BlueLinx Holdings Inc. (BXC) Q2 2021 Earnings Report, Transcript and Summary

Greetings, and welcome to the BlueLinx Holdings Second Quarter 2021 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Alexandra Lucas of Investor Relations. Thank you. You may begin.

Thank you. Welcome to BlueLinx Holdings second quarter 2021 results conference call. Leading the call today are our President and CEO, Dwight Gibson; and Chief Financial Officer, Kelly Janzen. The presentation we are sharing today is available on our website in the Webcast & Presentations section, and we encourage you to follow along accordingly. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. We are using non-GAAP financial measures in our presentation. The appropriate GAAP financial reconciliations are incorporated into our presentation where available, which is posted on our website. All percentages in today's discussion refer to year-over-year progress, except where noted. At the conclusion of our prepared remarks, we will open the line for questions. With that, I would like to turn the call over to Dwight Gibson for his prepared remarks.

Thank you, Alexandra, and good morning. Before we review our record second quarter results, which by all accounts are a historic achievement for more than 2,100 team members. I want to say how excited I am to be part of the BlueLinx team. This is a great business with great people doing great work each and every day. Since joining BlueLinx as CEO 8 weeks ago, I've had the opportunity to visit with our employees at multiple sites across the country. I, along with members of my leadership team have visited 18 branches across 4 of our 5 regions. These locations represent roughly 45% of our total sales. During these visits, I was impressed by our associates' competitive spirit, their technical expertise, their deep relationships with suppliers and customers and their focused on building a best-in-class building products distribution business. BlueLinx is a national business that serves key national accounts in hundreds of local markets, each of which have their own unique challenges and opportunities. Our teams do an exceptional job understanding the local market dynamics, while leveraging our size and scale to provide an integrated, on demand product and solution suite. I've come across groups of people who show up every day and make it happen, people like Leroy, a material handler in Richmond, who has worked for the company for over 49 years. People like Diana, a territory manager who's new to BlueLinx and delivering great results and people like Nancy, a 20-plus year member for handcrafted panel production team in Aitkin, Minnesota will only allow product out of our facilities that she would be proud to put in her own home. We have a committed group of teammates who I'm now honored to lead. Let me be clear that although our runway is long, there are areas that we must address to realize our full potential. Specifically, we must invest more in our distribution branches. There is a need to upgrade some of our facilities and our equipment to increase efficiency and improve our customer service. We must also invest in technology to make our ordering easier to enable real-time status and shipments and to improve our internal operations, particular warehouse management. As one investor recently indicated, I've been given the keys to an organization that is making a transition from good to great. I agree. In fact, it echoes one of the primary reasons I decided to join BlueLinx. It's a well-run company with strong financials, the potential for the company is significant given the strong macro trends, solid balance sheet and talented team. We have the capability and capacity to drive meaningful and sustained profitable growth. While it is premature for me to describe my long-term plans on this call, allow me to share some preliminary thoughts around where there are clearly some opportunities. First, let me say that in my experience, culture drives the business, but people drive the culture. I firmly believe in the power of a strong culture, one that values employees and their contributions. Our customer experience will never exceed our employee experience. So we must always ensure that we're enabling our people to be successful in their jobs each and every day. We must ensure that our material handlers can safely and efficiently pick and load products. We must make sure our territory managers have the information they need to best support our customers. We must make sure our drivers can safely and efficiently deliver the right products to the right customers at the right time with the highest quality. If we do these things, we will create raving fans of all our key stakeholders, and most importantly, our customers. We will be increasing our investments in these areas, as I mentioned earlier, can sure we consistently deliver world-class customer service and satisfaction. I also believe that accountability, productivity and operational excellence are cornerstones of a well-run organization. The business has performed well in a period of significant supply demand imbalances. We have had to