Q3 2025 CSW Industrials Inc Earnings Call
Greetings and welcome to the CSW Industrial 3rd Quarter Earnings Conference Call.
Prior to the market's opening today all of which are available on the investor portions 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. These 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 comments made during the call as well as a risk factor.
Jeff: As 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 Jeff.
Jeff: Thank you Alicia and.
Jeff: Good morning, everyone.
Jeff: I'm pleased to announce that once again, our team has delivered record results for revenue.
Jeff: <unk> earnings per diluted share.
Jeff: Adjusted EBITDA for the fiscal third quarter of this year.
Jeff: This morning, we reported fiscal third quarter revenue of $194 million.
Jeff: As well as fiscal third quarter, adjusted EBITDA of $42 million adjusted earnings per diluted share of $1 48.
Jeff: And adjusted net income of $25 million.
Jeff: Our adjusted EBITDA margin expanded 70 basis points to 21, 7% in the quarter.
Jeff: I am proud to note that each of our three business segments delivered top line growth and impressive profitability during the quarter.
Jeff: James will provide further details on the performance of each segment.
Jeff: During the fiscal third quarter.
Jeff: We have continued to execute on our capital allocation strategy.
Jeff: During the fiscal third quarter, we deployed $42 million of the proceeds from our follow on equity offering to fund the strategic acquisition of Pf Waterworks.
Jeff: Through this acquisition and the contractor solutions segment, we expanded our product offering with innovative eco friendly drain management solutions.
Jeff: These new synergistic products will be added to our current wholesale distribution network.
Jeff: Spanning pf waterworks historical path to the market through the retail channel.
Jeff: We expect calendar year 2025 to be active from an M&A standpoint, and CSW I will remain diligent and disciplined when evaluating acquisition opportunities focusing on synergistic innovative investment opportunities with attractive risk adjusted returns that will enhance.
Jeff: <unk> shareholder value.
Jeff: CSW I has a long demonstrated track record of respecting capital and delivering growth and shareholder value.
Jeff: Our strong balance sheet together with our capital allocation discipline has been the cornerstone of success for CSW odd.
Jeff: By aligning capital and labor, we are driving impressive results.
Jeff: Our commitment to our customer satisfaction focus on leveraging our distribution network positions us for long term growth and profitability.
James: At this time I will turn the call over to James for a closer look at our results and.
Speaker Change: Following his comments I will return and conclude with our.
James: To conclude our prepared remarks.
Joe: You, Joe and good morning, everyone.
Speaker Change: As Joe mentioned, our consolidated revenue during the fiscal third quarter of 2025 was a record $194 million and $19 million or 11% increase when compared to the prior year period.
Speaker Change: $15 million of the revenue growth came from the dust free PSP products M. P of waterworks acquisitions that we completed during the last 12 months.
Speaker Change: The additional $3 million of growth was organic primarily due to increased volumes.
Speaker Change: Consolidated gross profit in the fiscal third quarter was $80 million, representing 8% growth over the prior year period.
Speaker Change: Our gross profit margin declined by 90 basis points to 41, 4% compared to 42, 3% in the prior year period due to increased freight expenses.
Speaker Change: Our consolidated adjusted EBITDA for the third quarter increased by $5 million to our fiscal third quarter, a record $42 million, which was 14% growth when compared to the prior year period.
Speaker Change: Our adjusted EBITDA margin improved by 70 basis points to 21, 7% as compared to 21% in the prior year quarter, demonstrating our commitment to delivering operating leverage.
Speaker Change: Adjusted net income attributable to <unk> in the quarter was a fiscal third quarter record of $25 million with a record $1.48 of adjusted earnings per diluted share compared to $17 million or $1.07 of adjusted earnings per diluted share in the prior year period representing growth.
Speaker Change: The 49% due to the aforementioned performance and lower interest expense, which has now become interest income due to the full repayment of our revolver balance from the second quarter.
