Q1 2020 Earnings Call

To be installed building products fiscal 2021st quarter financial results Conference call.

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Last question.

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And I like the telecom <unk> must what's best for Jason <unk> Vice President.

Oh Investor Relations. Please go ahead.

Good morning, and welcome to adult building products first quarter 2020 conference call.

Earlier today, we issued a press release on our financial results for the first quarter, which can be found any investor relations section on our website.

Today's call management's prepared remarks and answers to your questions may contain forward looking statements within the meaning of the federal Securities law.

These forward looking statements include statements with respect to the housing market and industry conditions.

Our financial and business model, our efforts to manage material inflation.

Our ability to increase selling prices the demand for our services and product offerings. The impact of the club at 19 crisis will have on our business in end market expansion of our national footprint.

Products and markets, our expectations for our end markets, our ability to strengthen our market position our ability to pursue any great value enhancing acquisitions, our diversification efforts outlets revenue growth expansion of our commercial business, our growth rate and authority to improve sales and profitability the impact of the cobot 19 crisis are finding.

Actual results and acquisitions.

And expectations for demand for our services and our earnings in 2020.

Forward looking statements made generally be identified by the use of words, such as anticipated, but we expect intend plan as well or in each case or negative or other variations are comparable terminology.

These forward looking statements include all matters that are not historical facts by their nature forward looking statements involve risks uncertainties, because they relate to events and depend on circumstances that may or may not occur in the future.

Any forward looking statements made by management. During this call is not a guarantee of future performance and actual results may differ materially from those expressed and worst suggested by the forward looking statements as a result at various factors, including without limitation, the duration effect and severity of the cobot 19 crisis, the adverse impact of the code.

Good night in crisis on our business and financial results.

Economy in the markets, we serve general economic and industry conditions, the material price environment, the timing of increases in our selling prices and the factors discussed in the risk factor section of the company's annual report on form 10-K for the year ended December 30, Onest 2019 at the same may be updated from time to time in subsea.

<unk> filings with the Securities Exchange Commission.

Any forward looking statement made by management on this call speaks only as of the date hereof, new risks and uncertainties come up from time to time and it is impossible for the company to predict these events or thereabout.

The company has no obligation and does not intend to update any forward looking statements. After the date hereof, except as required by federal Securities laws.

In addition management uses certain non-GAAP performance measures on this call such as adjusted EBITDA Adjusted EBITDA margin adjusted net income and adjusted net income per diluted share adjusted gross profit and adjusted selling and administrative expenses you can find a reconciliation of such measures to their nearest GAAP equivalent in the Companys earnings release and the dish.

A reconciliation for adjusted EBITDA for earlier fiscal years in our Investor presentation, which are available on our website.

This morning's conference call is hosted by Jeff Edwards, Our Chairman and Chief Executive Officer, and Michael Miller, Our Chief Financial Officer, I will now turn the call over to Jeff.

Thanks, Jason and good morning to everyone joining us on todays call.

As usual I will start todays call with some first quarter highlights and then turn the call over to Michael Miller, I B P. CFO, who will discuss our results with capital position in more detail before we take your questions.

I'll focus my remarks today on our response to the Cobot 19 crisis. The actions we are taking to navigate this uncertain environment and how we believe our strong operational platform and financial position will support our business through this crisis.

The cobot 19 pandemic has created unprecedented social and economic challenges and our thoughts are with everyone impacted but pandemic.

As an organization, we are focused on supporting our employees customers and suppliers all across the country, while ensuring our business is well positioned to withstand the uncertainty caused by the cobot 19 crisis.

As our first quarter results demonstrate we entered the current market environment from a position of financial and operational straight.

The 2021st quarter was very strong across our end markets and we achieved record first quarter revenue earnings going adjusted EBITDA.

In addition, our balance sheet and access to capital remains robust.

During the quarter, we generated nearly 36 million of cash flow from operations and we ended the quarter with strong liquidity, including over $213 million of cash and short term investments and nothing drawn on our 200 million dollar line of credit.

Across our national footprint, our branches are following federal state and local requirements to protect the health and safety up our employees and customers.

We have implemented various procedures to provide for appropriate social distant scene and disinfecting of shared spaces to mitigate risk of exposure to our employees.

So the end of March approximately 90% by revenue up our branches were located in markets, where construction was deemed in essential business. However restrictions limiting the number of labor is on a job site in our internal standards for social dispensing practices impacted the volume of completed jobs and efficiencies across our end markets.

Estimate that first quarter revenue was reduced by 2 million to two and a half million dollars due to these factors related to the cobot 19 health crisis.

It is still too early to tell how the cobot 19 crisis will affect the overall economy, the U.S. housing industry and IBP, However industry dynamics support near term demand for our services.

At the end of March there were more than 500000 single family units under construction based on U.S. Census Bureau data.

We believe represents over six months of industry backlog. While this includes homes at various stages of completion, we <unk>, we believe IBP will benefit from a significant proportion of the backlogs in the markets, where we operate. In addition, we expect builders will focus on reducing backlogs by placing a greater emphasis on finishing homes under construction.

