Hydrofarm Holdings Group, Inc. (HYFM) Q1 2021 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing-by. Welcome to the Hydrofarm Holdings Group First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded today, May 13, 2021. I will now like to turn the call over to Mr. Fitzhugh Taylor, Managing Director at ICR to begin.

Thank you, Shamali, and good afternoon. With me on the call today is Bill Toler, Hydrofarm’s Chairman and Chief Executive Officer; and John Lindeman, the company’s Chief Financial Officer. By now everyone should have access to our first quarter 2021 earnings release and Form 8-K issued today after market close. These documents are available on the Investor section of Hydrofarm’s website at www.hydrofarm.com. Before we begin our formal remarks, please note that our discussions today will include forward-looking statements. These forward-looking looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Lastly, during today’s call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered an isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release. With that, I would now like to turn the call over to Bill Toler. Bill?

Thank you, Fitzhugh, and good afternoon, everyone. We are pleased with the continued momentum in our business as Q1 revenues grew 66.5% versus last year, completing our third straight quarter of organic sales grows greater than 60%. We’re also pleased to report a record adjusted EBITDA of $9.9 million an increase of over 500% from last year’s first quarter. Our revenue growth was once again, across virtually all of our product lines and geographies. This includes both new markets and mature markets and is across the board and virtually all of our brands and categories. And as demonstrated by our EBITDA growth, we continue to benefit from a favorable sales mix as our proprietary brands are becoming a larger part of our total sales and that drives margin expansion. Our exciting growth also gave us leverage on SG&A, despite the fact we’re spending more actual dollars in SG&A, our percent of total went down. The strength of our results, not only in this quarter, but over the last year are indicative of our unique positioning as a leading distributor manufacturer of differentiated branded hydroponic supplies, serving a $9.5 billion controlled environment agriculture market. As many of you know, it’s a market that we believe is in the early innings of a sustainable and significant growth curve brought on by a broad-based increase in home hydroponic gardening, ongoing domestic legislative approvals related to cannabis and advances in innovation, technology and brand strength within the category. We also believe longer-term the ESG advantages of hydroponics are becoming more mainstream and these efficient farming practices will continue to expand. While we are operating with a strong tailwind, it is worth noting that our differentiated branded offerings are a driver of our results. Over 60% of our sales come from products that you primarily purchase in the hydroponic channel from Hydrofarm. Not only does it give us the stickiness we want, as successful growers tend to stay with the brands that give them their own differentiated formula. So these products also drive advantageous margins for us. That formula is evident in the profitability improvement we displayed over the last few quarters. As we look ahead, our focus will remain on three growth drivers, product innovation and brand building, adding strategic distribution relationships and the acquisition of value enhancing businesses. Let me quickly touch on the first two before talking about our recent acquisition. First is the commitment to innovation and brand building. As you know, we currently have a little more 60% of our sales in proprietary and preferred brands. The bulk of which is in our own proprietary brands. With better margin profiles, our proprietary brands represent a key growth opportunity. A great example of that is our innovation in our new PhotoBio by Phantom led lights that we began selling broadly late in Q1. Building on the success of the PhotoBio MX form factor, our continued push for innovation has led us to the recent unveiling of the PhotoBio T and the PhotoBio TX, both lights we started selling late in the first quarter. We believe these two products are smart and affordable investments for growers looking to successfully cultivate all types of crops in controlled environment agriculture. We also introduced additional proprietary and preferred brands in the first quarter, including products and supplies, nutrients and the grow media categories. This included the brand launch from GrowthStar, a new line of premium lab grade 10 testers for soil, as well as new products enter the existing brands like autopilot, plant success, rock nutrients and roots organics. The newest additions were all developed by either our in-house product development team or our partner suppliers product development teams, or together to further expand our portfolio of innovative proprietary branded products. Secondly, we continue to focus on adding strategic distribution relationships and preferred brands to our portfolio. As we previously mentioned in early February, we signed a new exclusive distribution agreement in Canada with advanced nutrients, one of the most largest and most respected nutrient brands in the CEA space. This strategic partnership has allowed us to make the best in class nutrients already will be available to Canadian growers who are eager to unlock the true genetic potential of their crops and introduce the highest quality in products to their markets. And by the end of the first quarter of 2021, Advance has already become one of our fastest selling brands in Canada. Lastly, one of our top priorities is to acquire value enhancing businesses to broaden our industry footprint and strengthen our product portfolio. While we remain opportunistic across all product segments, we have been focused on the nutrients and grow media categories in particular, largely because these product categories are consumables for our growers and recurring revenue for Hydrofarm and our retail partners. Additionally, many of these brands have very healthy EBITDA margins and are categories we’re currently don’t have our own strong proprietary brands. To that end, in late April, we announced the acquisition of HEAVY 16, a leading and highly respected manufacturer and supplier of plant nutritional products used in all stages of plant and growth to help increase the yield and quality of the crops. In addition to be a highly compatible and complimentary business within our existing product line, HEAVY 16 has a compelling financial profile with strong revenue growth and impressive margins and we expect to be accretive to our adjusted EBITDA this year and beyond. Furthermore, we believe we have an excellent opportunity to expand the HEAVY 16 footprint as a product line and is currently only sold at about 300 of the 1,200 stores in the U.S. and 90% of its sales are in just four states. We are excited to welcome the talented HEAVY 16 team into the Hydrofarm family. And we believe this acquisition fits well as a proprietary brand for Hydrofarm in the nutrient category and will further solidify our position as the acquirer of choice in this highly fragmented and fast growing industry. So I hope you can see, we're hard at work, executing strategies we laid out back in December at our IPO. With the recent successful completion of our secondary offering of common stock and the increased borrowing capacity would have from our new credit facility, we have further strengthened our balance sheet since we became public. As a result, we are well positioned to continue to invest in our organic growth, as well as execute our acquisition strategy going forward. Coupled with our innovative high performing products and our own strong service offerings, we believe we are uniquely positioned to capitalize on unprecedented growth in CEA, and we are convinced we've only scratched the surface of the opportunity in front of us. Now I'll turn it over to John to discuss the first quarter financial results in detailed and to provide some update on our 2021 guidance. John?

