Glenn Eanes - Vice President and Treasurer Cary Dunston - President and Chief Executive Officer Scott Culbreth - Senior Vice President and Chief Financial Officer.

Garik Shmois - Longbow Scott Rednor - Zelman & Associates. Josh Chan - Robert W. Baird..

Good day and welcome to the American Woodmark Corporation Third Quarter 2016 Conference Call. Today’s conference is being recorded February 25, 2016. We will begin the call by reading the company’s Safe Harbor statement under the Private Securities Litigation Reform Act of 1995.

All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that maybe beyond the company’s control. Accordingly, the company’s future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements.

Such factors include, but are not limited to, those described in the company’s filings with the Securities and Exchange Commission and the Annual Report to shareholders.

The company does not undertake to publicly update or revise its forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. I would now like to turn the call over to Glenn Eanes, Vice President and Treasurer. Please go ahead, sir..

Good morning, ladies and gentlemen. Welcome to this American Woodmark conference call to review our third fiscal quarter of fiscal year 2016 ended January 31, 2016. Thank you for taking time to participate.

Participating on the call today from American Woodmark will be Cary Dunston, President and Chief Executive Officer and Scott Culbreth, Senior Vice President and Chief Financial Officer. Cary will begin with an overview of the quarter and then Scott will provide a more detailed review and the future outlook.

After Cary and Scott’s prepared remarks, we will be happy to answer any of your questions.

Cary?.

Thank you, Glenn and good morning to you all. Another solid quarter for the company with strong performance on both revenue and earnings. On the revenue side, we continue to see impact of our focus on our competitive advantage of a superior customer experience, with sales growing 16% over prior year.

This is particularly true on the new construction and dealer channels as we once again over-indexed relative to the industry and our competition. Within new construction, we grew over 22%, that’s roughly twice what the market for single-family homes grew.

We have an open regarding our strategy of continuing to invest in the direct model as a means to serve America’s top builders. With our nationwide manufacturing and builder-centered footprint, this direct model offers the opportunity to maximize our touch points and thus our service levels to builders.

Regarding industry dynamics, we are continuing to see some volatility driven primarily by labor shortages. Although labor is throttling overall demand, we also see an impact on the ability of the builders to schedule various trades. This impacts their build schedules and creates volatility in their own demand.

But despite some of these challenges, our customers continued to excel within their own markets and grow at overall healthy levels. The greater question is what I mentioned on our last quarter’s call and that is associated with what type of homebuilders will continue to build.

Recent articles have been published on the potential memo that builders ought to B, C and even D properties, the general assumption is that as builders move out to these developments further from city center, prices will be low enough to allow starter homes to be built for first time homebuyers.

However, the challenge of labor and the overall demand for higher level homes still remains. In addition, the cost of these B and C land opportunities, vary significantly by market. Lastly, there is still the question of if there is a consumer waiting to buy these entry level homes.

Personally, I do believe there is a stronger base of first-time homebuyers that would like to enter the market. However, due to high debt, lower household income, home prices that are back to pre-recessionary levels in many markets and continued credit challenges they simply are not able or are unwilling to make the purchase.

Regardless, more of our customers are working on solutions for first time homebuyers and we are prepared to serve this market with the same competitive strength we provide today. Taking a look at our dealer channel, we grew over 25% in the quarter.

Once again, we continue to over-index the market with our winning ability to provide a level of the service that far surpasses that of our competition. We expect the dealer channel to remain a favorable growth opportunity for our Waypoint brand well into the future and we will continue to invest accordingly.

Within home center, we were up 6% for the quarter. The home center market has been an interesting dynamic. We experienced a fairly aggressive increase in competitive promotional activity towards the end of our fiscal quarter. As Scott will mention, our promotional spend is up relative to prior year that we remain conservative in our own response.

Although aggressive promotional spend can impact share in a given period, markets are efficient and share returns to steady state levels based on the company’s true sustainable competitive advantage. Going forward, we will continue to monitor the promotional activity closely and we will respond appropriately.

