Q2 2021 TopBuild Corp Earnings Call
Greetings and welcome to the top built second quarter 2021 earnings conference call.
At this time all participants are in a listen only mode.
And answer session will follow the formal presentation, if anyone should require operator assistance for the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded.
I would now like to turn the conference over to your host today with 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 have posted senior management's formal remarks, and a 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 in the company's filings with the SEC. The company assumes no obligation to update or supplement forward looking statements that become untrue because of subsequent events.
Please note that some of the financial measures to 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 have provided a reconciliation of these financial measures to the most comparable GAAP measures in a table included in today's press.
Elyse and in the presentation accompanying this call I will now turn the call over to Robert Buck.
Good morning, and thank you for joining us today.
I wanted to start by thanking our team for their continued hard work and dedication.
Our strong second quarter performance is a direct result for their commitment to excellence in all that they do.
This continues to be a great operating environment for top deal and 1 that we believe could last for the foreseeable future.
Unlike the housing boom of 2 decades ago, which featured excess supply rapid speculation and we credit controls. This current housing growth is being driven by strong pent up demand extremely limited housing inventory and improving economy and low interest rates.
Governing this growth and elongate the cycle, our material and labor constraints for all trades in our industry.
Evidence of this is clearly indicated by completions, which have remained flat relatively flat over the past year.
While we are optimistic some of these supply chain constraints will begin to ease by year end. The extension of the build cycle has created a healthy backlog.
Turning to our second quarter results.
Again demonstrated the strength of our operating model and our ability to pass material cost increases through low selling price adjustments.
Revenue increased 29, 1% 18, 3% on a same branch basis.
Adjusted operating profit grew 55, 5% and adjusted EBITDA increased 39, 1%.
Adjusted operating margin expanded 270 basis points adjusted EBITDA margin expanded 130 basis points and adjusted net income per diluted share increased 64, 3% to $2.76.
As expected true team saw a strong sequential increase in customer pricing from the first to the second quarter.
On the material on allocation and labor constrained every branches focused on striking the optimal balance between price and volume understanding that at the end of the day, our goal is driving profitable growth.
Service partners continues to do an outstanding job managing cost increases and customer pricing.
Porting its highest adjusted operating margin since the spin in June 2015.
The team also continues to expand its contractor base and grow share with existing customers.
John will cover more segment details in his prepared comments.
Turning to material with fiberglass on allocation spray foam supply slowly normalizing and demand remaining strong we expect both <unk> and service partners to continue to drive higher selling prices throughout the year.
<unk> and Johns Manville are on track to bring on their loose fill lines in the fourth quarter and current capacity is under constant review within the industry.
Our commercial business in both segments continues to improve as delayed projects resume on new projects are initiated.
Bidding activity for both light and heavy commercial remains strong and our backlog is healthy.
On a same branch basis commercial revenue increased 28% compared to the second quarter of last year, making the fourth consecutive quarter of commercial revenue improvement.
Our heavy commercial teams are busy and the types of projects, we are winning and working on include health care facilities large distribution centers and warehouses.
Regarding light commercial as residential homes are built demand for services, such as restaurants strip malls and other infrastructure to support these new communities should grow significantly.
A vast majority of our residential branches perform like commercial installation and the teams are local branches are keenly aware of these opportunities and the importance of establishing relationships with smaller general contractors and their respective markets who control these types of projects.
We remain very bullish with regards to the $5 billion commercial market, both heavy and light and we expect our commercial business will continue to strengthen as we move through the year.
On the capital allocation front, we completed 3 acquisitions in the second quarter American building systems Creative conservation both of which we discussed on our last call and RJ installation, which closed in June and is expected to generate approximately $4 million in annual revenue.
Year to date, we've completed 5 acquisitions, which are expected to generate approximately $221 million for revenue on a pro forma full year basis.
For the 6 years, we've acquired 19 companies that combined are generating over $800 million of annual revenue and there are for creating tremendous value for our stakeholders.
During the same period, we expanded and enhanced our M&A team and the integration of acquisitions is a core competency are.
