Q2 2020 Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to the Beacon roofing supplies second quarter 2020 earnings call. My name is Aaron and I will be your coordinator for today.
At this time all participants are in listen only mode. We will be conducting a question and answer session toward the end of this conference.
That time I will give you instructions on how to ask a question.
At any time during the call you require assistance. Please press start followed by zero and a coordinator will be happy to assist you.
As a reminder, this conference call is being recorded for replay purposes. This call, but contained forward looking statements, including statements about its plans and objectives and future economic performance forward looking statements are only predictions and are subject to a number of risks and uncertainties. Therefore actual results may just.
<unk> differ materially from those indicated by such forward looking statements as a result of various important factors, including but not limited, though to those set forth in the risk factors section of the company's latest form 10 K. These forward looking statements fall within the Safe Harbor <unk> provisions of the private.
Securities Litigation Reform Act of 1995 regarding future events and the future financial performance of the company, including the company's financial outlook.
The forward looking statements contained in this call are based on information as of today may 7th 2020, and except as required by law. The <unk> company undertakes no obligation to update or revise any of these forward looking statements. Finally, this call will contain references to certain nongaap measures the reckon.
<unk> of these nongaap measures as set forth in today's press release. The company has posted a summary financial slide presentation on the investors section of its website under events and presentations that will be referenced during management's review of the financial results.
On the call today for Beacon roofing supply will be Mr. Julian Francis President and C.E.O., Mr. Joe Nicky Executive Vice President and CFPO, Mr. Frank When I grow executive Vice President I would now like to turn the call over to Mr. Julian Frances Presidents and C.E.O. Please proceed Mr. Frances.
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Yeah.
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So so very encouraging order results.
Yep.
19.
Most of our response.
Yeah.
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And it's been taught.
Far results so.
Expressed by appreciation for employees well, we are essential business.
Occasionally.
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You know I'm proud of every member of the meetings.
They are working hard and what you say between short customers.
They need for volume essential services for the.
Those critical Homo profit.
It's kind of uncertainty.
[laughter] health and safety or employees customers and communities.
Okay for a second quarter results I'm very pleased to talk wine.
When we generated.
In fact, absolutely impacts a pandemic.
We very well could have been looking at an even better.
<unk> 39 million, we digital though.
[noise], we originally expected this year's one flow.
The first half on post hurricane whatever comes and the strongest second pass on improving new residential construction.
Rolling repair market in both residential and commercial truck.
You know we have now what's wrong.
<unk>.
19 is.
Looking at off his hat, we just what we said we do.
We've been able to show significant posted friend from embarrassment July and during the second order, we do live in sales growth.
Operating expense leverage.
Let me say a word about how each facilities initiatives.
In terms of organic growth in order.
Sales improvements or 0.5%, let's just last year and we're on a much stronger.
Vision right before we started to experience impacts and then a mid March.
I should also point that we.
<unk> roughly three percentage points.
From last year as Hurricane demand you know mid Atlantic inside of these regions.
Adjusting those two regions for the year ago Hurricane impact would mean six or seven regions generate sales increases during the second quarter, indicating <unk> and the benefits or increase focus on sales activity.
From a product perspective.
To sell highlights was on nonresidential roofing category.
Maybe a level San Pedro.
Presenting outfit consecutive or the have you ever on your gaze.
And while the categories sales, so decline and Kobe 19 ongoing bidding and closing activity is remains.
That in terms of strategy to improve operations, you'll recall, we have intensified.
<unk> branches.
Despite the external headwinds this group of branches began to see operating income improving during our second quarter.
We've made progress on gross margins during the past two quarters.
During our fiscal first quarter, we were able to deliver sequential gross margin games and now, but the strongest second quarter gross margin phones, we have produced year over year margin expansion.
Incidentally, because we would show that you're over your improvement in the second pass this fiscal year.
Actually tracking ahead prior to the <unk>.
[noise] our market based French operating model that we turn our own time incomplete or P.C. network is now inflation over 40 miles and continues to enhance our customers experience and drive improved operating leverage for beating.
This was evidence in the net <unk> games in delivery efficiency of 60, or 70% and variable cost improvements 70 Lady basis points for <unk>.
In these markets across the country. You also contingency examples where I'll central dispatch teams ensure our ability to several customers even when issues arise.
And these markets.
But as important <unk> online that in March.
With respect to digital.
You too upsales being transacting through E. commerce for a 50% over the pride in area.
Focus on increase sales activity is critical regardless of customers want to interact with us.
<unk> digital platforms as a strategic initiatives and we are seeing improvement and continued growth.
And the recent heightened interest in a <unk> sales process wheel wells positions to deepen existing relationships and gain market share.
Wrapping up our results for the high level in the first half as little 2020 Beacon demonstrating in strategic Heaven from acquisition based grows to organic gross is the writing strategy for this phase of budgeting.
We are still in the very early stages of executing.
Pleased to the progress we're making.
Yeah.
Shifting to cope with 19.
Everyone, we experienced <unk> significant impacts throughout business studying in mid March.
Understanding combat impact we immediately formed a crisis response leadership.
This group continues to meet days when show, we have the latest internal and external developments and can plan and react accordingly.
As an essential business.
He used to operate through this pandemic.
Unsafe you up our employees customers M. communities is the primary concern for our organization.
[noise] operational health and safety or the core of speech and culture.
<unk> engaged I'm from past the organization confronting unique challenges of Kobe 19 in order to ensure a healthy workplace.
Following all C.D.C. guidelines and acting social distancing measures disinfecting branches regularly utilizing E.N. requiring field employees to remain home if they come in contact with or show any symptoms of virus.
<unk> personnel I wasn't productively from home and travel has been largely eliminated.
Branches something to claim essential businesses in all market research.
We are open for business and helping sustained the likelihood of our employees customers and suppliers.
