Watts Water Technologies Inc

NYSE:WTS

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the Watts Water Technologies Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Timothy M. MacPhee, Treasurer and Vice President, Investor Relations of Watts Water Technologies Inc. Thank you. Please go ahead.

[Timothy MacPhee, executive]

Thank you, and good morning, everyone. Welcome to our third quarter 2020 earnings conference call. Joining me today are Bob Pagano, President and CEO; and Shashank Patel, our CFO. Bob will provide a business overview for the quarter and offer his preliminary views of the 2021 markets. Shashank will address the third quarter financial results and discuss our outlook for the fourth quarter. Following the prepared remarks, we will address questions related to the information covered during the call.

Today's webcast is accompanied by a slide presentation which can be found in the Investors section of our website. We will refer to these slides throughout our prepared remarks. Any reference to non-GAAP financial information is reconciled to the relevant GAAP measure in the appendix to the presentation.

Before we begin, I'd like to remind everyone that during the course of this call, we may be making certain comments that constitute forward-looking statements. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially. For information concerning these risks, see Watts' publicly available filings with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Let me now turn the call over to Bob.

[Robert Pagano, executive]

Thanks, Tim, and good morning, everyone. Please turn to Slide 3 in the presentation, and I'll provide an overview of the quarter.

First, I must again applaud the efforts of all our employees for adjusting to the challenges of the pandemic. Our employees have remained deeply engaged with our customers whether working on site or remotely, delivering our products on time and with the quality they have come to expect in the Watts' solutions. The teams have worked diligently while adhering to safety protocols to ensure we maintain close customer contact through order fulfillment, training and responding to inquiries. And while travel is restricted, we've expanded virtual plant tours which allows local leaders a chance to update senior management on their most recent customer and operating initiatives. These virtual tours are also promoting greater employee engagement and helping to drive productivity during these difficult times.

Our third quarter operating performance was solid as we again delivered results that exceeded our internal expectations. Our seasoned management team has played a critical role in taking proactive actions that have optimized the performance of the business despite challenging underlying market conditions. The sales decline in the quarter was less pronounced than we had anticipated, both in the Americas and Europe. Despite the tough macro environment, we maintained our focus on driving our smart and connected strategy.

We also increased adjusted operating profit and expanded adjusted operating margin versus Q3 last year despite the lower sales volume. This was driven primarily by the aggressive cost actions we've undertaken in response to the pandemic. Cash also remains a focal point and year-to-date, we've increased free cash flow by 25% as compared to the same period last year. Operationally, we've now instituted all cost-out programs we discussed earlier this year. During the third quarter, we estimate total run rate savings approximated $20 million. Year-to-date savings have totaled $42 million. We continue to review additional cost actions to support operational efficiency. Shashank will review the financial results in more detail momentarily.

Now I'd like to provide our current views of the market. In the Americas, the construction industry is adjusting to the new normal, while job sites that were already under construction are back online and being driven to completion. Residential repair and replacement demand was encouraging through the third quarter as we saw continued strength in our DIY channel, and September's record existing home sales support continued growth there. Our products that go into hydronic and electric heating applications and residential irrigation should continue to perform well.

The new single-family home construction market is performing well amid low interest rates, and demand is strengthening as people migrate to the suburbs. Year-over-year housing starts have been positive since June, and permits are also up. We'll continue to focus and capitalize on residential opportunities especially in the higher-end, single-family homes.

In Europe, we saw many companies working through the traditional August vacation holiday to catch up on project backlogs and support customer restocking efforts. German OEMs benefited from ongoing government energy efficiency subsidies, and China continued to lead in rebounding from the pandemic.

Conversely, there are a number of developments that are concerning. Many of the current COVID-19 trends we are seeing around the world are worrisome and impact all our markets. I realize we are 9 months into this pandemic and the markets have stabilized to some degree, but COVID-19 is still driving a lot of end-market uncertainty. So with that as a backdrop, our worldwide markets are currently mixed.

Traditional macro data like ABI and the construction industry competency index and other information we've recently assessed are portending a slowdown in our commercial markets into 2021. As a result, we expect that new construction in the commercial building sub-verticals of hospitality, office, retail, multifamily and commercial marine will continue to be challenged. However, we do expect that there will be continued growth in the health care, data centers and food and beverage markets. Our teams are leveraging our expansive product breadth and channel reach to focus in on these growth sub-verticals.