Our focus remains on acquiring well run installation and distribution companies around our core of installation as well as related adjacent products with a robust pipeline of prospects. We expect to stay very busy on this front through 2021.
We also use our capital on the second quarter to repurchase almost 74000 shares and year to date, we've repurchased 123000 shares. We are pleased that our board of directors approved a new $200 million share repurchase program, demonstrating a high level of confidence in our financial performance and our strong cash.
<unk>.
Since implementing our first share repurchase program in 2016, we returned over $410 million to shareholders.
1 area that is growing increasingly important for all stakeholders is ESG.
This remains a priority and we recently dedicated additional resources towards this effort.
Our approach includes maintaining our focus on safety and continuing to improve the wellbeing of our employees.
Ensuring that our workforce reflects the diversity of the communities in which we operate.
Incorporating energy efficient solutions in our residential and commercial projects and tracking and reporting energy usage and waste generation across our footprint.
On the environmental front in addition to our core insulation business, which drives improved energy efficiency and all the communities in which we operate I would remind you of our top Bill home services group, which is at the forefront of building science and building code compliance.
Our expertise in this area is concentrated on advancing environmentally conscious construction for example, our environments for living program helps builders construct high performance homes.
Net save energy and reduce greenhouse emissions. In addition, our extensively trained home energy riders provide evaluation testing and independent verification required to be considered and energy star compliant Oh.
Before turning the call over to John I wanted to note that in late June we were pleased to learn that Todd was moving from the Russell 2000 to the Russell 1000 index.
Some of you may remember that at the time of the spin in June 2015.
Our market cap was approximately $1.1 billion today, it is over $6 billion more than a 450% increase.
This move is clearly a recognition of our strong growth and the tremendous value we have created for our stakeholders over the past 6 years.
Looking ahead, we are confident in our ability to grow our business and continue to provide great value for our stakeholders.
John will now discuss our financial results.
Good morning, everyone. As Robert noted this is a great operating environment for top built and our strong second quarter results provide solid evidence of the strength of our business model.
Our ability to successfully manage and optimize our input cost and pricing as well as our overall cost structure.
Moving to our results in the second quarter net sales increased 29, 1% to $834.3 million.
Primarily due to an 11, 8% increase in sales volume.
A 6.5% increase in price.
$72 million of revenue from 6 acquisitions Garland, LCR, Ozark Avs creative conservation and RJ installation.
For the first 6 months of 2021 net sales increased 21, 4%, primarily driven by increased selling prices sales volume and $97.6 million of revenue from acquisitions.
Adjusted gross margin increased 140 basis points in the second quarter and 90 basis points in the first half of 2021 to 29, 2% and 28%, respectively, driven by higher selling prices lower depreciation expense and insurance cost primarily offset.
By material inflation.
On a same branch basis, adjusted gross margin expanded 190 basis points in the second quarter.
Adjusted operating profit in the second quarter grew 55, 5% for $129.9 million with a corresponding margin improvement of 270 basis points to 15, 6%.
For the first 6 months adjusted operating profit increased 47, 7% to $227.1 million with a corresponding margin improvement of 260 basis points.
Adjusted EBITDA for the second quarter was $149.8 million.
Compared to $107.8 million in the second quarter of 2020.
39, 1% increase and adjusted EBITDA margin expanded 130 basis points to 18%.
As a reminder, in the second quarter of last year, our depreciation expense was approximately $5 million higher due to a reduction in the carrying value of older assets that the company was no longer utilizing.
For the first 6 months of 2021, adjusted EBITDA grew 35, 5% to $265.7 million.
And adjusted EBITDA margin was 16, 8%, a 170 basis point improvement over first half 2020.
Second quarter SG&A as a percentage of sales was 13, 8.8% compared to 15, 1% in the second quarter of 2020.
The year over year decrease was primarily the result of higher sales lower share based compensation and lower legal fees.
Adjusted income for the second quarter was $91.6 million or $2.70 per diluted share compared to $55.7 million or $1.68 per diluted share.
For the first 6 months of 2021, adjusted income was $158.7 million for $4.78 per diluted share compared to $101.6 million or $3 <unk> per diluted share.
