Greetings and welcome to the GMS Inc. Second Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Ms. Leslie Kratcoski, Vice President of Investor Relations. Please go ahead.

Thanks, Laura. Good morning and thank you for joining us for the GMS earnings conference call for the second quarter of fiscal 2021. I am joined today by John Turner, President and Chief Executive Officer; and Scott Deakin, Vice President and Chief Financial Officer. In addition to the press release issued this morning, we have posted presentation slides to accompany to this in the Investors section of our website at gms.com. On today’s call, management’s prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties, 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 statements 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 SEC, including the Risk Factors section in the company’s 10-K and other periodic reports. Today’s presentation also includes a discussion of certain non-GAAP measures. The definitions and reconciliations of these non-GAAP measures are provided in the press release and presentation slides. Please note that references on this call to the second quarter of fiscal 2021 relate to the quarter ended October 31, 2020. Finally, once we begin the question-and-answer session of the call, in the interest of time, we kindly request that you limit yourself to one question and one follow-up. With that, I’d now like to turn the call over to John Turner. JT?

Thank you, Leslie. Good morning and thank you for joining us today. All of us at GMS hope everyone joining this call, as well as your families and colleagues are safe and well. I’ll start with a review of our operating highlights, and then turn it over to Scott who will cover our financial results. I’ll then share some closing thoughts before taking your questions. Starting on Slide 3, outstanding execution by our team enabled us to achieve solid second quarter results, while the overall operating environment remains challenging throughout the period, particularly with respect to commercial construction, we realized benefits from the strong residential market in a progressively improving environment in Canada. Net sales and organic net sales on a per day basis declined 4.2% and 5% respectively year-over-year exceeding our previous expectations. As anticipated, our gross margin of 32.6% was lower than the second quarter record of 33% last year. However, it increased 10 basis points sequentially indicating continued discipline on both the demand and supply sides of our business amid the tight competitive environment. Controlled alignment of our cost structure to current demand enabled us to improve SG&A and adjusted SG&A as a percentage of sales while ensuring a continued relentless focus on serving our customers. As a result, adjusted EBITDA margin of 10.2% marked the second consecutive quarter of exceeding 10% in a very tough market with decremental adjusted EBITDA within the outlook range provided on our first quarter call. We generated positive free cash flow and our balance sheet and liquidity position provide us with exceptional financial flexibility. On the health and safety front, we maintain enhanced operating protocols in compliance with public health requirements, recommendations and guidelines aimed at reducing the spread of COVID-19 and the health and safety of our employees, business partners and communities remains our top priority. Considering the environment in which we are operating, we continue to perform very well in the second quarter. My congratulations and thanks go out to the entire GMS teams who made these results possible remaining engaged, focused and proactive as we come together in support of our customers and each other. At the same time, we offer our gratitude for the continued partnership we share with both our customers and suppliers. With that, I’ll now turn it over to Scott to provide more perspective on our financial results for the second quarter. Scott?

