Q2 2023 GMS Inc Earnings Call

Speaker 2: It.

Speaker 3: Greetings and welcome to the GMS second quarter 2023 earnings call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded.

Speaker 4: I would now like to turn the conference over to your host, Carrie Phelps, Vice President and Vesser Relations for GMS. Thank you. You may begin.

Speaker 5: Thank you, Melissa. Good morning and thank you for joining us for the GMS earnings conference call for the second quarter of fiscal 2023. I am joined today by John Turner, President and Chief Executive Officer, and Scott Deacon, Vice President and Chief Financial Officer.

Speaker 6: In addition to the press release issued this morning, we have posted PowerPoint slides to accompany this call in the investor section of our website at www.gms.com.

Speaker 7: Turning to slide two, on today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Speaker 8: Forward-looking statements address matters that are subject to risk and uncertainties, many of which are beyond our control and may cause actual results to differ from those discussed today.

Speaker 9: As a reminder, forward-looking statements represent management's current estimates and expectations.

Speaker 10: The company assumes no obligation to update any forward-looking statements in the future.

Speaker 11: Listeners are encouraged to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC, including the risk factors section in the company's 10-K and other periodic reports.

Speaker 12: Today's presentation also includes a discussion of certain non-GAAP measures. The definitions and reconciliations of these non-GAAP measures are provided in the press release and presentation slides.

Speaker 13: Please note that references on this call to the second quarter of Fiscal 2023 relate to the quarter ended October 31, 2022.

Speaker 14: Finally, once we begin the question and answer session of the call, in the interest of time, we kindly request that you limit yourself to one question and one follow-up. With that, I'll turn the call over to John Turner. JT? Yes, yourship's hershmet.

Speaker 15: Thank you, Kerry.

Speaker 16: Good morning, and thank you for joining us today.

Speaker 17: With elevated single-family home construction activity...

Speaker 18: As completion's eclipse starts for the quarter, along with strong multifamily residential demand, year-over-year growth in commercial, and a favorable pricing environment, we again delivered record levels of net sales, net income, and adjusted EBITDA for our fiscal second quarter.

Speaker 19: as we continued the solid execution of our strategic priorities.

Speaker 20: Looking at slide three with comparisons to Q2 of fiscal 2022, here are some highlights of our second quarter results.

Speaker 21: We grew net sales 24.4% with 24.9% gross profit growth as our teams continue to manage a shifting market mix and inflationary product pricing.

Speaker 22: Volumes in wallboard were up 11.6%, and we were again pleased to deliver positive year-over-year commercial wallboard volume growth for only the second time since the start of the pandemic, after doing so last quarter as well.

Speaker 23: The inflationary product pricing environment, combined with our continued operating cost discipline, enabled us to improve our SG&A and adjusted SG&A percentages of sales by 50 basis points each.

Speaker 24: Net income improved 38.7% to $103.2 million, and adjusted EBITDA grew 30.7% to $195.5 million.

Speaker 25: And finally, adjusted EBITDA margin of 13.7% was up 70 basis points as compared with a year ago, with significantly improved cash flow.

Speaker 26: our team's commitment to delivering outstanding customer service, together with the continued execution of our strategic priorities.

Speaker 27: help drive this success.

Speaker 28: On slide four, we highlight our progress this quarter in advancing these strategic initiatives.

Speaker 29: First, expanding share in our core products.

Speaker 30: Although pockets of supply chain challenges remain, our teams continue to work diligently throughout the quarter to ensure product availability and to provide exceptional service for our customers.

Speaker 31: As a result, we delivered year-over-year organic wallboard volume growth of more than 11% for the quarter.

Speaker 32: which we believe outpaced the industry as a whole.

We are also seeing success in ceilings as we delivered organic volume growth in the low single digits with organic sales dollar growth of 13.6% for this category.

We remain confident that leveraging our scale and our commitment to exceptional customer service and product availability will help us continue to grow the core business as we move forward.

Second, growing our complementary products.

We continue to diversify and profitably expand our offerings, thereby enhancing our value to our customers.

During the quarter, we continued to benefit from both higher prices and volumes, and grew our complimentary product sales by 26.5% in total and 17.8% organically.

In particular, some of our larger complementary subcategories that are a higher focus of growth for us, including tools and fasteners, the Stucco and EAPS product lines, and insulation collectively grew 33.4% for the quarter.

Third.