Thanks, Bill, and good afternoon, everyone. We are very pleased to report first quarter 2021 results. That included a record quarter for Hydrofarm in terms of sales and adjusted EBITDA. Net sales for the first quarter increased 66.5% to $111.4 million from $66.9 million in the prior year period. Our top-line growth continues to be predominantly volume driven with increased demand across multiple end markets. To give you some perspective on how broad and diverse the growth in the quarter was, we experienced over 100% year-over-year sales growth in 15 different U.S. States. While some of these States are still relatively modest in dollar terms today, we expect our sales in many of these States to continue to grow significantly in size over the coming quarters and years. Our sales growth in the first quarter was also particularly strong in our proprietary brands, which outpaced our preferred and distributed brands. We also saw gross profit more than double to $23.2 million in the first quarter, compared to same period last year and gross profit margin improved at 20.8% from $17.3 million. This year-over-year improvement in gross profit margin was primarily driven by a sales mix, more heavily weighted towards proprietary branded products, which typically carry a higher natural profit margin than pure distributed brands. We also achieved incremental labor efficiency related to scale benefits in internal initiatives within our own distribution centers, which further enhanced our gross profit margin. Selling, general administrative expense increased to $16.8 million in the first quarter of 2021, compared to $11.7 million in the year ago period. The increase in SG&A was primarily due to increased costs associated with running a public company and supporting our long-term growth strategy. Specifically, we realized higher compensation costs, consulting fees, including acquisition related costs, insurance costs and share-based comp expenses. Excluding share-based compensation and depreciation, amortization expenses, SG&A was $14.2 million or 12.7% in net sales versus $10.1 million or 15.1% on net sales in the prior year period. So on this comparative basis, we realized significant operating leverage in the quarter. Reported net income attributable to common share – stockholders was $4.9 million or $0.13 per diluted share in the quarter compared to a net loss of $3.7 million or $0.18 per diluted share last year. Weighted average diluted shares outstanding were approximately $39 million for the first quarter of 2021 and approximately $20.7 million for the prior year period. Please note that during the prior year share count does not reflect the impact of our December, 2020 IPO. And so similar to last quarter, we have calculated pro forma adjusted net income and applied pro forma weighted average diluted shares outstanding as if the IPO had occurred at the beginning of January 2020, which is the earliest comparison period. The precise calculations detailed in our earnings release on the page containing the reconciliation of non-GAAP measures. We believe the additional information contained in this non-GAAP measure could be helpful in comparing prior periods. On this basis, pro forma adjusted net income for the quarter was approximately $7.3 million or $0.19 per performance diluted share compared to a loss of $1.6 million or $0.05 per pro forma diluted share in the year ago period. Lastly, adjusted EBITDA increased over five-fold to $9.9 million or 8.9% of net sales for the first quarter of 2021 versus $1.6 million or 2.4% of net sales in the prior year period. Higher sales, the improvement of gross profit margin and further leverage on our SG&A expenses all contributed to the record adjusted EBITDA in the first quarter. Moving onto our balance sheet and overall liquidity position, as of March 31, 2021, we had $62 million in cash, cash equivalents and restricted cash is $50 million of available borrowing capacity under our existing credit agreement and only $1.1 million in aggregate amount of outstanding debt. Subsequent to the quarter end, we completed a follow-on equity offering raising approximately $310 million in net cash proceeds to the company. We also completed the HEAVY 16 acquisition, which resulted in a cash use of approximately $61 million. When you consider the equity offering, the HEAVY 16 acquisition, our cash position at quarter end the availability under our current debt agreement and as much as $57 million in additional proceeds to the company from the future exercise of investor warrants, we currently have over $400 million available to deploy against the growth strategy that Bill outlined earlier. Before we open the lines for questions, let me quickly review our revised 2021 outlook. Based on the strong start to 2021 and the recent completion of our HEAVY 16 acquisition, we are updating our outlook for the full year. We are now expecting total company net sales growth of 30% to 40% for the 12-month period ending December 2021 and adjusted EBITDA of $36 million to $42 million for the same period. We continue to expect the stronger year-over-year growth in the first half of 2021, relative to the second half as we will be lapping strong comparable periods in the third and fourth quarter of 2021. And while our revised outlook for the full year implies a stronger adjusted EBITDA margin than our prior outlook, we remain somewhat cautious about further margin expansion, as we move across the quarters for the remainder of 2021 due in large part to the overall commodity cost environment. In the earnings release earlier today, we noted select assumptions embedded in our 2021 outlook. It was only one change in the outlook assumptions from those previously presented in March. And that relates to $0.5 million increase in our CapEx to approximately $4 million to $5 million for the full year, to account for additional growth capital expenditures at the HEAVY 16 manufacturing plant. As you can see from the quarter results and our recently completed capital raise and the HEAVY 16 acquisition, we remained quite active and executing against our growth plan. And we look forward to reporting our progress again next quarter. This concludes our prepared remarks, and we are now happy to answer questions that you might have. Operator, please open the lines for questions.

