Greetings, and welcome to the GMS Third Quarter Fiscal 2022 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Carey Phelps, Vice President, Investor Relations. Thank you, Carey. You may begin. .

Thanks, Paul. Good morning, and thank you for joining us for the GMS third quarter of fiscal 2022 earnings conference call. I am joined today by John Turner, President and Chief Executive Officer; and Scott Deakin, Vice President and Chief Financial Officer.

In addition to the press release issued this morning, we have posted PowerPoint slides to accompany this call in the Investors section of our website at www.gms.com. Turning to Slide 2.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements address matters that are subject to risks and uncertainties many of which are beyond our control and may cause actual results to differ from those discussed today. As a reminder, forward-looking statements represent management's current estimates and expectations.

The company assumes no obligation to update any forward-looking statements in the future. Listeners are encouraged to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC, including the Risk Factors section in the company's 10-K and other periodic reports.

Today's presentation also includes a discussion of certain non-GAAP measures. The definitions and reconciliations of these non-GAAP measures are provided in the press release and presentation slides. Please note that references on this call to the third quarter of fiscal 2022 relate to the quarter ended January 31, 2022.

Finally, once we begin the question-and-answer session of the call, in the interest of time, we kindly request that you limit yourself to one question and one follow-up. With that, I'll turn the call over to John Turner.

J.T.?.

Thank you, Carey. Good morning, and thank you all for joining us today. Starting on Slide 3. The solid momentum we've had throughout this fiscal year has continued into the new calendar year. For our fiscal third quarter, we topped $1.1 billion in net sales and recorded $61 million in net income with $135 million in adjusted EBITDA.

In fact, these results reflect a fiscal third quarter record for GMS. Inflationary pricing, combined with continued strength in the residential market and our focus on customer service drove our solid performance for the quarter.

Some of the highlights include, volume growth in each of our four product categories with organic revenue growth of more than 25% for each of our core products; complementary product sales growth of more than 35% in total and 17% organically; gross profit, up 51% on sales growth of 53.6% meaning our team has done a remarkable job responding to the inflationary increases we've seen from suppliers; and adjusted EBITDA margin of 11.7%, up 340 basis points as compared to a year ago.

In addition, during the quarter, we completed the AMES Taping Tools and Kimco acquisitions, expanding our presence in complementary products as well as the growing Florida market. Turning to Slide 4. We are optimistic about what lies ahead.

While supply chain disruptions continue to cause extended and less predictable project cycle times, solid market dynamics, including strong residential demand and promising indications of improving commercial activity serve as a positive backdrop as we look to close out our fiscal year at the end of April.

We are leveraging our scale to deliver outstanding service and ensure product availability for our customers. And importantly, the entire GMS team remains fully focused on the continued execution of our strategic priorities. As shown on Slide 5, here are a few examples.

We have expanded share in our core products with mid single-digit volume growth in wallboard, and double-digit growth in both ceilings and steel framing this quarter. And as I already mentioned, each of our product categories delivered strong organic revenue growth of more than 25% over the third quarter of last year.

Additionally, we have grown complementary products to diversify and profitably expand our offerings. Sales of complementary products grew 35.9% this quarter, marking the seventh consecutive quarter of year-over-year growth for this category. And now at nearly 30% of our total sales mix, it is a more meaningful contributor to our results.

Finding opportunities to enhance our product offerings to provide more value to our customers is a top priority and an important growth driver for GMS. Also we have significantly ramped our platform expansion activities this fiscal year. Through the end of the third quarter, we have invested approximately $350 million to acquire five companies.

And we also opened seven new greenfield locations either to fill white space or enhance our product assortment and service within an existing GMS territory. These platform expansions are a vital part of our growth strategy and we expect to continue on this path to supplement our organic growth.

Finally, we are leveraging our scale and employing technology and best practices across the business to drive increased productivity and profitability.

