Pentair plc (PNR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the JPMorgan Pentair presentation conference call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Steve Tusa. Please go ahead, sir.

Great. Thanks, operator, and thanks, everybody, for joining us for another presentation at our conference here. Starting the afternoon virtual session, I guess, is what we'll call it. But we're very happy to have from Pentair, Jim Lucas; and CEO, John Stauch. Guys, thanks for joining me and thanks for being flexible in dialing in for today.

Thank you, Steve.

Let's just start with -- you guys don't stand out to me as being in and around ground zero for many of the concerns we're seeing out there, whether it's China in particular, air travel or oil and gas now and anything to do with the Middle East. I'm not sure really what's left there other than maybe construction, which is where you guys have, obviously, the guts of your exposure. Maybe you can just talk about what you've seen so far quarter-to-date from all this stuff? And any kind of changes in your view of the world since we last spoke on earnings?

Yes. So thanks, Steve. I'll just start with, we did put a disclaimer in our 10-K that you can read that will share some of the information I'm going to share with you today really around just the percentage of revenue exposure and then percentage of supply chain exposed, given the fact that we had the benefit that we were heading into coronavirus at the time. So like most companies, we put a disclaimer out there. Overall, our revenues in China, this would be shipped into China or shipped inner China is about 3% to 4% of overall Pentair revenues, so somewhere around $90 million or $100 million in total. Within the quarter, given the fact that we would have had more of the Lunar New Year, it would've been a little bit lighter than a 1-quarter impact of that, and we don't think we're going to recover all of our estimated sales within Q1. So I'm sharing today that it was about a $10 million to $15 million revenue exposure to the quarter of Q1 relative to China sales in particular. And Steve, you know this, but you could probably assume 15% to 20% drop-through on that revenue is like income exposure to that. So our EPS range, as a summary, for the quarter is intact still, and we feel good about our EPS range as we sit here and we look through the quarter. From the supply chain standpoint, somewhere around 12% to 15% of our overall supply chain of around $1.2 billion of purchase materials is exposed to China in some way. I feel like there won't be an impact in Q1 at all relative to that. Primarily we've done a lot of work -- to remind everybody, we were exposed to tariffs, so we've done a lot of work around what our supply chain exposure is to China, and we were in the process of trying to mitigate some of that as we've not yet received the relief associated with that. But all of our suppliers are reporting that they're generally at 75%, if not close to 90%, of capacity, and all of our China facilities as of today are close to 100% capacity. So not seeing any disruption for Q1 from supply chain, Steve.

Got it. I'm a little bit disappointed, I actually have to do the work of reading the K now, but I'll double back and go read that. We don't -- we try and stay a little bit higher level.

Well, I think -- I actually think I summarized it for you. So I don't think if you have to go through it.

Thanks. We appreciate that. I'm just kidding, I love the Ks. What is the offset here in the first quarter, if that's -- I mean, it's obviously, moderate pressure from China, but what -- how do you plan to offset that? Is that just initial conservatism? Or is there something else? Whether it's, I don't know, price cost or share buyback or something else that kind of offsets that?

Yes. I think the revenue I gave you is -- I think, we'll let that fall through in the sense that I don't think it's prudent to try to reach for more revenue across the channels and the rest of our businesses. We've been working hard on bringing inventory levels down. So I do think we'll not make up the revenue in the quarter, as I said, to the extent we talked about. Steve, I think the obvious answer to make up the operating income challenges there is just the offset in travel. I mean this is being done virtually. Most of our employees have been limited to only essential travel, so all nonessential travels have been eliminated. We've also had trade shows get canceled and most large gatherings get canceled. So there is a benefit to not traveling, and that is likely the income offset to what we're seeing. As Q2 to Q4 plays out, we'll assess what the supply chain risk could be, what the demand risk could be. And then, obviously, we'll take further cost actions, if necessary. As a reminder, Steve, and you know this, but we're about 80% residential/commercial. So demand in our channels have remained pretty strong throughout the quarter, and we haven't yet seen slowdowns across our key end markets. And we're only exposed to about 20% to industrial and infrastructure across the globe.

