Builders FirstSource, Inc. (NYSE:BLDR) Q1 2024 Earnings Call Transcript

Builders FirstSource, Inc. (NYSE:BLDR) Q1 2024 Earnings Call Transcript May 7, 2024

Builders FirstSource, Inc. misses on earnings expectations. Reported EPS is $2.1 EPS, expectations were $2.42. Builders FirstSource, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day everyone and welcome to the Builders FirstSource First Quarter 2024 Earnings Conference Call. Today’s call is scheduled to last about one hour, including remarks by management and the question-and-answer session. [Operator Instructions] I’d now like to turn the call over to Heather Kos, Senior Vice President, Investor Relations for Builders FirstSource. Please go ahead.

Heather Kos: Good morning and welcome to our first quarter 2024 earnings call. With me on the call are Dave Rush, our CEO; and Peter Jackson, our CFO. The earnings press release and investor presentation are available on our website at investors.bldr.com. We will refer to the investor presentation during our call. The results discussed today include GAAP and non-GAAP results adjusted for certain items. We provide these non-GAAP results for informational purposes and they should be considered in isolation from the most directly comparable GAAP measures. You can find the reconciliation of these non-GAAP measures to the corresponding GAAP measures where applicable and a discussion of why we believe they can be useful to investors in our earnings press release, SEC filings, and presentation.

Our remarks in the press release, presentation, and on this call contain forward-looking and cautionary statements within the meaning of the Private Securities Litigation Reform Act and projections of future results. Please review the forward-looking statements section in today’s press release and in our SEC filings for various factors that could cause our actual results to differ from forward-looking statements and projections. With that, I’ll turn the call over to Dave.

Dave Rush: Thank you, Heather. Good morning, everyone, and thanks for joining our call. Our resilient first quarter results reflect our differentiated product portfolio and scale, our team members consistent focus on executing our strategic priorities, and our operational efficiency initiatives. As we expected, a weakening multifamily market and higher mortgage rates, driving affordability challenges were headwinds to start the year. Despite these micro challenges, we built on our successes and drove growth through our value-added products portfolio in our industry-leading digital platform. We are committed to advancing innovation and delivering exceptional customer service as a trusted and preferred partner to our customers.

We are focused on executing our clear strategic pillars as shown on Slide 3. Our investments in value-added products, install services, and digital solutions are driving organic growth, delivering greater efficiency and empowering the next generation of homebuilding. For those who are new to the BFS story, value-added products include manufactured components such as Trusses, READY-FRAME, and Wall Panels, as well as Windows, Doors and Millwork. Through our value-added products and install services, we help meet our customer needs, such as reducing cycle-times, addressing labor constraints, and improving home construction quality. With our Digital Tools, we are providing our customers with a more efficient and cost-effective way to manage the construction of their homes that will increase existing customer stickiness, win new business, and improve our operational efficiency.

We remain committed to innovation and continuously seeking to do things better. We have a robust set of operational and productivity initiatives and are focused on leveraging our scale and fixed cost, while delivering the highest quality products and services to our customers. We are deploying capital in a disciplined manner with a proven M&A strategy and a track record of buying back shares at competitive prices. Working alongside the best team in the industry, I am confident that we will continue to compound long-term shareholder value and achieve our strategic priorities. Let’s turn to our first quarter highlights on Slide 4. We continued to deliver strong margins in Q1, reflecting our end-segment diversification, focused execution, and differentiated product portfolio and scale.

Our gross margins of more than 33% reflect a higher mix of value-added products, including multifamily trust and our ability to manufacture more efficiently. We expect the multifamily in segment to progressively normalize over the course of this year, and we continue to see some normalization in core margins. Moving to Slide 5. We’re off to a strong start on our strategic initiatives. Our full digital product launch at the International Builders Show in February was an exciting milestone. At a high level, our digital tools do three things: one, solve customer pain points; two, make it even easier to partner with us and our suppliers; and three, help us gain incremental business from new and existing customers. It’s a win-win, and we’re excited about how everything is going so far after the launch.

We’re focused on operational excellence and innovation and using playbooks of proven best practices to increase our safety, efficiency and wallet share with customers. One area where we’re using playbooks is with our installed services business. Our install sales increased by 17% year-over-year as we leverage our capabilities to help customers address labor constraints. Additionally, we drove $40 million in productivity savings in Q1, primarily through procurement and SG&A initiatives. We believe prudent expense management leads to maximum operational flexibility. This includes optimizing our footprint and balancing cost reductions against future capacity demands. We will remain disciplined managers of just discretionary spending no matter the operating environment.