Arming our team with the tools and data to make better informed decisions to achieve additional operational efficiencies, has helped to offset some of the cost inflation we've experienced in the business.

Overall, I am very pleased with the results our team delivered this quarter while overcoming continued labor and product shortages, significant COVID-related disruptions and ongoing inflationary pressure. We remain focused on our strategic priorities and the resulting opportunities to deliver enhanced value to our stakeholders.

With that I'll now turn it over to Scott, to provide more perspective on our third quarter financial results.

Scott?.

Thank you, J.T. and good morning. As J.T. mentioned, supply chain constraints are continuing to negatively impact construction project cycle times and the ability to predict project timing. Amid these dynamics, our teams have done excellent work to ensure product availability for our customers and maintain our industry-leading levels of service.

This has required an increased use of cash in the interim, but those near-term investments have allowed us to deliver strong sales and profitability. While product inflation was a principal driver of our revenue growth this quarter, we were also very pleased to deliver year-over-year volume gains in each of our four product categories.

Looking at Slide 6 net sales, which benefited from a full quarter of contribution from our Westside and DL acquisitions plus two months from AMES, increased 53.6% year-over-year to $1.15 billion for the quarter. Organically, sales rose 41.5%.

Adjusting for one additional selling day year-over-year, net sales on a per day basis increased 51.1% or 39.2% organically. From an end market perspective both residential and commercial sales in the US were up more than 40% organically year-over-year.

Wallboard sales of $415.1 million increased 33.4% in total and 31.3% on a per day basis comprised of a 27.3% increase in price and mix and a 4% increase in volume. Organically wallboard sales grew 28.1% comprised of a 26.1% increase in price and mix and a 2% increase in volume.

Strength in multifamily volume growth in the high single digits outpaced single-family where supply chain-related days held volume growth to the mid-single digits. We continue to experience relative weakness in year-over-year commercial activity, but we're very pleased to see a quarterly sequential increase in commercial wallboard volumes.

Our average realized wallboard price has increased sequentially for the past five quarters. And given another recent increase, we expect this trend to continue for at least the remainder of fiscal 2022.

For our third quarter, the average realized wallboard price was $400 per thousand square feet up 6.4% from the second quarter and up 28.1% from the third quarter of last year.

Ceiling tile and grid third quarter sales of $139.9 million increased 34.9% year-over-year and 32.7% on a per day basis comprised of a 22 -- excuse me 22.3% benefit from price and mix and a 10.4% increase in volume. Organic sales in ceilings grew 26.8% with 21.8% of price and mix and a 5% increase in volume.

Steel framing sales of $282.8 million, increased 172% or 167.6% on a same-day basis, as steel price and mix increased 155.4% and volume grew 12.2%. On an organic basis, steel framing was up 151% comprised of 145.1% benefit from price and mix and 5.9% on increased volume.

Sales growth of our complementary products was 35.9% for the quarter or 33.7% on a per day basis, as we benefited from positive contributions from acquisitions and strong pricing in most product categories.

On an organic basis, sales of complementary products were up 17.1% with the increase coming mostly from price and mix, but with increased volume as well.

Gross profit of $367.8 million increased 51.1% over a year ago, primarily due to our successful pass-through of product inflation, continued strength in residential market demand and incremental gross profit from acquisitions. Gross margin came in at 31.9% compared to 32.4% a year ago.

Compared to our flat year-over-year expectation, we had several onetime purchase accounting adjustments related to AMES that in total negatively impacted gross margin by approximately 30 basis points. The remainder of the variance is due to the timing and elasticity of inflationary price/cost dynamics in the market.

Year-over-year wallboard gross margins saw moderate compression of sales prices continue to slightly lag input costs.

Steel margins also softened somewhat late in the quarter due to a sequential tempering of the inflationary trends in that product, a condition that is likely to continue in the near term, as the price of steel is expected to pull back further.

Helping to offset these modest year-over-year declines were higher gross margins in ceilings and complementary products, the result of our team's discipline in quoting and execution amid both inflation and supply chain disruption. Turning to Slide 7.

