Q1 2021 CSW Industrials Inc Earnings Call
Greetings and welcome to the CW Industrial's first quarter 2021 earnings conference call.
At this time, all participants are in listen only mode.
A brief question answer session will follow the formal presentation.
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It's my pleasure introduce your host Adrian Griffin, Vice President Investor Relations. Thank you you may begin.
Thank you Christine good morning, everyone and welcome to the CFW industrial fiscal first quarter 2021 earnings call.
Joining me today are Joe's, if our chairman Chief Executive Officer.
Let's see if w. industrial and James Perry Executive Vice President and Chief Financial Officer, We issued our earnings release in presentation prior to the market opening today.
Our available on the Investor portion of our website at Www Dot CFW industrial Dot com.
During this call will reference specific flights in the presentation.
The call is being webcast and information on how to access. The replay is included in the earnings release.
During this call we will be making forward looking statements.
These statements are based on current expectations and assumptions that are subject to various risks and uncertainties actual results could materially differ because the doctors to that that's got today in our earnings release and in the comments made during this call as well as the risk factor section of our annual report on form 10-K, and other filings with the.
C.
We do not undertake any duty to update any forward looking statement I will now I'll turn the call over to Joe our.
Thank you return.
Good morning, Thank you for joining our fiscal first quarter conference call.
On today's call I will provide an update on the for guiding objectives, we presented last quarter discuss our fiscal first quarter result, and comment on our outlook for the remainder of fiscal 2021.
I will then hand, the call off the James for a closer look at the numbers.
Our last call, we outlined for guiding objectives, treating our boys well, serving our customers while managing our supply chain. So effectively thus positioning our company for sustainable long term success.
We recognize the challenges that the pandemic as opposed to many of our stakeholders, including our employees customers and suppliers and our focus has been on the safety continuity of service and collaboration throughout changing business environment.
Our success in fiscal first quarter of 2021 was directly attributable to the diligence and professionalism of each of our over 700 employees of C. S. Wi.
Okay, and engaged courageous and confident well continuing our operations with minimal disruptions.
Our employee stock ownership plan, which is designed to ensure alignment incentivizes our team members to think like owners.
We thank all CFW team members for their effort to date.
That's together, we work each day to ensure that CFW Burgess, even stronger and better position for future growth.
As we outlined on slide four our diversified end market strategy history of robust profitability strong cash generation and resilient balance sheet position us to capitalize.
Both organic and inorganic growth opportunities.
Well driving long term shareholder value.
We remain resolute in our commitment to be good stewards of your cap.
On slide seven you will see our 2021 guiding objectives.
Expanding on treating our employees well, we're providing continuing employment for full time employees as we position our businesses for the ongoing recovery in demand that we began thing at some of our end markets toward the end of the fiscal first quarter.
We remain committed to the enhanced health and safety efforts, we are outlined on our last call.
Stirring the sound to covert 19 operational health and safety competencies.
Incorporating them into our standard work environment.
We believe our recent actions have positioned us to better mitigate the possible impacts a future unexpected events.
And to support our during risk in our enterprise risk management strategy and processes.
Like many companies that have continued to operate safely over the last several months. We have had a few employees test positive for cobot <unk> team, but all proper precautions were taken to maintain the health of those team members around them.
We estimate.
300 to $400000 costs were incurred in the fiscal first quarter related to the employment health and safety efforts noted above.
Turning now to our second guiding objective, serving our customers well in recent months, we increased our commitment to be a vendor of choice, including emphasizing communication and customer service excellence. Our teams utilized the changing work environment offer virtual product training, helping drive demand.
For our high quality high value products.
While concurrently offering customers the opportunity to earn continuing education credits and to serve their customers more efficient effectively.
In addition, we have recently increased personnel in our shipping departments to capitalize on the recovery of demand and some of our end markets predominantly H.B.C.R. and plumbing.
We remain disciplined and managing our supply chain effectively.
Throughout the quarter, we utilize the strength of our balance sheet selectively building inventory to ensure our ability to meet our customers' needs.
Yet to take advantage of discounted market pricing on some key raw materials.
And our architecturally specified building products end market the supply chain measures have helped us to wind projects from competitors, thereby gaining market share and bolstering brand reputation.
