Watts Water Technologies Inc

NYSE:WTS

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Watts Water Technologies, Inc. Third Quarter 2022 Earnings Call. [Operator Instructions].

It is now my pleasure to turn today's call over to Diane McClintock, Senior Vice President of Investor Relations. Ma'am, please go ahead.

[Diane McClintock, SVP, FP&A and IR]

Thank you, and good morning, everyone. Welcome to our third quarter earnings conference call. Joining me today are Bob Pagano, President and CEO; and Shashank Patel, our CFO.

During today's call, Bob will provide an overview of the third quarter and update you on our end markets and our operations. Shashank will discuss the details of our third quarter performance and provide our initial outlook for the fourth quarter and for the full year. Following our remarks, we will address questions related to the information covered during the call.

Today's webcast is accompanied by a presentation, which can be found in the Investor Relations section of our website. We will reference this presentation throughout our prepared remarks. Any reference to non-GAAP financial information is reconciled in the appendix to the presentation.

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

With that, I will now turn the call over to Bob.

[Robert Pagano, Chairman & President, CEO]

Thank you, Diane, and good morning, everyone. Please turn to Slide 3, and I'll provide an overview of our Q3 performance. I would like to start by thanking the entire Watts Water team who have continued to execute and provide outstanding service to our customers despite escalating inflation, supply chain challenges and labor shortages. I would also like to express my sympathy and support to our colleagues in Southern Florida, who have suffered significant losses in the wake of Hurricane Ian. Although our site in Fort Myers did not sustain significant damage, many of our employees were impacted, and we are providing them with support.

In terms of the third quarter, we were able to deliver results that were significantly better than we expected with record third quarter sales, adjusted operating margin and adjusted earnings per share. We continue to benefit from pricing tailwinds and inventory availability, which allowed us to meet the higher-than-anticipated demand.

Our Americas team delivered another quarter of double-digit growth, driven by price and inventory availability. And we were able to deliver mid-single-digit organic growth in Europe despite the impact of the Ukraine war, the exit from Russia and the energy crisis. We also saw a nice bounce back in APMEA as business resumed in China after lockdowns impacted several of our key markets in the second quarter.

Year-to-date free cash flow was softer than expected due to additional working capital needed to meet demand and our investment in inventory. We expect a strong fourth quarter due to normal seasonality, but I think we will see our free cash flow conversion closer to 75% versus the 90% previously guided. Our balance sheet remains strong and provides us with the flexibility to continue to invest for the future through our strategic investments in R&D, smart and connected projects, factory automation and M&A.

From an operations perspective, we continue to see significant labor overhead in energy inflation despite some easing in commodity costs. Our teams are working diligently to secure supply and drive cost optimization. In addition, we are managing labor shortages by adding automation where possible. We are seeing some improvement in our supply chain. However, as we spoke about last quarter, electronic component availability is still challenging.

Now, I'd like to provide an update on our end markets. Global GDP continues to trend downward. However, GDP remains positive in our key markets. The North America repair and replacement market is currently holding up well despite reduced GDP. Rising interest rates have slowed new residential single-family construction. However, the reduced affordability of single-family home should continue to support multifamily demand.

In the Americas, nonresidential new construction indicators remain supportive. The ABI and Dodge Momentum Index continued to be in expansion territory, suggesting growth in nonresidential projects will continue into 2023. Certain industrial sectors have been more resilient, including data center projects in food and beverage.

In Europe, the war, rising energy costs and inflation are negatively impacting economic activity. Eurozone GDP is on a downward trend as recession concerns grow. As a reminder, we have stopped our direct shipments to Russia. The impact of this is estimated to be approximately $12 million annualized and was approximately $3 million in the third quarter.

In the Asia-Pacific region, our China markets rebounded nicely in the third quarter, but the rolling lockdowns from the zero COVID policy continue to pose a risk to economic growth. In addition, both Australia and New Zealand are seeing the impact of interest rate increases on residential markets.

Now, an update on our outlook for the fourth quarter and the full year. We expect a solid fourth quarter with high single-digit organic sales growth and margin improvement versus the prior year. Due to our strong year-to-date results and our outlook for the fourth quarter, we are increasing our full year outlook. In addition, we're accelerating $3 million of investments into 2022 and increasing our full year investments to $23 million from the $20 million previously communicated. The incremental increase is primarily related to smart and connected projects.

