Q1 2020 Earnings Call

For 2-hour namit CEO, please go ahead morning everyone. Welcome to the first quarter earnings call. This is alma mater chairman. And CEO home with me is a is a nominated president Paul Johnston Executive Vice President and Berry Logan Executive Vice President. Now before we start our cautionary statement, this complex called has forward-looking statements as defined by laws and regulations that are made pursuant to the safe harbor provisions of these various laws Altima results, May differ materially from the forward-looking statements.

Once again, good morning. I hope you and your families are healthy and getting through this. Safely.

Today specially speaks to Watsonville strength and Invaders Spirit. These are attributes that we believe will bring comfort and confidence to our employees or customers life partners and our shareholders as we highlight in our press release Watts goes Financial strain is our most important attribute.

Our philosophy of maintaining a strong balance sheet low debt levels and ongoing access to Capital is a significant Advantage for us. We work through the impact of the pandemic we are well positioned to support our customers employees and OEM Partners will actively looking to invest in expanded product offerings new locations and Acquisitions to benefit our long-term.

Do it to generate consistent cash flow also represents an important strength.

Next week's schedule dividends which which reflects an eleven percent increase signals our confidence in our business.

We also operate in a great industry as HV AC products are fundamental necessities and homes and businesses local authorities in our markets have deemed our industry life as essential.

Our branches are open provided needed products and services to our contractor customers.

Lots close technology team is also, just a lot in recent weeks and Adoption of our Tech platforms is rapidly expanding in terms of day-to-day activities are leaders took immediate actions in response to the pandemic in many cases in less than 48 hours. For example branch locations were quickly transformed from retail a walk-in shower room to know touch eCommerce curbside pick-up centers. These changes have been well-received and our customers are asking us to sustain these Services going forward.

After growth and investment we remain in touch.

With great companies knowing it's an opportune time for them to join the Watts go family or resources can help him grow and develop scale and we can provide access to our great technology platforms.

In terms of results for the first quarter sales growth was driven by strength in US market for residential HVAC equipment, which grew 5% sales and earnings to International markets decline took the softer market conditions and strong comparable results.

Results also reflect 35 new location is mostly from Acquisitions completed in 2009. I'm sorry 2019 interesting. Phelps dasco supply and nns supply these companies come with great leaders who are now part of our culture and team and are responding to correct event in their respective markets.

Further analysis about the natural result are provided in our press release. I will not recite these details in my prepared remarks, but we'll be happy to provide more color off during the Q&A with that AJ Barry Paul and I are happy to answer your questions.

Well now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press star then to the first question today comes from Josh part of Morgan Stanley, please go ahead. I'm putting out how you guys doing. Well, it's sunny and pretty here, but we're we got our heads down building to come understood but, you know to be fair just another day in Miami, so I held that against you. I hear you not nearly not not not nearly as fantastic as being cooped up in in Connecticut. Um, so appreciate the visibility is, you know, kind of town right now, but, you know a couple of questions that I just want to make sure that you know to the extent that you don't really have a ton of visibility. Maybe you can still answer I guess first name.

Have you seen any change in consumer Behavior Visa vie?

Reading down in you know efficiency or more repair versus replace anything that would give you an indication. Hey, you know people are still spending money. But under the surface, there's a couple your there's a couple of changes afoot that shown up if you gotten that anecdotal feedback yet or data expert Paul Johnson, Jesus wage in the first quarter. We really didn't see it. You know, we we had a pretty good balance between you know system sales as opposed to just an outdoor replacement perhaps, you know, anecdotally we'll we'll see a bit more of of a repair or just replace the outdoor unit in the second quarter. Perhaps really am not we're not at the consumer level, but you know what we hear from our contractors if you know regular checkups and you know service calls that don't require repair or pretty much being pushed out right now consumers aren't looking for someone to be in their home.

Got it, which would be more of a social distancing, Not a like. Hey, I ran out of money comment, correct? No, but you also have a very effective Consumer Finance program. That would help us such a thing if it should come to that. Yeah.

Got it. And then I guess you know, I'll leave some of the other kind of, you know near-term or you know macro questions to some of the other folks but maybe to turn away from covid-19. One of your your your major equipment Partners, you know is now kind of liberated from their their multi industry, you know owner what have been a really, you know changes observations, um, you know engagement actions that that you guys have seen with carrier now, well first it was good news that they separated they can be focused. Excuse me on our industry and they are they're very well said they're very responsive. I think it's all great news, I couldn't be happier.