We anticipate additional prospective opportunities to deploy capital that support our organic growth objectives, thus driving long term growth in excess of the end markets we serve.
We remain diligent at our efforts to improve the quality and reliability of our supply chain, thereby ensuring business continuity and reducing sourcing risk.
Turning to how we position our business for sustainable long term success since inception, our management team is committed to building and maintaining a conservative financial position, including a strong and resilient balance sheet.
Ongoing access to capital and ample liquidity.
As shown on slide eight we continued to demonstrate balance sheet strength with nearly $20 million of cash balances as of June 32020, which is an increase from last quarter.
During this quarter cash flow from operations grew 45.4% over the prior year period to 14.1 billion.
Representing a 15.5% cash flow yield.
On revenues in the quarter.
We also repurchased 7.3 million shares and paid our $2 million quarterly dividend for a total quarterly return of cash to shareholders of $9.3 billion.
As of June 32020, we maintained full $250 million available on our revolving credit facility supplementing the strength of our liquidity position and our ability to execute on growth opportunities.
Our capital allocation strategy continues to guide our investing decisions with the priority to direct capital to the highest risk adjusted return opportunities as we invest for our future.
Particularly in the end markets, we serve today.
We're very active in pursuit of external growth as we see opportunities emerging and several of our end markets.
When outlining expectations for the fiscal first quarter on our last earnings call. It mid may.
We discuss potential underperformance driven by natural distributor destocking as attributable to Pan pandemic driven demand degradation.
We also reported than in the first six weeks for the fiscal first quarter. Our revenue decline was in excess of 20% and some of our end markets.
With this backdrop I'm pleased to report that fiscal first quarter revenue was $91 million, reflecting an 11% decrease compared to the same prior year period.
These results exceeded our own as well as the consensus expectations for the quarter.
The outperformance began in the second half of the first quarter as demand improved for products designed for residential applications.
In areas, such as H.B.A.C.R. and plumbing.
As well within our architecturally specified building products.
During the quarter May results exceeded those in April and June exceeded may.
Providing us with strong momentum heading into our second quarter.
In fact in the month of June sales into the HP AC are at architecturally specified building products end markets were actually higher as compared to the prior year period.
As we discussed in May we implemented a broad range of temporary cost reduction measures at the very early stage at the Cobot 19 outbreak and you in the United States to preserve profitability.
Well the cost reduction measures did not fully offset the impact from the revenue decline, we reported a solid $16.3 million of operating income and 17.9% operating income margin only a 200 basis points decline and margin from the prior year period.
I will also highlight that we have continued to invest in our people. We have not had any pandemic related reductions to our full time employment, allowing us to serve our customers dynamic needs as they adjusted to bearing demand for their products.
As I mentioned earlier.
These actions have resulted in our winning new business and several of our end markets, especially architecturally specified building products.
We believe these actions further demonstrate ours.
Our stated commitment to a long term perspective on driving shareholder value.
Turning now to slide Dodd.
Zillion C and diversification that our end markets as highlighted on this page.
In addition to my previous comments on the strength, we've seen in the Hvdc arent plumbing end markets. There are several factors positively affecting demand for our products, including the large number of individuals continuing to work from home and the 12% increase in June cooling day cooling degree days as compared the same month last year.
The architecturally specified building products end market was effectively flat year over year with strength in sales driven by our quality backlog.
Primarily the completion of projects that commenced prior to the pandemic.
Our three largest end markets HPC, our plumbing and architecturally specified building products comprise nearly 77% of our revenue this quarter.
While the pandemic has caused acute short term uncertainty in our general industrial rail and mining at markets. We expect these businesses to return to growth as our customers returned to normalized operations and resumed the types of maintenance activity and capital investing decisions that drive demand for our products.
We remain confident in the long term secular fundamentals supporting these end markets.
For example class one rail is critical to transporting goods across United States, While transit rail is a growing market worldwide unsuitable for many of our niche products.
Additionally, the general industrial mining and energy end markets provide geographic diversification with accents access to faster growing international markets.
Now I'd like to discuss our current thoughts in the remainder of this fiscal year and first remind our investors our fiscal year began on April one.
Earlier in my prepared remarks, I noted the momentum in our largest end markets that we have realized since the second half of the fiscal first quarter.
