Q2 2021 GMS Inc Earnings Call

Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn this conference over to your host Ms. Leslie Kratcoski Vice President of Investor Relations. Please go ahead.

Thanks, Laura good morning, and thank you for joining us for the Gms, earning conference call for the second quarter of fiscal 2021.

I'm joined today by John Turner, President and Chief Executive Officer, and Scott Deakin, Vice President and Chief Financial Officer. In addition to the press release issued this morning, we posted presentation slides to accompany this call in the investors section on our website at Gms Dot com.

On today's call management's prepared remarks on answers to your questions may contain forward looking statements.

Outlined in the private Securities Litigation Reform Act of 1995.

Forward looking statements address matters that are subject to risks and uncertainties many of which are beyond our control and may cause actual results to differ from those discussed a day.

As a reminder, forward looking statements represent management's current estimates and expectations. The company assumes no obligation to update any forward looking statements in the future listeners are encouraged to review the more detailed discussions related to these forward looking statements contained on the Companys filings with the FTC, including the risk factor section on.

The company's 10-K and other periodic reports on today's presentation also includes a discussion of certain non-GAAP measures. The definitions and reconciliation of these non-GAAP measures are provided on the press release on presentation slides.

Please note that references on this call for the second quarter of fiscal 2021 relates to the quarter ended October 30, Onest 2020.

Finally, once we begin the question and answer session on the call in the interest of time, we kindly request that you limit yourself to one question and one follow up with that I'd now like to turn the call over to John Turner G.

Roughly.

Good morning, and thank you for joining us today.

All of us at Gms hope everyone. Joining this call as well as your families and colleagues are safe and well.

I'll start with a review of our operating highlights and then turn it over to Scott who will cover our financial results. I'll then share some closing thoughts before taking your questions.

Starting on slide three.

Outstanding execution by our team enabled us to achieve solid second quarter results.

Well the overall operating environment remains challenging throughout the period, particularly with respect to commercial construction, we realized benefits from the strong residential market and a progressively improving environment in Canada.

Net sales and organic net sales on a per day basis declined, 4.2% and 5% respectively year over year exceeding our previous expectations.

As anticipated our gross margin of 32.6% was lower than the second quarter record of 33% last year. However.

However, it increased 10 basis points sequentially, indicating continued discipline on both the demand and supply sides of our business amid the tight competitive environment.

Controlled alignment of our cost structure to current demand enabled us to improve SGN eight and adjusted EPS DNA as a percentage of sales while ensuring a continued relentless focus on serving our customers.

As a result, adjusted EBITDA margin of 10.2% Mark.

Marks the second consecutive quarter of exceeding 10% in a very tough market with decremental adjusted EBITDA within the outlook range provided on our first quarter call.

We generated positive free cash flow and our balance sheet and liquidity position provide us with exceptional financial flexibility.

On the health and safety front, we maintain enhanced operating protocols in compliance with public health requirements recommendations and guidelines aimed at reducing the spread of COVID-19, and the health and safety of our employees business partners and communities remains our top priority.

Considering the environment in which we're operating we continue to perform very well on the second quarter. My congratulations and thanks go out from the entire Gms team, who made these results possible remaining engaged focused and proactive as we come together in support of our customers and each other.

At the same time, we offer our gratitude for the continued partnership we share with both our customers and suppliers.

With that I'll now turn it over to Scott to provide more perspective on our financial results for the second quarter Scott.

Thanks, Jackie good morning.

Looking at slide four net sales totaled $812.9 million down 5.7% year over year.

Continued COVID-19 market pressures on the U.S. were partially offset by higher sales from Canada.

Overall organic net sales declined 6.4%.

With one less selling day year over year daily net sales and organic net sales were down 4.2% and 5% respectively.

Relative to an all time quarterly record in the second quarter of last year. The team's continued ability to reposition and realign resources to capture demand where does the strongest allowed us to exceed our previous expectations.

Wallboard sales of $330.5 million decreased 5.7% or 6% on an organic basis.

Principally due to a decline in mix driven by a shift to a greater waiting on the residential wallboard.

Price declined marginally down less than 1%.

On a per day basis wallboard net sales were down 4.3% with volumes declining only about 1%.

