Latham Group, Inc. (NASDAQ:SWIM) Q3 2023 Earnings Call Transcript

Latham Group, Inc. (NASDAQ:SWIM) Q3 2023 Earnings Call Transcript November 12, 2023

Operator: Good day, and welcome to the Latham Group Third Quarter Fiscal 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nicole Harlowe, Investor Relations representative. Please go ahead.

Nicole Harlowe : Thank you. Earlier this morning, we issued our third quarter fiscal 2023 earnings press release, which is available on the Investor Relations portion of our website, where you can also find the slide presentation that accompanies our prepared remarks. On today’s call are Latham’s President and CEO, Scott Rajeski; Interim CFO, Mark Borseth; and Incoming CFO, Oliver Gloe. Following their remarks, we will open up the call to questions. During this call, the company may make certain statements that constitute forward-looking statements which reflect the company’s views with respect to future events and financial performance as of today or the date specified. Actual events and results may differ materially from those contemplated by such forward-looking statements due to risks and other factors that are set forth in the company’s annual report on Form 10-K and subsequent reports filed or furnished with the SEC as well as today’s earnings release.

The company expressly disclaims any obligation to update any forward-looking statements, except as required by applicable law. In addition, during today’s call, the company will discuss certain non-GAAP financial measures. Reconciliations of the directly comparable GAAP measures to these non-GAAP measures can be found in the slide presentation that accompanies our prepared remarks, which can be found on our Investor Relations website. I’ll now turn the call over to Scott Rajeski.

Scott Rajeski : Thanks, Nicole. Good morning, everyone. Thank you for joining us for our third quarter fiscal 2023 earnings call. Before we begin, I want to quickly introduce our incoming CFO, Oliver Gloe. Oliver joined Latham with over 20 years of finance experience within global manufacturing companies, most recently served with Fortune Brands Innovations as the Chief Financial Officer, Outdoors & Security. We believe his expertise in leading global financial operations and implementing strategies that enhance customer focus and improved leverage of scale will be invaluable to Latham as we continue to execute on our fiberglass conversion strategies. While Oliver won’t officially step into the role of CFO from November 13, we wanted to take today’s call as an opportunity to introduce him to you all. I’ll hand it over to Oliver to share a few brief words.

Oliver Gloe : Thank you, Scott. I’m thrilled about the opportunity to join Latham. It has been an exciting first few days getting to meet with the team. I see incredible opportunity in this space and believe Latham is uniquely positioned to succeed over the long term. I look forward to working together with Scott and Mark as I transition into the CFO role and leverage my background to support Latham’s fiberglass material conversion efforts.

Scott Rajeski : Thanks, Oliver. I will now take us through a high-level overview of our third quarter and year-to-date performance and strategic priorities before handing the call over to Mark to review our financial results and guidance in greater detail. Our Q3 results reflect our leadership position across our broad product portfolio and diligent cost actions amid a continued soft demand environment. Together with our ongoing investments in our lead generation efforts and dealer productivity and recruitment initiatives, we have positioned the company to return to growth when demand rebounds. Our Q3 results show how this is working. Our structural cost reduction actions and lean initiatives supported by the seasonality of our business have yielded adjusted EBITDA margin improvements.

We returned to a year-over-year adjusted EBITDA margin expansion in Q3, with margins increasing 10 basis points to 22.4%. Most notably, we also delivered our third consecutive quarter of sequential adjusted EBITDA margin expansion, which increased 490 basis points in Q3 versus Q2. We remain on track to deliver 2023 net sales results that outpaced the U.S. new in-ground pool market. Our Q3 year-to-date in-ground swimming pool net sales have outperformed the anticipated decline in U.S. new pool installation versus 2022 similar to how we outpaced the market last year, driven by our leadership position in fiberglass. We delivered strong cash flow performance in the third quarter, which further strengthened our liquidity. This supported our ability to enhance our balance sheet strength in the quarter as we repaid $10 million of debt.

As we look out over the long term, we see continued underlying interest in pool ownership. This is highlighted by year-over-year session growth for our website year-to-date as homeowners continue to come to Latham to research our products set project budgets and educate themselves on pool types. In addition, the fiberglass value proposition is resonating with dealers as we exceeded our internal goals for dealer recruitment this year and our efforts to enhance dealer productivity are bearing fruit. That said, we now expect that the industry softness will last longer and more deeply than we assumed in our prior guidance and have adjusted our outlook for 2023 to reflect that expectation. With our strong cash flow generation, healthy balance sheet and continued momentum on our strategic initiatives, we are confident in our ability to successfully navigate the current environment.