focus on the things that matter most, our people, strategic product categories and critical customers. In addition to our focus on culture, we will focus on our position in the market. Structural products are a key component of the products we sell, and we will continue to ensure that we are a key partner to our vendors and customers in these categories. We will seek to sharpen our value proposition, however, and focus on driving growth in higher-value specialty product categories. I believe the best way to increase shareholder value will be to grow our top line, while shifting a larger portion of our revenue mix toward margin-enhancing value-added specialty products. These carry higher buyers to entry and are less exposed to volatile price links. We will do this while ensuring sufficient capacity and capability to satisfy all of our customers' product needs. Next, let's talk a bit about our intention to develop a capital allocation strategy that we believe will generate long-term value for our shareholders. The team has done an outstanding job of driving profitability and strengthening the balance sheet. Net leverage is now at an all-time low due to targeted debt reduction and growth in adjusted EBITDA, and we have more flexibility to allocate capital toward high-impact opportunities. As I mentioned earlier, this translates to evaluating acquisitions that generate value for the business, such as expanding our capabilities in strategic product categories, deepening our high-value customer exposure and/or meaningfully growing our footprint in target geographies. Along with this, we will direct more capital toward organic growth investments, including spending on our fleet and facilities as well as investing in productivity projects. So that's where my initial focus will be culture and developing a strategy that strengthens and deepens our market position, a strategy that also deploys capital that delivers value creation for our shareholders. Once again, I considered a great privilege to lead this organization. Mitch and the team have done a tremendous job of getting us at this point. I'm confident we are in the early innings of a multiyear growth story, one that I'm honored to be a part of. Now I would like to spend a few minutes before turning it over to Kelly to discuss our second quarter performance. During a period of elevated demand within the domestic residential construction and home renovation markets, we have continued to leverage our scale, deep customer and supplier relationships, competitive spirit and technical expertise to drive profitable growth across our organization. Our focus on both national accounts as well as local markets, when combined with the attractive products and solutions offered by national platform continues to represent a durable value proposition in what remains a fragmented market. Our record second quarter performance, which resulted in $1.3 billion in net sales, and overall gross margin of 19.2% and $166 million in adjusted EBITDA was driven by product price escalations, volume growth within our specialty products business and an improved specialty sales mix. Supply demand imbalances continue to persist across almost all of our specialty categories during the second quarter, resulting in a continued succession of supplier price increases and supported an expanded specialty margin of 24.4% for the period. This is the highest specialty margin the company has ever experienced. In addition to an incredible specialty performance, we also recorded excellent structural products results, including net sales of $633 million and a gross margin of 13.6%. Our disciplined approach of keeping inventory levels lean, while continuing to provide excellent customer service, along with maximizing levels of available supplier consigned inventory is providing the company resiliency as we navigate the recent extreme deflation in the wood-based commodities market. As of last Friday, the random lengths framing lumber composite was 68% below its mid-May all-time peak, which is very close to its 5-year historical average. The panel composite was 53% below its peak in late June. And while we can never predict what commodity prices will do, we believe there is potential for further deflation in panel prices in the coming weeks. And there are signs that lumber prices may have achieved relative stabilization for now. Given these market dynamics, we will continue to maintain lean structural inventory levels, which may have a short-term impact on volume. As we believe keeping lower levels of structural inventory is the right approach to mitigate inflation risk. I'd also like to acknowledge the team for achieving our best safety results ever. We've reduced our total recordable incident rate from 3.5 in December of 2,019 to 1.8 in June of this year. This is significantly below the building materials industry benchmark for total recordable incident rates, which is above 4. We will continue to emphasize the safety of all of our associates and look to lead in this area. With that, I'll hand the call over to Kelly for a more detailed discussion of our second quarter financial results.