Anything I guess more specific on where they're saying. Hey, we did this before but now we're we've rethought that initiative anything, you know, I guess more more tangible on Thursday. Well, it keeps saying the focus that they they're they don't have to worry about dividends going up to the parent United Technologies that can be more focused and they are I'm sure assist in investing in their in in their own industry and their own company. It's all great news. There's nothing negative about what's occurred and we very much like the leadership off. Okay. Thanks always there.

Okay. Next question today comes from Brett Lindsay a vertical research Partners, please. Go ahead morning. Hi. Good morning, guys. Hope you're well. Just a question on pricing, I guess from your Vantage Point. Are you seeing any signs of deflationary pressures across from your markets as we've shifted in April here, you know beat on the equipment side or other products, which I think you typically do see it first in.

Paul

No, we're not seeing any deflation fact. We've we've had some of our commodity pricing actually starting to move back up again. So no no no replay song.

Okay, and I guess I'll ask the the April question. Maybe just an update on the trend so far you did mention in the release it decelerated but just any sense on the magnitude and then if you could maybe just drilled drill down into the regional or state-by-state view, you know any particular regions that stand out strong or weak Banks. Well the month of April and we don't like to get ahead of ourselves. Cuz once again the most important thing is that first quarter is over. That's that's always the 4th or first quarter always tell you much but April is beginning in the second quarter. And that's about the same time that people were asked to stay home or people were shut into their homes. Now that wage we since we said at the beginning of April some softness due to the

Did that that that transition it was going on people didn't want any strangers in their house or or they're or contractors. They would know they just didn't want much of that. However, I will Thursday we we think since the beginning of April it's stabilized that that was a quickie that happened in beginning first couple of weeks of April and we believe we believe that everything is stabilized now.

Okay. I'll I'll leave it there and pass along. Thanks.

The next question today comes from Steven Volkswagen of Jeffries, please go ahead morning. Good morning gentlemen, thanks for taking the question a couple of sort of like a recession questions for you since we seem to be heading into one. I think you alluded earlier. Maybe it was Paul to the fact that you might see some mix shift toward parts and away from units. Is that something you've seen historically and should we expect a little bit of margin Improvement because of that. Well, I can say this unequivocally that last long time there was a downturn

The product mix went a little bit more towards Parts than than equipment because consumers wanted to repair more than they want to spend money for new equipment. What were the results to our company when that occurred? Well, first of all or working capital came down and in second of all that cash for cash flow jumped off enormous gas blow gains. So everything has a benefit if there is a slow down or more of a conversion for new equipment to repairs and part of that sort of thing. Sure. It'll may slow sales but from a perspective of cash flow. It'll be very strong. Do we see any evidence of that bow? I don't think so. It's too early. It's just beginning the

You know.

Was just beginning to get into an air conditioning system.

Okay, great. You sort of predicted my follow-on. Are you guys planning to reduce your inventories already or is it too early to make that decision off? Well, we're going into the season now, I wouldn't say we're planning to reduce but we're certainly I think the question is well asked if we're talking about how we're handling orders for the bulb future and we have we have great software that helps us with that. But basically we're a decentralized organization and our Region's people that lead our reasons they influence. Question. If they think they need to ramp up with them in theory using our tools they can do that. If they think they'd rather be more conservative, they'll do that. We don't try to determine inventory levels at the corporate level because we think that it's better to make those determinations into age.

That we're in.

Okay. Okay. I just want to add one one one layer of thought to what you asked earlier about, you know the product mix and you know for a replacement parts themselves are are under 10% of what we do to put that in perspective. And in terms of the understanding of that question and we highlight in the press release is diversity of products. And so what what just like any other consumer product what what what we see always is mix that can happen within the brands. We sell within the price points. We sell within the entire kind of array of products that we sell when it comes to equipment and contractors who are at the kitchen table or at least today using our our our selling platform maybe at the kitchen table is offering that variety of price points. And and that's what we like about our business a great deal. Is that diversity is there there, you know would say our competitors in some cases wage.