As we expected, 2023 has been a challenging year for the pool industry with the macroeconomic environment continuing to weigh on the consumer. It’s the largest demand contraction I’ve seen in my nearly 15 years in the pool business. At the same time, the interest in pool ownership is as high as we’ve ever seen. However, we’ve seen the timeline for the pool purchase decision stretch out further with homeowners remaining on the sidelines waiting for macro conditions to improve. This has resulted in a softer pool season that we’ve seen in recent years with shorter and more muted peak sales period across our product categories. We have responded to these dynamics with cost reductions and lean initiatives, supporting the adjusted EBITDA margin improvements you see in our results reported this morning.

We are balancing our bottom-line priorities with continued execution on our long-term top-line growth strategies, which are centered around our efforts to drive material conversion from concrete to fiberglass pools. Continuous improvement is deeply embedded in our culture and everything we do at Latham. Our focus on innovation through our value engineering efforts has allowed us to improve the efficiency of our manufacturing processes and reduced material costs while maintaining our high-quality operating standards and industry-leading lead times. At the same time, we continually evaluate our cost structure to ensure we are operating in alignment with demand. As such, beginning in Q4 2022, we have taken disciplined and thoughtful cost actions to best support our business in today’s environment.

We streamlined and rebalanced our facilities footprint by exiting three smaller manufacturing locations and 5 warehouses. We have decreased our fixed cost across the company from manufacturing overhead to G&A, while maintaining our ability to drive our sales and marketing initiatives. We have executed lean initiatives, facilitating inventory reductions while maintaining industry-leading lead times. We have also rightsized our production staff while maintaining flexibility to drive growth as market conditions improve. Combined, these actions support our return to year-over-year and the third consecutive quarter of sequential adjusted EBITDA margin expansion in Q3. This also allowed us to keep on track to meet our cost savings targets for fiscal 2023 of $18 million, with an additional $6 million in cost savings to be realized in fiscal 2024.

While we are always evaluating our cost structure, these savings provide us with a more efficient cost base to drive profitability as the pool market turns. We are energized by the momentum in our fiberglass conversion efforts despite our estimate of approximately 40%-plus decline in new U.S. in-ground pool residential pool installations over the last two years. Fiberglass pools have come a long way, led by Latham’s technological and design innovation. We’ve designed and developed the most beautiful and innovative pools in the industry with the widest selection of colors and finishes. Our fiberglass pool provide a more enjoyable swimming experience for the homeowner with a smooth finish, less chemical usage and saltwater-friendly pool options.

The speed of installation for fiberglass pools is unparalleled. You can have your pool in your backyard in as little as two to three days or even 1 day. And our pools are built to last with our lifetime warranty, something concrete pool makers typically don’t give. This creates a strong value proposition, both for the homeowner and the dealer, which has propelled the fiberglass conversion forward. You’ll recall, we drove fiberglass penetration up by three percentage points to 21% of U.S. pool installations in 2022. We are on track to drive further penetration for fiberglass in 2023, which we estimate will increase to 22% of U.S. pool installation this year despite an anticipated decrease in overall U.S. in-ground residential pool installations.

We believe this is a testament to our leading position in fiberglass in North America and the success of our dealer and homeowner awareness efforts to date. And we still have a long runway to reach similar penetration levels compared to more mature fiberglass markets like Australia, where fiberglass sits at about 70% of pool installs. Momentum in fiberglass adoption tell us our marketing initiatives, both at the homeowner and dealer level are resonating even in a challenging market. Our investments in our website continue to yield results. Latham ranks #1 in ‘fiberglass pools’ and in the top 10 for ‘in-ground pool’ by monthly search volume. In the third quarter, year-to-date, we saw over 40% year-over-year website session growth, defined as a series of actions the user takes on our website over a given period of time.

This shows that homeowners are recognizing the value Latham provides in planning and maintaining their dream backyard. While some homeowners are deferring pool purchase decisions in the current environment, these results will be invaluable to our ability to generate leads for dealers over time. Our strong homeowner strategy is complemented by our successful dealer productivity and recruitment efforts. The number of our North American fiberglass dealers installing greater than 10 pools a year has increased in 2023 by nearly 100 since 2019. In addition, the percentage of our North American fiberglass dealers installing greater than 10 pools a year has continually grown over the last several years and 2023 year-to-date continue to track above both 2018 and 2019 levels.

