This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good day, and thank you for standing by. Welcome to the Franklin Electric Report's third quarter 2022 sales and earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Taylor, Chief Financial Officer. Please go ahead.
spk04: Thank you, Catherine. Good morning and welcome everyone to Franklin Electric's third quarter 2022 earnings conference call. With me today is Greg Singstack, our chairperson and CEO. On today's call, Greg will review our third quarter business highlights and I will discuss our third quarter financial details. When we are finished, we'll have time to take questions. Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the company's annual report on Form 10-K and in today's earnings release. All forward-looking statements made during this call are based on information currently available, and except as required by law, the company assumes no obligation to update any forward-looking statements. With that, I will now turn the call over to our chairperson and CEO, Greg Singstead.
spk09: Thank you, Jeff, and thank you all for joining us. Our forward momentum continued into the third quarter. We achieved new financial records for all-time quarterly performance and third quarter performance. Solid databases was the highest net sales for any quarter in the company's history, reflecting the continued strong demand in our end markets and the solid execution by our global team. We would not have been able to achieve these results without the dedication and commitment of our employees who continue to manage through the obstacles presented in the current operating environment. End market demand remains healthy, with all three businesses experiencing double-digit top-line growth. This strength reflects the continued global demand for our water and fueling system products, as well as our distribution offerings. Further, our backlog remains elevated at approximately $250 million, down about $40 million from the second quarter due to progress made on past two shipments and normal seasonality. Our backlog is still elevated about four-fold from levels before the pandemic. Operationally, the third quarter was similar to the previous quarter, although we did experience some improvement in our supply chain. We continue to remain focused on reducing inventory levels, which have been higher throughout the year due to cost inflation, supply issues, and longer lead times, and drive free cash flow and higher cash conversion levels. We expect supply chain performance to improve, albeit gradually, through the end of this year and into 2023. In the quarter, we delivered operating margin expansion across each of our three businesses, Despite inflationary headwinds, our team exhibited resiliency through disciplined operational expense control, notably an SG&A, which as a percent of revenue was 340 basis points lower than the third quarter of 2021. Turning to our segments, water systems delivered record third quarter sales and operating income with overall revenue growth of 12% and operating income growth of 25%, led by strong organic growth in all geographies. Excluding foreign currency translation, organic growth was 19%, led by strong end market demand in groundwater pumping, surface pumping, and water treatment. The segment also delivered operating margin of 15.5% for the third quarter. In the U.S. and Canada, organic growth for water systems is 13%. Sales of groundwater pumping equipment increased by about 12%, and sales of all surface pumping equipment increased by about 22%. Outside the US and Canada, water systems organic growth is 27% with a strong growth in all regions of the world. We continue to see steady demand within our water system segments supported by strong commodity and crop prices and dry weather in the United States and other regions of the globe. We believe these factors combined with the stability of our business due to the high level replacement demand will continue to drive the business going forward. Our US distribution business also delivered record sales for any quarter in its history. as well as record third quarter operating income, growing 38% and 54% respectively. The segment delivered an operating margin of 9.8%. These results were driven by previously mentioned solid demand in the U.S. groundwater market, price realization, and the acquisition of lake equipment at the beginning of the year. Our distribution team continues to deliver strong results underscoring the segment's role as a major growth driver for our company. Our fueling systems business delivered record sales and operating income for any quarter in its history, with overall revenue growth of 11%, operating income growth 20%. The segment delivered a strong operating margin of 31.7%. Organic growth was 13%. Sales in the US and Canada increased by about 11% compared to the third quarter of 2021. Outside the US and Canada, fueling systems revenues were up, with sales growth in India and EMEA offsetting weak sales in China. Again, many of the tailwinds we've experienced over the last several quarters remain the same. Strong demand continues to be fueled by major marketers investing in new locations in the U.S. and Canada, as well as a greater focus on vapor recovery, environmental management, and monitoring outside the U.S. and Canada. One cannot ignore the headlines about inflation, higher interest rates, potential recession in the U.S., and a tough winter in Europe. At the same time, the pandemic and recent geopolitical conflicts have shown the fragility of food, material, and energy supply chains globally, highlighting the need for an expansion of agriculture, mining, and energy infrastructure. As a global provider of systems to move water and fuel with a significant footprint in developing regions, we believe these catalysts will add to the current strong demand for our products and systems. Our capital allocation strategy remains unchanged, and we will continue to make investments to further grow the business, as well as returning cash to our shareholders through share repurchases and dividends. With the continued strength of the U.S. dollar, we are especially focused on investment opportunities outside U.S. to strategically expand our product offering. Turning now to our outlook, Our stronger-than-forecasted performance in the third quarter more than offset the higher-than-anticipated headwinds to earnings from foreign translation and exchange losses in the quarter. As a result, we are revising our full-year 2022 net sales guidance to be between $2 and $2.1 billion, with our 2022 full-year earnings per share excluding restructuring to be in the range of $4.08 and $4.18, reflecting an increase in our earnings per share guidance midpoint from $4.10 in our previous guidance $4.13 in our updated guidance. I'll now turn the call back over to Jeff.
