Welcome and thank you for standing by. This call is being recorded; any objections you may disconnect at this time. I'll now turn the call over to Whit Kincaid. Good morning, everyone. Thank you for joining us on Mueller Water Products' First Quarter 2023 Conference Call. We issued our press release reporting results of operations for the quarter ended December 31, 2022, yesterday afternoon. A copy of the press release is available on our website, www.muellerwaterproducts.com. Scott Hall, our President and CEO; and Martie Zakas, our CFO, will be discussing our first-quarter results and outlook for 2023. This morning's call is being recorded and webcast live on the Internet. We have also posted slides on our website to accompany today's discussion which address our forward-looking statements and non-GAAP disclosure requirements. At this time, please refer to Slide 2. This slide identifies non-GAAP financial measures referenced in our press release, on our slides and on this call. It discloses the reasons why we believe that these measures provide useful information to investors. Reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website. Slide 3 addresses forward-looking statements made on this call. This slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included in our forward-looking statements. Please review Slides 2 and 3 in their entirety. During this call, all references to a specific year or quarter, unless specified otherwise, refer to our fiscal year which ends on September 30. A replay of this morning's call will be available for 30 days at 1800-876-4955. The archived webcast and corresponding slides will be available for at least 90 days on the Investor Relations section of our website. I'll now turn the call over to Scott.

Thanks, Whit. Good morning, everyone. Thank you for joining us for our first-quarter earnings 2023 call. I'm pleased with our solid start to this year. We again generated a double-digit increase in consolidated net sales as we benefited from past pricing actions taken to help offset inflationary pressures. The improved price realization was partially offset by a modest decrease in overall volumes in the quarter. Although our brass production levels did improve sequentially, lower production levels compared with the prior year contributed to the decrease in volumes. We believe the municipal repair and replacement market remains resilient and helped partially offset the slowdown in residential construction activity. As our end markets evolve in this economic environment, we are working closely with our channel partners to manage inventories and order levels. We sequentially improved gross margins in the quarter as higher price realization, combined with a lower level of inflation and better manufacturing performance more than offset lower volumes. While the inflationary pressures have eased, they are still elevated compared with the prior year, leading us to implement additional price increases. Our teams remain focused on delivering the benefits from our large capital projects, particularly the ramp-up of our new brass foundry. We are seeing operational improvements at our Kimball facility as our specialty valve products delivered the strongest year-over-year growth in the quarter. We believe we are on track to achieve the operational improvements needed to increase margins in the second half of this year. While we are pleased with our first-quarter results, we also remain vigilant in this environment and are reiterating our annual guidance. After Martie discusses our financial results, I'll provide more color on our first-quarter performance, end markets, and outlook for 2023. Now, I'll turn the call over to Martie.