Expanding our platform through accretive acquisitions and greenfield opportunities remains a top priority.

So far this fiscal year, including those that opened subsequent to the end of our second quarter, we've opened five greenfield yards and nine Ames store locations.

Our pipeline of potential acquisitions remains strong. We continue to actively pursue opportunities to strategically broaden our product assortment and expand our service territory to help us provide added value and best-in-class service to our customers.

Finally, our fourth strategic priority is to drive improved productivity and profitability.

This is a broad focus across our organization as we continue to leverage our scale and employ technology and best practices that improve both cost and service.

Included within these initiatives are ways to enhance the customer experience, making it simple to do business with us.

As a result, the percentage of customers interacting with us online grew each month during the quarter.

Additionally, we are making it easier and more productive for our teams.

providing automation tools to improve picking, loading, and staging efficiencies, as well as fleet upgrades to reduce idle time, improve fuel efficiency, and promote safe work practices.

Building our yard of the future to drive greater efficiency and productivity has helped us deliver improved profitability.

Overall, I am very pleased with our team's execution.

At the heart of our business is our people, our passion for service, and our relationships with our customers.

With that, I'll now turn it over to Scott to provide more perspective on our results.

Scott?

Thank you, JT, and good morning.

Looking at slide 5, net sales increased 24.4% year over year to $1.4 billion for the quarter.

Organically, sales rose 22.2% after adjusting out both acquisitions and the unfavorable impact of foreign exchange translation.

Adjusting for one additional selling day year over year, net sales increased 22.5%, with daily organic net sales increasing 20.3%.

From a USN market perspective, residential continued to lead the way with sales up more than 34%, including greater than 50% growth in multifamily.

Single family sales were up 29% year over year, while commercial sales continued to show improvement with sales up 17% over a year ago.

Wall board sales of $584.6 million increased 41%, or 38.9% on a per day basis.

comprised of a 28.9% increase in price and mix.

and a 9.9% increase in volume.

Organically, second quarter wallboard sales grew 41.4% year over year, comprised of a 30% increase in price and mix.

and an 11.4% increase in volume.

And, on a per day basis, organic wallboard sales were up 39.2%, comprised of a 30% increase in price and mix, and a 9.2% increase in volume.

In terms of all board volume, per day multifamily residential gains of 30% outpaced the mid-single-digit volume growth we achieved in single-family.

permitting, starts, and quoting activity and multifamily remain active.

And with longer build cycles than single-family, the backlog and demand for this customer segment should remain strong through at least the remainder of this fiscal year, and likely beyond.

Meanwhile, as with last quarter,

Year over year, our commercial performance continued to improve.

We were pleased to again see expansion in commercial wallboard volumes as compared with the same period a year ago.

In terms of world board price, our average realized price has increased sequentially for the past eight quarters.

Demonstrating resilience, even as we've seen a slowdown in single-family starts.

For the quarter end of October , the average realized wallboard price was $474 per thousand square feet, up 8.4% sequentially, and 26.3% as compared with a year ago.

October's price of $477 per MSF is only slightly higher than the quarter's average.

while November flattened further.

Conversely, new manufacturer increases are being announced in the market.

So while the outlook is mixed and we can't fully predict the degree or timing of market price elasticity going forward, our current near-term expectation is that the rate of our increases will continue to flatten.

with some sequential declines possible in future quarters.

Regardless, given the healthy base of inflation realized thus far, we nevertheless expect year-over-year expansion in moldboard pricing through at least the end of our fiscal year. Staying tile and grid second quarter sales of $159.6 million increased 13.3% over the same period last year.

and a 2.9% increase in volume.

On a per day basis, organic sales for ceilings were up 11.8%.

with 10.7% of price and mix.

and 1.2% in volume.

Reflected in these numbers was a sequential price increase of 6.6% for the quarter.

Second quarter steel framing sales of $278.2 million increased to 2.3% versus the prior year quarter, or less than 1% on a per day basis.

where a price and mix benefit of 7.5% was largely offset by a 6.8% decline in volume.

Our second quarter of fiscal 2022 featured inflation and availability-based dislocation that drove a short-term increase in shipments.

Moreover, in this market, we've seen stronger activity in stick-built lower-rise structures, which typically call for less-feel framing.

while large office activities for both new and remodel also remain muted.

Organic seals and steel framing were up 2.5%, comprised of a 7.9% increase in price and limit.

