Quanex Building Products CORP Q3 FY2021 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to Q3 2021 Quanex Building Products Corporation Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. And please be advised that today's conference is being recorded. I would now like to hand the call over to your speaker today, Mr. Scott Zuehlke, Senior Vice President, Chief Financial Officer and Treasurer. Please go ahead, sir.

Thanks for joining the call this morning. On the call with me today is George Wilson, our President and CEO. This conference call will contain forward-looking statements and some discussion of non-GAAP measures. Forward-looking statements and guidance discussed on this call and in our earnings release are based on current expectations. Actual results or events may differ materially from such statements and guidance, and Quanex undertakes no obligation to update or revise any forward-looking statement to reflect new information or events. For a more detailed description of our forward-looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release issued yesterday and posted to our website. I'll now discuss the financial results. We reported net sales of $279.9 million during the third quarter of 2021, which represents an increase of 32% compared to $212.1 million during the third quarter of 2020. The increase was largely due to increased demand across all product lines and operating segments, combined with increased pricing mostly related to the pass-through of raw material cost inflation. More specifically, we posted net sales growth of 20.8% in our North American Fenestration segment; 19.3% in our North American Cabinet Components segment; and 85.8% in our European Fenestration segment, excluding the foreign exchange impact and despite the challenges presented by flooding in Germany during the quarter. As a reminder, both of our manufacturing facilities in the U.K. were shut down in late March of 2020 and did not resume operations until mid to late May 2020. We reported net income of $13.7 million or $0.41 per diluted share for the three months ended July 31, 2021, compared to $10.8 million or $0.33 per diluted share for the three months ended July 31, 2020. The increase in net income was mostly due to higher volumes and improved operating leverage. However, this improvement was somewhat offset by higher taxes, inflationary pressures, and an increase in SG&A during the quarter, which was mostly attributable to more normalized medical costs combined with an increase in stock-based compensation expense. To add more color around the higher taxes, an increase in the U.K. tax rate was enacted on June 10, 2021. The increase from 19% to 25% will not be effective until tax years beginning on or after April 1, 2023. However, companies are required to include the effects of changes in tax laws in the period in which they were enacted. Therefore, in Q3, we re-measured the deferred tax assets and liabilities that will reverse in 2023 at a new tax rate of 25%. So to account for this change, we now estimate our tax rate to be approximately 28% this year. On an adjusted basis, EBITDA for the quarter increased by 18.8% to $32.9 million compared to $27.7 million during the same period of last year. The increase was again largely due to increased operating leverage from higher volumes. Moving on to cash flow and the balance sheet. Cash provided by operating activities was $18.5 million for the three months ended July 31, 2021, compared to $45.1 million for the three months ended July 31, 2020. Free cash flow came in at $12.3 million for the quarter compared to $40.7 million in Q3 of last year. Higher inventory balance was the driver for the lower free cash flow during the quarter. This inventory growth is being driven by increases in raw material pricing and its related valuation, along with the strategic purchasing of some critical raw materials as they become available. The first item is self-explanatory and it's just the proper valuation at lower of cost or market and the nature of first-in first-out accounting for inventory. The building of raw materials is needed to compensate for ongoing supply uncertainty and significant increases in demand. Despite this pressure on inventory costs, we were still able to both repay $15 million in bank debt and repurchase approximately $1.8 million of our stock during the quarter. Year-to-date, as of July 31, 2021, cash provided by operating activities was $47.4 million compared to $47.6 million for the same period last year. Free cash flow year-to-date as of July 31, 2021, was $31.4 million compared to $26.9 million during the same period of 2020. Our balance sheet is strong. Our liquidity position continues to increase, and our leverage ratio of net debt to last 12 months adjusted EBITDA improved to 0.2x as of July 31, 2021. We will remain focused on managing working capital and generating cash in the near term. As George stated in our earnings release, we remain optimistic on the demand outlook for our products. However, we do expect inflation, labor costs, and supply chain challenges to continue pressuring margins throughout the fourth quarter of this year. We will continue to pass these incremental costs to our customers through index pricing, surcharges, and price increases. However, there are time lags in each case. In summary, on a consolidated basis, we are reaffirming net sales guidance of approximately $1.04 billion to $1.06 billion, and adjusted EBITDA of $125 million to $130 million in fiscal 2021. I'll now turn the call over to George for his prepared remarks.

