Q4 2019 Earnings Call
Good morning, and thank you for standing by you weren't joining Bmcs fourth quarter 2019 earnings Conference call. This call is being recorded today Thursday February 27 2020.
Mike on the East Senior Vice President of strategy and Investor Relations for B M. State will now provide the company's opening remarks.
Thank you Safi.
Good morning, and welcome to our 2019 fourth quarter and full year earnings call.
After my opening statement they blend in our Chief Executive Officer.
And Jim Major our Chief Financial Officer will discuss our 2019 accomplishments and our fourth quarter and full year results.
We will also discuss our 2020 priorities and certain first quarter and full year guidance.
In addition to our prepared remarks, a slide deck is available on our website at <unk> IR dot build with BMC Dot com.
This is also where you can find todays press release, which was issued earlier this morning.
So the results discussed during this call will include GAAP and non-GAAP results adjusted for certain items.
We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures.
A reconciliation of these non-GAAP measures to the corresponding GAAP measures and the discussion of why we believe they are useful to investors.
Found at the back of the press release and in the slide presentation.
Our remarks in the press release Powerpoint presentation and on this call.
Same forward looking in cautionary statements within the median on the private Securities Litigation Reform Act.
And projections of future result.
Please review the forward looking statements section in today's press release and in our SEC filings for various factors that could cause our actual results to differ material away from forward looking statements and projections.
With that I'll now turn the call over to Dave. Thanks, Mike Good morning, everyone and thank you for joining us.
I'd like to provide an overview of our performance in 2019.
Briefly discuss our full year financial results and provide an update on where we stand on our four strategic pillars.
Jim will dive into the fourth quarter financial results and our 2020 outlook.
And then I'll return to wrap up and take your questions.
2018 was the Europe significant accomplishment leveraging our strong culture in our approach to innovation and continuous improvement.
Aimed at enhancements in safety customer service pricing and productivity.
I'm proud of our team's execution of our strategic initiatives during the year, especially in the face of significant commodity deflation.
We continue to invest in innovation to provide meaningful solutions to our customers.
Our ready frame offering continues to show great strength.
In a long runway of growth as we work directly with our builder customers to discover and develop new ways to provide value in the building process.
In fact, the number of homes built with ready for a more up by 33% in 2019.
We also expanded our trust and nowhere capacity and capabilities through investment in automation and more efficient equipment.
We're adding capacity to markets that need it.
And we are delivering double digit productivity as measured by board feet per hour work.
Where we have made these investments.
Because of our success, we will continue to make investments in these areas in 2020.
At the same time, we continued to focus on strategic tuck in acquisitions.
That enhance our geographic presence and capability.
Last year, we completed six acquisitions totaling approximately $275 million an annualized revenues.
I also want to welcome to nearly 200, new associates from the Ford lumber in Dallas, The BMC family.
Turning to our 2019 full year results net sales for the year were $3.6 billion.
So 1.5% decrease compared to 2018 reflects commodity price deflation, which we estimate as estimate impacted our topline by 7.5%.
However, and importantly, we did see an increase in net sales of 3.9% from recent acquisitions.
3.1% from core organic growth.
Partially offsetting the commodity deflation impact.
One important item to note in 2019, our millwork doors and Windows segment was larger than our lumber and sheet good segment and exceeded $1 billion in total sales for the first time since our merger with stock supply in 2015.
I was quite pleased with our 3.1% organic growth for 2019.
Which continued to outperform single family starts in our markets, which were down by 2.4%.
Importantly.
Our Q4 organic volume growth was the strongest of the year at 3.9%.
So we exited 2019 with very strong momentum.
Share gains in our value added product categories were even stronger and led to 4.6% organic growth and structural components.
And 6% organic growth in millwork doors and windows.
We were able to grow our gross profit dollars, despite the 7.5% commodity price deflation.
Our gross profit grew 4.6% in 2019 to a record $951.3 million.
And our gross margin was up 150 basis points to 26.2%.
Versus 24.7% for full year 2018.
Adjusted EBITDA declined 2.4% to $259.4 million due primarily to impacts from commodity price deflation.
Now, let me take a minute to give a brief update on each of our four strategic pillars as they remain the key focus areas to drive our growth.
First pillar one.
To organically grow our value added products services and higher margins segments.
We had strong mid single digit organic growth and our components and newer categories, which outpaced the single family starts in many of our markets and reflected another quarter of share gains.
In 2020, we believe we will have another year of strong organic growth in both our components and more categories.
As mentioned, we experienced the strong year with our ready frame, how volume and we expect to have another strong year in 2020, with our ready frame innovation delivering strong double digit growth once again.
We're also continuing to make investments in manufacturing process automation.
We currently have three automated trust facilities in Atlanta, Austin, and Salt Lake City.
We are upgrading to a more fully automated solutions that encompasses the lumber pooling cutting and marketing stages of the process, while significantly reducing the labor needed to manufacture trusses.
We have to automated trust facilities under development in Seattle, and Charlotte, which should be up and running later this year.
We will continue to make these high return short payback investments in the appropriate markets across our footprint.
Pillar two.
Drive efficiencies and enable outstanding customer service through the BMC operating system and our operational excellence initiatives.
