Earnings call: ADENTRA reports Q4 sales of $515 million and stable margins

ADENTRA (ticker: ADNT) has released its fourth-quarter earnings, showcasing resilience in the face of a challenging economic environment. The company reported Q4 sales of $515 million, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $44 million and adjusted earnings per share (EPS) of $0.46. Despite a year-over-year decline in sales for the first nine months of 2023, the fourth quarter saw a reduced decline of 10%, signaling an improvement. The company's strategic focus on digital engagement and a diversified platform has contributed to stable sales and gross margins, maintaining them above 20% for 11 consecutive quarters. Looking ahead, ADENTRA is optimistic about achieving modest growth in 2024 and reaching $3.5 billion in run rate sales by 2028.

Key Takeaways

• ADENTRA posted Q4 sales of $515 million, a 10% decline, which is an improvement over the 14% drop in the first nine months of 2023.
• The company maintained a gross margin above 20% for the eleventh consecutive quarter.
• Digital engagement strategies have led to e-commerce sales comprising 20% of the total revenue.
• ADENTRA reduced its debt by over $223 million in 2023, with a year-end leverage ratio of 2.7x.
• Shareholders received $17.8 million through share repurchases and dividends.
• The company anticipates stable demand in residential construction and repair markets and expects modest growth in 2024.

Company Outlook

• ADENTRA expects modest growth in 2024 and aims for $3.5 billion in run rate sales by 2028.
• The company predicts stable levels in residential construction and repair and remodel markets, with Q1 sales expected to be lower than the same period in 2023.
• ADENTRA sees potential for market share expansion and growth prospects in the housing market.

Bearish Highlights

• Sales in the first nine months of 2023 were down 14%, with Q4 sales down 10%.
• The company anticipates Q1 sales to be lower than Q1 2023 due to lower product prices.
• ADENTRA is challenging duties imposed on them and expects the bill to align with their initial estimate.

Bullish Highlights

• The company's platform and digital engagement strategy are expected to enhance customer loyalty and increase order sizes.
• ADENTRA has a robust pipeline for mergers and acquisitions and is focusing on digitization for efficiency and inventory management.
• The company expects a modest improvement in EBITDA in 2024 and has expanded the high end of the gross margin range in their goodwill impairment note.

Misses

• ADENTRA is investigating $16 million in charges they believe to be incorrect and will challenge these in court.

Q&A Highlights

• The company provided full-year guidance, expecting small declines in sales in the first half of the year with improvements in the second half.
• Pricing has been under pressure with modest month-by-month decreases.
• ADENTRA's capital allocation is focused on debt repayment and keeping reserves for potential acquisitions rather than share buybacks.
• The company aims to decrease its debt to the low 2s if no acquisitions are made and intends to maintain or potentially build on its gross margin level in the long term.

InvestingPro Insights

ADENTRA's recent financial performance, as reported in their fourth-quarter earnings, reveals both challenges and resilience. To provide investors with a deeper understanding of the company's position and potential, we turn to key insights from InvestingPro.

InvestingPro Data for ADENTRA indicates a market capitalization of $569.33 million, reflecting the company's size and significance in its sector. The P/E ratio, a measure of the company's current share price relative to its per-share earnings, stands at 15.25, which offers a glimpse into investor expectations about future growth. Notably, the company's revenue for the last twelve months as of Q3 2023 was $2299.2 million, but it's important to note a revenue decline of -8.77% during the same period. This contraction aligns with the reported sales drop in ADENTRA's recent earnings release.

InvestingPro Tips further enrich our understanding of ADENTRA's financial health and prospects. The company has demonstrated a commitment to shareholder returns, having raised its dividend for 13 consecutive years. This consistency is a positive signal for income-focused investors. Additionally, the strong return over the last three months, with a 24.1% price total return, suggests a bullish sentiment in the market, despite the analysts' concerns about potential sales decline and net income drop in the current year.

