CSW Industrials, Inc. (NASDAQ:CSWI) Q3 2025 Earnings Call Transcript

CSW Industrials, Inc. (NASDAQ:CSWI) Q3 2025 Earnings Call Transcript January 30, 2025

CSW Industrials, Inc. beats earnings expectations. Reported EPS is $1.6, expectations were $1.37.

Operator: Greetings, and welcome to the CSW Industrials’ Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Alexa Huerta. Please go ahead.

Alexa Huerta: Thank you, Stacy. Good morning, everyone, and welcome to the CSW Industrials’ fiscal 2025 third quarter earnings call. Joining me today on the call is Joseph Armes, Chairman, Chief Executive Officer, and President of CSW Industrials; and James Perry, Executive Vice President and Chief Financial Officer. We issued our earnings release, updated Investor Relations presentation, and Form 10-Q prior to the market’s opening today, all of which are available on the Investor portion of our website at www.cswindustrials.com. This call is being webcast and information on accessing the replay is included in the earnings release. During this call, we will make forward-looking statements. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties.

Actual results could materially differ because of factors discussed today in our earnings release, in comments made during the call, as well as the risk factors identified in our annual report on Form 10-K and other filings with the SEC. We do not undertake any duty to update any forward-looking statements. I will now turn the call over to Joe.

Joseph Armes: Thank you, Alexa, and good morning, everyone. I’m pleased to announce that once again our team has delivered record results for revenue, adjusted earnings per diluted share, and adjusted EBITDA for the fiscal third quarter of this year. This morning, we reported fiscal third quarter revenue of $194 million as well as fiscal third quarter adjusted EBITDA of $42 million, adjusted earnings per diluted share of $1.48, and adjusted net income of $25 million. Our adjusted EBITDA margin expanded 70 basis points to 21.7% in the quarter. I’m proud to note that each of our three business segments delivered top line growth and impressive profitability during the quarter. James will provide further details on the performance of each segment during the fiscal third quarter.

We have continued to execute on our capital allocation strategy. During the fiscal third quarter, we deployed $42 million of the proceeds from our follow-on equity offering to fund the strategic acquisition of PF WaterWorks. Through this acquisition, in the Contractor Solutions segment, we expanded our product offering with innovative, eco-friendly drain management solutions. These new synergistic products will be added to our current wholesale distribution network, expanding PF WaterWorks’ historical path to the market through the retail channel. We expect calendar year 2025 to be active from an M&A standpoint and CSWI will remain diligent and disciplined when evaluating acquisition opportunities, focusing on synergistic innovative investment opportunities with attractive risk-adjusted returns that will enhance shareholder value.

CSWI has a long-demonstrated track record of respecting capital and delivering growth and shareholder value. Our strong balance sheet, together with our capital allocation discipline, has been the cornerstone of success for CSWI. By aligning capital and labor, we are driving impressive results. Our commitment to our customer satisfaction and our focus on leveraging our distribution network positions us for long-term growth and profitability. At this time, I will turn the call over to James for a closer look at our results. And following his comments, I will return and conclude with our prepared — and conclude our prepared remarks.

James Perry: Thank you, Joe, and good morning, everyone. As Joe mentioned, our consolidated revenue during the fiscal third quarter of 2025 was a record $194 million, a $19 million or 11% increase when compared to the prior year period. $15 million of the revenue growth came from the Dust Free, PSP Products, and PF WaterWorks acquisitions that we completed during the last 12 months. The additional $3 million of growth was organic, primarily due to increased volumes. Consolidated gross profit in the fiscal third quarter was $80 million, representing 8% growth over the prior year period. Our gross profit margin declined by 90 basis points to 41.4% compared to 42.3% in the prior year period due to increased freight expenses. Our consolidated adjusted EBITDA for the third quarter increased by $5 million to a fiscal third quarter record $42 million, which was 14% growth when compared to the prior year period.

Our adjusted EBITDA margin improved by 70 basis points to 21.7% as compared to 21% in the prior year quarter, demonstrating our commitment to delivering operating leverage. Adjusted net income attributable to CSWI in the quarter was a fiscal third quarter record of $25 million with a record $1.48 of adjusted earnings per diluted share compared to $17 million or $1.07 of adjusted earnings per diluted share in the prior year period, representing growth of 49% due to the aforementioned performance and lower interest expense, which has now become interest income due to the full repayment of our revolver balance in the second quarter. The adjustments to EBITDA, net income, and EPS in the quarter are two items. The release of a tax indemnification asset and uncertain tax positions related to acquisitions, and the acquisition broker fee we paid during the quarter for PF WaterWorks.

