Pentair plc (PNR) Earnings Call Transcript & Summary

Great. All right. Moving along here with John Stauch from Pentair. I think what's your -- how many years you've been doing this particular job for?

Just over 7.

Wow.

28 quarter. 28 quarters.

Pretty good. And we're going to just talk about stuff. So John, do you want to maybe give a little bit of an overview and update, and then we'll get into the Q&A.

First of all, thanks for having us. We always look forward to this conference and I look to extract as much as I give. So hopefully, we're not all talking about tariffs too much. But just thank you for having us. Pentair, before this whole particular topic on tariffs, I just want to set the stage and share with you what our guide and outlook was. We're a water company, $4 billion in size, been working significantly to unlock a lot of the value from a lot of integration from acquisitions that hadn't been there. So really just driving a transformation journey around income. 50% roughly of our revenue is exposed to North American housing. It's been a challenged environment for about 2.5 years in that regard. But we've been able to generally put, if you go back to 2019, about 6% CAGR growth on the top line, and we've driven a substantial value from the transformation and the growth leverage. As we entered the year, we thought that we would suggests that the markets are not going to recover this year for most of the industries that we serve because they're sluggishly tied to the mortgage rates relative to individuals being able to buy new housing. And so we gave what we think is a really quick outlook that had revenue growth of somewhere between 1% and 3%, and we also thought we'd get double-digit EPS growth again from that. I still believe even with all the turmoil that we've experienced, we're feeling good about those guides, and I'll answer those questions regarding it. And we've done a lot of work on tariffs. So I know just about every calculation, you can imagine from every scenario imaginable, and I'm also willing to answer all those questions today, too, Steve.

Every scenario imaginable?

Yes, I think so. It's like a Rubik's cube, just tell me which side you want to...

So what if they tax hydropower coming down from Quebec and then Trump does 50% tariffs on steel. You got that one?

Yes, 0 because we don't have any of that.

Okay. Good. That's good. Maybe just walk through the 3 waves of tariffs and that detail and then how that plays into your pricing strategy so we can -- you brought it up, we can get it out of the way.

Yes. So I appreciate the question. Everybody's got to have a hypothesis. It doesn't mean my hypothesi is right, but I just want to tell you our working hypothesis. So we're looking at the tariffs in what I'll call 3 waves, 2 of them connected, 1 not connected. So we'll start with the 2 10% tariffs on China and steel and aluminum at 25%. We believe in all scenarios that I'll talk through that those are going to be likely as permanent as permanent can be, meaning we think for the foreseeable future that those tariffs are going to go into play and stick. I just want to share with you transparently. We have about $125 million in purchases out of China. That's -- you can multiply that by the 20%. And roughly, we buy about $100 million of steel and aluminum, not from U.S.-made product and so you can calculate that. So just over $50 million for those 2 particular tariff impacts. And effective April 1 and April 15, we're planning to go with the price increases across the businesses to, I'll say, more than recover those because as we work with distributor dealers, we want to put the price increases in and we generally don't want to have to change those prices on a repetitive basis. Our wave 2 tariffs quickly would be about a $30 million impact to Pentair. And we're viewing those as the rest of the world reciprocal tariffs. So the countries that have tariffs on American product coming into them. And if they were -- if we were to instill the same tariff back, that would be roughly about a $30 million headwind. Under both of those scenarios, the round 1 pricing that I suggested would be enough to cover both of those particular aspects. The third one, which has gotten all the attention, which is the one I'm going to call wave 3 would be the Mexico and Canada tariffs. If they were to be implemented, and if we wouldn't be able to honor the current trade agreement that we're now being able to honor, that would be about another mid-80s, like $80-some million of impact to Pentair.

Right. And so...

And we would price that accordingly as well. Under that scenario, though, I want to acknowledge that that's a lot of price. And I think at some point in time, we would start to expect the consumer to pull back on those particular price levels. And then we put all that into the guide, but that's the framework we used.

Right. And so there's a potential there if that does come, you would basically have some wiggle room on price, you may get the same amount of revenue but more price...

Slightly less demand...

Slightly less demand. So you hit on the incremental of less demand, but you're obviously covering the tariffs with price and that's kind of within the band of your guidance range.

That's correct.

You would not be changing guidance if that were the case, a little more tweak in price.

