Builders FirstSource Inc (BLDR) 2013 Q2 法說會逐字稿

Good morning and welcome to the Builders FirstSource second quarter 2013 earnings conference call. Your host for today's call is Mr. Floyd Sherman, Chief Executive Officer. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. Any reproduction of this call in whole or in part is not permitted without prior written authorization of Builders FirstSource. As a reminder this conference call is being recorded today, July 26, 2013. The Company issued a press release after the market closed yesterday. If you don't have a copy, you can find it on our website at www.BLDR.com.

Before we begin, I would like to remind you that during the course of this conference call, Management may make statements concerning the Company's future prospects, financial results, business strategies, and industry trends. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. And are subject to certain risks and uncertainties which could cause actual results to differ materially from expectations. Please refer to our most recent form 10-K filed with the Securities and Exchange Commission and other reports filed with the SEC for more information on those risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements. We have provided reconciliations of non-GAAP financial measures to their GAAP equivalents in our earnings press release and detailed explanations of non-GAAP financial measures in our Form 8-K filed yesterday, both of which are available on our website. At this time I will turn the call over to Floyd Sherman.

Thank you, and welcome to our second quarter 2013 earnings call. Joining me today from our management team is Chad Crow, Senior Vice President and Chief Financial Officer. I will start by giving a recap of the second quarter and then I will turn the call over to Chad who will discuss our financial results in more detail. After my closing comments regarding our outlook, we will take your questions.

Our sales for the second quarter of 2013 were $398.1 million, an increase of 46.4% when compared to last year's second quarter sales of $271.9 million. Over the same time period, actual single-family housing starts in the South Region increased 14.5% and single-family units under construction increased 27.4%. We continued to experience strong year-over-year sales increases despite the tough sale comps from 2012. From a sales per start perspective, we ended the current quarter with a new high of $4,504 per South Region single-family start compared to $3,522 in the second quarter of 2012, and $4,021 in the first quarter of 2013.

Lumber and lumber sheet good prices were on the average 21.5% higher during the second quarter of 2013 as compared to those in the same quarter last year. Though prices did fall approximately 30% during the course of the quarter. Falling prices in the back half of the quarter relieved some of the gross margin pressure we have been experiencing from commodity inflation and we were able to improve our gross margin by 100 basis points for the current quarter due to both improved pricing and higher sales volumes. These factors helped us achieve adjusted EBITDA of $16.7 million for the current quarter, an improvement over $14 million when compared to adjusted EBITDA of $2.1 million for the second quarter of 2012. I will now turn the call over to Chad who will review our financial results in more detail.

Thank you, Floyd. Good morning everyone. For the current quarter, we reported sales of $398.1 million compared to $271.9 million for the second quarter of 2012, an increase of $126.2 million or 46.4%. We estimate sales increased 28.9% due to increased sales volume and 17.5% due to price. Breaking down our sales by product category, prefabricated components were $78.2 million, up from $51.2 million in the second quarter of 2012. Windows and doors were $77.8 million, up approximately 31%. Lumber and lumber sheet goods were $149.2 million, an increase of $61.3 million. Our millwork category was $35.2 million, up 33%, and other building products and services increased $10.6 million to $57.7 million.

From a sales mix perspective lumber and lumber sheet goods were 37.5% of total sales, as compared to 32.4% of total sales in the second quarter last year with the increase due primarily to commodity lumber price inflation. Excluding the impact of price inflation, lumber and lumber sheet goods were down slightly as a percent of total sales while manufactured products were up slightly. All other product categories were fairly consistent between periods from a mix standpoint. Our gross margin percentage was 20.7% in the current quarter, up 100 basis points from 19.7% in the same quarter last year. We estimate our gross margin percent increased 60 basis points due to increased sales volume with the remaining 40 basis points coming from improved pricing and sales mix. On a sequential quarter basis our gross margin improved 120 basis points.

Our selling general and administrative expenses were $69 million, up $14.1 million or 25.6% from the same quarter last year despite the 46.4% increase in sales. As a percentage of sales SG&A expense decreased to 17.3% in the current quarter from 20.2% in the same quarter of 2012 as we continued to leverage our cost structure extremely well against the increase in sales. For the second quarter 2013 our salaries and benefits expense, excluding stock compensation expense, was $44 million or 11% of sales compared to $34 million or 12.5% of sales in the second quarter of 2012. This increase is primarily related to higher sales commissions and additional staffing needs to service our increased sales volume. Delivery expense increased $2 million, other general and administrative expense increased $1.4 million, both a result of increased sales volumes.