[noise], what we've seen in April distinct difference between the heavily and not so heavily affected geography.
There are areas, where the case numbers the height and there are specific governmental restrictions in place on construction related activities, calling from California, Michigan, New York, Pennsylvania in Quebec.
The impact a business has been fairly severe in these markets would you be your sales decline, 40% to 50% in April.
We don't know exactly one of these restrictions will ease of course every mark.
However, we have seen some cautious rollbacks too in recent weeks in Pennsylvania, Michigan and the Bay area.
Obviously this is not a guarantee that business and these more heavily impacted locations will immediately improve but we have seen early indications positive things you sales friends. So we are hopeful as each saint revisit extensive the restrictions in the coming weeks.
The other 46 jurisdictions, where we operate in the U.S. in Canada submitted to hire single digit sales declines during April.
Areas represent approximately 70% of our overall sales.
Beats modest declines highlight the recession resistant revenue characteristics about business.
Well, we are not immune from the impact of coping 19, heavy quotient about business is repairing aged and damage ruse.
70% to 75% overall sales and more than 80% of our roofing business is our and our base and Luckily nondiscretionary.
This provides an important level of protection during soft economic environments.
As we mentioned you know prerelease, we have taken significance cost and liquidity actions in response to the pandemic.
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And you start labor costs too broad based methods, including the reduction an hour work week, <unk> field and management employees.
Temporary reducing salaries and executive and other leadership positions.
Restricting travel another discretionary expenditures as was taking a significant number of under utilized trucks offline reducing maintenance expense.
With respect to liquidity, we have severely curtailed capital expenditures improved working capital management by reducing inventory and drawing down on a revolver.
As a result, a balance sheet cast position is strong and we are continuing to evaluate actions <unk> and flexibility.
[noise] that was because for strategic initiatives I have to say the old or emissaries as opposed to success even in radically changed circumstances.
So that's an organic growth.
Without salesforce largely working from home they'd have to resort to electronic forms of communication phone based activity has climbed substantially.
Utilizing O.C.R.M. tools, Oh sales team has been diligently following up without contract customers to ensure they know we are the business and we stand ready to help them.
Oh dedicated I decided sales team.
Outputs of night, thousands colds today to listen to all we can do to help customers.
Based on feedback you have developed webinars subjects, such as providing no touch customer experience.
During the storm season, with social system, the same and Pomona financing.
The benefits of maintaining this level of activity will he felt immediately and continue long after the current crisis is behind us.
Second no focus on operational performance.
Originally established to review branch for almost surprising Kobe 19 remains valid in that.
The metrics, we've built around operational efficiency had cancer named entity management, just as important to know recessionary environment, because they are in a growth environment.
At the beginning of the fiscal year, we intended to focus primarily on the lowest when tall branches.
That's just the pandemic, we're using the same approach across the network and it's fair improved.
Well normally adding to encountering this time of year.
Do you spend more than 10 cents across the company and more than most severely impacted branches.
In many cases, we have some seeing seeing substantial gains in revenue per hour work, which we believe will help us now and in the future.
Could are on time incomplete network.
<unk> real lining and expanding the cooperation about 200 exteriors fractious. So the more than 40 major markets, there's been invaluable during Kobe 90.
First and foremost leveraging the local network of branches, who T.C. helps us and show that our customers receive highly reliable service and delivery schedules.
If we experience a temporary branch closures, we can contain to say about customer from another branch within the network.
That reliability is hugely invaluable customers and there's a major differentiator <unk>.
When the economy ever covers this model will also allow us to meet increased demand more efficiently by leveraging the equipment resources, an inventory cross on network of branches.
I see additional five home.
Speaking as a leader of any comments in the building products distribution space.
Functionality that continues to Oklahoma competition.
I mean these days of social distancing use about solution continues to increase and we expect these new customers to remain loyal uses all have to current conditions of past.
Now more than ever contractors want to own a product on 24 by seven basis through beaten pro plus and many of them once limit visits to the branch.
The same principle exists for contractors building projects with homes by using deacon three d. plus that let us digital construction measurements to be taken but that was accessing the roof contractors can minimize interactions with homeowners during the bidding things.
The effectiveness of these strategies and two very different demand environment provides in early glimpse of how good became can be.
We're excited about what we are seeing and look forward to illustrating that as the economy reopens.
Now I will pass the call over the joke to provide details on our cost action and an update on our financial position.
Thanks, Julian invading everyone.
Oh I Echo trillions earlier comments are people are doing incredible job in this environment.
Managing to cope with 19, but also continuing to maintain a heightened focus on the day to day business.
I'm certain a little better thing on the long term in a position us outperform our peers.
Not want to talk to our actions around operating costs.
Well or second quarter operating cost management was excellent.
<unk> as quickly as a threat from a pandemic became more clear.
Or finance operations and executive teams quickly developed a wide range of scenarios for demand.
Then matched up a corresponding cost to actually implement.
His actions involved Sharon sacrifices amongst our corporate division in branches.
And our scale too because they go pockets localize the man.
Well at this time of year, we start hiring employees and expand overtime hours to address the seasonal demand optic.
Given that <unk> outbreak be significantly pulled back on these hiring.
We've also reduced many hourly employees 32 hour work week.
And made similar 20% or larger adjustments to may salary personnel.
We've also make furloughs across our entire organization.
Aside from productions to employ costs, we've reduced tedious significantly.
Negotiated <unk> contracts and reviewed certain facility consolidations.
April must sales are experiencing sales decline approximately 20% a year over year basis.
Vehicle sales slightly above the monthly average produced during our recently completed second quarter.
[noise] with similar sales range to cute too. We believe this offers an x. some basis for analysts and investors or clearly understand what we've been able to accomplish from our Opic's perspective.
I've seen quintal basis or April month sales increase mid single digits from the cute to average.
But the same time par Justin operating costs have declined.
