Q2 2020 TopBuild Corp Earnings Call
Greetings and welcome to the Topbuild earnings Conference call.
During the presentation, all participants will be in listen only mode.
Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the floor on your telephone if at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded Tuesday August 4th 2020.
I'd now like to turn the conference over to Tabitha Zane. Please go ahead.
Thank you and good morning on the call today are Jerry both Chief Executive Officer, Robert Dodd, Frank <unk>, Chief Operating Officer, and John Peterson, Chief Financial Officer, We have posted senior managements formal remarks on the Investor Relations section of our website at Coffeyville Dotcom.
Actually shown on slide two of today's presentation. Many of our remarks like these forward looking statements concerning the company's operations and financial condition. These forward looking statements include known and unknown risks, including those set forth in this mornings press release as well in the company's filings with the FCC The company assumed.
No obligation to update or something that forward looking statements to become untrue because of subsequent events.
Please note that other than it otherwise specifically stated the financial measures to be discussed on this call will be on a non-GAAP basis. The non-GAAP measures are not intended to be considered in isolation or I just got to so results prepared in accordance with GAAP.
We've provided reconciliation of these financial measures to the most comparable GAAP measures in a table included in today's press release and in the presentation accompanying this call. Please turn to slide three I will now turn the call over to Jerry Paula.
Good morning.
Thank you for joining us today.
Let me begin by acknowledging the ongoing impact the Coca 19 is having on our employees their families.
And all of our other stakeholders.
I understand it's a difficult time for everyone.
Your top Phil we continue to manage every aspect of our operations.
To provide a safe environment for our employees, our supplier partners and our customers.
And our branch support center, they toner, we continue to work remotely.
What technology, keeping us connected and effectively supporting our broad network of branches throughout the country.
And every one of our branches, we have implemented best practices in terms of sanitizing and disinfecting.
And we enforce social justice thing there and on job sites.
As we look back on the months since our last call in early May.
We've seen the resiliency of the residential new construction industry.
We started the second quarter with extreme uncertainty.
That's a country was under a national locked down our installation and distribution businesses, where do you not essential enforced days.
And on unemployment rates levels not seen since the great depression.
Yeah, as we reported to you when they are able to repair natural results were still relatively strong.
And they continue to improve as the quarter progress.
We're also encouraged that while second quarter housing starts are lower than last year or builder customers are reporting a steady increase in traffic or.
This should lead to improving housing starts as the year progressing.
Historically low interest rates very little inventory and a growing desire to escape cramp urban environments or many of the key factors contributing to this quick rebound.
While we recognize that there will likely be bumps in the road as our nation continues to manage through the pandemic.
We remain bullish on the overall fundamentals of U.S. housing industry.
Turning to our second quarter financial results on slide four.
Net sales declined 2.1%.
Primarily the result of the cold 19 pandemic.
Despite this revenue drop we continued our strong margin expansion and both Truteam and service partners.
Procop filled in total our adjusted operating and EBITDA margins increased 130 basis points and 250 basis points respectively.
Which drove adjusted EPS to $1.68.
We feel very good about this performance, which once again demonstrates the flexibility and strength of our operating model in any type of environment.
Turning to slide five.
On our last call. We noted that given the current level of uncertainty we were hitting the pause button on further acquisitions.
We had a full pipeline a prospect that time and thanks to the ongoing hard work of our own 18 that pipeline has expanded over the past few one.
With a clear outlook of the positive trajectory of the housing industry and our strong balance sheet with almost $650 million of liquidity.
We are resuming our acquisition program and to close on a number of these deals in the next several quarters.
And having developed the core competency integrating acquisitions onto our systems and supply chain, we expect to drive meaningful synergies quickly from these deals.
As a reminder, our primary focus remains on acquiring core insulation companies.
But we continue to evaluate a number of glass companies that we fit well within our existing $160 million business in this product complacency.
Before turning the call over to Robert I wanted to know thing in late June we were pleased to learn the Topbuild was moving from the S&P small cat 602, because in P. Midcap 400 effective June 30.
Some of you may remember that at the time of the spend in June 2015, our market cap was approximately 1.1 billion.
Today, It has over four and a half billion more than a 300% increase.
This move is clearly a recognition of our strong growth and the tremendous value we've created for our shareholders over the past five years.
I will now turn call over to Robert.
Thank you Gerry.
On slide six and before reviewing Truteam in service partners financial results.
And our continued operational response to cover the 19.
I think our entire choppy team for their dedication teamwork and ongoing push for operational excellence, especially during these difficult times.
Everyone from our scholars so warehouse workers drivers office and sales staff field leadership and branch the border Center team at four together to deliver our very strong second quarter results.
Moving to slide seven.
As we respond to the current environment, a former strong value of safety for our employees and their families.