Interest expense for the current quarter were $61.1 million, an increase of $50.6 million. This increase relates primarily to our recent refinancing transaction and include $6.8 million of unamortized debt issued discount write-offs, $2.1 million of debt issued cost write-offs, and $39.5 million prepayment premium related to the early termination of our term loan. We recorded $400,000 of income tax expense in the second quarter of 2013 compared to $100,000 in the second quarter of 2012. We recorded an after-tax non-cash valuation allowance of $17 million and $4.3 million in the second quarters of 2013 and 2012 respectively related to our net deferred tax assets. Absent the valuation allowance our effective tax rate would have been 34.6% and 34.9% in the second quarters of 2013 and 2012 respectively.

As of the end of the second quarter our federal income tax NOL available for carry forward was approximately $295 million. Our loss from continuing operations was $48.3 million or a $0.50 loss per diluted share compared to a loss of $12 million or $0.13 per diluted share in the second quarter of last year. Excluding the refinancing cost, the fair value adjustment for stock warrants, and the tax valuation allowance our income from continuing operations was approximately $500,000 or $0.01 per diluted share for the current quarter. Excluding the fair value adjustment for stock warrants and the tax valuation allowance, our loss from continuing operations was $7.1 million or $0.07 per diluted share for the second quarter of 2012. Our net loss for the second quarter of 2013 was $48.2 million or $0.50 per diluted share compared to a loss of $12.1 million or $0.13 per diluted share in the second quarter of 2012. Our net loss was obviously negatively impacted by the costs associated with our recent refinancing. Adjusted EBITDA was $16.7 million for the second quarter of 2013 compared to adjusted EBITDA of $2.1 million in the second quarter of 2012.

During the second quarter of 2013, we completed a Rule 144A offering of $350 million aggregate principal amount 7.625% senior secured notes due 2021. At the same time we entered into a new five-year $175 million revolving credit facility led by SunTrust Bank. We used the proceeds from the offering together with cash on hand to redeem our 2016 notes, pay off our outstanding term loan, including the prepayment premium, and to pay fees and expenses related to the transaction. Cash used for the second quarter of 2013 was $92.2 million. Of the $92.2 million we used $53.7 million to pay refinancing costs, $27.4 million was due to working capital build during the quarter, and $14.7 million was net cash used to retire our long-term debt. Cash used for the second quarter of 2012 was $24.5 million, with $15.4 million related to working capital build. Capital expenditures were $3.6 million for the second quarter of 2013 compared to $2.2 million for the same quarter of 2012.

Total liquidity at June 30, 2013 was approximately $170 million, which included $25.5 million in available cash and $162.3 million of borrowing availability under our new revolver, reduced by a $17.5 million minimum excess availability requirement. The $162.3 million of borrowing availability is derived from the $175 million revolver commitment, less current outstanding letters of credit at $12.7 million. As of June 30, we had no outstanding borrowings under our revolving credit facility. Our recent refinancing transaction provides a tremendous boost to our goal of returning to positive net income. For the second quarter of 2013 our interest expense included refinancing costs of approximately $48.4 million. Absent these refinancing costs we were slightly positive net income for the second quarter. As a result of our new capital structure our annual cash interest going forward will be approximately $28 million assuming nothing is drawn on the revolver. I'll now turn the call back over to Floyd for his closing comments.

Thank you Chad. As the recovery in the housing market continues, we believe our year-over-year sales growth for the second half of 2013 will be driven by the combination of market share gains and increases in overall customer demand. We will still continue to maintain our focus on improving our gross margins and further leveraging our operating cost structure. I'll now turn the call over to the operator for Q&A.

(Operator Instructions)

Trey Grooms of Stephens Inc.

Hi, good morning Floyd and Chad, and congrats on a great quarter.

Thank you, Trey.

First off, that SG&A leverage, very impressive. Much better than we would have expected. Chad, is that level of SG&A as a percentage of revenue, is that something we could expect going forward, is that a sustainable level? Is there something in the particular in the quarter that was unique? How should we think about that going forward?

There really wasn't anything unique in there and I am with you, I think Floyd would agree, we were both extremely pleased with how we were able to leverage our OpEx. If you go back, our lowest number ever was 2005 and that was 18.2% for the year.

Right.

And so we are already trending ahead of that on significantly less sales. So that has us very optimistic about what we can do as sales continue to grow. But I still think we are going to be about 50/50 fixed variable going forward. I still think there's room to improve on that.

