Q1 2020 Earnings Call
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I would now like to hand, the conference over to your speaker today, Tina Beskid, Vice President of Finance and Investor Relations. Thank you. Please go ahead.
Good morning, and thank you for your interest in cornerstone building brands.
Joining me today, our Gen Metcalf, Chairman and Chief Executive Officer, Unjustly, Executive Vice President and Chief Financial Officer.
Be reminded that comments regarding the company's result, and protection may include forward looking statements that are subject to risks and uncertainties.
These risks are described in detail in the Companys I see filing earnings release.
Our investor presentation.
He's actual results may differ materially from the anticipated performance or results expressed or implied by these forward looking statement. In addition management will refer to certain non-GAAP financial measure and you will find a reconciliation of these non-GAAP financial measures and other related information in the earnings release and Investor presentation.
Located in the Investor section of our website. Please note we will be referencing our investor presentation throughout today's call. Today's call is copyrighted by cornerstone building brand, we prohibit any huge recording or transmission of any portion of the call without our expressed advanced Britain.
Throughout this presentation management may also refer to pro forma financial result.
Pro forma results give a factor completed acquisition and this such acquisitions were consummated prior to the periods presented questions will be taken at the end of the prepared remarks with that I'd like to turn the call over to Jeff.
We appreciate all of you joining us this morning.
We really hope you and your families are safe and healthy during these turbulent times.
Today I'd like to begin the discussion on the actions a cornerstone building brands are taking to address this extraordinary situation.
Well uncertainty exists we're focused my line to lead our company to this endemic stronger and we remain steadfast and our long term fundamentals of our business.
We've been focused on three key areas.
Oh and safety of our employees our communities.
Servicing our customers.
And maintaining a strong financial position within Kenai on liquidity as well as cash flow capital discipline.
The health and safety of our employees in communities.
Number one priority.
The U.S. Department of Homeland Security has designated our industry as life's sustaining an essential.
Oh products are necessary for new home construction.
Critical home repairs and vital projects like hospitals and medical centers.
We've taken an extraordinary measures.
That's been in practices that help keep our employees.
[music].
These actions include additional cleaning up our facility.
Staggering cruise incorporating visual cues to reinforce social just insane.
Providing based covering in Guam.
As well as implementing daily.
Holiday shift.
Many of our policies and practices have been Dean best in class I look what's testers and had been used by other companies.
I'm also very proud of the innovation that our employees have shown as they support one another and community where they live.
For example, our Middletown, Ohio plant is producing hand sanitizer to distribute to other plants that need this important product.
And that are innovation center, our genes design Clos face mask set of being shipped to other manufacturing site.
And finally, we partnered with the National Association of manufacturers donating thinking supplies to goes on the front line.
Health crisis, and is we want to keep our community say.
I'm proud to say with a cornerstone of many communities.
Our second area of focus is servicing our customers across the business. Our teams are in constant virtual communication with customers along with suppliers and government officials to maintain business continuity without disruption.
We are currently operating all of our manufacturing facilities distribution centers and installation services.
We have been flexible.
Actively managing production schedules in response to short term shutdowns for extensive cleaning they shut downs and other changes in demand due to this pandemic.
We know that is more important than ever to meet our customer needs and strengthening our relationships.
Within our commercial business, we received orders over 19 stand up medical and test facility here in the U.S. and in Canada.
And I'd like to acknowledge and thank our employees for working in our manufacturing plants and travel organization.
Unwavering dedication and commitment to serving our customers we safely covered the market with value added services and solutions to our customers and we think our customers as well.
We also remain diligent on preserving our solid financial position, which is our third area of focus.
We've taken decisive actions to manage discretionary expenses and implement meaningful initiatives that will just the company's cost structure.
And such as recent consolidation of plants and average, Pennsylvania in Cambridge, Ohio, and continued de layering about commercial business to get our associates closer to the customer.
Kerrobert companies employee.
Customers in our cash are the foundation that we're operating on.
Now turning to slide four.
We started 2020 very strong delivering pro forma adjusted EBITDA of $98 million than the first corner.
Which exceeded the top end of our guidance range and deliver the third consecutive quarter of year on year margin expansion in all segments.
We delivered 210 basis points on pro forma adjusted EBITDA margin expansion over the first quarter of 2019.
This increase in park was driven by our ongoing commitment automation investments and lean manufacturing.
<unk> cost base, Andrew operational excellence across our entire organization.
Late in the corner, we responded with speed and intensity to combat the effects of this crisis and leverage our resilient business model managed to the near term challenges and position us to capture a maximum benefits during the recovery.
As you can see by first quarter results. We came into this crisis strong from with great momentum.