I'm single digits in the queue to average monthly rate.
This represents a major accomplishment from organization.
Pandemic is forced us to do more with less we're making better use of R.O.T.C. networks efficiencies.
And she asked for activity from digital platform.
Many responsive costs to access to be taken.
Well some of these costs actions are temporary.
The current environment is also provided us with a unique perspective on our cost structure.
Beginning to formulate a road map that will help improve our cost management training during the natural recovery.
It's certainly includes or lowest quintile branches.
Also that are understanding opportunities for productivity gains across our entire network divisions and that the corporate level.
Expected access the current slow down there and even stronger operating costs position.
That's the last shift gears and provide a review of the balance sheet and update our liquidity position.
Oh, and our previously announced 725 million draw down our eight you know we ended March with 781 million and cash on hand.
The end of the second quarter. We also have an additional hundred 97 million available on our 80 out.
That are quarter and definitely balances.
We believe we have sufficient whether you know whether the endemic.
Although we're continuing evaluating financing alternatives to ensure that we have the flexibility and look already to manage the only allow me to downturn.
We've also position ourselves that <unk> yeah.
The L. matures and 2023, and our turn load me a senior house don't mature until 2025 and 2026.
We have a maintenance company Darling, which requires a face church coverage racial it'd be greater than or equal to what.
At the end of the March quarter this ratio sand the 2.4.
We ended the corridor with that that are 2.8 billion.
Representing attracted to her 10 million reduction relatives, a year ago levels.
In addition, our average powering costs remain very competitive.
We take a rabbit action or the number of key working capital items or in the corridor, but even more so during the month of April.
Even for it was flat sequentially versus Q1, but I didn't notice is typically the top of the year, we're building inventory.
Additional and you're thinking about the backdrop throughout most of the court or we are experiencing solid opposite demand.
So flat sequential represents very solid in the trend man, leading so modest you're here improvement in terms.
Well, we've been even more aggressive with curtailing aren't even try position in April.
As we have reduced inventory by approximately 90 million relative to the March quarter N.
Mm.
We also remain very focused on accounts receivable.
Are collections mates remains strong D.S. those have remained consistent and are bad added expenses comparable to the average experience of second quarter is the past two years.
Despite the economic slowdown we have seen no material impact in this area.
Oh I want to quickly address several other significant items impacting our financial statements.
Escalation in January they can for the process of rebranding and speak and building products.
Exciting analysis for the company and one that will surely unifies our platform.
Improves your overall customer experience.
But not catching celebrate in <unk> 42.6 million was recorded during the current corridor.
It's in fact is excluded from our adjusted they didn't come in adjusting to eat it yeah calculations.
Second you'll note that are older expense lie on it is lower than is typical.
<unk> from two unique items.
First related stuff favorite both 5.6 billion class action lawsuit settlement, which is included within adjust even D.A.
And adjusted net income calculations.
The second item is a 5.3 million <unk> attributable to a true up resulting from the 338, aged head election tied to L.A.
It's about is excluded from are given D.A. and adjusted and income.
But notably both items resulted in positive cash full benefits.
Before wrap up I want to introduce frankly I wrote to her investors.
Actually no I will soon stuff. The next chapter by line and Franklin step in as a new Chief financial Officer would be.
<unk> <unk>, a fair amount of time working together.
Or at least socially distance of course.
He has also been very busy getting you know the other executives on our leadership team.
Meeting with all of his direct reports.
It comes to begin with an incredible resume and diverse range your financial and operational leadership responsibilities in C.S.X. and it's clear to me that he is a great that for making at this point in the company's journey.
And that he enjoyable complement each other very well.
They have a good transition plan in place and I know what goes seamlessly.
Jamming Brett are anxious to introduce them to everyone on the seasons call and it'll be scheduling introductory calls the meetings this time and social distancing rules allow.
I know what to pass off the call recently to Frank before we move into queuing it.
Right.
Thanks, very much joke in a true pleasure working with you over the past three weeks.
All the best in your upcoming retirement.
Obviously very excited <unk> there are many attributes that made this an attractive opportunity for me.
Personally and professionally.
On a personal level for my wife, and I know three boys. This is a bit of a homecoming and puts as much closer to our families in Maryland.
From professional perspective plenty of company would greet people integrate future was hmm.
<unk>.
I'm excited to be working with a great leader in sinker in Julian.
Wrong and collaborative executive team.
Combined with an extremely knowledgeable and engage board of directors.
Operational strategy in place a couple of quarters ago that really resonated with me.
I see tremendous opportunity to drive shareholder value here deacon.
We're in a central business and have a durable business model as you've seen during coded 19.
Delivering great service for our customers. So we can grow with them.
We're focused on doing that more efficiently and we're focused on driving better returns in cash flow.
All of those elements were highly attractive to me, especially given my background.
My first few weeks of confirmed that the operational aspects of building products distribution and freight transportation are quite similar.
And about the opportunity and eager to help Julian on the team capitalized on the strategic momentum they generated in the first half of 2020.
I look forward to connecting with each of you during the coming weeks and months and working with you to Hell Beacon the cheap what we all believe it can.
Operator, we're now already opened a wind up for questions.
[noise], ladies and gentlemen, if you wish to ask a question. Please press star followed by one and you touch tone telephone. If your question has been answered where you wish to withdraw your question press the pound key.
<unk> is limited to one question and one to follow up question.
Your first question comes from the line, David Mann tie with scared airline is open.
Yeah. Thank you a good afternoon everyone.
First off I'm, just wondering if you can give us your expectations for the coming year for two items, one is shingle pricing and the other you mentioned housing starts improving in the back half of the year, Julie and could you give us your outlook for single family Stark.
[noise] well David Thanks for the question.
Oh stop with respect to them, so often those but I I.
We don't really do forecasting single family housing starts we tend to pay leadership.