Second quarter adjustments to net income were $1.6 million, primarily related to acquisition expenses.
Adjustments to net income in the first 6 months of 2021 were $16.7 million, primarily tied to a $13.9 million of debt refinancing costs and the remainder related to acquisition expenses and the COVID-19 leave plan initiated last March.
Our effective tax rate for the quarter was 26, 1% and 24% for the first 6 months of the year.
Interest expense in the second quarter of 2021 was $6.1 million compared to $8.3 million in the prior year, primarily driven by lower interest rates on our new senior notes and borrowings under the amended credit agreement.
Capex for the second quarter was $16.3 million or 2 percentage of sales and for the first 6 months was $28.6 million for.
For 1.8 percentage of sales consistent with our long term guidance of 2% of sales.
Working capital.
Capital as a percent of trailing 12 month sales was 9.9% versus 10, 5% a year ago.
This decrease was due to improvement in past due accounts receivable at both <unk> and service partners.
We ended the second quarter with net leverage of <unk> 9 times using trailing 12 months adjusted EBITDA.
Total liquidity at June 32021 was $645 million, including cash of $261.7 million and accessible revolver of $378.8 million.
Operating cash flow was $202.2 million for the 6 months ended June 30.
Now, let's turn to our segment results.
<unk> sales increased a robust 29, 8% in the second quarter to $605.6 million.
On a same branch basis revenue grew 15, 4%.
The increase in sales was driven by revenue from acquisitions.
Branch volume growth and higher selling prices.
Second quarter adjusted operating margin for true team was 16, 6%, a 140 basis point improvement.
Service partners second quarter sales were up a strong 26, 4% to $273.4 million driven by an increase in both volume and higher selling prices and to a lesser degree acquisitions.
Second quarter adjusted operating margin for service partners was 15, 7%, a 410 basis point improvement from 2020.
Moving to 2021 annual guidance based on builder orders commercial activity.
Low housing inventory and anticipated low interest rates, we remain optimistic this will be a very good year for residential and commercial commercial construction and Taco will benefit from this healthy environment.
However, as we noted in May our guidance assumes some level of industry wide material and labor constraints, which have already led to an extended build cycle and higher than normal backlog on.
On the flip side these constraints, coupled with low on inventory and strong demand should lead to a healthy residential and commercial construction environment for the foreseeable future.
Based on our first half results acquisitions completed since our last earnings release and internal forecast. We are now projecting total sales to be between $3 billion to $90.3.370 billion, a $70 million increase on the low end of the range and a $50 million increase on the high end.
EBITDA is now expected to be between $565 and $590 million a $33 million increase on the low end of the range and a $28 million increase on the high end.
This assumes a range of residential new housing starts of between 1 point for 75 and $1.5.5 million, which is an increase from first quarter guidance based on recent housing activity.
Now, let me turn the call back over to Robert.
Thank you John our entire company remains focused on achieving profitable growth through operational excellence and thoughtful and balanced capital allocation.
We look to the rest of the year, we expect solid full year performance at both <unk> and service partners housing.
The housing market is strong fueled by low interest rates pent up demand and very little inventory. This is a good operating environment for <unk> and should remain so for the foreseeable future.
As always I. Thank the entire <unk> team for their focus on working safely to deliver value quality and service to our customers.
Operator, we are ready for questions.
Thank you at this time, we will conduct a question and answer session. If we would like to ask a question. Please press star 1 on your telephone keypad income.
Information tone will indicate your line is on the question queue.
You May press star 2 if he would like to remove your question from the queue for.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys once again Thats star 1 at this time, 1 moment, while we poll for our first question.
Our first question comes from Stephen Kim with Evercore ISI. Please proceed.
Thanks, very much guys good results as always.
First question I had for you relates to the effect of cycle times.
On pricing, particularly in true team I'm, obviously for team had probably has more impact from that last quarter I think it was somewhere in the range of about 100 basis points headwind.
Headwind to pricing.
Extended cycle times at the builders I'm curious what that what do you think that was in <unk>.
And also non installation products are I think you also mentioned might be a bit of a headwind to pricing and just wanted to see if you could quantify that as well.
Yes, Stephen this is John.