Our team is now focused on navigating this current crisis to emerge even stronger.
Cornerstone building brands unique business model positions us well to navigate through these uncertain times.
Our extensive operating footprint provides us with the flexibility to manage production schedules to ensure that our customers continue to do we see our quality product without disruption.
Additionally, we put a heavy emphasis on optimizing our supply chain network.
Rationalizing our plant footprint, particularly in commercial.
Any continued focus on working capital improvement.
Now turning to slide five.
Our broad portfolio of products and bass manufacturing network enables us to participate in a diversified set of end markets.
New residential.
Repair and remodel commercial and manufactured housing.
By exhaust within unique strategic advantage.
The near term outlook or end markets are challenged.
Single family housing starts that drops since the beginning the first corner.
Homebuilding has been games in a central service.
An interest in mortgage rates have remained low and effort to boost the housing market.
These near term effects have the greatest impact on a residential businesses as our products from available through our retail channels, our customers and installed on homes 90 to 120 days after construction begins.
The impact on the non residential end markets our mix.
We have a broad in diversified set of product offerings, such as engineered building system components insulated panels and wall systems that survey diverse an extensive set of markets subsection each of which have been impacted differently by the crisis.
So far the retail and manufacturing market are expected to be meaningfully lower while warehouse a significant market. We participate in remain stable from the strength of E Commerce.
For the month of April net sales were down about 25% compared to pro forma prior year.
Only the results we experienced during April is an indicator for the rest of the corner and anticipate second quarter net sales to be in line with people were slightly better due to improve backlogs.
You know the times I guess require strong leadership and Swift decisive actions have been serve our financial strength and ensure sound liquidity.
Our leadership team has experienced successfully managing through downturns as it executed with speed to improve cash generation lower costs and accelerate operational improvements.
Now, let's turn to slide six.
We actually did 2019 with a disciplined focus on delivering results for our shareholders customers by permanently reducing the operating cost structure of the business by over $110 million.
Faced with the effects of this pandemic, we intend to capitalize on the momentum do we created last year.
Targeting between 80 $900 million structural cost improvements this year.
These actions are rooted in our strategy to make cornerstone building brands, a lean more agile customer focused company and position us to deliver profitable growth as the market recovers.
We've also taken prudent and precautionary steps to maintain our financial flexibility and liquidity.
We've increased our borrowing under the ABL facility in cash flow revolver, resulting in a unrestricted cash on hand of approximately $476 million at the end of the corner.
We believe we have ample liquidity and it will be further supported by significant cash generation actions more than $100 million, primarily from effective working capital management and reduced capital spending.
While reducing costs and generate additional cash are important areas of focus for us.
We have not lost sight of the need to continue to invest in our business for the long term.
We remain committed to innovation and investing in new product introductions that we'll continue to grow our value proposition to our customers.
Certainly there are number variables that are unknown at this point, including a full duration the magnitude the pace of the recovery across our end markets.
Weve evaluating a number of possible scenarios and are confident that our actions, we're taking combined with the companys existing financial position instalment quantity.
Well enable us to navigate whatever challenges come our way so we can get to the other side stronger.
Now I'd like to turn the call over to Jeff Who's going to walk through some of our financial results.
Jeff.
Thanks, Jim and good morning, everyone I.
I would also likely express my gratitude to our employees for their commitment to a healthy in safe working environment as they continue to engage with their customers suppliers and other partners.
In light of Cold 19, our financial actions remain focused on cost reduction cash preservation, and ensuring near term financial stability, which will serve us well as we manage through this uncertainty and benefit the company as the markets begin to recover.
Starting on slide eight pro forma net sales for the first quarter were $1.1 billion.
3.1% and pro forma net sales for the first quarter of 2019.
Improved market sentiment across all segments, coupled with additional ship days drove higher volumes during the quarter.
Price and mix were favorable as compared with pro forma first quarter 2019, as we continued our price discipline and further position cornerstone building brands as both a market an industry leader in exterior building products.
Pro forma first quarter, adjusted EBITDA was approximately $98 million or 8.7% I've met cells.
It's exceeded the top end of our guidance range.
We delivered 210 basis points of margin improvement the third consecutive quarter of year over year expansion in all segments.
Favorable price and mix and the window segment, and citing segments, coupled with favorable spread per ton in the commercial segment generated $37 million, a price and mix net of inflation.
As discussed during our call in February we are now reporting savings net of cost as we remain focused on continuous improvement and lowering our overall cost structure.
Offsetting these gains were high direct labor cost due to our readiness efforts.
Certainly previously anticipated second quarter seasonal demand increase.
Additionally, compensation than I did benefit costs were higher compared to first quarter of last year because of the employee related headwinds as we anticipated and discussed during our last earnings call.
