Greetings, and welcome to the GMS Inc. Second Quarter Fiscal 2020 Earnings Conference Call and Webcast. 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.

It is now my pleasure to introduce your host, Ms. Leslie Kratcoski, Investor Relations. Thank you. You may begin..

Thanks, Michelle. Good morning, and thank you for joining us for the GMS earnings conference call for the second quarter of fiscal 2020. I’m joined today by John Turner, President and CEO; Scott Deakin, Chief Financial Officer; and Lynn Ross, Chief Accounting Officer.

In addition to the press release issued this morning, we have posted presentation slides to accompany this call in the Investor 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 second quarter fiscal 2020 relates to the quarter ended October 31, 2019.

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 now turn the call over to John Turner.

John?.

Thank you, Leslie. Good morning, and thank you for joining us today. I will begin today’s call with a review of our operating highlights, and then turn it over to Scott to cover our financial results in more detail. I’ll then conclude our prepared remarks with an overview of the strategic priorities we are undertaking as we move forward.

Turning to Slide 3. Our team continued to execute well in the second quarter. Net sales increased 3.4%, driven by positive volume growth across each of our product lines, primarily in wallboard and steel framing, where we generated approximately 6% and 10% volume growth, respectively.

This performance reflects solid demand conditions in both our commercial and residential end markets in the U.S., where net sales in total increased over 5%. Partially offsetting the favorable volume growth was a more challenging pricing environment, particularly in steel, as well as some continued softness in Canada.

Organic net sales increased 2.7%, with just over 4% organic growth in the U.S., driven by strong volume, reflective of favorable end market demand conditions, as well as execution of our organic growth strategies, focused around expanding share in our core products and growing sales of our complementary other product lines.

In Canada, we recorded just under a 6% organic sales decline, which was less than the 10% decline experienced in the first quarter. This, coupled with signs of modest housing starts stabilization and recovery, gives us early optimism that we may be turning the corner soon in Canada.

We were pleased to report 80 basis points of gross margin expansion, driven mostly by net favorable price cost dynamics, purchasing synergies and product mix.

SG&A as a percentage of sales was higher, primarily due to the year-over-year decline in the selling price of certain of our products, as well as certain other cost pressures, primarily in logistics wages and insurance costs. In addition, we continue to make ongoing investments designed to drive growth and productivity going forward.

Adjusted EBITDA increased 3.2% to a record $89.9 million for the quarter, and we realized an adjusted EBITDA margin of 10.4%.

During the second quarter, we opened a greenfield location in Wilsonville, Oregon, and in early November, just after the end of the second quarter, we completed the acquisition of Rigney Building Supplies LTD in Kingston, Ontario.

This transaction aligns well with our overall acquisition strategy, allows us to expand our presence into a top 25 Canadian MSA and capitalize on the long-term strategic importance of the Canadian market. We remain committed to disciplined expansion of our geographic footprint through accretive acquisitions, and greenfield openings.

We continue to balance this with our debt reduction priorities on which we also made progress. As a result of strong free cash flow generation, we reduced our net leverage to 3.5 times as of the end of the quarter.

As we previously announced, Scott Deakin joined us in October as Chief Financial Officer, and brings with him more than 25 years of financial and operational leadership experience.

I’m confident that Scott’s years spent in senior financial roles, including as a public company CFO, will be exceptionally valuable to us as we move forward with the execution of our strategic initiatives. With that, I’ll now turn it over to Scott to provide more detail on our financial results for Q2.

Scott?.

Thanks for that introduction, JT, and I would also like to thank you all for joining us today. We were pleased to deliver strong performance in fiscal Q2, growing sales, expanding gross margin, and achieving higher net income, adjusted net income and record adjusted EBITDA. Looking at Slide 4.

We grew net sales 3.4% to $861.9 million, including 2.7% organic growth year-over-year. A greater portion of this growth was generated from volume gains this quarter versus a year ago, while the pricing we were able to realize in several of our product categories was lower.

Sales of wallboard were up 4.8% compared to the same period last year, including 4% growth on an organic basis. This reflected a volume increase of 6.4%, driven by strength in both commercial and residential end markets in the U.S., coupled with a 2.4% decline in price mix.

Second quarter ceiling sales increased by 3.7% year-over-year, or 1.7% on an organic basis, including 1.4% volume growth. Ceilings volume was negatively impacted by declines in Canada, largely due to the timing of projects, while U.S. volumes increased mid-single digits.

