Q3 2020 Earnings Call
Greetings and welcome to be Gms fiscal third quarter, two dozen of 20 <unk> earnings conference call.
Time, all participants are in a listen only mode brief question and answer session off all the formal presentation. If anyone should require operator systems. During the conference. Please press star Zero and your telephone Keypad. As reminder, this conference is being recorded it. It's now my pleasure to introduce your host this Leslie Kratcoski Vice President Investor Relations. Thank you you may begin.
Thanks, Michelle and good morning, and thank you for joining us for the Gms earnings Conference call for the third quarter fiscal 2020, I'm joined today by John Turner, President and CEO, Scott Beacon Chief Financial Officer. In addition to the press release issued this morning, we have posted presentation slides to accompany this call in the Investor section.
Our website, a gms dot com.
On today's call management's prepared remarks and answers. Your question may contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
<unk> looking statements addressed matters that are subject to risks and uncertainties many of which are beyond our control and may cause actual results to differ from those discussed today as a reminder, forward looking statements represent management's current estimates than expectation. The company assumes no obligation to update any forward looking statements in the future.
Listeners are encouraged to review the more detailed discussions relating to these forward looking statements contained in the company's filings with the FCC, including the risk factor section and the company's 10-K, another periodic report.
Today's presentation also includes a discussion of certain non-GAAP measures the definitions and reconciliations of these non-GAAP measures are provided in the press release and presentation slides.
Please note that references to this call on this call to third quarter fiscal 2020 relate to the quarter ended January 31st 2020.
Finally, once we begin the question and answer session of the call and the interest of time, we kindly request that you limit yourself to one question and one follow up with that I will now turn the call over to John Turner G. Thank.
Thank you absolutely.
Good morning, Thank you for joining us today I.
I will begin today's call with a review of our operating highlights and then turn it over to Scott to cover our financial results in more detail.
I'll, then conclude our prepared remarks before taking your questions.
Turning to slide three.
Our third quarter results demonstrate our teams momentum and effective execution against the backdrop I will continues to be a favorable market and we remain focused on our strategic priorities in order to capitalize on the growth opportunities in our industry.
Total net sales increased 5.2% driven by robust volume growth across all four of our product lines, including an almost 9% increase in wallboard volume.
This performance reflects solid demand conditions across our end markets in the U.S., where our total mat sales increased 5.9%, including a double digit increase in wallboard volume.
Partially offsetting the favorable U.S. volume growth was the continuation of a challenging pricing environment, notably in steel and to a lesser extent in wallboard along with some softness in Canada.
Organic net sales increased 3.8% with 4.8% organic growth in the U.S. driven by strong volumes reflective of favorable end market demand and the execution of our organic growth strategies focused on expanding share in our core products and growing penetration of our complimentary other product lines.
While our Canadian operations were adversely impacted by unusually severe winter weather, notably in Western Canada organic sales were down just 2% a meaningful improvement from a decline of approximately 8% in the first half of the fiscal year.
This coupled with forecast for increased housing starts and nonresidential construction over the next several years provides us with encouragement that the declines we've experienced in Canada, which have muted our consolidated sales and profitability growth for the past several quarters are beginning to be behind us.
We were pleased to report 90 basis points of gross margin expansion driven by favorable price cost dynamics as well as acquisition related purchasing synergies and mix.
As expected as DNA as a percentage of sales was higher again this quarter, primarily due to the continuation of the year over year price deflation just mentioned and other ongoing cost pressures. In addition, we continue to make investments to further grow sales leverage scale and drive profitability in the future.
Despite the challenges on the pricing in this DNA front, we generated a 5% increase in adjusted EBITDA to $62.7 million for the quarter and an adjusted EBITDA margin of 8.2%.
Related to our growth initiatives I'm very pleased to note that during the quarter. We continued to execute on the expansion of our platform through two new Greenfield locations and an acquisition.
In Austin, Texas is a second location will be focused on servicing in town commercial work expanding our footprint and operational capability in this high growth market.
Also our Greenfield opening in Cambridge, Ontario, along with our November acquisition of Rigney building supply and Kingston expands and complements our existing Ontario business and further expands our Canadian scale and market leadership.
Subsequent to the ended the quarter, we also announced the acquisition of trial trade supply Inc., which represents our entrance into Vermont.
Thereby increasing our coverage in the U.S. to 44 states and further bolstering our position in the important new England market.
We remain committed to disciplined expansion of our geographic footprint through accretive acquisitions and greenfield openings.