Customers and supplier partners remains the guiding principle for all decisions.
I mean for social doesn't seem to sanitizing, both in our branch operations and job sites and our work from home policy of certain operating facilities, including our Daytona branch support center remains in place.
Internal communications have become even more important bringing employees together themes, including safety diversity and inclusion.
We push these values to at every level of our organization building, a stronger team, creating a better workplace and helping us win in the marketplace.
On the next slide I want to stress our strong results are due to many factors most importantly.
Our flexible business model, enabling us to quickly adapt to changing market conditions.
We'll see to attract and retain labor.
Our integrated systems that allow us to share label equipment and inventory.
Our strong supply chain, which ensures we can meet customer demand.
Long term customer and supplier partner relationships and our companywide focus on operational efficiency and sales and labor productivity.
As such when the pandemic kit, we were confident in the steps we needed to take to care for our employees, serving our customers Im not sure the financial help top.
Turning to slide nine we entered the second quarter operating in all but four States, New York, Pennsylvania, Washington, and Michigan residential and commercial structures have been deemed non essential.
As a reminder, Washington represents our fourth largest state in terms of annual sales.
At that time in response to the shutdown and or grow uncertainty due to the pandemic. We began only multiple levers to take cost out of business, including eliminated most discretionary spending and non essential capital expenditures cutting overhead and reducing labor in those states for construction was deemed non essential.
We also implemented a code that 19 leave planned paid impacted team members for a period of time to help provide assistance to them and their families.
We did us to create goodwill and increase the probability they would return to topbuild when conditions improve it has definitely been a success, enabling us to quickly ramped up in this four states for construction has again been deemed an essential service.
As we move through the quarter, our branches stay busy most working on a strong backlog.
In addition, our daughter customers our optimism grew steadily as they sell buyer traffic and orders increased along with consumer confidence fueled in part by very low interest rates.
Moreover, based on recent builder surveys there appears to be a shift the buyers moving to more urban.
And rural areas.
We're optimistic this shift will stimulate demand for single family homes.
Along with this good news by late May early June the four state that Dean construction non essential had reopened and our crews quickly back to work.
Looking at Truteam second quarter results on slide 10 sales declined 3.4% in large part due to our being shut out of commercial construction in several metropolitan areas. In addition to the four states I mentioned previously.
Sales improved as we move through the quarter end June revenue increase compared to the same period a year ago.
Despite this drop in revenue Truteam adjusted operating margin improved 100 basis points in the second quarter to 15.2% and increased 110 basis points for the first half of the year to 14% clearly demonstrating the strength and flexibility our business model and our focus on.
Bottom line results.
Turning to service partners on Slide 11 in the second quarter total sales grew 1.3% and for the first half of 2020 sales increased 3%.
Service partners adjusted operating margin for both the second quarter and first half of the year was 11.6%.
An increase of 170 basis points and 160 basis points respectively.
As you can see on slide 12, we introduced a new product line of service partners professional grade sanitizing, and disinfecting supplies and equipment.
There are marketing to contractors, who are already in the commercial printing industry as well as to contractors, who may see this as an opportunity to create new revenue stream.
While relatively small in terms of revenue generation, thus far it demonstrates our teams creativity of flexibility in meeting new market demand with minimal investment.
Moving to slide 13, our commercial business on a same branch basis declined 12.9% in the second quarter and is down 6.9% for the first six months.
We have seen an upper large commercial projects delayed were slow to ramp up due to new guidelines governing the density of construction crews on site.
Rico that 19, it's not uncommon to have 10 or 12 traits working on the job site at the same time, obviously that has changed with social distancing rules, how long 80 project timelines.
We've also seen some projects cancelled but during the same timeframe. We've been awarded a number of new projects that have helped offset some of these cancellations.
As a reminder, comps this quarter last we're ready to quote as commercial revenue increased almost 22% in the second quarter of 2019 and close to 25% in the first quarter of the same year.
On the heavy commercial side bidding activity remains strong that we're looking at a potential jobs that will start dates through early 2022.
A lot of the projects, we are working on and have been awarded our distribution centers healthcare facilities and infrastructure projects.
Grow the commercial recovery will be slower than residential, but we remain confident in the long term growth of our commercial business.
Material cost are holding steady.
It is too early to predict whether we'll see a second cost increase this year.
Labour still site in certain markets, particularly those hit hard by the steep decline in oil and gas and hospitality industries. We believe there could be an increase in the available labor pool.
However, this will depend in part from the federal government subsidies of unemployment benefits, which are yet to be determined.
Looking ahead, we like our new Undercar closely monitoring housing starts and are optimistic the industry will continue to see strengthened as we move through the year.
Thank you again to the top bill team and congratulations on another strong quarter John.
