Q1 2020 Earnings Call
Welcome to the Topbuild earnings conference call. During the presentation, all participants will be in listen only mode. Afterwards, we will conduct a question and answer session.
That time, if you have a question. Please press the one followed by the for your telephone fit anytime during the conference you need to recent operator, Please press star zero.
I would now it's the converts over to establish the same. Please go ahead.
Thank you and good morning on the call today are Jerry Bolus, Chief Executive Officer, Robert Block, President and Chief Operating Officer, John Peterson, Chief Financial Officer, We have posted senior managements formal remarks on the Investor Relations section of our web site at Topbuild Dot com.
As shown on slide two of today's presentation. Many of our remarks will include forward looking statements concerning the companys operations and financial condition.
These forward looking statements include known and unknown risks, including those set forth in this mornings press release as well as in the company's filings with the FCC. The company assumes no obligation to update or supplement forward looking statements that become untrue because of subsequent event.
Please note that other than it otherwise specifically stated the financial measures to be discussed on this call will be on a non-GAAP basis.
Non-GAAP measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with guy.
We have provided a reconciliation of these financial measures to the most comparable GAAP measures in a table included in today's press release and the presentation accompanying this call. Please turn to slide three I will now turn the call over to Jerry Boulder.
Good morning.
And thank you for joining us today.
What a difference since we last spoke with you've just a few months ago.
Cobot 19 has produced an unprecedented chapter for our country and the world.
First and foremost we extend condolences on getting well wishes to those whose health and safety has been directly affected by this virus.
Speaking on behalf of our leadership team and our 10000 employees.
Well, what prioritize whatever is necessary as a responsible citizens to manage through this pandemic.
From a business standpoint capitals fortunate as our installation and distribution services are considered essentially and all but a few states.
With strip safety protocols in place our Truteam crews are on job sites in our service partners co workers are filling in delivering orders.
In addition, our traditionally conservative approach to managing our balance sheet provides us with ample liquidity to weather the storm.
For those who have been following our company for many years.
You know, we are significantly stronger financially and leaner operationally than we were a decade ago.
Many of the decisions made during the 2000 now nine housing correction are benefiting us today as we face what will likely be a slowdown in housing starts.
Our leadership team is proactively managing every aspect of our operations to minimize the impact of the pandemic on our company.
Robert will talk in detail about what we've done from an operation standpoint, whether this period and what we're doing moving forward to ensure we capitalize on housings projected recover.
Yes, sure we put the health and safety of our employees their families our customers and our supplier partners first.
While we can't determine the trajectory of housing starts in our opinion, the medium and longer term outlook for housing remains favorable.
The last housing downturn was accelerated by an oversupply of housing from both overbuilding and foreclosures. Neither of those factors are in the mix today.
The good news from our point of view is that both new home inventory and mortgage rates are very low.
Our expected to remain so.
We look for consumer confidence to drive builder activity as the economy recovers.
Turning to our financial results on slide four we had a solid first quarter with only minimal impact from the cobot 19 and.
Revenue increased 5.5%.
Adjusted EBITDA margin expanded 150 basis points to 30.5%.
The conversion of our top line to the bottom line was outstanding and produced adjusted EPS of $1.37 for the quarter, a 29.2% increase.
All of the other earnings related metrics were very good and John will provide more detail on those.
Moving to slide five we completed two acquisitions in the first quarter Cooper glass and Hunter installation, both of which we announced on our fourth quarter call in February.
Given the current level of uncertainty we've intentionally hit the pause button on further acquisitions.
Looking ahead.
We are fortunate to have a strong balance sheet with plenty of dry powder and expect to eventually resume our acquisition program, which remains our number one capital allocation priorities.
The $50 million, Sarah We announced last October was completed in the first quarter at an average price of $107.31 per share.
Year to date through April 30, we have acquired 415787 shares at an average price of $74 in 23 cents per share.
Given the uncertainty of the full impact of Cobot 19, we have put our share repurchase program on hold.
I'll now turn the call over to Robert.
Thanks Jerry.
Rather follow my traditional comments review quarterly results by two business segments.
My remarks today will focus on how we responded to the co that 19 related challenges.
The actions were taken to navigate this pandemic.
And while we believe we're very well positioned to manage through this environment in prevailed stronger.
Turning to slide six first and foremost the safety of our employees is our number one priority.
