Q1 2021 TopBuild Corp Earnings Call
Greetings and welcome to the top built first quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
He would like to ask a question. Please press star one on your telephone keypad.
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A reminder of this conference is being recorded I.
I'll now turn the call over to MS. Tabitha Zane Vice President of Investor Relations. Thank you you may begin.
Thank you and good morning on the call today are Robert Buck, President and Chief Executive Officer, and John Peterson, Chief Financial Officer.
We approached the senior management's formal remarks, and the Powerpoint presentation that summarizes our comments on the Investor Relations section of our website at top sales Dot com.
Many of our remarks will include forward looking statements, which are subject to known and unknown risks and uncertainties, including those set forth in this morning's press release as well as of the Companys filings with the SEC the <unk>.
Company assumes no obligation to update or supplement forward looking statements that become untrue because of subsequent events.
Please note that some of the financing measures will be discussed on this call will be on a non-GAAP basis. The non-GAAP measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. We've provided a reconciliation of these financial measures to the most comparable GAAP measures in the table included in today's press release.
And in the presentation accompanying this call I will now turn the call over to Robert Buck.
And thank you for joining us today.
The service partners I want to congratulate the teams that both segments were outstanding execution in this accelerated growth environment challenge vibe of labor and material constraints and weather related issues and our southwest and Midwest markets with John will discuss in a few minutes.
Our true team branches are working diligently every day when the new projects allocating labor of material appropriately and media tight builder schedules.
The team is doing the excellent job managing price and customer expectations, given the extended build cycle customer price increases are being realized as we expected.
As the move through the quarter of price and improved and it continued the strength in April.
At service partners, given the steep demand curve in extreme material shortages material cost increases or pass through the customer of much more quickly and this is reflected in service partners results. The.
The team is also doing an outstanding job of managing customer service and expanding their customer base in areas, such as gutters and commercial products.
Our commercial business in both business segments continues to improve as the late projects get on <unk>.
Back on track and bidding activity for both light and heavy commercial as strong on the same branch basis commercial revenue increased 8.1% of the first quarter compared to a year ago.
On the heavy commercial side, we believe our success rate and waiting new projects due to our strong value proposition that includes expertise and abroad array of events lighting products adherents district safety standards and excellent quality control Oh from an established and financially stable company.
We also continue to expand our relationships and services with general contractors across the country.
The types of pay of the commercial projects were bidding on and winning include hospitals distribution centers corporate campuses as well as public works jobs such of schools universities and public safety facilities.
We expect our commercial business will continue to strengthen as we move through the year.
Cost increase effective at the end of June the first two effective in January and April of this year.
We're also seeing cost increases for spray foam and other building products.
In light of the current environment, we expect both true team at service partners to drive higher selling prices throughout the year.
Many of you asked how we manage these material costs and selling price increases.
Within our branch wide system, our sales force utilizes the tool to assess the order margin thresholds at which the job can be bid. This range of established by our regional leadership team on a market by market basis in response to changes in material pricing and demand.
Our goal is to strike the optimal balance market by market between price and volume with consistent emphasis on profitable growth.
If the sales reps from it's a bit outside of the establish range. It has escalated in the system for review by the branch manager and regional leader as appropriate.
As we look to the rest of the year, we are confident in our ability to fully offset material cost inflation with higher selling prices and our track record supports the conviction.
This type of inflationary environment strong demand couple of material and labor constraints is one in which top build <unk> sales.
John I will now turn the call over to you.
Good morning, everyone.
Robert noted, we had a strong first quarter with revenue growth and margin expansion of both businesses.
From the first quarter net sales increased 13, 7% to $742 $8 million driven by increased same branch sales volume revenue from acquisitions and higher selling prices.
First quarter adjusted gross margin expanded 40 basis points to 26, 7% driven by higher selling prices savings from cost reduction initiatives lower insurance cost and operational efficiencies, partially offset by material inflation.
Adjusted operating profit in the quarter grew 38, 3% to $97 $2 million with the corresponding margin improvement of 230 basis points.
First quarter, adjusted EBITDA was $115 8 million compared to $88 4 million of.
