Q1 2025 GMS Inc Earnings Call
Speaker Change: Music Music
Speaker Change: Greetings, welcome to the GMS Inc. 1st quarter, 2025 earnings conference call. At this time, all participants aren't listening only mode.
Carey Phelps: The question and answer session will follow the form of presentation. If anyone's require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Carey Phelps by President of Investor Relations. Thank you, you may begin.
Carey Phelps: Thank you. Good morning, and thank you for joining us for the GMS earnings conference call for the first quarter of fiscal 2025.
Speaker Change: I am joined today by John Turner, President and Chief Executive Officer and Scott Deakin, Senior Vice President and Chief Financial Officer.
Speaker Change: In addition to the practice release we issued this morning, we've posted PowerPoint slides to accompany this call in the investor section of our website at www.gms.com
Speaker Change: Starting with slide two, on today's call, Management's Prepare remarks and answers to your questions may contain forward-looking statements as defined in the private security's litigation reform act of 1995.
Speaker Change: for looking statements addressed matters that are subject to risk certainty. Many of which are beyond our control and may cause actual results to differ from those discussed today.
Speaker Change: As a reminder for looking statements, represent management's current estimates and expectations.
Speaker Change: The company assumes no obligation to update any forward-looking statement in the future.
Speaker Change: With SARS-R encourage to review the more detailed discussions related to these four-looking statements contained in the company's violence with the FEC, including the risk factor's section in the company's 10K and other periodic report.
Speaker Change: Today's presentation also includes a discussion of certain non-gap measures. The definitions and reconciliation of these non-gap measures are provided in the press release and presentation slides.
Speaker Change: Please note the references on this call to the first quarter of fiscal 2025, relate to the quarter and did July 31, 2024.
Speaker Change: Finally, once we begin the question and answer the session of the call in the interest of time, we kindly request to limit yourself to one question and one follow-up.
John Turner: With that, I'll turn the call over to John Turner, whose discussion will be starting on slide 3. 3. Cheating?
John Turner: and thank you all for joining us today.
John Turner: Bar First Quarter, we reported net sales of $1.45 billion, 2.8% higher than a year ago, driven by volume growth in all four of our major product categories, primarily the result of recent acquisitions.
John Turner: Organic sales declined for the quarter on softening demand in multi-family and commercial end markets and steel price deflation, partially offset by year-of-year growth in single-family demand.
John Turner: All of our end markets were weaker than we expected, particularly in July.
John Turner: Rose margin was 31.2% for the quarter.
John Turner: Down 80 basis points from a year ago, use the mixed impacts of both steel price deflation and declining commercial and multi-family deliveries. While board margins were also constrained by slower price realization amid weakening demand.
John Turner: Inclusive of a 17% increase in interest expense.
John Turner: and a 3.2 million dollar prior year one time patch benefit. That income of $57.2 million compared to $86.8 million a year ago.
John Turner: Adjusted EBITDA was $145.9 million, compared to $173 million in the prior year period.
John Turner: Looking at our in-market.
John Turner: All those certain sub-sectors of commercial activity, including healthcare, education, data centers, and those projects buoyed by governmental incentive programs, such as the chips and replication reduction acts, saw the man during the quarter.
Speaker Change: Hi, interest rates continue to create a broadly challenging financing environment elsewhere.
Speaker Change: As a result, commercial demand slowed considerably during the first quarter with several sizable projects postponed or canceled, particularly impacting our activity in July.
Speaker Change: Multifamily 2, slowed more than we expected, although pockets of activity do remain as regional backlogs are worked through.
Speaker Change: For New Single Family, while activity levels were higher than a year ago, builders have pulled back from a double digit year over year starts rate earlier in the calendar year.
Speaker Change: The most recent July print was exceptionally soft.
Speaker Change: However, indicative of myriad mixed economic signals, just last week we saw new home sales posts a strong month on an annualized basis.
Speaker Change: All considered most forecasts now called for low single-digit growth for calendar 2024 starts.
Speaker Change: We believe that any new near-term recovery momentum for this end market will largely depend upon the timing and extent of interest rate reductions.
Speaker Change: But looking forward, we continue to believe that the current headwins are temporary. As the consensus view is one of a significant concept of man-for-housing. And there are numerous indications of improving public support for housing development.
Speaker Change: This all provides confidence to the medium to long-term.
Speaker Change: More broadly, while someone constrained in the near-term, we anticipate that easing interest rates will trigger recovery in all of our end markets.
Speaker Change: With rates widely expected to start declining as a timber, we believe that the single-family market will lead any recovery, likely followed by commercial and then eventually multi-family.
Speaker Change: We should know the extent of any single family recovery by the end of the first quarter of calendar 2025. As permits starts and sales reported by that time, we'll indicate the likely pace for the balance of calendar 2025.
Speaker Change: Additionally, by that time, we will be looking for improvement in the architectural buildings index and continue strength in the Dodge Moment of Index, as well as other commercial construction indicators.
Speaker Change: We'll likely have to wait until mid 2025 and into 2026 for a bottom and subsequent recovery respectively in the multi-family market. While in the interim, we ship a declining backlog of units under construction.
Speaker Change: This dynamic and market backdrop brings to light the benefits of our balance customer base. With a revenue mix that is roughly equally weighted between commercial and residential.
Speaker Change: Our scale, operational capability and flexibility, along with our diversified mix of customers, provide us with a solid foundation as the end-market dynamics continue to evolve.
Speaker Change: In terms of pricing, we are encouraged by the resilience and wall board pricing and our ability to realize like the like improvements.
Speaker Change: While not easy to capture price increases in a softening market, we continue to pass through many facture increases.
Speaker Change: This is a structurally-trained change industry that with relatively modest improvement in demand should again face tight capacity conditions.
Speaker Change: and as Coldfire Power Plants, which are the primary sources of synthetic gypsum, are being shut down or curtailed, manufacturers are turning to more natural gypsum, which must be source than shift to local facilities and then process before it can be used to create wall board.
Speaker Change: is dynamic, along with other inflationary costs, impacting manufacturers and distributors, has kept World War price in stable, and we believe prices will continue to be resilient before ultimately rising upon a return in demand, particularly in the single-family markets.
Speaker Change: Given this challenging near-term market climate, with pressures that we believe will likely persist over the next several quarters, we are taking decisive actions to implement a $25 million annualized cost reduction program.
Phelp's: With Phelp's on simplification and efficiency optimization, made possible by prior investments in technology and process improvements.
Phelp's: Specifically, we have reduced back of house overhead, our leveraging centralized and automated procurement. We have streamlined, picking and loading processes in our yards, improve the routing efficiency of our fleet, and we have consolidated a few yard locations.
Phelp's: Studies in setting us up to better service our customers from other, more strategically located operations.
Phelp's: I would like to thank the entire GMF team for their continued dedication and commitment and an environment that is ever changing.
Phelp's: As a result of their efforts, we continue to deliver outstanding service and value for our customers through the execution of our four strategic pillars to highlight an online board.
Phelp's: Even as the man has temporarily slowed, industry and manufacturer data confirmed that we maintained or grew our share across our corporate categories during the second calendar quarter. And we are growing complementary products.
Phelp's: With total category growth at 4.1% for the fiscal first quarter, our three focus areas within complementary products, insulation, tools and fasteners, and eaves and stucko, collectively grew a total of 9% over the same period of year ago.
Phelp's: We are also excited by our recent acquisition successes.
Speaker Change: The Boston Canada, which closed in July, and RS Eliot, a leading regional distributor of exterior, cladding building products, which we announce today. RS Eliot is a wealth gale, highly respected complementary exterior platform.
Speaker Change: The Distribute Stucco, Claster, Siding, EATS, and Related Construction Supplies, servicing markets across Florida.
Speaker Change: Adding RF Eliot to GMS and our existing exterior business in Florida, demonstrates our commitment to the continued execution of our strategy, including expanding our platform to better serve our customers and growing our complimentary product offerings.
Speaker Change: are at PheliH generated net revenues of approximately $70 million dollars for the 12 months and the June 2024 with EBITDA margins that are expected to be nicely appreciative to GMS and to our complementary business.
Speaker Change: We are excited to bring our SLE into the GMS family of brands and we intend to continue focusing on expanding our footprint, scale and product offerings with an active M&A pipeline.
Speaker Change: Finally, we continue to make notable strides driving improved productivity and profitability by leveraging our scale and employing technology to deliver a best-in-class customer experience.
Speaker Change: We are encouraged by the continued ramp of our digital tools and automation for both customers and GMS.
Speaker Change: in parallel with focus complexity reduction.
Speaker Change: In particular, we are simplifying our subsidiary structure to reduce organizational complexity and improve the efficiency of our business.
Speaker Change: We are now roughly 18 months past the completion of our first such divisional project.
Speaker Change: In addition to productivity in the areas I referenced earlier as we reduce costs in our business.
Speaker Change: Working Capital Progress has been meaningful as well. In this division, DSO are down 17%, while total inventory turns improved more than 10%, with wall board turns increasing for the mid-14s to nearly 16 times.
Speaker Change: We are using this consolidation as a template to drive additional efficient geese, profitability, and cash generation across the organization.
Speaker Change: While also improving our ease of doing business, ultimately providing greater value to all of our customers.
Speaker Change: With that, I will turn the call over to Scott.
Scott Deakin: Thank you for taking the morning, everyone.