With that, let me turn the call over to Shashank, who will address our third quarter results and our fourth quarter and revised full year outlook. Shashank?

[Shashank Patel, CFO]

Thanks, Bob, and good morning, everyone. Please turn to Slide 4, and I will review the third quarter's consolidated results. Sales of $488 million were up 7% on a reported basis and up 12% organically. We had a strong quarter in the Americas and APMEA with double-digit growth in both regions and mid-single-digit growth in Europe. Foreign exchange, primarily driven by a weaker euro, reduced year-over-year sales by roughly $21 million or 5%.

Acquisitions accounted for $2 million of incremental sales year-over-year. Adjusted operating profit was $82 million, up 25% compared to last year, and adjusted earnings per share were up 29% to $1.79. Adjusted operating margin of 16.8% was up 240 basis points as price and productivity more than offset inflation and incremental investments. Consistent with the second quarter, our margins continue to benefit from our investment in inventory at lower cost. We estimate this impact to be approximately $5 million to $7 million in the quarter, which we do not expect to recur.

The adjusted effective tax rate was 25.5%, 140 basis points lower than the third quarter of 2021. The decrease relates primarily to the restructuring of our Mexican supply chain operations. Our free cash flow year-to-date was $67 million as compared to $120 million in the third quarter of last year. The year-over-year free cash flow decrease was primarily due to incremental cash outflows to fund an increase in inventory as well as increased payments related to restructuring, income taxes and employee and customer incentives. We expect seasonally strong free cash flow in the fourth quarter and now expect full year free cash flow conversion to be approximately 75% of net income.

The balance sheet remains strong and provides us with ample flexibility. Gross leverage was 0.5x and net leverage was negative 0.1x. Our net debt to capitalization ratio at quarter end was also negative at 3%. During the quarter, we purchased approximately 29,000 shares of our common stock at an investment of $4 million primarily to offset dilution. Year-to-date, we have repurchased approximately 463,000 shares for $65 million.

Please turn to Slide 5, and I will provide a few comments on the regional results. The Americas had another strong quarter with organic sales up approximately 13%. The growth was driven primarily by strong price realization across all platforms and all channels. Acquisitions added approximately $2 million or 1% to reported sales.

Adjusted operating profit increased by 37% and adjusted operating margins increased by 380 basis points. The margin expansion was driven by price and productivity, which more than offset inflation and incremental investments. Our proactive investment in inventory at lower costs, combined with strong price realization, also contributed to our margin expansion.

Europe's organic sales growth was approximately 6%. Reported sales was negatively impacted by 15% from unfavorable foreign exchange movements. We had organic growth across all platforms with double-digit growth in Germany and Italy, driven by our OEM business due to government energy incentives. Scandinavia also saw strong growth with continued demand in food and beverage and marine end markets. As a reminder, we stopped our direct shipments to Russia, and we estimate the impact of that to be approximately $3 million in the third quarter. However, operating margin declined by 320 basis points as price and productivity were unable to fully offset rising inflation, energy cost increases, volume deleverage and investments.

APMEA sales grew organically by 22%. Reported sales growth of 14% was negatively impacted by 8% from unfavorable foreign exchange movements. China's organic sales growth was in the double-digits as both valves and underfloor heating rebounded after the COVID lockdown in the second quarter. Organic sales outside China were also up double-digits due to strong growth in New Zealand. Adjusted operating margin decreased 260 basis points as price and productivity were unable to offset a reduction in affiliate volume, inflation and investments.

Slide 6 provides our assumptions about our fourth quarter and full year operating outlook. First, let's cover the fourth quarter outlook. We are estimating consolidated organic sales for the fourth quarter to grow at 5% to 8% over the prior year period. This moderation in growth rates is due to softening underlying market conditions in Europe, the exit of direct sales in Russia of approximately $3 million and more challenging comps due to multiple price increases implemented in the first 9 months of 2021.