These efforts contributed approximately $15.2 million in operating income benefits during 2019.
We also significantly improved our customer service levels as indicated by our higher on time and handful or OTA, if results, which improved by 190 basis points.
By improving this metric we provided our customers additional value, enabling them to reduce cycle times and increase their efficiency, while reducing their total cost.
As we continue to accelerate our focus on operational excellence improvements.
We anticipate our 2020 results to accelerate.
And we expect $16 million to $20 million and benefits.
Our third pillar is to build a high performance culture with additional training in incentives and to create an expectation of continuous improvement across the organization.
We continue to invest in our BMC leadership Academy, where we identify and develop our top talent throughout the organization.
Through the training Reoffer, our local leaders are improving their financial acumen communication skills pricing and customer service.
We plan to bring 150 associates through this important program in 2020.
We also plan to higher 50, additional trainees, which will continue to bolster our succession planning.
Through these enhanced learning and development programs, we continue to build our leadership capabilities within our sales and management teams.
In addition, we are continually looking at new and efficient ways to recruit new employees into the BMC family.
As well as retain our existing workforce.
Including an emphasis on recruitment of military veterans.
We're also continuing to make investments in programs and resources for our associates in support of our culture engagement in succession planning to ensure we have a deep talent bench throughout the organization.
And finally, our fourth pillar is to pursue strategic acquisitions to help us expand our geographic reach increase our capacity and enhance our value added offerings.
As we mentioned we completed six acquisitions in 2019, and we have a strong pipeline of acquisition candidates going into 2020.
I am extremely pleased with our 2019 results and I'd like to thank our associates for their focused execution during the year.
I'm excited about our momentum.
Looking ahead to 2020, we have underlying strengthen our core business segments.
Which coupled with our strategic acquisitions and record cash generation positions us well for 2020 in what we expect will be a year of solid revenue and earnings growth.
Before passing the call over to Jim as I've done on previous calls I'd like to highlight one of our many valued employees.
David Benacin began his career with BMC in 2004 and is an inventory control specialist in our la market.
He is described by his colleagues as one of the hardest working people. They know who is focused on safety and as well respected and trusted by not only customers, but fellow associates.
There are numerous examples of David going above and beyond.
But one that really sticks out highlights David's focus on safety.
A customer came into our thousand Oaks, California location to buy casing and baseboard from our stock inventory.
David called the material for the order.
When it went to load the moldings the customer pulled up in a pickup truck requesting it'd be loaded into the vehicles bit.
Because of the long material links David knew that the easy simple solution to stacking them was not going to be the safest solution.
David was clearly focused on safety, which is a core value here at Vmc.
He uses engineering school skills by grabbing an old palette and banded the moldings to the structure to offer support.
He then shrink wrap the bundle end to end, so nothing with slide out and Mark the extended load with a red flag.
Thank you David for your focus on safety and exceeding our customers' expectations.
As a result of David and thousands of our associates focus on safety.
We reduced our recordable injury injury rates by 13.5% in 2019.
We still have plenty of work to do in this area, but I'm very pleased with our results last year.
With that I'll turn the call over to Jim for a detailed look at our fourth quarter results in our 2020 outlook.
Thanks, Dave.
Echo daves confidence in our business strategies and underlying momentum.
Despite the commodity deflationary headwinds we experienced during last year, our team overcame several obstacles and delivered solid gross profit dollar growth.
I'd like to discuss our fourth quarter results, which came in near the high end of our previous EBITDA outlook.
We saw strong core organic growth in our value added product categories, and increasing benefit from our acquisition program.
We estimate that net sales increased 6.1% from acquisitions and 3.9% from core organic growth.
While total net sales increased 3.6% to $890.6 million, we estimate that net sales decreased 5.9% from commodity related price deflation and 0.5% due to the disposition of the Coleman forward business in November of 2018.
Sales of our millwork doors and Windows segment led our sales growth for the quarter when an increase of 21.2%.
This is an area, where we continue to be encouraged by the strong growth and enthusiasm in our markets. We continue to gain share and see strong demand for our value added products.
Our millwork doors and windows accelerated during the quarter in large part due to our continued strength in our multifamily business and our acquisitions completed this year.
Core organic growth from this category was a strong 10.5%.
Total net sales and structural components rose, 0.5%, including the impact of commodity related price deflation.
While core organic growth of this value added product category totaled 3.4% as we continued to see expanded use of prefabricated solutions.
As Dave mentioned, our volume and ready frame houses is growing significantly.
Option rates continued to increase each year and we expect another double digit volume growth year for our ready frame business in 2020.
Moving onto our gross profit for the quarter. Despite the commodity related deflationary impacts on our topline gross profit increased 2.4% to $234.6 million, while gross margin was 26.3%.
The decrease in gross margin was primarily due to a decrease in gross margin within the lumber and lumber sheet goods.
And structural components product categories, which benefited from unusually high commodity price related gross margins in the fourth quarter of 2018.
Remember that inflation and deflation will impact our gross margins periodically throughout any specific quarter.
It's important to remember that we are focused on growing gross profit dollars, which we believe translates into growing EBITDA dollars and margin.