Right going back to first quarter results, we talked about it on the call last time that the true team because of the extended build cycle.
Ability to drive pricing and get pricing into our P&L basically were delayed a little bit. So as we said on that call. We expected the second quarter to be significantly better and really almost current and I think you've seen the result of that and what we reported today. So so much much better in terms of the timing on the true team side, some very small.
All delays tied to the build cycle with very de Minimis in terms of versus what we had on you're right last quarter was about 100 basis points delay service partners, obviously first quarter and second quarter much more timely in terms of the ability to drive pricing and get into the market and again second quarter, great performance there on ISP they're on.
Other products as you mentioned, where we are seeing a matter of fact, most products have on the I'll say all products have some level of inflation tied to it and I think we've been successful pretty much across the board in terms of adjusting our selling prices accordingly, and on getting full value, but we need some.
So what I'm hearing is really not much other meaningful headwind to call out from either the extended cycle times or the non inflation problem right. That's.
<unk> what are you hearing Steven Thank you alright.
Second question I had relates to more broadly.
On the.
Again, the cycle time impact, but at this time I am curious about its potential impact on volume.
Your overall overhead leverage.
<unk>.
What we're hearing is that the time, it's taking the builders to build homes is is there's 1 thing I think a lot of builders said at length and by a couple of weeks for the large public builders in the last quarter I think private builders, probably have had more of an impact for that.
Than that but I'm curious as to whether you think that this extended cycle time, that's happening here in the middle of the year.
Is going to lead to unusual seasonality in the business as it relates to.
When your products get installed if you think that that could lead to unusuals.
Unusual seasonality and or could there be a consequent bulge and or surge in your activity.
As you head into let's say the winter months of of next of this upcoming year.
And then kind of part of that in general is consolidation in the homebuilding business, a headwind or a tailwind to your market share.
Yeah, Hi, Stephen this is Robert so I'll try to answer that from 3 or 4 different perspective, so start with seasonality I mean, I'd say given the strong backlogs that probably the industry is built not just us now I'd see that.
Seasonality being smoothed as we go through the winter unless theres, a harsh winter coming at US we would expect third quarter is always busy as the public builders are trying to get through all of their closings.
Come back to that in a minute, but fourth quarter and going into first quarter next year, given the backlog, we would expect a smoother curve versus some seasonality with previously see.
I think if you think about the public builders with their closings coming up here in the I'll say October early November timeframe, I think as the industry. It will be interesting to see how much of that gets through the funnel here.
The entire industry is facing some constraints here, we would say materials getting slightly better.
As we're going into the back half of the year, but I think what we see on what we hear from other trades as you know labor continues to pop up as a as a continued constraint here. So it'll be good to see I think it has a healthy backlog for the industry I think we expect to see less seasonality because of that.
But to your point about is there a spike coming I think it'll just depend on how much the industry as a whole can get through that funnel as we work through the next I must say 2 quarters here, especially given the public builder closings on going towards the end of the year.
And then 1 on your question.
Last point on the builder consolidated any questions on that for get into builder consolidation Steven.
Yeah.
Okay builder consolidation.
I'd say relative to us I mean, obviously, we do we service builders of all sizes.
<unk> relationships with large public builder, so we're seeing some of that consolidation coming on.
Nothing nothing less than a positive for us given our relationships from the footprint of what we cover across the across the country.
The public builders from the regional builders are doing some consolidation as well so I'd say for us umbrella positive and as we look at our kind of mix shift among builders, we haven't seen a huge change there from that perspective.
Okay, great. Thank you very much.
Our next question comes from Phil <unk> with Jefferies. Please proceed.
Hey, good morning, guys for full.
<unk> on for Phil.
I guess kind of following up on Steven's question. Just now you know we've been hearing pretty broadly from the homebuilders. This dynamic of floating order growth to catch up on backlog from slides I guess, how are you seeing this play out in your business and.
Are there any differences to call out between national versus more regional builders and what type of impact do you expect this to have on your demand over the next few quarters.
Yes so.
No definitely do we hear that from the builders the answers, yes, we're hearing where some of them are.