Both of these items are included in our Contractor Solutions segment results. During the third quarter, our Contractor Solutions segment with $132 million of revenue accounted for 67% of our consolidated revenue and delivered $16.7 million or 14.5% total growth when compared to the prior year quarter. Of the revenue growth in the quarter, $15.3 million or 13.3% came from our recent acquisitions, while the remaining $1.4 million or 1.2% was organic volume growth. During the quarter, growth was reported in the HVACR, electrical, and plumbing end markets, offset slightly by a decline in the architecturally specified building products end market within Contractor Solutions. Adjusted EBITDA for the segment was $37.5 million or 28.4% of revenue compared to $33 million or 28.6% of revenue in the prior year period.

The slight adjusted EBITDA margin decline came from lower gross margins due to increased freight expenses previously mentioned and acquisition integration costs. As a reminder, the fiscal third quarter is our seasonally low point of the year for this segment, which impacts our top line and margins due to lower operating leverage on our fixed costs. Our Specialized Reliability segment revenue increased by 3% to $34.6 million as compared to the prior year period. Revenues increased in the general industrial and rail transportation end markets, but declined in the mining and energy end markets. The increased revenue was driven primarily by an increase in unit volumes over the prior year period. The segment EBITDA of $6.6 million in the third quarter represented an increase of 26% from $5.2 million in the prior year period.

And the EBITDA margin improved by 360 basis points to 19.1% in the current period, driven primarily by operational efficiencies and the prudent management of our operating expenses. Our Engineered Building Solutions segment revenue increased to $28.8 million, a 3% increase as compared to $27.9 million in the prior year period, driven by backlog conversion to revenue. Bidding and booking trends remained solid during the fiscal third quarter, with our book-to-bill ratio for the trailing eight quarters at 1:1. We continue to see favorable margin mix in bookings and the backlog with our focus on quality contractors and project estimations. Segment EBITDA grew modestly at 3% to $4.1 million or a 14.2% EBITDA margin compared to $4 million and a similar 14.2% EBITDA margin in the prior year period.

We continue to target a 20% EBITDA margin for this segment in the intermediate term. But keep in mind that the margin will fluctuate from quarter to quarter due to project mix and the seasonality of the construction market. Transitioning to our strong balance sheet and cash flow. We ended our fiscal third quarter 2025 with $214 million of cash and reported cash flow from operations of $12 million compared to $47 million in the same quarter last year. Cash flow from operations in the fiscal third quarter decreased due to a $17 million tax payment deferral mentioned on our last earnings call from the fiscal first half of 2025 to the fiscal third quarter under a temporary federal tax relief related to the severe storms and flooding in Texas in early calendar year 2024.

Inventory also increased in the third quarter of 2025 compared to the prior year period in order to strategically offset risk from the potential port strike and other potential disruptive events that we anticipated could occur in the first calendar quarter of 2025. Our free cash flow, defined as cash flow from operations minus capital expenditures, was $8.5 million in the fiscal third quarter as compared to $43.1 million in the same period a year ago. This resulted in free cash flow per share of $0.50 in the fiscal third quarter as compared to $2.76 in the same period a year ago due to the items I previously mentioned. As discussed last quarter, we repaid all of our borrowings under the revolver in September, utilizing the cash received from our follow-on equity offering and our strong cash flows.

As a result, the Company was able to eliminate most of our interest expense and invest the net proceeds from the equity offering in money market accounts to generate interest income since the equity offering. During the fiscal third quarter, we made a $42 million capital investment for the acquisition of PF WaterWorks, as Joe mentioned. Our effective tax rate for the fiscal third quarter was 13.8% on a GAAP basis and 24.5% when adjusted to exclude the previously disclosed release of a tax indemnification asset and uncertain tax position accruals for TRUaire and Falcon as well as the acquisition broker fee I mentioned. As a reminder, our tax rate in the fiscal third quarter can fluctuate more than other quarters due to seasonality. We still believe we will deliver full year growth in revenue, EBITDA, and EPS along with continued strong cash flow.

With that, I’ll now turn the call back to Joe for his closing remarks.