Thanks, Scott and good morning, everyone. I will start with our first quarter 2023 consolidated GAAP and non-GAAP financial results. After that, I will review our segment performance and discuss our cash flow and liquidity. Our consolidated net sales increased 15.6% to $314.8 million compared to the prior year, with growth in both Water Flow Solutions and Water Management Solutions. The increase was primarily due to higher pricing across most product lines in both segments and volume growth across most products and Water Management Solutions. These benefits were partially offset by a decrease in volumes at Water Flow Solutions. Gross profit of $93.2 million, increased 6.4% compared with the prior year. However, gross margin of 29.6%, decreased 260 basis points compared with the prior year as benefits from higher pricing were more than offset by increased costs associated with unfavorable manufacturing performance, inflation and lower volumes. We sequentially improved our gross margin by 380 basis points in the quarter. The unfavorable manufacturing performance which includes the impact of outsourcing, machine downtime, supply chain disruptions and labor productivity, was primarily driven by our foundry operations. The negative impact of inflation improved sequentially. However, we continue to experience higher costs associated with raw and purchased materials, utilities, freight and labor relative to the prior year. Our total material costs increased around 8% compared with the prior year. Our price realization again improved sequentially, more than covering inflationary pressures for the fourth consecutive quarter. Selling, general and administrative expenses of $62.9 million in the quarter, increased 11.7% compared with the prior year. The increase was primarily driven by personnel costs, third-party services, inflation and T&E expenses, partially offset by foreign exchange gains. SG&A as a percent of net sales decreased to 20% as compared to 20.7% in the prior year quarter. Operating income of $34 million, increased 17.6% in the quarter compared with $28.9 million in the prior year. Operating income includes a net benefit of $3.7 million from strategic reorganization and other charges in the quarter. The net benefit primarily consisted of a $4 million pretax gain on the sale of the Aurora, Illinois facility. This gain was partially offset by transaction-related expenses. Turning now to our consolidated non-GAAP results. Adjusted operating income of $30.3 million, decreased $1 million or 3.2% compared with $31.3 million in the prior year. The benefits from higher pricing were more than offset by increased costs associated with unfavorable manufacturing performance, inflation, additional SG&A expenses and lower volumes. Adjusted EBITDA of $44.2 million, decreased 6.9% in the quarter, leading to an adjusted EBITDA margin of 14% compared with 17.4% in the prior year. As a reminder, adjusted EBITDA was also impacted by a year-over-year increase in pension expense of $1.9 million in the quarter. Net interest expense for the quarter declined to $3.7 million as compared with $4.3 million in the prior year. The decrease in the quarter primarily resulted from higher interest income. For the quarter, we generated adjusted net income per share of $0.13 which was flat compared with the prior year. Moving on to the quarterly segment performance, starting with Water Flow Solutions. Net sales increased 6.9% compared with the prior year, primarily due to higher pricing across most of the segment's product lines. We experienced lower volumes primarily for our iron gate valve and service brass products which were partially offset by higher volumes for specialty valve products. Adjusted operating income of $24.2 million, decreased 22.7% in the quarter. Benefits from higher pricing were more than offset by increased costs associated with unfavorable manufacturing performance, primarily at our foundry operations, lower volumes and inflation. Adjusted EBITDA of $31.9 million, decreased 17.6%, leading to an adjusted EBITDA margin of 19.3% compared with 25% last year. Turning to Water Management Solutions. Net sales of $149.2 million, increased 27.1% as compared with the prior year. This increase was primarily due to higher pricing across most of the segment's product lines and increased volumes, mainly in hydrant and water application products. Adjusted operating income of $19.6 million, increased 70.4% in the quarter. Benefits from higher pricing and volumes more than offset increased costs associated with unfavorable manufacturing performance, primarily at our foundry operations, inflation and additional SG&A expenses. Adjusted EBITDA of $26.6 million, increased 38.5% in the quarter, leading to an adjusted EBITDA margin of 17.8% compared with 16.4% last year. Moving on to cash flow. Net cash used in operating activities for the quarter ended December 31, 2022, was $6.5 million compared with $19.8 million of net cash provided by operating activities in the prior year. The decrease was primarily due to an increase in inventory. Average net working capital using the 5-point method as a percent of net sales increased to 28.2% compared with 25.4% in the first quarter of last year, primarily due to higher inventory levels. During the quarter, we invested $9.9 million in capital expenditures compared with $11 million in the prior year. Free cash flow for the quarter was negative $16.4 million compared with positive $8.8 million in the prior year, primarily due to the decrease in cash provided by operating activities, partially offset by lower capital expenditures. We did not repurchase any common stock. As of December 31, we had $100 million remaining under our share repurchase authorization. At December 31, 2022, we had total debt of $447 million and cash and cash equivalents of $125.6 million. At the end of the first quarter, our net debt leverage ratio was 1.7x. We did not have any borrowings under our ABL agreement at quarter end nor did we borrow any amounts under our ABL during the quarter. As a reminder, we currently have no debt maturities before June 2029. At December 31, 2022, we had $288 million of total liquidity, giving us ample capacity to support our strategic priorities, including acquisitions. Scott, back to you.