As far as pricing, we saw lower pricing in ceiling grid, which was related to steel price declines, while pricing on tile remained favorable. Sales of steel framing were essentially flat and declined 0.6% on an organic basis due to strong volume growth of 10.3%, offset by declines in price and mix totaling approximately 10.9%.

As you may recall, steel pricing and mix were down 6% year-over-year in the first quarter. Steel pricing trends were fairly consistent throughout the first and second quarter.

The greater year-over-year price decline in the second quarter was a result of a more difficult comparison in the prior year than was the case for the first quarter of this fiscal year.

Sales of other products, which consists of installation, joint compound tools, stucco, EIFS and various other complementary products increased 3% in the quarter, or 3.1% on an organic basis. In the U.S., we saw sales of these products up high-single digits, offset by declines of similar magnitude in Canada, driven by lower lumber pricing.

Net sales growth for the wallboard, ceilings and other product categories ranged in the mid to high-single digits in the U.S., reflecting not only the solid demand environment, but also our efforts to expand share in our core products and grow in our complementary products, two important elements of our strategic priorities, which JT will cover further in a moment.

Gross profit in the second quarter increased by over 6% to $284.5 million. Gross margin of 33% improved 80 basis points from 32.2% a year ago, primarily due to net favorable price cost dynamics, principally in wallboard and other products; acquisition-related purchasing synergies, mostly from Canada; as well as end market and product mix.

While there is a usual uncertainty around the factors that may impact our price cost dynamics in the short-term, we do expect to generate gross margin within a range of 32.5% to 33% in the back-half of fiscal 2020. Turning to Slide 5.

Adjusted SG&A expense as a percentage of net sales increased 90 basis points to 22.7%, compared to 21.8% in the prior quarter. To be clear, approximately two-thirds of this was related to deflation in selling prices in wallboard, steel framing and certain other products.

The remainder was primarily driven by increases in logistics wage inflation and increases in insurance costs, together with continued investments in greenfields and business initiatives intended to drive growth and productivity.

These costs were partially offset by productivity gains, resulting from our ability to more efficiently deliver the incremental volumes. As a result, we delivered $89.9 million of adjusted EBITDA in the second quarter, a record of 3.2% year-over-year and 10.4% as a percentage of sales.

Looking forward, if pricing levels in the back-half of the year remain fairly consistent with Q2 levels, we would expect to experience continued year-over-year adjusted SG&A deleveraging for the back-half of the year, but to a lesser extent than experienced in the second quarter.

More specifically, within the second-half, we would expect price-related deleveraging to be more pronounced in the third quarter than in the fourth quarter of fiscal 2020, as pricing comparisons get easier as we progress through the balance of the fiscal year.

Based on these assumptions for pricing, coupled with our expected range for gross margin, we look to achieve an incremental adjusted EBITDA margin of at least 10% for full-year fiscal 2020. Turning to Slide 6. Free cash flow for the first six months of fiscal 2020 increased $18.8 million, or 51.5% year-over-year.

This improvement is primarily a result of $17.3 million of higher net income after adjustments for non-cash items and a $7 million increase in cash resulting from changes to net working capital, partially offset by $5.5 million of higher capital expenditures.

Looking to the remainder of the year, we’re raising our estimate for full-year fiscal 2020 capital expenditures from $20 million to $25 million previously indicated to $25 million to $30 million as a result of some incremental maintenance CapEx and real estate investments.

Consistent with our stated capital allocation strategies, we reduced our net debt by $73.1 million during the quarter.

At the end of the quarter, our net debt to LTM pro forma adjusted EBITDA was 3.5 times, which is down from 4.2 times as of the end of the first quarter of fiscal 2019 following the close of the Titan acquisition and 3.7 times at the end of the first quarter of this fiscal year.

Balanced with our other stated priorities, we intend to continue to delever through anticipated positive free cash flow generation of approximately 40% to 45% of adjusted EBITDA for the full fiscal year. We also amended our U.S.

ABL facility during the second quarter to increase our borrowing capacity from $345 million to $445 million, extend the maturity date to 2024 and improve the rate structure. Our balance sheet remains quite healthy with $36 million of cash on hand and $410 million available to borrow under our facilities, resulting in substantial liquidity.

Additionally, approximately 85% of our total long-term debt is not due until 2025. Finally, on September 9, 2019, our former private equity sponsor, AEA Investors, completed a secondary public offering of 6.8 million shares of our common stock. This representing all of AEA’s remaining ownership in GMS.

