Smart and Connected solutions are providing real-time problem-solving and great value to our customers. Now on Slide 5, I'd like to update you on our sustainability efforts. In June, we issued our 2021 sustainability report, highlighting our accomplishments and establishing some longer-term goals to reduce our environmental impact. During 2021, we worked to further distinguish ourselves as a responsible and committed corporate citizen, finding strategic opportunities to advance each aspect of our ESG strategy. In early 2022, we proudly joined the United Nations Global Compact, reaffirming our commitment to incorporate the UNGC's principles and standards on human rights, labor and environment and anticorruption into our strategy, culture and operations. During the year, we improved water use intensity by 28%, greenhouse gas intensity by 30% and hazardous waste intensity by 23%. We are also solving sustainability challenges for our customers by designing and commercializing sustainable products and solutions based on our triple-play theme of safety and regulation, water conservation and energy efficiency. We continue to focus on social responsibility. In 2021, we achieved 0 recordable injuries at 13 sites, established diverse hiring targets at 12 U.S. sites and collaborated with Planet Water to provide clean, safer drinking water to families in disadvantaged areas. In addition, we encourage and support the formation of 6 different employee resource groups as part of our overall work to attract, retain and inspire talent at Watts. Sustainability is core to what we do at Watts. It is a key component of our strategy and is ingrained in our culture. We look forward to continuing our sustainability journey and furthering our commitment to improving our communities. With that, let me turn the call over to Shashank, who will address our second quarter results and our third quarter and revised full-year outlooks.

