Greetings. Welcome to GMS Incorporated Fourth Quarter 2023 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] Please note this conference is being recorded. I will now turn the conference over to Carey Phelps, Vice President, Investor Relations. Thank you. You may begin.

Thanks, Sherry. Good morning and thank you for joining us for the GMS earnings conference call for the fourth quarter and full-year fiscal 2023. 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 issued this morning, we have posted PowerPoint slides to accompany this call in the Investors section of our website at www.gms.com. Starting on Slide 2. 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 risk 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 of 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 fourth quarter of fiscal 2023 relate to the quarter ended April 30th, 2023. Finally, once we begin the question-and-answer session of the call, in the interest of time we kindly request that you limit yourself to one question and one follow-up. With that, I'll turn the call over to John Turner, whose discussion be starting on Slide 3. JC?

Thank you, Carey, and thank you all for joining us today. 2023 was a year of strong growth and profitability with record levels of full-year net sales, net income, adjusted EBITDA, and cash flow generation. For fiscal 2023, we achieved full-year net sales of $5.3 billion, an increase of 15%, compared to the prior year. Net income increased 22% to $333 million. Adjusted EBITDA grew 17% to $665.7 million and adjusted EBITDA margin improved 30 basis points to 12.5%. Cash generation was also significantly improved year-over-year, reaching a full-year record high with cash from operations of $442 million and free cash flow of $389 million, each more than double their levels from a year ago. For the quarter, even after seeing a pullback in single family demand and without the benefit of the steel inflation that we experienced during fiscal 2022 and early 2023, our team performed exceptionally well to close out the year. For our fiscal fourth quarter, we grew net sales to $1.3 billion, up 2.8% on a same-day basis. Net income declined slightly to $75.6 million, but despite having one less selling day, adjusted EBITDA grew to $154.3 million, marking our ninth consecutive quarter of year-over-year adjusted EBITDA growth. Adjusted EBITDA margin was 11.8% for the quarter, compared with 12% in the prior year period. Strong multifamily demand and continued growth in commercial construction, combined with a favorable pricing environment in wallboard, ceilings and complementary products helped offset lower steel prices and the continued softness in single family activity that we began to see at the start of this calendar year in most regional markets. That said, on strength in Florida, the Southeast has been an outlier with modest year-over-year single family growth. Looking at our balance sheet, during fiscal 2023 and just after the end of our fourth quarter, we refinanced our ABL and extended and amended our term loan facility. The foundational strength of our well positioned capital structure and liquidity position helps enable us to continue driving growth and improve profitability through the execution of our strategic priorities, which I will review now. Looking at Slide 4, the first of our four strategic priorities is to expand share in our core products. Our team has worked tirelessly to be the supplier of choice for our customers providing exceptional service, expertise, and product availability. For wallboard, despite being impacted the most by the slowdown in new single-family housing, our teams have successfully strengthened existing relationships and entered into new agreements with key customers across our end markets. In steel framing and ceilings, we are also strengthening relationships and successfully winning business in most of the sectors we serve even in large office new and remodel, which does remain muted. As such, utilizing a combination of data sources, including the Gypsum Association, the Steel Framing Industry Association at our suppliers' disclosures, we believe that we continue to maintain or grow share in each of our core product categories and we'll continue to focus on this objective going forward. Next, we are growing our complementary products. Broadening and realizing incremental scale in our offerings helps enhance the value we bring to our customers, while also allowing us to accelerate our growth and strengthen our margins, a complementary