The backlogs in our commercial and multifamily end markets remain strong as well further supporting our business operations. During this uncertain demand environment.

We believe that the current economic environment, where result, and it didn't significant short term reduction the demand for housing as a result, a meaningful reduction in the number of single family housing starts this year.

Based on a normal lag between starts and completions within the homebuilding industry. We currently estimate that the market decline will have been more pronounced impact on our business in the third and fourth quarters of 20 to 20. The full extent of this impact is currently unknown, but our installers and local market teams are and will remain busy working on this into.

To be backlog.

Throughout the month of April we continued to operate with approximately 10% of our branches by revenue closed due to constructions nonessential status in certain markets negatively impacting April revenue.

Even with these closures are April revenue increased approximately 2% compared to last year, our large commercial construction business had April sales growth of approximately 25%.

Including the sales of Royals commercial services acquired in March of 2020.

Also had April sales growth of 17% compared to last year.

Adjusting for these close branches April sales growth was approximately 10% compared to last year in same branch sales growth was approximately 6%.

As a result of branch closures, we furloughed 563 employees during the month of March and April.

Additionally, under the families first grown a virus response back we had provided benefit to 123 employees, who have been impacted by cobot 19.

As of today with states, taking steps towards reopening their economic activity, our market closures have improved to less than 2% of our branches by revenue and I'm pleased that nearly 280 of our previously furloughed employees have already been brought back to work and expect this to improve volume some of the most recent state reopenings.

Looking at the material pricing environment, and our supply chain. We saw continued improvements in our price mix. During the first quarter. We're continuing to worked proactively with both our customers and suppliers to help ensure a stable pricing and cost environment.

Furthermore, nearly all the products, we install our sourced domestically and we have not experienced any disruptions in our supply chain or <unk> procurement activities.

Overall, we believe the housing industry as much else healthier them before the 2008 to 2009 financial crisis in the industry was experiencing strong growth prior to the cobot 19 crisis.

We're closely monitoring the housing market and we are constant communication with our local regional and national customers.

Our high variable cost structure allows us to quickly adjust to changes in demand and we have plans in place to further modify our financial model if necessary in the coming quarters.

Well, we have not currently made any large scale just minstar business, we have decided to proactively delay closing acquisitions until the economic environment stabilizes. Our pipeline is robust and we continue to actively pursue acquisitions, a well run installers to support our geographic product and end market diversification strategies.

For more than two decades. These diversification strategies have driven strong financial performance and growth, while expanding the scope of our installation services enhancing our end market exposure and increasing our geographic footprint.

During the 2008 to 2009 recession as housing starts declined we expanded the service area of our existing branch locations and expanded our product offerings in new markets.

As our scale has increased over the past 12 years. We believe we are even better position to pursue these strategies today and outperformed the market when housing starts decline.

In addition, during the last recession, we have limited opportunity in the commercial and multifamily end markets are alpha commercial installation business and our multifamily platform, where we'll further help IBP navigate a downturn in the single family residential market.

During the first quarter commercial and multifamily revenues increased 14% and 35% respectively over the previous year demonstrating continued growth in market share gains in these end markets.

Longer term, we believed a pandemic will likely increase the demand for single family housing increased the need for more affordable homes and potentially support that quick rebound that is not typical of the housing downturn.

So to conclude my prepared remarks, I'm extremely pleased with our first quarter financial results strong platform that we have created our strong balance sheet combined with our experienced leadership team longstanding customer relationships and asset light high variable costs and diverse business model will allow IBP to navigate through this period of X.

Comic uncertainty.

Finally, I'd like to take this opportunity. Thank our installers, who are hard at work everyday representing IBP and serving our customers on behalf of the entire leadership team. We recognize your efforts and I went to personally. Thank you for your dedication.

But this overdue I would like to turn the call over to Michael to provide more details on our first quarter results.

Thank you, Jeff and good morning, everyone.

Quickly review, our first quarter financial results before focusing my prepared remarks on our response of the code 19 crisis, and the strength of our balance sheet and capital structure.

Net sales increased to a first quarter record of $397.3 million compared to $342.1 million for the same period last year.

The 16.1% year over year improvement in sales was mainly driven by improvements in price mix and customer and product growth and the contribution from our recent acquisitions.

As Jeff mentioned in his prepared remarks, we estimate that first quarter revenue was reduced by 2 million to $2.5 million due to the facts related to due to the factors related to the covert 19 health crisis sales that alpha our large commercial construction business increased 14.1%. It is also important to note that alpha cells there.

Not included in the volume and price metrics, we disclose.

Stability was strong during the first quarter adjusted gross profit margin expanded 310 basis points over the prior year period as a result of improved prospects performance, partially offsetting our strong first quarter gross profit were higher selling and administrative expenses, which as a percent of sales increased 110 basis points to 20.

23%.

Primarily due to higher health care costs, and other variable employee costs, the fluctuate with profitability.

On a GAAP basis, our first quarter net income increased 81% from the prior year quarter to $16 million or 53 cents per diluted share.

Our adjusted net income improved 52% to $23.2 million.

Or 78 cents per diluted share compared to $15.3 million or 51 cents per diluted share in the prior year quarter.