Feeling sales of $111.3 million decreased 9.4% year over year virtually the same on an organic basis, driven by lower volume per.

Partially offset by higher price and mix.

Daily net sales of ceilings were down 8% year over year.

Steel framing sales of $111.3 million decreased 18.3% again, roughly the same organically year over year due to declines on volumes and price.

On a per day basis net sales declined 17%.

Year over year sales declines were more pronounced on ceilings from steel product categories tied primarily to commercial construction.

Which remained challenged during the quarter.

Residential activity on the other hand was very strong up both year over year and sequentially.

Our complementary other product sales of $259.8 million increased 2.9% or 1.2% on an organic basis due.

Due to positive contributions from acquisitions execution of our strategic growth initiatives as well as organic growth and favorable pricing in Canada.

Daily net sales of other products were up 4.5%.

Gross profit.

Profit of $265.1 million decrease 6.8 per cent compared to the second quarter fiscal 2020, primarily due to the lower sales.

Gross margin was 32.6% as expected declined 40 basis points year over year, principally due to challenging mix dynamics again, particularly in the commercial segment.

Turning to slide five.

Adjusted EPS DNA expense as a percentage of net sales of 22.5% improved 20 basis points. Despite a 40 basis point headwind from deflationary price from unfavorable mix from packs with certain products, notably steel on wallboard.

Approximately 60 basis points of improvement was realized as a direct result from the continuing measures to align the company's cost structure with the current demand environment as well as favorable business mix towards single family residential with respect to operating costs.

As a result second quarter, adjusted EBITDA of $82.5 million compared to a record $89.9 million a year ago.

Adjusted EBITDA margin of 10.2% declined only 20 basis points year over year and represented a 15% decremental adjusted EBITDA margin the.

The midpoint of the outlook range of 10% to 20% provided on our first quarter call.

All considered we are pleased that our execution on the second quarter again, just generated an adjusted EBITDA margin in excess of 10%.

Despite the market related declines sales.

Turning to slide six we generated free cash flow of $32.7 million or 40% of adjusted EBITDA in the second quarter.

This was lower year over year due to changes in net working capital driven by opportunistic inventory build in advance of manufacturer price increases and related timing of cash flows associated with certain purchase and incentive programs.

We continue to generate healthy free cash flow in this environment and expect to do so in the second half of this year.

Capital expenditures of $7.1 million were down $1.6 million year over year. Nevertheless.

We maintain our estimate for cash capital expenditures in fiscal 2021 of approximately $25 million.

As of October 30, Onest 2020, we had cash on hand of $118.2 million and $415.4 million of available liquidity under our revolving credit facilities.

During the second quarter, we reduced our net debt by $27 million and net debt leverage was 3.0 times as of the end of the quarter equal to that at the end of the first quarter of fiscal 2021 and down from the 3.5 times as of the end of the second quarter fiscal 2020.

Our balance sheet remains healthy and as an indication of the overall stability of our capital structure. We were pleased to receive an upgrade of our debt ratings from Moody's in October.

As a reminder, the large majority of our debt is not due until 2025.

Now, let me turn the call back over to J.T. before we open the line for questions. Thank.

Thanks Scott.

Turning to slide seven.

While we continue to carefully monitor and address market developments, we remain committed to our strategic growth priorities. These four initiatives and our Q2 progress are as follows.

First expanding share in core products, particularly in geographies, where we are underpenetrated.

In ceilings, we believe we are expanding share in both the mineral fiber and architectural specialty segments of the market as evidenced by our sales levels compared to available market data.

Also our focus over the past year on increasing our penetration in residential construction in geographies, where we have historically been underrepresented has enabled us to capture demand more effectively in this strong end market.

Next to diversify and profitably expand our product offering we are focused on growing select other product opportunities outside of core products success on this front stems from multiple initiatives in both the USA and Canada, resulting in higher year over year growth in this category for the second quarter in a row, despite the difficult market.

One example is one of our regions early success in expanding its offering of waterproofing products in response to customer demand.

While we are in early innings, we are beginning to extend this initiative to other regions through sharing of best practices and leveraging capabilities across our platform.

Third we're developing our platform through accretive acquisition and greenfield opportunities, while maintaining balance progress in debt reduction.