Thanks, JT. Good morning. Looking at Slide 4, net sales totaled $812.9 million, down 5.7% year-over-year as continued COVID-19 market pressures in the U.S. were partially offset by higher sales in Canada. Overall, organic net sales declined 6.4%. With one last selling day year-over-year, daily net sales and organic net sales were down 4.2% and 5% respectively relative to an all-time quarterly record in the second quarter last year, the teams continue to reposition and realign resources to capture demand where does the strongest allowed us to exceed our previous expectations. Wallboard sales of $330.5 million decreased 5.7% or 6% on an organic basis, principally due to a decline in mix driven by a shift to a greater weighting of residential wallboard. Price declined marginally, down less than 1%. On a per day basis, wallboard net sales were down 4.3% with volumes declining only about 1%. Ceiling sales of $111.3 million decreased 9.4% year-over-year, virtually the same on an organic basis, driven by lower volume, partially offset by higher price and mix. Daily net sales of ceilings were down 8% year-over-year. Steel framing sales of $111.3 million decreased 18.3%, again roughly the same organically year-over-year due to declines in volumes and price. On a per day basis, net sales declined 17%. Year-over-year sales declines were more pronounced in ceilings and steel, product categories tied primarily to commercial construction, which remains challenged during the quarter. Residential activity on the other hand was very strong, up both year-over-year and sequentially. Our complementary other product sales of $259.8 million increased 2.9% or 1.2% on an organic basis due to positive contributions from acquisitions, execution of our strategic growth initiatives, as well as organic growth and favorable pricing in Canada. Daily net sales of other products were up 4.5%. Gross profit of $265.1 million decreased 6.8%, compared to the second quarter of fiscal 2020, primarily due to the lower sales. Gross margin of 32.6%, as expected declined 40 basis points year-over-year principally due to challenging mix dynamics, again particularly in the commercial segment. Turning to Slide 5, adjusted SG&A expense as a percent of net sales of 22.5% improved 20 basis points despite a 40-basis point headwind from the deflationary price and unfavorable mix impacts with certain products, notably steel and wallboard. Approximately 60 basis points of improvement was realized as a direct result of the continuing measures to align the company’s cost structure with the current demand environment, as well as favorable business mix towards single-family residential with respect to operating costs. As a result, second quarter adjusted EBITDA of $82.5 million compared to a record $89.9 million a year ago. Adjusted EBITDA margin of 10.2% declined only 20 basis points year-over-year and represented a 15% decremental adjusted EBITDA margin, the midpoint of the outlook range of 10% to 20% provided on our first quarter call. All considered, we were pleased with our execution in the second quarter, again just generated an adjusted EBITDA margin in excess of 10% despite the market-related decline in sales. Turning to Slide 6, we generated free cash flow of $32.7 million or 40% of adjusted EBITDA in the second quarter. This was lower year-over-year due to changes in net working capital, driven by opportunistic inventory build in advance of manufacturer price increases and related timing of cash flows associated with certain purchasing incentive programs. We continue to generate healthy free cash flow in this environment and expect to do so in the second half of this year. Capital expenditures of $7.1 million were down $1.6 million year-over-year. Nevertheless, we maintain our estimate for cash capital expenditures in fiscal 2021 of approximately $25 million. As of October 31, 2020, we had cash on hand of $118.2 million and $415.4 million of available liquidity under our revolving credit facilities. During the second quarter, we reduced our net debt by $27 million and net debt leverage was 3.0 times as of the end of the quarter, equal to that at the end of the first quarter of fiscal 2021 and down from the 3.5 times as of the end of the second quarter of fiscal 2020. Our balance sheet remains healthy, and as an indication of the overall stability of our capital structure, we were pleased to receive an upgrade of our debt ratings from Moody’s in October. As a reminder, the large majority of our debt is not due until 2025. Now let me turn the call back over to JT before we open the line for questions.