That's correct. That make sense. I mean, I just wanted to throw it all out there. Obviously, knowing the supply chain and know how it affects you. We've been on a transformation journey. So we know our suppliers. We know where we supply from. We are in the process of unwinding out of China supply as part of our global supply chain initiatives and our transformation journey. So the awareness of all of this is step one. And then what you do with it business by business is the pricing and the step 2 that we're doing. And we're not receiving any pushback. Our competitors are generally in the same position we are. That's the math or what you could say in the Excel column, where price would offset cost, don't have any aspect of what that does overall to the demand in the industry.

Right. And are you -- when you look at your competitors, any differences in footprint that allow you to maybe be opportunistic and share or anything like that? Or is everybody kind of on the same boat?

On the China and the steel and aluminum, I'm guessing, we're generally all in the same playing field. I think business by business, depending on what happens to Europe and happens to Canada and Mexico, I think you're going to be slightly different on certain product lines than others. But generally, what we'd be doing is across the board price increases and therefore, working to sell the product that we can make the most amount of profit from.

Okay. Just turning back to the top line and demand...

No, I'm not saying it's a positive thing as you spend about 5, 10 minutes of whining and then you get on with it. And it doesn't matter if it's supply chain disruptions, COVID. I mean we all have playbooks, right? And then we just have to lean into the playbooks and make sure that we're winning against competition and make sure we're satisfying our customers in the best way possible.

If you go through like the tariff goes into place, you put price -- an incremental amount of price through and then he wakes up on May 2 and says, just kidding, do you -- like the channel will know that, that cost is going away. Does this make these price increases a little bit different because it's more visible? Or do you think you can -- you will just hold that price and everybody will be happy and margins will be high?

So I know there's other industries like ours, Steve. I mean, we're about 75% of what we call distributor. So our product goes to a distributor and distributor goes through the professional trade channel. And in those elements, it is extremely disruptive to reduce price to your distributor. It causes a write-down of the particular inventory. And so the trickiness is getting certainty that these tariffs are going to stay and making sure that whatever we price we're going to hold, and we're going to honor those prices to the distributor. If that -- we will see that volatility, it would more show up in the way that we probably incentivize a dealer to pull the product through the channel than it would on an actual reduction in price.

Interesting. That's kind of a big difference to -- in my view, from like just the inflationary stuff that's a bit less visible to these guys. But I guess we'll just see how this plays out.

Yes. I really don't think that's the scenario that we're going to be facing though. I think that ultimately, if we end up on the path where we're going to push those tariffs through Mexico and Canada, I think most of us are going to say, we had a trade agreement. And that trade agreement was what we chose to do our investments in. And I think ultimately, you saw with this last adjustment that those of us that have been honoring that trade agreement are going to continue to be able to operate under it. The way I feel that way is because I think you got to have a tariff on Mexico and Canada, if Mexico and Canada don't honor the tariffs that we put on the rest of the world. So if you're a non-U.S. company, you could be buying out of China, buying out of Europe and have a competitive advantage against a U.S. company to compete in the U.S. So I think when you look at that framework, you start to get a little logic of maybe where the thought process is going, and it generally makes some sense.

Are you -- as you're thinking about it, the CEO in a boardroom, are you -- do you think this is disruptive enough to your confidence to start pulling back some of your investments? Or are you going to kind of give this a longer period of time to play out before you say, all right, now we have to act. This is kind of something that I don't really -- that I wasn't really signed up for. It seems like CEOs are kind of less cautious near term, but all of them tend to have like faith that this is kind of being done for like the right reasons.

Well...

Remotely...

We're more broke, at least. I lost a lot of money in the last 3, 4 weeks. I'm sure everybody is looking at that as how is their confidence level in the investment. We don't have a lot of big capital projects on the horizon, and we have less than about 15% of our business is tied to large capital projects. So it doesn't matter if it's large-scale water infrastructure pumps or if it's food and beverage types of products, I mean, less than 15% of our overall business is tied to it. We started to see a slight pullback in the order rates on those particular product lines in Q4, and we called that out on our earnings call and our guide, I don't expect we're going to see those projects to be reinstated or to be accelerated until there's certainty on interest rates and then there's certainty on the tariff climate.

I guess what I'm talking about is your investments, whether it's you as a CEO, looking at your investments, your hiring, et cetera, like when do you dust off that like cost-cutting recession playbook? Or are you willing to give this like a few months...

