Q4 2020 Ufp Industries Inc Earnings Call
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Well, ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 U S. P Industries earnings Conference call. At this time, all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need the press star one on your telephone.
Please be advised the today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker, Mr. Dick Gauthier Vice President of business outreach.
Welcome to the fourth quarter, 'twenty and 'twenty conference call for UFP industries hosting the call today are CEO, Matt in the side and CFO might call, Matt and Mike will offer prepared remarks, and then the call will be opened for questions. This.
Conference call is available simultaneously and its entirety to all interested investors and news media through our webcast at USPI Dot com.
The replay will also be available at that website through February 26, 2021, before I turn the call over to Matt and the side, Let me remind you that the February 24th press release yesterday's quarterly filing and today's presentation include forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. These risks and uncertainties include but are not limited to those factors identified in the press release and and the filings with the Securities and Exchange Commission now I would like to turn the call over to Matt massage.
Thank you Dick and good morning, everyone. As you can see from the press release, the UFP family of companies is blessed.
'twenty and 'twenty was of Unicorn of convergence of many once and our lifetime events and the same year.
Instead of collapsing under the intense pressure our U S. P team demonstrated the work ethic experience and quiet competence.
To overcome adversity and posted our best year ever.
I wanted to give a special shout out to our production teammates who are able to work safely every day and their facilities to make sure our customers' needs were met.
Thank you to all of my <unk> teammates for and Amazing 'twenty and 'twenty.
You have seen the incredible financial performance and Mike will provide more analysis shortly.
I would like to cover some key takeaways from 'twenty and 'twenty as well as providing a backdrop for how we look to grow in 'twenty and 'twenty one.
My first takeaway is $5.14 billion, a new all new sales record and the first time, we've eclipsed the 5 billion dollar Mark.
The next takeaway is EBITDA margin of eight 4% for the year.
That is the number that didn't seem achievable just three years ago.
Thanks to the heightened demand and a focus on new value added products innovation and efficiency gains, we learned that and 8% EBITDA margin is attainable and can even be exceeded with the right mix of our new products, new structure and new technology.
Speaking of our new structure, we are already reaping many benefits since it was implemented in January of 'twenty and 'twenty.
This new structure enabled us to react quicker to the lockdowns and to lever our scale and geography to better serve customers when extraordinary demand and crimp supply chains combined to cause product shortages.
The entrepreneurial spirit within our new business units and segments was unleashed as planned.
Our leadership teams were able to focus specifically on their business unit or segment and implemented growth plans more quickly than we would have been able to do under the old structure.
These leaders of created excitement and each business unit and have developed runways for accelerated growth.
And I am confident that they can execute their plans, while still maintaining a strong balance sheet.
As a result of all of the new opportunities and pathways for success demands for capital are making our capital allocation process more competitive and will raise the return on investment bar for green lighting future projects.
We will talk more about capital allocation and a few moments.
Along with all of the wins 'twenty and 'twenty also had areas, where we did not perform as well and must improve.
One of those areas was our commercial construction business unit.
This unit was hit hardest by Covid Lockdowns and has underperformed for the last few years.
We undertook a complete review of the business to determine whether it was sustainable and whether our execution challenges were self inflicted or externally driven.
We have created a new path forward, which includes streamlining our operations team exiting unprofitable product lines and consolidating facilities and sizing staffing levels based on actual not anticipated sales volumes.
As a result of these changes we took fourth quarter charges of $15 million against earnings for goodwill and other asset impairment.
We addressed the obsolete inventory caused by customer demand changes and expense cost and facility closures and related employment obligations.
And the aggregate these charges and the operating losses and the business unit.
Total of nearly $40 million and 2020.
That is unacceptable and will be fixed.
In fact this terrible result provides the biggest turnaround opportunity for 'twenty and 'twenty one.
Even after the facility consolidations the commercial construction business unit is budgeted for modest sales increases over of Covid impact in 'twenty and 'twenty levels and will be profitable for 2021.
If we achieve this level of performance as well as reversing other operational losses and other business units. It will create a 50 million dollar EBITDA improvement over 'twenty and 'twenty.
Of course, some operations, who dramatically exceeded expectations in 'twenty and 'twenty may not performed to the extraordinary level of like they did before but correcting the underperformers from 'twenty and 'twenty would be a huge boost to overall results in 'twenty and 'twenty one.
Last year, we spoke about improving project management and speed to market with new products.
You talked about gaining manufacturing efficiencies through automation and automation specialization and consolidation and growing value added sales more quickly.
We made progress and most of these areas in 'twenty and 'twenty, but we still have much room for improvement.
Each segment added resources for 2021 to drive more new products and better evaluate sales performance as well as the cost of existing products.