Given the changes in demand due to the Koby 19 pandemic, we have taken actions to mitigate these impacts and to rightsize the cost structure.
Now, let's move you know business segment results.
Our teams focused on executing our strategy of operational excellence and profitable growth has resulted in margin expansion in all segments for the third consecutive quarter.
As we manage through the uncertainties caused by the cold at 19 pandemic. Our actions are rooted in strategy and margin enhancement is one of our guiding principles.
Turning to slide nine in the first quarter Windows net sales were $448 million up 6.4% in first quarter 2019.
The increase was primarily driven by healthy end markets and favorable selling price and mix across the U.S. and Canada.
Windows gross profit margin for the first quarter of 2020 was 16.5%.
Oh hundred 70 basis points on a pro forma basis as a result, the price discipline favorable product mix net of inflation and realize cost savings.
Turning to slide 10 siding segment pro forma net sales for the first quarter approximately $249 million, 3% hired in the same pro forma period last year.
The increase was driven by volume price and mix.
Pro forma gross profit margin was 24.6% up 230 basis points compared to the pro forma prior year quarter, primarily as a result, a lower material cost animal price and mix.
Moving onto the commercial segment on slide 11.
Sales for the quarter of 2023 or $424 million adult flattened the same period last year.
Overall average selling price. This time was higher as a result, a better product mix and price discipline, which was offset by lower tonnage volumes.
For the quarter gross profit margin was 23.1%.
How did an 80 basis points year over year, driven by favorable spread partially offset by higher variable manufacturing costs.
Turning to slide 12.
Although it's still too early to determine the extent interpretation of the cold did 19 impact on our business and the overall economy. You can reported net sales for April were down 25% pro forma last year, all segments were impacted with declines of 20% to 28% in U.S. residential approximately.
43% in Canada, and 20% in our commercial business.
As such we anticipate second quarter net sales to be in line with or better than april's results compared to the pro forma period last year.
As such based on April results, and our current views or the market. We anticipate second quarter net sales to be in line with or better than the pro forma second quarter 2019.
In response to these unprecedented times, we have implemented aggressive near term expense control actions that we believe will help offset the impact from lower volume.
We've also accelerated strategic structural expense reductions.
Position cornerstone building brands to be a leaner more agile and more customer focused organization.
We took decisive action to align our cost structure with the declining volumes.
The decremental margin impact from lower volumes is approximately 30% on a consolidated basis.
In some segments higher in some segments slower.
Our direct cost structure is mostly variable.
As approximately 10% of our cost of goods sold is comprised of fixed costs, such as lease utility taxes and other fixed expenses.
Reduce production schedules to align with customer demand, while continuing to serve our customers without disruption.
Additionally.
We have implemented demand related employee from most.
We will continue to monitor our order rates and adjust for local brands going forward as necessary.
Across the company our teams are working diligently to reduce near term related discretionary spending.
Includes eliminating travel implementing hiring freezes and delaying wage adjustments merit pay increases and other variable compensation programs.
These actions will provide between 40 million $60 million with savings in 2020 and will improve the decremental margins mentioned earlier.
Yes, the business environment under Colgate 19, still fluid in evolving it is impossible to predict.
Let the ongoing impact will be to remain flexible and adjust our near term responses is necessary in order to preserve our solid financial position.
We plan to remain committed to our strategic priorities of improving their customer experience operational execution and strong financial performance.
We have demonstrate our ability to reduce structural cost in many areas of the business including material sourcing.
And back office rationalizations.
Processing labor savings from automation and many others.
Previously, we communicated that we would deliver $60 million, a structural cost savings and 2020.
As we faced this pandemic, we remain committed to delivering these continuous improvements in structural savings along with accelerating other initiatives to simplify our manufacturing footprint and organization.
For example, within one of our commercial plans, we are improving the semi automatic frame production line by installing state of the art robotic welders during the final stage and assembly.
Having reducing man hours per time consuming less welding supplies and preventing costly anymore.
In total we now expect to reduce structural cost by 80 million $200 million in 2020.
The resiliency and sustainability of cornerstone building brands business model is built upon a strong execution culture, our market leadership positions across highly diversified channels and a broad portfolio of products, which is led by teaming with proven experience in successfully navigating similar.
Challenges as a result, we expect to emerge as a stronger company.
Turning to slide 13, I would like to make some comments about our balance sheet and liquidity.
Our free cash flow usage of $30 million in the first quarter was better than prior year as a result in delivering higher pro forma adjusted EBITDA lower cash taxes and effectively managing working capital.
First quarter is typically low point for free cash flow due to seasonal nature of construction activity.