Good morning, everyone.
Both Jerry and Robert noted our strong financial performance is a direct result of the hard work over outstanding team both in the field and that the brand support center and provides great evidence of how we can quickly flex our business model to respond to changing market conditions.
With 70% of our cost being variable we are able to initiate cost savings fairly rapidly, which we did in March as that may have been a kid.
Having self bolster our robust margin expansion this quarter to a lesser degree the margin expansion also benefited from Covidien 18 curtailed expenses, such as travel and entertainment cost, which at some point, we're expected to return to normalized levels.
Starting on slide 14 in the second quarter net sales decreased 2.1% to $646.1 billion, primarily due to with 3.6% reduction in sales volume driven by the impact of Cobot 19.
Partially offset by revenue from three acquisitions, but being insulation liner insulation and Cooper glass.
For the first six months of 2020 net sales increased 1.6%.
Primarily driven by increased selling prices and acquisitions with overall volumes flat due to the negative impact of cobot 19.
As a reminder, we're still shut out of four states at the beginning of the quarter and we're not operating in all of our markets until late May early June.
Adjusted gross margin increased 130 basis points in the second quarter in first half of 2020 to 27.8, and 27.1% respectively, driven by increased operational efficiencies cost reduction initiatives and lower insurance costs, partially offset by higher depreciation expense.
Adjusted operating profit in the second quarter grew 9.3% to $83.5 million with a corresponding margin improvement of 130 basis points.
For the first six months adjusted operating profit increased 13.5% to $153.8 million with a corresponding margin improvement of 120 basis points.
In addition to the items discussed in adjusted gross margin operating margins were favorably impacted by lower travel and entertainment costs.
Adjusted EBITDA for the second quarter was $107.8 million compared to $94 million in 2019, and adjusted EBITDA margin expanded 250 basis points to 16.7%.
For the first six months of 2020, adjusted EBITDA grew 16.4% to $196.1 billion and adjusted EBITDA margin was 15.1% a 190 basis point improvement over first half 2019.
Second quarter, ESG and as a percentage of sales was 15.1% compared to 15% in the second quarter of 2019.
Year over year increase was primarily the result of lower sales volumes and higher restructuring expenses offset by savings from cost reduction initiatives and lower travel and entertainment cost.
Depreciation for the three months ended June Thirtyth, 2020 increased $6.1 million compared to the same period a year ago.
This increase in depreciation expense was primarily related to the reduction in the carrying value of older assets that the company was no longer utilizing.
And an increase in expense on assets. The company has purchased over the last 12 months.
On a six month basis, depreciation increased $7.8 million compared to the same period a year ago.
Adjusted income for the second quarter was $55.7 million or $1.68 per diluted share compared to $49.5 million for a $1.43 per diluted share.
For the six months of 2020, adjusted income was $101.6 million for $3.04.
Diluted share compared to $86.1 million or $2.49 per diluted share.
Second quarter, and first six month 2020 adjustments for three and $3.6 million, respectively, primarily related to restructuring costs as a result of cobot 19.
Our effective tax rate for the quarter was 23.2% and 20.5% for the first six months of year.
The 2020 effective tax rates are lower than the normalized tax rate, we guide to 26% due to discrete tax benefit.
$1.4 million and $6.9 billion related to share based compensation for the three and six months ended June Thirtyth 2020.
Interest expense in the second quarter 2020 declined from 9.6 million to $8.3 million versus prior year, primarily driven by 180 basis point decline in the average interest rate on our term loan compared to second quarter of 2019.
Moving to slide 15, Capex for the first six months of year was $20.9 million, 1.6% of sales below our targeted long term range two 2.5%.
As we noted on our last call with the advent of the pandemic, we cared back our planned 2020 capex spend.
Working capital as a percent of sales for the trailing 12 months was 10.5% versus 11.9% a year ago.
This decrease was due to improved collections and reduced asked to amounts across the truteam portfolio as well as lower volume in our commercial business, which tends to have longer receivable terms.
As you can see on slide 16, we ended the second quarter with net leverage of 1.21 time see using trailing 12 months adjusted EBITDA.
Total liquidity at June Thirtyth, 2020 was $648.5 million, including cash of $258.8 million and accessible revolver of $389.6 million.
Operating cash flow was $178.2 million for the six months ended June 30.
Due to continued uncertainty related to the cobot 19 pandemic, we're not providing revenue and EBITDA guidance for 2020 at this time. However, as Jerry noted we remain bullish regarding the long term health of the residential and commercial markets we serve.
Confident top builds flexible business model will continue to drive our strong performance Jerry.
Thank you John.
Our business is strong our team is focused in our futures bright.
We recognize there is still a great deal of uncertainty related to the and dynamic, but we're confident we will successfully meet whatever challenges lie ahead.
