Headwater Companies' DeLancey Davis Discusses Business and 2021 Outlook | NGWA: Industry Connected

Thank you, Mike. Good to be here.

A lot goes into any acquisition, large or small. Guycon certainly was a large one, really key for us. Companies have to be well-run, very good companies. We're not into reclamation projects. We really are focused on great people, people that are technically proficient and really passionate about the business. Headwater Companies is all about reinvesting in groundwater. So the core for us is to identify companies that share that vision and are in need of a succession option, and so far it's just been working wonderfully. Guycon has been a great fit for us from that profile. They're also a terrific cultural fit; they really fit right in with our group. Looking forward, we're going to continue to reinvest in the business. It gives us an immediate footprint in municipal, commercial, industrial. Their Abernathy facility is going to be providing that capacity for all Headwater Companies, and certainly the footprint in Texas is a great move for Headwater geographically. Texas is a fantastic market, a lot of great customers, great applications, great opportunities there. We're looking forward to developing that.

Yeah, you know, we were really, I think, more prepared than most for dealing with these pandemic conditions and the issues they presented for supply chain. We are a very large wholesale distribution operation; we have quite a bit of inventory. But we've got really state-of-the-art systems around inventory management, inventory movement. We work really closely with both our customers as well as our vendors on maintaining flow of product. We were very careful and have been very careful in working with our customers about the product they need when they need it, as opposed to just loading them up with product, and making sure that we were able to provide service throughout. So from a supply chain standpoint, we certainly had some challenges. Some vendors did struggle, but fortunately we were able to support them where we could and provide adequate substitutions for customers where they weren't able to deliver. There were a number of vendors that we don't support that I really think struggled and made some decisions early on that really created some problems in the market.

You know, really the biggest problem was fear in general and fear of the unknown. When March, April hit last year, no one really knew what the scope of what we were going to be dealing with was, what was going to be the impact on the business. We sat down our management team both at Headwater as well as Franklin and really just put in front of us: what is it that we know? What do we know here and what should we react to? What we knew was that this appeared to be impacting people over the age of 65 at a much more devastating rate than people under 65. So we took the immediate action to send every employee over the age of 60 home. We paid everybody, but we just immediately sent them home and told them to quarantine until we could figure out what was going on. The other thing we knew, in talking with our customers, was that everyone was busy. Everyone had a big backlog. Business conditions were very strong, and wherever we were allowed to conduct business—meaning there wasn't a government mandate from any of the states that was impacting us—our customer base was busy. They certainly needed help in making sure that they were operating in safe conditions and that we were operating with them from a social distancing standpoint, that we were supporting their efforts there. But we worked through this very methodically with our customers, with our vendors, and said, look, as long as we can supply them in a way that keeps them safe and comfortable, it's going to be a good year. And we need to make sure that we keep our people safe, we keep our customers safe, that we provide good guidance to our vendors so that we can continue the flow of product through the channel.

Yeah, it's an interesting question. I would say we really don't have any adaptations that I see that are going to be permanent. We are following all the state, local, federal guidelines in all of our facilities and our operations around social distancing and COVID protocols, but once they go away, they're going to go away in our operations. We have already put in place and made heavy investments in a variety of IT solutions that have been really dynamic help to our customers around inventory, around ordering, around their business management that allows them to conduct business with us virtually when that works. And those systems were all in place far before the pandemic, so it really helped us once it hit. People were able to deal with us any way they chose: online, via the telephone, through apps, a variety of different things. So we'll continue investing in those technologies.

Well, I think we saw that we can conduct meetings virtually. Depending on how you want to define business, I don't think virtual works for our business at the end of the day. This is a people business. Our customers need to see, touch, feel, believe in products that they're going to be putting in the ground or into various systems and applications. We can train, but training is really difficult to do on a lot of systems virtually. Our customers are structured in many different ways. There are large companies that have the capacity to do what you and I are doing and sit in an office and talk virtually. There are other companies that are one, two, three-man operations, and they're busy, and their time is precious. They can't sit down and take an hour and a half to go into detail and look and read. They need someone out there that can work through it with them. So conducting business virtually, people will do what they have to do in a pinch to get by, but I think long-term our business isn't really going to change from that fundamental aspect. The technologies—whether it's Zoom, Microsoft Teams, Webex, YouTube—all of these technologies are great, they've been really helpful. I think people use them a lot when they're troubleshooting. I think you're going to see continued investment in that, but in terms of the actual conducting of business, I think we're never going to get away from the need for personal contact.

There is no such thing. I'm the President of Headwater, I'm also a corporate officer at Franklin Electric. Between acquisitions, between branch visits, between customer interaction, I'm on the board of and have been on the board of many industry organizations. On any given day I could be doing all of those things in a variety of different meetings. And really, the thing that I feel most useful doing is getting out in the field and seeing what our customers are doing and what we could be doing better to support them. Unfortunately, I don't get to do that as much as I'd like to. But there's internal, external, our vendor needs. We live and die by making sure that we're taking care of our vendors, we're taking care of our customers, so there's an awful lot of interaction that happens there. We also want to make sure that we're great members of NGWA and we're doing everything we can to support the industry.

They've been very busy. They have been scrambling to comply with all the various rules, regulations, restrictions. They're in desperate need of good help. There's been a real drain for a variety of reasons on the ability to get and maintain good help. And I think really they're just looking for some relief in that. Weather has been an unbelievably cooperative circumstance for us in the last six months. It's been a very mild winter in a lot of places, and a lot of contractors that would typically close things up in November and quiet down and work on their tools and their rigs don't get to do that. They're going and blowing. So more than anything, what I hear is they just need more help.

Headwater will continue to grow both organically and through acquisition. Market conditions continue to be very favorable. We see continued urban migration, people moving into our core markets. They need water in, they need water out, they need water treated. They need all of the essential services that our company and our industry provides. So we really don't see much change in 2021 from 2020 other than hopefully that we get over the COVID restrictions, the COVID fears, and having to protect ourselves against any potential spread.

Thank you, Mike.