Thanks, Martie. I'll now comment on our first-quarter performance, end markets, and full-year 2023 outlook. After that, we'll open the call up for questions. As mentioned earlier, we are pleased with our solid start to the year. While we sequentially improved gross margins in the quarter, our margins were below the prior year. We continue to be pleased with our price realization which more than offset inflationary pressures for the fourth consecutive quarter. As expected, unfavorable manufacturing performance, primarily at our foundries, partially offset the benefits from higher pricing in the first quarter. Unfavorable manufacturing performance was impacted by lower production, primarily at our Chattanooga and Decatur foundries, leading to under-absorption of labor and overhead. Our Chattanooga foundry which is focused on gate valve production, delivered lower volumes due to fewer production days relative to the prior year, primarily driven by increased planned maintenance over the Christmas period. Our melt production at our Decatur foundry increased sequentially. However, it was more than 30% below the prior year. Our teams made progress on the operational challenges at the foundry with improved machine uptime contributing to the sequential increase in melt production. The ramp-up of our new brass foundry is well underway. We have two lines working through the production parts approval process, prioritizing our highest volume parts, including parts used in our hydrants and gate valves. We are working through the new casting and machining processes and expect to begin shipping the initial parts using the new alloy later this quarter. I am pleased to share that Mueller products utilizing components manufactured at the new foundry will continue to be certified under NSF 61 for drinking water system components through Underwriters Laboratories. This certification is crucial to ship products containing parts with the new alloy to customers. With elevated backlogs, our teams remain focused on improving production levels, to reduce lead times and satisfy orders, especially for our hydrants and brass products. We continue to experience higher costs year-over-year, primarily related to outsourcing materials, machining and maintenance. We expect these headwinds to carry on into the second quarter as well as the second half of the year. Increasing brass production levels from both foundries will ultimately allow us to bring some production back in-house and lower costs. As backlog levels normalize and our new brass foundry begins shipping product, we anticipate decreasing the use of outsourcing. Additionally, we are working to add shifts at our Albertville Foundry to increase internal production for key hydrant parts. We've already mentioned the sale of assets associated with the closure of our Aurora facility. We are pleased that we now have completed the divestment of all the locations from which operations have transitioned to the new Kimball, Tennessee facility. Our specialty and large valve CapEx investments are continuing to ramp up this year, and we expect the margin benefits to follow accordingly. During the first quarter, our specialty valve products delivered the strongest year-over-year growth of all of our product lines which resulted in a sequential and year-over-year improvement in gross margin. I will now briefly review our end markets. As mentioned earlier, we believe the municipal repair and replacement market remains resilient, helping partially offset the slowdown in residential construction activity. For the municipal repair and replacement market, we remain excited about the benefits of the Infrastructure Bill starting to take effect later this year. The first wave of distributions have taken place with additional guidelines from the EPA regarding the Build America Buy America domestic sourcing requirements. This further supports the strategic rationale for all three of our large capital projects. As domestic sourcing requirements for iron and steel products increase, we believe we will be well positioned with our increased domestic capacity for our larger valve and service brass products. Looking at the new residential construction market. Total housing starts were down 15.6% year-over-year during our first quarter with around 1.4 million seasonally adjusted annual rate in December. We expect construction activity to pick up in the spring relative to our first quarter which is the typical seasonality of our core products. For fiscal 2023, we continue to forecast that total housing starts will be in the 1.3 million to 1.4 million range. While we expect higher interest rates and economic uncertainty to continue to impact residential construction, we believe lot inventories remained relatively low. Moving on to our outlook for 2023. As expected, we experienced a slowdown in order activity during the first quarter. While our total backlog decreased sequentially, we continue to have an elevated backlog, especially for shorter cycle products like service for and hydrants. With product lead times and project timelines improving, we anticipate our backlog levels could normalize over the coming quarters, depending on end market activity. We expect to get a clearer sense of sell-through channel inventory plans and order levels as we move into the upcoming spring construction season. As mentioned earlier, we are reiterating our guidance for 2023 which we provided with our fiscal 2022 fourth-quarter earnings. We anticipate that our consolidated net sales will increase between 6% and 8%. Our backlog at the end of the first quarter and the expected realization from higher pricing position us to deliver net sales growth again in 2023. We expect our adjusted EBITDA will increase between 10% and 14% as compared with the prior year, primarily driven by benefits from higher price realization and operational improvements in the second half of the year. In closing, our teams continue to focus on maintaining our strong customer relationships while executing our top priorities for the year which include achieving operational improvements, delivering benefits from our large domestic capital investments, accelerating development and commercialization of new products, and generating ongoing price realization. We are on track with the ramp-up of our new brass foundry which will have significantly more capacity to deliver the best long-term manufacturing solutions and advance our sustainability initiatives with a new lead-free brass alloy. We are in a transformational period for Mueller with our large capital projects in various stages of ramping up. We believe the benefits from these projects and ongoing operational improvements will greatly enhance our position in the market. These investments are especially important as water utilities increase needed repair and replacement projects supported by the Federal Infrastructure Bill and the requirements for domestically manufactured products. Our broad portfolio of products and solutions enable us to help water utilities address growing challenges from the aging infrastructure, climate change, and workforce demographics. While uncertainty from the external environment has increased, we are a much more resilient organization supported by a strong balance sheet. This gives us liquidity and capacity to continue to reinvest in our business while returning cash to shareholders, primarily through our quarterly dividend. We are confident that our growth strategies, capital investments, and operational initiatives will deliver both further net sales growth and a return to pre-pandemic margins in 2025. That concludes my comments. Operator, please open this call for questions.