For investors seeking comprehensive analysis and additional InvestingPro Tips for ADENTRA, there are 13 more tips available, which can be accessed by visiting https://www.investing.com/pro/ADNT. To gain a deeper insight into ADENTRA's financials and future, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.

Full transcript - Hardwoods Distribution Inc (OTC:HDIUF) Q4 2023:

Operator: Good morning, ladies and gentlemen, and welcome to the ADENTRA Q4 and Full Year 2023 Results Conference Call. [Operator Instructions]. Also note that this call is being recorded on March 18, 2024. And now I would like to turn the conference over to Ian Tharp, Investor Relations. Please go ahead, sir.

Ian Tharp: Thank you, Sylvie, and good morning to those joining today as we discuss ADENTRA's financial results for the fourth quarter and year ended 2023. With me on the call are Rob Brown, ADENTRA's President and CEO; and Faiz Karmally, Vice President and CFO. ADENTRA's Q4 and full year 2023 earnings release, financial statements, MD&A and other year-end filings are available on the Investors section of our website at www.ADENTRAgroup.com. These statements have also been filed on ADENTRA's profile on SEDAR sat www.sedarplus.ca. I want to remind listeners that management's comments during this call may include forward-looking statements. These statements involve various known and unknown risks and uncertainties and are based on management's current expectations and beliefs, which may prove to be incorrect. Actual results could differ materially from those described in these forward-looking statements. Please refer to the text in ADENTRA's earnings press release and financial filings for a discussion of the risks and uncertainties associated with these forward-looking statements. All dollar figures referred to today are in U.S. dollars unless stated otherwise. I'd now like to turn the call over to Rob Brown.

Rob Brown: Thanks, Ian, and good morning, everybody. Thanks for joining us this morning as we report our results for ADENTRA in 2023. I'll start today with our key financial and business highlights for the year. Faiz Karmally, our CFO, will then provide details of our Q4 financial results. I'll finish off our prepared remarks with our outlook for 2024. We had a strong finish to the year with fourth quarter sales of $515 million, adjusted EBITDA of $44 million and adjusted earnings per share of $0.46. Recall that our sales through the first 9 months of 2023 were down 14% when compared to the same period in 2022. In the fourth quarter of 2023, our sales were down 10%, and as compared to Q4 2022, an improvement as compared to the trend through the first 9 months of the year. The fourth quarter and our full year results were supported by the scale and diversity of our platform. We operate a geographically diverse network across North America, participating in multiple end markets, including residential, repair and remodel and commercial construction. We sell into varied customer channels, including industrial manufacturers, home centers and pro dealers. And we service our customers with a broad mix of specialty building products. While our 2023 results did not match the record-breaking performance of 2022, which benefited from unusually strong demand and tight supply. Our platform led to stable quarter-to-quarter sales and gross margin on a sequential basis through 2023. As it relates to gross margins, I'm pleased with our success in maintaining gross margins consistently above 20%. Even as we reduced our inventories by over $120 million during the year. We've now delivered 11 consecutive quarters with gross margins above 20% and believe we have established a new sustainable level profitability for our business. Higher gross margins are supported by expanded access into the pro dealer and home center channels through our acquisitions of Novo and Mid-Am growth in our higher-value product mix supported by our global sourcing program. The product portfolio that includes a selection of higher margin, ready to install products such as pre-hang doors, star part kits and molding solutions and the use of data analytics in our digital platforms to deliver strong asset management and pricing discipline. I'm also excited about the progress we've made in our digital engagement strategy. A key component of this strategy are e-commerce sales, which account for 20% of our revenues. This represents significant progress from 0 just a few years ago. We strongly believe our digital strategy will enhance long-term customer loyalty, increase customer order sizes and support our sustained delivery of gross -- strong gross margins. The sales and margin performance, combined with tight management of operating expenses, led to strong operating cash flow before changes in working capital of $118 million. Our business model also realizes cash from the release of working capital in slower economic periods and this generated an additional $120 million in operating cash flows in 2023. We primarily used these cash flows to reduce our debt by over $223 million and bring our leverage ratio to 2.7x at year-end. The leverage ratio remains well within our target range. We also returned a total of $17.8 million to shareholders through share repurchases and dividends. Approximately 2% of our issued and outstanding shares were repurchased, and we paid $8.6 million in dividends in 2023. With the 8% increase in our dividend announced in Q3, we've now increased our dividend a total of 11x in as many years. We believe that despite challenging market and economic conditions in 2023, our business demonstrated important stability and performed well. I want to thank the entire ADENTRA team for the dedication and persistence that drove this performance. I'll now pass the call to Faiz to provide details of our Q4 financial results, then I'll return to speak more about our outlook following that. Faiz?

