Champion Homes, Inc.

Highline Champion Corporation's third quarter fiscal 2024 earnings call. The company issued its earnings press release yesterday after the close. I would like to remind everyone that today's press release and statements made during this call include forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and the company's filings with the Securities and Exchange Commission. Additionally, during today's call, the company will discuss non-GAAP measures, which it believes can be useful for evaluating its performance. A reconciliation of these measures can be found in the earnings release. I would now like to turn the call over to Mark Yost, Skyline Champions President and Chief Executive Officer. Please go ahead. Once again, I would like to turn the call over to Mark Yost, Skyline Champions President and Chief Executive Officer. Please go ahead.

Thank you for joining this call and good morning everyone. I'm pleased to be joined on this call by Lori Huff, EVP and CFO. Today I will briefly talk about our second quarter highlights and then provide an update on activities so far in our third quarter and conclude with thoughts on thoughts of balance of the year. We saw healthy demand from end consumers through our captive and independent retail channels during the quarter. The community REIT, the community REIT channel continues to be slow and home sales in our builder developer and retail channels improved year over year, while activity from our community REIT customers remained relatively muted, primarily reflecting seasonality and inventory destocking. The year-over-year results indicate a sustained trend in customer demand towards more affordable homes with fewer options and lower material surcharges. This led to a decrease in average selling prices per home compared to previous year. Additionally, organic order volume grew by over 230% compared to the same quarter last year. This is in line with what our independent and captive retail partners are expressing on the positive demand outlook for attainable homes. Backlog as of December 30th was $290 million compared to $258 million at the end of September. with the sequential increase primarily attributed to the acquisition of regional homes. Average lead times remain stable at approximately eight weeks, consistent with our historical range of four to 12 weeks. Throughout the quarter, we successfully pursued our operational and strategic priorities, making significant headway in integrating regional homes and rolling out champion financing. Regarding regional homes, we initiated cultural and management integration from day one, facilitating the exchange of best practices across our production and retail divisions. We foresee opportunities for revenue growth by leveraging our expanded retail presence due to our scale and improved responsiveness to market demand. The realization of synergies is also well underway, and we expect the identified synergies to start positively impacting our profitability in the fiscal fourth quarter. These synergies primarily revolve around purchasing, operational enhancements, and other cost savings measures. We maintain our expectations of capturing $10 to $15 million in synergies over the next two years. During the quarter, we successfully launched our new captive financing joint venture, Champion Financing, and we are making progress in utilizing our new capabilities to provide more comprehensive solutions to our partners and customers. This is crucial for enhancing accessibility and affordability to our customers while driving accelerated growth for our business. These investments are in line with our longer term strategic vision providing digital configuration and enhanced selling options to home buyers. As we expand Champion Financing, we anticipate the benefits will foster stronger connections with our dealers and end consumers. Furthermore, we expanded our capacity during the quarter with the opening of a new plant in Bartow, Florida to support our Growing Builder Developer Channel in the region. We are seeing more interest from Builder Developer Channel and anticipate increased adoption, not just because interest rates are at elevated levels, but also because of the reduced time to project completion. We have had good traction at the International Builder Show historically and anticipate strong interest later this month in Las Vegas. These investments collectively present an exciting opportunity as we bolster our initiatives to generate long-term growth. further establishing Skyline Champion as the preferred provider of attainable housing solutions. As we look to our fourth quarter and future outlook, we continue to experience healthy demand from both retailers and builder developers. The consistent order rates from these key stakeholders have been instrumental in driving our growth. Furthermore, as our community partners begin to re-enter the market, we are prepared to increase capacity utilization at our manufacturing facilities. Looking ahead, we expect our revenue to remain flat sequentially as our third quarter performance was better than anticipated and weather and pricing will be tailwinds in the fourth quarter. Our long-term outlook remains positive. We are proud to share that we have achieved six consecutive quarters of order growth, underscoring the sustained demand for our products and the need for smarter housing solutions. On a macro level, we continue to see healthy job and wage growth, particularly in sectors such as healthcare, manufacturing, and retail, key areas that form some of the foundations of our customer base. Additionally, trends in job growth and inflationary pressures will mean the Fed will continue to hold interest rates at higher levels for longer. These factors bode well for the stability of our future demand as growth in these income demographics combined with higher interest rates and the absence of attainable housing correlate with our price points and product offerings. On a micro level, we heard some of these same factors at our industry show in Louisville in mid-January. The attendance and tone of the show were positive. The community REITs were consistent in their view that 2024 will be a better year than 2023. In addition, to the favorable commentary on market conditions heard at the show, our launch of Champion Financing generated considerable excitement in the market and new future opportunities. I will now turn the call over to Lori to discuss the financials in more detail.