Scott Deakin: Starting with slide five, net sales for our fiscal fourth quarter increased 2.8%
Scott Deakin: to $1.45 billion. As volume growth across our major product categories, driven in large part by recent acquisitions, helped to offset an estimated $40 million negative impact from steel price deflation.
Scott Deakin: Assuming current year volumes have been sold at prior year prices.
Scott Deakin: Organic sales were down 2.2%, primarily impacted by this field price deflation, together with soft Canadian single-family residential activity, which resulted in lower than expected complementary product sales, particularly in roofing and lumber.
The Chaking: The Chaking noted, commercial and multi-family activity levels slower during the quarter, more than the expected.
Speaker Change: While single-family was also somewhat constrained relative to our prior expectations, the sector recorded its second consecutive quarter of year over year growth in demand.
Speaker Change: From a USM market perspective across all product lines, commercial sales dollars decline 1.7% is compared to a year ago. Well, multi-family sales dollars decline 3.1%.
Speaker Change: In contrast, U.S. single family sales dollars improved 2.2% year over year.
Speaker Change: $1,8 million for up 3% of the same period last year, with roughly flat commercial volumes.
Speaker Change: Multi-fame family volumes down 2.3% and single-family volumes up 4.1%.
Speaker Change: Organically, 1st quarter wallboard sales were up 1.1% compared with the prior year period, comprised that a 0.9% increase in volume and exclate benefits from price and mix.
Speaker Change: During the quarter we realize improved pricing for a wild-born products, lots of monthly from our fiscal fall cooler.
Speaker Change: However, as expected, a heightened shift towards single-family construction and thus a lower price board resulted in roughly flat year-over-year average pricing for this category.
Speaker Change: Specifically for our first fiscal quarter, the average realized wall board price was $477 per thousand square feet, up from $475 on the fourth quarter and up less than a dollar from a year ago.
Speaker Change: Give him a commercial and multi-family slow down and result in mixed shifts later in the quarter. The average quarter-an wallboard price for the month of July was also $477. Despite modest progress in equivalent product price in over the quarter.
Speaker Change: Welcome to our expectation that we provided on our fourth quarter earnings call. The more pronounced mixed shift resulted in average wallborne prices that was slightly lower than we had anticipated for the quarter.
Speaker Change: Perseulings, which benefited from acquisitions in a feasible, seasonal bump, and school-related remodeling activity.
Speaker Change: sales were 207.2 million dollars on the first quarter, up 18.2%. With strong increases of 8.9% in volume and 9.3% in price and mix.
Speaker Change: Organic sales for C1's Guru, 5.7% for the corner, including a 1.1% increase in volume, any 4.6% increase in price and next.
Speaker Change: First quarter's field framing sales of $209.9 million over down, 11.4% is price deflation with even worse than the low team decline leading anticipated.
Speaker Change: Driving a 16.8% decline in price and mix, his volumes improved 5.5% also largely on acquisition growth.
Speaker Change: Organicly's field framing sales were down 15.3% with a 14.7% decline price and mix, and a 0.6% decline and volume reflecting the slower conditions in commercial and multi-family and markets.
Speaker Change: and we said earlier this summer until we see some recovery in the commercial remodeling space.
Speaker Change: Still volumes will likely continue to be less predictable as new larger projects with a higher mix of then-market applications are driving a greater portion of our commercial activity than has been truly historically.
Speaker Change: Price is for steel framing products, which have proven to be the most difficult to forecast, given the influence of market demand outside of building products or down 16% compared to a year ago, and down 7.3% sequentially from the fourth quarter fiscal 2020.
Speaker Change: Complementary product sales of $443.5 million for the quarter-to-four point one percent, your review and total, representing the 17th consecutive quarter of growth for this category.
Speaker Change: But, they decline 2.7% on an organic basis, principally, as soft single family demand came to them, heavily impacted our roof and the lumber sales there.
Speaker Change: Our team for main focused on driving roads from the capital network and in contact, to see the encounterment of our colleagues.
Speaker Change: Partically, for Eastern Stucco, which could include 10.2% in the quarter.
Speaker Change: Tools and Fathletes, which crew 9.1% and installation which crew 8.4% as compared to the prior year quarter.
Speaker Change: Now, turning this line six, which highlights our profitability for the quarter.
Speaker Change: goes profit at $451.6 million, increased $1 million or 0.2% compared to the first quarter of fiscal 2024.
Speaker Change: Krose Margin was 31.2% down 80 basis points as compared to 32% a year ago.
Speaker Change: Primarily due to the mixed impacts of continuous fuel price deflation.
Speaker Change: Price Gost, cost dynamics in lawboard, and a shift from commercial and multi-family to single-family lawboard deliveries, all of which were more pronounced than expected, and contributed to us recording those margin be well-previously communicated outlook.
Speaker Change: Hello General and Administrative Expenses, we're 315.2 million dollars for a quarter up from 286.8 million dollars in the prior year period.
Speaker Change: of the 28.4 million dollar year over your defense approximately $16 million related to recent acquisitions.
Speaker Change: The remainder of the variance was primarily due to inflationary and activity based on slowly compensation in warehouse costs.
Speaker Change: As G&A expenses of a percent of net sales increase the 150 basis points to 21.8% for the quarter compared to 20.3%.
Speaker Change: Operating cost inflation and activity based on creases that impacted SG&A lovers by approximately 85 basis points. While steel price deflation contributed approximately 55 basis points of the average.
Speaker Change: Costs associated with recent acquisitions in green field openings, negatively impacted SG-1A by the remaining approximately 10 points.
Speaker Change: and Jeff did FGMA extances percents of net sales at 21.2%, increased the 140 basis points from 19.8%.
Speaker Change: As it was all over near-term outlook, as J.T. mentioned earlier, we have recently implemented cost-production actions which are expected to save and immunulize $25 million.
Speaker Change: All in, inclusive of a $7.4% increase in interest expense and a $3.2 million one-time tax benefit in the prior year quarter.
Speaker Change: Netting some V-Preece, 34.1% to 57.2 million dollars, or a power and 42 cents per diluted chair. Compared to Netting Comovated, 6.8 million dollars, or 2.9 cents per diluted chair in the first quarter of fiscal 2024.
Speaker Change: A just in that income was $77.6 million or $99.3 per day to share for the first quarter of fiscal 2025 compared to $13.2 million or $2.49 per day to share in the prior year period.
Speaker Change: I just had EBITDA of $145.9 million, decreased 15.8% for $27.4 million, just compared to the year ago.
Operator: Greetings. Welcome to the GMS Inc. 1st quarter, 2025 earnings conference call.
Justin E.: and a Justin E. with our margin, decreased to 10.1%, compared to last year's first quarter-level of 12.3%.
Operator: At this time, all participants are in a listen only mode. A question and answer session will follow the form of presentation. If anyone wants to require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded.
Speaker Change: Before moving to our balance, she please make note of a couple items. First, for the purposes of calculating and just to met income, to make the company's financial presentation more consistent with other public building products companies. We are now including adjustments for all non-caching or decision-expensory attack positions.
Carey Phelps: I will now turn the conference over to Carey Phelps by President of Investor Relations. Thank you. You may begin. Thank you.
Carey Phelps: Good morning and thank you for joining us for the GMS earnings conference call for the first quarter of fiscal 2025. I am joined today by John Turner, President and Chief Executive Officer and Scott Deakin, Senior Vice President and Chief Financial Officer. In addition to the press release we issued this morning, we've posted PowerPoint slides to accompany this call in the Investor section of our website at www.gms.com. Starting with slides, too.
Speaker Change: Fast practice included adjustments for non-cation and registration into appreciation for only certain larger-term actions.
Speaker Change: Please refer to this morning's press release in the appendix to our slide presentation for comparison of the adjusted net income and EPS. She's in both the new and the legacy methods.
Speaker Change: Second, while our normalized tax rate of 26% for the quarter was consistently the expectations we previously provided.
Carey Phelps: On today's call, management prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Security's Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risk and uncertainty, many of which are beyond our control and may cause actual results to differ from those discussed today. As a reminder, forward-looking statements represent management's current estimates and expectations. The company assumes no obligation to update any forward-looking statement in the future, listeners are encouraged to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the FEC, including the risk factors section in the company's 10K and other periodic reports.
Speaker Change: For the remainder of the year, we expect the rate to tick higher to a 26.5 to 27% range. As our mix of sales was shifted slightly to higher rate jurisdictions.
Speaker Change: Now turning to our balance sheet, which was highlighted on slide 7.
Speaker Change: and July 31, we had cash on hand of $53.2 million and $555.3 million of available liquidity under our evolving credit facilities.
Speaker Change: Following our acquisition of the bond in July, net debt leverage was 2.1 times as of the end of the quarter, up from 1.5 times at the end of the first quarter fiscal 2024.
Speaker Change: As much you previously earlier this week, we also acquired RS Eliot, a leader in each stock of another exterior products.
Carey Phelps: Today's presentation also includes the discussion of certain non-gap measures. The definitions and reconciliations of these non-gap measures are provided in the press release and presentation slides. Please note the references on this call to the first quarter of fiscal 2025 relate to the quarter ended July 31, 2024.
Speaker Change: The aggregate purchase price of this transaction was $90 million, who was funded with cash on him and borrowing and you're a all-remolding credit facility.
Speaker Change: We are very pleased to welcome the RSL Latine to GMS. As JT mentioned, RSL generated approximately $70 billion in that sales for the 12 months under June 30th, and it's expected to be included in the time margin.
