Q1 2020 HD Supply Holdings Inc Earnings Call

[music], ladies and gentlemen, thank you for standing by welcome to the age.

The supply first quarter earnings conference call at this time, all participants' lines are not listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you need to press Star then one on your telephone.

Please be advised that today's conference call is being recorded if you require any further assistance. Please press Star then zero I would now like to hand to conference over to your hosts today Ms. Charlotte Mclaughlin. Thank you ma'am. Please begin.

Thank you Howard.

Good morning, ladies and gentlemen, and welcome to the HD supply Holdings Twentytwenty first quarter earnings call.

As a reminder, some of our comments today, maybe forward looking statements based on management's beliefs and assumptions.

On information currently available to management at this time.

These beliefs and subject to known and unknown risks and uncertainties, many of which maybe beyond our control.

Including those detailed in our periodic SEC filings.

Please note that the Companys actual results may differ materially from those anticipated and we undertake no obligation to update these statements.

Reconciliation of non-GAAP financial metrics with that corresponding GAAP measures are available at the end of a slide presentation in and out Twentytwenty first quarter earnings release, which is available on our website at www Dot HD supply dotcom.

Good he Angelo CEO will lead todays call with Brad Olsen President of facilities maintenance and John Stegman, President of construction and industrial.

Providing further color around that business unit.

Evan Levitt CFO will provide additional information on our recent financial performance.

There will be an opportunity for today.

For those participating please limit your remarks to one question and one follow up if necessary.

Thank you for your continued interest in HD supply.

With that I will now turn the call over to Joe D'angelo.

Well, thank you Charlotte good morning, everyone.

Thank you for joining us today for our first quarter 2020 earnings call.

As always it is my privilege to share companies results with you.

On behalf of the over 11000, HD supply associates, who work hard every day as one team driving customer success and value creation.

Turning to page three.

I want to begin this morning by offering our sympathies to everyone effected by the cobot 19 outbreak.

This is a 100 year event that impacted the world.

Also we are committed to helping heal the communities in which we live in work as they have been damaged by social and justice and unrest.

Throughout these extraordinary times are most essential activity has been protecting the safety and well being over associates and their families.

While demonstrating or HD supply values.

Stepping forward with creative solutions, a good old fashioned grid to continue to lead our industries.

So rapidly evolving customer need.

I want to thank all of our associates, especially our frontline drivers in branch and distribution center teams.

Safely tackle daily challenges supporting each other our customers and our local communities.

We have all had to face uncertainty change or routines and execute difficult circumstances.

I feel very proud of how our associates rally wind together.

As we stated on our March earnings call, we took robust actions to continue operations during the pandemic.

Which included infection controls and our facilities and heightened for caution for drivers and customer facing associates.

As a result of these practices.

All of our facilities maintenance distribution centers remain open.

Minimal disruption in our construction industrial bridge.

We work closely with our customers to ensure that we understand their needs. During this crisis. The team has worked hard to tailor our service to support our emerging customer requirement.

Our sourcing teams continue to work relentlessly with a supplier partners.

Maximize the availability of high demand product, including disinfectant, sanitizers and personal protective equipment.

We've onboarded multiple new supplier in products in order to meet the current and future needs of our customers.

HD supply was designated in essential business throughout the shelter in place orders and as part of our commitment to our communities. The team did an outstanding job of identifying ways in which we could get back to our customers in communities.

We were inspired by some some of our hospitality customers.

Whose businesses were suddenly in severely impacted by the decline in travel.

Many of these customers with a lack of paying get open their properties free of charge to healthcare workers and hot spots like New York City.

Allowing frontline healthcare professionals remain close to the medical facilities without the risk of infecting their families at home.

We were proud to support these customers and our medical professionals by donating hospitality supplied to the cost.

During the quarter, we also donated needed supplies.

Disease research and treatment centers.

And to support organizations.

Providing shelter for victims of domestic violence and those in need of transitional ore affordable housing.

The need in their communities for these services increased during this crisis, both same time available resources have diminished.

Our people step up to support these causes.

Particularly when the need is great.

Before I move onto our recovery strategy I want to take a moment to reflect on this quarter's performance.

You'll hear from Brad Jon Evans shortly.

But it has been an uneven performance over the course of the quarter.

Our performance through mid March was strong with February sales delivering year over year average daily sales growth of 8.8%.

In the first half of March trending accordingly.

However, beginning in mid March our sales were suddenly in severely impacted by the various restrictions placed on economic activity.

During the full fiscal first quarter 2020, ending May Threerd 2020, we thought 6.6% year over year sales decline with facilities maintenance declining, 11.7% and construction industrial declining 1.1%.

However, we continue to generate strong free cash flow of $116 million during the quarter.

18.7% increase over the same period last year.

And ended the quarter with combined liquidity $797 million, an increase of $169 million from the end of fiscal 2019.

The start of our 2020 fiscal second quarter has seen sequential improvement in average daily sales during the month of me in both businesses.

We are encouraged by.

Recent results and efforts made the slowly imprudently reopened the economy around the country.

We rigorously follow CDC guidelines in safely conducting operational activities as an essential business.

We are providing our associates with the appropriate personal protective equipment.

Including disposable face masks and Sanitizers and love.

We have embedded social distancing in contact barriers into our facilities and operating practices.

We are screening associates for illness at the start of their days.

We ask you frequent structured thorough cleaning of facilities and equipment.

As announced earlier this year, we've delayed the separation of our construction and industrial business unit into an independent publicly traded company as we continued to navigate through the crisis.

We remain committed to the separation and believe we can completed in the second half of fiscal 2020, if we continue to see the capital markets stabilize.

We're unable to execute to transaction 2020, we look to completed in early 2021.

I'll provide some closing comments vonn queuing eight.

I want to emphasize we're excited to enter this recovery period with strength momentum.

We are well capitalized.

We continue to generate significant cash flow and we're completely focused on our core markets of living space Emerald and specialty construction.

We added we have been able to leverage our deep relationships scale and cash flow capabilities in prior periods of market stress.

We believe that this recovery, who will provide similar opportunities.

Theres much work to do.

But our may in early June results show signs of recovery and we will continue to work as one team deliver enhanced results and our two market leading businesses.

Ill now turn the call over Brad Paulson will provide an update on our facilities maintenance business.

Thank you Joe and good morning, I'd like to start off by taking a moment to share how proud I am of our team in the manner in which responded to the coded 19 outbreak.

From the outset, our leaders in associates locked arm since for the health and safety of our team and customers was non negotiable and our top priority.

Our distribution centers call centers and leadership development Center did not experience any disruptions and providing best in class service to our customers across the nation.

Our ability to maintain operations and deliver critical support to our customers. During this challenging time is a testament to the special group of associates, we have HD supply and I cannot be more proud of each and every one of them.

Turning to page four as Joe said this quarter's performance was defined by pre and post shelter in place orders facilities maintenance had a solid February performs exceeding our expectations expectations and delivered sales growth of 4.1% with the first two weeks of margin also trending well with approximately 6% sales growth.

The end of March and April saw a significant decline in sales volume and I will begin by explaining what made this environment. So unique.

There are two primary issues that impacted our business in the first quarter first we faced a perfect storm of headwinds in April including restrictions on economic activity in general health concerns associated with Coca 19 that caused our customers to either suspend operations or limit maintenance to only emergency repairs.

And second our customers product needs change dramatically in the second half in March and all of April.

As you might expect products and services supporting general maintenance in unit turns were deemphasized as customer shifted their focus the sanitation infection prevention and personal protective equipment.

These items historically have represented a very small percent of our sales, but our sourcing and category management teams have responded to these changing customer needs and quickly expanded our assortment and inventory availability for disinfectants sanitizers disposable face mask sneeze guards in other janitorial and safety products.

We've seen our customers respond very favourably to this expanded assortment and expect or increased emphasis on these products to continue beyond 2020.

Our team will continue to expand our products and service offerings as we work to become our customers preferred destination for all of our safety and infection prevention needs.

Moving on to page five.

The impact from the coded 19 outbreak impacted every sales vertical in every region in our business.

As you would expect node business vertical was more effective than hospitality, which represents approximately 18% of facility maintenance sales.

As business and leisure traveler came to a halt our hospitality customers were severely impacted with many of them temporarily suspending operations.

We saw strong correlation between our hospitality sales and the decline in the hospitality industries reported revenue per available room of around 75% to 80% at its worst an occupancy rates, which had with hit excuse me, which had averaged close around 20% in April.

Not surprisingly, our hospitality business experienced a similar year over year level decline in revenue of approximately 75% in April.

As economic activity has started to resume we've seen encouraging improvement in hospitality with year over year sales declines of approximately 48% in may.

This is a significant improvement from April.

We believe our hospitality vertical will have the longest past the recovery as it is dependent upon the return of more consistent business and leisure travel.

And our multifamily healthcare and institutional verticals, we saw a dramatic change in customer purchasing trends.

Beginning in mid March demand for low ticket items, like hand, sanitizer and protective mess, but as our customers prioritize the health and safety is our associates and living space communities.

As part of that prioritization of very high percentage. These customers elected to only execute emergency repairs in April as many residents did not want maintenance professionals in their living space unless it was absolutely necessary.

As a result of these shifts in purchasing needs. We saw order volume remained strong, but average order size drop significantly as demand for higher ticket items, such as appliances in the HX decline.

This drove a 23% year over year drop in our non hospitality sales verticals.

In may our non hospitality vertical sales declined approximately 6% year over year I'm very encouraged by our improved results in may as restrictions on economic activity relax our customers again to prepare for their own returned to work activities and deferred maintenance was slowly initiated.

These improved conditions caused our teams experienced a sequential increase in average order size during may from April.

Order growth delivered positive year over year growth.

We've seen further improving trends in early June and expected continued recovery as state level and city restrictions are relax and as residents begin to allow for normal maintenance activity to be conducted in their living spaces.

Our team has made tremendous progress and remains fully committed to supporting our customers and our communities. During this recovery.

I'll now turn the call over to John segment for an update on the construction industrial white cap business.

Thank you, Brad and good morning to everyone, echoing Joe and Brian's comments, we extend our deepest sympathies to everyone who's not affected by the totaled 19 pandemic.

I'd like to start by thanking the white cap team for stepping up and adapting the market conditions. During this difficult time, delivering exceptional service to our customers, while implementing safety protocols to protect our associates and customers.

Now turning to page six.

Our team experienced three distinct periods in the first quarter, we came out of against very strong in February delivering year over year growth of 14.2% highlighting market strength and our ability to deliver value to our customers as a preferred partner.

We entered March seeing similar trends for the first two weeks.

However, by we disagree with shelter in place Motors escalating business slowed and declined through the first two weeks of April.