Speaker Change: The adjustments to EBITDA net income and EPS in the quarter or two items.
Speaker Change: The release of a tax indemnification asset in uncertain tax positions related to acquisitions.
Speaker Change: And the acquisition broker fee, we paid during the quarter for P. F waterworks.
Speaker Change: Most of these items are included in our contractor solutions segment results.
Speaker Change: During the third quarter, our contractor solutions segment with $132 million of revenue accounted for 67% of our consolidated revenue and delivered $16 $7 million or 14, 5% total growth when compared to the prior year quarter.
Speaker Change: Of the revenue growth in the quarter $15 $3 million or 13, 3% came from our recent acquisitions.
Speaker Change: While the remaining $1.4 million or one 2% was organic volume growth.
Speaker Change: During the quarter growth was reported in the HVA see our electrical and plumbing end markets offset slightly by a decline in the architecturally specified building products in market within contractor solutions.
Speaker Change: Adjusted EBITDA for the segment was $37.5 million or 28, 4% of revenue.
Speaker Change: Baird to $33 million or 28, 6% of revenue in the prior year period.
Speaker Change: The slight adjusted EBITDA margin decline came from lower gross margins due to increased freight expense as previously mentioned and acquisition integration costs.
Speaker Change: As a reminder, the fiscal third quarter is our seasonally low point of the year for this segment, which impacts our topline and margins due to lower operating leverage on our fixed cost.
Speaker Change: Our specialized reliability segment revenue increased by 3% to $34 $6 million as compared to the prior period.
Speaker Change: Revenues increased in the general industrial and rail transportation end markets, but declined in the mining and energy end markets.
Speaker Change: The increased revenue was driven primarily by an increase in unit volumes over the prior period.
Speaker Change: The segment EBITDA of $6 $6 million in the third quarter represented an increase of 26% from $5 2 million in the prior year period.
Speaker Change: And the EBITDA margin improved by 360 basis points to 19, 1% in the current period.
Speaker Change: Driven primarily by operational efficiencies.
Speaker Change: And the prudent management of operating expenses.
Speaker Change: Our engineered building solutions segment revenue increased to $28 $8 million, a 3% increase as compared to $27 $9 million in the prior year period, driven by backlog conversion to revenue.
Speaker Change: Bidding and booking trends remained solid during the fiscal third quarter with our book to Bill ratio for the trailing eight quarters at one to one.
Speaker Change: We continued to see favorable margin mix in bookings and the backlog with our focus on quality contractors and project destinations.
Segment, EBITDA grew modestly at 3% to $4 $1 million or 14, 2% EBITDA margin compared to $4 million and a similar 14, 2% EBITDA margin in the prior year period.
Speaker Change: We continue to target a 20% EBITDA margin for this segment in the intermediate term, but keep in mind that the margin will fluctuate from quarter to quarter due to project mix and the seasonality of the construction market.
Speaker Change: Transitioning to our strong balance sheet and cash flow we.
Speaker Change: We ended our fiscal third quarter 2025, with $214 million of cash and reported cash flow from operations of $12 million compared to $47 million in the same quarter last year.
Speaker Change: Cash flow from operations in the fiscal third quarter decreased due to a $17 million tax payment deferral mentioned on our last earnings call from the fiscal first half of 2025, the fiscal third quarter under a temporary federal tax relief related to the severe storms and flooding in Texas in early calendar year 2024.
Speaker Change: Inventory also increased in the third quarter of 2025 compared to the prior year period.
Speaker Change: In order to strategically offset risk from the potential port strike and other potential disruptive events that we anticipated could occur in the first calendar quarter of 2025.
Speaker Change: Our free cash flow defined as cash flow from operations minus capital expenditures was $8 $5 million in the fiscal third quarter as compared to $43 $1 million in the same period a year ago.
Speaker Change: This resulted in free cash flow per share of <unk> 50 in the fiscal third quarter as compared to $2.76 in the same period, a year ago due to the items I previously mentioned.