We estimate our adjusted operating margin could range from 13.7% to 14.2% for the fourth quarter, with the increase versus the prior year driven by price and productivity and partially offset by incremental investment spending of $8 million. We estimate the incremental volume to drop through between 25% and 30% versus prior year. The sequential decline in operating margin from the third quarter is driven primarily by volume deleverage and incremental investments.

In addition, we expect the favorable price/cost dynamic to normalize in the fourth quarter as price/cost becomes more balanced. Corporate costs should be approximately $13 million. Interest expense should be in line with the third quarter at approximately $2 million. The effective tax rate is expected to be between 23% and 24%. Currency will continue to be a headwind in the fourth quarter. We are assuming a 1.0 average euro-U.S. dollar FX rate for the fourth quarter versus the average rate of EUR 1.15 in the fourth quarter of 2021. This implies a reduction of 13% year-over-year, which equates to a reduction of $19 million in sales and $0.05 a share in EPS versus the prior year.

Now let's cover the full year outlook. For the full year 2022, we are increasing our organic sales growth outlook to a range of 11% to 12% from our previous outlook of 8% to 11%. We are also increasing our view for the full year adjusted operating margin expansion to a range of 190 basis points to plus 210 basis points compared to our previous outlook of 110 basis points to plus 160 basis points. We are now expecting our operating margins to be between 16.2% and 16.4%.

Our revised outlook is supported by a strong performance through the third quarter, plus our expected fourth quarter outlook. Our free cash flow is now expected to be approximately 75% of net income. Our free cash flow conversion is lower than the prior year due to incremental CapEx, higher restructuring, income tax and incentive payments and inventory investment. We do plan to reduce our inventory levels as supply chains begin to normalize. For the full year, we are now assuming a 1.05 average euro-U.S. dollar FX rate versus the average rate of 1.18 in 2021. This would imply a reduction of 11% year-over-year and would equate to a reduction of $63 million in sales and $0.20 a share in EPS for the full year versus prior year.

And regarding other key inputs for the full year, we expect corporate costs should approximate $49 million for the year. Interest expense should approximate $7 million for the year. Our estimated effective tax rate for 2022 should be between 24% and 25%. Capital spending is expected to be approximately $35 million. Depreciation and amortization should be approximately $40 million for the year. We expect our average share count for the year to be approximately 33.6 million.

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

[Robert Pagano, Chairman & President, CEO]

Thanks, Shashank. On Slide 7, I'd like to summarize our discussion before we address your questions. The third quarter was stronger than we anticipated with double-digit organic growth and strong drop-through as price realization and productivity more than offset inflation. Our teams continue to effectively manage the price/cost dynamic. We are increasing our full year outlook based on our strong start and our expectations for a solid fourth quarter.

We remain focused on innovation by investing for the future and driving our smart and connected strategy. To that end, we are increasing our investments in the fourth quarter. We are monitoring economic conditions in our markets by getting real-time feedback from our channels and customers. Our experienced team is well positioned to handle these challenging macroeconomic conditions.

With that, operator, please open the lines for questions.

[Operator]

[Operator Instructions]. Your first question comes from the line of Jeff Hammond with KeyBanc.

[Jeffrey Hammond, KeyBanc Capital Markets]

So, maybe just to start on Europe. I mean, I was surprised by how resilient the organic growth was, but the margins seem to get hit. So, maybe just expand -- I don't know if that's mix or -- and then just expand on what you're seeing in the order rates as we see a lot of uncertainty on Europe.

[Shashank Patel, CFO]

Yes. So, Jeff, Europe grew at approximately 5%. The bulk of that was price. In fact, when you strip price out, volume was actually negative. So we had unit volume negative. And because of the high fixed cost nature of our European business, that obviously impacted factory efficiencies, and that's why we had margins down. We also had slightly unfavorable mix in our French business as well. So, there's a little bit of unfavorable mix, but those contributed for the margin decline in Europe.

[Robert Pagano, Chairman & President, CEO]

And Jeff, on the order rate, we're seeing similar order rate patterns through October, what we've seen. So, it's holding up a little more resilient. I think a lot of repair replacement going on and a lot of focus on energy-efficient products.

[Jeffrey Hammond, KeyBanc Capital Markets]

Okay. Great. And then, just -- I think we've had discussions over the past couple of quarters about inventory levels and your inventory levels in the channel, and we've seen clearly a lot of destocking in the residential side. But just anything you're seeing real time around as supply chain improves, destocking around your product set?

