Select Interior Concepts (SIC) 12 Aug 192019 Q2 Earnings call transcript

Greetings, and welcome to the Select Interior Concepts 2019 Second Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Nadeem Moiz, CFO. Thank you, and you may begin, Mr. Moiz.

morning, results welcome conference Good quarter our operator. financial XXXX call. you, everyone, to and second Thank

Joining me on our Chief the call today Officer. is Executive Ty Johnson,

During our website. our referring available we'll the our which on of presentation, is to section Investors discussion today, earnings be

statements assume in Slide today forward-looking XXXX. are of SEC the harbor in obligation any publicly statements. outlook start subject filings, in that be and and forward-looking to with to financial the everyone or differ materially Specific evaluating the and forward-looking could considered issues and need provisions the Litigation unknown results of noted where to are Actual conditions, identify X, represent I'll performance. detail this Reform We principal may Private risks our like on presentation affect I'd remind Please of any factors slide. contained no recent on which Act statements that could Securities that unknowns commented safe update see because our unknowns that issues operating performance. future to

discussing measures be GAAP margins. appendix or Please a the certain these measures today, non-GAAP we'll comparable including adjusted adjusted see addition, In for of reconciliation EBITDA to financial their EBITDA non-GAAP and providing measure.

like CEO. now turn would to to our over I the Ty Johnson, call

review company. with a Good becoming a Nadeem. with since of overview an second celebrated begin our us morning, will our quarter August, will follow we Thanks, everyone, highlights. anniversary I and joining thank financials. for public today. first XXXX Nadeem In you of

advantages markets. leadership and to of have sales position growth our allowed our a structural of us we our The growing in expanding that have and time, During meaningful EBITDA. footprint in produced business strengthen number model adjusted

continue cross-selling scale business. and our to we additional efforts as integration generated Our have benefits activities acquisition

Our second on performance this builds progress. quarter

by was gains execution. with We which are performance, overall market pleased driven share our solid and

level of outpace backdrop markets. key activity momentum a continued our in the housing slower sales environment, of our the On to

quarter EBITDA an XX%, attractive sales XX.X%. increased adjusted Second generating margin of

and XX helped costs, to EBITDA categories channels. leverage. our company incremental well approximately Acquisitions infrastructure adjusted diversify points geographies, improved year-over-year, public to as results product strategy across by reinforce margin and Excluding and these corporate ongoing by favorable contributed operating basis

XX our metropolitan top leading we From positions continue country, growth solid the and in on the fronts. improvements trajectory numerous XX in a on of driving areas are to

Turning to Slide X.

both install and During RDS distribution quarter, in Services, double digit growth other margin cabinets the year-over-year. businesses. Residential sales or experienced flooring, products. our countertops, and high-end We and and design we we gross At XX% Design grew installation improvement RDS, sales

of significantly new the sizable growth Over service business and markets, past during we several year, geographic capabilities resulting reach in this the quarter. have fairly diversified the into

compared of revenue to our over Today, half Southern represent year California outside X/X RDS ago. of approximately a markets

California. addition a broader in In activity provides host as footprint opportunities and increasing access our our stability construction additional Across customers, Arizona, of key diverse Northern we our Virginia remains and including move to forward. cross-selling our of markets, to favorable in pace business footprint, new

across bidding cross-selling of healthy penetrate countertops. activity see as to further and ramp up continue core We efforts we markets and cabinets flooring, trades

have this visibility As provides XXXX. us And month into well June. our each RDS strengthened total such, through backlog with

builders of are A growing and number targeting homes. entry-level mid-priced

mix engineered natural Architectural and our nationwide operating to investments leverage and and from through enhancing across Through distributor benefit solutions. Services Given Group, ASG or we our are price technology increased and products. we various stone our related of volume expect a experience points, segment, home leading drive

pricing benefited around environment product a from contribution a During locations. and improvements mix favorable from great results. products, the grew in quartz quarter, and year-over-year second by we greenfield segment for sales in positive all XX% We this delivered

encouraging macro ASG an stable are markets market. as remodel largest end its and Repair backdrop positive markets, for providing to most in

implementations For are ASG and on following generating RDS are top markets, second customers segments, track imports best-in-class supply to are enhance on with which are select our to continue improvements key on working initiatives Both their and of to Lean targeted Chinese increases operations. adjust making disruptions XXXX, integration-related and our amongst commitments progress other designed and to returns. our to financial strong we both ERP half service our These efforts tariffs priorities. we of capital initiatives our have price quartz in by announced activities. countertops. driven Across