Despite notable inflation in costs such as for labor and fuel as well as activity-driven increases in general delivery expenses and in growth and profit-based incentive compensation, we again achieved cost leverage for the quarter.

Adjusted SG&A expense as a percentage of net sales improved 380 basis points year-over-year to 20.4%, as higher product inflation outpaced both activity and inflation-based increases in operating costs. Third quarter adjusted EBITDA of $135.1 million was 115.8% higher than a year ago.

And adjusted EBITDA margin improved 340 basis points year-over-year to 11.7% for the quarter, representing an incremental margin of 19% at the upper end of our indicated expectations.

Slide 8 highlights our attractive capital structure and solid balance sheet, which provide a foundation and support for the execution of our strategic growth priorities. At quarter end, we had cash on hand of $87 million and $183.2 million of available liquidity under our revolving credit facilities.

We have no near-term debt maturities and our net adjusted EBITDA leverage at the end of the quarter improved to 2.3 times down from 2.9 times a year ago. Cash from operating activities for the third quarter was $57.2 million compared with $44.4 million in the prior year period.

And free cash flow was $40.2 million compared with $38.4 million a year ago. As I mentioned earlier, our commitment to ensure product availability and service for our customers has required a higher use of cash, principally associated with inventory than under normal circumstances.

Inflationary increases in revenues also resulted in higher accounts receivable. Once the supply chain constraints that are impacting cycle times subside, we expect our longer-term free cash flow through this cycle to return to the range of 40% to 50% of adjusted EBITDA.

Capital expenditures of $17 million for the third quarter compared to $6 million in the prior year quarter, partly as a result of a small number of strategic and opportunistic property purchases. Given this and our recent acquisitions we now expect full year fiscal 2022 cash capital expenditures to be approximately $45 million.

With that, now let me turn the call back over to J.T., before we open the line for questions..

Thank you, Scott. We are pleased with our solid results this quarter, during a very dynamic time. Before I close with our outlook, I would be remiss to ignore the impact of the COVID Omicron variant this past quarter.

From mid-December through the end of January, we experienced roughly one-third of our total team member COVID cases since the start of the pandemic. Our customers and suppliers reported similar experiences, in line with the increases in cases publicly reported throughout North America this past quarter.

We are thankful not only for the healthy return of our associates, but are also grateful to the entire GMS team, our customers and our suppliers for their remarkable perseverance in this environment. Fortunately, it appears for now that Omicron is subsiding and is today, no longer a material impact to our team and business.

So, looking ahead, we expect continued strength in single-family and multifamily residential demand and see positive indications of improvement in commercial, including another strong ABI reading in January, increased bidding activity, improved commercial contractor sentiment as reported by our sales teams.

And the sequential improvement in commercial wallboard volumes that Scott mentioned previously. While it is impossible to know the exact timing of the true commercial recovery, we believe we are well positioned to capitalize as it develops.

Focusing now on our expectations for the fourth quarter, we currently expect to generate year-over-year organic sales growth of approximately 25% or nearly 35% total net sales growth inclusive of acquisitions. After its current plateau, declines in steel pricing are expected over the course of the next few months.

And we expect some continued pressure on price/cost dynamics in wallboard, as we again work to implement recent supplier price actions. As a result, we expect gross margin to slightly decline sequentially, but remain in line with the fourth quarter of fiscal 2021.

Also, we expect to again achieve favorable operating expense coverage with product inflation continuing to exceed inflationary and activity-based increases in operating costs. All told, we expect to deliver incremental EBITDA margins in the mid-teens.

Looking to fiscal 2023, we are optimistic about the demand outlook for our products, and our ability to execute against our strategic priorities. Supply chain constraints will likely continue to further the, disconnect between housing starts and completions in the near-term, creating additional backlog for builders and in-turn for distributors.