The 31, 1% increase and of our adjusted EBITDA margin was 15, 6% of 210 basis point improvement.
Both adjusted operating and EBITDA margin improvements were driven by the previously mentioned factors impacting gross margin as well as lower stock based compensation expense reduced travel and entertainment activity.
Lower legal fees and continued good leverage on our fixed overhead.
Our first quarter dropdown to adjusted EBITDA margin was 36% 39, 9% on the same branch basis.
Given by higher sales volume strong cost controls and continued leveraging of our platform, partially offset by higher material costs.
Adjusted net income for the first quarter was $67 $1 million or $2 <unk> per diluted share compared to prior year first quarter of $45 $9 million or $1 37 per diluted share.
First quarter adjustments to net income were $15 $2 million, primarily tied to $13 $9 million of debt refinancing costs and the remainder of related to acquisition related expenses and the COVID-19 lease kind of plan put in place last March of.
This plan provides assistance to our employees directly impacted by the virus.
Okay.
First quarter interest expense decreased from eight 7% to $6 $6 million driven by lower LIBOR rates and the lower balance due on our term loan during.
During the quarter, we successfully closed on a $400 million senior notes offering in place the three and five 8%.
The maturing in 2029, using the proceeds to redeem our $400 million of five and five 8% senior notes maturing in 2026.
This 200 basis point of interest reduction will generate $8 million of an annual interest savings going forward.
In addition, during the same period, we amended our secured credit facility extending the term loan maturity by one year to 2026, and removing the 5% LIBOR floor, which has contributed to our term loan and revolver borrowing costs.
First quarter, Capex was $12 $3 million, approximately one 7% of revenue and lower than our long term target of 2% per.
Full year 2021, we continue to expect capex to be approximately two percentage of sales.
Working capital as a percent of trailing 12 month sales was 10, 2% 30 basis points lower than first quarter of 2020, primarily due to improvements in our accounts receivable aging and the richest segment mix of our service partners business, which carries lower working capital requirements.
Working capital did increase 90 basis points sequentially, primarily due to higher sales growth towards the end of the quarter.
Our effective tax rate was 27% in the first quarter compared to 17, 4% for the comparable period in 2020.
The higher rate was primarily due to a smaller benefit related to share based compensation, partially offset by state tax adjustments.
True team and service partners were impacted by the severe weather experienced in many areas of the southwest and Midwest, but most significantly in Texas, where we have 27 branches a number of which were shut down for an extended period.
As a result, we estimate volume was two 8% to 3% lower compared to a year ago and the build cycle was further elongated.
Moving to 2021 annual guidance based on builder orders.
And our expectation of interest rates will remain low we are optimistic this will be of very good year for topical. However, as we noted in February our guidance assumes some level of industry wide material and labor constraints, which has already led to an extended sales cycle and higher than normal backlog.
Based on our first quarter results acquisitions completed since our last earnings release and internal forecast. We are now projecting total sales to be between.
3 billion 220, and $3 billion $320 million of $170 million increase on both the low and high end range.
And adjusted EBITDA to be between 532, and $562 million of $27 million increase on both the high and low end range.
This assumes a range of residential new housing starts of between $1 45, and $1 5 million, which is an increase from our original guidance based on recent housing activity.
Our long range modeling targets are unchanged from those we published on February 23.
I will now turn the call back to Robert for closing remarks.
Looking ahead to the remainder of 2021, it should be another strong year for chapter with the.
We're driving hard to achieve execution of excellence in all aspects of the business.
Which will generate topline growth maximize the conversion of that revenue to the bottom line and provide the free cash flow to fund our capital allocation strategy.
In closing I, thank our entire tocqueville team for their hard work safety lifestyle and dedication to creating value for our shareholders.
Operator, we're now ready for questions.
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Our first question is coming from Stephen Kim of Evercore ISI. Please go ahead.
Yeah, Thanks, very much guys good results.
You did make a comment about how.
The lag effect basically build the lead times lengthening resulted in maybe perhaps a little bit of a progressively better price realization through the quarter you indicated that it strengthened through the quarter and remained strong in April I was curious if you could give us a sense of what the exit rate.
On a year over year of basis was for price growth and true team you know and at the end of the quarter, maybe give us sort of looked into April and then with respect to this production growth that that the debt.
