Quanex Building Products Corporation

Good day and thank you for standing by. Welcome to the fourth quarter and full year 2021 Clonix Building Products Corporation earnings conference call. At this time, all participants are in listen-only mode. After the presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star, then 1 on your telephone. Please be advised today's conference may be recorded. If you require operator assistance during the call, please press star, then 0. I'd now like to hand the conference over to your host today, Scott Zilke, SVP, CFO, and Treasurer. Please go ahead.

Thanks for joining the call this morning. On the call with me today is George Wilson, our President and CEO. This conference call will contain forward-looking statements and some discussion of non-GAAP measures. Forward-looking statements and guidance discussed on this call and in our earnings release are based on current expectations. Actual results or events may differ materially from such statements and guidance, and Quantix undertakes no obligation to update or revise any forward-looking statement to reflect new information or events. For a more detailed description of our forward-looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release issued yesterday and posted to our website. I'll now discuss the financial results. Net sales increased by 14.2% and 25.9% during the fourth quarter and full year of 2021, respectively. Record growth for both periods. As a reminder, both of our manufacturing facilities in the UK were shut down in late March of 2020 and did not resume operations until mid to late May last year. The increases in revenue were mostly due to improved demand across all product lines and operating segments, combined with higher prices primarily related to the pass-through of raw material cost inflation. More specifically, for the fourth quarter and full year, we posted net sales growth of 10.1% and 19.6% respectively in our North American fenestration segment, 15.9% and 17.1% respectively in our North American cabinet component segment, and 17.6% and 45% respectively, in our European fenestration segment, excluding the foreign exchange impact. We reported net income of $20.9 million, or $0.62 per diluted share, for the three months ended October 31, 2021, compared to net income of $22.2 million, or $0.67 per diluted share, during the three months ended October 31, 2020. For fiscal 2021, we reported net income of $57 million, or $1.70 per diluted share compared to net income of $38.5 million or $1.17 per diluted share for fiscal 2020. On an adjusted basis, net income was $20.8 million or $0.62 per diluted share during the fourth quarter of 2021 compared to $22 million or $0.67 per diluted share during the fourth quarter of 2020. Adjusted to net income was $58.6 million or $1.75 per diluted share for fiscal 2021 compared to $40.7 million, or $1.24 per diluted share for fiscal 2020. The adjustments being made to EPS are for restructuring charges, certain executive severance charges, foreign currency transaction impacts, and transaction and advisory fees. On an adjusted basis, EBITDA decreased by 5.3% to $37.3 million in the fourth quarter of 2021, compared to $39.4 million in the fourth quarter of last year. For the full year of 2021, adjusted EBITDA increased by 21.3% to $126.8 million, compared to $104.5 million in 2020. The decrease in earnings for the quarter was mainly due to inflationary pressures and supply chain challenges. The increase in earnings for the 12 months ended October 31, 2021, was largely due to higher volumes improved operating leverage, and better pricing. This increase was somewhat offset by higher raw material costs and an increase in selling general and administrative expenses. I'll now move on to cash flow in the balance sheet. Cash provided by operating activities was $78.6 million for the 12 months ended October 31, 2021, compared to $100.8 million for the 12 months ended October 31, 2020. We generated free cash flow of $54.6 million in 2021 compared to $75.1 million in 2020. The decrease was primarily driven by an increase in working capital, more specifically the value of our inventory due to inflation. We were able to repurchase $11.2 million in stock, and we repaid $65 million of bank debt during fiscal 2021, $20 million of which was repaid in fourth quarter. Our balance sheet is strong, our liquidity position is solid, and our leverage ratio of net debt to last 12 months adjusted EBITDA improved to 0.1 times as of October 31, 2021, which is a half turn lower than where we exited fiscal 2020. As for 2022, and as noted in our outlook section in the earnings release, we have chosen not to issue guidance just yet. Demand remains strong, but ongoing supply chain disruptions continue to create uncertainty. With this backdrop, we believe it would be premature to give guidance at this time. We do believe that we should be able to realize margin expansion on a consolidated basis in fiscal 2022, but we also think that margin expansion will be second half loaded. As we sit here today and to set appropriate expectations for the first quarter of 2022, We currently expect mid-single-digit net sales growth for the first quarter, mostly due to price increases, but margins will be pressured compared to the first quarter of 2021. We hope to provide an update on full-year guidance when we report earnings for the first quarter of 2022. As a reminder, there is a fair amount of seasonality to our business. The first quarter of each year is typically the low-water mark, with the second half contributing most of our earnings in free cash flow. I'll now turn the call over to George for his prepared remarks.