Have more concentration of humor Brands versus The Wider array of more Brands and and those kind of circumstances. So again, when we use that term diversity in the press release that's part of what we're talking about.

Great. Thanks. Very I'll pass it on. Thank you guys.

The next question comes from Ryan Merkel of William Blair & Company, please go ahead. All right. Hey, good morning all.

So first off just wanted to clarify the comment on April. So it sounded like you saw a trend decelerate right at the beginning of April celery. Yes, that's right. And and the gal you said kind of stabilized here, correct? You know, that's just in the last couple of days last week and you know, I know you don't you never want to over abstract a couple of days of sales, but what what makes you confident that maybe we could be stabilized daily sales? No.

and I would say

last few days

Okay. Okay. I guess we'll see and then the 5% read the equipment, you know, that's what I would have expected but then it was 2% to the total company. So it implies some declined and some of the other areas. Can you just expand on that? Well, very odd to it, but we said in our statements earlier.

Canada Mexico and exports in Latin America compared to the last year were much softer and excuse me, and it's been a soft busy the the international business and there's also the regions that you couldn't common sense is if the north east of the United States is having

all the problems that they have been having it gets soft there at least temporarily, but the rest of our networks has been a while throughout the.

Yeah, we're not add much to that. It is, you know, the the international markets revenues are down profits are down there was dilution in the quarter for the international business office last year was particularly strong in those markets. So part of that is a comparison and yeah, that's probably and those things obviously stand out more and and what would be the smallest part of our life which is the first quarter in terms of their impact on on EPs and so on but as I suggested it where the the sun is out and the Earth is warm as you go south, you know, we're seeing again stability in the business.

Okay. Got it. Thanks for that. I'll pass it on.

The next question comes from David Nancy of bears, please. Go ahead and David. Hey, good morning everyone. So first question what part of your business goes away under social distancing. I'm thinking if my AC stopped working down here in you know, mid-eighties Florida today and I knew for a fact that my contractor had covid-19 probably just take my chances and try to understand, you know, I hope you don't I mean how do you know if air conditioners are doing what they're doing? I mean, where's the Gap in? Someone's saying I'm just going to wait or I'm not going to have that service. Well, that's a very valid issue. I don't think that wage people will do that because you don't want to be uncomfortable when the heat comes, you know, the the the hot weather but if it's mild you'll postpone the weather's mild dead.

Because you don't want a stranger in your home. I'm I'm guessing these things. I don't have data to reflect that but I think as the temperature warms up the choice will be dead. Unless consumers will have to get their systems working either upgraded or or or or fixed the fix the problem that wage they have

Right. Okay, that means it's a pretty necessary industry as you know, in fact as you heard me say we're considered an essential industry.

And a good reasons, you know, you gotta have the cooling and you gotta have the heating.

Right. Yeah, I definitely consider you essential second question in we look back to 08. It was obviously a housing housing driven a profession. It's probably not a good template. But if you go back to O 102 the housing market barely paused during that time frame and your revenues, I think we're down five to seven percent in that time frame is that not a reasonable expectation, you know, like you're saying you're out there's clearly if an air conditioner goes out someone's going to either repair replace it. There's this trade down effect. And I think that's what leads to those wage declines is people repairing rather than replacing lower ticket size and more training to the you know, the good from the better and best to talk a little bit about that as sort of a an initial Outlet just to say, you know mid-single. Is that kind of what we should be thinking about?

You mean in terms of Revenue growth?

Yeah. Oh gosh, you don't want to do that too early much too early. I I I don't want to guess I'd rather report something to be more certain of but I do know that we are so strong financially that we have a manager over our competition in our technology gives you an edge and our competition against our competition. So we're feeling pretty good about ourselves and I certainly hope that the m&a program will be the used in order to help some Distributors be part of us. So I always see opportunity but with an industry that might slow down

I'm not saying it will but I'm saying if it does it will see opportunity there.

Yeah, sounds good. Thanks a lot. I appreciate it. Sure.

The next question comes from Steve of JPMorgan, please. Go ahead. Hi Steve. Hey, good morning. How are you? Are you in New York City? I'm in the great state of Connecticut good for you. Okay, we're good. Maybe maybe one of the few guys left here when all said and done with taxes Etc, but you know born and raised so I'm not I'm not leaving I heard them. So I guess you guys aren't going to come and really on your revenues but like, you know, Lennox was out talking about a 15% decline in the industry. I mean and any any broad color on kind of you know, what you think the industry is going to do this year. Not not really talking about you guys.