M&A to solidify positions. our high-quality pursue to and our industries front, continue the we On fragmented market premier add-ons further consolidate

our that and categories be in right diversification of in strategy growing to we disciplined pleased price. added to representing were the opportunities across are XXXX Russell target approach June, support milestone channels another recognition at product our Index, the attractive company. rapidly our and We geographies, In

on are laser-focused are our attractive We about to continue excited our and scaling progress in executing we markets. and to capturing share date plan

positions value team, strong for and market-leading long-term for shareholders. a growth sustainable enhancement our the infrastructure have and We

I will Nadeem. call turn that, With over the to

you, Thank Ty.

continue Further, in and objectives. Second market markets and significant good plan. capital progress growth our were This reflects EBITDA. in adjusted share higher ended against achieved with strong quarter our reported results quarter our and year-to-date gross position executing represented resources gains, our our expectations and complementary line we key We to highly with margin the acquisitions. expansion

Slide or of prior the second X, the Net year. sales. $XXX.X a compared net to for to XX.X% Now to sales $XX.X moving increased million quarter review million

Organic represents outperformance up $X sales share X% and quarter, top line, ramped roughly market activity growth in to which versus to price the million geographies, Acquisitions or overall sites offerings, new levels. the improved During increased product expanded mix. million of our estimate the $XX we added XX% added greenfield growth. or

our RDS sales acquisitions. California growth segment, as regions, by expected. all Looking except XX% of organic segments. in our In driven positive was at was growth sales RDS Southern

pick up rapidly acquisitions. years cross-selling and geographic share over have opportunities footprint completed RDS Our yielded past and we efforts to as recently continued results diversify gain the positive our X.X

volume expansion by of half increases In ASG ASG, Volume marginal was by contribution favorable organic mix repair, in model activity, with which price a key categories Further segment. our acquisitions. attractive new primarily product from repair/remodel ASG were underscore efforts improvement a market in growth roughly of of objective in represents mix. efforts driven mix opportunities our growth maximize to XX% Price in and the market key and margins. this with and driven robust pricing remains

XX.X% both quarter, the million the adjusted to Slide to margin second million in In were Moving the $XX.X EBITDA. EBITDA the $X.X compared prior EBITDA to All through X. million year. $XX.X million year. to to added more EBITDA mix from reported rose $X.X with prior Adjusted ASG. in Acquisitions and accretive RDS, increased gross margin to for] due the which were unfavorable respect performance points an shift segments pleased in XX.X%. report than and XX increase offset of was growth sales increased organic to from With to overall gross basis we volume that in margin,

basis strength fully but would XXXX, of place incremental $X.X XXXX, the out adjusted our other which impact company of operations. QX was increased by million, not reflecting by corporate the incremental costs acquisitions, to and the related from in of by and $X.X was in improved were not public in expenses, EBITDA costs XX increase, points, experienced XXXX. have SG&A for that excluding core million built end infrastructure, the SIC corporate QX Normalizing

