Scott Cottrill: Yes, I think that goes back to Scott’s comment on what we’re seeing in Infiltrator on the completion side. A lot of focus right now on getting caught up for some of the backlog from the starts over the last couple of years and focusing on completions right now is what we’re seeing versus land acquisition, land development and starts.
Joe Ahlersmeyer: All very encouraging. Thanks everyone.
Operator: Your next question comes from the line of John Lovallo with UBS. Your line is open.
John Lovallo: Good morning, guys. Thank you for taking my questions. First one on free cash flow conversion. I mean from EBITDA, it’s running at around 70%, 71%, I think, year-to-date, which is solid. I mean how are you thinking about cash flow conversion in the second half of the year. And then as we move out into next year, how should we be thinking about sort of the incremental CapEx from some of these initiatives that you guys announced today.
Scott Cottrill: Yes. Well, cash flow from operations is absolutely where we start, when we look at it. Obviously, it starts with EBITDA but working capital management is the big driver there, John. And so I would say right now, as we look at it, we target a 20% working cap as part of sales, as a percent of sales. We’ll continue to look at that. Right now, we’re sub 18% year-to-date. So again, we’ll look at that and see where we need to be. We like where we’re at inventory-wise, given this lower demand environment. We’ve done a great job looking at our variable costs, getting our labor where it needs to be, getting our inventories where it needs to be. So I think we’ve done a really good job of getting ourselves where we needed to be.
And you see that coming through the working capital, right? The receivables come off, the inventory is a great driver, a big driver of that working capital improvement and cash year-over-year. So those are the key drivers in that. I would say, right now, we focus more on the free cash flow to EBITDA from a conversion perspective and we always kind of target a 50% or greater, is the way we look at it. That ties to your next part of your question on the CapEx side, $200 million to $225 million this year, does include the engineering technology center. It does include some initial spending on the Lake Wales, Florida manufacturing facility. You’ll see more of the Lake Wales facility, obviously coming in fiscal 2025. But we’ve consistently been talking about the fact that this heightened level of CapEx versus what we previously spent is going to be around for at least the next couple of years, as we use the balance sheet, as we use our leverage and liquidity to focus on what we believe is the lowest risk, highest return use of that capital.
It’s on our footprint. It’s on productivity. It’s also on innovation and that’s on engineering technology center. So again, you’ll see elevated CapEx spend. It will kind of toggle a little bit toward the Lake Wales facility from a magnitude mix perspective. But you’ll see a lot still on that productivity, engineering and innovation side of the house as well.
John Lovallo: That’s good color. I appreciate it. And then I guess maybe zoning here on the non-resi business. Curious what you’re seeing in sort of that core low-rise horizontal type projects? Are those still pretty soft? And then I guess, conversely, on the institutional business or the non-spec side of the non-resi side, is that still pretty solid?
Mike Higgins: Yes. John, Mike Higgins. What you said is true. So things that are kind of, as we said, kind of more speculative in nature, I think remain challenged and you see things getting pushed to the right. Institutional, which we would consider schools and other educational facilities and hospitals and things of that nature, I would say that’s been pretty resilient and that’s because a lot of that funding that typically goes to build those projects is more stable, right? It’s tax based, it’s bond based. So I think we’ve seen that become very resilient. And then, again, things that are – we described as built-for-purpose, our engineering and technology center, things that are financed off people’s balance sheets and they’re not going to the market for financing.
