Good morning and welcome to Skyline Champion Corporation’s Third Quarter Fiscal Year 2021 Earnings Call. The Company issued an earnings press release yesterday after the close. I would now like to introduce your host for today’s call, Sarah Janowicz, the Company’s, Director of Investor Relations and External Reporting. Sarah, you may begin..

Good morning and thank you for participating in our earnings call to discuss our third quarter results. Joining me on today’s call is Mark Yost, President and CEO; and Laurie Hough, EVP and CFO.

I would like to remind everyone that yesterday’s press release and statements made during this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission.

Additionally, during today’s call we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. A reconciliation of these measures can be found in the earnings release. I would now like to turn the call over to Mark..

Thank you, Sarah and good morning everyone. Today, I will provide an update on the third quarter, as well as the balance of the fiscal year. I will also touch on the trends we see for our next fiscal year given the strong demand environment and favorable fundamental backdrop for housing to support the long-term growth in our operations.

From an industry standpoint, homebuilder confidence remains at a historically high level, due to the low interest rates and lean inventories of new and existing single-family homes. We are encouraged by these trends as we believe that it can leverage our business model to scale our operations in this robust demand environment.

We continue to see strong demand as our consolidated orders were up 43% from our third quarter of last year. We delivered 5,661 homes during the quarter, an improvement of almost 7% from the prior year and up 13% sequentially, as production throughput continued to improve steadily. During the quarter, our U.S.

manufacturing facilities improved capacity utilization by 7% from the sequential second quarter, reaching 70% for the quarter. We achieved these production increases despite the expected intermittent COVID and holiday plant shutdowns.

During the third quarter of fiscal 2021, we were able to increase daily production rates over the levels achieved in the prior year, as well as direct staffing – labor-staffing levels that have increased and production efficiencies have improved, due in part to the progress made on streamlining product offerings.

We anticipate further improvements during the upcoming quarters. With the progress we are making, we expect our consolidated fourth quarter revenues to be up 25% to 30% from fourth quarter of fiscal 2020 barring any significant COVID or supply disruptions. Our Western Canadian plants have also performed well.

Sales were up about 16% in the third quarter of fiscal 2021 compared to the same period last year and were up 7% sequentially from the second quarter. Canada also increased production rates in response to stronger order demand. As a result of our strong order demand, backlogs grew $98 million during the third quarter to $489 million.

Due to the production increases realized during the quarter, the U.S. was able to reduce lead times for our customers, which decreased the backlog from 19 weeks in the second quarter to 18 weeks at the end of the third quarter. The U.S. operations have done an excellent job, recruiting and hiring an additional 300 employees, since the last quarter.

We are in the process of training and onboarding these new employees and will continue to increase our labor force to accommodate the increased demand for our homes.

Our daily output levels have grown year-over-year and sequentially, which has allowed us to more effectively manage through the intermittent disruptions stemming from higher than normal absenteeism and production delays related to COVID.

The largest obstacles to increasing output in the upcoming quarters will be driven by supply chain challenges and COVID-related production interruptions.

Our retail stores and retail channel partners reported that traffic has improved and conversion rates are higher due to down payment availability, the financing environment in taking great care of our customers.

I am proud to say that in today’s environment where trust is at a premium, our customers know and trust that we have their best interest in mind, as recently in a survey of more than 24,000 new manufactured home buyers, Skyline was named America’s Most Trusted Manufactured Housing Builder, receiving a five-star trust rating.

This great honor belongs not only to Skyline Champion team, but to our channel partners as well. We are getting similar reviews with our Genesis brand of products, which continue to gain momentum in the market. Our turnkey set and finish operations are continuing to expand, as we have added crews in both the Northeast and Midwest regions of the U.S.

We believe that we’re well positioned to provide housing solutions to a larger market than ever before. This is supported by the backdrop of low interest rates, availability for financing, millennial household formations and companies announcing work-from-anywhere options.

This is why we continued to expand our turnkey offerings to our channel partners. Throughout the pandemic, we have continued to invest in the design and testing of enhanced digital offerings and production automation for our factories.