Based upon the steadily improving demand, we now expect revenues and earnings in the first half of the fiscal year to be slightly lower than the prior year period.
The second half, which is typically negatively affected by seasonality, we expect some recovery inflect end markets, resulting in moderately lower revenue and earnings than the same period last year.
As the current situation remains fluid the duration and trajectory of end market recovery are hard to determine.
We see ongoing strength in our hvdc aren't playing in markets opportunities for incremental growth in the general industrial and heavy end markets.
With potential decline late in the fiscal year, and our architecturally specified building products end market.
As discussed on our last call. Our bidding activity has remained strong while there has been a decline in the rate of projects being added to the backlog as builders commitment to large brought projects a slow.
The pace of bookings remains at current levels a decline in architecture specify building products revenue could materialize late in this fiscal year or early in the next.
As of the end of the fiscal first quarter, our book to Bill ratio for the trailing eight quarters remained above one.
And only one project was removed since our last call, indicating the quality of our backlog.
We continue targeting education healthcare and government projects as a matter of bolstering our prospects and increasing the diversity of our portfolio, which is otherwise weighted toward multifamily housing.
As a result of expected year over year revenue declines in this fiscal year. We continued to be slightly we continue to expect slightly lower margins due primarily to our previously discussed efforts to retain employments for our team members.
However, we remain diligent in our pursuit of operational excellence and a competitive cost structure.
We will initiate additional cost mitigation efforts, if the pace of demand recovery slows.
In summary, our strong balance sheet continues to enable us to have the financial flexibility to succeed in the current economic environment by investing organically and Inorganically in our business driving long term growth and returning cash to our shareholders inline with our capital allocation strategy.
And with that I'll turn the call over to James for a closer look at the numbers.
Thank you Joe and good morning, everyone.
As Joe mentioned earlier, our consolidated revenue during the first quarter of 2021 was $91 million and 11% decrease from the prior year period.
Lower revenue was driven by decreased sales in both our industrial products and specialty chemicals segments and across all end markets served.
Despite an 11% decline in revenues our profitability metrics remained strong with gross profit margin of 47% slightly above the prior year period.
Consolidated operating income margin of 17.9%.
The 200 basis point decline for fiscal first quarter, 2020, and flat to adjusted fiscal first quarter 2019.
Sure no adjustments in either current or prior year period.
The effective tax rate on continuing operations for the fiscal first quarter was 23.5%.
We expect our full year tax rate to return to more normal range of 24% to 26% in fiscal 2021.
Net income from continuing operations in the fiscal first quarter of 2021 was $12 million were 81 cents per diluted share.
Fair to $15.2 million or one dollar on one cent per diluted share in the prior year period.
Turning to slide 10.
The industrial products segment delivered fiscal first quarter revenue of $61.2 million only 3.3% lower than the prior year period.
Operating income of $16.3 million and operating income margin of 26.6% were in line with the prior year period of $17 million and 26.9% respectively.
Continuing to slide 11.
The specialty chemicals segment delivered fiscal first quarter revenue of $29.7 million compared to $39 million in the prior year period.
Segment operating income was $3.9 million to 2.7 million dollar decrease compared to the prior year period as cost reduction efforts offset a large portion of the decline in sales revenue.
Operating income margin in the fiscal first quarter was 13.3% 370 basis point decline from fiscal first quarter 2020, and flat to adjusted fiscal first quarter 2019.
The decline operating income margin reflects the decremental margins, resulting from lower volumes.
And as we've shared previously this segment is highly correlated to volumes and hence as volumes recover with improved demand operating margin would be expected to return to our long term expectation of mid teens.
Balance sheet in cash management have increasingly been in focus for investors and as Joe mentioned in his remarks, our cash flow from operations increased 45.4% over the prior year period.
Our cash balance as of June Thirtyth, 2020 was approximately $20 million approximately $2 million higher than at March 30, Onest 2020.
This increase in cash balance occurred while returning $9.3 million to shareholders through our quarterly dividend and share repurchases.
With our solid cash generation and excellent liquidity position, including the full $250 million available on our revolving credit facility, we are well positioned to fund accretive growth.
In my first few months it see us Wi I've had numerous opportunities to review our portfolio growth opportunities and im encouraged by the quality of the opportunity set and the implied growth available to us.