What we cannot predict the full adverse impact on gross profit and net income we anticipate higher costs have reduced efficiencies related to the covert 19 pandemic as restrictions limit the number of labors on job sites and as we stagger crews across all of our end markets.

During the 2021st quarter, we recorded $6.7 million of amortization expense compared to $5.9 billion. The same period last year as a result of our acquisition strategy. This noncash adjustment impacts that income, which is why we continue to believe that adjusted EBITDA. It's the most useful measure of profitability based on.

Our acquisitions completed to date, we expect second quarter 2020 amortization expense of approximately $6.7 million and full year expense of approximately $26.4 million. This figure will change with any subsequent acquisitions.

For the 2021st quarter, our effective tax rate was approximately 26.2% and we continue to expect full your effective tax rate of 25% to 27% for 2020.

For the first quarter 2020, adjusted EBITDA improved to $49.2 million, representing an increase of 37.9% from 35.7 million in the prior year.

Adjusted EBITDA as a perhaps as a percent of net revenue increased 200 basis points for the prior year period to 12.4% as a result of higher gross profit attributed attributable to improved price mix and the benefits of our diversification strategies.

With this overview on our first quarter results I would like to take the opportunity to talk about our cost structure and initial response to the cobot 19 pandemic.

We have a highly variable cost structure as demand for our services decline our cost of sales sizes quickly to the lower volume. This includes our material and installer labor expenses, which are directly variable to our revenue and represent our largest expenses, while we have made great strides and reducing our employee turnover during the past few years.

Our industry has historically experienced high levels of turnover throughout the cycle, which we experienced in our business even at the depth of the great recession and we believe this will continue in the expected upcoming downturn. This makes it easier for us decides install our workforce to the demand for our services.

Selling expense is aren't expos variable cost item on the income statement comprised extensively of commission and employee related expenses are selling expenses will size to revenue, but we'll have some lack in characteristics.

Insisting predominantly a branch operating costs, such as base salaries facility costs health insurance expenses and variable employee costs. Our administrative expenses are generally the least variable of our expenses on a monthly basis and will lag a decline in revenue.

During a prolonged downturn it housing demand, we would look to reduce administrative expenses through brands consolidates and reduced head count and hours worked salary reductions and similar cost cutting initiatives, which would vary on a branch by branch basis.

With the existing backlog of construction activity throughout our end markets, our branches remain active and productive which affords us the opportunity to further monitor and assess the evolving economic situation.

The depth and breadth of the decline in housing demand will impact our cost cutting decisions on a market by market basis, we have eliminated non essential travel suspended pay increases for our executive officers and taken additional cost saving initiatives. However, if a deeper and longer recession, where to occur it will necessitate the implementation of our more.

Significant cost reduction plans.

If the expected <unk> housing downturn is a steep decline with a relatively rapid recovery, we would be less likely to implement deep cost cutting strategies. This would impact long term growth opportunities in market share and diversification.

Now, let's look at our liquidity balance sheet capital requirements in more detail.

Our business model generates strong operating cash flows. The three month period ended March 30, Onest 2020, we generated $35.9 million in cash flow from operations compared to $15.9 million in the prior year, a 126% increase our asset light business model does not require significant amount of cap.

Expenditures and our primary capital requirement is to find working capital needs.

At March 30, Onest 2020, we had $154.4 million and working capital excluding $213.7 million of cash and short term investments with $245.5 million of accounts receivable and $73.6 million of inventories at March 30, Onest 2020, we would expect.

To convert a significant amount of working capital the cash with the decline in sales.

Capital expenditures at March 31st 2020.

Or $9.9 million, while total incurred finance leases were zero point $3 million.

Total expenditures and finance capital leases as a percent of revenue decreased approximately 30 basis points to 2.6%.

At March 30, Onest 2020, compared to the same period last year.

Typical market environments, we are focused our capital investments on acquiring well run installers that fit our product and market and geographic diversification strategies, while our acquisition pipeline remains robust we completed two acquisitions in the first quarter as Jeff mentioned, we have temper temporarily delayed closing additional acquisitions until.

The economic picture it becomes clear.

During the first quarter, we repurchased $15.8 million of our common stock.

And up nearly $45 million remaining under our $150 million stock purchase program as a result of the covert 19 crisis, we have decided to temporarily suspend stock repurchases under our previously approved repurchase program.

At March 30, Onest 2020, we had total cash and short term investments of $213.7 million compared to $215.9 million at December 30, Onest 2019.

Total debt at March 30, Onest 2020, $575.6 million compared to $575.5 million at December 30, Onest 2019.

Returning cash and short term investments at March 30, Onest 2020.

Our net total debt was approximately $362 million compared to $360 million at December 31st 2019.

We have nothing drawn on our existing $200 million revolving line of credit, which combined with our cash position. We believe provides us considerable flexibility and the current economic environment I'm extremely pleased with the recent success, we've had diversifying our sources of capital.

Staggering, our debt maturities and limiting our financial covenants with no significant debt maturities until 2025 and strong liquidity, we have considerable financial flexibility to withstand this period of economic uncertainty.

With that I will now turn the call back to Jeff for closing remarks.