Speaker Change: The multiple paid was consisting of a track record of acquiring at or below GMS as market multiple. When we were excited by the opportunity, we believe it is to expand the RSA platform of complementary offerings across the southeast.
Carey Phelps: Finally, once we began the question and answer session of the call in the interest of time, we kindly request to limit yourself to one question and one follow-up.
Speaker Change: As of off in the case for our fiscal quarter cash from operating activities in free cash flow, we're used as a cash for the quarter of $22.9 million and $31.9 million respectively.
John Turner: With that, I'll turn the call over to John Turner whose discussion will be starting on slide 3. JT. Thank you, Kerry.
Speaker Change: compared to an uncharacteristically strong first quarter of fiscal 2024, with cash generated by operating activities of $6.6 million, and a free cash flow use of $6.9 million.
John Turner: Good morning, and thank you all for joining us today. Bar first quarter, we've reported net sales of $1.45 billion, $2.8% higher than a year ago, driven by volume growth in all four of our major product categories, primarily the result of recent acquisitions. Organic sales declined for the quarter on softening demand in multi-family and commercial end markets and steel price deflation, partially offset by year-over-year growth in single-family demand. All of our end markets were weaker than we expected, particularly in July.
Speaker Change: Capital expenditures of $9 million for the quarter compared to $13.5 million a year ago. We now expect it for the 40-year fiscal 2025, capital expenditures will be approximately $50 million.
John Turner: Gross margin was 31.2% for the quarter, down 80 basis points from a year ago. Use a mix impacts of both steel price deflation and declining commercial and multi-family deliveries. Wallboard margins were also constrained by slower price realization amid weakening demand. The inclusive of a 17% increase in interest in at a $3.2 million prior year one-time tax benefit net income of $57.2 million compared to $86.8 million a year ago. Adjusted EBITDA was $145.9 million compared to $173.3 million in the prior year period.
Speaker Change: The leveraging the typically favorable cash flow generation of the distribution business model in softland markets. We expect four years of free cash flow generation to be approximately 60% of adjusted in the dollar.
Speaker Change: During our fiscal first quarter, we were purchased another $538,000 shares of stock for $46.2 million and had $154.3 million of share of purchase authorization remaining. That's why at $31.
Speaker Change: The two forward, we expect share-by-backs to remain a critical component of our capital allocation strategy as we balance those with purchases with continued investment in our business in attractive M&A opportunities.
John Turner: Looking at our end markets, although certain sub-sectors of commercial activity including healthcare, education, data centers, and those projects bullied by governmental incentive programs, such as the chips and relation reduction acts, saw demand during the quarter. High interest rates continued to create a broadly challenging financing environment elsewhere. As a result, commercial demand slowed considerably during the first quarter, with several sizable projects postponed or canceled, particularly impacting our activity in July. Multifamily 2 slowed more than we expected, although pockets of activity do remain as regional backlogs are work through.
Speaker Change: A capital structure and solid balance sheet of the no-mear-term maturity provides what we believe is an effective foundation for the continued execution of our strategic priorities.
Speaker Change: with that, and I'll turn the call over to J.T. until start on slide 8.
J.T.: Thank you, Scott.
J.T.: Although market conditions worsened as we moved through the summer, we do we wear a well-positioned with the expertise to service both commercial and residential customers.
J.T.: Along with the broad mix of products to address ships in the market demand as they occur.
J.T.: We are encouraged by recent positive movements in certain external indicators, such as the 30-year mortgage rate and higher than expected new home sales in July.
John Turner: For a new single family, while activity levels were higher than a year ago, builders have pulled back from a double-digit year-over-year starts rate earlier in the calendar year. Most recent July print was exceptionally soft. However, indicative of myriad mixed economic signals, just last week, we saw new home sales post a strong month on an annualized basis. All considered, most forecasts now call for low single-digit growth for calendar 2024 starts. We believe that any new near-term recovery momentum for this end market will largely depend upon the timing and extent of interest rate reductions.
J.T.: But, given the unknown timing of rate reductions and other macroeconomic uncertainties, we are expecting conditions to remain choppy with relatively low levels of visibility beyond our fiscal second quarter.
J.T.: Given this reality, let me go to our expectations for our fiscal second quarter.
J.T.: Starting with organic wallboard growth.
J.T.: is going to our U.S. business as the proxy.
J.T.: As compared to the prior year quarter, we end this phase single family volumes to be up mid-single digits for our fiscal second quarter.
J.T.: We'll be family wall board volumes to be down low double digits and commercial wall board volumes to be down high single digits.
John Turner: But looking forward, we continue to believe that the current headwinds are temporary, as the consensus view is one of significant concept demand for housing, and there are numerous indications of improving public support for housing development. This all provides confidence to the medium to long-term. More broadly, while somewhat constrained in the near-term, we anticipate that easing interest rates will trigger recovery in all of our end markets. With rates widely expected to start declining in September, we believe that the single-family market will lead any recovery.
J.T.: Considering all of these in-market dynamics, for the entire product category, we are expecting our consolidated organic wall board volumes to be flat, to down low single digits, and total wall board volumes, including our recent acquisitions, up low single digits.
J.T.: The resilience we saw on World Board pricing during fiscal 2020 or continued into our fiscal first quarter, and if again proving out the new realities we see in the World Board industry.
J.T.: While we expect to continue to realize light for light product pricing in our second quarter, our expecting mixed shift will likely hold the total category pricing to just up slightly year of a year as compared with the second quarter of fiscal 2024.
John Turner: Like we followed by commercial and then eventually multi-family. We should know the extent of any single-family recovery by the end of the first quarter of calendar 2025, as permits, starts, and sales reported by that time will indicate the likely pace for the balance of calendar 2025. Additionally, by that time, we will be looking for improvement in the architectural buildings index, and continued strength in the Dodge Momentum Index, as well as other commercial construction indicators.
J.T.: In ceilings, we expect second quarter organic volumes to be up low single digits year over year, inclusive of recent acquisitions, we expect this to be up low double digits, with flat two-up low single digit improvement for price and mix.
John Turner: We'll likely have to wait until mid 2025 and into 2026 for a bottom and subsequent recovery, respectively, in the multi-family market. While in the interim, we ship a declining backlog of units under construction. This dynamic end market backdrop brings to light the benefits of our balance customer base, with a revenue mix that is roughly equally weighted between commercial and residential. Our scale, operational capability, and flexibility, along with our diversified mix of customers, provide us with a solid foundation as the end market dynamics continue to evolve.
J.T.: For steel framing, we expect organic volumes to be down, mid to high single digit year over year, reflective of the current financing environment and slowdown in many active projects.
J.T.: including recent acquisitions, steel volumes are expected to be up, low single digits, with prices which soften more than we expected in our fiscal first quarter, about 2% sequentially, which indicates prices that will be down low teams year over year.
J.T.: Finally, net sales for our complimentary products are expected to grow at mid to high single digits.
J.T.: All in, as shown on slide 9, we anticipate that sales for our fiscal second quarter to be up low to mid-single digits as compared with a year ago, with organic sales down low-single digits, with the continued negative impact of steel price deflation.
John Turner: In terms of pricing, we are encouraged by the resilience in wallboard pricing and our ability to realize life-to-life improvements. While not easy to capture price increases in a softening market, we continue to pass through manufacturer increases. This is a structurally changed industry that with relatively modest improvement in demand should again face tight capacity conditions and, as cold-fire power plants, which are the primary source of synthetic gypsum are being shut down or curtailed, manufacturers are turning to more natural gypsum, which must be sourced, then shipped to local facilities, and then processed before it can be used to create wallboard.
J.T.: Gross Margin is expected to improve sequentially to arrange a 31.6 to 31.8% for our fiscal second quarter, as we continue to pass through previously announced Wal-Borb price increases.
J.T.: All in, we anticipate adjusted EBITDA to be in the range of 163, 268 million dollars for our fiscal second quarter with EBITDA margin of approximately 11%.
John Turner: This dynamic, along with other inflationary costs impacting manufacturers and distributors, has kept wallboard pricing stable. When we believe prices will continue to be resilient before ultimately rising upon a return in demand, particularly in the single-family market.
J.T.: As we go forward, it is important to note that in this cycle, if the next few quarters are in either bottom, this will be a relatively moderate slowdown in comparison to previous cycles.
Speaker Change: The support of the notion that housing is under-supplied and that new and exciting trends like AI, reshoring and infrastructure investment are capable of creating sustained and stretching demand while our more traditional and market applications stabilize and then recover in a lower interest rate environment.
John Turner: Given this challenging near-term market climate, with pressures that we believe will likely persist over the next several quarters, we are taking decisive actions to implement a $25 million annualized cost reduction program. With focus on simplification and efficiency optimization, made possible by prior investments in technology and process improvements. Specifically, we have reduced back-of-house overhead, our leveraging centralized and automated procurement. We've streamlined picking and loading processes in our yards, improved the routing efficiency of our fleet, and we have consolidated a few yard locations, setting us up to better service our customers from other more strategically located operations.
Speaker Change: We remain confident in the value of our business model and our well-position and navigate the waters ahead.
Speaker Change: Thank you for joining us today, Operator. We are open, ready to open the line for questions.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tunnel indicate your line is in the question too. You may press star 2 to remove your question from the queue.
John Turner: I would like to thank the entire GMS team for their continued dedication and commitment in an environment that is ever changing. As a result of their efforts, we continue to deliver outstanding service and value for our customers through the execution of our four strategic pillars, which are highlighted on slide four. Even as demand is temporarily slowed, industry and manufacturer data can firm that we maintain or grow our share across our core product categories during the second calendar quarter.