Please open this call for questions.

Maybe we can start, Scott, with your perspective on the demand dynamics in the quarter with respect to some of the order slowdowns. We're hearing lots of commentary across the industrials about destocking and we can see what's going on in the residential side. And in particular, you had a pipe manufacturer yesterday that was seeing some of the same dynamics and their outlook was a lot more dire than what you're talking about today. So just kind of frame for us the order slowdown, is this destocking? And I know there's going to be offset from the municipal repair and fix but just very specifically on the residential side.

Yes. So I think that the dynamic is much as you described. But if you recall my comments in previous quarters, there is a big piece of this theme that is driven by distribution resource planning (DRP). And it's this notion that as the lead times collapse, you have to consider this double whammy. One, the sell-through may have slowed as housing goes from that 1.5, 1.6 down to the 1.3, 1.4 range but lead times are coming down as well. And so the amount of material that's needed in the channel continues to decline. And so what's necessary and what's not. So, I think the end market evolution working closely with the channel partners to look at sell-through and manage inventory and order levels will be key. And I think that everybody is looking at this spring construction season and wondering if it's going to drop further or if there will be enough resiliency. I think that there is a tendency to be overly bearish once you start to see the negatives. But I would also point to the January jobs report which indicates that employment levels and potentially income levels could be rising for the average American which I think would serve as a counterpoint to the housing starts where these individuals enter the housing market. I think that remains to be seen. But what's most important to us in the last six months is watching the balance sheets of the municipalities and how flush they are with cash still two years later. I believe that this is the counterpoint along with the increased interest in the drinking water sector from governments that will kind of offset the demand profile reduction that we'll see from the housing market. So we remain, let's say, cautiously optimistic.

That's all really helpful. And we've heard that whole dynamic about the slowing pace of orders as lead times normalize. So that's becoming familiar for us as well. All right. So a follow-up question for Martie. Can you talk about the impact of your inventories on free cash flow because that was really well below your typical free cash flow use? Is that inventory? Is it still buffer inventory? Is this a supply chain issue? Scott just talked about how there's less inventory in the channel, there's destocking happening but you've taken on more inventory. So just walk us through that, please.

Yes. So I'll say certainly looking at the negative free cash flow that we had in the quarter, as you pointed out, was driven by the higher inventory levels. As we work through our 2023 guidance, which is consistent with the guidance that we have reiterated regarding full-year free cash flow being around 40% to 60% of our adjusted net income, we expect that improvement throughout the year will largely be driven by working capital improvements which will come from inventory turn. So I'm going to say, as our production teams focus on improving lead times, as Scott just talked through, lowering the backlog levels, particularly with the short-cycle products that we've had and with outsourcing, we are looking to transition to a model of bringing in necessary inventory just in case rather than just in time, considering all the supply chain disruptions. I think we will look to shift that focus and certainly aim to bring down these inventory levels through the year, which will help with that. There will be some elevated inventory levels associated with the new brass foundry, but Scott referenced the destocking activity and what we could see from distributors throughout the year. And I would say, certainly, if the destocking is greater than our estimates, that could impact our overall inventory levels and our free cash flow guidance.