We continue to balance this with our debt reduction priorities on which we also made progress as a result of continued strong free cash flow generation, we reduced our net leverage to 3.3 times as of the ended the quarter.
With that I'll now turn it over to Scott to provide more perspective on our financial results for Q3, Scott. Thanks Tracy.
We were pleased to deliver strong performance in the quarter, increasing sales expanded gross margin growing adjusted EBITDA and generating significant free cash flow.
Looking at slide four we grew net sales, 5.2% to $761.4 million, including 3.8% organic growth year over year.
Principally through what we believed to be above market volume growth.
Similar to the second quarter much greater portion of this growth was generated from volume gains somewhat tempered by deflationary pricing certain product lines.
Sales of wallboard were up five point excuse me, 5.7% compared to the same period last year, including 4.6% growth on an organic basis, which included an organic volume increase of 7.9%.
Driven by double digit volume growth in the U.S., coupled with a 3.3% decline in price and mix year over here. So.
Sequential basis average wallboard pricing declined only marginally from the second quarter.
Third quarter ceiling sales increased by 7.2% year over year were 4.7% on organic basis, including 2.8% volume growth with a 1.9% improvement in pricing and mix.
Sales of steel framing increased 1.2% were flat on an organic basis as strong volume growth of 7.1% was offset by a corresponding decline in price and mix.
You'll recall, we reported more pronounced steel pricing and mix depletion of 10.9% year over year in the second quarter.
Well steel pricing did decline a bit further on a sequential basis from the second to the third quarter, the lower year over year price decline. The third quarter was a result will be less difficult comparison in the prior year than was the case for the second quarter.
Sales of other products, which consist of insulation joint compound tools stucco eaves and various other complimentary products.
Increased 5.6% in the quarter or 4.5% on an organic basis.
In the U.S. net sales of these products were up 7% offset partially by lower growth in Canada, due principally to lower lumber sales volume in Western Canada as a result of the adverse weather.
Volume growth for all product groups was robust, reflecting not only the solid demand environment, but also our efforts to expand shared our core products and grow our complimentary products two important elements of our strategic priorities.
Gross profit in the third quarter increased over 8% $253.5 million.
Gross margin of 33.3% improved 90 basis points from 32.4% a year ago, primarily due to favorable price cost dynamics, principally in wallboard steel another products.
Acquisition related purchasing synergies, mostly from Canada, as well as end market and product mix.
Favorable price cost dynamics include benefits from increases in supplier incentives driven by our higher volume purchases across multiple products as well as benefits from our focused procurements initiatives.
At the beginning of January we lapped the year over year benefits from the $10 million of annualized purchasing synergies related to the Titan acquisition.
Which nevertheless provided 20 basis points of benefit in the quarter.
Looking ahead, we expect to generate gross margin within a range of 32.5% to 33% for the fourth quarter fiscal 2020.
This range contemplates an expected higher waiting a residential activity or end market mix as well as some uncertainty around the factors that may impact crater cost dynamics in the short term.
Turning to slide five.
Adjusted SGN a expense as a percent us net sales was up 100 basis points to 25.2% compared to 24.2% than the prior year quarter.
Approximately half of this was related to the continued deflation selling prices in some product categories.
The remainder was primarily primarily driven by market and volume driven inflationary cost pressures, particularly in warehouse and delivery wages.
As we continue to realize growth across our value added delivery model in a tight labor market.
These costs were partially offset by productivity gains, resulting from our ability to more efficiently deliver the higher incremental volumes.
As gene mentioned, we continue to invest in our initiatives to grow sales leverage scale and drive profitability.
Well the costs associated with associated with these initiatives are included in SGN a certain benefits for example, those from purchasing initiatives are beginning to be realized gross margin.
In the third quarter, we delivered $62.7 million of adjusted EBITDA up 5% year over year.
Despite some meaningful headwinds on the former selling price deflation coupled with the aforementioned cost pressures, we were able to maintain an adjusted EBITDA margin of 8.2% consistent with a year ago level.
Based on the assumption the pricing levels in Q4 remains somewhat consistent with those of Q3, we expect the price related SGN, a deleveraging will continue in the fourth quarter, but will be somewhat less pronounced sequentially.
As a result, coupled with our expected range for gross margin in Q4, we currently expect to achieve an incremental adjusted EBITDA margin between nine and 10% for the full year fiscal 2020.
Turning to slide six.
Free cash flow for the not first nine months of fiscal 2020 increased $22.4 million or 24.4% year over year.