We believe based on current data the middle of April represented the trough for job delays.

More sales saw year over year growth of 1.4%.

Total sales declined 13% year over year with momentum shifting positive in the last two weeks of the month as markets began reopening.

Our national scale and presence in many markets didn't help balance sales decline.

San Francisco, New York, Boston, and New Jersey were very challenged while our central Midwest Southeast southwest and our home little bit solutions business performed admirably.

Being designated in essential business allowed us to continue to sell core products and safety supplies to a customer base.

We experienced mild disruption in certain areas of our supply chains I'm very proud of our sourcing teams to ensure we had vital inventory to supply our customers.

We closed the first quarter with the revenue decline of only 1.1% attribute to the tenacity of our team executing on inventive approach to engage customers, while adhering to strike social distancing and safety protocols.

As a pandemic progressed the key took important steps to protect our associates and our customers to ensure they were doing business safely.

We limited customer interaction in our showrooms and focused on technology customer pick ups and deliveries to drive our business.

We currently symptom checker, all our associates and suppliers as they enter our facilities ensure we associate lead distancing and just in fact, our work areas daily.

All of our locations are currently open for sale endless.

We executed on labor and cost reduction actions during the quarter to adjust our cost structure for our lower revenues.

Gross margins improved 70 basis points year over year, driven by a focus on safety product sales, a favorable commodity environment and our mix of job work.

This was disciplined gross margin progress and a very competitive environment.

During the quarter a decision was made to also pay out additional bonus dollars to our frontline associates, who interactive daily with our customers and to provide supplemental sick leave to associates impacted and any manner by the virus.

We also made product donations to hospitals and need of key safety products.

The white cap team finished may 2020, a first month of our second quarter down 1.4% when compared to May of 2019.

We are very encouraged with sales momentum as delayed projects start back up.

It is difficult to forecast, whether new projects will replace delayed projects as we approach the latter half 2021.

And our customers current backlog provides nice opportunity.

Anymore, we started I'm exceptionally proud of our team and their passion to serve with excellence.

Thank you for your time today, and I'll now hand, the call over to Evan.

Thank you John and good morning, everyone.

I'd like to start by addressing the announcement, we made on March Thirtyth in regards to the separation of our construction and industrial business into a separate publicly traded company.

We made the decision to temporarily delay the separation due to market conditions and to allow our management team to focus on navigating the coded 19 crisis.

Our rationale for separating our two businesses has not changed and we continue to believe it isn't the best interests of both businesses to pursue the separation.

As such and dependent upon stability of the financial markets and the broader economy.

We currently expect to complete the separation in the second half of 2020.

Early 2021.

Now turning to page seven.

Our net sales declined $98 million or 6.6% to $1.395 billion in the first quarter of fiscal 2020.

As compared to $1.493 billion in the first quarter of fiscal 2019.

Gross profit decreased $35 million or 6% to $550 million for the first quarter fiscal 2020 as compared to $585 million for the first quarter of fiscal 2019.

Gross profit was 39.4% of net sales for the first quarter fiscal 2020, an increase of approximately 20 basis points from 39.2% for the first quarter fiscal 2019.

I will discuss the gross margin improvements during the business unit discussion.

Adjusted EBITDA decreased $40 million or 19.7% to $163 million for the first quarter of fiscal 2020 as compared to $203 million for the first quarter of fiscal 2019.

Adjusted EBITDA was 11.7% of net sales for the first quarter of fiscal 2020 down approximately 190 basis points from 13.6% as compared to the first quarter of fiscal 2019.

The first quarter fiscal 2020, adjusted EBITDA includes an $8 million charge for an increase in expected credit losses, and a 1 million job a $1 million charge for the donation of inventory to support our communities during the coated 19 pandemic.

On page eight I'd like to discuss the specific cost actions that have been taking during the second half of the first quarter in light of the current crisis.

We implemented a hiring freeze across the company.

We have reduced hours in our distribution centers and branch locations.

Our chief Executive officer voluntarily reduced his pay to zero for the rest of the year.

We reduced salaries for all salary associates.

Our independent directors with 100% of their cash board retainer for the remainder of the year.

We've eliminated or deferred discretionary spending.

We've reduced our planned capital expenditures from approximately $120 million to $80 million for fiscal 2020.

We furloughed are separated approximately 300 associates and we've eliminated virtually all travel.

On page nine I will discuss the specific performance of our individual business units in more detail.

Net sales for our facilities maintenance business were $682 million during the first quarter of fiscal 2020.

As compared to $772 million for the first quarter fiscal 2019.

The sales declined was 11.7% as compared to the first quarter fiscal 2019.

Adjusted EBITDA decreased $36 million or 26.9% to $98 million for the first quarter fiscal 2020 as compared to $134 million for the first quarter fiscal 2019.

Adjusted EBITDA was 14.4% of net sales for the first quarter fiscal 2020 down approximately 300 basis points from 17.4% for the first quarter fiscal 2019.

Facilities maintenance gross margin improved 20 basis points from the first quarter fiscal 2019.

The improvement was primarily a result of the approximately 33% drop in sales of our lower margin hospitality vertical.

This benefit was partially offset by increased cost from the 29 full tariff increases that had not fully flowed through our supply chain at this time last year.

Moving to our construction and industrial business net sales were $713 million during the first quarter fiscal 2020 as compared to $721 million for the first quarter fiscal 2019.

The sales declined in the first quarter fiscal 2020 was 1.1% as compared to the first quarter of fiscal 2019.

Adjusted EBITDA decreased $4 million or 5.8% to $65 million for the first quarter of fiscal 2020 as compared to $69 million for the first quarter of fiscal 2019.

Adjusted EBITDA was 9.1% of net sales for the first quarter fiscal 2020 down approximately 50 basis points from 9.6%.

In the first quarter fiscal 2019.

During the first quarter fiscal 2020, construction and industrials gross margins improved approximately 70 basis points as compared to the first quarter fiscal 2019.

The improvement was driven by a reduction in the mix of large jobs as many were temporarily temporarily suspended during the crisis.

We also saw an improvement in rebar margins as the cost of rebar has declined year over year.

Finally, we benefited from an increase in sales of coated related safety products. The safety category is a higher margin category for us.

Now turning to page 10.

In the last 12 months, we generated $585 million of free cash flow.

Included $116 million in the first quarter fiscal 2020.

We invested $21 million and capital expenditures in the first quarter fiscal 2020.

We estimate our ongoing annual capital expenditure requirements to be approximately 2% of annual sales.

However, we have reduced our expectation for fiscal 2022 about $80 million in light of the co the crisis.

As we've shared we have fully utilized our federal net operating loss carryforwards during fiscal 2019.

As such we are now a regular federal income tax payer.

In the first quarter, we did not pay any net cash taxes as our first and second quarter estimated federal income tax payments are due in July 2020.

We expect that our ongoing GAAP tax rate will be approximately 26%.

As of May Threerd 2020.

HD Supplys combined liquidity of $797 million was comprised of $147 million in cash and cash equivalents.

And $650 million.

Of additional available borrowings under our revolving credit facility.

Our net debt to adjusted EBITDA leverage was 2.3 times.

Comfortably within our targeted range of two to three times.

We do not purchased any shares in the first quarter under our most recently authorized $500 million share repurchase program.

We decided to instead focus on cash preservation and the enhancement of liquidity.

We increased our liquidity by $169 million since the end of fiscal 2019.

We have minimal debt maturities over the next two years and we believe our strong liquidity positions us well to navigate the uncertain economic environment.

On page 11, we provide first quarter 2020 monthly net sales trend performance as well as the 2019 comparable.

In February 2020, we delivered sales of $461 million, an increase in average daily sales of approximately 8.8% versus February 2019.

In March 2020, we delivered sales of $462 million, an increase in average daily sales of approximately one half of 1% versus March 2019.

In April 2020, we delivered sales of $472 million a decrease in average daily sales of approximately 22.6% versus April 2019.

There were 20 selling days in February 20, selling days in March and 25 selling days in April of fiscal 2020 and fiscal 2019.

May of 2020, which ended May 30, Onest was the first month of our fiscal second quarter 2020, and we have provided our preliminary sales results.

We will not provide information on may results beyond sales.

Preliminary net sales in May 2020 were approximately $431 million, which represents year over year average daily sales decline of approximately 7.3%.

Preliminary may year over year average daily net sales by business was an approximately 13.4% decline in facilities maintenance as an and approximately 1.4% decline in construction and industrial.

Maze net sales performance improved throughout the month for both businesses.

There were 19 selling days in both May 2020, and May 2019.

On page 12.

I'd like to highlight a change to our adjusted net income per diluted share methodology.

In order to move to a more standardized EPS calculation, reflecting that we are now a regular federal income tax payer.

We will provide a net income per diluted share calculation in accordance with GAAP.

And beginning in the second quarter in adjusted net income per diluted share calculation adjusted only for onetime or unusual items.

Specifically with taxes now reflected in accordance with GAAP.

We have provided two years of quarterly reconciliations of our historical definition and our go forward definition of adjusted net income per share in the back of the earnings presentation.

We remain committed to a long term mid single digit sales growth target both on a combined basis and by individual company.

However, due to the uncertainty created by the coded 19 pandemic and its disruption on economic activity.

We will not be providing formal guidance at this time.

We believe that April was likely the most severely impacted month of 2020.

And since then we have seen a steady improvement in the performance of both the facilities maintenance and construction and industrial businesses.

We expect the recovery of our markets to continue with our hospitality business recovering more slowly than our other businesses.

We will continue to prioritize the health and safety of our associates and their families.

While we also continue to support our customers and communities by providing the critical products and services needed to maintain their facilities care for their residents and operate and maintain safe job site and work environments.

Thank you for your continued interest and HD supply.

I'd now like to turn the call over to our operator Howard for questions.

Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

If your question has been answered or you wish to remove your surfing excuse if we first a pound cake.

Again, if you have a question or comment at this time. Please press Star then one argue telephone keypad.

Our first question or comment comes from the line of Deane Dray from RBC capital markets. Your line is open.

Thank you good morning, everyone.

Morning, warning, Hey, great to hear everyone's voices that everyone's doing well appreciate that.

Just in terms of the look forward and I don't mean to parse words, but just at the margin the improvement.

In May is encouraging and I believe Brad commented that.

The June had started off with further sequential improvement can you comment on that.

Yes. So we're on were only one week into into June Dean, but we are seeing.

The trend from May continue into June for both businesses.

That's great.

And then if we're trying to gauge how youre customers and hospitality in multifamily.

We opened.

Will the and there's a sense that theres been deferred maintenance what does the early stage look like in terms of the recovery. It just there's a sense that there'll be some higher volumes.