We are taking advantage of our geography better than in the past and shifting production of like items to fewer regional locations, which allows for equipment improvements and more manufacturing efficiencies, creating lower cost of production overall.
Our national sales teams are working with national customers to better identify product and service offerings, while leveraging our design engineering and testing capabilities across all markets.
As we continue to evolve our sales and management processes I still believe we will better leverage our SG&A costs as a percentage of gross profit dollars as we grow bringing more profit to the bottom line.
This will become even more pronounced in 'twenty and 'twenty two.
In addition to these big picture takeaways I'd like to highlight a few areas from each segment.
And the fourth quarter retail solutions continued its strong growth.
Net sales were up 76% over 2019.
As we advised at the end of Q3, the declining lumber market impacted pressure treated margins and retail in Q4.
But unit sales remained very strong, including our value added products sales.
Decorators, new production capacity and wood plastic composite is now up and running adding another 35% to 40% of the total capacity and we just began a project to double our patented mineral composite capacity.
The first part of this mineral composite capacity will be operational and Q4 of 2021 with the remainder of coming online by the end of Q2 and 2022.
The decorators brand with sales continuing to climb on.
Also garners more admirers and the unique mineral composite products is a contractor favorite.
Pro would F or the fire retardant product grew rapidly in 'twenty, and 'twenty, reaching nearly $100 million and volume.
This capacity will continue to grow with our expansion of fire retardant production and the Dallas, Texas market, which started in January of 2021.
The outdoor essentials business unit will be adding capabilities and more mixed materials fencing production as well as expanding the lawn and garden projects, including our new line of planter boxes, and raised garden beds for 'twenty and 'twenty one.
The dimensions business unit, which is being rebranded as handprint has seen its remarkable growth continue in Q4.
For 'twenty and 'twenty, one adding products to be sold through traditional craft and hobby stores and E. Tailers will bring even more scalable opportunities for this business unit.
And UFP edge is expanding its finishing capabilities and consolidating production centers to get more efficient and the manufacturing and finish and process. We expected sales to continue to climb rapidly.
E Commerce sales continued to accelerate racking up over $128 million in 'twenty and 'twenty sales.
Nearly doubling the 2019 total.
We have invested more resources, and our improving distribution and logistics to accommodate this anticipated growth.
And the construction market sales grew to $508 million for the quarter and so on margin enhancement as they began to recover from the margin losses suffered when the lumber market rose rapidly and Q3.
Unit sales to site built rose, 16% during the quarter and our backlog remains strong for site built components for both single and multifamily projects.
We will be adding more capacity and fast growing Texas and 2021.
Factory build also remains very strong with unit sales growing 11% during Q4.
With the focus on affordable housing manufactured housing is an excellent solution.
We expect our new products sales to this market to also grow significantly in 2021.
Our concrete forming business unit is seeing increased demand for its rental programs as well as its designed engineered and manufactured former solutions.
And the industrial market unit sales were up 10% for the quarter of which 6% was organic growth.
For the year unit sales were down only 1% erasing almost all of the Covid related shortfall.
This industrial segment has recovered nicely and is well poised for continued growth in 'twenty and 'twenty one.
We continue to rationalize our product offering by focusing on structural packaging OEM products and protective packaging.
Our solutions selling using our in house design engineering and manufacturing capabilities gives us the distinct competitive advantage.
One of the obvious questions as we look ahead in 'twenty and 'twenty one centers on the lumber market.
What is going on.
The big picture has demand exceeding supply with supply being less than historical quantities and North America.
Rail challenges and Canada, and elsewhere are causing delays and the SPF supply chain.
The impact of more winter weather on demand will be seen in the next few weeks.
And the storms in Texas of caused a temporary decline in demand, but the Texas mills have been affected as well keeping supply more in line with demand.
In order to protect our customers from supply uncertainties, we have expanded our purchases and used our international buying power to ensure that we can supply our customers.
Some items are already forecasted to be in short supply and our experienced purchasing team is monitoring the situation very closely to keep ahead.
The second quarter takeaway will be a key indicator for the year and will determine lumber prices as well.
I would like to thank our vendor partners for working with us for our increased requirements.
As the mills consolidate they have more opportunities to implement their supply strategies in light of expected demand and our long term relationships with the mills certainly help us meet our customers' needs.
Also new products continue to grow.
As I mentioned each of our segments is increasing its investment and developing marketing and selling new products, which we expect will result in increased sales of new products in the future.
New products sales were $131 8 million for the fourth quarter and $538 million for the year.
We sunset $13 million of 2020, new products, which establishes a base of $525 million for 'twenty and 'twenty one.