$X GAAP third will expense value acquisitions. fees payments change expense earn-outs on strategic for of a a our in related other primarily income balance million, for For mark-to-market net the of other and pretax items, each completed our on from by adjustments accounting previously reflected $X.X of million. This for noncore income review. be macro included $XXX,XXX party income. by fair value our fair quarter, is P&L. driven are net which to was This period, in which recorded professional earn-out future income to performed GAAP a purposes net also a changes reported included in result of of our change other announced alternatives sheet, in Accordingly, among period quarter

effective The XX%, XX%. the tax million. tax year is a basis, rate the on rate income expect quarter our tax to effective $X.X rate we XXXX year-to-date and approximately was be On of pretax X.X% for full

improving cash XXXX Slide acquisitions, $X.X to consisting of million. modest flow earn-out of X. operations are cash which flow past million position, performed for from expectations. very payments on to $X.X in cash and of outflow focused was flow included year. capital We generating Year-to-date, Operating liquidity remain efficiency. million in quarter Moving capital ended solid million second in the prior working We a of line compared total and with $XXX the a with debt $XX.X quarter the net

forma conservative profile leverage Our significant adjusted effectively. a at to capital allocate to X.Xx, pro fairly resources LTM net us EBITDA keeping was debt with ratio

Moving to Slide X.

margin objectives deliver a EBITDA track. key sales adjusted to increased stronger XXXX growth, Our pretty remain on and meaningful

from QX sequentially and better million increased we of our performance to comparability XX%. operational by current sales XXXX, structure, $XX For QX or XXXX have

same up by XXX time, $X Based prior so the to EBITDA versus increased be million increased with basis or anticipate adjusted activity in full margin XX% new slightly. flattish now slow far, points. by construction housing on starts adjusted the we for growth year the XXXX During EBITDA and year repair/remodel

completed gains results our operating to second contribute to that and expect We price half drive favorably acquisitions, collective benefit leverage. share of and enhancements mix

like to and would strategy public our margin a during enhancement thank continue SIC and forward progress our to year making I executing significant I first entire look Finally, the as for company, of team growth.

for like Q&A. now up Operator, we would to open

Riley. question Our Instructions] is [Operator Alex B Rygiel with first from

next Ty, talked key about that's wins your quarter, outlook quarter? you to successful the how wins. new what And And last a your over quarter. key the second success you with of Nice year-to-date? in Can on regards comment with number is clients? months X developed

there. address to happy Alex, the questions

a are number that, of. So divisions, our has continue by softer, there. enjoy availability, let's Northern that, are that's countertop at new virtue cabinets of never when done opportunities that marketplace California, fact, take in based its upon business opportunities bit new to product we've -- little in a or Alex, been In And with particular, line. California, new at something now labor in customer new creating of continues look where there before Even service, for business customers. create RDS the you that in been whether products, new cross-selling proud very market's a broad attainment flooring. business for we we've advantages Southern to We're one That's the customers it, time. across customers.

the place. the share, win first similar you tell gain all of quarter, will we've to put business I virtue initiatives to that to continues share the that by So into

dynamic you supply. something very the similar. that been emphasis at dynamic very grow we've can ASG, consistent rapidly, been higher the we've as is Certainly, look business more our The see, when And been has shifted with leverage. And able you of quartz around given supply, end. has the to price able to

customer Phoenix new on introduction, we growing So both been greatly greenfield, up by enhancements. piece mix it last from virtue very, the of of product and The year, have and locations then of North benefited rapidly Austin, attainment focusing businesses last that ASG's Boston. very new is stood Alex. kind

So all, pay to on back. has think all in business and initiatives, by done really virtue starting well I those communicated us executing it's of the

Very helpful.

a You both group good your couple a bad? and mentioned how big you across Can on affected news. summarize topic times. tariffs and It's business, of tariffs peer have the different been your

sure. Yes,

on As most relatively call were begin this imports low some by said, the to to hasn't being impacted to successful. other forms, exposure China we've been and has ASG had tariffs, our And we successfully shift we in that with. the been That other for able part countries. of mentioned to given overly

that We with felt of supply some honestly, tariffs here as look implemented. relates chain. around of redundancy work to maybe to being of But and it we've the continue benefactors, today, build others in to sitting one world the additional disruption quite been suppliers have the the for

materially market obviously, market And quartz massive can that? the product? the to the Has upon be price changed market dislocation, you for there had but expand has a -- price

a Yes. depends has a rapidly. be as supply, there aggressive of to comes those the market, consistent, very supply seen markets. We've markets that competitors. say, growing our very, of got disrupted. some been as we've certain consistent of would of able gain also fair not in business lack is result, I amongst of we've Alex. product are our one price We've was with a And seen it share very been result been in lot where source on shortages, from within source What with has amount Asia a a that of that and

are able supply. us have really we're benefited have that because consistent dynamics drive and the of part and [indiscernible] markets, So able go fair certain to other a amount price in markets, in gain share of to we're