Thank you, Dwight. As Dwight mentioned, we reported another record quarter with net sales of $1.3 billion, an increase of $609 million when compared to the prior year period, reflecting broad-based sales growth across both our specialty and structural product lines. Gross margin increased by nearly 480 basis points on a year-over-year basis to 19.2%. This was a result of improved price realization overall and a more favorable specialty product sales mix. We reported net income of $113 million or $11.61 per diluted share versus $7 million or $0.71 per diluted share in the prior year period, and we reported adjusted EBITDA of $166 million in the second quarter, the most we've ever recorded in a quarterly period. This was an increase of $135 million versus the prior year period. We ended the quarter with cash on hand and excess availability under our ABL of approximately $276 million, an increase of $138 million over the prior year period. And earlier this week, we both amended and extended our $600 million ABL for another 5 years. We reduced our fees and interest costs in doing so, and we also obtained greater flexibility to acquire companies and make strategic investments. Within our specialty product line, total quarterly net sales increased by 50% on a year-over-year basis in the second quarter to $675 million, driven by continuing price escalations and an increase in volume, primarily attributable to growth in our engineered wood, industrial products and siding categories. Specialty gross margin expanded 710 basis points year-over-year and 510 basis points sequentially to 24.4%, fueled by elevated demand and supply-driven price increases. Our third quarter-to-date margin is in the 23% to 24% range. And given current market dynamics, where demand is continuing to outpace current supply in several specialty product categories, we expect that specialty margins will remain elevated throughout the quarter. If and when supply starts to become less constrained, we expect there will be some reversal of the recent specialty margin expansion. And while the magnitude of that is hard to predict, we believe that any decline will not be nearly as swift as what we've recently experienced with structural commodities, given our strong pricing practices and increasing investment and pricing capability. Additionally, pricing within our specialty product categories is typically much stickier than our structural products. Within our structural product line, total revenue increased by more than 150% on a year-over-year basis to $633 million as a result of higher wood-based commodity prices. The random lengths framing lumber composite index averaged more than $1,200 per board foot in the second quarter, up from around $400 in the second quarter of 2020. And however, within recent weeks, we have seen the composite fell off materially, currently holding at $479 per board foot as mill production has continued to ramp higher. The random lengths panel composite index averaged more than $1,500 per thousand square feet in the second quarter, up from $400 in the second quarter of 2020. Panels, unlike lumber, maintained strong pricing through most of the quarter. However, there has been a decline in panel pricing since late June. And while the panel composite index is currently at $795 per thousand square feet, history shows that the 2 composites, lumber and panels will typically align in pricing over time. During June, as a result of the steep decline in framing lumber prices, we adjusted our lumber inventory to reflect market pricing. As of the end of the second quarter, approximately 25% of our total inventory on the balance sheet with structural products, which excludes consignment inventory. And of that, approximately 50% was lumber, 40% panels and 10% rebar and remesh. July to date, structural sales volumes were approximately 27% lower when compared to the same period last year, primarily due to our lean inventory approach. And third quarter-to-date, we are seeing structural margins in the high single digits. We expect structural margins could decline further during the rest of Q3, however, given that additional decreases in panel prices are probable. Total SG&A increased by $16 million on a year-over-year basis to $87 million as a result of higher commissions and short-term incentives as well as a return to normal spending levels in areas such as warehouse, delivery and general and administrative costs, much of which we put on pause this time last year due to the pandemic. In the second quarter, our tax rate was 23.5%. We anticipate a tax rate in the range of 23% to 27% in the third quarter, having exhausted our remaining federal NOLs in 2020. We continue to maintain a disciplined approach towards working capital. Days sales of inventory improved by more than 18 days versus the prior year period and 4 days versus the first quarter of 2021. June 2021's currency rate on receivables was 93%. Higher sales drove a 48% increase in working capital year-over-year. And while this growth is significant, the deflation that started toward the end of the second quarter is expected to result in significant cash flow generation in the second half of the year. We estimate that there was approximately $130 million in inflationary investment on our working capital at the end of June compared to Q2 2020 levels. As Dwight mentioned earlier, the excellent performance of the business has provided financial flexibility to allocate capital toward high-impact opportunities. To that end, we expect to invest another $9 million in fleet and facilities during the second half of the year, including a $6 million investment in curtain side trailers with advanced safety features. We will continue to invest in areas that support organic growth and improve efficiency. Our balance sheet transformation continued during the second quarter, we reduced total debt outstanding by $40 million quarter-over-quarter, resulting in net leverage ratio, including lease obligations of 1.5x, the lowest level in the history of our company. Bank debt improved by over $70 million compared to the second quarter of last year, and our borrowings under the ABL were $320 million at quarter end compared to $359 million at the end of the first quarter. Interest expense for the period declined by $2.4 million on a year-over-year basis, given a lower average outstanding bank debt balance and improved effective interest rate. Liquidity improved from Q2 of 2020 by $138 million to $276 million in excess availability under our ABL. And as I mentioned earlier, we amended and extended our ABL for another 5 years at a lower cost and with more favorable terms. We continue to appreciate our strong partnership with our bank group, most of whom have supported BlueLinx now for well over a decade. In summary, our second quarter financial performance was nothing short of exceptional. One highlighted by improvement across all key financial performance indicators. We continue to remain highly focused on managing our working capital as we maneuver the current deflationary environment as well as cost efficiency. Our balance sheet is strong and provides significant financial flexibility for the future. Now I would like to turn it back over to Dwight.