Early momentum in single-family has slowed as persistent inflation has cooled short-term expectations for interest rate reductions. However, low existing home inventories and pent-up demand provide an environment where growth has continued to build. Builders across the board are having to navigate affordability issues and challenges with the regulatory environment, land development and infrastructure. It’s evident that the large national builders have done a good job of utilizing specs, reducing home sizing, home sizes and providing interest rate buydowns to assist buyers with affordable options. Smaller builders were more likely to benefit from rate cuts. We are staying in close contact with our customers of all sizes to maximize our business in the current environment.

As we have detailed on prior calls, multifamily became a headwind in Q1 as our activity levels and record backlogs have declined versus the prior year. It is important to note, however, that multifamily remains a strong contributor to gross margins and EBITDA even at current levels. Turning to M&A on Slide 6. We continue to target attractive opportunities while remaining financially disciplined. In the first quarter, we completed two deals with aggregate 2023 sales of roughly $36 million. In early February, we acquired Quality door and millwork, a leading distributor of millwork doors and windows in Southern Idaho. In March, we acquired Hanson Trust, which further strengthens our value-added position in Northern California and Nevada. And last week, we acquired Shuterman’s [ph] Building Materials.

Shuterman’s [ph] manufactures trusses and distributes building materials in the Sioux Falls, South Dakota area. We are excited to welcome these talented new team members to the BFS family. M&A and organic investments have increased value-added products as a percent of our overall mix by 700 basis points over the past two years and by 1,000 basis points if you go back to 2019. Our success with this strategy has been a core component of our improved margin profile through the cycle. We believe there is a long runway of M&A targets in our fragmented market, and we are pleased with recent improvements in the pipeline. Our disciplined approach to M&A includes increasing our market position in desirable geographies, extending our lead in value-added and specialty solutions and enhancing customer retention.

On Slide 7, we provide an update on capital allocation. During the first quarter, we completed a $1 billion note offering which brought us additional financial flexibility to grow organically and remain acquisitive while maintaining a strong balance sheet. In addition to the two tuck-in acquisitions, we repurchased $20 million of shares as proven by our track record, we’ll continue to buy back shares while allocating capital to high-return opportunities. We remain on track to strategically deploy $5.5 billion to $8.5 billion of capital from 2024 to 2026 as outlined at Investor Day last December. Now let’s turn to Slides 8 and 9 for an update on our digital strategy. As the only provider of an end-to-end digital platform in our space, we believe BFS digital tools will be transformative for the industry and a substantial driver of organic growth.

Our easy-to-use portal myBLDR.com seamlessly delivers our full digital capabilities to our customers. It is designed to create efficiencies for our team members and improved service for our customers by offering increased transparency and engagement in the homebuilding process. Combined with our proprietary estimating and configuration tools, our customers will have more control over the entire building process. This will save time and money for both our customers and their clients while making the homebuilding process more personalized. We were proud to highlight the full digital product capabilities at IBS in February. Our customers told us the new tools address an unmet need, and they were excited to use them in their businesses. Since launch in late February, we have seen orders on the digital platform go from nearly 0 to over $60 million.

In Q1, we had incremental sales of over $10 million. We remain confident in our ability to meet our targets of $200 million of incremental digital revenue by the end of this year and $1 billion by 2026, as we grow wallet share and win new customers. One of our digital tools, build Optimized uses advanced 3D modeling to identify construction classes and resolve mechanical design conflicts before breaking ground. It ensures architects, builders and trades are coordinated and building to the same plan. As a proof point of the advantages of using this transformative tool, we’ve seen interest from 4 large builders. One of these customers has used it in 3 markets and 13 communities across 34 plants. On average, we have identified 150 conflicts per plant, resolving those conflicts before construction leads to job site time and cost savings.

One of my favorite initiatives at BFS is acknowledging team members who go above and beyond [indiscernible] in Atlanta, Georgia personifies this quality. Ira began with BFS in 1996 as a driver helper and rose through the ranks to operations manager and now oversees our new Atlanta Millwork facility in Decola. Ira has the respect of his team members because he’s willing to do whatever it takes to solve problems and add value for our customers. Recently, when there was no available drivers for an urgent customer delivery that had to arrive that day, Ira drove the box truck himself to take care of the customer. I’m grateful for Ira drive to lead by example, a quality we find consistently in leaders across BFS. I’ll now turn the call over to Peter to discuss our financial results in greater detail.