spk04: Thanks, Greg. Overall, it was a record third quarter performance for the company and our operating segments. We established new third quarter company records for consolidated revenue, operating income, and earnings per share. Our fully diluted earnings per share were $1.24 for the third quarter 2022 versus $0.98 for the third quarter 2021. Third quarter 2022 consolidated sales were a record 551.7 million compared to the 2021 third quarter sales of 459 million, an increase of 20%. The increase from acquisition-related sales was 28.3 million, while organic growth contributed 20%. Sales revenue decreased by 24.9 million, or about 5% in the third quarter of 2022, due to foreign currency translation. Water system sales in the U.S. and Canada were up about 16 percent compared to the third quarter of 2021 due to acquisition-related sales, price, and volume. In the third quarter of 2022, sales from businesses acquired since the third quarter of 2021 were 5.6 million. Water system sales in the U.S. and Canada grew 13 percent organically in the third quarter. Sales of groundwater pumping equipment increased by about 12%, and sales of all surface pumping equipment increased by about 22%, all due to strong in-market demand. Water system sales in markets outside the U.S. and Canada increased by about 6% overall. Sales revenue decreased by 22.4 million, or about 22%, in the third quarter 2022 due to foreign currency translation. Outside the U.S. and Canada, Water Systems organic sales increased by about 27% led by higher sales in Europe, Middle East, and Africa markets. Additionally, the company had higher sales in Latin America and Asia Pacific markets. Water Systems operating income was 45.5 million in the third quarter 2022, up 8.7 million or about 24% versus the third quarter 2021. Operating income margin was 15.5%, an increase of 140 basis points compared to the 14.1% in the third quarter of 2021. The increase in operating income was primarily due to higher sales. Operating income margin improved due to leverage on fixed costs from higher sales, price realization, and cost management. Distribution achieved record third quarter sales at 193.2 million in the quarter versus the third quarter 2021 sales, 140.2 million. In the third quarter 2022, sales from businesses acquired since the third quarter 2021 were 21.7 million. The distribution segment organic sales increased 22% compared to the third quarter 2021. Revenue growth was from robust demand and strong price realization in all regions and product categories. The distribution segment operating income was a record for the third quarter at $19 million compared to the third quarter of 2021 operating income of $12.3 million. Operating income margin was 9.8% of sales and distribution, primarily because of revenue growth. Fueling system sales were a record 90.2 million in the third quarter 2022 and increased 11% versus the third quarter 2021. Sales revenue decreased by 1.7 million or about 2% in the third quarter 2022 due to foreign currency translation. Fueling system sales in the US and Canada increased by about 11% compared to the third quarter 2021. The increase resulted from strong, broad-based demand across most product lines. Outside the U.S. and Canada, fueling systems revenues were up, with sales growth in India and EMEA offsetting lower sales in China. Fueling systems operating income in the third quarter was $28.6 million, a new record for any quarter, compared to $23.9 million in the third quarter of 2021, driven by higher sales. The third quarter 2022 operating income margin was 31.7% compared to 29.5% of net sales in the prior year. The increase in operating income was primarily due to higher sales. Operating income margin improved due to leverage on fixed costs from higher sales, price realization, and cost management. The company's consolidated gross profit was $190.6 million for the third quarter 2022. an increase from the third quarter 2021 gross profit of $163.1 million. The gross profit as a percentage of net sales was 34.5% in the third quarter 2022 versus 35.5% in the third quarter 2021. The gross profit increase on a dollar basis was primarily due to higher sales. In the third quarter 2022, the gross profit margin percentage was down 100 basis points, While realized pricing actions are more than offsetting inflationary cost increases, supply disruptions are causing unfavorable absorption variances and higher inbound freight. Selling general and administrative expenses were 109.4 million in the third quarter of 2022 compared to 106.4 million in the third quarter of 2021. SGA expenses from acquired businesses were about 5.5 million. Excluding acquisitions, SG&A expenses were lower by $2.5 million. As a percent of sales, total SG&A costs are lower 340 basis points over the prior year quarter. Consolidated operating income was $80 million in the third quarter of 2022, up $23.4 million or 41% from $56.6 million in the third quarter of 2021. an unfavorable foreign exchange