Q1 2020 Earnings Call
Greetings and welcome to the Foundation building materials first quarter conference call.
All participants are in listen only mode.
A question answer session will follow the formal presentation.
It is now my pleasure to introduce your host John Moten, Vice President of Investor Relations for Foundation building materials.
Good morning, and thank you for joining us today for first quarter 2020 conference call. Joining me today, our Rubin Mendoza, our president and CEO, John Gory, Chief Financial Officer, Pete Welly, Chief operating officer in Kirby Thompson, Senior Vice President of sales and marketing.
Last night, we issued our first quarter press release, it's like presentation for today's call. We opposed to these materials on the Investor Relations section of our website <unk> B M sales dot com under the events <unk> presentation section.
Our prepared remarks in answer to your questions. This morning may contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Forward looking statements address matters that are subject to risks and uncertainties, which may cause actual results to differ from those discuss today.
For example, a forward looking statements include remarks about cobot 19 impacts on the business future expectations beliefs estimates plans and forecast as well as other statements that are not historical in nature.
Forward looking statements discuss today relate to our acquisition strategy and integration our ecommerce strategy, our greenfield expansion strategy and performance our ability to gain leverage at our business and our ability to increase market share and expand into new markets.
As a reminder forward looking statements represent management's current estimates we assume no obligation to update any forward looking statements in the future unless otherwise required by law or the lithium rules of the New York stock exchange.
Listeners are encouraged to review the more detailed discussions included in our filings with the FCC regarding various risks uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by these forward looking statements.
Additionally, during today's call, we will discuss non-GAAP financial measures, which we believe could be useful in evaluating our financial performance.
The company's May calculate these measures differently at our presentation of these non-GAAP measures should not be considered in isolation or as a substitute for measures prepared in accordance with generally accepted accounting principles are gap.
He discussion of how we calculate he's not that bad years, which includes net debt leverage ratio adjusted EBITDA adjusted net income and adjusted earnings per share as well as a reconciliation of each of these measures to the most directly comparable GAAP measure can be found in our earnings release, which has been furnished to the FCC.
And is available on our website with that I will turn the call over to Reuben.
Thank you John.
Good morning, and thank you for joining us for a review of our first quarter results.
Before we discuss our first quarter results, let me share with you an overview of how we're managing the covert 19 pandemic.
In March we launched a business continuity effort to safeguard our team members customers suppliers and the communities we serve.
We've also taken proactive steps to rightsize, our business to reflect current market conditions.
And measures to strengthen our liquidity and capital resources.
The health and safety our team members is a core F.B.M. value and we have implemented measures to help to ensure their welfare, including the use of additional personal protective equipment frequent cleaning up our facilities and practicing say social distancing.
Due to certain covert 19 related restrictions, we have reduced branch operations and furloughed employees, mainly in Pennsylvania, New Jersey, Michigan State of Washington, and Northern California.
As of Monday May 11th our company continues to operate as an essential critical infrastructure sector company with the vast majority of our branches operating in the United States in Canada utilizing safety precautions based on recommendations from federal state and local authorities.
The cobot 19 pandemic, there's also impacting the communities in which we operate in response, we have taken action to support communities through the donations.
Thousands of and 95 enough to local hospitals.
Entered the corporate 19 pandemic with a solid balance sheet.
Since then we have taken additional actions to further enhance our financial flexibility liquidity and cash flow to put the company in a strong position to return to normal operations when conditions allow including deferring or limiting nonessential operating expenses.
Reducing salaries for exempt team members led by voluntary salary reductions by our certain members of our senior management team, including a 50% salary reduction for myself.
Restricting hiring differing wage increases and reducing other cost to protect existing jobs, including the suspension of matching contributions to our for a one k. employer plan.
Optimizing all areas of working capital.
Furloughing team members associated with temporary branch closures, reducing independent board member compensation by 50%.
The lane or reducing capital expenditures that are not anticipated to impact near term business.
Temporarily suspending acquisition related activity and drawing down an additional $120 million a cash in March under our revolving credit facility.
We believe these actions will provide additional financial flexibility and help us navigate the current uncertain business conditions.
Now turning to our first quarter results Foundation building materials recorded net sales of $524 million up 2% with average net daily sales up 20 basis points compared to the prior year quarter.