Thanks, Scott. Not unlike others in the building products space, our fiscal third quarter was affected by significant inflationary pressures and material shortages that impacted manufacturing schedules and taxed our operations. Late in the quarter, the growth of the COVID delta variant led to a resurgence of illnesses and required quarantines, which further impacted the already tight labor market. In addition, our plant in Heinsberg, Germany flooded in late July during the devastating rainfall that fell over Western Europe. Despite these demanding challenges, we are pleased that we were able to announce another strong quarter of financial results and reaffirm our full year guidance for fiscal 2021. Before discussing our results, I would like to take a moment to thank our team in Heinsberg, Germany for their amazing efforts after the flood. Within just 14 days of the storms, the facility was back up and operating at full capacity and not one customer was shut down because of this weather event. The team there worked long hard hours to make sure our customers were supported. And they did a tremendous job under unbelievably difficult circumstances. Now looking at the macro environment in North America, demand for windows and doors remains very strong. Supply chain pressures remain the constraint and have resulted in extended backlogs for our customers and longer lead times for end consumers. Demand for cabinet components also continues to be strong. And according to KCMA, the number of average backlog days within the industry has risen to 66.9 days versus prior year levels of 37.7 days. Although the summer months in Europe usually bring a slight drop-off in demand due to holiday travel, current demand for our products in the U.K. and Europe remains consistently strong. We mentioned on the Q2 call that the glass shortages were beginning to limit output for window manufacturers in Europe and the U.K. This trend continued into the third quarter, and we expect the same through the end of our fiscal year. From a supply perspective, material shortages continue to present a major operational headwind throughout the quarter. The biggest challenges remain in most chemical feedstock products and aluminum, and we are seeing allocations and short shipments of orders on a regular basis. While it is still too soon to tell, these shortages could be exacerbated by the impact from Hurricane Ida. The rapid rate of material inflation continues to be the largest financial headwind we face. As a reminder, for the most part, we have contractual pass-throughs for the major raw materials we use in North America, but there is often a contractual lag that can generally be anywhere from 30 to 90 days long. These pricing mechanisms are working but will not be fully realized until we see a flattening or decrease in pricing that allows for the catch-up period. We anticipate that we will begin to see prices peak and possibly begin to drop towards the end of the calendar year. At the time when index pricing does turn, there will be pressure on our revenue. However, we do expect to see improved profitability at that time. The labor market continues to be tight in every market we serve. During the quarter, we made progress in our recruiting efforts. But in North America, we are still looking to fill over 400 open positions. To improve both retention and employee acquisition, we have increased wages in almost all of our domestic plants. On an annual basis, we have raised wages in North America by approximately $5.1 million, which is being covered largely by price increases that have been passed on to our customers. We believe these increases will offset the structural change in the labor market and allow us to remain margin neutral. We are confident that the wage increases will continue to relieve pressure in this area. With that said, the growth of the COVID Delta variant and related spike in U.S. COVID cases has certainly added pressure, both because of ongoing positive cases and required quarantines for employees. I will now provide my comments on performance by segment for our fiscal third quarter. Our North American Fenestration segment generated revenue of $147.8 million, which was approximately 21% higher than prior year Q3 and compares favorably to Ducker window shipments growth of 14.2% for the calendar quarter ending June 30, 2021. Strong demand across all product lines, share gains in our screens business, increased capacity utilization on our vinyl extrusion assets and an increase in index and surcharge pricing all contributed to the above-market performance. Adjusted EBITDA of $18.3 million in this segment was approximately 2.4% higher than prior year Q3. Volume-related operating leverage, the implementation of annual pricing adjustments, operational improvements and lower SG&A all contributed to the improved performance year-over-year. These items were offset by timing lags for index pricing and higher levels of overtime utilization. For the first nine months of fiscal 2021, this segment had revenue of $422.1 million and adjusted EBITDA of $55.2 million, which represents year-over-year growth of 23.6% and 38.1%, respectively. This also represents adjusted EBITDA margin expansion of approximately 340 basis points when compared to the first nine months of fiscal 2020. Our European Fenestration segment generated revenue of $71.1 million in the third quarter, which is $32.8 million or approximately 86% higher than prior year. Excluding foreign exchange impact, this would equate to an increase of approximately 68%. As a reminder, our European facilities were shut down for part of last May. Robust demand for our products continues in both vinyl extrusion and spacers as the repair and remodel markets in the U.K. and Continental Europe remains strong. Adjusted EBITDA of $14.4 million for the quarter was $6.7 million better than prior year. This improvement was driven by prior year COVID impact, along with volume-related operating leverage and pricing actions, which helped to offset inflationary pressures. On a year-to-date basis, revenue of $181.9 million and adjusted EBITDA of $38 million resulted in margin expansion of approximately 540 basis points as compared to the first nine months of last year. In our North American Cabinet Components segment reported net sales of $61.9 million in Q3, which was $10 million or approximately 19% better than prior year. Favorable index pricing and high order demand contributed to solid revenue growth in the quarter. Adjusted EBIT in this segment was $2.5 million, which was $0.6 million less than prior year. As discussed earlier, the timing lag of our contractual pricing index has added significant pressure on margin percentage for this segment. Although we are being impacted by this timing lag on hardwood, the inflation impact versus prior year Q3 was somewhat minimized by operating leverage from higher volume, along with incremental price increases on certain products. Year-to-date, this timing lag has impacted adjusted EBITDA by $6.4 million. But if we adjust for this inflation, we would have realized approximately 400 basis points of margin expansion in this segment on a year-to-date basis. Operational improvements and volume-related leverage gains have helped offset the timing-related material impacts. And when hardwood prices flatten or drop, we can expect to realize margin expansion at that time. Unallocated corporate and other costs were $2.2 million for the quarter, which is $1.3 million higher than prior year. The primary drivers of this increase were stock-based compensation expense, operating incentive accruals, and more normalized medical expenses as compared to 2020. As Scott discussed, our balance sheet continues to improve. Our operational teams continue to focus on metrics they can control, and our cash flow profile remains attractive. Our management team and Board are actively engaged in evaluating our capital allocation strategy for fiscal 2022. But in the short term, our top priorities are to continue paying down debt and accumulating cash. There appears to be growing confidence that the current cycle within the building products sector will extend for several years, and we are seeing more and more M&A opportunities across our desk. Given the strength of our balance sheet, we will evaluate potential acquisitions that are both strategic and accretive to our growth and margin profile. So despite the near-term supply and inflationary pressures, we continue to outpace 2020 for both quarterly and year-to-date revenue, net income, adjusted EBITDA, and EPS. We have executed on our plan and we have put the Company in a position to capitalize on various paths to create shareholder value. We remain very optimistic on the future. And operator, we are now ready to take questions.