Awesome, great. And then on lumber prices, lumber prices obviously have moved down significantly in the quarter but have since started ticking up a little bit, what kind of margin impact could that have in the third quarter with the timing of you guys resetting your contracts with customers, inventory on hand, et cetera, how do we think about that?

If you go back to 2012 and the first quarter this year, each of those quarters the inflation we were fighting impacted us at least about 100 basis points. Let's hope that during the third quarter we don't see another 25% or 30% inflation because if we do it will put some pressure on margins. Right now things just seem to be ticking up slowly, which would certainly be manageable for us, but really we just have to wait and see what prices are going to do the next couple of months. I can tell you so far this quarter margins are very strong. Thus far, we feel good about the quarter.

Okay, that's helpful. And on that, you have seen the lumber price inflation has been manageable as you noted. What is your guys expectation for lumber price? Obviously you don't have a crystal ball but just looking over the short run given what you're seeing out there with suppliers and balancing that with demand and so forth?

I think, Trey, that we are going to see a slow inflation I believe for the rest of the quarter, and into early fall for both lumber and lumber sheet goods. It feels to us right now like the panel and lumber manufacturers are trying to find a pricing level that they can live with and that they can sustain and I don't think we are going to see a real major run-up and a real sharp spike as we had seen in the past. I think it's -- the feel to us right now is that it will slowly keep creeping up, and as Chad said, we can manage that, I really don't believe we are going to see it coming back to the levels that we saw at the end of the -- at the first quarter of this year.

Great, thanks for your insight on that, Floyd. And one last for me and I will jump back in queue. Just on the competitive landscape, now that obviously the demand has really taking off and gone legs, at least so far, but then again with the backdrop of lower lumber prices that we have today, is the environment there any more or less competitive than what you have been seeing?

No, we are still looking at a very competitive landscape. I will -- I do have to point out, I think it is -- we've got to note that we're still in a very depressed housing environment. You look at 2012, the starts ended up about 535,000, that was the third worst year of housing. This year while things are certainly getting better, I don't think it's anywhere near what we would call a healthy or normal environment. This year that number for single-family starts is probably somewhere in and around the 650,000 mark. Right now on an annualized basis, it's 591,000. While it's better, it will be the fourth worst year on housing on record.

There still is a lot of supply chasing the demand, so it is still very competitive. Our guys are doing a tremendous job I believe in trying to get more responsible pricing and still keep the customers. And it is a daily battle out there, and we have been successful in pulling up the margins. Some of it came with the easing of the commodity pricing. But that really did not affect us until very late in the quarter, because we are on an average costing basis and we did very little buying in the first couple of months of the quarter so we did not get a lot of benefit from it. And our people are getting the prices up and we are getting it up across the board in all of the product categories, but it is a damn tough fight everyday. But we have -- we are going to continue on the same basis. And right now, as Chad said, third quarter is, the start of the third quarter for us is really looking very good. We're very pleased with what we are seeing.

Great, thanks a lot, and again, good work in the quarter.

Rob Hansen of Deutsche Bank.

Thanks. I just wanted to ask about, with the improvement in your balance sheet and liquidity situation, are you going to have a bigger willingness to take on some of the more -- larger projects like multifamily projects or be more aggressive in terms of opening new locations in new markets or not?

We are obviously still doing multifamily and light commercial work and we will look at it like we always have. If it is a project that make sense for us from a profitability standpoint and a liquidity standpoint, then we will certainly go after it. I don't know that that has really changed. From a location standpoint, with our current footprint, I think we can handle close to $2 billion in revenue. And so in the near-term our main focus is going to be on getting those facilities up closer to full capacity. I think that's going to be the biggest bang for the buck in the near term, but with that being said, we will certainly look at opportunities to go into new markets, whether it is a new location or acquisitions, but I will say that is certainly not the top of our list right now. As you know, last year we opened a new location in Austin and one outside of Nashville, Tennessee. And those were opportunities that came along that made sense, and so if we have opportunities like that we will certainly take a hard look at it, but I don't know that just because we did the refinancing that our strategy really is going to change all that much.

Yes, I agree with all that Chad had to say.

Okay and then you mentioned that $2 billion figure. Just wanted to confirm, that would mean that housing starts in a normalized environment, $1.4 million or so, that's where you'd reach that $2 billion in sales on the current footprint?

No, I think if you look at our current sales per US single-family start, if we wanted to look at it on that basis, at our current penetration rate, it would take a little over 870,000 single-family starts. We have really increased our market share and I think a lot of people haven't really focused on that. Where in the past, when we did the $2 billion in sales, we had a $1.7 million single-family housing market. We can now do that same number I think somewhere at 50% of that amount.