Thanks, Michael I'd like to conclude our prepared remarks by once again thinking IBP employees for their hard work dedication and commitment to our company. During this very uncertain time, our success over the years and more recently wouldn't be possible. If it wasn't for you in our thanks goes out to you for a tough job always done well.

As the World has become more uncertain, we are focused on supporting our employees and customers through this challenging time.

Operator, let's open up the call for questions.

When I will begin the question answer session.

Sounds good question you Press Star then one on your Touchtone phone.

For use in the speakerphone, please pick up your handset before pressing the keys.

Your question. Please press Star then too.

It was time, we'll pause momentarily to assemble our roster.

First question comes from tray Morrish of Evercore ISI. Please go ahead.

Thanks, very much guide so I guess the first place to start heard me would be that the sq in a it was definitely higher on a year over year basis that revenues volume being flatten revenues being up you talked about health care and.

And higher.

Paul blocking profitability from variable cost I was wondering if you can kind of tease that out first a little bit how much of that higher SGN I have here would do to that increase in variable costs from greater profitability.

Hi, This is Michael Miller.

Yes. So the majority of the increased costs were associated with a variable costs variable employee costs that are embedded in DNA.

But obviously the health care costs had.

Notable contribution as well without the increases in those two expenses, we actually would have had slight SDMA leverage in the quarter.

Okay got it and then.

Great pricing.

Celebrated pretty noticeably.

Sequential basis.

At least from what we can see on a year from your perspective is that what happened actually on a sequential basis. It would take further increase in pricing.

And then how do you think about that going forward. The next next few quarters.

Particularly demand.

Actually to fall noticeably.

Yeah, Hi, this is Michael again, just to be clear I think we've talked about this in the fourth quarter conference call as well is that our efforts to really get on top of the price mix equation. If you will.

Had not fully ban taken into consideration even at the end of the fourth quarter.

Last year.

That's how we continue to see price mix benefit going into the first quarter. This year now going forward. Obviously, there is considerable uncertainty in terms of the demand environment and.

How the situation is going to play out over the next couple of quarters, I would say, though that our pricing initiatives. Both in the back half of last year and also going into the beginning of the first quarter. This year have lapped themselves in the sense that we wouldn't expect to have the same level of price mix gains.

Going through the rest of the year.

Okay. Thank you very much there.

Next question comes from Ken Zener of Keybanc. Please go ahead.

Good morning, gentlemen.

I'm wondering intent.

Well, it's nice to see your EBITDA contribution.

In the mid to high Twentys.

Would you comment perhaps given.

What's happening with us today.

If youre.

Range in terms of EBITDA contribution I think it's you know you guys is and say what 20 to 25 is that correct Michael right Yep.

Could you you know realizing you're not giving guidance could you just kind of help is toggle through.

What might be.

Creating kind of lower first higher EBITDA leverage.

Just so we can I understand you know how you can you share labor between branches, obviously with 98% of your branches by revenue open and that's that's a lot has a lot of backlog to go through but just you know if you were able to work really efficient way because you were within six feet of each other before could you just.

Give us a field.

To make it a little more granular about how.

Those physical behavior changes might impact EBITDA, a little bit. Thank you.

So.

Cost of being less efficient at a labor site and the social distancing practices that we're doing in terms of staggering start times for installers.

That actually impacts cost of goods sold more than it does DNA expenses. So.

We would expect that that would have an impact on gross margin obviously during the quarter, we had very strong gross margin growth.

But it's difficult.

To predict.

You know really how this is again how this is going to play out over the next couple of quarters, but we would definitely expect to see some some margin compression from the lack of efficiency on job sites, which has to be expected, but at the same time you know we do feel.

Fairly good about the results of April from a revenue perspective, considering that we had positive revenue growth. Despite the fact that 10% of our branches by revenue were closed and that our same branch sales growth adjusted same branch sales growth.

It was up 6% given the current economic environment.

We also feel very good about the strength of our backlogs in both the multifamily and commercial business, both the light commercial and the heavy commercial business in those businesses now represent over 30% of our total revenue and we have very good visibility you know into the to the backlogs of those businesses. So yes.

Theres going to be an impact on you know all the new practices that we're doing for some period of time, but we really haven't been as you noted we don't provide guidance, but you know it's too early to say exactly what the full impact, particularly in any one quarter is gonna be associated with those expenses.

Understood if I.

Could ask about your commercial comment there a 30% I think is what you say could you break that into the heavy versalite.

Got a and then be.

Another commercial install their talked about you know regional.

Impact a regional exposure impacting their.

Their business, obviously, I guess you did not have that same headwind.

Are there specific areas regions that you're in it sounds like all your commercial was outside of any you know heavily impacted closure areas I eat Seattle, San Francisco et cetera.

You very much.

Yes, so just to the breakdown of that 31% roughly 13% of it is multifamily about 10% of it is heavy commercial and 8% is like commercial and yes.

Our heavy commercial business not so much the light commercial business, but the heavy commercial business was in all markets that construction was deemed essential now we did have I'm certain jobs slow down we actually had certain jobs speed up.

