Welcome to the TreeHouse Foods' First Quarter 2022 Conference Call. All participants will be in a listen-only mode. After today’s presentation there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded.

At this time, I would like to turn the call over to TreeHouse Foods for the reading of the Safe Harbor Statement..

Good morning, and thanks for joining us today. This morning, we issued a press released, which is available, along with the slide deck in the Investor Relations section of our website at treehousefoods.com.

Before we begin, we'd like to advise you that all forward-looking statements made on today's call are intended to fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. Information concerning those risks is contained in the company's filings with the SEC.

In addition, we will be discussing operating and financial results on an adjusted basis. A reconciliation of these non-GAAP measures referenced during today's discussion to their most direct comparable GAAP measures can be found in today's press release on our website. I'd now like to turn the call over to our CEO and President, Mr. Steve Oakland..

Thank you P.I. and good morning everyone. Before I get into the details of the quarter let me make a couple of quick comments around some strategic and governance updates since our last call.

As a reminder we announced in mid-March that the Board unanimously decided that the focus of our ongoing strategic review will be on reshaping TreeHouse by building leadership and depth around a focused group of categories in our higher growth snacking and beverage businesses.

While we will not be speculating on potential outcomes or the timing, it remains ongoing and we will continue to provide updates as we make progress. We also announced several changes to our Board of Directors. We've recently welcomed Scott Ostfeld, partner with JANA Partners and Joe Scalzo, CEO of Simply Good Foods.

Both are already contributing a great deal of unique financial and industry knowledge and insight. Scott and Joe will make great additions to TreeHouse. I want to thank Ashley Buchanan and John Gainor, who stepped down this year. They have brought excellent perspective to our Board and we greatly appreciate their time and contributions.

As we continue our strategic journey to drive growth and create value, the work we've done over the last several years to optimize the business, focus on commercial and operational excellence, and align our structure with how our customers think has enabled us to execute throughout this dynamic environment.

In the first quarter our execution was strong. Our focus on commercial excellence enabled us to successfully implement pricing to recover inflation while furthering our customer collaboration.

These efforts combined with our ongoing focus on the operations and the continued strong demand for our private label products position us well to deliver our full year guidance. But before I get further into the first quarter numbers let me start as I usually do, by framing the macro environment.

This continues to be unprecedented operating environment. On Slide 4 you can see that inflation continues and commodity imports are still escalating. While we see improvements in our business, labor markets remain tight across the country and they're going take some time to normalize.

The supply chain continues to be disrupted particularly across the ingredients and materials complex, often reflected in longer delivery lead times and allocated availability. Against the backdrop of these macro headwinds, private label demand has continued to strengthen with strong growth in both measured and unmeasured channels.

This is very encouraging and it is a sign that the private label value proposition is becoming increasingly important to consumers. This value proposition is being supported by broad consumer trends. Consumer savings rates as you can see on the left of Slide 5 have now dipped below pre-pandemic levels as government stimulus has abated.

On the right you can see the inflation as reflected in higher shop prices continues to rise. These higher prices are being felt in the grocery store, at the gas pump, and across the economy further pressuring the consumer.

On Slide 6 on the left you can see that the price gap between branded and private label for our TreeHouse categories as widened, a key data point supporting our value proposition to the consumer. Price gaps has historically ranged from 26% to 30%. Gaps widened above this range to the low 30s more recently.

This will vary from month to month but gaps at this level present the consumer with a more attractive private label value proposition. Today given the absolute price point inflation, the dollar value savings of a basket of private label goods is simply more substantial.

As a result, consumer shopping patterns are beginning to shift and we're seeing it in the data. On the right you can see that private label unit share posted gains on a year-over-year basis. These have shifted meaningfully in the recent months and share in the most recent period is now trending slightly above pre-pandemic levels.

This reaffirms the strong underlying fundamentals for private label. Slide 7 tracks buying patterns for households earning above and below $100,000 a year. It's clear that private label unit share is on an upward trajectory with both demographics supporting strengthening demand for private label regardless of income level.

Let's now turn to the first quarter results on Slide 8. We executed well in the quarter. We again invested in service for our customers, and our teams continued to collaborate with them to successfully implement pricing to recover inflation.

It's a muscle that we have now exercised for more than a year and our commercial organization has demonstrated strong capability here. We have also slowly been able to improve service in certain categories, particularly in snacking and beverages.