Peter Jackson: Thank you, Dave, and good morning, everyone. Our first quarter results demonstrated the effectiveness of our strategy and operating model. We are maintaining our fortress balance sheet and prudently deploying capital to the highest return opportunities. We’ve included acquisitions and share repurchases during the quarter. We are leveraging our sustainable competitive advantages and strong financial position to drive future growth and value creation for our customers and shareholders. I will cover 3 topics with you this morning. First, I’ll recap our first quarter results. Second, I’ll provide an update on our capital deployment. And finally, I’ll discuss our 2024 guidance and related assumptions. Let’s begin by reviewing our first quarter performance on Slides 10 and 11.

We delivered $3.9 billion in net sales, driven by growth from acquisitions of 1.9% [indiscernible] offset by commodity deflation of 1.7%. Core organic sales in line with the prior year were driven by a single-family increase of more than 4% amid higher sales of early-stage homebuilding products. From a geographic perspective, East sales were down mid-single digits, Central was flat and the West was up mid-teens. As we signaled and expected, multifamily declined more than 13% as we lapped the prior year’s strong comps. R&R and other also declined by almost 5% due to weakness predominantly in the Northeast from inclement weather. As we mentioned last quarter, inclement weather negatively impacted our operations in Q1 by roughly 3% to 4% of our overall sales.

Value-added products represented approximately 52% of our net sales during the first quarter, reflecting our strength and customer stickiness for these higher-margin products. During the first quarter, gross profit was $1.3 billion, increased approximately 5% compared to the prior year period. Gross margins were 33.4%, decreasing 190 basis points, mainly due to a timing shift in product mix towards lower margin, early stage homebuilding products, as well as margin normalization, particularly in multifamily. SG&A increased $22 million to $926 million, primarily attributable to acquired operations. As a percentage of net sales, total SG&A increased 50 basis points to 23.8%. The team has done an excellent job managing SG&A, and we stand ready to leverage our fixed costs into the growing market.

Adjusted EBITDA was $541 million, down approximately 14%, primarily driven by lower gross profit and higher operating expenses. Adjusted EBITDA margin was 13.9%, down 240 basis points from the prior year. Adjusted net income of $327 million was down $83 million from the prior year due to lower gross profit and higher operating expenses, primarily due to acquisitions. Adjusted earnings per diluted share was $2.65, a decrease of 11% compared to the prior year. On a year-over-year basis, share repurchases added roughly $0.29 per share for the first quarter. Now let’s turn to our cash flow, balance sheet and liquidity on slide 12. Our Q1 operating cash flow was approximately $317 million, down $337 million compared to the prior year period, mainly attributable to lower net income and an increase in net working capital.

Capital expenditures for the quarter were $90 million, and free cash flow was approximately $228 million. For the last 12 months ended March 31st, our free cash flow yield was approximately 6%, while operating cash flow return on invested capital was 22%. Our net debt to adjusted EBITDA ratio was approximately 1.1 times, while base business leverage was 1.2 times. In February, we completed a $1 billion private offer of 6.375% senior unsecured notes due 2034, which enables a maximum financial flexibility to grow organically and remain acquisitive. Excluding our ABL, we have no long-term debt maturities until 2030. At quarter end, our total liquidity was approximately $2.4 billion, consisting of $1.7 billion in net borrowing availability under the revolving credit facility and approximately $700 million of cash on hand.

Moving to capital deployment. During the first quarter, we repurchased roughly 100,000 shares for $20 million at an average stock price of $202.67 per share. Since the inception of our buyback program in August of 201, we have repurchased 42.2% of total shares outstanding at an average price of $70.42 per share for $6.1 billion. We have $980 million remaining on our share repurchase authorization. We remain disciplined stewards of capital and have multiple paths for value creation to maximize returns. Now let’s turn to our outlook, which we are reaffirming on Slide 13. For full year 2024, we expect total company net sales to be $17.5 billion to $18.5 billion. We expect adjusted EBITDA to be $2.4 billion to $2.8 billion. Adjusted EBITDA margin is forecasted to be 14% to 15%, and we are guiding gross margins to a range of 30% to 33%, which is in line with our long-term normalized expectation.