[Robert Pagano, Chairman & President, CEO]

Yes. So, I think you hit it right on the head related to residential. We're seeing some OEM destocking that primarily serves residential in some of the single-family. And as we said in the past, we've seen destocking in the wholesale level inside of Europe, but not significant, and we're watching that very closely. And it depends, obviously, on channels, flow-through, et cetera, but that's an area we're closely monitoring.

[Jeffrey Hammond, KeyBanc Capital Markets]

And then, I think you commented about single-family versus multifamily. Can you just remind us your -- within your resi mix, what your mix is between the 2?

[Robert Pagano, Chairman & President, CEO]

Yes. It's about half and half. Our resi mix is -- half and half is related to that. So, if you look at single-family will be under pressure given the higher interest rates. But given the housing shortage, people have to live somewhere. So we believe multifamily maybe will be positive, and it's been positive going forward. So, again, it's nice that we have the 50-50 split. Also remember, in our single-family side of our business, we probably -- we primarily serve the higher-end homes. And that, from a repair replacement point of view, has been holding up pretty well.

[Shashank Patel, CFO]

And Jeff, so 40% of our business is residential. And as Bob said, half of that, so 20% is single-family. But then, when you look at the new construction side of that, it's roughly -- less than 10% of our total business is single-family new construction.

[Jeffrey Hammond, KeyBanc Capital Markets]

Perfect.

[Operator]

Your next question is from the line of Joseph Giordano with Cowen & Company.

[Tristan Margot, Cowen & Company]

This is Tristan in for Joe. You just talked about Europe and volumes staying negative. Were volumes positive in any region?

[Shashank Patel, CFO]

Unit volumes -- for the most part, unit volumes in APMEA were positive and, in the Americas, slightly positive, unit volumes.

[Tristan Margot, Cowen & Company]

Okay. And then, so strong contribution from price obviously. How should we think about price contribution going forward? And like what does it mean for margins once price starts to -- the price contribution starts to slow down?

[Shashank Patel, CFO]

Yes. So, as we had talked about in the second quarter, price/cost was favorable. In the third quarter, price/cost was favorable, and we quantified that as an incremental $5 million to $7 million. Going forward, obviously, we understand our cost position. Pricing, it's always the elasticity of the market. And as we talked about earlier, we've tested the elasticity in the European market.

In the Americas, we're still doing a good job on price. But so, it all depends on the fourth quarter, what happens to that elasticity. And that's something we -- obviously our teams are working hard on, but we don't comment on it until we actually see the results at the end of the quarter.

[Tristan Margot, Cowen & Company]

Got it. Okay. And you also mentioned some incremental investments in your Smart and Connected products. Can you remind us where -- how much is that contributing to your sales right now? And like how should we think about the trend going forward?

[Robert Pagano, Chairman & President, CEO]

Yes. Smart and Connected continues to be a larger part of our portfolio, and it's growing faster than our regular markets. So, we're continuing to drive for our goal of hitting 25% Smart and Connected. So, we're upping our investments because we're trying to accelerate and get back on track with that.

[Operator]

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

[Brian Lee, Goldman Sachs]

So, first off, I wanted to dive into the comments around Europe a little bit again. Nice execution. I know you had kind of called out a potentially more challenging backdrop in the back half here. You navigated that pretty well. It looks like in 3Q. But on the margin front and looking into the near-term, you made the comment, Shashank, that price/cost gets more neutral, if not positive, in 4Q. Is that across the portfolio across all the regions? Or is Europe still going to be lagging a bit? Because it does sound like Europe has some additional challenges that maybe you're not making all up on price. So wondering if there's any other mitigation efforts specifically in that region for your -- to kind of recover on margins.

[Shashank Patel, CFO]

Yes. Historically, the European region, it's harder to get price. And certainly, we're lagging a little bit on price. But from a price/cost standpoint, so it is -- the bigger issue in Europe is our stranded cost as unit volumes go down. So think about factory inefficiencies, and that hurt us in the third quarter. And as long as unit volume is a challenge, that's going to continue. From a price/cost standpoint, yes, we do get less price, but it's a combination of the price/cost and the factory inefficiencies that hurt us in Europe.