These efforts coupled with improving private label demand enabled to us to deliver first quarter revenue of $1.14 billion up 7.9% from last year. Given the supply chain constraints and the broad macro factors I highlighted earlier, this was a solid start to the year. This quarter we again had more demand than these constraints allowed us to fulfill.

We're working very hard to improve service levels which are in the low 90s when you take into account that we have several categories on allocation. First quarter adjusted EBITDA totaled $58 million.

Adjusted EBITDA margin of 5% declined 460 basis points driven by inflation, labor, and supply chain disruption and the timing lag as we implement our pricing. Adjusted diluted EPS for the first quarter was a loss of $0.15 compared to $0.36 last year and as you saw on our release we are reaffirming our annual guidance today.

We have work to do to return the business to historic levels of profitability but I'm encouraged with our progress and the start to the year. I believe that we are on track and we have the building blocks in place to continue to improve service and profitability throughout the year and to position ourselves well for our fourth quarter seasonal peak.

Demand for private label is growing and even in this environment of unprecedented pricing we have several successes with both new product wins and expanded distribution. In fact, in the first quarter in 8 of our 10 largest categories, we're outperforming the broader private label market which has returned to pre-pandemic unit market share levels.

While inflation continues, our teams are on top of it and we're working with our customers. Our March pricing is now in effect and we have communicated additional pricing that will become effective at the beginning of the third quarter.

As we look to drive savings across the network, cost control and continuous improvement are also important areas of focus. Along these lines on the labor front we're making headway. We are seeing slow but steady success implementing new labor strategies to attract and specifically to retain talent.

We're also doing what we can to mitigate supply chain disruption where challenges range from ingredient and packaging availability to driver and equipment shortages. Our solutions span securing backup ingredient suppliers to in certain cases, collaborating with our customers to reformulate where necessary.

These are capabilities that will support our customers over the long term. I'll close by stressing that through all of this, we continue to be intently focused on the customer.

In the near-term, that means additional investment, but we believe investing in the customer is the right long-term decision and will strengthen our relationships and our business.

We will continue to work diligently to fill every order that we can and to supply our customers with food and beverages that provide a strong value proposition to their consumers. Let me now turn it over to Bill to walk you through the details of the quarter and the outlook.

Bill?.

Thank you, Steve and good morning, everyone. Starting with Slide 9, first quarter revenue grew 7.9% versus last year. Pricing contributed 11.7%, very much in line with the expectations we communicated back in February, the low double-digit pricing as we entered the year. I want to make sure I recognize our amazing general managers and commercial teams.

They continue to do an excellent job communicating with our customers and implementing the appropriate pricing to recover these inflationary costs. It's a testament to both the team and the capabilities that we're building here at TreeHouse. Netted against the pricing, volume and mix declined 3.7%.

We continue to address supply chain constraints and availability of materials and ingredients across the network so that we can improve production and in turn, service. Turning to the segments. Our Meal Prep division net sales grew 7.3%, driven by 13.3 points of pricing, which is largely reflective of the escalation in oils, durum, and oats.

Pricing was offset in part by a 5.9% volume and mix decline. While Meal Prep continues to face production constraints, we are making solid progress. The team is on the right track to improve service and doing a good job around expense control. In pasta, our primary challenges are in labor and material availability, namely carton and film packaging.

Within refrigerated dough, we are taking steps to improve production by addressing staffing issues. Our Snacking & Beverages division delivered first quarter revenue of 9%, of which 8.8% was pricing and 0.2% was volume and mix. Our service has been strong in categories like pretzels and broth.

And in a number of categories, we've been able to capture incremental private label demand coming our way. While Snacking & Beverages does have several categories that are still constrained, such as cookies and crackers, we are working diligently to improve production and restore service to target levels.

Turning to our performance by channel on Slide 10. You can see that in retail measured channels, sales grew 5%. Similar to prior quarters, revenue in unmeasured channels was better, posting growth of 6%. As a reminder, the unmeasured channels include key retailers of the value, club, and online space. Slide 11 walks you through our earnings drivers.

Volume and mix, including absorption, contributed negative $0.01 in the quarter. As private label demand had strengthened, we are doing all that we can to capture that volume. To date, we have not seen elasticity impact.

Admittedly, it is difficult to track because we have production constraints and this is unchartered waters in light of this unprecedented inflation. We will, of course, continue to monitor that closely.