I think we're a quarter or 2 away from that. And I want to -- I think it's a good question that Steve asked, and I think everybody is going to be in a different position. I mean just as a reminder, I said our particular North American housing cycles, they're at historical lows. When you think about 60,000 pools, we weren't at that level. Last time we were at that level, it was '08 and '09. Also the new housing starts in 2025 are expected to be what was 25% below what it was in 2019. So overall, you're looking at these housing starts and you're looking at these pools and saying, this feels like a flat line bouncing along the bottom scenario. And most of our cost models reflect that.

Right. I don't see a lot of imbalances that are typical of a recession beginning. It's a lot of obviously nonfundamental stuff we're kind of dealing with. Just on the pool front, what are you seeing in terms of consumer behavior? And how is your channel thinking about this upcoming season? What's the level of confidence there?

We're 10 weeks in-ish, I guess. Optimism was running relatively high as our -- in our dealer in our network and primarily because, again, even if you're only going to do 60,000 pools in 2025 and you do 60,000 pools in 2024, it's not down, right, which means that the aftermarket and the break and fix would continue to propel you forward. And that's generally what our guide reflected and that's generally what our industry sees. The good news scenario is most of the pools that are going in, in 2025 are reflecting in permits 12 to 18 months ago, right? So the pool usually gets the -- the cement side of the pool and the digging of the pool happens in the early stages of the home build and then ultimately, the pool equipment gets put in towards the tail end of the home build. So that cycle is generally how our business model reflects. But overall enthusiasm is most people started out. I haven't seen anything this quarter that would change that, although I don't think we're going to get real indications until we head into Q2, and we see where all this settles out and then what the buying patterns are in Q2.

Right. And your -- so everything you're seeing now is pretty consistent, just week-to-week with what you expected. On the other segments, anything of note there to talk about?

No, we are optimistic about the foodservice industry as well. I mean we have a couple of anomalies in our Q1 relative to finishing a larger ice project in China in 2024 for a big local coffee player in China. So that's creating a Q1 headwind for us. And then we have a couple of areas in Flow and Water Solutions, where last year there was a build cycle anticipating a second half home recovery and irrigation recovery that never occurred. So our Q1 has a tough comp, and then those comps get relatively easy in Q2, Q3 and Q4. And so generally, when you look at our growth rates throughout the year, they're not representative of increasing growth in the industry, they're just easier comparisons against last year's comps.

And is there anything on the nonres side that you guys are seeing? I know you have kind of a small exposure there.

No. I mean just -- again, we have commercial, we have infrastructure pumps. Those are generally reflecting the infrastructure investment. Those projects continue. We're growing low single digits. We expect that to be the environment. And we're continuing to add value by bringing other product lines to areas that we're good at, and that's been a great contributor to our growth and income.

Okay. Let's talk about transformation a little bit. Just remind us where we are in that process and what are the upside surprises? What have been some of the challenges? And where do we go from here?

Yes. So we started on this transformation journey a few years ago. And having been the CFO for 11 years, which in retrospect would be like 44 quarters, right? I mean I saw these acquisitions coming in, and I knew which ones were integrated and which ones weren't. So this journey has really been about how do we decide what the right platforms are to integrate into and how do we start getting the value in the business models from having a standard way of operating. And so the 4 big levers are pricing. Everybody says they do price well. I mean we brought an outside help in because we wanted a value-based price. So think of Internet scrubbing, think about comparing our pool pumps to competitor pool pumps, think about value analysis and then going to the market with what we really know our values are. That's been a pricing initiative. That's not captured in the transformation part of the savings. As you look at our P&L walks, it's called out on its own. And you should see that we're getting a little bit more pricing favorability. The second one is sourcing. And we brought in an outside partner as well. And the real reason is we needed to have a different Rolodex. We needed somebody who's done this for the automotive industry, somebody has done this with industries like ours and can point us to other suppliers that had the capability and access to the goods we needed. And it's been a tremendous success. We've generated a ton of savings on the sourcing side and continue to see the value carrying over into '25 and into '26. The third element where we've struggled a little bit on candidly, was operational excellence, which is our factories. And while we've gotten a lot of productivity in that space, and we have achieved at least what we promised, we didn't get the volume leverage yet because our markets didn't recover. So we were counting on a lot of productivity going over the existing labor and overhead of our factories. And this is where we've caused a little confusion externally. We brought in 80/20. 80/20 is filling that gap. So as we have implemented 80/20 across our portfolio, we're getting the savings associated with repositioning the portfolio, and it's making up for a little bit of that volume leverage. And I want to throw that out there because that builds confidence in us that once we get these business models established and performing well, when we get the growth back, which we do believe we will, we're just going to leverage at a very high value going forward. And then the fourth one is organizational excellence. How do you bring G&A and nonrevenue-generating functions in line. And we're getting about 50 to 100 basis points overall from that contribution. All of this is funding growth. And all of this is in that simple walk that we provide every quarter. And our margins have expanded quite nicely, and we're confident that they'll continue to expand.