Thanks, Scott. Turning to Slide 7, while we continue to carefully monitor and address market developments, we remain committed to our strategic growth priorities, is four initiatives and our Q2 progress are as follows: first, expanding share in core products, particularly in geographies where we are underpenetrated. In ceilings, we believe we are obtaining share in both the mineral fiber and architectural specialties segments of the market as evidenced by our sales levels compared to available market data. Also, our focus over the past year on increasing our penetration in residential construction and in geographies where we have historically been underrepresented has enabled us to capture demand more effectively in this strong end-market. Next, to diversify and profitably expand our product offerings, we are focused on growing select other product opportunities outside of core products. Success on this front stems from multiple initiatives in both the U.S. and Canada resulting in higher year-over-year growth in this category for the second quarter in a row despite the difficult market. One example is one of our region’s early success in expanding its offering of waterproofing products in response to customer demand. While we are in early innings, we are beginning to extend this initiative to other regions through sharing of best practices and leveraging capabilities across our platform. Third, we are developing our platforms through accretive acquisition and Greenfield opportunities, while maintaining balanced progress in debt reduction. We opened a new Greenfield location in n Hillsboro, Oregon in the second quarter and are actively working a robust acquisition pipeline. At the same time, we’ve reduced our net debt by almost $30 million. And finally, so that we deliver a best-in-class customer experience, as well as drive productivity and further profit improvement, we are leveraging our scale in employing technology and best practices. Deployment of our e-commerce platform progresses with key adoption metrics including quoting, customer account activations and online payments increasing across our operations. Near-term execution of these strategies equips with not only meaningful scale and technology advantages, but with balanced product geographic and end-market portfolios, all of which are serving to enhance our performance in this current environment. At the same time, these strategic growth priorities guide our long-term management of a very attractive business with significant long-term growth potential. And finally, turning to Slide 8, as we look ahead, expected continued strength in residential construction is well documented with strong housing data, coupled with robust order growth and positive commentary from homebuilders. Commercial construction remains challenged, although more recent forecast while still projecting declines are more favorable than previous estimates. Ultimately, we believe the actual near-term trajectory for commercial will depend largely on developments in addressing COVID-19 and the impacts on the broader economy. For our fiscal third quarter, we currently expect to generate a year-over-year sales decline, which will be slightly improved from the 5.7% or 4.2% on a per day basis realized in the second quarter. As was the case in Q2, there is also one less selling day in Q3 of this year versus last year. In terms of profitability, we anticipate gross margin in the third quarter to be similar to that generated in the first half of this fiscal year, which will be lower than the 33.3% realized in Q3 of last year. As a result, we currently expect to generate a decremental adjusted EBITDA margin within the range of 10% to 20% for the third quarter of fiscal 2021. As we conclude, our focus remains on controlling what we can. We have taken and intend to continue to take the necessary actions to optimize our operations and align our business with demand. I am confident in our teams’ ability to continue to leverage opportunities, address challenges and execute on our strategic plans to ensure that GMS remains well positioned to generate value for our shareholders. Operator, we are now ready to open the call for questions.

[Operator Instructions] Our first question comes from the line of Mike Dahl with RBC Capital Markets. You may proceed with your question.

Hi. Thanks for taking my questions. Wanted to start out just on the kind of third quarter commentary and maybe it will be helpful if you could give us some perspective on monthly trends progressed through your second quarter and then, trends in November. And the second part of that question, yes, I think we can get a sense of resi versus non-resi by looking at some of your commercial oriented segments, but could you just help break out for us what you think your overall resi sales did versus commercial on year-on-year basis? Thanks.

I’ll take the first part of your question and JT can follow-up on the second part. Trends progressively through the quarter were positive every month over the course of the quarter on a year-over-year basis improved. And I can extend that into November low. So really for the last four months, we’ve been improving year-over-year every month.

And as we talked about previously, I think the REIT is coming to pass and that is that residential is strengthening and each month as we go forward, we are beginning to shift the starts from three to six months in previous announcements. Commercial, however, has also continued to decline at fairly significant rates and while it feels like that rate of decline is flattening, we haven’t completely seen that yet. And so, I think that our idea in the third quarter of being slightly better than we were in the second quarter is simply the reality of residential continuing to strengthen and commercial not getting a lot worse. And that will give you the net-net of our 55 commercial, 45 residential kind of get you to the number little bit better than we did in the second quarter.

Okay. Thanks. That’s helpful. The second question just as a follow-up to residential and thinking specifically, I guess on wallboard, this is clearly across the industry you are seeing a shift in terms of distribution’s focus on capturing the residential demand and allocating efforts to do so more than probably in the past there is clearly a strong backdrop for residential. So, this may be enough to go around but from a competitive standpoint, have you seen any major shifts in terms of the competitive dynamics and how are you thinking about kind of pricing going forward?

Well, the good news for us is that we started from a more balanced position than some of our competitors, but also we’ve been talking for 18 months and you are probably getting tired hearing me talk about it, but the reality is, one of those strategic pillars is to gain share in our core categories and we recognize well before the pandemic and well before this dramatic market shift that we have some opportunity in residential. So, I think we have a little bit of a head start there than some of our competitors for sure. And in residential, those discussions aren’t happening every single solitary day with major builders, right. There is only few times during the year when you are having those discussions and you are able to secure that business with the bigger builders. Now with the smaller builders and the contractor controlled business, sure that’s a day-by-day effort. The other thing I think we have an advantage is, is just we have the ability to service the entire product mix that all of those contractors and/or builders in the event we have the ability to do that in every market and there is – we also have the scale of our ability to handle the inventory and we have the ability to get the inventory from the suppliers based upon being for the most part the largest player in the space. So, I think we offer a lot of advantages that maybe some of our competitors don’t. All that being said, price is an issue and residential board is the most commoditized board out there in the market. We are capable of providing just about any price that is reasonable with our excellence on the operating side, we can make money. So, I think we can be very competitive where we need to be. On the other hand, maybe we are getting into an environment where there is some inflationary pricing and that will – again, we think that benefits us even more than the balance of our competitive space.