We expect a significant step up over the rest of 2020 as it will reflect favorable working capital performance and the impact of our initiatives to reduce structural cost.
And other near term extensions.
In addition to cost savings. We've also seen similar controls on cash and liquidity management, including a reduction of capital expenditures by approximately $30 million.
While managing costs in generating additional cash are important areas of focus we have not lost sight of the need to continue to invest in our business for the long term.
We remain committed to innovation and investing in new product offerings and process automation and will generate profitable growth in the future.
We have been actively managing working capital optimizing our purchasing actions and working with our key supplier partners.
We anticipate that effective working capital management will be a source of cash in 2020 between 100 million and $120 million.
In the area taxes, we're taking advantage of Covidien related government stimulus programs to defer certain payroll in income taxes and later in 2020.
Or in some cases into 2021.
Additionally, provisions with the cares add to allow the company to deduct higher interest expense for income tax purposes. It would've been previously disallowed.
We expect these actions to had a net cash tax benefit of approximately $25 million in 2020.
We ended the quarter with approximately $476 million unrestricted cash on hand, and $118 billion of excess availability on our asset base revolving credit facility.
Our liquidity is sufficient to weather the anticipated slowdown in construction activity from the impact of the Koby 19 pandemic.
We have no significant debt maturities until April 2023, which is one the cash flow revolver and asset base revolving facilities mature.
In addition to the lack of near term debt maturities a key aspect of our flexible debt structure is the absence of any restrictive standing maintenance financial covenants.
The cash flow revolver does have a financial covenant debt to a maximum secured leverage ratio of 7.75 to one.
However, we have sufficient cushion to prevent this covenant from being a concern.
Our liquidity casting has included many challenging scenario and then there's such scenarios, we expect to have ample liquidity to navigate this period of uncertainty.
Turning to slide 14.
Over the past few months, we've taken quick and decisive actions to reduce operating expenses and defer capital expenditures with the objective of maximizing our available liquidity.
We plan to stay disciplined on price.
Drive profitable growth and capture additional savings.
Additionally, we plan to generates significant cash from focus working capital management, while we remain committed to our capital allocation priorities.
We are proud of the continuous improvement culture, we have created as demonstrated by our three consecutive quarters of margin expansion in all segments.
And now I'd like to turn the call back over to Jim for some closing remarks.
Thank you Jeff.
We had cornerstone building brands are committed to our customers and to creating great building solutions.
We've always known that windows matter and is a vital product category and our portfolio.
Now during the course 19 crisis, you may have noticed the windows have quickly become even more important to our communities.
We are proud to offer products that are helping people stay safe and connected to loved one as we face since pandemic.
As I mentioned at the beginning in the call the safety of arm.
No one operating principle and transparent communication is a top priority.
We are committed to keeping our employees. Thanks.
Today, we discuss the actions we've taken so far our current plans and our box for our business as we move forward.
However, the current dynamics are fluid install hauling.
It's impossible to predict what the ongoing impact will be so we're going to remain flexible and just our responses as necessary.
In terms of our financial priorities, we remain focused on improving our cash generation and managing the decremental margins.
Our discipline culture is committed to delivering margin improvement from a focus on operational excellence every day I.
I believe the proactive measures, we're taking on the strength in the long term fundamentals of our business will enable us to emerge from this downturn even stronger.
Thank you for joining us this morning, and please stay safe and now we'll open up the call for your questions.
As a reminder to ask a question you want me to press Star one on your telephone to withdraw your question press the pound or hash key please standby Bobby compiled acuity roster.
Your first question comes online leisure quota of C.G.S. Securities. Please go ahead. Your line is open.
Hi, good morning.
Well anyway.
So can we start with the structural cost reductions and then the near term cost management. It sounds like on the <unk> I'm not cost reduction side, it's an incremental 20 to 40 versus what we were originally kinda contemplating here and then on the other on the other piece that that's more of a new item is there way on each of those to break up we expect.
Good savings between cost of goods sold and yesterday.
Yeah like this is Jim just to kind of put in context. If you recall when we put the companies together to form cornerstone. We got a three year plan 2018, we had $25 million a cost reductions last year, we identified and hit 110 million.
Then as we said in her comments that for 2020, we have identified an additional 60.
Which obviously includes as some of the things that Jeff talked about SGN, a furloughs delayering. The organization. So I just wanted to put that in context of you know we don't want to lose sight of the fact of the cost reductions that we've committed to our shareholders a with the.
Combination of a cornerstone so with that I'll turn it over to Jeff and he will give some additional color on or.
As you say some of the new cost reduction initiatives that we've put in place because of covered 19.
Great. Thanks, Jim.