We opened a new greenfield location in Hillsboro, Oregon in the second quarter and are actively working a robust acquisition pipeline.

At the same time, we reduced our net debt by almost $30 million.

And finally, so that we deliver a best in class customer experience as well as drive productivity and further profit improvement, we're leveraging our scale and employing technology and best practices deployment of our ecommerce platform progressive.

Key adoption metrics, including quoting customer account activation and online payments increasing.

Cross our operations.

Near term execution of these strategies equips us with not only meaningful scale and technology advantages, but with balance product geographic and end market portfolios all of which are serving to enhance our performance in this current environment.

At the same time these strategic growth priorities guide, our long term management of a very attractive business with significant long term growth potential.

And finally, turning to slide eight.

As we look ahead expected continued strength in residential construction is well documented with strong housing data coupled with robust order growth and positive commentary from homebuilders commercial construction remains challenged although more recent forecasts, while still projecting declines are more favorable than previous estimates on.

Ultimately, we believe the actual on near term trajectory for commercial will depend largely on developments in addressing COVID-19, and the impact on the broader economy.

For our fiscal third quarter, we currently expect to generate a year over year sales decline, which will be slightly improved from the 5.7 per cent or 4.2% on a per day basis realized in the second quarter.

As was the case in Q2. There is also one less selling day in Q3 of this year versus last year in.

In terms of profitability, we anticipate gross margin on third quarter to be similar to that generated on the first half of this fiscal year, which will be lower than the 33.3% realized in Q3 of last year.

As a result, we currently expect to generate a decremental adjusted EBITDA margin.

In the range of 10% to 20% for the third quarter fiscal 2021.

As we conclude our focus remains on controlling what we can we have taken and intend to continue to take the necessary actions to optimize our operations and align our business with demand I am confident in our team's ability to continue to leverage opportunities address challenges and execute on our strategic plan to ensure the gms.

On the remains well positioned to generate value for our shareholders.

Operator, we're now ready to open the call for questions.

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While we pull for questions.

Our first question comes on the line of Mike Dahl with RBC capital markets May proceed with your question.

Hi, Thanks for taking my questions on.

Wanted to start out just.

On the kind of third quarter commentary.

Yes, maybe it will be helpful. If you could give us some perspective on how monthly trends progressed.

True your second quarter.

Trends in November and the second part of that question, Yes, I think we can get a sense of resi vs. Nonresi by looking at some of your commercial oriented segments, but could you just help break out for US you know what your book what you think your overall revenue sales did vs.

Commercial on a year on year basis. Thanks.

I'll take the first part of your questions. It takes some follow up on the second part.

Trends progressed slowly for the quarter were positive.

Every month over the course of the quarter on a year over year basis improved.

On to extend that into on November as well so really for the last four months, we've been improving year over year every month.

And as we talked about previously I think that it's coming to pass on that is that residential is strengthening and each month as we go forward. We are beginning to ship the starts from three to six months it in previous.

Previous announcements.

Commercial however, as also continue to decline at fairly significant rate and while it feels like that rate of decline is flattening.

We haven't completely seen that yet and so I think that our idea in the third quarter of being slightly better than we were in the second quarter is simply the reality of residential continuing to strengthen and commercial not getting.

A lot worse and that will give you the net net of our 55 commercial 45 residential kind of gets you to the number.

Little bit better than we did on the in the second quarter.

Okay. Thanks, that's helpful. The second question, just as a follow up to residential and specifically I guess on.

Wallboard.

This is clearly across the industry, you're seeing us share in terms of.

Distribution focus on capturing the residential demand allocating.

Efforts to do so.

More than probably in the past.

There's clearly a strong backdrop for residential centers.

This may be enough to go around but from a competitive standpoint.

Have you seen any major shifts.

In terms on the competitive dynamics and how are you thinking about kind of pricing going forward.

Why the good news for US is that we started from a more balanced position than some of our competitors.

But also you know we've been talking for 18 months and probably getting tired of hearing me talking about it but the reality is one of those strategic pillars is to gain share in you know on.

Core categories, and we recognize well before the pandemic and well before this true dramatic.

Dramatic market shift that we had some opportunity in residential so I think we have a little bit of a head start there.