This improvement is primarily a result of $37.3 million of higher net income after adjustments for noncash items, partially offset by a $7.4 million decrease some cash resulting from changes to net working capital and $7.5 million of higher capital expenditures.
Looking ahead, we maintain our current estimate for full year fiscal 2020 capital expenditures of $25 million to $30 million.
Consistent with our stated capital allocation strategies, we reduced our net debt by $35.7 million during the quarter at the end of quarter. Our net leverage was 3.3 times, which is down from 3.5 times at the end of the second quarter of this fiscal year.
Balanced with or other stated priorities, we intend to continue to deliver through continued positive free cash flow generation.
Our balance sheet as of the ended the third quarter remains healthy with $40.9 million of cash on hand.
$424.9 million available under our facilities, resulting in substantial liquidity.
Our total long term debt large majority is not due until 2025.
Now, let me turn the call back over to J.T. before we open the line for your questions.
Thanks Scott.
Once again, we are pleased with our performance in the third quarter with strong sales volume gross margin expansion increased adjusted EBITDA at a higher free cash flow.
We continued to expand our market leading position in our balanced product portfolio.
We also believe our diversified exposure across commercial and residential as well as new and repair and remodel construction markets continues to be an advantage not only in our pursuit of growth, but in managing market cycles.
Our dedicated teams throughout North America continues to embrace our strong entrepreneurial culture to earn our customers business everyday with our complete line of products and expansive geographic network and by providing exceptional service that is second to none.
With respect to our construction end markets, we presently see a favorable outlook was low interest rates strong employment and healthy construction activity.
Furthermore, consensus forecasts currently suggest growth in both the U.S. and Canadian commercial and residential construction markets for calendar 2020.
Last quarter I shared with you the four strategic priorities, we are pursuing in order to capitalize on a significant growth opportunities in the future.
Our results for the third quarter reflects some initial progress on these spreads.
We achieved volume growth in excess of 5% for each of our core product categories of wallboard ceilings and steel.
Which we believe is in excess of market growth and reflects market share gains.
Growth of other products of 5.6%, including 7% in the us with double digit growth in important categories, including tools fasteners, and eves underscores our efforts to diversify and profitably expand our product offering.
We continue to expand our platform through one acquisition and to Greenfield openings.
And although in early innings, our profitability initiatives to further leverage our scale and operational excellence best practices across our platform enabled us to expand our gross margin and maintain our adjusted EBITDA margin.
There are lot of exciting things going on at Gms and in our industry. We're confident that we are well positioned to capitalize on the growth opportunities ahead.
Execution of these strategies and create long term value for our shareholders.
Operator, we're now ready to open the call for questions.
Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question Q.
Start to if you'd like trying to your question from the Q for participants using speaker equipment, maybe necessary to pick up your handset before passing the start Keith one other plays a we pull for your question.
Our first question comes from the line of trade growth with Stephens Inc. Please proceed with your question.
Good morning, guys. This is actually know warmer cosco on for Trey.
Good morning, Noah Glory.
Sorry, I wanted to ask a couple of questions on sort of the moving pieces that were benefiting gross margin in the quarter. I think you guys mentioned product mix was a benefit but it looks like that mix was unchanged from year ago period, So maybe kind of.
Let's think about that.
And.
So you guys talked about the benefit of higher volume purchasing.
How that's impacting price costs and just any commentary on how long you expect that tailwind to persist.
Well you hit the two points.
I mean, we bought.
And sold.
Significant volumes in wallboard and steel and we received some significant supplier incentives as a result of that that volume activity. So we feel really good about that actually that's part of the objective obviously of share gain in of growing the business. So more products earn more money. So we think that was a pretty good pretty good result.
In the in the quarter as far as the mix concerns that's mostly because we still had a very strong commercial quarter and our commercial product mix is a little stronger when it comes to gross margins and so between the steel volume, which is all commercial and between kind of a higher mix in wallboard going out with commercial we experienced slightly.
Higher than I would say normal gross margin in our mix.
So you're absolutely right. If you look at the mix within the product lines, its consistent but theres other elements of mix across the business in terms of the types of wallboard mix the types of markets et cetera, and that's what we're referring to.
Okay.
Alright that makes sense and then.
Just a follow up.
You had housing market.
Yes, really healthy right now.
You mentioned signs of stabilization in Canada.
Maybe just give us a little bit more color, there and specifically what you're expecting out of Canada.
I don't think that we know specifically, yet and I don't think anybody really does know exactly what they're going to get out of Canada. I think we're again, we used the words encouraged.