Speaker Change: for participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys. As a reminder, we ask that you please let me yourself to one question and one follow-up question.
Speaker Change: Our first questions come from the line of trade rooms with Steven's, please proceed with your questions.
Speaker Change: Good morning, this is Nomer Cowscoon for Trai. Thanks for taking my questions.
Nomer Cowscoon: Hi, now are the morning.
John Turner: And we are growing complimentary products. With total category growth of 4.1% to the fiscal first quarter, our three focus areas within complimentary products, insulation, tools and fasteners, and yeast and stucco collectively grew a total of 9% over the same period a year ago. We are also excited by our recent acquisition successes. We bought in Canada, which closed in July, an RF Eliot, a leading regional distributor of exterior cladding building products, which we announced today.
Nomer Cowscoon: Morning. First, I wanted to talk about the gross margin. I think you'd previously talked about staying around the 32% range for the rest of this fiscal year.
Speaker Change: You know, with your guide for two cue, you know, your clearly below that in the front half, so just kind of any updated thoughts on how to grow smart and then shake out in the back half of the year. I know there's a few moving pieces with...
Speaker Change: with differing demand trends and what you're doing on the wallboard price, so just any help there.
John Turner: RF Eliot is a well-scaled, highly respected complimentary exterior platform that distributes stucco, cluster, siding, yeast and related construction supplies, servicing markets across Florida. Adding RF Eliot to GMS and our existing exterior business in Florida demonstrates our commitment to the continued execution of our strategy, including expanding our platform to better serve our customers and growing our complimentary product offerings. RF Eliot generated net revenues of approximately $70 million for the 12 months ended June 2024, with EBITDA margins that are expected to be nicely accredited to GMS and to our complimentary business.
Speaker Change: Yeah, I mean, most of the outlook is a result of being lower than very 2% as a result of us trying to claw back the price increases, it's just taking us longer to get them. We are getting them very slowly.
Speaker Change: As we just indicated, you know, like for like pricing was up in the quarter, I think we're definitely facing headwinds when it comes to, you know, volume helping us.
Speaker Change: So, I do think we'll keep getting it, all that being said, you know, when we'll really get it is when we start to see some turnaround in the single-family market.
Speaker Change: That could be...
Speaker Change: We're not talking much beyond due to this point because we're really on the interest rate environment. We haven't seen great starts and numbers yet. The sales numbers, single-family starts and numbers. The sales numbers, obviously, in July, were much better than I think people thought, considering how bad the starts. We're the real least less.
John Turner: We are excited to bring RS Eliot into the GMS family of brands, and we intend to continue focusing on expanding our footprint, scale, and product offerings with an active M&A pipeline. Finally, we continue to make notable strides driving improved productivity and profitability by leveraging our scale and employing technology to deliver a best-in-class customer experience. We are encouraged by the continued ramp of our digital tools and automation for both customers and GMS, in parallel with focused complexity reduction.
Speaker Change: So, maybe we'll see builders react to the expectation of low rates, maybe their see buyers come in, maybe they're going to accelerate the starts and if that happens, then I think we'll be able to get our price back.
Foster: Foster, all that being said over time, I do think, you know, in the law of run, we're 32 plus percent of gross margin company and we're working to get back there.
John Turner: In particular, we are simplifying our subsidiary structure to reduce organizational complexity and improve the efficiency of our business. We are now roughly 18 months past the completion of our first such divisional project. In addition to productivity in the areas I referenced earlier as we reduced costs in our business, working capital progress has been meaningful as well. In this division, DSO are down 17 percent, while total inventory turns improve more than 10 percent, with wallboard turns increasing for the mid-14s to nearly 16 times. We are using this consolidation as a template to drive additional efficiencies, profitability, and cash generation across the organization, while also improving our ease of doing business, ultimately providing greater value to all of our customers.
Foster: Okay, got it, that's helpful, and maybe...
Speaker Change: on my follow-up, kind of switching gears to SGA and A here. I don't previously that, you know, if you've got it.
Speaker Change: with the weakness in commercial.
Speaker Change: I would have thought there was maybe some SGNA relief there just from that makeshift but I guess are you seeing that and that's just being overshadowed by the steel deflation?
Speaker Change: and then again, just any thoughts on.
Speaker Change: You know, for how long the old deflation will kind of be a headwind here to the S.G.N.A.
Speaker Change: All right.
Speaker Change: Let me talk about steel first. First things to your question is, yes, steel to flesh, deflation is kind of offsetting that what would be the normal course. The other thing we're seeing right now is to know commercial volumes were flat.
Scott Deakin: With that, I will turn the call over to Scott. Thank you, JT.
Speaker Change: So, we're not seeing this huge rapid shift into the single family and market, it's this slow roll over of the market.
Scott Deakin: Good morning, everyone. Starting with slide five, net sales for our fiscal fourth quarter increased 2.8 percent to $1.45 billion. As volume growth across our major product categories, driven in large part by recent acquisitions helped to offset an estimated $40 million negative impact from steel price deflation, assuming current year volumes have been sold at prior year prices. Organic sales were down 2.2 percent, primarily impacted by this steel price deflation, together with soft Canadian single-family residential activity, which resulted in lower than expected complimentary product sales, particularly in roofing and lumber.
Speaker Change: Similar with multi-family wear, there is a decent size backlog out there, so it's rolling over, but it's...
Speaker Change: It's rolling over slowly.
Speaker Change: and we're still seeing a lot of makeup project activity, which is kind of filling the gap to the more interest rate sensitive commercial.
Speaker Change: Projects.
Speaker Change: So, as we switch from commercial to residential there will be a natural.
Speaker Change: and Dr. In the total cost of delivering. That's true, but still price deflation is basically masking that at the moment and hopefully that ends. But all that being said, there's a reason we're taking $25 million in cost out of the business and that is that volumes in the near-term are expected to continue to be challenged.
Scott Deakin: As JT noted, commercial and multi-family activity levels slowed during the quarter more than we expected. While single-family was also somewhat constrained relative to our prior expectations, the sector recorded its second consecutive quarter of year-over-year growth in demand. From a USM market perspective across all product lines, commercial sales dollars declined 1.7 percent as compared to a year ago, while multi-family sales dollars declined 3.1 percent. In contrast, US single-family sales dollars improved 2.2 percent year-over-year.
Speaker Change: and so we need to take that $25 million from cost out until there's an indication that we're going to need more support to grow our business. And we don't see that for a few quarters right now, kind of out of minimum.
Speaker Change: So that's kind of the FQNA questions. Still, I mean, my crystal ball, again, was a wrong last quarter, you know, we thought that sequentially we'd be down to two and three or percent, they're down all of eight percent. You're over a year down, you know, whatever. 17 or 18 percent organic we have to think we just had. I mean, that's, that's...
Speaker Change: Significantly more than we thought we would be down in the quarter. So now we're talking about maybe sequentially going down 2% in this quarter. There's a lot of work in our industry particularly around trying to not let pricing.
Scott Deakin: Lawboard sales dollars of nearly $588 million were up 3 percent over the same period last year, with roughly flat commercial volumes, multi-family volumes down 2.3 percent, and single-family volumes up 4.1 percent. Organically, first-quarter lawboard sales were up 1.1 percent compared with the prior year period, comprised of a 0.9 percent increase in volume and a slight benefit from price and mix. During the quarter, we realized improved pricing for lawboard products, but sequentially from our fiscal full-quarter.
Speaker Change: Continued to decline. There have been price increase announcements made by the heat plumbers. The coil prices themselves, you know, the major producers and coils have been house pricing increases.
Speaker Change: and certainly there's some new noise in and around tariffs, I would be very surprised without us what administration comes in if we don't see additional tariffs on Chinese products.
Scott Deakin: However, as expected, a heightened shift toward single-family construction in that lower-priced board resulted in roughly flat year-over-year average price in this category. Specifically, for our first fiscal quarter, the average-realized wallboard price was $477 per thousand square feet, up from $475 in the fourth quarter and up less than a dollar from a year ago. Given the commercial multi-family slowdown and result in a shift later in the quarter, the average quarter and wallboard price for the month of July was also $477.
Speaker Change: Today it's a very small amount of the overall steel that comes in, but there is steel that moves around the world from China that ends up coming in year. So I do think we'll expect to see a tariff environment in and around steel and Canada just announced 25% tariff on Chinese steel.
Speaker Change: So, I hope 2% sequentially, you know, who's not the best strategy in the world, but from all of our best, yes is 2% Sequence of the climb is where we've got it for the next quarter beyond that. I hope that it's gotten at that point, or begins to slowly increase.
Speaker Change: got it. That's all really helpful color. I'll leave it there. Thanks for the time.
Scott Deakin: Despite modest progress in equivalent product pricing over the quarter, relative to our expectations that we provided on a fourth quarter earnings call, the more pronounced shift resulted in average wallboard prices that was slightly lower than we had anticipated for the quarter. Percealings, which benefited from acquisitions in a seasonal bump in school-related remodeling activity, sales were $207.2 million in the first quarter, up 18.2%. The strong increases of 8.9% in volume in 9.3% in price and mix.
Speaker Change: Thank you, our next questions come from the line of David and Matthew with Bear. Please proceed with your questions.
Speaker Change: That's thanks for lowering everyone, I have a question's on the pacing of the $25 million cost cuts.