Our recent margins reflect above normal multifamily performance on top of our greater mix of value-added products along with the disciplined pricing required to offset increased operating costs. We expect full year 2024 free cash flow of $1 billion to $1.2 billion. The free cash flow forecast assumes average commodity prices in the range of $400 to $440 per thousand. Our 2024 outlook is based on several assumptions and includes an expectation for improving single-family growth. Please refer to our earnings release in Slide 14 of the investor presentation for a list of these key assumptions. As you all know, we do not typically give quarterly guidance, but we wanted to provide directional color for Q2 given the ongoing interest rate uncertainty and the geopolitical situation.

On a year-over-year basis, we expect Q2 net sales to be down low single digits to flat as single-family growth is offset by expected multifamily headwinds. Year-over-year adjusted EBITDA is expected to be down high teens in Q2, primarily given the impact of continued multifamily normalization. Turning to Slides 15 and 16. As a reminder, our base business approach showcases the underlying strength and profitability of our company by normalizing sales and margins for commodity volatility. This helps to clearly assess the core aspects of the business where we have focused our attention to drive sustainable outperformance. Our base business guide on net sales for 2024 is approximately $17.6 billion. Our base business adjusted EBITDA guide is approximately $2.4 billion at a margin of 13.5%.

As I wrap up, I want to reiterate that we are confident in the near-term outlook, our exceptional positioning to execute our strategic goals and our ability to create shareholder value in any environment. With that, let me turn the call back over to Dave for some final thoughts.

Dave Rush: Thanks, Peter. Let me close by summarizing how we’re set up to drive long-term profitable growth by executing our strategic pillars. We believe we are the unquestioned leader in addressing our customers’ pain points through our focus on customer service, value-added products and install services. Our industry-leading digital innovations are bringing greater efficiency to homebuilding and will win us new customers and grow wallet share along the way. Our robust free cash flow generation is funding disciplined capital deployment that will maximize returns and compound long-term shareholder value. We have a proven playbook for growth during complex operating environments, and we’ll keep working to be the best and deliver excellence every day. Thank you again for joining us today. Operator, please open the call now for questions.

Operator: [Operator Instructions] And it does appear we have our first question from Matthew Bouley with Barclays.

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Q&A Session

Matthew Bouley: Hey, everyone. Thank you for taking the questions. I’ll start out on the second quarter. I’m wondering what’s inside in the second quarter gross margin. It seems that you’re kind of moving into that full year range of 30% to 33% in the second quarter, but correct me if I’m wrong. I know we’re talking about normalization in both multifamily and the core, so within that second quarter gross margin, can we say that the over earn in both multifamily and the core is entirely rolled off or not yet entirely rolled off — so would there be sort of more to come beyond the second quarter? Thank you.

Peter Jackson: Matt, thanks for the question. So the margins that we’re seeing are really in line with what we were expecting. The multifamily business specifically, I think, outlined it a couple of times, but for everybody just to restate it, we’ll continue to normalize. We will continue to go down over the course of the year. Sales will continue to decline back towards normal, and we’ll continue to see margins as a percentage return back to normal as the year progresses. So not over, but it’s very much in line with what we were expecting. Margins — there’s a couple of things going on. We’ve talked about margin normalization being between 30 and 33. We think that’s an accurate forecast. Just keep in mind that normalization in this instance, would assume normal starts, which we’re not quite back to yet.

But that said, our guide for the year is still within that range. We’ve seen some good things hold on longer, and we think that’s going to sustain us to be able to get to our guide for the year on margins. But it’s performing about like we expected. It’s not a surprise in terms of where the rates — where the margin levels are.

Matthew Bouley: Okay. Thanks for that, Peter. Secondly, the multifamily revenue impact, clearly, it’s quite concentrated in the manufacturing products. I see multifamily was down 13% in Q1. It looks like you have one more, I think, tough year-over-year comparison in multifamily here in the second quarter. So I guess within the second quarter guide, is the assumption that multifamily is down sort of more than it was in the first quarter. Would that imply that Q2 is sort of the low point for multifamily year-over-year with lesser declines in the second half? Or should we assume that we should look for kind of a consistent headwind for multifamily declines through the balance of the year? Thank you.

Peter Jackson: Yes, it’s the latter. You should expect a consistent decline from multifamily throughout the year. It’s a long lead time product category. We’ve got pretty good visibility to what we’re expecting to see. There’s certainly a bit of slippage from one month to the not to the next in any given period. But I think what we’re seeing and expecting in multifamily is another big decline in Q2 and a sort of a consistent year-over-year decline throughout the end of the year. We’ll, of course, update you as we learn more.