Thanks, Bob, and good morning, everyone. Please turn to Slide 6, and I will review the second quarter's consolidated results. Sales of $527 million were up 13% on a reported basis and up 16% organically. We had a very strong quarter in the Americas and saw mid-single-digit growth in Europe. We saw double-digit growth despite the tough second quarter 2021 comps that included a 3% benefit from the freeze in the South Central United States. Foreign exchange, primarily driven by a weaker euro, reduced year-over-year sales by roughly $18 million or 4%. Acquisitions accounted for $2 million of incremental sales year-over-year. Adjusted operating profit was $98 million, up 40% compared to last year and adjusted EPS was up 43% to $2.11. Adjusted operating margin of 18.5% was up 360 basis points as price, volume and productivity more than offset inflation, incremental investments and normalized spend. As Bob indicated, our margins benefited in the quarter from our proactive investment in inventory at lower cost combined with higher price. The adjusted effective tax rate was 26%, 110 basis points lower than the second quarter of 2021. The decrease relates primarily to the restructuring of our Mexican supply chain operations. Our free cash flow year-to-date was $33 million as compared to $65 million in the second quarter of last year. The cash flow decrease was due to our proactive decision to invest in inventory, higher employee and customer incentives, restructuring payments and higher net capital spend, which more than offset higher net income. We expect sequential improvement in our free cash flow, and our full-year goal is to drive free cash flow conversion of approximately 90% of net income. The balance sheet remains strong. Gross leverage was 0.6x, and net leverage was negative 0.1x. Our net debt to capitalization ratio at quarter end was also negative at 2%. Year-to-date, we have repurchased approximately 434,000 shares of our common stock for $61 million. Please turn to Slide 7, and I'll provide a few comments on the regional results. The Americas had a very strong quarter with organic sales up approximately 22% despite a tough comp that included approximately 4% resulting from the impact of the freeze in the South Central region of the U.S. in the second quarter of 2021. The net growth was driven by strong price realization and underlying market demand. We saw growth in all platforms and all channels. Acquisitions added approximately $2 million or 1% to reported sales. Adjusted operating profit increased by 58% and adjusted operating margin increased by 510 basis points. The margin expansion was driven by price, volume and productivity, which more than offset inflation, incremental investments and the return of normalized business costs. Our proactive investment in inventory at lower cost combined with higher price also contributed to margin expansion. Europe had a solid quarter with organic sales up approximately 5%. Reported sales growth was negatively impacted by 12% from unfavorable foreign exchange movements. We saw organic growth in our plumbing, HVAC and drains platforms. We saw solid growth in Germany and Italy, driven by our OEM business due to government energy incentives. Scandinavia also saw strong growth as the food and beverage end markets continued to be robust. As mentioned by Bob, we have stopped our direct shipments to Russia, and we estimate the impact to be approximately $3 million in the second quarter. Operating margin declined 80 basis points as price and productivity were unable to fully offset rising inflation, continued investments and normalized business expenses. APMEA grew organically by 3%. Reported sales declined 1% due to unfavorable foreign exchange movements of 4%. China's organic sales grew high single digits, primarily due to commercial valves into the data center market. Underfloor heating sales declined due to the impact of lockdowns in China in the second quarter. Organic sales outside China were up low single digits. Adjusted operating margin decreased 220 basis points as price and productivity were unable to offset a reduction in affiliate volume, inflation and investments. China affiliate volume was down 38% due primarily to a tough compare from the U.S. freeze demand in the second quarter of 2021. Slide 8 provides our assumptions about our third quarter and full-year operating outlook. First, let's cover the third quarter outlook. We are estimating consolidated organic sales for the third quarter to grow at 5% to 10% over the third quarter of 2021. This moderation in growth rates is due to three reasons. Firstly, underlying market conditions are expected to soften in Europe as evidenced by the declining order patterns starting in May as a direct result of the impact of the Ukraine war. Secondly, we have more challenging comps due to the multiple price increases implemented in the first 9 months of 2021. Lastly, we also expect a headwind from the direct sales loss from our decision to exit the Russia market of approximately $3 million. We expect approximately $2 million of sales from prior acquisitions. We estimate our adjusted operating margin could range from 14.5% to 15.1% for the third quarter, with the increase versus prior year driven by price and productivity and offset partially by incremental investment spending of $6 million. We estimate the incremental volume to drop through between 25% and 30% versus prior year. The sequential decline in operating margin from the second quarter is driven primarily by volume deleverage and incremental investments. In addition, as previously mentioned, the favorable price/cost dynamic normalizes in the second half as price/cost becomes more balanced. Corporate costs should be approximately $13 million. Interest expense should be in line with the second quarter at approximately $2 million. The adjusted effective tax rate should approximate 24%. Currency looks to be a headwind in the second half. We are now assuming a 1.00 average euro-U.S. dollar FX rate for the third quarter versus the average rate of EUR 1.18 in the third quarter of 2021. This implies a reduction of 15% year-over-year, which equates to a reduction of $20 million in sales and $0.06 a share in EPS versus prior year. Now let's cover the full year outlook. For the full year 2022, we are increasing our organic sales growth outlook to 8% to 11% from 3% to 8%. We believe that our stronger-than-expected start in the first half and our expected third quarter outlook will be able to more than offset expected weakness in Europe in the second half, our exit of business in Russia and the overall weakening of global macros. We are also increasing our full-year adjusted operating margin expansion to a range of 110 basis points to 160 basis points compared to our previous outlook of 20 to 60 basis points. We now expect our operating margins to be between 15.4% and 15.9%. We expect the increase in inflation and incremental investments to be more than offset by price and productivity. Our free cash flow expectations are anticipated to be in line with our previous outlook in April and should approximate 90% of net income. As a reminder, we expect incremental CapEx and restructuring payments in 2022 compared to 2021, and we do plan to reduce our inventory levels as supply chains begin to normalize. For the full year, we are now assuming a 1.05 average euro-U.S. dollar FX rate versus the average rate of EUR 1.18 in 2021. This would imply a reduction of 12% year-over-year and equates to a reduction of $64 million in sales and $0.21 a share in EPS for the full year versus prior year. And regarding other key inputs for the full year, we expect corporate costs could be approximately $49 million for the year. Interest expense should be in the range of $7 million to $8 million for the year. Our adjusted effective tax rate for 2022 should be between 24% and 25%. Capital spending is expected to be in the $40 million range. Depreciation and amortization should also be approximately $40 million for the year. We expect our share count to be approximately 33.7 million for the year.

Now let me turn the call back over to Bob before we begin Q&A.