As in past quarters, the home center market lagged the dealer channel in growth, but remains a vital channel in the industry as a whole and when we will continue to leverage our service platform to maintain our market leadership position with our important retail partners.

From a gross margin perspective, we remain very pleased with our results coming at 20.4%. With our incremental gross margin rate at 32% for the quarter, we continue to leverage our sales growth over prior year as well as our operating efficiencies.

The investment we made in our South Branch operation has gone very well and I am very pleased with how effectively our team executed this expansion. In summary, our net income of $12 million or $0.73 per diluted share is reflective of our overall success in the market and how efficiently we are operating.

As we look forward many market unknowns remain, but the certainty we do have is the extremely strong foundation and resulting competitive advantage we have built in our industry. With that, I will turn it over to Scott for the detailed financials..

Thanks, Cary and good morning everyone. Financial headlines for the quarter, net sales were $218.6 million, representing an increase of 16% over the same period last year. Reported net income was $12 million or $0.73 per diluted share in the current fiscal year versus $7.3 million or $0.45 per diluted share last year.

For the nine months ended January, year-to-date net sales were $706.1 million representing an increase of 14% over the same period last year. Net income was $45.4 million or $2.76 per diluted share in the current fiscal year versus $24.2 million or $1.52 per diluted share last year.

For the current fiscal year, the company generated $50.9 million in cash from operating activities compared to $36 million for last year.

Some additional comments on sales performance starting with the new construction market, recognizing a 60 to 90-day lag between start and cabin installation, the overall market activity in single-family homes was up over 11% for the financial third quarter.

Single-family starts during September, October and November of the prior period averaged 679,000 units. Starts over that same time period from the current year averaged 750,000. Our new construction based revenue increased over 22% for the quarter.

As we have stated on prior calls, we continue to over-index the market due to share penetration with our builder partners and the health of the markets where we concentrate our business. The remodel business continued to be challenging. On the positive side, unemployment continues to improve.

The January U3 unemployment rate dropped to 4.9% and U6 held steady at 9.9%. Residential investment as a percent of GDP for the fourth calendar quarter of 2015 improved to 3.3% versus 3.1% for the prior year. Although the percentage is improving, the index remains well below the historical average of 4.6% from 1960 to 2000.

Consumer sentiment remained high at 92% in January. Existing home sales increased during the fourth calendar quarter 2015 and recorded its best calendar year result since 2006. Between October and December 2014, the existing home sales averaged 5.1 million units. That same period for 2015 averaged 5.2 million units, an improvement of 2.4%.

Interest rates remained low in the quarter with a 30-year fixed rate mortgage at 3.87% in January, but that represented an increase of approximately 20 basis points versus last year. All cash purchases in December were 24%, down from 26% last year. The share of first-time buyers improved.

The December reported rate was 32%, better than the prior year rate of 29%, but well below the historical norm of 40%. On the negative side, the median existing home price rose 7.6% for December, the 46th straight month of year-over-year gains impacting our consumers’ affordability index. Homeownership rates remained low versus historical averages.

The percent of Americans who owned their own home in the fourth calendar quarter was 63.8%, or 0.2% below last year’s rate. Our combined home center and dealer remodel revenues were up 9% for the quarter. Waypoint represents over 9% of our overall revenue and grew over 25% in the quarter.

Promotional activity remained higher than the prior year for the fiscal third quarter as we responded to competitive positioning and market conditions. Discounting accelerated at the end of the quarter, but we remained more conservative in our response.

The company’s gross profit margin for the third quarter of fiscal year 2016 was 20.4% of net sales versus 18.6% reported in the same quarter of last year. The company generated a year-over-year incremental gross margin rate of 32% for the third fiscal quarter.