That will come through initially that might spike higher.

Just what's your sense in terms of those higher initial volumes and then.

Also can you comment on that.

I think is a bit surprised that ERP is actually a higher margin products for use so two questions. There. Please.

So thanks for the question definitely encouraged by the trends, we're seeing as states reopen in our customer properties reopen when we look for I think they're real key to unlocking the growth that we expect is going to be contingent on two things. The first is our customers need to develop a process a safety process. If you will further.

Our associates to go into a living space to conduct maintenance.

They had the same responsibility to protect the health and safety of that individuals like all of US do and on the other side of that the actual individual the residents living in that unit has to be comfortable invited into that space.

We're very very early in that process I expect thats going to gradually improve through the course of the summer.

But again the trends that we're seeing from a mix of goods from an average order value very very encouraging out of the gate.

From a PE perspective from margin standpoint, yes.

And as far as well as far as the that ERP margin comment ERP and the safety category overall for construction and industrial is a higher gross margin category for us. It is not necessarily a higher gross margin category for us and facility admitted.

Got it and just last point, it's a comment really appreciate haven't seen you guys move to the adjusted earnings shifts excluding the onetime items appreciate that thank you.

Very good thanks to date.

Thank you our next question or comment comes from the line Julian Mitchell from Barclays. Your line is open.

Hi, This is the adjacent MCU shield for Julien, maybe just a question about operating leverage across the businesses clearly in Q1, there was significant operating de leveraging both cnine and depth.

Clearly you took a lot of cost out in reaction to the co bid.

19 crisis, maybe just talk about how you see operating leverage trending through the year end and maybe.

How any cost out returning in 2021, good hobble do the leverage coming out of the downturn sort of two dynamics at work there. Thank you.

Yeah sure Jason. Thanks. Thanks for the question that said the best way to think about this is probably thinking about or looking at the decremental margins. So in the first quarter. Our decremental margins were about 40% the that included $9 million of charges for expected credit losses and donations.

Going forward in the club the second and third quarters.

To the extent that the.

The pandemic continues to negatively impact sales I would expect any decremental margins to be closer to 25% to 30%.

As you indicated we'll also get the benefit from some of the cost actions. We've taken later in the quarter in the first quarter as we'll see those play out for the balance of the year.

Now as as the economy picks up and sales recover.

As far as operating leverage or incremental margins in the recovery period.

Certainly some of those those cost out items will reverse so that will be a headwind at year over year.

But with a good recovery and the.

Re leveraging of fixed costs, we would expect to be able to grow.

Profitably.

And begin to return to our board normalized margins.

Understood and maybe just a quick follow up on free cash flow quite strong in Q1.

Capex taken targets kind of ticking down a little bit for the year, maybe just talk about the other puts and takes the there in terms of working capital and where.

Broadly you expect to end up for free cash flow through the full year.

Yes, so the team did a nice job in the first quarter focusing on on a cash flow and that was a big focus for US we wanted to enhance our liquidity position than we were successful given that the team of both companies did a nice job with that.

As as you know working capital.

In a downturn is a source of cash for distributors.

At this downturn, that's a little more difficult than than some others.

Because it is difficult to forecast demand and where.

That demand is going to come from it and what categories as customer buying patterns change with the team did a nice job with that also keep in mind that we didn't pay cash taxes in the first quarter, our first and second quarter estimated tax payments will be due in July.

Assuming that they are further deferred the care Zack deferred that first quarter payments to July so snap.

Coincides with the second quarter ended.

There has been some discussion of delaying further so if that were to occur that would impact then second and third quarter cash flow.

We expected continued to generate good solid positive cash flow throughout the year, but we are providing specific guidance.

Understood. Thanks rollout.

Yes.

Thank you. Our next question or comment comes from the line of Hamzah Mazari from Jefferies. Your line is open.

Good good morning, Thank you.

My first question.

It's just if you if you view there to be any structural trends, both covert 19 that could either be positive or negative for the business and you know we're thinking about rural door been migration longer work from home I know you've talked about pent up demand already Mds on business, but.

Just any changes you see structurally coming out of covered 99 or maybe early Bart just any thoughts how that could impact your business.

Got it I think clearly Hamzah Jodi is low.

Safety is going to be first and foremost in everybody's line and keeping community they've been healthy and job site flowing really important. So I think both business President said look at safety is front and center and will be a core product category going forward you felt that since we did happen we are the number.

One safety products provider and the construction space is a natural add on to additional safety product there.

It was pretty de minimis coming into and facility maintenance, but we think it's going to be product center and the team has done a great job looking at a future maintenance and how do you maintain each living facility successfully and that has actually created a number of interactive product on our website to help our made it professionals come back to work is they were.

And the new environment, So I think thats going to be net new additive going forward as we go and I think you're correct. There are going to be some general trends that are going to do.

Basically I'd Densified studies and a lot of cases, and we'll have to see what that result in from a structural built standpoint and from hockey operate but I think were discrete bought a both areas. I mean, we are national and construction. So therefore, whatever construction project is out there we're going to participate in and we're going to get more and more content on that.

And whatever living facility is out there we're going to make sure that it is safe healthy and continuously renovated so we feel good about demand positions going forward again additive in terms of state.

Okay, Great and just to follow up question I'll turn it over on the Cnine business you had mentioned.

You know, it's tough to forecast of delayed projects will be replaced by new projects, maybe if you could comment on any verticals, where youre seeing delays and then and then do you are you still bullish on the on a roll up opportunity within CN I and is that something sort of post spin clearly that there will be executed on.

Thank you.

Yes, I'll take the first piece of that Evan regarding.

Pent up demand with customers out there our best indicator typically is not what the market really says as indicated by our customers in the backlog in the amount of bidding that they're doing out there.

Currently that looks very encouraging a horse we're recovering from a lot of delayed projects. We still haven't project delays out there. However last market to really open back up with New York City. This week. So we're seeing mobilization on job sites again, which is very exciting.

For the business.

The concern that we stated wasnt, a little bit more difficult to forecast once these delayed jobs moving through the system financially will there continue to be projects rolling into the latter half of 2020 and divest indicated we'll have that will be what our customers are bidding which looks very encouraging.

From a commercial perspective.

And homes that we do expect M&A opportunities in both businesses, particularly as we get into get further into the into the recovery.

It certainly is a growth opportunity and the growth strategy for both businesses and is is one of the rationale for the separation. So each business can focus on their respective.

Markets.

As as you come out of financial downturn, you, often see enhanced opportunity with M&A as some of the lesser capitalize a players that may have a good business may have good.

Sales folks and a good customer book are looking to exit and so we will certainly look to take advantage of those opportunities in both businesses as they present themselves as we get further into the recovery yet I think clearly.

And every recovery processor every downturn process, we have the opportunity due to track the absolute best talent in the industry and so in addition to acquiring company. We're always done to look out for top talent and a competitor that may have not there.

And we differentiate themselves as the seems as though we look forward to attracting the best talent and growing our feet.

Great. Thank you so much.

Thank you. Our next question or comment comes from the line of Ryan Merkel of William Blair. Your line is open.

Yes.

Hey, Thanks, So first off and I sales down only 13% in April and 1% in may as much better than I am thinking was this because most existing jobs 14th potential and underlying demand coming into this was strong.

Yes, it will certainly that had.

Big.

Well it provided a lot of opportunity for us, but understand that our national scale made a huge difference our business was actually very very strong with national accounts that actually never slowed down during the pandemic. They stay busy on their jobs, our business with big National accounts is up dramatically through the first quarter.

And I think the other piece that was critical as we decided doesn't business not to sit back and allow the economy's dictate what was going on in our business. We created with some of our associates Warner's busy naturally because of the job shutdowns, we created an outbound calling center called project outbound in the business.

And we decided to be able to on a daily basis call customers that are underserved, we consider to be underserved based on what our marketing team has developed and is providing significant opportunity with new customers that helped offset some of the losses that we had from closed job sites. So.

Staying very close to the market I believe the other.

Thing that really helps us with over 540 account managers out there calling on customers is everyone on those account managers stay busy on the phones, we want to be first in the mines and more customers I believe we took some market share in during this period and.

The amount of cash flow, we have in the opportunity we have from scale perspective. It provides us an opportunity to have inventory in take care and customers needs. So there was a.

A plan to be inventive during the downturn to make sure that.

Our business was not declining to rapidly and our team did an incredible job finding new opportunity out there in the market.

Yes, the performance is really pretty amazing so congratulations thanks thats helpful color.

Let me move in Q hospitality, obviously, the big declines makes sense I'd like to get a little more granular if we could.

I think you mentioned, a slow recovery, but could it be down the rest of the year and what our customers telling you.

So I'd say, it's still early days to make a determination with the year is going to look like.

We are really taken a day by day, when I look at hospitality, a little bit I'll add a little bit more color beyond what I shared in my prepared remarks, obviously an improvement in May from April was significant.

The improvement continues in June and there are couple of things that are driving that one is we're certainly seeing parts of the country in certain hotel tights recover faster and those type of properties are in our sweet spot and then the second piece is very similar to what John just mentioned.

I attribute to fantastic execution by our team, we've really made no changes to our sales organization.

We've had excellent in stock position and consistent next day delivery and we are absolutely taking share in the market.

Like I said I think it's really going to be dependent on the level of the return of travel both business and leisure.

Certainly encouraged by what we're seeing in May, but I'd say I'm just not in a position right now to say, what it's going to look like over the next next six months.

Yes fair enough, Okay Thats helpful. Thanks, Pat.

Thank you. Our next question or comment comes from the line of John inch from Gordon Haskett. Your line is open.

Thank you good morning, everyone Hey.

Let me talk a little bit about the property improvement business in the puts and takes in that business and how that has transcended thus far during the spring I know it obviously that business had some issues.

Before and like just how does this all work with respect to cover the inventory ahead.

You had to pre buy what's happening now I think you mentioned that the maintenance stuff, probably Carlos filters back or flows back through the summer just any kind of color. There is there a snap back or is this season kind of like a deferral until next year, mostly I guess, how are the way the puts and takes.

As a great question and as we entered the Cobot 19 crisis.

In April to know and surprise, we saw many of the projects that were scheduled for April in the first part of May were either postponed or cancel the good news is a very high percentage of those projects have either been rescheduled or restarted when I think about property improvement. The business is facing I think in the two issues right now one is.

Given the dynamics of what's happening in the country.

They are less people moving which means there's less opportunity for our customers actually turn a unit. So I think the overall pie in 2020 is going to be a little bit smaller and then when you think about that process.

Just like any other bit you've got to go on site you got to walk it you've got developed both you've got to win the job and because of the shelter in place you really missed out on at least 30 days of that process.