We are targeting 548 million of new products sales for the year.
Our capital allocation strategy targets acquisitions at reasonable ROI based values first followed by greenfield growth and automation and efficiency projects.
In addition to the six acquisitions, we announced in 'twenty and 'twenty, we have several acquisitions and the pipeline.
Our focus areas for acquisitions include industrial targets, which help us achieve our objective of being the preferred global packaging solutions provider.
New products and brands and our retail market.
New products and services and our construction market.
And finally patented or proprietary value added products or services.
How do our recent acquisitions fit within those strategies.
Our largest and most recent acquisition pallet, one gives us a significant new platform from which to add other products and services and brings in a new customer base as well.
Some of you May Wonder why did we acquire pallet one.
There are several good reasons, including one of the most important the.
And the talent of their team and the symbiotic company culture.
We have looked at the industrial portion of their business for many years, but without our new organizational structure. It would have been too difficult to reach the synergies.
Pallet, one has a focus on high quality machine built pallets that made them successful where we were not.
And their automation and integrated supply chain strategies present learning opportunities across our existing footprint.
And they have proven that their operational excellence can produce double digit EBITDA margin.
Other benefits, we see of the sales synergies by adding our protective packaging solutions to their unique customer base and the ability to integrate recycling and rebuild solutions.
Sunbelt would preserving which was part of the pallet one acquisition allows us to incorporate other manufactured and value added products two of new customer base.
Sunbelt has an excellent reputation and the marketplace and operate the business we know well.
With the consolidation occurring and the treated products manufacturing industry. It makes sense to partner with an industry leader.
This consolidation is further evidenced by the announcement this week that sunbelt is acquiring the assets of Spartanburg and forest products.
This will further expand the geographic reach of sunbelt and allow economies of scale and efficiencies in the supply chain.
Steve Michael of Spartanburg has been of great advocate for the industry and this transaction will allow for a smooth transition to his well deserved retirement, while allowing the talented team members of Spartanburg, and sunbelt to continue growing and improving the business.
Although the core treated business carries a lower margin and industrial by.
By using their distribution platform for additional value added products. The sunbelt business is expected to generate a strong return on investment.
Another industrial acquisition T and are brought us of new runway and agricultural products with ample potential for scaling with other UFP operations.
And the international partnership with N wrap and Europe furthers, our ambitions to be global packaging solutions provider.
As an example.
<unk> of last March's acquisition of Quest brought architectural millwork expertise to our network.
Which we already have introduced to several other UFP customers and manufacturing the locations.
Likewise, the October acquisition of Atlantic structural and affiliates brings new products as well as steel components, which we will scale to additional geographic locations.
The twin goals of synergy and scalability for acquisitions will be achieved more rapidly under our new structure.
And on the proprietary products front, our FRC T acquisition now named performance formulation solutions will bring a new level of research and development to enhancing and protecting wood products to create longer life and more sustainable building product options.
Their fire retardant formulation is the first of many improvements we expect to make.
For acquisitions in 'twenty and 'twenty, one and thereafter, we expect that new target companies will bring similar qualities to our business units and accelerate growth in sales and profits.
We have added more resources to our internal M&A team to help each business unit identify and negotiate acquisition opportunities as well as streamlining the closing and post closing transitions.
We remain committed to improving our return on investment and not merely growing for the sake of growth.
In addition to capital use for acquisitions, we expect capital expenditures of $115 million in 'twenty and 'twenty, one up from $100 million and 2020.
This increase will fund the automation projects as well as expansion and several business units.
We intend to use the remainder of capital generated for cash dividends and opportunistic share repurchases.
We are pleased that the board increased the cash dividends to <unk> 15 per share for the March 2021 dividend, which represents a 20% increase over 'twenty and 'twenty.
Recruiting and retaining employees remains a critical focus area.
As I have stated I believe we have the best team and the industry and 'twenty and 'twenty provided a great example.
We want to reward our employees for performance and Fortunately, we were able to do that again and.
In fact, we are so thankful for the efforts of our hourly production employees that we reduced our calculated executive bonuses by over $5 million and those dollars plus additional dollars are being used for special hourly employee benefits and additional bonuses to again reward them for the terrific efforts during 2020.
Special bonuses and benefits the hourly employees exceeded $25 million for 2020.
Thank you again to our hourly employees.
We have expanded our recruiting the better market our company to new job seekers and broadened our outreach to make sure of that all demographic groups are aware of the opportunities for them at UFP.
We encourage the best performers to work with us.
As I've stated the outlook for 'twenty 'twenty, one is quite optimistic we have good visibility from our customers for the next 90 days and demand looks solid.