Thanks, Scott. We are extremely pleased to announce that 2021 was a record year for Quantix, despite numerous challenges. We reported record revenue and earnings, and return on invested capital continued to improve. In addition, we reported another year with solid free cash flow. In fact, cumulative free cash flow over the past five years is approximately $325 million, Also, as Scott mentioned, we were able to pay down $65 million of debt and return $11.2 million to shareholders through share repurchases during the year. While we are very pleased with these results, we're not surprised. In an environment with strong demand, the operational improvements we've made in our manufacturing facilities over the past four years, combined with the systemic and permanent changes we've made to our working capital management, continue to yield strong results. I am very proud of the entire Quantix team for the energy, effort, and performance they continue to deliver to our customers, communities, and shareholders. Before providing comments on segment results, I will give some additional color on our view of the events of 2021, the markets we serve, and the macroeconomic environment we currently face. As we enter 2021, There was optimism and hope that the COVID pandemic would soon be under control and that operating environments would return to some level of normalcy. As different variants spread and vaccine uptake proved lower than expected, the optimism was soon replaced by the reality that the battle against COVID is far from over and that measures to contain or minimize the spread of the virus will continue around the world. The year also ushered in a new and in some respects more significant challenge, supply chain stress and disruption. With the infusion of COVID relief payments into our economy, demand for goods in the building product segment increased at record rates. At the same time, the supply chain's ability to ramp up was continually impeded by labor constraints, plant shutdowns or slowdowns, freight issues, and significant weather events. As a result, Backlogs for finished goods dramatically increased over the year to record levels, and suppliers have been unable to close the gap. All these factors have worked together to add an unprecedented amount of stress to the entire chain, and as a result, everyone around the world is now seeing high levels of inflation, sporadic deliveries, and unexpected back orders or stockouts with little or no notice. This last piece, limited to no visibility on the delivery of goods, is currently our biggest challenge. All told, the planning and operational environment we see today is significantly more challenging than in 2020, when our primary concern was the labor disruption caused by the pandemic. When looking at the markets we serve, demand continues to be strong across all segments. Low existing housing inventory and low mortgage rates continue to support strong housing demand and R&R remains healthy due to high levels of back orders and continued strong consumer confidence. Although we continue to watch for a pullback in demand due to inflationary pressures, we are not seeing signs of this at this time. I will now discuss segment results. Our North American fenestration segment reported revenue of $156.3 million in the fourth quarter, which was 10.1% better than prior year fourth quarter. Solid demand across all product lines, combined with higher index pricing, additional surcharges, and permanent price increases accounted for this stronger revenue performance. Adjusted EBITDA of $20.2 million in this segment was 15% less than prior year fourth quarter. Volume-related benefits were more than offset by increases in material costs, normalized medical costs, and higher SG&A driven by incentive compensations. As a reminder, approximately 80% of our North American fenestration business has contractual raw material pricing index mechanisms. The timing lag of these indices are typically 60 and 90 days, and therefore, we are in arrears and chasing price until the rate of inflation flattens or reverses. At such time, we would expect to see a period of margin improvement or catch-up. For the full year, this segment had revenue of $578.3 million. and adjusted EBITDA of 75.4 million, which represents a 20 basis point margin decrease from prior year in a very challenging inflationary