Shortly after the Cobot 19 outbreak occurred we created a field operation support team to implement specific measures to safeguard our employees health and wellbeing, while ensuring the company is its ability to maintain key operations and service our customers.
Where appropriate we have institute at work from home policy at certain operating facilities, including our Daytona Beach branch support Center.
Our already extensive safety procedures were enhanced include cleaning and sanitizing, our facilities and vehicles and having employees practice social distancing.
We're also monitoring on daily basis, where we are committed to provide our installation and distribution services.
In most states construction has been deemed essential and in those locations. Our company continues to operate.
In some larger metropolitan areas, we have seen a number of large commercial projects delayed due to the density of construction crews on site.
In the four states, where construction initially was not considered essential Washington, Pennsylvania are currently reopening residential and commercial construction and we hope to see the same in New York and Michigan very soon.
Our supply chain across both business segments remained strong and our supply chain partners have been very supportive as they continue to do their par to ensure service levels or maintain enabling us to provide timing service to our customers across the country.
The safety protocols in place and our supply chain assured we turned our attention to flexing our business model to adapt to the current environment.
To provide his little bit of history has shown on slide seven most of our senior leadership team went through the great recession and the associated housing downturn in the late two thousands.
John and I right here in late 2009 in 2010, when the company was part of Masco and known as Masco contractor services.
Although the code that 19 pandemic is very different we have not forgotten, what we learn and leadership required to manage through such times.
When the last recession hit we had over 330 branches, which installed in addition to installation over 40 non core building products.
Since the last housing downturn, we have optimized our footprint shutting down over 130 redundant branches.
Moved all of our branches to a common ERP system.
Simplify our business processes.
Exit at noncore products renewing our focus on our core lines of business.
Significantly cut redundant fixed overhead.
Removed waste out of the business raw talent back into the business and our field operations and appropriate appropriately leveraged our supply chain scale.
These strategic and deliberate actions over the last several years have not just honed our current strategy as topbuild.
But have created a very focused cadence by which we run the company on a daily basis.
So we're very different company today, and we were just five years ago at the time at the spend from Africa.
Our decade long focus on operational efficiency.
Sales and labor productivity and strong balance sheet management is serving us well as we manage our business to best serve our customers.
Care for our employees and position our company to gain share and growth as housing recovers.
Turning to slide eight our playbook honed over the years has multiple levers we can pull to take cost out of the business.
Obviously, one of the easiest targets is discretionary spending and we've already identified eliminate the majority of those expenses.
Capital expenditures have also been pared back considerably and we've taken appropriate actions to reduce overhead.
Our two largest cost buckets are labor and material starting with material. We have no long term commitments with any of our manufacturers and are working closely with our supplier partners to align our supply a material with demand keeping our price cost model in sync.
Turning to labor as most of you know labor is going extremely tight in the construction industry.
Currently with most states, allowing construction services to continue and a good backlog of housing starts we're keeping the majority of our crews busy and in some instances, bringing on new team members.
However in states, where construction was deemed non essential and of those branches were work has slowed we have flagstar labor force on the downside.
To help mitigate this impact we've implemented a co that 19 leap plan that continues to pay our team members for a period of time to help provide assistance to them and their families.
We believe this is the right investment our team to create goodwill and improve the profitability, we can retire them when conditions improve.
As we've stated previously we believe we are the employer of choice in our industry and our COO that 19 leave planned demonstrates our commitment to our employees and the strength of the company today and for the future.
From an ongoing labor management perspective, having all of our branches on a common ERP system gives us a distinct competitive advantage. It is another unique strength for top bill.
For example, in Florida, our Jacksonville, Orlando, and Tampa branches can pull resources labor trucks material.
From each location as needed, enabling us to meet customer demands officially and keep labor productivity high.
The integrated ERP system also gives us real time information across all of our branches that allows us to respond quickly and this dynamic environment.
At this point, we have not closed or consolidated any branches. However, our playbook incorporates various scenarios and this is another lever we can afford to take cost out of the business.
This is a normal cadence of our monthly branch operations review.
Moving to slide nine as we lifted the business as a whole we see a clear opportunity to differentiate our company from most of our competitors and play offense.
We can service and support our existing customers, while gaining new customers and growing market share.
Our national network ability to retain labor and financial stability gives us ability to meet changing customer demands. So many smaller companies may not be able to do over the next few months.