So states start to reopen we're working really closely with our customers playing catch up as best as we can.

And I'm really encouraged by the progress we're making however, I don't think we're going to catch up our thinking your time is not going to be our friend here.

But generally is that demand that doesnt get done in the summer from a turn perspective will generally be carried over to the following year.

Im still really bullish on that business I think it's a huge differentiator for us it really excited to see what we can deliver over the next three or four months.

Are you know Thats that's helpful or you can take on a bunch of inventory then that you had had to kind of pre buy from Asia wherever and then I mean your inventories are great right because as you said I think Kevin.

Working capital becomes a source of cash, but kind of if you Peel. The onion are you still seeing on a bunch of property improvement inventory that may be helps you in the future because you're not to spend as much money and well also happens to the air conditioning business.

Does that just go ahead anyway, because I know that in the past has been kind of they've been puts it takes associated with like with the refrigerant and stuff like that I know sight unseen kind of expensive to me up how does that playing out thus far this year.

No we're not sitting on a good deal inventory our teams done a really nice job of partnering with our customers to make sure. We have what I would consider really streamlined assortment of products and products that we use for our renovation jobs.

Any I know you've heard me talk about National account partnership in the path I think this is perfect example of being close to the customer understanding what they need and then being really disciplined on the back into only order what we need.

For the next few months, so we're actually and I would say really strong position from an inventory perspective, certainly the drop in sales in April were working through that but we don't have this overhang that's going to last for the remainder of the year.

Okay, So thats really encouraging and just lastly, eni.

We talked about when the economy was really good we handle these labor constraints now, presumably we might have labor constraints for different reasons that people, who didnt have work had to go back to Mexico or wherever we will have you guys see the how do you guys see labor and that constrained and labor may be providing a dampen or maybe even a catalyst to other construction bids.

In the United States.

As it evolves over the next few months some quarters.

I think in nine generalized jobs are coming back people want to work.

Certainly.

The unemployment scenario has been interesting in terms of the amount of money that individuals to get what I think in general.

We're seeing jobs ramp back up with appropriate people some of the issues that we are seeing or kind of unique in that transit systems, which.

Construction workers to in from job sites in places like New York City or major cities are still our operating.

As they normally would so there are some constraints out there that will continue to free up as.

The environment gets a little bit safer more people feel safer.

But we have not.

Certainly have not heard from contractors, saying that they can't start their work back up because they do not have labor, we haven't heard that really happen.

Got it thanks very much on appreciate it.

Thank you, ladies and gentlemen, as a reminder, in order to get to as many questions as possible. We asked you. Please limit yourself to one question to one follow up our next question or comment comes from the line of David Tang from Baird. Your line is open.

Thank you Hey, good morning, everyone.

Well first of John can you give us a current breakdown of your Sienna end market overweight or underweight exposures, we think about office retail manufacturing.

Government infrastructure, whatever could you give us where right now at your overweight and underway.

Yes, the only two segments that we typically report on these presently are.

Where we are residentially and where we are commercially commercially the breakdown is.

Is multifaceted as you can imagine is rooted bridge, there's other structural buildings owners.

Any kind of healthcare facilities airports or any type of commercial project.

Historically, our business has been in the 25% to 30% range residential primarily on the west coast with the balance being commercial.

We haven't really seen those numbers shift greatly during the downturn, all one way or the other obviously commercial project shutdown what residential homes.

Right honestly with the inability to host.

The sales offices being open there was a gap.

Probably a 30 day to 45 day GAAP were major homebuilders that we do a lot of business with.

Just basically went on on a fall and just basically stopped.

That's cranking back up.

Right now and we don't really see shift in either direction to any external.

Okay. Thanks on the.

Commercial side, if we just looked at the Dodge data no reason to believe you're very different from that dispersion lens that would you say.

Yes, as you look at the data approaching the third and fourth quarter in particular.

It looks promising it's been changing because I think even.

The data points out there have been a little bit challenging for people to grab onto.

With starts and slowdowns in delays so the best indicator, we have so what's going on on the market is what our customers are currently drilling I think it will remain that way for a period of time.

Dodge typically doesn't report very accurately on the front end they reported pretty accurately on the back end.

So I'll just indicate or again is what our customers doing out there in the marketplace.

Okay, Hey has referred to them.

Yes, I was referring to mdx, John just yet.

Yes, Dave as as John said, we we have not historically provided a specific exposure by category. We are able to participate in the broad range of construction categories across the spectrum and in general we continue to see strength in distribution centers Datacenters infrastructure and.

Leading road rich in airports.

Okay. Thank you and just one quick one for Brad can you give us the average order size in FM. This year and then the comparable figure last year.

Hey, Dave Thats, something we generally don't share and weren't plan on churn today.

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Okay. Thanks.

You.

Thank you. Our next question or comment comes from the line of Nigel Coe for Wolfe Research. Your line is open.

Thanks, Good morning, Thanks for the question.

So just want to clarify the 25 cents technological guidance will kind of color Thats net of the cost savings you comments. It's I think Evan you you come to them that I would it be fair to say that that with non mainly within the FM business since cnine since you've got going to click book.

That that is correct.

The 25, the 25, 30% decremental margins would be for both businesses, but as you indicated.

The construction business is getting close to flat.

And at the end it is inclusive of cost savings.

Got it okay. Thanks Thats helpful. Then on the bad debt expense.

The $8 million I think it was is that is that culminated with the Hannibal customers I'm thinking here, perhaps the hospitality segment might be a disproportionate amount of that's about pickup goals that much broader and how we feel about critical see no in the back half of the.

Yes. Good question, thanks for asking that and it is it is a broad estimate across all of our exposures certainly hospitality is a vertical that were more concerned about we havent seen the hospitality sector impacted like this in the path.

It's still quite frankly, we're not 100% sure has to play out so we.

What we believe is an appropriate conservative approach.

To our credit expectations.

In hospitality, but across the broader spectrum of of our portfolio as well.

Got it okay. Thanks very much.

Thank you. Our next question from it comes from the line of Keith Hughes from Suntrust. Your line is open.

Thank you.

Question CNR you'd refer to some benefits in the quarter.

From rebar prices falling.

How much longer do you think that benefit will be a place report trues up year over year.

Okay.

Okay.

The commodity market as inflows based on supply and demand and obviously if you look at the first six weeks of the other first quarter supply was appropriate and demand was very high.

And then.

The fossett closed in the exact opposite happen, we went into a surplus conditions.

And demand was very low so our remark facilities, followed suit as jobs closed and now they're cranking back up so I believe we're going to see a little bit automotive Rosh. Additionally, as job sites reopened as the Reengaged and then I think.

The best guess that then we have is that we'll see similar conditions to what we saw in February in early March.

You know from on demand perspective.

For the business.

Okay.

But as we've talked a lot about the kind of future commercial construction ended the year end of next year.

How when do you think you'll have a good feel for what demand will will be towards the end the year starting up.

One other how long does the back half how long the backlog right and when can you get real comfort around.

A commitment to 21 for commercial construction.

Yeah, I think because we're so close to our customers we're constantly monitoring jobs that are bidding.

No. There there is good bidding going on right now for future projects.

We have some some bellwether individuals that we pay a lot of attention too in the industry that word for suppliers that keep us in tune with what major projects, they're bidding in major cities. So I think.

It's going to be interesting to better understand the financial condition of markets. As we go forward I think that will help determine the number of public in the number of private jobs that come out there.

So I think we're going to continue to monitor that closely but the reality is regardless of what happens out there in the market. While we are certainly impacted being the largest player in our space the opportunity typically exceeds.

What we've been doing as a business so I always see the opportunities in lightning even in Downtimes.

Okay. Thank you.

Thank you. Our next question or comment comes from a lot of Michael Mcgarry from Wells Fargo. Your line is open.

Good morning, everyone. Thanks for the time.

Sorry go back and just talk about the Capex for a second my understanding was you had some backend digital IP investments left for that.

And that's still the case or they embedded into that 80 number or is it.

All done now.

Now that we are currently working on that net that work will continue.

As far as included in the 80 million it it will not move.

Materially off of the 80 million in the in the short term.

Okay, and then sorry, if I missed this but the furloughs and the cost savings that you identified.

Obviously very fluid situation with the market, but is that are they more likely to come back before the spin or after the spin do you have a time.

And your had that makes some sense for you guys.

Yes, okay. So keep in mind when we when we talked about three 300 folks that that's a very small percentage.

Of our workforce and we'll we'll bring folks back as.

Demand dictates.

But we've done everything we can.

Got to minimize the impact to our workforce.

And then it.

Okay.

And if I could just sneak one more and on the free cash for working capital line.

John You mentioned national accounts, they have been trending well through this downturn they didn't see that slowdown.

My mind that.

That screens, maybe longer payment terms, but receivables looks like a nice inflow here wars inventories were an outflow and that makes sense with safety product, but how do you expect those to the trends for the balance of the year.

Well from a from a pay perspective.

Quite honestly, our national accounts pay us very well, they typically very well capitalized.

We choose to do business with large national accounts that are well capitalize that have the capability to pay us quite honestly, most will pay us electronically in the past quicker than some of our smaller contractors do financially so that would be my comment on the financial side of working capital.

Yes, Mike I'll, just I'll just add your irrevocably are carrying some additional inventory newer product adequate that new product categories for us but.

Additional focused on on product categories for us with some additional skewed.

Skews that were added.

That inventory attorney well.

The receivable I do expect that's up some customers will extend risk pet terms with us that will take a little longer to collect some of those those receivables.

In the current environment, our credit teams do a phenomenal job in working with our customers. So we are very sympathetic to the impact on many of the industries in which we operated and so we're going to work with our customers as a partnership to get through the crisis together.

And as I said, we do expect to generates significant cash flow over the course of the year and we'll monitor inventories and receivables very closely.

So on those new inventory skews.

You mentioned safety good margin product.

Product margin category for you, but other distributors. Thanks that it's kind of hard to do business with these newer supplier relationships, maybe that you do the rebate structure I.

I guess, what what are you doing right what are other people seeing the headwinds in their business.

Yes on some of this product is as you can imagine is very much in demand from from the suppliers and so in some cases suppliers or acquire.

Payment in advance our on delivery.

Depending on on the product and the Optionality, we have to source. It from other locations will make the decision on what terms were willing to commit to.

But at the end of the day, our commitment is to have the products.

On hand, when and where customers need them.

Thanks appreciate the time.

Yes.

Thank you. Our next question or comment comes from the line of Patrick Baumann from JP Morgan Your line is open.

Good morning.

Good morning, everyone. Thanks for asking me just heading a couple questions Jonathan.