environment. We generated revenue of 69.7 million in our European fenestration segment in Q4, which was 12.9 million, or 22.7% higher than prior year, or up 17.6% after excluding the foreign exchange impact. Strong demand in the U.K. and continental Europe, combined with price increases, resulted in record revenue levels for the segment. Adjusted EBITDA of $12 million in the quarter was 10.1% less than prior year Q4. The drop in margin percentage for the quarter was driven by material inflation, normalization of SG&A expenses, and increases for incentives. On a full year basis, this segment had revenue of 251.6 million and adjusted EBITDA of 50 million, which equates to margin expansion of 160 basis points versus prior year. Our North American cabinet component segment reported net sales of 66.6 million in Q4, which was 15.9% better than prior year. Strong demand combined with higher index pricing and additional permanent price increases were the drivers for higher performance. Adjusted EBITDA for the segment was $5.4 million, which represents an increase of 16.3% compared to prior year fourth quarter. Volume benefits combined with pricing actions, improved wood yields, and normalized expenses all contributed to the favorable performance by largely neutralizing inflationary pressures during the quarter. For the full year, this segment had revenue of $246.1 million and adjusted EBITDA of $14.2 million, which was an improvement of 17.1% and 22.5% respectively. We were able to realize margin expansion of approximately 30 basis points in this segment, even though we chased prices all year. And as a reminder, 100% of our cabinet business has contractual raw material pricing index mechanisms. Finally, unallocated corporate and SG&A costs were $2.1 million lower than the prior year fourth quarter. The primary drivers of the lower expenses were true-ups for stock-based compensation expense and lower than planned medical expenses in the quarter. For the full year, unallocated corporate and SG&A costs were $12.8 million, which returned to normalized levels versus 2020, which was a year impacted by COVID-19. As Scott mentioned in his financial commentary, cash flow generation remains solid despite a significant increase in the value of our inventory due to inflation, and our balance sheet is strong. Our board of directors recently authorized a new $75 million share repurchase program, and we will continue to utilize this authority in the open market and on an opportunistic basis. We have positioned ourselves well. and we will continue to evaluate all opportunities to create value for our shareholders. As we look forward into 2022, we remain very optimistic on the demand environment. Our customers are reporting record levels of backlogs, and this, combined with current favorable housing and R&R markets, should translate into continued strong demand. Operationally, we feel we have made progress on our hiring needs, by raising starting wages by an average of $1.80 per hour in our manufacturing facilities. Outside of the index pricing and the associated time lags, we have been able to implement surcharges and permanent price increases to help offset inflation. The major challenge we currently face is supply chain and trade uncertainty, and it is for this reason alone that we have decided not to provide specific financial guidance for 2022 at this time. Due to continuing supply chain disruptions, we have very little, if any, visibility into our short-term delivery schedules. In this environment, it is extremely difficult to predict the cadence for shipments over the next few months or the potential costs associated with sudden changes in schedules. And therefore, we think it is prudent to not provide guidance until such time as we can gain some forward visibility. In summary, We continue to execute on our strategy and are proud to have delivered a record year in a very challenging environment. Demand remains strong, and if the global supply chain stabilizes and our businesses continue their excellent operational performance, then we believe it will translate into revenue and earnings growth in another solid year in 2022. We will continue to stay focused on executing on our strategic plan, and we look forward to reaching a point where we can give more definitive guidance. And with that, operator, we are now ready to take questions.

