SIC - Earnings call transcript Q3 2019 | Select Interior Concepts, Inc.

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Operator

Greetings, and welcome to the Select Interior Concepts 2019 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

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

Nadeem Moiz

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

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

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

Private are where provisions start contained financial or presentation that outlook in and X, to Litigation in subject the considered everyone Harbor I’d Securities today Safe to will performance. evaluating the of to need because I results Slide that Act remind of this differ commented like our be could unknowns with of XXXX. any statements Reform on forward-looking and issues Actual operating materially

and no affect performance. forward-looking in conditions, may Please on see our statements to recent obligation issues SEC that noted filings, forward-looking that risks and We future unknowns statements. assume which represent are publicly principal the update any identify factors Specific slide. detail unknown could the the

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

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

Tyrone Johnson

financials. thank Thanks business begin our with us a update, with you Nadeem. a Nadeem everyone, Good today. morning, and of review brief joining for I will will follow

in and in increased momentum, this we costs $XX related to supply grow markets, cross-sell continue more most integrate to helping quarter, Southern execute which our in grow by shortly. to will increase operate, chain, XX% global and offsetting EBITDA to our changes I than continued adjusted products address detail During softness to incurred year-over-year our experience to we businesses. to Partly paid we market California the Those strategy acquired markets off efforts in and sales positive faster million.

our the million which pleased more into to quarter significant drive a flow, of $XX.X to adjusted working cash help million capital initiatives priorities year-to-date. improvement. were totaled Lean and are operating and for and EBITDA top amongst We this $XX.X convert amount management

ended residential We our continue and services. with key position U.S. interior distribution strong to sheet balance player the design building in slab as quarter both a a

of remain the in stages our attractive market drive opportunity are to We a within to continue in very our early confident and ability improvements business.

to Slide Turning X.

through counters, of our During At sales distribution both products. Residential regions RDS we this we sales diversification Services, other grew primarily past high-end RDS, in installation into or flooring, geographic the businesses. several the business quarter, cabinets grew We Design the design and and new and year-over-year, XX% install year. over

were nearly Organic all-served volume the Virginia. during in Northern stronger Phoenix in quarter and sales overall California, with and particularly markets, up modestly

are to collective of the contributing to more customers communities us and helping target winning share factors our line and homes. entry-level mid-priced markets are through backlog penetration that offerings growing healthy product favorably We results. capture outperform our and new maintain activities adjusting product in Cross-selling levels. new are also These

in expanded smaller materialized. construction represent region While the Southern yet mix pickup in California starts in that of pace to expected our a not has continues footprint,

consultations higher-end our builders of been impact price the shift including RDS As one markets, of design pronounced by more the Southern on California from has mix, center packaged unfavorable some selections. to

business natural distributor Through engineered headwinds. a cost additional of savings of the actions, in to Although margin leading cost mitigate our the Architectural Group, Surfaces ASG other segment, environment, areas reallocating and and are we related and products. control stone nationwide resources taking we cannot we or market are pursuing

Sales for locations. from a from benefited and the receptive greenfield by During grew this in environment volume, third pricing contribution a sales segment quarter, products year-over-year. quartz we positive higher X%

two India, we on quartz International on is October, U.S. source tariffs A Trade anti-dumping pending. tariffs announced products. Commission Turkey India In Turkey preliminary still for and imported and where countervailing countries the from ruling countertops

expand significant of suppliers months, freight new to This higher in to service some recent in global products decision labor, taken resulted actions the and quartz introduction and our of in The have we initial we rapidly share global our provide sourcing network. inefficiencies. the ramp-up customers. conscious made high-level and costs to resulted maintain In meaningful for as additional a

we we chain, expanded costs As operation supply work normalize. our to and to expect our streamline

the through product, meaningful and our we geographic channel expansion diversification delivered quarter of in growth, Overall, each including execution organic XXXX strategy. of

to platform. prior across and of accelerating areas all our structure onto rationalizing cost committed improvements are generating We our acquisitions our integration the of growing business,

cost In both taken improve controls reductions margin to headcount we and have SG&A aggressive businesses, actions, tightened including performance.