Gross margin was positively impacted in the quarter by higher sales volume, customer management, product mix, pricing and improved operating efficiency. Year-to-date gross profit margin was 21.4% compared to 17.7% for the same period in the prior year. Year-to-date the company generated a year-over-year incremental gross margin rate of 48%.

Total operating expenses decreased from 12.8% of net sales in the third quarter of the prior year to 11.8% this fiscal year. Through nine months, SG&A improved from 11.7% of net sales to 11.3%. Selling and marketing expenses were 7.6% of net sales in the third quarter of this year compared with 8.5% in the prior year.

We generated leverage in selling and marketing costs through expense management and lower display and product launch costs. General and administrative expenses were 4.2% of net sales in the third quarter of fiscal 2016 compared with 4.3% in the prior year.

The decrease in our operating expense ratio was a result of leverage and increased sales and ongoing expense controls. With respect to cash flows, the company generated net cash from operating activities of $50.9 million during the first nine months of fiscal year 2016 compared with $36 million during the same period in the prior year.

Improvement in company’s cash from operating activities was driven primarily by higher operating profitability, which was partially offset by higher customer receivables, accounts payable and accrued expenses consistent with higher sales.

Net cash used by investing activities was $33.7 million during the first nine months of the current fiscal year compared with $43.5 million during the same period of the prior year.

The improvement was due to a $24.5 million reduced investments in certificates of deposit which was partially offset by increased investment in promotional displays and property, plant and equipment of $14.7 million.

Net cash used by financing activities of $2.1 million increased $6.4 million during the first nine months of the current fiscal year compared to the same period in the prior year as the company repurchased 167,343 shares of common stock at a cost of $12 million, a $6.9 million increase from the prior year.

In closing, the remodel market continues to be a challenge with the dealer channel continuing to outperform the markets with a more fluent customer base, while the home center channel continues to lag the market with the middle income consumer.

The new construction market continues to improve with single family housing starts approaching 800,000 units. Unemployment rates and consumer confidence have improved, but the middle income consumers’ willingness to spend on a new home or begin big ticket discretionary home improvement projects remains low.

Although the market remains uncertain, we continue to be pleased with our progress. Our gross margin rate continue to improve versus the prior year and we delivered solid sales and earnings growth. Looking forward, we maintain our expectations we shared in our last call regarding increased margin rates and net income growth in fiscal year 2016.

This concludes our prepared remarks. We would be happy to answer any questions you have at this time..

Thank you. [Operator Instructions] And we will go first to Catherine Thompson [ph]. Your line is open..

Hi. Thank you for taking my questions today. First is just more of a broad industry cyclical question for you, what is your view on the state of the consumer, maybe digging a little bit further, what type of foot traffic are you seeing at big box and abut dealers, how is this translating to the rate of conversion to sales.

And then finally, are you seeing any mix shift between higher and lower end products? Thank you..

Hi, Catherine, this is Cary. Yes. It’s been an interesting study over the past – really since the recovery after the recession. We talk about the dealer channel over indexing the home center. And that was primarily driven by the type of consumer that is back in the market today.

The average median income is typically $30,000 to $40,000 higher in that consumer that walks into the door of a dealer. So you are seeing that differentiation out there.

We are seeing a higher spend in the dealer world which obviously when it comes down to the share gains out there in different channels, we keep talking about the dealer channel over indexing.

The remodel channel or the big box channel, it’s an interesting case study because obviously prior to the recession that was really the home of the what we will call the middle income consumer that was really a big driver in our market for certain. We are watching that market very, very closely.

It was not back to the levels that we would like to see it. And I think there is a big question when you look at the demographics of the consumer that goes into – that walks into the door of a home center.

We study that very closely and as you could imagine it’s fairly biased towards what I call the older X-generation or the younger baby boomer population. I think part of the reason is that the younger generation is not outspending that type of discretionary income yet.

And the second question is when they do come back in the market and start spending where are they going to spend it, as you know we are heavily vested in the home center market and then doing everything we can along with our partners within the big box to ensure that those consumers come back into that market as well as offer opportunities for them in the dealer channel.