If you'd like to ask a question at this time, please press the star, then the number one key on your touchtone telephone. To withdraw your question, press the pound key. Our first question comes from Daniel Moore with CJS Securities.

Morning, George. Morning, Scott. Thanks for all the color and taking the questions.

Good morning.

I wanted to start with maybe just kind of price versus quantity in Q4. Is it possible to give us a sense of how much of the revenue growth, and in the case of Europe, X currency revenue growth came from price adjustments versus quantity?

I don't have a specific breakdown, but unlike prior quarters, I can say that price slash surcharge was really the driver more so than volume, although volume was up as well.

across all three, for the most part, at least. Yes, that's correct. That's helpful. And, you know, an even more difficult question, but if we had to guesstimate kind of true underlying demand for each segment relative to quantity, in other words, you know, how much faster revenue could have grown in the quarter had that not been for supply chain and logistics, any color or sense there, and maybe order a magnitude for, you know, rank order each one where the biggest challenges are, if you will.

Dan, you're right. It is a very difficult question. And for the reason that what we're seeing in our order pattern right now, in our current orders, is demand remains extremely strong across all product lines. But in some areas, we actually have our customers deciding to pull back on their schedules to give their workforce some breaks in as many hours as they're working. So it's really hard to determine how much more volume could have went through the chain because, again, our customer bases are making decisions to pull back on. And so I don't want to give you a number of what that would be if everybody was full out. All these things are intertwined, and I think right now you have a combination of uncertain deliveries impacting it, but you also have, again, our customer base deciding that they have to give their labor force some relief to the amount of time that they're working. So it's really hard to determine and give you an accurate answer.

Understood. Just trying to get a flavor of the, you know, the relative size of kind of underlying demand, but appreciate that.

What I can tell you, Dan, is in almost every case, our customers are seeing significant growth in their back orders. So, you know, as you go out and look at other companies that report publicly, you'll be able to get a good feel for what they're seeing. And, you know, there's still significant pent-up demand.

Yep. No, that's very consistent, certainly. Maybe another one, if you – Based on the prices increases that we've put through in fiscal 21, if we didn't raise prices, you know, again from here and volumes were flat, what type of revenue growth would that ballpark roughly translate to in fiscal 22?

Yeah, I mean, if you're talking about flat volume, just from a price standpoint, you're probably low single-digit growth.

Got it. Just on what's gone through already, not additional price increases.

Yeah, timing impact of the price increases, because obviously they've been staggered throughout the year.

Exactly. Okay. That's helpful. And then what are your – well, it's probably part and parcel with the comments you've made, but do you have an outlook for the overall Windows market, either in North America and or Europe, as we think about fiscal or calendar 2022?

That's part of the uncertainty here, but what we have referenced in the past is, for North America anyway, Ducker is a third party we use, and last update they showed for 22 versus 21 on window shipments was low single-digit growth around the 2-plus percent range.

And in Europe, I would say what our customers are predicting, again, with very little and limited visibility is relatively flat year over year on volume. Coming from a high base. Yeah, from an extremely high base.

That's been a heck of a run, no question. Maybe shifting gears one more, just cap back expectations for fiscal 22. And then, you know, in terms of buybacks, You know, the prior repurchase authorization executed over two to three years, do you anticipate a similar timeline or, you know, maybe being more accelerating that given where we are with the balance sheet? And thanks for all the color.

So on the CapEx front, if you recall, our guidance for 2021 for CapEx was, I think, $30 to $35 million. I think we're comfortable saying around the same amount for 2022 guidance for CapEx. We underspent that budget last year, and it wasn't because we were pulling back on any projects. It's just lead times for equipment are such that everything's moving to the right. On the buyback question, really there's not an answer I can give or clarity there. It's on an opportunistic basis. If we continue to feel that our stock is undervalued versus our peers, which obviously we feel that way today, we could ramp that up over the next several years. I mean, $75 million is actually considerably more in the open market than we had last time, because if you recall, the $60 million, half of that was purchased by one firm. So essentially we sold $30 million in the open market over a three-year period, so I would I would think that we could ramp that up.

All right. Very good. Thanks for the caller again. Sure.

Our next question comes from Ruben Garner with Benchmark Company.

Thanks. Good morning, everybody. Good morning, Ruben. Let's see. So I think Dan asked about the price versus volume in the fourth quarter. Scott, what about the full year in your fiscal 21? Can you give us like a a ballpark, you know, how much of the 26% revenue growth was price versus volume?