Thanks, Mark, and good morning, everyone. I'll begin by reviewing our financial results for the third quarter, followed by a discussion of our balance sheet and cash flows. I will also briefly discuss our near-term expectations. During the third quarter, net sales decreased 4% to $560 million compared to the same quarter last year. The decrease in net sales reflects a 2% year-over-year decline in average selling price driven by a decrease in material surcharges and changes in product mix, with consumers opting for less optioned homes. During the quarter, we sold 5,643 homes in the U.S., compared to 5,749 homes in the prior year period, as we aligned production volumes and staffing levels with demand. On a sequential basis, the U.S. factory-built housing revenue increased 22% due to the regional acquisition, which contributed approximately $120 million to revenue during the quarter. Excluding the regional homes acquisition, revenue was down approximately 5% sequentially, primarily due to normal seasonality. Our average selling price per home increased 4% sequentially from $88,400 to $92,300 due to the increase in homes sold through captive retail sales centers as a percentage of the total. Excluding the regional homes acquisition, our average selling price per home decreased consistent with our expectations. Capacity utilization increased to 57% compared to 53% in the sequential second quarter of fiscal 2024. Canadian revenue during the quarter was $31 million, reflecting a 9% decrease in homes sold, partially offset by an 8% increase in the average home selling price. The average home selling price in Canada increased to $123,700 due to a change in product mix. The decline in volume was caused by softer demand in certain markets. Compared to the prior year period, consolidated gross profit decreased 19% to $141 million in the third quarter and gross margins contracted by 460 basis points to 25.3%. The contraction in gross margin was primarily due to lower average selling prices in the US and the shift in product mix to less optioned homes, as well as the ramping of our previously idle facilities and the impact of the regional homes acquisition. Regional homes core product margins are generally lower than the legacy Skyline Champion margins. In addition, consolidated margins were negatively impacted by the effect of purchase accounting increases to the carrying value of regional finished goods inventory, which had a negative 60 basis point impact on consolidated gross margins during the quarter. We expect this purchase accounting impact to continue and potentially increase for the next few quarters. SG&A in the third quarter increased $13 million to $85 million, primarily due to the regional homes acquisition partially offset by lower variable compensation at existing operations. Net income for the third quarter decreased 43% to $47 million or $0.81 per diluted share compared to net income of $83 million or earnings of $1.44 per diluted share during the same period last year. The decrease in EPS was driven by the decline in sales and gross profit. The company's effective tax rate for the quarter was 21.4% versus an effective tax rate of 23.1% for the year-ago period. The decrease in the effective tax rate was primarily due to tax benefits from tax credits. Adjusted EBITDA for the quarter was $66 million compared to $109 million in the prior year period. Adjusted EBITDA margin was 11.8% compared to 18.7% in the prior year period, which reflects the return to more normal profitability levels. In the near term, we expect a sequential decline in gross margins as home buyers continue to move toward homes with fewer options and as we further ramp our new plant operations and sell off the finished goods inventory acquired with the regional homes retail sales centers. As we approach more normal profitability levels in the industry, we remain confident in our long-term structural margin targets supported by improvements in our operational capabilities and investments in the business. As of December 30, 2023, we had nearly $500 million of cash and cash equivalents and long-term borrowings of $25 million with no maturities until 2026. We generated 89 million of operating cash flows for the quarter compared to 85 million for the prior year period. Operating cash flows were positively impacted by a reduction in finished goods inventory subsequent to the closing of the regional homes acquisition. During the quarter, we allocated 285 million of cash to purchase regional homes, net of cash acquired, and assumed $88 million of debt primarily related to inventory floor plan liabilities. We remain focused on executing on our operational initiatives, and given our favorable liquidity position, plan to utilize our cash to reinvest in the business and for opportunities that support strategic long-term growth. I'll now turn the call back to Mark for some closing remarks.

