Q2 2021 Beacon Roofing Supply Inc Earnings Call
Yeah.
[music].
There's no obligation to update or advice any of these forward looking statements.
Finally, this call will contain references for certain non-GAAP measures. The reconciliation of these non-GAAP measures is set forth in today's press release I would never liked it turns the call over to Mister Bennet Senvy head of Investor Relations. Please proceed Mr. Senvy.
Thank you very good evening and welcome to our fiscal second quarter of 21 thrown in school.
For you on the call today are Julia the France's President and CEO in front of Linda growth She financial officer for.
Byrd remarks will correspond with the slide deck posted to the Investor Relations section of.
<unk> the website.
At the management's prepared remarks, you'll be of question and answer session with that I will now turn the call over to Julia.
The Senate slow for you to begin to have you on the team.
And I'll need to get home page for a slight materials, which focuses on a second quoted continuing results.
We had one last sales day and the second quarter of 2021 can pay for the prior year quarter.
Can you repeat the results on the case, a day basis for better compatibility.
Our team delivered impressive results from the fiscal second quarter the <unk>.
Moving record sales and the adjusted EBITDA.
Sales reps, approximately 12% and the.
Chested EBITDA more than tripled are improved gross margins and the operating cost leverage.
In addition, we successfully closed on the divestiture of the interiors product business with sharpened of focus on exteriors.
We continue to be very pleased with the team's execution of the past several quarters and believe the beacons performance of the results.
The hard work supporting our strategic agenda.
Let's discuss the key highlights from the second quarter.
Demand continues to be strong.
Residential roofing sales increased 21% compared to the second quarter last year.
Re roofing and new construction activity continued to be strong and the banded while in March after weather impacted many markets in February.
The policy of housing market fundamentals for also a tailwind for complementary products demand.
And the encouragingly non residential improved sequentially from the first quarter and turned positive year on year of March.
Price execution, David solid gross margin improvement.
The strong residential market independent of favorable environment for the successful implementation of the price increase in February.
Similar to August of last year, we quickly and thoroughly implemented of February shingle price increase the.
Execution of of the price increase created favourable timing benefits, which positively contributed to gross margin.
Second quarter gross margin of 25, 3% exceeded our expectations.
We continue to see inflationary pressure across most product categories, but we're also confident we can capture additional pricing opportunities to more than offset cost headwinds.
[noise] productivity gains in cost disciplines of generated substantial operating leverage.
We continued to be proud of our team the ability to manage costs during the past for COVID-19 impacted quotas one.
Of our central goals of the leadership team the to aggressively manage costs and all of the mind environments.
The significant operating leverage that we experienced in the second quarter demonstrates this commitment and the progress we've made towards improving our cost structure.
Labor and fleet productivity initiatives are showing the results.
Evidence by the fact, the queue to adjusted Opex dollars increased by less than 2% year to year.
Despite the double digit increase in total net sales.
Lastly, the past few months of been transformative for Beacon.
We focus of the business portfolio created significant financial flexibility under the assembled the new leadership team.
First the divestiture of being serious business for turned us to be in your focus leader within the exterior building products distribution.
Approximately 80% of our continuing business is now within residential and commercial roofing.
These are very attractive markets, there's more than 80% of roofing is classified as repair and replacement with the job majority of that spend the non discretionary.
Secondly, we restored financial flexibility through a combination of debt pay down from the proceeds of the divestiture and a series of refinancing transactions.
It will be finalized this month.
The results are of stronger balance sheet lower cash interest of net leverage of 2.9 times at the end of the quarter half what it was a year ago.
We know of ample the ability to invest in value creating growth opportunities going forward.
Instead, we feel key leadership positions, bringing talent of new skills to our team.
That will drive of our organization performance for the next level.
We have announced the appointment of christine's throw ready of general counsel in corporate Secretary.
Sean Macdevitt as chief of Human Resources Officer, and most recently Jonathan balance.
As Chief commercial officer.
The capabilities of these individuals bring to beacon are essential to a desire to innovate fill of of growth improve operational performance and drive shareholder value.
Next to turn the page five of the flight deck.
The.
In recent quarters, we provided updates for each of our for strategic initiatives the.
These initiatives remains central to our improved sales growth operational efficiency and profitability.
Our approach of systematic and our plans measurable.
There are also additional benefits, which of more qualitative yet play an important rolling adding value for the customers and differentiating us from competitors let.
Let me begin with organic growth.
Ah sales and operations team of thousands of interactions of our customers on a daily basis, we are focused on improving both the number and the effectiveness of these interactions.
We continue to invest in sales training programs marketing and value added tools that improve our team's ability to manage existing and the customer relationships. We've.
We've established targets for our sales team, including the number of interactions day, and we know that meeting these targets strongly correlates to driving overall company sales performance.
To the first half of fiscal 2021, we have maintained the accelerated pace of customer contact set in 2020 at the confident that it will continue to be a driver of organic growth.
Max's our industry, leading digital platform.
Digital as of clear differentiator in the marketplace of the Beacon.