Key to this success has been our efforts to enhance dealer productivity, namely the continued expansion of our value-added resources and hands-on trainings. Dealers are leveraging our Latham design center, which helps our comprehensive marketing tools, including exterior signage, digital branding content, design and sales agent collateral and product education resources. Dealers appreciate this new feature and it allows them to easily create on-brand content for their own customized marketing needs and to run their businesses more efficiently. We also see continued interest in our hands-on training of boot camps. We are looking forward to our upcoming slate of fiberglass bootcamp as dealers shift their focus to preparations for the 2024 pool building season.

As we discussed on recent calls, with our expanded fiberglass manufacturing capacity, we have also strengthened our efforts around dealer recruitment. We are pleased to have exceeded our internal targets for new dealers in 2023, providing us with a new group of dealers to train and grow over time. Important to the continued momentum of fiberglass penetration are our efforts to innovate and enhance our fiberglass products and offerings. In 2023, we will have introduced three new fiberglass pool model shapes, presenting the homeowners with the latest and most beautifully designed products to create the poolscape of their dreams. Additionally, a key piece of the fiberglass value proposition for both homeowners and dealers is the ease and speed of installation, which is unmatched.

Earlier this year, we launched Backfill Made Easy, a new design to make the installation on select models even easier and faster. It eliminates the extra effort of backbone under the pool steps, which saves the builder time and materials and increases the speed of installation. We introduced this for a popular Corinthian model and are evaluating opportunities to roll out Backfill Made Easy to other popular models across our portfolio. In short, we’ve taken important steps to navigate the current environment while remaining focused on supporting our ability to drive long-term growth. We continue to keep a close eye on demand while advancing our efforts to drive homeowner and dealer awareness and adoption of fiberglass. I will now turn the call over to Mark to review our third quarter and year-to-date 2023 results and fiscal 2023 outlook in greater detail.

But before that, I want to take a moment to thank Mark for stepping back in to lead our finance organization as we identified his successor to the CFO role. We are incredibly grateful for his leadership and contribution to strengthening our business through his tenure at Latham. Mark, we will be missed.

Mark Borseth : Thank you, Scott, for your kind words. It’s been a pleasure working with you and the entire Latham team these last few years. I would also like to extend a warm welcome to Oliver. He will be an excellent addition to Latham, and I look forward to working closely with him to ensure a seamless transition over the coming weeks. Turning to our results. Please note that all comparisons we discuss today are on a year-over-year basis compared to the third quarter of fiscal 2022 and the first 9 months of fiscal 2022, unless otherwise noted. Net sales for the third quarter of fiscal 2023 were $161 million compared to $189 million in Q3 of 2022, a period in which we drove 17% year-over-year growth from the same period in 2021.

The year-over-year change in Q3 fiscal 2023 sales is comprised of a 17% decline in volume, partially offset by a 2% increase in price. Looking at our net sales results across our product lines for the quarter. We delivered $83 million of in-ground swimming pool sales, and we’re pleased to see our results only down 19% in a market where the full year new in-ground pool installs are expected to be down 30%. Performance in this product line continues to be driven by softness in demand for packaged pools as sales of fiberglass pools declined less than the total decline in our in-ground swimming pool product line. Cover sales were $47 million and down 9% versus last year. As expected, we saw a meaningful increase in cover sales from Q2 as we moved into the peak season for this product line as homeowners prepare to close their pool for the season.

However, peak cover sales were muted in the quarter and the season tailed off quicker than normal. Liner sales were $30 million, a 30% decrease versus the prior year and like covers a season which peaked at lower levels and was shorter than normal. Q3 gross profit was $48 million compared to $59 million in Q3 2022. Throughout fiscal 2023, we have driven consistent improvements in year-over-year gross margin compression. Q3 gross margin of 29.9% was down only 120 basis points, our best quarterly performance this year compared to 31.1% in Q3 of 2022. In the quarter, year-over-year gross profit performance was primarily impacted by reduced net sales, the rightsizing of our inventory and to a lesser degree, the sell-through of higher-priced inventory.