Matthew Bouley: Perfect. Thanks Peter. Thanks Dave. Good luck guys.

Operator: And we have our next question from Mike Dahl with RBC Capital Markets.

Mike Dahl: Morning. Thanks for taking my questions. I want to ask, I guess, is effectively a follow-up there. When we think about what’s implied for the second half, if we look at the 1Q results in the 2Q, directional color. At the midpoint, it requires double-digit top line growth and kind of 15% EBITDA margins in the high end would be kind of like mid-teens top line growth and 16% EBITDA margin, both of those, just given the multifamily decline, your comments just now about further normalization in gross margin. It kind of seems difficult. So, maybe you can help us there. I guess it’s a roundabout way of asking more directly. When you look at the full year guide, is there a point in the range that you think you’re leaning more towards at this point, like midpoint or lower or midpoint or higher? Maybe just help us understand how that’s evolved.

Peter Jackson: Morning Mike, thanks for the question. In short, we’re really confident in the forecast, the way it’s laid out. That guide is something that you put out there and feel good about reaffirming. The growth that you’re talking about is already happening. So, I think it came through in some of our materials. I think there’s maybe this expectation that our whole business moves in the same way in the same quarter. And that’s really not what we’re seeing here, right? You’re seeing the early parts of the building process, the lumber, the truss, the stuff that hits the job site early after the start, doing great. We’re growing. The momentum is building. There are certainly some headwinds we’re dealing with. I mean we talked a little bit about that.

I’m sure we’ll talk more. But the business is performing very well in that category. We’ve not yet started to see the tailwind, the uplift from some of the later building process products, right, the doors, the millwork, they are also good for us. But we have every confidence that that’s coming, that that’s going to continue to be a good tailwind for us. There are, of course, a lot of questions about what the overall market in single family is going to do, a lot of questions about interest rates. But again, let’s not forget, there’s a lot of demand out there. There are a lot of confident homebuilders. There are a lot of good units and good production momentum going on, and we’re participating. So, we’re not concerned about delivering based on everything we’re seeing today, but we do have to digest multifamily.

I think we’ve been very transparent about that. It’s working like we expected, and things are playing out. So, yes, the back half of the year needs to be growing. But again, we’re seeing good momentum that we think will pass through on the early-stage products. We’re seeing good growth in categories that we’ve leaned into, value-add, install, and we continue to be active in M&A. So, certainly, a lot to be confident in. We’re happy with the business and not shy about what we’re seeing for the rest of the year.

Dave Rush: Yes. The only thing I’d add is echo the overarching demand profile continues to be strong. I think the timing of when they actually execute the buy is kind of what is a little more volatile than the expectation that they will execute the buy. And that’s part of it but our Builders customers are still indicating that they are seeking that demand and they’re expecting the similar trajectory that we’ve forecasted for ourselves for the back out.

Mike Dahl: Okay. Got it. Thank you. And then shifting gears just to capital deployment and maybe specifically the buyback. I mean, you’ve got plenty of liquidity. Your leverage is low. The buyback was really just nominal this quarter for the first time in a while. What can we take away from that and maybe anything more specific about how you envision deploying capital through the year?

Peter Jackson: Yes. We’re — you’re right, we’re sitting on about $700 million in cash plus all of the capacity in the ABL, lots of cool M&A popping, right? I mean, we’ve done a couple of small deals so far, but we’re sitting on a bunch of dry powder and excited about what the opportunities look like. We’ll have to see how they play out. But at this moment in time, we’re ready to take advantage of the opportunities that are going to present themselves. That’s kind of how you should read that. A little bit of a slow start to the year, but we’re feeling good.

Mike Dahl: Okay. Thank you.

Peter Jackson: Thank you.

Operator: And we have our next question from Trey Grooms with Stephens.

Trey Grooms: …and everyone. I also want to touch on the guidance, believe it or not. You guys mentioned — well, first off, you reiterated the full year, you mentioned that multifamily is going about as you expected. And clearly, you guys have been very vocal about your expectations and kind of the pullback there in multifamily and the impact it could have. But clearly, the 2Q guide is lower than what I think most were kind of modeling or expecting, but with you reiterating the full year guide, is it fair to say that kind of overall, the 2Q is kind of tracking as you would have thought? Any surprises there? Or maybe even any areas where it’s coming in better or worse than you would have expected as we’ve moved so far through the year?

