Q4 2019 Earnings Call
The via the Conference Center next available conference specialist will be with you momentarily.
I understand Im happy name.
Brian Healy.
Lastly, we say with Healy correct.
Yes.
Is that with to ease or EA.
Okay.
Okay and your company is.
Era, a <unk> or <unk>.
They should do to the Gms one moment.
Thank you.
<unk> reflected higher volumes and pricing across all of our product groups, including over three points of volume growth in wallboard as a result of strong activity in the United States.
Our strong growth in organic revenue for the quarter was broad based across each of our product lines with 3.8% growth in wallboard sales, 13.7% growth in ceilings, and 8% 8.3% growth in steel framing.
Other product net sales were also up 7.8% organically and they continue to be a key part of our growth story.
On the profitability front, we also generated record results with a nearly 50% year over year increase in adjusted EBIT da to $73.5 million for the fourth fiscal quarter.
The increase reflected contributions from the Titan acquisition growth in our base business. Our continued focus on operational improvements and favorable lease accounting.
I'd now like to spend a few moments sharing our current view of our end markets in both Canada and the United States.
In our fourth quarter, our business in Canada continues to be impacted by some softness in the Canadian single family residential market.
Coupled with challenging weather conditions earlier in the quarter, the Canadian business experienced a high single digit year over year sales declined on a constant currency basis with further impact from about a 4% depreciation in the Canadian dollar year over year and based on the current forecasts. We believe it will take some time for this sector of the Canadian market to normalize.
Nonetheless, the fundamentals contributing to long term Canadian housing demand remained sound, including strong household formation and population and economic growth.
Also on a positive note the commercial activity and Canada remained solid and tightened continues to be accretive to our consolidated operating results.
Our long term strategic rationale for the acquisition of the largest distributor in Canada remains very compelling.
Including increased scale and footprint in North America.
Geographic expansion into the highly attractive Canadian market and creation of a well balanced platform for growth.
We firmly believe that our investment thesis for this attractive acquisition of strategic importance remains strong.
On the organizational front in Canada, we are very pleased to announce that Travis handwritten. Most recently vice president of corporate development at Gms will be joining the management team in Canada as executive Vice President reporting to Doug's Gretna President of WSP Titan.
Travis was an integral part and leader in our acquisition of WSP tightened in June of 18, and his appointment to this new role reflects the strategic importance of our Canadian operation and as part of our ongoing succession planning.
As part of the succession plans for Titan travelers will work closely with Doug over the balance of 19 as Doug transitions to a consulting role remaining engaged in the business and after Doug moves into the consulting role travelers will assume the position of president of WSB type.
In the United States, we continue to be quite encouraged by activity levels and other leading market indicators.
The organic daily sales volume improvements, we have seen in each month in the fourth quarter and continuing into the first quarter of 20 further validates that view.
As it pertains to residential construction, while single family starts so far in COVID-19 have remained perhaps softer than anticipated we have seen mortgage rates and home price appreciation moderate and indicators of seasonal demand are generally positive.
Employment and income growth remained at very healthy levels in many of the major markets in the US continue to have limited housing supply as building remains below historical averages all of which bodes well for the long term outlook.
And on the commercial front, which represents the majority of our business most indicators and estimates point to continued growth against the backdrop of a healthy economy.
We are seeing this on our own business was strong backlogs and quote activity.
In recent visits to many of our locations in multiple geographies I have continued to hear from our own people and key commercial customers that pipelines are very robust through calendar 2018, and quotes are going into calendar 2000 and beyond.
Gms generated strong free cash flow in the quarter of $83 million, which enabled us to continue to execute on our balanced approach to capital allocation, including reducing our net leverage in the quarter to 3.6 times pro forma adjusted EBITDA.
While at the same time, expanding our business through acquisitions, and Greenfield investments and repurchasing 5 million of our common stock.
During the quarter, we closed on the acquisition of commercial builders group in Southern Louisiana and opened four Greenfield locations in Carrollton, Texas, Fredericksburg, Virginia, Harrisburg, Pennsylvania, and Portland, Maine.
Subsequent to the end of the fiscal fourth quarter and as announced earlier. This month, we acquired heart acoustical and dry wall supply and South Texas.
As evidenced by all of these actions we are executing on our capital allocation strategies of debt reduction disciplined growth through acquisitions, and greenfields and opportunistic share repurchases.