The initial indications validate how revolutionary this will be and how dramatically it can redefine the home buying and building process. We will be intensifying investment in these areas in the near-term to evolve home buying for our customers.

We are also mindful that our customers have a growing need for homes and as such in January, we closed on the purchase of two idled manufacturing facilities in North Carolina, one of the strongest growth states in the U.S. We are working through the automation lead times and anticipate beginning production in the next 12 months to 18 months.

I will now turn the call over to Laurie to discuss our quarterly 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 expectations for the fiscal fourth quarter, as well as the longer-term outlook.

Net sales increased by 10% to $378 million in the third quarter versus the same quarter last year. We saw revenue growth of $31.5 million in the U.S. factory-built housing segment, as well as growth in our Canadian factory-built housing segment of $3.5 million. The increase in U.S.

factory-built revenue was driven by an increase in the number of homes sold and an increase in average selling price. The increase in the number of homes sold was 6% or 310 units for a total of 5,343 homes, compared to the same quarter last year. The average selling price per U.S.

homes increased by 4% to $63,000 due to price increases in response to rising material costs. We are pleased with the sequential growth in revenue in the U.S. factory-built segment, which increased 19% in the third quarter compared to the second quarter of fiscal 2021.

This increase was driven by a 14% increase in homes sold and a 4% increase in average selling price. Canadian revenue increased 16% to $26.4 million compared to last year, driven primarily by a 15% increase in the number of homes sold to 318 units.

The average home selling price in Canada of $82,900 stayed relatively stable versus the same quarter last year, as pricing actions enacted in response to rising material costs were offset by a shift in product mix. Consolidated gross profit increased to $71.8 million, up 4% versus the prior year quarter, due to increased sales volume. Our U.S.

housing segment gross margins were 18.7% of segment net sales, down 140 basis points from the third quarter last year, due to increased material costs, partially offset by direct labor efficiencies and increased leverage of fixed costs caused by higher sales volumes.

SG&A in the third quarter decreased to $44.3 million versus $45.2 million in the same period last year. The decrease was primarily due to reduced travel and marketing expenses, partially offset by increased variable compensation.

Net income for the third quarter was $21.6 million or $0.38 per share compared to net income of $17 million or earnings of $0.30 per share during the same period last year. The increase in EPS was driven by a combination of higher revenue and gross profit, as well as reductions in SG&A and income tax expense.

The Company’s effective tax rate for the three months ended December 26th, 2020 was 19.7% versus an effective tax rate of 27% for the fiscal 2020 third quarter. The Company’s effective tax rate decreased as a result of the U.S.

research and development tax credit study and tax credits related to the ENERGY STAR program that resulted in the recognition of a tax benefit of $1.7 million. Adjusted EBITDA for the quarter was $32.1 million, an increase of 7.8% over the same period a year ago.

The adjusted EBITDA margin compressed by 20 basis points to 8.5%, due to the increase in material costs we mentioned previously. The market volatility for lumber and OSB has persisted.

The pricing actions we’ve initiated a few months ago, started to flow through in the latter half of the third quarter, which helped offset a portion of the increase in material costs. We expect these pricing actions will be effective throughout the fourth quarter.

Turning to our labor force, we’re focused on retaining talent and growing our team in response to increased demand. We continue to recruit, onboard and train new team members to support the expected growth in the business. We may see some level of labor inflation in the near term, if some of the items proposed by the new administration are passed.

There are several levers, we can utilize in response to changing labor availability and market dynamics in the longer-term. All that said, our production capabilities may continue to be limited in the short-term, if we experience additional instances of high absenteeism or intermittent plant shutdowns related to COVID-19.

As of December 26th, 2020, we had $267 million of cash and cash equivalents and long-term borrowings of $39 million, with no maturities until June 2023. We generated $40 million of operating cash flow during the third quarter compared to $21 million during the same period last year.

The increase in operating cash flow is primarily due to an increase in customer deposits and deferment of employer payroll taxes allowed by the CARES Act. Also during the quarter, we repaid $38 million of the outstanding balance on our revolving credit facility.