Speaker Change: As discussed last quarter, we repaid all of our borrowings under the revolver in September <unk>.
Speaker Change: And the cash received from our follow on equity offering and our strong cash flows.
Speaker Change: As a result, the company was able to eliminate most of our interest expense and invest the net proceeds from the equity offering and money market accounts to generate interest income since the equity offering.
Speaker Change: During the fiscal third quarter, we made a $42 million capital investment for the acquisition of Pf Waterworks as Joe mentioned.
Speaker Change: Our effective tax rate for the fiscal third quarter was 13, 8% on a GAAP basis, and 24, 5% when adjusted to exclude the previously disclosed release of a tax indemnification assets and uncertain tax position accruals for true Erinn Falcon as well as the acquisition broker fee I mentioned.
Speaker Change: As a reminder, our tax rate in the fiscal third quarter can fluctuate more than other quarters due to seasonality.
Speaker Change: We still believe we will deliver full year growth in revenue EBITDA and EPS, along with continued strong cash flow.
Joe: With that I'll now turn the call back to Joe for his closing remarks.
Joe: Thanks James.
Joe: To summarize during the fiscal third quarter of 2025, we posted record quarterly results for revenue.
Joe: Adjusted EBITDA.
Joe: Adjusted earnings per share and adjusted net income.
Joe: Our strong 11% revenue growth included both in organic growth from our recent acquisitions and organic volume growth.
Joe: Looking ahead to our final fiscal quarter of 2025, we will continue to focus on delivering sustainable growth that exceeds the markets, we serve and we.
Joe: We will look for opportunities to drive operating leverage.
Joe: We will continue to identify and pursue accretive acquisitions of innovative companies and products that enhance our growth.
Joe: I would like to take a moment to welcome. The most recent group of employees to join the <unk> family through our acquisition of Pf Waterworks in November of 2024.
Joe: As I mentioned earlier Pf Waterworks provides dependable drain management performance solutions that promote self sufficiency and make life easier for homeowners contractors property managers and builders.
Joe: Waterworks has grown significantly through product innovation and service, which are both wholly consistent with the CSW our ethos.
Joe: Bringing these unique plumbing products and the new team under the CSW I umbrella.
Joe: Allow us to expand the distribution of these products to the important.
Joe: Approach trade channel.
Joe: I would also like to congratulate our rector seal team for being awarded the 2020 for voice of the distributor award from Hardie the industry, leading trade group at their recent HV AC distributor conference.
Joe: This is their single single award recognizing the supplier of the year and is based on distributor nominations as well as a number of performance metrics.
Joe: This award is a testament to the hard work of our teams and our.
Joe: But to our customers.
Joe: And lastly, I want to close my prepared remarks by thanking the dedicated team here at <unk>, who collectively own 4% of the company through our employee stock ownership plan as well as all of our shareholders for their interest in and investment in CSW industrials.
Joe: We are now ready for questions.
Joe: Thank you we will now be conducting a question and answer session.
Joe: I'd like to ask a question. Please press star one on your telephone keypad.
Joe: Confirmation tone will indicate your line is in the question queue.
Joe: The press star two to remove yourself from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star key.
Jon <unk>: Your first question comes from Jon <unk> with CJS Securities. Please go ahead.
Jon <unk>: Hi, Good morning, Thank you for taking my questions and nice quarter.
Jon <unk>: I was wondering first if you could address the impact of freight.
Jon <unk>: On the margins and our gross profit year over year.
Jon <unk>: What was the exact impacts I guess, where do you see that trending in terms of a headwind and are you expecting to offset that any point of view of pricing or other mechanisms.
Jon <unk>: Yes, John Good morning, Thanks for being on as always this is James you have freight was certainly a headwind as you will know in a lot of our shareholders know theres a four to six month lag on the ocean freight.