I'm pleased to report that adoption rates continue to rise NAMIC up more than 15% of net sales in March.
This compares to the run rate of 11% for exterior product sales during the final months of fiscal 2020.
As mentioned on previous calls we've continued to leverage the customer adoption rates, but accelerated during the early COVID-19 environment and the confidence our current you in the long term growth trajectory for enhance our leadership.
Digital is a great example of how the shopping post divestiture focus is paying dividends for growth.
Our organization is now devoted to developing exterior products offerings on the platform.
Next moving onto our on time and complete network.
R O T C strategy Leverages the density of our branch network and larger Msas.
We operate in 58 distinct markets and have more of the 250 brain. She was participating in the otc's.
The ADC provides for key benefits.
First of improved customer service of three of Gray.
The flexibility to deliver from the branch with the best combination of product and service to support the customer's needs.
Secondly of lower cost of serve.
Since we can optimize across the network of branches, we get reduced delivery time, and mileage, improving labor efficiency and reducing fleet costs and emissions.
I'm pleased to report that we've reduced hours per delivery by 5% and reduce gallons of fuel for delivery by 4% of in the second quarter compared to the prior year period.
Third is reduced inventory levels for Ya.
Previously indicated we can feminine we reduce our intrigued by 52 of 100 million as we optimize across our OTC branches and remain confident that we didn't hit that target.
And force, we can accelerate our talent development.
R O T C creates opportunities for all people to explore a variety of all of the beacon and build increasing levels of responsibility, allowing them to build fulfilling careers of our company and reached the full potential.
Lastly, I wanted to update our branch operating performance targets.
I talked extensively about our focus on the bottom of quintile branches and our goal to significantly improve the operating performance.
We've developed the diagnostic tool and the reporting cadence of the places emphasis on structural change to ensure that improvements are sustainable.
We shed in the prior earnings for what we achieved moving $20 million a year over your bottom line improvement in fiscal 2020, and now expect at least 30 million year on year improvement from the lowest quintile branches and fiscal 2021.
Up from the previous guidance of 20 million.
We continued to see results from this initiative and remain on track to deliver on our target.
Each year, we will continue to focus on driving sales and operating prevents for bringing these branches over time of to at least our company average.
To summarize the strategic initiatives continue to gain momentum and are delivering measurable results. The divestiture of of the interior of the business of allowed us to focus on the premium the performance and productivity of our exterior branches and driving growth in our core business.
Now uncle passed the call over the Frank to provide the deeper focus on our second quarter continuing the results.
Thanks, Julian and good evening everyone.
Turning to slide seven we of.
<unk> of of $1.3 billion in total net sales in the second quarter.
We have one less sale of the day in the second quarter of 2021 compared to the prior year quarter. So I will speak to our sales drivers on of sales per day basis for better year over year of comparability.
Strong demand within a residential roofing and market gross sales higher than we had anticipated and our previous outlook commentary wet.
Weather disruptions impact of the number of our markets in February which was followed by a rebound in March of reflection of the strong fundamentals underpinning residential demand.
Ah continuing business finished with a strong 12% sales growth for the quarter with approximately 40 per cent do the price.
Maximum 60 per cent the the volume.
Residents of roofing sales were up nearly 21 per cent of robust demand for new construction and repair and remodeling the.
The February single price increase also contributed for the residential revenue growth.
Non residential roofing sales were down the less than three per cent of declines of not only continue to narrow but also finished the quarter with a strong March.
This uptick which has continued in the April.
As as part of the stay optimistic that the worst is behind us and commercial roofing, especially as we begin to cycle of last year's COVID-19 impacted comparables.
Complimentary product sales increase of 11% in the second quarter.
Keep in mind that are complimentary product category as approximately 80 per cent residential and 20 per cent commercial exposure.
Complimentary benefits from the residential market tailwind, including demand for key products, such a sighting lumber of windows indoors.
Ah nonresidential product offering within complimentary is primarily waterproofing, which like a broader non rescued of gore was down year over year.
Ah complimentary products of distributed through our branch network and share overlapping customers with a residential nonresidential roofing businesses.
Turning to slide eight where the.
The gross margin.
Less margin improve for 25, 3% for 270 basis points of the year over year the.
The strong year over year increase was driven by favorable price cost as well as favorable sales mix.
Price costs was positive by approximately 230 basis points in queue to due to the successful implementation of our August in February price increases in favor of the timing.
By comparison, we experienced 70 basis points of year over year price cost benefit in Q1.
Favorable product mix from the quarter also contributed for the year over year margin lift as we experienced the stronger sales of our higher margin residential roofing products.
There have been additional price increases announced across the broad range of our products, including the April shingle price increase mentioned by Julian.
We are approaching those increases with the same level of of rigor and execution. We demonstrated in our approach to the August in February price increases.
Now shifting to our operating costs on the Julians leadership, we have made measurable progress and operating efficiency and it will continue to be of focus at both of the corporate and local level.
We are leveraging many of the changes that we implemented in response to COVID-19 and are capitalizing on the opportunity to apply those principles and of stronger demand environment.