Many people are looking to escape crowded are living and with historically low interest rates now is a great time for them to pursue their dream of owning their own home.
As we move through the second half of 2020 capital will continue to focus on achieving operational efficiencies, while keeping our employees safe.
Our flexible business model combined with our teams creativity and hard work.
We'll remain key cornerstones of our success.
Operator, we're now ready for questions.
Thank you if you would like to register for question. Please press the one followed by the floor on your telephone.
We'll hear three Tom Tom to acknowledge your request.
With your question has been answered and you would like to withdraw your registration. Please press the one followed by the three.
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Our first question is coming from the line of Ken Zener with Keybanc. Please proceed your line is open.
Good morning, everybody.
Okay.
What a quarter.
So 70% of your cost your variable.
You had up.
Dollars sequentially and Truteam despite.
Down sales.
Lee.
Can you talk to you know I recognize you're not giving guidance that you have talked about operating leverage generally.
As your business opens up again, especially in these core states could you just comment on how we should think about incrementals.
Given that orders are very strong for homebuilders.
A and B. It seems like labor is going to be very tight so that pricing on top of whatever units have been seems to be very favorable for you I'm just trying to understand.
Your cost actions as opposed to the.
Underlying industry structure that enables you to get the incremental margins.
Yes, Ken Ken This is John So just a couple of comments and I'll go down a little bit more in terms of some of the performance versus where I gave in the prepared remarks. It first of all we are pleased with our margins and again, we said it multiple times throughout the prepared comments, we think it's a great great indication of what we've been talking about for the past five years that we've got a very.
Flexible model that can adapt to the puts and takes in the industries. We serve is certainly.
We did get on it pretty quickly in March when the pandemic kits. So we did take.
Certain cost reductions.
I think you saw on our data that we had about 2.4 million Bucks worth of rat charges that we we basically provided so we didnt get some benefit from that probably a million dollars in the quarter and on an annualized basis, roughly 5 million in terms of the cost reduction activities we took.
We also did get a benefit from what I'll call Cobot, 19 delayed or deferred expenses are reduced expenses and probably the best example would be travel and entertainment.
So our best estimate in terms of the benefit we received in the quarter Thats that at some point is going to normalizing come back would be probably roughly $4 million to $5 million worth of benefit in the quarter that we got but again the vast majority of the benefit we didn't get in the quarter with certainly operationally driven so when we look at.
On a go forward, we don't know how quickly that's been a normalize those those cobot 19 reduce cost.
It will really depend on the pandemic and how things come back and how quickly we can get back to travel and other things that we normalized normally do but but on a go forward basis, we're not going to give any guidance. As you said, we're certainly confident in the long term capability of our model.
We talked about a 20% to 27% and we would certainly agree with that number in a long term and we're just going to have to see how this plays out over the next three or four quarters, two or two or three quarters I should say from a pandemic standpoint, but but again pleased with our results and again operationally driven by far.
I appreciate that I guess, if you as the largest installer of installation therefore.
You probably have the most data points as a company to what's happening on the build their side can you talk to this the resurgence of orders and tight inventory and many builders selling through finished spec can you talk to the industrys ability to obviously I think you can provide labor.
And that will benefit your pricing.
But can you talk too.
What you think might be constraints in the industry ramping up sequentially out of this code stuff because it seems like lumber is really high insulation prices are seemingly flat for the time being.
But can you talk to what Youre seeing in terms of constraints in terms of the growth that might be happy in the industry and how that might be different versus a year ago. Excluding the commercial thank you.
Yes, Hi, Ken This is Robert So, yes, I think if you look at.
A lot of positive news coming out from the trends from the builders and I think everybody wrapping up here very strong finish to the year, especially the fall, which targets Ali the seasonally busy time.
You're right I think we'll farewell from labor perspective, but let's say given the industry as a whole where there'll be some of the new regulations on job sites. The number trades on job sites, whether that be residential or commercial because there is new regulations for both.
I think that combination as well as the heavy order flow. We are seeing some along late longer lead times for sure. We think the lag as extending into industry due to some of those factors and you're right about what you say, we do believe that labor will remain tight.
There could be some influx of some some employees.
To the industry given some of the other industries that have been constrained that being said the extra unemployment benefits are probably in hindering some of that recruiting up till now so.
Yes, I think that will be dependent on what we see happened relative to unemployment benefits going forward.
I would say from our perspective as we look back.
I think I mentioned in the prepared remarks, the co bid Lee plan that we did really benefited us to to bringing employees back as well as I think thats allowed us to get some references of attracting new folks and so.
I think it over a longer lead times. The answer is yes, I think the industry will have on some struggles keeping up with that which will just extend that backflow later into Q4 and could carry into into early 2021.