Jon <unk>: From the time, a container leaves Asia across the Ocean and works its way through cost of goods sold. So this quarter solve those kind of peak freight rates, we had back in the spring and summer rates have started to come down since then to some degree, but obviously you can remain volatile.
Jon <unk>: It was the significant headwind we saw in the quarter. There was also we mentioned in the Q afraid expense alignment we had.
Jon <unk>: An amount of freight that we had accrued that in the second quarter didn't get pushed all the way through expense as we true things up in the third quarter. So there was a bit of an alignment shift.
Jon <unk>: Shift from Q2 to Q3 about 100 basis points of margin. If you look at it from that perspective would have shifted so that kind of explains the gap I'll remind you that we mentioned last quarter.
Jon <unk>: That we have put forth our price increase earlier than normal that went into effect January one. So we would expect our fiscal fourth quarter.
Jon <unk>: To do a to do a better job covering those freight expense increases that we saw is that pricing is now in place.
Speaker Change: Got it so you would expect pricing to offset that on one side and for rates to be coming down on the other is it seems to have peaked.
Speaker Change: That's right, yes rates have started to come down again, given the lag in the last few weeks, we've certainly seen rates come down.
Speaker Change: Sure.
Speaker Change: Avoidance of a port strike was certainly a positive rates were starting to spike ahead of that mid January deadline that looks like that's been resolved rates came down also with the at least current ease of conflict in the middle East. The Red Sea has started to open back up so forecast or see a potential decline in ocean freight.
Speaker Change: Those are all of those can all be somewhat temporary and theres a lot of exogenous factors of course going on but we're seeing rates start to come down, which we would see the impact of kind of in our fiscal first and second quarter at this point, but the pricing we put in place covers the freight that we already knows and our cost of goods sold.
Speaker Change: Got it Okay, and then I think I heard you build inventory ahead of the potential strengths and other disruptions just how long do you expect to be holding on to that before maybe the risk is passive and you start to run that down.
Speaker Change: It's really just what we would have brought in probably more January February March John is the stock up for the busy season as we saw you always bring it a little bit before the lunar new year, obviously given our.
Speaker Change: Heavy reliance on Vietnam, So we always bring a little extra end, but a little more this year, obviously with that port strike. We obviously saw the scare of that in the fall we got through that but we didn't want that to disrupt our stock up season. So we brought some in ahead of the port strike as I mentioned earlier it looks like that's been relieved to know, but it's inventory or we were going to sell anyway.
Speaker Change: Secondly, with potential tariffs on certain parts of the world that's kind of what we allude to when I mentioned other other disruptive events. So far we've not seen any new action on that but given some of our product. Obviously comes from Asia. Given that's out there. We wanted to get ahead of that and so we bought a decent amount in early that truly what you.
Speaker Change: You see that was affecting cash flow in the fiscal third quarter, but again, we didn't bring anything above and beyond what we would need to bring in so now we have the couple of weeks that not a whole lot comes in because of the lunar new year at least not much get ship. The next two weeks. So now will ease that a little bit and it will work its way through inventory very very normally if you look at the balance sheet year over year.
Speaker Change: Also we will remind people that about half of the inventory growth.
Speaker Change: Year over year from December to December was just from the acquisitions that doesn't flow through cash flows. The way acquisitions are accounted former from a balance sheet standpoint acquisitions alone are going to add your inventory balance.
Speaker Change: Got it that's helpful.
Speaker Change: Could you also address organic growth in the quarter one 8%.
Speaker Change: Just wondering how much volume and pricing was a component of that and.
Speaker Change: What your thoughts are going forward for from an organic growth perspective.
Speaker Change: Yeah sure John I think we continue to expect mid to high single digit organic growth over a cycle year to date organic growth is up 556%. So we're kind of in that zone from an organic perspective on year to date and obviously, we look over a 12 month period more importantly, the acquisitions. We've made will start feeding organic growth next year. So we'll see that that will.