Partially offset by a 5.4% decline in volume.

On a same day basis, the trends were similar.

With steel framing per day sales of 1% organically comprised of a 7.9% increase in price and mix

offset by a 7% decrease in volume.

As we discussed last quarter, prices for steel framing products had begun to decline sequentially at the start of the second quarter, with August prices roughly 1% below July's level.

As expected, steel framing prices have fallen further since.

September fell 4% sequentially, while October fell another 3.5% from there.

Ending the quarter roughly equal to where the price was in October a year ago.

Overall, however, given the tremendous rise in steel framing prices earlier in the year, the quarterly average price for steel framing products for our fiscal second quarter was up nearly 9% as compared with a year ago.

Although, again, difficult to predict, our current expectation is for steel prices to decline each month sequentially in the lowest single digits through the end of our fiscal year, likely moderating a bit as we enter the spring months.

Complementary product sales of $408.7 million, which comprised nearly 30% of our total net sales for the quarter, were up 26.5% year over year as we benefited from positive contributions from acquisitions, as well as improved pricing across the category.

Sales in this category were up 24.5% on a per day basis.

Organically, sales of complementary products rose 17.8%, or 16% on a per day basis.

with the increase coming mostly from price and mix.

but with moderately increased volume as well.

Now, turning to our gross profit during the second quarter.

Our gross profit of $464.5 million increased 24.9% as compared with a year ago, principally due to our successful pass-through of product inflation, continued strength in residential market demand, improved commercial sales, and improved sales.

and incremental gross profit from acquisitions.

Gross margin of 32.5% increased 20 basis points year over year with strong margins in complementary products and better than expected margins which were up slightly year over year in steel framing as our teams remain focused on inventory management in diligent project quoting.

amid the environment of declining steel prices throughout the quarter.

As we have previously shared, while we manage the business towards an EBITDA level of profitability to account for mix and cost of execution, we traditionally operate at or around 32% gross margin.

and believe this to be a reasonable near-term expectation as well, even as we see a slowdown in single-family demand ahead.

Turning to slide six.

Operating costs increased this quarter, particularly in items such as labor, fuel, and given robust activity and strong performance incentive compensation.

Regardless, as has been the case in recent quarters,

Product price inflation and the resultant increases in both revenues and gross profit dollars have outpaced these pressures.

Therefore, adjusted SG&A as a percentage of net sales for the second quarter improved 50 basis points as compared with a year ago to 18.9%.

All in, adjusted EBITDA improved $46 million, or 30.7%, to $195.5 million for the quarter.

Adjusted EBITDA margin improved 70 basis points year over year to 13.7% for the quarter, representing an incremental margin of 16.4%.

The adjusted EBITDA margin improves 70 basis points year over year to 13.7% for the quarter, representing an incremental margin of 16.4%. Now turning to slide 7.

Providing the foundation support for the continued execution of our strategic priorities is our capital structure and balance sheet.

At quarter end, we had cash on hand of $124.2 million and $293.8 million of available liquidity under our revolving credit facilities.

Our net adjusted EBITDOT debt leverage at the end of the quarter improved to 1.6 times, down from 2.4 times a year ago.

During the quarter we recorded significantly improved levels of cash flows supply chain constraints have moderated.

Cash provided by operating activities during our fiscal second quarter was $107.3 million compared with a use of $2 million a year ago.

Free cash flow was $96.5 million for our fiscal second quarter compared with a use of $11.3 million for the same period last year.

Capital expenditures of $10.7 million for the second quarter compared to $9.3 million in the prior year quarter.

For the full year fiscal 2023, we continue to expect capital expenditures to be roughly comparable to those of fiscal 2022 at approximately $40 million.

All considered, we expect to generate full year free cash flow for fiscal 2023 of approximately 60% of adjusted EBITDA on an expectation of marked relative strength in the second half of our fiscal year.

Finally, a note on our share repurchase activity before I turn the call back to JT.

As part of our previously announced upsized share repurchase authorization, during the quarter we repurchased approximately 601,000 shares of common stock for $25.8 million.

compared to 195,000 shares repurchased for $9.3 million during the prior year quarter.

As of the end of October , we had $161.2 million of repurchase authorization remaining.

Going forward, we will continue to align our capital allocation to our four pillar strategy.

balancing investing in our strategic initiatives, with paying down debt, and opportunistically leveraging favorable market conditions for share of purchases as they arise.