our to We customers, to generating delivering while on continue results. financial focus service best-in-class strong will

strategy goal. with is that acquisition Our aligned

We returns fragmented attractive our of premier while highly a positions, shareholders. are seeking high-quality add-ons solidify market remain strategy in continue active opportunities. and disciplined generating and industry We our for very pursuit acquisition consolidation complementary to execute accretive our and operate in our in we’ll

thank you I And the for to call will again, Once turn with joining. Nadeem. that, over

Nadeem Moiz

third Overall, ended our and with a our quarter executing you, flow. sheet in morning, the growth Thank good market quarter, and share, to We grew Ty, continue cash grew we and M&A the everyone. adjusted strong EBITDA objectives. balance

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

expanded added new Organic or growth. million, ramping we the in continued product added efforts both increased or growth and segments. quarter, top to geographies, million, and the $XX.X share sales X.X% to offerings sites. $X.X During greenfield XX.X% line up in Acquisitions

by XX% was Looking at primarily growth acquisitions. our segments. In our sales RDS segment, of driven

diversify Our positive our wins in markets. overall through trends efforts and share gains to experienced rapidly key volume We added growth. new RDS modest year organic project past the footprint over to

a was markets acquisitions. for California driven Southern geographic to by favorable our marginal growth growth mix performance and sales look representing said, in quarter. volume into That organic We offsetting diversity partially conditions remained along being forward our consolidated mix, from market increasingly expanded price ASG, most we costs price of pressure XXXX. challenging, the in volume contribution and move represented and with greenfields as In other

the in other organic lease decline cater offset were volume volumes $XX.X from and million than adjusted EBITDA quarter. typically $X.X year to prior quarter, price to million mix The to larger million Slide $XXX,XXX were to $X.X California that homes volume In the in more that we Southern quarter. compared the primarily reflects $XX EBITDA XX.X% entry-level to reported margin in higher Moving more size in decline prior mainly rose Acquisitions The EBITDA. California. X. by added in markets, accretive million the year increased Southern Adjusted homes. higher-end and market third serve in headwinds

in to due and supply chain. freight $X.X costs cost million the quarter in labor Increase primarily were of higher ASG in

other or we While sourcing have lock and meaningfully inventory have not our in and long-term suppliers to more expanded been we network optimization. by imports from U.S. to tariffs growth support impacted markets, China our

longstanding as were year relationships than company logistical challenges, near-term were and The supplier slightly Corporate global created aligned. quarter. lower public and disruption processes in prior systems infrastructure costs

income our third-party GAAP adjustments completed For included which driven are by of income for net other million. for This of of income is fair This earn-out was result other sheet, on earn-outs a each the P&L. recorded balance $X payments our change in value performed by future quarter accounting change $X.X acquisitions. quarter, our of purposes in and million, on primarily a mark-to-market

which income income. may Accordingly, will be value a to changes occur net items, GAAP reported our included, non-core of among period-to-period, reflected from in pre-tax review. in $XXX,XXX net ongoing strategic also expense alternatives related fair other

EBITDA in million million significantly, the prior committed improving Moving of We flow. to compared cash to into period. operations. operations Slide to $X.X our under additional from capital $XX.X efficiency generate X. adjusted Year-to-date We increased our cash working converted flow just flow to of from year cash remain half

with of of total a net and of consisting position, solid quarter capital liquidity million. $XX $XXX the ended million debt We

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

Slide X. to Moving

With the our flow. steps growth, meaningful taking our executing stronger team, dedication EBITDA of while generate a improved to and to sales cash strategy deliver we’re

fourth collective softness favorably for year. We benefit balance to chain quarter. expect in completed to contribute dynamics changes California impact market of said, the Southern gains That supply likely share us that and will and to acquisitions our the of

optimistic on interior products high-end our trends look improve. as Looking We to years. company and sentiment distributor housing we’re coming our about for progress build as ahead of increased and activity XXXX, in a forward builder to installer leading

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

Operator

Thank you.