For example, and a few major markets, we've already picked up new business as some of the competitors have struggled to provide consistent service.
In closing, we recognize that the situation remains fluid.
Our leadership team continues to monitor operations on a daily basis and will calibrate the business as needed.
Extremely proud.
The way our entire team has stepped up to be the challenge.
Our operations team headed by Steve Raya, Jeff Franklin, David Cushion, Jeff Benson all of our teams in the field and of course, our branch support center team.
You're not make it through these times the come out the other side stronger without a line leadership team with a sense of urgency and Thats, what we havent space at top do.
We know how to quickly adapt to changing market conditions to ensure we are on the best and safest course possible for our employees and our company.
John.
Thank you Robert and good morning, everyone. We're very pleased with our strong first quarter performance, which is Jerry already mentioned was not significantly impacted by cobot 19.
I will start with a brief over review of our first quarter results. Starting on Slide 10, then put some color around a few of the initiatives Robert just discussed as we flex our business model to adapt to this environment.
In the first quarter net sales increased 5.5% to $653.2 million driven by price and volume increases at both business segments.
Partially offset by a negative mix due to continued growth in multifamily continued move to a smaller footprint and some marginal impact through the coded 19.
We believe cobot 19 negatively impacted sales about $10 million to $11 million most of which was the result of the four States, Washington, Michigan, Pennsylvania, and New York that had identified construction services as non essential.
Gross margin expanded 120 basis points to 26.3% compared to the same period, a year ago benefiting from pricing volume growth and continued operational efficiencies, partially offset by higher material prices.
Adjusted operating profit grew 18.9% to $70.3 million with a corresponding margin improvement of 130 basis points.
Both gross margin as operating margin improvements were driven by higher selling prices residential and commercial sales volume and improved labor and sales productivity, partially offset by higher amortization expenses higher stock based compensation costs and higher material costs.
First quarter 2020 adjustments totaled approximately $272000 primarily tied to acquisitions.
First quarter, adjusted EBITDA was $88.4 million compared to $74.5 million in 2019 and are adjusted EBITDA margin was 13.5% a 150 basis point improvement from first quarter 2019.
Our dropdown to adjusted EBITDA margin was 40.8%.
Same branch dropdown came in at 43.8% and the dropdown through our three acquisitions came in at 22.5% a testament to our strong operational performance and our ability to successfully target acquire and integrate acquisitions.
Adjusted net income was $45.9 million or $1.37 per diluted share compared to $36.6 billion or a dollar six per diluted share in the first quarter of 2019.
First quarter interest expense declined from $9.6 million to $8.7 million driven by an 82 basis point decline in our interest rate on our term loan on average compare to the first quarter of 2018.
Moving to slide 11, Capex was $15.9 million approximately 2.4% of revenue.
Capex was slightly higher than our historical levels due to an investment to upgrade our franchisee infrastructure.
Working capital as a percent of pro forma trailing 12 month sales was 10.5% 160 basis points lower than prior year, driven by lower inventory levels at both segments and improved collections, primarily a true.
Operating cash flow was $72.9 million for the quarter.
As you can see on slide 12, we ended the first quarter with very moderate net leverage of 1.46 times trailing 12 months adjusted EBITDA total liquidity at March 31, 2020 was $576 million inclusive of the available balance on our $450 million revolver of 389.
Okay and cash of $187 million.
Our total liquidity at the end of April was approximately the same as of March ending balance.
As a reminder, on March 20, Threerd, we announced and amend and extend of our senior credit facility extending the maturity date three years to 2025, increasing our revolver from $250 million to $450 million and decreasing the headroom on our financial covenants.
As you can see we are well positioned with strong cash flow of solid capital structure and ample liquidity, we have no near term debt maturities. Our recently upsize credit facility matures in 2025, and there are five and fiveish percent bonds mature in 2026.
We have ample room under our debt covenants and understanding that the preservation of cash at a high priority, we have suspended our share repurchase program and M&A activities and significantly reduced capital spending.
Turning to Cobot 19 cost savings initiatives on slide 13, we talk with many of you in the past about the flexibility of our business model.
70% of our costs are variable, 20% or fix and 10% or a mix of the to.
This model enables us to expand margins in periods of growth and adapted downturns to mitigate the impact on our operations and financial results.
As Robert noted labor and material, our largest expenditures and both can be dial back relatively quickly as demand falls.
