Operator: Thank you, Matthew. We have our next question, comes from David Manthey from Baird. David, your line is now open.
David Manthey: Thank you. Good morning, everyone. First question probably for Mark. A lot of distributors these days are flagging elevated variable comp expenses in the inflationary environment. Could you talk to us in dollar terms, approximately by how much is your variable comp elevated relative to what you would consider normal right now?
Mark Witkowski: Yes, Dave, I can talk to you about how that works. And as we generate higher product and gross margins that we’re €“ that’s how we commission our sales reps. So as you see, expansion in gross margins like we’ve had both through volume and margin expansion, you would typically see those types of variable plans expand at a higher rate than the sales that we’ve had. And then similarly, we’ve got other structures in place for bonuses based on profitability and return on investment, which have all performed very well. So we have seen some elevated incentive compensation costs that are flowing through SG&A and €“ at the same time, if we were to see any kind of economic uncertainty happen or reductions in top line or margins, then that kind of cost comes out very quickly as well.
So we have seen some elevation there. It’s flowing through SG&A. But given the overall performance, we’ve still been able to leverage that and deliver some really nice EBITDA percentage increase.
David Manthey: Yes, thanks. And I assume that’s tens of millions of dollars. Is there any way you can put a slightly finer point on that or we could follow up also?
Mark Witkowski: Yes, Dave, I’d say that’s a reasonable way to think about it. It’s definitely at those levels. It’s a larger component of our personnel expenses, which makes up about 75% of our our SG&A and a good chunk of that is variable compensation.
David Manthey: Okay. And then second, you talked a little bit about the trends you’re seeing in residential lot development. Could you discuss the great financial crisis and some of the leads and lags you saw at that time? Obviously, it was a very overbuilt situation then, but are there any insights that, that experience gives you relative to the current downturn that we’re seeing?
Steve LeClair: David, there is a couple of things that we saw back during that €“ during The Great Recession. Number one, our business was positioned very differently at that time as well, too. About 50% of our business was really geared towards new lot development and residential. So we were much more dependent upon that sector. The other thing I’d share with you is during that time period, lot development continued to happen after the recession really appeared. And so we continue to see a lot of vacant undeveloped lots that permeated through that entire sector that took years of work to finally work its way through the network. And I think we’re in a different spot now because lot development is almost hand-to-hand with new housing starts to some degree.
And builders are trying to get ahead of that. they are also anticipating that, hey, at some point, whether it’s next year or in €˜24, they are going to need these lots ready to go to see the expansion again in the long-term needs for this housing development. So it’s a much different profile that we have for our business, and it’s a much different situation of where housing is, particularly a lot development than where we were coming out of that €“ The Great Recession.
David Manthey: Alright. Thanks, Steve, Mark, Robyn. Thank you.
Steve LeClair: Thanks, David.