Also, as we've noted, we expect some improvement in commercial activity this calendar year. Over the long-term we remain focused on utilizing our scale and expanded product portfolio and our commitment to deliver outstanding service to bring value to our customers and our other stakeholders. Thank you for joining us today.

Paul, we are ready to open the line for questions..

Thank you. [Operator Instructions] Thank you. Our first question is from David Manthey with Baird. Please proceed with your question..

Yeah. Thanks. Good morning everyone..

Hey, good morning David..

Yeah. First off, on wallboard gross margins. You cited delays in pushing through pricing versus cost increases.

Can you talk about the supply and demand environment there? It seems like across many other distribution categories, folks are seeing higher gross margins as they're actually getting in front of their cost increases with price increases to the market.

Can you just talk about the competitive landscape and sort of how that dynamic is playing out for you?.

Yeah. David, it hasn't changed much through the cycle as we've been having these increases come in. The residential piece takes longer to get out into the market and the commercial piece is quoted, with escalators et cetera. So, on the commercial side, generally speaking, we're getting out in front of the price.

And on the residential side, we're chasing the price. And the market in wallboard of course is nearly 70% residential although, we're about 60%. So that's just your slight trailing of price going up. All that being said, you can see we're expanding gross margin dollars, significantly really across all of our product categories..

And the dynamic, we've talked about in our other product lines is exactly what we're seeing as well. It's just based on those – the quoting environment. We're able to get ahead of it as well, just a little bit more different – a little more difficult on the wallboard side..

Got it. Okay. And I appreciate, the April quarter guidance. But as we turn the page and we look ahead to the next fiscal year, maybe you can just talk about how you budget mechanically.

Are you thinking about a volume number and then you assume that pricing normalizes in some broad strokes? I'm just trying to get an idea of, how that process works for you and how you think through all these moving parts today?.

Yes. In essence you just defined it. We do. We create a volume forecast based on the expectations for commercial and residential in each one of our core product categories, and then we apply what we would expect to be the pricing through that cycle.

It's a little bit more difficult this year, with steel in particular, a lot of variables happening at the moment with steel, so it's going to be interesting to try to forecast that. I think wallboard demand stays strong, and I think that wallboard pricing will stay strong.

And for us, it's a matter of talking to the supply base and trying to understand potentially when the next set of increases are going to come-in, in wallboard.

I do think that, in the immediate term though, also the wallboard producers and any producer is getting ready to have more inflation hit them, as we look at what's happening with the cost of fuel, cost of natural gas, et cetera. So, we'll do our best, as we're budgeting literally as we speak, to try to factor all that in.

But you could see more inflation in some of the product categories that are really dependent upon the US manufacturing piece..

Yeah. That's helpful. Thanks, JT..

Thanks, David..

Thank you. Our next question comes from Trey Grooms with Stephens. Please proceed with your question..

Good morning. This is actually Noah Merkousko on for Trey. Thanks for my questions. So I wanted to follow-up on sort of your outlook on residential and commercial demand as we look out over the rest of this calendar year. It sounds like multi-family is doing a little bit better than single-family seeing some encouraging signs on commercial.

But just maybe any way you could frame up the – or quantify sort of what the demand environment could look for you? And if you – if it's possible from where we sit today to possibly see commercial demand outpace residential?.

That's interesting. If you look at the AIA consensus, it's still all over the board, right? The seven or eight groups that participate still have very widely varying forecasts commercially.

The most recent solid indication for commercial was just day before yesterday, when the Census Bureau came out with the – put in place commercial construction, and private construction was up north of 7%. Private construction spending was up in commercial 7%. I think that's one of the first positive readings, we've had in that for quite a while.

On top of that, the ABI again at 51%, I mean, it's not like it was hugely robust at 55% or 57%, but still 51% says growth. That's 12 months in a row of ABI growth as well. So that's our sequential increase in wallboard. You saw volume growth in steel that usually says good things. We have big volume growth in ceilings as well this last quarter.