Debt, where that where or the lengthening of build times are you seeing of bifurcation of developing between smaller versus larger builders in the in.
In today's supply constrained environment.
Yeah. Stephen This is John I'll take the the first question and I'll transition of Robert for the second so I think on the pricing side as Robert said, we solely the lead and quite frankly, it wasn't unexpected we anticipated that was going to be the case driven by the fact that your view of a longer build cycle. So so we did sequentially.
Really get better in the first quarter and we believe sequentially better in the second quarter, we're going to see that continued growth we saw through April.
I won't give you specifics in terms of a dollar of other than to say, we believe the that delay was roughly a little over a point worth of pricing essentially.
That would have been delivered in the first is the build cycle had been you know based on historical cadence. So so yeah, I think again no surprise to us delivering what we'd expect is certainly getting price and I think that's going to continue throughout the second quarter and the.
The remainder of the year so yes.
Yes, Stephen Good morning, it's Robert So I think to your second question talking about bigger builders versus smaller builders I mean, if you think about building on what John said.
Really you know going into this we would have saw pose flush through on an average filter maybe I'll, even say lack of production builder you would've saw flush through and like the 90 to 110 day period with the extended lag and with the some of the slowdowns given the supply chain through the industry you know that number is getting.
More than it can be the 100 <unk> hundred 40, <unk> hundred 50, <unk> hundred 60 day range. That's the extension of receipt and the production homebuilders are they're probably in that range, whereas the custom homebuilders, probably that that range is longer and has extended out a little bit further as well so.
So a little bit of differentiation between the two there's always been some of that differentiation, probably expanding a little bit now given some of the industry wide.
Fly chain constraints, the cleanup production big builder, and what I'll call out of a custom homebuilder.
Yeah. That's that's helpful. Thank you for that and that's what we're seeing as well.
My second question relates specifically to overall national housing starts.
And obviously given your your scale and breadth of that that matters for you I would think in particular I wanted to talk about the 2 million housing start number that we often have heard about in the past I've kind of jokingly referred to it as like big foot for the industry, because it's like it's big and it's scary, but nobody actually things are going to live to see it and yet the housing start numbers.
Has been surprisingly strong for most of the last six months.
And what I'm curious about is what do you think the potential is for the industry to produce or grow into what 2 million housing start level and over the next few years do you think that it's likely or possible and then what specifically would you need to do.
If housing starts exceed your expectations, if let's say you presume, it's going to be if I'd say out of one six level and it turns out next year to be like say, one eight what would you need to do to be able to meet that one eight could you do it like how quickly could you react.
Yes, Stephen this is John I think the easy answer on Orange, certainly as labor, we'd have to continue to ramp labor, but I think you know of.
Currently and I anticipate in the future that that's not going to be the major issue that we'd have to deal with you. It's gonna be around material constraints. So I think.
A broad range of building products would have to and we'll have to continue to ramp.
The there's a limitation I think across many many building products installation of one of them that's going to be kind of the of the governor on that growth basically we're seeing but I'm confident that our manufacturers along with other building products are all ramping up today anticipating what you've talked about which I think is a very optimist.
<unk> outlook for residential new construction, and we share that the labor the labor side as we said, we're very confident of our ability to deal with growth and that really isn't causing us the issue right now its material constraints across the broad range of products yes.
Building on that even that would be I think to John's point, we feel very comfortable on the labor side I think you've heard us talk about our friends and family programming. That's just playing huge dividends for us as the how we're bringing folks into the company and the industry wide.
Ever constrained of material constraint agree with what John said I think you'll continue to see later this year. So picking on fiberglass you see excess capacity coming out of the flu still.
Installation to the the manufacturers, bringing more bring me back more capacity. It does give you the opportunity to.
Use of that loose fill into the wall applications, which takes some of the pressure off the bat piece and as the spray foam industry improves.
The latter half of the year, which it will.
We already see more builders are open to that idea.
As well so theres some alternate methods of it'll go in and I'm sure other trades and other products and stuff. We're looking at the same.
That's helpful. Thank you so much guys.
Okay.