We remain focused on executing on our growth and operational initiatives and given our favorable liquidity position, plan to utilize our cash to reinvest in the business and to support strategic growth. I will now turn the call back to Mark for some closing remarks..

Thanks, Laurie. I’m encouraged with the results we delivered in the quarter and the favorable inflection points as we return to year-over-year growth in home sales and total revenue. Our strong backlog and efforts to expand our capacity and increase our productivity has positioned us well to meet the growing demand for our homes.

Before we open the lines for Q&A, I want to take a moment to thank our team. I am constantly amazed by what our people are able to accomplish in the extraordinarily challenging conditions that we have today. The execution and innovation of our team combined with the now strong secular market lay the foundation for our Company’s long-term success.

And with that operator, you may now open the lines for Q&A..

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions]. Our first question today is coming from Greg Palm from Craig-Hallum. Your line is now live..

Thanks. Good morning, everyone. Congrats on the quarter here. Starting with the demand environment, I’m just curious, if you’re seeing any noticeable difference from the dealers versus the community channel.

And then anecdotally we’ve heard that there is potentially maybe a new, what, a higher income buying group that’s starting to emerge in this space for manufactured homes. Just curious if you’re seeing any evidence of that as well..

Yes. Thanks Greg, and good morning. Overall, I would say the retail channel is still very strong, the community channel has started to return to their ordering patterns. So I think that market is coming back. We’re definitely seeing a slightly different demographic of buyers, there is more millennials buying today.

I think we are seeing kind of a more educated buyer, starting to move into our sector, that’s looking for kind of an attainable home.

So I think you’re correct there is that definitely more educated buying process that’s starting to happen in the manufacturing sector, with average selling prices of new homes jumping up to $356,000 at the end of December. So they were up about $26,000 year-over-year. Our average ASP has gone up about – just over $2,000 in that time period.

So I think the spread between average site-built is – versus what we’ve changed is about $24,000 year-over-year. So you’re definitely looking and seeing people look for better value.

I think people are getting more concerned with the landfill and environmental impacts that traditional homebuilding has and then also, to – just you know, there is more and more concerns over mold and mildew and health concerns that people have with traditional site-built homes versus our homes built indoor.

So I think all of those factors are creating more educated buyer. And then educated buyer generally are higher shopper is starting to come to the new solution that’s in the marketplace today, which is us..

Yes, that’s an interesting perspective. As it relates to the ASPs, we’ve heard that I think some of the price increases have been north of double-digits, your ASPs in the quarter U.S.

up 4%, should we assume that there is further ASP growth on top of what you did? I mean, is the double digit range that maybe we’ve heard is that sort of ballpark where pricing could end up, as everything flows out of the backlog?.

Yes, I think we started to see part of our pricing increases during the quarter, we didn’t see all of them. So we will continue to see price escalation going into our fourth quarter definitely..

Okay. And then just last one thinking back a few years, I feel like we went through the same dynamic with lumber and commodity cost inflation and I recall industry pricing went up a bunch back then maybe not to the same level, we’re seeing today. But it seems like pricing stock, even when commodity prices normalize.

So is there any difference this time around, I mean, if you’re able to hold pricing, when certain input cost normalize it would certainly imply there could be actually a pretty meaningful tailwind at some point.

Do you agree with that?.

I think if the demand environment stays as robust as it is, there is definitely some ability to maintain some of that margin overhang. I think it will be a highly inflationary environment for the remainder of the year.

Homebuilding demand is up and I think, the supply chain in aggregate throughout the entire year will be challenged to keep up with demand. So I don’t expect much relief on the inflationary side, throughout the majority of the year..

Okay, makes sense. Congrats again. Best of luck going forward..

Thank you. Next question is coming from Daniel Moore from CJS Securities. Your line is now live..

Good morning, Mark, Laurie. Thanks for taking my questions. Just wanted to – you gave a great color but digging on Palm string even a little bit more.