In nonresidential repair and replacement whose growth traditionally followed GDP, we see repair and replacement being impacted by the deferring of discretionary replacement and renovation given the magnitude of the pandemic. Break and fix activity should grow especially given our large installed base. Renovation and retrofit activity may be softer, especially in the challenged hospitality and commercial submarket.

Regardless of how the markets unfold next year, we are confident that our diversified product portfolio and unmatched distribution capabilities should provide us the flexibility to shift our focus to meet the demand in those products, markets and regions that offer us the best growth prospects during this difficult time. And we'll continue driving our smart and connected solutions that we believe will be critical as we transition into the new normal.

So overall, we are currently cautious about our initial market outlook for next year. We see pockets of growth opportunities, but uncertainty driven by the continuation of the COVID-19 pandemic is causing the markets to pause. As I've said before, commercial construction activity slows during periods of uncertainty and we're clearly at that point in the North American, European and Middle East markets. Our view on 2021 is evolving as the markets remain in flux and as our team continues to formulate their operating plans for next year. We'll provide further growth expectations during our February 2021 earnings call.

As for our fourth quarter outlook, we expect sales will be soft compared to last year and we anticipate operating margins to improve relative to last year but at levels below the third quarter as temporary cost reductions are partially phased back into the business.

Let me now turn the call over to Shashank who will discuss our third quarter operating performance and provide more detail on our fourth quarter outlook.

Shashank?

[Shashank Patel, executive]

Thanks, Bob. Please turn to Slide 4 to review the third quarter consolidated results. Sales of $384 million were down 3% on a reported basis and down 5% organically driven primarily by the continued impact of COVID-19. Foreign exchange had a favorable year-over-year impact of $5 million and acquisitions, net of divestitures, accounted for $4 million of incremental sales year-over-year.

Adjusted operating profit and adjusted earnings per share both increased by 1% as compared to last year despite lower sales. Adjusted operating margin of 13.8% increased 50 basis points as cost actions and productivity more than offset the impact of volume loss and incremental investments. Incremental cost action savings of $20 million in the quarter were the main driver of the adjusted operating profit and adjusted margin improvements.

The adjusted effective tax rate of 27.3% is 120 basis points lower year-over-year. The reduction is due to final regulations being issued in the U.S., allowing for higher tax exceptions on foreign-sourced income. For GAAP purposes, we recorded a charge of $3.4 million, primarily related to the previously announced and expanded restructuring initiatives, most of that being severance. Savings from these expanded programs should approximate $3 million annually. We expect to book $1 to $2 million of additional cost for asset relocation and asset write-offs in the fourth quarter that also relate to these programs. These costs will be classified as special items when incurred.

As Bob noted, year-to-date free cash flow is up 25% to $95 million as compared to the same period last year. We have been laser-focused on working capital optimization including improvement in accounts receivable, and the teams' efforts have resulted in strong results as our DSO declined by 9% year-over-year. Year-to-date, we've invested an incremental $15 million or 77% in capital expenditures versus last year. That CapEx spend includes manufacturing expansion and upgrades in key product categories and incremental spending on productivity enhancements. We expect to maintain free cash flow conversion at 100% or more of net income for the full year.

Our balance sheet remains strong and provides ample flexibility in these uncertain times. The gross and net leverage ratios at the end of September was 1.1x and 0.3x, respectively. Our net debt to capitalization ratio at quarter-end was 5.5%. During the quarter, we purchased approximately 41,000 shares of common stock at a cost of $3.7 million. We resumed repurchases at the beginning of the third quarter and, aligned with our long-standing approach, are primarily focused on offsetting share dilution.

Turning to Slide 5 and our regional results. Organic sales declined in all regions but less than we had anticipated in the Americas and Europe. Americas organic sales declined by 4% during the quarter, slightly better than our expected reduction of 6% to 10%. We saw better performance in traditional plumbing, electronics and water quality products, which more than offset an expected softness in heating and hot water products. We also fulfilled restocking orders as customers were buying to replenish depleted second quarter inventory levels.