Your first question comes from the line of Daniel Moore of CJS Securities. Your line is now open.

Thank you, George, Scott. Good morning. Thanks for taking the question.

Good morning, Daniel.

Good morning, Daniel.

Could you provide insight into the key inputs and supply chain constraints? Are you noticing any improvements, deterioration, or early signs related to Hurricane Ida?

I'll answer this in a couple of pieces by product line. In North American Fenestration, I think we see the pricing and supply issues continue to remain pretty significant in anything that is chemical-related. So anything that derives from any sort of ethylene cracker plant is seeing the continued inflationary pressures. Too early to tell on Hurricane Ida. We know our supply base has not been impacted from a facility standpoint, but still evaluating the whole logistics and the ability to get products shipped through rails, trucks, and ports. So it's still too early to tell. Hardwood pricing, we actually are starting to see some leveling off or slight increase, not leveling off, but the rate of inflation appears to be slowing. So we'll continue to look at that and anxiously await that time; and in Europe, things remain about the same.

Excellent. Really helpful. As we look out to fiscal '22, based on price increases you either put in year-to-date or have planned at this time and kind of based on today's pricing, how much of a top line growth benefit would that translate into next year, just kind of ballpark terms?

We are still assessing what the outlook for 2022 looks like. It's somewhat complicated because our pricing increases are built into a few factors. There are structural components that affect the selling price, as well as surcharge-related items that depend on inflation trends. Therefore, the revenue figure could be adversely affected if pricing begins to decline. As a result, it will be challenging to provide an accurate revenue forecast at this stage. However, we expect that if inflation starts to soften, it will lead to improved profitability in 2022.

Got it. Helpful. And maybe one more, if I might. Leverage back all the way down to almost basically zero and generating more cash than you need. You mentioned M&A, particularly at these levels, would you look to be a little bit more aggressive in terms of share repurchases as well? I know you bought back some stock in the quarter, but any comments there would be helpful. Thanks.