With that, I'll now pass the call back to JT to provide some perspective on our broader end markets and our outlook for the third quarter.

Thank you, Scott.

Turning to slide 8.

Despite the challenging macro environment and the developing slowdown in new single-family housing permits and starts, building activity and demand for our residential products has been strong through the first half of our fiscal year, which has helped us deliver outstanding results.

That said, while we expect continued strength in multifamily, as well as some continued recovery in the commercial market, we also expect a decline in single-family demand for our products to further materialize in the coming months.

We are preparing accordingly and in our single family business, which makes up roughly a third of our overall business and about half of our wall board revenues.

we will feel demand pressure.

However, a backlog of work in process remains and the specific timing, extent, and duration of this decline is uncertain.

Moreover, we believe we are well positioned to weather this expected slowdown. We have the benefit of a balanced split between commercial and residential revenues and the ability to flex to meet the demands of each customer segment.

Also, in recent years, we have successfully expanded our product offerings to better serve all of our customers.

including growing our complementary product segment.

whose revenues we estimate to be roughly 60% commercial.

And, in terms of execution, the improvements we've made in enhancing the productivity and efficiency at our yards and across our business have made us better operators.

With variable performance-based incentive compensation and other activity-driven costs currently making up a large portion of our G&A, we are confident that we will be able to flex as the business requires.

On the pricing front, inflation is moderating across all categories.

We expect steel framing to continue its deflationary trend, and sealing grid will likely follow suit.

As Scott discussed, we also expect the pace of wallboard price increases to slow.

But still expect year-over-year favorability in pricing during our third quarter for wallboard

ceiling tiles and complementary products.

With this as our backdrop, as highlighted on slide 9,

For our fiscal third quarter, we expect to deliver total net sales growth in the mid-single-digit range.

most of which we expect to be organic and inflation driven.

Gross margin percentage consistent with a year ago and with our long-term trend around 32%.

And, adjusted EBITDA margin should approach last year's level of 11.7%.

I am pleased with the commitment and determination demonstrated by our team as we continue to deliver solid results.

Over the long term, we are confident that our scale, breadth of product offerings, and our demonstrated capability to service commercial, single-family, and multi-family customers.

positions us well and that continuing to execute against our strategic objectives will deliver value to our shareholders.

Thank you for joining us today.

Operator, please open the line for questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in question queue. You may press star 2 if you'd 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 2. If you'd like to ask a question, press star 2 to remove your headset. If you'd like to ask a question, press star 2 to remove your headset.

The 1 question would.

Three quick questions here. First off, what percentage of US MSAs do you have a presence in today?

Second, if you could talk about multifamily, what the mix of wallboard and overall GMS sales are multifamily. And then finally, what percentage of customers and revenues come to you via online channels. Thanks.

Sure, from an MFA perspective, outside of New York City,

We really are in all of the balance of the top MSAs in the country, and also the state of Utah. We're not in New York City, we're really not in the state of Utah. Outside of that, we're in all the top MSAs in the US. In Canada, other than Montreal and the Eastern provinces, we are in all the major MSAs.

in Canada, so fairly well balanced. So we think that our multifamily mix is about 15% of our wallboard sales and about 10% of our overall sales.

David. And then what was the third question? Online sales?

Right, what percentage of your customers use online channels and maybe what percentage of your residents, sorry, what percentage of your residents come into your online.

So from a revenue perspective, pretty small. But from a usage perspective, pretty good. I'll give you some color on that. So it's a B2B process. So we began the journey in e-commerce to specifically improve service.

And so what happens is our large customers tend to place orders in their own systems and send them to us. But once we get those orders, we get a lot of activity from an automated perspective. So I'll give you an example. Of our top 100 customers, we have a lot of activity.

Over 80% of those customers are signed up with us online and 60% of those 80% consistently use the system month to month.

So we have a pretty good number of our largest customers using our system of our total customer base.

we have about 40% of our customers signed up and about 50% of those customers use us on a regular basis.