Right. And on that front, on the industrial front, people are a little bit concerned about oil and gas now to say the least. I know you guys did a good job of paring down your exposure with the Valves & Controls business. Any lingering remaining oil and gas exposure that you'd call out there?

Yes. I mean our overall exposure to oil and gas across the entire company is less than 2%, 1.5%, somewhere in that range. And so most of it is refineries and most of it is efficiency gains. So -- and a lot of it is rented equipment, so not expecting significant exposure there, Steve. And we were expecting that to moderate anyway as we headed into the year, so we planned that relatively conservatively.

What -- speaking of the end markets a little bit more on your biggest one and your most profitable one on the pool front, any indications here around early season buys? I know it's a bit extremely easy comp. What kind of visibility do you have here into early March and how the channel is behaving?

Yes. So we have lots of visibility, to answer that question. We have solid sell-throughs, I mean, consistent with what our expectations were. And really pleased with how the weather pattern has shaped out throughout the quarter of Q1. So we had easy comparisons, and we have a much more normalized weather pattern, and obviously, that's good to see.

Right. So that's -- so when you look at the kind of annual guidance you have out there, a little bit of weakness, maybe $15 million or so of weakness here in the first quarter. But you still think you're kind of within that range of 2% to 4%?

Well, I mean, with what we know right now, there's no reason to update the full year. I mean I think from a pool perspective, going back to pool, we're double digit up. The Consumer Solutions is double digit core up for the year -- for the quarter. And we think we're going to be up 5% to 7% for the year from a core performance standpoint. And obviously, the first quarter is easy comparison but it's on a smaller base, so it moderates as the year goes on, but we feel good about that outlook.

Okay. When we look at the kind of bottom line dynamics for the year, I just wanted to kind of level set. I think the standing guidance on the bridge is $25 million or so in productivity, and then that's kind of offset by incentive comp and other variable expense items more or less. I mean does this change that at all where you're going to get some of those variable expenses, like travel, et cetera, are going to be down and more of that productivity can read through? And then in addition, on the cost side, while you may have to manage your supply chain a bit, is there any chance where you're going to see a bit of a tailwind over the course of the year on raw materials?

Yes. Steve, I think it's way too early to predict that. I think as we entered the year, we felt good and confident about our guide for the year. Felt really balanced around the expectations for IFT being muted from a revenue perspective but really going after the cost side. And really felt on the Consumer Solutions side, we were going to get after some pretty good growth, most of that in the first half because they are easier comparisons. And then we were going to take some of that investment and put it to work to even drive future growth. So felt really good about the balanced outlook for the year. I -- as of this point in time, Steve, I haven't given any updated outlook for the year. I mean we're going to have to see how everything plays out and where this goes and then adjust appropriately, like everybody else will do, based upon new information. There's no reason to adjust it right now. And we're going to take a look at the levers we can pull if there's demand offsets or there's relative challenges in the supply channel and work like hell to try to make it up and deliver the income that we expect to deliver.

When you talk about the kind of risks and -- I guess, there aren't many opportunities, but the risks, I guess, how do you look at -- just starting with pool, how do you look at that -- the risk to that activity over the course of the year? I mean there's -- it's still a big replacement market over that time period. What -- is any -- have you heard from the channel that people are nervous about consumer confidence yet or anything like that? Anything on the pool front that can help us put context around what we might see over the next few quarters?