translational headwind of an estimated $3.8 million. The increase in operating income was primarily due to higher sales revenues. The third quarter of 2022 operating income margin was 14.5% versus 12.3% of net sales in the third quarter of 2021. The increase in operating margin was primarily due to leverage on higher sales volumes and cost controls in SG&A spending. In the third quarter of 2022, we incurred unfavorable expense below operating income of about $5.5 million or $0.09 of earnings per share. These events are primarily related to transactional foreign exchange effects, an unfavorable indirect tax settlement in a foreign jurisdiction, and higher interest expense. The effective tax rate for the third quarter of 2022 was about 19%. and before the impact of discrete events was about 20%, essentially flat to the third quarter 2021. The tax rate as a percentage of pre-tax earnings for the full year 2022 is projected to be about 21% compared to the full year 2021 tax rate of about 21%, both before discrete adjustments. Yesterday, the company announced a quarterly cash dividend of 19.5 cents that will be paid November 17th to shareholders of record on November 3rd. This concludes our prepared remarks. We'll now turn the call over to Catherine for questions.
spk01: Thank you. As a reminder, to ask a question, you'll need to press star 1 1 on your telephone keypad. Please stand by while we compile the Q&A roster. Our first question comes from Walter Liptack with Seaport Global. Your line is open.
spk06: Hey, good morning, guys. Great quarter. Thank you, Walter. I wanted to ask first about the distribution business and the profitability that came through there. You didn't call out mix, just volume leverage. You know, I wonder, does that tell us something about, you know, what the future profitability of this could be? Is this sustainable or, you know, how should we think about, you know, kind of future margins?
spk09: So, what we're going to say is generally distribution business, as you may recall, from, you know, the second and third quarters are our best buying quarters. We get the most operating leverage. makes quarter-to-quarter a little bit hard to parse out because it really depends a little bit on how much of commodity-type or commodity-based products are going through distribution versus what I call non-commodity. But generally, this has been the operating profile now that the distribution has the scale that it has. So we're feeling more confident as opposed to the original 5% to 7% range that we're systemically able to maintain. higher profitability over the whole year, recognizing that your first and fourth quarter can be lower than the second and third.
spk06: Okay. And how are you feeling about the part of that business, or I guess any parts of your business that are sold into residential?
spk09: Sure. So the distribution business gives us a little bit of a closer view to the end market in the U.S. groundwater space, which is a portion of our overall business. And as we see it right now, we saw that the non-commodity products going through distribution were up about 10% in the quarter compared to last year, organically. So we're seeing still strong end market demand. And as you've been following us for a number of years, you know that because there's such a high replacement factor is that we're continuing to see that demand. And also because it's been relatively dry in some areas of the country, as well as some movement of population to more rural settings. So all those have led to potential market share gains of the distribution business having that kind of level of increase over the last year. So we're seeing that well, and then also our other distributors, independent distributors are buying our product, and we had good results in the quarter.
spk06: Okay, great. Yeah, thanks for that. And just another one, just on fueling, you know, how are you, you know, great results there. How are you feeling about sort of the funnel for projects? You know, some of your competitors who do more above ground have seen some volatility there. I wonder if you could just comment on sort of the, you know, ongoing environment.
spk09: Sure. We're seeing, you know, Good strength in the environment right now for us. As you point out, we are not in dispensers or above-ground equipment, in dispensing equipment, so we haven't had some of the volatility that they've had just because of the completion of the upgrade of the card readers. We are getting some indications that out in 2023 that some build programs are going to be reduced a little bit. We're at the same time looking at, you know, the continued rollout of our, you know, and acceptance for fuel management systems and getting some good traction there as some competitor systems are becoming or reaching end of life. So we feel good about that. But we are seeing some indications of a potential reduction in capital deployment by a couple marketers out in, you know, the middle of 2023.