Right now it's not possible to know the full impact that cobot 19 will have on the housing industry and on our business, which is why we would through our 2020 revenue and adjusted EBITDA guidance last month.
However, we will share that in April cobot, 19 negatively impacted same branch sales by approximately 9% versus prior year.
This was primarily driven by the fourth states, where construction was deemed non essential as well as commercial construction, where as Robert mentioned, a number of projects were delayed.
We do anticipate further declines in the second quarters, we've worked through our backlog the issuers will continue to adjust our cost structure as required.
To date or cost savings initiatives include elimination of most travel entertainment and in person meetings postponement of other discretionary spending significant reduction of capital expenditures and the reduction of workforce in both the field and at our brand support Center.
As Robert noted, we also have the option to close or mothball branches, but we'll be appropriately cautious before taking this.
We don't believe this downturn in housing will be as deep as long as the last one and we want to ensure we'll be able to profitably service our customers in play offence as we entered the recovery.
As we've often discussed with many of you on the call today, all of Topbuild branches roll off to a common ERP system.
This provides us many advantages as we can track daily activity and every branch, giving us the ability to react quickly to business changes real time.
While we can't predict how long the economic impact of the pandemic will less we are confident in our long term strategy and our ability to adjust to changing market conditions Gary.
I'm extremely proud of Robert John and their teams for the work they have done and continue to do everyday to manage our company through these difficult times.
We are laser focused on controlling cost and ensuring we can continue to serve our customers, where we are safely permitted to do so.
As I said in my opening remarks, we remain bullish on residential and commercial construction for the medium and long term.
In the near term our experienced management team and strong balance sheet will guide us through the current environment.
And while we can't predict the timing of the recovery, we're very confident topbuild will be well position when it does arrive.
Operator, we are ready for questions.
Thank you if he would like to answer your question. Please press. The one followed by the four on your telephone you assurance, we told from to acknowledge your request.
Question has been answered and you would like to try registration. Please press star one followed by this three again to register for question, Chris The one for our your telephone.
And our first question comes line of Ken Zener Keybanc. Please proceed.
Good morning, everybody.
40, Ken.
So.
[music].
I appreciate your comments about April.
Down 9%.
But can you maybe talk operationally to how youre shared ERP systems.
You know tactically can help you so I know, sometimes you've talked about moving teams into a region.
For example, our between cities.
And pricing so.
Is there something about.
When you think about sharing resources between branches to ease your fixed cost I mean, how should we think about that is that or how do you think about that I mean is there is it a mileage issue between branches I know driving times important for you guys can you could you go into that a little bit is my first question.
I can go martyrs, Robert So I'll take the first part of that so yes. The ERP system, we definitely see as a definitive strength for the business so relative to.
We're looking to route crews route jobs route shipments, obviously that gives us the ability to do that the most efficient way possible relative to in our crews are from a distribution perspective.
We talk about sharing labor, we talk about sharing material, we talk about sharing equipment trucks.
Other equipment as well so as you may see demand fluctuate.
Certain market from a from that perspective, it's easy for us very easy for us and most importantly, our managers in the field to move those resources around so allows us to keep labor productivity hike allows us to keep asset utilization high among some of that equipment as well you mentioned pricing I think you know that we have great controls and our says.
Some relative to margin thresholds and how those are approved.
With our leadership team and the and the field as well so it gives us a lot of opportunities and I think you've even look at how we eliminated redundant season, the footprint uneven how dedicated we are to merging acquisitions, Ontario ERP system, We think it's a great tools to drive.
As efficiencies and it gives us visibility because of visibility of labor productivity gives us visibility of demand in the field by branch by region by customer. So it allows us to grew at a lot of different areas, which allows our operators in the field to really pull those levers.
Daily weekly monthly basis to to health business perform and drive that performance.
Excellent and then going to the Incrementals you guys have been.
Delivering are pretty amazing I assume that's.
What you expected.
To achieve.
Sales decline so could you talk to a little about.
Pricing in terms of what you do contracts, which I assume.
Perhaps might be a bit delayed just given construction constraints, we see but how are you thinking about pricing where it is today versus bids youre seeing I mean.
April's down nine.
So far it seems like it would be hard to have pricing going through so I mean, our initial conversations going round bids. Thank you very much and prices. Thank you.
Hey can attract again so.