Thanks, Kelly. Our Q2 performance is a testament to the outstanding efforts of our approximately 2,100 teammates and an illustration of the strong foundation of the business. We are focused on building a great culture that prioritizes our people and enables deep customer relationships, strengthening our market position in strategic product categories and deploying capital in ways that create shareholder value. I'm excited. The team is excited, and we look forward to doing great things together. Thank you.

That concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] Our first questions come from the line of Greg Palm with Craig-Hallum.

And Dwight, pretty impressive quarter. First 1 out of the gate. So welcome onboard again, and congrats again on the quarter. So I guess, a lot to unpack. And I wanted to start off talking about segment results a little bit. So I think what was kind of most surprising in terms of the forward-looking July comments were that structural margins quarter-to-date are in the high single-digit range, even with what's happened in lumber and panel markets recently. So thinking back historically, I know the company has been impacted more. So what's changed recently? And I guess, how have you been able to bypass some of the weakness that others are seeing in the market?

Sure, Greg. And a couple of reasons of how we're managing through this. One, we continue to reiterate that we have kept our inventory low. And I mentioned in the - you'll see in the details in the deck, that we had lower structural volume year-over-year as a result of that. But I think we believe that was definitely the right decision. And so when you have lower inventory, you have lower risk. And that's one - that's the main reason we've been able to do it. We also did go into the quarter with adjusting our lumber inventories a bit down to market pricing. And so that helps as well. And finally, we're holding the line on price, and we're making good decisions around how we how we execute, and we're focused on margin - we're focused on maintaining margin over sacrificing volume at lower prices.

Yes. Makes sense. In terms of specialty, I'm just curious how much of the growth was driven by volume versus price? And on the volume side, do you feel like you're gaining some share versus the market? And if that's the case, what do you attribute that to?

Yes. Well, most of it was price. I think we kind of - hopefully, we laid that out pretty well that the inflation we've seen. And really, it's price escalations that we've seen on the specialty side. We've had more price increases per week in the last few weeks than we've had sometimes in previous years. So - and we've used that as we've kind of worked through that, we've passed that along, and we've maintained price in a very supply-constrained environment. And that's really what's driving the bulk of the expansion. That being said, we definitely did have some volume increase overall, but we had more significant volume increase in key categories like engineered wood, in our siding, our industrial products are doing well. So I think those are definitely areas where we're seeing some market share gains here, especially year-over-year. And hopefully, we'll continue to see growth in those categories. And we'll talk about that further, but specialty is definitely area of focus for us, and I'm very encouraged by that.

Yes. One thing I'll add to that on the engineered wood side, in particular, the team has done a really good job making some investments in increasing our design services capabilities, which is really supportive of growth there and share gain. We're fast to respond to customers' needs. We can provide more services to help them in terms of how they apply and use the products. So things like that are really supportive of, hopefully, us driving share, particularly as supply constraints abate a bit.

Interesting. And Kelly, to be clear, did you say that even in recent weeks? And so even quarter-to-date, you've taken a number of price increases further versus what you saw in Q2?

We are continuing to experience some price increases, and we'll actually expect to get a few - to continue that further into the rest of the year.

And then just moving on, you talked about this $130 million inflationary investment in working capital. Does that completely reverse in the second half? I mean I know you mentioned significant free cash flow potential. Just wanted to get some sense around maybe the magnitude relative to the level of free cash flow you generated in Q2.

Yes. Well, we certainly are going to see some significant cash coming in, in the second half as it relates to deflation, but that number relates to our total working capital. And the deflation is primarily on the commodity side. So it's not going to be the full amount of what's in there. However, when you couple that with strong business and good earnings as a whole, especially as we're seeing that strength in our specialty business, the cash could be significant.

Yes. Okay. And then I guess last one, sort of thinking ahead, how do you think about normalized net leverage? And just in terms of updating all of us on capital allocation, I think you alluded, Dwight, maybe a few items that you're thinking about. But in light of this expected free cash flow generation and just a complete transformation of the balance sheet, should we assume that M&A becomes maybe a bigger focus for you? Or is it sort of too early to tell?