Speaker Change: JT, when you're listing out the focus area, as you're speaking mostly in the past 10, so I'm wondering how much of the benefit will we already see here in the second quarter, and then when will those reductions be fully realized on a quarterly basis?
JT: is about half of this quarter we'll get about half of what you'll see in a normal quarter and by next by the third quarter we'll be getting it all.
Scott Deakin: Organic sales for ceilings grew 5.7% per quarter, including a 1.1% increase in volume, and a 4.6% increase in price and mix. Perce quarters, still framing sales of $209.9 million were down, 11.4% as price deflation was even worse than the low-team decline we had anticipated. Driving a 16.8% decline in price and mix is volumes improved 5.5%, also largely on acquisition growth. Organically, steel framing sales were down 15.3%, with a 14.7% decline in price and mix, any 0.6% decline in volume reflecting the slower conditions in commercial and multi-family and markets.
Speaker Change: Okay, thank you. And then you made some comments here about steel and I did notice that last quarry said that this major steel mills had already enough price increases.
Speaker Change: and it actually got a bit worse and you said there's some other price increase and potentially in the channel, but it is.
Speaker Change: Steel prices just maintain the current levels or down slightly as you're expecting. How long does it take before we lap and go flat because of the year to year comps?
Speaker Change: And the next fiscal year, I know that. I don't have it off thought my head. I mean, maybe we could send you that information specifically, because we'll have to just forecast it out for you. But I know it's beyond this fiscal year. Yeah, it's good.
Scott Deakin: As we said earlier this summer, until we see some recovering in the commercial remodel in space, steel volumes will likely continue to be less predictable as new larger projects with a higher mix of end-market applications are driving a greater portion of our commercial activity than has been true historically. Prices for steel framing products, which have proven to be the most difficult to forecast given the influence of market demand outside of building products, were down 16% compared to a year ago, and down 7.3% sequentially from the fourth quarter fiscal 2024.
Speaker Change: Yep, yep, yep, yep.
Speaker Change: Alright, that's it, thank you.
Speaker Change: Thank you.
Speaker Change: Thank you, our next question is coming along and of key views with true insecurities, please for seeing with your questions.
Speaker Change: Thank you, I'd question back on steel.
Speaker Change: You're now lapping some pretty substantial clients in price from last year. We've never seen you think what's happened in the market is so difficult to get price increases push through.
Speaker Change: Well, there's no price increase in CO, right? Or you'll be able to become a tabled action, let's say.
Scott Deakin: Complementary product sales of $443.5 million for the quarter grew 4.1%, year in total, representing the 17 consecutive quarter of growth for this category. But they declined 2.7% on an organic basis, principally as soft single-family demand in Canada, heavily impacted our roof and the lumber sales there. Our teams remain focused on driving growth in complementary products, particularly for Eason Stucco, which grew 10.2% in the quarter. Tools and fasteners, which grew 9.1%, and insulation, which grew 8.4% as compared to the prior year quarter.
Speaker Change: Well, I think the reality is that, you know, it's a little overspoken at the moment.
Speaker Change: in our face.
Speaker Change: We're still selling at roughly double pre-pandemic prices and this is kind of where we thought we were below what we thought the bottom might be to tell you the truth.
Speaker Change: I think we thought, you know, we'd be selling, you know, maybe.
Speaker Change: 10% higher than we're selling today at the bottom, but we haven't found the bottom yet. So I think we'll just oversupply at the moment, as automotive and...
Speaker Change: and you know, appliances and just general steel, the larger consumers of steel, they're just kind of all kind of stagnant.
Scott Deakin: Now, turning to slide six which highlights our profitability for the quarter. Gross profit of $451.6 million increased $1 million or 0.2% compared to the first quarter of fiscal 2024. Gross margin was 31.2% down 80 basis points as compared to 32% a year ago, primarily due to the mixed impacts of continuous field price deflation, price-gossed cost dynamics and wallboard, and a shift from commercial and multi-family to single-family wallboard deliveries, all of which were more pronounced than expected, and contributed to us recording gross margin below our previously communicated outlook.
Speaker Change: which is too much supply right now.
Speaker Change: 2nd question that you talked about the week to lie and I guess you're really referring to commercial and multifamily. How weak was July and any specific reason why I got week or in that month?
Speaker Change: You know, I just think you got me here faster than we thought by a quarter or two, you know, and we've been talking about an air pocket eventually developing. You guys, you believe in the ADI ever, and you've seen now the annualized rate of putting place construction in the key categories that matter for us.
Speaker Change: You know, we're down about 3% over the course of the last four months and I think you just got here a quarter or two, earlier. Again, we're talking about flat commercial volumes.
Scott Deakin: Selling general and administrative expenses were $315.2 million for the quarter, up from $286.8 million in the prior year period. Up to $28.4 million a year over your difference, approximately $16 million related to recent acquisitions. The remainder of the variance was primarily due to inflationary and activity-based enslaved compensation and warehouse costs. SG&A expenses of a percentage of net sales increased 150 basis points to 21.8% for the quarter compared to 20.3%. Operating cost inflation and activity-based increases impacted SG&A leverage by approximately 85 basis points, while field price deflation contributed approximately 55 basis points of due leverage. Cost associated with recent acquisitions and green fillings negatively impacted SG&A leverage by the remaining approximately 10 points. Adjusted SG&A expenses of net sales of 21.2% increased 140 basis points from 19.8%.
Speaker Change: You know, we miss five, a pointer to involve you expecting an in-law work, so.
Speaker Change: You know, that's kind of the degree of the degree of the mess and the degree of the slowdown. I think we just feel like things are going to like volume wise flatten from here as we go forward and that.
Keith: We're not going to see much of an increase this next quarter and that's where you get our guys now, Keith, you know, down nine and down ten and then those ranges for both multi-family and for commercial.
Keith: is just a laughing, you know, a good period. Well, your guide for the second quarter in volume has a multifamily commercial down that has multifamily down more than commercial. But is that a trend you think will hold for several more quarters in the future, at least
Keith: I do, I think it's going to hold until middle of 25.
Keith: Okay.
Speaker Change: Alright, thank you. Yeah, if you just looked at start numbers, obviously, you would say it's going to be pretty difficult, but there's such a big backlog. Still, 870,000 units under construction out there. And it looks like we're only eating about 15,000 units a month.
Scott Deakin: As it was all over near-term outlook, as JT mentioned earlier, we have recently implemented cost reduction actions which are expected to save and annualize $25 million. All in, inclusive of a 17.4% increase in interest expense and a $3.2 million one-time tax benefit in the prior year quarter, net income decreased 34.1% to $57.2 million or a dollar in 42 cents per deluded share compared to net income of 86.8 million dollars or $2.9 per deluded share in the prior year period.
Speaker Change: Completions versus starts right now. So, you know, wow, it's going to come down in that range. I think it's just going to be a slow bleed into middle or 25 before we get recovery.
Speaker Change: [inaudible]
Speaker Change: Yep, thank you.
Speaker Change: Thank you, our next questions come from the line of Mike Dawr with RBC Capital Markets. Please proceed with your questions.
Speaker Change: I was actually Chris Claude on for my just a follow-up on that last point. In terms of timing of the peak year-over-year headwinds expected and moldy family, when do you expect those to see improvement on a year-over-year basis for that end market?
Scott Deakin: Adjusted EBITDA of $145.9 million decreased 15.8% or $27.4 million as compared to a year ago and adjusted $1.2 million per deluded share in the prior year period. Adjusted EBITDA of $145.9 million decreased 15.8% or $27.4 million as compared to a year ago and adjusted EBITDA of margin decreased to 10.1% compared to last year's first quarter level of 12.3%.
Speaker Change: Want to build it back out of 25 for that in-market.
Speaker Change: I'm going to be able to do everything. Yeah. Can't let anybody get back to that. And we certainly hope single families going to ramp up with rate reductions. You know, there was always the premises we would start seeing, like better single family activity, to offset the multifamily decline.
Speaker Change: And I still believe that's going to happen. I'd be very surprised with rate reductions if we don't see a nice pop and singletown reactivity by that point done.
Scott Deakin: Before moving to our balance sheet, please make note of a couple items. First, for the purposes of calculating adjusted net income to make the company's financial presentation more consistent with other public building products companies. We are now including adjustments for all non-cash amortization expense related acquisitions. Fast practice included adjustments for non-cash amortization and depreciation for only certain larger trained actions.
Speaker Change: understood, that's helpful. And then just on World War pricing, you know, is your expectation that in the back half of your fiscal year that you're going to continue to see like for like pricing gains on World War, net net?
Speaker Change: Until we get back everything we've been absorbing, the answer to that is yes, I think that it's going to take us two more quarters to get it. We indicated in this first marching guide, really all the improvement in the first marching guide from this quarter to the next quarter is in World War Price.
Scott Deakin: Please refer to this morning's press release in the Appendix to our slide presentation for comparison of adjusted net income and EPS using both the new and the legacy methods. In the year of the year, we expect the rate to tick higher to a 26 and a half to 27 percent range as our mix of sales was shifted slightly to higher rate jurisdictions.
Speaker Change: I think we'll keep getting it. I also think the industry's coming back from more price, you know, as soon as single family recovers meaningfully unless there's some big, big commercial offset.
Speaker Change: So I think we'll all be getting this environment from spring of next year is probably going to be in place near again.
Speaker Change: So, barring any incremental increases, another sequential increase in 3 Q and a flattening out from there.