Gen 10 products has historically been pitched as like lower margin mix, which is why you weren't there.

Just just wondering how cold it has changed your view of this going forward you mentioned, you're adding to the assortment.

Just curious if you're doing this kind of there is a one off for if you think you need to have it as part of the broader solution set for your customers going forward.

Such that it's going to grow in mix terms, and then kind of what are the implication to that and then they got to follow.

Absolutely is going to be part of our go forward assortment as Jos clean safety is going to be a focus for our customers and we're really deliberate and positioning HD supply as the safest most dependable most helpful option for our customers and Janssen is going to be part of that so we will figure out the margin implications overtime, but.

As Evan just stated that's an obligation that we have to our customers.

Got it and then maybe if you could parse out the hospitality segment, a little more what did you mean by recovery in certain hotels and your sweet spot I. Just if you can peel the onion on that for us a bit in terms of how you look at mix within the hospitality segment and maybe the differences into the recovery profile you are seeing.

Yes.

Really high level on this.

Two basic camps, you've got full service hotels limited service hotels.

Full service hotel can be a fully flag Marriott location, a limited service to be a courtyard by Marriott.

We're seeing at least on our side the recovery in the limited service, which makes sense.

Certainly in the southern States and again Thats, that's one of our core customers in hospitality.

Got it. So is your GE is your geographic mix more south San skewed and hospitality or.

So we've got a national footprint, we're just seeing the recovery from a customer perspective more in the southern states than we are seeing in the northern states.

Okay I'll leave there thanks for that I appreciate it good luck.

Good.

Thank you we have time for one more question or from a question would go from a lot of Mr., Andrew Orbitz from Bank of America. Your line is helpful.

Yes, good morning.

Good morning.

Just a couple of questions on competitive dynamic what are you seeing from players like home depot and lows.

No pricing pressure initiatives by them in your core markets, what's the competitive environment, so looks like in that respect.

So John ill take this first.

From our perspective, I think a lot of folks have gone through the same process as we have and Thats, obviously coming into the health and safety of their own associates and supported the customers and whatever manner possible no. We haven't seen any significant movement from a pricing standpoint.

That being said I expect that it's going to be a very competitive environment for the remainder of the year and our perspective is we're going to play offense and get every ounce of available market share that's in the market.

And we feel like we have earned an incredible amount of credibility and trust with our customers through this crisis and are well positioned to do that.

At the end up and just a follow up to that Brad the business that that we have it looks the most like.

Home depot or low skews, our home imposed solutions business and quite honestly.

That business has outperformed for us when comparing to home depot and lows, even with the current comps that just came out.

From home depot and lows our business outperformed that business of course will be total loans those a lot of business with one truck contractors and I will tell you most of their surgeon business has been in the outdoor improvement area for landscaping, which was.

Certainly.

Highlighted in their earnings reports.

Just a follow up in terms of free cash flow and I apologize if I Miss that so given that your liquidity is an advantage.

This market.

Could we see you guys, maybe deploy more working capital for the remainder of the year to sort of pounce on market share.

We will we will certainly ensure that we are in stock for our customers.

With the products, when and where they needed.

And essentially we've already made that investment in workout. Please look at our inventory our inventory is.

Higher than it would ordinarily be at this this level of sale.

Nothing in the customer that being said working capital is a source of cash for a distributor during a downturn.

Certainly we've seen that in receivables as we've collected receivables inventory, we're making the investments in the right places.

So so no need to have another step up in inventories for second half.

I don't anticipate that now.

Thank you very much.

Yes.

Thank you I'm showing no additional questions in queue at this time I'd like to turn the conference back over to management for any closing remarks.

Well. Thank you for your questions, we continue to execute and work to established to market leading companies.

Our teams are focused on keeping our people say in helping our customers a community. These navigate a challenging environment. Thanks for your interest in HD supply.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

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Ladies and gentlemen, thank you for standing by and welcome to the HD supply first quarter earnings Conference call. At this time, all participants' lines are no listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you would need to press Star then one on your telephone please be advised at today's conference call is be record.

If you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today Ms. Charlotte Mclaughlin. Thank you ma'am. Please begin.

Thank you Howard.

Good morning, ladies and gentlemen, and welcome to the HD supply Holdings Twentytwenty first quarter earnings call.

As a reminder, some of our comments today, maybe forward looking statements based on management's beliefs and assumptions and information currently available to management at this time.

Steve belief and subject to known and unknown risks and uncertainties, many of which maybe beyond our control.

Including those detailed in our periodic SEC filings.

Please note that the Companys actual results may differ materially from those anticipated and we undertake no obligation to update these statements.

Reconciliation of non-GAAP financial metrics with corresponding GAAP measures are available at the end about slide presentation in our Twentytwenty first quarter earnings release, which is available on our website at www Dot HD supply dot com.

Good he Angelo CEO will lead todays call with Brad Paulson, President facilities maintenance and John segment, President of construction and industrial.

Providing further color around that business unit.

Evan Levitt CFO will provide additional information on our recent financial performance.

There will be an opportunity for Q in a.

For those participating please limit your remarks to one question and one follow up if necessary.

Thank you for your continued interest in HD supply.

With that I will now turn the call over to Jody Angela.

Well. Thank you Charlotte good morning, everyone. Thank you for joining us today for our first quarter 2020 earnings call.

As always is my privilege to share companies results with you.

On behalf of the over 11000, HD supply associates, who work hard every day as one team driving customer success and value creation.

Turning to page three.

I want to begin this morning by offering our sympathies to everyone affected by the cobot 19 outbreak.

This is a 100 year event that impacted the world.

Also we are committed to helping heal the communities in which we live and work as they have been damaged by social and John This and unrest.

Throughout these extraordinary times are most essential activity has been protecting the safety and well being over associates and their families.

While demonstrating your HD supply values.

Stepping forward with creative solutions, a good old fashioned grid to continue to lead our industry's insert rapidly evolving customer need.

I want to thank all of our associates.

Especially our frontline drivers in branch and distribution center teams.

Safely tackle daily challenges supporting each other our customers and our local communities.

We have all had to face uncertainty change or routines and execute difficult circumstances.

I feel very proud of how our associates rally the wind together.

As we stated on our March earnings call, we took robust actions to continue operations during the pandemic.

Which included infection controls and our facility and heights for cautions for drivers and customer facing associates.

As a result of these practices.

All of our facilities maintenance distribution centers remain open and we experienced minimal disruption or construction industrial bridge.

We work closely with our customers to ensure that we understand their needs. During this crisis. The team has worked hard to tailor our service to support emerging customer requirement.

Our sourcing teams continue to work relentlessly with a supplier partners.

Maximize the availability of high demand product, including disinfectant, sanitizers and personal protective equipment.

We've onboarded multiple new suppliers and products in order to meet the current and future needs of our customers.

HD supply was designated in the central business throughout the shelter in place orders and as part of our commitment to our communities. The team did an outstanding job of identifying ways in which we could give back to our customers in communities.

We were inspired by some some of our hospitality customers.

Whose businesses were suddenly in severely impacted by the decline in travel.

Many of these customers with a lack of paying get open their properties free of charge to healthcare workers and hot spots like New York City.

Allowing frontline healthcare professionals remain close to the medical facilities without the risk of impacting their families at home.

We're proud to support these customers and our medical professionals by donating hospitality supplies to the cost.

During the quarter, we also donated needed supplies.

Disease research and treatment centers into support organizations.

Providing shelter for victims of domestic violence and those in need of transitional ore affordable housing.

The need their communities for these services increased during this crisis, both same time available resources have diminished.

Our people step up to support these causes.

Particularly when the needed grid.

Before I move onto our recovery strategy I want to take a moment to reflect on this quarter's performance.

You'll hear from Brad John and having shortly.

But it has been an uneven performance over the course of the quarter.

Our performance through mid March was strong with February sales delivering year over year average daily sales growth of 8.8%.

In the first half of March trending accordingly.

However, beginning in mid March our sales were suddenly severely impacted by the various restrictions placed on economic activity.

During the full fiscal first quarter 2020, ending May Threerd 2020, we saw 6.6% year over year sales decline with facilities maintenance declining, 11.7% and construction industrial declining 1.1%.

However, we continue to generate strong free cash flow of $116 million during the quarter.

14.7% increase over the same period last year.

And ended the quarter with combined liquidity $797 million, an increase of $169 million from the end of fiscal 2019.

The start of our 2020 fiscal second quarter.

As seen sequential improvement in average daily sales during the month of me in both businesses.

We are encouraged by our recent results and efforts made to slowly imprudently reopen the economy around the country.

We rigorously follow CDC guidelines and safely conducting operational activities as the central business.

We are providing our associates with the appropriate personal protective equipment.

Putting disposable based math hand, Sanitizers and love.

We have embedded social distancing in contact barriers into our facilities and operating practices.

We are screening associates for illness at the start of their day.

And we execute frequent structured thorough cleaning of facilities and equipment.

As announced earlier this year, we have delayed the separation of our construction industrial business unit into an independent publicly traded company as we continued to navigate through the crisis.

We remain committed to the separation and believe we can completed in the second half of fiscal 2020, if we continue to see the capital markets stabilize.

For unable to execute the transaction in 2020, we look to completed in early 2021.

I'll provide some closing comments along today.

I want to emphasize it we're excited to enter this recovery period with strength momentum.

We are well capitalized.

We continued to generate significant cash flow and we're completely focused on our core markets of living space ever Roe and specialty construction.

We would we have been able to leverage our deep relationships scale and cash flow capabilities in prior periods of market stress.

We believe that this recovery will provide similar opportunities.

Theres much work to do.

But our may in early June results show signs of recovery and we'll we'll continue to work as one team deliver enhanced results and our two market leading businesses.

I'll now turn the call over to Brad Paulson will provide an update on our facilities maintenance business.

Thank you Joe and good morning, I'd like to start off by taking a moment to share how proud I am of our team and the manner in which responded to that coded 19 outbreak.

From the outset, our leaders in associates locked arm since for the health and safety of our team and customers was non negotiable and our top priority.

Our distribution centers call centers and leadership development Center did not experience any disruptions and providing the best in class service to our customers across the nation.

Our ability to maintain operations and deliver critical supports our customers. During this challenging time is a testament to the specialty group of associates, we have HD supply and I cannot be more proud of each and every one of them.

Turning to page four as Joe said this quarter's performance was defined by pre and post shelter in place orders facilities maintenance had a solid February performance exceeding our expectations expectations and delivered sales growth of 4.1% with the first two weeks of margin also trending well with approximately 6% sales growth.

The end of March and April saw a significant declining sales volume and I will begin by deploying the what made this environment so unique.