I'm not that smart party on and give it a shot. Well, if you're not that smart, I'm certainly not that smart. We we represent so many different products when we represent so many different oems and constantly pulling them for what their outlooks are and that type of thing and frankly. There's there's no consensus that I've been able to check it out there, you know to guide us in in our Direction. So, you know, we're we're with the market. We think we can outpace the market grow the markets or whatever that market is off. We think we're going to outperform it and that's about as close as I can come to work yesterday on what's going to happen. Right? Right. Okay on on the margin side, how are you guys asking about gross margins kind of over the course, you know assuming I don't know if if you assume kind of trends that are in line with the first quarter, I guess or like a flat kind of Revenue Dynamic like we're we're yep.

You how do we think about gross margins going forward here? I understand why you want to know that but again it's hard to predict but nevertheless. Let me tell Mister Logan. He should drive try to answer that song. Well good with the concentration and equipment and the OEM, you know, having you know fairly close watch over their own pricing and margin. I don't think there is any disruption or any real business that awareness that we would expect to come from that the price increases of a couple of years ago. Obviously did disrupt what what what ended up being at margin Thursday. We're kind of climbing through that and working with our audience through that as well. No, but sea level expect any anything dramatic or or epic or or disruptive or necessarily faithful either as we're in this kind of you know, this kind of Arena. So I you know, I think you see some progress in terms of you know, this quarter versus the circle.

Oil change the last quarter in the prior one again. We'll get it this season and we'll know more but I'll expect any disruption to price I guess you guys had guided for up gross margins last quarter. I mean is that I did we kind of read into that too much. Is that still kind of on the board or maybe misread that comment?

Oh gosh, whatever. We did last quarter. We weren't no pandemic was in view at the time but that's a very very very fair. Comment. Just one last one. I know you guys don't touch commercial a ton. But you know, what, do you what do you seeing there in the last several weeks on a commercial, you know unitary front or front hall Northeast for sure. It's it's it's very heavy very heavily skewed towards International and the Northeast off on the vrf in the commercial applied products and it's you know, all those projects and jobs have basically been stopped. So Perhaps Perhaps, we'll have a little backlog they're dead on the unitary side unitary has been week and you know, if it's going to probably be a little bit longer term before that comes up, but once again when you take off,

In total it's you know, small percent of our total business.

Okay. Yep. Yeah, they just just you guys always have a good window and you know here what here what's going on out there? So I thought I'd all right. Thanks a lot and best of luck to you guys executing through or whatever comes the next couple of months here. Thanks. Yep. That's very nice. You see the next question comes from Jeff Hammond of keybanc capital markets my dad. Hey, good morning guys.

So just on I guess, you know, maybe focusing on the one Q margins which were down. You know, I know it's a shoulder quarter. Can you just give some better color? You know, cuz I think you gave you know on the same store or Investments, you know margins were still down. I just trying to understand you know, was it mixed was it some you know other added, you know sg&a cost et cetera.

I'm not sure I understood but Barry your the number's guy. What do you got? Sure. Well on the gross margin Jeff again, we we do operate with higher gross margins internationally and in New Jersey, so there's some algebra there that did impact the you know, the the performance, you know in the in the quarter and accounts for some of the profitability dropping down to the line as well on this day and age, you know, they were Investments made and and and the business to start the season as we get into the year and that sg&a does stand out in a again in a shoulder quarter like this month technology Investments as we highlighted is in that number as well.

And so it goes into the mix of of how our leadership is managing their local markets and and sg&a will play out very differently and and very sensitively to what's going on local markets, but the Stars year, you know, just some of these these numbers show up more materially in terms of their impact in in the shoulder quarter.

But you know, I I keep trying to communicate a picture here that Financial strength that we have little or no, you know, very little debt allows us to talk with the market where ever goes if it gets softer. We use all the attributes that we have. We've talked about diversity of products. We've talked about technology that allows for speedier service. We talked about our ability to finance the distributor. I'm sorry the contractor in the homeowner all these things come into play some very very happy in our position now, I'm so glad we have very little debt and I just think that wherever the markets go, we're just gonna be probably the stronger distributor out there.