Faiz Karmally: Thanks, Rob, and good morning, everyone. I'm going to recap our financial results for the fourth quarter of 2023 and outline our financial position at year-end. Again, I'll remind those listening that any dollar figures Rob and I use today are in U.S. dollars, unless we've stated otherwise. Starting with consolidated revenue, we generated sales of $514.9 million in Q4, which was a decrease of 10.4% or $59.9 million compared to the fourth quarter of 2022. The decrease primarily relates to product price deflation, while unit volumes remain generally stable as compared to Q4 in 2022. Q4 sales were not significantly impacted by foreign currency translation of our Canadian sales into U.S. dollars for reporting purposes. Sales in our U.S. operations were $476 million with this 10.7% decrease compared to 2022, mainly the result of product price deflation. Our Canadian operations posted Q4 2023 sales of CAD 53 million, which were 7% lower than Q4 sales in 2022. The change was primarily due to product price deflation, offset by a modest increase in volumes. Turning to gross profit. We earned $111.4 million in the fourth quarter, a 4.1% decrease as compared to Q4 in 2022. This change reflects lower organic sales and was offset by a gross profit percentage of 21.6%, which improved on the 20.2% gross margin posted in Q4 of 2022. During Q4, we recorded inventory write-downs totaling $2.4 million. a substantial decrease compared to the $7.5 million we incurred in Q4 of 2022. Our operating expenses for Q4 were $86.1 million, a $5.5 million reduction compared to Q4 of 2022. The reduction in expenses relates mainly to lower staffing costs, including lower variable compensation and also lower premise costs. Moving now to adjusted EBITDA. For Q4 2023, it was $44.5 million, a 2% increase over the fourth quarter of 2022, with the increase largely driven by the $5.7 million reduction in operating expenses and partially offset by the reduction in gross profit dollars of $4.8 million. And finally, profit in the fourth quarter was $9 million, a decline of $4.4 million from the $13.4 million we posted in the same period last year. The change was driven by a $6.4 million increase in income tax expense, $0.8 million in additional depreciation and amortization expenses and partially offset by the $1.5 million increase in EBITDA and a $1.3 million decrease in finance expenses. On a per share basis, adjusted profit per share was $0.46 as compared to $0.66 in the same period in the prior year. Looking at our cash flow position for the fourth quarter, we generated $56.5 million of cash flows from operating activities. This was comprised of $37.6 million of cash flow from operating activities before changes in working capital and another $18.9 million from reductions in working capital during the period. Moving next to our balance sheet. Our cash flow generation in Q4 enabled us to reduce debt by a total of $42.9 million and a total of $223.9 million for the full year ended December 31, 2023. We ended the year in a solid financial position with a leverage ratio of 2.7x and unused borrowing capacity of over $450 million. Which gives us the flexibility necessary to manage any short-term headwinds, fund future growth and continue to advance our business strategies. Our capital allocation priorities remain focused on responsible management of our balance sheet, funding our growth, both through acquisitions as well as organically and providing incremental total returns to shareholders. With respect to returns to shareholders, and as Rob referenced earlier, through a combination of dividends paid and share repurchases, we returned a total of $17.8 million to shareholders in 2023. With that, I will hand the call back over to Rob. Rob?