spk06: Okay. Got it. Thank you.
spk01: Thank you. One moment. We have a question from Michael Halloran with Baird. Your line is open.
spk02: Hey, good morning, everybody. This is Pez. I'm for Mike. Good morning. Speaking with fueling quickly, can you maybe talk about the regional variants? I know you called out China being a little bit weaker. Can you maybe discuss the geographic variances in fueling?
spk09: Sure. So you may recall that there was a several year upgrade of double wall piping, underground piping in China. And we had anticipated because of the Chinese government's focus on further cleaning up the environment that they were going to roll out in-station diagnostics, essentially monitor the vapor recovery systems that are in the gas stations. So that second leg has not occurred yet. And so we're still waiting to see that happen. There's some opacity around China's activities and when that may or may not occur. So we've been seeing this kind of steady decline in more of a run rate that we've had in the past with China, which is more like sub $10 million in revenue. Opposite of that, we're seeing a big surge in India. India is getting more deliberate about vapor recovery, and they're doing initially what's called stage one vapor recovery, which is retrofitting the tanker trucks so that they're, you know, It's called bottom loading so that they can contain the vapors in the trucks and then transport them back. Once they dump the fuel at the gas station, they can transport the vapors back to the dual depots and keep a closed-loop system. You need to have stage one before you really can get serious about stage two vapor recovery, which is related to the automobile. So we're seeing strong growth in India because of that and also because of GOVP, which is a joint venture between our alliance and BP. putting in hundreds of gas stations, up to a couple thousand gas stations over the next couple of years. And we're expecting, unfortunately, that equipment, so we're expecting to see some good growth in India. Outside of that activity, across the globe, we saw our sales in EMEA growing, sales in the rest of Asia, Latin America, kind of flattish. And we tend to see, fueling tends to be a little more lumpy, quarter to quarter, depending on niches by either countries or major markets outside the United States. Major markets outside the United States are typically state-owned oil companies or large oil companies. So I hope that gives you a view. If you have additional discrete questions, I can answer.
spk02: No, that was exactly the color I was looking for. That was helpful. Thank you. Now, if we switch gears a little bit, Can you maybe talk about the variance between groundwater and surface pumping? I believe you called out, you know, low 20s in surface pumping and low teens groundwater. Obviously, great results for both products, but can you maybe talk about maybe some of the variances in demand you're seeing between the two?
spk09: Sure. So, you know, over the last couple of years, Our groundwater business has been doing really, really well, particularly in the United States, for the reasons we stated earlier, with both crops, dryness, demographic moves. So it's all been strong for our groundwater business. But it's been kind of absurd more recently by surface pumping, particularly our large watering pumps. And if you think about energy infrastructure and energy security, You go back to 2014, we saw this tremendous fall off in rig counts across the globe, but particularly in the United States. And so we use that as a bogey for the larger watering pump demand. Granted, there are other channels, industrial, municipal, but just talking about the energy sector for a minute. We're in a very different situation today. Rig counts are very low. They're growing. Again, the focus on energy security So we're seeing some strong demand in our large dewatering pumps, somewhat outsized compared to maybe some historical demand, as we continue to see capital being invested in this space, and I think in part for accelerated energy security development as well as just general demand in other channels as we've been growing our brand recognition. So that's really what has been driving the outsized growth in our dewatering, therefore our surface pumping business.
spk02: Thank you. That color is perfect. And one last clarifying question from me. I know you said this in the opening remarks, but I want to make sure I heard you correctly. Talked about declining backlog sequentially. I believe I heard you say that it was a combination of seasonality, but also starting to see some catch-up. Just wanted to make sure I heard that right.
spk09: Yeah, we'd love to be selling out of stock, but Over the last two and a half years, like many others, we've been struggling to recover on past dues. And we saw material and meaningful improvement in our past dues, which is fundamentally the reduction and the backlog that reflected that. Plus, you know, there is seasonality. I mean, I recognize that there's a lot of focus on, you know, is there going to be destocking in the United States and how is that going to impact every company? And of course, you know, we have exposure to the U.S., It's a big part of our business, but also we have global exposure. But what we're seeing is a catch-up on the past dues, but there is a normal seasonality. We are a northern hemisphere-centric business, and so we see some slowdown naturally as we go into the fourth quarter.
spk02: Great. Thank you. That's exactly what I was looking for. I'll pass it on. Thank you.