Base business net sales decreased by 30 basis points, primarily due to the reduced revenues due to the covert 19 pandemic.
We estimate the negative impact of the covert 19 pandemic to base business net sales to be in the range of $14 million to $18 million and the first quarter as shelter in place orders from state and local authorities impacted our ability to deliver products to our customers.
Excluding the impact of the covert 19 pandemic, we estimate our year over year base business net sales growth would've been approximately 3% as we saw steady demand for much of the first quarter.
Now turning to our product line result.
Wallboard base business net sales decreased 1.5%, primarily due to price mix with flat volumes compared to prior year quarter.
Before the cobot 19 virus, our wallboard volumes were steady reflecting solid demand at both nonresidential and residential end markets.
Suspended ceilings base business growth for the first quarter was 5%, primarily due to higher average selling prices and mix compared to the prior year quarter.
The positive performance of our suspended ceilings product line is primarily due to the resilience of the commercial repair and remodel market.
Metal framing base business net sales decreased 7% due to lower product prices compared to the prior year quarter.
Our strong underlying profitability highlighted our first quarter results with gross margins of 31% adjusted EBITDA margin of 7.7% and adjusted EPS of 23 cents.
The improvement in our profitability is primarily due to our ongoing pricing in purchasing initiatives.
As we enter the second quarter April net sales were down approximately 20% compared to the prior year quarter, and we forecast April to be our biggest year over year decline on a monthly basis, the gradual improvement for the balance of the second quarter.
As we return to normal operations, we will continue to drive organic growth through Greenfield expansions and underserved markets with a 2020 objective of opening three to five greenfield branches and a long term goal of four to six branches per year.
Our Greenfield branch investment yield high returns on invested capital in the first few years of startup leverage our national scale increase our market share and support our long term growth.
In addition, we continue to invest aggressively in our ecommerce platform to drive long term organic growth.
We started the initial phase of our E Commerce initiative in the fourth quarter of 2019.
And we expect to begin a pilot launch in the third quarter of 2020.
Our E commerce initiatives, a natural evolution of our digital platform, which began with the launch of the FDM App in 2017.
Today, the F.B.M. App has thousands of customer downloads and we see opportunities to further drive adoption with our ecommerce platform.
In addition, we believe this is the opportune moment to enhance the customer experience through.
Empowering our customers to purchase our products online with ease and convenience building brand awareness and customer loyalty, increasing the range of products, we offer our customers.
Improving purchasing and logistics.
Improving ecommerce search engine optimization streamlining our inventory from branches to distribution centers and improving our speed to market.
Our E Commerce initiative also enhances our existing sales channels by building a gateway to our existing complimentary product offering.
We believe our E Commerce initiative will be a key driver in growing our complimentary products full year net sales from $530 million at the end of 2019 to a goal of $1 billion in net sales by 2023.
In addition, we are investing in our digital platform to streamline our supply chain by lowering the cost of goods sold increasing inventory velocity and improving our supply chain efficiency.
Now more than ever building, a digital platform as a strategic imperative to enhance the customer experience and drive organic growth.
Acquisitions also remain a strategic priority for the company since 2013, we've completed more than 35 acquisitions, and we see ample opportunities to further consolidate the industry in February we announced the purchase of to specialty building product branches in the Washington, D.C. Metropolitan market, which sold wallboard suspended.
Ceilings and metal framing product lines.
As business conditions improve we expect to resume our acquisition activity later in the year. Our company is well positioned to withstand market changes to the highly variable cost structure that allows us to scale cost with revenues and changing economic environments.
We're adjusting our business to reflect the current challenging market conditions by Rightsizing, our business and enhancing our financial flexibility and we have well developed contingency plans to reduce costs further business conditions continue to weaken.
During the second quarter, our focus is to navigate the impact of the covert 19 virus. Our number one priority is the health and safety of our team members and their families our customers and our business partners. During this challenging time.
We have instituted enhance safety procedures to safeguard the health of our team members, while fulfilling our responsibility to our customers. We continue to operate in the vast majority of the markets. We serve and we will continue to provide superior service to our customers, while delivering long term value to our shareholders now I'll turn the call over to joggers.
For more details on the first quarter results.
Thank you Rubin.