Personally, I feel it’s fairly heavy tied to the whole kind of initiation point with the first time homebuyer getting back in the market. I mean that’s just the key domino event that has not happened yet that that’s going to be the big trigger point.

All those factors that I talked about there is a credit and debt and so forth weigh pretty heavily on that. So yes, to answer your question, we do see a difference, it’s more biased towards kind of the upper and middle income consumer today as the ones that’s outspending in the market.

And the big question is when is that middle income consumer back – is going to come back in the market and where are they going to shop.

Does that answer your question?.

Yes, it does. Maybe narrowing a little bit just into your industry specific looking at some puts and takes in price and raw material impact, first how did raw materials impact your quarter, what are your expectations for raw materials for 2016.

And then tied in with that what are you seeing in terms of the pricing environment and how is that – I know you discussed the promotionals – bigger promotional spend at big box, but stepping back and maybe it’s more instructive to look at the dealer network just to get a better understanding of how pricing is trending in general?.

Yes. Let me take first the question with respect to raw materials in inflationary environment or lack thereof. What we have seen over the last couple of quarters is really stability in the input cost.

However, as of late we have seen increases in a couple of spaces, particleboard, transportation and that’s on the small parcel as well as full and less than truckload carriers. And then even recently, soft in April, we saw some acceleration in cost there. So it’s been a fairly stable environment over the last couple of quarters.

As far as an outlook for 2016, honestly we are getting ready to start our budgetary cycle over the next couple of weeks and we will dig a lot deeper into that process. But nothing in front of me today alarms me about a significant up-tick, but that could change overnight of course.

With respect to the pricing environment, I think your question was do we believe let’s say time in which we think we can perhaps take price or we have to relieve price.

And I would say at this time we have been fairly consistent in our approach in messaging really over the last 2 years that if there is inflationary increases in the marketplace, there is typically a lag in which we would go to seek pricing.

So, since there has not really been significant material increases over the last couple of quarters that’s really answering the question of the need from an increase perspective..

Yes. And, Catherine, I would add pricing as a whole really goes back to Scott’s point about the raw materials, the inputs being fairly consistent as we have seen most pricing fairly steady out there as well in all the markets. You see more aggressive promotional activity as we mentioned, but pricing has been fairly consistent..

Okay.

Final question, given some of the jitteriness that we have seen in the broad market and the potential impact is yet to be meaningfully seen, but the potential impact for consumer based on your prior experience what are the first signs of something is more fundamental from a demand change and how does that compare to what you are seeing today? Thanks..

That’s a multi-billion dollar question, because the dynamics coming out of this recession they are so far removed from any recovery we have ever had in the past.

And the variables even the builders are facing today on labor shortages and land costing versus kind of our GDP numbers, inflation numbers and so forth, things are almost out of balance with where do you traditionally like to look at the macroeconomics of our industry.

Typically, the things we look at I mean housing is if you can go back to the pre-recessionary numbers that we follow pretty closely and our analysts would typically follow is housing is a very significant impact on the economy as a whole and obviously we are linked directly to that, tied very closely to it in real-time. So, we watch that.

I think it’s something on a market-by-market basis that is a leading indicator from a consumer confidence perspective and their willingness to go out and make that purchase and that investment, whether it be at a first-time homebuyer or a buy-up consumer or somebody out just upgrading. Today, it’s continuing to grow.

If you take out the dynamics of the labor shortages and so forth, the industry actually is very strong.

Good or bad, I mean, even with those barriers they are doing some throttling in the markets such as the labor shortages, it’s really only throttling the market down to the low single or low double-digit level which by any standards is still considered an healthy growth. We are watching the factors out there.

I mean, the impact of the global economy or the China economy, obviously you get down in areas like Houston with the impact of fuel. Fuel has a positive and a negative.