I think our current strategy, as we stated, is we're going to continue to focus short term on paying down debt and then building cash on because we do think that there could be some potential M&A opportunities. Nothing's imminent, but we are seeing opportunities and we positioned our balance sheet very well to be able to look at a lot of things that could be accretive. The great thing about where we're at today is based on our strategic plan, we don't think we need to do anything. And so we're not rushing to grow. We'll look, as I said, to things that enhance our growth profile and are accretive in terms of margin. If those exist, then we are in a very good position to capitalize. In terms of share buyback, we still do believe that we're undervalued. However, there are challenges with the low float that we have and the impact on us on the share buyback. We just think that, that's lower in our priority. If the position arises and we feel like it's the best thing to do, we obviously still have enough in the Board authorization to purchase stock. But I would rank that lowest on our priority list right now.

Your next question is from Julio Romero of Sidoti & Company. Your line is now open.

Good morning, George. Good morning, Scott.

Morning, Julio.

Good morning.

So I guess on the North American Fenestration segment, could you maybe rank order some of the margin challenges there? I know you called out the timing lags for index pricing as well as overtime costs. Just looking for a sense of how impactful these two were, and if one was more impactful than the other?

I think right now, the biggest challenge is on items such as resin and silicone. And again, things that are being driven by feedstock pricing, that's a bigger challenge right now than the labor piece for us short term, at least, from a financial perspective.

Got it. You mentioned that there could be some potential impact from Hurricane Ida. Do you have any additional details about what you might expect coming out of the Gulf Coast?

No, we have been informed that our major suppliers' facilities were not affected. So in the short term, that's very positive news. However, there is still congestion in the ports and throughout the logistics chain, which may lead to some challenges in obtaining materials in the coming weeks. I do not anticipate that it will have a significant long-term impact on our supply, at least based on what I know now regarding our supply base.

Got it. And then just last one for me would be just, generally, you spoke about price increases you're working on in North America, aside from index pricing. Can you just speak to your maybe ability and confidence to pass through price aside from index pricing, in other words, to offset labor costs.

We implemented price increases to counteract the labor costs we've observed. This represents a structural shift. Both our customers and suppliers are adapting to the current circumstances, and there's no turning back. We are facing a new labor market, and ultimately, consumers will need to determine their capacity to manage these labor costs. This situation is unlikely to change, but we have successfully managed to increase prices because it's essential for us. Our intention regarding labor costs is to maintain margin neutrality. We have been transparent with our customers and engaged in meaningful discussions.

Your next question is from Reuben Garner of The Benchmark Company. Your line is now open.

Thanks. Good morning guys. So I guess to start, is there any way to quantify how much volume or revenue you guys have lost this year, specifically in the North American Fenestration business, just from challenges in the windows industry in getting product out the door? In other words, can you talk about the visibility that you have or the runway you have on the demand side? I know windows have been one of the most backed up building products over the last year. Is that something that you guys look at as a positive as you move into the next six to nine months or so?

Yes. And I'll answer that in two phases, Reuben. First, in terms of visibility, we don't have great visibility because a lot of our customers' ability to ship windows is dependent, not only on the products that we ship, but their ability to get installation labor on their side, the homebuilders' labor as well as their ability to get other components, especially from Asian sources where there's a significant lack of containers. So, it's really hard to put an evaluation on what revenue could have been had those all put together. In terms of our ability, I think we've done a pretty good job of being able to continue to supply what demand. What we think that this does do for a long term, and I kind of mentioned it at the end of my comments is that it's going to extend the cycle. You're not losing revenue. It's just extending and pushing it out. And that's why we continue to be optimistic for longer than just a short-term view of our markets.

Okay, that's great. I'm curious if you've noticed any significant changes in the mix of products sold, particularly in the fenestration business. Do your spacers benefit from the installation of higher quality, more energy-efficient windows? Are you observing any notable shifts in the market?

No, it's a great question. Our spacer offering ranges from entry level to high end, and we have a solid portfolio. We continue to see strong demand across all product lines. This demonstrates that new construction remains robust, as does repair and replacement. The ongoing lead times emphasize your initial question and are driven by our customers and the homebuilders' capacity to meet installer demand.