Yes. It's an evolving thing within the United States, as you know. And we look at the key states of Arizona, California, Florida and Texas, and those markets are important to pool. Right now, I mean, dealers are feeling good about the backlog. They're completing projects that some of them are still deferred from last year, they're feeling really like robust. They're probably not the right people to ask because they work in backyards where they're not exposed to other people, right? So that's kind of what I'm hearing as we talk to them that they feel still really good about the economy. I think if there's an out -- I think if there's a challenge to that piece of the business, we'll see it in the form of supply chain. They were the most exposed to tariffs. So if the supply chain somehow gets pinched, we would be in a situation where we would experience the channel still fulfilling the shipments from the inventory. And then trying to figure out when we would balance selling back into the channel to make up the inventory. So we could see a timing issue throughout the year. But I think we really feel like the fundamental demand was still going to remain relatively strong. Not really a discretionary item, there's only 8,000 new pools. Most of those houses are being built and the pools go behind them. And then ultimately, we have 5.5 million installed pools in which we're servicing them. And when things break, most people fix them. Same thing with our water filtration. We're working into mostly an installed base, 85%-ish. And we're fixing water that used to taste good and people want it to taste good. The one area of the portfolio that I would say if we see a sustained slowdown would be our foodservice business, which produces the filtration for hotels, for restaurants. And if we see less people going to restaurants and less people actually traveling to hotels, we would probably see less usage and, therefore, less replacement. Again, probably a moderate risk, but a risk that we'll continue to monitor.

Can you talk about, on the pool side, the opportunities around the variable speed pumps in '21?

Yes. So our pool pumps make up 25%-ish, tilde, of the $1 billion or so in revenues of pool. About half of that is single speed and a little bit more than half of that is variable speed. So the migration from single to variable, the variable pumps cost about 60% more, or they're actually priced about 60% higher. And there is an ongoing change required by the Department of Engineering to move everything to variable speed. So we should be helped over the next several years relative to that change. How much of that happens this year? I'm not sure because we've been through this before where distributors can buy ahead, dealers can buy ahead to manage some of that forced change and we want to make sure we maintain share so that we're not out in front of forcing everybody in a direction and then some of our competitors may be responding and selling the single speed. So we're going to manage this. But over time, it should produce incremental value for us in the channel, and we think we're going to benefit from it. When? Not quite sure.

Got it. But is it -- this is something I thought that was kind of mandated in '21 or that's not the case?

It is. But I think, Steve, you were probably following some of the HVAC changes when they occurred, and I don't know if that's going to happen or not, but there were ways and there were workarounds, and the benefit came from the seer change. It just -- it wasn't always as predicted or not in the quarter that people thought it was going to happen.

Right. Do you think there's going to be -- would there be prebuy here? Is there enough capacity in the channel to like prebuy the single-speed?

Yes. There could be. I don't think or know that to happen, Steve. It's just that there's probably inventory in the channel already that was bought ahead of the deadline. People could still buy, and then it's bought ahead of the deadline. And then that could be bled out of the channel in some way, shape or form that would mute the benefit in the short cycle that we might expect from that change. That's why it's not in our guide right now, just to be clear. And we haven't given specific guidance as to when we think we're going to benefit. We will benefit, it's just a matter of when.

Is it a build deadline? Or is it a install deadline? It's -- the HVAC ones have mostly been build deadlines where you have to stop building them by December 31 or whatever, but you can build as many as you want. What is the date? And is it a -- it is build deadline?

It is a build deadline, correct.

And what is the date?

Buy -- it's really a buy deadline.

June.

June. June, next year.

June of next year. Okay. So it's actually like right in the middle of the season, which is interesting because for HVAC, they usually do it in December, so there can't be a -- it's harder to kind of -- you put the onus on the distributor to kind of take that inventory for 3 to 4 months, which deters some from prebuying, but we'll have to watch that.

And that's what I'm saying you're probably going to have a situation where dealers will spec it in and customers won't challenge that. And the quicker they do that, the better off we're all going to be. But if someone wants to spec in a single-speed, they're going to be do it, and then we'll have to manage that flow through it. So that why I've been very careful in giving a date. And by the way, June is just really weird for this industry. I mean you could easily move it out to September or now that you're into the early buy of the next season and it would have been a lot more thoughtful. But...