Absolutely constant discussions with builders as always not just now but as always whenever we're bidding new work and this type of environment. There is always going to be some pressure from a from a margin perspective at the same time, we're making sure as we always have to really drive efficiency drive productivity work, our supply chain piece of it.
As well so.
You can expect us to continue to do that but there will be discussions that are ongoing with with builders and again on the supply chain side as well in this type of environment and it will depend on.
How how how demand goes here in the next few months in the next couple of quarters here as well so say can Jerry here. That's the one thing I would add to that as you know Roberts commentary around visibility gives us the.
The ability to to always play that balance between price and volume locally we have that visibility by brand. So so were pretty good at understanding what the trade offs are and they are different by geography. So so that's another advantage that we have and the overtime I think we've shown.
That we can do that throughout the cycle and this will just be another example of us doing that well.
Thank you.
And our next question comes fine of Mike Wood with Nomura Instinet. Please proceed.
Hi, good morning.
Morning.
Could you give us a sense of where the pace of new orders coming in for April are tracking not not the sales and when would you expect the benefits of the backlog that you have to start of.
Scott mitigating kind of that that new order decline pace.
Hey, Mike This is John so.
Obviously the reason we came off the guidance is because of the uncertainty in the drive and right now and so although we did operate in April at a pretty good clip and I think that was pretty constant by the way throughout the month.
It's the unknown right now, obviously thats affecting our ability to predict what's what's going on on the the May June and beyond that timeframe. So at this point, we're not going to speculate in terms when the backlog going to drop that could include even the potential or the possibility of there's cancellations on things we bid et cetera. So so we're not going to talk about that in terms of a go forward.
And that's our position at this point.
Okay, and what are the puts and takes.
It may make the decrementals better worse than that kind of mid 20% gross margins in.
The fixed cost piece that you highlighted 20% to 30% and would there be any short term inefficiencies in second quarter from implementing any cobot 19 type.
Caution.
Yes, Mike. So this is John again, so yes, we gave you that breakdown that 70 20 intense so how we address the 20 intent is going to be obviously critical in terms of how the decrementals look so typically we would be in the same range. The 22 to 2007 that we provide for incremental margins I.
I think initially in the second quarter, we're going to be a little deliberate and thoughtful as we as this ramps down and we anticipate that happening to some degree here throughout the second quarter.
We don't want to get caught short sightedness short handed in terms of the recovery also so I think we would expect the decrementals in the second quarter to be a little bit higher than 30%, but as we get to kind of an ongoing run rate I think that 20 to 27 range that we provide for Incrementals is probably a good way to think of the business.
Okay. Thank you.
You're welcome.
And our next question comes from the line of Phil Ng with Jefferies. Please proceed.
Hey, guys on the commercial side can you remind us how deep your backlogs are and be helpful.
A break down some the end markets within commercial.
Yes, good morning fills Robert so the backlog I think we talked about.
Not necessarily dollars, but that visibility I mean, we're bidding work today I mean that let me start out by say one thing that we've probably been pleasantly surprised with is the amount of bidding that we continue to do on the commercial side. There's been a lot of a lot of jobs that have come to us that we've been bidding activity. There has kept up pretty consistently from a bidding perspective during this time.
No we're bidding jobs deathly into 2022 now.
So not just this year next year, but some longer term jobs that go out as well as we think about I think you know, we have plus or minus 17 18.
Heavy commercial locations across the us everywhere from New York to.
Through DC, Baltimore to Orlando and think across the country Chicago and.
Early revenue represented out West Seattle, and Northern California, Southern California. So as you can imagine as we talked about commercial some here the biggest areas impact it will be the areas that you would think so Washington state Seattle, we have a lot of heavy commercial operations, there Northern California, which you probably remember was one of the first areas.
To do some of the shelter in place type of actions.
Tri City area, New York, New Jersey, Connecticut.
That area as well Thats, where we saw some of the biggest impact we've seen delays in projects not necessarily cancellations of projects, but just some delays in projects and again as I mentioned, we're seeing the.
The Washington State area, we're seeing some of those jobs have been backup as well less in northern California jobs have been backup.
Excellent and then within your distribution business I think in the past you've talked about one of the added benefits is.
In the downturn you might be little win back from that business on the contractor side, where they got too big.
Are you seeing that dynamics play out currently or just still too early.