Moving to the right, total PNOC, pricing net of commodities, contributed negative $0.55 versus last year, which, in large part, reflects the higher cost of inventory produced in the fourth quarter that was sold in Q1, partially offset by pricing.

In the quarter, operations contributed negative $0.13 versus last year as we continue to address supply chain challenges. SG&A contributed $0.09 in the quarter. We benefited from expense timing and continued spend control. We do not anticipate the G&A contribution to be as significant going forward.

Finally, interest expense favorability contributed $0.09 in the quarter versus last year due to our successful refinancing early in 2021. On the balance sheet, our revolver is largely undrawn. So between cash on hand and the revolver, we have strong liquidity of more than $900 million.

As I noted last quarter, we successfully amended our credit facility in February to increase our debt-coveted leverage ratio and provide additional flexibility in 2022. Our debt covenant leverage in the first quarter was 4.4 times, well below our higher amended covenant ratio of 5.5 times.

I'd like to point out that we've added our cash flow statement to the press release today, which I think many of you will appreciate. Turning to guidance, today, we are reaffirming our full year 2022 guidance as seen on Slide 12.

We expect revenue in 2022 to grow at least 11%, driven primarily by pricing, which came in this quarter at almost 12% and will build throughout the year as we take additional pricing actions to recover the further escalation in commodities.

Pricing in the first half of the year is being offset in part by lower volumes, driven by constraints and service challenges due to labor and supply chain disruption. But as you saw in our first quarter results, increased private label demand, coupled with our work through store service levels, are positively impacting our performance.

We expect this to continue, strengthening both the top line and profitability as the year goes on. Adjusted EBITDA in 2022 is expected to be between $385 million to $415 million, weighted primarily towards the back half of the year.

Specific to the second quarter, we are anticipating flattish to slight sequential improvement in adjusted EBITDA margin from the 5% level we reported in the first quarter.

We continue to believe adjusted EBITDA margins will improve as the year continues and approach pre-pandemic levels in the second half, which, on average, were in the 11% to 12% range. As Steve noted earlier, this continues to be a dynamic environment, and macro factors will continue to play a role in how the year unfolds as seen on Slide 13.

Our teams are doing a great job navigating through, and we believe we have the building blocks in place to capture demand, recover inflation, and mitigate disruption. Importantly, private label demand is robust and strengthening. The macro environment has become more supportive of private label.

Unit share is growing and is slightly above pre-pandemic levels. We will continue to collaborate with our customers to improve service and capture the growth in private label consumption. Over the full cycle, we expect to be able to recover the entirety of the inflationary headwinds.

Our pricing actions last year and earlier this year are now being reflected in our results. Our teams have also communicated substantially all of the incremental pricing that will be effective in early Q3. I'm confident that we are mobilized to take further pricing, should it be warranted.

We also have important tools that we are leveraging to recover inflation, such as lean and continuous improvement as well as hedging and buying forward commodities, where possible.

On the labor and supply chain front, it is critical that we position ourselves to our seasonal peak in the back half of the year and that we mitigate disruption and improve production. Our teams are focused on working diligently to restore service levels to meet the growing demand.

We expect to continue to make progress and by doing so, we believe that we can restore the business to historic levels of profitability. With that, I'll pass it back over to Steve to wrap things up..

Thanks, Bill. In my opening remarks, I spoke at length about the macroeconomic environment and the evolving consumer purchasing behavior in recent months, which is translating into unit share gains for private label.

For those of you who've covered TreeHouse and private label for some time, you'll recall that historically, there have been three main factors that support private label growth; the economy, demographics, and retailer support. I'd like to close my remarks today and say a few words about retailer support as seen on Slide 14.

Private label is a key part of our retail customers' strategies. Our customers all have unique strategies for how they position private label for their consumers.

But regardless of whether they are value retailers, traditional grocers, club stores, experiential retailers, or pure-play e-commerce businesses, the bottom line is that TreeHouse is a key partner for retailers as they look to drive loyalty, traffic, consumer experience, and ultimately higher profit margin.

As you can also see, some of the latest retailer quotes here is evident that our customers are focused on private label growth as a key part of their strategy. When combined with the economic environment, the underlying fundamentals for private label growth are healthy and very much intact.

I have no doubt that our customer relationships are stronger today as a result of our investments to drive commercial excellence, as we have transformed our business over the last several years. Along our journey, I'm also confident that we have made great operational strides.