Thank you. Our next question is coming from Michael Rehaut of J P. Morgan. Please go ahead.
Hi, Good morning. This is a lot hillman on for Mike. Thanks for taking my questions.
So first I just wanted to maybe get a little bit more quantification around price.
Price cost during one Q I and some of the lag impacts maybe and true team in and how you see kind of price cost.
Going through the rest of the year, specifically the century team.
Yeah. We don't this is John we don't typically and we're not going to provide you know what our material inflation was the severe of price, but again I think we certainly did see material inflation in both segments income.
Moving true team as we highlighted in our press release, and we talked about in our prepared script of about of 1.1 point increase.
On the tier one one thing I'll point out of materials, certainly we do other products by the way you know besides just spray foam. So besides just fiberglass and spray foam. So I think you know the one 1% was within expectations based on the cycle of like Robert talked about as I mentioned earlier on the true team, we the probably impacted another point of price debt delay.
The we would've been able to do if we had a normal cadence on the build cycle. So that's probably the most of the can give you at this point, but again very very comfortable with what we saw in the quarter all within expectations and great momentum as we exited the quarter rolling into the second quarter on pricing.
Great. Okay. Thanks, and then just switching over to the commercial market.
The 8% same branch sales growth that you had would you be able to split that out between heavy versus light commercial growth and then.
Also how much of that growth do you feel like let's do the underlying market recovery versus your ability to gain share.
Yeah. Good morning. This is Robert so I think the growth between light and heavy about equal I would say.
As residential is picking up momentum her has picked up momentum the light commercial follows right along with that and all of the heavy commercial side, we're seeing two things where see the projects that were delayed getting back on track and then we're also seeing some nice new projects come online. So you know if I if I thought about the number of Amazon facilities, we've been working on.
Heading out of last year first quarter of this year and ones that we're bidding for the rest of the year of lot of distribution centers, a lot of and if I think of.
The education and think about medical with you Wilkes of good mix of product as far as how much of that is coming from delayed projects. I think we're seeing momentum from both I mean, we started a lot of new projects that we bid in the past six months and we're on some projects that got delayed.
You know the last year I think you put all of that together I mean the.
Of the Dodge numbers 2021 of the commercial business is down we're off the combination of projects that we're gaining share for share, which we said we were very confident we would do coming into 'twenty 'twenty. One of we expect this momentum in commercial to keep up with the for the remainder of the year and we are bidding some nice projects into 'twenty, two 'twenty three as well.
Sounds good thank you.
Thank you. Our next question is coming from Ken is the center of Keybanc capital markets. Please go ahead.
Good morning, everybody.
Good morning.
So.
Hum.
What is the.
The record distribution margins going up that much I mean, how much.
Obviously, theres I believe net pricing going on from from your position.
But if you look at the distribution side, Oh loan because that's generally been a pretty steady business is this really this extreme margin expansion year over year, how much of this is cost.
I guess the separate from the whole demand and pricing dialogue, what's the what type of headwinds could we be expecting John to come back into the business as things quote normalized.
Yeah.
Well I think we've talked about.
The SP side of the business service partner side of the business I think what you're seeing right. Now is really good execution certainly from that team and you've seen that in the past.
Most of year now in terms of sequentially, we've had really nice growth in top line and delivering great bottom line. So.
Obviously, the things driving that or we're managing our input cost piece of your selling price the material cost versus the selling price. The delay of Robert talked about are we talked about on true team isn't in play on the service partners. Obviously because of there you know the lag doesn't affect the impact we can as we absorbed material costs, we can push through those price increases.
Quickly in real time, so certainly that's what you're seeing the other thing of that business continues to do a great job of a great cost control and I think you know.
We're growing that business expand and it was really out without adding additional fixed overhead to the bucket. So.
So I think the model is working excellent right now and I think you know as we look at the remainder of this year I think we're really.
Optimistic about service partners in the go forward in terms of what could happen.
And then not to speculate but certainly you know.
We're going to continue I think in the industry continues to be of great growth and I think you know again, you're going to probably continue to see nice expansion in that business on the go forward.
And then Robert for the installation.
Mrs.
Yes, there's a lot of different things.