[Operator Instructions] Our first question is from Andrew Carter with Stifel. Please proceed with your question.

Thanks. Good afternoon. I appreciate that you have a kind of a more subdued margin outlook for the remainder of the year, given some caution around the input cost environment, but you achieved an 8.9% EBITDA margin first quarter, seemingly kind of a weakest updated 7.8%, 8.7%. So I just want to – help us understand kind of that caution, is it caution over mix. Yes, there's inflation, but you've gotten pricing. And then in particular will the HEAVY 16 acquisition be EBITDA margin accretive here in year one. Thanks.

Okay. I'll jump in on that one, Andrew. Thanks for thanks for the question. Yes, well look, I mean, we did just report an all time record quarter and we do not believe we have yet seen the full impact of overall commodity cost environment. For example, our new LTL freight rate, which we locked in for the remainder of 2021 is set theorized here in Q2. This is a fairly easily identifiable cost that we know is rising, but there may be other rising costs coming our way across the roughly 6,000 skews that we sell. And as we discussed before, we can take an inventory position to buy us some time. We can also consider price increases to help mitigate some of these rising costs, which has given the overall environment. You thought it seemed appropriate to guide in the manner that we have at this point. And yes, we do believe that HEAVY 16 acquisition will be accretive.

Thanks. If I could circle in just a little bit on that, I guess, could you talk about how this acquisition fits in kind of with the future acquisition expectations require nutrient advance? Do we think of this as like a platform asset with the manufacturing capacity to onboard other nutrient brands, potentially virtually brands quickly realizing the synergies? Or instead where you need the manufacturing capacity to keep up with a growth of HEAVY 16 as well as potential businesses your onboarding? Thanks.