There are two primary issues that impacted our business in the first quarter first we faced a perfect storm as headwinds in April including restrictions on economic activity in general health concerns associated with Coca 19 that caused our customers to either suspend operations or limit maintenance to only emergency repairs.

And second our customers product needs change dramatically in the second half of margin and all of April.

As you might expect products and services supporting general maintenance and unit turns were de emphasized as customers shifted their focus the sanitation infection prevention and personal protective equipment.

These items historically have represented a very small percent of our sales, but our sourcing and category management teams have responded to these changing customer needs and quickly expanded our assortment and inventory availability for disinfectants sanitizers disposable face masks smooths guards and other janitorial and safety products.

We've seen our customers respond very favourably to this expanded assortment and expect our increased emphasis these products to continue beyond 2020.

Our team will continue to expand our product and service offerings as we work to become our customers preferred destination for all for safety and infection prevention needs.

Moving on to page five.

The impact from the coated 19 outbreak impacted every sales verticals in every region in our business.

As you would expect no business vertical was more effective than hospitality, which represents approximately 18% our facility maintenance sales.

As business and leisure traveler came to a halt our hospitality customers were severely impacted with many of them temporarily suspending operations.

We saw strong correlation between our hospitality sales and the decline in the hospitality industries reported revenue per available room of around 75% to 80% at its worst an occupancy rates, which had with hit excuse me, which had average flows around 20% in April.

Not surprisingly, our hospitality business experienced a similar year over year level decline in revenue of approximately 75% in April.

As economic activity has started to resume we've seen encouraging improvement in hospitality with year over year sales declines of approximately 48% in may.

While this is a significant improvement from April.

We believe our hospitality vertical will have the longest path to recovery as it is dependent upon return is more consistent business and leisure travel.

And our multifamily healthcare in institutional verticals, we saw a dramatic change in customer purchasing trends.

Beginning in mid March demand for low ticket items, like and sanitizer and protective mess, but as our customers prioritize the health and safety is our associates and living space communities.

As part of that prioritization of very high percentage. These customers elected to only execute emergency repairs in April as many residents did not want maintenance professionals in their living space unless it was absolutely necessary.

As a result of these shifts and purchasing needs. We saw order volume remains strong, but average order size dropped significantly as demand for higher ticket items, such as appliances in the effect decline.

This drove a 23% year over year drop in our non hospitality sales verticals.

In may our non hospitality vertical sales declined approximately 6% year over year I'm very encouraged by our improved results in may as restrictions on economic activity were relax our customers began to prepare for their own returned to work activities and deferred maintenance was slowly initiated.

These improved conditions caused our teams experience a sequential increase in average order size during may from April.

Order growth delivered positive year over year growth.

We have seen further improving trends in early June and expected continued recovery as state level and city restrictions or relax and as residents begin to allow for normal maintenance activity to be conducted in their living spaces.

Our team has made tremendous progress and remains fully committed to supporting our customers and our communities. During this recovery.

I'll now turn the call over to John segment for an update on the construction industrial white cap business.

Thank you, Brad and good morning to everyone, echoing Joe and Brad's comments, we extend our deepest sympathies to everyone who's not affected by the coded 19.

I'd like to start by thanking the Wildcat team for stepping off and adapting the market conditions. During this difficult time, delivering exceptional service to our customers, while implementing safety protocols to protect our associates and customers.

Now turning to page six.

Our team experienced three distinct periods in the first quarter. We came on at the gauge very strong in February delivering year over year growth of 14.2% highlighting market strength and our ability to deliver value to our customers as number for park.

We entered March seeing similar trends for the first two weeks.

However by week three with shelter in place Motors escalating business slowed and declined through the first two weeks in April.

We believe based on current data the middle of April represented the trough for job delays.

More sales saw year over year growth of 1.4%.

Total sales declined 13% year over year with momentum shifting positive in the last two weeks along as markets began reopening.

Our national scale and presence in many markets didn't help balance sales decline.

San Francisco, New York, Boston, and New Jersey were very challenged while our central Midwest Southeast southwest and our home improvement solutions business performed admirably.

Being designated in essential business allotted to continue to sell core products and safety supplies to our customer base.

While we experienced mile disruption in certain areas of our supply chain.

Very proud of our sourcing teams to ensure we had vital inventory to supply our customers.

We closed the first quarter with the revenue decline of only 1.1%.

Time due to the tenacity of our team executing on inventive approach to engage customers, while adhering to strength, social distancing and safety protocols.

As a pandemic progressed the team took important steps to protect our associates and our customers to ensure they were doing business safely.

We limited customer interaction in our showrooms and focused on technology customer pick ups and deliveries to time or business.

We currently symptom checker, all our associates and suppliers as they enter our facilities insurer, we especially distancing and just in fact, our work areas daily.

All of our locations are currently open for sale items.

We executed on labor and cost reduction actions during the quarter to adjust our cost structure for our lower revenues.

Gross margins improved 70 basis points year over year, driven by a focus on safety product sales, a favorable commodity environment and our mix of job work.

This was disciplined gross margin progress and a very competitive environment.

During the quarter a decision was made to also payout additional bonus dollars to more hotline associates, who interactive daily with our customers and to provide supplemental sick leave to associates impacted and any manner by the virus.

We also made product donations to hospitals in need of key safety products.

So when cap team finished may 2020, a first month of our second quarter down 1.4% when compared to May of 2019.

We're very encouraged with sales momentum as delayed projects start back up.

It is difficult to forecast, whether new projects will replace delayed projects as we approach the latter half 2021.

And our customers current backlog provides nice opportunity.

Anymore, we started I am exceptionally proud of our team and their passion to serve with excellence. Thank you for your time today and I'll now hand, the call over to Evan.

Thank you John and good morning, everyone.

I'd like to start by addressing the announcement, we made on March Thirtyth in regards to the separation of our construction and industrial business into a separate publicly traded company.

We made the decision to temporarily delay the separation due to market conditions and to allow our management team to focus on navigating the coded 19 crisis.

Our rationale for separating our two businesses has not changed and we continue to believe it isn't the best interests of both businesses to pursue the separation.

As such and dependent upon stability of the financial markets and the broader economy.

We currently expect to complete the separation in the second half of 2020.

Early 2021.

Now turning to page seven.

Our net sales declined $98 million or 6.6% to $1.395 billion in the first quarter of fiscal 2020.

As compared to $1.493 billion in the first quarter of fiscal 2019.

Gross profit decreased $35 million or 6% to $550 million for the first quarter fiscal 2020 as compared to $585 million for the first quarter fiscal 2019.

Gross profit was 39.4% of net sales for the first quarter fiscal 2020, an increase of approximately 20 basis points from 39.2% for the first quarter of fiscal 2019.

I will discuss the gross margin improvements during the business unit discussion.

Adjusted EBITDA decreased $40 million or 19.7% to $163 million for the first quarter of fiscal 2020 as compared to $203 million for the first quarter of fiscal 2019.

Adjusted EBITDA was 11.7% of net sales for the first quarter of fiscal 2020 down approximately 190 basis points from 13.6% as compared to the first quarter of fiscal 2019.

The first quarter fiscal 2020, adjusted EBITDA includes an $8 million charge for an increase in expected credit losses, and a 1 million job a $1 million charge for the donation of inventory to support our communities during the coated 19 pandemic.

On page eight I'd like to discuss the specific cost actions that have been taking during the second half of the first quarter in light of the current crisis.

We implemented a hiring freeze across the company.

We've reduced hours in our distribution centers and branch locations.

Our Chief Executive Officer voluntarily reduced has pay to zero for the rest of the year.

We reduced salaries for all salary associates.

Our independent directors with 100% of their cash board retainer for the remainder of the year.

We've eliminated or deferred discretionary spending.

We've reduced our planned capital expenditures from approximately $120 million to $80 million for fiscal 2020.

We furloughed are separated approximately 300 associates and we've eliminated virtually all travel.

On page nine I will discuss the specific performance of our individual business units in more detail.

Net sales for our facilities maintenance business were $682 million during the first quarter of fiscal 2020.

As compared to $772 million for the first quarter fiscal 2019.

The sales declined was 11.7% as compared to the first quarter fiscal 2019.

Adjusted EBITDA decreased $36 million or 26.9% to $98 million for the first quarter fiscal 2020 as compared to $134 million for the first quarter fiscal 2019.

Adjusted EBITDA was 14.4% of net sales for the first quarter fiscal 2020 down approximately 300 basis points from 17.4% for the first quarter fiscal 2019.

Facilities maintenance gross margin improved 20 basis points from the first quarter fiscal 2019.

The improvement was primarily a result of the approximately 33% drop in sales of our lower margin hospitality vertical.

This benefit was partially offset by increased cost from the 2019 tariff increases that had not fully flowed through our supply chain at this time last year.

Moving to our construction and industrial business net sales were $713 million during the first quarter fiscal 2020 as compared to $721 million for the first quarter fiscal 2019.

The sales decline in the first quarter fiscal 2020 was 1.1% as compared to the first quarter of fiscal 2019.

Adjusted EBITDA decreased $4 million or 5.8% to $65 million for the first quarter of fiscal 2020 as compared to $69 million for the first quarter of fiscal 2019.

Adjusted EBITDA was 9.1% of net sales for the first quarter fiscal 2020 down approximately 50 basis points from 9.6% in the first quarter of fiscal 2019.

During the first quarter fiscal 2020, construction and industrials gross margins improved approximately 70 basis points as compared to the first quarter fiscal 2019.

The improvement was driven by a reduction in the mix of large jobs as many were temporarily temporarily suspended during the cobot crisis.

We also saw an improvement in rebar margins as the cost of rebar has declined year over year.

Finally, we benefited from an increase in sales of coated related safety products. The safety category is a higher margin category for us.

Now turning to page 10.

In the last 12 months, we generated $585 million of free cash flow.

Included $116 million in the first quarter fiscal 2020.

We invested $21 million and capital expenditures in the first quarter fiscal 2020.

We estimate our ongoing annual capital expenditure requirements to be approximately 2% of annual sales.

However, we have reduced our expectation for fiscal 2022 about $80 million in light of the co the crisis.

As we've shared with fully utilized our federal net operating loss carry forwards during fiscal 2019.

As such we are now a regular federal income tax payer.

In the first quarter, we did not pay any net cash taxes as our first and second quarter estimated federal income tax payments are due in July 2020.

We expect that our ongoing GAAP tax rate will be approximately 26%.

As of May Threerd 2020.

HD Supplys combined liquidity of $797 million was comprised of $147 million in cash and cash equivalents.

And $650 million.

Of additional available borrowings under our revolving credit facility.