Joseph Armes: Thank you, James. To summarize, during the fiscal third quarter of 2025, we posted record quarterly results for revenue, adjusted EBITDA, adjusted earnings per share, and adjusted net income. Our strong 11% revenue growth included both inorganic growth from our recent acquisitions and organic volume growth. Looking ahead to our final fiscal quarter of 2025, we will continue to focus on delivering sustainable growth that exceeds the markets we serve, and we will look for opportunities to drive operating leverage. We will continue to identify and pursue accretive acquisitions of innovative companies and products that enhance our growth. I would like to take a moment to welcome the most recent group of employees to join the CSWI family through our acquisition of PF WaterWorks in November of 2024.

As I mentioned earlier, PF WaterWorks provides dependable drain management performance solutions that promote self-sufficiency and make life easier for homeowners, contractors, property managers, and builders. PF WaterWorks has grown significantly through product innovation and service, which are both wholly consistent with the CSWI ethos. Bringing these unique plumbing products and the new team under the CSWI umbrella will allow us to expand the distribution of these products to the important Pro Trade channel. I would also like to congratulate our RectorSeal team for being awarded the 2024 Voice of the Distributor Award from HARDI, the industry-leading trade group at the recent HVAC Distributor Conference. This is their single award recognizing the Supplier of the Year and is based on distributor nominations as well as a number of performance metrics.

This award is a testament to the hard work of our teams and our commitment to our customers. And lastly, I want to close my prepared remarks by thanking the dedicated team here at CSWI, who collectively own 4% of the Company through our employee stock ownership plan as well as all of our shareholders for their interest in and investment in CSWI Industrials. Stacy, we are now ready for questions.

Q&A Session

Operator: [Operator Instructions] Your first question comes from Jon Tanwanteng with CJS Securities. Please go ahead.

Jon Tanwanteng: Hi, good morning. Thank you for taking my questions and nice quarter. I was wondering first if you could address the impact of freight on the margins and the gross profit year-over-year. What was the exact impact, I guess, and where do you see that trending in terms of the headwind and are you expecting to offset that at any point via pricing or other mechanisms?

James Perry: Yeah, Jon, good morning. Thanks for being on, as always. This is James. Yeah, freight was certainly a headwind, as you well know and a lot of our shareholders know. There’s a four to six-month lag on the ocean freight from the time a container leaves Asia, crosses the ocean, and works its way through cost of goods sold. So, this quarter saw those kind of peak freight rates we had back in the spring and summer. Rates have started to come down since then to some degree, but obviously can remain volatile. It was the significant headwind we saw in the quarter. There was also, we mentioned, in the Q, a freight expense alignment. We had an amount of freight that we had accrued that in the second quarter didn’t get pushed all the way through expense.

As we trued things up in the third quarter, there was a bit of an alignment shift from Q2 to Q3. About 100 basis points of margin, if you look at it from that perspective, would have shifted. So, that kind of explains the gap. I’ll remind you that we mentioned last quarter that we have put forth our price increase earlier than normal. It went into effect January 1st. So, we would expect our fiscal fourth quarter to do a better job covering those freight expense increases that we saw as that pricing is now in place.

Jon Tanwanteng: Got it. So, you would expect pricing to offset that on one side and for rates to be coming down on the other as it seems to peak?

James Perry: That’s right. Yeah, rates have started to come down. Again, given the lag, the last few weeks, we’ve certainly seen rates come down. The avoidance of a port strike was certainly a positive. Rates were starting to spike ahead of that mid-January deadline. That looks like that’s been resolved. Rates came down. Also, with the at least current ease of conflict in the Middle East, the Red Sea has started to open back up. So, forecasters see a potential decline in ocean freight, but those are all — those can all be somewhat temporary and there’s a lot of exogenous factors, of course, going on. But we’re seeing rates start to come down, which we would see the impact of kind of in our fiscal first and second quarter at this point. But the pricing we put in place covers the freight that we already know is in our cost of goods sold.

Jon Tanwanteng: Got it. Okay. And then I think I heard you built inventory ahead of potential strikes and other disruptions. Just how long do you expect to be holding onto that before maybe the risk is passed and you start to run that down?

James Perry: Yeah, it’s really just what we would have brought in probably more January, February, March, Jon. It’s the stock up for the busy season. As we saw, you always bring in a little bit before the Lunar New Year, obviously, given our heavy reliance on Vietnam. So, we always bring a little extra in. But a little more this year, obviously, with that port strike, we obviously saw the scare of that in the fall, got through that. But we didn’t want that to disrupt our stock-up season. So, we brought some in ahead of the port strike. As I mentioned earlier, it looks like that’s been relieved now. But it’s inventory we were going to sell anyway. Secondly, with potential tariffs on certain parts of the world, that’s kind of what we allude to when I mentioned other disruptive events.