Thanks, Bob. On Slide 9, I'd like to summarize our discussion before we address your questions. The second quarter was stronger than we anticipated, with double-digit organic growth and strong drop-through as a result of our proactive investment in lower cost inventory. We are staying on top of the price/cost dynamic and expect tougher second half compares. We expect a solid third quarter, although sequentially down from Q2. We are increasing our full year outlook based on our strong start, which should be able to offset headwinds from the war in Ukraine and softening GDP. We are monitoring our markets and are confident in our ability to execute in this uncertain environment. We continue to execute against our strategic framework, including focusing on innovation and profitable growth by investing for the future and driving our Smart and Connected strategy. With that, operator, please open the line for questions.

Your first question is from the line of Jeff Hammond with KeyBanc.

So just on this price cost gap into the second half. Is the largest delta that you had some low-cost inventory working through in 2Q and you won't have that? Or it seems like inputs are normalizing a bit and you continue to push price. Just more color there.

Yes, Jeff, that was it. In conjunction with the price we achieved, we had the advantage of lower cost inventory. The net benefit to us in the second quarter was around $6 million to $8 million.

Okay. Great. And then just on the full year revision, can you just isolate how you're looking at EMEA and Asia differently or the same? Or is it just all a revision on the Americas?

Well, look at, Jeff, when you see inside of our numbers, for Q3, we think North America is going to be up double digits. We believe Europe is going to be down low single digits. And APMEA up mid-single digits. For now in Q4, we're being cautious, really because of Europe right now. As you know, we're a short lead time business and the visibility for Europe is a concern for us right now. So the team is doing a good job of managing it, but it's something we're watching closely. So we're being cautious in Q4 based on that. But overall, Americas is doing well and APMEA is coming back given the lockdowns.

So you're slightly reducing the forecast for Europe compared to the previous quarter?

Yes. Correct.

Okay. And that's showing up in the order rate since May?

Yes. Yes. Shashank talked about. We started seeing declines in order rates in May. I think some of it is destocking of inventory that's going on in the channels right now and just the cautious nature because of the significant energy increases and everybody just being cautious given there's a potential recession in front of them.

Okay. And then just last one. Maybe talk about inventories in the channel and need to restock or destock in North America.

Yes, North America is performing well. There's some talk about inventory levels, and we're monitoring that closely. We also benefited in the second quarter because we had inventory available. As you know, in a book and ship business, having inventory means securing orders. We're keeping an eye on it, but overall, the inventory levels in North America are decent.

Your next question is from the line of Joe Giordano with Cowen.

This is Michael on for Joe. Thank you for the color for the inventory build and price cost. Perhaps you can just dive into a little bit on the sustainability of the Americas margins, if you're contemplating any volume declines in your guide for that particular segment.

Yes. So in the second quarter, we talked about, and I basically said there was about $6 million to $8 million because of lower cost inventory position. And obviously, that balances out in the second half. As well as in the Americas, we've got tremendous volume leverage in the second quarter. The volume leverage is less in the second half as the volumes come down. And then from a margin standpoint, we do have incremental investments coming through in the second half as well versus the first half.

Your next question is from Nathan Jones with Stifel.

I want to revisit the margin in the second quarter, as it was notably high. The $8 million represents a margin upside of 110 to 150 basis points, while you achieved 300 to 350 basis points, which is significantly better than your guidance for the second quarter. What I'm really curious about is why the guidance for the second half suggests a return to the previous range of 300 to 350 basis points. Considering that the price-cost imbalance only accounted for 130 of the 300 to 350 basis points by which you exceeded the quarter's guidance, why are we projecting such a full return to that range in the latter half of the year?

Yes, part of it is that we experienced significant volume leverage in the second quarter, which will not be as strong in the second half. Regarding pricing, the first half showed the best year-over-year comparison, with approximately 10% price realization in the second quarter. While we avoid discussing specifics for Q3 and Q4 until they occur due to market elasticity, we anticipate tougher comparisons in the second half compared to the same period last year in terms of pricing. Additionally, it's important to note that investment spending will be higher in the second half than in the first half.