Now let me turn the call back over to JT before we open the line for questions..

Thank you, Scott. Once again, we’re pleased with our performance in the second quarter, strong sales volumes, gross margin expansion, increased adjusted EBITDA and higher free cash flow. We continue to expand our market-leading position and our balanced product portfolio.

We also believe our diversified exposure across commercial and residential new and repair and remodel construction markets continues to be an advantage.

Our dedicated team throughout North America continues to embrace our strong entrepreneurial culture to earn our customers’ business everyday with our complete line of products and by providing exceptional service that is second to none.

Since assuming the CEO position in August, I’ve been working with the team to identify and prioritize the significant growth opportunities for the future, resulting in the four strategic priorities outlined on Slide 7.

As many of you who have followed GMS for sometime will know, our growth strategy for many years, both before and after the IPO, was focused on acquisitions. That strategy has been very successful, resulting in the creation of the leading specialty distributor of interior construction products in North America.

And going forward, we will continue to make acquisitions. However, we intend to increase our emphasis on organic growth and capitalize on what we believe are tremendous opportunities to leverage the whole of GMS, untapping both scale and best practices opportunities across our entire footprint.

While we are the market leader overall, we do not hold the leadership position in every market. We believe expanding our share in core products, wallboard, ceilings and steel is an important organic growth opportunity, enabling us to capitalize on our fixed investments in markets where we’re either underpenetrated or below expected share levels.

At the same time, we have excellent capabilities throughout our business, which we believe will enable us to grow our other product categories. We are excited about the opportunities we see in expanding our product offering in order to meet the growing needs of our customers.

Extending these capabilities should allow us to grow select categories to diversify our offering and utilize our scale to do so more profitably. Acquisitions will continue to play an important role. There’s still plenty of geographic whitespace, which provide further opportunities to grow.

We intend to achieve further platform expansion through both tuck-in acquisitions and greenfield opportunities, balanced with our debt reduction priorities. And finally, we have significant opportunity to more effectively leverage our scale and employee, both technology and best practices to deliver further margin expansion.

It’s an exciting time to be a part of GMS. We’re confident that we’re well-positioned to capitalize on the growth opportunities ahead through execution of these strategies and create significant value for our shareholders. Operator, we’re now ready to open the call to questions..

Thank you. We will now be conducting a question-and-answer session. In the interest of time, we ask that you please limit yourself to one question and one follow-up. [Operator Instructions] Our first question comes from the line of Matthew Bouley with Barclays. Please proceed with your question..

Hi, good morning. Thank you for taking my questions. I wanted to start with a question on the gross margin. I appreciate the second-half guidance you guys gave. And obviously, you’re kind of highlighting that favorable price cost was a big driver here.

So I guess, just focusing on the wallboard side and what’s with the impending kind of manufacturer price increase for January, I guess, how does that play into the margin range for the second-half? Thank you..

Thank you, Matt. We’re planning to support a price increase if it comes about. The end market demand conditions, however, at the moment, to me, no different than than they were at the end of our first quarter call, don’t necessarily indicate that there’s going to be a lot of acceptance in the marketplace for increased prices.

So we’re taking into account basically moving forward that we expect similar to the last several quarters, our pricing sequentially for the last several quarters has been in wallboard just slightly down.

And on a year-over-year basis, obviously, it’s down, as we just reported, but on a sequential basis relatively flat and that’s what we’re planning on going forward..

Got it. Okay. Thank you for that. And then just on the wallboard volume side, the 6% organic volume growth, obviously, we saw one of your peers report something a little bit softer than that.

So I guess, can you kind of discuss what you are seeing and hearing on the competitive trends out there? And just how you think your growth compared to the overall market? Thank you..

I think we are growing at a rate greater than the market and that’s our objective. I believe that our team is executing well. I think from the sequential pricing, you can see it’s not coming from pricing, and that we’re out there earning the business everyday.

I think that this company’s legacy focus on serving the business is what’s earning as that business today. I think that our greenfield and acquisition strategy certainly is helping as well. And overtime, I would expect us to continue to grow in that mid single-digit level, low to mid-single digits at least on the volume side..

All right, appreciate the details. Thank you, John..

Thank you..

Thank you. Our next question comes from the line of Josh Large with SunTrust. Please proceed with your question. Josh, can you check to see if your line is on mute..

Hi, sorry, I was on mute.

So I just wonder if you could give us a breakdown of kind of end-user wallboard volume growth in specifically commercial comments, anything there?.