Europe sales were down 6% organically, much better than the 14% to 18% decline we had anticipated driven by resiliency in fluid solution product sales, especially within electronics. As expected, sales remained soft within Europe's drains platform, with commercial marine sales impacted by cruise shipbuilders temporarily closing plants to level load production. Sales in many of our key regions in Europe were down versus the third quarter last year with the exception of France, which grew in the low single digits. France sales were driven by an unexpectedly busy summer as companies worked through the traditional holiday period on fears of a second COVID wave.

APMEA sales were down 22% organically, with China down only by low single digits, an improvement over the second quarter as China's economy continues to recover. However, the Middle East, East and Southeast Asia, including Australia, were down double digits due to the continued impact of COVID. New Zealand sales were positive in the quarter from domestic plumbing demand, while the AVG acquisition in Australia contributed $3.5 million in sales during the third quarter performing moderately above expectations.

Adjusted operating margin of 18.4% in the Americas was 30 basis points higher than last year. Cost actions and productivity more than offset the volume loss and incremental investments. Americas decrements of 8% on lower sales volume were better than expected due to aggressive cost actions. Europe's adjusted operating margin of 11.3% was 10 basis points higher than last year for similar reasons as the Americas. Europe's adjusted operating profit was flat on reduced sales volume and better than anticipated due to aggressive cost actions. APMEA's adjusted operating margin increased 640 basis points to 15.1% driven by cost actions, productivity and a 7% increase in affiliate volume, which more than offset a reduction in third-party volume.

Moving to Slide 6 and general assumptions about our fourth quarter operating outlook. As Bob mentioned, our expectation is operating margin should expand on reduced sales volume as compared to the fourth quarter of last year. We are estimating organic sales for the fourth quarter to be at 4% to 8%, below the fourth quarter of 2019. This range includes some caution regarding uncertainty around COVID-19.

We anticipate that fourth quarter adjusted operating margin should range from 12.5% to 13%. Corporate cost should approximate $9 to $10 million for the fourth quarter. We expect interest expense sequentially will be flat to the third quarter. The adjusted effective tax rate should approximate 27.5%. Foreign exchange would be positive to last year should current rates persist throughout the fourth quarter. As a reference, the average euro-dollar foreign exchange rate for the fourth quarter of 2019 was 1.11. We expect seasonally strong cash flow to end the year. Total capital spend is estimated at $45 million for the full year.

So with that, let me turn the call over to Bob before we begin Q&A. Bob?

[Robert Pagano, executive]

Thanks, Shashank. To summarize, I'd like to leave you with a few key themes. Employee safety, engagement and customer service remain top priorities. We continue to expand our protocols to maximize employee safety while simultaneously meeting our customer needs.

Third quarter results were better than expected as activity improved when compared to the second quarter. Cost actions provided significant benefits in our third quarter and year-to-date results. We continue to review our cost base for further opportunities.

Our balance sheet remains solid and provides flexibility to execute our balanced capital allocation strategy. Our ability to generate cash during these turbulent times has been critical. We continue to invest for the long term in both smart and connected solutions and in productivity-enhancing capital spending.

We expect year-over-year margin improvement in the fourth quarter on reduced volume.

Our outlook is mixed and cautionary, especially in certain commercial markets, given leading indicators and continued market uncertainty due to COVID-19. We will continue to keep a close pulse on our markets. And finally, we are prepared to react quickly to market changes with mitigating actions and remain focused on positioning Watts to capture opportunity as our markets recover with our diversified portfolio and by executing our smart and connected strategy.

With that operator, please open the lines for questions.

[Operator]

[Operator Instructions] Your first question comes from Nathan Jones of Stifel.

[Adam Farley, analyst]

This is Adam Farley on for Nathan. Just on the restocking event that took place in the Americas, could you provide a little more color on that? And then going into the fourth quarter, do you expect to see any further restocking? And could that possibly go into 2021 as well?

[Robert Pagano, executive]

Yes. So we saw a restocking in North America in July, and most of that was a result of construction restarted up in late May, middle to late May, and completed some of their inventory. We saw a big restocking in July. We saw that bleed down. And as of now through October, we didn't see them -- we saw steady -- just steady sales with that channel versus that big stock-up in July. So that's what we're seeing in the market. And heading into 2021, I think it's -- what we see in the fourth quarter, I think the wholesalers will look what's on their shelves. So I think restocking, from that point of view, it's too soon to tell at this point in time. With the COVID-19 still continuing here, I think there's continued uncertainty in the market as we've previously discussed.