Speaker Change: Yeah.
Speaker Change: Thanks for watching, see ya next time.
Scott Deakin: Now, turning to our balance sheet, which was highlighted on slide 7. At July 31st, we had cash on hand of $53.2 million and $565.3 million over available liquidity under our revolving credit facilities. Following our acquisition of Yvonne in July, net debt leverage was 2.1 times as of the end of the quarter, up from 1.5 times at the end of the third quarter fiscal 2024. As mentioned previously earlier this week, we also acquired RF Eliot, a leader in each stucco and other exterior products.
Speaker Change: That's really...
Speaker Change: Thank you, our next questions come from the line of Jeff Stevenson with Loop Capital Markets. Please proceed with your questions.
Jeff Stevenson: Hey, thanks for taking my questions to the...
Jeff Stevenson: and then following up on Wal-Bort Price Cost question, thanks for the color about taking you two more quarters but could you talk about the successes you had during the quarter pasting a lot in criminal pricing, the offset the manufacturing increases from earlier this year compared with your expectations, last earnings call, you know how successful was it and you know how much do you have to go.
Scott Deakin: The aggregate purchase price of this transaction was $90 million, who was funded with cash on hand with borrowing and your all revolving credit facility. We are very pleased to welcome the RF Eliot tuned to GMS. As JT mentioned, RF Eliot generated approximately $70 billion in net sales for the 12 months under June 30th, and is expected to be accreted to either die margin. The multiple paid was consistent with our track record, requiring at-or-below GMS as market multiple, and we are excited by the opportunities we believe exists to expand the RF Eliot platform of complimentary offerings across the southeast.
Speaker Change: We're at 20th Easter's point because the 30th Easter's point, Miss, was Price Cost and Wall Board.
Speaker Change: So we did not get our expectation, all that being said we did see some sequential improvement.
Speaker Change: Most of it in the residential space.
Speaker Change: Commercial's taking a little longer to get just because of the nature of the project and the length of some of these projects. Don't have as much remodeled business and residents in this commercial as we historically would with the office conditions the way they are and those projects tended to be more short-term projects so prices are a bit easier to get.
Scott Deakin: As is often the case for our fiscal quarter cash from operating activities and free cash flow were uses of cash for the quarter of $22.9 million and $31.9 million respectively, compared to an uncharacteristically strong first quarter of fiscal 2024 with cash generated by operating activities of $6.6 million, and a free cash flow use of $6.9 million. Capital expenditures of $9 million for the quarter compared to $13.5 million a year ago. We now expect for the full year of fiscal 2025, capital expenditures will be approximately $50 million.
Speaker Change: but most of it came from single family residential.
Speaker Change: We do expect commercial to improve, but we've quoted, you know, those are quoted, that's quoted work and we have to negotiate that and, you know, that outcome over time.
Speaker Change: Okay, now that that makes sense
Speaker Change: and then you reported another healthy quarter of ceilings, organic volume growth. That said, I was a little surprise of the wide variance between your wall board commercial volume expectations being down high single digits while ceilings is expected to be up single digits and just wanted to be good talk more about what gives you confidence that ceilings volumes will continue to grow at a low single digit rate in a choppy commercial environment.
Scott Deakin: Leveraging the typically favorable cash flow generation of the distribution business model in software markets, we expect full year of free cash flow generation to be approximately 60% of adjusted in the DAW. During our fiscal first quarter, we were purchased another $538,000 shares of stocks for $46.2 million and had $154.3 million of share with purchase authorization remaining. That's July 31st. Looking forward, we expect share buybacks to remain a critical component of our capital allocation strategy as we balance those repurchases with continued investment in our business in detractive M&A opportunities. Our capital structure and solid balance sheet with no near term materialities provides what we believe is an effective foundation for the continued execution of our strategic priorities.
Speaker Change: Sure. I mean, we actually were a little lower in seeing what we were not then we expected if you go back. I think we got it into the double digit volume range and total came in around 9% or 10%.
Speaker Change: We're including acquisitions. All that being said, it's still good. That market is still good. And the reason for that is the types of commercial projects that are going well, data centers, healthcare, education, dormitory schools, et cetera. They're good users of feeling.
Speaker Change: Tiles and Sealingbury at the Data Centers of Thully Offset, the Law of the Office, which just ain't pasted. Thank God for Data Centers.
Speaker Change: Right now and that's really the issue, the general commercial, you know, things like warehouses that are slow, retail, that's a little slower, etc. Those are not big users of tiles, but obviously use a lot of more of a lot of steel.
John Turner: With that, we'll now turn the call over to JT. We'll start on Slide 8. Thank you, Scott. Although market conditions worsened as we moved through the summer, we are well positioned with the expertise to service both commercial and residential customers, along with a broad mix of products to address shifts in and market demand as they occur. We are encouraged by recent positive movements in certain external indicators, such as the 30-year mortgage rate and higher than expected new home sales in July. But given the unknown timing of rate reductions and other macroeconomic uncertainties, we are expecting conditions to remain choppy with relatively low levels of visibility beyond our fiscal second quarter.
Speaker Change: Okay, great, thank you.
Speaker Change: John.
Speaker Change: Thank you. Our last questions will come from the line of Steven Ramsey with Thompson Research Group. Please proceed with your questions.
Steven Ramsey: Hi, good morning. I wanted to get make sure I understood on the commercial slowness. Maybe, maybe first.
Steven Ramsey: How Good May and June were, and then the drop-off in July, and then also, I would you describe the slowing because you talked about a few big projects that were delayed in canceled, maybe just how broad is the slowing versus those big projects?
Speaker Change #100: Now you're doing fine, you know, for commercial, about what we thought we would do in this quarter, quite frankly, a couple of points of growth, and your life was just soft.
John Turner: Given its reality, let me go to our expectations for our fiscal second quarter. Starting with organic wallboard growth, using our US business as the proxy, as compared to the prior year quarter, we anticipate single-family volumes to be up mid-single digits for our fiscal second quarter. Multi-family wallboard volumes to be down low double digits and commercial wallboard volumes to be down high single digits. Considering all of these end-market dynamics for the entire product category, we are expecting our consolidated organic wallboard volumes to be flat to down low single digits and total wallboard volumes, including our recent acquisitions, up low single digits.
Speaker Change #101: Nothing, you know, there's a lifeward holiday, things just kind of shut down and it's kind of been a general malade, if let's say after that, even through, through August, right, we're talking about right now, you know, it's just...
Speaker Change #101: and just hasn't really rebounded dramatically off of the holiday, so...
Speaker Change #102: You know, it's soft. I think what you're seeing is large projects that are interest rate dependent are being pushed. We have a whole list of those that, you know, we talked to our team about out in the field that have been pushed and or canceled. Nobody really knows now when they push them, whether they're going to be canceled or delayed.
Speaker Change #102: They usually start by being delayed and then sometimes I'll move to be canceled. You see big things recently we had, you know, we thought we would probably be providing a lot of product in a forward battery plant for an ounce of postponement of that.
John Turner: The resilience we saw in wallboard pricing during fiscal 2024 continued into our fiscal first quarter and it began proving out the new realities we see in the wallboard industry. While we expected continue to realize life-for-life product pricing in our second quarter, our expected mix shift will likely hold the total category pricing to just up slightly year-over-year as compared with the second quarter of fiscal 2024. In ceilings, we expect second quarter organic volumes to be up low single digits year-over-year, inclusive of recent acquisitions, we expect this to be up low double digits, with flat to up low single digit improvement for price and mix.
Speaker Change #102: and several other big EV-related projects around the country that have been pushed. That's not really an interesting sensitive. That's just the reality of the EV-demand being less than everybody thought. But those are big projects, very big projects that have been pushed.
Speaker Change #102: A lot of mixed use multi-family commercial kind of projects in push, probably because of the multi-family concerns.
Speaker Change #102: And again, I think a lot of what we're hearing supports the premise that reduced interest rates will be really good for...
John Turner: For steel framing, we expect organic volumes to be down, mid to high single digits year-over-year, reflective of the current financing environment and slowdown in many active projects, including recent acquisitions, steel volumes are expected to be up low single digits, with prices which soften more than we expected in our fiscal first quarter, down about 2% sequentially, which indicates prices that will be down low teens year-over-year. Finally, net sales for our complimentary products are expected to grow at mid to high single digits.
Speaker Change #102: The entirety of our end markets.
Speaker Change #102: with single-family responding, right on a more immediate basis, but certainly the interest rate sensitive commercial projects.
Speaker Change #103: You know, when you look at FMI or you look at Dodge and look at anybody, I think they're thinking two to three quarters of some difficulty and everybody's pricing in this reduction in rates and I think they think 25 and 25 can be pretty good back after 25.
Speaker Change #104: Calendar 25, I don't call you enough.
Speaker Change #105: and commercial typically follows a single family rebound as well so that should be a positive, you know, as a follow on from single family on top of just a general label for that space.
John Turner: All in, as shown on slide 9, we anticipate net sales for our fiscal second quarter to be up low to mid single digits as compared with a year ago, with organic sales down low single digits with the continued negative impact of steel price deflation. Gross margin is expected to improve sequentially to a range of 31.6 to 31.8% for our fiscal second quarter as we continue to pass through previously announced wallboard price increases.
Speaker Change #105: I mean, I certainly think that this cycle would be like a normal cycle in commercial in particular.