In terms of that market share, and sales per start penetration there, what categories have you seen the largest increases?

I think it is pretty much right across the board. Right now lumber and lumber sheet goods has increased a little bit more because inflation helped drive that. But our component products are really gaining very nicely. The windows and doors, the millwork categories. So we tried to go in with a full package proposition to our builder customers and for the most part we were successful in doing so. And so I think it's very broad-based for us.

All right, well, thanks guys. Talk to you soon.

Thanks Rob.

Seth Yeager of Jefferies.

Hi, good morning. Nice quarter guys.

Thanks.

I think Floyd might've alluded to it a little bit but, are you able to help us quantify the gross profit or margin benefit that you had with just the timing of your contracts versus the decline in prices during the quarter for lumber goods?

Not any more than we already stated in the earnings release and on the call already.

Okay, all right. But maybe just for the quarter, can you talk -- in May I think you had -- with the debt issuance you had given some guidance. Can you talk about how trends moved as rates fluctuated? Do see any change in overall builder activity?

For us, we just wrapped up a meeting with our area vice presidents and they will tell you that on the East Coast in our markets we had a tremendous amount of rain the last couple of months. And if anything slowed activity in our markets it was the weather. It was the rain. And that is one reason they are very optimistic about how Q3 is shaping up is they really feel like there is a lot of construction that got put on hold because of the weather. And I would also add to that, just as important as weather has been, there is definitely labor related issues becoming a larger problem out in our marketplaces.

In a lot of the subdivisions you've got slabs just sitting waiting for framers, so that has kept a lid on some of the growth as well.

That leads into my next question. You guys have seen some nice increases in your prefab business. As builders are short staffed and trying to turn over homes, how much of that volume are you getting back versus the last couple quarters versus inflation? What sort of level of activity would it take for you guys to get back to your normal margins that you saw a few years ago in that business?

I think its going to take to get back for us, to more normal margins, I think we're going to have to start seeing a housing start rate, single-family above 1 million single-family starts. I think until then, you're going to have a supply/demand imbalance in the distribution side of the business.

Got it. And maybe one housekeeping item. At this level of business how should we think about your incremental working capital or maybe where you are at on days basis and then just an update on CapEx. Thanks, good luck guys.

Thanks. Working capital will continue to trend as it has. It will be about 10% of sales. And so as our sales continue to grow you can pretty much count on working capital build at about 10% of that growth. CapEx, I think this year we are going to end up somewhere between $8 million and $10 million of CapEx. That's what we're looking at right now.

All right, thanks guys.

Jack Kasprzak, BB&T Capital Markets.

Thanks, good morning guys. Back to the gross margin question, just a little more color there if I might. If commodity prices stay where they are now, you mentioned your margins are looking strong. So do you think that barring some volatility or a sharp increase in commodity prices that we could see Q3 gross margins a little better than Q2, is that what you are pointing to?

I think that's definitely a possibility. I can tell you from across the second quarter from April to June our margins improved 200 basis points. And so it is certainly trending in the right direction and as we have already mentioned, July has started out strong as well.

Great. And on the overall market, you made some comments there too, but there's recently as in the past week or so, some concern about housing slowing down, some of the homebuilder orders coming in a touch light. There's obviously an ebb and a flow in every cycle, but are you guys seeing any sort of pause out there or anything in the underlying market that would give you a little step back in terms of the outlook?

Jack, I really -- we really haven't seen this. We just concluded about 2.5 day meetings area VP management and review meetings and we of course covered every single market that we are in. All of our people are still seeing a very healthy environment out there. Did not hear of any areas that the pace of building was really getting ready to slow down. There is concerns as to that labor is keeping somewhat of a damper, and the weather up to the same degree has slowed down some of the building pace but the demand for the houses, and the builders, as soon as we get some sunny days, as soon as they can find some framers, the pace of building is going to be picking up. From that standpoint it looks like it is staying pretty good. Doesn't look like the change in mortgage rates when it rose and now its pulling back, but that really hasn't seemed to slow down the builders and on the futures sales that we are hearing about. It still looks very healthy out there for us in all of our markets.

Okay. That's great, thanks Floyd.

I would say the only consistent problem that we seem to be hearing is that the smaller builder is still having a very difficult time finding sources of financing that will enable them to be active in acquiring the lots that they need to build on. The smaller builder is still feeling the pinch a lot more so than the large national or regional builders.