Clearly, we expect to grow gross profit and EBITDA dollars this year.
As for DNA expenses during the fourth quarter increased $12.9 million to $187 million approximately $11.6 million at the increases related to expenses at our recently acquired companies, while $1.9 million of the increases related to health care costs, excluding SGN a increases.
Related to acquisition and health care costs, our fourth quarter SGN, a would've been down compared to the same period last year.
For the quarter SDMA as a percentage of sales was 21% compared to 20.2% a year ago.
Net income decreased by $7.9 million to $20.2 million adjusted EPS was 37 cents per diluted share compared to 48 cents a year ago.
Adjusted EBITDA of $57 million declined $8.5 million versus a year ago and adjusted EBITDA margin in the quarter was down 120 basis points, the 6.4%, but for the full year was flat at 7.2%.
Another highlight within our 2019 results was our record full year operating cash flow, which increased approximately 17% to $245.9 million for the full year.
Our strong operating cash flow helped fuel strategic investments and automation enhanced equipment and operations and tuck in acquisitions to increase our value added offerings.
As a result of this improvement we ended the year with $165.5 billion of cash on hand, and $527.8 million in total liquidity, which includes availability under our revolver.
As of year end, our net debt was 0.7 times, our 2019, adjusted EBITDA, which we believe places our balance sheet, among the strongest and most flexible in the industry.
It also allows us the capability to flex the balance sheet, if a larger M&A opportunity presented itself.
As Dave mentioned, we acquired six companies in 2019 with approximately $275 million and annualized sales.
Roughly half of that annualized sales volume contributed to our 2019 sales growth, while the remainder will contribute to our 2020 sales growth.
From a cash flow perspective, we paid approximately $133 million for the six companies.
Capital expenditures during the fourth quarter totaled $21.8 million and $89.4 million for the full year.
Looking ahead to 2020, we see numerous high return opportunities to reinvest in our business, particularly around our value added products and in technology, which means that our level of capex spend is likely to be in the range of $80 million for $100 million, which is in the same neighborhood as our 2019 spend.
We're also excited about our investments in automation the combination of labor productivity and additional production capacity from these investments can drive a payback period that is as little as three to four years and clearly exceeds our hurdle rate over the longer term, we continue to target approximately one and a half the 2.5% of sales in total cap.
Opex annually.
Given the level of investment in our capital asset and acquisition programs. This year, we did not complete any share repurchases during the fourth quarter.
As of today, we have $55.7 million of capacity remaining under our repurchase authorization, which our board of directors recently extended until November of 2020.
We will monitor all of our financial programs throughout 2020 in determining where we can efficiently and economically deploy capital.
Looking ahead, we believe the macro backdrop remains very constructive and strong as we start 2020.
Builders generally entered the year with healthy construction backlogs and we believe we are well positioned to grow our top and bottom line results for this year.
For 2020, we expect net sales to grow to a range of to 3.85 billion to $4 billion or approximately 6% the 10% over our 2019 net sales of $3.63 billion.
We also expect adjusted EBITDA growth, resulting in a range of 280 million to $295 million or approximately 8% to 14% over our 2019 adjusted EBITDA of $259.4 million.
This outlook is based on several assumptions, including the following.
Single family starts growth across our geographies in the mid single digits, but also a continuation in the recent trend of smaller average home sizes.
Trying to predict lumber pricing can be quite challenging and especially given the price fluctuations we have experienced over the last several years. However, our 2020 net sales forecast range is based on the assumption that the random lengths dimensional lumber index will trade in a range of 360 $400 as compared to the 2019.
Full year average of $356.
And that we will also see similar increases in the structural panel index.
While the dimensional lumber index has recently traded above $400 I would remind you that seasonal increases as we move into the spring building season, our common and there's a lag the commodity inflation, which typically is 45 to 60 days.
As a result, we do not expect meaningful inflationary benefits to our net sales in the first quarter, but could see increasing benefits in the second quarter and beyond.
Given the tough comparison to 2019, where we experienced record high gross margin percentages and our commodity categories, particularly in the first half of the year. We expect gross margin for the full year to be in the 25 and a half the 26% range.
We believe our productivity initiatives and pricing activity should result in solid gross margins for the year.
We expect full year 2020 interest expense to be in the range of $23 million to $24 million, our effective tax rate to be in the range of 24% to 25%.
Depreciation and amortization expenses to be in the range of 78 million to $83 million.
Turning to the first quarter of this year the months of January and February to date are tracking in line with our expectations from a topline perspective.
We should see solid topline growth in line with our full year sales growth outlook of 6% to 10% and driven by organic value added product growth and acquisitions. We expect our gross margins will be lower by approximately 50 to 75 basis points in the first quarter of 2020 versus 26.2% in.
First quarter of 2019.
The decline is due to the tough comparison, we experienced in the first quarter of 2019 as gross margins on commodity products were at near record levels.
We expect first quarter adjusted EBITDA in the range of $49 million to $53 million.
While this represents a modest year over year declined in EBITDA, our first quarter outlook is approximately 17% to 18% of our full year outlook and in line with the more typical seasonal progression of results, which we experienced in 2016 2017 and 2018.