Wouldn't tell you that you know they said earlier you know we've planned a year in which we expect it to see improving housing starts through the year I'm, particularly see some up taking the second half of the year and that would allow us to see gross and the second half.
Yeah, and in particular, it'd be able to sort of repair the margins.
Throughout the.
Obviously, we don't have a crystal ball, but everything we would hear from the marketing suggests that new residential markets. We'll we'll certainly slowed down we don't know the extent to that but we would certainly anticipate a slow down in new residential stocks or at least.
The next several months I think that's generally the indication from the builders.
With regard to pricing I think that we've seen Ah a relatively stable pricing environment today.
And I think we're we feel like we're in good shape as we approach the rest of the yet.
[noise] okay. Thanks.
<unk> <unk> you can do provide us with growth rate by months in the quarter. I think there was some variability last year you could just gives an idea of what those growth rates were quantitatively.
Sure. This is Joe I can give you a rough you on a monthly same day organic growth.
January was up a little over per se.
<unk> was out almost five per se in March was down for about four per se, but keep in mind was March there's really no. The difference between the first half of March in the second half arch as well to first half of March we hadn't substantial growth. So it was good growth in the first half and then in the second half of course, when it started city.
Encoded you saw declined volumes and the second half time very much to how we describe the April numbers.
Right.
Much in Ah Joe on the back.
[noise], Thanks, Dave good talking to.
Your next question comes from the line of Catherine Thompson with Thompson Research Yeah line is open.
Hi.
Questions today first questions kind of been near term second it's gonna be a little bit take a picture of that first when we talked to variety bar industry contacts.
Suctioned value chain year for your concert really meaningless in the current market.
And to focus on sequential weekly order trend starting in early March.
And really answered the basic question is let's meet that it didn't last.
<unk>.
Thing, it's a fourth week March or April rather yeah. The weekend, it <unk> 20 and.
You started to see and break in that downward trend.
Understand you're having huge variances in markets.
Are you seeing in terms of the changing amount and then and weekly trends as you track your business. Thank you.
[noise] Katherine. Thank you for that question I think it's incredibly relevance and you're right I mean, the euro your comparisons of difficult to make sense.
Actually we you feel very close eye on what we're seeing I would say obviously through April you know, we do see continue sort of weak over a week.
Damn.
Mid April and started to stabilize to watching too with what are your other contexts I've seen them. We saw some sequential improvements towards the end, let's say they were were very modest, but it's a encouraging.
I would also say that you're absolutely right that it is very very regional very geographic.
Really cautious about growing any conclusions from anything we see a in those numbers I think that might be too early.
I think that it's you know we can you know as we mentioned the last couple of David's Who's Florida, New residential construction I think we sold backlogs being worked through.
And as those backlogs stuff to dry out I think there's a there's some more but it could be on the downside I, but obviously as market stuff to open up and construction restrictions relax hopefully, we'll see improved activity, but generally I concur with what are your other <unk>.
So the upset.
Okay.
The question is just a bigger question has committed.
I think we all including out businesses have made significant changes to adapt to the current environment.
But there are some changes that will probably be more permanent and not not out of necessity, but just in terms of saying well, maybe we could do our business typically you know it'll certainly help the cost structure, where do you look at your business what are some of the changes made encoded.
Probably be more permit and what type of.
Maybe put into buckets in terms of saving snipping hundred dollars term, but probably how's that contributes to the business.
For basis.
Thanks again for question I think there's a couple of things that have really struck.
Flipped me in the first it's the necessity because of the inability to to get around and so see the branches the ability to communicate effectively.
With common Mac tricks is is absolutely essential so developing the right narrow set of metrics to get up the critical issues has been really important and I think we've got a a really nice job that but that also necessitated sort of improved look at not just head counts.
But how we use hours at the branches and how we manage day to day hours in the ability to respond quickly to the changing Davy sales volumes that that has been are really important one that I think we'll be.
Long live so really branch operating metrics.
I think the second wouldn't be.
Iran's.
Corporate overhead.
You know the one thing, but I think every companies facing right now is.
How do you go back to sort of normalize level of traveling expands how what is what does that look like in the future given.
What we're experiencing now and it needs to keep people at home and say.
This is traditionally this has been a belly to belly business. So that's another area, where I think we'll be examining it.
And then you know.
Probably the last buckets something we've been pushing now for several years is really around the impact of digital.
Yeah I do think this will be an accelerator the the moves to digital transformation.
Contractors ordering.
But other websites by the X., our ability to get contract is in and out of the branches quickly and efficiently I think there's been some innovations quite honestly branches that we've seen in how to do that effectively and I think the combination of sort of.
Touchless contact lists interactions will will not go backwards from where we are today and will probably move forward and I think that we've taken the leadership position in the industry on that I I'm I'm convinced that that will continue.
Yeah.
Okay. Thank you very much and <unk> that's tough luck.
[noise] bank after instead of pleasure.
Your next question comes from the line of tray Morrish with <unk> I.S.I. airline is okay.
Okay. So I guess picking up on that last point you made <unk> did you know I'm talking about digital beat up in the first quarter up 50 per cent you're on your.
Ah Great grew up there, but <unk> you talk about what mmm do tool sales.
Hmm Hmm further acceleration format or those sales have all end up noticeably less than your either open the phone or in person sales.
Thanks, The question tray no I I think they're sort of been line I'll be perfectly honest, it's difficult and tease out everything because certain customers that would traditionally bike from us online.
<unk> same level. So we've got different levels I think what we're seeing is more customers trying for the first time.
To get online and to place orders online into kind of avoid coming into the branches and do that so we're certainly saying not just the sales volume, which I think it's just supposed to pick up but it's also just in terms of the total number of of customers, but he's doing it as.
Wow.
Got it thanks for that and then talking about your inventory you said it was down in April sequentially by about 90 million and just looking back over the last call Uranus huh or so you've heard about it that's fairly stable inventory.