Is the investment spend in the second half higher than what you were previously planning?

It's about the same.

Okay. And then I just wanted to talk about the balance sheet and capital allocation here. You're in a slight net cash position, the company hasn't executed much in the way of M&A over the last few years here. Just your outlook on what to do with the balance sheet here, if it's patience waiting for maybe some larger acquisitions or how you intend to get that cash off the balance sheet?

We always have a balanced allocation strategy, considering dividends and CapEx. When it comes to mergers and acquisitions, we remain disciplined. Our pipeline is full, and while we review it, we cannot predict when acquisitions will occur. We will maintain our discipline in capital allocation and be patient as we assess available opportunities.

And the last point, Nathan, I mean, people never talk about investment in inventory as cash allocation. But in the last year, it's been over $100 million, and that certainly helped us in the second quarter.

Your next question comes from the line of Michael Halloran with Baird.

So Bob, you talked about some of the leading indicators and the deck certainly had it on the new construction side. Maybe you could just dig into what some of those are? And whether that's what your customers or channel saying or just some of the kind of larger macro stuff?

Yes. So Mike, ABI, and Dodge Momentum are all showing positive trends, which is encouraging. While we're noticing a decline in single-family housing, multifamily is looking positive, keeping North America balanced. Europe remains the biggest uncertainty for us, as we are still assessing the full effects of the war and the significant energy costs, especially in Germany, particularly if they were to cut off gas supplies. That's an area we are closely monitoring. Our repair and replacement segment, which makes up about 60% to 65% of our business, typically performs well as it correlates with GDP, so we're keeping an eye on that. Additionally, supply chains appear to be stabilizing, which reduces concerns about excess inventory amid decreasing lead times. Overall, while we are optimistic about North America and APMEA, Europe is our primary concern.

Yes. No, that makes a lot of sense. I should have been clear. I was more curious about the Americas, but you certainly touched on that. So are you actually seeing the weakness in the single-family business today, more of a prospective comment?

Yes, we're seeing that. But like I said, we're seeing some offset in multifamily.

No, that makes sense. From the perspective of channel partners, what are their thoughts on the situation? Additionally, could you share your views on inventory levels in your primary channels, specifically regarding the Americas?

Yes. When speaking with the channel, especially regarding contractors, they remain busy. While they are cautiously optimistic, they are also becoming increasingly aware of concerns about the future. However, at this moment, there is a general belief that if there is a recession or downturn in North America, it won't last long. Therefore, they are optimistic. Their primary challenge currently is related to labor, specifically securing the right workforce to meet demand, which I believe will help prolong this cycle.

And then just to comment on the inventory levels?

Inventory levels in North America appear to be stable. We have heard some discussions about people starting to consider reducing inventories due to declining commodity prices, as they want to avoid having excess inventory. However, we have not observed any significant changes at this time, but we are keeping a close watch on the situation.

Your next question is from the line of Ryan Connors with Northcoast Research.

I wanted to take a step back and examine the margin question from a broader perspective, Bob. It's quite remarkable when we consider that just a few years ago, you mentioned an operating margin target of 12%, which we interpreted as the reasonable margin that the market can sustain for this industry. With that in mind, do you think there's been a structural upward shift in the natural equilibrium cross-cycle margin for this industry, or do you believe that things will gradually revert back? I'm interested in your overall perspective on how all this has affected the run rate margin for this sector.

Yes, Ryan, we have consistently mentioned mid-teens, which for us has always meant 14 to 15, not 12, but it's simply a matter of timing. Each year, we discuss increasing margins by 30 to 50 basis points while still investing in future growth. In general, we've made strides in productivity, we have a strong supply chain, and we've emphasized automation in our factories. As you know, we are also continuing with our lean journey. All of these efforts have helped us reduce costs and enhance margins overall. Additionally, we focus on delivering value to our customers and differentiating our products, particularly in the smart and connected sector, which we believe can achieve higher margins.