[Operator Rygiel Please We from And will question-and-answer our go Riley the FBR. Instructions] first now begin come session. ahead. of will question B Alex

Alex Rygiel

gentlemen. morning, Good you. Thank

Tyrone Johnson

morning. Good

Nadeem Moiz

Alex. Good morning,

Alex Rygiel

might in in Tyrone, and bottom the we’ve relative when Nadeem your weakness where inflected yet, or inflection to sort you see are higher we quantify an California and the could of if higher business? you discuss

Nadeem Moiz

Yes, absolutely.

acquisitions the was here. flat. you sort and the RDS year-over-year sales that RDS at growth is look you called if in predominantly about fairly to in sales And quarter, increase look, quarter the related of year-over-year out the think when in So, we

And softness by so in cabinet Southern California expansion offset Phoenix. that and the stronger markets represents in California, in Northern

exposure California much in a the roughly that. if was higher or so XX% it And back go than RDS years couple of is you quarter. Southern in historically, at The ago, rate

pursuing. trying diversification we’re geographic very so And point to that continued we’ve been out actively the

Tyrone Johnson

is order what Alex, through the and may customers builder fourth as persist that, book, to our as look think quarter. at is that I we this talk add in our Ty, to would we that region And softness we the

with as indicators. respect and present Southern leading mentioned XXXX will our business. prepared I in to continue over encouraged to headwinds Nadeem California in terms short-term, we for the But some are remarks, the As we think of mentioned some

Alex Rygiel

you And sort segment, and that turning total and relative reached to RDS today backlog might to RDS could XQ? the inflect in what backlog within that company backlog that bottom higher? when our has And characterize in maybe segment of is XQ

Tyrone Johnson

Yes.

about think all actually the So to pretty is stable year. way Alex, it’s backlog, been

off wrote replenished. been what’s So has

delays there stable. but backlog in remained projects, the has the have been level So certain round in certain

Alex Rygiel

largest the is your customer still And RDS Toll segment? in

Tyrone Johnson

are. They

Alex Rygiel

in ASG, And comment relates you turning industry, can on it as particularly pricing the quartz? to to

Tyrone Johnson

Yes.

chain able to of There been price much to focus price dedicated at continue in to and in able lower-end, medium we hand-to-hand on marketplace we’ve more we’ve our products. respect to be our the continue. given to higher-priced but expect aggressive and of been terms on combat takers that the more those some competitive supply be So to quartz, products, is with

Alex Rygiel

we can think incremental early next in And And that third some year? should to costs in relates we about the that quantify sort and of as fourth all this the period you chain, that? increased of how recapture expense sort it of in Do supply quarter of time? associated quarter the with

Nadeem Moiz

I Alex. help you can with Yes. that,

the EBITDA increases continue we’ve to certainly, that out some bridge the as back seen to that the of negative that the we we we have into If supply lease called months. here. expect And out that’s get script, Page we million, the along would that we on $X.X in it go with expense next that predominantly you X, and call few beyond impacts, to highlighted on chain fourth look on forward starts as quarter, some I the normalize facility

the diligently rightsize to we’re B, and, the And to very location. to, working respect the supply aligned right get our and right A, most that obviously product with efficient manner service the and in customers quickly in chain

on So continue long-term to don’t thing this we expect basis. deductions we saw that a

Alex Rygiel

should one relative And the margins – about think to as that first-half? of gross how your and relates XQ more to fourth outlook we quarter, lastly, the should in question, sort we for it about think

Nadeem Moiz

Yes.

both XX% was first-half of sort in QX, range, QX in businesses. The that

are – that about we and I in in two think, QX XX% continued fourth chain I XX%. of is softness is the that highlighted there quarter things dynamics. the – sort California Southern in supply we – sitting are

to – quarter fourth I expect similar we So be third would to quarter. would

Alex Rygiel

much. very Thank you you. Thank

Operator

McCall will Seaport Please Matt Our come of Global go next question ahead. from Securities.