Tapping the breaks if you will but there is a there is a good healthy backlog in the industry as well. So I think all of it is going to be worked through that backlog, we'll see how the how the whole industry again works that backlog through the funnel here, but but there's a healthy backlog even as some publics as you've heard as we've heard.
Our cap on the brakes in some markets from that perspective.
Relative to the to the large publics in the and the regionals are the or the.
Custom builders.
That lag time or cycle time could be extended for some other regionals and the smaller builders a little further out in the public builders typically we've said in the past that were on the job sites in about 60 days or something like that but I would say we've seen that Maggie go out as much as 30 to 60 days and additional time to.
That just given the cycle time, what's happened to trades in front of US I think if you look at some of the.
Builders reported where the biggest delays or if you think about framing some of that is trades that come before our trade I think we see that in some of those cycle times get elongated.
It really across all builders may be more on those regional on custom builders, but the publics for obviously seeing it as well.
Okay, Great Super.
For all Paul.
And then my second question is the guidance for revision up.
Implies for your margin expansion well ahead of what you were initially forecasting. So can you just walk us through some of the pieces in there and what's driving your confidence and the more favorable outlook on margin.
Sure Maggie this is John So first of all obviously, we're 3 months further along so you know more certainty obviously as we're now halfway through the year I think.
A little more confidence around our ability to manage input cost obviously, you've seen some great results from the second quarter of our ability to manage the inflationary pressure primarily on material visa the selling prices.
Another 3 months of our productivity initiatives kicking in so I think.
What you saw was just a.
The next step is we do guidance, obviously, we always attempt to refine that each quarter and so you're just seeing a little more confidence around top line around our ability is for ability to deliver price DCD, an inflationary environment and again, great confidence in what the operations teams are doing from a productivity standpoint. So.
Great. Thanks, guys.
Thank you.
Our next question comes from Adam Baumgarten with Zelman <unk> Associates. Please proceed.
Hey, good morning, Thanks for taking my question.
Starting out given some of the pretty robust pricing trends you guys are seeing that.
Seemingly are accelerating how should we think about the formula that you guys have laid out in the past that for every 50000 increase in starts you guys generate $90 million on revenue should that be higher at this point or is it too preliminary to kind of move that up.
Yeah, Adam I think this is John we.
We do that typically every year when we do our initial guidance, we'll give the long range modeling that you're referring to and you're right. What we've said is for 50000 starts it's $90 million of revenue on the residential side of the business or top of it I would say, we're not going to update that number probably until.
The next time, we do the 2022 guidance, which would be our fourth quarter call, but I would say generally if you're if your suspicion is the number is higher than 90, then you're correct between.
Especially pricing additional acquisitions et cetera, yeah. The number with you north of that but again, we'll get more specific on that as we enter 2022 and give guidance.
Got it Okay and then just on on some of the capacity shifts that are out there you know primarily by Oc any impact do you expect from their kind of capacity movements around the western part of the U S.
No I think they talked about.
And they're earning day net neutral so I think as they sell Santa Clara and as they open up more capacity in Utah, and Arizona I think they expect to net neutral on that and that type of moves so and I think generally.
With all.
Materials out there be it fiberglass be it for cellulose, we would say that that capacity of plus or -1.5 million.
On housing start capacity out there that seems about the appropriate number that you've probably heard us say before.
Got it thanks.
Our next question comes from Michael Rehaut with J P. Morgan. Please proceed.
Hi, Thanks, good morning, everyone.
Wanted to focus for a moment just on the bigger picture from an acquisition standpoint.
You know obviously this year, it's been pretty active in and I believe you said in your opening remarks.
That the pipeline still looks pretty robust.
At the same time, you have a pretty broad footprint and.
You know the industry is consolidating at a decent rate.
I was hoping if you could give us a kind of a bigger picture view of.
You know the amount if you.
Have any type of studies in terms of the amount of opportunity that remains.
You know, particularly from mid to larger size standpoint, that's out there and in particular I'm focused on on the residential side, obviously, the commercial part of the business is wide open.
But how do you think about the.
The remaining piece of the pie that's out there from the residential side over the next 2 or 3 years.