What did you do differently this quarter in terms – just beyond wages and the hiring? You mentioned streamlining, but really the steps that you’re taking to increase capacity, particularly in the light of the challenges that we’re seeing from COVID, etc.

Any more color that you’d like to provide and obviously you gave pretty good indication of where things will shake out this coming quarter and continued progress. But I would just love to pull on that string a little if you could..

Yes. Thank you, Dan. So overall, we’ve made tremendous progress throughout this fiscal year in streamlining our product offerings to increase the throughput.

As a matter of fact, probably, I would say in the next quarter or two, we’ll probably readjusting our capacity utilization numbers overall, just because I think with the refined product offerings, we’ve actually de-bottlenecked some things to increase our overall end-capacity, at the end of the day.

So I think the team has made tremendous progress on that during this fiscal year and especially during the quarter. But really it’s in large part, just to be frank, in terms of the production increases, just fantastic innovation and drive at the plant level in people figuring out solutions and how to operate in these challenging conditions.

So I think the team has worked well. There is a lot of cross collaboration between the plants, between functions to problem solved very quickly and to identify issues hopefully before they happen and to correct them. So we don’t run into trouble.

So I think, it’s the benefit of having a great team, and also to streamline product offerings, it’s going to overall increase our overall utilization and raise the bar in the future..

Got it. Really helpful. Laurie, the gross margins fared much better than expected or perhaps feared. I mean, the throughput probably had a lot to do with it. I think last quarter, you indicated that this quarter would be a pretty good snap back.

Do you still expect that to be the case? Do you see getting back to sort of 20% this quarter or is that, it may take a little more time?.

Hi, Dan. Yes. We expect to get back to that more 20% gross margin range as we move through the quarter..

That’s helpful. And maybe one more, just capacity for the two new plants.

Once fully ramped, how much incremental capacity do you expect those to add 24 months plus from now?.

That’s a great question, Dan. We don’t quite have that identified. We’re putting in and working through some of the automation that will be a more automated facility. So I think, we needed to find some of that capability, which will be done in the upcoming months here. So that’s a TBD for now..

Okay.

And are you seeing more opportunity in terms of ones and twos to add capacity from an M&A perspective?.

Yeah. I think we will continue to see that as we move through the year that there’s always opportunities, we have a deep pipeline. So I think, it’s all very favorable. I will say the facilities in North Carolina is a very large facility. So they’re generally larger campuses. So it will – it has very good productivity. It will be one of our larger plants..

Perfect. Okay. Congrats and thanks again for the color..

Thank you. Our next question is coming from Matthew Bouley from Barclays. Your line is now live..

Good morning, congrats on the quarter and thanks for taking the questions. Mark, I wanted to ask about the capacity utilization that you just touched on, you guided to I think 25% to 30% revenue growth in Q4. It sounds like you’re kind of past the worst of it in terms of the recent production challenges.

But obviously orders at least recently have still been running ahead of that number.

So is – my question is – is there, just – is there still an ability to increase the production rates further from where they are to knock down that backlog or are you actually running up against kind of peaking capacity utilization here?.

Yes, good morning, Matt and thank you. No, I think, we have very good potential to increase the throughput of our factories and our plants, which we’re doing. Overall, that – really the largest challenges as I mentioned on the call will be either supply chain related or continued COVID spikes in certain areas.

We’re fortunate that the teams have managed to operate in those conditions today. I don’t want to say they’re normal conditions, but they’ve learned to operate effectively in them and are continuing to do so. Overall capacity utilization will continue to increase, I think throughout the year very steadily to do that. During the quarter, our U.S.

backlogs actually decreased from 19 weeks of backlog in the second quarter to 18 weeks during this quarter. So we are making progress with the throughput and production increases that we’ve seen.

So we just need to continue that and we’ll continue to work through the backlog, the orders are very strong, demand is coming, we’re seeing it from every channel. So we just need to provide more solutions and provide more product to our partners..

Okay, understood. Second one – you talked about – Mark about making some investments and it sounded like enhancing the homebuyer experience and perhaps some investments in online capabilities and things like that.