Rob Brown: Thanks, Faiz. I'll conclude my prepared remarks today with our outlook and details on our strategy to continue to build the long-term value of ADENTRA. As we advance through 2024, we expect that inflationary pressures as well as elevated interest rates will continue to impact economic activity. And while we've seen sales volumes stabilize in the fourth quarter and into early 2024, we continue to see some softness in product pricing. We expect residential construction to show stable levels as compared to 2023 and stable to lower levels in the repair and remodel market. These segments each represent approximately 40% of our annual sales. Against this backdrop, we expect Q1 sales to be lower than Q1 of 2023 and with higher volumes being offset by lower product prices. We anticipate that year-over-year sales comps will improve in the latter half of 2024. Our outlook is for modest growth in 2024 and adjusted EBITDA through our focus on strong gross margins and disciplined operating expense management. There continues to be much speculation regarding when the Fed and the Bank of Canada might consider loosening interest rates, which could provide a boost to construction markets after an extended period of rapid tightening to combat inflation. While we can't predict that, we remain confident that our business is well positioned for the long term. We remain confident that our business is well positioned to capitalize on the fundamental demand drivers in the repair and remodel and residential construction markets. These drivers include an aging U.S. housing stock, positive demographic factors strong home equity levels and the continued underbuilding of homes in both the United States as well as Canada. Through our success in expanding our product categories, customer channels and end markets, we have access to a significant addressable market of $43 billion, and we estimate our current market share to be approximately 6%. We see attractive new growth prospects and potential to expand our market share going forward. Our strategy to achieve this was described at our Analyst Day in December of 2022, where we disclosed our goal of achieving $3.5 billion in run rate sales by 2026. Having managed our way through the recessionary environment of 2023 and with our expectation of flat market demand in 2024, we've reset the target date for our plan of $3.5 billion in run rate sales to 2028. The other key metrics underpinning our plan have not changed significantly from what was laid out at our Analyst Day, and we are optimistic about achieving our targets going forward. With that, I want to thank you for your time this morning. I'll turn the call back to Sylvie to provide instructions for the Q&A period. Sylvie?

Operator: [Operator Instructions]. And your first question will be from Ariana Milin at CIBC.

Ariana Milin: So in the second half of 2023, you experienced low double-digit price inflation. So when do you expect to lap negative pricing comps? And have you seen prices begin to stabilize on a sequential basis or in certain product categories?

Rob Brown: Yes. Faiz and [indiscernible]. So we may do some tag teaming today. But I guess the comment I would make Arianna, that we've seen the rate of price deflation sequentially diminishing. So I've made the comment earlier that we thought that, that would slow down and stabilize. And I think that's still our view as we move through 2024. But certainly, in terms of lapping comps, as we said in our outlook statements, we anticipate getting into sales -- some positive sales comps in the latter half of the year.

Ariana Milin: Okay. Great. That's helpful. And then turning to the M&A side. How robust is that pipeline right now?

Rob Brown: Yes. I mean we feel really good about what we've got in the pipeline. You'll recall it's fully staffed in terms of -- we have a full-time senior VP that looks after the pipeline very experienced, being in place for many years. And -- while 2023 was a relatively quieter period simply because we wanted to generate cash and focus on debt repayment, we weren't ignoring the pipeline in that period, we did a lot of very good work in terms of relationship management and outreach. So we feel good about getting some deals done and where the balance sheet is now positioned, we think that that's very realistic for 2024.

Operator: Next question will be from Yurisleidy Zoreda at Canaccord Genuity.

Yurisleidy Zoreda: So just on the outlook, you're calling for a modest EBITDA improvement in '24. Just trying to please the moving parts I believe, Q4 EBITDA margins is the strongest we've seen for a fourth quarter despite the sales decline. So could you perhaps provide some color on what you expect in the first half of 2024, margin-wise vis-a-vis the fourth quarter margin strength?