The second quarter results demonstrated our focus of managing expenses in times of growth.
Adjusted Opex was $278 million a for a million dollars increase compared to the year ago quarter, mainly due to higher incentive compensation.
The call also that we had one for your payroll day this year versus of the year ago quarter. The.
It's less than two per cent increase in adjusted Opex, we experienced in this year second quarter embargo double digit sales growth.
The 100, <unk> 180 basis point.
[noise] reduction in our Opex to sales ratio year over year.
This operating leverage is a testament to the dedication of our field leadership in the thousands of tireless beacon team members delivering value for our customers every day.
The continue to focus on the elements of our business, but we can control and improving productivity within our largest price centers, including labor and fleet as a major focus for beacon.
As you can see we generated a 21% increase sales per hour work year over year.
This key productivity measured.
Demonstrates that we are becoming more agile as an organization and our productivity initiatives are gaining momentum.
In terms of other operating costs, we continue to benefit from the boost travel of entertainment spending.
Which remains well below historic levels as mentioned previously we would expect of portion of these expenses to come back over time.
They are unlikely to return to the historic levels as we continue to leverage greater sales effectiveness and operating efficiencies as.
As we go forward, we will continue to implement improvements throughout our organization as we fully embrace of continuous improvement mindset.
Turning to slide nine we will review our financial flexibility.
Upon final adjustments, we expect the divestiture of of the interior of business to you of net proceeds of approximately $750 million.
We have already used approximately $600 million of this amount to reduce gross debt, which we of pay down by $1.4 billion a year over year.
As many of you know we of effectively absent from the acquisition for for the past few years dedicating are substantial cash flow to reducing our net debt leverage we.
We are pleased to report that we have surpassed are of three times target achieving net debt leverage of 2.9 times trailing EBITDA as of March 31, well ahead of our expectations the.
Misrepresent the reduction of more than three times versus where we were just a year ago and.
And the lowest level of since the 2018 Allied acquisition.
In addition, with lots of comprehensive refinancing in April that will significantly change our debt portfolio.
Upon closing in the.
Are weighted average maturity will be nearly seven years.
Have no meaningful debt due until 2026 and our cash interest will be about a third lower on of go forward basis. In addition, even with $200 million of additional debt paydown anticipated in the current quarter.
Liquidity of of more than $1 billion, giving us ample the ability to invest in our core business.
The wrap up we're very excited about our performance in the second quarter, we of significant momentum as we enter the most important part of our you.
And we are laying the foundation for beacon to become a leader in our industry.
With that I'll turn the call back the Julian for his closing remarks.
Thanks strength.
Before we turn the call over the Q&A I want to update of fiscal 2021 outlook. Please reference page of 11 of the slide materials.
In April we continue to see strong sequential demand improvements and even stronger growth year over year. This as of COVID-19 impacted prior year period.
The housing market continues to provide tailwind for both for repair and replacement and new construction markets.
Residential roofing demand from the residential exposed areas within a complimentary products will continue to benefit from these fundamentals.
Commercial build a segment continues to improve and we would expect the activity to follow continuing the positive trends that we've seen in March and April.
We've implemented April shingled price increase with the same level of of rigor as the August in February residential roofing price increases.
Our sales growth in Q3 will reflect the positive contribution from our August February and April increases as well as several smaller increases within the other product categories implemented during the past several months.
For a physical third quarter ending in June we expect total sales growth of mid to high teens, reflecting our continued confidence and the underlying demand in residential markets and and improving outlook for commercial.
Our emphasis remains on pricing execution and operating efficiency as we enter the construction season.
We expect of meaningful year to year gross margin increase of approximately 200 basis points to around 25, 8% in Q3.
For the full year, we now expect growth in the low double digit range, assuming no additional supply chain disruptions. We are now targeting fiscal 2021, adjusted EBITDA between $560 million and $585 million, which represents a significant increase from the outlook we provided for now.
Q1 call.
While uncertainties continue to exist. This outlook reflects our expectations for a combination of strong sales growth gross margin gains and favorable operating left.
More broadly there are many leaders within our control as we continue to execute on our strategic initiatives.
We will build upon the gains we've achieved in the first half of the year and look forward to the very successful 2021.
With that operator would not ready to open the line for questions.
The ladies and gentlemen, if you raise to ask a question of piece of crap higher followed by one on your tax current telephone. If the question has been answered are you registered the dry your question, perhaps the pankey, it's color if limit up for one question.
Fast if my daughter from RBC capital markets. Your line of now okay.
Hi, This is actually a croissant from my current for taking the questions.
First of all things catch on the the success of the April price increases the maybe provide additional quantification of of how much of that announced pricing was was realizing then what your thoughts are on relative pricing power for for the summer increases enough.
Thanks for your question Chris.
You know, it's it's still early in terms of the the execution of that you know it's not.
UK switch and everyone moves up at the same time it's.
There's plenty of opportunity for us to continue to see improvements Ah I think that.
You know the of prepared comments indicated that we still believe that in this environment, where you're gonna be able to more of the myths offsets the the cost of inputs. So I think that.