So turning to slide number four.
I'd like to provide a recap of the highlights for the full fiscal year 2019, which was a very important year for gms, both operationally and strategically.
We made significant progress on several fronts.
First we surpassed 3 billion and net sales through both organic growth and acquisitions.
We completed the acquisition of Doug SB tightened in Canada, which extended our leadership position in North America with materially expanded scale and footprint.
We significantly improve overall profitability expanding adjusted EBITDA margins by 160 basis points year over year to 9.5%.
We generated 175 million in free cash flow and as I. Just noted we deployed a balanced capital allocation strategy, including reducing our net leverage by 0.6 times since closing of the tribe tighten transaction a year ago.
Investing the two additional acquisitions and eight greenfield expansions and repurchasing $16.5 million of our common stock.
As we previously announced I will be retiring in August after a 26 year career Gms.
Since this is my last earnings call I wanted to take a few moments to reflect on the growth of Gms that I have seen not only throughout my career here, but also since the Companys IPO in 2016.
Since my joining Gms a 1993, we have grown from about 50 branches to over 250 locations and expanded from 17 States to 43 States and Canada.
Our annual sales at the time I joined were 236 million.
And then just the last three fiscal years since the IPO.
We have increased our sales by almost 70% more than doubled our adjusted EBITDA completed 17 acquisitions with 59 branches and opened 13 greenfield yards.
It has definitely been a very fast pace and rewarding time here.
Now, having the opportunity to work alongside the talented and dedicated Gms team has been my greatest privilege and the highlight of monetized business career.
I am extremely proud that together, we have built the number one north American specialty distributor of interior building products and developed a unique corporate culture over the years that continues to be very very special.
I've also appreciated working with many of you on the call today and I. Thank all of our shareholders for their continued support.
Going forward I know the Gms has the right team in place to build upon the company's strong track record.
John who joined US as president in May and will assume the CEO role. Upon my retirement brings the Gms nearly 30 years of distribution and manufacturing industry experience and a broad range of expertise in operations sales customer service distribution and logistics as well as strategic planning and M&A.
Having gotten to know John through our extensive travel and meetings over the last few months I'm, absolutely confident that with his leadership Gms is well positioned to achieve its next phase of growth and success in the years ahead.
I look forward to continuing to work closely with John until my retirement and also look forward to seeing what he and the team accomplished a raise gms to even greater heights in the future.
Ill now turn it over to John .
Thanks, Mike for that kind introduction and for your service to Gms over the past 26 years.
It's great to be here today to speak with our analysts and investors.
I've enjoyed speaking with some of you since joining gms and look forward to engaging with more view in the near future.
Let me start by saying how excited I am to be part of the Gms family.
I was first attracted to gms by its leading market position.
Specifically the strength of its North American network combined with local expertise and commitment to service excellence.
In the short time I've been here I've already been impressed by the talent and enthusiasm of the team.
I've been welcomed by Great people, who are clearly dedicated to the company its customers and each other.
Together, we are working hard to execute on our plans and build on our existing momentum.
Looking ahead the opportunities for growth are significant.
I look forward to leading the company and capitalizing on those opportunities as well as further strengthening our customer relationships supplier partnerships product offerings and overall value proposition as we position Gms for its next phase of growth and success.
Since joining I've been spending time in our facilities as well as with our customers and suppliers Im here to build on an already strong foundation and I'll be working with the team to identify ways. We can enhance every aspect of our business.
And we will be sure to keep you updated on our progress.
I look forward to transitioning into the role of CEO later, this summer and working with you all in the future.
With that I'll now turn it over to Lynn to provide more details on our financial results for Q4.
Thanks, John and I would also like to thank you all for joining us today.
We were pleased to deliver a solid fourth quarter highlighted by record net sales and adjusted EBITDA performance and strong free cash flow generation.
Turning to slide five recurring net sales, 20.7% to 780.1 million, we are especially pleased with a 7% increase in our organic sales compared to the fourth quarter of last fiscal year.
Our sales in wallboard were up by 15% to $322.3 million in the fourth quarter compared to the same period last year. This increase was driven by acquisition higher organic volumes and pricing.
The increase included a 3.8% growth on an organic basis, which included an increase in volume of just over 3% and about a 1% increase in pricing.
