Q3 2023 CSW Industrials Inc Earnings Call
Greetings and welcome to C. S. W. Industrials.
Incorporated fiscal third quarter, 2020 three earnings call. At this time all participants are now listed only mode.
You didn't answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I would now turn the conference over to your host James Perry Shieh SW is executive Vice President and Chief Financial Officer. Thank you. Mr. Perry you may begin.
Thank you Sherry and good morning, everyone and welcome to the CSW Industrials' fiscal 2023 third quarter earnings call joining.
Joining me today is Joseph Armes, Chairman, Chief Executive Officer, and President of CSW Industrials.
We issued our earnings release presentation and Form 10-Q, you prior to the market's opening today, which are available on the investor portion of our website at Www Dot CSW industrials Dot com.
This call is being webcast and information on accessing the replay is included in the earnings release.
During this call we will make forward looking statements.
Statements are based on current expectations and assumptions that are subject to various risks and uncertainties actual results could materially differ because of factors discussed today in our earnings release and the comments made during this call as well as the risk factors identified in our annual report on Form 10-K, and other filings with the SEC.
We do not undertake any duty to update any forward looking statements I will now turn the call over to Joe Armes.
Thank you James.
Good morning, and thank you for joining our fiscal third quarter conference call.
Once again, our team executed well in the face of economic headwinds.
Our record third quarter results reflect the diligence and professionalism of our team members around the globe.
Demand for our high value products remains strong we are highly focused on managing our costs, while pursuing market share growth.
We have continued to deploy capital opportunistically, while strengthening our balance sheet and liquidity through reducing our leverage ratio and proactively increasing our revolver capacity.
Thereby maximizing our ability to pursue future opportunities as they arise.
We delivered impressive operating leverage as EBITDA grew by 47% on 26% growth in revenue while also.
Generating $33 million in free cash flow equal to 19% of revenue.
In the current quarter, all three segments contributed to organic revenue growth of $23 million driven primarily by the numerous price actions we've taken over the last two years.
While we are still experiencing inflationary cost pressure, we have been able to partially offset these with productivity gains.
We have seen reduction in the cost of shipping containers from Asia, as well as lower costs for certain raw materials, but.
But still face higher costs for certain line items, such as domestic freight.
We have successfully maintained our pricing, thereby expanding our margins.
However, the net result of these variables that we have not yet returned to our historical pre pandemic margins, which remains a goal for all of US here at CSW eye.
Yeah.
During the fiscal third quarter, we consummated the previously announced acquisition of Falcon stainless.
This product line expands our offerings sold into our profitable H D. A C R and plumbing end markets.
As a reminder, in our third fiscal quarter of last year, we closed the shoemaker acquisition.
Which expanded our G. R D offerings sold into the HVA see our end market.
During the fiscal third quarter, the Shoemaker cover Guard AC guard and Falcon acquisitions collectively contributed $12 million in revenue.
All of which was reported in our contractor solutions segment.
These acquisitions reflect the accretive nature of our capital allocation strategy and our focus on complementary product categories and our existing end markets served.
In the first nine months of fiscal year 2023, we deployed $105 million of capital via acquisitions.
Opportunistic share purchases.
It ends and capital expenditures.
We continue to pursue both internal and external opportunities for growth consistent with our disciplined risk adjusted returns methodology.
And to maintain a pipeline of acquisition opportunities.
In prior quarters, we have discussed strategic investments, we made in working capital in an effort to mitigate shipping delays and other uncertainties with the global supply chain.
I'm pleased to report that these delays have eased and our business leaders have shifted focus to reducing inventory and accounts receivable as prudent.
This focus is intended to free up cash and reduce the accompanying interest expense.
I'm encouraged by the progress in recent months.
And optimistic about our ability to see continuous improvement in this area.
I wanted to touch briefly on our segment.
Then James will provide the details on our performance.
Overall I remain pleased with the performance of all three segments and in particular with the leadership team's response to changes in their markets.
We're entering the busy season for our contractor solutions segment and our team is gearing up for another year of growth that exceeds the industry average.
The strength of this segment wise and leveraging our distribution network.
Optimizing acquisition integration and bringing high value products to our customers.
Our recent acquisitions have been well integrated and.