I'm also very confident in the team's ability to support this growth while focusing on existing business both of which are critical for success.
I want to address the increase in inventory balances.
As Joe mentioned in his prepared remarks, we utilize the strength of our balance sheet to position ourselves advantageous lead to gain market share as certain competitors were unable to meet their contractual obligations to provide goods and services.
We also capitalize on discounted pricing for specific raw materials and high volume items as we anticipate demand in our largest end markets.
In the short term, we expect to maintain strategically elevated levels of inventory as we prudently manage our supply chains.
In conclusion seems to have you all remains very well positioned to not only performed well to the economic conditions the to emerge as a stronger company poised for growth.
Thanks to the dedicated efforts of our team members and supported our board of directors and investors.
With that I'll now turn the call back to Jeff.
Thank you James.
Regarding objectives for fiscal year, 2021 are consistent with and supportive of our core values are strong sustainable business models built upon operating businesses with long track records and success.
Skilled employees that think like owners experienced leadership teams and a resilient financial position.
Our commitment to be good stewards of your capital this resolute.
Let me take this opportunity to thank all my colleagues see us Wi Fi Clinton collectively own approximately 5% of the company through our employee stock ownership plant.
Also thank all of our shareholders for their continued interest in support of our company.
And with that operator, we're now ready to take questions.
Thank you we will now be conducting a question and answer session.
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One moment, please volleyball for questions.
Thank you. Our first question comes your line of Joe Mondillo with Sidoti. Please proceed with your question.
Yes.
Hi, everyone.
Good morning, Joe.
So first off at the specialty segment I was wondering if maybe you could help us understand what you saw through the April to July time period. The you know sort of things get significantly better like a lot of companies have talked about over that four month period any details there would be good.
Well again.
I think if we think about it at the end market.
Joe the end markets that showed significant kind of.
Recovery, we're hvdc are and plumbing.
Architecture specify building products really steady through out.
The other end markets were.
Down in April.
And have recovered some certainly not of.
And so I.
I would say that that means our special specialty chemicals.
Segment would be affected by the general industrial the heavy industrial certainly the oil and gas energy, but remember there are some some plumbing chemicals in particular that run through a specialty chemicals that would help.
Provide a balance there.
Thanks.
But with some of those saw more cyclical general industrial energy related end markets.
Did you see a significant.
The improvement from say the April month to June July.
No we really Didnt, we saw a flattening and so again those those end markets are no longer.
The end decline, but no no snap back there yet and Joe. This is James that is an area, where we built some inventory that's one of the couple areas through the quarter as we anticipate some of that demand coming back and as Joe said, we didnt see much come through the quarter revenue wise, but a little bit of that inventory build was in that chemicals space to be sure that we took advantage of.
Raw material pricing and built inventories when it does come back we are ready with employee base, we have but we do think we see evidence of kind of the and or the tale of the destocking that was going on there.
Okay.
I guess, just lastly, just a follow up on this topic.
What do you sort of make out of that do you sense any changing or share at all the reason ask you know I ask because it seems like most.
Companies, either even sort of them most cyclical industrial type companies.
Have seen pretty good improvement from April may to June July.
Do you sense do you sense any changing them share within the market itself or how do you look at your performance relative to the overall market.
Yeah, I don't I don't see any change in share at this point, Joe Bob What we see is really a fair amount of that business goes through distribution. So you've got destocking.
At the distributor level, there squeeze in their inventory down and like I said, we're beginning to see the effects of that now when folks are are beginning to place orders I believe the destocking as.
Run its course and.
I think things are going to get better from here, but.
No. We don't we don't foresee that as being a share loss at this point.
All right and then I wanted also ask about the eight fact business more in the industrial segment.
How much was I guess eights back down in the quarter.
And the follow up on that it seems like it was better than I would've thought could you just talk about that business, because you know I sort of I suspected that especially in the early part of the quarter.
People were not able to service people, maybe not able to enter homes.
And then in addition to that which I thought maybe you would have affected demand distribute distribution destocking a little bit relative to just the overall economic cycle.
So could you just help us understand how that business performed and you know I guess, maybe relative to your expectations.