But also like to welcome everyone on today's call and extend well wishes to you and your families. During this difficult time.
As Rouven highlighted we recorded first quarter net sales of 524.3 million up 1.8% and base business net sales of 493.4 million a decrease of 30 basis points over the prior year period.
Net income for the first quarter was 14.4 million compared to 3.5 million in the prior year period.
First quarter net income included onetime favorable legal settlement of 8.6 million.
Adjusted EBITDA for the first quarter was 40.3 million up 7.5% compared to the prior year period with an adjusted EBITDA margin of 7.7%.
Now turning to our product line results first quarter Wallboard net sales were 202.3 million compared to 202.9 million.
Decreased 30 basis points compared to the prior year period.
Wallboard base business net sales declined 1.5% with a 1.4% decrease in price and mix and a 10 basis point decrease in unit volume.
The decrease in wallboard based business net sales is primarily due to the shelter in place orders from the state and local authorities related to that covered 19, pandemic, which impacted deliveries to our customers.
Let's spend a ceiling is net sales were 98.5 million compared to 89 million up 10.7% compared to the prior year period.
Base business growth for suspended ceilings was 4.8% compared to the prior year period, primarily driven by higher average selling prices.
Metal framing that sales were 93.3 million compared to 99.3 million a decrease of 6% primarily due to lower average selling prices compared to the prior year period.
Complimentary another product net sales were 130.2 million compared to 123.7 million up 5.2% guarded the prior year period.
Increase of complimentary and other product net sales was primarily due to ongoing initiatives to expand the range of products, we offer our customers.
Gross profit for the first quarter was 162.2 million compared to 153 million and the prior year period, an increase of 9.2 million or 6%.
Gross margin for the first quarter was 30.9% compared to 29.7%.
Up 122 basis points compared to the prior year period.
The increase in gross margin was primarily due to improve profitability across our wallboard metal framing and complimentary and other products lines, driven by our ongoing pricing and purchasing initiatives.
Selling general administrative our SGN a expenses for the first quarter or 123.1 million compared to 117.2 million in the prior year period.
Yes, you know expenses as a percentage of net sales were 23.5% compared to 22.8% and the prior year period.
The increase in SGN, a as a percentage of net sales was primarily due to the loss of net sales leverage resulting from the covered 19 pandemic and our continued investment in companywide initiatives.
Now turning to our balance sheet and liquidity.
At the end of the first quarter, our debt leverage ratio was 2.98 times and we finished the quarter with cash of 141 million and $140 million available on our ABL credit facility.
In March 2020, we drew a 120 million from our existing ABL credit facility to provide financial flexibility and liquidity due to volatile financial market conditions.
Currently we do not anticipate any additional drawdowns from our revolver credit facility and we believe that we have sufficient cash and liquidity to meet our business objectives for the foreseeable future.
Given the unprecedented uncertainty of both the macroeconomic environment and our end markets, we withdrew our financial guidance on April eight 2020.
However, we do understand the need for transparency for our team members and business partners.
As Ruben indicated earlier April net sales were down approximately 20% compared to the prior year period.
We estimate our second quarter net sales to have the biggest decline year over year with gradual improvement over the second half a year as branches ramp up and Pennsylvania, New Jersey, Michigan, Washington, and Northern California.
Can you just sanctions are based on a very broad survey of our customers current jobs that are postponed and not canceled.
We believe these jobs will you start and will continue through the balance of 2020 and ended 2021.
Now I'll turn the call over to Ruben for some closing remarks.
Thanks, John before I begin my closing remarks, I would like to send a heartfelt. Thank you to all our FDM team members, who work tirelessly during this period of unprecedented uncertainty.
We have a senior management team, averaging 30, plus years of building products experience, leading our team through this challenging period.
Our team members have proven that being resilient as not just about maintaining operations.
It is our culture teamwork that will guide us through this challenging time and drive our future success in closing our long term strategic focus is unwavering as we navigate through these challenging market conditions, we remain committed to our four strategic priorities that will lead to long term value creation for our company.
As business conditions improve let me reiterate our long term goals first we will continue to strengthen our balance sheet by reducing our debt leverage ratio.
Second we will drive organic growth by opening greenfield branches to grow our market share and expand the range of products, we offer our customers through E commerce.