Yes. So it's great to be in a position where we have some flexibility and choice. We're always going to make sure that we deploy capital smartly and thoughtfully in a way that creates value. Still early days. So I'll defer on kind of sharing my long-term capital allocation strategy. But the thing I'll tell you is, as I've mentioned before, there's ample opportunities for us to invest in this business organically to drive growth, particularly as it relates to delivering best-in-class customer service. I think there's some opportunities there as we look at our branches, as we look at our technologies, we look at our equipment. So we're going to deploy capital there. And we do believe this is a environment that's conducive to the right kinds of M&A, right? But it's got to be things that are complementary that allow us to service our customers better, provides deeper strength in our specialty categories and move the business forward. So excited about working with the team to really bottom that out. But really feel good about the direction we're heading in.

Yes. And then just to add on to how that translates into a net leverage ratio. Obviously, it's very low right now, given the TTM numbers. We believe in a normalized environment, our goal would be to stay around 3%. It could be a little higher if we do for a period of time, if we do particular deals or lower depending on the cycle. But that - it's in that range, Greg, is what we would say is reasonable for us.

Our next question is come from the line of Reuben Garner with Benchmark Company.

Maybe - so just a preface to my comments here. I missed the better part of Greg's questions, I got kicked off, so if I'm repetitive, apologies in advance. But just to start on the structural margin performance, can you maybe go into more detail with what you're seeing there? What specific products that you're selling? Is the supply demand dynamic still favorable? Is it all engineered wood products or predominantly that? Or are there other drivers? And then what, I guess, would - what scenario would lead this margin level to not be sustainable? Is it more capacity coming online? Would it require demand rolling over? What - just talk to us about sort of what you're seeing exactly and how sustainable it is?

Yes, sure, Reuben. Just a quick clarifying question. Are you referring to specialty margins?

Specialty, yes. Yes.

Okay. Yes. So specialty margins. Clearly, we've given the supply constraints, primary driver of pricing increases and continued demand have really expanded way beyond what we've seen historically. And as I mentioned in some of my comments earlier that we certainly have seen growth in areas like engineered wood, industrial products, siding and others. We're also very cognizant that there are certain things out there in the market that could make that not totally sustainable, such as we're starting to see some resin impact on some of the inputs that go into specialty products. You have specialty lumber that has some commodity impact that comes in there eventually. We also know that supply could be less constrained over time. So those factors would probably - or why we mentioned that it could reverse to some extent. The timing is a little bit unknown. But we did say we believe that generally, specialty margins would be elevated over the next few months. And I would say that, that's something north of what we experienced in certain - in Q4, Q1 time frame.

And I guess the confusion maybe for me is, typically, distributors, like you mentioned resin costs going up in some of the products. I mean, is it private label products that you sell that leads to maybe your margins being a little bit more volatile there and gives you upside in periods like this? Or is there something else to think about as to why you're - I know in the past, you talked about pricing discipline and that sort of thing. I'm just wondering if there's anything about your model relative to maybe other distributors that leads you to get more margin in this environment?

As it relates to inputs, I think we're all experienced just the same thing that really that drives just constraint. If there's [less rise] in supply issues, then you just ultimately have constrained products, and that leads to the demand supply imbalance. And then after that, I think it's pricing strategy. And I do believe that we've been able to demonstrate that we do a good job on leveraging the market dynamics to bring good pricing to the business, and we've continued to improve and hone that quarter-over-quarter.

Yes. And the other thing I'll add to Kelly's point is that having had the opportunity to kind of go out and spend some time with the team, we can't underestimate the value of the relationships we have with our customers in our local markets and also with our national accounts, right? So we really work hard to truly understand what their needs are and make sure we design and deliver a solution that addresses those needs and create value for both parties. So all those things in combination with the great work the team has done around kind of pricing strategy, pricing discipline, which I still think has opportunity for us that's contributing to this performance.

Perfect. And then on the structural side, the - I think I saw the write-down in the Q. Can you just talk to me about how that flows through to profits was the high single-digit gross margin that you had in July for structural, did that include the impacts of that write down? How does that work? How do we think about that as the quarter progresses?

Yes, that's right. So we looked at the lumber inventory at the end of June, and we adjusted it down to market. And then when you sell that through, which you - our DSIs are relatively low, as we mentioned in some of our materials that bring - that comes back into the quarter as you sell the inventory in. So those high single-digits does include some impact of the fact that we went into the quarter with market pricing.