Yes, Joe This is James I think you feel a lot of the key points that are pretty well in summarizing it actually so very specifically the h. HVAC ours piece within industrial products was down about 1 million three that was offset by about the same increase on architecturally specified so with the other businesses being down just a little Thats why you saw just a 3% decrease.
As you recall on the May Twentyth earnings call, we talked about us seeing distributors down 20% plus and at that point, that's about what we were seeing things a little bit worse than that so the fact that that business was only down 3% for the whole segment and HVAC only down little over a million dollars that tells you. We really saw recovery late in May and then, especially.
Through June we continue to see that in July. We've obviously now wrapped up July we continued to see that momentum I think you hit on some of it clearly as people got through the quarter a lot of that's a residential business number one more people staying home or people got confidence there we're going to be at home for a while and certainly as you said got more comfortable people coming.
The into their homes for repairs that certainly helps pickup business, we've seen a bit of a de stocking and we started to see restocking as the folks on the trucks needed to hit their distributors and Thats, who we sell to they had to be sure. They have the product. They needed. So we saw a lot of orders for that restocking, which when we talked in May we weren't sure when that was coming and then lastly, Joe mentioned above.
Roughly in his remarks, the cooling degree days were up quite a bit year over year and even above normal so on top of people being home more and it simply being hotter not just in certain geographical areas, but pretty much nationwide that led to a very good end of May very strong June and again in July.
Okay, Yeah, I was going to follow up actually there and just everything that we've heard is whether its retrofit or construction and I know.
Like 80% of the business there is sort of retrofit.
It seems like any company or any business associated with that is performing extremely well. So it sounds like June July have bounced back pretty strong sorta.
In line with other companies that are associated with housing retrofit.
Yes, I think this is James I think where we are certainly seeing that and I'll also.
Tell you what a good job our teams out in the field, we're doing with the employee base that we kept on that's really proved to be a strong strategy for us to be sure. We can meet that demand when it came back. So quickly we had the people in place in fact, we've had to higher up a little bit on the shipping side and you expect business specifically at our facilities to be sure we could get the product out the door that our distributors needed. So we didn't lose those sales.
So I think we're clearly seeing what you're seeing as you pointed out ours in as much directly to the Oems, which are a lot of the competitors you see out there for that type of industry data, but we're absolutely seeing that strong pickup and again, our team's doing a great job of meeting that demand to understand what customers need and that again, we tried to foretell some of the inventory build.
The up that we might continue to do strategically to be sure the supply chains as strong as they are right now we've got the product we needs. We can continue to meet the demand.
Okay and last question for me I'll, let someone else have a chance is regarding costs and sort of cost management through the this time period.
Specifically at the specialty chemicals segment have you reduce any costs either permanently or temporary or how are you managing your cost, especially at that specialty.
Comical segment that we're seeing a pretty severe downturn and it seems like.
It sounds like we Havent seen.
Any any sort of rebound quite yet.
Sure. Joe This is James again, as we said, it's a volume driven business as our reminded you a minute ago. We did maintain the full time employment in light of the pandemic. We've not had pandemic related reductions we have let attrition kind of take care of some employment numbers, having a little bit of over employment potentially so as you just have norm.
People leave the company performance issues, we havent necessarily backfill some of those people the specialty chemicals businesses more full time employment business, the industrial products as a little more of the temporary type labor, so thats able to be a little more variable. So you've had a little bit of headwind on that employment side and specialty chemicals was tribes that margin we have however.
Over though across the company, but a specialty chemicals, certainly see enroll strong cost management, obviously things I travel have come down use of consultants have come down anything discretionary the teams across the company I think have done a really good job continue to challenge them shell themselves to fund cost reduction so as specialty chemicals, you've seen it you obvious.
We had some margin of profit degradation with the low volumes as I mentioned, we did build up some inventory. So we had the employment base and so we've built up inventory that helps your absorption to some degree we slowed that down a bit in June. So we built up the inventory, but the revenues didn't quite follow and we look for them potentially in Q2 to really start reducing that inventory in July and into.
I guess in September so specifically to answer your question I would say the team is doing a great job of finding ways to reduce cost, but again it was.
In this company wide decision, we made to maintain that employment base.
In serving our are treating our employees very well, we feel strongly about that and it's a bit of a headwind, but we're certainly seeing in a couple of the other spaces within industrial products. That's turned out to be a very good decision that we were able to make companywide.