And question. one then other

way you understand, in negative it any to that to California? better help kind to of if RDS quantify the for As to hit the of we've can California And the Southern it relates positive a us? relates inflection as segment, point us turning weakness to in order

Yes.

I quantify of terms to trying In it, will here's what say.

at think you can you performing California. or folks data Metro you study feel our look the I in business could start a I what published numbers. or tell any those sources are is If good that seeing activity, provide What for better MSA that NAHB is the of than Southern level get

from more for from is to standpoint, benefit activities. kind what can a I cultivate say we're in point start land, number exciting, more slowdown that like develop certainly, inflection is seeing think well, we're And what the builders relates creating marketplace. So mix, I their we'll And feel pretty doing we that. shift the be, of opportunity which as communities inland, given of start an it the might to

shift from market, the new we're and if up indication any builders kind going of encouraged. in the then of is So product mix the

for quick. can real one as to how Nadeem, business it this Any should operations longer do? you, for think cash from or a relates flow about XXXX term we for target on what thoughts

flow Look, in business the free conversion this X%. about is cash Absolutely.

So business historically that's does. what the

metric good a in that's So to mind. keep

can positive cash and has we'll business the see get of the flow first part the the X cash the latter year. months You up generated, flow pick we in as generation into that the

typical this of really seasonality housing the business in the the businesses quarter, building and is cash business, sector. fourth the Given which of in really flow in the comes

from done that year. the pick again, year-to-date we've and half then second operations, up about So flow $X you'll cash million see the in of

with [Operator Seaport Instructions] McCall Our Securities. Global next question Matt is from

back to go So your top I line want to outlook.

you think, I Nadeem, it. gave

you starts, You environment? And to you expectations? construction part gains. talked roll trying up, about are environment, new first flattish, business you new about I guess, then or were talking about you of share your R&R the the back the those the talked what and question, were the if new growth about about you us referencing talking of in what terms all tell half construction

Matt. absolutely, Yes,

-- see with we of number based we points. other that it data at, general references national including various to activity sort NAHB comment, So the of look respect it on and that is sources

are us, than acquisitions growing ability ability improve point in are being to done cross-sell is it got it that's and a So number our one. that the growth national remodel, rate, roughly markets to products. in two, respect and doing us reflection. our advantages half an better translates national and That's ASG. of we how Number repair as with Certainly, is pertains to new which the we've then we've to to of average. geographies that aspect better given introduce specific And have

national that things when consideration, market. the do into those take very we are three all better than So you that confident we can

But flattish our perform is as view our is and So market-to-market level. national is deeper, is internally a and this overarching really -- to ability an year market market do you the if vis-à-vis that we the dive at strong. analysis view,

I looking at is homes. What Okay. and as midsize you a progression does to or to that your poor small level, think upgrade and I ability mentioned transition upgrades or Ty, assumption? upsells, upsell? entry builders assume there's many that not mean --

per many are house. smaller. the think not typically I The that's assumption, There's as right Matt. No, houses

you So have as many. don't

more going the actually you a installations. would to realize We'll more do home. But You're more what also volume. larger probably at velocity, is not see dollars that you total perform

kind dynamic turns, seen for we've up So And expect extent more the and some in to past moving for see per we to to lower what that's the home. higher the forward. of ready that's sales the making the shift team is velocity,

to go I wanted the back to tariff question.

I I tariff RDS on and/or any business there's Can was ASG RDS? of the mentioned I the -- mostly quartz. risk the and answer focused about of latest and benefit? think about just you think round talk What type know maybe tariffs cabinets.