Martie, that's very helpful. I should have mentioned that during the industrial reporting season, most companies have fallen short of expectations in free cash flow. So you're not alone in this situation. We're all eager to see working capital decrease, but it seems we're learning that it will take longer throughout the year to see this improvement. It won’t happen in just one quarter. I appreciate your insight on the time frame. Now, regarding my final question, Scott, it's been some time since we discussed the possibility of raising guidance. We had strong results in the first quarter, which is promising, but I understand it's still early. When there’s no guidance increase after a quarter like this, does that suggest a more pessimistic outlook? Are you being a bit more cautious? Could you help clarify the decision to reaffirm guidance without increasing it at this time?

Yes. So I think the there was some definitive difference in how the first quarter came out between external estimates to internal. So I think that our timing differed from the market's timing. So when we talked about our last earnings call, we provided the initial guidance for 2023, we mentioned the timing of the ramp-up of the new brass foundry was important to our improved margins in the second half of the year. If you take that improvement and look at the starting point for the year from earnings versus where the external estimates were, I can't really speak to that. What I can say is that the start to the year was solid with the sequential improvement in margins. However, I’m mindful that we're still early in the year. Additionally, we're still in the ramp-up period of the new brass foundry improving those PPAP processes. I would also note that there remains a fairly high level of uncertainty in the external environment. Product lead times and project timelines are improving. I expect that the backlog levels could normalize over the coming quarters, depending on end market activity. We elected to hold our guidance steady as we look at the rest of the year; we did see a better first quarter than anticipated but we wanted to keep our options open. Ultimately, the most crucial factors for us to meet our guidance relate to throughput at our own facilities and not relying on outsourced materials. I think it's just too soon to say where we are on that path.

Solid start to the year, good to see that price continues to outpace inflation being four quarters into that catch-up process. Are you now at a point where price/cost is margin accretive year-on-year? Or is that still pending?

Well, year-on-year, you could argue that it is accretive. But as you know, Bryan, we don't measure it that way. We go back to the trough. We know that the entire inflationary cycle spans multiple years. So when we said in our prepared comments at the end there that we expect to be back to pre-pandemic margins in '25. We are looking at the rate of accretion. We're still not accretive to inflation over the entire cycle going back to 2020, but we expect to break even on the dilution effect sometime this year, if the price that's trapped in the backlog and the throughput assumptions materialize. We believe that we'll reach pre-pandemic margins in 2025. The price component is one aspect, but the actual throughput and mitigating outsourcing won't allow us to return to pre-pandemic margins until 2025. So I hope that answers your question. We'll be accretive year-on-year, but we still have a way to go to get back to where the inflationary cycle began in 2020, and we won't eliminate those headwinds associated with outsourcing and manufacturing inefficiencies until we can complete the second foundry's ramp-up.

I appreciate the details provided. To put it simply, the plan is to recover margin price and costs this year, eliminate inefficiencies next year, and then benefit from the projects after they are completed and reach full operational capacity, aiming for approximately $30 million in benefits that you mentioned for 2024 into 2025. Is that the right approach?

Yes, yes. So if you were to look at us at a high level, like 2019 we were around 19% to 20%, and now we're in the range of 14% to 15%. By 2025, we expect 500 to 600 basis points of improvement. The biggest two components, as I've been saying repeatedly, are the brass foundry and eliminating outsourcing while increasing throughput levels at our own foundries. These are the two major drivers for us. As long as the end markets hold steady, we should be okay. I think it's worth mentioning that the end markets remain conducive to us. We will need to look to the Infrastructure Investment and Jobs Act (IIJA) timing to carry us through what might be a temporary housing slowdown.

And that's actually a perfect segue there, Scott. Any other color you can offer on IIJA impact to date? I assume minimal. More importantly, your confidence in there being a tangible impact looking at the latter part of '23 into '24 and '25. Just looking at SRF funding data and specifically the awarded funding and it's somewhat underwhelming right now, seems to be some administrative issues at hand and a lot of work that remains just to coordinate the project funding before moving forward with a lot of this. Just curious your perspective on that. And the level of confidence or incremental confidence in this being a real catalyst going forward.