Sure. I mean, we still have a very strong commercial pipeline and our commercial sales were exceptionally strong in the quarter also evidenced by that huge volume number in steel. Unfortunately, steel pricing is still under pressure. Maybe that’s changing with these new tariffs that just came out.

But we were stronger commercial than we were residentially. Our pipeline remains good. I think residential is going to recover. You can see it already. The last numbers just came out this week for housing and sales, in particular, housing starts look good going into next year. We have some great national accounts on the builder side.

I would expect that to fill in any gaps later in 2020 – calendar 2020 if the commercial market was to soften a little bit..

Okay, great. And then some clarification on the guidance.

Do you say 10% EBITDA incremental for the fiscal year?.

Correct..

Okay. Thank you..

Thank you. Our next question comes from the line of Michael Wood with Nomura Instinet. Please proceed with your question..

Hi, good morning. Also had a question on your conversion margins. Would that at least 10% for the full-year, given that the first-half is a little bit stronger.

Does that imply that second-half conversion margins year-over-year might be below that 10%? I wanted to know if that’s the correct way to think about it, or is it when you say at least 10%, you’re confident that you can maintain that 10% into the second-half?.

I think as is typical for a second-half, it’s a little softer than the first in terms of volumes. So you should expect lower incremental in the second-half than we put up in the first..

Okay. And on pricing, on the last conference call, I think, you had commented that pricing remains steady in August. You’d called out the weak pricing here in steel and wallboard.

Can you just talk about what pricing did sort of throughout the second-half of your quarter and to what extent it surprised you?.

I think steel pricing is the only thing that may have been a little more surprising on a year-over-year basis. But, again, even steel pricing, as we just called out in our comments sequentially, is about flat and wallboard pricing plus or minus 1%. So flattish as well sequentially. And that’s what we’re expecting to have going forward..

Okay, great. Thank you..

Thank you. Our next question comes from the line of Kathryn Thompson with Thompson Research Group. Please proceed with your question..

Hey, good morning. This is actually Brian Biros on for Kathryn and Stephen. Thank you for taking my questions.

I want to start kind of a general wallboard industry question and get your thoughts on the recent purchase by Saint-Gobain of Continental and kind of the thoughts on the residual impact of wallboard industry consolidation on industry pricing discipline?.

Well, if it closes and we expect that it will, then we expect that there could be some more discipline in the market, for sure, just naturally with one less manufacturer and we expect that could be good for everybody. Saint-Gobain and more specifically, CertainTeed is a fantastic manufacturer and great supplier of ours here.

And we couldn’t be any more happy for them. And we think in the long run, that’s good thing for everybody..

Got it. And second one, focusing on the other products category. I think, the growth rate in fiscal year 2019 was, I think, about three times the level of the other segments, much higher.

And I guess, with all things equal, what are your expectations for the other products segment into calendar 2020?.

So in the U.S., we grew high-single digits in other products, and that was fully offset by Canada, mainly lumber pricing. So lumber pricing on a year-over-year basis was down 25-plus percent. Now we’re anniversarying that, as we speak. So we expect that headwind to stop for us.

Lumber is a huge part of the Canadian business, but we roll it up in our other product category, because in the U.S., it’s not as big of a category for us. So I expect us to keep focusing there and driving that other product category in that high single-digit range..

Thank you..

Thank you. Our next question comes from the line of Trey Grooms with Stephens. Please proceed with your question..

Good morning, and thanks for taking my question. This is actually Noah Merkousko on for Trey. So my first question, I know you guys talked about, you’re probably not expecting a whole lot of traction from the announced wallboard price increase.

But could you talk about maybe your expectation for any pre-buy ahead of that?.

We’re not doing a lot of pre-buy at the moment because of that expectation the way I mentioned it. If for some reason, there is some sort of change in the dynamic, we’ll probably do some pre-buy. The reality is, if anything will pre-buy some steel with the related tariffs that were just announced.

We’ll follow that very closely and make some decisions over the next couple of weeks in that category..

Okay. That makes sense. And then for my follow-up, on your B2B e-commerce system, I think, it’s early innings there.

But can you talk about where you are in that process? What that means for you guys? And any timing on targets for a full roll out?.

Yes. We would expect to end of next calendar year to be close to being rolled out to what I would say is a sufficient level for it to be meaningful to the business. As you know, with e-commerce, it’s a never-ending journey. Is – this is just the first innings for us of that and it truly is a B2B system.