Speaker Change: We've talked about that key to that vitality during the quarter. There were a couple of things we mentioned a slight offset to the growth in HVAC electrical and plumbing architecturally specified building products. That's our fire stopping product that was just a little bit softer industry wide in the quarter. So that was a bit of a headwind in the quarter, we mentioned that in our 10-Q and in musk.
Speaker Change: <unk>, we also kind of as we in the calendar year have some true ups on rebates and and that offset some of the pricing impact. So yes, we did have favorable pricing year over year, but rebates offset that in the quarter. Just as you true up those accruals volume was up a relatively normal amount, but again quarter to quarter things can move around a little bit the last thing I would mention is.
Speaker Change: The Oems you've certainly seen talked about a lot of pull forward on getting the the old equipment that can be produced through December 31st up the door as well as the new equipment getting ready for the new refrigerant. So distributors are holding a lot of both so while it wasn't a major headwind necessarily there was certainly a minor headwind in <unk>.
Speaker Change: Distributors holding a lot of the OEM inventory, which obviously it takes a lot of working capital dollars and probably put a bit of a headwind just in the quarter on holding the parts and accessories, but we're seeing normal demand as we entered the fourth fiscal quarter and as we look into 2025, we're expecting a good year.
Speaker Change: Got it that's helpful. And then last of all just an update on the acquisition pipeline what are you seeing out there.
Speaker Change: Five an ATP of waterworks, which seems very nice Tom but I was just wondering about the scope and aperture in the opportunity set that you're seeing especially after.
Speaker Change: You raised the equity in and out of cash in your balance sheet now.
Joe: Yes, John Thanks for asking this is Joe.
Joe: As you recall back in September when we did the equity offering we said we didn't really need that.
Joe: To do these smaller bolt on acquisitions that we could do that out of our free cash flow. So we entered 2025 in a spectacular position to take advantage of what we hoped would be an opening of the M&A pie.
Joe: Pipeline and at this point, we're not at all disappointed in that we see opportunities.
Joe: And not only small acquisitions, but also larger size acquisitions that.
Joe: They're coming to market and for us, it's really an exercise of maintaining our rigor maintaining our discipline. There are opportunities. There, we just need to wait for the right pitch to swing. So we're we're very optimistic and we like what we're seeing we like the position we're in.
Joe: Okay, great. Thank you.
Sean: Thanks, Sean.
Speaker Change: The next question Susan Macquarie with Goldman Sachs. Please go ahead.
Susan Macquarie: Thank you good morning, everyone.
Speaker Change: Good morning, Susan welcome. Good morning. Thank you, yes, it's good to be here.
Speaker Change: Question is on share gains, you've obviously seen a lot of that over the course of the last several quarters in that business as you look out and even as you start to think about.
Speaker Change: The next fiscal year, where do you see the most opportunities and how should we think about that potentially coming together.
Speaker Change: Our market share gain thanks, Susan is an important part of our organic growth rate that mid to high single digits. We talk about obviously the industry is kind of growing low single digits.
Our ability to pick up market share gains from competition continues to be a key part of our strategy and we're putting our budget together, putting a bow on that for next fiscal year market share gains as a part of that we would also point to obviously, we're in certain markets that are over indexed like indoor air quality surge protection.
Speaker Change: Many splits those type things so that all kind of goes hand in hand, as we bring in these acquisitions that also gives us market share opportunity because more of our distribution customers want to have fewer vendors and so the more products. We can offer them gives us that opportunity to pick up market share gains that they can get a full pallet more of a truckload of full truckload or whatever may be.
Speaker Change: From us so while we don't break out the specifics clearly building up to a mid to high single digit organic growth expectation includes a good chunk of market share gain that Jeff and his team are looking toward.
Speaker Change: Okay. That's helpful. And then you mentioned that you closed the deal in the quarter as you think about the synergies. There can you just elaborate a bit on that and how we should be thinking about them starting to expand within the channel as we do get into the busier spring and summer seasons.