We believe that our work around lean and continuous improvement, coupled with our actions to mitigate the ongoing disruption, will enable us to improve service and produce more what our customers need as we head into our seasonal peak later this year. And our people, our talent, and our values are critical to what we do and how we do it.

I'm encouraged that we are focusing our capabilities on restoring service and fulfilling the demand being created by the tailwinds we're seeing in private label. With our building blocks in place, I'm confident that our first quarter results position us well to be on track to achieve our full year guidance.

With that, let's open the call up to your questions..

[Operator Instructions]. The first question comes from Chris Growe of Stifel. Your line is now open. .

Hi, good morning. .

Good morning Chris. .

Hi. I had just two questions for you.

The first one would just be in terms of incremental pricing coming through now in the third quarter, is it a meaningful step up in pricing that you're expecting and I guess, to the degree to which you're seeing the elasticity, it seems like a lot of your volume at this point has been constrained by supply constraints more than elasticity necessarily but I just want to get a sense of what you're seeing there at that level of pricing in Q3, like how much incremental is coming through and then what that could do to volume?.

Hi Chris, this is Bill. Thanks for your question. The pricing that we've communicated in the market is essentially all communicated, all hit in Q3. It's hard to say what's meaningful these days, but it covers our commodity inflation that we've seen thus far.

And to your point, it'll flow through the P&L in Q3 and we think we'll be set, unless there's additional inflation coming through. I'll let Steve handle the one on elasticity..

Yes, sure. I think, Chris, first of all, you're right, our supply chain limits have really been the inhibitor for us, not the demand piece. And so as that slowly improves, we think the absolute volume and units are going to improve. I think as the consumer having elasticity, we're starting to see private label share from a unit standpoint, pick up.

I think the consumer as we talked about in the prepared remarks, is under a lot of pressure and the conversations we're having with the customers suggest they're trying to be sure they have a value offering. I mean that's not for every consumer, we know that.

But the customer is really focused on having value offerings in the store, and we think that bodes well for the back half..

Okay. And just a bit of a follow-on but if you just look at the PNOC that you put on that -- on your EPS bridge, just looking at it over four quarters, you're talking almost $2 per share.

So I just wanted to get a sense of the recoveries piece of that, meaning that by the third quarter you'll have pricing in place that offsets the inflation you know and I guess it's on the backside of that, that you can start to earn back some of that lost PNOC.

Is that the way to think about it?.

Yes, that's right, Chris. The Q1 result is obviously burdened by a bit of a lag and the inventory capitalization earnings that came in through the quarter. If you think about how that looks in Q2, it improves. And then in the back half, it improves dramatically.

And so we think we'll recover those dollars in the back half and for the full year, we should be okay there..

Okay, thanks so much for your time today. .

The next question comes from the line of Jon Andersen with William Blair. Your line is now open..

Hi, good morning everybody. Thanks for the questions. I have kind of a follow-on to the earlier question around supply constraints. So the service levels are not where you want them, but it sounds like they're improving and you expect them to improve further.

Could you help us understand maybe how much you think the labor and supply chain constraints impacted volume in the first quarter and how you're kind of thinking about the improvement or what kind of improvement you expect as you move through the year, that would be helpful? Thank you. .

Sure, hi Jon, this is Bill again. The service rates that we have are not close to our goal, but they are improving. We've seen labor coming back into our plans and our teams continue to execute.

In terms of the impact on volume for the quarter, for the full year we thought we'd be in a flattish position on price and volume with the more significant decline in the first quarter. So we've seen that improve a bit. And so our efforts are working. So we continue to execute.

We think service will return to normalized levels, building in the back half and as we exit Q4, we'll be back to our normal rates, and we continue to focus on that significant area..

Great. I appreciate that.

And I guess, I'm wondering, with private label unit share improving and now above pre-pandemic levels, have you -- are you seeing any kind of changes in maybe marketplace dynamics, national brands, maybe promoting with more frequency or depth or is it kind of fairly steady as she goes, given that we're in this high inflation environment and everybody is looking to take price to kind of recover those costs?.

Jon, I think it is still really disrupted. So -- and I think service levels, I think we said in the prepared comments that they're in the low 90s, right. We -- I think we as an industry, have a long way to go to get the customer back to where we need to get the customer. At the same time, we're trying to recover this inflation.