By what we're seeing up there if there is some price stabilization in lumber as well that's not a huge issue, but we have talked about it in the past. So thats a good thing for us in Western Canada in particular, where we have we have a bigger lumber business.
I think that.
In general.
Single family really had a lousy year last year I think the numbers, we saw were down 15 plus percent.
And now most of forecast to come back.
Maybe be up a few.
Low single digits and that's encouraging in of itself and then multifamily was okay last year and it looks like it's going to stay okay. This year. So we're seeing signs.
That that market is going to not be in decline to anywhere near the same extent I wouldn't expect it to be some double digit type of growth rate as we go into into this year, but coming off of what we dealt with in calendar 19 in fiscal 20, I think that.
Our optimism is in and around having just basically an okay market to sell it.
All right. That's helpful. Thanks, guys I'll leave it there.
Thank you thanks.
Thank you. Our next question comes from the line of Kevin Hocevar with Northcoast Research. Please proceed with your question.
Good morning, everybody.
I was.
I wondered.
In the.
Gross margin outlook.
The two and a half during 2% for the fourth quarter and those comments you'd mentioned that there were some uncertainty baked in there for price cost.
No price cost has been a nice benefit for you. These last several quarters. So curious if you can give some color there is that really due to the implementation as some price increases and you're still kind of seeing how those are shaking out versus.
You know.
In terms of what you're accepting versus what you're passing along just curious if you give some color there on what's driving that uncertainty in price cost and what you're seeing there at this point.
Thank you.
You are getting out exactly what we're referring to there. Thank everybody is well aware that there was a pricing action out in the marketplace has the market comes to terms with it we just recognize it there's a little bit of uncertainty out there as it works its way through the system and we just want to recognize that as part of as a part of our outlook. So I think you've got it exactly right.
Okay, and then in terms of how would you say demand has progressed here throughout as you as you look through the year fiscal third quarter and you know we're a month into this fiscal fourth quarter. So wondering.
Kind of what you're seeing so far.
In February.
February looks a lot like the last quarter. So we see.
The conditions being very similar.
Okay, Great alright, thank you very much.
Okay.
Thank you. Our next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.
Hi, Good morning, Thank you for taking my question.
I wanted to ask about the market share gains I guess, just focusing on the wallboard side gives me so that double digit organic wallboard volume in the U.S. suggest you are well on that path.
But then the pricing I guess did come down a little more than at least we had expected.
So can you just discuss how much of the kind of share gain is coming from sort of pricing to market versus the other organic efforts that you guys are making that are really gaining traction. Thank you.
I think with our pricing being basically flat sequentially I don't really see price being a key driver in the gains I mean, we continue we continued to do some things we've been we've invested in service we've invested.
In the end fleet capability.
I believe that our team is fully engaged in getting after every opportunity that's out there, including some additional salespeople.
That we've added into the market. So I think it's really mostly a result of what were what we're doing leveraging our past service superiority and adding an additional salespeople.
And being committed to service the business I think thats really whats been driving the bulk of that wallboard growth.
Not having not having price declining.
You know on a sequential basis I think that I think that that's a good indicator for us.
Got it that that's helpful. And then secondly, I wanted to ask about us today I.
I think if I heard you correctly, you mentioned about half a percentage increase in the quarter came from lower selling prices and that that pressure should lessen in Q4.
You've got some investments going on and wage inflation et cetera.
Can you kind of break out those three buckets on a go forward basis, and a little more detail just given the moving pieces around product pricing in the market coming up in market inflation.
Guess at what point might you begin to lever SGN again, thank you.
I mean, my view on levering SGN any comes when we get some not only price stability, but we get a we get a little bit of inflation in pricing in or in particular in steel in a very expensive to deliver steel service steel.
You know the costs associated with doing that are all inflating as would be normal. Although we did have good productivity. The way we measure our productivity, we had nice productivity based on some the investments in technology.
But also practices that are geyser are implementing out there across that but I think that you'll see us leverage SDMA in the traditional definition of that.
When we see some inflation in our commodity pricing that's when it will really happened because I think that our investments are measured I think there they're smart there. They are based upon what we view as you know a near to moderate term future look so I don't know, we're not investing for three and five years out were invest.
I think 12 18 months out.
Salespeople and with new product and and all of those things cost a little bit of money to get him up off the ground as well as our greenfields.
So I don't think will slow down at this point in time, the investment that we're making although I think it's very prudent.