GAAP earnings when the company was in Moscow during the last cycle, obviously, theres a lot of different categories.
Categories I T. So it's not exactly the same but.
Broadly speaking it seems like a lot of product companies.
That manufacturer, obviously able to pass through price given the strong second half demand that I think is really elevated investor sentiment. So can you talk to the fact about.
You know the demand.
At your builders, obviously are expressing to you.
Enabling you to perhaps capture price faster.
Than you would've expected I mean, there's obviously all of the conversation around the spray foam as well as you know the fiberglass, but I think there could you just kind of put in context the tension.
Man I E. They went the material and your labor and how that's enabling you to perhaps price.
Liquor than we saw in prior cycles.
Ones or you know I think of it was an 18 last time, we had that as well.
Maybe I don't know of few points, there and I'm sure John May jump in as well. So I think you know when I think about the demand curve. Ken. So you know what the backlogs are definitely building for sure do you think about the order rates from the builders have come out with you know the lag of extended in the industry.
Supply chain can shrink so we're seeing the backlog building I think that you know things like the spray foam and others will improve I didn't think that everybody's working better on the allocation side of the less substitute of products that type of thing I think we're seeing things working better. So I think there'll be the will be some gain momentum back.
At the back half of the year all of those things will remain tight I think relative to price I mean, we're getting into the seasonally busy time of the period and you know how that works. The question as you get into the Q3 and the and the builder closing I think the other thing I'd point out when you kind of hit on talking about differences as I think about our differences from the he went back to Mike the other day.
<unk> versus today is just the discipline that we have in the systems and process that we have I mean, you know I talked about in the prepared remarks, how many of you have these thresholds of these approval levels, though we go through we get real time visibility.
The things that are going on in our in our markets and down to the day after the branch level into the sales drift of it that's what I've heard of Johnson.
I think I couldn't remarks pricing progressed as expected that's because we have the visibility of what was happening of those lag times and what we were seeing coming back from our our local markets and service areas as well. So that's why we're confident I think we proved that up to now and that's why we're confident with what will happen in the back half given the different dynamic.
What's happening to your point.
Thank you.
Thank you.
Thank you. Our next question is coming from filling of Jefferies. Please go ahead.
The guys stylus execution in a pretty tough environment the.
The material shortages the up the fiberglass industry as well of spray foam has called out last quarter and you called out actually.
The availability starting to improve just trying to gauge if you're gonna be able to play a little more catch up into Q of just given how strong. The starts had been or is this more going to be a back half kind of event.
Hey, good morning, Robert So let me see like spray foam first given that was the you know pretty catastrophic catastrophic event in Texas in February So we definitely see that improving improved some in April for sure. We've seen improvement in May you know a few more months to go and the improvement there, but yeah. That's the.
The play some catch up in Q2 definitely catch up in Q3. So that's definitely proving you know of fiberglass Owens Corning bought home are there new capacity back in March at the same time of the demand per got pretty steep. So that's the that capacity was what's taken into account pretty quickly in the industry and the mentioned.
Some more loose fill capacity coming out of what I'm gonna call. The around the September end of Q3 timeframe.
From one manufacturer and the other manufacturer of bringing them back on when the call. It around Thanksgiving timeframe. So that's sort of help in the back half of the year, it's going to help in that busy October October November closing timeframe. If you will and again that will facilitate some other applications, where you can use that news filling of the wall or back of the Thai same time spray.
Some of them should be in the now.
I spoke of every stage by the time of getting that busy times of a long way of answering your question, yes, it'll it'll improve throughout the group of things remain tight given the demand curve. The answer is yes.
We absolutely are comfortable with improvement coming for sure.
And Robert just to expand on debt and piggybacking on to Steve's question earlier, you know what.
Some of that capacity coming on and then the other industries was caught short on inventory.
Assuming we normalize a little bit more low end of this year. When we think about 2022, how much capacity does the.
Installation of industry have in terms of of the manufacturers supporting starches at like a one five number north of that any color would be helpful. Yeah, I would say our best estimate on that sales are still the number in that ballpark of the one five number I think all of the manufacturers are working on productivity initiatives.
To improve upon that number as well as you know the other products like the phone will will help the industry as a whole.