This was partially offset by some material cost deflation, benefits from our pricing levels and improved fixed cost as a result of our cost reduction actions. Selling, general and administrative expenses decreased to $23 million and $27 million in Q3 of 2022. The decrease was driven by a $4 million decrease in noncash stock-based compensation expense. The net impact of noncash stock-based compensation expense and onetime costs associated with restructuring charges resulting from our cost reduction actions this year as well as the timing of an insurance recovery in the third quarter of 2022 was a $2 million year-over-year reduction in SG&A in Q3. Excluding noncash stock-based compensation expense and these onetime costs, SG&A was $20 million, a decline of about $2 million or 7% versus prior year as a result of benefits from the cost reduction actions we took.

As a percentage of net sales, SG&A, excluding noncash stock-based compensation and onetime costs only increased to 12.5% from 11.4% in Q3 of last year. Q3 adjusted EBITDA was $36 million compared to $42 million in Q3 of 2022 driven by the decrease in gross profit and partially offset by the reduction in SG&A expenses, excluding noncash stock-based compensation expense and noted onetime costs. Our cost reduction actions and lean initiatives have yielded the desired results on adjusted EBITDA margin as we drove a return to year-over-year adjusted margin expansion in Q3, up 10 basis points to 22.4% versus Q3 of last year. On a sequential basis, Q3 adjusted EBITDA increased $5 million or 16% in the third quarter and adjusted EBITDA margin improved 490 basis points versus Q2 on 9% fewer sales.

Consistent with the seasonality of our business, we expect adjusted EBITDA margins to decline on a sequential basis in Q4 versus Q3, reflecting a natural slowdown in pool construction and repair as we move into the colder months of the year as well as continued softness in overall demand. Turning to results for Q3 year-to-date. For the first 9 months of fiscal 2023, net sales were $476 million compared to $588 million in the prior year period, during which we delivered 20% year-over-year growth from the same period in 2021. The year-over-year change for the first 9 months of fiscal 2023 is comprised of a 21% reduction in volume and a 2% increase in price. Throughout the year, we have consistently shown year-over-year pricing benefits in the 2% range.

At the same time, we have seen slow improvement in our year-over-year volume performance. By product line, in-ground swimming pool sales for the first 9 months were $252 million, down 23% year-over-year. As Scott mentioned, our year-to-date results for in-ground continue to outpace the U.S. new in-ground pool installation market for 2023, which we expect will decline nearly 30% this year versus 2022. We believe this is a strong indication of our momentum in driving the fiberglass conversion opportunity. As highlighted by our expectations that fiberglass penetration will continue to grow in 2023, despite another down pool market. Liner sales of $115 million were down 17%, while cover sales of $109 million declined 11%, reflecting softer homeowner demand in the current economic environment.

Gross profit was $132 million compared to $197 million in the first 9 months of fiscal 2022. Year-to-date gross margin was 27.7% compared to 33.5% in the prior year period, down 580 basis points. As mentioned earlier, we saw improved gross margin performance in Q3 relative to the first half of the year, and as a result, our year-to-date gross margin compression continues to steadily improve. Gross profit was primarily affected by reduced net sales levels. The year-over-year gross margin reduction is primarily being driven by the sale of higher-cost inventory and the rightsizing of our inventory levels. In total, these two factors account for about 570 basis points of margin compression. Fixed cost leverage continued to improve, thanks to our cost actions and productivity and was actually a small tailwind in Q3, but remains a headwind on a year-to-date basis.

These margin headwinds continue to be partially offset by benefits from our pricing levels, some material cost deflation and improved productivity. Selling, general and administrative expenses decreased to $87 million from $114 million in the first 9 months of fiscal 2022, reflecting a $22 million decrease in noncash stock-based compensation expense as well as the benefits from our various cost reduction actions. Excluding noncash stock-based compensation, SG&A was $72 million, a decrease of $5 million or 6%, driven by lower employee incentive accruals and benefits from our cost-reduction actions. Adjusted EBITDA was $78 million compared to $139 million in the first 9 months of fiscal 2022 driven by lower gross profit, which was partially offset by our lower SG&A spend, excluding noncash stock-based compensation expense.

As a result, adjusted EBITDA margin decreased to 16.4% from 23.6% for the prior year period. Turning to the balance sheet. As expected, we saw an increase in our liquidity during the quarter, reflecting management’s focus on cash flow generation and maintaining a strong balance sheet as well as the seasonality of our business. It is also an indicator of the business’s ability to generate cash flow in a variety of economic cycles. As of September 30, we had cash and cash equivalents of $78 million and $75 million of borrowing availability under our revolver, giving us total liquidity of $153 million, up 30% from Q2. Net cash provided by operating activities was $88 million for the first 9 months of 2023 versus $5 million in the prior period, reflecting our actions to rightsize production in line with the current demand environment and reduce our inventory levels, while importantly, maintaining our lead times.