Third we will continue to focus on profit margin expansion across our business by leveraging our economies of scale executing our cost out initiatives and by investing this company wide initiatives that will drive long term profitability.
And finally, we will continue to make strategic acquisitions when business conditions improve.
Our industry remains highly fragmented and we continue to see opportunities to expand our geographic footprint and build our presence in the markets. We serve we continue to believe these actions will drive growth improved profitability and deliver long term value to our shareholders that concludes our prepared remarks and now we'll be happy to take your question.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Hey, confirmation total indicate your line is my question Q.
Press Star too if you would like to remove your question from the Q.
For participants can you speak your equipment it may be necessary to pick up your hands that people are pressing the star keys, one moment, please while we pull for questions.
[noise]. Thank you. Our first question comes from the line of Keith Hughes with Suntrust. Please proceed with your question.
Thank you.
Some of your peer companies report similar.
<unk> results.
Close markets overly impacting the quarter.
Jimmy the bond, but I guess the longer term question as the health of the commercial backlog.
Hi, My question is are you seeing jobs canceled.
Are you see your quotation activity come down just what's the how.
Longer term as you look at the nonresidential Mark.
Thanks Keith.
As John said in his prepared remarks.
We've done an extensive survey of our customers in our CRM, there's over 7000 jobs worth over $1.6 billion.
And over the last week and a half we've pulled.
Thousands of customers and we found 134 of those jobs canceled worth about $23 million about 1.8%. The rest are postponed and plan on continuing.
As ongoing now or restarting.
And in the states that we talked about.
Okay, that's doing.
Another question little bit shorter term as you look over the next couple of months.
Do you expect to get more price crusher.
On jobs are being given that there is lot of disruption overall here in the market.
We've seen some price pressure as we've shifted some of our business from commercial the residential but you may or may not remember in our last call. We said that that was going to happen and we expected it and it's no different than what we said so it's not a huge amount of price pressure.
Well, we have seen some in our dry wall business and in our metal framing as you note.
As you see in our results is down a bit but I don't know if John said, it earlier or not in the prepared remarks, but our metal framing we're still above the long term averages for our pricing.
Okay. Thank you.
Thanks Keith.
Our next question comes from the line of Mike Dahl with RBC. Please proceed with your question.
Good morning, Thanks for taking my questions.
Hey, Mike Urban just just wanted to dig in a little bit on the on the April and May be could you give us in those markets that were most heavily impacted.
What what percentage of sales does that typically.
Represent for you.
The help us quantify where those markets down 50, where some of them.
Probably close to zero.
And then any color on just.
I think theres a comment in the press release about not seeing the typical seasonal improvement and some of those just curious if that relates to those still being closed or just any additional color you can give us on trends at some of those markets and in recent weeks.
Yeah, I want to say something about the markets and then Pete and Caribbean, probably chime in about the products or how much for.
Going forward on them, but.
Michigan is a very large market for us we have a lot of branches in Michigan, Pennsylvania is well, northern California, as well and Washington.
As a good market for us as well so all of those were closed in down 85% to 90%, maybe Pete and Kirby can can comment on.
Back up and running.
Yeah, Mike we've seen over half the employees that we furloughed.
In mid March to late March already back to work May So we've already seen a real spike in our business in those states that.
And so that we were quite slow we were not completely out of any of those markets, but we started gain momentum everyday in our billings and our backlog our salespeople are continuing to quote work and secure projects. So we feel very strongly that all of those markets are going to rebound nicely for us in the second half of the second core.
Sure.
Okay. That's really helpful. Thanks, and then the follow on his so then if we think about that's definitely helps to explain why April could be.
A bit of a trough and then you've got a bit of up a push and pull with some lag in terms, what we're now seeing on lower build or activity lower.
Sales I know you guys were trying to push a little bit more into residential.
This this year, but can can you give us the puts and takes it when you're talking about kind of gradual improvement from April is it that those harder hit markets bounce back relatively quickly, but you're down low single digits kind of stayed to.
More or like down high single down 10, <unk>. It anything you could you give us in terms of just help helping us to gauge your vision of what gradual means.
I think our vision changed initially Mike are.
It was about a 20 in April this is just our management estimates. The 20 in April may be 20 in May 15 in June 10 in July and then back to normal and we we are vision has changed a little bit sense.