Thank you.
Our next question is coming from the line of Phil Ng with Jefferies. Please proceed your line is open.
Hey, guys just following on that line of questioning orders actually have picked up pretty nicely and pushing to lease.
Bottlenecks that could lead to more elongation, but.
If you kind of think that through when do you expect the uptick in orders kind of flowing through my time prospectus.
Hey, Bill this is John so.
The reason, we didn't provide guidance or one of the major reasons, we're not.
It's not because we're not optimistic we are about fluids commercial and residential but really to two primary reasons. One is we tend to rely on like starts falling in some type of normalized for Seasonalize pattern.
That's kind of out the window right now certainly so what we saw was pre pandemic very very strong starts profile than we had roughly three months worth of relatively weak.
Started to see that recovery in June and we certainly expect July forward to have a nice starts profile, but it's tough for us to to project.
The backlog, we had whether it's fully depleted as a as an industry and then how quickly. These these new orders come online and we've yet to them and our job site. So thats one the other is commercial.
Where we have and as you know that's almost a quarter of our business and on the heavy commercial side as Robert said, we've been disproportionately impacted there from a social distancing standpoint, so how quickly those job sites get back to a normalized type of cadence is something that we just can't estimate with any.
Any granularity this point so thats, that's why it's difficult to kind of look forward and give a full projection from a guidance. So listen we are we're as optimistic as everyone based on the conversations we're having what our customers. What we know is out there and what when those come it's safe to say fell. This this is Jerry the one thing I would add to that explanation would be that we had.
Talking about an air pocket Thats kind of in a phrase that people have used here over the last several months.
I guess, it's fair to say that our point of view now is that if there is one is probably more shallow and shorter than we probably would have said 90 days ago and looking out over the landscape. So.
John Roberts point, we see we see strength out there and we think builders are going to be responding to consumers.
Looking at buying homes, and we think thats all going to benefit the entire industry go forward here as to whether or not there is a bump some quarter, maybe but overall strength I think thats the summary statement.
That's really helpful. And then your ability to kind of leverage of labor has kind of been a hallmark of topbuild.
Surging demand backdrop is that something you think you can be able to take advantage of even more so compare to your peers your mom and pop competitors and opting for you potentially take care.
Yes, Phil this is Robert so absolutely I mean, I think I'll hit a from multiple angles, and we're always working to productivity side.
From a labor standpoint, and we really believe and we think as shown through.
Integrated systems, how we move labor around the equipment around and how we're able to service customers. There's no. The peaks of demand and you can look at the order flows coming from the builders are you going to be some big spikes coming in some of these.
No the robust fall period, that's coming to us, we'll be able to service that and we think by our ability to do that manage and leverage the labor.
System that type of thing that we will more than Gyn, then gain our fair share of those.
Those orders that are coming so, yes, we high level confidence there.
Got it and then just one last one question a question for me I mean, we use broad strokes and define nonresi Dod rise, but depreciating, there's pockets, where it's stronger lets say warehouses that data centers and maybe.
Stadium did office is a little weaker what's your ability to kind of flex your labor force between heavy commercial versus like commercial and how you kind of thinking about.
That outlook go to 221, appreciating you do have some tough comps.
Yes, it's it's a good question. So as you look at some of the commercial construction that's taken place I mean, the applications and the products are kind of emerging closer. So I'll give you. One. Good example, here we're doing several Amazon facilities today and our residential crews can do that type of work at some of the same application.
And some of the same board product, we would use in light commercial application. So we're leveraging that labor day to move around to some of the commercial projects and we think that that.
Differentiated differentiation between heavy and light commercial continues to narrow some so no played our benefit to be the leverage.
Labour move that around among bigger jobs.
Okay. Thanks, I appreciate the color.
Our next question is coming from the line of Rueben Garner with benchmark. Please proceed your line is open.
Thank you good morning, everybody.
Rubin.
So I.
I had a little bit.
Static or break up on my end during your prepared remarks. So if you like you said this already I apologize, but can you just talk about.
What the difference was in the volume.
Profiles in the second quarter between installation and distribution was it as simple as geographical.
Location, and then I guess on the same.
Same point is is.
Should we expect that the installation of pricing profile to continue to outperform distribution in near term as you guys are selling labor.
Increases more so than materials.
Hey, Phil this is John so actually in the quarter.
You know Truteam was disproportionately impacted by the impact on commercial Robert talked about because it was primarily heavy commercial and Thats where.
Greater piece of our heavy commercial business exists. So so so when you looked at the residential also just pure residential new construction truteam was relatively flat.
Up slightly versus a year ago on the other side of that though our service partners business was probably up close to 3.5% on a volume side from an R&D standpoint, you're not in your is impacted by the the commercial so.