Right. What are you seeing competitively on pool here in the U.S.?

Yes. So our competitors have gotten stronger. I mean we have 2 formidable competitors. I mean we're north of roughly 50% of the share in the United States. And they both are -- make up the remainder. It's -- they're really good companies. One is public now, one is under private ownership. And so there is a much more aggressive stance today than there was 3 or 4 years ago. And we work really hard to maintain and grow share and to make sure that our channel is aware of all the things we're doing. And the way we think we really changed that game is accelerating the new product introductions, right? So there's things that we think we could do around filters, which is a space that hasn't seen a lot of upgrading. I mean we do have membranes that we make ourselves, and so we think we could do a membrane-based filtration capability that would certainly reduce the turbidity of the pools and give you a clearer pool. And we think that would be something that helps maintain a share increase for Pentair. Our automation platforms, one in which we have a lead on and we have to continue to advance that lead, and then we have to continue to innovate. And we have to give the channel every reason to continue to be loyal to us and make sure that the consumer feels loyal to Pentair. So -- but it's a stronger competition today, Steve, for sure because it's a very profitable space for everyone. And that usually brings the competition forward. What we haven't seen is any internet channel disruption. As you know, that was a full stop-start for one of the big companies. And we saw some of the competitors try that route, it didn't work out so well. And then we haven't seen really any Chinese product infiltrate the pool content. So I mean those would be 2 threats that would be on a longer-term cycle and neither one of them has materialized.

Now you guys had historically provided a bit of color around price for the total segment. And you guys have restructured, resegmented a bit, so it's kind of hard to tell. But for this segment in particular, this kind of consumer segment, is that kind of more at the high end of the range of you'd expect to get an annual basis on price? Kind of like that 2% type of number?

Yes.

And then that's kind of offset by flattish in the Industrial & Flow Tech side? Is that how we should think about it?

More closer to 1% maybe and around for IFT.

Okay. Got it. So into that kind of 1.5% range in this -- the -- okay. On the other business within the consumer side, can you talk about how those acquisitions are going? And how -- what the trend is for -- I know you mentioned it could be tough if people aren't going out or they're not going to work. There's no -- there's less of a run on those cartridges that are out there. But maybe talk about, I guess, how that business is progressing with the deal.

Yes. So we're really happy with both of them. To -- we bought Aquion, which is -- RainSoft is the channel, the affiliated channel. It's a water softener channel. And they are the systems capability, so they make their own systems, which was a capability we didn't have before. We used to sell valves and tanks. And we sold those mostly to private OEMs who would go out under their own brand and try to create the water treatment sale to an end customer. And we still have that and we still service that channel. We thought there would be a downtick in sales on that side, and there were, but it wasn't outside of the norm of what we expected by moving up the channel. And that risk was happening anyway, and I think we did a good job balancing that risk. We're very happy with how that is playing out. That system's capability gives us the ability to expand our branded system offerings to those people that want to be authorized pros of Pentair and work within our Pentair Water Solutions branding mechanism that we're bringing to light on the website and creating digital leads. And then servicing that either through an authorized pro or doing it ourselves. And when we do it ourselves, we think the secret sauce is we send out this mobile retail center, which is Pelican. We create the digital lead. We sell the sales -- send the sales team out. They do on-site water tests using a really sophisticated analytical instrument system sold by a really good company that has the first name of H. And that being done real-time in the field allows us to give to the consumer the printout of their water quality. And then that consumer generally feels that they're getting a more objective selling process. And then they can choose the types of solutions, which are inside that van, to solve their water needs. And so we can give them a water conditioner, which is a lower-price solution, or we can go all the way up to a high-end, sophisticated, more water expert need, depending on what their water challenges are. So we have a very high conversion rate, Steve. We're somewhere around 50% from lead to conversion. I think if we can maintain that at greater than 40%, that would be world-class standards. And so we're really happy with both of these acquisitions. And our goal is to build out the digital leads on a national basis, work with our authorized channel to bring them along on better selling techniques, better conversion techniques, but require them to buy our systems when they do that, so that we get enough in the margins of that sale. And then in the high-density areas where we don't think we got enough penetration and coverage, we want to do it ourselves and then capture incrementally some of the services revenue that could come along with that. So really feel like it jump-started the water filtration platform. Year 1 was really good on an integration front, and we couldn't be happier with the cultural fits and the progress we're making. So thanks for asking, Steve.