products group comprised of our field business leaders and our central purchasing team is progressively sharing best practices, identifying areas of opportunity, leveraging scale, and consolidating vendors where sensible. This focus allows us to leverage sales of our core products, such as wallboard and steel to pull through complementary items such as tools, fasteners, or insulation. And we are also expanding our EIFS and Stucco lines to new locations and onboarding additional specialized sales expertise to boost growth in this category. Also during fiscal 2023, we furthered the growth of our complementary products with the continued expansion of the AIMS footprint. In addition, we entered the New York city market through the acquisition of Tanner Bolt and Nut, a leading distributor of tools, fasteners, and other related construction products in that area, added additional EIFS focused locations with the acquisition of Engler, Meier & Justus and purchased Blair Building Materials, a highly respected provider of complementary products in Ontario, Canada. As we've discussed on previous calls within our complementary product offerings, we are focused primarily on expanding several high opportunity growth subcategories, including tools and fasteners, stucco and EIFS and insulation. Collectively, these product lines grew nearly 15% during the fourth quarter and 25% for the full-year. We intend to continue this push to profitably expand and scale these product offerings across our geographies. Third, we continue to take steps to expand our platform through accretive acquisitions and Greenfield opportunities. As I just mentioned, during the fourth quarter, we completed our acquisitions of EMJ in Chicago and Blair Building Materials in Ontario, Canada. With EMJ, we significantly expanded our Chicago operations and in the process strengthened our relationship with Armstrong World Industries in this important market. Meanwhile, the Blair acquisition will allow us to further scale our complementary product offerings in the Greater Toronto area. In addition, we are pleased with our continued growth of new greenfield opportunities with the opening of a new yard in Ottawa, Canada during the quarter, as well as two new AMES store locations. For the year, we completed four acquisitions and opened six new greenfield yards and 11 AMES stores. Expanding our footprint, scale and product offerings remains a key priority for GMS. We have a healthy list of opportunities in our pipeline of core GSD businesses, as well as numerous complementary focused businesses. Our fourth strategic priority relates to our efforts to drive improved productivity and profitability, by leveraging our scale and employing technology and best practices to deliver a best-in-class customer experience and further drive profit improvement. Notably, the steps we are taking to build our yard of the future are yielding improvements in efficiencies, productivity, and profitability, all while making it easier for our customers to do business with us. To highlight some of our initiatives, we now have about 60% of our non-cash U.S. customers stood up with online accounts. Also we are at the midpoint in our initiative to bring digital capabilities into our larger warehouses, equipping our teams with automated tablets to increase the speed and accuracy of the picking and shipping process and better facilitate customer pickups. And we are bringing a much more robust and data-driven approach to our purchasing efforts. Using our automated forecasting and replenishment platform, we are seeing improved turns and reduced stockouts. While in the early stages of implementation now, we hope to eventually push approximately 60% to 70% of our purchase orders through this system. Finally, as we mentioned last quarter, some of our ongoing initiatives are focused on the consolidation of certain backup house functions as we continually look to improve efficiencies, streamline our processes, and drive [Technical Difficulty] such steps along with growth in complementary products and expansion of scale have contributed to our taking adjusted EBITDA margins from the upper single-digits pre-COVID to now consistently reporting these returns at double-digit levels. As a result of our productivity initiatives and heightened systematic focus on organizational and people development, we have become better operators and look forward to making further improvements as we execute on all of our strategic priorities. With that I'll now turn the call over to Scott. Scott?