Well, I think it will be a real catalyst going forward. I think you're witnessing the typical process that comes with government programs, with all the new rule sets. For example, whether a fastener is categorized as American-made or can be imported has been debated. The EPA has been crafting the new regulations, deciding what materials must constitute the bulk of cost, including labor content. Over the last nine months, many projects received some funds in states like California, but it’s just a small piece of the roughly $100 billion that we expect to see allocated. I believe the money will be set aside and believe it will catalyze activity in '24, '25 and beyond. However, any project approved today will not execute in '23 or even in early '24 as these projects will need to be engineered, built, and materials coordinated over several months. Nevertheless, we do think there will be meaningful investment opportunities in stormwater, wastewater, and drinking water sectors.

It's Paz on for Mike. So another question on backlog. So how are you thinking about backlog duration at this point versus normal? Obviously, a lot of puts and takes. The backlog levels are elevated. We talked about the numerous puts and takes on the manufacturing and outsourcing side. But then also on the flip side, we talked about an opportunity to normalize backlog levels this year. And secondarily, based on the answers to Deane's question, I suspect I know the answer here, but I'll ask anyway. How much, if any, backlog normalization is assumed in the current guidance?

Let me address how I think about it. I likely think about it differently than analysts on the call because I'm very interested in where our sector competitors are in their lead times. In our gate valves right now, I believe we have an advantage due to the efforts made at our Chattanooga plant, which has been successful in reducing backlog. However, we are currently disadvantaged in hydrants where our lead times remain extended compared to competitors. For our specialty valve business, I believe we are performing on par, but with our investments, we should gain an edge domestically. What I want to see is improvement in backlog duration reflecting in terms of days of production, as this presents a chance to capture market share. My focus is to get the short-cycle products, like smaller gate valves and hydrants, down to a two-week lead time at a maximum. This is critical for the channel, as these products should turn rapidly without being held in inventory for long durations. The project business will see longer lead times, especially with more significant projects arising from the IIJA and backlog due to ongoing engineered valves.

No, absolutely. That's incredibly helpful, Scott, and a much better answer than my question. So thank you. I'll switch gears a little bit. The balance sheet is in good shape. You called out ample capacity to pursue strategic priorities. Can you maybe just provide a little color on what the M&A landscape looks like? Is there anything out there that has you excited right now?

I mean, there's always properties that we're evaluating. I would say that our pipeline looks good right now. The opportunities where investment is heading over the next 6 to 8 years could provide some adjacent areas for Mueller's line of valves or bolt-ons that we may not cover today but see as lucrative. If we look at the ongoing discussions about water retention, especially on the West Coast, with the water crisis surrounding Lake Mead, significant investment will be needed to transport water from areas of abundance to regions where it’s lacking. So all these trends are feeding our acquisition pipeline, and we remain optimistic about our potential to make progress here, but nothing is imminent in the next quarter, that's for sure.

This is Miguel on for Brian. We just had one question. I wanted to touch on the channel inventory dynamic again. Could you go into more detail possibly on that dynamic that you're seeing? Is there a way that you've been able to estimate how much is out there for the key products that you're monitoring, maybe in terms of number of weeks or months and to what level the channel is trying to get down to?

Yes, it's a hard question to answer. Because if you asked the channel, they might say a lot of the inventory is committed inventory. If you examine what's taken place in terms of price increases, I would estimate 30% to 40% of the inventory increase you've seen is simply driven by price. Thus, the unit counts have remained stable. The balance that accounts for an increase, let’s say 100%, consists of units. That 60% to 65% of the increase in units is likely committed inventory. The challenge is getting the product delivered amidst logistical disruptions. When the distributor took the order for that vendor or municipality, that product was earmarked. Accordingly, there’s a significant logistics backlog affecting the distributors. The speculative inventory only makes up about 15% to 20%. I anticipate that as lead times settle, you'll start to see speculative inventories decrease, while the price increase will exert upward pressure. As I mentioned in my prepared comments, we raised prices again last quarter, and as lead times normalize, it will surely amplify inventory reductions with channel partners.