Potential I think in especially considering what happened to us in April I think the results were really strong we had a nice may and June recovery and exited the quarter with some nice momentum certainly in that area. So.
On a go forward by the way the other thing I'd point out is the fact that.
You look at service departments, and we all the way back and forth quarter 18, where we we talked about the fact that we were actually modifying some of our portfolio of customers. We took a little bit hit on volume there, but I think the team has been doing a great job building then volume backed up with additional customers and also getting some additional volume.
Customers, we have so I think you saw nice evidence of that in a quarter and we'd expect that to continue so.
Great that's very helpful. Thanks, John.
And.
Let's see to follow up on that commercial pieces it.
I think the PCR business that most are less familiar with is that fair to say that because of the differences in regulation and just the differences in how the business works that you have a longer.
Backlog or or more visibility I.
I guess, assuming that people can get back to the job site that you have some some runway for that business. Even if there is kind of limited new.
New projects in the coming a couple of quarters that you'll be able to kind of work through what was already in the pipeline.
Kind of coming into the pandemic and thanks again for taking my questions and congrats on the strong results.
Yes, thanks, driven this Robert so yeah longer longer.
Lead time thinking ahead for commercial projects I think I mentioned, we're bidding projects into 2020 twos, there's a backlog that exist in that business.
Some of those projects have been pushed out or delayed some cancellations, but not I wouldn't hotter tremendous amount of cancellations that we've been able to offset with some new projects. So.
Yes, there is a backlog there is a backlog of work through but commercial we'll take a little longer to ramp back up and residential but as we said we feel really good about the long term.
Growth prospects on the commercial side, both the industry as well as our ability to to continue to gain some share in the commercial space.
Our next question is coming from the line of tray Morrish with Evercore ISI. Please go ahead. Your line is open.
Thanks very much.
Great quarter, everyone, absolutely fantastic I want stick on commercial for a second.
It sounds like you're talking about that your backlog and commercial is modestly down as as you're looking up so I could kind of clarify that for me and second on commercial.
Previously talked about wanting to expand your commercial footprint, a little bit farther south and southeast.
Given the.
John tight restrictions.
That that are happening right now does that does distinctions.
Have you, resulting wanting to accelerate that expansion into the south and southeast.
Hi traits, Robert So, yes, the backlog maybe down slightly from if we went back to say four five months ago. It would be down again, some projects canceled or delayed pushed out.
Some new projects have been able to put into the pipeline, but I would say one of our leading indicators is bidding activity and I would say are bidding activity on the commercial side has been very strong that I'd say, even stronger in a positive surprise from from what we were thinking as we went into the pandemic. So that's that's a positive side I think we.
Do stay very.
Bullish on the long term.
Piece of the commercial industry and our ability to grow there and again, we're we're agnostic to the type of commercial projects, So where we may see projects such as high rise offices or high rise residential or convention centers that type of thing being delayed or potentially can't so at the same.
Time, we're seeing things such as.
Warehousing manufacturing data centers infrastructure health care, we're seeing those projects pickup and we're bidding allowed those projects as well so.
I think we feel we feel comfortable from that perspective, and again positive on the long term look.
Got it thanks for that and then just looking at your your EBITDA Bridge your DNA with significantly higher this year not only just related to last year, but also last quarter was there something accelerated in there.
Or is this a new step function higher just wondering could clarify that for me.
Yes. So this is John so yes.
In the remarks, we talked a little bit about the fact that we have.
The majority was really driven by a reduction in carrying value of older assets.
The company over your line is by far the biggest driver was the fact that we basically adjusted our salvage values on our on a depreciation schedules. So we become a tough.
Period to date adjustment that was about four to half a million dollars.
Of the growth.
The other piece, which is tied to what we've seen traditionally which is we have been adding more assets online basically so.
$6.1 million split about a million six between just growth of our our assets and the growth in our depreciation at about four and a half million tied to a quarter policy change around depreciation.
Got to just just a slight clarification that four and a half that's the acceleration is that something that is sustainable is that just a onetime thing that's going to reverse.
Next quarter.
It's a onetime adjustment in the second quarter.
Thank you very much.
Yes.
As a reminder to register for a question. Please press star one followed by the floor.
Next question is coming from the line of Adam Baumgarten with Credit Suisse. Please go ahead.
Hey, good morning.
Just wanting to spike in orders from the homebuilders and potentially some tightening capacity how should we be thinking about the potential for a price increase from the fiberglass guys. Maybe later this summer early fall.
Hey, good morning, Adam as Robert I think little early detail.
Given that spike and stuff there could be as you as you probably remember I'll step back little bit as you remember there were a couple of fiberglass manufacturers that pre pandemic had announced they were bringing up additional capacity late twentytwenty early 2021, they after pandemic hit they teps fleet push that out or delayed that new cups.