And that last number I gave you of 40% of our customers signed up, that's any customer that has an open account with us that has done any sales with us in the last 12 months. So it's a very broad base of customers. So we have fully 40% now of that very broad base of customers signed up. And again, of those customers, about 40% of us signed up to write that unfair report. It's something that we need to think about always. But you know what life really is and we need to spend a lot of time trying to implement all of these very few things at the top of our neck. So if you guys have time come get some work. There's going to be, most of us have

about 40 to 50 percent use us consistently every month. And what do they do? They primarily, they check orders, they check inventory availability, they check pricing, and they check shipment activity.

as well as we've talked in the past about our picture delivery capability. So after delivery, they check our pictures on site to ensure that the products are there and that they're ready to dispatch labor. So we have a lot of activity going on in e-commerce, but from an actual order receipt and revenue generation, it's still fairly small. Although our accounts receivable now is up to north of...

we've got going on there, David.

Got it. Thanks, JT.

Absolutely. Thank you.

Thank you. Our next question comes from line of trade groups with Stevens Inc. Please proceed with your question.

Hey, good morning everyone. Thanks for taking my question. Nice job in the quarter.

Thanks, Trey. Morning, Trey. Good morning. So, if we could touch on commercial.

So commercial sales up for, I think it was the second quarter in a row, you mentioned an improving commercial landscape for the near term. First off, if you could maybe speak to where you're seeing relative strength and weakness on the commercial side, and looking forward.

What kind of visibility do you have there and how are you thinking about the commercial demand more in the medium term? Should that continue to hold up relatively well or are you bracing for a potential slowing on that side as well?

No, I think that the headlines are just starting right that people are already worried after one month of the ABI being below 50 We're gonna give that a little more time I think we feel like the commercial market is going to remain relatively flat up, you know low single digits in the medium term Trey and and the big drag there is still office right office is just not

Education is flat, hospitality has been showing some real positives just recently, but the other trends have been more positive. That office is the one that we're still waiting for recovery on.

And so our internal pipeline and our internal checks, as well as external checks, with our larger commercial contractors, basically would tell us that we're gonna be flat to up slightly over the course of the next quarter or two.

Got it. Okay, perfect. That's super helpful. And then you guys have been very acquisitive over the last – well, for as long as I've known you guys. So I guess the question is, as we see some kind of slowing on the horizon, especially on the residential side, 2020 is going to correspond with things like transition time – the impact of thel

How are you thinking about M&A? How are you, how are you, you know, what's your appetite there? Do you kind of, do you feel like it's appropriate to kind of take the foot off the gas some now or do you continue with the current strategy or just how are you approaching M&A and what's your appetite there? And then I guess as

Part of that leverage is in a very nice place right now. I've seen you guys take it up higher than this for the right deal, pointing to the Canadian acquisition you did a few years ago. But how are you also kind of thinking about the leverage with that backdrop as well? Thank you.

Well, I'll start with just the appetite for M&A. Nothing has really changed other than our valuation today is not where we'd like it to be and our objective has always been to acquire at or better than our current valuation and then enjoy the synergies internally that we bring to the new company or the new acquisition. To Learn More about M&A historioulsy, visit J cables.com

So that's been a little bit of a headwind. Valuation expectations on the seller side still appear to be a bit inflated and then of course you got risk out in the next six to nine months you know across the across the board so it's hard to pay with the anticipation of any kind of upside in growth.

So, all three of those things make us a little more cautious than we normally would be. All that being said, continue to have great relationships with sellers in our pipeline and constantly are having conversations with them. And we would expect to have some things happen over the course of the next couple of quarters, although not strategically, right? Nothing huge.

today in the pipeline. I don't think we have that kind of risk appetite. So in the midterm, we're going to do what we just did this last quarter. We're going to generate a bunch of cash. We're going to continue to pay down a little bit of debt, and we're going to continue to use the authorization that we have in stock purchases. Yeah, Trey, to your point about leverage, we're down at $1.6K now.

As you noted, when we did the Titan acquisition, we showed a willingness to go above three to be able to get something of that level of strategic importance done. But we did it only with the expectation that we'd be able to very quickly get that down below based on the combined cash flows of the companies, and we did that. So we've always been clear that.

we will continue to be pursuing those larger types of opportunities as well as the medium and smaller ones. And if something like that presented itself and it had the strategic benefits and we thought we could be able to bring that leverage down relatively quickly, we would definitely do that. Thanks again for taking the questions and all the color. Good luck.

Thanks, Ray. Thank you. Our next question comes from the line of Mike Dahl with RBC Capital Markets. Please proceed with your question.