All right. A related follow-up to that would be your earlier comment that whoever has the inventory gets the order. Do you believe there have been any shifts in market share because some companies, possibly including yours, have managed supply chain issues more effectively while others have struggled and maybe faced some reputational damage? Has there been any change in share over the last couple of years that you think could continue going forward?

Yes. I think shares fluctuate, right? It depends on who has the inventory and when it is available. Our vertically integrated manufacturing strategy, along with how we ship, has been beneficial, particularly in a situation where lead times and supply chains from overseas are significantly longer. We saw a real advantage in Q2 due to inventory shortages in the market, and we believe we captured our fair share of what was available. However, supply chains are returning to normal levels across all our competitors. While we aim to maintain our strong performance from Q2, I believe it was an exceptional case driven by our proactive approach, as we had the inventory and our strategic investments truly paid off.

Your next question is from the line of Brian Lee with Goldman Sachs.

This is Miguel on for Brian. I just had two questions. The first one was just I wanted to touch back on the conversation around channel inventories. Just wanted to hear a little bit more commentary on your visibility into the channel, specifically wondering how much destocking do you think has occurred so far? How much inventory is out there, if there's a way to measure that in months or weeks? And what are your expectations on how those channel inventories work their way through the rest of the year and next year? And if there's a way to talk about that on a regional basis, if possible?

Miguel, that's quite challenging. We have a large number of customers, and we lack the visibility to provide specific insights. Therefore, we need to conduct checks in the market. As I mentioned earlier, Europe seems to be where we are starting to notice some destocking, particularly among smaller wholesalers, where cash flow is crucial. I believe this trend is also evident in North America. However, our visibility remains limited. Generally speaking, as the supply chain improves and lead times decrease, wholesalers and contractors are likely to hold less inventory, depending more on timely shipments from wholesalers and manufacturers. While it's hard to predict the exact timing of this shift, I would say that over the longer term, in a year or two, we can expect inventory levels to start decreasing.

Okay. That's very helpful. And then second question, I'll pass it on. Just on the guidance for adjusted operating margins. The guidance suggests that 4Q is the low point on operating margins this year. Is that the right way to think about it? And I know you're not guiding to 2023, but just hoping to get more commentary on how you think about the general cadence of margins beyond this year as the balance of those pricing actions and also the lower inventory costs normalize?

We're not discussing 2023 at this time. Generally speaking, when considering margins, as I mentioned earlier, we're being cautious about Q4 due to European margins and volume. We've had numerous discussions about our high fixed costs in Europe, which take time to reduce. Therefore, if volume decreases, it significantly impacts our margins. For the past two years, we've enjoyed strong volume in Europe, but we're beginning to see a slowdown in orders. We're cautious about this because, as a book and ship business, we lack significant visibility into the future. We'll provide updates on a quarterly basis and offer better guidance moving forward.

Your next question is from the line of Walt Liptak with Seaport Global.

I wanted to ask about if you can help us with selling prices, some of the commodities costs are a bit of a mixed bag. Are you still taking up prices? Did you take them up in the quarter? Like what was the cadence of some of the price increases?

Yes. Look, so Walt, as we've talked before, we do an evaluation every 90 days of our total cost inflation on all cost of goods sold. And the last analysis we did, which was in the May time period, price increases before that was based on that. We'll be updating our numbers at the end of August. So we'll take a look at it again. That's something that we do routinely every 90 days.

Okay. Great. That sounds good. And when I'm looking at some of the materials costs, there are some copper and piping and things like that, they're clearly deflating and others that might be out. But I wonder if you could just talk about some of your inputs and what that means for the back half?

One of the things we take pride in is staying ahead of the situation. We expect to benefit from our inventory turnover in 2023. However, we are still facing inflation in various areas such as overhead and labor costs. We will monitor the situation closely and adjust our pricing as necessary, as mentioned by Shashank. In this inflationary environment, it is essential for us to continue to drive prices.

There are no further questions at this time. I will now turn the call back over to the CEO, Mr. Bob Pagano.

Thank you for taking the time to join us today. We appreciate your continued interest in Watts and look forward to speaking with you again at our third quarter earnings call in early November. Have a good day, and stay safe.

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