Try and come on faces. So I'm just wondering how much are you looking to get your inventory down sales end up bringing down 20% of the quarter would you imagine your inventory also decline sequentially by by that much would you want to bring it down even further or lesson that expecting or rally or.
Right.
Man going forward after this dog.
Yeah. This is Joe that's a great question.
Probably think a lot about this ties right to our strategy we've been talking about for awhile now round utilizing are important to the O.T.C. networks more effectively to help drive improvements in our inventory I think you're saying that started to play out here.
But 90 million was a great kind of step in that direction do we think there's more improvement if even if the by a stay at the current levels when they're at probably some well we were going to continue to management and manage it as Julian said on a region by region basis. There are some of our agents that are doing very well why don't we sure. They have the appropriate products be able to shift to the market place but.
Seems that does an excellent job managing inventory levels down I think there's a little bit more room for improvement as well too so you'll see us keep focused on that I guess.
No. Thanks, very much you're always going to Miss you Frank looking forward to working with you.
<unk>.
Here next question comes from the line of Ryan Merkel with William Blair. Your line is okay.
Hey, Thanks, So two questions from me first off can you talk about the health of your roofing contractor customers are they able estate fully employed and I'm just wondering if labour could be a constraint for for the foreseeable future.
[noise] so right.
You know we'd go to varying degrees in we have not seen.
Significant enough to take into <unk>, the financial problems with a customer base I think it's been very stable. They they build a personal decisions about whether to continue to work or whether to stay at home Oh see again it varies greatly by geography.
As to be or labor situation, obviously with demand down it has been it's really difficult to to gauge today, if if they will be a and you sort of additional.
Constraint to to labor, obviously, labor's been one of the challenges for the construction industry over the last several years.
You know today I think it's okay. How can you work safely on job site and I think that's going all was one of the challenges will be how are we going to be able to develop new processes to deal with a an environment in which you know social distancing access to People's homes.
It's much more restricted so I think the so rather than labour I think his process that may have an impact in the new to <unk> stretching out.
Yeah. That's helpful. And then my son question, what throws the 11% growth and Andreas was it something one time or is this the effect of your new sales efforts.
Mm.
No one I'm glad you asked that question look this is the third consecutive quarter that we've been to into gross I think it's it's a renewed focus.
On that piece of a business I think that so you know through the through the acquisition of Allied and the way that works in terms of I am.
Moving accounts smoothing moving supplies and bases around in different markets. I think there was probably distraction I think we've gotten back to the call. The business I think it's performing really well I think it's really.
Broad based staff, but it's a focus on map piece of the business and take advantage of of advantages that that we have and things that we're good at so I think it's more renewed focus and certainly not just a a one off large job or something like that.
Thanks appreciate it.
Mm.
Your next question comes from the line at South than Clark with <unk>. Yeah line is open.
Egg an afternoon and thinks that question.
As it relates to the commentary you had about the <unk> the sequential progression of sales versus costs.
You know when you take a step back you look at a normal progression from two q. and a three you do see a pretty significant step up and profitability. So could you just gave us a sense of how this is trendy versus maybe normal seasonality and what you're seeing from a price cost perspective as well.
Sure I think the first part of your questions really trying to get at that.
Detrimental March inkatha impact of what we'll see in the business based on what we describe so let me give you a little bit more on that and frame it off by Julian talks about mentioning how we set our initial guy place for 2020 back in November last year first half the year would be challenged a bit by difficult storm in hurricane cost and then the second half of the here.
Will be more favorable as we saw you ever your volume gained from G.M. improvement.
Bob and we report out that we didn't quite well the first half the year met our commitments above and beyond.
Sit here today, we know the second half a year will be a little bit different. So we we withdraw higher here, so guidance, but I can't get your little bit more direction on the deck or mental margins based on the actions and take depending on the level of volume declines.
We believe are detrimental margins will be in the range of 15 to 25 per se.
Give you a little more input.
And we mentioned in April volumes were down about 20%.
So what we're seeing in April right now are detrimental margins were better than they've been pointed that range. So hopefully that gives you a sense of how to think about our cost structure and the actions would take in and out the bad is that we'll see chemicals in that regard.
Okay is there any impact from price in their colleagues.
Mm.
There's not.
Okay, that's really helpful and and I guess just continuing on that same question. What would you know if you're trending towards the better end of that range in April.
What would you need to see you know for Decrementals to shake out closer to that 25% range.
Is it timing or you know the extent of the decline are the length of decline like what would what would get you that 25% range.
<unk> extensive that declined or the light the decline should mention is really more volume dependent than anything else.
Okay, so that have to get worse than 20%.
Yes.
Okay I appreciate the time thanks, yeah.
You bet.
Here next question comes from the line as David Mcgregor with lung both research online is open.
He didn't make like I was long, but researcher line is open.
Hi, sorry about that.
Upon mute.
Thanks for taking the question. So one of the start off by asking about the Quintiles and you know you're talking in the past about you know you're fucked Quintiles and I think the the lowest quintile you thought you could get 30 to 60 million to be at the door.
Changing environment, I guess I, just wanted to check back pretty good and get your latest thinking in terms of you know the opportunities to think through those tears is it still 30 to 60 at the lowest here you think the opportunity might be getting a little bit better do you think the timeline upon which you can realize these benefits is maybe excel everything a little bit because you can just talk about you know how you're thinking there's changing with.
The environment.
Thanks for the questionnaire <unk>.
I don't think we've seen a sort of a point of view in terms of a difference in the scale I do think those what we all looting in this in this environment may help us accelerate we didn't see games out of the that that bomb Quinn.
So in the second quota.
Which was encouraging.
Yeah, it wasn't everything it needs to be but it wasn't zero, we can see it in our results and and that gives me an indication that we are able to get added.