[Adam Farley, analyst]

Okay. And then turning to water quality, I know it's a smaller piece of the portfolio, but you did highlight it in the presentation. Were you seeing any favorable trend there? We've heard from other companies water quality improvement, home improvement as a favorable trend.

[Robert Pagano, executive]

Yes, we're seeing very positive as related to our residential piece in that marketplace as well as some of our commercial piece of that. But water quality has been favorable so has our most of our residential market. We actually saw our residential market up double digit in the quarter. So we believe that will continue with the focus on renovation and the single-family homes growing. As I've said, we're more cautionary about the commercial markets at this point in time. That's the one we're watching very closely.

[Operator]

Your next question comes from Jeff Hammond of KeyBanc.

[Jeffrey Hammond, analyst]

So second -- third quarter second half decrementals look really impressive. I'm just trying to unpack, I don't know if you can quantify for the year how much temporary cost savings are going to be, how much of this is kind of mix and structural versus temp costs. And then just as you think about that into '21, how should we think about incrementals versus normal as some of that, I think you mentioned Bob, some of the temp cost creep back in?

[Shashank Patel, executive]

Yes. So Jeff, it's Shashank. So as we had talked 3 months ago and we're pretty much on the same basis, we had about $55 million of cost-out in 2020. Year-to-date through the third quarter, we're at $42 million, as Bob noted, and $20 million of that was in the third quarter. We get another $12 million, $13 million in the fourth quarter. Out of that $55 million, roughly $8 million, $9 million was permanent in nature, which was restructuring activities. And that was $8 to $9 million. And as we look into next year, with the additional actions we took, that's going to be approximately $10 million of permanent cost-out.

And when you look at the rest of the rest of the $55 million beyond restructuring, things like travel and mark-on and things like that, right now we're in the planning stages of 2021. Clearly, with the fact that the vaccine might not be available for a period of time, some of those costs will not be coming back, especially in the first 6 months, but we're in the early planning phases. So by February, we'll know exactly what that cost savings number is for 2021.

[Jeffrey Hammond, analyst]

Would you think incrementals look a little bit lower than normal just as temp costs come back in or not necessarily?

[Shashank Patel, executive]

I think overall, obviously, we still got the long-range target once we get beyond COVID of expanding the op margins, right? So when you look at the incremental drops, we're still looking at 25% to 30% on volume. Our decrementals, with the cost actions, we've done a nice job of managing the decrementals.

[Jeffrey Hammond, analyst]

Okay. Great. And then just as we look to 2021, I mean if you look here, I mean outside of 2Q, your business has been pretty resilient. You speak to the replacement and, certainly, res. So I'm just trying to -- as we look into '21, kind of balance, like, snap back from easy comp versus kind of this lingering commercial uncertainty and how much you think you snap back in some of these businesses into '21.

[Robert Pagano, executive]

Yes, Jeff, that is something we've been analyzing a lot. And we just completed our strategic planning process where we engaged an external support, did a lot of voice of customer, analyze the activity. And what we're seeing here is, this March, we're actually seeing an air pocket, right? Like, we look at our Drains business which has steadily gone down as an early indicator. So what's been happening is people have been completing existing construction and -- in commercial buildings. However, they were not doing any new buildings. And we're seeing that continue to push out. Including October, we saw Drains down double-digit. So that's the area we're getting most concerned.

And as we're looking into next year, because of the COVID continuing to extend longer than I think everybody thought and going into next year, overall, North America, honestly, we believe, will be overall flat at best for next year. We believe Europe is going to be down, and APMEA is going to be up. So we're not seeing that rebound in commercial construction. Residential is doing fine. That's offsetting multifamily which is also projected to be down and focused on that. So from a residential, those kind of net. But the basic commercial building is soft and it's going to continue to be soft into next year.

[Jeffrey Hammond, analyst]

And so -- and those are market commentary for each of the markets versus, like, your business, right? So I mean I just -- if you balance that with the replacement side of the business and maybe outgrow, it's like -- how much better can you do than those kind of market projections?