It is in – we’re automating the customer experience with us, but it’s truly B2B. First phase is probably not, including things like selling a lot online to open retail or anything like that and we really don’t have strategies to do that anyway.

So you have to look at it probably being something that our customers will really appreciate and come to use to a significant extent end of 2020 – calendar 2020..

All right. Thanks. That’s it for me..

Thank you. Our next question comes from the line of David Manthey with Baird. Please proceed with your question..

Thank you. Hi, good morning, guys. First off, Scott, I wanted to clarify your commentary on SG&A. You said that you expect SG&A deleveraging year-over-year in the third quarter, but less than the second quarter.

I guess, is that to say that the SG&A as a percentage of sales in the coming quarter will still be higher than it was a year ago, is that what you’re saying?.

We should be thinking about SG&A in the second-half, largely consistent with where we were – as a percent of sales, largely consistent with where we were in the second-half of 2019.

What I was really referring to is, if you take the dynamics of the price deleveraging in the second-half and relative to where we were in the first-half, you’re probably going to see SG&A 1 to 2 points higher in the second-half relative to the first-half..

I see. Okay. And then….

That’s just – that’s the – the price dynamic is just the fact that the second-half volumes are generally lower, but that’s offset by some favorability we’ll have year-over-year in Canada and some other dynamics.

So we’re still holding consistent with our overall yearly indication of 10% incremental, but you will see some higher SG&A as a percent of sales in the second-half versus the first. But again, that will be largely consistent with where we were in the second-half of 2019..

I see. And so maybe we could explore some of those items as well. You mentioned cost favorability in Canada and some other items, it would appear that historically from second to third quarter, SG&A is flat to maybe down $5 million to $7 million bucks on a sequential basis.

It sounds like you’re implying that there’s specific factors this year that could make it possibly slightly better than that.

Could you outline just what you’re talking about there from second quarter to third quarter? What can move the needle?.

Just a couple of items. The favorability year-over-year in Canada is one. We had some Q3 2019 and efficiencies in the business that we should lap this year. And those are offset on the unfavorable side in terms of some of the cost inefficiency that we were talking about in terms of logistics insurance, et cetera.

And then, again, just the dynamic of lower price and the overall lower sales in the second-half versus the first. Those are some of the puts and takes that kind of go into the netting of where we think we are going to come out..

That’s very helpful. Thank you very much.

Thank you. Our next question comes from the line of Mike Dahl with RBC Capital Markets. Please proceed with your question..

Hi, thanks for taking my questions. First one on ceilings. I think, you called out that the – on the volume side, it was pressured by Canada. But I may have missed this the price deceleration in the quarter. Can you talk a little bit more about why ceiling price decelerated and maybe breakout happened in the U.S.

versus Canada, please?.

All of the deceleration in price in ceilings was related to the grid, which is a lagged pricing issue associated with steel similar to our steel pricing. So the tiles – traditional tiles continue to have normal price improvement as we went through the quarter. Canada is really a result of delayed projects and timing.

We were down significantly in Canada on a year-over-year basis, but we would expect to recover there. We feel in general, the ceilings business is healthy..

Okay, got it. That’s helpful. And then second question just bigger picture, John. You laid out the four strategic initiatives. And I was hoping to get a little bit more in terms of, as you would analyze these and are rolling out some of the initiatives and you’re talking qualitatively to what you’re hoping to achieve.

But as we look whether it’s a year, or two years, three years from now, how should we be thinking about from a quantitative basis the measure of success that you’re evaluating this against?.

Yes We’ll have to do some more work internally, particularly on the growth side with the other products. That’s one that we have several, what I’d say, irons in the fire and a lot of successes happening that are giving us that high single-digit growth rate in the U.S.

But we’re going to want to align ourselves behind fewer number of those and really push hard on them. But we’ll be in a position in the next few quarters to give you a little bit more detail around that. Additionally, our logistics technology and the roll out of a lot of that is happening now.

And that’s one of the key areas that we’re focused on for productivity and the business is optimizing the cost of that fleet, which is a huge expense for us.

And then we’ve put together purchasing teams across the whole country now to identify, particularly in and around those other product categories, what can we do to buy those products better and to actually manage those categories better? So I think, we’ll be in position down the road to talk to you about what we think that might give us in actual dollars..

Okay, great. We’ll look forward to hearing that. Thank you..

Thank you. Our final question comes from the line of Kevin Hocevar with Northcoast Research. Please proceed with your question..

Hey, good morning, everybody..