Speaker Change #106: Yep, we didn't have the support of chipsax infrastructure, the infrastructure act, etc. Those big major projects are still out there. I mean, manufacturing, right, is still, I think, the manufacturing put in place construction forecast still very strong for the balance of the pitch here in the next year.
John Turner: All in, we anticipate adjusted EBITDA to be in the range of $163 to $168 million for our fiscal second quarter with EBITDA margin of approximately 11%, as we go forward, it is important to note that in this cycle, if the next few quarters are indeed the bottom, this will be a relatively moderate slowdown in comparison to previous cycles. We remain confident in the value of our business model and our well-position and navigate the waters ahead.
Speaker Change #106: And so those projects will continue to create demand around them. And so I think the bottom is, I mentioned, the bottom here isn't as bad as we would historically have felt because of all of that support.
Speaker Change #107: Yeah, very helpful perspective. And then I wanted to hear more on the divergence within the complementary products, I get Canadian roofing in lumber with single family starts.
Speaker Change #108: and that geography, but the other key products that you focus on show very strong growth and seem to be well above all in markets. Maybe talk to why those outperform so much did and did those take a step back in July.
Speaker Change #109: No, everything was still.
Operator: Thank you for joining us today, operator.
Operator: We are open ready to open the line for questions. Thank you.
Speaker Change #110: Relatively similar in July when it came to complementary products actually. We're being shared across the board and complementary products. There are still many markets where we're in our infancy.
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Speaker Change #110: We really do have a focus on those very particular areas. I mean, the R.S. Elliott Acquisition is an example, is heavy soko.
Ethan: Ethan Fighting!
Hannah Greene: Hannah Greene Market, North Florida, we think this.
Hannah Greene: We have a lot of optionality with that business to expand our business throughout Florida than beyond that.
Noah Merkousko: Our first questions come from the line of trade rooms with Stevens. Please proceed with your questions. Good morning. This is Noah Murkowsko on portray. Thanks for taking my questions. I know. Good morning.
Hannah Greene: and those product categories. So I think some of it's just targeted investments we've made over the years as well. I mean, John Lumber and Vancouver, we've rolled over a lot of that.
Hannah Greene: Each time we acquire these complementary products, businesses, Blair building materials up in Toronto, we get good at selling those products across other GMS locations.
John Turner: First, I wanted to talk about the gross margin. I think you've previously talked about staying around the 32% range for the rest of this fiscal year. You know, with your guide for 2Q, you know, you're clearly below that in the front half. So just kind of any updated thoughts on how the gross margin will shake out in the back half of the year. I know there's a few moving pieces with differing demand trends and what you're doing on the wallboard price, so just any help there.
Hannah Greene: Turner, Tanner Nutton, Bolton, New York City, etc. So, MW out in Phoenix, those were all complementary product acquisitions and part of that strategy is to help other parts of GMS be better at selling complementary products as a result of their knowledge and their capability.
Speaker Change #113: and then he could do an okay job of moving that across the business.
Speaker Change #113: Generally, complementary leads a little bit more to commercial, so a little bit of that same headwind there that we're seeing in some of the other commercially related products, but the outperformance and those key product lines are really about the focus of the putting into them.
John Turner: Yeah, I mean, most of the outlook is a result of being lower than 32% as a result of us trying to claw back the price increases. It's just taking us longer to get them. We are getting them very slowly. As we just indicated, you know, like for like pricing was up in the quarter. I think we're definitely facing headwinds when it comes to, you know, volume helping us. So I do think that we'll keep getting it.
Speaker Change #114: That's great, and maybe one add on there gaining share in those products. Can you talk to who you're gaining share from now and if it's the same source of share gain as the prior couple years or even pre-COVID as this was a focus for you?
John Turner: All that being said, you know, when we'll really get it is when we start to see some turnaround in the single-family market. That could be, you know, again, we're not talking much beyond Q2 at this point because we really on the interest rate environments uncertain. We haven't seen great starts numbers yet. The sales numbers, single-family starts numbers. The sales numbers, obviously in July, were much better than I think people thought considering how bad the starts were really less.
Speaker Change #115: I mean, yes, it's the same people, I mean, depending on the product, I mean, pooled in fast nurses is really widely distributed business and so that comes from a lot of small players when we gain cheer and that's really our customer base.
Speaker Change #116: Relying on us, more for the products that previously they would have gone to a specialty shop for.
John Turner: So maybe we'll see builders kind of react to the expectation of low rates. Maybe they're seeing buyers coming in. Maybe they're going to accelerate the starts. And if that happens, then I think we'll be able to get our price back faster. All that being said over time, I do think, you know, when the law went on, we're 32% gross margin company. And we're working to get back there. Okay, got it. That's helpful.
Speaker Change #116: That's really kind of how tools and process is working. Ease the stock out for us is more of moving both acquisitions now in particular with our SLE at the really moving it to be better at that product, which is traditionally distributed by our types of businesses, just being better at it.
Speaker Change #116: Across the board is the selling it in more markets.
Speaker Change #116: and then Insolation is just a dedicated focus on getting to the installation installers, remember it's most a commercial in installation.
John Turner: And then maybe on my follow-up kind of switching gears to SNA here. I thought previously that, you know, if you've got with the weakness in commercial, I would have thought there was maybe some SNA relief there just from that mix shift, but I guess are you seeing that and that's just being overshadowed by the steel deflation. And then again, just any thoughts on, you know, for how long steel deflation will kind of be a headwind here to the SNA.
Speaker Change #116: and many of our wallboard commercial contractors carry that contract, but they don't do the install themselves so you sub it to another contractor and so for us getting to that second contractor level has been a dedicated focus and I think we're seeing some...
Speaker Change #116: is a success there.
Speaker Change #117: That's excellent. Thank you.
Speaker Change #118: Thank you. We have reached the end of our question and answer session. And with that, that does conclude today's telecomference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
John Turner: Let me talk about steel first. First thing is your question is yes, steel deflation is kind of offsetting what would be the normal course. The other thing we're seeing right now is how commercial volumes were flat. So we're not seeing this huge rapid shift into the single family end market. It's this slow rollover of the market, similar with multi-family where there is a decent size backlog out there. So it's rolling over but it's rolling over slowly.
John Turner: And we're still seeing a lot of mega project activity which is kind of filling the gap to the more interesting sensitive commercial projects. So as we switch from commercial to residential, there will be a natural reduction in the total cost of delivery. That's true. But steel price deflation is basically masking that at the moment and hopefully that end.
John Turner: But all that being said, there's a reason we're taking $25 million in cost out of the business. And that is that volumes in the near term are expected to continue to be challenged. And so we need to take that $25 million in cost out until there's an indication that we're going to need more support to grow our business. And we don't see that for a few quarters right now, kind of at a minimum.
John Turner: So that's kind of the S.P.N.A, question.
John Turner: Steel, I mean my crystal ball again, it was wrong last quarter, you know, we thought that sequentially we'd be down, you know, two, three, four percent. They're down almost 8 percent. You're over a year down, you know, whatever, 17 or 18 percent organically I think we just said. I mean that's that's significantly more than we thought we would be down in the quarter. So now we're talking about maybe sequentially going down 2 percent this quarter.
John Turner: There's a lot of work in our industry particularly around trying to not let pricing continue to decline. There've been price increase announcements made by by the key farmers, the coil prices themselves, you know, about, you know, the major producers of coils have announced price increases. Certainly there's some new noise in and around tariffs. I would be very surprised without us what administration is comes in if we don't see additional tariffs on Chinese products.
John Turner: Today it's a very small amount of the overall steel that comes in. But there is steel that moves around the world from China that ends up coming in here. So I do think we'll expect to see a tariff environment in and around the steel in Canada just announced 25 percent tariffs on Chinese steel. So I hope 2 percent sequentially, you know, hope not the best strategy in the world, but from all of our best guess is 2 percent sequentially the client is where we've got it for the next quarter beyond that. I hope this class is at that point or begins to slowly increase. Got it. That's all really helpful color.
Noah Merkousko: I'll leave it there.
Noah Merkousko: Thanks for the time.
Operator: Thank you.
David Manthey: Our next question has come from the line of David Matthew with Baird. Please proceed with your questions. Thanks. Good morning everyone. My question's on the pacing of the $25 million cost cuts. JT when you were listing out the focus areas you're speaking mostly in the path 10th.
John Turner: So I'm wondering how much of the benefit will we already see here in the second quarter and then when will those reductions be fully realized on a quarterly day? This is about half of this quarter, we'll get about half of what you'll see in a normal quarter and by next by the third quarter we'll be getting it all. Okay, thank you and then you make some comments here about steel and I did notice that last quarter you said that this major steel mills had already enough price increases and it actually got a little bit worse and you said there's some other price increases potentially in the channel.
John Turner: But if steel prices just maintain the current levels are down slightly as you're expecting, how long does it take before we lap and go flat because of the year to year comps? In the next fiscal year, I know that I don't have it off top my head. I mean, maybe we could send you that information specifically because we'll have to just forecast it out for you, but I know it's beyond it's beyond this fiscal year. Dave, yeah, the four we actually go on. Yeah, yeah, yeah.
John Turner: All right, that's it. Thank you.
Keith Hughes: Our next question is come from the line of Keith Hughes with truest securities. Please proceed with your questions. Thank you. A question back on steel. You're now lapping some pretty substantial declines in price from last year. I guess we never see anything quite like this. What's happened in the market? It's so difficult to get price increases pushed through. Well, there is no price increase in steel, right? Or is it going to come in stabilization, let's say?