Yes. It’s good question, Andrew, and thank you. Yes, we're going to need more than just HEAVY 16 to really have a full platform in nutrients. It's a fantastic business. It's in a brand new, but relatively small physical facility in Los Angeles. And look, the nutrient industry ships a lot of water, very expensive water, very expensive transportation these days. And so ultimately, I'd like to think of a world where you had regional capability to produce and ship things a lot less distance and a lot less water moving around, because I think that's a better model for the longer term. So the specific answer to your question is it's certainly a nice start in building a platform, but there's more that needs to be done to really give us the kind of the full range that we would like to have.

Thanks, Bill. I will pass it on.

Our next question is from Andrea Tiexeira with JPMorgan. Please proceed with your question.

Thank you. Good afternoon. I just wanted to go back to the guide and try if my follow math is correct, I think you're looking at a $15 million contribution to – for sales from HEAVY 16. So correct me if I'm wrong. Your guide probably implies about 26% to 36% organic growth for 2021. And if you can help us like figure, like, I think you've got by about 6% growth in pricing, if you can decompose that. And also decompose the EBITDA guide increase between organic and HEAVY 16?

Yes, sure. Just I'll jump in and thanks, Andrea for the question. Yes. I mean, in terms of the organic growth split versus M&A, which is really at this point HEAVY 16. Yes. I think the numbers you've mentioned are certainly in the ballpark. I would say in terms of the EBITDA guide, I mean, I think you can kind of decompose the math a little bit on HEAVY 16 based on sort of the breadcrumb trail we left in the press release for the signing announcement on HEAVY 16. I think when you do that, you can kind of imply from our organic EBITDA that it's quite strong and it's certainly a guide up from what we had previously provided back at the end of March.

Yes. I can take it offline, but it's consistent with what you said is a pretty high EBITDA margin, right? So, and I think – when I'm thinking of like how accretive it is, and not only that, how your commentary about freight and commodity costs in general, should we expect you to build into that 6%? I think was 6% that I signed that would be used right on pricing, so if you can build into that and group pricing as well? And therefore, you have some cushions for the celebration in volumes into the back half.

Yes. There has been some cost increases, as John outlined, I mean, obviously bottles with resin going up – have gone up a good bit. There's a lot of pressure on number of things. The other piece that we're having trouble with is labor not just the cost of labor, but just physically getting people to find a higher. So that's adding cost to there, as we're trying to accelerate the production capability at HEAVY 16. And frankly, the whole distribution network is having pressure on that one. But yes, you could assume that pricing – there has been pricing in the category. We generally worked very hard to make sure we price through all costs increases we get from our supply base. You can expect us to do that when we see them come through. There will be some pricing going forward. But it's a challenging time. And I appreciate Andrew's question a minute ago, Andrea, on the overall, margin mix question, we are being cautious because the unknown is where the challenge have come. And we really fought a lot of it off in Q1 and ended up with a great margin. We had some pent-up demand on some really profitable products that got shipped out in March. So we probably got a little ahead of ourselves for the year on the margin there. But I think overall, we feel good about where we sit and feel like the evolution is coming through as we had hoped.

Yes. That's it. And you're seeing the competitors doing the same testing on this price increases.

Yes. Yes. There has been some pricing from quite a few factors in the categories we compete in.

Perfect. I'll pass it on. Thank you, again.

Thanks, Andrea.

And our next question is from Kevin Marek with Deutsche Bank. Please proceed with you question.

Good afternoon. Thanks for the question. Just wondering if you can comment on trends exiting the quarter, kind of what you've seen in April and through the first two weeks of May. 2Q obviously have tougher comp and something about framing growth as we progress through the year.

Yes. The absolute volume level has stayed if not very consistent with Q1, actually it's kicked up a bit, as you would expect as we go into our Q2, which is our strongest volume quarter, Q2 and Q3. But we're running up against bigger comps. As we had cautioned before the year we had a plus 20 in Q1 that we just slapped with a plus 66, our Q2 was plus 40 last year that we're now lapping. And then we hit 260s in the back half. So absolute volumes are continuing to, I would say seasonally adjust in our larger, which is great, but we are running up against, yes, bigger comps from last year.

Got it. Understood. And then kind of within that growth that you are seeing, are there – kind of are there varying trends between some of the categories that are worth noting? I mean, in the prepared remarks, I noted that, you said growth was broad based, but I'm wondering if there's anything to call out.