And so that says commercial is recovering. Could commercial grow faster than residential next year? I'm – I would be surprised, but it could grow to the same extent. I feel like single-family is still between the backlog that's existing between starts and completions.

And the demand for housing – and it's going to be somewhat industry dependent, right? But the demand for housing still looks really strong. I think you're looking at mid-single-digit type volume growth still in residential and maybe we get low single-digit growth in commercial..

Thanks. That makes sense, and that's super helpful. And I also appreciate your commentary earlier on sort of wallboard manufacturing inflation that you might see later this year as well as other product categories.

And I guess, as long as we're in this inflationary environment, can we expect to see mid to high teens incremental EBITDA margins assuming there's some maybe gross margin compression from price/cost, but still strong SG&A leverage?.

Yes, I would think so. It's -- some of it is dependent again on steel right? Steel is a unique one and that the commodity itself moves a little bit differently than the balance of what we sell. So if steel was to decline dramatically it could impact the ability to leverage G&A.

And again on SG&A, we're going to be facing that same fuel issue with our fleet right now and of course we have labor inflation and other things. But all told what you said is accurate. We should be able to be mid-teens incremental EBITDA margins certainly for what we can see right now..

Got you. Thanks for taking my question. I’ll leave it there..

Thanks, Noah..

Thank you. Our next question comes from Matthew Bouley with Barclays. Please proceed with your question..

Good morning, everyone. Thank you for taking the questions..

Good morning..

Sort of, a follow-up to the last one, but guiding Q4 incremental margin to mid-teens after obviously you've been running in the high-teens in recent quarters. Is it just simply a math issue? You're adding in AMES and maybe now lapping the stronger margins from a year ago. Or any other reason why that might soften sequentially? Thanks..

A little bit of a decline on the gross margin side and to J.T.'s point about operating expenses you get fuel prices and other things going up. So arguably there might be a little bit of conservatism on that on the SG&A side of things.

But the netting of those two things coming together we're still in that sort of solid drop-through from the revenues and the gross profits falling through relative to our operating costs. So we still think it's a pretty good performance but it's down just a little bit from where we've been in the last couple of quarters. .

Got it. Okay. Thank you for that Scott. Second one just you mentioned the term elasticity a couple of times. I'm just curious if you can expand a little on that? Which categories I guess are you seeing any kind of discrete volume headwinds due to the price increases? Thank you. .

I mean this has been an elasticity environment for the last several quarters as inflation has been hitting in the market and we've had ongoing continuing discussions with our customer base about the realities that we're facing.

So there is just a lot of give and take and a lot of navigating of the market as people really understand sort of what this inflationary market looks like. So as J.T. talked about we've got a little bit of pressure on the wallboard side in terms of the timing of that.

So the prior caller's discussion -- or question rather we've been able to get ahead of that just based on quoting activity in commercial and other areas. So it's an active market just in terms of navigating market elasticity and acceptance of these pricing dynamics that we're facing. .

Understood. Thank you for that. And if I could sneak one more in just because you mentioned Omicron, J.T. there at the end of the prepared remarks.

Clearly the impacts were not unique to you but I'm just curious if there was a financial impact you could speak of whether it was volume or kind of any resulting impact to cost leverage that we should be aware of as we model out the next year? Thank you. .

We didn't factor in it as material in the financials which is why we didn't bring it up in the beginning or in the financials section. More than anything, I wanted to express our gratitude and thanks to the entire community that might be on the phone for weathering that storm and pushing through and coming up with the ability to continue to deliver.

I mean anecdotally, we had four or five yards that were closed for multiple days because the entire stabs came down with it. We had job sites delayed again. We had -- but this is no different than it's been through every one of these spikes except this one was just a little bit more accentuated let's say.

So rather than trying to quantify that number I think what we felt was we got most of it caught up in the quarter and maybe a little bit rolled over into this quarter. But at the moment considering February was the beginning of this quarter, we feel pretty clean. And so there wasn't a big need to talk about it from a financial perspective. .