We think will be down less in May and June than we were in April and we think there'll be a pause then and residential obviously because there hasnt been as much trenching.
In the last month and a half as there was previously so there'll probably be a pause at the end of the second quarter in the beginning in the third quarter for housing.
But I don't know that that goes away, we just see it as a pause and talking to our customers.
And listening to some homebuilders and commercially I know I talked to Keith yesterday about the pie and.
I know that Thats down, but we've I've seen Dodge I've seen Morgan Stanley I've seen John Burns I've seen a lot of things out there and I know you guys have too but.
The best thing that we can do is talk with our customers pull their backlogs see what's postponed and continuing.
And whats cancelled and we still believe the vast majority of the work that we're looking at and that's in our customers backlog is postponed to not canceled.
Okay. Thanks, Mike I appreciate all the transfer prices just Kirby Thompson just to add to Richard's comments I would tell you in the process of doing this survey I can tell you that our customers are generally optimistic with their backlogs.
Got it okay. Thanks Kirby texture of it.
Our next question comes from line of Sam Darkatsh with Raymond James. Please proceed with your question.
Good morning group and good morning, John I wish you in your organization good health.
HM.
Couple of questions your allowance for Uncollectibles actually went down sequentially from the fourth quarter as a percentage of your gross receivables.
Could you help us.
Understand why that might have occurred and also remind us.
Back last recession.
Where did this.
Where do the or allowance for Uncollectibles peak.
To give us a sense of.
Your your ability to collect receivables.
Our allowance.
Method Didnt change at all we had a large write off in the first quarter.
As a customer and the Minnesota area and.
It was not related to cover 19, it was a customer that struggled for a while them we made up a large adjustment for that customer.
Going forward that will catch up but for the rest of the year. So that allowance is kind of inline where we expected to be at the end of the year in the past when we run this rds. So hasnt changed dramatically we've moved up a couple of days and D. So collections in the slower times.
So far this covet 19, we've been able to collect our money relatively strong land, we feel confident we're going to costs are this year without much impact.
Sami's question, sorry, sorry go ahead, sorry, just a follow up quickly on that we have preliminary rights notices and.
All of United States in similar in Canada and.
We were able to file liens on jobs or stop notices.
On public jobs as a as time goes on if there's a problem getting paid just a reminder.
Thank you second question.
Respect, you're not giving guidance so even if this is directionally that's fine but.
What does your gross margin look like.
Here into the second quarter and prospectively for the year and what is your presumed.
Wallboard pricing therein as it relates to your gross margin expectations.
Our gross margin for April is is a little bit higher than our gross margin was for last April.
So.
I think thats and we think it's going to stick around there through the second quarter.
Yes, Sam it's John.
Yeah, we think for the gross margin this year that we're probably going to stay in the end that 30% handler range, it'll probably be more towards the lower in the range as we have a mix shift, particularly as our move towards residential so I would look for us to stay right in that historical range that we've been trending which is that 30% handle.
And what does that presume for wallboard pricing John.
It's going to be relatively flat, maybe a slight reduction but.
Not too much of an impact.
Very good thank you gentlemen, again stay well.
Yeah.
Thank you.
Our next question comes from the line of John Lovallo with Bank of America. Please proceed with your question.
Hey, guys. Thank you for taking my questions as well the first one on SSG and eight.
Historically as soon as kind of ticked up sequentially as the years gone on curious with some of the cost actions that you guys have put in place rents.
In some of the push out of investment could we actually see a second quarter SGN $8 down sequentially. It could that perhaps continues to into the third quarter or how do you know how should we think about that.
Yeah, we reacted quickly and implementing our cost reductions and we saw about a 20 to 25 basis points I've asked DNA expense as a percentage of sales reduction in April and we do see sequentially that continuing and it's really going to be based on our business demand as we move forward throughout the year, but we were.
We're able to take some costs out of the second quarter sequentially and we continue. Thank you will follow through the rest of the year.
Okay. That's helpful. And then as we think about some of the states that have big began to reopen.
You know how did you I is your business is kind of progress with these reopenings what types of products have been.
Back quicker I mean has there been any kind of skewed towards the segment or product line that has responded more quickly to the reopenings.