She'd be accretive overall, but again, it's it's still early on from from our perspective in terms of the execution.
And.
There's multiple I mean, we sort of across the residential shingles. We've seen it commercial increase we've seen increases in other exterior products. So there's multiple things going on in April quite frankly.
Christmas for him to your point around the summer increase obviously were aware of of the manufacturers and what they put out there we have not made out of our announcement yet.
Understood that makes sense.
And for a follow up I was wondering if you guys could maybe a variety of put more detail on the monthly cadence.
That is in your in your third quarter Guide is April the paperwork up to 40 per cent year over year would imply that May June.
Cause if you're expecting from from moderation down for the potential of high some other day and that seems fairly conservative just wanting to get you there.
Their thoughts on that.
Yeah sure you remember that we're really on comp cases last year I mean April was.
The the the bottom of the market last year is of trade it impacted and we sort of locked everything down in the market change I think we saw of sequential improvements last year is April continued.
But all of the C. V saw that also continue three may last year and June of last year. So I think more of what you're seeing in terms of outlook is rather improving the last year and so the cops get harder as we go forward.
So I don't think it's a.
Diminution in many of the thing we see in the market. It's more of the base of which were calculating the the improvement from Brian.
Got it makes sense of thank you.
[noise] snacks and for Brian I'm kind of us from T Ikea Lightning Telcom.
Yeah. Good afternoon. This is Brian offer Catherine Thank you for a particular questions on the.
The the nonresident Ironman can you talk of all you're saying specifically in the northeast region around like New York and Boston kind of thing that region is back to pre current levels for certain companies based on some of the conversations that we have with our contacts and I guess of wondering if you guys of shana of the same thing up in that region.
Brian Thanks for the question.
Obviously.
Again.
We're really coming off the base of last year and obviously the northeast was the one that was hit the.
The most dramatically in.
Well not just in the April made it's true most of the year.
From Philadelphia up through Boston was was really impacted by COVID-19 last year. So are we seeing a significant improvement in that market, yes, clearly we.
Now.
It's difficult to really get a handle on number the specifics on the market by market basis.
That is a particularly strong area for us in the commercial.
Instruction Arena, we know we like opposition up there.
So I think we are benefiting from the recovery, but I still think overall as we said you know the the market's of been down.
Down year over year, so far in commercial buildings across the the country.
I would say that we are becoming a little bit more optimistic at this point in time, then we have been previously on the on commercial I think we're we're starting to see more activity.
But there's also along the build cycle.
In commercials, so I still think there's gonna be nowhere near the type of improvement with sitting on the residential side.
Because of the sales cycle and the build cycle of so much longer.
Understood and then maybe just on the other day aside from the day man I guess cause that amount of price out if there's any.
Kind of weather demand impact from out of the numerous rather events on the corner and the flowers.
A material driver of of US just general of a better environment and the pent up demand.
Yeah, so the the.
We certainly saw impact from.
Last calendar years Hurricanes the hit the Gulf.
And also some of some of that has continued to come through obviously, the the southern part of the U S gets less of impacted by cold weather in the in the winter. So we certainly have seen.
That come through if you were referring to whether that we've seen this year, we have not seen anything.
Come through yet and I would say, it's gonna be really difficult to tease that out this year from the underlying demand that we see from new construction and general repair and replacement anyway, but certainly we expect to see continued.
Roofing activity building construction activity from the storms, we saw last year of both from the Midwest and.
And in the Gulf Coast.
Thank you.
We have our next question from my Curvy, how it from the Mark on your line of my welcome.
Kind of good afternoon. This the lot helmet on for my Thanks for taking my questions.
Her first QQ gross margins were significantly higher than you guys last corner and kind of it.
It seems like a lot of it was true then by price cockpit, maybe you could talk about where you saw decree it kind of some of the greatest areas of upside relative to your rational outlook.
Yeah, I think it was largely on the residential side to your point.
We went through the August.
Price increase we learned a lot in terms of our own execution, there and you're seeing us apply that in February and you'll see of supply that in the in April of as well. So I would say it was largely on the residential side, but again, we approached the increases on the commercial and the complementary products with the same level of rigor and execution is Julian I said in our prepared remarks.
The end markets there depending on whether you're on the rest of the nonresident a little more receptive or the less receptive to the price increases, but I think I keep your focus on the residential please.
Okay. Thank you that's helpful. And then just moving over then too I mean, I kind of like on shipments more on on volume. So if if Randy sales are up 19% this corner and kind of like pricing was quite positive an army shipments route 27% and I was wondering how your per.
<unk> purchasing activity kind of compared to the army shipments of Carter and how that compared to sell out trends.
Yeah. So we were essentially perfectly aligned on what we bought with armor, which is consistent with essentially we're we've been the last couple of quarters remember the manufacturers have us all of an allocation. So I don't think you're going to see huge shifts in terms of of of market share on the purchasing side and I think you should expect that to continue.
Is doing and I have talked about this belief of the manufacturers are.
Pretty much running full tilt so.