Okay. Thanks, JT, Scott. Good luck in the quarter.

Thank you.

Thank you.

Our next question comes from the line of Kevin Hocevar with Northcoast Research. You may proceed with your question.

Hey, good morning everybody.

Hey Kevin.

On that last point, there is a wallboard price decrease over the mid to late October, early November, so curious, if you can comment on your expectations if you are seeing that hold? And secondly, I know, one of the manufacturers after January increased, so curious if you have seen anybody else follow and if you think that the market is able to accept another price increase in that timeframe?

Well, we are right in the middle of what I would say is the execution phase of any kind of increases and what’s going to hold or not hold from the October piece. We are certainly believing that the demand picture may shape up such that it does make sense to have some pricing in the market, it’s not that way yet, but I think it could be in relatively near-term. And as we said before, better prices – prices are better for everybody quite frankly. They are better for the entire supply chain. And so, hopefully, calm heads prevail and maybe some of that comes to fruition. As far as one on top of the other, I think all of the building product space is in the middle of hearing and seeing price increases and how much of that’s going to stick and how many are going to come into the market, I don’t know. I think between October and January, there should be some degree of those to two to six, you would think, right now. But again, that’s really, really early in that game and we probably won’t really know until we get well into this quarter and maybe even into the next one to see what’s shaping up.

Okay. And then, steel prices have really moved up the past few months, and things kind of unique in that obviously, the steel side of the business is softer and the commodity has gone up quite a bit. So, curious, does that have any impact the weakened markets, does that have any impact on your ability to push through the steel pricing there? Or is it just since steel prices are so well-known, it’s easy to pass that through regardless of the demand environment? And with that type of inflation, how does that typically impact? Is there a timing with the sort of increases we’ve seen? Is there a timing impact or maybe there could be a gross margin hit as you try to push those prices through? Just kind of curious your thoughts on the impact to the business from the rising steel prices.

Well, sequentially, we saw very, very slight increases in our pricing, but we didn’t see dramatic, what we call the squeeze internally here, right, which is your kind of alluding to there. Steel is generally speaking, we are going to quote what we are buying, we are going to buy it out fairly quick. We are going to try to work if we have longer projects, we are going to put escalators on those longer projects. And then, we are really buying out the big projects, really close to the time in which we ship them. There is a lot of back and forth there. Stock steel prices, if we pay more, we raise the price and that’s our stock steel price, right. And then, it’s sure there is still day-to-day negotiations on that front. But you are correct, when you are looking at market that’s down significant double-digits, that puts some extra pressure on the price. I’d certainly would prefer to be in the other environment with rising commodity price and rising demand, then I think we’ve got to rise certain. But it’s a negotiation. There is no question. But I don’t think, you can see it in our gross margins, right. I think our gross margins are pretty good and I think the discipline in the business is good. We are earning the pricing by being the best in the space from a service perspective.

I’ll just add, it’s a very fragmented supply base too. So, all of our purchasers are very localized and got tight relationships with the suppliers and we are working with them to make sure we manage that tightly.

Okay. Great. Thank you very much.

Our next question comes from the line of David Manthey with Baird. You may proceed with your question.

Thank you. Good morning everyone. Let me approach, again, good morning. Hope you are going to approach this wallboard pricing question from another angle, JT, you recently noted that the wallboard production capacity is something like 10% higher than current demand. And I am just wondering maybe from a historical perspective, has the company been able to achieve positive pricing with this type of capacity versus demand gap?