Thanks, JT, and good morning, everyone. I'll be starting on Slide 5. As JT mentioned, in terms of the economic backdrop, we are seeing generally positive, but in some ways inconsistent fundamentals. We've seen strong levels of multifamily construction activity and many signs of recovery in commercial construction, while at the same time navigating soft, but improving single family construction demand and still saw new and remodel activity in the office space, particularly in large urban centers. Additionally, we are seeing deflationary pricing in steel framing, but largely resilient pricing in wallboard and other products, all while we manage continuing inflationary and activity based increases in operating expenses as product demand shifts, between end markets. With that overview of current market conditions in mind, I'll provide some details related to our fourth quarter results. Net sales increased 1.2% year-over-year to $1.3 billion for the quarter. Organically, sales were roughly flat with a year ago. Adjusting for one less selling day year-over-year however, net sales increased 2.8% with daily organic sales increasing 2.2%. From a U.S. end market perspective, continued strength in multifamily and increased commercial wallboard volumes coupled with resilience in wallboard pricing led to residential sales dollar growth of 5.8% for the quarter. Commercial sales dollar growth in the U.S. was softer at 1.2% overall with an increase of more than 25% for commercial wallboard revenues offset primarily by declining steel prices. Now looking at these fourth quarter results for each of our product segments. Wallboard sales of $544.7 million increased 10.9% in total and 12.7% on a per day basis comprised of a 15.5% increase [Technical Difficulty] some price and mix, offset by a 2.8% decline most heavily impacted this product segment, offsetting increases in both multifamily and commercial wallboard volumes. Organically fourth quarter wallboard sales on a per day basis grew 13.1% year-over-year comprised of a 15.7% increase in price and mix and a 2.5% decrease in volume. In terms of U.S. wallboard volume, multifamily residential led the way with 27.9% volume growth for the quarter, as compared with a year ago. U.S. commercial wallboard volumes improved 7.3%, marking the fourth consecutive quarter of year-over-year commercial wallboard volume growth. And finally, again reflecting reduced demand across most regional markets single family wallboard volume in the U.S. was down 16.6% from the fourth quarter. Similar to our experience last quarter, wallboard pricing has remained resilient given the supply side capacity and cost dynamics in that market. Plus, there has been a small benefit to wallboard prices from a mix shift toward higher commercial volumes, which utilize a higher grade, higher cost wallboard product. While we are starting to see some minor reduction in wallboard pricing as we head into the summer, we believe that a lack of excess capacity in the market, the inflationary input and production cost environment, and increasingly pressured access to synthetic gypsum are causing wallboard pricing to be more resilient than we've seen in prior cycles. For the fourth quarter, the average realized wallboard price was $482 per 1,000 square feet, up slightly from our fiscal third quarter and up 15.9%, as compared with a year ago. While we are extremely pleased to see a jump in single family starts for May, and are encouraged by the recent sentiments expressed by several key homebuilders both regionally and nationally, permits are still down more than 10% year-over-year. Therefore, we believe that even as starts begin to recover it will take some time for builders to reverse course and for closings to regain pace. But we are much more optimistic today about the near to medium term outlook for the single family space than we were several months ago. Multifamily residential is expected to continue its solid construction levels in the near-term. And in the commercial space even though our bidding activity remains robust, concerns about credit risk and lease renewals are creating uncertainty about the prospects of this end market. With that in mind, given the current headwinds and affordability issues, we expect some modest degradation of wallboard prices in the coming quarters with likely sequential stabilization in the back half of our fiscal year. Fourth quarter ceiling sales of $155.1 million increased 4.2% year-over-year or 5.9% on a per day basis, comprised of a 6.9% benefit from price and mix and a 1% decrease in volumes. Organic sales in ceilings grew 3.8% or 5.4% on a per day basis with a 6.4% benefit from price and mix partially offset by a 1% decrease in volume. As tile and grid volumes lagged what was otherwise a period of demand for architectural specialties. As a reminder, acoustical ceiling volumes tend to increase seasonally in the summer months. Consistent with that trend, we are starting to see sequentially higher acoustical ceiling volumes in June. Fourth quarter steel framing sales of $223.8 million were down 19.2% versus the prior year quarter or 17.9% on a per day basis as deflationary pricing drove a 24.7% decline in price and mix, while volumes increased 6.8%. Organically steel framing sales were down 17.8% on a per day basis with a 24.2% decline in price and mix, partially offset by a 6.4% increase in volume. In addition to strength in multifamily, many of our regional markets are experiencing favorable commercial activity with active healthcare, education, government, hospitality, biotech, and other sector projects underway. Prices for steel framing products were down as expected with specific declines of 22.8% year-over-year and 11.9% on a sequential basis. Prices hit their low point during the quarter in March with a very slight improvement in April. Fuel prices will likely remain relatively volatile with slight sequential declines expected for each of the next several quarters. Complementary product sales of $380.5 million for the quarter grew 2.3% year-over-year or 4% on a same day basis, as we benefited from positive contributions from acquisitions. Organically sales of complementary products increased 1.5% on a per day basis. Included in this product segment are our Canadian lumber sales, which comprised 8.5% of the quarter -- of the category in the fourth quarter, compared with 13% a year ago when commodity lumber prices were much higher. Excluding these lumber products, net sales for complementary products in the fourth quarter grew 7.6% or 9.3% on a per day basis. As JT mentioned, we continue to focus on the growth of our tools and fasteners, EIFS and stucco and insulation product line all of which contributed to higher sales growth in the broader complementary category with fourth quarter combined sales growth of 14.8% or 16.6% on a same date basis. Now turning to Slide 6, which highlights our profitability for the quarter. Gross profit of $424.5 million increased 2.8%, as compared with the prior year period, principally due to the continued pass through of product inflation, improved commercial wallboard sales, growth in higher margin complementary products and incremental gross profit from acquisitions. Gross margin improved 50 basis points to 32.5%, as a relative mix shift that was more heavily weighted toward multifamily and commercial projects provided benefit, particularly in wallboard and steel. As wallboard prices moderate with the continued near-term slowdown in single family residential demand and steel margins normalize over the next few quarters, we expect first quarter gross margins to return to our more normal levels around 32%, consistent with our first quarter of fiscal 2023. Selling, general and administrative expenses increased during the quarter to $279.8 million, compared to $264.5 million in the prior year period. And SG&A as a percent of sales was 21.5%, an increase of 90 basis points from 20.5% a year ago. While adjusted SG&A expense as a percentage of net sales of 20.9% increased 70 basis points from 20.2% in the prior year quarter. SG&A leverage was negatively impacted by steel price deflation, and the relative mix shift between soft and single family demand and strength in multifamily and commercial. While this end market shift was favorable to gross margin, it also requires a higher operational cost to serve. Inflationary wages, higher facility costs, and a one-time charge for bad debt also contributed to the year-over-year variance. All in, including higher interest expenses, net income increased 1.2% to $75.6 million for the quarter or $1.80 per diluted share, compared to net income of $76.5 million or $1.75 per diluted share a year ago. Growth in earnings per share for the quarter outpaced net income as a result of the continued execution of our share repurchase program. During the quarter, we repurchased approximately 497,000 shares for $27.9 million at an average cost of $56.15 per share, compared with 348,000 shares were purchased for $17.6 million at an average cost of $50.63 per share during the prior year quarter. For the full fiscal year 2023, we repurchased 2.3 million shares for $110.6 million at an average price of $48.74 per share. Adjusted EBITDA remains strong at a $154.3 million, up just slightly from $154.2 million in the prior year quarter. Given the previously mentioned single family demand pressure, steel framing price declines and the inflationary operating cost environment, adjusted EBITDA margin decreased to 11.8%, compared to last year's fourth quarter level of 12%. Now shifting to our balance sheet, which is highlighted on Slide 7. At quarter end, we had cash on hand of $164.7 million and $759.2 million of available liquidity under our revolving credit facilities. We have no near-term debt maturities and our net adjusted EBITDA debt leverage at the end of the quarter improved to 1.4 times down from 1.8 times a year ago. Cash from operating activities for the fourth quarter was $204.8 million, compared with $199.5 million in the prior year period. Free cash flow for the quarter was $185.4 million, compared with $191.6 million a year ago as capital expenditures increased year-over-year, due to opportunistic off lease equipment purchases and certain building and leasehold improvements. For the quarter, capital expenditures were $19.4 million, compared to $7.9 million a year ago and full-year capital expenditures were $52.7 million, compared with $41.1 million in fiscal 2022. We expect that for fiscal 2024, capital expenditures will be approximately $50 million. We are always evaluating opportunities to ensure that our capital structure and allocation priorities align with our four pillar strategy. Balancing investing in our strategic initiatives with paying down debt, or otherwise strengthening our balance sheet and opportunistically leveraging favorable market conditions for share repurchases. As such, subsequent to the end of the quarter, we refinanced our term loan extending its maturity date by seven years to 2030. We also entered into new interest rate swap agreements to reduce rates, smooth the variability of interest payment cash flows, and otherwise hedge exposure to future interest rate escalation. With these steps, we have successfully strengthened our already solid balance sheet, which further enables the execution of our strategic priorities and growth plans. All in all, I am extremely pleased with our results for the fourth quarter and full-year fiscal 2023. Despite lower steel prices and near-term softness in the single family market we are entering fiscal 2024 poised with the same commitment to deliver best-in-class service to our customers and to drive profitable expansion of the business. We are positioned to continue to capitalize on our significant scale, our wide breadth of product offerings and our team's expertise to provide value across all of our end markets. With that, I'll now turn the call over to JT for a review of our outlook starting on Slide 8.