Our net debt to adjusted EBITDA leverage was 2.3 times.

Comfortably within our targeted range of two to three times.

We did not purchased any shares in the first quarter under our most recently authorized $500 million share repurchase program.

We decided to instead focus on cash preservation and the enhancement of liquidity.

We increased our liquidity by $169 million since the end of fiscal 2019.

We have minimal debt maturities over the next two years and we believe our strong liquidity positions us well to navigate the uncertain economic environment.

On page 11, we provide first quarter 2020 monthly net sales trend performance as well as the 2019 comparable.

In February 2020, we delivered sales of $461 million, an increase in average daily sales of approximately 8.8% versus February 2019.

In March 2020, we delivered sales of $462 million, an increase in average daily sales of approximately one half of 1% versus March 2019.

In April 2020, we delivered sales of $472 million a decrease in average daily sales of approximately 22.6% versus April 2019.

There were 20 selling days on February 20, selling days in March and 25 selling days in April of fiscal 2020 and fiscal 2019.

May of 2020, which ended May 30, Onest was the first month of our fiscal second quarter 2020, and we have provided our preliminary sales results.

We will not provide information on may results beyond sales.

Preliminary net sales in May 2020 were approximately $431 million, which represents year over year average daily sales decline of approximately 7.3%.

Preliminary may year over year average daily net sales by business was an approximately 13.4% decline in facilities maintenance as an and approximately 1.4% decline in construction and industrial.

Maze net sales performance improved throughout the month for both businesses.

There were 19 selling days in both May 2020, and May 2019.

On page 12, I'd like to highlight a change to our adjusted net income per diluted share methodology.

In order to move to a more standardized EPS calculation, reflecting that we are now a regular federal income tax payer.

We will provide a net income per diluted share calculation in accordance with GAAP.

And beginning in the second quarter in adjusted net income per diluted share calculation adjusted only for onetime or unusual items.

Specifically with taxes now reflected in accordance with GAAP.

We have provided two years of quarterly reconciliations of our historical definition and our go forward definition of adjusted net income per share in the back of the earnings presentation.

We remain committed to a long term mid single digit sales growth target both on a combined basis and by individual company.

However, due to the uncertainty created by the coated 19 pandemic and its disruption on economic activity.

We will not be providing formal guidance at this time.

We believe the April was likely the most severely impacted month of 2020.

And since then we have seen a steady improvement in the performance of both the facilities maintenance and construction and industrial businesses.

We expect the recovery of our markets to continue with our hospitality business recovering more slowly than our other businesses.

We will continue to prioritize the health and safety of our associates and their families.

While we also continue to support our customers and communities by providing the critical products and services needed to maintain their facilities care for their residents and operate and maintain safe job sites and work environments.

Thank you for your continued interest in HD supply.

I'd now like to turn the call over to our operator Howard for questions.

Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

If your question has been answered or you wish to remove yourself from the CUSIP, We press the pound cake.

Again, if you have a question or comment at this time. Please press Star then one or your telephone keypad.

Our first question or comment comes from the line of Deane Dray from RBC capital markets. Your line is open.

Thank you good morning, everyone.

Good morning, Hey, great to hear everyone's voices that everyone's doing well appreciate that.

Hey, just in terms of the look forward and I don't mean to parse words, but just at the margin the improvement.

In May is encouraging and I believe Brad commented that.

The June had started off with further sequential improvement can you comment on that.

Yes. So we're on were only one week into into June Dean, but we are seeing.

The trend from May continue into June for both businesses.

Thats great.

And then if we're trying to gauge how youre customers and hospitality in multifamily.

We opened.

And there's a sense that there has been deferred maintenance what does the early stage and look like in terms of the recovery. It just there's a said that there'll be some higher volumes.

That will come through initially that might spike higher.

Just what's your sense in terms of those higher initial volumes and then.

Also can you comment on the that's what I think is a bit surprised that ERP is actually a higher margin products for use so two questions. There. Please.

So thanks for the question is definitely encouraged by the trends, we're seeing as states reopen and our customer properties reopen when we look for I think they're real key to unlocking the growth that we expect was going to be contingent on two things. The first as our customers need to develop a process a safety process. If you will further.

Associates to go into a living space to conduct maintenance.

And as they have the same responsibility to protect the health and safety that individual like all of us do and on the other side of that the actual individual the residents living in that unit has to be comfortable invited into that space.

We're very very early in that process I expect thats going to gradually improve through the course of the summer.

But again the trends that we're seeing from a mix of goods from an average order value very very encouraging out of the gate.

From a PE perspective from margin standpoint, yes.

And as far as far as the PE margin comment ERP and the safety category overall for construction and industrial is a higher gross margin category for us it is not necessarily a higher gross margin category for us and facilities maintenance.

Got it and just a last point as a comment really appreciate having seeing you guys move to the adjusted earnings just excluding the onetime items appreciate that thank you.

Very good thank the update.

Thank you. Our next question or comment comes from the line or Julian Mitchell from Barclays. Your line is open.

Hi, This is Jason you see on for Julien, maybe just a question about operating leverage across the businesses clearly in Q1, there was significant operating de leveraging both cnine and depth.

Clearly you took a lot of cost out in reaction to the co bid.

19 crisis, maybe just talk about how you see operating leverage trending through the year end and may be.

How any cost out returning in 2021, good hobble do the leverage coming out of the downturn sort of two dynamics at work there. Thank you.

Yes sure Jason. Thank thanks for the question that said the best way to think about this is probably thinking about we're looking at the decremental margins.

So in the first quarter, our decremental margins were about 40% the that included $9 million of charges for expected credit losses and donations.

Going forward in.

The second and third quarters.

To the extent that the.

Pandemic continues to negatively impact sales I would expect any decremental margins to be closer to 25% to 30%.

As you indicated we'll also get the benefit from some of the cost actions Weve taken later in the quarter in the first quarter as we'll see those play out for the balance of the year.

Now as as the economy picks up and sales recover.

As far as operating leverage or incremental margins in the recovery period.

Certainly some of those those cost out items will reverse so that will be a headwind that year over year.

But with a good recovery and the re leveraging of fixed costs, we would expect to be able to grow.

Profitably.

And begin to return to our more normalized margins.

Understood and maybe just a quick follow up on free cash flow quite strong in Q1.

Capex taken targets kind of ticking down a little bit for the year, maybe just talk about the other puts and takes there in terms of working capital and were broadly you expect to end up for free cash flow through.

Yes, so the team did a nice job in the first quarter focusing on on cash flow and that was a big focus for us we want it to enhance our liquidity position and we were successful given that the team of both companies did a nice job of that.

As as you know working capital.

In a downturn is a source of cash for distributors led this downturn actually a little more difficult than than some others.

Because it is difficult to forecast demand and where.

Demand is going to come from and what categories as customer buying patterns change, but the team did did a nice job with that also keep in mind that we didn't pay cash taxes in the first quarter, our first and second quarter estimated tax payments will be due in July.

Assuming that they are further deferred the cares act deferred that first quarter payments to July so snap.

Coincides with the second quarter payment.

There has been some discussion of delaying and further so if that were to occur that would impact that second and third quarter cash flow.

We expected continued to generate good solid positive cash flow throughout the year, but we are providing specific guidance.

Understood. Thanks for all the help.

Yes.

Thank you. Our next question or comment comes from the line of Hamzah Mazari from Jefferies. Your line is open.

Good good morning, Thank you.

My first question.

It's just if you if you view there to be any structural trends, both covert 19 that could either be positive or negative for the business and you know we're thinking about rural to our been migration longer work from home I know you've talked about pent up demand already in the business but.

Just any changes you see structurally coming out of covered 99 or maybe early Bart just any thoughts how that could impact your business.

Got it I think clearly Hamzah Jodi is low.

Safety is going to be first and foremost in everybody's mind and keeping community they've been healthier job site flowing really important. So I think both business President said look at safety is front and center and will be a core product category going forward you felt that since we did happen we are the number.

One safety products provider and the construction space is a natural add on to additional safety product there.

It was pretty de minimis coming into and facilities maintenance, but we think it's going to be product center and the team has done a great job looking at the future maintenance and how do you maintain each living facility successfully and that has actually created a number of interactive product on our website to help our major professional come back to work as they work.

And the new environment, So I think thats going to be net new additive going forward as we go and I think you're correct. There are going to be some general trends that are going to.

Basically I'd densify studies and a lot of cases, and we'll have to see what that result in from a structural built standpoint and from hockey operate but I think we're in a sweet spot of both areas. I mean, we are national and construction and so therefore, whatever construction project is out there we're going to participate in and we're going to get more and more content on that.

And whatever living facility is out there we're going to make sure that it is safe healthy and continuously renovated so we feel good about demand positions going forward again additive in terms of state.

Okay, Great and just to follow up question I'll turn it over on the Cnine business you had mentioned.

You know, it's tough to forecast of delayed projects will be replaced by new projects, maybe if you could comment on any verticals, where youre seeing delays and then and then do you are you still bullish on the on a roll up opportunity within CN I and is that something sort of post spin clearly that there will be executed on.

Q.

Yes, I'll take the first piece of that Evan regarding.

Pent up demand with customers out there our best indicator typically is not what the market really says as indicated by our customers in the backlog in the amount of bidding that they're doing out there currently that looks very encouraging a horse we're recovering from a lot of delayed projects, we still haven't project delays out there how.

However, the last market to really open back up with New York City. This week. So we're seeing mobilization on job sites again, which is very exciting.

For the business.

The concern that we stated wasnt, a little bit more difficult to forecast. Once these delayed jobs moved through the system financially will there continue to be projects rolling into the latter half of 2020 and divest indicated we'll have of that will be what our customers are bidding which looks very encouraging.

From a commercial perspective.

And homes that we get we do expect M&A opportunities in both businesses, particularly as we get into get further into the into the recovery.

It certainly is a growth opportunity in a growth strategy for both businesses and is is one of the rationale for the separation. So each business can focus on their respective.

Markets.

[music].

As as you come out of financial downturn, you, often see enhanced opportunity with M&A as some of the lesser capitalize a players that may have a good business may have good.

Sales folks and a good customer book are looking to exit and so we will certainly look to take advantage of those opportunities in both businesses as they present themselves as we get further into the recovered yet I think clearly.

In every recovery process or every downturn process, we have the opportunity due to track the absolute best talent in the industry and so in addition to acquiring company.

We're always on a look out for top talent and a competitor that may have not there.

And we differentiate themselves as the seems as though we look forward to attracting the best talent and growing our feet.

Great. Thank you so much.

Thank you. Our next question or comment comes from the line of Ryan Merkel of William Blair. Your line is open.

[music].

