Q1 2020 Earnings Call
Welcome to the Vivek Conference Center next available conference specialist will be with you momentarily.
[music].
Instead of me I've ever Naperville.
Our first name debuted last name route.
And your company.
IRA.
Are you talking for Samsung.
Yes right.
Yes.
Oh volumes increased primarily due to milder weather conditions in our key markets compared to a year ago, which was an unusually cold and wet winter.
Sales were partially offset by weaker conditions in Europe, which was impacted by the cobot 19, beginning in mid March.
Our gross profit margin was strong at 45.7% and improvement of 320 basis points year over year.
This was largely due to sales mix and decrease material costs.
Our gross margin coupled with a relatively flat operating expenses helped generate operating income of $49.4 million up 64.4% year over year.
And strong earnings of 83 cents per diluted share of 66% year over year.
Brian will provide additional details on our two on performance shortly.
But now let me turn to discussion of the covert 19.
Our Hearts go out to all of these who have been impacted by the Corona virus pandemic I would like to sincerely. Thank all of the first responders for their selflessness and courageous efforts help those the need as well as extend my gratitude to our over 3300 employees for their.
Cooperation and commitment to help ensure Simpson remains a safe workplace.
The health and safety and well being of our employees their families. Our customers in our communities is our top priority and is at the forefront of every decision we make.
We took immediate action at the onset of this crisis to enact rigorous safety protocols in all of our facilities by improving sanitation measures implementing mandatory social distancing, reducing onsite staff through staggered shifts and schedules and remote working where possible and restricting.
Their access to our locations.
As of today, all of our us manufacturing facilities remain operational in accordance with the applicable shelter in place orders as suppliers of businesses deemed essential including hardware stores and other building material companies.
However, two of our larger European operations in the United Kingdom in France were ordered to cease nearly all operations in late March.
Forcing us to temporarily furlough many of those affected employees.
We have every intention of being able to bring those employees back to work when the timing is right.
Over the years, we built a strong brand reputation with a loyal customer base and talented group of employees and we have every intention of protecting that to ensure we can continue to service our customers while operating in accordance with local government regulations.
Importantly.
We have not experienced any supply chain disruptions related to the cobot 19 and have been able to meet our customer needs.
In the month of April sales declined compared to March levels due to lower demand from the anticipated slowdown in housing starts and general construction activities.
Well the situation is highly unique and unlike any other downturn we've experienced in the past.
We believe we are well positioned to emerge on the other side from a position of strength.
If you look back to 2008 in 2009 during the financial crisis, which was accompanied by a drastic decline in Europe housing starts in a simultaneous 28% drop in sales you'll see that our strong balance sheet played a major rule and supporting our business through this recovery period.
Today, our balance sheet provides us with ample liquidity to support our day to day operations. We ended the quarter with $305.8 million in cash on hand, after drawing down $150 million on our revolving credit facility as a precautionary measure to preserve client.
Natural flexibility and ensure our working capital needs will be met in light of the current uncertainty stemming from the coated 19 pandemic.
Importantly, following the 2009 crisis, we made significant strategic changes to our business.
To ensure our foundation would be even stronger in the event of a future recession. These actions included diversifying our business to be less reliance on us housing starts.
By making key investments in adjacent products and markets.
More recently, we've taken significant steps to rationalize our cost structure over the past three years in connection with our 2020 planned goals.
We've been able to operate more efficiently as evidenced by our 250 basis point improvement in our total operating expenses as a percentage of sales for the first quarter of 2020 compared to the first quarter of 2019.
Given the level of uncertainty regarding the long term impacts of cobot 19, including market conditions and demand trends, we have proactively taken additional measures to ensure we maintain our strong financial position.
Beginning in the second quarter, we've implemented a hiring freeze and we'll focus on employees retention and adjust in employee hours based on lower production levels in the near term.
In addition, our discretionary expenses, including employee travel and spend the certain consultant related projects have been significantly reduced as we abide by the shelter in place orders throughout our operations.