[Robert Pagano, executive]

Yes, well, I think it's both our market and our projection. But I think the other thing is repair and replacement right now in -- traditionally, overall, that has followed GDP. What we're seeing is when we dug down deeper recently here, we're seeing that, of our repair and replacement, about 40% is break/fix where they repair it right away. The other 60% is preventative maintenance and renovation. And what we're seeing is, because COVID-19 has hit some of these troubled markets very hard, they're delaying that and pushing that up. Now at some point, that's going to catch up with them.

And again, long term, we still hold the case that our repair and replace should hold GDP. But right now, with COVID and no stimulus, no health and all of that, that's pushing that out. And we're now seeing a bifurcation of that as we head for the rest of this year and into next year. So again, we think that will be difficult to compare us to.

[Operator]

Your next question comes from Ryan Connors with Boenning and Scattergood.

[Ryan Connors, analyst]

I wanted to actually drill down, a little bigger picture topic, on just the channel situation. And I realize you had a destocking, which is encouraging. But just from a bigger picture perspective, can you talk about how the channels to market are evolving to the sort of new normal? Is there any evidence of wholesalers, or at least the marginal ones, being disintermediated, more of a virtual selling model, direct to customer? I mean how is all this impacting your channel to market, if at all?

[Robert Pagano, executive]

I mean we're not seeing any of our smaller wholesalers go under in any regard. I think that market has -- the smaller ones have been consolidating into the larger ones. I think that continues. I think the larger ones do have a lot more online capabilities and are capitalizing on that. But we have not seen any bankruptcies within our smaller wholesalers at this point in time. But again, I think that will be a longer-term opportunity for the larger ones to consolidate with the smaller ones.

[Ryan Connors, analyst]

Okay. And I guess the restocking kind of supports that, right, because if there were balance sheet issues and so forth, there would be a limited capability to sort of take in inventory and they'd be on more of [ an adjusting ] model? Is that a good way to read that?

[Robert Pagano, executive]

Yes. I agree.

[Ryan Connors, analyst]

Okay. And then I guess my other -- just as a follow-on to that, I mean I know it was a smaller deal, but Backflow Direct, they obviously, as their name suggests, had more of a direct online, more of a virtual distribution model, which would seem to be pretty timely, on the one hand, a deal that may be not timely, more commercial driven into all this, but timely in that sense. So can you give us an update on how that's gone, how that product line has been integrated? Then how the distribution side of that, has that just been folded into your regular distribution? Or are you still maintaining that online selling model there?

[Robert Pagano, executive]

The answer to your question is all of the above. So first of all, Backflow Direct is performing very well, fully integrated into our business, and we are offering that product line to our traditional build business as well as we're offering it through online capabilities given the various channels. So the answer is we are capitalizing that. We continue to add products to that website in capabilities, and we'll continue to leverage that for the parts of the market that want to go direct like that. But overall, we're very pleased with that acquisition.

[Operator]

Your next question comes from Bryan Blair of Oppenheimer.

[Bryan Blair, analyst]

I was hoping you can provide a little more color on October order rates. I'm trying to gauge how much caution you're baking into the Q4 outlook of 48% organically.

[Robert Pagano, executive]

Yes. So October order rates were basically flat which -- traditionally, what we're seeing is people restock at the beginning of the quarters so -- and then it gets softer after that. And with the COVID-19 spike-up, we're concerned, in particular in Europe, and then what usually happens is Americas follows 3 to 4 weeks later. And when you have the upcoming holiday season, I think there's concern in the marketplace. So right now, it's aligned with where we expect it to be. We expect November and December to get a little softer as we come out of this.

[Bryan Blair, analyst]

Okay. That all makes sense. And if you're willing to drill down a little bit more on regional planning assumptions, how are you thinking about top line trends across Americas, Europe and APMEA for the fourth quarter? And then any color on margin expectations and the sources of the year-on-year expansion you're guiding, that would also be helpful.

[Robert Pagano, executive]

Yes, so for the fourth quarter, what breaks up the top line, as we're looking at it, we're expecting overall to be down 4% to 8%. Americas will be down 3% to 6%, Europe 6% to 10% and APMEA down 5% to l0%. So that's our internal planning assumptions. And again, it all depends on what's going on with COVID and the continued market uncertainty.