So far, we’ve not seen any new action on that. But given some of our product obviously comes from Asia, given that’s out there, we wanted to get ahead of that. And so we brought a decent amount in early. That’s really what you see was affecting cash flow in the fiscal third quarter. But again, we didn’t bring in anything above and beyond what we would need to bring in. So, now we have the couple of weeks that not a whole lot comes in because of Lunar New Year, at least not much gets shipped the next two weeks. So, now we’ll ease that a little bit and it’ll work its way through inventory very normally. If you look at the balance sheet year-over-year also, we’ll remind people that about half of the inventory growth year-over-year from December to December was just from the acquisitions.

But it doesn’t flow through cash flows the way acquisitions are accounted for from a balance sheet standpoint. Acquisitions alone are going to add to your inventory balance.

Jon Tanwanteng: Got it. That’s helpful. Could you also address organic growth in the quarter? 1.8%, I’m just wondering how much volume and pricing was a component of that and what your thoughts are going forward from an organic growth perspective?

James Perry: Yeah, sure, Jon. I think we continue to expect mid-to-high single-digit organic growth over a cycle. Year-to-date, organic growth is up 5.5%, 6%. So, we’re kind of in that zone from an organic perspective on year-to-date. And obviously, we look over a 12-month period more importantly. The acquisitions we made will start feeding organic growth next year. So, we’ll see that. We always talk about that key to that vitality. During the quarter, there were a couple of things. We mentioned a slight offset to the growth in HVAC, electrical, and plumbing by architecturally-specified building products. That’s our fire-stopping product. That was just a little bit softer industry-wide in the quarter. So, that was a bit of a headwind in the quarter.

We mentioned that in our 10-Q and in my script. We also kind of, as we end the calendar year, have some true-ups on rebates. And that offsets some of the pricing impact. So, yeah, we did have favorable pricing year-over-year. But rebates offset that in the quarter just as you true-up those accruals. Volume was up a relatively normal amount. But again, quarter-to-quarter, things are going to move around a little bit. The last thing I would mention is the OEMs, you’ve certainly seen, talked about a lot of pull forward on getting the old equipment that could be produced through December 31st out the door, as well as the new equipment getting ready for the new refrigerant. So, distributors are holding a lot of both. So, while it wasn’t a major headwind necessarily, there was certainly a minor headwind.

And distributors holding a lot of the OEM inventory, which obviously takes a lot of working capital dollars, and probably put a bit of a headwind just in the quarter on holding the parts and accessories. But we’re seeing normal demand as we enter the fourth fiscal quarter. And as we look into 2025, we’re expecting a good year.

Jon Tanwanteng: Got it. That’s helpful. And then last of all, just an update on the acquisition pipeline. What are you seeing out there? Entering five. I know you did PF WaterWorks, which seems very nice. But I was just wondering about the scope and aperture and the opportunities that you’re seeing, especially after you raised the equity and added cash from your balance sheet now.

Joseph Armes: Yeah, Jon, thanks for asking. This is Joe. The — as you recall, back in September when we did the equity offering, we said we didn’t really need [Technical Difficulty] to do these smaller bolt-on acquisitions, that we could do that out of our free cash flow. So, we entered 2025 in a spectacular position to take advantage of what we hoped would be an opening of the M&A pipeline, and at this point, we’re not at all disappointed in that. We see opportunities in not only small acquisitions, but also larger-size acquisitions that are coming to market. And for us, it’s really an exercise of maintaining our rigor, maintaining our discipline. There are opportunities there. We just need to wait for the right pitch to swing. So, we’re very optimistic. And we like what we’re seeing. We like the position we’re in.

Jon Tanwanteng: Okay. Great. Thank you.

James Perry: Thanks, Jon.

Operator: The next question, Susan Maklari with Goldman Sachs. Please go ahead.

Susan Maklari: Thank you. Good morning, everyone.

Joseph Armes: Good morning, Susan. Welcome.

James Perry: Good morning.

Susan Maklari: Thank you. Yes, it’s good to be here. My first question is on share gains. You’ve obviously seen a lot of that over the course of the last several quarters in the business. As you look out, and even as you start to think about the next fiscal year, where do you see the most opportunities? And how should we think about that potentially coming together?