Would expect something in the Fortyish million dollars per quarter, and then obviously you were looking for our fair share as a result of that but yeah. We purchased very much in line with that in terms of your question around residential asphalt shingles specifically.
Volumes were up 14%. So that's the out what we call the out the door volume, that's what we shift shipped through our customers.
So that gives you a little bit of of of flavor and then the.
The difference between the the year over year revenue in that volume numbers, you know a combination of price of mix.
Great. Thank you.
We have an ex crossed from from.
Here from terrorists your line of all time.
Thank you for we've talked a lot about the price of cases in residential I guess my question of the.
The pricing and complementary.
For some of those products are gone up a lot too if you could talk about that and what the price cost dynamic looks like an an outside.
Sure I'll I'll I'll touch on that Keith.
I think the price cost dynamic across all of the categories today is positive.
Whether it's the.
The the residential.
Non shingle.
Categories that we participate in.
There has been a lot of activity, there's probably a little more noise and those numbers of some this of mix is.
There's some.
For regional specific categories in there, but generally speaking.
Price cost has been positive across all of those categories as well.
Okay. The case just of the.
Little bit of detail might be helpful. For you. If you think about our overall price cost of being plus 230, you should of handicap that is sort of of residential being above that in commercial and complimentary being positive the below that.
So that's the the the year over year Delbert your son correct.
Price costs in the quarter year over year correct.
Alright, Thank you Oh, just one quick one.
There was a commentary on the 60 per cent volume 40 per cent price was that referring to a segment of of companywide, whether it's quite unclear.
Company.
Couple of what okay. Thank you.
Next in line of Baby, David Jane Nasty from bad.
Okay.
Hi, This is Quinn fredericksen non for Dave.
She just wanted to talk about Opex sequentially, obviously really strong performance share this past quarter.
It sounds like you're expecting a lot of the productivity programs to continue.
Are there any step up and expenses outside the typical seasonal increase the we should be aware of of I know that you added some headcount. This past quarter. You feel you have the capacity to meet demand with what you have now or what you look to add more.
Thanks for the question the claim.
Look this time of year, we Ram.
Hiring pretty significantly as we go into the year I think along with the.
Not just the other than the construction industry, but other is across the entire economy.
It's it's certainly difficult to get all of the help we need on the days we need it.
But I don't think that is translating into lost sales in this demand environment I think.
Able to to get what we needed. So we do have a little bit of flexibility, but it certainly is challenging to add all of the head you need on the day as you need them.
Certainly, making progress and we certainly adding now I would also tell you would not adding as quickly as sales of growing so we do expect to see leverage from.
The entire organization believe like I said it says your current.
As you correctly said, but.
Productivity initiatives, yielding great results for us.
The other weird dynamic for us and.
In Q3 is going to be the year over year, because we are lapping the COVID-19 quarter will be out of.
Obviously, a lot of focus on the temporary and permanent.
Ross reductions last year so.
Just the fact of that into your model and then to the Julian Good point in the room, we're very focused on continuing the generate labor productivity of the sales per hour work measure that.
That he put in place is really continuing to drive management behavior.
In the field and it's been quite helpful. Keep in mind that you will be adding cost back in when we have sales growth year over year of mid to high team the Julian guided too, but certainly brings with it some cost pressure as well.
Right. Thank you and then just.
Final question just wanted to ask about the the digital progress of you guys made this quarter just anything you would call out with that ramping as quickly and also with adding some some new leadership focused on that just any key goals are metrics that we should be focused on from here.
Okay.
Thanks for bringing that up look we've seen a step change.
This calendar year as well I mean, you know we.
Sort of an aggressive targets the sort of 10% of run right in September of last year, which we said that the total company slightly higher on like serious slightly lower on the interior of the business. So.
But we've seen another step change this year.
And you need to go from sort of 10% of the 15% of sales in March.
True that said the channel husband.
Really really encouraging to us.
I think it's starting to yield great benefits.
Like I said, it's clearly of differentiator. It is something we're going to continue to focus on.
I think the the talent that we're bringing into the organization is going to have an increased focus on that.
Marketing team.
Is being built out with of focusing on our ability to generate more free that.
A sales force the incentive to do so.
We think it's an incredibly powerful competitive tool.
As well as of great convenience and AIDS and out of our customers. So we continue to believe it's going to be a significant portion of our growth agenda over the next several years.
Thank you very much.
Next day of fell nine from Jaffray's your line of how often.
Hey, guys congrats on a really excellent quarter Frank.
Frank last quarter of grave you mentioned free cash flow converging roughly about 60 per cent of of EBITDA is that for a good way of thinking about things and then with a much improved balance sheet. Now can you kind of highlight some of your big priorities in terms of capital of appointment enjoying if I heard you correctly you were talking about investing for growth is that going to be more on the M&A side.
Or organically.
Pay for all thanks for the question I think thats, 60% handle for a free cash flow conversion of EBITDA is still the a good number.
You know the refinancing is that takes hold as we get into the next year that should be helpful to that number of assuming all other things equal capital of location clearly is the first of all of the question for US now were you haven't even close the refinancing transaction. So we're just kind of getting to the east leveraged levels, which open up a fair amount of opportunities for us and again active conversation.