Dave Rush: Yeah. Thanks, Trey. What I would tell you is multifamily in specific some of that backlog is getting extended. So where at one point in time in the year, I may have thought more of those jobs would finish quicker. They’re spread now. It’s actually a good thing. It kind of smooth that transition for us in one way. The other thing I’d tell you about multifamily, our team has done a great job going after pseudo multifamily. Smaller multifamily projects, customers they haven’t typically gone after that are helping also transition that. Hadn’t started yet, but we’re seeing a lot of good momentum in that space. Things like assisted living versus a four-level apartment complex. So, smaller jobs as you take them by themselves, but add it up, it’ll help the transition.

But single family is kind of operating the way we expected it to. There’s been, it’s never retracted below a level. It’s a build and it’s a continual build, but at the end of the day, is it as steep of a build as we would like of course not it’s not as robust as we would like ever but it’s steady and it’s there and it doesn’t retract that’s an important factor is it is a build even as it’s a slower build than we’d love to see. And we’re adjusting that as we need to, to those market conditions.

Peter Jackson: The only thing I might add is there’s nothing in what’s happened that is a surprise to us in terms of the variables, all the variables I think we’ve accounted for. There are a couple of variables that were, I would say, bigger headwinds than we anticipated. I think that weather thing has certainly thrown us a curve ball. It will bounce back, but that’s been a tricky one to navigate, particularly regionally. I think what builders have done to build homes more affordably, whether it be size of the home or complexity of the home there’s some variability on that as well that we’ve been challenged with. But again, I think we’re in line and we’re doing what we said we were going to do despite those variables.

Dave Rush: Yes. And I would add, a good indicator for me is always our trust backlog. Our trust backlog is at healthy levels. It’s continuing to build. That’s an indicator for us of what’s to come. And that if that was starting to slack off, I might give a little more word, but it’s where it needs to be for us to be in a healthy situation.

Trey Grooms: Got it. All right. Well, thanks for all that color. I appreciate it. And hearing that you’re very confident in the guide and being able to reiterate it is encouraging. So we appreciate it, and thanks. Good luck for the rest of the quarter.

Dave Rush: Thank you.

Peter Jackson: Thanks, Trey.

Operator: And our next question comes from Rafe Jadrosich with Bank of America.

Rafe Jadrosich: Hey, good morning. It’s Rafe, thanks for taking my question. I wanted to ask on the commodity pricing in the first quarter, it was deflationary, but when you look at — I think OSB prices were up, lumber prices seemed flattish sequentially. So can you just talk about what you’re seeing there either is it from a mix standpoint? Or how is the competitive environment evolved? And how do you expect that to go going forward?

Peter Jackson: Good morning Rafe. Yeah. So I would tell you right upfront that commodities are where the war is happening. That’s where the fight is. It’s where historically, you’ve got the most aggressive players. You’ve got the most dynamic pricing, the volatility of it. I think what you’re seeing in the numbers is really just around timing. A little bit of shift in terms of when we saw the OSB one versus when we were feeling it. That will come through at different points during the year. But I would expect us to be pretty much done with the bad news around the prices of commodities. What I will say, though, is while we saw the run in OSB that’s starting to walk back, and we saw a much smaller number, and that’s walking back as well.

So I think you’re seeing that mood of the market recognizing hire for longer and trying to triangulate on what that means to commodity prices. But again, that’s not our game. We don’t play the commodities up, commodity down bet. We’re continuing to on product just in time, move it quickly, price appropriately, get paid for what we do, that our strategy hasn’t changed at all in that category.

Rafe Jadrosich: Got it. Very helpful. And then just on SG&A, there was some diversion in the first quarter. How should we think about that going forward here, especially if sales turn in the second half of the year? And then just remind us of the base in terms of incentive comp from last year, do you have any comparison there, and could we just think about leverage versus what you’ve done historically?

Peter Jackson: Yeah. So SG&A, we saw a couple one-timers come through in Q1 that hurt us a little bit. Some of it was we had some credits last year that we didn’t repeat this year. I wouldn’t, from my perspective and take it for what it’s worth, I wouldn’t read too much into it. I think our consistent discipline around expenses will keep us in the ranges that you’d expect. Summer months are always our best leverage months, right, Q2, Q3, so you’ll see that come through. In terms of the base business, I guess I would say there isn’t much of an adjustment, maybe minor, on the bonus side. I think really the storyline around the year-over-year bonuses is that we gave ourselves, as you’ve seen, a more challenging target and plan for this year.