This is as tight as I’ve seen it and, of course, I’ve really been here about 18 months/ So, if you go back in history, I think when capacity tightens and demand is increasing, there has been successful periods of time in which pricing has gone up. So, I don’t expect it to be any different. I just don’t think we are kind of at it. We are not – we maybe at an inflection point. Right now, it feels maybe like that, but we won’t know for sure this is the actual inflection point until we get into next year one. I think we have to confirm the demand, right. I think we have to confirm the residential is going to continue to grow to the rate it’s currently growing, because we know commercial is not going to be very good for a period of time, still. I mean, that’s obvious based on starts in the ABI and everything else. So, what we don’t know is, residential, are we going to continue to have these great starts numbers every month throughout the winter and into the spring and is demand going to continue as kind of stimulus were offset around the economy. So, that side is still, I guess, what I would call the unknown. But if all that comes together from a demand picture up against in an environment where there is 10%, 15% capacity left to be filled. I think you are getting tight enough there to where it just makes sense that the whole industry should go up.

Okay. Thank you for that. And the second question, could you give us sort of a longer term perspective on contribution margins during a recovery? I guess, as I am looking at the model and thinking about the moving pieces here, there is probably a slight downward bias to gross margin given that in a recovery we see steel and ceilings and things going faster. Any thoughts as it relates to either the gross margin? Again, one, two years plus and the contribution margins in a recovery.

Yes. Let me flip the script a little bit on the question. I don’t know what the gross margin may or may not do in a recovery. But I can tell you that in the early stages of a recovery, growing off of the lower cost base, and the disciplined nature of our team, I would expect us to not add cost until we are confident that we are in that growth phase, right. So, we should get some leveraging in the beginning phases of any recovery for sure. Now, what happens on the gross margin side, I don’t really know. Scott, do you have any perspective?

I just look at the past history, I think if you look at, it’s a pretty good series of quarters in the past history. Our gross margin differential from quarter-to-quarter over that kind of period doesn’t move all that much. So, the business we are in is really making sure we are aligning supply with demand and trying to maintain that spread as tightly as possible regardless of the cycle. So, we do that. That said, as we’ll continue to guide our businesses based on EBITDA to try to make sure we align the operational side of the house with the gross margins and we’ll continue to do that as well. And I guess, what we just continue to guide too is that sort of 10% to 20% kind of incremental EBITDA margin decremental kind of rates. And taking JT’s point in terms of how we’ll manage the cost structure on the upside will kind of we’ll try to maintain as well. So, that’s the best guidance we can give you at this point as we deal with the cycle and as we deal with mix dynamics in this market.

Okay. That’s helpful. Thanks for the color.

Our next question comes from the line of Keith Hughes with Truist Securities. You may proceed with your question.

Thank you. Now looking for the next quarter or two, given potentially inflation coming at wallboard, do you anticipate some of the gross margin pressure that you discussed for the quarter or coming quarter, is that coming from the kind of lag as you touch through wallboard increases on to your customers?

There is a little bit of lag, obviously, in there as well. There is also the mix shift dynamic that the residential board has a little bit lower gross margin, right that we’ve talked in the past about the operating margins being similar between the residential and the commercial. But on the pure gross margin side, there is a little bit of a mix. There is always a little bit of lag in the – but again, we are acutely, I mean, we are looking at it, tracking it, following it, talking about it every single week with our operators out there trying to lead in the space and continue to deliver exceptional service and earn a little bit of a premium. And I think that, in times like this, we are in a decent position to do that.

I’ll just add a few – when we talk about pressure, again, please keep in mind that Q2 and Q3 last year were particularly strong. And so, if you look at on a sequential basis we are really expecting to do pretty similar in Q3 versus what we did in Q2 and we recognize going into Q2 and Q3 that they would be tighter not so much because of the market, although that’s a factor but really it’s a tougher compare versus prior year.

Okay. And switching to the other products, this had really nice growth in a tough environment, particularly last couple quarters. Can you kind of rank order at this point what are the largest products you sell in that segment?