Turning to capital allocations.
Our strategy has shifted in recent months to focus more on cash preservation until this crisis passes.
As a result, we are reducing our planned capital expenditures to views only or projects that are required for repair or maintenance.
Or to address potential safety issues in our factories.
In addition were being highly selective in regard to inventory purchases in the current environment in line with our goal to improve our inventory balance through careful management and purchasing practices.
That said you will notice inventory dollars on our balance sheet at March 31.
Increased compared to the level at December 30 Onest.
This is primarily to support the rollout of a significant new customer in the second quarter of 2020.
Absent the impact of this new customer our total inventory dollars and pounds on hand, including finished goods would've been down compared to the levels as of December 30 Onest.
We look forward to providing more details on this rollout on our upcoming second quarter conference call.
In regard to stockholder return activities year to date as of April 25th we paid over $20 million in dividends to our shareholders and repurchased more than 900000 shares of our common stock at an average price of $69.46 per share for a total of.
I see $2.7 million.
However, given cash conservation is our priority in this current environment.
Our suspending our share repurchase program until further notice.
Finally, before I conclude I'd like to highlight that we completed the final phase of the S&P implementation in our major us sales organizations. During the first quarter of 2020 with the successful onboarding of our Stockton manufacturing facility.
We now have all of our us based sales organizations transitioned over to Sep.
As of today, we still anticipate a companywide completion goal near the end of 2021. However, we will continue to monitor and update our timeline should stay at home orders remain in place for prolonged period of time.
In summary, we are pleased that we have delivered strong first quarter results since the cobot 19 pandemic began towards the end of the first quarter, we've begun to operate in a highly difficult and unpredictable environment that has shaken our global economy.
As announced in our earnings press release issued this afternoon.
Due to the significant level of uncertainty regarding future market conditions surrounding cobot 19, we've chosen to withdraw our previously issued annual 2020 outlook.
As well as our financial targets from our 2020 plan at this time.
In terms of our 2020 plan, while the operating environment has made it difficult to predict whether these financial targets remain achievable by the end of the fiscal 2020.
We continued to execute based on the same underlying principles of focusing on operating efficiencies and cost savings the guidance through this pandemic as we move forward.
In a world filled with so much uncertainty I can say that we believe our business is very well positioned to whether the current storm as a result of our focus on elements that we can control, including our pulled in a best in class customer experience and manufacturing high quality trusted products.
Maintaining overall financial flexibility by ensuring we have ample liquidity and remaining conservative in our capital allocation approach with a focus on cash preservation in the near term.
I'd like to again, thank all of our employees for their passion and commitment to their health and safety and our excellent customer service and I'd now like to turn the call over to Brian who will discuss our first quarter financials in detail.
Brian.
Thank you Karen and good afternoon, everyone Im pleased to discuss our first quarter financial results with you today.
Before I begin I'd like to mentioned that unless otherwise stated all financial measures discussed in my prepared remarks.
Today, we'll be referring to the first quarter of 2020.
All comparisons will be year over year comparisons versus the first quarter of 2019.
Now turning to our results.
Thanks, Karen highlighted our consolidated sales were strong increasing 9.4% to $283.7 million.
Within the North America segment sales increased 12.5% to $249.1 million due to higher sales volumes supported by stronger housing search.
Compared to the winter.
Weather conditions, we experienced a year ago.
US housing search grew 22% in the first quarter versus a comparable period last year.
Notably in the West and South where we provide a meaningful amount of content in the homes starts grew 27% and 19% respectively.
Year over year.
In Europe sales decreased 8.5% to $32.7 million, mainly due to lower sales volume in our concrete business.
In addition, first quarter sales were slightly impacted by our facilities in France in the United Kingdom, which experienced government mandated restriction orders on operations in March for safety precautions in response to covert 19.
As a result lease locations were operating with minimal activity to comply with the orders.