Got you. All right. Well, thanks all and good luck..

Thank you..

Thank you. Our next question comes from Steven Ramsey with Thompson Research. Please proceed with your question. .

Hi. Good morning. I wanted to start on complementary products. And penetration of sales in the other three categories seems to be increasing nicely when you back out the excessive price in those core product categories. And this is happening without -- with pretty modest commercial demand.

So I guess what I'm thinking about can you make strategic inroads into the commercial market while it's slower? And could the growth rate of this product category accelerate meaningfully once commercial starts to pick up momentum? And then I guess included with that would be AMES helping as well. .

Yes, it's interesting because AMES is now a big part of that. And AMES has a component of the business that is dependent on commercial but the balance which is really the tools for rent – the balance is really very dependent upon residential. So they're really balanced in it.

So that – you drop that into that complementary it kind of balances things out. The core GMS complementary was still leaning more commercial. That's a fact. And we've been gaining share there and we've been adding capability there for the last two years. But we've also been trying to balance our commercial and our residential exposure there as well.

So we've done a real nice job with fasteners and other things that are used in residential. So the long-term objective was to try to make sure that on a revenue basis, we were doubling the complementary business versus our growth rate in our core. That of course with all the inflation is very difficult to even calculate and understand.

But we do think that we've been able to make that happen when you back out – to your point, if you back out some of the inflation and you look at the mix that we're at almost 30% this quarter and we were at 30% previous quarters in that complementary category. We feel like we're achieving it.

And again, part of the key there was to make sure that we push that complementary category to be a little bit better from a profitability perspective than the core business. So I think everything is coming together from a strategic perspective.

Could I see it growing faster in a commercial recovery? I could as long as residential didn't collapse, right?.

Right. Right. That makes sense. Okay. And then thinking about year-to-date CapEx double last year, $45 million for the full year.

Can you share the drivers of that increase is AMES and impact to CapEx levels in FY 2022? And then is there a way to kind of bogey the range for how to think about CapEx going forward?.

I think a number of things. First coming off a prior year that was a little tempered just given sort of uncertainty in the market and COVID dynamics and those types of things. As we mentioned in the prepared remarks, we made some property purchases, really to sort of lock in our interest in strategic markets that we feel are important.

And then you've got the acquisitions and greenfield activity on top of that. So all of those things are contributors. And looking forward to J.T's point we're still going through budgeting. But generally those kinds of numbers are a pretty good indicator of what next year should be looking like at least directionally..

Thanks, Scott. Thank you..

Thank you. Our next question comes from Kevin Hocevar with Northcoast Research. Please proceed with your question..

Hey, good morning, everybody. Maybe the first question on the guidance for fourth quarter, if I plug in 35% sales growth and mid-teens EBITDA, incremental margins on I'd call it 15%, you get to like $140 million of EBITDA something like that. And so when I look at sequentially from – you're at what $135 million I think this quarter.

Usually you see a bigger uplift from the January quarter to the April quarter, usually double-digit percent or something. This is only a couple of percent.

So I'm curious what's holding back call it the normal seasonality? I know you've talked about -- is it the gross margin impacts from steel coming down and some of the inflation you talked about? Yes, I guess I'm just curious if you could help me kind of think about what's holding back that normal seasonality..

I mean a couple of things. One like Scott said we do expect SG&A inflation to continue, right? We're in that inflationary environment. So each quarter things were a little bit more expensive between labor, fuel, et cetera. Fuel is going to be very expensive this quarter.

We are expecting also steel to soften, prices to soften over the next couple of quarters. And so that's in that number. So that steel softening versus this current quarter is a driver of that as well on the gross margin side. I really -- my guess is those are the two biggest factors.

But Scott?.

No, I think the seasonality that we would typically see in the fourth quarter is still there. Obviously, the market is sort of figuring itself out in terms of residential versus commercial and that's underlying all of it. But in terms of course seasonality, those dynamics are still there..