This is AJ. I have to say that my own words. I appreciate the micro questions on the coupon and April and you know, those are very hard to see forward but we have to remember the motion picture of this is a long-term company and we have tremendous leadership at the local and Regional level. And in the face of the fans emack, we're operating from a position of strength in financial strength to strength from Market strength and end up the words were used earlier. We've got our heads down every part of the business and everybody in the business is focused on not surviving this pandemic, but how we're going to thrive how we're going to be a better company and how we're going to take market share and the early results of what's what's in play and the expectations of what how how they'll operate in what we'll look like on the on the on the outside of this month. Our competitors is exciting and it makes me very proud. So you've heard some examples with the contact list pick up. I mean that that that happened in about 48 Hours on the manual. Wow.

In the next week or so. Well, that'll be digitized throughout our apps facing the contractors and apps facing our warehouse. And teams and that will transform how we operate.

and the customers love it and is it just one example, so just there's a lot of exciting energy going on about processes about beverage our technology and our data and ways that we never even thought to explore before or put more focus more heads down and we're going to thrive awkward to say maybe but it's sort of an exciting life from that to Spirit that that that perspective if you look at the long-term

Okay, great. And then just you know, I guess if we get into it and I mean it sounds like you're seeing some stabilization into April, but if we get into a period of you know, five to ten percent declines, you know this off-season because you know, the economy is taking a big hit and you know unemployment's high excetera. Do you guys anticipate just continuing to invest through that decline. But there are no absolutely we will that's the nature of our thinking because our financial strength allows us to invest during downturns. Well as steady markets, we are long-term orientated and we have the ability to invest and we'll continue to invest

Yeah, we're we're relatively a five billion dollar revenues in that in that size. It's a forty billion dollar market. We're very ambitious and off in order to get some growth. You got to continue investing and you gotta continue improving the customer experience things that were really getting good at. So we're not going to. The investing and Jeff. We reminded everyone in the press release the 2009 that is when we made our largest investments in our careers, and it was just just buying a company or and doing the joint venture. It was adding capital and adding branches adding people adding an entire Renaissance to a business in the middle of the recession last times and a nice dividend were increasing and cash flow is increasing.

So again, it's it's a script that we we know and can can play out.

It just just a final one on the the mobile. I just want to cuz it looks like about 8% of your contractors use the mobile app, but like 36% of sales or e-commerce is that just bought that still aligned share of the e-commerce is done through, you know, computer-based, you know online ordering or you know, I just want to understand like the difference between mobile app usage in ordering on there versus just kind of the broader e-commerce comment. Well, I don't know the data that where you got the data but we've expressed that data in the press release pick it up from there. No, no, I haven't that's what I'm pulling out of the press release know you're looking at weekly active users on the mobile app. I mean if you look at monthly or quarterly, you know, it's much larger portion of our customer those numbers, you know, double I mean last year for example in 2019, which is number I have on that my head I think we have a hundred and ten thousand unique users of our mobile app. So it's a much bigger.

forcing them your reference

But yeah, I mean the and and and mobile app by the way is focused on technicians in the field, right the idea is that when the technician shows up at your home, you can very quickly understand what system you have all the components in a stand which part he needs see the inventory and our locations get every document of a written about that part in that piece of equipment check warranty process warranty or the product have it delivered. I mean, it's very much a technician to life and and it makes tension of e-commerce, but it goes well beyond just the e-commerce capabilities.

okay, so so the

the the mobile app usage is much higher than what you would indicated in the press release. That's just a point in time. It's just it's just the. That you're looking at. So the number and the in the press release is a unique users average weekly unique users. And the number I gave you before was unique users for an entire year of 2019. And that number is increased in 2012 or the fundraisers increases my point.

Okay, great. Very helpful. Thanks agent.

The next question comes from Chris Denker a longbow research, please. Go ahead calling crave morning L. We the Comfort numbers, You'll end up quite a bit there. Obviously Watts goes in a very strong liquidity position. But you know, how are your customers feeling right now? Is there any distress? They're just great, Yep. Yeah. That's a great question. Yes, they're feeling it naturally, but that's where we come in. We can help them. We can give them dating programs so that they can use our money to develop their business and we can help their consumers the the same way. It's

It gets rough.