Europe sales were further negatively impacted by 1 million $1.0 million from foreign currency translations, resulting from Europe currencies weakening against the United States dollar.
In local currency Europe sales were down approximately 5.5% for the quarter.
Wood construction products represented 86%, a total sales compared to 84%.
And concrete construction products represented 14% of total sales compared to 16%.
Gross profit increased by 18% to $129.7 million, resulting in a gross margin of 45.7%.
Gross margin increased by 320 basis points, primarily due to lower material in factory overhead costs as a percent of sales on increased production.
Offset partially by higher labor warehouse and shipping costs.
On a segment basis or gross margin in North America.
Improved to 47.7% compared to 44.4%, while in Europe, or gross margin improved slightly to 32.7% compared to 32.3%.
From a product perspective, or first quarter gross margin on wood products was 45.4%.
Compared to 42.3% in the prior year quarter.
It was 42.5% for concrete products compared to 39% in the prior year quarter.
Now, let's turn to our first quarter costs and operating expenses.
Research and development in engineering expenses increased 9% to $13.4 million, primarily due to increased personnel costs and cash profit sharing expense.
Selling expenses increased nearly 2% to $28.5 million, primarily due to increased personnel costs.
And commissions and cash profit sharing.
Partially offset by lower stock based compensation in advertising and promotion expenses.
On a segment basis selling expenses in North America were up 2% and in Europe the increased.
Nearly 2%.
General and administrative expenses decreased 3% to $38.5 million, primarily due to decreases in professional and legal fees and stock based compensation.
Partially offsetting these decreases were increases in personnel costs.
Cash profit sharing.
Bad debt reserve adjustment and intangible amortization expense.
On a segment level general and administrative expenses in North America decreased 5%.
In Europe gene a increased by nearly 6%.
Total operating expenses were $80.4 million, a slight increase of zero point $5 million or approximately 1%.
As a percentage of sales total operating expenses were 28.3% an improvement of 250 basis points compared to 30.8%.
Included in our first quarter operating expenses were Sep implementation support costs of $3.4 million compared to $2.4 million in the prior year quarter.
Since the projects inception, we've capitalized $19.7 million and and Expensed $29.3 million in total as of March 30, Onest 2020.
Our strong gross margin helped drive a 64% increase in consolidated income from operations to $49.4 million compared to $30 million.
In North America income from operations increased 63% to $53.6 million due to higher sales and lower operating expenses.
In Europe loss from operations was $1.7 million compared to a loss of.
Zero point $4 million due to lower sales and higher severance and amortization expense.
On a consolidated basis.
Our operating income margin of 17.4% increased by approximately 580 basis points.
The effective tax rate decreased to 21.3% from 22.5%.
Accordingly, net income totaled $36.8 million or 83 cents per fully diluted share compared to $22.7 million or 50 cents per fully diluted share.
Now turning to our balance sheet and cash flow.
At March 30, Onest 2020, cash and cash equivalents were $305.8 million, an increase of $192.4 million compared to our levels at March 31 2019.
Largely due to the aforementioned decision to draw down $150 million on our revolving credit facility.
This action was taken as a prudent measure in order to increase our cash position.
And preserved financial flexibility in light of current uncertainty.
Resulting from the coded 19 outbreak.
The proceeds from the borrowings will be available to be used for working capital general corporate or other purposes as permitted by the credit facility.
We have approximately $150 million of remaining borrowing capacity under our revolving credit facility.
We generated cash flow from operations of $16.8 million for the first quarter of 2020, an increase of $7.1 million or 74%.
We used approximately $6.8 million for capital expenditures, which included a minimal amount for our ongoing Sep implementation project.
We also spent $10.2 million in dividend payments to our stockholders.
And on March excuse me in on April 23rd our board of Directors declared a quarterly cash dividend of 23 cents per share, which will be payable on July 20, threerd to stockholders of record as of July 2nd.
Before opening up the call for questions I'd like to Echo Karen's comments in regard to our 2020 financial outlook.