Can you just elaborate a little bit on, I guess what you meant by that? What you think you can do, and there has been any kind of tangible results thus far?.

Yes. Thanks, Matt. Overall, we’ve been investing throughout the year quite a bit in terms of the online digital experience and some test pilot products online for certain retailers, for certain end-consumers, where customers can price, configure, quote, design homes online and then get it immediately ordered.

And so those test pilots have been very successful. We’ve seen tremendous interest from the end-consumer and believe that people will be buying more products online.

And so we’re going to move that from what I call a test pilot phase to a substantial phase to where that success can really drive we think extraordinary increases in demand over time by making the home buying experience very simple, where it’s very complicated today.

So I think we’ll continue to develop those online solutions to make it very simple to buy a home. And the easier we can make it, the better it will be for the end consumer..

Got it. We’ll keep looking out for the progress on that. And thanks again, and congrats on the results..

Thank you. Next question today is coming from Mike Dahl from RBC Capital Markets. Your line is now live..

Hi, thanks, Mike, Laurie – Mark and Laurie.

I just wanted to follow up on capacity and I think, in the release and some of the comments you talked about the automation and I was wondering just to what extent is the de-bottlenecking that you talked about attributable to improvements and expansion in automation and how should we think about that as you – as part of also the capacity expansion plans?.

Yes. Thank you, Mike and good morning. Overall, I think the capacity expansion that we’ve seen thus far is primarily driven by product streamlining, not really driven by automation. The automation test pilots that I mentioned that we’ve been investing in over the course of this past year have proven out their success to us.

And so I think, really if you think about capacity utilization, you might want to think about it in two or three waves. The first wave is product simplification which can ultimately raise the bar on our capacity utilization at the end of the day by, let’s say 10% to 15% roughly.

And then wave two is the ability to automate our facilities, which will give us another increase in capacity utilization beyond that.

So right now, we’re moving the automation from just a prototype phase to more of a developed phase to start rolling out and partnering with some of our automation suppliers and vendors and some in-house automation teams that we’ll be bringing on board to really up the game in terms of our ability to be an advanced manufacturer of homes for our customers..

Got it. Okay, that’s helpful. And then the second question or a couple of questions actually. Just with respect to the shift in the administration and Laurie, I think you talked about potential for labor inflation.

I’m wondering first if the proposals for – or if that $15 minimum wage were to go through, have you studied and could you quantify what effect that would have for you guys? And then secondly, there’s clearly a potential for support from an affordable housing policy standpoint.

But at the same time, the last Democratic Administration also was responsible for pushing Dodd-Frank through which had a negative effect on manufactured housing.

Can you just talk through kind of your thoughts on the puts and takes around potential policy change?.

Yes. Thanks, Mike. Overall, the policy change I view kind of the tale of two administrations. The first administration, the prior administration, I think was very successful overall in HUD, in deregulating some of the regulatory challenges that had been in place for 10 or 20 years, for decades.

I think they were less successful or not successful in modifying zoning within local jurisdictions.

So I’d say today – in today’s administration, I think it’s kind of the ability for the new administration to impact zoning and regulatory barriers at a local level and they are probably more – the view would be that they’re probably more inclined to do that. So I think the zoning and regulatory changes at a local level would be a very big positive.

Overall, I think the access to affordable housing is a key priority for the administration. If you saw the Secretary Fudge, the new HUD Secretary and her confirmation a few days ago, she made reference, a few times actually during her confirmation saying that manufactured housing is an outstanding option.

Later on said, I’m a 100% supportive of looking at more of how we can incorporate manufactured housing as a solution. So I think it’s already on the radar, that were a critical part of the solution, which is a big positive. As far as other regulatory barriers, I think Dodd-Frank, I’m not as concerned with.

I think that was a reaction to prior crisis and challenges. I don’t think, we have excessive lending or challenges today. And overall, the one administrative challenge that we have to be on the watch for is may be energy efficiency and other type of regulatory changes to put in place that could increase the cost of housing, over time within HUD..

Okay. That’s really helpful.

And with respect to minimum wages, have you done any analysis around how that could impact you?.