For customer our our contractors, but as we continue to say we that's when we shine when things get tougher. We we use our financial strength which some of our competitors don't have to use. Can you add to that Barry Paul or AJ? Yeah, exactly. It's like a sad. I mean we have probably about two thousand Watts Associates calling on contractors every day for the last several weeks with the same question being. How can we help you? Is it active the product is it accurate or is it longer credit terms is it whatever it is and we are getting interaction with the customers that we do business with often and customers that we don't do business with often and there's a lot of follow-up activity. There's a lot of Goodwill being earned. There's a lot of more wage.

Closure to some customers that we don't our contractors in the market that we don't touch every day that are now.

Understanding who we are what we're capable of and and how interested we are and helping them grow their business and these contractors have a long memory.

So you in. Especially in periods when they might have some difficulty in their markets or with their customers like one of years there and we're providing a helping hand. It's it's not only help them now, but I believe that will again simply change the Paradigm going forward.

Right, right. Yeah, and I'm actually going to ask about the credit for comfort and be very specific about what that is, you know this year. They're about seven million replacement system sold in the US and only a very small fraction of them can a contractor sit at some what's it with some an offer credit to help that homeowner acquired our system install that system to Consumer Credit really has been a a laggard in this industry for most of my career credit for comfort is our digital platform that takes all of our product information takes all of our capabilities as a distributor into the contractor and into the home to help provide Consumer Credit through different credit companies. We don't provide the the actual financing. This is this is all third-party financing but bring in the actual technology into a digital platform.

that's easy to use as a contractor can use to grow its business and that's the growth that we're seeing because inevitably, you know, two things can happen Innovation can help the entire equation and then the summer helps the whole equation and so part of that customer engagement over the last, you know, several weeks is is engaging contractors in that in that potential of this fancy platform credit for comfort is

got it. Got it. Thank so so much for the color. They're certainly a market share opportunity to be had. I guess if one of the things from for me, is there any way to quantify kind of any additional operate some of the the shorter-term cost? I assume in terms of social distancing additional PPE that kind of thing or can't really break out from from the sg&a at the moment.

Oh, I know those categories that you mentioned don't apply to us. We're not installing anything. We're we're you know, our customers are off. I I don't see any additional information to anybody else.

Paul no, not really not really hasn't impacted it.

I just think in the DC is trying to make sure everyone stays safe. But yeah, obviously if it's a smaller impact then now material well, thanks so much guys. Good luck and take care. Thank you. Thank you. Thank you Chris off. The next question comes from Corey Fulton, please. Go ahead. Hey guys. How you doing? Where are you? From? What from are you? I'm with Chef Mario gabelli. I know that he's good man. Yeah, he was he was sad to miss you when he was in in Miami if he few weeks ago, but he met my better half. My son is like the most fun 30 minutes of my month, you know, that would be great. Yeah, he can ask some some some very straightforward questions left off. So guys, just a quick question here. I know you guys made a flurry of Acquisitions last year and typically when you make those Acquisitions there a little bit below the wage,

Normal, margin of the overall business. Can you just kind of give an update on where margins for those Acquisitions are now? Um, and how may be the new or have a

How cold it might impact or prolong them Reach of the overall what's going larger level? Well, generally speaking. We don't order anything to do. We don't ask them to change their gross profit margin wage. That's not our business. They have to figure out boy just had a phone Interruption. Is that just me? Hello. We can hear you. And so it's very difficult for in fact, we cannot answer that because those those three companies are very independent and we want them to be very independent. We took them to continue very entrepreneurial and now if if we if if they need us to improve their margins, they'll use us, but so I cannot answer that question.

Okay, and I think that maybe an answer to my second question which is obviously a decentralized business model you allow your Regional manager's decisions at the the market level. But um anything in terms of what you're seeing or potentially seeing from a maybe a cost-cutting perspective anything in that kind of business in terms of life is our furloughs or anything like that that so far maybe giving you an indication of something that might take place throughout the year you're talking about these three companies that we acquire or in general. No, no just overall level of Fitness. Oh very

Again, as you as you said perfectly, you know decentralized model and and that local knowledge and that local intimacy with the market is going to play out and Thursday is going to be component of of that leaders daily life and and but as AJ said so it was growth. How can we engage more customers? How can we grow our business office? How can we add more technology than we do more training? All that is going on at the same time. So it is a dance. It's a short-term dance with managing the business and a long-term hustle to to grow sharing invest and get more business out of this and and both are going on and and and the local markets so there's no one answer. There's no

No big paintbrush here at all. It's it's all being dissected and and led and local markets.