Than some of our competitors for sure and and interest.

Actual those those discussions aren't aren't happening every single solitary day with major builders right. There's only a few times during the year when you're having those discussions we are able to secure that business with the bigger builds now with smaller builders on the contractor control business sure. That's a day day by day effort.

The thing I think we have an advantage is just we have the ability to service the entire product mix that all of those contractors and or builders need and we have the ability to do that in every market and there's there's you know we also have the scale of our ability to handle the inventory and we have the ability to get the inventory from the suppliers based upon being for the most part the largest player in.

Space. So I think we offer a lot of advantages that maybe some of our competitors don't.

All that being said price is is an issue and residential board is the most commoditized board out there in the market.

We're we're capable of providing.

Just about.

Any price that is reasonable with our excellence on the operating side, we can make money. So I think we can be very competitive where we need to be on.

On the other hand, maybe we're getting into an environment, where there is some inflationary pricing and that will again, we could think that benefits us even more than than the balance of our competitive space.

Okay. Thanks, Scott Good luck Gore.

Thank you. Thank you.

Our next question comes from the line of Kevin.

Kevin Hocevar with Northcoast Research you May proceed with your question.

Hey, good morning, everybody.

Kevin on the on that last point, there is a wallboard price increase your from what was it mid to late October early November. So curious if you can comment on your expectations, if you're seeing that Holden and secondly, I know one of the manufacturers announced on January increase so curious if youve seen anybody else follow and if you think that the market is.

Able to accept another price increase.

In that timeframe.

Well, we're right in the middle of what I would say is the.

Execution phase of any kind of increases in whats going to older non hole from the October.

The October piece were certainly below.

Believing that the demand picture may shape up such that it does make sense to have some pricing in the market, it's not that way, yet, but I think it could be.

On relatively near term and as we've said before you know price.

Better price is prices are better for everybody quite frankly, they are better for the entire supply chain.

And so hopefully.

Calmer heads prevail and maybe some of that some of that comes to fruition as far as one on top of the other day.

I think all of the building products spaces in the middle of hearing and seeing price increases and how much of that is going to stick and how many are going to it's going to come into the market I don't know.

You know I think between October and January there should be some degree of those two that sticks you would think right now, but again, it's really really early in that game and.

We probably won't won't really know until we get well into this quarter and maybe even into the next one to see.

What's what's shaping up.

Okay and then on.

Steel prices have really moved up the past few months.

And it seems kind of unique in that you know obviously the steel side of the business it is softer and.

The the commodity has gone up quite a bit. So curious does that have any impact you know the weekend markets does that have any impact on your ability to push through the steel pricing there.

Or is it just you know since steel prices are so well known it's easy to pass that through.

Our list of the demand environment.

With that type of inflation, how do you how does that typically impact it.

A timing.

The the Inc.

The magnitude of increases we've seen that is there a timing impact where maybe there could be a gross margin hit.

You know as you try to push those prices through just kind of curious your thoughts on the impact to the business from the rising steel prices.

Well sequentially, we saw very very slight increases in our pricing.

We didnt see dramatics, what we call the squeeze.

Internally here, right, which is true you're kind of alluding to there.

Steel generally speaking, we're going to quote what we're buying we're going to buy it out fair.

Fairly quick were going to try to work.

If we have longer projects were going to put escalators on those longer projects and then we are really buying out the big projects really close to the time in which we ship them, there's a lot of back and forth there.

Stocks steel prices you know if we pay more we raise price and that's your stock steel price right and then sure there's still day to day negotiation on.

On that front, but you are correct that when you're looking at a market that's down significant double digits.

That puts some extra some extra pressure on the price I certainly would prefer to be on the other environment with rising commodity price and rising demand then I think we pass it right true but it.

It's a it's a negotiation there's no question, but I don't think you can see it on our gross margins right I think our gross margins are pretty good I think the discipline on the business is good and we're earning we're earning the pricing by being by being the best interest based on the service perspective.

I'll just add it's a very fragmented supply base too. So all of our purchasers are very localized on a lot of time relationships with the suppliers that were working with to make sure we manage tightly.

Okay, great. Thank you very much.

Our next question comes from the line of the day.

EBIT Massey with Baird. You May proceed with your question.