Got it, okay. Thanks for that. And Chad you mentioned CapEx, $8 million to $10 million, can you just maybe update us on where you think D&A will be this year?

Probably $9 million to $10 million.

Okay, great. Thanks guys.

You bet.

David Williams of Williams Financial Group.

Good morning, guys. Nice quarter. Thanks for taking my call.

Sure.

Just had a quick question on the margins. You had mentioned that there was about 60 basis points from volume and then maybe about 40 basis points from the mix and maybe prices. What do you think as far as the 60 basis point growth from the volume. Is that something that you think is sticky or could we see that retreat a little bit as we move through the quarter here?

I think that's going to be pretty consistent if we continue to grow our sales like we have been.

Okay, great. And thinking about on the lumber prices and what the top line impact or benefit could be if we think about prices contributing about --

Hello, David?

Can you hear me?

Yes, you broke up and we lost you in the middle of your question.

I apologize for that. Just thinking about the revenue in the top line, if we think about 17.5% of revenue was from pricing. What should we think about as lumber prices come down here for the top line growth?

It could slow our growth down a little bit from that standpoint, but at the same time we also feel like we are getting price increases through, so, net net, I don't know that it is going to have a significant impact.

Okay great and one last one if I could. I noticed that the prefab component was up about 60 basis points Q-to-Q as a percentage of sales. What do you think is going on there? Is that maybe some pricing or is that just deeper penetration, or maybe what is driving that increase?

I think price is one of the factors but I think even more than that is the labor issues that are cropping up in the field are certainly making components more attractive to the builders. We are seeing a continuation of the trend of builders wanting to make the switch back to components, and even recognizing that traditional framing still may be slightly more favorable from a cost standpoint, but from a labor standpoint it definitely is a more attractive alternative. And I think that is probably as large a contributor to our increased sales of components.

Great, thanks. Good luck on the next quarter guys.

Scott Levine of Imperial Capital.

Hi good morning guys. Shifting back to pricing, I can appreciate that it is still very competitive out there. But your pricing growth contribution to your total revenue growth did improve in a period where cost inflation, lumber side is abating. Would you say that the environment, the incremental data point with regard to the pricing environment is moving in the right direction or things are becoming a bit more predictable? I know you have highlighted efforts to go in with shorter pricing commitments -- periods and had to shift strategy based on what you have seen in the market and just wondering if incrementally the pricing environment is improving on the margin or not?

It may be getting a little better from a pricing standpoint. To some degree the builders, they are getting busier and so they are placing a higher value on service across-the-board. From that standpoint it may be getting a little easier on the pricing side, but certainly I wouldn't say significantly easier.

Yes, I think if you talk with our salesman, they would not agree with what Chad was saying. And we certainly -- every little bit helps, but we've got a long ways to go before we can really start saying that the pressure is easing.

Understood. And then turning to a little bit more color perhaps on the cash flow outlook. I know you guys don't give a specific guidance or anything like that, but maybe a little bit more color and your thoughts on the next couple of quarters in terms of operating cash. Is there any, other than looking at 10% on working capital as a percentage of sales, is there is any additional color you can give us in terms of whether you start to see improved operating cash flow in Q3 and Q4 and as we head into 2014?

I think we absolutely will especially with the lower interest. I think we should be positive cash flow the last two quarters of the year and if we are not, like you said, it is only going to be because of the working capital build and our business continuing to grow. We should definitely see an improvement on the cash flow side of things.

Understood. Thanks, nice quarter.

Sam McGovern of Credit Suisse.

Good morning guys. A couple quick questions. I know you guys talked earlier about the outlook for lumber prices and you guys hit upon working capital. But if something changed out there and you guys felt that lumber prices were going to accelerate again and that you could possibly see a repeat of what you saw in the first quarter, would you guys be more willing, given the increased liquidity to take out a longer inventory position in anticipation of that, or what is your outlook on that?

Yes, if we really felt that that was going to be the trend, then we are going to certainly utilize our position, and protect ourselves. And that would mean then more working capital going into the inventory build. Right now, don't really see the need. We have gotten ourselves and we have put ourselves in a position I think to pretty much get through the third quarter with some longer-term commitments that we used to cover our needs, as well as inventory that we've taken in during the month of July. So right now, we're feeling pretty good about our position for the third quarter, but if we felt that we were looking at another major spike that occurred from August or September of last year through March of this year, yes, we would go and buy heavy in anticipation.