It is difficult to predict the effects of the pandemic and what we hope is the full reopening of the country.
While we want to make sure we help those who have lost their jobs and their businesses due to Lockdowns. We also urge politicians to use restraint when considering more borrowing from the future generations.
We prefer opening the economy and allowing the current demand cycles of function.
The stimulus could be saved until it is needed.
Now I'd like to turn it over to Mike Cole, who will provide more details on our financial performance.
Yeah.
Thanks, Matt and Hello, everyone. This quarter provided another example of how the balance on our business and diversified product portfolio, our advantages when market conditions provide challenges and this case of volatile lumber market and a significant drop in demand within the commercial construction markets we serve.
Our results this quarter are highlighted by a 15% increase and unit sales, resulting from strong demand and the retail market and of 70% increase and operating profits driven by profitability improvements on value added products and new products production and SG&A cost efficiencies and the planned issuance of long term stock grants associated with that.
Bonus plan.
For the year, we're pleased to report strong improvement and our profitability as our 41% growth and operating profit Oh piece of our 6% increase and unit sales of.
The return on invested capital of over 20% and.
And the operating cash flow of $336 million in spite of record high lumber prices and strong retail demand, resulting in a year over year increase and our net working capital.
Now I'll provide some additional color on the quarter, starting with our income statement net sales by segment.
Sales to the retail segment increased 76% consisting of a 38% organic unit increase and of 38% increase and prices.
Unit growth continues to be strong across our retail business units, but especially so and value added categories like decorators outdoor essentials dimensions and edge new products sales for the retail segment were also strong growing over 71% while gross profits on those sales grew 73% in spite of higher lumber costs.
Sales to the industrial segment increased 25% consisting of a 15% increase and selling prices and 4% contribution from recent acquisitions and of 6% organic unit increase.
Organic unit growth consisted of 3% growth driven by new customers and another 3% driven by new products.
Finally, our sales to the construction segment increased 24% driven entirely by of 24% increase and selling prices as unit sales remained flat, but varied greatly by business unit.
Our site build and factory built units performed well with 16% and 11% unit growth respectively.
Recent acquisitions contributed 2% to a site built growth.
Unfortunately, this growth was offset by organic unit declines of approximately 35 per cent for each of our commercial and concrete forming business units as the pandemic adversely impacted demand.
Moving down the income statement, our fourth quarter gross profits increased almost $30 million or nearly 19%.
This increase consisted of a $22 million improvement and retail of $7 million increase and construction and a $5 million increase and industrial.
The profitability improvement of our retail segment resulted from a combination of factors, including strong organic growth and leveraging of fixed costs higher profits per unit on sales of our value added products and growth of higher margin new products.
Within the construction segment the gross profit increases of our factory built and site build business units totaling $21 million was offset by declines and our commercial and concrete forming business units totaling $14 million.
Finally, the gross profit of our industrial segment increased 11% slightly above our unit sales growth of 10%, which we were pleased with given the volatility of lumber prices during the quarter.
Continuing to move down the income statement SG&A decreased by $18 million to $87 million.
This overall decline was comprised of increases of $7 million and compensation related compensation and related costs and 3 million added from recently acquired businesses offset by a $4 million decrease and travel and other costs associated with the pandemic and <unk>.
And $2 million decrease and our bad debt expense and a $20 million decrease and bonus expense due to an increase and our use of long term stock grants to subtle bonuses instead of cash payments.
Share grants are expensed over the service and vesting period, and we believe this is a great way of encouraging employee retention and aligning their interests with shareholders.
The low SG&A, we recorded $15 million and asset impairment charges. This quarter related to actions were taking to reduce our commercial business units capacity and alignment with expectations of lower market demand. We believe these changes position us for of returned to profitability and 2021.
The impairment charges are offset by reductions and certain earn out liabilities totaling $4 million.
Finally, we're pleased to report of 55 per cent increase and operating profits, excluding the impact of net impairment charges and the decrease and bonus expense.
Moving on to our cash flow statement, our cash flows from operations for the year totaled 336 million and consisted of net earnings and noncash expenses totaling $339 million compared to $259 million last year and of $3 million increase and working capital capital since the end of December.
2019, compared to and $90 million decrease and the prior year.
As I mentioned earlier, our net working capital. This year has been impacted by strong retail demand and record high lumber prices and consequently, we think our cash cycle is the best metric for assessing how efficiently we're managing our working capital.
Our cash cycle improved to 45 days this year compared to 55 days last year. This improvement resulted from a reduction and our days supply of inventory driven by strong retail demand and supply shortages and we also improved our collection cycle and improve the percentage of our receivables that are current to 92%.