Thank you good morning, everyone.

Hi, David Let me approach, yes, good morning.

Hopefully I can approach the wallboard price in question from another angle.

Jay team recently noted that the wallboard production capacity is something like 10% higher than current demand and I'm just wondering maybe from a historical perspective.

As the company been able to achieve positive pricing with this type of cash.

Passenger versus demand GAAP.

Hi, this is as tight as I've seen it and I of course I've only been here about 18 months. So if you go back in history, I think when capacity tightens.

On demand is increasing.

There has been successful.

Periods of time in which pricing has gone up so I don't expect it to be any different I. Just don't think were kind of value. We're not we may be at an inflection point right now it feels maybe like that but we won't know for sure. If this is the actual inflection point until.

Until we get into next year, one I think we have to confirm the demand right. I think we have to confirm that the residential is going to continued growth. The rate is currently growing because we know commercial is not going to be very good for a period of time still I mean, that's that's obvious based on starts in the eye and everything else. So what we don't know is residential are we going to continue to have these great starts numbers every.

A month throughout the winter.

On into the spring and is demand going to continue as kind of stimulus weighted wears off et cetera on the economy. So that side is still I guess, what I would call the unknown, but if all of that comes together from a demand picture.

Against the environment, where Theres 10, 15% capacity.

Left to be filled I think you're getting tight enough there to where it just makes sense that the whole industry should go up.

Okay. Thank you for that and the second question could you give us sort of a longer term perspective on contribution margins during a recovery.

Yes, as I'm looking at the model and thinking about the moving pieces here that there's probably.

A slight downward bias to gross margin given that.

Hovering you'd see steel on ceilings and things growing faster any.

And any thoughts as it relates to either the gross margin again, one two years, plus and that contribution margins on a recovery.

Yeah, Let me, let me flip the script a little bit on the question I don't know what the gross margin may or may not do in a recovery, but I can tell you that in the early stages of a recovery growing off of a lower cost base and the discipline nature of our team I would expect us to not add cost until we are confident that were in that.

Growth phase right. So we should get some leveraging in the beginning phases of any recovery.

For sure now what happens on the gross margin side I don't really know Scott any perspective.

Look at the past history, I think if you look at.

Pretty good series of quarters income in the past history, our gross margin differential from quarter to quarter of that kind of period doesn't move all that much. So.

That's the business. We're in is really making sure we're aligning supply with demand trends and maintain that spread as tightly as possible regardless of the cycle. So.

We do that that said is we'll continue to guide our business is based on EBITDA to try to make sure. We aligned the operational side of the house with the gross margin zone will continue to do that as well on I guess, what we just continue to guide you to is that sort of 10% to 20% kind of incremental EBITDA.

Margin decremental kind of rate debt.

Taking GTS points in terms of how we'll manage the cost structure on the upside we're kind of we will try to maintain that as well so.

That's the best guidance, we can give you at this point as we deal with the cycle on as we deal with mixed dynamics.

On this in this market.

That's helpful. Thanks for the color.

Our next question comes from the line of Keith Hughes, That's true Securities. You May proceed with your question.

Thank you.

Now looking for the next quarter or two given particularly inflation coming on wallboard do you anticipate some of the gross margin pressure that you discussed for the quarter on the quarter is that coming from the kind of lag as you push through wallboard increases on on to your customers.

There is a little bit of lag obviously.

In there as well there is also the mixed shift dynamic that were in residential board has a little bit lower gross margin rate, but we've talked in the past from the operating margins being similar.

Between the residential and commercial.

But on the pure gross margin side, there is a little bit of a mix. There's there's always a little bit of lag and then the.

But again, we're acutely I mean, we're looking at it tracking it following it talking about it every single week with our operators.

You know out there trying to lead in this space and continue to deliver exceptional service.

And earn a little bit of a premium and I think that in times like this we're we're in decent position to do that.

And just add if and when we talk about pressure again, please keep in mind that Q2, and Q3 last year were particularly strong.

So if you look at it on on sequential basis, we're really expecting to do pretty similar in Q3 versus what we did in Q2, and we recognize going into Q2 Q3 that they would be tired or not so much because of the market, although that's a factor but really it.

A tougher compare versus prior year.

Okay.