We leveraged our increased cash position to pay down $10 million of our term debt during the third quarter, reducing our total debt to $302 million at the end of Q3. As expected, we delivered improvements to our net debt leverage ratio, ending the quarter at 2.7x versus 3.0x at the end of Q2. Capital expenditures were $5 million for Q3 compared to $12 million in Q3 2022. The Capital expenditures were $28 million for the first 9 months of 2023 compared to $29 million in the prior year period. As we are completing investments in our new Kingston facility and flex back to a more normal run rate for the business, we have reduced our full year guidance for CapEx investments. With our strong balance sheet, increased liquidity and disciplined capital allocation strategy, we are well-positioned to navigate the current macroeconomic environment as we head into the time of the year when our business transitions to less cash generation and ultimately, cash usage in Q1 of next year.

Turning to our outlook for fiscal 2023. As we’ve seen throughout 2023, the macroeconomic environment continues to weigh on consumer demand for our products as reflected in our year-to-date year-over-year declines in our top line and as implied in our updated guidance for the year. Homeowners are taking longer to make their pool-buying decisions. In addition, our wholesale partners have continued to bring down their inventory levels as they have exited the 2023 pool season. All of this is driving an anticipated decline in U.S. new in-ground pool installations of nearly 30% year-over-year in 2023. As Scott outlined it earlier in today’s call, we have responded to these market dynamics with cost-reduction actions that have delivered continued improvements to our margins.

We have reduced our manufacturing overhead, headcount and spend, resulting in anticipated $18 million of cost savings this year with an additional $6 million to be realized in 2024. We continue to focus on enhancing our productivity and executing on lean initiatives. We are progressing through our higher-cost inventory, holding on price and seeing some benefits from modest levels of deflation. We are also being thoughtful and disciplined in our capital allocation strategy. All of this is reflected in our updated guidance for fiscal 2023 of net sales of $555 million to $570 million, adjusted EBITDA of $82 million to $87 million and capital expenditures of $32 million to $35 million. Scott, with that, I’ll turn it back to you for closing remarks.

Scott Rajeski : Thanks, Mark. As we close out 2023, we have seen the prolonged challenging macro environment have a longer and more pronounced impact on tool demand than anticipated in our previous guidance as is reflected in our updated fiscal 2023 outlook. We see these factors continuing as we look out to 2024 and anticipate another challenging year for the pool market with early reads indicating another decline in new pool starts for next year. We have continually monitored and adjusted our business in response to consumer demand and believe our cost-reduction actions and continuous improvement initiatives have allowed us to build a strong foundation. Additionally, our strong balance sheet and continued positive momentum on strategic growth initiatives positions us well to emerge from this period of soft demand as an even stronger company.

Despite these continuing near-term industry headwinds, we are confident in the continued underlying interest in pool ownership. We remain energized by the long-term opportunities we see in the business, driven by our strong leadership position across our product portfolio, continued momentum in our fiberglass conversion efforts and the overall growing base of installed pools, presenting increased recurring revenue opportunities for replacement liner and cover businesses. As homeowners continue to migrate to the suburbs, stay in their homes longer and invest in the backyard, Latham will continue to leverage our strong product portfolio and innovative marketing tools to help homeowners build a backyard of their dreams. We will now open the line to questions.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ryan Merkel with William Blair. Please go ahead.

Ryan Merkel: Hey, good morning. Thanks for taking the questions. Scott, can you just maybe give us a little more color on why the fourth quarter revenue guide was cut so much? Can you just expand on maybe by product or geography or are you seeing the channel be more cautious on inventory?

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Q&A Session

Scott Rajeski: Yeah, good morning, Ryan. How you doing? I’d say as we move through 3Q and I’d say the entire season are pretty much across all the product lines, we never really saw any of the products hit the peak in season. I think the driver there is the consumer kind of taking a little bit longer to make the purchasing decision sitting on the sidelines a little bit longer. And we saw the season start to tail off faster than it has since I’ve been in the industry. I think the wholesale distributor is probably a little bit more cautious as well with inventory stocking levels. And look, from a dealer standpoint, as we’ve talked to dealers, they’ve had a heck of a run for the last three years or so. And I think a lot of them are just looking at the demand profile, backlogs and unfortunately, closing up shop and kind of exiting the season sooner than we’ve seen them do in the last three years where they’ve had pretty big backlogs.