Our fourth quarter ceiling sales increased by 17.4% year over year to 112.2 million higher organic volumes, resulting from increased commercial business, along with benefit from acquisitions and pricing improvement drove this increase.
The 13.7% organic increase was comprised of price increases of approximately 9% as well as higher volumes of approximately 5%.
Our sales of steel framing increased during the quarter by 16.3% year over year to 124.5 million driven by the positive impact of acquisition higher organic volumes from greater commercial business and pricing the 8.3% organic increase included gains of approximately 4% range for pricing and volume.
Sales of our other products, which consists of inflation drilling compound pool stucco ease and various other complimentary products continues to grow rapidly totaling $221.1 million and up 44.4% compared to the fourth quarter of last year.
The addition of Titan has broadened our product offerings and at the same time annually, 8% increase in base business sales of other products further reinforces to continuing success.
Our efforts to grow this highly profitable product category.
Gross profit in the fourth quarter increased 25% to 257 million.
This was the result of higher organic sales and the positive impact of acquisitions as well as pricing improvement.
Gross margin of 32.9% increase 50 basis point from 32.4% a year guide.
Due to contributions from the Titan acquisition, including purchasing synergies and favorable price cost dynamic kinetics.
And on a sequential basis gross margin also improved 50 basis points from the third quarter and exceeded the 32.2 Guy we indicated in our last call.
While we benefited from favorable price cost dynamics in mix in the fourth quarter, we do maintain our gross margin guide a 32.2 leading into the 20.
Turning to slide six we improved our leverage of fixed costs, reducing our adjusted EPS DNA as a percentage of net sales by 100 basis points year over year to 23.6%.
This year over year reduction was less than we had previously estimated on our Q3 earnings call.
Let's walk through the details.
While we did recognize the full benefit of our strategic cost reduction in lease accounting changes. These benefits were partially offset by some headwinds, including an anticipated insurance call.
Increases in certain corporate expenses related to timing differences as well as lower sales and operating leverage from Titan.
Finally, we have continued to be impacted by significant inflationary wage pressures as we discussed on previous call.
Just as a reminder, we've now lapped the year over year benefits from our change in lease accounting and we'll decide with respect to our strategic cost reduction after the first quarter of 20.
Moving along to adjusted EBITDA, we delivered $73.5 million of adjusted EBITDA in Q4.
46.9% year over year.
Our adjusted EBITDA margin was 9.4% as a percent of sales.
Or 8.7%, excluding the impact of leases, which was up 80 basis points from 7.9% a year ago.
Turning to slide seven.
During the fourth fiscal quarter, we generated 83 million of free cash flow a significant increase from $15 million a year ago. The increase is due to a 40 million reduction in networking capital $24 million of higher net income after adjustments for non cash items and $5 million of lower capital expenditures.
We used this free cash flow to reduce our net debt by $66 million.
As well as repurchased $5 million of our common stock and complete the acquisition and Greenfield transactions that Mike talked about.
At the end of the quarter, our net debt to LTM pro forma adjusted EBITDA was 3.6 times, which was down from 4.2 times at the end of the first quarter of fiscal 19.
And down from 3.8 times at the end of the third quarter.
We intend to continue to de lever through strong free cash flow generation.
Our balance sheet remains quite healthy with 47.3 million cash on hand, and 314 million available under our ABL facility, resulting in substantial liquidity.
Additionally of our total long term debt approximately 80% is not due until 2025.
Before turning the call back over to Mike I'd like to touch on a few more outlook items for fiscal 20.
For fiscal 20, we expect capex to be in the range of $20 million to $25 million and interest expense to be in the range of $70 million to $75 million.
Now, let me turn the call back over to Mike before we open the line for questions. Mike. Thank you Lynn.
Just a few additional comments before we open the line for questions.
Again, we are extremely pleased with our strong finish to the year and are confident in the team's ability to continue to take advantage of our multiple multiple levers to drive success organic growth Greenfields M&A and operating leverage.
We continue to leverage our market leading position in the distribution of interior building products are balanced product portfolio, and our diversified exposure across commercial and residential new and our construction markets.
And most importantly, our great network of dedicated Gms colleagues in both the US and Canada continued to embrace our strong entrepreneurial culture to drive outstanding performance and service for our customers and our suppliers.
Operator, we're now ready to open the line for questions.
Thank you we will now be conducting a question and answer session in the interest of time, we ask that you. Please limit yourself to one question and one follow up.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to have your questions from the queue for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys, one moment, please pull for questions.