Got it. Okay. All right. Congrats on the strong results. Dwight, you've set a high bar out of the gates here, so good luck going forward.

I appreciate that. Thank you. Team deserves all the credit.

Our next question is come from the line of Jeffrey Stevenson with Loop Capital.

So my first question is how we should think about structural volumes and inventories as we look out later this year into 2022. So you guys have done a good job managing inventories at the expense of volumes at times to reduce your wood commodity risk. But with lumber prices where they are now, does it give you more flexibility to bring inventories closer to normalized levels and focus on volume growth?

Yes. That's a really good question, Jeff. I think our view right now is that we want to maintain the current approach, especially for the next quarter or two. As we wait and see and make sure those lumber prices have truly stabilized, yes, they're closer to historical averages, but it has been very volatile. And then we have a number of market conditions in play. So we really believe that the current approach is still the right approach. And so I do expect that you could - we would still probably have volumes lower year-over-year to the similar extent that we've seen the last quarter or 2. Is that if - I think that just makes the most sense right now.

Yes. Right, right. That makes sense. When we touched on structural margins moving forward a couple of times. But just that kind of high single-digit rate that you saw in July, I mean, is that a good run rate through the back half of the year? Is there anything else that we should consider?

Yes. So in my - in some of my comments earlier, I did mention that we're still waiting for further deflation on the panel pricing side, and that certainly could impact us probably imminently in the next month or so. That start - that's been coming down over the last few weeks. And we don't know after that. But we do believe that for the rest of the year, unless there was a big change in pricing, we would expect to return to more normalized margins, which in the structural side is between 8% to 9%. It's just a matter of what's the timing of when we would return to that. But our DSIs are fairly quick on the structural side. So hopefully, that would be relatively soon.

Okay. That's helpful. And then can you provide an update on how product shortages and project timing delays have progressed this summer? Has that improved at all?

Yes. Jeff, unfortunately, not too much, right? We're still seeing challenges on the supply side, particularly across the specialty portfolio. A lot of the same things that were creating constraints are continuing to hold access to labor, transportation challenges and the like. So we suspect that, that will be the norm through the second half this year. And hopefully, as things settle out and more capacity comes online, we see some improvement as we move into 2022.

Okay. Great Dwight. And then just on the recent acceleration and housing starts. Just any thoughts on how that could impact demand as we move forward through the back half of the year into 2022? And just kind of what your expectations are for new housing here moving forward?

Yes. So if you take a step back and you look at new housing starts, we're still at a much higher level than we have been over the past decade or so. We've been under 1 million new single-family home starts since 2008. We kind of cracked that level in 2020. And now we're looking at around 1.2 million expected for 2021. I expect that to stay at roughly that level, at least for the next year or so. There's clearly not enough new housing stock given the demand. Mortgage rates are still at historical lows, unemployment heading in the right direction. Some of the data I saw recently in home mortgage and forbearance has come down fairly dramatically. So I think the overall environment is still supportive of new home construction. That being said, the 3-iles, as I like to call them, lumber, land and labor are still creating some tightness there. And that has to work through, but we still feel fairly optimistic about the new home construction environment in the near to medium term.

Okay. Great. No, that's helpful. And then last one, and Dwight I know it's early, so if you can't comment on all the specifics, no worries. But just on the M&A, I know the focus moving forward will be on growing specialty, but any more kind of details on kind of what the focus will be, whether it be kind of bolt-on, any specific geographies you're looking at, I know Western U.S., you have a lot of white space and kind of focus on valuation, those types of information would be helpful.

Yes, sure. So like you said, still early days, but we're going to look at opportunities that make sense for a business that are complementary to what we do. Obviously, things that allow us to be stronger in the specialty side will be interesting. Things that allow us to be closer to some of our core customers in places that we don't have great footprint would also be interesting, and we're going to be prudent users of capital, right? I spent a fair amount of my career in the M&A space and recognize the importance of making good choices and decisions there, and we'll definitely apply that to our thinking here. We are going to look to build out our team on the M&A side. So we're doing that. We have a search in the market as we speak to bring some talent in, but we want to make sure that's thoughtful and part of our overall balanced approach.

There are no further questions at this time. With that, we do thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.