The momentum we have built in 2019 combined with the optimism expressed by the builder community provides me with great confidence as we head into 2001.
Plus with most of the impact from commodity price deflation behind us the improved starts outlook and are expected share gains should help us better leverage expenses this year.
Our team is highly motivated to continue delivering value to our customers. I believe we are poised for solid growth. This year 2020 is off to a solid start and we have strong momentum in driving the financial and operational improvements that are within our control. So with that let me turn the call back over to Dave. Thanks, Jim.
Im now nearly 18 months into my tenure at BMC with my first full year on the books.
I couldn't be more excited about our company associates customers and our outlook for growth heading into 2020.
I am confident we have the REIT strategies to grow this business for many years to come in our runway of growth is long.
Staying focused on accelerating execution of all of our strategic pillars, including making strategic organic investments to enhance our value added products and services.
As well as growing our most profitable customer categories remains among our top priorities.
We are gaining share in our value added products reinforcing our position as the market leader in innovation and value added solutions driving both financial and operational improvements throughout the business.
While identifying strategic tuck in acquisitions to enhance our market positions with better capabilities higher margin products and an enhanced customer mix.
2020 will be a year of exciting growth for our company.
Our strong pipeline of M&A targets, coupled with our accelerating organic growth gives me the confidence that this year in the next several years will be a period of solid top and bottom line growth.
I remain excited and bullish for our future.
Thanks again for joining us today Saatchi, please lead us into QNX.
Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation County will indicate your line is in the question Q you made fresh start to if you would like to remove your question from the Q.
For those using speaker equipment and may be necessary to pick up your handset for question Mr. Keith.
One moment, please wildly poster questions.
Just first question is from Matthew Bouley of Barclays. Please go ahead.
Good morning, Thanks for taking my questions and congrats on the results.
So maybe a question on organic volumes.
Sounded like Jim you're mentioning January and February to date sort of inline with the full year, 6% to 10%.
Presumably I guess core organic volumes might be in the mid single digits. There assuming there's still some acquisition contribution and I guess I'm not quite sure where you're assuming around commodity inflation or what you're seeing around commodity inflation in there.
So maybe that's part one and the question just kind of how thats breaking out and really the broader question is as.
Housing starts have continued to accelerate is there a scenario where maybe in the first half of the year, we should be seeing kind of a greater acceleration on the volume side or is that kind of underlying pace of construction a lot more even for you guys such that the volume growth ends up being a lot more constant. Thank you.
Sure I think we added break down Q1, a little bit I think from an inflation deflation standpoint.
As we said earlier, we're pretty much lapped the deflation. So I think it'll be very nominal impact could be a little bit of a plus a little bit of a minus but generally be a very nominal impact relative to what we've seen it in relative quarters, our recent quarters.
On the acquisition side, we do now start to lap some of the Charlotte acquisitions that we did in January and February of last year, so that.
The acquisition impact at least from completed acquisitions will be a little bit.
Little bit lower than what you saw in Q4 and that does leave you kind of with mid single digit to.
Core organic growth, if you will across the business.
As far as acceleration obviously.
As everybody can see the starts outlook the order books.
The pipeline Thats out there for folks who appears very very healthy these days and so as long as that.
Continues to follow through into the spring selling season for homebuilders them.
Certainly the outlook for App for organic growth over the course of the year with continued to be good and certainly could see some acceleration.
Okay that thats perfect. Thank you for that detail.
And then secondly, the the incremental margin guidance, it looks like around 9% to 10%.
A bit below normal, but obviously there is some moving pieces your gross margins normalizing.
Maybe still semester DNA from acquisitions, but then I guess, you've also got the 16 to 20 million and operational savings are those kind of the three big buckets to be aware of is there anything else on the investment side or or.
Otherwise SGN a that.
Impacting that and incremental margin expectation.
Yes, no big investments and Ash DNA.
Certainly I think you captured as well in terms of in terms of the different moving pieces acquisitions.
Because of the fixed costs you bring on with additional locations that tend to have incremental margins in the mid to high single digits.
The pressure on the gross margin percentage just from some normalizing.
Impact within commodities are a bit of a headwind.
But we expected to more than offset that with some improvements in the DNA percentage as a percent of sales such that EBITDA margins overall or are still stable to up some.
Okay got it I'll leave it there and congrats again thank you.
Thank you.
The next question is from train Morrish Evercore ISI. Please go ahead.
Hey, Thanks for the time guys. The first question I wanted to ask is on the gross margin histone given the change in the gross margin in lumber in sheet goods and structural components. I was wondering if you could give that to us.
Time.
I'm, sorry, do you mind repeating that.
The change in gross margin in lumber in sheet goods and held structural components.
Yes.
Asking just within Q4, yeah within Q4 year for you, it's something that you'd given I think at least over the last several quarters is now yes. So within Q4 year over year, we were down about 260 basis points within lumber in lumber sheet goods and around 300 basis points within structural components and.
Fundamentally that's just as the market has.
It did start to increase a little bit on the cost side.
Here in Q4.
As we said in the call others that have allied there in terms of how that flows through the PNM on pricing 45 to 60 days.