And I’d say probably consistent across the majority of the product lines. The good news, though, Ryan, is if we do look at our performance, as Mark showed the results, we believe we’re outperforming the market in total. We’ve got the good fiberglass penetration going on and then the recurring revenue piece of the business for both liners and covers have continued to perform extremely well. And I think we’re just wanting to kind of look at where we think things will shake out for the year here. And the good news is we’ve done a lot of work with rightsizing the facilities, the plants, personnel, balancing production to demand. I think the team has done a really, really nice job with sequential margin improvements position us kind of as we look forward into 2024.

Ryan Merkel: Got it. Okay. Thanks for that. And then for my follow-up, some of your peers have mentioned that Canada economy there is a little bit weaker than maybe the U.S. I think your business is fairly sizable in Canada. What are you seeing there? And what’s the outlook?

Scott Rajeski: Yes, the Canadian market was a tough season across the board. So I would agree, I think what others are saying. It’s — we’ve kind of said I think around 25% of our total revenue, give or take, a few points. Tough season across the board, definitely a shorter build season in the Canadian market. And — but I think, again, we’re focused on the dealers. We put the new Kingston facility in there. We’re seeing the fiberglass results performed fairly well in that market. But again, I’d say, yes, a little worse than the U.S. in total.

Ryan Merkel: All right. Thank you.

Operator: Our next question comes from Matthew Bouley with Barclays. Please go ahead.

Anika Dholakia: Good morning. This is Anika Dholakia on for Matt. Thanks for taking my question. So, for my first question, I appreciate the color on your demand outlook for the rest of 2023. Curious if you could speak to any early thoughts that you might have on the new pool builds outlook for 2024 and when maybe you expect to see a recovery? Thanks.

Scott Rajeski: Yeah. Hey, good morning. You know, I think as I mentioned upfront, with the current macro environment and what we’re seeing at the consumer level, the interest approval still remains extremely high. We’re seeing great activity across all fronts on the website. We’re seeing really good dealer productivity across the board. But look, I think the reality is we believe new pool starts will most likely be down again in 2024. What we’ll be focused on is hot as late and how do we, along with our dealers, continue to outperform the market overall like we’ve done in the last two years there. I think that’s historically been the trend of this company, both in up markets, down markets, and I’d say bad weather markets, we’ve shown the results and have shown everyone that we can continue to outperform the market overall.

Anika Dholakia: Got it. Thank you. And then for my follow-up, wondering if you could outline some of the cost reduction efforts that you have left. I know you guys said, so $18 million for this year and then expected $6 million next year. What kind of is expected to go into that $6 million for 2024? And then how much of these costs are temporary in nature versus more of maybe a longer-term structural margin tailwind?

Mark Borseth : First, we’re very pleased with the progress that we’re making on that $18 million for this year. And it’s been a variety of things, as Scott mentioned, some more structural than others. But we’ve exited some warehouse facilities. I think we mentioned 5. We’ve exited three smaller manufacturing sites. We’ve taken headcount down. We’ve effectively done all of the actions necessary. So, we’re well on track for the $18 million. The incremental 6 that we’re talking about next year is essentially the tail of those actions we took, let’s say, midyear this year and rolling into the first half of next year. So, there’s no incremental actions planned at this point to help deliver that. Those are already essentially baked into the results of what we’ve already done.

Scott Rajeski: And if I could just add in there, short term versus long term, a lot of the lean initiatives the team has been driving in the organization is really what enabled us to take those facilities off-line and the right size of inventory, driving lean, reducing the footprint across all of our manufacturing facilities, getting the cost reduction out of the product of the material through redesign, value engineering efforts. So, I’d say a lot of this will be sticky and will last as we go forward. And when demand bounces back, it’s not like we’re going to have to go put three more facilities back in and had 5 more warehouses. I think we’ll be able to continue to become more efficient in how we manage the entire footprint.

Anika Dholakia: Very helpful. Thanks guys. I’ll pass it on.

Mark Borseth : Your welcome.

Operator: Our next question comes from Shaun Calnan with Bank of America. Please go ahead.