Yes, it's been pretty consistent across all of our mix of products.
For instance, Michigan yesterday, we had our best day in a long time with our billing so that was very encouraging to see and it's a broad base continued SDN platform of products that we're seeing we're not seeing a spike in dry wall or spike in ceilings are steel. It's just a good consistent flow of business for us.
Okay. Thank you guys.
Our next question comes from a line of Trey Grooms with Stephens. Please proceed with your question.
Good morning. This is actually know murkowski go on for Trey.
So my first question here is how should we be thinking about any kind of decremental and would decremental be higher than an incremental at least initially.
I hope it will be a slightly higher we're expecting anywhere from 12% to 18% and the decremental margin decrease and incrementally we've always talked about 10 to 12, so a little bit more but not much as we move to the year.
Alright. Thanks, that's helpful. And then just a follow up historically ceilings is seen steady price increases by you know maybe looking back to the last recession, what what typically happens when they're just a significant reduction in demand.
You know should we still be expecting steady price increases or is that thought changed.
Kirby.
Yes. Thank you I think the ceilings pricing has historically been very very consistent the fact that they're all late for domestic manufacturers of ceilings.
A big percentage that volume is done on a repair and remodel basis throughout the year. If pricing continues to be very stayed in comparison to some of the other commodities like stealing drywall.
Alright, Thanks, that's helpful I'll leave it there.
Our next question comes from the line of tray Morrish with Evercore. Please proceed with your question.
Thanks, very much you guys have talked very optimistically more so than a lot other companies about a cadence of recovery.
And I think it speaks to the health of that commercial backlog that you highlighted but but I guess the first question is.
Looking at commercial you talked about delays and not cancellations do you expect there to be like an acceleration catch up period, where a bunch of jobs get done I'm in a small window or do you think this is going to be a longer term.
Push out toward everything is pushed out 234 or five months about what have you.
Yeah, I don't know about everything, but I do think it's a longer term push out where things got stopped or delayed.
It is a longer term push out not not a huge catch up it's hard to catch up quickly.
When the job sites are going a little bit slower because of the.
Somewhat restriction.
[noise] got it thanks, very much and then.
And your your optimism and you're definitely thinking fairly constructively, which I think is warranted given the data you're saying.
But is it possible are likely or how do you guys think about.
Revenue gain flipping back positive.
At some point late this year is is that something that's potentially on the table based on the backlogs country, you're looking out or would that be a bit aggressive.
Do you mean year over year gains like the fourth quarter over fourth quarter of 19 is that you're talking about tray.
Correct.
What we're hoping to catch up with fourth quarter of last year.
We're look into more of the at SAP. So we really can't forecast gains yet in third and fourth quarter. We just think that hopefully a catch up for our second half sequentially is points will catch up.
Okay got it. Thank you very much thank you.
Our next question comes from line of Matthew Bouley with Barclays. Please proceed with your question.
Hey, good morning, [laughter]. Thanks for all the detail of everyone's doing well I wanted to ask on the complementary product sales by 2023, I think you said the goal was to double that and please correct me if I Miss heard that but I guess number one or acquisitions included in that and then number two.
Can you just elaborate a little more on how E commerce might lead to such a strong uptake in wallet share or if there's you know a presumption of meaningful growth in new customers <unk>, how do you bridge to that 1 billion. Thanks.
Okay. Thank you, Matt it's a great question and its aggressive it's a and on slide 16, I rarely point out our slide deck, but on slide 16 of our deck. We stayed our value creation for our E. Commerce platform. If you really think theres. Some just some great points in there that what we can accomplish and yes.
Yes, we do believe that there's some acquisitions included in those next three years.
As well as us some great market share gains from new customers, but also we have a lot of existing customers that buy drywall metal framing ceiling tile and accessories ceiling accessories from us that don't buy other complimentary products from us and we believe our ecommerce platform.
Pants that you have some adoption to it.
Okay understood. That's helpful. And then secondly, I I just wanted to ask what you're seeing and the competitive environment I know, it's going to vary by market, but should we think that sort of in the near term. There's any further rest the pricing as a result, perhaps in those markets that have been a bit harder hit.
You know, it's hard to forecast that and we've obviously, we monitor what our competitors are doing but we I try to make sure that all of US here at at Foundation keep.