We continue to have a balanced approach the capital allocation, our investing and financing activities consisted of.
Capital expenditures totaling $89 million, including expansionary and efficiency capex of $34 million.
$65 million for acquisitions.
And $31 million of dividends and $29 million of share repurchases, we completed in Q1.
Lastly, we issued $150 million of long term debt in August anticipating the acquisition of pallet, one and sunbelt, which we completed and fiscal January.
With respect to our balance sheet at the end of December we had approximately 400 $437 million and cash and 312 million and long term debt and our total liquidity was approximately $800 million.
At the end of January our liquidity decreased to $485 million as we completed the pallet one Sunday of purchase for $259 million and as we build seasonal working capital impacted by higher lumber prices.
Given our expectations for continued growth and working capital requirements, we've exercised the provision and a credit facility that increases the long term availability of the facility by another $175 million to a total of $550 million of.
All in all and we feel we have a strong liquidity position to support our planned growth, including our purchase of Spartanburg Forest products later in Q1 of our early Q2.
Looking to next year, we're planning to continue paying dividends at the current rate, which was recently increased 20% to 15 cents a quarter. We will continue the target share buybacks based on the amount we issue winter of share based compensation plans and when the price reaches of target.
We believe depreciation and amortization and other noncash expenses will total approximately $90 million.
And we're currently planning for approximately 115 million and capital expenditures. This is quite a bit higher than last year as the results of the carryover impact of certain 'twenty and 'twenty projects plans to double the capacity of our plant that produces on mineral based composite decking and trim products.
Opex the execute growth strategies associated with recent acquisitions and <unk>.
Vestments, and real estate and to expand capacity and capabilities at several locations.
Our long term goals continue to be growing our annual unit sales by 46% over positive GDP.
Growing our operating profits and adjusted EBITDA at a rate that exceeds our unit sales growth or in other words, increasing our profit per unit.
And earning a return on invested and investment over our cost of capital and.
It's all I have on the financials Matt.
Thank you very much Mike now I'd like to open it up for any questions you may have.
And ladies and gentlemen, and as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question will come from Keaton, ma'am torn with BMO capital markets. Please go ahead.
Thank you congrats on on a very strong finish to the yard and what was obviously of a difficult year for everyone. So congratulations.
Thank you and I appreciate them.
First question, maybe starting off we know.
And the decorators and obviously a lot of expanding capacity there I'm just curious.
How are you positioned right now to meet demand and as you head into sort of the busy.
And our busy season in terms of construction activity do you think you've got enough headway.
Headroom to meet the demand do you think you might be capacity constrained for Hawaii.
And the capacity comes online.
Yes, that's a terrific question, Keith and I think we we will already have expanded over and over last year, where their wood plastic composite line. So we think we're in good shape there.
Our mineral composite line is growing very rapidly and we do have a longer lead time there. So.
We are being a little more selective and the customers and the products that we're moving so I would say if the demand continues as strong as it is of body of little bit short on the ability to take on and a lot more customers on the mineral composite line this year until Q4.
Got it and then is this the capacity increase and that what it does is it more focused on and on.
And sort of of the Walter the voyage line of more on the on the trade side or is it more evenly spread out.
Yes, I would say that the wood plastic composite is probably sick.
65% to 70% of the total decking volume production.
But Ted.
And obviously the mineral composite line of growing faster and.
Go on from basically zero to probably somewhere in the 35, 30% to 35% range of total and we expect that to continue to take a larger share of going forward.
Got it that's helpful and then.
The any way to kind of quantify how much EBITDA contribution you will get from the recently acquired businesses.
And you know some sort of either on the EBITDA margin basis, our total EBITDA contribution any color would be helpful.
Yes, I think Mike probably can give you a little bit of color on that based on what we will put in the 10-K and bolt.
Yeah, I think the the biggest one to look at Keaton as pallet, one and sunbelt right. So the.
And we provided the the.
The sales numbers for 2019, and the trailing 12 month numbers through a good part of Q4.
The EBITDA margins for the business, depending on which period you look at.
And the margin would vary a lot between the two periods just simply based on the the level of lumber prices if that makes sense.
Six 5% to 7%.
And I got the Blue.
And at the rate as well cadence of that includes both of the industrial part of the business as well as the retail part of the business as Matt mentioned earlier, the pallet one side of the business has a much higher EBITDA margin more in line with what you have P. As EBITDA margins are and on industrial and and likewise, the sunbelt side of the business is more in line with and what.
We would see on the <unk> side of our business.
Understood.
Helpful and then.
You know just switching to to lumber obviously, we've heard of.
A big run and I'm, just curious if I.
Are you starting to see.
Any negative impact on demand.