Okay, great well, thanks for taking my questions. Good luck.
Thanks, Joe.
Once again, if you would like to ask a question press star one on your telephone keypad when moment, while we we pulled for any additional questions.
Thank you. Our next question is a follow up from Joe Mondillo with Sidoti. Please proceed with your question.
Alright, well I have a couple of other questions that I wanted to that so thanks.
As far as the architectural specialty specified.
Buildings products business.
Could you help us understand what you saw what you're seeing in terms of bookings what the trends are.
Our new bookings down year over year, how how much just help us understand what youre seeing in that business.
Sure Joe its James Yeah, we talked about the back half of the you're seeing some softness in our fiscal year.
The team has done a really good job they've been able to finish up projects that were already on the books in the backlog and as we mentioned that speaks of the quality of the backlog. This projects got done some even moved up in the calendar is.
Project managers and contractors wanted to be sure. They got projects done before that potentially had any shutdowns construction has remained an essential business virtually everywhere. So they've been able to get those done we continue to see a good number of bids for product for projects that are out there. Some have turned into bookings a lot of those are even into next fiscal year just.
Given the time it takes the lead time for our products to go into a brand new project, that's not yet coming out of the ground. So we are seeing some bookings, but not a lot of that creates into this fiscal year yet what the team has done a good job of is finding the shorter term projects. Some of those renovations. The does work ups, obviously you see.
Some buildings that aren't as crowded right now population was and so a lot of a lot of buildings are coming into the space and doing some of those renovations right now, but it had to make those decisions quickly. So that helped us get through the quarter pretty smoothly, but the bookings I would say are certainly down a lot of bidding activity a lot of dialog, but bookings are down right now for.
That would fall into this fiscal year and that speaks to some of the back half, especially Q4 calendar first year softness.
And when you look over I know you know three four months is not it.
Doesn't paint the huge picture, but.
How did in terms of that booking flow did anything did it just sort of fall off in April and just sort of.
So they sort of flatline throughout the next handful of months or was there anything any sort of trends in there that give you a positive or negative.
Indication of how things are going to play out.
No I Wouldnt say things changed a whole lot during the quarter, we talked in May that we've seen a lot of buildings and not much bookings, we continue to say it and again thats not to say, we havent picked up some bookings some for short term project. Some for projects that are out there are ways. We're very aware of a lot of projects that are underway that folks want to get nailed down but with the uncertainty out there.
I think in some geographic areas specifically, they just haven't turned into that so I wouldn't say the trend is changed much is not an overly pessimistic view. It just hasn't turned that optimism quite yet and Joe. This is this is Joe I would say that specifically is an area, where we've been able to pick up market share where our competitors have stumbled and so again.
Our financial strength, our strong execution by our team has put us in a position to win business there literally from compact directly from competitors, who are having problem.
Having problems completing projects getting.
Folks on the job that type of thing and so.
We're seeing some some uptick there which makes us a little more optimistic about the future as well we do feel like we're we're gaining some share there being able to prove ourselves as.
Fantastic.
Provider of these important products and services.
And.
Also to follow up there.
I guess.
A couple of things.
So like you said construction is a has been ongoing throughout this downturn. So I think what's a lot of people are a little concerned over than I'm sure. You're looking at is that backlog are being bring down and as the bookings bookings just aren't replenishing that backlog. So number one I know you had a pretty good backlog heading in.
To.
The calendar year lease.
So where are you with the backlog because.
The stronger that as you can win.
Maybe whether some of the slowness in them and the bookings.
And then number two could you help us understand.
The breakout of kind of buildings that you're selling into I think people are certainly concern of.
Retail office and hotels.
So just give us an idea sort of the breakout that general business.
Yes. This is James was that a lot of detail as the standard type of things that we're looking at the more hospitals universities. Those type things not is focused on the office building type of things, we do some re facing of.
Multifamily high rises those type things as well so again, we're seeing some of that renovation work has just said we're picking up some work from some of the competitors that aren't able to to maintain their labor force aren't able to have the financial wherewithal that we do given the strong balance sheet. So not much has really changed in that respect in terms of the backlog you kind of.
Look at it we kind of look at a trailing two year book to Bill It still remains above one but obviously this last quarter you saw some pull down of that backlog, it's still healthy it still out there is still good it's still high quality.