Today, there remains a significant amount of macroeconomic uncertainty regarding the corona virus pandemic, including an overall lack of visibility into future market conditions, including us housing starts a leading indicator for a significant amount of our business.
Based on these factors we have chosen to withdraw our previously provided full year 2020 outlook as well as the financial targets associated with our 2020 plan.
In closing, we're very pleased with our first quarter results.
I'd like to thank all our employees across the globe, who are dedicated to working safely and supporting our customers in these highly challenging times.
We believe our significant market share geographic reach in diverse product offerings combined with our ongoing cost saving initiatives from our 2020 plan.
Strong balance sheet and near term focus on cash preservation will place Simpson in a position of strength when shelter in place orders begin to be lifted.
We are confident in our ability to maintain our operations. During this difficult time as long as we are able to continue operating as a supplier of essential businesses.
And believe we are well positioned to support future demand trends once the cobot 19 pandemic passes.
Thank you for your time and attention today, but this time I'd like to open the call up for questions.
Operator.
Thank you at this time, we will be conducted a question and answer session. If you like touched a question. Please press star one on new telephone keypad. A confirmation is only indicate your line is in the question Q.
You mean for start to fuel at your move your question from the Q for participants using speaker equipment and may be necessary to pick up enhancement before presence our key.
One more repeat as we pull for questions.
Our first question comes on line of Daniel Moore with CJS Securities. Please proceed with your question.
Thank you Ken Brian Good afternoon on hope you on the formulas are well congrats on obviously strong Q1 results.
Can you mentioned this is unlike any other downtime.
Can you elaborate a little.
Obviously.
Tremendous uncertainty, but what does your crystal ball say about debt duration relative to Oh, eight or nine how is it similar how is the different just any.
High level thoughts would be helpful.
Sure.
Thanks, Dan appreciate complements on the quarter, if it was a really a fantastic quarter.
Until about the middle of March as everybody knows.
So as we discussed we did have the financial crisis in the 2008 2009 timeframe.
Certainly a huge impact on Simpson and our business.
And some of the things that we see differently today is apparently still high demand for housing.
Low interest rates.
And not a lot of the inventory on the market. So we think the demand.
Side of the equation is still good as we look at where we are in 2020.
However.
Where we are.
Thanks.
We're one month into Q2 and were certainly are a scene.
Significant reduction.
Based on where we were in March and it's very difficult to know.
What that timeframe will look like as some states are starting to open up and others are not so very difficult for us to predict.
Let the curve will look like.
Are we taking into account again that strong balance sheet. So that we can ensure that we can see in good shape when when we come out of this but from a timing standpoint again, it's difficult for us to know.
When things will pick up again.
What kind of volume declines of you experience.
Either sequentially or year over year, thus far in April and North America in Europe.
From March to April we've seen a double digit decline.
And maybe what type of what percent half of the are you operating that.
Obviously, Europe is a little bit more impacted but in North America, what percentage of capacity or your plants currently running up.
Yeah. That's that's a capacity is a great question.
It's impacted by a couple of things number one our reduction.
And the actual customer orders, but the other thing that's impacting our capacity is the health and wellbeing of our employees.
So.
Today, we do have one facility that Scott reduced.
Hours, but the other facilities are running at full one shift capacity.
I'll sneak one more and jump back in queue in Europe.
Thanks for the.
What type of either weekly or monthly operating losses were running at is at this stage given shutdowns in those two large facilities and any steps you might be taking to mitigate that thank you.
Yes, so in Europe.
Obviously, the pandemic hit there sooner than in the United States.
And we saw as we mentioned in mid March.
The reduction and actually the government shutdown on both our UK facilities in our France.
You mentioned those are two of our largest.
They represent about 5% of our revenue companywide revenue.
Today, we're starting to see things pick up a little bit their ads.
Some of their shelter and placed elements are being east.
And they did not have an impact.
On our concrete business and.
That was still fairly strong because those are typically commercial type of business.