Yes.

could immediately. and cabinets very products some on ability of our additional RDS obviously out And regard, ability I'm that pass if We're on now. any should we supply. absorb to feel price confident take to to other impact much, have that But news very RDS, by sources to relying in that the to we in respect aware there any, that that much can, of can, that be abate time. through, of real haven't inflation they always we'll there. be we it. at with extent and up of sitting delay the Matt, the Remember, here our some should we may felt on that's in pass that and from extent the So they today, purchased not that increase come partners an to look the business,

you But going the one; about said surprised there in in any maybe quarter, quarter going the line the like to line surprised negative? line were last total, then or your you kind you guess, was with -- with items deeper trends to then quarter, the expected. it the items, of you if And Nadeem, a think little results, and I what sounds into expectations. in any positive exiting into the that the anything or you

of sort some pretty sequentially. it's and every much about metric. have also going really pointed sequential my that dividends. year pretty right? and Hence, mean, sites EBITDA it's starting you and softness certain at in line. the the I pay of point, to for another the volumes into a in the margin, had good pretty gross in we see working we We improvement EBITDA adjusted margin then strategy EBITDA really. had a And year good not No, in view been diversification adjusted view geographies. Sales, that. if that which on now on the look can sequentially, you on I script, So in a ASG, data greenfield is in And

in half the we loaded, with back-end business you half definitely of given thought. construction And what as very is that's so the second in much And into this second year, line the year, the of look cycle. seasonality

And so the getting expectations. get sort underway that mix we really and about of our top enhancement, initiatives good season, we we half. excited growth, to gross line have will, if And very quarter, feel given respect line remain in the you second second as the again, enhancement all leverage about busier with margin operating the into with you

to And just new opportunities reminded of that you've these cross-sell learned cross-selling assets. new me. some efforts I it one The these sneak of the in it new I'm is of curious about what to far want ahead these plan? of markets, thus and some expected? some Is as progressing products with

we've national and through years Yes, absolutely. hurdle. in of great expanded just the over new opportunities. last couple are And a customers homebuilders as of in of response bit their certain the in into We geographies got And on been Look, national. our a the from our was we've this in past customers, weren't works particular, part acquisitions. that cross-sell has the markets,

at trades currently Well, of our what this us us perfect extremely allowed they've have sort in Virginia, other the a and expand wanted who has national Mid-Atlantic. excited as to bidding business predominantly did are regional flooring right? us end markets an very And this customers other the the year, platform. markets, with are activity so and those larger and have is the in that meaningful some in a and acquisitions, participate us that we've builders to of builders we gives key capabilities customers T.A.C., our always in last business of we those acquisition and done don't do do conversation So is a to

our are you what we markets And process really It confidence into our a would So core our cross-sell we're good gives backlog competencies. in and there. us tell to and about meaningful of geographies I trades is a that lot bidding view. feel those ability

other done it's today. that geographies which service in craftmanship case, we've we So the terms job and to great this a that ourselves and in -- establishing and builders be service cabinets same going in countertops, of

to an And of and ahead one resolve shout cultural page we're acquisitions respect I'd add They've same out enormous really doesn't this. on of a of at you remiss would is company. schedule we're performance, team kind the and I saying RDS them, people aren't some Ty, it surrounding in on Yes. for dare Matt, Look, just driving happen getting being to quickly. to cases. necessarily his job that this with when briefly. The resolve. And pleased not to easy be done cross-selling Kendall with of to even and result, And just as issues our

team make that So that's doing actually this. we acknowledge just sure out the wanted there to

to questions the any further question-and-answer would session. time. no for are back remarks. Ty Johnson over concludes There registered This closing turn this to at conference the like I

and Well, you progress thank for We to your support appreciate everyone our you. today. updating SIC Great. look forward us next joining Thank quarter. of you on

today's conference call. concludes This

disconnect for Thank your lines. a you may participating, You pleasant day. have and