All right, thanks for taking my questions. It's just as a follow-up, when you're thinking about the RESI piece of your business, obviously you see the climbs and starts permits. I'm sure you see the builder order trends. So what's going into the funnel is quite a bit smaller than what's coming out of the funnel as builders push their year-end.

deliveries, you know, do you have a way of kind of quantifying or looking at, you know, what percentage of the homes under construction are still pre-wallboard installation phase or anything like that that helps you kind of gauge when this when this slowdown will actually more materially impact you over the next couple of quarters.

on a divisional level or an MSA level, we have some data available to us that's provided by outside services, but mostly we rely internally on our own checks with our team, but also with our big customers that are doing that work. We do have a pretty good view of that. Now, our big customers, generally speaking, they're operating in terms of the next month to two months, three months.

it, bifurcation in certain markets in that you have the West Coast as an example. They're eating through the backlog fairly quickly because there have been less supply chain disruptions. The land developers were able to deliver the lots, et cetera, et cetera. We get into the Southeast as an example, particularly Florida.

you're still having product availability issues there and so the cycle times for the builds are still longer. And you've got some land issues, land development issues down there that are slowing builders as well. But you're also hearing the builders now start talking about the fact that the buyers that are out there are all interested in spectomes.

They want quick closings. So we are seeing activity, at least to whatever the expectation of sales are, you're seeing a lot of builders reflect that in their strategy into next year.

So, long-winded answer, but we have a pretty good view and it's usually incorporated into the outlook, or it's always incorporated into the outlook, quite frankly. And we break it out in a bunch of ways internally and so far we've been pretty good at it, although I would tell you it's getting more complicated.

Yeah. Okay. That's helpful. And my second question as part of this will also be a follow-up, but when we're thinking about, you know, the 3Q Guide in terms of total growth going from the 20s to mid-single digits, you've articulated some.

the moving pieces certainly, but maybe a little more detail when you say, you know, timing of single family demand flowed out unknown, but will materialize or do you expect?

is the expectation that your Resi, single-family Resi business is down year-on-year in volume terms in the third quarter and then on the pricing side very helpful color on

some of the sequential trends and October trends in the ceiling grid and the steel, you know if those sequential declines continue as you expect. What does that mean for the year-on-year declines that you're expecting within your third quarter guidance?

I would tell you that wallboard, we're still expecting to have slight growth in wallboard volume but still really strong pricing on a year-over-year basis. So high double digits really in total revenue growth from a wallboard perspective. Ceilings, possibly in revenue. We had a very, very strong...

third quarter last year, winter season last year in ceiling, so we're gonna comp that as well. But it's probably down low single digits. And steel, based mostly on the same trends we've already been experiencing, just the reality of the steel prices year over year, we are laughing now the high point in steel. Should have made that commentary a little earlier to you all, but I think you probably know it already anyway. But this is the high point in steel pricing.

as November , December , January was the peak of steel pricing last year. That's probably going to be down in that 15 to 20-ish range plus. You mix all that together with complimentary and you get that mid-single digit revenue guide.

Mike...

Thank you. Our next question comes from line of Jeff Stevenson with Loop Capital Markets. Please proceed with your questions.

Thanks for taking my questions today and congrats on a nice quota. Thank you.

So you guys saw strong wallboard volumes during the quarter which came in ahead of the industry and just wanted to know kind of what were the primary drivers of that above industry growth and can you talk about as well how volumes trended throughout the quarter? Well I think the efforts we've put in over the last several years, we've talked about it many times.

being more focused on the builder business as a company over the course last three to four years. Not that we were big, I've said it before, not that we anticipated the post-COVID balance and the extreme success in single-family, but the reality is we were focused on doing more of it and that came to fruition and here we are on...

of course is we still were even though we've had all the success of single family we're probably still more weighted in wallboard to commercial than the industry is.

And so whatever the commercial recovery is we're experiencing, you know, low to mid single-digit recovery and commercial at the moment, that's a help for us as well. And multi-family is just strong, period. I mean multi-family, it's not a huge, as I mentioned earlier, right, it's not a massive part of the business, but it's growing 20 or 30 percent.

work given delayed projects. Have you seen any signs of this in your ceilings business and if so do you believe they're just delayed or canceled? I don't see any activity you know in office growing I just don't see it happening and so that's I'm assuming that's primarily what you're talking about when it comes to ceiling tiles it's a huge driver of it.