James Perry: Market share gain, thanks, Susan, is an important part of our organic growth rate, that mid to high single-digits we talk about. Obviously, the industry is kind of growing low single-digits. Our ability to pick up market share gains from competition continues to be a key part of our strategy. And we’re putting our budget together, putting the bow on that for next fiscal year. Market share gain is a part of that. We would also point to obviously we’re in certain markets that are over-indexed, like indoor air quality, surge protection, many splits, those type things. So, that all kind of goes hand in hand. As we bring in these acquisitions, that also gives us market share opportunity, because more of our distribution customers want to have fewer vendors.

And so, the more product we can offer them gives us that opportunity to pick up market share gain that they can get a full pallet, more of a truckload, a full truckload, whatever it may be from us. So, while we don’t break out the specifics, clearly building up to a mid-to-high single-digit organic growth expectation includes a good chunk of market share gain that Jeff and his team are looking toward.

Susan Maklari: Okay. That’s helpful. And then, you mentioned that you closed the PF deal in the quarter. As you think about the synergies there, can you just elaborate a bit on that, and how we should be thinking about them starting to expand within the channel as we do get into the busier spring and summer seasons?

Joseph Armes: Yeah, this is Joe. Thanks for asking. It’s the really, really innovative, interesting products that have traditionally been sold through the retail markets. So, really, where we see the opportunity to accelerate the growth there will be in the professional trade, in the wholesale distribution side of the business, which is really our bread and butter. And so we see that as the opportunity of taking, if not all of those products, at least a number of those products through the professional trade, making those available to professional plumbers. And we see lots of opportunity there. We have the distribution for that that they just did not have.

James Perry: One thing I’ll mention, Susan, of course, that being a plumbing product, it’s not necessarily a seasonal, so we’re not having to ramp up for the busy HVAC season. So, we’ll spread that ramp up through the year and introduce that to our customers. Some are the same customers with that dual trade we’ve talked about with HVAC and plumbing. So, I think we’re going to have a real good take on that. And, again, that’s part of your market share gain question to displace other plumbing products potentially.

Susan Maklari: Yeah. Okay. That’s great color. Thank you both for all of it, and good luck with everything.

James Perry: Thanks, Susan.

Joseph Armes: Thank you, Susan.

Operator: Next question, Natalia Bak with Citi. Please go ahead.

Natalia Bak: Hi, good morning. Congrats on the quarter.

Joseph Armes: Thanks, Natalia.

Natalia Bak: I guess the first question that I want to ask is if you could elaborate on the overall macro environment. There seems to be a lot of cross-currents out there in terms of higher for longer rates with still weak US ISM and now increased geopolitical uncertainty. So, what are your distributors telling you about the market, and how are you thinking about the macro as you transition towards fiscal year 2026?

James Perry: Good morning, Natalia. It’s James. Thanks for that. Yeah, I think we’re still favorably inclined. Obviously, it looks like interest rates are higher for longer, as you say. Inflation seems to be relatively in check, reading kind of what the Fed is saying as recently as yesterday with Chairman Powell. And so, we’re watching it closely, but we’re expecting a normal year of growth. The HVAC market doesn’t move around quite as much as some of the other economically dependent factors. You may have a little more repair than replace at times, but again, our products are used for repair and maintenance. Existing home sales and new home sales have been a little down, but some of the housing permit numbers have been up a little bit lately.

So, the take on new equipment and replacement equipment is there. At some point, you do have to replace your unit. I think we’re probably past the pull forward we saw three, four years ago from COVID back into a normal cycle now. So, obviously, interest rates being up a little bit higher, mortgage rates being up could be a bit of a headwind there, but we continue to see favorable trends in our markets. And that, again, is what is so critical with these acquisitions we’re making, giving us the opportunity to offer more to our customers. If you look at the other couple of segments, clearly the commercial construction market has been challenged for EBS, but our trailing eight-quarter book-to-bill of 1:1 tells you we continue to put high-quality products in the backlog.

Our team is really focused on the right geographies, the right projects, being sure we get that estimation right so we can hit that 20% margin goal that we have. And as we put together next year’s budget, we feel good about growth in that market as well. And then Specialized Reliability Solutions, that tends to be relatively GDP with maybe a little bit of plus in it. So, again the energy market is somewhat important there. That was down this last quarter, but there’s some favorable rays of light in the energy market, we think. You’ve got an international and domestic component within SRS, so we look more at the global market in that respect. So, big picture, I think the macro environment is good. Maybe it’s not great per se, but given that, as I mentioned earlier to Susan’s question, our being over-indexed to higher growth markets within the sectors that we’re in give us the opportunity to exceed the macro environment expectations.