And cost some of that normalization in gross margin here in Q4 will have a similar difficult comparison in Q1 as soon as we mentioned earlier.
With that now once you get past Q1, that's when we should fully lapped some of those unusual prior year comparisons and.
See a little more normal progression, if you will have improvement on a year over year basis.
Okay got it and then you're asking say SDN a spend in acquisitions seemed a bit high relative to what it had been running at specifically in the quarter is about as soon as about 22% of your acquisition spend compared to 16, 17% over the last several quarters.
I am wondering was that because you put a little bit more money into those acquisitions or or does does some things you acquired late in the year like Colorado fasteners are or de Ford lumber have a higher s. unit cost structure.
Yes, I'd say, it's more the latter but a owners to all of the latter railway, but but also has a higher gross margin percentage.
To forward being very custom build oriented heritage would be another one I'd call out being very millwork oriented they generally have higher higher gross margin percentages, but then to you give a little bit of that back in terms of a little higher cost to serve on the SGN a line just like in our base business, yes, it's no different than than our base business when you're moving into those.
More custom builder or millwork oriented.
Lines of business.
Got it thank you very much.
Thank you.
The next question is from Sri eight grams of Stephens. Please go ahead.
Hi.
Thanks, Trey Grooms. Your line is open sorry about that I was on me.
Well good morning, and congrats on a great finished the year.
Thanks, Greg.
For me I guess given that the guidance.
Given Jim on for EBITDA, and then kind of looking at some of the other puts and takes here.
How should we be thinking about cash flow, meaning you guys put up a very impressive cash flow.
Generation in 19.
Understanding some of the deflation that that's out there on the commodity may have been a little bit of a tailwind on working capital, but if you kind of look into 20, just based on kind of what you've outlined here.
What are your thoughts around.
Cash flow for the year.
Yes, as you said cash flow in 2019, certainly benefited from the fact that you started the year with some higher commodity prices and investments in may be ended the year with a little bit lower average cost basis.
But within that year, even even aside from those inflationary changes or deflationary changes, we still improved our overall cash conversion days by five or six days.
And then going into 2020, obviously, what will as always be impacted a.
A little bit good or bad in dollar terms, but based on what the lumber market does over the course of the year, but.
Certainly our goal is to continue to make improvements on sort of a total working capital days basis of at least a couple more data.
Well, so I guess would that said are there any other.
I guess cash things, we should be thinking about as far as things that could impact the cash flow as we look through the year I mean, we can kind of maybe back through.
Your EBITDA in kind of what you just mentioned on.
Working capital to maybe trying to get it certainly nothing unusual as you said I mean, it they fundamentally balls that EBITDA, certainly our interest which should be stable. There in that 23 to 24 million range tax rates.
Stable and so.
Capex as we said will be 80 to 100 million and.
And so yes really the only the only variable there should be.
Just sort of working capital investment.
Obviously, it faster sales growth the more we got to invest in working capital that that investment we're happy to make.
Okay and.
Millwork in the quarter kind of going back to that.
The millwork strength was pretty impressive also multi multifamily.
That was that more.
Acquisition, driven or was there something.
Going on with.
Organic business, there I'm, sorry, if I missed the comment sure, yes or no.
In the in the fourth quarter, certainly the 21% overall growth about half of that was acquisitions primarily heritage.
Barefoot back in January and.
The forward has a nice mix of network business as well, but thats still left about 10.5% organic growth our core organic growth in that category, which was led by multifamily we've seen a little bit better pickup and remodeling as well.
You know the single family businesses is solid as well, but but as we said before.
With the mix towards smaller homes that thats a bit of a headwind for millwork within a single family segment, but we didnt actually job growing growing and all those wise tree, we've been outperforming in multifamily for few quarters now and as you've heard me say, we've got a very focused approach to that we have a very strong team and I got a lot of confidence that we'll continue to grow.
There as well.
Alright, Thanks for that and then last for me is.
On the some of the operational excellence initiatives that you guys have there I.
Thank you you mentioned something in the ballpark of $15 million.
Impact.
For for 19, and now you're looking at another 16 to 20 million I think in and 20. So I know, it's too early to be talking about 21, but what kind of tail do you guys see this having as we kind of look out over the next couple of years would that specific pillar strategic.
Pillar of.
With that you're seeing.
Good question and we've been working at this for a couple of years now and the first time, we quantified the benefit was second half of last year, and we kind of hit the higher and I think we were guiding around $12 million to $15 million you saw fit that upper end I think as you heard me say before we're in the second or third.
Turning of this game, we're ramping up or capabilities, we're quantifying benefits.
And as expected, we're ramping up our expectation for 2020, and I would expect that momentum to continue throughout the year.
And I, just also remind everybody not all of that $16 million to $20 million assessed DNA right. A lot of the initiatives are targeting manufacturing labor and and other things that help the benefit.
Our cost of sales got it so still still fairly early days.
This in this process it sounds like.
So I'm thinking about it.
Great. Thank you for taking my questions in and good luck on on the when Keith.
Thanks, a lot thanks.
The next question is from Keith Hughes of Suntrust Robinson Humphrey. Please go ahead.