In terms of trying to get to work done faster and get get jobs completed I'm. So there is definitely some puts and takes there quite frankly, though as I said, we have high visibility into the backlog there and you know actually.

Alpha heavy commercial business had a record month in April in terms of the number of bids that they submit it.

Light commercial wasn't back though.

Impacted in states that were closed absolutely.

Thank you very much.

Well.

Thank you next questions from fell nine of Jefferies. Please go ahead.

Everyone and thanks for all the color I guess can you give us an update on how new orders may have progressed, the last few weeks and with Sony States that have shut down and during the prices of bringing we open any read in places like Pennsylvania, Michigan in Georgia.

I mean, if you're talking about orders for us or new orders for the builders.

A new orders for you.

Yeah. So you know I would say that I mean, obviously, we've talked about April sales in the impact there.

We're back up to 98% in terms of revenue that active but some of those locations have just started this week, but I would say that so far the initial indications in may our very encouraging.

And then does that account for bidding activity as well 21 more color around that as well.

Yeah. So I mean, all of our salespeople, particularly in states that were closed continues to bid jobs from them.

And a you know we're continuing to see good bidding level on the residential side as I mentioned on the commercial side.

During the month of April Alpha had a record month in terms of their bidding activity in terms of the number of bids that they submit it. So we feel good that there is still volume there, but we can't ignore the fact that clearly during the month of April there was the unprecedented decline in order growth at builders.

Single family perspective, so we're starting to see positive trends I should say March and April in terms of that order growth decline and I would say that we're starting to see positive trends in that order growth, but it's still significantly down.

From where it was even last year, let alone from where it was in January and February.

Gotcha, and Michael you were kind enough to give some color in terms of.

You know the playbook in terms, how you kind of think about costs. As you know this downturn kind of progress through the year any incremental color. How we should think about decrementals, let's say early on in this process and how that may progress over the course of the year.

Yeah, I mean, you know Decrementals will [noise].

Probably be higher initially just because of I mean, one you know we have the costs. The carrying cost. If you will have branches that were close right. So we had branches that basically at no revenue, but we obviously still had the branches and still supported the administrative staff within those locations right. So the Decrementals initially will will most.

It's likely be higher and I would say that you know in a normal environment, we would expect decrementals to be similar to the incrementals of that 20% to 25%, but we wouldn't be surprised if we saw decrementals higher than that again.

Especially during the initial I'm part of the.

You know of the crisis or other things.

Things develop over the next couple of quarters. However, all of that is really going to depend upon volume and I think one of the things. That's important is that we as a management team have been working together for over two decades. We've managed this business through multiple recessions, including the great recession and as a company.

You know, we manage the business through an opportunity or through a time, we're up to 80% in some of our markets, 90% of our market opportunity went away. Despite that we we well outperformed the market and consistently grew market share in fact from peak to trough our sales during the great recession were only down 40% compared to again.

A market that was down 80%. So we have a lot of confidence in our ability to manage during the most difficult times, which clearly.

You know that remains to be seen again, what happens to the housing market and this time, but we're very confident in our ability to manage through this and to effectively come through the other side of this a much stronger company.

This is Jeff too I mean, I'd just follow on that and say that I think as a group were really pretty good problem solvers, but the problem hasn't come into focus as pretty much everybody listening probably already knows I mean, you can't solve a problem that you don't yet know.

Exit we don't we don't know it's kind of like being dealt are being asked to play again to cards and they haven't dealt a card yet so we're kind of waiting like everyone else to see just how this soft spot or air pocket, maybe worse manifest itself.

Got it Okay. That's helpful and just one last one for me Youve effortless and you have your employees and could see you're bringing some of the back just curious how long does it take the kind of bringing crude back for IBP, specifically and any thoughts in terms of the entire trade for construction do you see that as potentially <unk> a bottleneck as demand comes back.

Being for US, it's a day, where they come back nearly immediate debts immediate and I would I suspect that's true of most trades.

Terms of their ability to bring people back I think most large companies in the space have done things to sort of to protect their employees. If you will during this time one of the things that we did is for the month of April we paid benefits for those furloughed employees. So you know I think we're all working very hard to to protect our most.

It's important asset or people well.

Jeff again, too, but in a normal environment and even during the.

Great recession. It was it's extremely rare for us to hire a new employee that has experienced in our trades. So we end up hiring people are completely unexpected against and train them. So on a go forward base I can't speculate about you know the labor market for other trades, but we've even looked at and thought that.

But there could potentially be less pressure and assuming that were still dealing within experienced.

I'm pleased to start with but less pressure on that just based on some of the fall out in some of the other industries.

Alright, Thanks, a lot good luck in the court.

Thank you.

Thank you our next question from Mike Dahl RBC. Please go ahead.

Hi, Thanks for taking my questions.

Just wanted to ask a question around just when when you're looking at the backlog of homes under construction. There's there does seem to be a lot of moving pieces unclear.

Well there are not these will be sustained but differences and things like spec versus build to order or regional difference summed up lack of clarity on high and low and I guess the question is when you're looking at it is there something about the mix of homes, we should be considering either from kind of volume or price mixed.

Endpoint as we look into two Q3 Q.