So Lee as we think about our our cost out initiatives. You know, it's it's important to recognize that we have speedily and with a lot of EUR of actions with the management team to make sure that we're taking out the cost appropriately managing through this crisis.
We're starting at the top and just making sure people understand how we're thinking about the business from a volume perspective before we look at the cost initiatives, we're expecting the impact on margins to be about 30%. So as volume comes down to volume would come down with it at 30% rate.
Now to offset some of those things were taken some dramatic actions within the company to make sure that we have preserve liquidity and also there were restructuring the company. So we can come out of this crisis in a stronger.
Boulder and better position.
As you as you mentioned, we have taken out short term or near term $40 million to $60 million of anticipated cost actions that will result in 2020 now. These are somebody's our volume related says volume comes back we would expect some of those costs to come back with that such as some of the comps.
Station when it comes to sales engineers and and the like travel expenditures is probably another. Good example, as you think about you know the lift this coming off of a traveling you know going back out meeting with our customers those types of things will start to ease as we start to feel better about the situation.
But more importantly, as we think about the structural cost reductions the $80 million to $100 million of which you referenced 60 million of that was identified and communicate as we came into 2020 and so those are permanent type of reductions versus the temporary ones that I mentioned above and they include things like the back office right.
Rationalization manufacturing footprint consolidation of some of those facilities and you know many continuous improvement types of costs out initiatives. So we're very proud of what we've been able to do his management team managing through this crisis, specifically talk to answer your question as we think about cost of goods sold and.
She in a for both categories. The near term and also the structural cost there were about 60% related to cost of goods sold.
And 40% coming out of S. DNA.
Got it and just switching to the this segment's maybe if I can.
Within each segment I appreciate the 30% decremental EBITDA margin commentary and total within each segment is there a way to either rank order would give us some more clarity by segment in terms of the deck or what the decrementals might look like.
I think the as you look at the historical segment data that we provide we do have gross margins by segment and that's a great way to think about you know the defense potential between the different segments that we have keeping it keep in mind is about 10% fixed expense within our gross profits.
And so then you can kind of back from there into the variable margin or contribution margins that we would expect.
By segment.
Got it and I just want to make sure I got your guidance right. So if I take your pro forma Q2 revenue that's in the back in your slide deck, you're basically saying that April was down 25%.
Versus April of last year, and then for the quarter, we should expect it to be you know, 25% down or better than that for the remainder of the quarters that.
Am I thinking about that correct.
Yes that is accurate.
Okay, and then just a follow up to that is is there anything you can comment on with regard to the last you know the first two weeks of May versus April and whether that trends flattened or potentially gotten a little better estate start reopening.
[noise] me. This is Jim that's that's a great question, we have seen some positive green shoots nothing to kinda ring. The bell on but we've started to see are our bookings or have have improved we're starting to see also in the retail segment with some of the stores have an extended out.
Hours of the point of sale has improved particularly in the last two weeks and quite frankly with some of the state's opening up and the in the mid West, Michigan, Pennsylvania, Ohio, where we're job sites now we're starting to get lifted we you know our customers are starting to replenish inventories. So we don't want this to be.
False positives, but if it has it has improved in the last couple of weeks.
That's great I'll hop back in queue. Thank you very much.
Our next question comes the line of Andrew Casella of Deutsche Bank. Please go ahead. Your line is open.
Hi, Jim just fine thanks for taking my questions and glad to hear you guys are doing well to follow up on you know some of the color on the second quarter have you gotten the sense that you know some of what you're seeing is an uptick in the last couple of weeks. If that's you know jobs that were previously booked you know just finally getting getting around getting those started or do you feel like.
Demand is actually improving I guess, what I'm trying to better out there is you know.
I guess implied in your commentary that made in June will will improve walk with April you know just given that you know that the ceiling is 25% in should be better than that for the second quarter, but curious if you have any additional color on that.
Yeah, I really think it depends on geographic where you are geographically and product segment.
As I just mentioned the states that are lifting in the Midwest is is really positive for residential business, particularly our siding business. That's that's strong enough part of the world where inventories are getting replenished, but also people are finishing up jobs on the commercial side you know there's still some limitations on how many.
People can be on jobs.
That is a state by state, but Oh, you know we are in this the traditional season as well. So jobs are trying to get finished up both residential and commercial some inventories are getting be placed from from our dealer standpoint, and then in our large retailers as I said are expanding store hours from where they.
For a month ago and are also replenishing some inventories. So again you know it's <unk>. There are some positive signs over the last couple of weeks, but we are we're taking a conservative approach we want to focus on the cost reductions that.
Jeff and I have alluded to we we have contingency plans if a if things don't improve.