Insulation is the largest, primarily commercial insulation but we have a nice residential insulation business also with the – what I would call a - for the market in Canada, pretty good share of that business in Canada. So we have insulation is our number one product category. After insulation, kind of those down into some of the related products with wallboard, you end up with joint treatment and fasteners things like that, but lumber is becoming more and more important to us and there is major focus across the business on lumber. Most of our lumber is fire-treated lumber, and/or lumber used in commercial construction, not your traditional lumber packages are trusses or anything like that. Things that our customers have to buy, so, we’ve moved that direction. And then, you get down into tools and you get into stucco and EIFS, which is a continuing focus for us. Predominantly through the south, where stucco and EIFS is used more, but and you’ve heard me talk about waterproofing brand new, but I do think the exterior envelope is something that we will be successful at over time and it’s in its infancy, but I think the signs are we can be good at that as well.

And how did Canada do versus the average revenue change in the quarter?

Canada was a source of strength for us. I think we’ve got this within the footnotes of a Q. but Canada is up about 9.3% and relative to U.S. and down in roughly the 8%.

Okay. Thank you.

Thanks, Keith.

Our next question comes from the line of Matthew Bouley with Barclays. You may proceed with your question.

Good morning. Thanks for taking the question. One more on wallboard price. You talked about building inventory out of the manufacturer price increases. Was that a pre-buy ahead of the October price increase or the January price or both? And does it kind of signal that that you do have a stronger view about the market accepting price this year relative to the past couple of years?

Let me answer the first half of your question. It’s really both. Also, we are big believers of servicing our business and so, inventory is important. And in the event there is a tightness anywhere we want to make sure we’ve got the inventory. But two, I don’t think it signals much in the – the reality is we turn that inventory 13 times. So, we are buying now. We don’t think price is going down. So, the reality is we can buy a little bit now and if they do go up, then we are in good shape. If they don’t go up, it doesn’t matter, we sell our inventory. So, I wouldn’t read too much into it, other than we just think it’s smart to put a little bit of cash over there. Again, it doesn’t age out. You don’t have a situation where we don’t sell that inventory and turn it back into cash very, very quickly if we need to. So, I think that, we are just improving.

Okay. Got it. Second one on back-end commercial construction and JT you talked about sort of signs of stabilization at lower levels. I don’t want to put words into your mouth. But I am wondering with your own customers, if you are kind of seeing those sort of signs of life in the forward-looking indicators that you have whether it’s quoting new jobs, A, if there is any specific verticals or regions that you think may be kind of inflecting in the near-term? Thank you.

Well, on you are quoting at lower levels, right, but it’s stable. And that’s really the message across the board and that makes sense to all of the macro indicators that are out there. So, our pipeline reflects what I think are the macro indicators, our quoting is reflecting the macro indicators. The new product pipeline, the new construction pipeline seems to be bottomed and maybe moving up a little bit. As far as quotes go, I think people are expecting things to be better a year from now. A lot of those projects are starting to bid now. The big emphasis for us or the big problem really today commercially is in all regions is tenant improvement. Tenant improvement is off in all regions. And tenant improvements is an important part of what we do. So that’s the biggest negative in our business is the lack of tenant improvement.

Okay. Got it. Thank you.

Our next question comes from the line of Steven Ramsey with Thompson Research Group. You may proceed with your question.

Great. Thanks. A couple things. You guys discussed ceilings share gain, can you share more on why this is happening? And do you feel like it’s accelerating in a challenging environment? And is that because of competitors are shifting back and was able to compete as effectively? And that share gain – can you discuss if that tenant improvement-related or new construction-related?

Yes. The share gain is coming from the concerted effort across our entire business to be the number one ceilings distributor in every market in which we participate. And we are fortunate to have very, very strong relationships with Armstrong and USG, the number one and number two player in ceilings. And so, it made sense for us to make that commitment again as part of that first strategic pillar of growing our core products 18 months ago, we recognized that we needed to put effort everywhere, because we had examples of being the best in major markets and they did make any sense not be the best everywhere. So we’ve been working to do that. I am not going to say, we are the best everywhere, yet. But that’s our goal, right. So, we’ve added sales people, we’ve added engineering capability around architectural specialties. We’ve had quite a bit of success with architectural specialties. And I would say that most of that is new projects and not in the TI space. That the TI space is really the acoustical tiles, right. The mineral fiber. But we have decided everywhere to participate in ceilings and there are very, very few parts of our business today where we don’t have a good ceiling blind. And where we don’t have a good ceilings line today, I promise you were beaten down the doors of the manufacturers to get access to their line in those markets. So, I really think that’s what’s happening.