Bill This is John so I think the whole basis of that is that customers were not service in today some of them baby buying direct from a manufacturer so.
Little too early to say that theres been an impact from that at this point in time about a month and a half into this but I think.
As this plays out that's certainly a potential and we'd expect that to.
To deliver some incremental results through service partners again, depending on the depth and breadth of the downturn here.
Got it and just one last one for me.
Picking back in question earlier.
Two biggest costs probably cost profile on the is variable side its flavor and your raw mat side doesn't sound like you're Furloughing a ton of people from a head count standpoint, and then obviously the fiberglass manufacturers got some pricing in January. So just wanted understand how quickly can you manage these two bigger pieces.
Yeah, I get back to the Decrementals you talked about.
Phil I'm sorry is your question around labor and material quickly. We can you help fulfill beginning of throttle that deck. So as you would you two biggest cost components right. It materials pretty immediate on that one obviously, we will dial down our purchasing immediately as we see the reduction I think labor, we're always going to be a little bit cautious.
Is the the market starts to decline a little bit.
We don't want to get shortsighted, we don't to get caught short servicing customers, but but certainly that's something we turn around pretty quickly also it's just that theres a little bit of inefficiency as you are declining.
Both in terms of Europe, the ability to service to customers again, you're a little bit more cautious to let go of that labor in the decline.
Got it okay, great color. Thanks, a lot.
[music].
As a reminder to register for question Presto, one on your followed by the floor on your telephone and our next question comes line of Chambers with Evercore ISI. Please proceed.
Thanks, very much for everyone.
Total of about about your pricing and typically and historically talked about you're able to push pricing and re pricing because of the tightness in the labor.
Let's start pulling back.
It seems that labor is less likely going to be as tight.
Similarly, with demand for new construction at least in the near term likely to fall.
Inflation manufacturers may have the potential to also a pullback on pricing. So I'm wondering how you're thinking about your pricing to your customers.
Going forward over the next three to six month men's like remained weak in the near term.
They trade. This is Robert so as I mentioned earlier and constant discussions not just now, but it's normal cost of discussions with.
Builders and then obviously our supply chain partners as well and made whenever we think about labor and.
From that perspective, we haven't seen anything significant yet I would say that during this time.
Whenever service is extremely important from a customer perspective, we focused on that we think that will continue to be.
Critical so let me give you. One example, what's causing delays today in the field is inspections. The limited number of inspectors that are in the field. Today said last thing a builder wants to do is Mrs inspection today, because you're going to have no extreme delays in getting that spectrum back out so I would say, making sure that we're able to service them timely basis are they.
They're inspections meet their inspections past inspections and stuff, but I would say on the other side of the labor piece of it we see it as an opportunity we see it as an opportunity there are certain or some markets that.
We're growing in that we're gaining business, where some of our in some major markets, where we've seen some competitors stumble.
Due to service. So we've seen has an opportunity to pick up some labor in those markets that remains strong. We also see it as an opportunity to upgrade.
Some of the team as well so I would say we take the labor as you know yet, though the conversations with builders will drive productivity will also drive service and continue to differentiate ourselves on the other side, we see the labor piece as an opportunity in certain markets and opportunity to upgrade the team both in the field and from a back office perspective as well.
Yup.
Got it thanks, but and then just thinking about volumes and sales across the country you talked about how April down 9%.
Four states, where you're kind of shutdown and color. Some commercial projects have been pushed out but outside of those areas that will fourth tipping shutdown.
For sales actually down in April or were they kind of flash or maybe even as shown in showing some strength.
In major regions.
The trade. This is Robert so yes, those states that John spoke to or there are the main drivers I think also mentioned the Tri State area, New Jersey, Connecticut.
Northern California being drivers, but a lot of areas that we were strong we would say that those four areas as well as commercial.
More than made up that 9% the John spoke to.
And the month of April and I think about through that southwest area, Texas, Florida, even up to the Carolinas, we are still still working our crews that a pretty full pace right now given some of the backlog and we are still bidding new work as well so.
But nothing goes for areas and some of those heavy commercial spots that I mentioned more than drove that and just to be clear also the the 9% is on a same branch basis. We did have some M&A on the three acquisitions a little over a couple million dollars in the month of April also sold.
Alright, Thank you very much guys appreciate it.
You're welcome.
And our next question comes line of Justin Spirit with Zelman and Associates. Please proceed.