Our first question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.
Good morning.
Thank you for taking my questions and congrats to Mike and welcome to John .
I wanted to I guess first ask about the free cash flow, obviously impressive in the quarter. I think you ended up with about 175 million.
For the full year of 19 is there anything that you could call out that.
Anything that particularly drove the strength in the quarter.
There and how should we think about what free cash flow could look like in fiscal 2000.
Yes, sure Matt in terms of what trend to free cash flow in the quarter as some of that was driven by about $35 million increase in accounts payable that we do not expect to experience going forward that kind of brings our expectations down to somewhere between 40% to 45% of adjusted EBIT da going forward.
And thats the $35 million of the increase in accounts payable was simply driven by changes in the timing of purchases.
Okay, that's perfect thanks for that.
And then secondly, the gross margin I think you said price cost was favorable which drove the strength in the quarter and.
If I heard you correctly I think you said, 32.2% was the expectation for fiscal 20 still so just I guess, what are you expecting with price cost and mix that is driving the margin to subside a bit. Thank you.
Yes, so we believe that the 32 is a prudent guide going forward.
Given the uncertainty around the pricing environment.
Obviously.
You should construe that 32 to as a floor, we have to do better.
All right I'll leave it there thanks very much.
Thanks, Bob.
Thank you. Our next question comes from the line of Trey Grooms with Stephens. Please proceed with your question.
Hi, good morning, and I want to Echo.
Echo the last comment congrats Mike on your retirement been great working with you and.
John We look forward to working with you going forward.
Thank you train, yes, I hear triumph I've enjoyed it.
Well, so I want to touch on.
Couple of things one so.
Your wallboard pricing slipped just a little bit sequentially.
The manufacturers Feb wallboard increase failed it seems to have continued to slide a little bit at the manufacturing level.
At least according to the PPI can you guys talk about what you're seeing there.
More real time and.
Have you seen any stabilization in the pricing or how should we be thinking about.
That especially UES specifically.
Well I mean, I think you touched on it I mean, I think the price increase in February .
Definitely was lethargic coming out of the gate and we really did not.
We just didn't really get much realization to say the lease I think right now just the supply demand conditions are such that.
Until that kind of altar is a bit I think the price outlook going forward is going to be.
Kind of.
So it remains to be seen at this point, so I, but I would say that in general I think the pricing environment is stable right now if I had to kind of give a characteristic to it today, particularly the the increase did not did not hold yes.
Okay.
But seeing some stabilization.
Currently I guess is the key takeaway, yes, yes, that'd be biotech, okay and then.
My follow up.
Is around Canada. So just I would just want to make sure that I understood Youre.
Comment.
So volume down high single digits.
And was that just on the single family side or is that overall, including some of the positive impact from commercial.
Just some clarity around that comment.
That would be on a consolidated basis that would be in total I.
And really this on the single family front that for the most part is confined to single family low rise.
I mean, if you look at the high rise activity the high rise condo apartment as well as commercial the fundamentals of those segments are still very sound with a real area is focused on that single family low rise and frankly, a lot of that is just has to do with a lot of the regulatory pressures have been brought to bear and that segment of the market up there. So long term we continue to be optimistic about what is going to develop but right. Now there is definitely some noise in that segment of the market.
And just.
If I can just to get a little bit more kind of back on the pricing with within the Canadian market I know, it's been tight there.
The just wallboard has been tight there over the last few years now with that kind of.
I guess loosening up a little bit what's the thought around pricing in that market kind of going forward does that usually I know, it's a totally different market than us. So forgive me. If this is elementary question, but.
Historically, what does that generally done in times of when things start softening up a little bit understanding it's still up.
Got a bit of imports coming into that market.
You know for US up there I would say and again I hit my historical references somewhat limited to having just bought the company a year ago, but I would tell you that based on the limited numbers of suppliers out there I mean, it's not as if it like in the states where you've got.
Seven manufacturers you can you can pull from there is really only to only two or three depending on which part of the country you're talking about a pull from so I don't see any big.
Alterations necessarily in terms of the pricing environment, and frankly, I think the production will be adjusted based on the demand levels anyway kind of like we do here. So I don't see any big price adjustments necessarily taking place out there. Okay. Thanks for taking my questions I'll turn it over to let that characterized thanks.