Got you. And then, switching to single-family side and wallboard there. Is there an increasing lag time that’s pushing back the time that your products go into the home for various reasons? It seems like we’ve heard various building product companies who have seen lag times extend beyond the normal timeframe. I guess, what I am getting at is, is demand better than what near-term revenue shows on single-family and maybe does that support sales in the upcoming quarters?

Well, I mean, we’ve been talking about the fact that, if you looked at the strengthening sequential sales of residential for us, we are six months after those starts number started to come alive, right. So, and we were stronger in November than we were in October. I don’t necessarily have any data that would say that those lead times are extending. But of course, we are just one part of the process of building a home. So, if it takes longer to get the land preparedness, taking longer to pore the foundations and it takes longer to build the lumber out, then it’s going to take a little bit longer for them to order and install the drywall and the other products that we sell into the home. That’s a fact. So, if you got data or you can see and talk to the homebuilders that instead of 90 day cycles to build houses they are at a 120 days, well, then, yes. That’s a direct impact on us.

In today’s price point we have heard evidence of things like lumber appliances and other products that go into a home being a little bit extended from certainly what we are seeing on our supply side, which is a factor, but it’s not significant, at least at this point.

Great. Thank you.

Our next question comes from the line of Trey Grooms with Stephens. You may proceed with your question.

Hey, good morning. Thanks for taking my question.

Hi, Trey.

Hey, JT. So, first one, we spend a lot of time talking about wallboard pricing and lot time on that clearly still up in air. But what about on the ceilings side? How are you thinking about ceilings pricing as we go into 2021? I think there was a price increase announced recently from one of your big suppliers. So, just any thoughts around the ceiling pricing as we look into next year given the demand backdrop.

I would probably say that everywhere other than potentially the commodity mineral fiber, the market will accept the prices. I think that the architectural specialties is a continuing trend. It will be a larger part of ceilings going forward and those are quoted on an individual basis. And so, I think that those prices will continue to rise and I think the higher end and the more premium mineral fiber and acoustical ceilings will bear whatever pricing the two leaders put into the space on the manufacturing side. I do think on the commodity side, it’s going to be continue to be a struggle, because that’s just a little bit more competitive there and there is just more players.

Understood. And I don’t know if we can get into the weeds this much, but with your ceilings business, do you – can you give us an approximate mix of what is more commodity kind of ceilings are versus the acoustical and some of the others that you are talking about?

I don’t have it. I don’t have it sitting right here with me. It would just be all speculation.

Fair enough. So, my next one is a little bit higher level here looking into 2021, but it sounds like, and correct me if I am wrong, but it sounds like the commercial side could be bottoming. It sounds like, maybe it’s not getting worse. And so if that’s the case, and we are looking at the res side where clearly res has been good from a start standpoint, you guys are definitely starting to experience some benefits from that and I would expect that to continue as we go over next few quarters. And – but my question is really as we look a little further out, if this continues to be the case, at what point do we start to see some revenue growth or volume growth in your business overall?

Again, we usually just give you that one quarter out, because it’s really all we can see right now and this is a very difficult time to be forecasting. I would tell you that November commercial was still slightly worse than October commercial and we are talking about double-digits. So, I am not all that excited about bottoming at these levels and how long we would stay here, I don’t really know. Commercial was super strong obviously last year, right up against COVID. So, we get into that April and then we start rolling into next year, May, June, July, those first months after COVID, we might be able at the end of the next quarter to give you a view of this as, hey, maybe that’s the time. But commercial is still pretty, I mean, I don’t want to be dower, but it’s not good. Our steel sales are fairly reflective of that, right. And we are gaining share in ceilings, thankfully that we focused on that quite a while ago and we also are gaining share I think residentially where we focus on that quite a while ago with our wallboard and all of that is helping us perform a little better than we otherwise would have. But commercial is certainly not going to be a tailwind I believe until late 2021.