I think its I mean, the backlog is the is consistent with the trends we were all seen in terms of.

Growth at the more affordable housing level, clearly that market has had historically than a very spec driven market in terms of builders warning that houses ready to deliver quickly for that a affordable segment and you know, we think that the backlog or the backlog is come.

Prized of a lot of that trend that we were seeing before the started and a in March and April now we would expect that you know and again, we're seeing starting to see some signs of pickup in orders at the builders and we would expect that the builders that are which are generally speaking.

In very strong financial condition.

I would expect them to start picking up their activity to meet that demand.

The inventory as we all know of Ah Onez is very tight, particularly when and where it I mean that demand will come back, particularly given the amount of stimulus that's going into the economy combined with.

You know the very.

Low rate environment, So we'll see.

Okay. Thanks, that's helpful.

My second question I got on understanding you're not providing guidance for than some of the open opening commentary you talked about.

The impact being really more of a threeq to Fourq you issue. It for for you guys given given the lack there.

I guess is there anymore clarity give on kind of the the shape, but that would.

That would take is this kind of just a a gradual decline while were true for Q4 or is it going to be as it stands currently at something more pronounced in Threeq, you and then still pressure in Fourq, you, but less so than Threeq you.

It's really impossible to say quite frankly, just because it's it's uncertain right now just how quickly orders will come back and how quickly builders can take land and convert it to lots to to get them ready for us to install our surfaces. I mean, we come relatively late in many of our product.

Get installed relatively late in the timing to build the house. So it is really dependent upon how quickly builders can start sizing up again to the what we believe ultimately the demand. So you know I think we'll be able to give you a much better answer to that question.

After we get through the second quarter and we so to see what order growth is like an absolute order numbers are are at the builders you know through the through the second quarter and into July.

Okay fair enough. Thank you.

Thank you. Our next question from Susan Mcclary of Goldman Sachs. Please go ahead.

Thank you good morning, everyone.

Sure.

Things that I think you have that's a bit unique is your exposure to private builders and especially maybe deeper into the mid west and some of those regions that the public aren't as heavy yet can you talk to what you're seeing from the private versus the public's if there's any trends that are burning differently. There and maybe you know just some color.

Her in terms of what you've seen regionally and what that could mean for results.

So you know the the majority of the states that excuse me were closed.

During March and April and did not being a construction essential or in the Midwest and the northeast. So obviously that had an outsized impact on those regions, particularly during the month of April I would say that <unk>.

Just from a general perspective, I think most private builders.

Have not been have not taken the same stands at some of the public builders have in terms of not wanting to start.

Projects I think.

The private builders had been a little bit more aggressive in terms of their belief that there's going to be strong bounce back in orders and I think they're going to continue to work hard to kind of stay ahead of the curve now that being said I mean, there's no doubt that when we see the census Bureau data coming out for the next.

A couple of quarters starts growth and and orders are going to be significantly significantly impacted.

This is Jeff Silber interestingly enough of the states that were close with exception of Washington State as Michael mentioned, where they were located predominantly kind of great lakes and.

New England those are obviously some of our most seasonal markets also yes. So they are despite what's going on are moving into the quarters, usually that end up being where they do the predominance of the work that they do for the year.

Yeah Interestingly it started out I mean, the quarter started out with a very mild winter, which was very beneficial for those markets as well.

Okay. Thank you and then another question just can you talk to your ability to de lever. How quickly can you kind of convert that working capital over and is there any kind of target in terms of leverage that we should be thinking about it and maybe especially if this does end up being a deeper or.

A more sustained downturn and whats currently expected.

Yeah. So you know.

If it is a deeper and more sustained downturn.

So we would look to de lever on a net basis, we don't look to pre pay any debt at this time I mean that just doesn't make sense, we want to preserve liquidity and we have no significant debt maturities until April 2025.

And then our next significant debt maturities in 2028. So you know our net leverage right now is under two times and you know we would expect that one through the reduction in working capital, which happens almost immediately.

If sales are declining that you know we would be able to continue to improve our net leverage throughout the course of any downturn.

Okay. Thank you good luck. Thank you.

Thank you. Our next question is from Keith Hughes of Suntrust. Please go ahead.

Thank you.

A couple of questions one on the price mix in the quarter, which was outstanding.

That's still more price driven at this point.

And the and the first quarter numbers.

Yes.

And do you expect given the trough we're going into.

Do you expect mix change or will the saying mixed trends could have you baked in which the on orders.

Yes, that's actually a great question I'm glad that you asked it so yeah, we would expect actually I mean again, depending upon how this plays out but we would expect that in order to continue to maintain a higher level upsells within our branch locations that not only would they continue to expand their service.

Area in terms of yeah, the service radius around the branches, but that they would also push even more aggressively the sale of the other products. We absolutely benefited from that during the great recession, and we would expect that if this is a prolonged.

Downturn that we would benefit from that those factors as well in that case.

Okay.

Question, just let me that you know just a complete on that just for everyone's benefit we talked about this several times before but the higher growth rate of those other products brings down the price mix because those other product sales job.

Prices are much lower than insulation.

Okay final question on Alpha good news on their quotation activity it and March and April.