Thank you. Our next question comes from the line of Keith Hughes with Suntrust. Please proceed with your question.
Thank you.
Congratulations to you Mike and good luck Im sure the golfing industrial things rounds go up once you get into retirement there.
Thanks Gabe.
Just.
Building on a couple a couple of questions that have come on.
Specifically turning to the to the ceilings industry got some very strong numbers here for some of what we saw there better volume that we saw out of Armstrong I guess my my question is.
As a specialty business ramps up in ceilings.
They asked us to you and others have been doing that can you tell us how that benefits Gms is there any of that did you Miss goods sold director out how does that work out for you.
The specialty side.
Yes specialty business Jeff.
You know that.
As we've talked about this a little bit before I mean, if you look at the growth service as always this conversation around the commodity product and what is the long term growth prospects of that but the reality is that we have seen very significant growth in the specialty wood metal ceilings. The accoutrements to open plenum ceilings for example, with the acoustical clouds and things such as that and so I think and I really have to tip my hat to our guys in the field, who dedicated a lot of resources and energy behind those segments of the business because it requires.
Technical expertise it requires a lot of product knowledge and in many respects, we become kind of the consultants for even architects as they're trying to design a lot of these more sophisticated spaces. So we've committed a lot of resources to that segment and I think were yielding the results of that Eas products are a key part of the growth story and and the other part of it is to the just the fundamental on our side and the fact that you've got that annuity factor built in because of the.
Replacement of either.
Titles that are damaged due to a water pipe failure or somebody who is building out three new floors. So theres just kind of theres, an ongoing activity level, particularly given the relative strength of commercial right. Now so it's kind of a combination of factors, but the specialty side. The architectural specialties side is definitely a growth area for us.
Okay and switching to tighten.
Do you think the next couple of quarters, where your senior Titan business bottom out or would there still be some downside in businesses you try to search for a bottom in Canada.
Yes sure Keith.
On the bottom in Canada.
A couple of things.
First of all.
Our exposure there is 22% of the demand is single family as new single family.
We certainly hope to see things turn in the next two or three quarters on one thing that starting to turn already I, Canada is like I think you guys know has a higher lumber business then than the U.S. businesses do.
And we've already started to see some of the lumber prices start to turn around so I don't know.
I don't know where the bottom is we hope that it's now.
And Ics and fully expect to see things start to start to turnaround. However, it will take us a little bit of time for the factors that we discussed related to single family team iron themselves out.
Okay final question on SDMA now that Youve.
Tight for a year.
Do you think there will be more as you go into year two of ownership will there be more SG nice savings less leverage that we would see that tick down for the whole company on synergies are we are we kind of pass that.
Well, let me not to pick on the synergy front thats an ongoing ongoing effort, it's kind of like we had our first bite at the Apple so to speak but as we continue to grow our businesses together, we find more opportunities to purchase cross border from the same manufacturers or into new manufacturers, we're going to find more opportunities to find synergies and I think frankly.
As the revenue and expense mix improves as single family comes back then I think you're going to see more opportunities for SDMA leverage in the future, but that's that's a TBD there, but but I.
Im fundamentally optimistic and I would reiterate as I said earlier the acquisition of Titan was was and is a very very sound as strategically significant investment for us. So while there is a some short term hiccups in the business long term, it's accretive now and it will continue to grow and be accretive in the future.
Okay. Thank you very much and good luck.
Thanks, Kate appreciate it.
Thank you. Our next question comes from the line of Michael Wood with Nomura Instinet. Please proceed with your question.
Thanks, Mike has been a pleasure working with you and congratulations on a well deserved retirement.
Yes, Thanks, Mike appreciate it.
First I wanted to get some just more SGN eight details if you wouldn't mind the wage inflation, maybe where exactly that's coming from and Thats, an industry phenomenon or gms specific and maybe some of the timing of the corporate expenses in terms of details on whats driving that when that might come down.
Yes sure.
On the.
On the first question that you asked with respect to the wage inflation. This is it's a real it's a real thing across the industry.
It's driven by labor shortages that are pretty significant and construction is not just the gms staying on most of the most of the economies in which we operate our full employment economy. So we're seeing that primarily in logistics, but also in other costs.
Related to your question on the timing really nothing ominous just simply year over year timing of certain expenses.
As well as some unanticipated an unexpected insurance claims that took place.