Thanks, Lori. The long-term future looks bright for our company. With sustained demand from retailers and builder developers, the resurgence of our community partners, and the enduring need for affordable housing, we are well positioned for continued growth and success. Furthermore, our strategic expansions into digital and consumer retail, along with financing, are poised to further enhance our competitive edge and drive the value for our stakeholders. We remain steadfast in our commitment to deliver sustainable growth and value creation, and we are excited about the opportunities that lie ahead. Before we move on to the Q&A session, I would like to express our gratitude to the entire Skyline champion, regional, and ECN teams for their exceptional efforts, which have been instrumental in our consistently strong performance. And with that, operator, you may now open the lines for Q&A.

Thank you. We will now be conducting a question and answer session. If you would like to enter the queue, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Greg Palm from Craig Hallam Capital Court. Please proceed.

Good morning, everyone, and congrats on the results here. Thanks, Greg. Good morning. Maybe start with giving us a view on kind of visibility into kind of those orders from the community channel based on your discussions and maybe how that sort of relates to your view or opinion on how the year progresses.

Yeah, Greg, thanks. I think the communities are starting to resurge or starting to come back in their order patterns. I think it will kind of slowly evolve. you know, through this fourth fiscal quarter and then, you know, start to ramp into first, second quarters of next year. You know, so I think overall, you know, you'll kind of see that spotty resurgence of communities kind of starting to return to market. So I think it'll be in pockets and then it'll start to take off towards the tail end of that. But I think each community is in a different phase of that. Some have started to return to market and others are still spotty with their return. So I expect, you know, it to phase in gradually throughout the fiscal 2025 year.

And how does that kind of impact your view on, you know, sort of sequential growth as we progress through, I guess, either this calendar year or through fiscal 25, at least the first half?

Yeah, so, you know, for our fourth quarter, I expect things to be relatively flat. For fiscal 2025, you know, we're kind of thinking revenue in total is going to be up somewhere in the 10% to 15% year over year. Really, as the communities start to ramp back up, volume will increase year over year. But I expect due to pricing and mix that we've seen, you know, the prices to come down. So you'll kind of have a trade-off between price and mix happening into next year, which will kind of offset some of, you know, some of the volume growth will be offset by pricing declines due to mix.

Yep. Okay. Understood. And then on, on builder developer, open up a new plant. Can you just give us some sense on how, I guess the order rates are flowing from that initial top 100 win to what your expectations are for sort of additional onboarding of customers. Yeah, let's start with that.

Yeah, so Builder Developer this quarter was, in percentage terms, our strongest growing segment. So Builder Developer was the fastest growing segment for us this quarter. So very pleased to see that progress. And part of that is due to this top 100 builder. that we mentioned, they're starting to place orders, and so we've seen good growth. We're starting to land more builder-developer opportunities. We're getting some in the Midwest. We're starting to move different sectors. So I think it really comes down to the timing of their development deals and whether that's gonna hit early or late into some of the fiscal 2025 timelines. It really depends on permitting and land development timing for some of those. But I think the activity for builder-developer has been excellent and we will be attending the IBS International Builder Show here in just a few weeks and expect more opportunities to arise out of that as well.

Yep, looking forward to seeing some of those homes and seeing what interest levels are. Just to clarify, that 10% to 15% comment for fiscal 25, is that inclusive of regional? How much of that is organic?

Yeah, so that's just total year over year, Greg. Yeah, inclusive of everything consolidated.

Okay, understood. All right, I will leave it there. Thanks. Thank you.

Our next question comes from Daniel Moore from CJS Securities. Please proceed.

Thanks, Mark and Lori. Good morning. Thanks for the color. Quick housekeeping and then a couple. I think you said regional contributed $120 million during the quarter. Just give us a sense of what their pro forma growth or decline was on a year-over-year basis, and do you anticipate similar contribution this quarter?

Yeah, Dan, we're not disclosing the quarter over quarter specifically for regional. You can look at the pro forma information that we filed in the 8K at the end of December just to get a feel, but that's all that we're disclosing at this point.

Okay, and I appreciate the color on the community developers. On the REIT channel, Mark, what are you hearing there in terms of you expect... It sounds like gradual pickup as we get out past this quarter. Are you hearing about demand building potentially from that key end market as we look out to the balance of calendar 24? Yes.