How typically how long.

Is the lead on a quote until you're actually on the job site doing work.

Ralph.

It really depends obviously on the job that's being quoted I mean, sometimes it can be 12 months or even longer before we're on the job site.

But generally speaking in terms of backlog visibility. We had we had very good visibility into you know call. It three to four quarters worth the revenue I'm on the outside.

Okay, you're not seeing any cancellations come up from quotation level months' ago.

We've seen very few cancellations and to be honest with you. Dave I think we had maybe three or four jobs cancelled and they were all fitness facility related.

Okay. Thank you.

Thank you. Our next question from show them Clark of Deutsche Bank. Please go ahead.

Hey, good morning, Thanks, No question.

You just stop talking about how volumes are trending in April versus price next or just help us bridge to some of those organic sales numbers that you gave for April.

We're still seeing stronger price mix.

<unk>.

Hi, so so volumes.

Or on an organic basis down year over year.

No.

Okay.

So some modest where the volume.

Kind of longer term question as it relates to M&A, how do you think the upcoming slow down or just this.

Entire situation will impact the M&A landscape I know you guys trying to go after high or higher quality companies, but.

How do you typically think about you know the opportunities where the pipeline coming out of the slowdown or in the middle of the slowdown.

Relative to more normalized environment.

This is Jeff and what I would say is I mean, there's not a a seller that weve probably ever spoken to more done to deal with that doesn't recognize this is a cyclical business and I guess most people always assumed that becomes a buyers market I mean to when we may see.

Slight downward adjustment in terms of multiples, but in general I think most of the company's we've talked to have been through down markets and honestly, if they can't kind of positioned the business, where it needs to be in basically get a purchase price that kinda supports what they have worked on in many cases for decades, they just pull that.

Opportunities go away.

We're not seeing that I think we're you know at this point talking with lot of companies that have.

A lot of background in the business a lot of history and that strong growth an impressive profitability. So some point, we will I think the clouds will clear a little bit of we'll know a little bit more about what you taught me that we're going to ultimately deal with we feel that the housing market potentially isn't a different spot maybe than it obviously was the last thought.

There are different spots and that's actually maybe an entirely different spots in the rest economy with a lot of.

We're including a large component that has an urn out the hard to it. So that you know some of the uncertainty surrounding you know what's to come is borne by the seller yeah.

Oh they appreciated thanks.

<unk>.

Thank you next question comes from tray Gromes of Stephen zinc. Please go ahead.

[noise] morning, guys. This is actually know murkowski go on for tray.

Or just.

Just a quick follow up on that last question on in a and understand that might be a little bit too early but you know what would you guys want to see you know from the market before you started getting active eliminate again.

I mean, we're just going to continue to monitor you know the information will both internal but in addition to that the information that's available in terms of kind of you know builder traffic and builder sales you know they I don't know, it's probably been three maybe even for weeks now we're kind of sequentially. There's been improvements. So obviously I think the next 30 to 45.

Days are key in that regard and if it continues to recover I think we're going to feel a lot better about things.

Alright, Thanks, that's it for me.

Okay.

Thank you next question, where it was from Rubin Garner Sea Port Global Securities. Please go ahead.

Okay, I see Rubin benchmark now congrats on the quarter guys and a good start April it must not questions have been answered just just one kind of follow up and I don't mean to be the dead horse, but.

The backlog that you reference how how long kinda can your business.

You know sustain or tread water before you need to see signs that the the orders for the builders just talking about the single family side before you see those orders recover I mean that it is your comment about how you know the weakness is more of a third quarter of then is that is that the point that you you.

Got three or four or five months worth of work that you can you know hold over and if you get the orders from the builders come back in the next couple of months then maybe you never really see a period of weakness just help us understand how that dynamic played out.

Yeah, I mean generally speaking that was the point, we're trying to convey although given the unprecedented decline and orders and what we believe the data will show and starts.

It's just gonna take time to get the houses you know assuming that that order growth comes back and we get to a more expected level orders. It's just going to take some time for that has to be ready for us to do our installation work because keep in mind the house needs to be framed in plumbed in.

Yeah. The electrician has to be there and there's just a whole bunch of stuff that has to happen before we get there and those traits are going to need to come back and get that done. So you know are feeling is there is a very good backlog available right now I mean, obviously, it's in various stages some of which we've already installed but we feel that that.

Lens near term support for the single family, New construction business and yeah. We're encouraged to that the order grows if it accelerates like all of us and and maybe not all of us, but a lot of us think will be the case that the very well capitalised builders are gonna be a wouldn't be too you know take advantage of that and.

Get homes ready for us to continue to do work on.

Great. Thank you guys and good luck navigating through the state.

Thanks, Thank you.

Thank you next question from <unk> Associates. Please go ahead.

Morning. Thank you guys just never wanted just the the sequential volume deceleration in the corridor.

Is that it was that a function of a trade off of of price and volume I guess that you intentionally seed from volume share in the quarter.

It was the combination I mean price.

We've always talked about the fact that we favor working with customers that value our service and we do that I'm definitely over volume but.

Volumes were definitely impacted as we had mentioned in our prepared remarks by the two to two and a half million dollars revenue that we did not.