Industries as a whole, that’s got some challenges and particularly in a regionality perspective as a whole, you expect some of that discretionary income to get back in the hands of consumers and they start to make choices to go out and upgrade kitchens and so forth. We have not yet seen that.

I do believe there is still a hesitation in a lot of consumers’ minds to go out and spend kind of that mega-discretionary income. You are seeing it in appliances, you are seeing it even in automobiles, but those are all things that at some point they break down, they have to replace.

You can always put a couple of additional screws into your cabinet door and make it hang on for a few more years. So, yes, it’s overall though, I mean, if you look at the housing starts and where we are sitting today versus getting back up to that 1.1 million, 1.2 million on the single-family starts, you have to believe.

I mean, our confidence in the industry is very, very strong.

There could be some points of time over the next 3 years where we level out and potentially look at a recession, but on my personal opinion to be small, there is a lot of pent-up demand out there and yes, some of that’s been filled by multi-family and rentals and so forth, but we have got to get back up to that 1.1 million to 1.2 million single-family start just to sustain the population growth in America.

So, it will come. I think there is going to be a lot of bumps in the road, but I think we have to hang on, we have to be flexible, and I think the growth is going to be here to stay for a while..

Thank you for taking my questions, today..

Thank you, Catherine..

And we will go next to Garik Shmois with Longbow. Your line is open..

Hi, thanks. Just wanted to dig in a little bit on the dealer channel, you have highlighted Waypoint as a growth driver and this has been going on for a number of quarters now.

Just wondering if you can put into context how much more market penetration is out there and are we in the early innings still of your outperformance of dealer, middle innings, probably not the late innings, but just wondering if you could provide some context on how much more runway you think you have for meaningful share gains?.

Yes, this is Cary. We got more vocal on Waypoint as you mentioned roughly three quarters ago just due to its scope now and its size within our business. It’s approaching that 10% of our total revenue. As far as the outlook I mean, as I mentioned we do expect it to continue to be a growth engine.

Scott mentioned we are going through our budget process now and part of that budgets we are actually looking even longer term strategically and where we truly feel Waypoint can go. We are very optimistic with regards to the growth of Waypoint giving you specific analogies. We are in the earlier layer, mid-innings of a game. It’s hard to say.

I will definitely say we feel it’s a strong growth opportunity for us. I mean, when you look at the reality, we just started the business really 5 years ago.

It took us, I will say 3 years to get up and running, but within the past couple of years, really grown this to almost 10% of the business and in our opinion has been pretty amazing, just reflective of our platform and the incredible group of sales folks we have out there that believe in the product and the service.

So at this point, we have kind of openly communicated in the past we are where we are with regards to the number of dealers. I think we don’t have a big plan to go out and aggressively grow the number of dealers, but we do feel there is opportunity to continue to penetrate within the dealer base we have and that is the greatest opportunity we have.

So, there is going to continue to be a growth there. Comps will get tougher. Obviously, you can’t go out and continue to grow market share the way we have grown it. So, comps are going to get tougher, but we continue to have a lot of confidence in it..

Great, thanks for that. I guess, just switching to the sales growth in the quarter, I was just wondering if you could maybe provide some context on how sales progressed during the quarter if there is any meaningful shifts or any acceleration, deceleration.

And then I guess secondly, number of building products companies did communicate that they benefited from favorable weather in the quarter.

Just wondering if you think that there was some benefit from the warm and dry season thus far in certain Northern and Midwestern markets and if so there might be any pull-forward effect as we get into the spring?.

Yes, this is Cary again.

I hope demand is always volatile and you have to remember with us we are kind of off as Scott mentioned early on, from the time that we actually get the feel like the new construction market, there is a lag from when they actually get it from that and we started seeing the impact on our demand even when the home center or the dealer business when we actually get the incoming order to when we produce it and ship it, there is a lag of roughly 30 to 45 days, so that one in itself drives volatility.