Thank you you had talked about I think earlier, what ready frame was in terms of volume what would the actual revenues from ready frame in the quarter I know, there's more lumber impacted.
Bear with me on just one second but my hands on that one.
Let me ask another question why you're looking at our.
Thanks.
$53 million beef.
Pricing.
Yes.
And yes total revenue dollars for the year, we ended up about flattish, but again the deflation in lumber.
Significantly impacts that on a year over year basis, as we said that what was accurately house counters that units what was the units for the year. However, you want to measure that what was the index, which were a little over 20000 units.
That were built with with ready Frank as you think about it we're approaching 2% of starts with ready frame and as you've heard us say here for a while we're gaining momentum 33% increase in home penetration and the momentum content.
And so that 20000 starts what kind of growth without a year over year.
Well over 30%.
30%, Okay Yep.
And I guess.
Second question the.
Adjusted EBITDA for the first quarter and kind of gross margin view.
It looks like in that scenario, you have flattish to down SGN a leverage.
As you progress for the year is SJ going to be a source of margin gain since look pretty good year is that scenario you can get some gains from yes, thats our expectation obviously, the gross margin percentage is a bit of a headwind, but but we expect to offset that or even a little more than offset that with SGN AG percentage improvements or SGN, 80%.
These sales.
Do you think they'll grow during the year.
I'm sorry.
You say grow do you think you mean, the improvements will accelerate to leverage the leverage will grow during the year. It should I mean, I'm part of that to assist the farther away we get from deflation as as everybody probably recall is right. When you got deflation that it helps the gross margin percentage in hearts, the EPS DNA percentage.
And when you start day.
Lap at and have the potential for some inflation in commodities then it hurts the gross margin percentage a bit but is there an accelerant to our improvements on the SGN eight percentage.
Okay. Thank you.
Yeah.
The next question is from Stephen Ramsey of Thompson Research Group. Please go ahead.
Good morning.
Another strong quarter of growth multifamily commercial.
About six straight quarters of strong growth.
How much of this is the market coming to you how much of that is the internal focus and strategies that you discussed and with this particular end market.
Would it be better.
Dan the company.
Projected growth of 6% to 10% or would it be expected to be below that number.
I think our momentum continues I think a lot of our performance is based on the strength of our team in the focus that we've had across the country. As you guys know up those those starts can be a little choppy from time to time, but.
The thing I continue to keep in mind, though as we've been growing at double digits.
For several quarters now and that's always going to be a tough comparison as we go forward, but our backlogs remain strong and our team continues to stay focused.
And multifamily starts overall were up.
Pretty nicely in 2019, there's a much longer lag between those starts.
So when we ship product and sell that starts it certainly sets us up well.
And we see good backlogs here at least through the first half of the here.
Excellent and a single family.
Starts and continue to eat out than you come into that process with your products is is pricing holding up well or is the competitive environment.
Increasing and I guess.
Just more broadly, but then secondly.
Is there increased competition on the value added automation side of things as.
As more and more.
Players play in that particular product categories that.
I think we operate in a competitive environment, all the time and so I don't necessarily see that changing at the moment, but I will say, we're we're off of quite a nice runway here of taking share.
Really geographically across our footprint, particularly in our value added areas and people obviously respond to that.
What happens but.
Given our continued focus in the relationships, we have with our customers in the strength of our total offering not just in any one product category.
I think things will continue to grow and a profitable way for us and we'll continue to fight it out with our competitors in the marketplace everyday ignite as I think you made a comment that more and more competitors, earning the marketplace. I mean, we certainly don't see any meaningful number of new entrants or whatnot.
Certainly the competitive sets pretty pretty stable in terms of who who were slugging it out against.
Excellent thanks for the color.
Sure sure.
The next question is from Mike Dahl of RBC capital markets. Please go ahead.
Good morning, Thanks for taking my questions.
First question just wanted that morning.
To circle back on structural so I guess if we.
If we back out ready frame.
Non ready for infrastructural volumes seem a little bit soft in the fourth quarter can you can you talk about just the dynamics at play.
In the quarter and then within your guide how to think about.
Beyond the ready Creighton guidance that you gave how to think about the balance of structural.
Hi, just say in the fourth quarter and that's a great observation not concerned about that performance, we did experience a little bit of weather across our western geographies in the fourth quarter.
Particularly in the inner mountain States, where that if you go back a year back in Q4 of 18, we had a relatively dry fourth quarter and Mike as you'll recall.
Our ready frame offering as well as far as our structural components are more mature in those western geographies across the company. So when you have a weather impact or are those sort of things with tends to the impact short term, but as you heard Jim say.
We flip the calendar here.
Yeah, we feel like we've got solid growth in the quarter here to start for Q1, and we're about where we expected to be at this point, so I'm not I'm not generally concerned about any of that.
Okay, and I guess just to be clear within 2020, guys should we expect that structural grows above.
The the overall core mid single digit.
Weve volume that seems to be implied.
We expect to continue to take share in our in our component area yes.
Thanks, and then with respect to inflation tighten thanks for.
All the color here around the moving pieces and the timing.
Appreciate that no one's got the best Crystal ball, but just curious with the with the guide on lumber and.