Yeah, Michael this is John so.
I'll get it right now starting with a little bit of history here in terms of the past 10 months I think we've done.
Roughly revenue tied to around $280 million worth of acquisitions, most of that and for our core space of residential insulation some around commercial installation so.
We think there is plenty of white space going forward in terms of opportunities.
You know I do think that you can never predict exactly when something gets across the finish line from our mergers and acquisition, but I think.
We have a very very active pipeline. So we remain very confident that we're going to consume most of our call it excess liquidity or capital.
In the world of M&A, So you know and that can be.
Your focus on residential installations, certainly is probably where you know.
A large portion of our acquisition targets are but also commercial and then we constantly look at other options available to us other ancillary products.
Other areas of installation et cetera as opportunities for us but.
We remain pretty confident that we're going to continue to see the majority of our capital deployed in those areas and again for all the right reasons, we love it right. It delivers good strong top and bottom line results and we drive as you know significant synergies as we do M&A and good history of delivering that obviously, so yeah and Michael This is Robert.
Just add on to John's comments, I mean, we put more I think we said earlier, we put more resources in this area and we really think that we absolutely have a core competency on the integration of what we do with these acquisitions. After after they're they've acquired to drive that value that John talked about so really confident on our M&A strategy confident in our approach constant in our target.
Yes.
As you know, we're selective who we go after and how we execute post acquisition, so I really really confident in our strategy.
Okay got it I appreciate that.
I guess secondly, perhaps just on the margin front and and also kind of a bigger picture.
A question over the next 2 or 3 years I believe for both routine and service partners, perhaps more so for <unk>, but.
You've talked about incremental.
Incremental margins I believe and.
And I apologize, it's either you know.
<unk> 25 per cent or 22, 27, but kind of in that low to mid twenties range.
So there's still further runway for both businesses.
As you look at the margin expansion this year.
I was hoping to get a sense from you of what percent you know it was driven by volume versus positive price cost.
And you know how we should think that there is how should we how we should think about the opportunity over the next 2 or 3 years.
In terms of the primary drivers of further expansion.
Yeah. Michael This is John so if I think what's gotten us to this point right. It's great great leverage on our fixed overhead and we think there's plenty.
Plenty of that lift in our future certainly good acquisitions integration of acquisitions and the synergies they bring again plenty of that lift in our future for sure.
Great productivity at all both at both segments between Schuh team and service partners and again, we're constantly working at both in the back office and at our branch locations from an execution standpoint. So.
So I do think that.
This year I think to date, we're at something north of that 27% or just about that 27% in terms of our pull throughs on a same branch basis, but we feel pretty confident about the ability to continue to deliver that on a go forward basis, if you take our guidance.
For the back half for the year and you take the midpoint I think we're at the upper end of that range in terms of the same branch pull through once you back out the M&A that we've done so.
I think there's plenty left room for plenty of room left for us to continue to expand margins.
With good tailwind in the industry again, good fixed cost leverage good productivity and good management of our input cost for labor and material, which.
Which again good evidence of that and I think there's plenty left on our future.
Alright, thanks, so much.
Thank you. Thank you.
Our next question comes from Reuben Garner the benchmark company. Please proceed.
Thank you good morning, everybody.
Good morning, Greg.
Just looking at true team versus service partners service Partners' volume the last 4 quarters has been very.
Very strong as we move into the back half of the year should we expect.
Expect maybe those trends to reverse I think the comps are a little easier for for true team.
And.
Anyway any color that you have on on that dynamic.
Yeah. This is Jon so we don't break out the guidance in terms of segment information our topline I think I think both businesses. If you look at our second half growth based on our guidance both businesses are going to do great in terms of pricing.
And I think from a volume standpoint.
Both are going to both theyre going to be around the total that we've provided you are right. The comps on service partners get a little bit more difficult in the second half for the year, but generally I don't think youre going to see a major swing between what we've had and what we expect to have.
Got it and then my second question is more of a clarification and then a reminder, I think you've talked about this in the past, but the the starts outlook that you have I think around a million 5 at the midpoint.