Yeah, I think foods in this environment of the focus becomes all of the crashes I mean, it right now all the see with the with the sales.
Relatively flat, but we were looking at it effectively an extended when to scenario and it's very difficult to create operating leverage.
With the flat sales. So we're trying to drive patient sees as best we can at the branches, but at all of the branches rather than just the are the ones that we were focused on the bottom couldn't tell so.
I think we're certainly living some some new operating measures that we are going to be able to into those little quintile.
I think you know hopefully I'd like to see that benefit us so that we get into the upper end of the of that guidance, we provide the before and the food to 60 million range, but I think but that's that's still a sort of the range that I think we're in.
[noise]. That's helpful. Thank you second question. It's just on the O.T.C. program and I think you didn't kid on the last call that you know you rely than 30 marketing your point about additional 20 by year end I guess so of course again can accelerate their and if so you know what are the p. and l. intact.
Yeah.
Environments, particularly difficult I mean, one of the things that it's.
But do into really implements fully implementing sorrow T.C. model is to establish like we did in Denver some new.
Operating locations some large pubs in some of these markets. We just opened was be set in Denver.
I see in the current environments, you know in order to preserve cash we've put some of that on whole so that would that would likely slow down in the meeting soon so I don't see any any significant impact except from a capital expenditure standpoint, we'd probably slogan some spending Matt.
I think we have any near to impact remote T.C. and certainly know intend to accelerate in the current environment.
Okay. Thank you.
Your next question comes from the line of keep his with centrist Robinson Caroline is open.
Thank you two questions first.
Into a question earlier on.
Yeah.
Okay.
No.
It's called here the last.
To public <unk>, sorry, you're you're very quickly cannot hear you.
[noise] is that better.
Oh, yeah. It does seem to be yeah, not better sorry about that get started again your talk of the sequential changes since about mid April in your business. We've heard that on multiple public conference calls in the last week or two.
From your wider peer group that also did seem to coincide with somebody Ah payments are the federal government consumers, particularly the 1200 dollar is there any sense that that's help support demand. The last couple of weeks any sort of talking to channel on that.
[noise] keys like the I'd be really hard pressed to say that we we can tie I needed back demands to.
Two of the kind of the the payment checks, it's really difficult to use any of these pieces out of the data right now I mean, we typically be seeing a seasonal live so what's it improved whether on the West coast was it you know better weather in a in the south was storms in Ohio.
It will be on really difficult for me to say, we we can tie it to 1200 dollar checks.
Okay.
Your second question on their nonresidential with some really good number two and a quarter.
He sort of sense on what's happening on somebody's longer term project <unk> changes on that I'm sure near term work has clearly been delayed.
My question here at more on the on the longer term.
Yeah. So I mentioned it to my prepared remarks that we've seen fitting I'm quoting room, yeah pretty much hold up.
All the C. I think people are trying to work through as I mentioned earlier process.
We are seeing restrictions on job sites, I think but you know roofing tends to be early in the cycle.
You know our interiors business tends to be later in the cycle, we're seeing that it's probably a difference between those two as well.
So I think was overall I.
I think the bidding the quoting there again I go back to process and you know there's no doubt that it's we're going to see delays in production I'm. So projects stretch out. So I think that's the the big unknown for for me right now we have that stretches <unk> and do we get back to more nor.
Schedule over the next six to 12 months.
Okay. Thank you.
<unk>.
Question comes from the line of G. Mcamis with what makes your line is open.
[noise] [noise]. Your next question comes from the line of J.J. Mcamis. Your line is open.
[noise] [noise] you hear me now.
[noise] barely.
Okay.
Better.
A little bit yeah.
Yeah, sorry about that so the first question I had with the the junk pulled down from the T.B.O. what does annualized interest expense.
Mm.
Sure.
<unk>.
Well I didn't approximately in that second quarter here, we are about 30 retaliation interesting stuff.
And the third and fourth quarter.
It looks like we'll go up a few million dollars more for that number from where we're at so we'll be in that.
536 million dollar range.
That helps.
Yeah, absolutely. Thank you and then the second question I had just is.
20%.
Maybe s. keys questions a different way.
With what we're hearing and seeing about potential I say rounds being under pressure just wondering if that 20% decline to use on April sales, if it's more heavily weighted to non rose.
One segment of the business versus another.
The j.
I think that we would say, it's more geographic base than a than anything else. It remains the those those markings more heavily impacted.
By the virus are the ones that we're seeing the the biggest declines in and it happens across the board. So that that is supposed to commercial and residential construction.
So we probably seen us so it'll pick up.
In some of the residential markets, but.
Early on in this crisis, we did see some commercial would get old for what.
So there's a little bit of the list I think because of that.
It's really difficult to say that it's it's one segment of the market. It's geographic is the difference.
<unk>.
Your next state game by the way.
This is an F.Y.I.J. those interest expense numbers those were adjusted interest expense number. So if you're trying to look at a gap statement versus adjusted that was adjusted so just that boy.
Thank you.
See our next question comes from the line of make doll with I.B.C. capital markets. Your line is open.
Hey, it's actually Chris I'm from my Thanks to take my questions.
The question is just going back to inventory [noise].
It could just give it's not that were that worry mentors are on the channel and if there's a need for additional right sizing in your view.
Mm.
But Chris <unk>, you know with costly reviewing already been three positions certainly you know as a as a reaction in the first few weeks. There's a crisis I think a a focus was on cash generation, making show.
The sales was going to decline that we could adjust already been tree appropriately and make sure. We were in a good crashed generation position. We've accomplished that were wearing a good position. We we do think there's additional opportunity to to think more <unk>, but I wouldn't tell you, we're probably now going to make sure that we're just.
Thing to market conditions as well.
As we see if we do see market growth.