And the focus as always remains on serving our customers well as we add new products to our portfolio of offerings.
Our specialized reliability solutions segment continues to exceed expectations.
The capacity utilization in our main facility continues to increase.
And our team there remains focused on topline and bottomline growth by driving operational efficiencies and offering the optimal mix of products.
Energy markets remained strong.
In industrial end markets are stable.
Our distributors remain cautious about their inventory levels. So we stay in close communication with them relative to demand.
Our joint venture with shell continues to gain momentum and we expect to complete the previously announced capacity expansion project of our existing facility. Later this calendar year, which will allow for increased revenue.
And profitability.
Our engineered building solutions segment continued to grow with an increase of revenues of.
Seven 6% year to date.
And for a fourth consecutive quarter. This segment's backlog reached an all time high.
We are seeing a slowdown in bidding for new projects in line with recent AIA data, but are highly focused on pursuing those projects undertaken by the highest quality developers with the highest likelihood of completion.
And our team is performing well and delivering on the current projects, albeit at a lower margin due to win those projects began.
Before I turn the call over to James I would like to remind everyone of the demonstrated resiliency of our business model.
Spite the expectation of many in the financial community of a recession. This year, we remain well positioned.
Strength of our business model include the diversification of our product portfolio and of the end markets, we serve as well as the consumable nature of many of our products that are used either in maintenance repair and replacement applications or to extend the reliability performance and lifestyle.
Fan of mission critical assets.
Specific to our largest end markets HVA C R and plumbing the.
The products, we sell and the value we provide are often non discretionary.
Fundamental necessities for homeowners and businesses.
We have maintained a strong balance sheet that allows us to withstand market headwinds with ample liquidity.
Towards us the ability to pursue growth opportunities.
Across our portfolio of businesses.
At this time I'll turn the call over to James for a closer look at our results and then I will conclude the prepared remarks with our strategic outlook.
Thank you Joe and good morning, everyone.
Our consolidated revenue during fiscal third quarter, 2023 was $171 million or 26% increase as compared to the prior year period, driven by pricing actions and contributions from acquisitions.
Consolidated gross profit in the fiscal third quarter was $66 million, representing 28% growth with the incremental profit, resulting primarily from revenue growth.
Gross profit margin improved slightly to 38, 5% compared to 37, 7% in the prior year period as strong revenue growth in the higher margin contractor solutions segment due in part to our recent acquisitions outpaced revenue growth in our other segments.
Consolidated EBITDA increased by $31 million or 47% as compared to the prior year period.
Consolidated EBITDA margin improved to 18% as compared to 16% in the prior year quarter, driven by revenue growth, which outpaced incremental expenses.
Reported net income attributable to the CSW eye in the fiscal third quarter was $16 million or $1.01 per diluted share compared to $9 million or 59 cents in the prior year period.
The current quarter includes $1.5 million or 10 cents per share of tax benefit related to the release of an uncertain tax position reserve upon the closure of certain Vietnam tax audits.
Our contractor solutions segment with $112 million of revenue accounted for 65% of our consolidated revenue and delivered $29 million or 36% total growth as compared to the prior year quarter.
This was comprised of organic revenue growth of $17 million in inorganic growth of $12 million from the Shoemaker cover Guard AC Garden Falcon acquisitions no.
The growth attributable to shoemaker becomes organic growth starting with the current fiscal fourth quarter.
Organic growth in the segment resulted from the cumulative benefit of pricing initiatives, partially offset by a slight decrease in unit volumes as compared to last year.
Our strong revenue growth as compared to the prior year period was driven by the H P. A C R and architecturally specified building products end markets.
Segment, EBITDA was $28 million or 25% of revenue compared to $17 million or 21% of revenue in the prior year period as our margins continue to recover from the inflationary environment.
We've started to recover margin point is we've been able to maintain our pricing of certain costs. In this segment have declined.
Of note however outside of the decline in ocean freight rates.
Any of our input costs remain high so we are managing our overall cost structure carefully.
Our specialized reliability solutions segment achieved another impressive quarter of organic revenue growth of $5 million or 16% due to the continued benefits from pricing initiatives strong end market demand, including energy and general industrial and improvements in our operations and execution.