Still has good profitability in it but we've not seen a lot of addition to that per se that's kept up with the.
The the backlog itself in that respect so yes, but again, we kind of looked at that trailing two year because it to you to look at a quarter to quarter type backlog in that business for these big projects is difficult. We've continued to take some orders it just hadn't quite kept up but again optimisms always out there.
But we're being careful about the projects, we bid on and really been aggressive on talking to folks at least getting in the bid process.
Okay.
Just a I would've thought smoke guard or would have a decent amount of office exposure, but you're saying overall not a whole lot of office just overall.
Felt smoke guard does but you've got smoke balco and Greco. So you think about Greco as being a lot of high rise residential and in this institutional business of hospitals universities that type of thing.
Balco is going to be larger.
More institutional airports.
The warehouse that type of product type and then smoke guard will have a combination of anything with an elevator, which does include a fair amount of office, but again, it's only a part of that business and that's life safety Theres, a recurring revenue piece that smoke guard.
That's that's a little less discretionary spending if you will.
Okay last question for me just on M&A.
What does the environment like for you and.
This downturn and especially at this point in time, where at least the overall economy has maybe.
Someone.
Stabilize a little bit.
Following a sharp falloff in April.
What are your.
What are you seeing your thoughts on M&A.
In the next six to 12 months.
Yes. Those are great question I think we're much more.
In a better position today than we were the last time, we had a quarterly call like this to make decisions around that we've got better visibility.
We think we've got.
Idea of our businesses are responding and so I.
I think the M&A pipeline is strong we have.
Strong desire to grow Inorganically.
We have not seen dramatic decreases in valuations.
I, just think debt, so cheap and available that.
That has been less of an issue and we're not really looking for distressed companies, we'd like to by healthy companies at a fair price but.
But we think we think the opportunities are there and we think the environment as better today than it was the last time, we spoke in may because of a little better visibility at our willingness to commit capital is higher today than it was.
Fixed rate weeks ago, and so we're optimistic on that front and feel like.
Yes, the opportunities in front of us a pretty attractive.
Okay, well great. Thanks for taking my follow up question again, good luck with.
Thanks, Joe.
Our next question comes from the line of.
Jon Tanwanteng with CJS Securities. Please proceed with your question.
Hey, good morning, guys, great quarter, and thanks for taking my questions.
Thanks, John.
Just wanted a little more color on some specific segments and then because the outlook going forward.
First off I think you mentioned the July was going strong few especially in the truck segment not surprising given that theres been he was across the country people testing more doors I would expect.
Due to the pandemic can you just talk about run rates in July.
On a year over year base number one and number two inventory distribution, we've seen reports a stock outs in a lot of a lot of air conditioning service providers and I'm wondering how that fits with what you're seeing a as your distributors and if there could be a restocking telling long into the future.
Yes. This is Joe I'll take the second part of the question what James not address the first part.
We.
We've had some very small spotty.
Outages, both from distributor side and with us, but demand is very very strong as we said we had to add additional personnel in shipping.
In order to meet customer demand and so.
That is a great indication of the kind of strength that we're seeing in June and July in that business and we're very very very pleased with that and our teams have done a great job and executing and making sure that our customers are have what they have what they need I don't think we're going to be able to talk about year over year, but.
James what kind of color do you want to give yes. John good morning. This is James yet hard to go a lot of call or other than July was was very good for us and HVAC plumbing spaces specifically.
The other businesses continued to see roughly the same type things we ended the quarter, but we've just started to see what July look like on a month and basis and we talked about April was kind of our low point our trough in May got better June got better in July continue to look at June in that space. So.
Won't provide that specific color here in the middle the quarter, we'll be able to kind of do a quarter look back at the end, but continued to see very strong demand for those products and again.
Can't emphasize enough how strong the team has performed and getting that.
The supply chain in the products in the door and getting the processed and really working to as I've mentioned, even increase our shipping.
Employment base to be sure that we get it out the door to as you said keep those distributors of stocked up as they want to be but they continue to have demand. So thats, a very favorable sign for us as we head into August.
Got it that's helpful. And then just from an overall consolidated perspective, Joe you mentioned that you expect the first has to be down slightly versus on last year.