But a this is a this is a week week by week a initiative. We have a this is the local ground game as well.
As you know counties can change the bay area changes in California, almost on a weekly basis, which impacts our our installed stone business.
But there's some areas for example in the Minnesota area, where business is quite strong for our for environmental stone business. So it is very geographic it's very it's very product segment.
<unk> specific.
And we have a.
We've put in a in an reach enriched sales in operation planning process that we really look at not only a housing starts and AI and all the traditional metrics, but we're starting to look at what's happening from a county standpoint, a and really what's happening with.
What states are coming back and ER or impact there. So last couple of weeks. There are some positive signs, but I don't want to say that that is going to be permanent.
Okay. That's helpful color and then you know clearly with you guys being issued by or resin can you help us understand a little bit about you know the pricing environment, you're kind of net net cost as we think about little lower resin or the impact to lay on how you guys are kind of thinking about that's flowing through and that's in the numbers.
Yeah. It's a great question. So we did do well with price increases inside of our residential business typically inside of the first quarter and it can bleed into second quarter as well and those are those announcements have gone out and we have begun to realized price similar to 2019. So we feel good about a price.
A pricing actions that we put in place and we feel good about our service proposition and the value that we have for our customers and they recognize the benefit the we have with our global manufacturing or national manufacturing footprint and our ability to serve our customers across.
Multiple regions, especially during these type of environment I think they appreciate the fact that we can.
You'll manage through these type of crisis in specific regions, where we have to slow down production or stopped production, we can shift that into different areas and so it gives us a a real advantage for our customers too.
Did not only asked for the price to get the price from the commodity perspective is it kind of goes up and down it depends on which business you're looking at me and also the labor market you know depending on where you're looking at you can see you know pressures coming in from that so we are right now we're assuming stable pricing across are stable cost.
Crossed our commodities and you know that does change on a very frequent basis and so we're monitoring that appropriately.
Okay, Great and then a final question for me just on liquidity and cash flow. So just to just to confirm the 118 of excess availability is that actually available are there any springing covenants that we should be mindful of and then also to the extent you guys seem like you'll be generating a bunch of cash flow. Just you know priorities as you think about it.
The.
I know you guys have done small bolt ons in the past, obviously stuff is coming to become more attractive from valuation perspective. Your debt is trading below say side, just kind of curious how you guys think about internally and capital allocation.
Yeah. So into your first question about liquidity itself. So we do have availability remaining on our asset based loan revolving facility.
And there's no restrictions on that and so it is it is available to us today. It does modifying change based on the level of receivables and inventories that we have so there's no restrictions on that amount and we feel comfortable that with liquidity we have in hand.
That we're gonna be able to continue to manage through this without without any issues.
Specifically around the capital allocation the way, we're thinking about it no first of all will continue to run the business to make sure that we've got the right investments going in around our maintenance capital and keeping our plants running and making sure we're as efficient as we can be.
But we're going to continue to invest inside the company from a growth perspective.
Make sure. We've got you know new products that are coming out in innovation, we're going to further continue to invest inside of capital projects that make sense for the company had good returns for our shareholders. So those those projects are our first on our list as we think about capital allocation and then we'll we'll think about things is acquisitions and debt.
Hey, down you know as as other priorities for US acquisitions, obviously looking at those did a they will meet our acquisition criteria, which is very strict.
And then debt pay down as appropriate and we still have our.
Guidance that we'd like to maintain which is to get us today, 2% to 2.5% for Q2 and a half times over the long right.
Okay, great. Thanks, so much guys and stay safe.
Our next question comes from line of Matthew Bouley of Barclays. Please go ahead. Your line is open.
Hey, good morning, hope everyone's doing well thanks for taking the questions I'm wondering I wanted to ask about the the Nonres backlog I know you gave some helpful color on the verticals I guess, if you could elaborate a little if it's the backlog is giving you any sort of go forward visibility and and I guess, what are you seeing or hearing in terms of.
One is versus projects being simply postpone so how it has all that shaping up.
Yes. Thank you that's a great question, what we saw in early April we saw quite a bit of not cancellations. The push outs, we typically see pushouts and around the 10% range and they push outs got you know upwards to 30, 40% that's come back down to a traditional.
Traditional zip code, but it really depends on the sub segment. If you look at.
E Commerce warehousing, you know that that business and that business is still a very steady, but if you look it typically anything retail office.
Commercial.
Those those jobs are either will finish but there's nothing on the books. So it really depends on where you are a retail office is going to be challenged this year. A warehouse is also that's going to be a positive and health care. So it really depends on where we play a we were.
Seen bookings have improved really in the last couple of weeks ER and the customers as part of our weren't really positive on the commercial side they want to get their jobs finished.