That would imply I guess, the first half was closer to 1.6 it would imply a slower second half is that actually a true starts outlook or is that more you know I know.
Completions have been closer to 1 for is it more of a combination of starts and completions. How do you guys think about that are you really expecting you know the housing start number to go back to 1 for in the second half or are you kind of incorporating the labor challenges in your addressable.
Market so to speak for the for this year.
Yeah. It's the latter certainly you know as we said in our prepared remarks last quarter and this quarter you know the.
Data were providing and projecting is based on a very constrained environment, both material and labor and more so on material and labor, but so yeah. It's more like the starts that we get to work on it the phase in the states that we work on the projects. So I would expect probably when starts are done at the end of the year, probably going to be slightly higher than what we projected but ours is more of a.
What can we get to from a work standpoint and deliver.
Perfect very helpful. Congrats on the quarter guys and good luck on forward.
Thank you. Thank you.
The next question comes from Keith Hughes with Suntrust Robinson Humphrey. Please proceed.
Thank you a question on pricing pricing up in both segments, a good bit more service partners.
Can you talk about what's allowed them to get more price given that the input inflation that would be pretty somewhere I would guess between the 2.
Yes, Keith it it's really a function of the P&L. If you look at the service partners P&L versus the true team.
The material content is obviously much much greater on service partners, so as you're trying to recover the impact of inflationary input costs.
Service partners is going to have to drive a higher selling price as a percentage in order to maintain or expand margin. So it's really a function of the fact that just the percentage of costs that material makes up is just much much greater at service partners, a very small piece that would be that timing thing, we've talked about where service partners is able to deliver pricing.
A little bit quicker to the market in <unk>, but by far the bigger pieces the other.
On the material content as a percentage of the total.
Okay. That's a good question.
On the breakout of residential commercial same branch sales growth in the commercial was actually a little bit faster growing on a same branch sales, it's a little surprising.
Can you talk about pacing of business there is that.
1 time projects or is this something that.
First of all it got its.
His legs under it right now.
Keith This is John are you, referring to the year over year performance.
I am yes, yes, so I think.
Really a function more probably that a year ago commercial was disproportionately hit versus the residential business. We talked about last year, we talked about some states actually locking down we talked about the.
On the extended build cycle had a much much more directly with social distancing on a year ago had a much more dramatic impact on our commercial business, especially heavy commercial where you could only sit on that so many trees on the job site at a certain time. So that's really the function youre seeing is that we're back on the job sites now at normal social distance or I should.
Normal cadence and so you're just seeing a better comp year over year, that's disproportionately benefiting commercial.
Okay. Thank you very much.
Our next question comes from Brian Gilbert with <unk>. Please proceed.
Hi, Thanks, everyone on the first question is on pricing and true team.
On.
It seems like there are some indications that homebuyers are becoming maybe a little more price sensitive than they were on prior quarters and I don't think thats necessarily filtered back to the builders.
Yes in the sense that their primary focus is just getting homes closed.
But I'm wondering if you've noticed any changes in your negotiations with homebuilders as it relates to increasing prices on true team.
Hey, Ryan this is Robert So I think you've seen that there's been additional material cost increase announcements come out I think in fiberglass there was.
Definitely the 1 in June 1 supplier push that for September so call. It here.
Early third quarter type of increase from that perspective, and then that's the other as John mentioned it earlier, but other materials, if I think about garage doors other products as well all of those have come out with with increases in continued increases, including spray foam, which had been some dramatic increases given the MDI component that was limited in the fall of last.
Year, then take the Texas free situation will happen to the industry from a petrochemical standpoint back in February so.
So inflation has continued obviously, we're still working with our builder customers I think the team did.
Did a great great job here in the second quarter continued to work with our builder customers own.
Pricing here for the back half of the year, but I think EBITDA.
Think about a builder today do you think about those elongated cycle times service and being there whenever you say youre going to be there and having the material to do the work for them is extremely extremely critical to the builders right. Now so we're doing a great job of delivering that service delivery known the time that we're supposed to be there haven't been material for them sticking to commitments. So we don't hold on.
Any other trade I think that's something we're seeing for and Thats, a big value out of top sales because remember we can move labor around we can move material around we can move equipment around our systems allow us to do that which which gives.