There is an element of growth, though, that I think you guys did tweak down your forward growth rate. Just talk about what that change was? And is that part of this 80/20 dynamic?

No, it's not tied to 80/20 as much. It's the realistic view that we didn't get the compounded average growth rate on the residential piece that we expected last year in '24, we're not getting it in '25. So while we expect to recover back to the mid-single-digit growth rate, it's pushed to the right. And so inherent in those long-term targets was the commitment to $100 million of EBITDA every year, right? And so the mathematical formula is we still believe we're going to contribute and get to that level that we had promised in '26, it's just going to be on a lower revenue number. So if you took the 26% ROS and you divided it by the EBITDA of $1.2 billion, you're going to come back to the revenue number that we now have as an expectation there. If we grow on top of that, which I do believe is likely, we should expect to leverage and drive further margin enhancements, as I mentioned, because of that manufacturing effort that we've taken on.

As far as next year, anything moving around in the segments getting to that 26%? Any of the segments represent more of a bridge than others?

No. I think we would expect Water Solutions to start contributing at a higher rate than they have in the past because they've got a high-performing business that should be growing faster. And then when you've you got a pool business that has 35% EBITDA margins, when it grows, it really helps the mix.

Right. And then just on the margin side, also on the bridge outside of tariffs, your core inflation number seems to be a little bit higher than others. Some guys are talking about something that's lower. What's in there and what's driving that from just a core inflation perspective outside of tariffs?

Yes. I want to be as least confusing as possible here. Heading into '25 from '24, we were seeing prior to all the tariffs of moderating inflationary environment, right? I think we would have thought that we would have seen input cost rise at a lower rate and get to what I'd call more normalized, meaning 1 point to 1.5 points would cover that inflationary environment, Steve. I think we had a little bit of hedge in ours. And I think some of that is playing out more in the tariff line or more in the global commodity line now and the way that tariffs will affect steel aluminum copper and there should be a favorability in the original forecast inflation that we had.

Right. So obviously, with tariffs...

Yes, it's all netted in that...

At stage of the game. And then anything else on investments that you have to do?

No. I mean we're -- we want to invest in our best businesses. So our foodservice businesses are really high quality. This is our ICE business and our filtration -- Everpure filtration business. So we're investing in sales, marketing and demand generation on that side. And we want to get pool owners and pool builders excited about automation again. Automation was designed to actually ease the dealers' life, right, not having to go to a non-revenue-generating service call in a pool. And because of price points and because of COVID and supply chain challenges, we've lost a little bit of the enthusiasm in the entire channel regarding those aspects. And we want to invest differentially in there. And I think if we can get that platform moving in pool, it's good for the entire industry.

How much of a revenue uplift would that be if you just went back to the trend that was happening before COVID?

Well, the overall industry is only about 25% to 28% penetrated today on what we'd call an automated pool. High end, it's almost close to 100%. But on average, it's just basically one body pool doesn't automate itself. And the automation has 2 factors. One, it can make water chemistry a lot simpler. And the second one of all it can do is a remote call to give a preservice warning to come out and do something before it breaks. I think when you get that type of -- if we can get penetration of 50%, which is what we always thought it would be, you start getting a dealer community being excited almost like what mirrors the HVAC to have that annualized service contract or to have a preemptive call that you can make that you could actually charge revenue for. And so that's what we're working on. The whole industry is working on it. And I just think it's a focus area.

And if you think about like the average spend on my pool pad, like how much would the -- would the automation add to that?