Thank you guys. Just one couple few questions actually just recognizing that this is more of a 20 or 2021 kind of discussion in terms of the revenue impact for you but.
But what's your outlook across the core in verticals in the nonresidential channel that you plan in terms of like starts activity based on your conversation, but based on your experience given the nature of the disruptions that we're seeing right now.
Hi, Justin I would say so your question is around residential starts and what we see 2021 is that the question not nonresidential so more commercial office and some of the non residential work that you do.
Hey, Jeff and I'll, Robert May have a few things to say about this but my point of view on the whole thing is that the depth of what happens here and how long it last both residential commercial and just the economy in general it obviously depends a lot on the consumer like what how fast as a consumer bounced back I mean, there you can make an argument on either side.
Out of the equation.
You know, we believe that that's a consumer will come back over a period of time here. It may take a quarter two for that to happen.
The thing that we like about top bill than what we've always talked about is the diversity that we have.
Across residential commercial.
The fact that were represented Jack the geographically across the entire country and so and so whatever trend lines are paradigm changes come out of this.
It's we're somewhat and agnostic relative to that impacting our company. So.
I would say and Robert and John May have a is something that may want to add to this by 2021 I would think that we'll be back in reasonable shape and we'll start to reestablish the momentum that we had in the first quarter I mean, the first quarter everybody knows that the housing industry and popular we were we were do we were actually doing a fantastic and.
Looking towards at one heck of a good 2020 and on into 21. So so this is a speed bump without question.
But theres a lot of reasons to believe I mean, you hear you read articles about people you only been trapped in their homes for two months now hear a lot about nesting people are going to want to buy homes are going to want to have a bigger home, they're going to want to have this or that so so.
Theres a lot of reason to believe that coming out of this they're going to be some positive housing trends and also don't forget that is that we were underbuilt coming into this and.
And so as much much different than 2009, so as those are some of the reasons why im very positive actually and I think that later this year into 2021 I expect to have momentum reestablished without question. Justin. This is John I think the thing I'd add to that is when you talk about non residential or commercial.
Is that as we've shown in the past five years, we've had fantastic evidence of growing share.
So even if the market does get a little flattish. We think we've got a great opportunity to continue to push ahead, there and continue to gain share and that in that space as we've done so.
It remains a prime opportunity for us in a growth mode or a flattening.
That's helpful.
But love to get a sense for what non residential activity looked like in the first quarter and where it paced in April recognizing there were disruptions, but just to kind of get a baseline.
This is.
Just as drivers on the same branch basis on the commercial side, we were up in Q1.
In our backlogs, we had very good backlogs, having out of Q1 as I mentioned we were.
Bidding jobs into 2022 and that bidding has kept up.
In the commercial space. So we're glad to see that as John said, continuing to push picking up share in different markets across the.
Across the country and again these projects, we feel like or delayed not we're not seeing projects canceled.
The other thing I would just mentioned as multifamily we're bidding a lot of multifamily now so not just single family, but multifamily and as Jerry mentioned that.
As things as people probably moved to the suburbs more which is one of the things you hear happening here, we think that footprint that we have serve us well as or maybe some that migration.
Thanks last question for me is just call May M&A playbook going forward, what do you need to see the gain more confident for deploying capital towards M&A and love to get a sense of your mindset.
I was a timing and magnitude or perhaps the tie for the nature of M&A terms or.
Residential non residential areas that you think are interesting as you as you think about deploying capital.
Justin we're still very much in the M&A gave you know we made the comment on our prepared remarks that we're hitting a pause button.
Just for what I think will be a short timeframe here, it's still our number one capital allocation priority. We are the acquisitions. We've done it performed extremely well. So so we're very anxious to continue that.
We talked about having a pause button, we thought that was the prudent thing to do here for a quarter or two to see how this evolves and see if if we're right about their trajectory and if we're right that by 2021, we're back moving in a positive direction. So.
We have a pretty full pipeline of folks that we've been talking to we're going to continue conversations with other candidates and.
So as I said, if we're if we're right about the trajectory here.
Look for M&A to continue to be both residential and commercial and look for that to be really important to topbuild going forward just like it has been the last couple of three years.
Thank you guys.
As a reminder to register for question press. The one followed by the floor on your telephone and our next question comes sign of Keith Hughes with Suntrust. Please proceed.
My question been asked and answered thank you.