And from flight from prices, where they are and the middle of February.
Yes, I think would be the economy being strong and many parts of the country Keating.
And we'd expect if the prices continue to rise and we would see of demand impact.
We haven't seen it quite yet but.
And just kind of.
Some of the anecdotal information, we have out there basically versus a year ago, probably $25000 increase for the cost of of new single family home about $9000 increase.
As for a multifamily unit so it's.
It's getting significant and.
<unk>.
There is product shortages and some categories panels OSB that kind of thing.
But I think there's a decent balance in supply and demand and if the economy opens up and the mills are able to run full out and run efficiently I think we'll be okay.
Got it and then you mentioned in your prepared remarks, Matt that the balance that you all are.
And looking at other regions to purchase number is that the way to kind of.
Maybe you went on a percentage basis, how much you moved and what is the kind of flexibility that you have.
For.
International purchases.
Yes, I think.
It's hard to say there are some products that lend themselves very well.
Non structural items in particular and.
We have definitely grown purchases and.
Those types of products.
Some of the structure of lumber with engineered values and that tends to be a little more limited in terms of options. Although there are places in the world and we can get that too. So we have been expanding that international capability and I think our international sourcing and sales team has done a terrific job and finding those those new products as well as exist.
And brought it could help us continue our growth.
Got it that's very helpful. I'll turn it over good luck in 'twenty and 'twenty one.
Thanks, Kate and thank you again.
Thank you. Our next question will come from Reuben Garner with benchmark. Please go ahead.
Thank you good evening everybody.
Hi, Ruben and Rubin.
And congrats on the strong close to the year.
And.
Impressive.
Let's see where to start.
On the maybe I'll start with decorators.
So.
How much can you tell us how much of that 80% growth was.
You guys introduced and I think it started at the beginning of the fourth quarter your kind of entry level.
And.
The composite decking board.
Is it fair to say it was a good chunk of that and that that would mean essentially you have a few more quarters of runway from business that you picked up a net debt part of the business.
I think in terms of actual sales Rubin.
Aruba and I don't think it's the real significant portion in Q4, I think we expect it to be a significant portion in 2021.
But if youre looking at.
Q4, 2020 numbers I don't think it's a significant amount of the actual sales volume.
Okay, and and just to clarify when you say of mineral based is the.
<unk> technology, so that's the.
Okay.
Exactly and year to date.
<unk> technology, and that's and the volt and voyage brand.
Got it and.
And then on the well I guess to wrap up the retail part.
So well I think one of the concerns investors have had with names and the spaces is struggling with how you you'll be able to grow a business that did so well and in 'twenty and 'twenty. What are what are your thoughts on what the the.
I guess the environment might be for that category for you guys and in 'twenty. One do you think you can continue to grow on top of that or do you view it as a difficult comp and even.
With your new product launches and everything that might be a tough thing to duplicate.
Yes, I think if you look at unit sales.
I would say Q1, we have.
Good opportunity to exceed dramatically what we did in 2020.
I think the comparisons getting obviously much more difficult starting Q3 Q4 so.
And as long as the demand is strong I think.
The new operations that are part of the family now and the ability to help them grow and to be able to drive more value added products throughout the entire organization.
And I'm very optimistic that we can we can continue to grow as long as the economy stays strong.
Thank you. Our next question will come from Jay Mccanless with Wedbush. Please go ahead.
Hey, Thanks, guys. Congrats on a on a great and your thank you for taking my questions.
Good day.
So the the first question I had is just kind of reconciling what you all put in the press release about Spartanburg.
And you said that the combined companies had 2020 sales of approximately $543 million was that spartanburg, standalone or was that spartanburg and sunbelt together.
And that was part and <unk>.
Standalone.
Okay, and they're probably going to have similar EBITDA margins to what you expect out of the pressure treated business.
I think going forward that would be the case and Mike.
Leave that Spartanburg carry a lower EBITDA margin.
Spartanburg would be more comparable but maybe not quite as high as sun belt and improve it.
Okay.
And then.
Yeah.
And listening to some of your competitor calls and other.
And the names and the building products space.
And kind of hit or Miss with commercial some people say commercial is getting better.
That said the all had some issues with the sheer could you maybe drill down into which specific areas of commercial you're seeing the issues and some of the corrective actions and you think you can take and the short term.
Yeah, It's a great question, Jay So I think it and some of them are pretty obvious I think if you look at.
Retail in general obviously, not not much growth there not a whole lot of store retrofits that kind of thing.
The hospitality space was was decimated by the Lockdowns.
So really nothing happened and they're either some of the commercial office environment.
They've been very very slow and they were impacted so those of the those would be three areas that I would specifically say 2020 was bad and.