spk01: Thank you. We have a question from Matt Somerville with DA Davidson. Your line is open.
spk07: Thanks. A couple questions. First, when you look across the three businesses in the organic performance, how much of that was driven by price versus volume when you looked at three businesses?
spk04: Yeah, Matt, good morning. I would say it's continued to be pretty similar to what we've seen. in past quarters, you know, in the third quarter is price is certainly the biggest piece of the organic growth that we're seeing. You know, that's going to be north of or close to, you know, 75% of it and volume will be the other piece and we exclude the FX impact, so the translational impact from foreign exchange when we cite those organic growth numbers.
spk07: So when we think about price realization, at this point, have you fully realized and fully captured all of the benefit from the price actions taken? And to that end, with certain commodities, steel, copper, aluminum, maybe even resin a little bit, rolling over, certainly coming off peak, how should we be thinking about price realization going forward?
spk04: Yeah, so to your first question is, you know, have we fully realized, you know, the pricing that's been put in place? I would say not 100% fully. Obviously, with the backlog that we have, we still have some product out there that's, you know, potentially not at 100% of the price increases that we've seen. And then, you know, incrementally, we're still seeing pricing in certain areas. To your question on, you know, the commodities, yeah, we've seen some commodities turn over, but I would say in aggregate when we look at our cost, we do still see, you know, inflationary pressures. And so while, you know, copper may be down, you know, we do see that oil and gas-based products, so plastics and resins, you know, oil and gas is still high. Labor is still high. Transportation costs are still about where they were. So the net of it is that while inflation may be slowing at some level, we're still seeing inflationary pressures, and we're still incrementally pricing to recover those inflationary costs.
spk07: If you look at the headwater business, how much of – the product you sell here, because you referenced non-commodity. How much of the product do you sell through distribution that you would categorize as commodity versus non-commodity? And on the commodity-related stuff, I would imagine that there's some element of material surcharges or temporary pass-throughs that I would assume, again, because of what I mentioned, when you look at kind of some of the raw material indices, may roll off. I guess I'm trying to get a sense for when that may become a headwind to headwater, if I'm thinking about that the right way.
spk09: Yeah, Matt, I think you are thinking about that the right way. Certainly distribution businesses that we follow that have public information, it's been in an inflationary environment, they get some margin lift because they're passing through pricing almost immediately upon announcement by their suppliers. And so they get the advantage of revaluing or getting more margin on the inventory they have on hand. So the degree that they've been able to carry heavier inventories because of access to capital, like in our case, that's served well. I'll bifurcate your question further in this, saying that about a third of headwater purchases are pump-related products from Franklin. And I haven't actually done a split on this. I'm just thinking out loud here is that when you think about, you know, commodity type products, which is wire and cable, you know, pipe, things like that, maybe it's going to be, I'll call it another, you know, 25% or a third of their business. And so that case, they tend to price that at spot. And so that part of the business, actually, it's kind of at spot going forward. So I think they've been able to figure out, well, All these operators that we acquired are also with us. So they've gone through multiple cycles, business cycles. So they pretty much are able to hold the margin on the commodity pieces from quarter to quarter or from buy to sell because they've been doing this for a number of years, if not decades. So yes, I think you'll hear and see some pressure on the gross profit of distribution businesses generally, including headwater, in maybe a, quote, a de-spatiationary or a less inflationary environment. But I don't think it's going to be major hundreds of basis points changes.
spk07: And then, just lastly, one more on distribution. The quarter-on-quarter compression in OI dollars on slightly higher revenue, is that just mixed-related?
spk09: Yeah, I guess that gets to this point of as pricing has stabilized, and again, from a mixed point of view, you're seeing a bit of a compression there. And we continue, we bring on new businesses, we have OPEX increases, and we need to also be mindful of getting some of that OPEX streamlined. So a couple little factors going on there, but we had great OPEX leverage generally across the business. To your point again, I think it's a little bit more of a stabilization now at a new price level.
spk08: Got it. Thanks, guys.
spk09: Thank you, Matt.
spk01: Thank you. And we have a question from Ryan Connors with North Coast Research. Your line is open.