Rob Brown: Yes, we -- I mean, we've kind of got a couple of data points out there. We've said over the cycle, our goal is to be at an adjusted EBITDA margin of 10% plus. We feel like we're making very good progress toward that. We've been in, obviously, the lower part of the cycle. So the EBITDA margin you saw for fourth quarter, we feel really good about by having still experienced product price deflation. The key for us will be the gross profit margin. That was very strong in the fourth quarter as well. We've mentioned we've comfortably established that above 20% going back almost 3 years now. So as we look at making the statement that we made, which we expect some modest growth in EBITDA in 2024. That is just predicated on continued gross profit margin performance and controlling expenses. And then we all understand how the leverage works through distributors balance sheet, it's getting back into some top line sales growth, which we've indicated as more latter half of 2024.

Yurisleidy Zoreda: That's good color. And I'll just take a second one in -- you quote your global sourcing business as one of the drivers of the margin performance. So I was just wondering, bigger picture, where the proportion of import products stands up over the last few years of supply chain disruptions? And how much more do you see -- how much more room do you see to grow on that front?

Rob Brown: So yes, our import business today is roughly 1/3 of the products that we sell are sourced outside North America. That's predicated on finding very strong partners overseas and doing all of the compliance and quality control work that makes us comfortable partnering with those mills. I think it's quite a good place today in terms of the mix of domestic versus import. We do like the margins that imports bring, but also with a reminder, it's a longer supply chain to your comments. So we need to be paid for that in terms of just a little bit extra working capital that goes a longer supply chain.

Operator: Next question will be from Ian Gillies at Stifel.

Ian Gillies: With respect to the digitization strategy, can you talk at all about how you think that's going to ultimately manifest itself in inventory management and maybe getting days down there even further than you've been able to do historically and how it helped margins and -- and maybe how you're going about sourcing the products to help implement some of this digitization?

Rob Brown: Yes. So I think it's an important topic. We obviously mentioned it in the annual report, and I included in my comments. It's an important part of our strategy. People typically associate digitization with e-commerce and they're not the same thing. E-commerce is portion of digitization, but we do have digital engagement strategies as it relates to our employees, our suppliers and our customers. We're very much focused on the customer at the moment. And the e-commerce piece, as I mentioned, is important because it just increases customer loyalty and makes it easier to do business with the omni-channel type approach, which in our industry, I would say, is maybe not as rapid as in other industries. But you're right, it can help with other areas in terms of intelligent use of data, you mentioned how set utilization. So days on hand, yes, we are absolutely continuing our digitization push as it relates to how can we be more efficient with reorders, with truck routing, with sharing inventory between locations, all those things fall under -- I think previously, we've talked about computerization and now we're moving towards intelligent -- more intelligent use of the data that we've got. So I could go on at head length, certainly on the digitization topic, I'm glad you picked up on it, but it's more than e-commerce and it is kind of all encompassing, we believe, over the next number of years across our business, asset management, customer interaction, merger management, pricing, all those things fall under that umbrella.

Ian Gillies: Got it. And maybe moving along with same lines but a bit differently. Where do you think you're at in addressing the potential to use automation in your distribution centers as a way to improve productivity?

Rob Brown: So the thing about the business model that we have is we are a one-stop shop for architectural building products, which means we have things that are all different shapes, sizes, weights and require much different storage and picking solutions when you're building an order for a customer. That makes warehouse automation more challenging to do compared to, say, a company that is involved with a homogeneous product that is very UPSable or in squares. So we have things that are very long and get cut up as part of woodworking. So -- in terms of how we make for more efficient warehouses, a lot of that is really around picking building orders and route planning. And the use of equipment that we have for moving around. But if you were to walk through a warehouse today, and you're not going to see a lot in terms of auto pick and computers running about collecting inventory just because of the characteristics I described.