Which I would say is across the board you know, we're looking at everything from from M&A to the shareholder returns as well as paying back additional debt. So we've got all of those options on the table in terms of the the <unk>.
Overall, M&A focus with the way the Julians thinking about it is largely kind of of market by market focus.
All of battles of fault locally at the end of the day. So we've got to make sure. We've got a good competitive position in the best markets. So we'll be looking at it from that perspective, and then the staying true to our knitting. We we know what we're good at in terms of the residential and commercial roofing.
So we're likely stick to our knitting in those places and then looking at the product portfolio in some places we offer some of those complimentary products and have a of of leading market share of there in in other places.
We're just not as penetrated so you'd be looking at it from that perspective.
Oh, that's actually all for and then Gillian since you've embarked on this.
Improving the performance of movies underperform for answers you've been getting 2039 of the improvement each year, one is out of sustainable level and when we think about Opex library going forward is there a good way to think about it appreciating you got to these cost coming back but have you guys been really that much of it in terms of of how to manage that.
Yeah I look at.
Certainly I've been thrilled with the the progress we've made on those flow of quintile branches that we've talked about it and I I I've always deliberately talked about the lowest quintile, we will always have a little quintile branches all have a good day.
For me so.
This is going to be a continuous improvement initiative that we're gonna drive the business towards I think all of the C. As I joined the company 18 months ago, we sort of significant opportunity. There. The initial guide we sort of 30 to 60 million over of timeframe.
Would be lying if I said that all of this was the Judy.
Proving the initiatives clearly the market's giving us some tailwind and giving us some opportunity, but it also highlighting the opportunity we really have to drive efficiencies and I think that as I said a number of times now we built the diagnostic tool.
That we review.
Very frequently to focus attention all of those quintile branches.
See.
Steady improvement and many of them and dramatic and a few so.
So I think the snow as we start to sort of.
Improve a lot of these branches as we start to get to it gets hotter and hotter. So I would expect that to be.
Diminished to some degree.
All the time.
But I really do think that some.
It's been somewhat transformative too.
The really think about this and get that focus so I do think that improvements in those branches and continuous improvement across the entire company is not only possible but.
Likely.
Super off of guys. Thanks, a lot.
The next day for my amount of my car from.
Of your line is now okay.
Hi, guys. Thanks for taking the question Frank you mentioned that they always have you on allocation just what are the lead time of day and then what you're really looking at next winter when he's always will catch up.
Yeah, I haven't seen any meaningful push out of lead tons.
Based on where we were the last quarter as I think I've mentioned, the Julians mentioned the number of times for both analysts and investors. The manufacturers are hand, the mouth I mean, they're shipping everything that they are.
Making and with the exception of sort of the slow season, so call. It our fiscal queue to we would expect wish to ship everything to our customers that we received the from the manufacturer. So we think we're going to be in this environment certainly through 2021.
2022, assuming the demand environment holds we get a little bit of storm activity, we get a decent winter.
This thing could hold for a couple of years, where ex we're excited about the opportunity for this environment presents to us and the obviously seen the execution.
Both of the gross margin of the Opex side, which is really helping deliver the EBITDA margins and giving those on the turn the.
Looking forward to achieving.
Yeah.
Of the price of environment of clearly very good and kind of like a kind of continue.
And then.
<unk> you mentioned that you think the worst the go over what are you seeing as it re roofing jobs that were delayed coming back is is new construction coming back just talk about the profile of of what your standard.
Sure. Thanks Ryan.
On the on the commercial business side, when you think about it.
Clearly right now you've got a bit of you got re roof, that's coming back in the match something that's obviously really hard to delay.
The the building owners from the managers they are going to put on the new roof. If they ask you because there's there's damage all leaks or it's age day.
I do think he's still see a little bit of Mana of pocket in some areas of the commercial construction market I mean as the other said.
New construction almost stopped so the stuff that was in process really slowed down.
I don't think anyone was really thinking about how they were going to put up new office buildings in the last six months I think people have been managing that now the sectors of the.
The the construction of market that have withheld the.
Stood this probably better.
Data centers warehouses that type of category.
It remains quite strong.
All the way through and you know all of those.
Still have raised from an obviously so.
That's been good so I think it's a little bit of of mixed bag.
I I look very closely at the architectural Billy Index that finally went about 50 I think in the last.
And the last report so.
So I think there's you know the sort of green sheets on the new construction site and that is we keep saying you know this big.
The big chunk of.
Business is non discretionary so we're going to see it continue.
And I think the Sun would know probably a little bit more.
Positive about the new construction market, but it's along the cycle in the.
And commercial construction, it's it's not the sort of the 16 90 days in residential it's six months to of year along the.
Great. Thanks.
Next question is from the line of key kind of Montara Your line of all okay.
Hi, Andrew I'm not congrats on the on all the progress paying for.
For.
Maybe just started.
Yeah, I'm just curious how much of the the February price increase on the rest of the side what kind.
Of not.