And moderate and then just general inflation, you know as isn't that 3% range and with some wage inflation on me on the labor side in warehouse and delivery being even a little higher so we'll we'll leverage it when we get some some inflation in some of this commodity price.
And in addition to that I was just have ever slightly more favorable company.
Fourth quarter versus the fourth quarter prior year, so that will benefit us a little bit as well.
Got it puts you at the detail thanks.
Thank you. Our next question comes from the line of Mike Dahl with RBC capital markets. Please proceed with your question.
Good morning, Thank you for taking my questions.
My first question.
First question just on the wallboard volumes and specifically the double digit commentary that obviously really strong number just wondering if you can give us the split and terms for that organic double digit in the U.S. what was.
What was residential up year on year, and what was commercial and what's your estimate of.
So what the market growth was.
I mean, we.
So.
Were 200 basis points.
Stronger in volume than would be the gypsum Association numbers in general our commercial volume was a couple of points higher than our residential volumes.
Was.
So we're still seeing very strong commercial activity out there which of course were pretty good so thats.
That's a good thing I would say high single digit residential growth for US is also very encouraging we have very strong residential business.
But April 870% was was even better than I think anybody would have thought.
Right, yes, okay that sounds good and I guess sticking with the US residential side one of your other competitors was talking about.
Looking to push more aggressively back into residential after sitting out some of last year. So as you think about the sustainability of these residential volumes, obviously, you've got tailwind from the market, but can you talk to.
Can you talk to competitive dynamics, whether you've seen anything changed with respect to residential or any other color around.
Your expectations for market share growth as we go through the next few quarters.
Well new residential construction is certainly probably the most competitive.
Part of the business that we participate in and it's no surprise that based on forecast going forward everybody's going to want to piece of the growing pie.
Again, it's it is competitive it's not a.
It's not an easy business by any stretch the imagination I think we've got a team that understands that we've got a.
Decades of experience in selling into that into that end market and I think were pretty good at it we have wonderful relationships with both the contracting community.
In residential but also the builder community.
Potential so I expect us to be.
Still better than the market whatever that market may end up being I think we're going to be able to gain gain a little bit of Cheryl, albeit it will be certainly competitive.
Okay, great. Thank you.
Thank you. Our next question comes from the line of David Manthey with Baird. Please proceed with your question.
Thank you good morning.
First up relative to the third quarter organic sales growth of 3.8 per side can you give us the comparable organic S.G. and eight growth if you have that.
SGN a growth relative to.
Prior year Q3.
Yes, just in the in the core business I'm sort of inorganic basis that compares to that 3.8% organic growth.
I don't have it on an organic basis, David off hand.
I guess I would say, there's really relatively minor acquisition activity. So just run the math correctly I think has a pretty good indication pretty close okay.
Alright, and then.
In the fourth quarter SJ last year, the get some insurance and other tightening of some other costs and thing and if I'm running the guidance correctly. It seems to imply that fourth quarter SGN, a is only modestly higher than the third quarter, which is pretty seamless seasonally more normal.
Reading that right based on.
And your outlook.
I think that's about right okay.
Alright, and then finally.
But on a percentage terms just be tends to be clear yes.
So.
Q4 versus Q3 are you, saying or Q4 year over year.
No I was comparing SGN $8 in in your in your Q4 implied from your guidance relative to the Threeq $2 a best DNA.
There will be higher just given the fact of all the sheer volume of the business, it's definitely higher but on a percentage basis.
Roughly consistent.
Got a year.
Okay alright, thank you.
And then finally, just on the tone of the non res market it seemed like.
Late 2019, many market participants were fading on the non res outlook based on whether it was backlogs are labor shortages or what have you and lately. It seems that that outlook has firmed up.
Fair to say that that your outlook today is slightly better than it was three or six months ago.
Yes, I think so and I think thats, just reflective of kind of the macro reporting you're seeing on it.
We always said that our activity was strong but that you can't look our activity much further out than a six months or so so when you. We were we we're all talking about maybe at moderating into that.
Real low single digits type growth or maybe even being flat it looks like it's going to be.
A little better than that.
So that's that's a that's where we are.
Thank you very much.
Thank you. Our next question comes from the line of Stephen Ramsey with Thompson Research Group. Please proceed with your question.
Good morning on other product.
Maybe to clarify you said you at sales.
We're up.
Evan percents.
Organic was that correct and then.
On Canada X lumber can you talk to the growth in Canada ex lumber.
Oh boy.
I'm not sure we have in front of US an excellent number for Canada, and I don't think we've ever talked about it.
I think that.