But yeah, I'd say were right there right now still in that ballpark of that one five number.
Okay, and just one last one from me good to see your commercial business rebound, whether it's light or the herbicide are you seeing any more challenges and pushing inflation through on the commercial side of the things just because of the cycle times tend to be a little longer. So I'm wondering if the complexity and just sort of pretty dynamic input.
And putting the cost environment has made it a little more challenging to pass that through on a timely basis.
And the to your point some of those projects have a longer lifetime, if you will and in those projects from like say last year or maybe late 2019 of our finishing off now, but as far as bidding new projects and looking after the.
Back half of 2021 into 2022, no I mean it goes those are definitely built into those projects that we're bidding today and you know some of the material constraints that exist on the residential side don't necessarily exist from the commercial side from different products from different applications, there as well.
Okay. It sounds great. Thanks, a lot guys and good luck of the court.
Thanks, Phil.
Thank you. Our next question is coming from Trey Grooms of Stephens. Please go ahead.
Hey, good morning, Thank you for taking my question.
So first off of I wanted to talk about the M&A I mean, obviously you know.
You guys are doing a great job of executing on M&A and other.
Really just trying to unpack the the change in the guide you know from for how much the was M&A related from deals you've closed since the last earnings call and then how much is from you know maybe the newly announced price increases or demand improvements and I. Appreciate the the updated housing assumptions, but really just.
The unpack the guide for those components.
Sure Trey this is John so yeah, we're up about $170 million on the revenue side and if you break that down it really.
As we do and announced acquisitions, we do provide obviously the annualized type of number. So if you look at a b S and conservation and Ozark. The three that I don't think were included in the original guidance, it's about $125 million of 2021 revenue, we're adding to the guidance. So so that's the.
The back into the same branch portion of its about $45 million and that really is made up of you know.
The improved optimism in terms of the industry, some pricing et cetera, that's baked into that total so that's the breakdown on the 170.
Great. Thanks, John that's helpful and then.
Also maybe another one for you on on working capital as a percent of sales of it bumped up a little in the quarter, but trailing 12 months it's down.
And as you mentioned you know a richer mix of service partners helps with that so with.
With those things.
As well as you know movements in pricing, how should we be thinking about working capital going through the balance of of this year.
And then are there any other cash flow items debt that we should be aware of as we're thinking about free cash flow for the for 'twenty one.
I think that tend to turn and a half of range, we've kind of hit the midpoint of that here in the quarter.
Trey I think is a good way to think of working capital Yeah, you're right. I think that's helped us a little bit is that that service partners' growth has outpaced true team and service partners is of a much leaner working capital requirement. The true team does so in terms of one offs from a cash flow standpoint, nothing nothing significant borrowing any type of acquisitions or.
Or share repurchase or something at this point, but we're not announcing and obviously not anticipating or or providing the information around that at this point. So nothing that's one of our fish that I would include in a go forward.
Alright, that's it from me. Thank you congrats on the good quarter and good luck.
That's correct. Thank you.
Once again that is star one if he would like to register a question. Our next question is coming from Joseph sphere of Zelman and Associates. Please go ahead.
Hi, Good morning, guys congratulations on the OSM corny I.
I just had a couple of questions one just in terms of the the.
The the industry wide situation that very tight supply obviously of the industry wide, but specifically for fiberglass insulation was there any mitigation to growth in the quarter from just that tightness upstream and argue accommodating for that.
And in terms of the potential for tight supply to continue are you accommodating for that in your guidance.
Hey, Justin Good morning, Robert I'll take the first part of that so yeah, I mean, I definitely impact in the in the quarter, but let me give you a really good example of it.
Whenever it does the warms here, Texas and southwest and Midwest.
Several of the fiberglass manufacturers have major major facilities, Kansas City, Texas, Missouri area for one of the other manufacturers of those facilities were shut down for them you know of.
Close to a week. So there was no production coming out of those plants during that time, obviously, you've heard us talk about spray foam. So yeah definitely you know the.
The industry was already running leaner inventories with the manufacturers. So you have that type of event happen definitely had an impact on the industry and an almost supply chain.
In the quarter.