Also if we think about Oh SB.
Are you having conversations with.
With the mills or how would you characterize those those conversations that you're you're hearing in terms of just what to expect because clearly yes. There is a seasonal component, but there was also a lot of capacity that came offline last year and some analysts.
Last side of things certainly.
Would have the viewpoint that these lumber prices. So SB prices will potentially continue to move higher. So so I guess what are your conversations been like there and if we think about then the impact on the guidance would that effectively be higher sales higher EBITDA dollars, but lower lower end.
The gross margin percentage range.
Yes, I mean, as I think I've, probably said many calls previously the.
I don't like to predict lumber prices, but certainly the 360 to 400 as sort of the underlying assumption and would emphasize that it's an assumption not a prediction.
Having said that as you noted there has been a good bit of capacity that's come out of the market.
Similarly, now, let's be but also in dimensional lumber and clearly with the.
Strong level of current demand and anticipated demand clearly ourselves and I'm sure most folks in our industry are out there stocking up for what they expect to be a good strong spring season. So.
Thats certainly led this some pretty sizable increases here in recent weeks.
Obviously, whether that sustains at the same level or even goes higher is is yet to be determined but.
The supply demand dynamics are certainly very strong cross to see some level of inflation year over year.
As we go through 2020.
Got it and less last one from me I guess kind of the book of Tory question. These days I think you're fairly.
Well protected from a supply chain standpoint, but just any any comments on on Corona virus and whether there are any.
Anything any products are areas that you're watching from a supply chain standpoint.
Well first of all our Hearts go out to those that have been affected by the buyers for sure.
So as the tragedy all across the several countries here, but by and large obviously, there's some potential supply chain effects for those things come out of China in particular that are manufactured there.
Thank you Thats, a very small percentage, we're working closely with our suppliers don't anticipate any major supply chain disruptions at this point, but certainly we're going to stay close to it.
Okay. Thanks.
Okay.
The next question is from Rueben Garner as the benchmarks company. Please go ahead.
Thank you good morning, everybody.
Good morning.
So on the gross margin front, the 25.5% to 26% Guy for this year is that.
It's the right way to think about that that's kind of your your new sustainable.
Run rate known you had a little bit of the benefit from lumber price movement last year. It's it's still you're still maybe a 100 to 200 basis points above where you are running.
You know a few years ago is the step up just all the the mix improvement in the cost.
Efficiencies that you've had and this is kind of the new normal.
Yes, I think Thats what were the right way to think about it and we have done a lot of work to improve the mix and continue to do that we've also put a lot of process discipline in place and how we think about pricing.
The conversations we have been Havent here. This morning on the phone and reactions to changes in what's going on in lumber and OSB markets and we feel really good about the fact that we have lifted or capability here over the last couple of years with our focused efforts.
Yes, good pipe describe it less as a new normal more as just sort of a normalized baseline right that we'll continue to build off of as we as we continue to improve the mix and obviously get more efficient.
In our.
Processes around pricing and manufacturing et cetera, So and I. Appreciate you pointed out that even at 25 and a half the 26, it's a it's a few hundred basis points higher than it was back in.
2015, 16, when we last saw similar levels of lumber price and as you said that is because of how much we've moved the next year.
The last several years.
Relative to where we where when we first at the merger back in 2015.
Yes, thanks for that.
Very helpful and then.
Let's see on so ignoring the commodity or the the wood product side for a second the other products that you sell I know doors the door price increases have been.
Highly publicized or what are your thoughts on on I guess those increases and then any other product categories are you seeing anything jump out.
Whether it be windows roofing dry well I know you don't do a comment some of those but just anything that jumps out at you in the broader space from a inflation or deflation standpoint, I'd say generally there's some some upward pressure, but nothing significant outside of doors. That's the big one right now and I think overall generally those price increases are going to.
Stick in the market from what what we're seeing early.
Great. Thanks, you guys. Congrats from 2019 and good luck this year.
Richard.
The next question is from currently Inger as D.A. Davidson. Please go ahead.
Great. Good morning, everyone and thanks for taking my questions.
Yeah.
Just wanted to start off on the structural components side could you just talk about what you're seeing from a capacity utilization perspective across your markets does it feel pretty tight.
And if so I mean do you see an opportunity to kind of leverage your investments to win a greater share of your customers wallets.
Sure of other product categories.
Yes, I would say generally we have the capacity to supply our customers, but what we've had that eye towards automation.
For the last couple of years as you know to gain capacity to improve our productivity in the markets as you've seen us make those investments in our exactly where we needed to make them. Because we are getting increased traction from our customers and may have had some capacity constraints on some of those local markets.
And again, our components businesses more mature in the west and less mature in the east. So we expect continued growth in ramping that up overtime and as you heard me say in my prepared remarks, we will continue to invest appropriately in both capacity and automation of our manufacturing facilities to stay ahead of the growth curve.
Right. Okay. That's helpful color and I guess, just sticking with that point I mean, it sounds like.
Do you feel like you have a nice runway for organic expansion on the component side, but could you talk about how you're thinking about sort of the build versus buy decision.
By the route you would most likely take if you want to expand in two markets don't currently have much with footprint in.