And switching to the other products the system had really nice growth on a tough tough environment in particular, the last couple quarters can.

Can you kind of rank order at this point what.

What are the largest products you sell in that segment.

[noise] installation is the largest primarily commercial insulation, but we have a nice residential insulation business also with the with what I would call eight.

For the market in Canada pretty good pretty good share of that business in Canada.

So we have insulation is our number one product category.

After installation.

Kind of goes down into some of the related products with wallboard, you end up with joint treatment and in fasteners things like that but lumber is becoming more and more important to us and there is major focus across the business and on lumber most of our lumber spire treated lumber and on lumber used in in commercial construction non traditional residential lumber packages or.

Trusses or anything like that.

Things that our customers have to buy so we.

We've moved that direction, and then you get down into tools and you get into stucco and EPS.

Which is a continuing focus for us predominantly through the south.

We're stuck on EPS is used more but and you heard me talk about waterproofing brand, new but I do think the exterior envelope something.

That we will be successful out over time and it's it's in its infancy, but I think the signs are we can be we can be good that as well.

And how did Canada day versus the average revenue change on a quarter.

[noise], Canada was a source of strength for US I think we've got those within the footnotes of the Q, but.

Canada is up about 9.3% and relative to the us being down.

Roughly.

Okay. Thank you.

Thank you.

Our next question comes from the line.

Matthew Bouley with Barclays. You May proceed with your question.

Good morning, Thanks for taking the question.

One more on wallboard price you talked about building inventory ahead of the manufacturer price increases was that was that a pre buy ahead of the October price increase or the January price or both.

And does it kind of signal that you do have a stronger view about the market is accepting price this year relative to the past couple of years.

Let me answer the first have your question, it's really both.

Also we're big believers in servicing our business. So inventory is important and in any event theres any tightness anywhere we want to make sure. We've got the inventory, but two I don't think it signals much much in the reality as we turn net inventory 13 times so.

We're buying now we don't think price is going down. So the reality is we can buy a little bit now and if they do go up then we're in good shape. They don't go up doesn't matter, we sell our inventory.

So I wouldn't read too much into it other than we just think it's smart to put a little bit of cash over there again it doesn't age out you don't have a.

You know, it's a situation, where we don't sell that inventory and turn it back into cash very very quickly if we need to so I think that we're just being prudent.

Okay got it second one on back on commercial construction.

Jay you talked about.

On a signs of stabilization at lower levels I don't want to put words in your mouth, but.

I'm wondering.

With Ah if.

Your own customers, if you're kind of seeing this sort of signs of life in the forward looking indicators that you have whether its quoting new jobs.

You know what if.

If there's any specific verticals or regions that you think may be you know kind of inflecting in the near term. Thank you.

Well I mean, we're quoting at lower levels right, but it's stable and that's really the message across the board and that makes sense to all of the macro indicators that are out there. So our pipeline reflects what I think are the macro indicators are quoting is reflecting the macro indicators.

The new product pipeline, the new construction pipeline seems to be bottomed and maybe moving up a little bit as far as what's guiding people are expecting things to be better.

A year from now on a lot of those projects are starting to bid now.

The big emphasis for us today are the big problem really today commercially is in all regions is tenant improvement and an improvement is off in all regions and tenant improvements an important part of what we do so thats the biggest negative in our business is the lack of tenant improvement.

Okay got it thank you.

Our next question comes from the line of Steven Ramsey with Thompson Research Group You May proceed with your question.

Great. Thanks.

A couple of things you guys discussed ceilings share gain.

Can you share more on why this is happening.

Do you feel like it's accelerating in a challenging environment and is that because competitors are stepping back and less able to compete as effectively.

And that share gain.

Can you discuss it that's 10 improvement related or new construction related.

Yes, the share gain is coming from the concerted effort across our entire business to be the number one ceilings distributor in every market in which we participate.

And we're fortunate to have very very strong relationships with Armstrong and U.S.G. The number one and number two player in ceilings and so arc. It made sense for us to make that commitment again as part of that first strategic pillar of growing our core products 18 months ago, we recognized that we needed to put effort everywhere.

Sure because we had examples of being the best.

In major markets and it didnt make any sense not be the best everywhere. So we've been working to do that our sales.