Joe: Yes. This is Joe thanks for asking it.
Speaker Change: The really really innovative interesting products that have traditionally been sold through the retail market. So really.
Speaker Change: Where we see the opportunity to accelerate the growth there will be in the professional trade in the in the wholesale distribution side of the business, which is really our bread and butter and so we see that as the opportunity of taking if not all of those products at least a number of those products through the professional trade, making those available.
Speaker Change: Bold to professional plumbers.
Speaker Change: And we see lots of opportunity there we have the distribution for that that they just did not have one thing I'll mention Susan of course that being a plumbing product is not necessarily a seasonal so we're not having to ramp up for the busy HVAC season, So we'll spread that ramp up through the year and introduced that to our customers. Some are the same customers with a dual trade, we've talked about with HVAC and plumbing.
Speaker Change: So I think we're going to have real good take on that and again, that's part of your market share gain question to displace other plumbing products potentially yes.
Speaker Change: Okay. That's great color. Thank you both for all of it and good luck with everything.
Speaker Change: Thanks, Susan Thank you Susan.
Italia: Next question Italia back with Citi. Please go ahead.
Italia: Hi, good morning, congrats on the quarter.
Italia: Thanks, Dave.
Speaker Change: I guess first question that I wanted to ask if you could elaborate on the overall macro environment.
Italia: To be a lot of cross currents out there in terms of higher for longer.
Speaker Change: All week U S.
Speaker Change: Now increased geopolitical uncertainty, but what are your distributors, telling you about the market and how are you thinking about the macro the IV transition towards fiscal year 2026.
Speaker Change: Good morning, and Italian James Thanks for that yes, I think we're still favorably inclined obviously it looks like interest rates are higher for longer as you say.
Speaker Change: Inflation seems to be relatively in check reading kind of what the fed is saying as recently as yesterday, what chairman Powell and so we're watching it closely but we're expecting a normal year of growth the HVAC market doesn't move around quite as much as some of the other economically dependent factors you may have a little more repair than replace at times, but again our.
Speaker Change: <unk> are used for repair and maintenance.
Speaker Change: Existing home sales and new home sales have been a little down but some of the housing permit numbers have been up a little bit lately.
Speaker Change: So the take on new equipment and replacement equipment is there at some point you do have to replace your unit I think we're probably past the pull forward, we saw three or four years ago from Covid back into a normal cycle now so obviously interest rates being up a little bit higher mortgage rates being up could be a bit of a headwind there, but we continue to see favorable trends in our markets and.
Speaker Change: That again is where it is so critical with these acquisitions were making giving us the opportunity to offer more to our customers. If you look at the other couple of segments clearly the commercial construction market has been challenged for EPS, but our trailing eight quarter book to Bill of one to one tells you we continue to put high quality products in the backlog our teams really focused on the.
Speaker Change: Right geographies, the right projects being sure we get that estimation right. So we can hit that 20% margin goal that we have and as we put together next year's budget, we feel good about growth in that market as well and then specialized reliability solutions that tends to be relatively GDP with maybe a little bit of plus in it. So again the energy market is somewhat important there.
Speaker Change: That was down this last quarter, but there is some favorable.
Speaker Change: Rays of light in the energy market, we think.
Speaker Change: You've got an international and domestic component within Srs. So we look more at the global market in that respect so big picture I think the macro environment is good maybe it's not great per se, but given the as I mentioned earlier decisions question are being over indexed to higher growth markets within the sectors that we're in gives us the opportunity to exceed.
Speaker Change: The macro environment expectations.
Speaker Change: Got it helpful color and then just curious how if at all if the new administration impacting your business and the impact from concerns regarding rollback to the IAA.
Speaker Change: For example in packing heat pumps.
Speaker Change: I think it's early we are certainly tracking what's going on out there. The IRI itself. We've heard some of the Oems say not much of that would come through so they don't they don't see that that was much of a tailwind yet.