Yes, I would say that frankly, we've had a very good year on kind of our equipment categories on a couple of key brands, grow media, even though it had a wonderful year, last year, it was doing the same thing again. And the nutrient side of it remained real strong. I mean that the gross is differentiated by category, but they're all kind of in a similar place having a year, when you started out the year plus 66%, everything's doing pretty well.

Right. I appreciate that. It's a good place to be. Actually, just one more, if I could tack it on, the M&A environment, what does your pipeline look like? What kind of conversations are you having on the heels of HEAVY 16 and kind of your stronger balance sheet, any up there – any update there would be great. Thanks.

Yes. Pipeline is still a very good. There's a lot of interest in activity in a number of these deals right now, more than there was six months ago, I think us coming out. And coming out in the situation that we were in, then doing the secondary, then doing HEAVY 16, it's kind of shown people that we really are here to do deals and we're going to be adding businesses in. But the market's very competitive for these kinds of assets, particularly ones that have the growth and profit profile and the opportunity to enter a massive category like controlled environment, agriculture and the supplies for that. So I would say it's a very good pipeline that we're working with, but there's a lot of people that have interest in the categories as well.

Understood. I appreciate it. Thank you.

And our next question is from Jon Andersen with William Blair. Please proceed with your question.

Good afternoon. Thanks for the question.

Hey John, how are you?

Hi. Good, good. Congrats on a strong start by the way. Wanted to just ask about the mix of the business across brand segment? Sounds like you were strong across the board, but could you talk a little bit more about maybe the relative strength of the proprietary brand versus the preferred and distributed? Are you seeing, where you are from an overall mix perspective now, and maybe what you’re targeting or what you think would be an optimum mix a couple of years down the road when you hit more kind of a run rate level.

Yes. Our proprietary brands are growing, a good bit faster than our distributed brands right now. And that’s a very good thing for our P&L and that’s one of the thing that driven the margin in Q1. We historically been sort of in the low 30’s as a percent of total and proprietary, and numbers now moved up to kind of mid to high-30’s, if you will, as a percent. And we even had a month over 40%. But that’s kind of the trend we’re seeing sort of 300, 400 basis points of expanded penetration and proprietary, which is key for us to keep remixing the margins. Our goal via M&A and innovation and focus would be to get that number into the 40’s and 50’s. And if you talk about three to five years from now, I’d like to be 60% or greater in our own brands. And that’s not to say that partner and preferred and distributor aren’t important, but to really give us control over our own destiny and to drive our own brand differentiated success with our retail customers and ultimately with growers, we need to have our own innovation, our own brands. And we do that beautifully and then we do that and combine it with what our partner brands do and give us that scale and that sort of frequently shop product that we know we can distribute very efficiently and effectively. So those two things, they work hand in glove and they don’t have to work against each other.

Yes. That makes sense. Just one more for me. On HEAVY 16, you mentioned it I think available in 300 of the 1,200, some odd hydroponic stores across the country and fairly concentrated on a state basis. Could you talk about why that is? And what you can do and over what kind of timeframe to kind of affect that in a positive fashion? Thanks.

Yes. No, it’s a good question. It was kind of a surprise to us because the business got started in California, so it’s not surprising. It’s strong in California, right. They also got into Michigan very early and did a really good sampling and selling demo program in Michigan and got a great presence there. And then kind of as often happens in this industry, sort of word of mouth and relationship and people talking about the products get you exposed to other customers and other growers. And so Michigan went really well. And Oklahoma opened up really rapidly, as we all know, and everybody did well in Oklahoma. And that became the spill off from – for another state for them. And of course, Colorado is the fourth state where they do really well. And it gives you a sense, Colorado is obviously been around a long time. So that’s an easier one to understand. Our goal is to take this into other states with Canada, Michigan model that they used launched there a few years ago to get product into people’s hands, to work with our retail partners and growers locally in each market to create the opportunities for people to use HEAVY 16 that may not have heard of it, or don’t understand its simplicity and sort of the elegance of the brand and how it works and the simple two-part formula that it represents all those things are really the way to get a brand like this launched into new markets. And so we literally had a call today with our sales team and started talking about the retail implementation of this. We’re keeping all the HEAVY 16 salespeople. It’s kind of the category experts. Our folks will be the generalist, there’ll be the category experts. And we’ll just keep building this brand together and building all of our nutrient partner brands as well, because we can now take more of a category management approach to this versus an individual brand approach.