Thank you, Scott. First, I'd like to provide some further color on our end markets, which continue to inform our outlook. As we enter the new fiscal year, the operating environment continues to evolve and customers are exploring how best to navigate the economic uncertainty. As such, and despite the surge in single family starts in May, we remain cautious in the very near-term as homebuyers linger on the sidelines in most markets and broader macroeconomic concerns persist. However, the strong starts does provide some additional confidence in the relatively short duration of this slowdown. For multifamily, given the current backlog of projects, we believe that the current strength in this end market should continue at least into calendar 2024 and in the commercial space although there is concern that the regional banking crisis and higher interest rates might constrain the availability of capital for construction. To-date and the absent large office, commercial bidding and quoting activity remains strong. In fact, our teams recently secured some significant project wins, such as the Walmart Headquarters Campus in Arkansas, a large Ford Battery Plant in Kentucky, and the new Los Angeles Clippers Arena in California, as well as many smaller projects underway across our portfolio, providing some confidence for this end market as we head into fiscal 2024. Looking now at each of our product segments. For wallboard, as I just mentioned, given the current backlog and longer build times associated with multifamily projects, we continue to expect the strongest growth to come from this end market during our fiscal first quarter, with multifamily wallboard volumes expected to increase in the high-teens year-over-year. Single family wallboard volumes will likely be down 10% to 15%, while the commercial end market should continue its modest growth that we've enjoyed for the past four quarters with expected commercial wallboard volumes up mid to high-single-digits for the quarter. In all, given the near-term drag created by softness in single family construction, we expect our total wallboard volumes to be flat to down low-single-digits for our fiscal first quarter with high-single-digit year-over-year inflation in pricing. In ceilings, given the current sources of commercial demand and their relative mix of architectural specialties to acoustical tiles, we expect first quarter ceilings volumes to decline in the low-single-digits with prices that are up in the low-single-digits. And for steel framing, we expect volumes to be up low-to-mid-teens, as compared to the first quarter of fiscal 2023. With a year-over-year decline in pricing of 25% to 30% as will anniversary last June's peak of steel prices. Finally, in complementary products and including the benefits of recent acquisitions, we expect to see low-double-digit sales growth with balanced contributions from both volume and price. Turning now to Slide 9. Combined, we expect net sales for GMS to be up low-single-digits year-over-year on a per day basis for our fiscal first quarter. Gross margin should be roughly consistent with both our first quarter of fiscal ’23 and our long-term average of around 32%, resulting in an adjusted EBITDA expectation in the $170 million to $175 million range. As is typical during our fiscal first quarter, we expect to record a use of cash. However, for the full-year we expect free cash flow generation to be 50% to 60% of our full-year adjusted EBITDA. With slower single family housing conditions expected to continue in the near-term, our team is prepared to continue to navigate this trend and deliver value to our customers, shareholders, supplier partners and the entire GMS team. Moreover, given the limited inventory of existing homes and the structural need for residential housing, we are also encouraged by recent improvement and starts activity and builder sentiment as we look later into the fiscal year. We maintain a high degree of confidence in the future prospects of our business. Before we open the line for questions, I'd like to remind you of the strength of GMS and the power of our network. With more than 300 distribution yards and over 100 AMES stores, our unique operating model combines the benefits of a North American platform and strategy with a local go-to-market focus enabling us to generate significant economies of scale, while maintaining high levels of specialized customer service. As a leader in the markets we serve, our customers have come to rely upon the benefits that our scale provides to secure the products they need. We are continuing to leverage this scale and employ technology and best practices to deliver an outstanding customer experience. We are building the GMS yard of the future to improve efficiency, productivity, and profitability, while delivering greater value to our customers and stakeholders. Thank you for joining us today, we have a number of investor focused items on our agenda over the next few months, including several conferences, another earnings call in just two months and we expect to issue our Inaugural Corporate Social Responsibility Report at the end of this summer. Operator, please open the line for questions.