So we love to load our production system. Any time you get into the holiday seasons, obviously the last couple of weeks of December, volumes particularly fall off tremendously even in new construction. So, if you look at the quarter as a whole, it’s really hard to give you any dynamics or trends that occurred. There were some ups and downs.

I think home center definitely saw a stronger January than what they probably would have anticipated that offset maybe a little bit lower. You saw a couple of them talk about pullback or pull-forwards in October that impacted November. We see some of that, that’s really driven by the promotional calendars that they run.

So, if they run a promotion our incoming will go up quite a bit and then for the weeks following the promotion, they will fall back off. But no really specific trends I would really say other than what you mentioned on weather.

I won’t really say it was favorability other than that it’s favorable with regards to if you look at the comps of prior years I can’t comment – I don’t know exact whether a year ago, but we have been pretty fortunate this year with regards to weather.

I think the advantage of the weather is that particularly on the builder side and even on the consumer side that gets folks out and allows them to keep that buying process going. So we don’t actually – when we put our budgets together, we don’t budget an impact of weather.

So, I think it’s just a risk that we assume and I would probably say the same for builders and so forth is that nobody really goes out and creates a plan for weather. So, I think it has – to me it just has not had a negative impact, it basically is where we would like it to be relative to our plans..

Okay, thanks a lot and best of luck..

Thanks..

And we will go next to Josh Chan. Your line is open. And Mr. Chan’s line has disconnected. So, we will go next to Scott Rednor. Your line is open..

Hey, good morning, Cary and Scott. I wanted to ask and dig a little bit further on the competitive activity. You noted the home centers, you guys are posting very solid margin results year-over-year clearly, but the industry as a whole as well if you look at some of your bigger peers.

So, I am just curious why do you think that there was kind of a change that you are flagging over the last couple of months?.

You mean with regards to promotion?.

With regards to promotion at the home centers..

Well, obviously I can’t. We sometimes try to figure out the psychology of competitors, but I really don’t know. I mean, I can make assumptions. I have no idea what their overhead leverage looks like. I have no idea out there what their trade-off margin versus going on and get incremental revenue coverage on overhead and so forth.

So, where we are and our position right now, I don’t feel it’s – strategically, we don’t feel it’s the right time to go out and do heavy promotions. I think their promotions have shown that we are not getting any additional consumers in the door. So, unfortunately all it does is kind of move consumers around.

What we are really focused on and what you see due to our over-indexing is that we are truly focused on trying to improve our competitive advantage and trying to improve the incoming customer base for our customers. So, the promos you see, they get more aggressive, I can’t really explain why.

That’s really a question our competitors will have to answer. But we did – in my mind, we responded appropriately conservatively on this one. We always will respond appropriately in the future.

But you would really need to ask them that question, the why?.

And fair enough.

And I guess over the past few years there has been these instances call them pockets where there has been an increase in activity and then it stabilized and clearly your results on the margin side, it hasn’t really impacted your gross margin if we take a 2-year or 3-year view, clearly given the results you have posted, but where you are flagging today, do you guys think that this is another hiccup or is this kind of a sea change in the promotional environment?.

We really don’t know. I am hoping it’s a hiccup. I mean logic says due to the efficiencies of the market, I just find it hard to believe it would be anything long-term. And we saw – you have to go back to that – as you recall, Scott go back 4 years or 5 years ago, when we were really, really heavy into the promotion that’s come way down even today.

So the logical side of me says that there was a hiccup, but we will see. I am hoping it’s a hiccup. And what you see in the dealer world tends to be more normalized. You get some one-offs and so forth. But it appears to be more normalized than what you were seeing in the home center side..

And then bigger picture, Cary I think before you were in the CEO role, prior management talked to a normalized EBIT margin around 8% to 10% and that was kind of the bandwidth you would provide to the investment community, you guys are going to get well within that range if not at the upper end of that range this year.

When you think about what you guys have done behind the scenes, is that still the right range or do you think you have made enough improvement at the plans, share gains, etcetera that that’s a kind of the stale number for us to think about?.