Yeah, I think it just depends on which community player starts to return. They're all kind of phasing in at different times, Dan. So as they phase in and come together, I would expect them to gradually ramp. Some are kind of returning, I don't want to say full steam, but nearly full, back to normal, where we're seeing others that are slowly trickling in. So I think it'll culminate in the next few quarters with them starting to return to market, but it'll take a little bit of time for them to get there.

Okay, that's helpful. One more. Just talk about the progress you're making in terms of standing up the triad, JV, as expected from a timing perspective. Any sense of what contribution from triad might look like over the next one to two quarters on the P&L and longer term? ECN had put out some financial targets in the time the deal was announced. Just wondering if you have any comment on How achievable will those look from your perspective?

Yeah, Dan, it's pretty early. We've launched the Champion Financing JV at the Louisville show just recently, a few weeks ago. So we're getting some early signs. You know, I think it's a little early for us to comment on the exact trajectory of that or how quickly it will ramp. You know, it's been very successful in its launch. But, you know, how quickly those things come together, I don't think we're giving guidance on at this point.

All right, I'll circle back with any follow-ups. Thank you. Thanks, Dan.

Our next question comes from Phil Ying from Jefferies. Please proceed.

Hi, good morning. This is actually Colin on for Phil. I just wanted to touch on where you guys outperformed relative to your guide on the sales line. Can you just walk us through what performed better in the quarter versus your expectations, whether it's the channel or region? or the acquisition performed better? Just curious as to your thoughts there.

Yeah, Colin, thank you. I think, you know, I would say the acquisition performed better. You know, there's, if you look, if you look at October, November, December industry shipments for those three months, the industry, you know, shrank at about 2.5% in aggregate. But within that, there's a tremendous amount of noise. So when you look at regional homes has a heavy presence in Mississippi, Louisiana, those southern states. So Louisiana year over year during the quarter grew 79% in terms of year over year shipments. Mississippi was up 45% year over year in terms of industry shipments. I would say those geographies and those markets are kind of rebounding quite strongly. So I would say regional did very well, probably outpaced our expectations during the quarter in aggregate. So I think that's good. Probably the Carolinas and Georgia did a little better than we thought during the quarter. But most of our markets where we have heavy concentration, with kind of our core business. So we're heavy in California. California during the quarter was down 34%. The Midwest, Illinois, Iowa, Indiana, Michigan, Ohio, that region where we have a good presence was down 41% year over year. You know, in Pennsylvania where we have a lot of plants, which was down 30%. So I think it was really kind of a balancing where certain regions did better. and certain regions did a little worse in terms of the geographic dispersion, there was a lot of movement. But I would say overall that southern Mississippi-type region and the strength of the regional homes team and what they've done is surprising us positively every day.

That's a really helpful color. And then just moving over to the retail channel, can you provide just some more color on how that and I believe you called out the increase in captive retail sales as a benefit to price. Can you help quantify how much your business is now going through captive retail with the regional acquisition and the price differential there?

Yeah, we're not disclosing that specific breakout column of how much goes through currently. I think it does help the ASPs. You can probably have a sense that regionals, 120 million, is heavily influenced by retail activity in general. So that can give you a good proxy to think through.

Okay. And then my last question here is on gross margin. Came in nicely ahead. on the quarter. Can you just talk about the outperformance there versus your initial expectations and just how you're thinking about gross margin going forward with a quarter of ownership of the acquisition completed at this point?

Sure, Colin. You know, U.S. volumes came in better than we expected, as well as product mix and pricing. So we really improved versus expectations on all three of those fronts.

Okay, and any color as to gross margins maybe in the fiscal fourth quarter and into calendar year 24?

Yeah, I still expect that gross margins are going to come down a bit sequentially from what we saw this quarter. Similar to what I mentioned last quarter, we do expect to see a decrease in average selling price as well as really driven by product mix and the customer having to choose less options, which impact gross margins. Also, we have the three recently opened idle facilities that are negatively impacting gross margins for the time being. And then the regional acquisition, generally the regional operations have lower gross margins until we start capturing more synergies. And also the purchase accounting implications, which we believe are going to be higher than what we saw in the next couple of quarters versus the third quarter.

Great. That's all I had. Thank you very much. Thank you.

Our next question comes from Matthew Foley from Barclays. Please proceed.