Absolutely. Thanks for the help on it. Good luck going forward.

Thanks, Jon.

[Operator Instructions] Our next question is from Bill Chappell with Truist Securities. Please proceed with your question.

Thanks. Good afternoon.

Hi, Bill.

Just one last one on a HEAVY 16. I think I’m right in saying that it didn’t probably grow as fast as the industry, or as your sales last year? Because it was capacity constrained like you talked about a $500,000 expansion in CapEx near-term. How long does it take to kind of get it up to where it needs to be in terms of capacity for you to be able to be either able to grow and move into all these different states or grow at least as fast as your core business?

It actually – we grew at 45% last year, they grew 57%. So they did a great job even in that limited capacity, right. They have a number of products that are – some are co-packed, some are packed at home, so they get a little bit of both, right. We in a week and a half of going in there and working with our ops people, we’ve already gotten production up to kind of 30%, 40%, 50% heading to higher numbers, so this is some basic block and tackle changes that we’ve been able to put in. So we think we can support a lot of the growth now with just some basic stuff. And then the new line that we’re buying is – for some of the larger sizes, that’s going to take about 14 weeks to get in. Once it’s in, so call that which three or four months we should be in the back half ready to go with that expanding capacity as well. So these are fairly simple processes. They’re highly technical formulations, but they’re simple processes of blending and bottling. So once we get the capacity and the workflow is really the biggest issue, once we get that workflow built in, right, we can expand capacity pretty quick. They’re also only running one shift. And so there’s another opportunity there, if we can find people to get another shift at it and other things.

Sure. And then second, just looking at your updated guidance of 30% to 40% top line some of that’s from HEAVY 16, some of that’s from the first quarter out-performance. But I’m just trying to look at the organic rates, the remainder of the year or your optimistic outlook for the reminder of the year, how much of that is coming from via new states, new customers versus just the continued strength of – and it could be, existing customers just upgrading to new lighting. I just – it was tough to understand how much – it seems like it’s really mining the core markets, it’s not really new markets right now.

That’s right. I mean, New York pushed out the 22, New Jersey is still arguing, other states aren’t sure, they pass and people think the next day is going to get stuff start order and then work that way. Arizona is the exception. Arizona when it passed in November, by Q1 of this year, our volume was up 3x or 4x of a small base from the year before. So, it’s very hard to say, still our fastest growing area in terms of dollars is California, right? That’s the biggest state. So it didn’t have to grow much to be the fastest dollar, but it is the fastest. And that’s just speaks to, like you say, people are ramping, they’re shifting away from high pressure sodium and double ended in the LEDs. They’re building new farm. There’s just a massive amount of growth going on across almost every geography, every brand category and every type of grower. We think that the hobbyist kind of home use market is one of the reasons that this thing is growing underneath so fast because the TAM is actually a lot larger than people think and can identify. So you’ve got states that haven’t even moved legislatively. You’re seeing nice growth in, because the hobbyist are back in doing what they’re doing. And so it is just a fun business to watch because you’ve got growth from all different aspects so that you don’t have a lot of industries.

No, absolutely. And then the last one for me, just digging on the M&A pipeline. I mean, since you went public, Hawthorn is now publicly said they’re more interested in M&A than they had been in the past for past few years. So are you comfortable that all the potential sellers don’t hear, hey, now we’ve got a bidding war, I want top dollar and you just kind of it ends up pricing a lot of these deals out of the market.

Yes. I think, first of all, their overall disciplined company, we try to be a disciplined company as well. I think they will show up for the bids that are appropriate and important to move their needle, right. And we’re going to show up for the ones that move our needle. And that’ll have a little bit different definition, right. For them, which has a market cap far greater than ours, they probably have a little higher bar in terms of things that are interesting to them. For us, we can do a lot of things on a tuck-in basis that have a lot of value to our company and just keep building from there.

Great. Well, thanks so much.

Thanks, Bill.

We have reached the end of the question-and-answer session. I’ll now turn the call back over to management for closing remarks.

That’s great. Thank you all very much for being a part the call today. I’m glad to get Q1 in the books and tell you about it. And we look forward to more good news down the road. Thanks so much. Take care.

This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.