Thank you. [Operator Instructions] Our first question is from Matthew Bouley with Barclays. Please proceed.

Good morning. You have Elizabeth Langan on for Matt today and thank you for taking the questions. Just to kind of -- nice to speak with you again. So just getting started, as we, kind of we’re seeing this new improvement in residential construction, would you mind talking about how that your expectations about how that going to flow through relative to starts and maybe the timing of when you expect you might start to see volumes pick up on your end?

Yes, I think we still have a couple of quarter trough here to work through in builder activity. But we certainly were encouraged with the May starts number, and if we start seeing that follow on with the builder sentiment that we're hearing, we would expect that to continue to some extent that the latter half of our fiscal year should probably be better than we would have previously expected, not comfortable yet to talk about growth in that category, but I believe that what we just talked about certainly is less bad than we would have expected even quarter ago. So, our first quarter guide here of down 10 to 15 is probably in the neighborhood of 5 to 10 points better than we would have previously expected for this quarter. So, the continuing backlog in the Southeast of starts versus completions that still exists in Florida to some extent, maybe there's 100,000 units or so total left in that backlog. But now you're starting to see some acceleration in other markets again. And like I said, I guess six months of still double-digit probably declines, I would guess, in volume. But after that, should be back into the single-digits and maybe we'll get lucky and we'll see some growth in the back half.

Okay. Thank you. That makes a lot of sense. And would you also mind touching on multifamily given that backlog seems to be pretty resilient. Would you mind talking about how long you think that will continue or, if that -- if you see a point at which that might recede?

Again, even the starts numbers here just the other day, we're still strong for multifamily and I think completion is still trailed again this last month or for again, then I would say not still, but again, trail, completions trail starts at multifamily adding to the backlog. So six months, I think we've talked about getting through all of -- all the way to calendar ‘24. So that would be at least six more months of solid growth. And then we'll have to look at what happens. I would expect those starts numbers to begin to decline as I think most people would say that we're going to be built out from a multifamily perspective, mid-‘24, we’re at record levels now, right, or since at least the early 80s. So I'm comfortable and confident in the next six months, how about that?

We feel good about through the calendar year, but as you look at declining rents and you look at cap rates being more difficult to make, there is likely some decline to the next calendar year, but we feel good through this calendar year.

Okay. Thank you.

Thank you, Elizabeth.

Our next question is from Jeffrey Stevenson with Loop Capital Markets. Please proceed.

Hey, thanks for taking my questions today. I just wondered, how did your wallboard price at the end of April compare with your fourth quarter average wallboard price? And then, wallboard pricing is held in better than peer to start out the year? And just wondered if you think the consolidation at the manufactured level over the last five years has helped contribute to the stability of prices so far?

Let me answer the macro and I'll hand it back to Scott. Whether or not that specific issue is driving the resilience in pricing, I'll let others speculate. But it's a factor, there's a lot of factors, quite frankly, in my opinion. And that is -- that's purely that even if you looked at the first quarter shipments from the GA, the Gypsum Association first quarter shipments, calendar quarter were only down 1%. And so you still have high levels of capacity utilization happening. And the expectation that those -- what we will see is sequentially, kind of, normal seasonality in the market, which would mean this quarter should be better than first quarter, which means more capacity being utilized. And then we touched on it in our script, certainly there's a lot of noise around synthetic gypsum. And while I'm not an expert in manufacturing of this product, I certainly understand that the raw material itself is becoming more difficult to obtain and more costly to obtain. So I think between what you mentioned, just generally speaking, stronger volume than I think most people would expected and raw material inflation. Of course, wage inflation as well, I think we're seeing a more resilient wallboard market.

Specifically to your question, we ended the quarter just a tick higher than we were for the average. And even further, if you look into May, that actually reversed a little bit to come down just about 1% from where we ended the quarter. So on balance relatively flat.

Great. That's very helpful color. I appreciate that. And then last quarter you highlighted the reduction of 170 positions would result in $15 million in annualized savings and just wondered how much of that savings was realized in the fourth quarter? And are there any other kind of cost reduction initiatives the company is considering moving forward?

I guess based upon the stronger-than-expected volumes and very strong steel volumes, if you look at it, I wouldn't think that we are doing anything other than the existing productivity initiatives, which we always have in place, which we talked about in the script. And that is getting better at what we do in leveraging technology to service our customers better. And I think that's more of a cost avoidance opportunity for us going forward, the ability to push more through our machine without having to add as much cost. I think our slight beat to guidance in our SG&A number we certainly had some contributing factors on the top line, but with steel declining as dramatically as it did, I feel pretty confident that we're achieving that, that $15 million on a run rate basis. We did talk about it ramping up. So I would say it's probably a couple of million dollars in this quarter that we're talking about now. And then it'll, kind of, ramp up into the run rate of the $3 million or $4 million a quarter as we go forward.