And the shutdown of the.
The United Kingdom, and they are France locations did not have an impact on our Nordic business, which is supplied by our manufacturing facility in Denmark.
Right.
Okay I'll jump back in queue, we're going to fall. Thank you.
Okay. Thanks, Dan.
Our next question comes on line of Julio remember with Sidoti and company. Please state your question.
Hey, good afternoon hopefuls are doing well.
Thanks Leo.
[laughter] jets.
Just following up on the previous question any.
What I think about the cadence of revenue for the year I know you mentioned that double digit drop off from March to April.
[noise], but I think about thinking specifically I think about the lag.
From housing starts to your tip to your sales if you think about on average three months.
Let me considering that is considering.
How starts has kind of performed at Cedar I mean.
He is it fair to expect kind of a stronger drop off in threeq using in Twoq or do you.
Yeah, I think what we saw in Q1 was part of that strong December January housing starts.
And obviously where's the March numbers have come out we've seen a drop off in those numbers and that's what we'll start continuing to see as we go through the second quarter.
And I think Thats, what youre seeing already from our March to April drop off is that housing start drop off.
Okay and.
Oh.
I know you focus on rationalize and how structure over the past few years, but.
Can you maybe talk about your current mix of fixed to variable costs and how that may be compares to the cost structure, maybe maybe pre 2020 plan or pre.
Or maybe the last downturn.
Hey, Julio as Brian So part of the efforts that we spent over the last few years have really been too.
Position ourselves.
Necessarily for.
Pandemic situation, but really try to maximize operating efficiencies in the like and no. Although we don't we don't typically comment on.
The fixed versus variable cost structure within our business.
The efforts over the last couple of years, which we really started to see pay off as SGN as a percent of revenue.
Started coming down the.
Yeah, we believe those elements are going to.
But we're going to benefit from going forward and but amber.
I'm not going to comment right now on.
How much of our costs are fixed versus variable.
Fair enough and maybe just my last one here is.
I know you mentioned in the press release kind of.
Tightening your belt on on planned capital expenditures.
[music].
Yes, I guess.
That along with.
No.
I kind of.
2020 plan and how you thought about capital allocation with that I mean, how do you think about maybe your balance sheet post.
2020, and I know that there's a ton of uncertainty, but assuming some type of recovery starts to happen within this year.
I guess longer term I mean.
How do you think about your your balance sheet and the right cash position.
Assuming a recovery begins to materialize studies here.
Well you know, it's it's a it's a good question the.
Our initial response was let's.
Look to preserve liquidity.
With the moves that we've made and.
By focusing on Capex Center, primarily.
Safety or replacing equipment that that needs to be replaces the primary focus.
At least until we get better visibility into our end markets and.
Take it from there. So we are we continue to monitor like I'm sure.
All other companies are doing looking for.
Those signs that things are either turning or.
They're going to remain this way for awhile, but but right now just trying to.
Focus on.
Preserving that balance sheet and delaying.
Or if you will some of those other capex projects that we originally had in our 2020 in the fiscal 2020.
Plans and the like so.
Again, just looking to preserve that that flexibility until better.
More insight into the end markets come into play.
[noise], so don't necessarily have an answer for where were you know where where we're targeting cash to be but it's just again trying to maintain.
That flexibility.
Understood. Thanks for taking the questions and stay healthy.
Thanks, you too [laughter].
Our next question comes on line of Tim was would then proceed with your question.
Hey, good good afternoon, everybody everybody so everybody is well.
That's helpful in the quarter.
And managing expenses there.
Maybe just.
Hit the harp on kind of mid March through April but.
You said April down double digits relative to March and I assume you generally have a meaningful stocking that happens between March and April So I guess in a normal year, what type of trend, which you see from from April to March from March to April in terms of growth would it would be up double digits are up single digits.
Well as we've always said our.
Typically our best quarters, our second and third quarter, and Thats really a function of the construction being able to be active based on coming out of winter months. So.