Good morning, everyone. Thanks for taking the questions. Just I wanted to touch on sort of the recent trends with all the volatility in rates, you know, that you experienced during, you know, your fiscal quarter and kind of year to date. And obviously, I think, Mark, you mentioned at the top there's some noise around weather as well. So could you just kind of speak to maybe focusing on the dealer channel since you gave a lot already on the community side, but just kind of how has demand been progressing from a dealer perspective and retail perspective over the course of the calendar quarter and kind of into the new year? Thank you.

Yeah, thanks, Matt. I think the dealer channel has been – very strong over the, you know, actually several quarters, but this quarter definitely. You know, we saw our year-over-year order growth increase by 230%, and that was, you know, largely driven by builder-developer and retail as the communities were still, you know, are still slowly coming back, but significantly down year-over-year. So I think that bodes well to the strength of that retail channel as it continues to return.

Got it. Okay, that's helpful. And then second one on the price mix side, just kind of curious if you can kind of unpack a little bit where that can go, and is it kind of dependent on what happens with interest rates or, you know, because at a certain point you're going to be at, you know, you're going to be comping against the price mix having been coming down for a while. So kind of where do you anticipate price mix settling out, you know, and what do you think it would take for that to begin to improve again? Thank you.

Yeah, Matt, I think overall price mix, you know, will be –

As you heard me say, there's several states and several geographies that have a tremendous amount of volatility in their year-over-year performance. And a lot of that is just due to those changing demand levels for different product types and getting those to market and getting the consumers to those different price points and different product types. So as that customer evolves, I think you're going to see for some of those states that have you know, the year over year declines in large declines in volumes. I think that's where you'll see the adjustment in probably the next quarter or two. Then you'll start to see things stabilize. And then I think you'll see kind of upward momentum, you know, in a handful of quarters from now with those prices. It's really just readjusting the price points and the needs for what today consumers need. And that, that rollout has not happened uniformly across all the states yet. It's still in progress.

Yep. Got it. Makes sense. Well, thanks, Mark. Good luck, guys. Thank you.

Our next question comes from Mike Dahl from RBC Capital Markets. Please proceed.

Good morning. Thanks for taking my questions. Follow up on regional homes. And so when we think about the difference in terms of where the quarter shook out versus what the guide was, you know, it implies a really sizable difference in terms of the regional contribution. So I appreciate you kind of described some better trends there. But is there anything else you can kind of point to in terms of You know, was the ultimate timing of the close of the acquisition different than you had anticipated? Was there anything maybe one time about trying to work down some of their backlog that boosted the sales in the quarter? Just because I think it may have even been like a 50% differential versus what seemed to be embedded in the guide a quarter ago. So any additional color would help.

Yeah, I don't know that it was that material of a difference in kind of our thought process going into the quarter. Mike, you know, I think it was stronger. Like I said, Louisiana and Mississippi are, you know, during the quarter had very, very strong growth in terms of just industry output. So I think that was really a good indicator. And even through December, it was phenomenal. I think Mississippi was up 90% year-over-year in December. So I don't think we saw that or anticipated that strong of year-over-year growth in that region. But I would say a lot of it came from stronger industry drivers in those states, better performance out of Georgia, kind of that region, maybe a little bit better performance out of Texas, So I really think there was a handful of geographies that, you know, kind of ebbed and flowed and performed a little better, along with obviously the strongest performance was really out of Mississippi. And don't forget, regional is heavily retail-focused. And as we've mentioned, retail and builder-developer have been very strong this year and continue to be. It's really the community focus and the REITs that have been – you know, often are starting to return.

Okay. And so you'd view all of that as core and there wasn't any sort of concerted effort to kind of just close out some of the backlog that you acquired?

No, definitely not.

No, just normal operations. Got it. Okay, that's helpful. And then second, maybe also just a point of clarification around the Triad venture and the ECN stake. I think technically that deal, you had that closed for the entire quarter. Was there a contribution from either the ramp of the finance venture or just your income derived from your stake in ECN? And if so, where was that on the P&L?

Hi, Mike. So we did have a small piece from the ECN investment. We recorded in other income and expense dividend income of about 600 grand. And then that was offset by our share from the common stock of ECN losses for their September quarter of about 200 grand. So a net positive in other income of about 400 grand. There was no activity from the JV in this quarter. We're going to record that on a one-quarter leg, just like the losses from ECN. The dividends are in the current period.