Yes, we’re constantly looking at wages, I think naturally over time, we just will pick up and we’ve been expecting that for some time.

But overall, part of the reason we’ve been prototyping our investments in automation is not just to improve the throughput and not just to improve the quality, but to mitigate some of the escalation labor in automation is – has a greater payback and return as wages increase which we think they will.

So I think we’re – we’ve been studying that quite intently, and frankly expecting it, which is why we invested so much in some of the prototype that we’ve done to make sure that we’re ahead of that curve..

Great. Makes sense. Thanks, Mark..

Thank you. Next question today is coming from Philip Ng from Jefferies. Your line is now live..

Good morning guys. Congrats on a very impressive quarter. Mark, the 25% to 30% sales growth that you called out for 4Q clearly very strong. Some of that I assume is playing a little catch up as you kind of worked down your backlog.

So it would be helpful to kind of give us a sense, fiscal 2022, what type of deliveries, do you kind of expect?.

Yes, I think the deliveries throughout the year will steadily increase as COVID and supply challenges wane. So I would overall expect and I think I mentioned on the prior quarter that we should increase utilization to somewhere 75%-plus range overall for the year. So pretty big increases in production and productivity across the year.

I will wait and see what happens with the stimulus packages because we might increase further depending on the overall demand levels coming out of – the type of stimulus and other packages that come out of the current administration. So I think we’re still evolving. But right now the order book is very strong.

We’ve seen orders pickup as Laurie mentioned on the call, I think at 43% increase. So we continue to expect that type of level demand throughout the year..

Got it, Mark, is might – is the takeaway based on just your comments to how – and these bottlenecks easing your expectation is sales growth to kind of accelerate from that 25% to 30% range, you guys are talking about deliveries picking up and certainly some of the price increases you have out there, ramping up as well..

Yes, I would expect slow and steady increases in revenue as we go throughout the year..

Okay, that’s super helpful. And then if I may, lead time perspective, manufactured homes, modular homes historically was kind of a little quicker than your cycle home at a minimum, you had a lot more visibility.

Curious how the pandemic has potentially changed that or that gap is actually tracking more favorably for you guys going forward?.

Yes.

You broke up for half a second there, Phil, could you repeat that?.

Sure, Mark. Apology for my spotty Wi-Fi. Historically modular and manufacture homes, I think just from a visibility and lead time it’s been better than a site-built home, the pandemic had made – has presented some challenges.

Is that still the case going forward?.

No, I think, right now we’re running at the end of the quarter at 18 weeks. So I think that’s fairly good delivery time vis-a-vis traditional manufacturer, or traditional builders. I do think that some of their lead times could be exaggerated.

I know there is more and more labor challenges on the site builder side, there is more and more challenges with the supply channel, supply chain side. So I think you’ll start to see even traditional homebuilders lead times start to accelerate and especially with the labor challenges competing with the repair and remodel side of the business.

So overall, I think, we’re very well positioned in our delivery and lead times, especially as we de-bottleneck some of our production capabilities to accelerate that..

Okay, that’s super helpful. And a question for Laurie. It sounds like you’re making really good progress on managing inflation and gross margins are expect to get back to more normal as you kind of exit fourth quarter. But Mark also mentioned that you guys are expecting a pretty inflationary year.

So should we kind of assume gross margins continue to build off of 4Q, obviously accounting for seasonality and do you need to go for another round of pricing as well?.

So we’re watching pricing very closely as commodities move in the hyper – as Mark mentioned in a hyperinflationary fashion. So certainly expect to keep a very close eye on price – on pricing and competitive challenges based on geographies of certain plant.

So as we’ve talked before, competitive pricing and demand geographically based and just keeping an eye on inflation. But we do expect as revenue increases to be able to leverage our fixed cost with margins potentially going up, yes..

Okay, got it. Super helpful. Thanks a lot guys..

Thanks. Your next question today is coming from Jay McCanless from Wedbush. Your line is now live..

Good morning.

First question just wanted to confirm, have you all been raising prices thus far in January, and if so, what magnitude and how does that compare to some of the pricing that you took in 3Q?.