We are the best everywhere, yet, but thats our goal right. So we've added sales people. We've added engineering capability around architectural specialties, we've had quite a bit of success with architectural specialties and I would say that most of that is new projects.

And not in the T.I. space that the base is really.

The acoustical tile sales right the mineral fiber.

But we have decided everywhere to participate in ceilings and there are very very few parts of our business today, where we don't have a good ceilings line.

And where we don't have a good ceilings line today I promise you were beaten down the doors of the manufacturers to get access to their line in those markets. So I really think thats whats happening.

Got you and then switching to single family side and wallboard there is.

Is there an increasing lag time that thats pushing back the kind that youre products go into the home for various reasons seems like we've heard us.

Various building product companies, who the low obscene lag times extend beyond the normal timeframe I guess, what I'm getting at is.

It's demand better than what near term revenue shows on single family in Baby does that support.

Sales in the upcoming call.

Quarters.

Well I mean, we've been talking about the fact that if you looked at the.

The strengthening sequential sales of residential for US were six month. After those starts numbers started to to come alive right. So you and we were stronger in November than we were in October.

I don't necessarily have any data that would say that those lead times are extending but.

Of course, we are just one part of the process of building a home. So if it takes longer to get the land prepared its taking longer to pour the foundations and it takes longer to build the lumber out then it's going to take a little bit longer for them to order and install the dry wall on <unk> and the other products that we sell into the home. That's that's a fact, so if you got data or you can see and talk to the homebuilders.

But instead, a 90 day cycles to build houses there at 120 days will then yes, that's a direct impact on US Jade. Please point, we have heard evidence so things like lumber appliances and other.

Products that go into a home from being a little bit extended from certainly what we're seeing on our supply side, which is a factor, but its not significant at least at this point.

Great. Thank you.

Our next question comes from the line of Trey gross with Stephens. You May proceed with your question.

Hey, good morning, Thanks for taking my question.

Okay.

Hey, Jay so.

First when we spend a lot of time talking about wallboard pricing.

And.

Last time around that.

Certainly still up in the air but what about on the ceilings side, how are you thinking about ceilings pricing.

As we as we go into 21 I think there was a.

Price increase announced recently.

From on your big suppliers.

So anyway, just any thoughts around the ceiling pricing as we look into next year given the demand backdrop.

I would probably say that everywhere other than potentially the commodity mineral fiber the market will accept the prices I think that the architectural specialties is a continuing.

Trend there will be a larger part of ceilings going forward and those are quoted on an individual basis.

And so I think that those prices will continue to rise and I think the higher end and more premium.

Mineral fiber and acoustical ceilings will will bear whatever pricing the two leaders put into the space on the manufacturing side I do think on the commodity side, it's going to continue to be a struggle because that is just a little bit more competitive there and there's just more players under.

Understood and.

I don't know if Inc.

You can get in the way this much but.

With your ceilings business. The can you give us an approximate mix of what is more commodity Kevin.

Ceilings on versus the Cusco on some of the others that you're talking about.

I don't have it I don't I don't have it sitting right here with me.

It would just be all speculation.

Fair enough so.

So my next one is.

A little bit higher.

Higher level here looking into 21, but.

It sounds like and correct me, if I'm wrong, but it sounds like the commercial side.

Could be bottoming.

Sounds like maybe you are not.

Not getting worse.

And so if that's the case and were were looking at the Rev side, where clearly Reds has been good from a stark standpoint, you guys are definitely.

Definitely starting to experience some benefits from that and I would expect that to continue as we go over the next few quarters.

And so my question is really as we look a little further out.

If this continues to be the case at what point do we start to see.

You know some revenue growth or volume growth.

In your business overall.

You know I again, we usually just give you that one quarter out because really all we can see right now on these this is a very difficult time to be forecasting.

I would tell you that November commercial was still slightly worse than October commercial and we're talking about double digits. So.

I'm not all that excited about bottoming at these levels and how long we would stay here I don't really know commercial was super strong obviously last year up right up against cobot.

So we get into that April and then we start rolling into next year May June July those first months after co bid we might be able at the end of the next quarter to give you a view that says hey, maybe that's the time, but can.

Commercial still pretty.