Passed a so that being said depend on that ramp up of orders and stuff could there be some.
Tightness of material like in labor potentially could be and if thats. The case that I would speculate they're probably looking at that and considering could there be another material cost increase maybe later in the year.
Okay got it thanks, and then just.
On the acquisition front is most of the pipeline filled with smaller tuck in type deals or are there some larger opportunities out there.
And Jerry here.
A couple of larger ones I mean, there's always a variety of potential targets. Both from the standpoint of residential commercial insulation glass and then size as well. So so to answer. Your question. There are few that are bigger.
But there are a number ones that are what we call tuck ins that are highly effective in terms of.
The returns that they provide to us so.
Yes, hopefully that gives you a little bit of color I mean, we as you well know had been highly successful with acquisitions here.
2015 and.
We've deployed close to $1 billion of capital two thirds of that and acquisition related so.
You know that trend continues we've got we've got a team here that's highly effective in terms of integrating and.
Yes, you can look forward to us over the next number of quarters to to be back in the acquisition gain for sure.
Great. Thanks, a lot.
Sure.
Our next question is coming from the line of Sheldon Clark with Deutsche Bank. Please go ahead.
Hey, Thanks, operator.
Is there anyway, you can give us a sense of where sales trended in June and into July and what impact you could be seeing from pent up demand in either of those ones and I understand sales were down 9% organically in April and you're not giving guidance. So even if you could just give some context around how the.
Rate of improvement change throughout the quarter I made that how that compares to July. Thanks.
Yeah, Jerry here I will tell you that as as the second quarter progress.
Yes.
Sales per day sort of basis, which is kind of how we look at it did improve did improve from April into the May June timeframe for sure.
If what we can tell you about July as that July continues at about that pace.
And it's hard for us to know, how and where do we just stepped in August here, how that's going to look but.
Yeah. It has improved from what was the trough. So I would say April the trough and it's gotten better from there and as we move into Q3 is continuing at that level.
You mean continued to improve our continuing at the level of our June.
I would say July is looking a lot like June at this point in time.
Okay.
That's helpful and then.
You typically see from QQ into Threeq you.
Little bit of an increase in sales and higher EBITDA margins and again, I know, you're not giving guidance but.
Is there any way to think about how the moving parts shake out as it relates to just normal seasonality this year.
Given everything taking place us along any construction cycles.
The various moving parts on the cost side and some potential cost creep.
Showing up in the third quarter, either fourth quarter. So how do we think about or how should we think about normal seasonality this year relative to.
Over the past several years.
Yeah, I mean, we would love to give you some more specific guidance on that but as you know as John has said.
Most of the most of the historic relationships around lag times in the building cycle a number of things are kind of been disrupted here because of the because of the volatility of whats happen kohut driven so.
John I have some more specific comments about but my take on that would be that is that we're optimistic about the sales level and what we do from a margin standpoint, then whatever whatever we have.
And the reason, we're not giving guidance is just because some of the dependable relationships that we use our they've really been taken off that taken off the table and that's that's not necessarily a negative I mean, we are still going to perform really well just based on the flexibility that we have and Robert and his team are just outstanding when it comes to.
Making the most or whatever environment, we're stepping into so we would expect that to continue Jan I don't know if you have anything else to add to that no I think Jerry said it well I think on the profitability side I think we were very confident on a go forward basis as I said some of the some of the benefit we get on it to a lesser degree was driven by.
Expenses that were down due to covert 19, and we expect us to normalize, but thats going to happen over time.
So so again very bullish about topline and bottom line on a go forward basis, the struggle for us or the challenges how do we look at seasonality and then how quickly do we get back on commercial job sites as I said before that we had been disproportionately would also so.
Okay. That's helpful. I appreciate it thanks.
Sure.
Our next question is coming from the line of Ryan Gilbert with BTG. Please go ahead.
Hi, Thanks, guys.
First question.
Distribution business.
Just wondering how I should be thinking about volume growth going forward.
Like you expect to see continued increases I think my understanding the business that it was a little more counter cyclical than the the install business. So just how how we're thinking about volume growth and distribution.
Hi, Ryan this Robert I think if you go back to the end of 18 and through 19 were talking about.
Focus and service partners and.
Growing the business there and I think we're seeing some of the through to that live through that's selling more to existing customers as well as attracting some some new customers as well, although small example talked about the.
The disaffected sanitizing product line of Rolling out so I think we're pretty positive about the service partners growth.
And then also will cease potentially smaller contractors come back to us if they are having a hard time, taking full truckloads of shipments that plays to place our value proposition and one thing that we've always focused on and we continue to see improve as our service level. So really.