The next question is from Joe Giordano with Cowen.

Can you discuss price realization for the quarter and what your expectations are for the full year? I assume that much of your full-year forecast is based on actions you have already taken. It seems like it might be more challenging to achieve this given that inflation is easing sequentially, correct?

Yes, I think we were very pleased with the sequential increases in price realization in Q1. We benefited from multiple price actions taken throughout the last year with price realization in the mid-teens for Q1. Price realization improved more than offset inflation and is not dilutive, which supports our return to pre-2020 margins. In the first quarter, total material cost inflation, as Martie can confirm, was around 8% year-over-year versus roughly 14% a year ago, and the negative impact of inflation has improved sequentially. We will continue to experience costs associated with raw and purchased materials. Therefore, while we can't specify exact specifics regarding what is embedded in our guidance, we anticipate being back to flat level with 2020 regarding price versus inflation. Margins will remain challenged due to inefficiencies from outsourcing and other related costs until 2025.

But within that, like full-year revenue growth guide, is it fair to say that the price contribution is higher than the overall growth guide? So I can contemplate price?

When we put together our guidance, we pointed out explicitly that the expected unit volume would be slightly down. All of 6% to 8% growth we'll talk about is prompted principally by price increases.

Yes, that's okay. With respect to the new brass foundry ramp-up, what do you need to see to know that you're on the right track? How far into the year or what kind of trigger points along the way give you comfort that this is progressing as desired?

Yes. We meet weekly to look at the number of parts that are in the Production Part Approval Process (PPAP), and assess where we are on that schedule. For the parts that are approved, we consider how the machining trials are proceeding. We are focusing on achieving production milestones for our priority parts. In my prepared comments, I noted we are on track for many of them. Over the next three months, there will be many different factors that can positively or adversely affect the ramp-up. At the end of the day, if we can achieve 60,000 pounds of brass produced per day at the new foundry, we can shut down the existing facility while satisfying all demands.

Can you share what the cost differential is between these outsourced products that you have to bring into our internal production? What would that scale look like?

I cannot provide exact figures on the premiums of outsourcing products. We work with multiple partners, and I don't want to imply specific premiums. They are aware of what we are paying and how that might compare with internal production.

Lastly, you mentioned your expectations for housing starts for the year. Can you compare that to what you think lot development will look like this year?

Yes. As I stated, we still believe lots of inventories and even options on lots remain low. I know many builders are discussing their options for lots now. Following a total housing start year of approximately 1.4 million, which is our projection for the upcoming year, we expect lot inventories to be lower with no significant backlog. Unlike the overhang experienced in 2007, this situation resembles more measured time frames, likely in days or weeks rather than years. The inventory levels are lower now and remain by a factor of two or three compared to 2007.

Please proceed with your questions.

I wanted to go back to Deane's question about the forecasting. You mentioned that the first half was expected to be weaker, followed by a stronger second half. How are you seeing the second quarter shaping up? Are you expecting the traditional seasonal pick up leading into the spring selling season, or is it more likely sequentially flat?

That's complex to predict. Our annual guidance suggests an adjusted EBITDA margin improvement of approximately 70 basis points at the midpoint. Key to this is gross margin improvement, driven by estimates of around 190 basis points, offset by pension expense and higher SG&A. Although inflation pressures will continue in Q2, we depend on outsourcing and other services for the quarter. Although we don't want to provide specific quarterly guidance, I expect our gross margins to remain relatively flat in Q2 compared to Q1. Our sales numbers should be achievable, given a sufficient backlog, but the critical challenge will be the sequential improvement in margins linked to increasing throughput.

Yes, that makes sense. Also, regarding the activist group that you were collaborating with, are you still aligned with them? Any updates?

Absolutely. We're still aligned with them. The committee is operating well with the two new board members. However, I want to clarify that we don’t engage directly with the activist group. Our agreement involved the addition of those two members, and communication has gone smoothly. We've had our initial meetings to discuss capital allocation and operational improvements, and I feel there’s alignment on business priorities focusing on the larger capital projects.

This concludes today's call. Thank you for your participation. You may disconnect at this time.