[Robert Pagano, Chairman & President, CEO]

Yes. And we continue to review our cost structure in Europe. But as you know, we have large facilities with high fixed costs. So, it's difficult and it takes a while to work on those large fixed costs. But we're working on the smaller ones adjusting accordingly with our teams in Europe.

[Brian Lee, Goldman Sachs]

Okay. Fair enough. That's helpful color. I guess, maybe related to that, you mentioned sort of order rates pretty healthy, maybe similar to kind of what you've been running at here through 3Q. In Europe specifically, are you seeing a recovery in volume? Should we be anticipating near-term that that's more sort of steady as she goes? Or are you actually seeing an uptick after some of the more kind of recent challenges?

[Robert Pagano, Chairman & President, CEO]

I think it's steady as you go in Q3 -- I don't -- compared to Q3. We're watching that closely. I wouldn't say there is any uptick at this point in time.

[Operator]

Your next question comes from Michael Halloran with Baird.

[Michael Halloran, Robert W. Baird & Co.]

So, first question is a follow-up to one of Jeff's earlier questions, just single-risk multifamily. On the multifamily side, are you guys seeing the positive trends on that side already? Or is that more of a prospective comment on expectations for maybe a little bit more rotation from the single to the multifamily home on the construction markets you serve?

[Robert Pagano, Chairman & President, CEO]

No. No, we saw it in Q3, Jeff. We definitely saw it in Q3, and we believe it will continue.

[Michael Halloran, Robert W. Baird & Co.]

Okay. And then on the North America margin side, obviously that's been pretty healthy. Two quarters in a row of really, really strong performance. Last quarter, I know you had some favorability built in for a couple of reasons. This quarter, still really strong despite lower revenue sequentially. Guidance seems to have a step downward. Maybe talk about the trend there. And I think more importantly, with the strong performance you're talking about in that segment through the year, how should we think about the right, call it, margin level for us to start building off of for next year? So what's the base exiting the year essentially?

[Shashank Patel, CFO]

Yes, I would say that we've had a favorable price cost dynamic, especially in the Americas, starting in the second quarter and continued in the third quarter. As we said, the elasticity, we haven't -- I guess we've tested a little bit, but there's probably more testing on the elasticity as we go into fourth quarter. And that's why we don't comment on where we will end up in the fourth quarter. We've given the guidance and we know our cost base, and we'll see how the pricing works in the marketplace. Obviously, our teams will try to get as much as they can. And therefore, I guess, we'll be able to answer your question as we end the year as far as what is the exit rate.

Clearly, we've had, between the second quarter and the third quarter, if you add the $6 million to $8 million of price/cost favorability and then another $5 million to $7 million in third quarter, we've had about $12 million to $13 million of price/cost favorability. Most of that is in the Americas. Most of that -- in fact, all of that is onetime. So, as we end the year, we'll give more color on that. But for now, that's the stories through the third quarter.

[Robert Pagano, Chairman & President, CEO]

Yes, Mike, as you know -- Mike, benefited from inventory availability, and we obviously didn't have to discount at all at that point in time. And we have prepurchased inventory at lower cost. So, again, that really helped our margins both in Q2 and Q3.

[Michael Halloran, Robert W. Baird & Co.]

And those dollar numbers help either way to provide perspective on a forward basis. So, great performance there nonetheless. Appreciate it.

[Operator]

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

[Ryan Connors, Northcoast Research]

So, I wanted to come at the margin question from a bit of a different angle. I know there's so much focus here on sort of the short-term elasticity and the price/cost in the fourth quarter and even '23. But I guess, my question is, if you look at the margin run rate, you're talking about north of 16%, historically been more like 10%, 11%. And I guess, my question is, has anything structurally changed over the last couple of years in your markets structurally that would enable you to be confident you can sustain that higher level of economic rent you're extracting from the value chain.

In other words, has there been consolidation? Has there been smaller companies that have exited, anything like that, that really gives you confidence that this is a higher structural margin business going forward? Or is it really just the price/cost dynamics that are moving things around?

