Noah Merkousko: Well, that’s really encouraging. I appreciate all the color there. Thanks for the time.
John Turner: Absolutely.
Operator: Thank you. Next question comes from the line of Kurt Yinger with D.A. Davidson. Please go head.
Kurt Yinger: Great. Thank you, and good morning, everyone.
John Turner: Hi, Kurt.
Kurt Yinger: If we look at, I guess, the 80 basis point decline in gross margin that’s expected in Q4, is that primarily the purchase incentives falling off and maybe a little bit of single-family mix dynamic there with wallboard? Or are there any other kind of big factors within that expectation?
John Turner: No, that’s — it’s basically the expectation. We had a pleasant surprise last year in the achievement of some of these goals that happened in the fourth quarter. We probably don’t expect to see that again. So that’s really one of the biggest reversals from quarter-to-quarter and year-over-year.
Kurt Yinger: Okay. It makes sense. And then Kamco is a bit of a bigger deal. You talked about net leverage going up to just under 1.8 times. I guess, as you think about deleveraging from that, does that impact the appetite for M&A over the next couple of quarters as you integrate and work down that net leverage a bit? Or do you still feel pretty comfortable with where that stands? And if the right opportunity comes up, there wouldn’t be a very much hesitancy?
Scott Deakin: Yes. First to clarify, I wouldn’t say it’s just under 1.8 times. I think, most probably 1.8 times is probably the better number. I don’t want to oversell sort of what we’ll be able to do there. But it doesn’t lower our appetite at all. As we said, we’ll be able to get over the year time based on combined cash flows of the business back to our current levels and on all of these strategic initiatives and deployment things that we’re doing, it’s still pedaled down. So we are really comfortable with our debt leverage. As we noted, we just got an upgrade from Moody’s just based on the strength of our balance sheet. So we’re content with where it’s positioned, and I think it gives us a lot of platform to continue to do what we’re doing strategically.
Kurt Yinger: Okay. Great. Thanks guys. I appreciate the color.
John Turner: Thanks.
Operator: Thank you. Next question comes from the line of Keith Hughes with Truist Securities. Please go ahead.
Keith Hughes: Okay. Thank you. Just a couple of questions, but one quick one. The guidance for fiscal fourth quarter, I assume that does not include Kamco. Is that correct?
John Turner: Yes, that’s correct.
Keith Hughes: And when do you have any kind of update when you expect it to close?
John Turner: Within the coming days.
Keith Hughes: Okay. Short term. Okay.
John Turner: Yes.
Keith Hughes: And then your commentary on the — well, let me back up the commentary on ceilings, I know there’s some mix stuff going on here that’s compressing the AUV. Is that something that’s going to run long term? It’s happened in past quarters. Is there something specific going on there? Or is this something that should change for you in the coming periods?
John Turner: It’s just end market related, right? I mean it just depends on the activity for that individual quarter. We end up with more education or more of the low end, then the mix is down. If we get more office or we get more medical then the mix will increase. I think we’re talking about having a more normalized mix this coming quarter when we gave the guidance there, which is pricing up and volume up. So we’re not expecting to see a continuation, let’s say, of a decline in mix over the long haul. It’s really just project dependent.
Keith Hughes: Okay. And then, I guess, the final question. The view — the short-term view of commercial — excuse me, of well, just a generally constructive view on commercial in general. And are you seeing enough office remodel activity that that could be an actual growth sector for you in the next year or so? Is it big enough for this whole move to an office that’s cheaper in price and all that stuff is going on? Is that big enough to offset whatever continued pressure we feel in new office construction?
John Turner: It’s not realizing itself in activity yet, but it’s certainly a lot of chatter, right, out there.
Keith Hughes: Right.
John Turner: And I wouldn’t say that we have in our forecast considered a huge rebound in 2024 in office. I do think that in 2025 or maybe even in the late 2024, there will be some resolution in some of these larger markets with some of this empty space, as well as some of the lending situations around some of that — those properties. If those properties move and/or change hands, regardless of what the price is, those new owners will do something with those buildings. And when that happens, that’s good for us. But we’re not — we’re not in my — in my optimism. I’m not considering that in the 2024 calendar year, if that would be positive upside.
Keith Hughes: Okay. Great. Thank you very much.
John Turner: Thanks, Keith.
Operator: Thank you. Next question comes from the line of Steven Ramsey with Thompson Research Group. Please go ahead.
Steven Ramsey: Hi, good morning. I wanted to get a little more color on the Kamco deal. Good to hear that the margin profile is similar to yours. I’m curious if there is some margin enhancement opportunity there or if it’s more volume growth or if it’s shifting their mix to maybe look a little bit more like GMS with complementary products, just any way you want to elaborate on that?
John Turner: Well, it’s all of the above. I’d say it’s — I would say that there’s opportunity in all those areas. I think there’s purchasing synergy here, a little bit of G&A, not a lot of G&A opportunity because of the unique geography. Here we don’t have much overlap at all, in fact, we don’t have any overlap at all in our businesses today. So from that respect, the G&A savings comes in things like insurance and smaller areas. But we also have the ability, we believe, to enhance the mix, but also drive some more volume in Wallboard. We called that out specifically. We think we might be able to help on the wallboard side.