Great. Thank you.

Appreciate it.

Our next question is from David Manthey with Baird. Please proceed.

Good morning, guys. Thank you.

Good morning, Dave.

Hey, David.

If gross margins were to deteriorate from this 32 level closer to 31 at some point during fiscal ‘24, what would be the most likely cause of that?

Probably steel doing something strange. I would imagine would probably be the driver of that. I just don't see it happening in the other categories, pricing is resilient in wallboard and even if that top line was to change a little bit, right? The margin probably doesn't change in that category and it's really the volatility around steel would be the one negative wildcard for gross margin.

Okay. And then second, I'm wondering if there's a world that, that could possibly see cost of goods sold for you deflate, but your SG&A cost stack items continue to insulate labor, transportation, occupancy. We've seen everything go up clearly in unison, but is there a world where one continues to go up and the other one moderates or goes down?

Well, that's a tough one. I mean, I think we could see steel continue to decline, right? I mean, even while steel prices declined, we maintain or grew our gross margin in the quarter. So I think that's something that we could see steel deflate and we could see gross margin stayed the same or improved slightly, potentially based on the lag effect there on the way down, right? We would have quoted some higher prices out into the future on commercial projects. Inflation is moderating somewhat on the wage side, it’s -- we're still dealing with, you know, on a year-over-year basis, we're talking about kind of the inflation that we committed to last year. The inflation we're committing to at this point on the wage side is less on a percentage basis than it would have been in previous periods. Certainly, if the economy stays in kind of this odd malaise or this switch over to services from goods, I don't see a lot of transportation inflation and I don't see a lot of fuel inflation in this environment either. So I don't know how to answer your question in aggregate. That's some macro things that I see.

That's great. I appreciate the thoughts, JT. Thank you.

Yes. Thank you, Dave.

Our next question is from Steven Ramsey with Thompson Research Group. Please proceed.

Hey, good morning. This is actually Brian Biros on for Steven. Thank you for taking my questions. I'm going to start on just wallboard maybe overall commercial. Just can you touch on how much was driven by new construction versus T&I work?

Yes. We don't have as good internal information on pure new versus is the TI, but clearly TI is lower than historical right now. And so there's a stronger mix of new commercial and I think what you're seeing is you're seeing some of these mega projects that I've mentioned in my remarks, in our scripture, you're seeing some of these larger projects come to fruition and certainly you've seen some huge plant announcements made whether it’d be chip manufacturing or otherwise. I think the -- I read the other day that manufacturing is now accounting for double -- manufacturing starts is accounting for double what it did in the prior year period in the put in place construction numbers. So you are seeing a resurgence in large manufacturing in the United States and those projects, they take a lot of wallboard depending on the type of manufacturing. So certainly, we're seeing new construction being more important. All that being said, outside of office, you're still seeing good remodel active, you know, institutions are remodeling dorms out there. You're seeing multifamily remodeling to compete with the new. You're seeing a lot of retail changes in the retail landscape, a lot of redevelopment of historical malls into all types of multi-use facilities and entertainment arenas and areas. So there's still a lot of remodel activity out there as well. Just not office, large office. What you're seeing is you're seeing the suburban office, right, start to tick up a little bit. But that's -- a lot of that's new.

Helpful. Thank you. And a follow-up, I guess is on gross margin expectations, generally it's been about 32%, I think you've consistently, kind of, outperformed a little bit 32.5% in the past few quarters. Please go into context where you've exceeded expectations over time? And I guess how realistic is it to think that might continue in the next quarter or two? Thank you.

The mix of multifamily and commercial has helped. The product mix on multifamily and commercial has absolutely helped. And our steel margins were better-than-expected, because our volumes were much better. So some incentive type of impact to gross margin was real in quarter, that probably won’t repeat as we go into our fiscal first and second quarters. So while we still have good volume, those incentives won't be anything -- won't be a part of the calculation until much later in the year when we understand what the absolute total volume might really be. So, steel will moderate a little bit this quarter for sure and that probably gets us back into our and as we mentioned and Scott mentioned as well, the wallboard moderation in price, we expect a little bit of moderation in price in wallboard. So maybe a tick lower in wallboard margins as well.