Okay. And then, I wanted to understand, so the 31.5% gross margin, down some sequentially and it sounds like the steel is a part of that price/cost. I'm guessing -- to get to the 25% organic sales growth, I'm guessing that there's still a good amount of year-over-year growth in steel prices baked into that.

So, how do you see that progressing? And then, I don't know if it turns negative year-over-year in the next quarter or something, but could we see -- could there be even more gross margin pressure say in 1Q 2023 from this -- these types of dynamics, or do you think that -- normally 31.5% is about the low point of where your margins hit and then you recover.

So I guess, I'm just kind of curious, could we see -- as the steel stuff plays out could gross margins go even lower before they go back up, or how do you see that trending over the next couple of quarters?.

Year-over-year steel pricing, it would definitely be up. But sequentially, in this quarter we expect it to be down. And probably as we indicated in the prepared remarks, we would expect to see a little bit more of that going into the next fiscal year as well, just given how high it got now.

Look, I mean there are a lot of different things happening within the steel market. Ukraine and the impact there could ultimately affect things. So, there's a lot of different moving pieces. I think we've taken a more conservative stance on it with an expectation of declines from the high levels we were at before.

And as we indicated and really tying back to some of the questions from prior callers, we did benefit on the way up from that in terms of getting ahead of that in our gross margins. And on the way down, as we relieve inventory, et cetera, there will be a little bit of pressure there.

But on balance, we'd still expect to stay through across all of the product lines in that same level of sort of band that we typically operate within gross margins..

Okay. All right. Thank you very much..

Thank you. Our last question comes from Mike Dahl with RBC Capital. Please proceed with your question..

Hi. It's actually Chris Kalata on for Mike. Thanks for taking my question. I was hoping to get some -- just get some thoughts on the margin trajectory looking out to fiscal 2023. You guys are on track to kind of hit a 12% margin this year.

And I was curious if the -- what your thoughts are where you sit today your ability to kind of sustain that level of profitability, given likely commodity price normalization, hopefully will continue the kind of price/cost headwinds as we start the year on the wallboard side? So just kind of get your sense on that trajectory as we look out..

I'm going to let Scott handle some details here, but I don't see -- unless there's -- again steel could be a bit of a wildcard. And that's really the one risk on the pricing side. I see wallboard demand being strong and I see the pricing staying strong. I think commercial recovery will help us in volume.

And I really believe that the single-family have to release at some point and the supply chain has to clean itself up and we'll get that single-family volume as well that really this last quarter you look at double digit, almost double-digit growth in multifamily and mid-single digits in single-family.

I think if you'd asked us for our forecast two quarters ago we would have flipped that. So I think that through the year, wallboard will help provide additional volume and additional margin. Steel is a wildcard, still hard to understand what's going to happen with steel.

Ceilings should be strong as commercial recovers and our complementary products business is very good. So there's just no reason that I see other than potentially steel. We've got a real good handle on our SG&A. I don't really see a reason for EBITDA margins to decline..

Right. I'd offer the same thing. As without a significant reversion in the inflationary dynamics, I think we should expect low double-digit EBITDA margins into next year. Again a lot of that still needs to shake through and figure itself out in terms of how the market is handling inflation.

But as long as we stay at the levels we're at now, low double-digit EBITDA margin should be maintainable..

Understood. And if I could just drill into maybe SG&A specifically for next fiscal year.

Can you just remind us how much is fixed versus variable in terms of SG&A? And where you sit today, what are your thoughts on the magnitude of inflation on the fixed side?.

Not much impact on the fixed side of things. We generally through the cycle talk about things as 50/50. But, obviously, an inflationary dynamic and markets and with volumes where they are it shifted somewhat. But generally on a more through-the-cycle basis we think about it as -- is in the ballpark of 50/50..

Understood. Appreciate the color..

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

Thank you..

Thank you..