Thank you. The next question comes line of Sheldon Clark with Deutsche Bank. Please proceed.
Hey, thanks for the questions.
Hi, just longer term, but how does the supply demand balance steel in the insulation market right now relative to previous downturns do you think the just the nature of this slowdown in the shutdowns has helped at all from the supply side.
Just given the fact that things had to be forced to shutdown, we kind of new this was coming to some extent.
Hi sell than that.
Robert So I.
I would say I think Jerry mentioned or this is very different than what happened previously right. I mean, there's a there's been under building there has been pent up demand. Even if you think about in these areas that have been shut down.
As their opening back up there is a backlog there is pent up demand. There. So we would expect that to come through here. So I'd say it doesn't feel as.
For my time frame going back 10 years ago definitely is different than it was 10 years ago, given that overbuilt situation.
And then I think obviously, you're hearing the builder say that they're they're slowing down on building. The specs are building was sold.
So we would expect that to manage things through and that will prevent some of the overbuilt from happening as well. So and then at that my last comment would be others may have comments, but but just the multifamily side and we're bidding a lot of multifamily work, which could speak to the affordability issue that will be coming up here in the next 12, 18 or where so much so we.
I would be obviously will represent their participating for the multi multi family perspective as well.
Okay. That's helpful.
And I guess as it relates to your backlogs and just like new orders that Youre seeing how much line of sight does this give you from a timing perspective, and you know what are the buyers.
What's the buyers ability to cancel or defer some of these orders if things don't so kind of come back or slowdown in the next couple of months.
Yes. So this is John So I think you know typically we talk about this sit on single family we have about it.
60 to 90 day type of wind to where we see and that's under normal conditions I think what makes us a little different obviously as the uncertainty involved here in builders do have the ability to cancel previously placed order that we have or delay one and that's what's causing us to pause in terms of given any type of guidance near term certainly long term.
Also so.
I'd say generally you know we had a two to three months on the single family side, but again, we're going to be cautious here in terms of.
What voters are going to do because we can't predict that right now and it's just going to depend on what happens in terms of their pipeline and that'll certainly affect us.
In terms of the commercial side again, a nice healthy pipeline there that we're working I think the challenge there as we said, especially on the heavy commercial right now.
Those had been delayed to a large screen disproportionately more than we've seen in any other line of business. So do you think about heavy commercial the reason for that multiple trades on the job site.
So in that case gcs are going to be very very cautious until there's some level of comfort from a safety standpoint. So again, we're not seeing those jobs cancel but they are being deferred at least to a larger degree than we've seen anything on the residential side at this point.
Okay Thats helpful. Thank you that's it from me.
And our next question comes line of changing rooms with Stephens. Please proceed your question.
James Your line is now open can you clarify mute button.
Yes, sorry about that.
And sorry, I missed portion of the Q in a so forgive me. If this has been asked.
But with the current situation do you think that.
This could change the M&A pipeline at all for you guys the thing.
This could bring new opportunities that may be otherwise wouldn't have come up and.
And what's your appetite for something like that as you as you kind of look into the mix.
Quarters or the next.
Several months here.
Trey Jerry here, our appetite for M&A is you know even though we have are put on the break right now we view that as very short term.
It's still a number on capital allocation priority, we've been hugely successful with us.
And so and so we have a pipeline thats pretty full right. Now we have are still talking to a number of people and we'll talk to more so.
You know here if it plays out like I think it will here and we do re establish a momentum in the business here by the end of the year into next year, you can look for us to get involved in M&A to the degree that we have I mean, it's that's been a big part of our success here over the last couple of three years and we think it will certainly be on a go forward basis and we.
We have the balance sheet and liquidity is able to do it but we're not we're not limping here as it relates to dry powder to be able to do things so as to whether or not there were some off some short term opportunities from from anybody here in terms of their business in terms of the timing I mean were what we're open to that but for sure.
Sure and again, the strength of our balance sheet in our liquidity puts us in a position to be able to do that and so conversations are ongoing and.
Look for us to saying the game.
Hi, Thanks for the color Jerry Thats, all ahead and thanks for taking my question.
Sure.
There are no other questions at this time I'll turn the call back over to you for any closing remarks.
Thanks, everybody, we look forward to our second quarter earnings call in early August be safe.
Thank you that does conclude the call for today, we thank you for your participation have a great day.
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