Thank you.

Our next question is from Mike Dahl with RBC Capital Markets. Please proceed.

Hi, this is actually Chris Kalata on for Mike. Just to go back to the wallboard pricing comments. I think, May, you said pricing came down. How much of that was mix versus like-for-like? And I think you also said there's some modest tick up in competitive dynamics? Is that broad base or is that more regional?

It's tough to fully quantify, surely how much the mix impact versus what the price impact was, but generally I'd say the price came down, but we were benefited by the mix shift offsetting it. So single family pricing is -- came down a little bit more, the commercial and multi-family stuff was a little higher and then we got the mix benefit just in terms of the value of those products relative to single family was a benefit as well. Roughly balanced between the two.

Understood. That's helpful. And then just going back to commercial and your outlook for this year, do you expect volumes to remain positive in commercial to the balance of your fiscal year? Or do you expect some, sort of, weakness to emerge, you know, later in the year as given the lag to residential weakness? Or is that kind of big project type of work enough to keep volume supportive?

I mean, at least in the next couple of quarters, the volume looks good, the backlog looks good. As we mentioned in the script, the regional banking discussions, the availability of capital, tightening, lending standards, all those kinds of things that we all read about. They haven't impacted the near-term quoting activity yet. You saw the ABI came out had growth again for the first time in a few months earlier this week, moderate growth, but still growth. So most of the indicators would say we're probably in an environment that we should enjoy this mid-single-digits through the next couple of quarters. After that, it will be based upon new data, right? It will be based on the tightening -- fed tightening, bank tightening, take a look at all that.

Got it. Appreciate all color.

Our final question is from Trey Grooms with Stephens Inc. Please proceed.

Good morning. This is Noah Merkousko on for Trey and thanks for taking my questions.

Good morning.

Absolutely. Good morning.

So first, I wanted to circle back on, sort of, the margin dynamics just with the mix shift to more multifamily and commercial. I guess, how much longer should we expect to see the gross margin benefit and SG&A deleverage from this shift in end market demand?

Let's see. It will continue until we get -- we start rolling over where we started to see this, which is probably still three quarters. So I would imagine that it will be at least three quarters where we'll still see the mix shift benefit on the gross margin side to some extent. And that we'll still see the cost of surfing a little bit higher. The steel as an example, when you ship 6% or 7% more volume in steel, and it's going out at 20% lower prices and there's inflation on the delivery side. The G&A as a percent of sales looks lousy, but you're still generating the same gross margin dollars or more gross margin dollars that we generated in the prior year period. So it's still a really nice profitable sale. It's just as a percent of sales that SG&A looks bad, right? So I think that dynamic is going to continue for two, three quarters.

Yes. I mean the macro is the driver. So you take JT's point that if our -- if the view is that single family is going to be softer for the next couple of quarters as the starts activity resets in the marketplace and then you've got continued strength in multifamily and commercial during that time period that relative mix shift difference will be there during that window.

Got it. That makes sense.

It’s in the latter part of the year, we should start to see single family come back and that's start to balance out a little bit more.

Yes. And then maybe last one for me, kind of, circling back on that thought that we start to see some single family improvement in the back half of the year. It sounds like supply chains have gotten a lot better, especially since last year and homebuilders are talking about cycle times improving. So I guess does that, kind of, assume that the lag from a start to when you ship volume shortening at least, compared to the sort of last upcycle we went through?

I mean likely to some extent, yes. So I'm not sure we in wallboard with the exception of maybe the Southeast didn't really delay projects in comparison to the long international supply chains of some of the finishes. So, I think we were still able to supply even at the peak, we were still able to supply in a reasonable amount of time. Although there was some scrambling going on for sure. But I would say that, yes, I mean, if you think your single family, most of the builders can complete in six months then start to finish is still -- is six months and that's our cycle.

Yes, that makes sense. All right. Thanks for the time and good luck for the rest of the year.

Thank you. Appreciate it.

Thank you.

With no further questions, this will conclude today's conference. You may disconnect your lines at this time and thank you again for your participation.

Thank you.