What I call 5 star service to the builders in this type of environment.
Got it thanks.
Second question on service partners on.
I guess it seems like.
Insulation material shortages have helped.
Can you maybe.
Spanned or deepen your your your customer market share and customer base.
And I'm wondering if you had any comments on how we should think about the stickiness of on your market share gains for the distribution customer base.
Supply situations slowly normalizes over the course of the next few quarters.
Yeah, Ryan it's Robert again, so I think as supply comes back which by the way we see that.
Maybe it's even a little bit, but not you know not much from that perspective, we think it's going to continue to be tight for the for the remainder of the year heading into 2022, but I think service partners has done a great job on 3 or 4 things I think 1 is.
On expanding with current customers, so offering more products for broader product rate with current customers number 2 is just a new.
Existing customers and also new customers, new contractors, I think I mentioned that expanding services.
The new contractors, but then 3 just back to that focus on service and this time. The last thing a contractor can can really handle was not having material. We're not haven't delivery on time, so they're not holding up the job side are holding up the next trade.
And our service partners team business. The team has done a really great job of focusing on the right service metrics.
<unk> with customer I think that's 1 of our themes as you communicate communicate communicate with your customers as to what's going on on the team's done a nice job of doing that and I think those things are going to allow us to continue to see some healthy margin performance in our distribution business.
Great. Thank you.
Our next question comes from Ken Zenner with Keybanc capital. Please proceed.
Good morning, everybody.
Ken Good morning.
Yes.
So price is pretty strong on your operating leverage is pretty strong.
Let me start on the I guess, what you know what I consider more of the spot market, which is the distribution part.
Part of the business.
The margins you've got and are those.
I apologize.
<unk>.
Hmm.
A record margin I mean, it's been it just seems like 16% margin I got on that correct is.
Pretty high is that really a function of just the net pricing you're getting basically.
You know if you're a cheaper cost of inventory versus what the spot market is is that the main driver there when I think about you know <unk>.
16% for attend 11 per cent range.
Yes. So so it is it is a record margin in the quarter on cash.
To start with this is John obviously, so so I think it's really a lot of things the culmination of an awful lot of things and we've talked about it.
Back in 2018, when we had the other call it significant constraint shortage, we we intentionally walked away from some business for folks that werent necessarily a green are willing to pay what we felt was the appropriate selling price.
So I think we've also had a new management team put in place over the last couple of years that I think has been putting their strategy that Robert talked about.
And putting the capabilities.
The customer metrics et cetera, so what youre seeing I think is a culmination of a lot of those things come into play along with obviously, a very very tight material constrained environment. So so it's really tough to kind of pick out 1 or 2 things because I think this is a culmination of a lot of you know.
Changes.
Bringing good people on to the team.
And delivering to customers, what they need which is the products when and where they need it I think the other thing that I think we've always shown you the ability to deliver its productivity and managing our expense buckets right. So so if you look at the service partners organization. They have they're executing what they have with very minimal additional.
Fixed overhead.
So delivering a lot more leverage in the business. So I think youre seeing all of that and quite frankly, you know to the obvious point with material as tight as it is right now.
Certainly from a distribution standpoint, the environments are relatively good wind operating it so.
Just sticking with that distribution.
I know you provide market share data for.
On your combined company in terms of you know the installation combined with distribution.
It just has occurred to me can you talk to what you think your I guess share is of the distribution market given that.
It seems even on that side of the business right. The supply demand dynamics have turned very favorable for you as opposed to.
Well yeah. It is there is there have you ever talked about what your share of distribution is separate from the installation side.
Ken This is John no we have not we talked about as you know the fact on on residential new construction that we believe we deliver something a little bit around 10%, maybe a little north of 10% of all material.
From an installation standpoint, but no we have not talked about.
The the specifics around the overall distribution market.
Thank you very much.
Thank you.
Thank you at this time I would like to turn the call back over to Mr. Robert Buck for closing comments.
Thank you for joining us today, we look forward to talking with you on our third quarter call in early November.
Thank you ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time and thank you for your participation.