The last quarter of the year the last actually in April .
Thanks.
And on the favorable price cost that you called out can you just give us some details on that perhaps quantify.
You know your cost inflation, where that was running.
Just in terms of the gross margin impact.
Well no we're not.
We can't really quantify the the impact of the favorability of price cost.
We did have some.
Some nice.
Some nice tailwinds from the purchasing synergies as a result of the Titan acquisition, So really I think the remainder of the.
The increase was due to the price cost in the mix.
Okay, but just to.
I understand.
Sustainability of the low double digit.
EBITDA conversion margins that you achieve which is in line with your long term expectation is that something that you think is sustainable going forward.
Trying to just understand the price cost was sort of like a one time benefit that that benefit might wane.
Yes, so moving forward, we fully expect to be in the in the 10% to 15% range for incremental adjusted EBITDA.
And we think that Thats, a very achievable. So I, we do believe that that says that that is sustainable.
Okay. Thank you.
Yes, just qualify that with.
Of course that depends on the pricing environment and on Titans performance as well.
Thank you. Our next question comes from the line of Mike Dahl with RBC capital markets. Please proceed with your question.
Good morning, Thanks for taking my questions and Mike and John Congrats to you both.
Thanks, Michael Thank you Mike.
So I wanted to pick up on the Titan conversation with the first question I you know I think the.
The business was run rating something around 460 million and 15% EBITDA margins on on an LTM basis. When you when you bought it a clearly some moving pieces. Since then can can you just help us size up what the current.
Run rate on sales and profitability is for that business.
Yes, sure sales is 15% of the total.
In terms of level of detail as as Weve discussed on previous calls and we're not prepared to provide that level of detail.
Got it okay.
I was shifting shifting gears wallboard pricing, Michael you mentioned that.
You are seeing stability in the market today, I guess and just looking for a little clarity on on that if you could.
To provide a little more detail on.
The pricing intra quarter and is there anything we should be thinking about in terms of exit rate on pricing that's different from the 324 for the quarterly average.
I'm not sure.
Can you rephrase the question, yes sure. So so so I think the comments suggested that there has been sequential stabilization in pricing, but I guess that the PPI data is kind of continue to.
To move lower sequentially for the manufacturers so that your quarterly price. It was 324 I'm just wondering if the exit price.
If we should be thinking that the price was kind of falling through the quarter. So that even if were.
Stabilizing today, we could see another downtick in the in the quarterly price next quarter I just want to make sure. We're we're on the right page there.
Yep.
It's a possibility again, there's a lot of uncertainty with respect to see like we talked about with respect to the pricing environment and it also depends on the mix because that's based on those.
Numbers too so I would say that there is no big moves that we're seeing as are apparent right now and I think based on the supply demand predictability right now that were the pricing was generally stable. We're trying to handicap that going forward is pretty difficult to do at this juncture.
Okay got it if I could get one last question just on SGN, a really and I think you you highlighted and both the comments and in the presentation, the unanticipated costs and timing of certain other costs can you quantify how much of an impact.
That was in the quarter and kind of how to think about and you know you're lapping some of the benefits.
As you mentioned in early fiscal 20, but just how to think about.
On what to expect for SGN I'm moving forward.
Yet in terms of the odd in mix as the.
So we got 100 basis points of leverage we would as we leased forecasts to get 200 basis points of leverage year over year. The the hundred basis points of like let's call. It in this was half and half ski she Titan I ate not being as David of a portion of the business and be not having the ability to leverage its end fixed costs on to the extent that we had forecast.
The other half being the insurance costs and the timing of the corporate expenses that we talked about going forward, we certainly hope to get some leverage how much under our current run rate. It is a it's really dependent on on wage inflation as well as on I'd heightened performance.
Okay makes sense. Thank you all.
Thanks Bye.
Thank you. Our next question comes from the line of David Manthey with Baird. Please proceed with your question.
Thank you hi.
And Mike Congratulations and good luck.
Thanks.
[noise] question.
Good at these these one timers another way here.
Maybe could you just give us the magnitude of the insurance and the timing of other costs sort of year over year, what the what the magnitude of that impact was and then.
I I assume what you're signaling here that we should get relief on both of those as we move into the first quarter. They were sort of periodic to the fourth quarter is that correct.
Yes that is correct yes.
And in terms of magnitude basis points or dollars any can you give us an idea of what they were.