We've said previously do we think it improves in the second quarter of the answers you asked the guard is seeing some improvement happening and we expect out of carry through the year.
And this is John in terms of guidance.
Without question, we have baked in constraints into that number you know left look without constraints that number would be of significantly higher than our starts profile that we provide is kind of a guardrail around that would be higher to Neil chatfield.
Southfield, certainly sits today poised to participate when that ramps and as that ramps and again, we just baked in a little bit more into our current guidance, but yeah. We we have anticipated constraints as part of the guidance we provided in March.
Our best estimate of what we think that effect so.
That's helpful. In the the other the other part of my my questions are tied to the margin side. Just if we were to rewind prior to the to the pandemic and even prior to the U S. I acquisition I know I think you were targeting something like something like 14, plus or minus percent, maybe mid teens kind of EBITDA margin and now your truck tracking closer to.
You know 16, 17%.
Just curious maybe if you could help us kind of look at maybe the pieces that you've done in your control and sort of in the U S ideal, but things that were in your control of that have allowed you to exceed that and then maybe some of the things that the.
The way you could argue maybe it isn't sustainable and just kind of thinking about what the new normal is as you look at now one of the half million starts and you're exceeding that maybe help us understand what the new normalized profile is for investors longer term.
Sure. Justin This is John So I think you pointed out of one one significant piece, we've done a great job on acquisitions I think you know across all of the U S. I, obviously being the the.
The largest we've done historically, so I think you know.
The acquisitions, when we think about what we've done and what we'll continue to do are typically in our core sweet spot, we understand them very well, we know how to run those businesses, we integrate them within our core platform and we tend to deliver really strong synergies. So that is a great example, where not only on the purchasing side, but also in terms of brands can.
Validation, we did along with the back office consolidations. So so that has contributed obviously in terms of driving some of some significant EBITDA margin expansion I think beyond that the business in general has just run the <unk> been running at an operating very very well and we always talk about the fact that you can manage our labor and material.
Buckets and manage those well vis vis our selling prices and you know we're gonna tend to perform really well and I think we've done that in both segments and I think that continues into 2021.
And then beyond that you know cost control productivity initiatives are something that everybody. In this business works on day in and day out and I think you know we continue to have significant opportunities to work. So so looking forward.
We provide some guidance around long term modeling I think there's sort of assumptions to start with the listen I think I I think we feel really good about the ability to continue to manage those input cost of labor and material piece of the selling price and continue work on those projects that we continue to identify from the productivity initiative standpoint, so so I do believe will.
To be able to manage expansion one last thing I think and we said this before our footprint is still set up for a higher level of housing starts and so.
We're going to minimize the fixed overhead requirement, we have related to the growth that we see in the future. So so yeah, we're pretty optimistic about.
The direction, we're headed and and you know the model the modeling capabilities, we have in the business to grow and continue to expand margins.
That's helpful. And then I guess, one follow up on that just the SG&A in the quarter they leverage their very strong and I know you've got some M&A in here now coming forward, but how should we think about that SG&A expense and corporate spend line items in your guidance from a maybe a year over year standpoint, or a normalized standpoint.
Yeah, I think we're going to do a great job on all of the things I just talked about the only thing I think the point out and we talked about this multiple times as we have benefited from certain line items that we're.
Under normal spending levels due to COVID-19 and you know the the best examples I can give you of things like travel and Entertainment group.
Group health costs, where people have deferred elective surgeries and or trips to the doctor and even items that affected our gross profit like shop supplies, which are things like N 95 minutes, where you know a year ago we.
We weren't obviously able to buy some of those things we didn't have people attending the doctor's office and our travel and entertainment was low. So those are starting to normalize and I think the back half of this year youre going to see those numbers.
Normalized closer to historical levels, so that'll that'll be a bit of a headwind versus all of the the positives we talked about the that's baked into our guidance also and we anticipate that already so.
Excellent thanks, guys.
Welcome.
Thank you at this time I'd like to turn the floor back over to management for closing comments.
Thank you for joining us today, and we look forward to reporting our second quarter results in early August.
Ladies and gentlemen, thank you for your participation and interest in topics you may disconnect. Your lines at the time and have a wonderful day.
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