We'll make adjustments there as we see markets move backwards will make adjustments that so I would tell you that the early on into this I was very focused on getting our infantry into a position where we could weather no matter. What this was going to throw at us and we were in a good cash position.
Oh God appreciate that and then just for my second question going back to industry pricing any any early signs of price deterioration in light of you know they expected volume offices, and and you know asphalt Ellen sitcom just any update on the competitive.
Panics and then price in general Thank you.
Oh, Yeah sure we've not seen today, so I need some special moves in in pricing nothing, though I would consider unusual or.
Oh behavior in the marketplace whatsoever.
Okay. That's encouraging thank you.
Your next question comes from the line of Garrick, She mice with loop Capitol you align it open.
Oh, hi, Thanks, one of the house just given the wide range in April sales at your see what's in geography, so restricted versus less respect to market since or anything that you shouldn't be thinking about respect to gross margins, how those have tracked and people from a geographic mix perspective.
It's a great question Garrick Ah, it's something we we do follow I generally speaking.
No division.
Or interiors division.
Outside gross margins I'm, they've been impacted to a greater degree by the virus. So we we will see so I I would say today is a relatively small impact.
But I I My guess is that it's it's not zero.
But it is.
<unk> geographic if friends related to the the challenges in terms of delivery. So I. What we're really watching is you know the the the new residential market is generally slightly low margin business as well. So as you look at Bath declining that <unk>.
Impact besides from the West Division boiled in the northeast. So they there are things that are moving around excited about you now that we're watching very carefully I would say today, so far the impacts been relatively small.
Okay. Thanks, I guess my fault questioning also and gross margins.
You you provide any level of competency midway good progress on and I'm, improving gross margins Julian in your time that you've been at Beacon.
No <unk> items that you can control you know excluding geographic mix what is your outlook for gross margins are moving forward both.
Session. Your environment also when the world hopefully gets back to normal.
[laughter], Yeah. So oh thesis on this you as we've set number of times now was I know a week. If this happened strongest second half that we were hoping to sort of maintain a level of gross margin in the first half and then expand margins as we go into a better second happened more growth.
Obviously, as we face or recessionary environment, it's something we're watching very carefully. So we would probably say that the expansion of gross margins today is probably a little bit behind where we would ever anticipated being going forward.
So obviously, there's a there's some pressure that.
So far I've been very pleased with the likes of how we've held up it's probably been a little bit ahead, well. So what we're doing and I think we are actually managing both price cost relationships are very well today and so I I'm confident right now the week and we can maintain where we are absence.
It was some substantial additional changes in the market, but the other part I would add is under in talking about like a control. We both teams that often a great job, though really continuing on our private label branded products throughout her network as well too and I think also when it's another contributing factor that's helped US plus is Julian said really good job managing price.
Continues.
Great things Tonight, so before.
Thank God and pleasure.
Here next question comes from the line. So you with Jefferies airline it's open.
Guys decks for squeezing then we talked about how there's a big divergence in terms of trends in April and some of these they said we're more heavily impacted like Pennsylvania in places like that have actually resume construction and a number of states like Georgia taxes have reopened recently as well to any color on the trend you're seeing if you've seen a more notice.
Pick up a blade.
Yeah. So so we mentioned <unk> I think in answering Catherine's question, we have seen the sort of slate.
Uptick towards the end of April I would tell you that I do think the some of those that is related to D.C. restrictions in places like Michigan and to Pennsylvania.
I also think that it's there are two other dynamics happening. One is people are figuring out how to work in this environment and so they're figuring out the so they can't get back to work.
And I I do think that there is some elements of the exact going on.
The other thing is I do think it's available these construction projects. Despite the fact that they're open.
<unk>.
They.
<unk> commercial jobs.
Health checks limited number of contractors on a job site at any particular time. So you know it's not something that you're just going to see go back to normal there's still restrictions. Despite the fact that they're open so it's really difficult <unk>, but I would say that we are seeing so.
I'm positive trends in those markets, it's just difficult to say, it's because they've opened construction.
Got it that's super helpful and I guess blocks one for me and this current environment are you getting sheer potentially at the expense of some of your smaller competitors that don't have some things that you're implemented like your your software your App and have you seen some of these competitors shut down and Joe perhaps from your experience in the past cycle did some of that material.
So the smaller guys closing due to the downturn.
It'll feel I I, you know I do fig. So what we're seeing with a strategy you know the activity of the sales force that we've emphasized.
I'm really proud of the team working from home, making those you know thousands and thousands and thousands of calls every day I really do believe that that is having an impact and the fact that we've been able to maintain a branches yeah. Most of 'em open and and we'll see.
And like I said French team is doing absolutely amazing job and innovative job punching holes in walls and putting windows in to act as ticket counters. So that we can take orders figuring out how we.
Can use use tracing 10 sites in the parking lots to enable pick up delivery I think the inventiveness about people in the field is absolutely leading to to improve that ship position I think they've been they've been wonderful throughout all of this one has done so in a in a very safe manner as well.
It's difficult to pin down the impact on some of the small competitors you know I'm I'm very confident that off position in digital is industry, leading and I think that so that's something that you do not see the small competitors have the ability to an act in any meaningful way and so I'm sure that.
There's ah that's going to have an impact both now I mean, the future and I would add that O.T.C. is that in the same as well to our our investments in direction in O.T.C. has helped us to increase our efficiency and productivity is at the branches as well too well there are underperforming Brett quintile or even though the the top level so that.
Great.
Okay.
For the color.
[noise]. Your next question comes from the line of Mckelvy hooked with T.P. Morgan Your line is open.
Hi, This is a lot on from my Thanks for taking my question first I was wondering if you could help quantify b. nine it costs savings expecting to keep from the contacts and he's taking notes to want to clarify any benefits for including the better than 20% Sacramento margin in 19 for April.