Yes, sure I 50 basis points was the insurance costs and the timing of certain corporate expenses and 50 basis points I was D did tighten intact.
Okay, all right got it it would tell you could ever say.
Okay, Thats that sounds good and then second on pricing.
Sounds like you're sort of signaling maybe flattish wallboard pricing in fiscal 2020, but could you talk about.
The ceiling prices will we see another strong quarter coming up here and I'm just trying to get an idea of the timing when you lap the prior price increases and I assume at some point you will revert back to sort of 3% to 5% norm. There and then I know, it's a long question, but just mainly ceiling pricing and timing and then the second is that steel prices I could is it possible you could actually see a drag from steel prices this year.
Well as it relates to wallboard, I mean, I'm not smart enough.
To project out that the entire year 20, we will not see wallboard increases so I mean I.
I don't want to go on record as having said that.
Again, a lot of that has to do with demand supply conditions and just overall activity levels. So that certainly could have an influence as to longer term wallboard pricing.
On the ceilings Ron.
You know.
Everything that we're seeing in terms of quote activity and backlog and in the general attitude of our folks out in the field is that we're going to continue to see growth in ceilings going forward just just based on the current volumes and.
As we've discussed on previous calls I mean, there is pretty much kind of a built in price increase relative to sales year on year out I mean, you get two increases year on it. It's it's fairly predictable. So I mean, I I think our outlook on the ceilings, Ron and our growth and frankly, our investments in people and resources to grow that business.
You can see the fruits of those efforts already and I would consider to see that continue into the future.
And then on the steel Mike.
Yes steel I tell you they steal is.
It's really slipped on we've seen some slippage downward. It's obviously prices have fallen and I think when you look at the current market relative to scrap and the availability to ship scrap offshore is limited.
I would say that our view is its steel prices and I'm talking specifically now about the steel on the structural side I think we're probably going to see that continue to probably drop in terms of price as we go forward.
Okay. Thank you.
Thanks.
Thank you. Our next question comes from the line of Kevin Hocevar with Northcoast Research. Please proceed with your question.
Hey, good morning, everybody and congratulations as well to Mike and John .
One of you could comment on cash cash you should usage expectations here in 2020 seems like debt pay down is the priority, but obviously still doing acquisitions in a little bit of share repurchases as well. So you kind of frame up for us your expectations, there and where do you think you can get that net leverage it looks like you took off of <unk> 0.6 from what 4.2 to 3.6 I think this year.
How much further down do you think you can draw that in fiscal 20.
Yeah, we will continue to operate using our balance capital allocation approach I debt Paydown remains a priority and we've yes.
He talked about our our target of a three point zeros.
The exact timing of that 3.0, obviously depends on the generation of adjusted EBITDA.
If you live from where we were right. After the Titan deal at 4.2, you know it really we're where we're halfway there now so we will continue to do that in terms of the eye in terms of the share repurchases. We will continue to be opportunistic about share repurchases.
And we will continue to.
Be selective about strategic acquisitions, we think that's an important part of our growth story.
Yeah, and I would I would add to that Kevin. If you look at this quarter to me I think it's kind of a perfect.
An example of this balanced strategy that we're approaching I mean, you it's not an all or nothing proposition you know we've got to have the right balance between de levering, which we clearly understand as a priority, but at the same time as opportunities present themselves, whether it's commercial builders, whether its heart or whether its greenfields.
We have to continue to run the business long term strategically add is as things present themselves from a stock price standpoint, we capitalize on that as well that I think is a really good picture of how we can do that at the same time continue to drive down that debt level. So.
You know that that's going to be the strategy going forward.
Yes, Okay, Great and then Mike you mentioned.
The strength you saw here in the fiscal fourth quarter carrying forward into May and June just kind of curious if you can comment on that specifically are you seeing it pretty similar growth rates are you seeing any accelerations or deceleration just wondering if you can elaborate that on that a little bit.
Well I mean, I think are just as a general statement. There is a there is a solid level of momentum certainly going into May June just kind of early to tell because we haven't wrapped up all the numbers, obviously and that kind of thing, but it just in talking with the field and meeting with the customers and looking at new frankly, a lot of the larger commercial folks who are completely booked out for 19 and going into 20.
Our view is the overlap overall activity level.