Have because of the code 19 impact. So you know from our perspective, we feel very good about where we were from a market share perspective in the quarter and the customers that we were doing work with we saw outsized growth in the quarter and actually even in the month of April with some of.

Are most important customers from a large built in perspective and yeah. They continue to value the service that we provide them.

But what were your volume trends are your your trend by month and the quarter.

So the they were <unk> they were solid in January and February and it was March where the volume just turned negative.

Yeah.

And then if you think about the the non residential backlog funnel love if he could provide anything like in vertical observations across your book a business about how their trending now.

<unk> certain areas that May maybe were pulled ahead certain that were maybe delayed or at least parts of the channel and then and then how you just big picture stepping back how you think this pandemic just going to affect non residential starts activity that's going to filter into 2021 for you.

Yeah. That's that's a good question I mean right now we're seeing you know strength really continuous reigned in the commercial business both like commercial on the heavy commercial business with the exception of the fitness facilities that I've mentioned earlier in the queue in a.

It's very difficult to predict how the you know this unprecedented event is going to influence on things like stadium construction and office space. It's just it's really very uncertain. All I can say is and you know we'll continue to update every one on this is that are bidding activity is at record.

Levels, and we feel very encouraged by the.

Commitment and strain of all of our employees.

And you know, particularly those employees alpha that are working very hard to continue to grow that business for us.

So I guess in terms of the the M. in a side of the of the ledge or just given a later cycle nature of that channel do you think that perhaps the in terms of the purse strings for m. in a maybe initially towards the residential area versus non residential till you get a little bit more visibility a non residential doors or do you think that the opportunity.

<unk> will coincide with one another.

We're definitely prioritizing residential opportunities right now over on residential, but we're not afraid of doing non residential deals and as you said earlier I mean, there are ways to structured deals where you can put some of the rest back on the seller.

But you know and the key is is is we we have always focused on working with bringing onto our team high quality businesses with high quality people and it's our experience that they know how to manage very effectively as Jeff said earlier during the downturn.

And you know we feel confident that you know both our existing team and people that we add to the team, we'll do a very effective job managing through this.

The last question for me just on the S. She may run rate that roughly $80 million in total S.G.N.A. in the first quarter is that is that sort of like starting to run rate I know, it's feasible element to it but it is that a good starting runrate to use to work from in terms of thinking about about yeah.

Progression of the expense <unk> I know you you mentioned health care items I don't know if there was some onetime items in that first quarter number the that won't repeat as we think about the sequential and seasonal trends.

Yeah, I mean, the on the selling side as we mentioned in our prepared remarks, I mean <unk>.

A large portion of that expense is employee related that will fluctuate with sales you know the we don't like to think of any costs as being fiske fixed costs, but the most lagging of our variable costs are contained in G.N.A.. So that G.N.A. runrate, depending upon you know how this plays out would have the <unk>.

Greatest lagging variable to any decline in rather than him.

Okay. So that so that 60 million dollar roughly G.N.A. expenses is the right kind of number to start with as we think about the sequential progression and and the phasing of revenues.

It's it's reasonable.

Okay perfect well. Thank you guys appreciate your.

Yep <unk>.

Thank you our final question from Ryan Gilbert of V.T.I.G.. Please go ahead.

Hey, thanks, guys on or just.

First first question, it's on a bike volume pick back up a little bit in April.

And I'm just wondering if that's from activity in states that that were previously shut down [noise].

Or or if there's anything else driving not like left.

Yeah, it's definitely some although it in April we still had.

The you know 10% or so.

Our revenue clothes. So it wasn't really driven by that it was driven by volume growth in our non close markets of you will.

So.

We are I mean this is you know if we look at our footprint on that if you look at the South and West with the exception of Washington Me in California was definitely impacted from a volume perspective, but focusing particularly on the census Bureau is south region definition.

We continue to see good performance in that market.

And none of those markets for closed do too because construction was deemed essential and all those markets.

And surprisingly those markets continue to be very strong we've actually had some builders believe it or not that had record in those markets have had record sales.

You have continued to have record sales in those markets. So it's some of the things that help pointless to the fact that we do you think that.

The housing market at least I can't speak to the overall economy, but the the housing market has the potential to come back from this pretty quickly.

Oh, Yeah, that's encouraging datapoint's.

Looking to the commercial business given idea what percent of the backlog is <unk>.

Local construction has already started versus there's still horizontal development.

I don't have that percentage in front of me, but we're being extremely careful right now on all of our project work and also on all of our bidding to make sure that those projects have been funded already and have been.

Emitted too so that we're not bidding on work that may ultimately get cancelled but.

I would say that it's a it's a mix and [noise], but I'd historically.

There's nothing historic about the current environment, but historically, we've had very little problem converting backlog into revenue.

Great Thanks, very much or.

Just concludes our question answer session.

<unk> turned a conference over to Mr. Jeff Edwards running closing remarks. Please go ahead.

Thank you for your questions and I look forward to our next Squirrelly cool. Thanks again.

Conferences now concluded. Thank you for technique that age presentation, you may now disconnect.

[noise].