For the full year, it was more volume than price on a full year basis. Out of that 26% growth, I would say 15, 20% is probably volume.

Okay. That's helpful. And, um, Let's see. So the supply chain issues you're having, I mean, do you guys, from what you gather from competition, are you guys doing better than your peers in being able to get product out the door? Are you seeing any different behavior from anyone on the pricing front? Does anyone have any advantages or disadvantages relative to you that you're dealing with?

So I'll answer that one of them. In terms of our competition, you know, I think a lot of it is based on your size and scale. And, you know, we're unique in the space that we serve that we're larger. So I think we're doing equal to or better than any of our competitors in acquiring raw materials that we purchase. You know, what we see in the market, there's no one that's getting crazy with price or doing anything that – is putting pressure on any sort of volumes. I think everyone right now is facing significant inflationary and supply challenges. And really where we're at in the market today is everyone's kind of protecting their base of customers and doing everything they can to fulfill those needs. So there's not a lot of – we're not at a point where people are aggressively trying to take shares. We're kind of – we're all trenched in because of the limits in what you can acquire. So – it's kind of a trench warfare right now is really how I would characterize it.

Okay. And then a couple questions on capacity. So two sides of the question here. The first is, do you have any plans for increases in areas where you're either low or looking to expand like the screens operation or cabinets? And then on the flip side, Any updates on maybe the areas where you are underutilizing your assets and you guys have been working on trying to offer other products or services? Any progress there that you can talk about?

So on your first question in terms of capacity expansion, I think we continue to go forward. We talked about adding some mixing and blending capacity in the UK for our vinyl extrusion business. That will continue, and that project's In process, again, as Scott mentioned, the timing of such is impacted because of just lead times to get equipment. It's extended, but we're looking to add capacity there. We continue to evaluate the screen markets in areas where we're underserved. We will look to expand our geographical footprint, but that's also going to be predicated on not getting – being able to get enough raw materials to be able to support it. We also have a project in our spacer business in Germany that we're adding additional capacity for our rubber extrusion for those spacers in Germany, and that continues. So in certain pockets, we are going forward and investing and spending in the business. The second piece of your question...

on any parts of our business that we have a lot of spare capacity.

Yeah, the best example of that, and it has been a win, is on our vinyl extrusion business in North America. We talked a lot about focusing on return on net assets, return on invested capital. We continue to expand our capabilities in producing products like parts primarily in fence posts and vinyl fencing components, and I think we've proven that we're a very reliable supplier in supporting that industry, and that continues. It's had a positive impact on our vinyl extrusion business in North America.

Any comments on how big of an industry or opportunity that is for you guys?

We're pretty early into this, Ruben, so as we continue to develop it, we'll try to give a little more guidance in the future. I don't want to come out and give targets or guidance this time on the size. We're relatively new into this space.

I can add a little bit there. I think the main difference between the fencing sector of the industry versus the window profile sector of the industry for vinyl extrusion is that the fencing sector is bumping up against capacity. So they're looking to add capacity where that's where we can come in and help, whereas on the Windows side, there's a lot of spare capacity. So it's just about getting our assets up and running. We are an expert at extruding vinyl. It doesn't really matter what the product is.

Great. Thanks, guys. Congrats on the quarter. I know it's a tough time. Happy holidays. Yeah, thanks. Thanks. You too.

Our next question comes from Julio Romero with Sidoti and Company.

Hey, good morning. Thanks for taking the questions. Hey, Julio. Good morning. Can you talk about supply chain and freight in Europe and how that differs from your U.S. operations?

Yes. In the products that we have in Europe, the supply chain is very similar. although the logistics piece of it is a little more complicated in Europe. So we utilize, for our spacer business in Europe and in North America, the exact same supply base. So they'll face the same challenges as it relates to demand and pricing. We've seen anything that's being shipped internationally has added some additional stress, as you can imagine, with trying to get containers that are shipped or or anything that's put on a boat. You know, I'm not going to rehash that story. Everyone's seen it. That's the biggest difference between what we see. Luckily, in Europe, you know, our largest silicone supplier is located in continental Europe, so that has added some stability. But very, very similar when we compare the two.