Speaker Change: That going away I don't think is going to change things much. We clearly have products that go into the heat pump market. We have products that go into the traditional market. So we are rather agnostic in that respect.
Speaker Change: So it doesn't seem like that's been a big factor in the success, we've had with the industry's had so I don't think that going away as much of an impact obviously, we are watching things like tariffs and if we need to to push through pricing to offset some of those tariffs then we would take that opportunity one thing I'll mention of note in that respect, it's a little more near term potentially.
Speaker Change: We watch the news closely as you do obviously as a reminder, we don't have any product coming out of Mexico.
Speaker Change: We have no product that comes out of Canada, very very little within our ABS group, So Mexico, and Canada, which may have some near term tariff headwinds don't really affect us we have a little bit of product that goes into Canada. So if theres a cyclical tariffs then we will look at what we need to do there as we've mentioned before our China exposure is low teens.
Speaker Change: These days within contract our solutions and virtually nothing in the other businesses. So single digits as an overall company Vietnam is our biggest exposure in Vietnam is on good relations right now and has not been talked about as much. So we're watching those things closely will react as we need to as a reminder, we already have tariffs on Chinese products, and we were able to pass that through last time. So.
Speaker Change: To your point, we're watching things closely I'm sure. When we talk again in May at the end of the fiscal year there'll be more things to respond to but to date, we don't see a whole lot that would affect us directly but we're watching that very carefully of course, and we'll react appropriately and think we have good opportunity to do that.
Speaker Change: Got it helpful. And then just one more final question for me.
Speaker Change: The refrigerant pre buy across the resi HVAC.
Speaker Change: It impacted <unk> results if at all.
Speaker Change: I mentioned, just very briefly and in response to John that we could have seen a little headwind in our fiscal Q3, because there was that pre buy.
Of people stocking up on both the old refrigerant equipment in the new refrigerant equipment. So they can offer both to their customers and the Oems can't produce the old equipment anymore as of January one. So we may have sent a little headwind because the distributors had a lot of working capital tied up in capital equipment, and our parts and accessories may have seen that.
Speaker Change: So we would expect that now that our price increases in effect January one than anything we sell this fiscal fourth quarter and into the first quarter as people stock up we've got a little extra tailwind on price as well, which is helpful. The refrigerant change itself as a reminder doesn't affect us at all we're agnostic to that the one potential tailwind is as people upgrade their systems.
Speaker Change: The new refrigerant to get better efficiency with seer ratings that popped up a couple of years ago, and more environmentally sound as well as potentially offsetting future repairs, having new equipment, a new replacement units going to be positive for us overall, but we may have seen a little headwind in Q3, as we look back on it but nothing dramatic but that would of Tampa.
Speaker Change: Third our organic growth a little bit.
Speaker Change: Natalia This is Joe on your earlier question and so I think James did a great job talking about the operational effects I think that was really the crux of your question, but as you zoom out and you think about the new administration and the regulatory scheme there.
Speaker Change: And the enforcement of <unk>.
Speaker Change: No.
Speaker Change: Regulations around M&A, and you think about higher interest rates for longer both of those are good for our acquisition strategy.
Speaker Change: I think we might have a competitive advantage with the pristine balance sheet that we have the dry powder that we have we're in a much better position from an M&A standpoint than some of our competitors for those assets you may already have leverage and.
Speaker Change: Looking looking at our interest payments that we don't have to look at.
Speaker Change: Got it that's super helpful color. Thank you so much and congrats on the quarter again.
Speaker Change: Thank you.
Speaker Change: I would like to turn the floor over to Joe Armes for closing remarks.
Joe Armes: Yes. Thank you so much everyone for joining us for the <unk>.
Joe Armes: Third quarter conference call, we look forward to speaking to you again soon take care. Thank you.
Joe Armes: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Joe Armes: Okay.
Joe Armes: [music].