Natalia Bak: Got it. Helpful color. And then just curious, like, how, if at all, is the new administration impacting your business? Any impacting concerns regarding rollback to the IRA, for example, impacting heat pumps?

James Perry: I think it’s early. We’re certainly tracking what’s going on out there. The IRA itself, we’ve heard some of the OEMs say not much of that had come through, so they don’t see that that was much of a tailwind yet. And that going away, I don’t think it’s going to change things much. We clearly have products that go into the heat pump market. We have products that go into the traditional market. So, we’re rather agnostic in that respect. So, it doesn’t seem like that’s been a big factor in the success we’ve had or the industry’s had, so I don’t think that going away is much of an impact. Obviously, we’re watching things like tariffs. And if we need to push through pricing to offset some of those tariffs, then we would take that opportunity.

One thing I’ll mention or note in that respect that’s a little more near-term potentially, we watch the news closely, as you do, obviously. As a reminder, we don’t have any product coming out of Mexico. We have no product that comes out of Canada, very, very little within our EBS group. So, Mexico and Canada, which may have some near-term tariff headwinds, don’t really affect us. We have a little bit of product that goes into Canada. So, if there’s reciprocal tariffs, then we’ll look at what we need to do there. As we’ve mentioned before, our China exposure is low teens these days within Contractor Solutions and virtually nothing in the other businesses. So, single digits as an overall Company. Vietnam is our biggest exposure, and Vietnam is on good relations right now and has not been talked about as much.

So, we’re watching those things closely. We’ll react as we need to. As a reminder, we already have tariffs on Chinese products, and we were able to pass that through last time. So, to your point, we’re watching things closely. I’m sure when we talk again in May at the end of the fiscal year, there’ll be more things to respond to. But to date, we don’t see a whole lot that would affect us directly, but we’re watching that very carefully, of course, and we’ll react appropriately and think we have good opportunity to do that.

Natalia Bak: That’s helpful. And there’s one more final question for me. What about the refrigerant pre-buy across the Rosie HVAC space? Is it impacting CSWI results, if at all?

James Perry: I mentioned just very briefly in response to Jon that we could have seen a little headwind in our fiscal Q3 because there was that pre-buy of people stocking up on both the old refrigerant equipment and the new refrigerant equipment, so they could offer both to their customers, and the OEMs can’t produce the old equipment anymore as of January 1st. So, we may have seen a little headwind because the distributors have a lot of working capital tied up in capital equipment, and our parts and accessories may have seen that. So, we would expect that now that our price increases, in effect, January 1st, and anything we sell this fiscal fourth quarter and into the first quarter as people stock up, we’ve got a little extra tailwind on price as well, which is helpful.

The refrigerant change itself, as a reminder, doesn’t affect us at all. We’re agnostic to that. The one potential tailwind is if people upgrade their systems to the new refrigerant to get better efficiency with SEER ratings that popped up a couple of years ago and more environmentally sound, as well as potentially offsetting future repairs, having new equipment, a new replacement unit is going to be positive for us overall. But we may have seen a little headwind in Q3 as we look back on it, but nothing dramatic. But that would have tampered our organic growth a little bit.

Joseph Armes: And Natalia, this is Joe. On your earlier questions, I think James did a great job talking about the operational effects. I think that was really the crux of your question. But as you zoom out and you think about the new administration, the regulatory scheme there, and the enforcement of regulations around M&A, and you think about higher interest rates for longer, both of those are good for our acquisition strategy because I think we might have a competitive advantage. With the pristine balance sheet that we have, the dry powder that we have, we’re in a much better position from an M&A standpoint than some of our competitors for those assets who may already have leverage and looking at interest payments that we don’t have to look at.

Natalia Bak: Got it. That’s super helpful color. Thank you so much and congrats on the quarter again.

Joseph Armes: Thank you.

Operator: Thank you. I would like to turn the floor over to Joe Armes for closing remarks.

Joseph Armes: Yeah. Thank you so much, everyone, for joining us for the third quarter conference call. We look forward to speaking to you again soon. Take care. Thank you.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time, and thank you for your participation.