Got it. On Industrial & Flow Tech, maybe just -- I know you mentioned the Foodservice business is going to be perhaps impacted by this. But maybe just talk about what new products are coming out there and the types of longer-term growth opportunities within Foodservice.

Yes. So just to remind you, Foodservice is actually back in the Filtration and Consumer Solutions, Steve. But when we get into Industrial & Flow Technologies, we have an industrial platform, which is made up of product lines and applications using membranes. And then we have a food and beverage, which is a $250 million-ish platform in which we have components that we sell into the beverage industry, these are beer -- big, large beer OEMs. And then we also have beer membrane filtration systems, which we are replacing diatomaceous or filtration devices, which are cancer-causing agents. And so there's been a big environmental movement to doing what we've been doing. And we're the sole provider of those membranes. So we either provide the systems or we sell those membranes to others who sell those systems to customers. And I think we've done a really nice job of balancing the margin profile there by building only systems where we think we are differentiating ourselves or selling membranes to others who are taking on riskier systems. The good news is our systems are well known. They're branded, and people are replacing them at a really good rate. The third product line we have there is sustainable gas. So through a series of -- it's through the old CPT. We have an organic play, and then we bought an acquisition. We do CO2 recovery for the beverage industry. So they're capturing the CO2 and then turning it back into food grade, and then redistributing that food grade either into their own systems or selling it to -- on CO2 providers who take it elsewhere. We have 1,400 installations globally, mostly in Europe. But we're working with large stream companies who are really serious about driving sustainability standards and trends. And so that business has been growing really strong. And we see that trend continuing as more and more people are concerned about the sustainability needs. It also takes biogas or waste and turns that into methane that can be replugged into the energy grids. So it's been a really good product line that we've had.

And then on the margin front for Industrial & Flow Tech, notwithstanding what's happened here early in the year, I mean, what's your visibility on opportunities to expand margins in '20 and beyond?

Yes. So the set of framework, I mean, we -- I think 200 to 300 basis points over the next 4 to 5 years is an appropriate longer-term target. It's going to be probably slightly better here in Q1 as we get after some low-hanging -- I mean, first, year 1 as we get after the low-hanging fruit associated with some challenges we had on the large projects last year. So if you recall, we talked about having a premium freight product because we were behind on shipment dates and we had some late delay penalties. And so some of that's easy to get in year 1. That's, hopefully, not there in year 2 and beyond. But structurally, there's a lot of opportunity to share across project efficiencies between Flow and the Industrial filtration side. Both do projects, so we can build best-in-class. How do we build the projects? How do we source more effectively? Then also, we have the ability to take share processes on the operational side. I mean, these are not high-volume plant production sites. They tend to be more higher complexity, lower volume. And there's ways that we can learn from each of the sides of the businesses to do that more efficiently. So I'm very optimistic about the margin enhancement opportunities in IFT. They came in with a plan that they suggested that they could grow a little bit more bullishly. Then we let them put together their plan on, and -- because we didn't want to make the same mistake we made last year of expecting ag to rebound or expecting some of these markets to rebound and then not have it happen. So I don't think they're going to rebound this year, but if they rebound, at least they're on the upside.