Okay. And will all of those come through effectively the other income line, or will there be different accountment treatment for the different pieces?

Everything through other incomes.

And it's all broken out pretty clearly in the queue when we filed that this afternoon. Got it.

Okay. Thank you.

Our next question comes from Jay McCandless from Wedbush Securities. Please proceed.

Good morning, everyone. Could you talk to us about where chattel rates were during the quarter and where they've trended since the beginning of the calendar year?

Channel rates, you know, were anywhere from 8.5% to 10% this quarter. I think that they've trended up basically since, well, the beginning of 23. Since the beginning of this year, they've been relatively flat. They lag, Jay, generally the 30-year fix. So it does take a little bit longer for channel rates to come down relative to the 30-year fix or up.

And then... Based on the 8K you were talking about, it looks like regional did $414 million in trailing 12-month sales as of April 2023. Where is regional trending relative to that year to date? And, you know, I thank you for the disclosure for the current quarter, but would love to know how they're sizing up versus what they did in their 2023 year. So, Jay, the 8K has their –

their results as of June 30th for their period, and then obviously the year, December of 22, they did have disaster relief housing in their revenues, so it's not really apples to apples. This quarter was more core product, was all core product, actually.

And then, could you talk about what champions... actual retail, owned retail store count is now versus where it was a year ago?

We have 73 sales hunters right now versus gosh, I can't remember. 30. Okay.

And then Mark, you said earlier in the call that fiscal fourth quarter is going to be flat and I didn't know if that's flat, sequentially flat year over year. Maybe you could give us some more commentary on what you and Laurie are expecting in terms of revenues as well as gross margin for the fourth quarter.

Yeah, so expecting, Jay, that sequentially revenue should be flat, sequentially, really driven by the price mix coming down a little bit, as Laurie mentioned. A little bit of weather challenges. We've had, you know, flooding in certain regions, some frost delays that have idle plants for you know a handful of days or a week in various areas for shipping laws that'll halt shipping you know so that'll be played into that driver for the quarter so I expect kind of flat sequentially and as far as margins yeah we expect margins to come down sequentially Jay because of the things I mentioned earlier price mix

as well as the purchase accounting for regional increasing a bit as we sell through more units. And then the opening of the new IDLE facilities, previously IDLE facilities.

Thank you. And yeah, that was actually going to be my next question, Mark. Since a lot of the southeast was an ice rink for at least a week during January, is that going to have an impact on volume sequentially and do you think you'll be able to capture some of the volume that you missed in January as we get through the rest of the quarter, assuming the weather doesn't get in the way again?

Yeah, I think we can catch up some of the volume there from the ice rink factor that you just mentioned, Jay. It's really more flooding and or if there's, you know, frost shipping laws that go into effect, you know, towards the tail end of March. You know, the flooding is really what will push out the orders and delay things for a quarter or two. So if there's a tremendous amount of flooding, getting things set and finished and in the field will be delayed by weeks, if not months. And so, you know, flooding is probably more of the factor that we'd be looking at than even the ice rink. I think we can catch up most of the timing of the frosts that have happened throughout parts of the southeast.

Got it. Okay. And then the last one I had, It sounds – and correct me, please, if I'm wrong on this, but it sounds like the average selling price for regional is probably higher than legacy skyline. And that's – I'm assuming because they're being sold at retail, but why is there a negative gross margin differential versus what you were selling at legacy skyline?

So their mix of wholesale and retail is definitely more concentrated in retail. So their average ASP on a consolidated basis will be higher because of that mix between wholesale and retail. And, you know, the margins are just Generally, they've just been generally lower. We do have the 10 to 15 million of synergies that will help bring those up to our legacy Skyline Champion margins.

And then input costs, OSB prices, other things. What are you seeing on that front? Anything we need to be concerned about or watching there?

Yeah, no, we're seeing some inflation probably coming into the spring and summer selling seasons, but we're keeping a close eye on it, Jay, and passing that information on to our plants, and they make the final pricing decision based on the competitive environment in their region.

Okay, great. That's all I had.

Thank you.

Thank you, Jay.

This concludes our question and answer session. I would like to turn the floor back over to Mark Yost for closing comments.

Thank you for your attention and we look forward to continuing this journey of success together. We look forward to updating you on our progress during our fiscal year-end earnings call in late May.

Thank you and have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.