Hi, Jay. Good morning. Yes, we continue to keep an eye on commodities and inflation relative to our – all of our input costs, not just lumber. And so we have, it’s geographically based. So it’s plant-dependent, but we have been taking some price increases in January..

Okay, great.

And then the second question I had is, the commentary you had about the millennial starting to come into the market, is that driving a change in your mix between modular and HUD code homes? And if so, could you maybe talk about where that change is happening and what it looks like?.

Yes, I don’t think that’s driving a significant mix change in terms of the home itself or what type of home they’re buying. I think overall, they’re just looking for a good quality home.

They’re looking for a safe home and whether it’s built a HUD code or whether it’s built to the modular code, I think is really more personal preference and style, along with price point. So it really depends on the individual and what their key needs are at a buying level.

But we haven’t seen a major shift between the two, in terms of the dynamics of what they’re buying..

Got it. And then the last question from me, I think, Mark, and not to over characterize it, but your commentary this quarter about labor availability and getting people back on the line seems to be much improved over last quarter.

Just to – could you talk about labors you look forward? And then also thinking about the labor for these two new plants, how are you feeling about your ability to staff those plants?.

Yes. Thank you, Jay. I think labor availability is becoming better overall, I think people are starting to return back to work and we’re seeing good traction on those fronts. Obviously, we are awaiting what the outcome of certain stimulus bills will be and how we will respond to that.

So we’ve got three different plans on how we might respond depending on what levels the bills are, to keep and maintain and to drive our labor force.

As far as the staffing for the new plants and new facilities in North Carolina, I think one, those are going to be more automated facilities, likely have a need for less labor overall, but also two, I think one of the studies we did as we looked into that location was to understand the labor force.

And there’s good labor availability in that market and good people in that market. So overall, I think we’re encouraged by the ability to start that plant..

That’s great. That’s all I had. Thanks for taking my questions..

Thank you. Our next question is a follow-up from Greg Palm from Craig-Hallum. Your line is now live..

Yes, thanks. Just maybe a clarification to start. I think, Mark as you were talking about kind of growth rates in fiscal 2022, I mean, as I’m thinking about the March quarter, the revenue guidance for 25% to 30%. I mean, it’s a much easier comp this quarter than let’s say three or four quarters from now.

So when you were talking about kind of a gradual increase in revenue growth rates, were you talking about in absolute dollars or were you saying that the 25% to 30% growth rates could still increase as we go throughout the year in fiscal 2022?.

Yes, I was talking absolute increases quarter over quarter over quarter, Greg, is what I was thinking. I think we’ll see steady improvement in absolute revenue as the year progresses..

Got it. That make sense. Okay. And then, I guess just thinking back to maybe a year ago, we had this sort of 10% EBITDA target out there, and maybe I missed it, but I haven’t heard an update or anything on that call. I mean, given where we are on the top-line, given where we are with pricing and all of the improvements with the margins.

I guess, at what point is the 10% an attainable target?.

So, Greg, the 10% is still an internal target. We did take the timing off the table several quarters ago, primarily because of COVID. So we are still experiencing those COVID related shutdowns, which is going to impact throughput as we talked about.

In addition to that, we’re going to see an increase in our SG&A cost for some of the automation and digital transformation that Mark was talking about earlier. And then also, we need to keep in mind that our suppliers are also impacted by COVID and COVID-related shutdown.

So availability of materials from our supply chain is key as we move through these period. So we want to see all of those COVID related factors kind of settle down before we put out a new timeframe for the 10% margin. But bear in mind, we’re still internally, we are still striving for that, and we think it’s a realistic type target..

Okay, great. Thanks for taking the follow-ups..

Thank you. We reached end of our question-and-answer session. I’d like to turn the floor back over to Mark for any further closing comments..

Very good. Well, thank you everyone for taking the time to dial into our call and listen to the progress we’ve made. We have a great team and great operation. Look forward to presenting our results and our innovations for you in May. Take care and stay safe..

Thank you. That does conclude today’s teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today..