Was that in your John for March quarter of the fiscal second quarter.
And how much of it gets kind of master be realized from the coming quarters and instead of the to think about the cadence of the for a price increase.
The extent of it.
In terms of the.
Pining benefit.
The timing benefit is gonna last somewhere between 60, and 90 days as you replenish inventory.
Inventory the.
The actual.
Price itself benefit.
You could of really good job in February learning from August.
To ramp the entire.
Branch network up quickly.
So that we were able to implement the price increase very quickly across the branches more quickly probably in February than we did in August and I believe what you'll see in April we will ramp that for have ramped up.
More quickly than we did in February. So we are learning a lot of we go in implementing of those learnings as we apply each price increase so the speed with which we were able to achieve the price increase is getting better.
Understood. That's helpful and then coming back to the capital allocation, you said kind of all options on the day, but I'm just curious.
With the strength that you are seeing by the end of the theory of leverage would it be not one significantly lower than kind of of what you have right now which is below your target is that a day you think about you know sort of.
The cash cushion and.
All kind of options of any any opportunities are in other way of do have kind of you know sort of a leverage target as my mind Bill of what you think you know kind of option by many of unique items cash for shareholders.
Like again, thanks for the question Luckily the as I said when the we're not yet closed with the refinancing.
We certainly got all options, we're going to discuss this for.
For the management team and obviously with the board of directors with regard to how we should think about that.
There will be getting back to you with with more specifics as we get later in the year the could kind of one final point on that one as we set up the refinancing one of the things that we did was created an initial draw on the ABL revolver, which gives us the ability to.
Since prepay without penalty some debt, while maintaining liquidity an additional dry powder. So we've tried to set up a mechanism to make sure that we have the ability to the board capital when the when the options are decided in the opportunities present themselves.
Part of it I appreciate the talk time, good luck in the back half of the year.
The next question.
Next and forget smile from the loop cat on your line of I'll I'll kind of.
Hi, Thanks for taking my question, you and congrats on the quarter I'm, just given the magnitude of the gross margin improvements and the improve the outlook going into <unk>, just how should we think about gross margin maybe all of them are longterm do you think this.
Level is sustainable willing look out in the next year.
Thanks for the question Garrick and thanks for the sentiments.
Certainly we've been.
Impacted positively on the gross margin side by by the price increase from our ability to pass through those price increases and improve.
Price cost position.
Clearly the market's giving us from tailwind to do that.
I think we're also improving our capability in the space.
Think that this is.
The thesis that we had maybe 18 months ago on how the market was the misshape up the margins had been compressed.
Because of of an interesting dynamic weihai, the asphalt inflation and the declining market, where we got squeezed from the middle of the add my thesis worsened about of market will improve our margins anyway.
So it's difficult to tease out one from the other right now, but I do think that so we've got the.
The ability to sustainably improve our margins from there where they were.
Yeah. So in the 18 months ago, and obviously, we seen the benefit of over the last for the last 12 months of of of strong market, where we've been able to do that.
The main fundamentally when you think about a lot of the things that we put in place in our ability to continue to sustain in the in fact improve our margins. We think that there's plenty of opportunity to do that whether it's through of private label business expansion, whether it's true a digital initiatives, whether it's true.
Improving customer service, and then creating value and selling that value.
Of the.
Of the Beacon operating system that we're developing here, we think there's a lot of ways that we can we can do that I think that's.
We're in a great place certainly we've got some tailwind behind us I think we're executing very well.
The behind all of that we're also learning of loss.
About how to operate better in this environment and.
And obviously from where we were the two years ago, the ability to pass through increases and take the opportunity to improve our margin is something that's a radically different now than it was was back then.
Yeah for sure and that's all the questions on.
You talked about inventories in the allocation obviously on the residential roofing side, it's pretty well well known by now but can you speak to your inventory of physicians and complimentary and if we get into the season.
Given the strong demand environment is there any of risk of the stock outfit or material.
No I don't think so I mean, we we obviously on a residential size. Let me just walk you through all of the residential side.
There's a couple of elements to to the inventory build their when you see the the dollar values in the in the 10-Q.
Some of that is just increasing cost of goods sold because of the manufacturers and some of its volume given the dynamics of February.
So we feel like we're in a good position from the shingle.
Basis, as we get into the busy part of the season the move.
We're looking for every load we can get of additional shingles to make sure that we can sort of our customers. We feel good about where we are right now the commercial side again, Julian gave you sort of the more cautiously optimistic view of of the second half and we have inventory there in the orders in place to make sure that we can fulfill that day man and feel the same way on the the siding and the other one of the doors are obviously.
Special order, but the feel good about about citing and we feel good about about the.
The lumber.
If the side product that we offer to our customers as well but.
We have a very active supply chain group they are doing a great job and working with the manufacturers to make sure we understand.
Exactly what the the timelines are and making sure we communicate those with our customers that right now in your Julian saying is prepared remarks around the guidance that suddenly we don't get anything additional the we feel like we're in good shape the support the guidance we put out there.
Great. Thanks for the help.
And the one thing I would add Garrick is the.