Okay, so similar challenges. whether you're in Europe or the U.S. Okay. Yes. And I guess, you know, piggybacking on an earlier question, you talked about your supply chain issues relative to your competition, but how about relative to customers? Just given your business model, your customers are oftentimes your competitor as well. So, you know, are you seeing greater or less supply chain challenges than your customers? Yes.

For us, what it's done is we have such sticky relationships and long relationships with these guys, we've actually kind of partnered up with the majority of them to try to either parlay our buying power together. So it's become more collaborative rather than adversarial in both trying to find ways to help each other and alleviate the supply chain issues that we have across the board. So I think it's forced us to communicate more clearly on, The labor piece of it is still preventing people from insourcing. That environment is still true. So although we're talking about supply chain challenges, in many cases there's still, although I think we've done a very good job of addressing the labor markets, it's still competitive, which prohibits their ability to insource to the extent where it would be a risk.

Understood. I'll pass it on. Thanks very much. Thank you.

Our next question comes from Ken Zinner with KeyBank.

Good morning, guys. Hey, Ken. Good morning, Ken.

So, not your average quarter. The earlier question about fence posts and like products wasn't really where I was going to go, but... You know, your extrusion plants had real issues in the past. There was capacity. There still is on the, you know, the window side. But one of the big things, obviously, in extrusions is just having long cycle runs, right, where you don't have to change out the profiles, et cetera, et cetera. It seems to me, I'm not an expert in this, but fence posts are really just wrapping around. It's just a four-inch by four-inch run. So you... not only have the growth potential of, you know, your fixed asset, but it seems to me that it's essentially the same run constantly because it's a white, gray, or black fence post where you don't have to change out profiles. Is that correct?

I would say generally you're absolutely right. The window profiles that we do are very complex, and each customer has something different. So the level of complexity on that extrusion is pretty significant. The fence posts, although not identical, are fairly close. And yes, they tend to be much longer runs with recycled material and are more favorable to what you would think on a continuous extrusion process. So if I were to ask the guys in the plant, they would love loading up on fence posts, yes.

And just a point of clarification, George was referring to our vinyl business here in North America. In the UK, it's completely different.

Yeah, yeah, yeah. Apologies. Can I just go further? What do you find in terms of the distribution channel requirements? I mean, because it's nascent for you, George, so I get it. You don't want to put numbers around it and stuff, but it's clearly – something that makes sense from an asset utilization perspective. That's why, right, siding, final siding is so good, right? They just have these long runs, but they have the very tight distribution network. Are there unique distribution challenges you face there versus the window manufacturer? I mean, IE, is there a lot more SG&A? Is it very expensive to start building that relationship even though you get good gross margins? What are some of the dynamics there?

It's very similar for us at this point in time. We are an OE supplier to not only the window manufacturers, but now we're an OE supplier to the fencing. They have a combination of manufacturing and distributing, and we are also selling to guys that just distribute fence posts. But at this point in time, we're 100% OE supplier to those guys and have no end distribution to the consumer.

And regional distributors? distribution constraints, given that you're running out of Kentucky, you know, is that into Texas and that's kind of the end of your market or is there something?

No, we're selling to guys all over the country right now. So I would, I would say what we see, what we see is that the fencing market tends to be regional, um, with the competitors that we're selling to. Um, but we're selling a product that would cover national geographies.

Good. Nice to hear that guys. All right. Now to the more complex part. Um, I appreciate your first quarter guidance, so I think you're clearly helping us there. You did say margins would be up. You're not quantifying that for the full year. No, no, no. Hold on.

Go ahead. On the revenue side, we're saying we should see some revenue growth, mid-single digits, in the first quarter. Margins will be pressured first quarter, not up.