But we're not seeing transportation projects delayed, airports, those types of projects are still happening. Main Street commercial is happening and still doing well. Hospitality is going to be fine. Healthcare is strong. you know, but

office is just not happening. We talked about discretionary remodel in office, we're just not seeing that yet. And I think that building owners just have to wait and see what happens from a occupancy perspective or they have to decide to compete one or the other and neither of those things will happen yet.

I'd say as well, Jeff, in commercial, some of the dynamics you talk about have really been going on for the better part of 18 months in terms of longer quoting cycles, rebidding kinds of activity, you know, re-engineering of quotes as inflation factors have been accounted for, etc.

and ultimately that's extended the entire commercial process. So those kinds of things you're talking about are not a recent dynamic. They've been something we've been dealing with for the better part of 18 months or so. Great, thank you.

Thank you. Our next question comes from the line of Steven Ramsey with Thompson Research Group. Please proceed with your question. Hi, good morning. Maybe to start with on the commercial, I mean the complementary side of things, growth rate is very strong and very favorable compared to the other three groups and seems to be very strong in relation to pricing being the major driver. As we get to the other side of pricing.

being said there's some inflation in complementary as well. It's a little bit less there than it has been in some of the other categories, but there is definitely still inflation there in complementary. But complementary will continue to be a focus and should over the long haul be a larger percent of our overall business. Okay, helpful. I'm one more on complementary.

is a driver. We don't see margin improving, but we don't see any reason the complementary margin would be declining. So you know our margin guides always include the entire business. But yes, AIMS, as Scott called out, right, incremental gross margin from acquisitions, AIMS is a great company, continues to operate at very high gross margins.

a wonderful part of our business now. And in general, our complimentary business has leveled off, let's say, at much higher margins than we would have thought. And some of that is the mix of products that we're able to sell. As we talked about particularly, tools and fasteners, East and Stucco, and insulation were up 30 plus percent versus the whole at what I say, 26 and a half or something in that neighborhood.

So we're gaining traction in a good mix of complementary products as well. Excellent. Thank you. Thanks, Stephen. Thank you. Our final question this morning comes from the line of Matthew Boulet with Barclays. Please proceed with your question.

Good morning. You have Elizabeth laying it on for Matt today. I was wondering if you could talk a little bit about how you're thinking about SG&A going forward, you know, kind of how you're thinking about cost leverage as residential volumes come down and, you know, maybe you still continue to see that strength within commercial, but how should we be thinking about costs within that basket and, you know, maybe how that relates to your plans for spending on like productivity and automation?

So I'll kind of work backwards. And I'll really start with how we managed the business during the early days of COVID when there was a lot of uncertainty out there. We really took a lot of actions very quickly, in a very focused way to manage the cost of the business. And I think you certainly saw that in our results in terms of the incrementals we were able to and decrementals we were able to manage. We took some pretty tight actions there. And I think the learning from that is we would do that again. Specifically to your point on automation and some of the things we're doing around the art of the future, that is one area that we did not skimp on.

We continue to focus on those strategic investments, both in terms of CapEx as well as spending, so I think you would see us do that again. Bringing your question all around and full circle to the types of things we'd be focused on in this environment, we're actually fortunate right now that we've got a higher level of what I would call actionable types of things that we can affect in this environment if we saw a marked downturn. For example, incentive and bonus compensation is relatively high because the business is doing well. If that were to shift at all, we'd be able to move that down. We have other variable expenses like fuel, like maintenance, like those types of things that are truly active.

you know, it is a larger part of your business now and that has kind of been a point of, you know, where there have been a lot of acquisitions. Is that an area where you expect you'll continue kind of building out those offerings there and are there any other spots within the business where you think, you know, maybe there's a different vertical you eventually want to enter?

I appreciate you raising that. That's very much something we have been talking about and as JT was talking about some of our pipeline activity, our pipeline still remains very full, both on the core products as well as those complementary areas. While we've got some near-term pricing kinds of dynamics and valuation kind of dynamics we're thinking through.

All of the things that we do, both in terms of thinking through our opportunities strategically, working on the relationship building, and driving the pipeline development is very much focused. We've got a widening of the aperture in those areas, particularly those three areas that JT focused where we've seen

some higher than average growth in our complementary tools and fasteners, EAVS, those types of things. We've got a lot of really promising activities going on there. So I think you'll see activity from us both in the core as well as the complementary going forward.

Thank you. Thank you. Ladies and gentlemen, this concludes our question-and-answer session and thus concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.