Frank reference for me.
Bad remarks, we did say you know of absence any significant supply chain disruption, we have seen in pockets through supply chain disruptions, we think those would tied to the.
The February whether the hip, Texas and cause some outages down there and some of the raw material supply lines.
That's trickling through right now, it's not it's not significant but given the demand environments those tend to rippled pretty quickly through to the front end of the supply chain right now.
Next day for the Terror fast and a line from long Island refresh your line of all time.
Yeah. This is for a David Mcgregor.
The hear me Okay. Good afternoon.
Wanted to start off by just asking you about the on line sales program and you talk about 15 per cent increase in.
You made reference to the digital of opportunity. When you were talking earlier about gross profit upside. So I'm just trying to get a sense of.
There's a premium profitable premium profitability revenue stream how's that GAAP versus the walk in business prayers for.
Vertical revenue stream from of margin standpoint, and the <unk>.
Secondly.
As well as commercial comes back how do you think about accepting from noncommercial contractors for your online and do you think that you can continue to maintain growth.
With a segment market as well.
Thanks for the question day.
The there was a lot to impact in the in that question. So let me stop Sarah.
No no no that's fine but.
First of all we're up to 15% from 10, so it's not 15% growth that's actually we've gone from 10% of 50, 50% growth in.
And sort of that channel and that's.
That's significant obviously.
So let me be clear, we don't we do not true.
Hugs different rates for the products through any of the channels, even the omnichannel approach.
So it is not that but we are able to the.
Sure we capture the the full baskets, so often when we see people either walk in to Brian.
Three photos of over the phone from times, what we find is the.
Items of left off the list.
They they forget it should've been 10 boxes of nails and screws in the six banned from the they leave some of those things off.
Online, we are able to better capture that so we see that as an opportunity to make sure the getting better service make sure of that the the customer doesn't have the run make another run to a local store to pick up those items and obviously, it's the basket by the basket size for us but also.
So often those those tend to be big margin products as well.
Secondly, we see online or in the ability to.
Offer our private label products differentially, we create templates for.
For our customers to make the ease of ordering simple for them.
And we certainly want to make sure that way of positioning of private label products, which are the higher margin differentially.
The.
There is a sustainable we believe difference between the two and not because we charge the rates, but because of the mix of different the basket sizes different and it's a more complete or the.
So as we see this channel grow we do think that it's a it's a meaningful difference and.
As importantly, if not more importantly, we think it's a of real competitive differentiate of certainly against.
Ah largest competitors, but even more so against the some of the small fragmented customers around the country, if you're a one of two branch local.
Distributed.
Just don't see how they can afford to build out the type of capabilities that we have I mean, we're able to leverage.
Those capabilities across 450 locations and obviously, the cough becomes manageable for us.
So as of competitive dimension we.
We think this is also very very significant opportunity for us and we are certainly not satisfied with 15 per cent of sales going through this channel.
Yes.
Of love.
Much higher.
You have one of our acceptance of amongst commercial contractors, how do you feel of our garbage that category of comes back.
Generally commercial contract is.
Larger more sophisticated businesses spam the the residential commercial contractors.
Range of our operations in.
In some cases were able to save time for them to the Adi API.
So actually we think it's a significant opportunity to.
To.
Be well positioned with them.
As well and the C. No no issues there whatsoever.
The fall of question I guess, just you the dress earlier the whole notion of for our Oems in the allocation pick up distributors on right now I guess did you think of our capacity for the arm of capacity.
What's your best estimate on the growth and arm of capacity over the next 12 of 24 months are you seeing capacity announcements or just maybe just gradually grinding away at the bottlenecking, but just kind of accent of you think we could see the incremental capacity for a free market for X $12 for marks.
I think the best off I'm, asking the surprise that question to be honest.
I think.
They understand the market dynamics I'm sure, they're working hard to you said the bottleneck.
I think a lot of the supply tightness right. Now is also associated with the capacity. The just taken out of the start of COVID-19.
I mean, everyone sort of reacted by now.
Taken add that that production to make sure of the cost structure was right and but then the.
The rebounding demand of encoder soul Unawares, and I think the the supply tightened the C. C is is that so.
Yeah.
Well they came from manufacturing sites, you've always got sort of when the 2% improvement in.
Productivity every year, you're trying to get through put in front of of the run the lines quicker I'm sure they're all working on that.
But you know.
It ends up being of regional game of channels, particularly don't ship very far.
So even the so I'll put the down it's it's a local market supply and demand situation as opposed to a national solution.
Pressure.
Does that sound correct for the questions now I would like to turn of the call back of last time I sat for as long as well for his clothing coming.
Actually it's Julien. Thank you May think fad, thanks, everyone for for joining the free.
Evening, we appreciate your support.
Certainly as a as we continue to face the pandemic, we hope that's certainly our employees customer supplies and the investors all keeping safe and healthy and these continuing challenging situations.
Again, thank you for listening and thank you for your interest in Beacon have a wonderful evening.
Very simple of today's conference call. Thank you for of participating in the amount disconnect.
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