And.
The retail space will definitely take longer and so we've de emphasized a lot of those products and services and by focusing more on the areas, where there is solid growth and the good sustainable future.
That's where we're focusing our efforts if the other stuff comes back that's great. We can make ourselves available to serve that market, but for right now we're focusing on what's what's real and what's in front of us.
Understood.
Yes.
And then your customer your large.
Customers, the H D and Lowe's.
As reported very good sets of numbers the over the past couple of days and what what are you hearing from from those customers and then maybe the larger home repairs per home.
Per store industry in general I mean, there are some of the other big change thinking this is going to be the potential for positive comps. This year and are they telling you guys to gear up and get ready for larger volume shipments.
Yes, that's been their message consistently as debt.
They need more products and they believe the sales of their so I.
I think thats.
That bodes well for us they have a good optimism and we'll be there to supply.
Okay. That's great. Thank you all for taking my questions.
Thank you Jay.
Thank you. Our next question will come from Kurt Yinger with D. A Davidson. Please go ahead.
Great, Thanks, and good afternoon, Matt and Mike.
Hey, I just wanted to start out on the lumber side, I mean pretty consistent upward trend and prices here in Q1, which typically I think Mike who is the bit of a headwind for you guys but.
With the relative strength and retail and pressure treated do you think that maybe offset some of the pinch on the fixed products side or how are you thinking about the net impact.
And the different pricing structures, just on kind of the ability to grow gross profits versus units here in Q1.
Yes, I think you have the good handle on the overall picture current there is a bit of a yin and Yang to it so.
If the.
Prices continue to climb and probably will be of short term cash and fixed priced items, but the.
And we're able to make some of it up on the variable price basis.
And do you want to add some more color.
No I mean, that's that's the.
The basically summarizes it well and.
That's the that's the unique ability of of U S P and the balanced business model is.
And rarely do you see as have the talk about the lumber market volatility impacting our results because of the great balance and the and the markets, we serve and and the product portfolio.
Right right, Okay that makes sense and I guess.
Just sticking with that point I mean between pilot, one and Spartanburg youre, adding quite a bit on the treated Woodside and then do you think that dramatically changes the seasonality or the SKU of how we should think about lumber prices overall impacting the business or do you think.
For the most part.
It's still fairly neutral from a trend perspective on profitability.
Yes, I think there's a couple of factors in their current so there is of the kind of of G.
Geographic areas.
Where some built the operates and Spartanburg operates are still tend to be more of the warmer weather or certainly not the the.
Bridget north for the most part.
Although the who have facilities and the north.
I think the other part of it is our managed inventory programs, which I can kind of help with some of the issues, you're referring to about seasonality and is going to be of bigger factor.
I think.
And finally getting to a spot and the sizes, we continue to grow where.
And by balancing out the fixed price variable price products and doing more value added debt product mix piece becomes.
More important and the seasonality relative to the different businesses has become less important.
Okay, Alright, that's helpful. Thanks and.
And.
Just on the share grants and.
All of that impacted kind of on the SG&A number is that something we should kind of expect to continue here in 2021 and how might.
That impact the year over year comps as we look at SG&A spending going forward versus what it has historically been and that bonus the SG&A I guess specifically.
Yes, I think what I would say Curt is just from the employee retention standpoint, as Mike commented on.
And for us having our employees be shareholders is really important and providing a very efficient and effective way for them to get shares.
And is critical to our compensation structure and platform.
Mike maybe you can give a little color on kind of the financial statement of impacts.
Yeah, sure so that $20 million that we called out as being the decline and bonus expense per is is basically the impact of the share grants spread out into the future over the over the vesting period and so.
We like the share grants a lot in terms of in terms of incorporating that and the bonus plan. So to the extent we continue to do that.
And you're going to layer in additional expense each year.
But but yeah, we think that that's assuming the same level of performance at the same type of and bonus expense in total it's going to have the same impact from one year to the next but we'll be layering in additional additional expense each year.
To the tune of.
Seven or $8 million.
Okay. That's helpful.
Okay.
And just lastly on the.
The site built side I mean.
Just curious with.
The constrained.
I guess, the supply side and builders really looking to catch up on significant backlog and have you seen Inc.
The increased adoption of <unk>.
And of those component products or anything like that and does that and area of the business that you would.
Perhaps look to grow and the future.
Yes, I think you're dead on that issue the component of nation is definitely going to increase.
The labor obviously also plays into this and.
The acquisition last fall of Atlantic Prefab and their related companies I think gives the gives us another opportunity with new materials to do more of that component of <unk>. They are very good at it. So we do look to expand that and we'd look to do more.