Segment, EBITDA, and EBITDA margin were $5 million and 14% respectively in the fiscal 2023 third quarter compared to $5 million and 15% in the prior year period.
Of note, we incurred a half a million dollar one time charge in the quarter for the termination of a small Canadian pension plan. In this segment. This is reflected in our EBITDA results.
As Joe mentioned with the ongoing addition of equipment in our Rockwall, Texas facility to support growth of the show with more joint venture. We are in a position to post a compelling exit rate as we progressed through the fourth quarter and into our next fiscal year.
Our engineered building solutions segment revenue grew to $25 million, a 3% increase compared to $24 million in the prior year period.
Bidding and booking trends remain strong.
In fact, our year to date bookings and backlog increased by approximately 38% and 47% respectively as compared to the prior year period.
As of the end of the fiscal third quarter, our book to Bill ratio for the trailing eight quarters was almost 1.2 to one.
As Joe mentioned in his opening remarks, we ended December with a fourth consecutive quarter of record backlog in this segment.
Transitioning to the strength of our balance sheet and cash flow. We ended our fiscal 2023 third quarter with $15 million of cash and reported cash flow from operations of $84 million in the first three quarters of our fiscal year compared to $69 million in the prior year to date period.
Of the $84 million of operating cash flow in the current fiscal year to date.
$37 million was generated in the fiscal third quarter as compared to an aggregate of $47 million in the fiscal first half.
Well, our working capital levels will vary from quarter to quarter due to seasonality and other factors. Please.
Made progress in reducing the levels of safety inventories that we are strategically held in recent quarters due to the uncertainties in the global supply chain.
We have been and will continue to be committed to having the products our customers need.
Our supply chain constraints have eased we have a laser like focus on our working capital metrics at the business level and are committed to continuous improvement to free up balance sheet capacity introduce our interest expense.
As demonstrated by our cash flow this year I am pleased with our progress and look forward to further refinement as we close out fiscal 2023 and in our fiscal 2024.
Our free cash flow defined as cash flow from operations minus capital expenditures was $33 million in the fiscal third quarter as compared to $23 $3 million in the same period a year ago.
That resulted in free cash flow per share of $2.13 in the fiscal third quarter as compared to $1.47 in the same period a year ago.
Through the first nine months of the fiscal year, our free cash flow was $75 $8 million or $4 97 per share as compared to $61 $1 million or $3.86 per share in the same period a year ago. The.
The impressive level of free cash flow drives our risk adjusted returns capital allocation strategy, which in turn enhances shareholder value.
An important component when assessing our generation of cash flow as compared to a few years ago is the noncash amortization of intangible assets that arise from our multiple acquisitions in the last few years.
That amortization figure alone was $16 $4 million or $1.06 per share in the first nine months of this fiscal year as compared to $5 $4 million or <unk> 36 cents per share in the nine months immediately preceding the acquisition of true here in December of 2020.
During the fiscal third quarter, we were pleased to announce the expansion of our revolving credit facility capacity by $100 million through an exercise of the accordion feature.
Of important note. This increase was effective with no change in terms or pricing, despite an increasingly challenging credit market that many companies face.
This additional capacity gives us increased flexibility to pursue investment opportunities without having to access the capital markets in the current uncertain environment.
We are appreciative of the strong support shown by our Bank group, a testament to our recent success and future opportunities for profitable growth.
We ended the fiscal third quarter with $267 million outstanding on the now 500 million dollar.
Revolver of.
$7 million increase compared to the prior fiscal quarter end.
As a reminder, during the fiscal third quarter, we invested $34 $6 million of cash for the acquisition of Falcon.
Our bank covenant leverage ratio as of the current quarter end was approximately 1.5 times an improvement from 1.6 times as of the preceding quarter and due to our strong EBITDA growth.
As part of our broad capital allocation strategy, we remain committed to opportunistic share repurchases guided by our intrinsic value model.
During the fiscal 2023 year, we have repurchased 336347 shares for an aggregate purchase price of $35 $7 million under our prior $100 million share repurchase authorization.
In December we announced that our board of directors approved a new $100 million authorization that is available through the end of calendar 2024.
Our effective tax rate for the fiscal third quarter was 14, 7% on a GAAP basis due to the previously mentioned 850 basis point benefit we received when the tax audits for several years, we're closed in Vietnam, and we were able to release the reserve on our balance sheet.