Right. When we think about the balance sheet, pretty strong. First of all, on free cash, what -- how are you -- how do you see this year playing out kind of seasonally? I know that you ended last year on a little bit of a weak note, some of the cash was pulled forward into 4Q '18. How do we see seasonality playing out here in the first quarter?

Yes. So I feel -- obviously, you always want to drive cash at the highest level you can, but I feel like the way we did it at the end of Q4 '19 is a more sustainable level. So that's going to come back and benefit Q1, obviously. Our real cash quarter is Q2, and we feel good about the cash profile of the earnings. Working capital for us is already somewhere around 17% of sales, so it's not at the level that's going to drive that incremental value for us. But we have had between pension funding and -- because we concluded all our pension and no longer have pension liabilities, and we annuitized all those. We've had some incidents over the last couple of years having a restructuring with the split. So a lot of that is behind us. And so I think we really feel good about our cash-generating profile. As you mentioned, our balance sheet is strong. We don't need to go to capital markets. We've got a revolver that acts as the backdrop against our commercial paper. We don't have any large maturities in the next several years, and we're going to be under 2x levered this year. So I feel like we got flexibility to do the $150 million buyback that's in our EPS guidance. And we should have the ability to take advantage of opportunities if they should come along later in the year.

And when you think about acquisitions, anything out there in the pipeline that just -- I guess, talk about the pipeline breadth and the types of deals that are in there.

Yes. So there's a lot happening in the space, Steve, and some of it's happened already. Culligan -- or Advent, which is a large private equity firm, is in the process of buying AquaVenture. Half of that business would have been something we would have desired. I don't think we would have desired to pay what it went for. Other properties that come to market and the multiple has been high teens or close to 20x EBITDA. So we've been focused on doing as much as we can organically because we have most of the capability in-house. But if we can get the multiples in the space to be more reasonable to augment or accelerate what we're trying to do, we're going to try to get them done. And there's some small stuff that we can do in pool, product lines that we don't have that some of our dealers want. I'm hopeful that, that comes in the first half of this year. And then we have a few dealer acquisitions that we want to do in those high-density ZIP codes to help augment our MRC rollout strategy. So I feel like the pipeline is more likely to pop, given this slight disruption in the market and bringing, in some cases, valuations down, which I think will make some private equity firms a little jittery. And I'm hopeful that some of the properties that they're holding on to will come out at or what I'd call reasonable multiples, Steve. But too early to call that. And I think we want to be as conservative as everybody else to make sure we're not doing anything crazy until we know what the rest of the year looks like.

When you think about the levers on cash, are there any more opportunities around working capital or anything like that, that can help you improve an already kind of solid conversion rate?

Yes. I mean I think when you take a look at working capital and IFT, if we were to split it for you by segment, you should imagine that we're much higher turns on the Consumer Solutions side. And those longer project profiles on the IFT side are the biggest opportunity. And some of that is -- not every large project needs to realize sourcing savings, for instance. And I think the way you quote projects or the way you anticipate the longer sourcing funnels coming through is very important in how you bring that inventory into the equation. So I think we got a balance. Is this really worth getting an extra point of sourcing savings on what we're buying and holding the inventory? Or is it worth actually going and paying the extra maybe point of sourcing costs and not taking the inventory until we need it? Those -- it doesn't sound like much, but that is a lot of contained inventory on that side of the house, and that's how we think the project efficiencies will come to bear.

Last one for you just on the portfolio. Any pruning to come here at all over the next couple of years? Or you kind of like the portfolio where it is?

Yes. So I have a new segment leader in place. He was actually running our pool business. He's been with us -- IFT segment leader, who's been with us for a while on the Industrial & Flow Technologies. I'm giving -- I want him to assess that portfolio and see what the crown jewels are and where we should invest and where we should maintain discipline around probably growing at GDP. I think there's a lot of cash and there's a lot of EBITDA that can still be generated from that side of the portfolio. But given the size of the company we are, I mean, I think there will be some product lines or 2 that emerge, Steve. I just don't have an idea of what they look like. And I think that would be more opportunistically doing it than a wholesale big change. So as we do things on the Consumer Solutions side, we might fund it with a product line or 2 from IFT, but nothing really to talk about that would be anything of size.