I don't want to be dour, but is not good.

Our steel sales are fairly reflective of that right and we're gaining share in ceilings thankfully that we.

Focused on that quite a while ago.

And we also are gaining share I think residentially, where we focus on that quite a while ago with our wallboard and all of that is helping us perform a little better than we otherwise would have but commercial certainly not going to be a tailwind I believe until late 21.

But on your targets.

You're going to get some natural lapping from a financial standpoint on a sealing side, which is which is good so you won't see.

The year over year decline third as pronounced as we've got this year on we'll start to moderate and then you've got the strength on the residential side going forward based on the starts we're seeing that should start to give us some pretty positive indication that we're we're just not on a position to be able to define exactly how that shakes out past per quarter. So.

At this point, yes, I mean, I think were feeling better.

But we're.

We're not feeling good yet.

Understood and I understand it was a tough question given the.

You know uncertainty in the you know that we're sitting here looking into right now, but I appreciate the color.

The last one from me and it kind of dovetails from that one just kind of where we are.

Given where we are in the cycle.

And on your strategic priorities you know one that you point out is the platform expansion.

So I guess could you go into a little bit more color around that I mean, you your leverage is come down you've reduced your net debt.

Metrics are improving so as we look at where we are today in the cycle and then we look at opportunities that are out there both.

Both Greenfield and M&A how are you in your note that you are balancing it with debt reduction priorities, but can you go into a little more detail about that especially given where we are right now on this in the cycle and kind of the little bit more uncertain outlook currently.

I mean, we have five or six greenfields in the pipeline that are.

In process that of course put them on hold.

So in the April timeframe, when we looked at Cove and of course, you put anything on hold and then you've got to review got pulled back on to the out of the can so to speak and get them done it's hard to get it done right and we've got to go get property, we got to hire people. We there's things just takes a little bit of time, but so we're back half loaded this year in our greenfields for sure but.

Got the one opening in a up there in Oregon, which is in Western Portland, then we're super excited about that because that's going to be a booming market.

And we've got four or five more good ones that will get done if not this fiscal year really very very closely thereafter, so they'll all be kind of coming together.

The acquisition pipeline is good and we're talking to multiple players multiple people and I think that will have some things to talk about on the next quarter.

On that front I, just you know unfortunately today don't have any exciting news for you, but we've got a good pipeline and we agree with you we have good balance sheet, good liquidity and we should be we should be a good acquirer.

All right. Thanks, Thanks for all the color I appreciate it and good luck.

Thank you appreciate it.

Our next question comes from the line of sales.

Darkatsh with Raymond James You May proceed with your question.

Good morning, Jay take good morning, Scott how are you.

Good day.

Just a couple of quick housekeeping questions.

With respect to capital allocation I don't want to major in the minor, but I noticed that you bought a little bit of stock in the quarter for the first time on a while I think the last time you did so was early 2019 when the stock was half the price and the valuation was around six times.

Anything.

It's too.

On the rationale or the reasoning behind that I know you have 50 58 million left on the authorization and are about to go into a heavy seasonal cash flow time of year is there anything there that we should take from that activity.

We telegraphed that in our last quarterly call that we were going to start doing that Sam it's nothing more than.

A modest share repurchase associated with offsetting our equity compensation programs for issuing equity obviously as a part of those programs and you will see us overtime engaged in from limited tieback to offset the dilutive impact of that but it's at this stage, it's really nothing more than that.

Got you and then.

My last question.

The typical free cash flow expectations, I think Scott are between 40, and 50% of EBITDA is that still the expectation for.

The fiscal year or are you looking to hold a little bit of extra inventories.

Throughout the next couple of quarters.

So the funds towards the lower end of that range in this environment with EBITDA being down versus where we were say last year, but.

That low Fortys is certainly is still a pretty good indicator and then.

As we come back out of that I think on a more normalized basis back to that 50 is probably not.

Good indicator of what the business is capable of overall, but in this environment closer to 40 is probably about right.

Very good thank you gentlemen stay well.

Thank you too.

Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Li Kratcoski for closing remarks.

Thanks, everyone for joining us this morning, a replay on transcript of our call will be available shortly on Gms dot com and as always we thank you for your interest.

Good day.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your.

Hi.

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