Ian Gillies: Okay. And -- separately, if I can sneak one last one in, and maybe for Faiz, but I noticed in the goodwill impairment note that you've expanded the high end of the gross margin range there to 25.5% from 23. I'm curious on that, has something materially changed in the business where you guys feel more comfortable about the upper end of the target for where the business could be? Or am I just reading too much into it?

Faiz Karmally: Ian, yes, I can take that one. Probably I wouldn't read that much into it. I think the disclosure you're referring to there talks about the gross margin assumptions we use over a 5-plus year period when we're valuing the goodwill. And it's a buildup of a number of different business units because the goodwill relates to several acquisitions. So one of the things -- some of the things we've -- you've heard us talk about in this call as it relates to -- what Rob just described, whether it's over time, how we manage the business. You brought up things like over time doing better on inventory turns. We talked about our digitization strategy. I would say, over time, all those things, we expect to have some improvements on margin. And so that's us taking the view 5, 7 years down the road. So it's aspirational, it's a forecast. I probably wouldn't read too much more into that than what I've just described.

Operator: Next question will be from Zachary Evershed at National Bank Financial.

Zachary Evershed: Could you go into a little bit of detail about the mechanism that resulted in the review or increase the duties after the final determination in July versus what you guys accrued?

Rob Brown: Yes, it's Rob. I'll speak to that. So the estimate that we made in July, we booked just under $16 million related to the duties. We still think that's a good estimate. The updated disclosure is just an acknowledgment that we started to receive demands for payment in Q1. And we've actually received slightly above our $16 million, not materially so. We need to do more investigation on those. We think some of those are incorrect. But I mean it's very much in line with where we thought it would be back in Q3.

Zachary Evershed: And we know you'll be challenging all of it in court. But is there a chance you get a higher total build than what we've seen so far as more continues to trickle in?

Rob Brown: I mean that's not our expectation. We think it's fairly clear when we read the final determination, what our bill should be. So I don't have an expectation of that, but it's a trade case and we're, as you mentioned, going to spend our time trying to reduce that number as we can because we disagree with it.

Zachary Evershed: Definitely. And so you guys -- you guys have pretty bullish guidance in terms of what you're hoping for -- for the full year. How do you feel that Square is with the big box retailer guidance for small declines?

Rob Brown: Yes. I mean we've said that we've got some tougher sales comps in the first half, and we kind of get into something better in the second half. But it's really also a function of continued strengthening our gross margin while controlling our costs. As we make those statements, you would hope and expect, we do our own buildups around what we think is happening in single-family versus multifamily. And then what's happening in R&R and weigh those against our relative participation in those end markets to arrive at the statements we put out. And on the R&R side, we've said that's stable to down slightly. I think that squares reasonably well with what the home centers are saying with low to mid-single-digit declines. The millwork aisle, which is the aisle that we participate in, tends to perform maybe a little bit more stably. When you think about those home center big bumper sticker numbers, they include a lot of different things. So we're angling our assumptions, obviously, towards the product categories we participate in.

Zachary Evershed: And then just one more. As you look at the pace of pricing and where your inventories sit today, what do you foresee for Q1 and for the year as a whole for your inventory position?

Faiz Karmally: Zach, it's Faiz here, I can take that. So from an inventory position, the way we ended 2023 I would describe our inventory fairly well matched to sales pace. The excess inventory we talked about this time last year, that we've moved through all of that, that's all been moved through. We did most of that work in the first 6 months of last year actually, maybe a little bit in Q3. So we ended the year just under 80 days of inventory is the way to think about it. at the sales pace I described coming out of Q4, I wouldn't anticipate us adding a bunch of inventory. Now sales do a little better, maybe you're adding a little bit. But at the same time, I also think we can do a little better on our inventory days. Again, earlier in this call, I think a question Ian had which Rob was responding to, around some of the things we're doing to continue to be more efficient with our asset base. We'll see some benefits of that this year. So I could see that 80 days may be coming down a little maybe at the same time, you're investing a little bit in inventory in the latter half of the year, particularly when the sales comps are expected to improve, as we've said. So overall, I'm not expecting big, big shifts in inventory throughout the full year. If it plays out as we've highlighted in our outlook, I think it's well positioned you might see some plus or minuses as we go through the year in terms of just timing. But ending the year, again, if it plays a -- as we've highlighted in our outlook, I think we're positioned well heading into the year for inventory for 2024. Your comment on pricing. The inventory is priced fine today. The price deflation I would mention, we've experienced that now for a number of months, but it's been quite orderly month-to-month. And so we've really been able to manage our average costs around that. And that's partly why you've seen the gross margin percentage continue to be quite strong because we've been able to manage around that -- again, that kind of predictable modest price decrease every month. So I think the inventory is well positioned.