[Robert Pagano, Chairman & President, CEO]

Ryan, when you look at the lower margins you talked about, that was in the 2014/2015. Some of that was structural from our cost structure, which we've taken cost out, et cetera. But as you know, we've been innovating, spending a lot in R&D and really looking at providing value to our customers with our Smart and Connected initiative and a lot of what we're doing around leak detection, et cetera. So, we believe, structurally, we have a much better, stronger portfolio that's providing benefits to our customers.

So I think that's a big shift from where we were in the past, and that's where we continue to go at. We also, as you know, got rid of a lot of commoditized products in our portfolio, and we exited about $175 million to $185 million from that point of view. So, price/cost has been favorable. We've been disciplined, but we're providing value to our customers to justify that price. So that's something we're watching, we're driving, and that's why innovation is a key part of our strategy.

[Ryan Connors, Northcoast Research]

Okay. So, the quick answer is no then. I mean -- so, the specific question was around consolidation or there's been no movement in terms of the competitive scene or the consolidation or anything like that. So, the competitive dynamics are the same. You're talking about internal self-help you've done, which is great. But the question regarding the market structure, I wonder if you can kind of address it from that standpoint. And I guess, my read of what you said is that none of that really has changed.

[Robert Pagano, Chairman & President, CEO]

Not significantly. I think there has been small consolidations, as you know, but not significant market consolidations.

[Operator]

[Operator Instructions]. Your next question is from the line of Nathan Jones with Stifel.

[Nathan Jones, Stifel, Nicolaus & Company]

I will try beating the Americas margin horse again. Even if we adjust the margins for the last 2 quarters in Americas for the $5 million to 7 and $6 million to $8 million that you called out as a benefit. The margins in those 2 quarters are still 20% -- kind of 20% plus in 2Q and 3Q '22. Is there any reason why that is not a decent baseline to start for 2023 outside of some of the seasonality that you see with those being stronger revenue quarters?

[Shashank Patel, CFO]

No, I think that's reasonable, Nathan. I mean, if you take out the favorable price/cost dynamic in Q2, Q3, and we gave the numbers, so you know exactly what those are. But I think that's -- obviously, we try to always -- as you know, our long-term plan is always to improve margins at Watts, 30 to 50 basis points. And in order to continue on that path, that reset baseline for the Americas needs to continue going forward.

[Nathan Jones, Stifel, Nicolaus & Company]

And then, maybe one for Bob. I know you've had high fixed cost base in Europe that has been an issue [indiscernible]. Is the decline in demand offer you perhaps the opportunity to take some more strategic actions around the cost base and how the Europe business operates to you in '23, '24?

[Robert Pagano, Chairman & President, CEO]

Nathan, as you know, we're always looking at our footprint. And we'll continue to do that. We'll have benefits next year from the closure of our plant from Mery falling over into next year. And we continue to look at opportunities. But as you know, if you do, do a plant closure, it takes well over a year to begin seeing that benefit. So, teams are evaluating that. We're trying to meet in all the customer demand out there, but we'll be looking at that, and we'll update you during our February call.

[Shashank Patel, CFO]

And Nathan, we did take a little bit of a restructuring charge in the third quarter, about $1.7 million. The bulk of that was some more European restructuring we did.

[Nathan Jones, Stifel, Nicolaus & Company]

Lastly, on the balance sheet, there's no net debt on the balance sheet at the moment. Acquisitions have been pretty clear and far between. Is there the expectation that you can get some M&A across the line? And in the absence of M&A, what's the plan for getting cash off the balance sheet?

[Robert Pagano, Chairman & President, CEO]

Well, Nathan, you know we believe in a balanced capital allocation strategy. We have a healthy pipeline. We're reviewing that. But as we've said in the past, we'll be disciplined from an M&A point of view. And as you know, you can never count the timing of M&A because it takes [indiscernible] to do a deal here. So, we'll be monitoring that, watching that, and we'll be discussing other options. But at this point, pipeline is full. We're evaluating it, and we'll continue to have that balanced capital allocation strategy.

[Operator]

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

[Robert Pagano, Chairman & President, CEO]

Thank you for taking the time to join us today. 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 2022 results. Enjoy the upcoming holidays, and please stay safe. Take care.

[Operator]

Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.