We expect a 23% to 24% tax rate for the full fiscal 2023 years.
As we look to close out fiscal 2023 we anticipate strong revenue growth across all three segments and at the consolidated level for the full year, which when coupled with meaningful operating leverage will result in strong year over year, EBITDA and EPS growth as well as cash flow generation.
We expect to benefit from continued stability in our raw material and freight costs.
With that I'll now turn the call back to Joe for closing remarks.
Thank you James.
During the fiscal year to date period, we delivered record revenue of $562 million representing growth of 24%.
Operating leverage on this growth drove 30% growth in EBITDA and 39% growth in adjusted EPS.
In light of the strength of our fiscal year to date results, we expect year over year revenue growth of approximately 20% with an EBITDA margin of over 22% for the full year.
These full year expectations imply fourth quarter revenue growth of approximately 9% as compared to the same period last year with an EBITDA margin of approximately 23% in the fourth quarter.
We are currently working through our budget process for our fiscal 2024, which begins on April one while there are headwinds in certain end markets. We expect to deliver consolidated revenue and earnings growth for C. S. W. I.
We are focused on efficiency gains and cost reductions, but we plan to accomplish these objectives without involuntary reductions and our level of employment.
We are committed to providing our customers with the high quality products and service that they expect from CSW I and we will rely on the dedication of our team members to accomplish that goal.
We are expanding margins and driving cash flow conversion, we are confident in our near term and long term opportunities with disciplined capital allocation, which in it which is enabled by the strength of our balance sheet.
We remain committed to enhancing sustainable growth and shareholder value even in the face of economic uncertainty.
By doing this in the past we have consistently delivered outstanding financial results and we will utilize that same approach for the remainder of 2023.
And beyond.
I am pleased to share that for the third year in a row Cigna as selected CSW I as a recipient of their gold level healthy workplace designation for demonstrating a strong commitment to improving the health and well being of our employees through our workplace wellness program.
This reinforces our distinctive employee centric culture and affirms our intention to be an employer of choice.
My colleagues here at CSW I hear me say this often C. S that'd be I, we must and we will succeed there's no other option, but here at CSW I, how we succeed matters achieve.
Achieving these outstanding year to date results demonstrates our commitment to be good stewards of your capital and to our goal of driving long term shareholder value.
As always I want to close by thanking all of my colleagues here at CSW IV collectively own approximately 5% of CSW through our employee stock ownership plan as well as all of our shareholders for their continued interest in and.
In support of our company.
Operator, we're now ready to take questions.
Thank you if he would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Our first question is from Jon <unk> with CJS Securities. Please proceed.
Hi, Good morning, Thank you for taking my questions and congrats on the nice results.
My first question is no.
I was wondering if you could talk about how much change.
You've seen or you discussed or or experienced just in terms of your overall macro expectations and visibility over the last two or three months. It seems we got whipsawed a bit.
But pretty much negative macro sentiment.
Earlier in Q4 things started improve since then has that translated to any changes in your internal forecast or discussions with customers. As you go forward and heading into fiscal 'twenty four it just.
Help us think about your visibility.
In today's environment.
Yeah, John as you know visibility is tough these days and so our goal is to be prepared for whatever eventuality. We think the strong balance sheet. The diversification of our business the strength of our brands and the low cost high value kind of products that we that we provide to our <unk>.
Customers are going to be.
Hum.
Popular and profitable and great products to offer and a great business model, regardless of the economic backdrop.
You know March is a really important.
Month for us.
Late February March.
For the pre sales season in the HVAC business and so we've got our eyes focused on that but we'll know more than.
At this point.
We don't have any.
Indications of any.
Major changes in our in our expectations.
But you know that's a very important time frame for us win.
The pre market pre summer Ah sales to the distributors, who are stocking up we'll will give us our best indication so.
I would just say stay tuned.
Got it and then I assume assuming and just from your blended do you expect revenue and margin growth in the next fiscal year.
Yeah. This is James John Good morning, Thanks for being on Yeah, We as Joe said, we do expect our revenue and EBITDA growth next year. We're certainly working to continue to push margins you know as we mentioned in the call. We've focused a lot in the last couple of years on container rates, they've certainly come down and for now they stayed down what we know how quickly that can move.