And do more in our factories to help the builders relieve pressure on the job site.
Got it got it okay, well thanks for all of the details guys and good luck in the Q1.
Thank you Kurt.
Thank you. Our next question will come from Julio Romero with Sidoti <unk> co. Please go ahead.
Hey, good afternoon, everyone.
Hi, Julio.
Hey, just wanted to.
Piggyback on the question about the the SG&A and the bonus expense.
<unk>.
I agree that they would be the right move operationally, but just trying to think about.
Yeah, how should investors think about.
Well of metrics to kind of gauge your cost control efficiency.
Going forward.
Yes, I think the.
I think the question is really what kind of metrics should investors look at relative to SG&A as a percentage of something.
The figure out whether we're managing it well or not.
And I think the question probably is more broadening that and net probably would include bonus and <unk>.
And to the.
The part of the SG&A discussion right.
That's correct yeah, but.
Considering the share grants as being part of the.
Yes, the pie now and I think of.
Whats the right metric to look at.
And we've tried to look at SG&A as a percent of gross profit dollars.
Mike maybe you can again adds a little more color.
And kind of the accounting side of it yes.
Yeah, I think that's the that's the.
Still the right metric.
We like to look at the SG&A without the bonus expense and and at all and and look at the SG&A as a percentage of gross profit it takes and mitigates the impact of moving lumber prices, if that makes sense and and and also takes into account the shift and the business to become more value added which generally requires on.
Lot more SG&A cost so we still think that's the right metric.
If you want to compare last year with this year I think our bonus expense last year was $68 million or something like that and this year. The total bonus expense was 80 so.
The back those out of the SG&A numbers and the press release and look at those as the percentage of gross profit and Youll see a real nice improvement and some of that is because of the.
Of the pandemic and.
There's probably 15% to $20 million annually of travel and medical and other cost debt.
We won't see repeated decline and those costs, but all in all and we still think we made a lot of a lot of progress on efficiencies of this year.
Yes, Mike maybe is there a specific percentage of <unk> overall debt debt Julio should be thinking about relative to the bonus.
Yes.
And that's a good point.
And look at the bonus expense really of as a percentage of pre bonus operating profit and so I think 20 percentage is a good benchmark.
Obviously that can move around a little bit.
Just based on a return on invested capital because of our bonus rates are are driven based on whatever our return on investment is but the 20 percentage of pretty pretty good historical rate.
Got it and I guess.
Just thinking about the mix of value added to the commodity sales I'm not sure if I missed that earlier in your prepared remarks, if you gave that for the quarter.
Yes, Mike.
I don't have that for the for the quarter Julio but for the year. It's about two thirds one third two thirds of value add one third one third of commodity base and.
And that's a little and Thats down from last year last year, where your 70 30.
And but a lot of that I think is just simply because of the impact of lumber price appreciation on and commodity products and as such a prominent impact on the sales dollars and not quite as much impact on the fixed fixed selling price products.
Okay.
Okay.
I'll pass it on thank you. Thank.
Thank you.
Thanks Julia.
Thank you and our next question comes from Reuben Garner with benchmark. Please go ahead.
Thank you and just wanted to squeeze one more and if I could the.
You talked about kind of the the variable versus fixed I think gives you a balance.
The offset the volatility in lumber prices, but I think it was three or four years ago when prices were elevated over kind of the winter and sell into the spring season that maybe it caused the more pronounced impact for you guys is that is that of risk. We should watch out for is there anything you guys can do to offset it just knowing kind of the price environment.
And so elevated now or is that less of a risk for some of the reason that I'm not.
Thinking of and we Shouldnt really necessarily model and kind of any <unk>.
Margin pain, and the second quarter for something like that.
Yeah, I think a precipitous drop and the market Reuben always is going to leave a mark so to speak but I do think the the balance and the business that Mike keeps referring to has helped.
If we're not quite as dependent on the particular.
And I'll say commodity treated type product mix that tends to be the most volatile of the market falls during the busy selling season, but as you can see the.
The sales volumes of <unk>.
Become a lot more normalized per through a variety of reasons throughout the throughout the year.
So other than wintertime, it seems as though and as long as demand is strong there is a better balance in the takeaway.
Okay, great. Thanks.
Thank you.
Yeah.
Thank you and speakers I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. Matt and the sad for any closing remarks.
Well as you can tell and I'm very grateful and excited about our team's exceptional performance their hard work and extra effort has put us in an excellent position to succeed.
We are addressing all the areas that we can control and we're also preparing for unforeseen challenges.
The Tampa Bay Buccaneers I'm confident that despite any challenges that arise our team will overcome them and we will win.
Thank you for your time today. Thank you for your investment and us and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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