You are going to get some natural lapping from a financial standpoint on the ceiling side, which is good. So you won’t see the year-over-year declines that are as pronounced as we’ve got this year. Those will start to moderate and then you got the strength on the residential side, going forward based on the starts we are seeing that should start to give us some pretty positive indication. But we are just not in a position to be able to find exactly how that shapes out after a quarter or so at this point.

I mean, I think we are feeling better. But we are not feeling good yet.

Understood. And I understand it with the tough question given uncertainty in the – that we are sitting here looking into right now. But I appreciate the color. The last one for me, and it kind of dovetails from that one, just kind of where we – given where we are in the cycle, and on your strategic priorities, one that you point out is the platform expansion. So, I guess, could you go into a little bit more color around that? I mean, your leverage has come down you’ve reduced – even your net debt metrics are improving. So, as we look at where we are today in the cycle and then we look at opportunities that are out there, both Greenfield and M&A. How are you – and you know that you are balancing it with debt reduction priorities, but can you go into a little more detail about that? Especially, given where we are right now in this cycle and kind of the little bit more uncertain outlook currently?

Yes, I mean, we have five or six Greenfields in the pipeline that are in process that, of course put them on hold in the April timeframe when we looked at COVID-19 and of course, we put anything on hold and then you got to pull them back out of the can, so to speak and get them done. It’s hard to get it done, right. And we’ve got to go get property. We got to hire people. There is some things that takes a little bit of time. But, so, we are back half loaded this year in our Greenfields for sure. But we got the one open in up there in Oregon which is Western Portland and we are super excited about that, because of that it’s going to be a blooming market. And we’ve got four, five more good ones that will get done, if not this fiscal year really very, very closely thereafter. So, they’ll all be kind of coming together. The acquisition pipeline is good and we are talking to multiple players and multiple people. And I think that we’ll have some things to talk about in the next quarter or two on that front. I just, unfortunately today, I don’t have any exciting news for you. But we’ve got a good pipeline and we agree with you, we have a good balance sheet, good liquidity and we should be a good acquirer.

Great. Thanks for all the color. I appreciate it and good luck.

Thank you. I appreciate it.

Thank you.

Our next question comes from the line of Sam Darkatsh with Raymond James. You may proceed with your question.

Good morning, JT. Good morning, Scott. How are you?

Good Sam.

Just a couple quick housekeeping questions with respect to capital allocation, I don’t want a major in the minor, but I noticed that you bought a little bit of stock in the quarter for the first time in a while. I think the last time you did so was early 2019 when the stock was half the price and the valuation was around six times. Anything as to the rationale or the reasoning behind that? I know you have $58 million left under the authorization and you are about to go into a heavy seasonal cash flow time of the year. Is there anything there that we should take from that activity?

We telegraphed that in our last quarterly call that we were going to start doing that, Sam. It’s nothing more than a modest share repurchase associated with offsetting our equity compensation programs. We are issuing equity obviously as part of those programs and you’ll see us over time engage in some limited buyback to offset the dilutive impact of that. But at this stage, it’s really nothing more than that.

Got you. And then, my last question, the typical free cash flow expectations I think, Scott, are between 40% and 50% of EBITDA. Is that still the expectation for the fiscal year? Or are you looking to hold a little bit of extra inventories throughout the next couple quarters?

So, it’s towards the lower end of that range in this environment with EBITDA being down versus where we were, say, last year. But in that low 40s, it certainly is a still pretty good indicator. And then, as we come back out of that, I think, on a more normalized basis, back to that 50 is probably the – a good indicator of what the business is capable of overall but in this environment closer to 40, that will be about right.

Very good. Thank you gentlemen. Stay well.

Thank you. You too.

Ladies and gentlemen, we have reached the end of today’s Question-And-Answer Session. I would like to turn this call back over to Ms. Leslie Kratcoski for closing comments.

Thanks, everyone for joining us this morning. A replay and transcript of our call will be available shortly on GMS.com and as always, we thank you for your interest. Good day.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your evening.