Yes, I think.
First of all I love, our footprint right, it's where the starts or its were population growth is and all that and so what you've seen us through systemically here and we will continue to do as the invest in our existing geographies and also through acquisitions. Those six acquisitions you saw us make last year, we're all in our existing footprint and they were all aimed at.
Typically our value added areas and strengthen our position, neither millwork capabilities and or the component side of the business and so there's still plenty of opportunities to do that and obviously, we will invest in those markets, where we have.
First the combination of good market position today, and and solid share, but also with an eye towards the future of where we see additional growth.
And what you've heard me say before and I am still going to think this way for a long time as you won't see us go into a new geography that we're not in by making a small acquisition.
That's not the right way to think about it that local scale really matters for us.
I think thats, the winning play and and so that's why we continue invest where we have the strength in the market position the customer relationships today.
Okay that makes sense and then just lastly on the Capex guide.
And you called out that's sort of net of asset sale proceeds does that relate to.
I thought I saw something around an exit from the Arkansas market and if theres any color around that you could provide that would be very.
Very helpful.
Yes.
I guess, there somewhat related I guess two points number one we did exit our location in Arkansas in the fourth quarter of the year I was at least facility.
And so theres not any real estate that would be disposed of in that scenario and most of the equipment fleet whatnot was just redeployed into other locations.
But having said that as we retire trucks or do different things you do get a little bit of.
Little bit of proceeds over the course of the year from a from those types of normal disposals, and we just turnaround and reinvest that right into a replacement and other other capital needs.
Okay. Thanks for that Jim.
All right I'll turn it over good luck in the first quarter appreciated.
The next question is from Ryan Gilbert as DG Keith. Please go ahead.
Hey, Thanks, guys good morning.
First question on structural components.
With the margin down 300 basis points is that a such as all a function of lumber or is it knows there.
I guess some element of market share gains that.
Thats kind of showing up in in the gross margin decline.
Yeah, I'd say, it's primarily a lumber related and again against just a very extraordinary comparable in the prior year when.
When costs were abnormally low relative to some of the pricing commitments that had been out there from from earlier in the year.
The margins we're at now are still.
Very strong and very healthy.
Just not quite as healthy as they were a year ago.
Got it.
And then second question on ready frame.
Targeting double digit growth in 2020 can you just talked about the markets that you expect to lead this growth rate.
Maybe specifically in the west have you seen demand sort of ready frame pick up in them.
Sure if you're able to to just talk about increasing penetration in the southeastern markets, where you've introduced ready Craig.
Yes, so I would say in the west to your point and when we have a little bit of weather like I mentioned earlier and that that effect that I described around structural components also impacted ready frame.
But I'm really excited about ready frame and even in the west where we have very strong market share we continued to see.
Customers coming to us.
And wanting that offering and then we're less penetrated on the legacy stock footprint in the east.
We talked a lot last year about.
The growth that we're seeing in places like Texas in the southeast here in the mid Atlantic region were I would say were grossly under penetrated with the offering and we're seeing our customers turn an eye towards that and and so I'm very excited I'm very bullish im highly confident in that double digit.
Growth that we talked about here on the call and we'll continue to penetrate all our markets because.
We believe ready frame is the right solution for our customers at the right time help them drive efficiency reduce waste improves safety the job site.
And we're very bullish about the future and obviously with 33%.
Hi penetration last year, we've got great strength to build from this year.
Great. Thank you just one more quick one.
I believe you said first quarter revenue was tracking at the around the full year growth rate, 6% to 10% would that include the extra selling day that you should have in the first quarter 20 years that excluding the Sunday.
Now that that would include including extra selling days that will get your in March.
Yes.
Great. Thank you very much.
Yes.
The next question is from Jay Mccanless of Wedbush. Please go ahead.
Hey, good morning, everyone.
During I apologize, but I jumped on late could you all talked about what your expectations are for one Q again.
Are you asking if we did are you asking us to repeat it.
We did talk about it early on the call.
Okay.
So what are you guys looking for from one Q in terms of of sales and EBITDA.
Sure Yeah, we're looking for sales growth around 6% to 10% and EBITDA in the range of $49 million to $53 million.
And just on this front I know there's been a couple of questions about it but.
Have you all broken out what the ongoing SGN a from the six acquisitions were in 2019.
Maybe as a way to help us think about the right way to model as we move into 20.
I don't believe we have but you can probably go back to the quarterly bridges that we provide them.
And.
Pretty good sense.
And do you think there's opportunities to maybe bring the dollars down on that SG nine front this year from those acquisitions.
Not including any new ones that you might do in 20.
When we have acquired these businesses, we're not closing locations are going any footprint consolidation. So.
Certainly over time, there may be some.
Some productivity opportunities in SGN, a bit but for the most part we're looking to.
Get definite synergies on acquisitions more in sort of the revenue and the cost of goods launch.
Got it okay, great. Thanks for taking my questions sure Q.
We have reached the end of the question and answer session I will now turn the call over to Mike on the east for closing comments.
Thank you for excuse me. Thank you for participating on our call today, we look forward to presenting at the Evercore Conference in New York City next Wednesday have great day. Thank you.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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