Hi, Kevin..

If I look at, I think, you mentioned gross margins to be in the 32.5 to 33% range in the back-half of the year. So that would imply at a midpoint 32.7% gross margins for the year. And I think previously or you’ve before said 32.2% I believe is kind of the long-term expectation there.

So just wondering if these types of margins are sustainable, do you think we revert back to the mean over time, or how should we think of – or is that 32.2% could add longer-term expectation come up? I’m curious your thoughts there?.

Well, your crystal ball is as good as mine. The next six months 32.5% to 33%, I think that 32.2% was what we thought was prudent until we’ve really gotten underneath our belt now a couple of quarters very, very good results across really several of our product categories. So we’ll stick with the six months at this point.

And then each quarter, if we can look six months out or longer, we’ll try to give you some indication to that effect. I can’t tell you yet if it’s going to revert back to a lower mean..

Okay. And then in terms of the wallboard volumes coming back to that, John, I think, you mentioned that wallboard outperforming the market by quite a bit. We would agree. And it sounds like not really from pricing, that’s not what’s driving it.

So what is driving it then? Because it seems like in calendar years, 2017/2018, it seemed like GMS was kind of in line underperforming the market now here in – this calendar year you reverted to outperforming and seemly outperforming by quite a bit.

So what’s really changed to get you back to this nice outperformance?.

Well, the service situation has always been there. The company has always been the service leader. I think, if you just take a step back a few years, the company tried to support a price increase in an environment that it didn’t really make a lot of sense to do it in, and so we lost some share during that period of time.

And I think that we’re just being smarter about that now. We’re not leading with price. We’re going to meet the market. And I think sequentially for four quarters now, we’re basically flat in pricing. So I think that’s exactly what’s happening. And our service model is bringing our – the customers back to us.

There’s also smaller competitors that aren’t public that are out there, that are struggling and we’re capitalizing on that. We’re being very, very strategic at a – and it’s kind of an odd way to put it, but strategic at a local level understanding who is weak in the market and going out and attacking those players that are weaker in the market.

And also we’ve certainly said that we know that residential is going to be recovering and we have to stay in the marketplace when it comes to residential wallboard. And I think our team is doing a great job of selling those products into the residential market.

And finally, the whole collection of products, some of our competitors don’t have the full collection of products and that’s meaningful to many of our customers, where they can get everything from us. And that certainly helps them to get one delivery or two deliveries and have everything onsite that they need from us..

Okay, great. Makes sense. Thank you..

Thank you. Our next question comes from the line of Matt McCall with Seaport Global Securities. Please proceed with your question..

Thank you. Good morning, everybody..

Hi. Good morning..

The – so, John, you – when you were discussing commercial and residential earlier, you made the comment that any residential recovery could help fill in, or I think you had more than fill in the gap. If commercial softens, I was just wondering if you could give more detail specifically around that softening commentary.

Are you seeing anything that would indicate soft – softness is on the way, or well, I’m just wondering what was behind that comment?.

No, our pipeline remains real strong commercially. All I’m looking at is the longer-term forecast dodge and other people have put out there. So I hope they’re wrong. You’re seeing different levels of forecasting going into the back-half of next year, calendar year. Some say, commercial might be down five. Some say, it might be down seven.

Some say, it might be down three. But our pipeline is really good – very strong and, of course, trailing a lot of the investment, right? I mean we’re still – once the building is built, you go to – put your interior products in it. So right now, we don’t see any weakness.

But I think it’s just reasonable to look out into those long range forecasts and understand what the business should be thinking about 18 to 24 months from now..

I agree.

So I guess, the follow-up would be when you look back historically those maybe internal indications, when have you been able to kind of see softness coming? What kind of a lead time or warning do you get?.

Well, unfortunately, that was so long ago. I can’t answer that question. I’m not sure anybody sitting in this room right now can answer that question. I can give you my experience from previous building materials companies that I’ve worked at.

And usually, on the commercial side, if you’re an interiors product, you’re 12 months – six to 12 months you’ll begin to see weakness following actual put in place construction begin to deteriorate..

Gotcha..

Because we haven’t fully met yet..

Okay. All right. Thank you..

Thank you. There are no further questions at this time. I’d like to turn the call back over to Ms. Leslie Kratcoski for any closing remarks..

Thank you all for joining us today. A replay of our call will be available shortly on our website. And as always, we appreciate your interest in GMS. Have a good day. Thanks..

Thank you..

Thank you..

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day..