Shaun Calnan: Hi, guys. Good morning. I have a couple of questions on capital allocation. First, you’ve been able to take a lot of inventory out of the balance sheet the last three quarters, which has really benefited free cash flow. How do you expect inventory to trend from here? And is there room to take this lower? Or do you need to start building inventory heading into the 2024 season?
Mark Borseth : I mean as Scott mentioned, we’re very pleased with the performance of the team as we started rightsizing our production levels where we’ve been rightsizing our production levels and managing inventory levels down. And I think it’s very important that we say in the same group while we’re maintaining our lead times. We number one, want to make sure we have the inventory necessary to take care of our customers. So, we’ve taken inventory down $20 million since the end of the second quarter. I think we’re down $60 million since last year. We’re getting to the point where we’re probably in the current demand environment sitting around the right inventory level. There might be a little bit more to go. But we’re also heading into that time of the year when we turn from big cash generation into, let’s say, less cash generation and we may end up building a little bit of inventory before the end of the year.
But I think, give or take, we’re probably in the right spot with our inventory balances.
Shaun Calnan: Okay. Got it. And then the CapEx load in 3Q. So how are you kind of thinking about this going forward? Do you feel that you’re at adequate capacity levels? And should we expect these lower levels to continue in the near term? Or are you going to need to invest in some of these facilities like Kingston going forward?
Mark Borseth : Yeah, thanks again for the question. As you all know, we’ve invested meaningful dollars in capacity over the last couple of years. In the third quarter, we saw CapEx at $5 million, primarily down versus prior year, as we’re nearing completion on the investments in Kingston. So I think we’re flexing back to a, let’s call it, more normal run rate for the business, that $5 million for the quarter. We’ll see where that goes, but I think that’s starting to give us a reasonable feel for where for CapEx on a run rate basis might be.
Operator: Our next question comes from Keith Hughes with SunTrust. Please go ahead.
Keith Hughes: Thank you. As you look out over the next couple of months and particularly the orders are coming in, are you starting to see any kind of mix pressure in terms of customers buying or putting in smaller pools or any other sort of changes in what the order pattern looks like?
Scott Rajeski: Yes. So Keith, we really haven’t seen a change in the mix of our products in terms of size of pools, consumers are buying or dealers are installing. And I think when we look about the country — different parts of the country favor smaller pools, let’s say in the sand states versus big pools in the Midwest or the Northeast. I think the advantage we have with our performance in our in-ground pool category and the fiberglass penetration growth we’ve been seeing is that if we all remember, right, a fiberglass pool is a lower upfront cost option than a comparable concrete pool, 25% to 30%. We’re seeing that dynamic hold and the total lower cost of ownership expands over time, so closer to 40% cost differential. And I think that’s what we’re seeing and why fiberglass and in-ground category continue to outperform the overall market is that cost differential.
And again, I think the replacement side of the business from liners and covers, if you’ve got an existing pool, no matter what the issue is with the pool, you’re going to do the repair and renovation of that asset you’ve got in your backyard to leverage the enjoyment of the pool.
Keith Hughes: Okay. Thank you.
Operator: Next question comes from Susan Maklari with Goldman Sachs. Please go ahead.
Charles Perron-Piche: Hi, everyone, this is Charles Perron in for Susan today. Thanks for taking my question. From your prepared comments, Scott, you seem to mention that website traffic remains strong, but consumers are still delaying the purchase of pools. Can you detail some of the reasons behind the delay of the purchase despite the strong value proposition that you guys are able to offer? And what can you do to bridge the gap between pricing initiatives, maybe offering smaller, more affordable tools are helping your dealers with financing or other initiatives?
Scott Rajeski: Yes. Look, I think the activity on the website, the interest in pools does continue to remain strong. And that’s — look, that’s what I love about the industry, the company, the outlook, the long-term performance, what we’ll see when the bigger macro and the uncertainty kind of goes away, we’ve done a lot of creative things with our dealers on various financing initiatives, how to sell the pool to the consumer, working with our different partners who do financing right now. We stay out of the finance the pool, the transaction, that’s between the dealer and the consumer. But I think, look, there’s a lot of uncertainty out there right now in the world, unfortunately. And I think until some of that clears, we’re seeing a reversion back to it’s a longer buying decision than what we’ve all been accustomed to here over the last two to almost three years.
And I think they’re looking out evaluating that decision sitting on the sidelines. I think when they come back, post, let’s say, the holiday season, that’s when I think they’ll start to be thinking about that buying decision as they move into the 2024-time frame.
Charles Perron-Piche: Okay. That’s good color. Thanks for that, Scott. And then looking at the price-cost dynamic, can you help us understand with the most recent move in steel and energy? How do you think about price cost into year-end and earlier reads into 2024 based on current conditions? But also, in terms of the pricing initiatives, I think you talked about 2% pricing in the quarter. How should we think about the pricing going forward and the carryover into 2024?
Mark Borseth : So let me jump in and take that one. We’ll be getting more specific about ’24 when we get back together in March to talk about the year and guidance. But as I mentioned in my comments, this year, we’ve held prices — seen price benefits of around 2% through the first 9 months. More or less in line with what this industry has typically done, maybe a little bit lower. I mean maybe 2%, 3%, 4% is more of a historical norm. So — but very pleased to have been able to hold on to that price. As you mentioned, we are seeing some modest levels of deflation in a few commodities now, although prices still remain at very elevated levels. So we feel good about our ability to hold the prices that we did this year. They’ve been helping as we’ve seen our margin expansion both year-over-year as well as sequential and with some modest levels of deflation that we’re experiencing, we feel very good about where we are with pricing and our ability to hold price.