Last year of course was an anomaly because we had a very tough winter first and second quarter, but historically, our best quarters or second and third quarter. So historically, we would have seen.
Second quarter, kicking up compared to where first quarter numbers were.
Okay, and then just just on the new customer you mentioned is there any way to just kind of think about sizing or maybe where that customer is in terms of end markets and product you know the types of products that there, but theyre purchasing from you.
Yeah, I mean that is I think we said that new customers loads. So that gives you an idea there in market and we'll certainly be relaying for much more details when we finish.
Have our Q2 conference.
Okay.
Okay. It just any is that a pretty sizable wind just in terms of overall size.
We will give you more details on that size and product mix.
Again, when we when we've had that opportunity.
In a our keeps you confidence.
Okay, Okay fair enough and then just.
I guess when we think of you know as she name you guys have done a good job controlling questionnaire for the last couple of years with with the 2020 plan.
How should we think of just the flexibility around its gionee. If if you see meaningful sales declines and I'm just trying to understand if you know sales are down double digits in the second quarter. For example would you expect S you need to be down, but by and lesser amount or would you expect it to be kind of slide any anything kind of directionally I think was.
I would be helpful.
I would say slightly down to were flat to slightly down I mean, there is variable compensation in there and.
That's based on profitability in the like when when you've got lower volumes lower profitability, but.
I would say slightly down there.
Okay, Okay, and then and then from a steel perspective, just last one I had just.
If you kind of look forward.
Yes, where prices are today, how big of a tailwind or how long of a tailwind can come the material costs be for that for the gross margin line your Cogs.
Yeah, I mean, it's a good.
Go ahead Bronto head count.
Yep Yep.
David.
Go ahead.
Yeah, it's it's so depending on volume and alike, and we're really not look in to two comments on.
No those those elements of course, we're we're looking at steel and the and the markets and alike, but also looking too.
I'm.
Try to balance, where we think demand will be with what we need to purchase.
And.
And to take it from there so.
Okay, and if you've got anything else there.
Yeah, I would just say that.
You know as we mentioned our gross margin in the first quarter was.
Good volume good mix more wood products in concrete products and certainly we had some contribution.
From the material side.
It's it's tough to know again materials really a function of what that volumes going to look like in its tough for us to get any.
Good Crystal ball at this point and certainly we'll continue tracking what's going on that the housing starts and what's going on with the that are in our market, but really tough to be able to get some clarity on that right yet.
Okay, Okay fair enough.
Thanks for the thanks for the time and good luck mentioned brought us.
Thank you Tony Thanks.
Our next question comes online and Steven Chercover with D.A. Davidson. Please proceed with your question.
Hi, Fahrenheit Brian.
Steve.
So it's kind of late so forgive me, if there's any repetition but.
It sounds like it the quarter could have been even better house different headwind or how steep as the drop off that you experienced in the in the last two weeks of March.
Steve I would say that in Europe, they felt that drop off as we mentioned in about mid March.
We probably didnt feel that as significantly. So we are really probably the last week in March is when we started to have the shelter in place orders come into effect.
Got it and as we think of your your U.S. regions.
California in Washington, amongst the seismic regions are currently down did things really slowed down a lot in your when the sheer regions because they seem to be a bit more liberal about.
Getting things back and running.
Yeah as you mentioned so.
Regions.
Put these ordinances out in various stages.
California that shelter in place and then of course construction and hardware was still essential and then some counties in California, and as you mentioned in Washington.
Correct, even construction activities, although keeping hardware as this into businesses. So certainly that would have impact as you mentioned in the western states within a lot more content in those houses based on seismic criteria.
We're not seeing quite is stricter construction mandates in some of the other states although parts of the northeast had similar mandates where construction was not allowed some areas and in Pennsylvania market So varies quite.
Throughout the country.
Okay and then.
Okay.
How much flexibility do you have adjusting your work hours I mean I.
I guess in Europe, they kind of did it for you, but yeah I mean domestic.