So I don't think we've seen that dynamic. The biggest dynamic we've seen was in the back end of the quarter was the consumer dynamic, and that's their shift to value, right. So we -- I wouldn't say the competitive dynamic is different, I would say the consumer dynamic is different..

That's helpful. Last quick one. On the strategic review, I just want to understand the comments you made at the top.

Should we think of the strategic review is kind of ongoing as opposed to kind of wound down based on what you've kind of said previously, if you could characterize that for us a little bit, particularly in the context of some of the early objectives around divestiture or sale considerations? Thank you..

Yes, I think so. I think we've talked strategically, right, about getting our portfolio right. We know that our snacking and beverage categories are growing much faster. In some cases, they're more attractive from a margin standpoint. So we will continue to invest in those.

The question is do we -- if we chose to simplify our business a bit, would you do that in one large transaction or would you do it in several smaller ones? And I think that's really where the Board is focused right now is understanding those dynamics. And so we'll have more information on that, hopefully, as we go forward.

And -- but I think we want to make it very clear today that we do see the opportunity to invest in our higher-growth Snacking & Beverages business. And we'll do that regardless of whether it's through one large transaction or several small ones..

Thanks so much..

Your next question comes from the line of Robert Moskow with Credit Suisse. Your line is now open..

Good morning. I have a couple of questions. In the past, when you've had unexpected cost inflation in the first quarter, you've had to guide to a pricing lag in the year that would hurt your EBITDA. But this time, you're saying, hey, we've already announced the pricing and we're going to keep our guidance unchanged.

So is it possible that your pricing is going through a little faster than normal and maybe retailers are getting used to it? And then I have a follow-up..

Hi Rob, it's Bill. Our guide at the midpoint accounted for the lag in pricing. Q1 was burdened by the inventory in December and January that came through the Omicron virus impact. So we have those negative variances there. We accounted for that in the guidance.

As we've gone through the year, inflation is a bit more than we thought, and we priced a bit more. I think the environment is very constructive for pricing. Our teams have done a great job with their commercial partners and our customers are still very much focused on supply and getting private label on the shelf.

So we think that the -- it's going the way we thought it may unfold, and we're on track..

And Rob, the only other thing I would say is we do have some visibility to our costs in the near-term. And so as long as we have the right things that are hedgeable hedged and the right things that aren't, we have visibility to those, I think we can -- we've been more diligent this year and guiding to that.

And pricing -- our timing of our pricing lives within that three dimensions, right. How far out do we see our cost structure and then how do we react and make sure that we cover what we can cover before we lose visibility, right..

Well, just so that we can kind of keep track of it a bit, like Ukraine war, that's the new news.

Like how much more inflation do you have this year versus what you expected, is it 200, 300 basis points?.

When we head into the year, Rob, we saw inflation being double-digit. Like I said on the last call, it was in the mid-teens. It's definitely going to be a couple of points higher than that, but still within the high teens. And so that's all accounted for in our guidance..

Okay. So here's the follow-up, I think other people have tried to ask this. I'm going to try to get some numbers from you. And if you can't, I totally understand. But you've had some sales that you've probably lost due to supply chain constraints.

And I suspect that, that's volume that you committed to with customers and that you just weren't able to satisfy. So that's one number.

Can you give us any sense as to what that number is, like on an annualized basis, so that we could consider adding it back, say, in 2023 when everything comes back, if that's possible? And then there might be another number out there, where like if you could commit to all the volume that the customers wanted, that might be another number that's even bigger and can you frame it to me in that way?.

Hi Rob, let me start with the first part of the question, and I can't really, really quantify it. Here's what we know. We know that our service levels, at around and the 90% that we talked about, our target is higher than that, right, 98.5%. So we think we could have, again, service much more demand how we hit our levels from that perspective.

We do know that orders and volume cases are coming in much higher, but you have to sort through what could be double ordering and all those pieces. I can't really give a number in that context. But your intuition is right and that we do have much more demand.

The private label tailwinds are strong as we go throughout the year and then actually, we'll give you more visibility how to expect about that. And then obviously, you've got to account for all that pricing that is coming through. We have not seen elasticity at this point.

We are in unchartered waters given the magnitude of the pricing and we don't anticipate elasticity, but we'll have to account for that as well as we go through the year..

Okay, understood. Thanks. .