Some of the other costs are still high obviously, you know raw material cost domestic freight shipping freight out between our facilities and the customers those costs remain high but you know we've done a good job with our pricing has been able to retain that as we said we're not back to our pre pandemic margins. That's always a goal that goes tougher because obviously when costs are.
Higher and you have to move pricing higher margins are more challenging. So we don't have a firm view yet on margin guidance, yet per se, but we certainly Joe and I and our business leaders have a goal to continue to push margin and the type of pace, we have been able to recover so far.
Understood. Thank you.
You mentioned, a little bit of a slowdown in the bidding market in architectural.
Can you just talk about where you're seeing that number one and two are expected to continue.
And then kind of the impact.
You might see that in the P&L.
Yeah. So good question you know as you know that market, we've been through almost a couple of many cycles in the last few years, you know COVID-19 hit and things really slowed down. So we were kind of taken some lower margin projects. Then we had a period, where we you know things opened up again and things look good and now were producing some of the lower margin projects again, because with interest rates spiking in some economic uncertainty some of the prop.
<unk> has been put on hold despite that as we said our backlog has grown biddings are are very geographic I'll say, we were talking to the leadership in that group just in the last couple of days in the Sunbelt remains pretty solid as you would imagine.
Toronto, where we have a nice presence has some good construction going on the California market, especially northern California has been a little softer and as you know our smoke Guard party specifically, we have a good opportunity there because we are the distributor and the manufacturer.
Manufacturer. So we kind of have that double dip when we sell into that market and that's been a little softer so theres geographic pockets here and there. So we've seen bidding slowed down just a little bit because I think funding for these projects is taking a little longer to firm up because of where interest rates are an equity expectations are but our team is doing a really good job as Joe mentioned in his comments focused on that.
This high quality developers of projects with a high likelihood that theyre going to get done we know that our backlog right now are solid the projects and there are out of the ground and as you know our our parts are at the back end. So what's in the backlog now that we've been taking orders for the last quarter or two you know that's non 12 18 months out so I think as we get deeper into fiscal.
'twenty for the back half and then even the fiscal 'twenty, five which you know its hard to say out loud, but but that's a little over a year away for us will really start seeing these these newer entries into the backlog come through the revenue, but in the meantime, the group's doing a good job keeping busy keeping the projects go and the margins are just a little softer given the nature of those products.
Okay, Great and do you expect it to continue slowing from from where you are today.
You know John again, I think that interest rates rising will slow parts of the market we have been.
Focused on institutional projects, we've been focused on high.
Our high quality projects that may have a little less entrepreneurial.
Speculation in them and so.
We're still a relatively small player. We think we can grow kind of in every market.
But we do think that the the.
The interest rates remaining high we will continue to have an impact on some of the more speculative projects and so our focus on institutional or focus on.
The healthier portions of that.
Market I think is going to it's going to pay dividends for us.
Got it thank you.
Jim do you have any more color on just price versus volume trends.
In the past quarter and kind of what we expect that that mix of to go is as you've continue growing into the future.
Yeah, John the growth this quarter was really based on the acquisitions that we've talked about before acquisitions over the last 12 months and then pricing volume overall on a consolidated basis was pretty flat.
Contractor solutions down just a bit and then we had a little little offset with the other segments that helped certainly in specialized liability solutions, but pricing is really the driver here in the organic growth but.
Where that's going from here as Joe said, you know, we're going to continue to have some year over year pricing pick up for the fourth quarter here and into the first fiscal quarter, the pricing kind of slowed down the increases the back half of last calendar year. So that'll start lapping so to speak so you won't have that pick up so to speak opportunity unless we see them.
Other step up in cost and we need to take action either outside of just our normal annual price type increases, which we we implement this time of year. So pricing is going to continue to be a tailwind for us for a couple of quarters on a year over year. The volume as Joe said, well, it's a it's a little bit of a wait and say the team is doing a great job talking to customers understanding what their stocking levels are.
And across segments. So I think our distributors are being careful in overstocking theres been a little bit of Destocking and I think that slowed down volume a little bit and I think inventories continue to be right sized so as Joe said, the February and especially into March ordering and buying season for contractor solutions will tell us a lot and on the call. We have in may with our fiscal year results, we'll have a much.