Close eye on won't you.
And try to do at the best we can so.
It's hard to say, what what's going to happen in the future with with our competitors and and the end in the markets that are reopening it's actually a really pleasantly surprising Pete mentioned, Michigan, having their best day yesterday and things like that are happening so as the good news we're seeing some.
We're seeing some good news a come out of our reopening.
Okay. Thanks for all the details Rubin.
Thank you.
Our next question comes from the line of Ryan Merkel with William Blair Blair. Please proceed with your question.
Hi, everyone. Thanks for fitting in so like you said two questions I think first off can you just discuss the complexity of the Nonres backlog is it brought base and does it include offices in hotels, because I would think that that's sort of stuff might be cancelled.
Hi.
It is very broad based and.
Not that I don't know that Theres that many hotels that were on it before.
It does include some offices Ryan.
Definitely include healthcare it includes data centers it includes airports.
That are still going to include schools.
That that had mostly repair and remodel for schools that are not brand new schools and includes a lot of broad base things. We didn't do a lot of retailer theres not a lot of malls going or things like that.
But but it includes very broad based array of products.
Okay.
Helpful and then just secondly.
How impactful could social distancing beyond job sites to construction spending and because it seems possible that it could slow the pace the spending depending on how strict the states are but is there anything there is that could that be a governor.
You know Ryan it will slow down the stocking of materials, just because the amount of manpower is somewhat limited by the number trades on a floor. So that will flow that project down, but I don't think dental slow the amount of money into the project actually might help the municipalities because if the project patients.
A longer than that the crunch for cash is less into little bit. So we don't really view that as a.
As a detriment to the business going forward.
Okay.
Fair enough. Thanks, so much.
Thanks Ryan.
As a reminder, if he would like to ask a question press star one on your telephone keypad.
Our next question comes from the line of David Manthey with Baird. Please proceed with your question.
Hi, Thank you good morning, everyone.
What are you hearing from your suppliers, mainly on the wallboard side regarding their near term production levels.
Thanks, David.
I'm going to answer a little bit here, and I think Pete order and or Kirby might have a to chime in as well as as they have information as well, but I do know that some of our wallboard suppliers are taken shifts out.
Just.
Due to close down slowdowns I do know that one of our suppliers is actually shut down a plant or two plants.
And not sure if one of them is going to come back on.
And I don't know Thats, a pea that yes, so thats a sanco ban in continental as you know a joint forces and they closed their fort Dodge or furloughed their Fort Dodge plant.
And then they earlier in the year they shut down their Cody Wyoming facility. They had plenty of capacity elsewhere and the combined entity to support the business and it was lower cost capacity. So that was I think as much an economic move is anything.
As far as you know up until Kobe 19, we were really out our role in the industry housing starts were a 1.6, we had a lot of a lot of volume in the pipeline and everybody was quite in Doozy asking about the year and then obviously it hit the brakes, but it is our belief that as.
It is time improves and the housing recovers that there's going to be a lot of demand for drywall, increasing especially on the housing front. So we're we're very optimistic that once we get passes that will will regain some real strong momentum in the industry and obviously in that product category.
Okay. Thank you and then what are the when you think about that 30%.
Range for the next quarter or two in terms of gross margin what are the key factors that could push your gross margin above or below that level that you're considering thanks very much guys.
Thanks, Dave.
I think a factor that could push it above would be a V shape recovery.
Things going.
Quicker than we thought some sort of vaccine, which I don't know the anybody's expecting but just something quicker than we thought and just demand going crazy.
But and then below would obviously be [noise].
A flat.
At the bottom and maybe just.
Just a morse slower das slow down and business more than we have we.
Anticipated.
Operator, our next question comes from line of Clark or ski with Alcentra. Please proceed with your question.
Yes can you remind us what you're a commercial ready split is in your two segments.
Sure.
65 to 70 commercial and the rest resi and about 45% of that as is our and our.
Okay commercial sooner.
Hello.
Does that complete your question.
Hello, Yes.
[music].
Thank you we have reached the end of the question answer session I would now like to turn the floor back over to management for closing comments.
I just like to thank everybody. Thank all the SPM employees for their hard work and through this tough time and I appreciate everybody joining.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.