Is solid there and even with some of the softness if you want to call. It that in single family. We're still stock in an enormous number of units of housing right now in multifamily. So you know pretty much broad based I'd, just say the activity level and the outlook is just very positive is it it's not like a hockey stick or some massive growth, but its just a real solid environment right now and I think the outlook is very positive yeah, I'd just add sequentially during the quarter and continuing into May we sell sequential increases in our sales per day. So we're pretty positive about about that a little bit too early to tell and James since we're still in a month right right.
Got you okay. Thank you very much.
Thanks, Kevin.
Thank you. Our next question comes from the line of Matt Mccall with Seaport Global Securities. Please proceed with your question.
Thanks, Good morning, everybody and it's actually Rubin on for Matt.
Congrats Mike and John to you both.
Thanks, most of my most of my questions have been answered just one.
Follow up if I could the you mentioned still targeting kind of 10% to 15% EBITDA contribution margins I'm going into this year is there.
A clarification does that does that include kind of any pressures that would result from.
WSP declining I assume that's a higher margin business probably has higher contribution margins does that include any pressure from there, that's maybe offset by some synergies or and or any maybe savings. If there were to be continued pressure in the Canadian business.
Yeah sure they did 10% to 15% incremental.
EBITDA contribution does include our forecast mass spec sheet Titan.
Okay, Great and that's that's all I got everything else was answered. Thank you guys.
Thanks.
Thank you. Our final question comes from the line of Truman Patterson with Wells Fargo. Please proceed with your question.
Hi, Good morning, everybody. Thanks for squeezing me in here, Mike Let me add my congratulations I hope you enjoy retirement, so yes, thanks very much I appreciate it but yes.
First off on the wallboard volumes, you know up in the 3% range.
Seems like Thats, a pretty good result, given what's going on with Canada's housing starts decline. The U.S. starts are down so a pretty good result, I guess, how do you guys think about your market share. There have you guys been maintaining it or even picking up a little bit.
Of market share here in the U.S.
You know I would say as a general statement, we feel like we're kind of holding large we're holding our share position. If you look at similarly on a 12 month run rate relative to the GA numbers and kind of where we see our numbers coming in.
So the observed the the growth rates were very happy with on the organic side.
Frankly, there was also some deferred work you've got pushed out you know you've heard and seen all the things about whether on this and now the reality is that was deferred work that we've really picked up on as well.
Going into this quarter. So it's kind of a combination of factors, but we're confident that our share position were pretty much hold them holding firm. Yeah. I would just I would just echo that and say that kind of a read through with the Gypsum Association data, which obviously has a lot of noise in it.
We actually think we might have seen some some some positive movement on share.
So we're pretty positive about that.
Okay, Okay, great. Thanks for that.
And then looking at your Greenfield you guys opened four during the quarter seems like you guys are picking up that activity a little bit over the past year.
Could you just walk us through the economics of opening a new branch and kind of the timeline of revenues and cash flows until.
Breakeven and performing in line with no more established branches.
Yes, so in terms of Greenfields, we still think that they that the six to eight guy is a is a generally good guide we did have eight this year.
Yes, I think it's reasonable to expect that in 20, we'll have.
That number.
In terms of the economics of it.
Got it so fairly nominal capital investment.
There is a period of of ramp, let's say 12 to 24 months.
Okay is there any way, we can think about kind of the revenue ramp and how long it takes to get.
A greenfield branch to kind of the average overall branch level.
Okay.
Probably 24, maybe is 24 months a little bit over 24, I mean, the reality is is that most of these greenfields as you know we've talked about before driven or.
They are extensions of existing existing platforms, when we might shift X percent of volume from an existing operation to a greenfield site I would say that it's a minimal amount of capital investment as you are probably good get to a normalized run rate of a couple of years, maybe two and a half years get it on a full run rate basis as a as a standard branch so to speak.
Okay could you also in the near term you're picking up logistical benefits because of obviously opening up a new location or not trans shipping are going long distances and that kind of thing.
Okay. Thank you.
Thank you there are no further questions at this time I would like to turn the call back over to Mr. Callahan for any closing remarks.
Thank you.
Well. Thank you all for joining us today again, I really appreciated working with many of you since our IPO in 2016 and I. Thank all of our shareholders for their continued support of Gms I wish John on the Gms team all the best in the future and I look forward to seeing them bring gms to its next phase of growth and success. Thanks, very much for being with us today.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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