Better sense of how that looks of course.
Got it.
Last one for me just the working capital improvements.
As supply improves how much are you carrying right now kind of what what kind of cash can you throw off assuming you get to your optimized levels.
Yes, it's a great question. John This is still James you know, it's hard to put a specific number on it because it's going to vary week to week and month to month. Our teams do a really good job you know when you look back you use things like days on hand, and we know what those metrics look like and they bump around a little bit part of that like I said, it's seasonality and just talking down enough for the seasons, but you know we really have a forward look in our business is doing.
Good job looking product by product how much they think they need to hold especially that product that comes from overseas, while shipping times have slowed down or have gotten shorter I'm sorry, it still takes a while to get products. So you can't produce a lot of this overnight. So you know.
It's a few million dollars how much of that is it's probably hard to identify and get real precise we certainly have some goals and metrics and as we go through our budget season.
We're going to work hard on what those goals need to be given a little easing of the supply chain constraints that we have so I wouldn't put a hard dollar number out there, but theres still a few million dollars out there that we think we can turn into cash kind of in a quarter over quarter basis again. This quarter you start stocking back up but when we think about days forward and days on hand, we have opportunity.
Got it.
Thanks, guys I'll, let someone else ask questions.
Thank you John .
Our next question is from Julio Romero Romero with Sidoti and company. Please proceed.
Hey, Thanks, very much good morning, maybe to start off if you could just talk about on contractor solutions just talk about what's working well in the segment I know you mentioned strong pricing gains and the inorganic growth as well, but I was just hoping for a little more detail on the strong segment profit, especially given that this is usually your seasonally.
Weakest quarter for that segment.
Yeah Julio thanks.
It's.
We got strength across the board I would say that we're.
We're selling more of the ductless mini split products that maybe we did a few months ago. There were some shortages by the OEM manufacturers that we're that we're slowing some of that down.
That provides a good mix.
The impact for us and so.
Strength across the board really.
I don't know that I'd note anything in particular, I would say that we continue to be able to grow wallet share with our customers.
There are particular customers that are continuing to grow we're growing our G. R. D business as you recall after we bought <unk>.
True error, we had the we had the.
You know kind of production slowdown in Vietnam, because of the pandemic shutdown and all of that we've had to rebuild inventory and so some of the kind of.
Wallet share gain that we had planned.
Planned on for that acquisition were delayed delayed a little bit and now we're beginning to see some of that and so there's there is positive things across across the.
The entire portfolio the acquisitions I think as much as anything have really just performed well and the integration has gone well and so we're very pleased with those new products that we can put through our distribution channels our customers like that the the end users are the professional trade.
Likes to have new different products to sell and that's an important part of our of our kind of our.
Increase or our strong organic growth rate is to continue to bring new products into the market.
I would add just briefly Julio Joe mentioned true Air briefly the Vietnam operations are performing at tremendous levels the leadership team there.
We brought in and has done a great job our people have been able to get over there now shoemaker and true air are working really well together. So really pleased with you from this commercial side doing operation side and everything in between.
Okay.
Yes.
Okay. That's very helpful. That's good color there maybe just staying on the segment just talk about how you're balancing your inventory reduction initiatives, what's kind of being ready for the busy season within the contractor solutions segment.
Yeah, absolutely really as James said it was a focus we've had a focus on a product by product looking at the.
The weeks of inventory that we wanted to have on hand, not just historically, but looking forward to try to forecast sales in each and every product type and tried to calibrate our inventory levels to make sense really for that March timeframe, we talked about that I think at the last quarterly call is that.
You don't really want to measure that at the end of December because that's our seasonally slowest time and some products. If you buy them if they're manufacturing in China, you may be getting some of those shipments even in December getting ready for the February March timeframe, and so inventories can can look a little odd at that period of time, but.
In the March high season for us the selling opportunity is there we want to have product on the shelf, we want to be the reliable vendor for our customers and we don't want to Miss sales, especially.
Especially early on in the season like that so.
So we're making sure we have the.
The right products on the shelf the right amounts and I'm just trying to just two.
To properly calibrate that.
At the same time, yeah, we've got a real focus on on working capital reduction.