An automation package in the high-end pool is going to be about $6,000. And it's not an insignificant one. And if you go to the lower-end pools, what we believe you can do is almost get it for free with our new IntelliFlo 3 pump. That's not a commercial. It really is -- the pump comes with embedded automation in it that can run itself and 2 other items on that pool pad. So now you can do the app and you could do a heater, you could do a lighting, you could do a pump configuration. And now you've got a low-end body of pool working off of that. And it's free. It's embedded right into our pump itself. When you get the higher body pools, you have multiple pumps running, you have multiple lighting configurations. You have sometimes 2 filtrations, and that's when you need multifaceted automation, which is what the automation platform itself does.

And before tariffs, any sign of price pressure in the channel from your competitors like Hayward and Fluid...

Not price pressure, but we did see consumers choosing and defeaturing within the context of the lower end to mid-end pools. And I think the industry has talked about that pretty openly. And you've seen it everywhere. Do I need all those features? And can I get away with a little less feature? Could I delay replacing my heater because it's the end of season and I'll buy it next season. We were seeing some of that for sure, and that's continued. I think tariffs may add to that, and that's why we got to be thoughtful.

Right. Around the volume side. Yes. And then the other 2 businesses you mentioned that are kind of the growthy ones, the Manitowoc Ice side and what you're doing in food retail, maybe walk through that growth story a bit.

Yes. So the foodservice industry, and I'll let you go check your own metrics on this. It's a pretty resilient industry absent maybe the '20 COVID experience. Other than that, it's plus 2%, down 1% in any given year. So it's really about how do you continue to take advantage of volume share and price? And how do you bring new features to bear? I think overall, ICE really important to restaurants, as you know, and ICE is really important to beverages and beverage is where the profitability lies in any particular quick-serve restaurant. And then ultimately, the Everpure filtration combined with our ICE machines has been a really big synergy for us but also the industry as a whole has changed and increased its penetration rate of filters. And to be honest, I think there was a competitor selling, and I think we took advantage of that a little bit in the sense that they might have lost an eye on the ball. And ultimately, the Everpure brand is highly valued. And the only little change we did in the selling model is we sell the initial install a little cheaper than we used to, and then we get the recurring revenue on the canisters on a regular basis. And that was just a little insight that we got from the pricing analysis that we did under transformation.

Any other growth stories that you're excited about from a technology perspective longer term?

No, I think we have a couple early, but I do think we're on the cutting edge of a potential advanced water filtration for the whole home, think of more like an HVAC-like unit that can go into a house and can give you high-quality water through your entire household without using salt. It's a technology and a practice that we use for commercial restaurants, and we've been able to package it into a box. We've got 22 beta tests underway right now, Steve. The technology is proving out. The one thing I want to be careful about, we want to bring it to market through a channel that values the pricing point that we want and values the recurring revenue stream that we would like to get from that particular unit. So we'll probably start it in high-end homes in the areas that have drastic needs and are constrained by the inability to buy salt, and then we might work it in more mainstream over time. But it's really sad when you look at building a new house and you've got large packages for countertops and cabinets and HVAC equipment and you get down to water filtration, it's somewhere around $3,500 total when you're spending about $65,000 on HVAC, right? So I mean there is a place in Arizona, in Texas and Florida and California for high-end water solutions, but the industry has never sold it. So that's what we've been working on.

Got it...

I think we're a couple of years away, but I'm really excited about the technology, and we're going to look to commercialize it in a high-value way for Pentair shareowners.

Portfolio, you guys have always generated a really good level of cash, anything M&A-wise that's bubbling up that looks interesting, maybe your stock is more interesting these days, but how do you think about capital allocation these days?

Yes. So I think we're undervalued on cash flow. That's just my whining. I think we -- if you look at us on an EBITDA multiple, things are fair. But I think when we get down to the PE side, and we do -- we're not headquartered in the United States, so we do get an advantaged tax rate, and I understand why people don't view that as permanent. But when you look at the cash flow, we have full access to global cash and our cash flow is strong. And I think our cash flow has been challenged by the transformation work that we've been doing. And we're not yet to optimize working capital levels. So I see a lot more cash flow in our future. We're not a capital-intensive company, less than 2% of sales on capital in a year, and we have plenty of room even within that space. So it really comes down to how do we want to utilize it. And we've been paying down debt because that's been higher cost. And I think it's going to skew to bolt-on M&A and buyback. ROIC matters. I think it's the only way you measure someone over a long period of time. And it's really hard to go buy big transformative deals at very high multiples and make the ROIC calculation work. And while it might feel good on day 1 or it might feel good for the first 4 quarters, the fifth quarter rolls around pretty quickly. And you got to have a year-over-year comparison and you got to go with the value to make that work. So we're really focused on bolt-on M&A and buyback shorter term and getting the debt to a realistic level, which we're starting to get to now.