In the first half. Yeah, in the first quarter.

Yeah.

Yeah, no, no. I got that. Exactly. Sorry if I misspoke. So I do appreciate that near-term guidance, realizing you're holding off on the year. But you did say margins up for the year was your expectations, correct? Right. For the full year.

Yeah, assuming no disasters in the supply chain, we would expect a solid year.

Understood. Further power. So can we go into this, George? Because you did say it was the transportation issue. So it sounds like you're having a right. There's raw material costs, which are in an index and lagged. but you're seeing actually skyrocketing transportation costs, or is that transportation access in terms of you can't get trucks or your customers can't get trucks? I was a little unclear on that.

I think the answer is yes and yes. I mean, there are times that, you know, inflationary pressures on freight, you know, everyone's seeing it, whether it's through, Fuel surcharges are just absolute increases in freight prices. That's the reality right now and probably will be on a go-forward basis. But, you know, the hard and part of the reason why we're not giving specific guidance right now is, you know, we could be at the end of a month or end of a quarter and have, you know, $2 million or $3 million worth of shipments that, you know, the trucker doesn't show up that day and, you know, and that can be normal. And so it's a little bit of both.

Yeah. Now, as a component supplier, you have to wait for your customer who might or might not, right? Do you think, you know, because your extrusions coming out of Kentucky need to go somewhere, your screens are more or less adjacent to your customers. Is that a fair statement? Obviously, your spacers is out of Ohio.

That is a fair statement. Screens tend to be a very defined shipment, and we usually control our own freight and have a small fleet of our own four screens. That's the least impacted by freight availability.

Right, so this is really about the extrusion part, or is this both the edgers and the extrusion that we're seeing this transportation issue arise?

Primarily, yeah, it's definitely more weighted towards spacers and vinyl extrusions. For the free challenge.

Well, yeah, yeah. So cost neutrality, if you think about, you know, the pricing on the lag, so you get $10 of inflation, you recover $10 of inflation. Is that generally like, what, a six-month lag due to the cost indexes? Is that how it kind of works for you guys? If there was a number, is it three months, six months?

It's usually 60 to 90 days are typically the range we see. I don't think we have any indexes that are six months in length, but 60 to 90 days is pretty standard.

Longest lag is in the cabinet business.

Yeah. Okay. And I really appreciate you guys answering these questions. It seems like you guys are running the business well, and I don't want to be, you know, improving. So do you have, if you have these costs, right, dollar cost recoveries on the indexes you just described. How do you think about that in terms of having margin neutrality just to catch up for the math, right, of the ratio changes? Is that something you guys have in mind? I mean, I get the cost part, but, you know, obviously we look at margins a lot. How should we think about that, perhaps?

I mean, that's a difficult question to ask. I mean, when we look at how the pricing has impacted us, raw material pricing specifically, over the last six to nine months. What we've found is that even when we think we're going to catch up with the rate of inflation and where it's been heading, there have been times when we didn't catch up enough. So we're at a point in time where we need to try to be more proactive and forward-looking and try to at least become margin-neutral.

Right, which your guidance seems to suggest for – I mean, not guidance. I don't want to put words in your mouth, but your comment that margins will be up suggests that's where your confidence lies for FY22.

Yeah, I mean, I think for margins to be up like we think, we expect at some point, probably more towards the second half of the year, that the inflationary environment will at least somewhat stabilize so we can catch up.

Yeah, the rate of inflation – or the slope of the inflation line will flatten or decrease to such a point that we'll be able to catch up on some of the indices.

Thank you very much for your answers, gentlemen. Sure. Thanks.

I'm showing no further questions in queue at this time. I'd like to turn the call back to George Wilson for closing remarks.

I'd like to thank everyone for joining today, and we look forward to providing an update on our next earnings call. Have a very safe, happy, and joyous holiday.

This concludes today's conference call. Thank you for participating. You may now disconnect.