[Bryan Blair, analyst]

Okay, very helpful detail. And then Shashank, APMEA margins were quite a bit better than we expected in the third quarter. I was wondering if you could parse out the impact of AVG contribution and how much of a lift, if any, you've seen so far from the transition through a distribution model versus direct sale in Korea.

[Shashank Patel, executive]

Yes, Korea sales -- to take the last one first, Korea sales a year ago were pretty immaterial, so nothing significant there, quite frankly, but it will be margin accretive as we go forward. The rest of the margin improvement, the APMEA story, part of it is the intercompany volume. And the intercompany volume obviously drives absorption as well as productivity. So we've got a lot of favorability from the intercompany volume that went through our factory in Ningbo. And then the rest of it was really margin expansion on third-party sales. So we did see margin expansion. As you know, in China, we target data centers which tend to be typically higher margin overall. So we had margin favorability there.

And then lastly, our business in Middle East-Africa was down year-over-year as well, and that was margin accretive as well. So it's a combination of those that really helped. AVG is our higher-margin business as well, so that contributed a little bit. As we noted, there was about $3.5 million of inorganic sales in the third quarter from AVG, and those came in at higher margins as well.

[Operator]

Your next question comes from Walt Liptak with Seaport Global.

[Walter Liptak, analyst]

I wanted to ask a follow-on question with that geographic look. That was helpful. It sounded in your prepared remarks, like, some of the government subsidies were helping you guys a little bit. And I think Europe has been a little bit, because of maybe the political situation, able to come up with government programs to support businesses. So I wonder if you could talk a little bit about that. And the outlook for the Americans for the fourth quarter looks a little bit more stable than Europe, I wonder why that is. And do you think there may be more government support in the U.S.?

[Robert Pagano, executive]

Yes, so Walt, to answer your first question, in Germany, they have some energy efficiency subsidies going on. And as you know, a lot of our business in Germany is related to OEMs, boiler -- residential boiler manufacture, so that's been helping those German manufacturers, and we've been supporting that, so that's helped. The biggest overall why things were better in Europe than we expected is they worked through the summer months, and we didn't expect them to do that, right? So they worked through that. That will subside. And right now, we're a little concerned with the breakouts, the shutdowns. The current shutdowns are not shutting down manufacturing at this point in time. It's mainly restaurants, bars, et cetera. But we are seeing -- obviously, they're seeing wider spread and uncertainty in that marketplace, and we think that's going to slow that down. So I think there has been some more government stimulus in that area. However, the COVID outbreak is what leads us to be cautious in the fourth quarter.

In the Americas, certainly residential, as I said before, has been doing well. And I think some of the subsidies that were happening on into, let's call it, the hospitality market, et cetera, may have helped on some of the repair and replacement type stuff. But now that that's not been in there and we're not seeing that, we're starting to see a slowdown and people pushing out normal repair and renovations, as I said earlier, and we're watching that very closely. But again, uncertainty in the market, as I said in my prepared remarks, when there's uncertainty, people aren't building. And our Drains, which is a leading indicator, was down double digits in October and steadily got worse out of Q3. So that means they're not building new buildings at this point in time, finishing what they complete. And then we got that air pocket, and the question is how long will that air pocket go, and we believe it's going to go at least into the second half of next year.

[Walter Liptak, analyst]

Okay. Understood on that. With the smart technology, it sounds like you're continuing to make investments there. What is the voice of the customer saying about smart technology? And is there a digital trend where buildings -- where your customers are looking for digital solutions to reduce employment or just have better control over their water systems?

[Robert Pagano, executive]

Yes, I think there is a clear trend in the industry. As we've said before, there's a shortage of plumbers, there's a shortage of maintenance people and anything we can do to monitor and identify issues before they become big issues is going to help building owners in this environment. So we're getting more and more focused on that. So I think that strategy is right on and more important than ever in this current environment.

[Operator]

There are no further questions at this time. I will now turn the call back to Bob Pagano for closing remarks.

[Robert Pagano, executive]

Okay. Thank you, everyone, and for taking the time to join us today for our third quarter earnings call. We appreciate your continued interest in Watts, and we look forward to speaking with you again in February to discuss our fourth quarter and full year 2020 results. So enjoy the upcoming holidays, and please stay safe. Thank you.

[Operator]

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