Facilities can you tell the rank and file.
No we're going to ring the bell after six hours because we've got six hours worth of work, even though you're accustomed to doing an eight hour shifts I mean, just how much flexes.
Yeah. That's a great question first we have you know a very skilled.
Workforce and so we want to ensure that we're putting everything in place to make sure. We don't have to go to reduced work hours.
As I mentioned, we've only had to do that at one of our facilities. We went from a 40 hour week to a 32 hours a week.
And it's a but it is thinks that we have to work with it we're a union shop without the go to those processes, but again, we're doing everything as far as making sure. We can look at what the production needs are to be a keeping dot very skilled workforce in place.
Okay, and then switching to.
Maybe two quick Brian Brian question, but the 150 million dollar drawdown on it down on your revolver. I mean was that just a full blown abundance of caution kind of use it or lose it are you concerned that somehow.
You are bankers would.
Would you know with holder or yanking from you.
So full blown abundance of caution and early.
In the in the early days if you will we just wanted to make sure that we had that access wasn't anything to do with any.
Our particular banks from you know very strong banks in strong partners, but because we saw no eight or nine crisis companies had been pain for lines of credit and when they went to draw them. We're told they were funds were not available so.
That was.
Our position was to make sure that that scenario didn't happen to us.
And I've not heard of any.
Significant.
Into it or any restrictions in that regard and this go around.
But again it was just out of that abundance of caution to make sure. It was there if for whatever reason the credit markets.
Dried up and.
We weren't the company's weren't allowed us to pull it down but.
Again, I'm not seeing that this go around.
But.
Just just to make sure we had it.
Got it and then are you seeing any pockets of strength I mean anecdotally it sounds like.
A lot of the decking sensing that was going to college honeydew projects that are not you know if the weather is conducive and People's got time on their hands. That's the one area of where the home centers are really having a tough time keeping up with the demand that I'm. Just wondering does that benefit for some of your outdoor accent.
Products or other product lines that really cater to.
Well sensing indexing.
Yeah, Steve I mean, certainly.
Hardware stores being essential business, we do business with at the home depot to value to the testing and.
All of those I think are.
Acted as busy as major part of our business as we always say, it's about 60% of our businesses driven from home starts.
So as much as these areas are doing better.
Then maybe a contractor distributor there is still not a really large part of our business. So.
I think they are seeing.
Some of that business through those locations, but again home starts is 60% of our revenue.
Sure well I mean, let's hope your comments at the outset that indicate that there is not an oversupply of.
Housing inventory in the rates remain low allows us to snap back a little bit differently than that for 2008, thanks and stay safe.
So you see next day [laughter].
We have a follow up question from a line of Daniel Moore from CJS Securities. Please proceed with your question.
Thank you again and be ashamed did not ask at least one question on Q1, given how strengthening the quarter maybe just.
Ryan any commentary the 320 basis point gross margin improvement can you break that out between volume and raw material or at least rank order them.
Well, we definitely saw volume compared to Q1 last year, but also.
As we noted.
Gross margin benefited from.
A material as a percent of revenue being a little lower absorbed more overhead which is spills into that to the build the volume question.
But also one of the other.
Elements there is mix we had.
Better would margin.
Or would margins improved in Q1 to 20 versus last year and that wouldn't product business was.
A little bit more of what percent of the total.
For the company so bit of benefit on mix.
A material and volume.
Okay. Lastly in terms of just getting back capital allocation you know the one thing we didnt mention as M&A. These you know do you see potential at least for increased opportunity on given some dislocation dislocation or are we really on hold as far as that is concerned as well.
At the time be.
Hey, Dan and you know, obviously, where we would keep our eyes open to see it anything.
Of interest wants to come around but certainly we're not actively in that market.
Understood. Thank you see color.
Great. Thanks, Dan.
Ladies and gentlemen, we have reached the end of our question answer session as well as today's conference call.
You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Oh.
[music].