[noise] Yeah. This is Joe why I can't give you a specific number of qualification of the dollars a savings that's where I'm trying to go with that <unk>. So what are large and decrease with me based on the volume declines right because that's the biggest wildcard or snowy because many of them are.
Variable volume pending what the volume decline is we'll give you a different number for what those savings are like the best way to do the math I was really looking <unk> Sacramento margins and that 15% to 25% range and then as I mentioned about April revivals were down 20 per cent, we were a little bit under either better than the men funny that range, so that should give.
Yeah.
Ballpark up harder welcome determinant based on box.
Okay thing and the second thing I want to you know with a ticking down the commercial roofing sales in the corridor that were much stronger 11% on daily sales and I think you mentioned and increase buying ahead of the crisis could you elaborate on that dynamic and drivers.
How commercial sales of clean okay.
Yeah, we've seen a commercial sales remain relatively strong. So well you said is becoming increasingly difficult to access job sites, but some of the things that we saw it a lot of markets.
As schools shut down early and and the kids are sent home, we did see school work pick up.
So there was some <unk> demand normally that's work gets done during the summer break me. So some of Ah contractors I forget on job sites, a little bit earlier that.
Yeah, we saw a little bit of dynamic, but was so to fold. It was some a hospital jobs, where they wanted to know what amounts to jump side. So it kinda go push status and there was something that needed. The repairs done immediately so they could keep operating so we've seen the mix, but generally I would say that we saw a little bit of <unk> because there was some.
Schoolwork because done early on and that seems to be a trend amongst school boards to pull that pool with this.
I had of sort of summer.
Hey, Thanks for that I tell at night to work with you and that's a lot going forward.
I should thank you.
Yeah next question comes from the line as Kevin No. That's the bar with North Coast Research.
Is open.
Hey, good eat good evening everybody.
Wondering if you comment on working capital.
In terms of your cash flow and it look like Mark you know the marks border with a pretty big a uses cash when normally it's.
The nice Dorothy cash and.
Typically the June quarters of a bigger you send cash what I'm curious with your inventory management, then you'd have going on.
Did you expect that to to change the here.
You can comment on the the the you know the inventory man, you're doing how that'll affect working capital during the June quartering going forward.
Sure you bet.
First that and they marched quarter and yeah, you're right a lot of it is timing related so what you saw from from one up pretty castle apart with R.A.R. balances were a little bit higher sales coming into it at the end at our D.S. always just a little bit higher to it that causes slightly higher you are plus the eight yeah that is due to.
Some tying up our payments on the eighties, I really costs, a little bit more alcohol and 18, which is really about cause that working capital to pass you had mentioned that was the biggest driver there, but you're right. If you fast forward to what we're seeing now in April and what the inventory decline <unk> I, you can expect us to be and even a better possession are much better because.
<unk> working capital perspective, we're managing the inventory very closely as I mentioned painful down another $90 million, which is very uncommon forces time here.
And then you've couple that with again.
Our balances that match with doing a great job collections, there's Julian said, our customers have been great in working with and R.A.R. collections are still doing quite well also so you'll see some 10 improvements in our in our working capital should go forward yes.
Okay. Then in terms of April down 20 per cent could you.
Breakdown up between the three segments, how the three different businesses performed persons that.
And do you expect people to be the little watermark for the quarter or.
Things get better it sounds like you've got a little bit better.
Exit the quarter the month, but curious how you think you know if that enables a little watermark for the quarter or.
Then you'd better were from there.
This is Julie and I I think it's really difficult to say that april's below what am I you know I.
If someone could make that promised to me out today I take it.
Certainly we're seeing a good progress through the month they pool, so that that was certainly encouraging but it's difficult to sort of suggests that.
That would be.
<unk>.
Well the other part of your question.
How did the the segment perform versus that Oh, 20, So I can't go back to.
It's really geographic.
So suddenly to boot.
This is our interiors business has been impacted we've got a really good business in the northeast we've got a good business in California, and a good business in the Midwest. If you look at the the the northeast <unk> the the West coast.
So that business or do you think you know those those a big market because it tends to be focused on a on commercial construction. So those are heavily impacted mock it's it's really about geography, but I'd say that alright serious business was equally is in those markings. So it's it's not.
A type of business so much as it is geography.
As we go full woods no. Most you construction tends to happen in the the <unk>. Other countries. So we're watching that very carefully going forward, but I was I continue emphasis that it's much more about geography, and those markets that a heavily impacted by the virus today, but of heights.
Via restrictions for a while that's that's where the the declines of really impact of us.
Okay, Great Joe it's been a apple pleasure working with you in a drink a welcome aboard.
<unk>.
That concludes the questions now I would like to turn the call back over 10, Mister Nikki plays closing comments.
[noise] bags. This is Joe and I'll wrap up and Ah, Yes, My last <unk>.
I want to thank everyone for joining our call.
It's a particular Osha one for me is I clean My services Chief Financial Officer here you can.
Seven years, I will remember fondly as he transformed beacon for about $2 billion moving company.
7 billion dollar unfortunate 500 building materials huh.
And they say, it's not about the destination, but about the journey right and this journey was truly amazing.
So the incredible tales, mostly all different telling tales of the people here you can.
Board of directors or partner shareholders and all of you on this call.
I'm proud this or a call you for the past seven years.
And now onto the next journey.
The company he can remains very well positioned this over here in the building products distribution industry.
Strategic shift in our business began several quarters ago, we've already demonstrated the progress being made.
But that's sad, though we're just getting started.
Well, we will manage with discipline and focus during the corolla bias environment, and we will emerge even stronger on the other side.
The hotel employees customers.
Wires and investors are all T.V.'s safe and healthy.
And we appreciate everyone's continued support during this difficult time.
Thank you for this man.
They have a great evening.
Thanks to.
[laughter] Studies conference call you May now.
Oh.
Yeah.
Or or.
Oh.
[noise].