They're they're concerned with it if you're in the the retail commercial side of the business, you're seeing things being stopped or pushed out, but if you're focused on data warehouses E warehouses things like Oh sub jobs like that there's quite a few jobs that are on the docket that we're chasing right.
Now so or cost we're being cautious about the the commercial next couple of months as we said in her comments, we are rationalizing our plant footprint. We're looking at as we're we're looking that up what is the best footprint to have from a from a demand.
Standpoint going forward to service our customers and also a widget delayering the organization to get really front and center with with our with our customers with the decision makers. So it's a it's a mixed bag as some of segments are going to challenge the retail segment to the office segment as I said.
Had a industrial manufacturing will be challenged the health care. He warehouse a we we think there's some there's some opportunities there.
Got it that is very helpful. Jim So the I mean, the follow up to that I guess would be I mean since there does seem to be such large variations in the verticals are there any sort of margin differentials that you know for for cornerstone related to different product mix on those that that we should be aware of going forward on.
You know the assumption is that some of these trends might might be persisting for an extended period like.
Yes. Thank you rent and there are definitely we look at each segment or what the the margin is in each segment and we really balance as Jeff said to you know we balanced pricing volume.
With I'm looking at margins I'm quite frankly, there are some jobs that we will pass on because the margin profile isn't something that.
We want to participate and we would rather have competition take a job like that so we're very focused on the segments. The margins not only on the commercial side, but we look at a the saying the same pricing strategy on the residential side.
By customer by repair and remodel also by end use markets so that.
That is a really core competency that I'm extremely proud of what our organization has done over the last couple of years of of really looking up at the value proposition of cornerstone of getting the value a where's the price and volume volume mix, how you balance that and really it's.
Extremely important, particularly on the commercial side when you see a steel prices will be had been moving down and we want to make sure that we balance price and volume with with our cost structure. So we have processes in place we have internal software that tracks our pricing.
We have pricing policy individuals that are really monitor our pricing strategy here and I'm really proud of the results that we've had a over the last couple of years on pricing and I continue and we'll continue to to be strategic on balancing price volume and margin as we go forward.
Got it very helpful Hope everyone stay as well thank you.
Thank you next step.
Our next question comes from the line I haven't seen creamy of D.A. Davidson. Please go ahead. Your line is open.
Hey, Good morning, two quick questions for you guys I was still planning to bring down debt by that's required to a full turn by year end.
And then also with a capex spend what percent can only be attributing to growth focused initiatives versus like more maintenance.
Yes. So this was a let me let me talk about both of those you know there's still a lot of uncertainty right now around the forecast for 2020 in so it's very difficult for us to talk about where the leverage ratio might be at the end of year and so we've pulled our guidance on kind of full year and.
So from that because of that you know we also don't we also want to make sure that we're not giving guidance right now and a leverage ratio. That's that you know that could be anticipated. We are looking at a lot of different scenarios that are out there, but at this time you want to we want to.
Continued to make sure we understand the demand forecasting our volume assumptions before we before we committed to that long term you know just to reiterate long term we're still committed.
Beginning our leverage ratio the onto that to those low twos that we've talked about him. So that's the commitment we have.
That's the second question question on Capex is it's a good question and we're focused as a as an organization, making sure that we put the priority on the projects and the things that will create the most value for the company, we have about $30 million to $40 million worth maintenance Capex as a company and that's just to kind of.
Keep things running keep our equipment up and fresh and making sure it's sufficient in keeping a safe for our employees and so that will continue right. We'll make sure that we're investing a those dollars appropriately for the business and then the rest of the Capex really prioritize writes a real process. We go through as an organization to make sure that were putting those projects that had grew.
Growth.
In front of them first and making sure that we are investing appropriately. So that we can continue to maintain organic growth rates within the company and then second we look at those projects to have the highest return on investment or for the safety of our employees right and so we balance those to make sure. They were a were appropriately appropriately manage that that.
Spend that we have.
Thank you and then can you talk about any pockets in the U.S. or even Canada, a that experience greater cobot impacts with regards to like customer demand.
Yeah.
Obviously, the the first outbreak was in the Washington State of Washington, and a you know they are the state seem to get on that pretty pretty extensively really the northeast is obvious to everyone watches the news, it's a new York New Jersey area.
Also we've seen some hot spots in Atlanta and Dallas.
Where were up there have been so some outlets as well, but really really the key area.
I believe the most you'll have to the cases are in that New Jersey, New York area.
And I will say I I am extremely extremely proud of the job that our entire team has done on the safety of our employees like we've been told by outside experts in this industry, leading a we've been very aggressive about depending on facilities are doing.