Given the strength that you're seeing in each back and maybe call. It at a steady run rate in the rest of the business.
Within your range of possible outcomes that the second quarter is up year over year.
It just doing the math.
Yes. This is James yet.
I will correct or confirm your math from that standpoint, we always certainly push ourselves to do better each month that we did before look at quarter over quarter. When we talk about the slightly below I think you're looking at it relatively correct. When we see how weak April in the first half of May was and so we saw it really pick up the back half of the quarter really the last five or six week.
Thanks, and we're continuing to see that again, we continue to highlight that age HVAC and plumbing space, where we're seeing the strength of you're still seeing things down a bit in some of those heavier industrial businesses as Joe talked about earlier, we mentioned in our remarks and in the 10-Q. So again, we'll confirm exactly where it looks like quarter over quarter, but that word slightly is very key.
Carefully used.
In terms of what we're seeing year over year at this point as we try to look at a forecast and such uncertain times and then John you know our business very well with that I'll remind you and everyone that Q3, our fiscal Q3 is typically seasonally.
The lowest and so.
That.
That plays into there are thinking of the back half of the year as well a lot of seasonality there.
Got it Okay I'm just wanted to get a little bit more color on the M&A front, you sounded pretty positive on the opportunity set improving.
Parents as the last time, we reported you have a lot of slides in your presentation dedicated to M&A.
But you didn't go over.
Maybe just to specific questions are you see more opportunities now in terms of number of available targets.
And number two is your ability to diligence diligence improved versus two or three months ago.
In terms of travel and.
You traveling or target traveling and being able to see what's under the hood.
Just any more color on those two.
Specific topics.
Yes, I know, it's a great question, John I think.
The good news is that we use the time during this pause that we had kind of in.
March April may timeframe to continue our work and so continue to fill the pipeline continue to communicate very very intentionally with a potential targets and also to continue our work in the diligence side of things and so.
Things that take longer because of lack of of travel and other things, where we were able to get a lot done during that period of time, So we're adapting to.
New processes with respect to diligence.
And travel is certainly still very very limited at this point for us, but we are very pleased with the the opportunity set in front of US I would say the opportunity set in front of us is as good or better than it's been up but our willingness to transact our ability to get comfortable with.
Looking out into the next few years and making the kind of projections estimates that we need to make in order to.
Convinced ourselves that it's appropriate to allocate capital has really been a question of timing evaluation. It feels like those those things are coming together nicely now and so we're positive about the opportunities in front of us.
Got it okay.
Okay, and just switching over to architectural I know it seems implied that the book to Bill was below one this quarter I know that business is lumpy do you see any future quarter at this point in the game, where either the order rates increase or maybe you have to restructure that business as well for a lower expected run rate as you know.
People need to get more skittish around investing in real estate.
Yes. This is James that's a good question I don't think we'd look out and see which quarter, we're going to see order activity pick up. The good thing is as I mentioned, we continue to have a lot of dialogue with US project managers and contractors, we know the projects or or on paper and being talked about.
We mentioned briefly in Joe's remarks, we've done a lot of training in that business, specifically with some of the contractors and experts out in the field they need it for their continuing education and it gives us an opportunity to educate them on our product. So there's still a lot of people wanting to see what's out there the newest innovations the most reliable products and so we're having a lot of contact with us folks.
I don't think to your point, we need to necessarily reset expectations or restructured the business, we've got great leadership in that business.
The joined to several months ago is looking over those building safety systems businesses and so we're very pleased with the opportunities in front of us and the operations that we have we've just got to go out and see these projects turn into orders and see that book to Bill rise above one again again, one quarter doesn't make a trend, but they're holding our own and doing well, but it's probably not.
Next fiscal year before we really see that pop Joe talked about the back half being more seasonal for us, especially in the third quarter and we continue to remind you that when we talk about revenue and earnings bidding moderately lower in the back half some of that is looking out in the third and even fourth quarter in that business, specifically and seeing some softness based on the.
Bookings.
Got it thanks for the color guys and again very nice quarter.
Thanks, John.
We have reached the end of the question and answer session. Ms. Dawn I would now like to turn the floor back over to you for closing comments.
Great I just want to say thank you very much really appreciate everyone's.
Interest and participation in the call today and look forward to talking to again next quarter. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.