And divestitures?

Same thing. I mean, they got to bring a value to the shareowner to do them. And I think you got to continue to run businesses inside your portfolio the best you can. And the only reason you would actually have to sell them is if they're exhausting management time, attention or capital, and they're not. So we're going to continue to prove them. And if you can trade up, maybe, but I think you got to also look at the holes that you put in your portfolio if you sell assets without getting premium multiple for them.

Right. Is there -- are you seeing a bit more of a funnel or at least in the beginning of the year, were you seeing a bit more of the opportunity funnel kind of coming your way, just...

Yes. But we...

More and more bankruptcies...

There is -- there's a couple of larger deals out there that candidly, we just chose not to participate in. And while they're high-quality assets, I think, a, we don't have the money to do it. So that makes the clarity easy. And b, I think it would be distractive to even participate. And so we just said no, and we move on.

Okay. Any questions out there? We got about 5 minutes left.

Any tariff question? Yes?

Yes, you were...

You got a mic coming right there.

You were nicely transparent about the cost of different tariffs and respond to pricing standpoint. The third step of like supply chain to get deployed to factory. How long does it take you to get to that or to EBIT positive?

No. I mean -- listen, I think you guys know this. Ever since we knew who was is going to be President, and I think most companies have spent -- at least we did. We spent an exhaustive amount of time thinking about the tariffs. I mean he did run on a campaign saying, I'm going to put tariffs in place. And so it's understanding all the different input sources and everything else you have. And so I feel like the best thing I can do is be transparent as possible with you. And then we all have to be a little bit more agile in what playbook we might actually have to go to. The one that's the hardest to get your head around is, the reason we went to Mexico in the first place was the availability of labor. It wasn't just a cost trade. And it's hard to find manufacturing labor in the places that we're located in the United States. And we're competing against Amazons of the world and other companies who offer easier jobs at same cost points. And so it's really hard to say if these were to become permanent that we're going to pull back all of our manufacturing factories out of Mexico. And then by the time you're done with that, maybe a new administration comes in with a new particular view, right? So that's -- those are the ones that I would say are more longer term, and we'd like some certainty. And then you'd like to know that you're going to make that investment, and you're going to see a return from the investment if you're going to bring things back or resupply -- remaneuver. And then there's about a year right now to qualify a new supplier. And that's the reality. I mean there's all laws and regulations as you sell things in and you've got to bring that part, you got to test that part. So those are the longer-term transitionary aspects that would be harder to just decide to move out on.

But you believe maybe -- that will be the bottom line?

That's my hope, and it seems sensible that those of us that were honoring those global tariffs through our trade agreements because that's what we were doing, right? So we don't get to avoid a China-based tariff by being a U.S. company with a Mexican entity, we have to pay those tariffs to China. We bring that through a Mexican entity. And therefore, we pay the tariffs when it crosses the Mexican border. And that was the concept of that trade agreement, and I would hope that that's where we land.

It takes a long time [indiscernible] product in. Has there been -- that was also part of the [indiscernible]?

Not yet. We do -- I'd say the majority of our product is bought through trade agreements, which means we probably have some low -- let's call it mid to high single digits that's not part of that 5% to 8% of the purchases. And that might be a little more challenging to work through the qualification process to get it. But it's a rounding error in the whole scheme of where we are. And generally, those are agreements with companies where they're making a subcomponent. We're buying that subcomponent directly into U.S. manufacturing. So that might be what they're referring to. As far as longer-term qualifications, it does take time. There's a lot of regulatory agencies, and it takes a long time to get something...

[indiscernible]

Yes. That's true. Thank you.

Any exposure to any of these -- on that front on -- like on the DOGE and IRA getting perhaps muted a bit? Any exposure to any of these federal subsidies or government spending or anything like that?

No, we're a subcontractor to a subcontractor, and it's a real small rounding error as far as the total revenue that we would have exposed in that area. And chances are it might have been moving out of Quad 4 in our 80/20 analysis anyway.

Right. Okay. Any other questions?

Well, thank you.

All right. Thanks.

Know that these are exciting times, so I appreciate your attention.

Exciting is one way to put it.