We're trying to do that in a in a very cautious and careful way. So that we don't Miss sales, we don't offend customers by not having a product on the shelves and we don't take good care of our customers, which is our commitment to do so it is a balancing act no question about it as interest rates rise it becomes.
Even more important and so that that's why we've been focused on that but.
At the end of the day, we've got to take good care of our customers interest rates are not so high that we cannot afford to have the products on the shelf.
And again, it's another benefit of a strong balance sheet, our interest costs are not that high compared to the opportunity on the customer side.
Okay. That's helpful.
Maybe one follow up on Jon's previous question on on the ABS segment.
You mentioned, some geographies, particularly in northern California that slowing.
And you mentioned sunbelt in Toronto is still solid.
Any other.
Geographies or product lines that you can point to that are either slowing or still holding solid us any additional granularity.
There.
Yeah, I would say you know, Florida got hit by weather.
Weather recently, we felt that a little bit.
And again in Florida like in Toronto, we not only fabricate, but we install a product there and so some of the construction sites were shut down for a while.
But no I think I think it really is kind of a sunbelt story for the most part and then plus Toronto, a southern California has been strong all the way across to.
To Florida, and so those are those are not surprising the stronger growth areas for us we're doing some work some nice work in picking up picking up some business in New York, which has always been a big target for us but.
But I I would call it a sunbelt plus Toronto kind of a kind of a story at this point.
However, bidding trends for the railings product line performing.
Yeah, you know what's interesting very strong overall.
But that's geographic as well Toronto has been very very strong there are some todd.
God of multifamily residential being built in the Toronto area, and we're getting our fair share of that plus or at this point and so very very pleased with that backlog is very strong there and.
That bodes very well again, Florida has been a little more spotty with some of the weather issues and some other things but.
Yeah, the bookings and the backlog on Graco are up I think the most as a percentage just because obviously, it's off a smaller base, but their backlog has been very impressive.
Yes.
Really helpful. I appreciate you guys taking the questions.
Thanks Julien.
And we do have a follow up question from John C. J S Securities. Please proceed.
I was just wondering what what do you think is the most active place to be putting this has to work.
Current moment.
The most I'm sorry attractive attractive yeah, you know its interesting John as I think about it.
Paint repaying debt as kind of a risk free rate right I mean, we can save five 6%.
On an annual basis, just by paying down debt and so everything else is as you know calibrated off of that on a risk adjusted returns basis. So all the return hurdles have gone up.
And so it is it's become a little more challenging.
So each each.
Opportunity has to be aside a risk premium and we think about everything from integration risk and all the other things that go into an acquisition.
Capex is has got some execution risk, but less and so we've always said that organic.
Our investments are going to likely be higher risk adjusted returns so.
We would always prefer those over inorganic and.
But as James noted our high level of free cash flow generation says that we can do.
A lot of investing and.
Capital has not been a constraint for us opportunities had been a constraint every once in a while we get we're constrained by management bandwidth, but capital has not really been a constraint for us and our cost of capital is low enough that when we find attractive returns.
We're willing to pull the trigger.
Yeah.
Got it. Thank you for that just another follow up.
In the current guidance for Q4, it's I'm wondering what you're expecting to be the contribution from the acquisitions of course.
Yeah. So as a reminder, shoemaker won't be acquisitions anymore, as we look year over year that'll become organic now because that was bought on December 15th of 2021. So your acquisitions as are the Falcon cover Garden AC Guard and those are smaller so you have a little contribution from that a majority of.
The 9% kind of fourth quarter growth that we talked about in the release and in Joe's comments, there's going to be organic and you know how much of that is price versus volume, you're still going to lean towards more being priced at this point the way, we see things, but as Joe said as we get to the back into the quarter, we will see what that brings us but as we sit here on February 2nd we see that nine <unk>.
<unk> growth with the EBITDA of about 23% or so.
Okay, great. Thank you guys.
Thank you John .
We have reached the end of our question and answer session I would like to turn the conference back over to management for closing comments.
Great. Thank you Sherry and thanks, everyone for joining us today I'm very pleased with the results and are pleased to have the opportunity to visit with you about this look forward to talking again at the end of our fiscal year in May So thank you very much.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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