Matthew McCall

Thank morning, you. Good everybody.

Tyrone Johnson

Matt. morning, good Hey,

Nadeem Moiz

morning, Good Matt.

Matthew McCall

So comments back the and you the to was quantification the supply made, helpful. chain ASG

– the is talked and were costs not really expand about guess, it labor of some network. permanent – you increase? more they sourcing cost I surprising? cost expand these and more? – you why Can So or And different do what’s And freight the new new sources? elevated a about to efforts Why

Nadeem Moiz

you help can that. Yes, absolutely. I with Matt,

really latter you in in multitudes ramped supply behave product way part to what your of in and a particular, – quarter, global really, changing when level third of came And is, supply So releases. getting got a distributor quarter. you at countries, sourcing is, unusual sourcing on changing experienced is third we you’ve follow and and certain and happens which from suppliers the schedule. most sort countries chain in you’re of of particular containers other not factories in to you their what up expect in suppliers for as chain, sending the And middle costs are of you’re

inventory definitely receiving some get the things bit so like was aberration warehouse of And our containers costs product a kind our labor customers here of what we’re experienced and market respect freight contract demurrage your the and we the obviously, to ultimate excess and is to and more with maintaining experience around, little goal to process, a to important because quarter and share servicing some move pricing us excess delivering service. that really level to of the sure an on very a respect in on make to that third with we’re go-forward basis. space, And

Turkey particular, the the so, company those doing bit Far East. a and in space And you – the of and places of in India slab quarter. experienced sourcing and is felt of and the So of in in third distribution across again, we aberration out space, kinds disruption sort

Matthew McCall

That’s Okay. Thank you, Nadeem. helpful.

you The doing this taking, you’re it asked expenses actions to are talk I cost combat you Southern I SoCal. the market was had softness? savings, think, Ty. California the associated, think what don’t about exactly kind earlier. you of other mentioned question maybe that that any was, Can expected But talked you about some was I in you’re

Tyrone Johnson

Yes, absolutely.

then just start me I’ll Matt. particulars, Nadeem Let of and kind the give to you some of ask

cost So right-size and we’ve the when this we highly necessary that business a and structure have always organization. variable maintained if we in

with overall little can number of we’ve that, across that color. up structure the turn And to So the we’re support I more sure aligning to a with it level to bit done you of things revenue. Nadeem over a the cost give make

Nadeem Moiz

Yes, absolutely.

a side to ASG corporate much areas. see three in make we side all we COGS, that help things focus in including areas side the is we really And on certain project focus softness in on SIC doing on expense very the particular where we’re and is RDS and but support and expense progress our certainly, RDS So operating like the people and it. of coordinators project that work the continue that transactional including on, certainly in where and operating lot

there working multitude coordination And communities as time. management have you Southern we that aspect California And is at point the in on in on any of know, an we’re back-end. of

with, in will so in And very a started as commission drop to in decisive quarter, result quarter. fourth sales. taking we the commission have sales that in obviously going the we third continue reduction were Along of out, that’s you some and

that’s at through XXX we So XXX to basis about margin well. yet going look points. if as EBITDA And changed it’s quarter-over-quarter, change, that basis margin flow you the then And look the business about points gross holistically. the at

here. So, SG&A obviously, that’s coming can taken you through see reductions, we’ve

back-end so, other we’ve And including and decisive SIC, in actions. support ASG taken some staff

fourth continue into we very, we So and that expect cost as continue to very to very, tightly. quarter manage

Matthew McCall

you. Thank perfect. Okay,

Operator

back Please sir. our would the conference concludes ahead, over turn closing This to question-and-answer session. remarks. to any Tyrone like CEO, go Johnson, for I

Tyrone Johnson

of We you us next progress joining for look and today. updating everyone, on Select appreciate quarter. Concepts our you, Thank forward Interior to your support

Operator

now concluded. Thank presentation. attending The you has today’s conference for

may now You disconnect.

Select Interior Concepts (SIC) 8 Nov 192019 Q3 Earnings call transcript