Trey Grooms: Hey, good afternoon everyone. Congrats on the quarter. Real quick, I wanted to just dive in on maybe inventory. You guys have done a great job with inventory reduction through the year. And sorry if I missed this, but how are you guys expecting inventory to shake out kind of going into year-end? And it sounds like you’re expecting to finish with a pretty strong free cash flow conversion in 4Q. So just wondering kind of how working capital or inventory is going to be playing a role here, as we kind of move into the 3Q to 4Q?
Frank Lonegro: Yes. Hey, Trey, it’s Frank. So we’ve done a really nice job on inventory since the middle of last year. I know you’ve watched us come down from the peak in Q2 of last year. We were at about $1.55 billion. We’re down about $240 or so million from that point. I think you’ll see us continue to come down in Q4, more based on seasonality and making sure we don’t carry too much through the winter. We’ve already seen that in October relative to September. We were down a bit on a month-over-month basis. I think if you’re trying to handicap where we’ll end up in Q4, kind of quarter-over-quarter, it’s probably in the $25-ish million range. We’re trying to make sure that in the northern part of the country, northern half of the country that we don’t care too much through the winter, no reason to do that and use the capital.
I think on a cash flow basis, to your good point, I mean, we’ve got a really good free cash flow year. We’re going to have a good Q4 cash flow. You heard Julian talked about some uses of that cash, which is going to be important for us. We want to stay within the — in the leverage range, but we also want to make sure that we’re deploying it to high-value items. And right now, we see those as being Greenfields M&A and CapEx and buybacks.
Trey Grooms: Perfect. Thanks for the color, Frank. That was exactly what I was looking for. Thank you.
Operator: Thank you for your question. The next question is from the line of Kathryn Thompson with Thompson Research Group. Your line is now open.
Kathryn Thompson: Hi, thanks for taking my question. Just following-up on the inventory question. Just to clarify, you’re having supply chain still some supply constraints, but you’ve at the same time have done a great job of lowering inventory. What are the categories and areas, where you’re seeing the supply constraints? And what — and is it on the resi side, on the commercial side? And what does that speak to visibility going into the next calendar year? Thank you.
Julian Francis: Yes, hey, Kathryn. So the supply chain on the commercial side of the business, so the non-res side of the business is largely fluid. Availability is back to what you would have expected in a kind of a pre-COVID world. I think regionally, where we have both, I’ll say, secular growth, a bit of a spring in new housing relative to where it was earlier in the year and storm activity, I mean you’re going to be somewhat hand-to-mouth in those geographies, assuming that we don’t have an elongated winter, we would expect that to continue to be the case into the carryover of that activity into the first couple of quarters of next year. And then obviously, we’ll see how the construction season plays out, as things reopen call it the March-April time frame.
Kathryn Thompson: Thank you.
Operator: Thank you for your question. The next question is from the line of Garik Shmois with Loop Capital. Your line is now open.
Garik Shmois: Hi, thanks. And congrats on the quarter. Just wanted to ask on price cost. You’ve done a good job narrowing the spread there, just given the timing of the inventory profits. And as they move through, you also mentioned that you got better-than-expected traction of the August price increase. So just curious as to how to think about price cost in the fourth quarter, as it relates to your margin guide? And when do you expect to fully lap the inventory profits from the last year?
Frank Lonegro: Yes. So the inventory profits from the last year, I mean, we should be at or close to fully lapping those at this juncture. The cost, if you think about it from the August 2022 price increase, let’s call it, 90 days after that. We should be at the kind of fully loaded cost at that juncture, so call it, mid to late fourth quarter. And then we’re going to have the same dynamic, but at a smaller scale given the differential between the May realization, the August realization this year. So I think on a year-over-year basis, it’s probably Q4. We guided to that around 25.5% in the fourth quarter. You’ve got some normal geographic mix this time of year and seasonality and things like that. And then the cost associated with the August shingle increase from the manufacturers to us.
Obviously, that continues to bleed into the net cost, as we go forward into Q4. So I think that probably gives you the context that you’re looking for. I mean, it’s going to be price cost negative in the fourth quarter because of those items and ought to be mix positive on a year-over-year basis.
Julian Francis: Garik, I want to also add in terms of inventory profits. I mean, last year, we were pretty transparent in terms of that we were generating inventory profits in an inflationary period, which is something we felt was good management on our part. We scaled that in the $100 million range of additional profits generated through managing price cost. This year, we don’t think, based on what we’ve seen that we’ve generated very many inventory profits at all. So when you think about the margin profile, that’s really not impacted this year in any way, shape or form by the inventory profits that we did last year. So I think that, that’s been a very different environment, one in which we’ve executed very, very well and demonstrated an ability to continue to deliver great results in an environment, where we didn’t have the ability to generate the inventory profits that we did last year.
Garik Shmois: Understood. Thanks again.
Operator: Thank you for your question. The next question is from the line of Philip Ng with Jefferies. Your line is now open.
Philip Ng: Hey, guys. Congrats on the strong quarter. Question for Frank. You guys have announced a handful of deals in the last month or two. Can you give a little color in terms of the contribution from a sales and EBITDA standpoint on an annualized basis, your fourth quarter as well as your full-year guide this could kind of help us unpack that. And then I think, Julian, you said you’re expecting to grow in 2024. Would that comment more on an organic basis? Or that’s inclusive of all the M&A as well for next year?
Julian Francis: So I’ll start with your question. It includes everything. We expect to continue to grow. I think we’ve been particularly pleased with our ability on executing our Greenfield strategy. Obviously, we’ve ramped that up. I think we said we’d be somewhat close to 35 now for the year. Obviously, we said we’d go from 19 to 25 by the end of the year. So we’ll get to 40 in two years. Our original Ambition 2025 plan indicated 40 over the four year period. So we’re particularly pleased on how that’s generating growth. Those branches that we said were open will generate $250 million this year. So we believe we can grow. I don’t think we need to do more acquisitions to continue to grow. We think that the market is going to give us the opportunity to earn market share.