And then my last question is about the Cabinets business. With the supply chain challenges and particularly the issues with ocean freight recently, what feedback are you receiving from your customers regarding the trend of in-sourcing? Do you believe this trend can gain more momentum? Do you have the capacity to capture additional market share? Additionally, have you seen any significant changes in your pricing power due to recent events that could allow you to recover as we move into the next year or two?

Our ability to handle increased volume will largely depend on our success in acquiring new labor. We're well positioned in terms of machine capacity as lumber and hardwood supply begins to open up. We've made some adjustments within the quarter, and we're currently evaluating their impact. Early signs suggest some progress, but it's still too soon to draw definitive conclusions. If we can secure enough labor, we can take on more in-sourcing and assist in that process. Regarding pricing, we have some degree of pricing power, but there are limits we cannot exceed. We are actively engaging with our customers about this topic. Our goal is to ensure fair valuations for our services while also supporting our customers' success, as we view these as partnerships. Additionally, we are exploring the possibility of establishing a new cabinet facility, and we are currently in the site selection phase. This project is ongoing, and we hope it will enable us to pursue incremental volume once launched.

Great. If I could sneak one more in, Scott, the price/cost pressure that you've got this year from kind of a steady rising commodity environment, do we need prices to roll over in order for next year to pick up some margin? Or if they level off, you guys will still have a tailwind because you won't have that, I guess, headwind that you had in this fiscal year?

Yes. The issue really this year has been we keep chasing price. So even as those indexes trigger, we continue to chase. So we're behind the eight ball there. So as raw material prices at least stabilize, that will help. But what's really going to help is when raw material prices start going the other way, and it's anybody's guess as to when that will happen. We do think that there's going to be some stabilization going into the end of this year into early next year. So we do feel comfortable that profitability will be better next year and the demand very strong.

Your next question is from Steven Ramsey of Thompson Research Group. Your line is now open.

Good morning, guys. I wanted to follow up on the capacity and labor utilization topic to make sure I understand your previous commentary, George, was it the ability to take on more volume. Is that in all segments? Or are you talking just the CAB segments? And I guess to connect the dots, does CapEx need to increase from this $30 million-ish level for you to be able to take on more volumes over the next year or so?

So the first part of your question, my answer was generally directed towards cabinets, our ability to take on additional revenue in the North American Fenestration segment. Screens, it would be partly labor and going after a new geographic segment of the country that's not served. But for the most part, the North American Fenestration growth would be dictated on our ability to get raw materials. Cabinets is going to be more labor-driven. As it relates to your CapEx question, early insight is we anticipate 2022 might have a higher level of CapEx for growth initiatives. And we're comfortable with that and feel like our cash flows, in terms of all of our objectives, supports that and would position us well for good growth.

Okay. Great. And then on the inventory investment you've made that makes sense so far. I guess how do you think about incremental investment in inventory from here, do you think inventory will take up more capital early on in 2023 or 2022? Or will that investment moderate as you move forward?

I would expect an increase in inventory. Right now, if we can acquire raw materials, we will. That's our current strategy. Like many other businesses, if critical components are available, we purchase them. Our goal is to reach a stage where we can begin creating finished goods to enhance our fill rates and reduce our backlog. However, this will require some time. To answer your question, yes, I believe this will contribute to our cash usage in 2022 and likely extend into 2023.

Okay. Great. And lastly, just to maybe make sure I understand something. This elevated backlog you have, it seems to be a common thread in all the building products and construction world. For you, this backlog burn off to more normalized backlogs. Do you expect that to happen in the next couple of quarters? Or do you really not have this much visibility into that as you would like?

I wish I had better visibility. I think that over the course of the last 1.5 years, that's the one thing that has changed is the level of visibility through all of our customer change. I anticipate that it's going to take a solid 12 to 18 months for the whole industry to start bleeding that down. It is a large backlog that's being driven by multiple things. You've got the labor challenges. You've got raw material. You've got freight issues. So there's not one silver bullet that if this clears up. So I think it's going to be a 12 to 18 months. And again, that's what we keep saying why we think that the cycle is going to be extended by multiple years because of that phenomenon.

Your next question is from Ken Zener of KeyBanc. Your line is now open.

So, Scott, good morning.

Good morning.

Morning, Ken.