Keen focus on service and especially if you think about things ramping up the orders for builders that type of thing service becomes even more.
Part of the value. So we're keenly focused on that and we think service partners and Truteam. Both we'll continue to see some nice improvement.
Okay. Thank you for that and then the second question just on that the M&A pipeline.
And if you can talk about your precedents for completing deals within the residential end market versus the commercial end market.
Yes, we have both in the pipeline.
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I think were a bit agnostic, we've had success on both sides of that aisle.
We're really good on the residential on the residential side for sure. That's a legacy the company and we and we get huge synergies on when we do those acquisitions, but then other commercial side.
Our scale is rapidly improving there.
And as Robert spoke to the future of the commercial business Theres a number of different types of projects that we think we'll continue to be strong in terms of starting and we're very anxious to continue to improve our footprint and if we can do that through acquisition finding the right partners, we'll certainly do that.
Okay, great. Thank you.
Sure.
As a reminder to register for question. Please press the one follow better for.
Our next question is coming from the line of Justin Stare with Zelman and Associates. Please go ahead.
Hi, Good morning, guys. Thank you.
Hi, I wanted to start when the non residential side just.
Turning to give us a little clarity on the revenue trends the exit the quarter, they're recognizing you're now.
I guess roughly 12, 13% in the second quarter, but as you think about the exit rate into July how did that look.
Hey, good morning, just as Robert so.
Think about it I think Jerry mentioned that as well. So we continue to see a positive trend of revenue throughout the second quarter. We saw that revenue trend continued to improve in July.
Whenever we do that whenever we do that comparison. So we think we're still working on backlog. We think off so you know you've seen the order trends from builders and I would say.
Our crews or our crews are busy right now so.
We're pretty positive in the trend that we've seen and then I think previous question service partner, some nice growth on service providers or combination of.
Selling more to existing customers, maybe some smaller customers that we've been targeting coming back can see in the value and and what we do as well during this time so.
Thanks, good trends in both.
Okay, and then I guess the difference in growth between your designation I think maybe the split between heavy commercial like commercial will be helpful. Too in terms of the differences in growth in the quarter.
Justin This is John I don't have the numbers right in front of me, but I can tell you that commercial was disproportionately impacted by heavy commercial.
The social distant seen no off of some job sites temporarily and so certainly that's where the majority of.
Our decline was on the quarter was on the heavy commercial side.
Okay, and then it would be helpful too I don't know if this is something that's that's possible but.
Yes, your vertical exposure across some of the areas that are stronger the healthcare industrial distribution centers that you mentioned juxtaposed maybe somebody other areas are obviously more pressure I don't know if you have any.
Clarity that you can bride there too.
Adjusted Robert So we're pretty agnostic quite honestly as we look across the thing that across the landscape of mix of commercial business. So you're talking high rise residential or tuck in high rise commercial I'd say, we are equally own healthcare facilities distribution centers I mean, I think I mentioned earlier I will give the number but.
The number of distribution centers, including like Amazon facilities that were on sites that right. Now is this tremendous so we're pretty agnostic as that main thing is we're looking at the projects. We know what the mix of the projects are the projects that were bidding.
Applications are very similar and never oxy.
Comfortable at those types of projects, where are you know I talked about infrastructure projects as an example.
He could say health care, but then also we're doing some airport projects now as well that are still still got some time to go on those projects also so I'll go back to my term agnostic and just say were across the landscape a mix of commercial projects.
All right I guess I was thinking about a little bit differently, but thinking about your actual current mix of business that is through those better growing businesses versus the verticals that maybe a little bit more challenged with a little uncertainty at least in the near term I guess, what percentage or business is healthcare and industrial distribution centers.
Yes, I don't really have that split or that break down just I would just say, we're not heavily weighted in a negative way towards one or the other.
Got it got it and then last question for me the pricing stability in the quarter was it was a positive surprise.
I guess, how should we think about that in the back half recognizing there maybe some inflationary impulse from the supply chain.
It seems like you did a lot better there I am guessing how do you think about that in the back half potentially shaping up.
Yes. So just in this is John so the pricing you saw in the second quarter was all carryover pricing essentially from prior periods and I listen we're not going to speculate in terms of third or fourth quarter. I mean, it's going it really depends on the market conditions at the time and Robert refer to the fact that theres the potential out there as things continue to recover from material cost increase.
At the Seattle Labor shape, so really tough for us speculate right now, but I think one thing and I think you've got five years of evidence of this is we're able to adapt to any environment and any inflationary type of environment pretty quickly and we're confident our ability to do that on a go forward. So.
Thanks I appreciate your time thank you.
Thank you.
And there are no further questions at this time.
Thanks, everybody.
Basically if out there and we look forward to our Q3 earnings call in November.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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