Zachary Evershed: Great color. And so just to confirm, is that pricing still under pressure month-by-month in 2024?

Faiz Karmally: Yes, to the early part, I would say, no big change in trend, a little bit of a modest decrease month-by-month.

Operator: [Operator Instructions] and your next question will be from Jeff Fenwick at Cormark.

Jeff Fenwick: So just I wanted to ask about uses of capital this year and prioritization. Obviously, last year, a lot of headway in terms of paying down your debt. When I look at the business stabilizing and maybe getting some better margin this year, still a pretty high level of free cash flow and continuing to delever, I would imagine. So is the focus here continuing to pay down debt? Or how would you sort of allocate those dollars across debt repayments, share buybacks and M&A?

Faiz Karmally: Jeff, it's Faiz here. I would say on the capital allocation, short-term goal, I mean that the capital is going to go against debt. That's just naturally the place to put it until you do an acquisition. On the share buybacks, that's been more opportunistic in the past. But I would say it's not the focus today. The focus is really continue to delever, as you noted. Which, you're quite right, we'll do that over the course of the year. Absent an acquisition, we would go from a 2.7% to something in the low 2s, so maybe more at the bottom end of our range. And then to keep our dry powder ready for executing on acquisitions. As we mentioned, we've done a lot of good work on the pipeline in the last 12 months. And there may be opportunities that we can be active on this year and so we want to be ready to execute on that. That would really be the focus as well.

Jeff Fenwick: Okay. Great. That's helpful. And then I wanted to shift topics here on the gross margin. And as you've highlighted a few times, successfully keeping it over 20%. It's actually been trending over 21%. What are some of the factors there we should be mindful of as we look forward into the year? And I'm just trying to think about the 21% is maybe the better number than 20% at this point? And are there things in the mix right now that are maybe in flux -- or are there other cost inputs that may change over the year that kind of change that target level? Any sort of color there would be helpful.

Rob Brown: It's Rob here. So -- you're quite right. We're not quite ready to put a new pen in the Board at 21%. So we said drew the line at 20%. Let's establish ourselves there, and we feel really good about having done that. And -- you recall historically, this was an 18% to 19% business. The factors that are that have us there. There's nothing I would call out that I think is different. It's the businesses that we've added. It's the continued movement that we've added in terms of acquisition. It's the continued movement of our product mix towards branded and specialty products that carry higher margins. It's the appropriate use of imported products to augment the domestic products that we sell. It's our -- getting -- I would say, smarter with pricing and more sophisticated in terms of stratifying the SKUs that we sell and understanding which are more very sensitive and which are less. So it's not any one factor. And none of those factors I just mentioned, are we taking our foot off the gas. We would like -- over the long term to be able to continue to build off where we are. But for now, it's -- we've just navigated through a very difficult market in 2023. We like where we're sitting with the margin for now and intend to try to hang on to that moving forward.

Operator: Thank you. And at this time, gentlemen, we have no other questions registered. So please proceed with any additional comments.

Rob Brown: Nice job, Sylvia. Appreciate your help today, and thanks, everybody, on the line for attending to -- do reach out to Faiz or myself if you've got some follow-up questions, and have a great day.

Operator: Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

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