I want to discuss a couple of issues here. George and Scott, could you provide some context from the past to illustrate how Quanex is different? Specifically regarding extrusion, I believe it was around 2012 or 2013 when you faced significant cost increases without having contracts in place. You might recall better than I do. Could you explain how, particularly in extrusion, the price contracts are linked to the pipe index? Additionally, could you clarify what those indexes are connected to and how this differs from the previous cycle when you lacked fixed price contracts? It would be helpful to understand the underlying index, how it relates to your business, and what kind of lag exists.

In North America, the pricing for the vinyl extrusion business is really determined by the CDI indexes. This is the method we use to establish index pricing. Depending on the customer, a portion of it is shared. Typically, about 80% of any increase or decrease in that index is passed on to the customer, while we absorb a part of it. Each contract varies slightly, but that gives you a general idea. Regarding your question about 2012, I don’t have the specifics at the moment. I joined the company in 2011, so I was primarily involved with the spacer business back then, which means I can't provide a comprehensive answer on that.

Fair. Fair. Scott, do you want to take a stab at it? Or should I move on?

I joined in 2016.

Okay. Good. Yes, I remember that I need to review the transcript. It seems you all have confidence in the recovery. George, you mentioned $6.4 million in costs related to the cabinet business, indicating that this net cost inflation is expected to be recovered. You referenced that being about 400 basis points or 360 basis points of incurred costs you plan to recover. Is that figure correct?

That is correct. It's just the timing of the index. You would add it to the revenue and the income base and then net it out. We anticipate recovering that at some point, and it will be based on time.

Would you say that number is 100 percent? Is that how much cost inflation you have experienced in that segment? I believe you are providing clarity there. Or is that what has not been recovered? I'm trying to understand how much of your business relies on price versus volume, because inflation, despite the 10-year not moving, is clearly present. Could you provide a general breakdown of volume versus price for your businesses?

That's going to be purely price. And obviously, the volume dictates the piece of that. I mean, the reason why there's so much clarity in the hardwood pricing is because it's a very clear and simple index based on the different species. So we track it, we monitor it, and we know the number very close, so.

Got it. Thank you for that. I have one last question, taking a step back. It seems like you're facing a good challenge with your leverage. As you mentioned earlier, if you buy back stock, you're reducing an already thin float. You're also making organic investments, and you've discussed some of those initiatives in Europe, including a cabinet facility. Could you elaborate on how you're considering deploying capital in relation to your cost of capital and the expected returns? It has been about five years since you acquired the company. While you're improving margins, it doesn't seem like the returns on capital are where they should be. How are you making decisions about continuing to invest in this area as opposed to other opportunities within the business?

Yes. No, it's a very fair question. I think we look at it holistically. And what I would say without getting into any level of granularity here, Ken, is if you look at our return on invested capital over the last four or five years, we've obviously made it a priority in terms of improving that metric and how we choose to invest all of our incremental cash. And over the last couple of years, our return on invested capital has grown to a level that it's meaningfully above now our working average cost of capital. So without getting into the details of what we do by each segment, I think in general philosophy, I think the track record has shown that we've executed on that. And I think it's a focus, and we'll continue to evaluate all opportunities based on those metrics. And I'm going to this generic in that.

Your next question is from Daniel Moore of CJS Securities. Your line is now open.

Yes, just a quick follow-up. In terms of the impact of the flood in Germany, is there a quantifiable dollar impact on revenue? Or were you able to service out of inventory and/or other locations?

We were able to service inventory. There was a week or two lag before we were able to do that. And then on the cost side, we're estimating about $300,000 in expense impact. No real lost revenue because it's just pushed to the right.

Perfect. Very helpful. Lastly, regarding the guidance, it seems that revenue might trend towards the higher end of the guidance range due to price increases. Is that a reasonable perspective? As for EBITDA, perhaps it would be closer to the midpoint of the range considering the pricing pressures you're experiencing? Any comments you could share on that? Thank you. Please continue, Scott.

I think for the most part, Dan. That is correct. We're still comfortable with the range is higher on the revenue side, lower on EBITDA, based on everything we're talking about with respect to inflation and labor, et cetera. So yes, I would say you're accurate.

No questions at this time. And I would like to turn the conference back to George Wilson for further comments.

I'd like to thank everyone for joining, and we look forward to providing an update on our next earnings call in December with our full year results. Thank you all very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.