But your check so all of our employees.
Mask, a windows and moved out of its safety or volume, we lean on the safety side.
Safety is a core value of cornerstone and it's something that we swung into action as Jeff said in his comments of very decisively.
Proactively we have a crisis management team that has led by the senior management team.
That's a of the company, we need sometimes auto the probably on a daily basis, but Oh, we basis, particularly in April when things were changing so fast you. So as you know just it was a state by state County by County ground game that we jumped into this and I think everyone.
On this call and I'm, so proud of our employees at our plants that are that have gone. There every day there our front line heroes, but also what we've done as Uh huh, having the safety of our employees and our customers to get through this terrible crisis.
We feel were maybe in a little bit of a stabilization in the middle of this crisis.
You know we've gotten used to this thing, but everyday something changes we are going to we have contingency plans as Jeff said, depending on if demand gets worse, but also we've talked a little bit if there's some green green shoots where.
There are some sustainable volume increases and what's great about cornerstone is our extensive national footprint. We can if we idled plant for deep cleaning a we can put that production another plants and I'm proud to say that we've done a really super job and our customers have said this summer.
Servicing our customers with and disrupt I'm disrupted service here over the last six weeks and we continue to we plan to continue to do that.
Our next question comes on line of Richard King of Jefferies. Please go ahead. Your line is open.
Hey, guys. Most of my questions have been answered here, but I'm just quickly on the decremental margins that 30% that you're talking about just that already include the benefit from the near term cost saves that you plan to get or you know would you end up running that through and then you end up getting the near term cost saves that offset some of that impact.
Yeah, Richard I appreciate the question on that and clarification. So the 30% is pre actions right. So you take take the volume assumptions whatever assumptions you may have been bring it down by 30% and then add back those different near term and structural cost benefits to get to a revised.
Decremental rate.
Gotcha that makes sense.
And Richard made maybe just talk a little bit about history and you know we've done a lot of work in a lot of analysis around this as well going back to 2019 was a good example of what we've been able to do right. So from 2018, we finished our EBITDA margins at 10.6% and in 2019.
We increased at a 130 basis points to 11.9% and that was there was it was really a couple of things that drove that right. We talked about the price strategy that we had him and net of net of some of the inflation, but we also communicated that we had about $110 million or we did have $110 million worth a cost out inside.
2019, so it's a nice comparison as you think about the additional cost out there. We're taking now when you go back and look at 2019 I think it can help a lot of people understand the value that comes from these cost out initiatives that were embarking upon.
For sure and then in terms of the 40 to 60, how much of that impact do you think you can get through the numbers in Q2 alone.
So estimating about $10 million from the 40 to 60, and we as Jim said and we both commented on we were pretty quick in making decisions around.
The end of March as we started to see things turn a little bit itself and so quickly put a lot of these things in place to make sure we were maximizing liquidity and preserving as much profit as we good.
Got it okay that makes sense and then lastly for me.
In terms of working capital savings you expect pretty impressive number there how do you see the breakout between receivables payables inventory, where do you see the most opportunity.
Yes. So you know we're going to continue with our strategic objectives around working capital management, Yeah. We have put a a as we talked about last year or $50 million on working capital improvements coming from inventories payables and receivables. Our primary working capital were to continue with that right. So it's one of the things that are we.
I haven't slowed down on its a focus for us as a management team and as a company to make sure that we've got the proper amount of of inventory in particular to run the company in service our customers appropriately we put in a lot of of the effort around ourselves operating planning process within the company, which has enabled us to have better visibility into.
Most of the customer demand anticipate what might be happening and then putting our inventory levels appropriately to make sure. We hit the service levels that our customers require of us. So we haven't taken any focus off of that in addition to those things. We will continue to see yeah, a little bit of Ah you know the recent trends inside a first quarter with some of the lower steel.
Costs that are coming in that has the benefit on working capital and then some of the volatile volume assumptions that we've seen as of recent also have some contributions to working capital.
Okay. That's great. Thank you very much.
Thank you and our last question comes from line of Andrew can sound like Deutsche Bank. Please go ahead. Your line is open.
Hi, Thanks for taking the follow up I apologize if I missed this but did you guys just indicate what type of impact you were seeing at the tail end of March I mean, obviously you guys had a really good first quarter, but just curious if you started to see headwind showing up towards the end of the months or or that was more of a second quarter.
Yeah. It really it really started right. After the St. Patrick's day was mid March or that the month of March was down about 5%.
Okay, great. Thanks, so much.
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Thank you ladies and gentlemen, this is all the time that we have for queuing aim. This concludes today's conference call. Thank you for participating you may now disconnect.
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