Right. Okay. I have a couple more questions, but if anybody wants to e-mail me any questions to ask, obviously, feel free. I should have mentioned that earlier on. But I -- hopefully, after like 3 or 4 of these, you guys on the line all know the drill. I guess, how -- just at a higher level, you were CFO in the downturn, you've been around a while and through a few cycles, including the oil and gas cycle in '14, '15 when you guys had the Valves & Controls business. I mean how does this one feel to you when you look back at '01-'02, '08-'09, '14-'15? Are you -- do you have contingency plans for another kind of round of restructuring just in case kind of things get worse and consumer sentiment starts to roll over? How are you -- what is your mindset right now as the CEO of a publicly traded company? And do you have contingency drawn up? How close are you to executing on those? How should we think about maybe how some of you and your peers are feeling through all this?

Yes. It's a great question, Steve. And I -- at this particular point in time, it feels nothing like the '08-'09 crisis because fundamentals were out of whack then from the standpoint of 2.6 million houses. We're still in the 1.1 million, 1.2 million stage. The housing in most areas is constrained, and that feels better. But I've never dealt with any form of worldwide spread of flu and/or pandemics. So it's a new playbook. If things start to soften, although we started the year thinking that our market is going to be relatively strong and I'm still hopeful that they are, pulling the cost playbook out is fairly easy to do. We have a solid network of companies here in Minnesota. We're all talking about what we're doing. We're staying close on the labor front or things we would do because, really, our first goal is to protect the 10,000 employees we have here at Pentair. The second one would be assess the situation and what we expect to be either disruptions in the economy and/or supply chain risks. And then the third one was act on it. And I don't want to be an early mover because a lot of the discussions are really around how do we make the hourly workers whole from a political standpoint. And I don't want to do something ahead of when we might be able to benefit our employees and work in tandem with the countries that we might be working with to make sure that we're doing it the right way. So I feel good about where we are. I feel like I got a team that's working this daily. Every factory is doing their enterprise risk management plans. We've got a unique recovery plan for each factory and how it might be affected. So I think we're well positioned, Steve, to answer your question. And my balance sheet is fine, right? And so I can weather a small storm here because I don't need to go to the capital markets, which was different than '08-'09 where commercial paper dried up and people had to worry about do they have a revolver in place, et cetera. So I really feel like our fundamentals are in much, much better shape at this stage than the last 2 downturns that you mentioned.

Right. That's -- if these were the of kind of extend into -- deeply into the second quarter. Is that -- kind of midway through the second quarter you think you'll have a good idea? Or is that something that by the time you guys report the first quarter, you'll have kind of, okay, this is something that's now lasting a couple of quarters instead of a couple of months, and we've got to take action. I mean at what stage of the game do you think those decisions start to move from contingency into action?

Yes. I think it's a bold thing, and we ask that question. I think, yes, we'll know more as the second quarter unfolds. But I think we're going to have to, just like everybody else, make a reasonable assessment of what we think it's going to look like at the end of the Q1 earnings cycle. And at least have our contingency or mitigation plans ready to go and quantify what those could be and probably do scenario planning. I mean I think that's when we're at our best is when we're looking at, "Okay, here's the most likely case, but let's not work around the best case. Let's maybe work closer to the worst-case scenario and be prepared."

Right. Okay. Guys, thanks a lot for your time, your flexibility. Hopefully, you stay healthy, and looking forward to hearing more when you guys report earnings on the first quarter.

Thanks, Steve, and thanks for doing this.

Yes. Absolutely. Have a good day.

Bye.

Bye.

This concludes today's conference call. You may now disconnect.