Hey, Thanks, So first off and I sales down only 13% in April rolling 1% in may as much better than I am thinking was this because most existing jobs 14 potential and underlying demand coming into this was strong.

Yes, it will certainly that had.

I would say provided a lot of opportunity for us, but understand that our national scale made a huge difference our business was actually very very strong with national accounts that actually never slowed down during the pandemic. They stay busy on their jobs, our business with big National accounts is up dramatically.

Through the first quarter and I think the other piece that was critical as we decided as a business not to sit back and allow the economy's dictate what was going on in our business. We created with some of our associates Warner's busy naturally because of the job shutdowns, we created an outbound calling center called project outbound.

In the business and we decided to be able to on a daily basis call customers that are underserved, we consider to be underserved based on what our marketing team has developed and is providing significant opportunity with new customers that helped offset some of the losses that we had from closed job sites. So.

No.

Staying very close to the market I believe the other.

Thing that really helps us with over 540 account managers out there calling on customers is everyone on those account managers stay busy on the phones, we want to be first in the mines and more customers. I believe we took some market share during this period and with the amount of cash flow we have in the opportunity we have from scale.

Aspect to it provides us an opportunity to have inventory and take care customers needs. So there was.

A plan to be inventive during the downturn to make sure that.

Our business was not declining to rapidly and our team did an incredible job finding new opportunity out there in the market.

Yes, the performance is really pretty amazing so congratulation thats thats helpful color.

Let me move in Q hospitality, obviously, the big declines makes sense I'd like to get a little more granular if we could.

I think you mentioned, a slow recovery, but could it be down the rest of the year and what our customers telling you.

So I'd say, it's still early days to make a determination with the euro is going to look like we are really taken a day by day when I look at hospitality, a little bit I'll add a little bit more color beyond what I shared my prepared remarks.

Obviously, an improvement in May from April was significant.

Improvement continues in June and there are couple of things that are driving that one is we're certainly seeing parts of the country in certain hotel tights recover faster and those type of properties are in our sweet spot and then the second piece is very similar to what John just mentioned.

I attribute to fantastic execution by our team, we've really made no changes to our sales organization.

We've had excellent in stock position and consistent next day delivery and we are absolutely taking share in the market.

Like I said I think it's really going to be dependent on the level of a return of travel both business and leisure.

Certainly encouraged by what we're seeing in May, but I'd say I'm just not in a position right now to say, what it's going to look like over the next next six months.

Yes fair enough, Okay thats helpful. Thanks Hessam.

Thank you. Our next question or comment comes from the line of John inch from Gordon Haskett. Your line is open.

Thank you good morning, everyone Hey.

Let me talk a little bit about the property improvement business in the puts and takes in that business and how that has transcended thus far during the spring I know with obviously the business had some issues.

Before and like just how does this all work with respect to come to the inventory ahead.

You had to pre buy what's happening now I think you mentioned that the maintenance stuff, probably Carlos filters back or flows back through the summer just any kind of color. There is there a snap back resis season kind of like a deferral until next year, mostly like how are the way the puts and takes.

As a great question and as we entered the Coven 19 crisis.

In April to know in surprise, we saw many of the projects that were scheduled for April in the first part of me, we're either postponed or cancel the good news is a very high percentage of those projects have either been reschedules or restarted when I think about property improvement the business is facing I think in the two issues right now one is.

Just given the dynamics of what's happening in the country.

They are less people moving which means there's less opportunity for our customers actually turn a unit. So I think the overall pie in 2020 is going to be a little bit smaller and then we just think about that process.

Just like any other bit you've got to go on sites, we've got to walk it you've got develop boat you've got to win the job in because of the shelter in place you really missed out on at least 30 days of that process.

So states start to reopen we're working really closely with our customers playing catch up as best as we can.

And I'm really encouraged by the progress we're making however, I don't think we're going to catch up I thinking of time is not going to be our friend here.

But generally is that demand that doesnt get done in the summer from a turn perspective will generally be carried over to the following year.

Im still really bullish on that business I think it's a huge differentiator for us it really excited to see what we can deliver over the next three or four months.

Are you know that's that's helpful or you can thing on a bunch of inventory then that you had had to kind of pre buy for major wherever and then I mean your your inventories are great right because as you said I think Kevin.

Working capital becomes a source of cash, but kind of if you Peel. The onion are you still seeing on a bunch of property improvement inventory that may be helps you in the future because you're not to spend as much money and well also happens to the air conditioning business.

Does that just go ahead anyway, because I know that in the past has been kind of there've been puts and takes associated with like the refrigerant and stuff like that I know sight unseen kind of expensive to me up how does that playing out thus far this year.

No we're not sitting on a good deal inventory our teams done a really nice job of partner with our customers to make sure. We have what I would consider really streamlined assortment of products. Some products that we use for our renovation jobs.

And I know you've heard me talk about National account partnership in the path. I think this is perfect example of being close to the customer understanding what they need and then being really disciplined on the back into only order what we need.

For the next few months. So we're actually in I would say really strong position from an inventory perspective, certainly the drop in sales in April were working through that but we don't have this overhang that's going to last for the remainder of the year.

Okay. So that's really encouraging and just Latvia NOI.

We talked about when the economy was really good we had all these labor constraints now, presumably we might get labor constraints for different reasons that people, who didnt have work had to go back to Mexico or wherever we will have you guys see the how do you guys see labor and that constrained and labor, maybe providing a dampening or maybe even a catalyst to other construction bids.

In the United States.

As it evolves over the next few months in quarters.

I think in nine general last jobs are coming back people want to work.

Certainly.

The unemployment scenarios been interesting in terms of the amount of money that individuals to get what I think in general.

We're seeing jobs ramp back up with appropriate people some of the issues that we are seeing or kind of unique in that transit systems, which.

Construction workers to and from job sites in places like New York City or in major cities are still our operating.

As they normally would so there are some constraints out there that will continue to free up as.

On the environment gets a little bit safer or people feel safer.

But we have not.

Certainly have not heard from contractors, saying that they can't start their work back up because they do not have labor, we haven't heard that really happen.

Got it thanks, very much or I appreciate it.

Yes.

Thank you, ladies and gentlemen, as a reminder, in order to get to as many questions as possible. We asked you. Please limit yourself to one question to one follow up our next question or comment comes from the line of David hanging from Baird. Your line is open.

Thank you Hey, good morning, everyone.

Well first of John can you give us a.

Breakdown of your Sienna end market overweight or underweight exposures, we think about office retail manufacturing.

Government infrastructure, whatever could you give us where right now at your overweight and underway.

Yes, the only two segments that we typically report on at least presently are.

Where we are residentially and where we are commercially commercially the breakdown is.

Is multifaceted as you can imagine is rooted bridge, there's other structural buildings users.

Any kind of healthcare facilities airports or any type of commercial project.

Historically, our business has been in the 25% to 30% range residential primarily on the west coast with the balance being commercial.

We haven't really seen those numbers shift greatly during the downturn, all one way or the other obviously commercial project shutdown residential homes.

Right honestly with the inability to host.

The sales offices being open there was a gap.

Probably a 30 day to 45 day GAAP were major homebuilders that we do a lot of business with.

Just basically went on on a fall and just basically stopped.

Thats cranking back up.

Right now and we don't really see a shift in either direction to any external.

Okay. Thanks on the.

Commercial side, if we just looked at the Dodge data no reason to believe you're very different from that dispersion lens that what you're saying.

Yes, as you look at the data approaching the third quarter in particular.

It looks promising it's been changing because I think even.

The data points out there have been a little bit challenging for people to grab onto.

It was starts and slowdowns in delays so the best indicator, we have of what's going on on the market is what our customers are currently drilling I think it'll remain that way for a period of time.

Dodged typically doesn't report very accurately on the front end they report pretty accurately on the back end.

So I'll just indicate or again is what our customers doing out there in the marketplace.

Okay, Hey has referred to them.

I was referring IDXX, John just yet.

Yes, David as John said, we we have not historically provided a specific exposure by category. We are able to participate in the broad range of construction categories across the spectrum and in general to continue to see strength in distribution centers Datacenters infrastructure and.

But in road rich in airports.

Okay. Thank you and just one quick one for Brad can you give us the average order size in FM. This year and then the comparable figure last year.

Hey, Dave Thats, something we generally don't share in weren't plan on shared today.

[music].

Okay. Thanks.

You.

Thank you. Our next question or comment comes from the line of Nigel Coe from Wolfe Research. Your line is open.

Thanks, Good morning, Thanks to the question.

So just want to clarify the 25 cents different a logical guidance will kind of color. That's net of the cost savings deposits I think Evan you you come from that I would it be fair to say that that would lend mainly within the FM business since cnine since you've technical above.

That that is correct.

The 25, the 25, 30% decremental margins would be for both businesses, but as you indicate.

The construction business getting close to flat.

And its end it is inclusive of cost savings.

Got it okay. Thanks Thats helpful. Then on the bad debt expense.

The $8 million I think it was is that is that consistent with the Hannibal customers I'm thinking here, perhaps the hospitality segment might be a disproportionate amount of that's about pickup or was it much broader and how do we feel about credit quality in the back half the.

Yes. Good question, thanks for asking that and it is it is a broad estimate across all of our exposures certainly hospitality is a vertical that were more concerned about we haven't seen the hospitality sector impacted like this in the path.

And so quite frankly, we're not 100% sure has to play out so we.

Took what we believe is an appropriate conservative approach.

To our credit expectations.

In hospitality, but across the broader spectrum of of our portfolio as well.

Got it okay. Thanks very much.

Thank you. Our next question or comment comes from the line of Keith Hughes from Suntrust. Your line is open.

Thank you.

Question that.

CNR you'd refer to some benefits in the quarter.

From rebar prices falling.

How much longer you think that benefit will be a place report trues up year over year.

Right.

[music].

Okay.

Commodity market ebbs and flows based on supply and demand and obviously if you look at the first six weeks of the other first quarter supply was appropriate and demand was very high and then.

The cost and closed and the exact opposite happen we went into a surplus conditions.

And demand was very low so RMR facilities, followed suit as jobs closed and other cranking back up so I believe we're going to see a little bit automotive Rosh. Additionally, as job sites reopened as the Reengaged and then I think.

The best guess that then we have is that we'll see similar conditions to what we saw in February in early March.

From a demand perspective.

For the business.

Okay.

Up on that you've talked a lot about the kind of future of commercial construction ended the year end of next year.

How when do you think you'll have a good feel for what demand will will be towards the end the year starting up 21, other how long does the back half how long the backlog right and when can you get real comfort around.

Our commitment to 21 for commercial construction.

Yes, I think because we're so close to our customers we're constantly monitoring jobcentre bidding.