spk05: Great. Good morning. Thanks for taking my call. Hi, Ryan. So congratulations on the great numbers. It does really seem like you're bucking the trend of a more rocky earnings season out there a little bit. So I wanted to get at some of the reasons for that maybe, Greg. And you talked about resources and rigged accounts, but are those investments really happening? It seems like a lot of the noise coming from the energy space is that there's not a lot of confidence in the political and regulatory backdrop and that you know, there are economic incentives to invest, but people are still feeling like there's a target on their back and they're not really stepping up those investments like they did in the previous periods you mentioned back in 14 and 15. So, you know, are there, can you cite any specific metrics there or to what extent is that really a driver?
spk09: It's just one data point that I looked at, Ryan, to help explain. Remember when we saw a large fall off in our business and, you know, and Pioneer and, you know, our dewatering pumps back in 2014, and it seemed to correlate pretty well to RITCAP. To your point now, you know, we do, and I appreciate you raising the question because we are more broadly based in the sale of the products. We have greater brand recognition. So the lift we're getting is, you know, again, much of it is coming through the rental channel, but, you know, the lift we're getting is broader based than it was the reason for, you know, the fall off back in 2014. So the business has more stability now going forward. But I pointed to the recount because we are coming off a really low base. And so having been around here for a few years, I figured that that's got to be a contributory factor to the restocking or the increase in capital asset investment in the rental space.
spk05: Yeah, okay. And then the other one I wanted to kind of dive into was there's so much talk about water scarcity situation right now. And I want to get your little more of a detailed take on how that really impacts you. I mean, can we kind of, I know part of what you guys do is you help people access groundwater. And when we're in a severe water scarcity crisis, you know, is that here that there's just a lot of demand for, whether it's ag, industrial, residential, you know, people having to access water in those regions. And, you know, that that's really a major driver here.
spk09: Brian, there are a couple of factors. Water scarcity is certainly one. As water gets to reach water, as water tables have fallen, you're going to need to use larger pumping systems. Go deeper, you're going to want to pay up for quality because if the system fails, it's not good. It costs a lot and potentially lost livestock, crops, and time to replace the product. So people are going to turn and want to buy a quality pumping system and and bigger systems, so that's generally good for us. The other thing that's going on with, you know, with water scarcity, again, you're going to be – to the degree that you're running systems longer, you have higher energy input costs, so people are going to be looking for more efficient systems. So, again, you know, we've modified some of the materials construction to have higher efficiency systems. And, again, you know, in long one-cycle type environment, you know, that's generally good for us. You know, I'll also point out is that, you know, two-thirds of water is used in agriculture And most of it is not used very efficiently. And as more use of efficient water distribution, which means getting away from flood irrigation and less efficient systems, and you're going to typically get into more sophisticated pumping systems and distribution systems, and that's generally good for us. So there are several factors that we believe will be driving kind of long-term benefits for Franklin products and our shareholders, but scarcity is certainly one of them.
spk05: Okay. And then the last one for me was just on this other area where you seem to be bucking the trend is there's been so much talk about this big-picture inventory destocking cycle across sort of all sorts of different industrial products. It doesn't seem like that was a big issue. I know you don't sell, and not everything you do is the quote-unquote pump in a box that's out on a shelf somewhere. But can you talk about that impact and how that's impacting you now and could be in the next few quarters, both on your manufacturing side as well as Headwater's?
spk09: Yeah, so clearly, you know, there's a lot of news around destocking. As I mentioned, we're seeing, again, we have kind of a, you know, we have another view into the U.S. groundwater distribution because of headwater, and headwater is reducing their inventories much like they would this time of the year in past years, but maybe a little bit more aggressively as lead times become a little more stable with their supply base, including Frank Electric, which is their largest supplier. So I expect to see that. We hear from some of the larger customers in our residential business on the Graywater side, the surface pumps. We're seeing that there's some sensitivity there to stocking levels. But that's all offset by the fact that we've been struggling to keep up with demand over this time period.
spk08: And so the visibility or the amount of inventory for an excess inventory system is not exactly year um and it may likely be lower in the ground water space uh and given some of the challenges we've had with delivery earlier in the year uh we may actually uh uh setting ourselves up for a position going into next year we've got you know i can't i don't have that little visibility you know we are a short segment in the us Yep. Okay. Hey, great. Thanks for your time this morning. Sure, Ryan. Thank you.
spk01: Thank you, and I'm showing no other questions in the queue. I'd like to turn the call back to Mr. Greg Sangstack for closing remarks.
spk09: Thank you for joining us this morning, and look forward to speaking to you about our fourth quarter results in the start of next year. Have a good week.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
Disclaimer