It’s a good question. And honestly it’s something we are asking ourselves now to step back and what’s not in the formula right now is obviously is what type of future investments we have to make internally to continue to grow our business and to grow obviously return for shareholders and what impact that can have. So we feel good about where we are.

Where that steady state mode is, honestly it’s something we are spending a lot of time now thinking about and how future investments can impact that, I would like to come back and tell you that it may be slightly higher than that. But we really need to do our – continue to finish up our strategic work before I can answer that question..

Okay, fair enough. Thanks guys..

Thanks..

[Operator Instructions] We will go back to Josh Chan. Your line is open..

Good morning and great quarter guys..

Thanks..

Hi, just you mentioned that you are going into your planning process soon here and I was just wondering if you could talk about just from a broader perspective as you look into the next year, what are some of the macro assumption variables that you will be thinking about and what are the main opportunities or risks that you see within the next 12 months to 15 months I guess?.

Yes. I would really like to deferring answering that question with any specific details until next quarter when we wrap that process up and we complete our fiscal year we will start talking about our fiscal year 2017 projection.

But as you have seen and as we even talked at the conference at KBIS, there are some pretty standard assumptions that are being battered around with respect to the calendar year 2016. Most folks are talking about a housing start number in the high single-digits to 10%. So let’s call that a 9% to 11% type range.

The remodel industry most folks are in kind of low single-digits, 3% to 5%. Those are probably not unreasonable expectations for folks as they think about calendar year ‘16. I believe you also wedged in risks and opportunities, a risk that always would be out there would of course be inflationary considerations.

We have had a stable environment with respect to input costs and fuel actually has been declining over the last a bit. If those were to go the other way, of course that would be a significant risk or if overall demand was to spike either way that could be a risk or opportunity depending on how you are able to take advantage of that.

So those would really be my generic comments at this point in time. And then we will give you a little bit more color on that as we wrap up our process here over the next couple of months..

Great. Yes. Thanks for the color there.

And if I can switch over to kind of free cash flow, the CapEx is obviously higher this year because of the expansion, I was just wondering does CapEx return to kind of a more free South Branch expansion level next year and what are your thoughts, just generally on free cash flow conversion on a going-forward basis?.

Yes. So again on the outlook as far as our capital budget goes, we are in the midst of that process as well. Certainly it would be a step back from the run rate. So we had $30 million that we spent really over 2 fiscal years with respect to South Branch. You would pull that out for the expansion piece.

But we are also taking a hard look at productivity projects, our replacement capital, capacity capital, etcetera to make sure we are well positioned to take advantage of the overall marketplace. So I don’t think it will be as low as if you went back, say 3 years to 4 years, when the market was depressed and we were restricting spend.

I think it will be higher than that, but not to the levels we have seen with our recent South Branch spending..

Great.

And just last question, if we look into the fourth quarter of last year, the gross margin was fairly strong, is there anything unusual in that number that we should think about or is it a pretty clean comparison as you look into the next quarter?.

I think it’s a pretty clean comparison, of course it makes it a tougher comp for us. That was really the first quarter where we really started to accelerate and trend positively. We saw things turn from inflationary standpoint. We were better leveraging our infrastructure costs on our new construction business as well as our manufacturing footprint.

And we have been able to continue to manage that throughout fiscal year ‘16. So I think it’s a reasonable comp period to use..

Great. Thanks and congrats on the quarter..

Thank you..

[Operator Instructions] And as I do not see that there is anyone else waiting to ask a question, I would like to turn the line over to Mr. Eanes for any closing comments. Please go ahead, sir..

Thank you. Since there are no additional questions, this concludes our call. Again, thank you for taking time to participate and speaking on behalf of the management of American Woodmark, we appreciate your continuing support. Thank you and have a good day..

And thank you for joining us today. Ladies and gentlemen, this does conclude today’s program. We certainly do appreciate everyone’s participation. You may disconnect at any time..