Keith Hughes: Well, I think the reality is that you know, it's a little oversupply at the moment in our space. We're still selling at roughly double pre-pandemic prices. And this is kind of where we had thought really below what we thought the bottom might be to tell you the truth. I think we thought, you know, we would be selling, you know, maybe 10% higher than we're selling today at the bottom. But we haven't found the bottom yet. So I think we'll just oversupply at the moment. As automotive and appliances and general steel, the larger consumers of steel, they're just kind of all kind of stagnant. It's just too much supply right now.
John Turner: Okay. The second question that you talked about the week, July. And I guess you're really referring to commercial and multi-family. How week was July? And any specific reason why I got week or in that month? You know, I just think you got me here faster than we thought by a quarter or two. You know, I think we've been talking about an air pocket eventually developing. If you believe in the ADI ever, and you've seen now the annualized rate of putting place construction in the key categories that matter for us, you know, are down about 3% over the course of last three or four months.
John Turner: And I think you just got here a quarter or two earlier. Again, we're talking about flat commercial volume. So, you know, we missed by a point or two in volume expectation and wallboard. So, you know, that's kind of the degree of the degree of the miss and the degree of the slowdown. I think we just feel like things are going to like volumized flatten from here as we go forward. And that seasonally, we're not going to see much of an increase this next quarter.
John Turner: And that's where you get our guide now, Keith of, you know, down nine and down 10 and in those ranges for both multifamily, for commercial. It's just laughing a good, you know, a good period. Well, your, your guide for the second quarter in volume has multi-family commercial down. It has multi-family down more than commercial. But is that a trend you think will hold for, you know, several more quarters in the future, at least directionally? I do. I think it's going to hold until middle of 25. Okay.
John Turner: All right. Thank you. I mean, if you look at, yeah, if you just look at starts numbers, obviously, you would say it's going to be pretty, pretty difficult. But there's such a big backlog. Still 800 and 70,000 units under construction out there. And it looks like we're only eating about 15,000 units a month. Completion versus starts right now. So, you know, wow, it's going to come down in that range. I think it's just going to be a slow bleed into middle of 25 before we get recovery. All right.
John Turner: Okay. Thank you.
Michael Dahl: Our next question has come from the line of Mike Dahl with RBC capital markets. Please proceed with your questions. I actually Chris Clawed on from Mike. Just a follow up on that last point. In terms of timing of the peak year-over-year headwinds expected in multi-family, when do you expect those to see improvement on a year-over-year basis for that end market? Not until the back half of 25 for that end market. Okay.
Michael Dahl: I'm wondering where we're going to be going. Okay. Yeah, calendar 25. I would expect that. I mean, we certainly hope single-family is going to ramp up with rate reductions. You know, that was always the premise is we would start seeing much better single-family activity to offset the multi-family decline. And I still believe that's going to happen. I'd be very surprised with rate reductions if we don't see a nice pocket single-family activity by that point done.
Michael Dahl: Understood. That's helpful. And then just on wallboard pricing, you know, is your expectation that in the back half of your fiscal year that you're going to continue to see like for like pricing gains on wallboard net net? Until we get back everything, we've been absorbing the answer that is yes. I think that it's going to take us two more quarters to get it. We indicated in this gross margin guide, really all the improvement in the gross margin guide from this quarter to the next quarter is in wallboard price.
Michael Dahl: I think we'll keep getting it. I also think the industry is coming back for more price, you know, as soon as single-family recovers meaningfully, unless there's some big, big commercial offset. So I think we'll all be getting this environment come spring in next year is probably going to be inflationary again. Got it. So borrowing any incremental increases, another sequential increase in 3Q and then flattening out from there. Yes. Got it. Appreciate color. Absolutely. Thank you.
Michael Dahl: Our next questions come from the line of Jeff Stevenson with Loop Capital Markets. Please proceed with your questions. Hey, thanks for taking my questions today. And then following up on the wallboard price cost question, thanks for the color about taking two more quarters. But could you talk about the successes you had during the quarter passing along incremental pricing the offs at the manufacturing increases from earlier this year compared with your expectations last earnings call, how successful was it, how much do you have to go?
Michael Dahl: Well, 20 basis points of the 30 basis point miss was price cost and wallboard. So we did not get our expectation. All that being said, we did see some sequential improvement. Most of it in the residential space, commercials taking a little longer to get just because of the nature of the project and the length of some of these projects. Don't have as much remodel business in residence in commercial as we historically would with the office conditions the way they are.
Michael Dahl: And those projects tended to be, you know, more short-term projects, so pricing a bit easier to get. But most of it came from single-family residential. We do expect commercial improvement, but we've quoted, you know, those are quoted, that's quoted work and we have to negotiate that. And, you know, that will come over time.
Jeffrey Stevenson: Okay, now that makes sense. And then you reported another healthy quarter of ceilings, organic volume growth. That said, I was, you know, a little surprise of the white variance between your wallboard commercial volume expectations, being down high single digits while ceilings was expected to be up single digits. And just wondered if we could talk more about what gives you confidence that ceilings volumes will continue to grow at a low single digit rate in a choppy commercial environment.
Jeffrey Stevenson: Sure. I mean, we actually were a little lower in ceilings, believe it or not, than we expected. If you go back, I think we got it into the double digit volume range and total came in around nine or ten percent, including acquisitions. All that being said, it's still good. That market is still good. And the reason for that is the types of commercial projects that are going well, data centers, healthcare, education, dormitory schools, etc., they're good users of ceiling tiles and ceiling grid, right?
Jeffrey Stevenson: The data centers are fully offset the loss of office, which is fantastic. Thank God for data centers right now. And that's really the issue. The general commercially, you know, things like warehouses that are slow retail that's a little slower, etc., those are not big users of tiles, but obviously use a lot of wallboard and a lot of steel.
Jeffrey Stevenson: Okay, great. Thank you. Sure. Thank you.
Stephen Ramsey: Our last questions will come from the line of Stephen Ramsey with Thompson Research Group. Please proceed with your questions.
Stephen Ramsey: Hi, good morning. I wanted to get, make sure I understood on the commercial slowness, maybe, maybe first, how good May and June were and then the drop off in July. And then also, how would you describe the slowing because you talked about a few big projects that were delayed and cancelled, maybe just how broad was the slowing versus those big projects? May and June was fine, you know, for commercial. About what we thought we would do in this quarter, quite frankly, a couple of points of growth in July was just soft.
Stephen Ramsey: And nothing, you know, the July port holiday, things just kind of shut down. It's kind of been a general malaise, let's say, after that, even through August. We're talking about right now. It just hasn't really what you're seeing is large projects that are interest rate dependent are being pushed. We have a whole list of those that, you know, we talked to our team about out in the field that have been pushed and are cancelled.
Stephen Ramsey: Nobody really knows now when they push them, whether they're going to be cancelled or delayed. They usually start by being delayed and then sometimes they'll move to be cancelled. You've seen big things recently we had, you know, we thought we would probably be providing a lot of product in a Ford battery plant that order announced the postponement of that at several other big EV related projects around the country that have been pushed.
Stephen Ramsey: That's not really interest rate sensitive, that's just the reality of the EV demand being less than everybody thought. But those are big projects, very big projects that have been pushed. A lot of mixed use multi-family commercial kind of projects being pushed, probably because of the multi-family concerns. Again, I think a lot of what we're hearing supports the premise that, you know, reduced interest rates will be really good for the entirety of our end markets with single family responding right on a more immediate basis, but certainly the interest rate sensitive commercial projects, you know, when you look at FMI or you look at Dodge and look at anybody, I think they're thinking two to three quarters of some difficulty and everybody's pricing in this reduction rate and I think they think 25 and the 25 would be pretty good back after 25, so calendar 25 I'm talking about commercial typically follows a single family rebound as well, so that should be a positive, you know, as they follow on from single family on top of just a general rate relief for that space, I mean, I certainly think that this cycle would be like a normal cycle in commercial in particular, if we didn't have the support of chipsets infrastructure, the infrastructure act, et cetera, because those big mega projects are still out there, I mean, manufacturing right is still I think the manufacturing put in place construction forecast is still very strong for the balance that you're in the next year, and so those projects will continue to create demand around them, and so I think the bottom, as I mentioned, I think the bottom here isn't as bad as we would historically have felt because of all of that support.
Stephen Ramsey: [inaudible] on those very particular areas, on those very particular areas, That's great. And maybe one add on their gaining share in those products. Can you talk to who you're gaining share from now and if it's the same source of share gain as the prior couple years or even pre-COVID as this was a focus for you? I mean, yes, it's the same people. I mean, depending on the product, I mean tools and fasteners is a really widely distributed business.
Stephen Ramsey: And so that comes from a lot of small players when we gain share and that's really our customer base relying on us more for the products that previously they would have gone to a specialty shop for. That's really kind of how tools and fasteners is working. Eats the stock out for us is more of moving both acquisitions now in particular with RS Eliot but really moving to be better at that product, which is traditionally distributed by our types of businesses just being better at it across the board and selling it in more markets.
Stephen Ramsey: And then installation is just a dedicated focus on getting to the installation installers. Remember, it's mostly commercial in installation and many of our wallboard commercial contractors carry that contract but they don't do the install themselves. Please sub it to another contractor. And so for us getting to that second contractor level has been a dedicated focus and I think we're seeing some success there. That's excellent. Thank you. We have reached the end of our question and answer session. And with that, that does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.