The next question comes from Bill Chappell with Truist Securities. Your line is now open..

Thanks, good morning. .

Good morning Bill. .

Hey, just sticking on service levels. I'm just trying to understand, this has been an issue, especially going back to the two years ago, start of the pandemic. And I guess part of the problem was private label, in general, wasn't getting. And you, in particular, wasn't getting product to the stores, so brand took share.

So is there something new that's really continuing to keep those service levels low over the past year or does it just take a long time to really work through these things?.

Bill, I think you probably heard a number of our branded or other peers talk about the supply chain challenges. They're predominantly on do we have the right number of people in our plants to produce the total demand. That is improving, right and our strategy is there. We are focused on hiring, training and now on retention.

I would say we've made great progress on the people front of this, but there still is supply chain in the materials and ingredients complex, packaging, those kinds of things. And so we're working with our vendors. We're working with our customers to give them much more visibility to exactly what we need, so we can get it there on time.

But I think the last piece of this that needs to be solved is really the inbound materials and inbound packaging. And we are more complex, right. So we do ask for more variants of the same thing from our vendors than our peers and so we are making great progress there, but we have ways to go. And I think that's our biggest….

No, that helps. And then on the pricing front, just trying to understand because a lot of, I guess, the branded peers seem like they've already done pricing. And I think I'm right in saying that we will, as a consumer, see a whole lot of change in your pricing on the shelf in third quarter, the retailers go ahead and take that pricing.

So I'm just trying to understand if there's -- if price gaps will shrink, and that will have an impact on your volume or the price gaps are already where they will be three months from now?.

I think we're encouraged by the price gaps because it tells us that with the pricing we have in the market, we're providing value to that retailer. And the key to private label and the retailers focus right now is having that value offering in each one of the categories. And so we don't see that as an inhibitor at all.

I would tell you, private label naturally will take probably more frequent, lower price increases, right, because our margins are lower. We price on actual experience and not on forward curves. We don't have the umbrella that brands have to set sort of category pricing.

So I think it's natural for us to take pricing more often probably slightly less from a percentage standpoint. But the encouraging thing for us is we don't see a problem with the price gap, and the umbrella that we're operating under is providing. And I mentioned this in the prepared remarks.

A lot of pricing in some of these categories is up substantially. So a 30% price gap today is a lot more pennies per unit. So it's a little bit more of an absolute penny savings than it's been historically. And so when you add those things together, we think the umbrella is going to be fine..

Great, thanks so much..

The last question today comes from Carla Casella with J.P. Morgan. Your line is now open..

Hi, thanks for the question. This is Oliver Brotman on for Carla.

If you could just provide some more color on the gross margin outlook and which commodities are the most inflationary and your ability to hedge those commodities?.

Hi Oliver, it's Bill. Thank you for your question. If you think about just kind of how we manage the margin piece and the commodities going forward, obviously, inflation is up, as I said, mid-teens to high teens. We do look to a coverage drops that half of our basket, about 50% or so, is what we can cover either in commodities or forward contracts.

And so we take that coverage out about six months. Obviously, at the peak here we don't want to get too over our skis in coverage so we keep managing through that. As far as some of the commodities, obviously, edible oils is up. Plastics, driven by crude oil, is up.

Wheat, which impacts our crackers and cookies and dough business and obviously, durum impacting the pasta. We have pricing out there to cover our inflation, and we'll keep managing through that as we have all year.

We also have continuous improvement programs where we've actually gotten back to our lean efforts and really have some good traction in our plants in terms of taking out waste and lowering those pieces. So with all that coming together, we think we'll be very close to the midpoint of our guidance given the inflation that we're seeing..

Awesome, thanks for that. And just a second question, in the prepared remarks, you commented on where leverage is. Is there like a stated target and would you contemplate any debt pay down with a potential asset sale? Thanks..

Yes, I won't comment on any transaction. But from a leverage perspective, we'd like to keep the leverage between 3 and 3.5 times. Q1 is a quarter where we burn cash as we build some inventory and work through this disruption.

As we get to the second half of the year in Q4, we build cash nicely, and we'll look to continue to delever from that perspective as things normalize..

Awesome, thank you so much..

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Oakland for closing remarks..

Yes, I'd just like to thank everyone for being with us today and wish you a great day. Look forward to talking to you soon. Thank you..

This concludes today's conference call. You may now disconnect..