Again, our other product business in Canada is a little bigger than it is in the U.S. market for a number of fundamental reasons, we sell residential insulation, they're very very well.
Were in the U.S., our residential insulation business is very small it goes to market differently in the U.S., we also sell roofing.
In Canada, and we fairly good business single family roofing in Canada and of course, that's been under stress and then most of our lumber business is all west.
We.
And I don't have in front of OS X lumber and that the volatility in the pricing that we've seen in lumber all I can tell you moving forward is it appears like lumber has stabilized and is going to move back up.
In price and that's a good thing for us.
Excellent.
Would you think about rolling outpacing growth in the other products category.
Are you pondering are you looking at adding new products to this mix or pulling.
Product.
Back to to improve Nixon and go to market.
Success.
Yes, both.
We are looking to focus the organization around the most successful other product categories. One in particular I mentioned is double digit growth in EPS. We are good at that in several places we are not even in that business in many places so thats an area that we can expand upon.
As well and then we have some some product categories that are either not terribly profitable and or not really core to us even in the other category that will exit at the same time, we are looking at.
Expanding into one or two other significant categories.
Depending on the division and or the geographic.
The exterior envelopes exciting to us.
Looking at that end waterproofing below and above grade waterproofing is also exciting to us and we're not really in either in a meaningful way and so those are a couple of categories that we think could be important to the future.
Great and then then one other thing on that I know that ongoing nature too.
Mix and shifting and adjusting mix, but on the initiatives you're talking about some of the bigger longer term initiatives is that kind of a one year or you know as you play that out to more mature levels.
Or is this more of an ongoing thing it won't be a significant impact.
Well no I think we set our other product categories should grow so high mid single digits as it has been which will outpace overtime.
Most likely the commodity products right or our traditional products.
Wallboard steel and.
And ceilings, so I don't expect double digit wallboard volume every quarter forever I, just don't think thats the market.
I think that we'll continue to do better than the market whatever that may be but in other products. We have such an opportunity there to expand our distribution at the same time of being better added in so many of the places that were that we're just getting started that to me is going to be a strategic.
A strategic part of our business is really focusing there and for the most part strong profitability in those in the other product category as well.
Excellent. Thank you.
Thank you. Our next question comes from the line of Michael Wood with Nomura Instinet. Please proceed with your question.
Hi, good morning.
Good morning.
Very comforting here the favorable outlook just curious your in light of bond and equity markets, you correctly and correctly, maybe beginning to indicate a looming U.S. recession or are you hearing of any potential corona virus related disruptions to your business and if we were to slip into a shallow recession how would gms.
Tactically react to that.
Oh boy the current a virus issue huh.
I think we're all just going to have to keep our eyes open on that situation and be prudent in our own actions inside of our company take care of our people take care of our customers.
And do things that are smart.
Keep everybody that we that we can't safe.
In general listen to the people that know what the Hell, they're talking about when it comes to this issue.
I don't know, what it's going to mean to us our supply chain is not in international supply chain for the most parts. So from just the business perspective today, where us based supply chain for the most park or North American based supply chain for the most part.
So any color on a virus impact to us will most likely beyond the demand side and down the road whenever that happens it wont wont be on the supply side as far as any recessionary situations go you know pullback on on things that don't have immediate.
It returns for the most part will generate cash out of our inventory as we go forward.
Probably slowdown.
Some of the investments that were that we're making that have like I mentioned have longer term.
Returns to them, if it's a mild recession and we'll manage through through our cost structure move trucks around roll off fleet expense all those kind of things you would normally do.
Just had a retail and are.
Working capital leverage in a downturn as well so from a cash flow standpoint.
As a bit of an offset there.
Okay, Great and also are you able to give us any color and the impact whether in Canada on that 2% organic sales decline and did you see that demand. It was pushed out to begin to come back and benefit you post quarter.
So yes, the Western Canada I was just there and it appears like that Mark. It is literally last week. It appears like that market has recovered in is and is going to have a decent year.
This year.
And all of that weather impact should have pushed out into the next couple of quarters, but it was fairly severe Vancouver island in particular, where 90% of our Western Canada business as they had significant snowfall over a two week period of time and that's very unusual for Vancouver Island.
And so we Didnt, we were really kind of shut in for an extended period.
Okay. Thank you.
Thank you we have reached the end of our question and answer session I'd like to turn the call back over to lies the kratcoski for any closing remarks.
Thanks, everyone for joining us today, a replay of this call will be available on Gms dot com shortly and as always we appreciate your interest in the company good day.
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.