Yeah, I'll give I'll give you just a minute ago to your first question as well. So those three businesses be acquired last year are in the Northeast in our in which is the epicenter of this pandemic and offer benefits that they are realizing which I which I paid witness to is the ability to communicate with each other keys are Business Leaders that have very successful businesses that have been doing what they do for a very long time, but they are connecting at least weekly and sharing ideas and and hearing what each other are doing and see if there's ways to help each other or share each other resources or or what have you and again just seeing them all those conversations. I know how valuable those are for those guys and and how much of the how helpful it is to be part of a bigger, uh company like lots go to have that sort of thing.

Okay, that's I appreciate the color that that's it for me.

I'll make sure to tell Mario you guys said hello.

Again, if you have a question, please press * then 1 the next question comes from Blake horstmann of Steven, please go ahead. Good morning. Good morning guys. First one for me. Could you give us any rough sense to you know, what kind of top-line declines or just really what kind of combination of different factors would have to occur for the dividend to be at any risk of potentially getting cut?

Oh gosh.

I haven't got a clue Barry. Go ahead. I mean we're such Financial strength in in business slows down our cash flow increases. It doesn't suck. So yeah. Yeah, I I mean I'll give you the I'll give you a text book answer then I'll give you some some track record answer and and I think both are you know, both are often given the way that you wish it too. But you know, I always write this this is a business where if revenues if revenues good now working capital is is responds within within a few days and we I mean we're placing orders with with OEM every day. We're collecting money every day and our working capital, you know, essentially gets adjusted every day. So in a short period of time working capital gets produced and cash gets put in the bank and is available for for for for use either in paying off debt and and today for example

Is under a hundred million dollars. So the idea of $85. That's right. You have having a bit of an ATM machine in the software environment is both again comforting but also it helps answer the question of having cash available to sustain a dividend and and keep people very involved in comforting of the story. The track record is in in going back to two thousand eight nine ten. Again, we were doing we were seeing three things epic wage is following in the market in terms of new construction coming out and immense investment being made in the the carrier joint venture second thing and third thing our cash dividend went up about 60% during those three years.

Those are pretty epic, you know bullet points to answer your question. So what is it answer your question for the future. We'll see but you know, that's the track record. I think that's the the good mechanic up to what goes on in this kind of condition got it. And then I know a lot has changed since last call but I believe there was like some I'm going om price cost negotiations did everything that's happened, you know.

the pandemic and

Has has that impacted, you know those ongoing talks or um is the margin Outlook and and stuff just more based on the uncertainty around what happens with the market o r o e M's are very Cooperative. We work as a team and Thursday. It's in their best interests also to keep his competitive and I certainly feel they're doing that and and

It's just a a very strong relationship. We are generally everybody I think we have a thousand vendors and I'm guessing that I think we're the largest customer of a thousand vendor. Yeah, I would have time to say the last fifty nine minutes since this call started. We've been you know, pricing and and competitiveness and reaction to Marketplace dining is gone on the last fifty nine minutes by so there's no there's no end to that.

And in this environment again it we think we have more data technology in sight for operating evidence across markets of what pricing and margins should be and it's it's a choice to every minute of the day grind. We in this fall. We we end up working with our vendors on a daily basis to make sure that we've got a steady flow of product coming in that there aren't any interruptions on the product that we have. There's a change in in the market conditions is reacted to almost almost immediately. So we have a whole team of people at the upper 30 units who are working working those relationships not only at the OEM level, but also at the vendor level

All right. Got it. That makes sense. I'll leave it there. All right. Thank you.

Hi, Sarah, no further questions. This concludes. Our question-and-answer session. I would like to turn the conference back over to Albert for any closing remarks. Yes. Thank you very much. I want to say again that I'm sure hoping that all of you are safe and and stay healthy and let's let's let's be together often Americans during this pandemic and come out stronger than when it started. I certainly hope so. Thank you again for your interest in our company by now.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.