Got it, and could you also remind us about the status of your mothballed facilities? What is in the process of restarting, and what is still down and what you may consider to restart in the future?

We have reactivated two of our component plants. One in Florida, one in Maryland. The rest we are going to as the business develops, and as there is a need, and where we know we can keep that plant operating at a legitimate level for more than just a few weeks or months, we're going to -- we will reactivate those facilities. But we keep looking at it and evaluating it, and right now, don't have anything that we are planning to reopen for the rest of the quarter.

Great, thanks guys, and I will pass it along.

Daniel Downes of B.C. Holdings.

Hi Chad and Floyd. I will echo everybody else's sentiments to say good to see the turnaround in your operations.

Thank you.

The visibility in your business. Even if we do hit a bit of a bump in the road here as far as homebuilder orders, a lot of these homebuilders have pretty big backlogs, at least the larger public ones. Just curious, what kind of visibility do you feel like you have into your business as far as months out? And where do think there is more risk or it's just more opaque where you can't see out at what point?

As far as visibility, we don't have any more or less visibility than we have always had, and that's always been pretty short except for the feedback that we get from the builders in each one of the markets in which we operate. And right now, that continue to be very optimistic in the projections that they are giving us and talking about what they're building plans are for the remainder of the quarter, and then into what will be our fourth quarter, their first quarter. Still continues to be very healthy. But we will just have to react to that as we come to it. And the other question concerning our markets, right now all of our markets are doing very well. I really can't say we have any troubled markets. Other than maybe we have markets that are only seeing a 20% to 25% increase versus other markets that are seeing 50% and 60% and 70% increases, but I don't think 20% increase is anything to be ashamed of. Right now, every one of our markets are looking very strong and very good.

Sounds good. I got on the call little bit late, so you may have addressed this already, but given the sharp decline in OSB and lumber prices recently, have you guys been able to extend out your orders in order to capitalize on these lower prices? Or to what extent can you through discussions with the manufacturers extend those out? Thank you.

Well, it's not always easy to extended it out, but as Floyd commented on just a moment ago, we do feel like with the buys we made this month in July and what we have coming in the next couple of months, we are certainly in good shape for the quarter. And as he also mentioned, if we felt like we were going to see a sharp run-up in prices we might tend to get heavier on the buy side, but right now that is not our feel. We feel like we are in good shape for this quarter.

Okay, thank you.

Philip Volpicelli from Deutsche Bank.

Good morning, it's Phil Volpicelli at Deutsche Bank. Great quarter for you guys, congratulations.

Thanks, Phil.

We've had a lot of discussion on margins. I was just hoping if you could talk a little bit about prices on windows and doors. We have beaten lumber pretty well, but what is going on with windows and doors? Are you seeing price increases to you there?

Are we getting price increases on the input side or on the sales side?

The cost. I guess both. Are you getting input increases from the manufacturers and are you able to pass them along?

We are right now, we certainly are seeing increases from the manufacturers. We are doing our best to pass it on. We certainly are making every effort to do so. I would say we have been very aggressive in trying to push our margins. A lot of that is dictated by what the competition that we face and what their -- what their pricing strategy is. And in some cases we have been able to cover it. In other cases and certain materials we have not been able to get everything but we have been able to get some of it. It is just really a mixed bag.

Okay.

But on the windows side of the business our margins are certainly still very healthy.

They are still healthy. And for the most part, on windows in particular, we have been able to pass on the increases that we have seen.

Okay. Can you give us a magnitude of what the price increase from the manufacturers has been to you? Is it low single digits, mid single digits, high single digits?

From the window manufacturers?

Windows and/or doors. Whatever information you're willing to provide, I'd take.

If you look at the window manufacturers, most of it has been mid single digit to somewhere between 4% to 7%.

And doors, is it similar?

Excuse me?

Are doors similar range?

Yes, I would say that is been in that range and then you are always going to have certain situations where we have to work with the manufacturer to adjust the pricing to beat a certain situation. Or from a timing standpoint as to when that increase goes into effect. But the doors and windows on a combined basis, they have been pretty much the same.

Great, thank you very much. Good luck.

Thanks.

Howard Weinberg of UBS.

Hi guys. Congratulations. Most of my questions actually have been asked and answered, so I only have one left, and it really goes back to the market share gains. Could you just talk a little bit about your concentration? Obviously the larger builders appear to be growing faster, not appear, but they're growing faster than the rest of the market and whether or not you are able to get any additional wallet share from them, so to the extent that they were only purchasing lumber or prefab, are they able to go and sell millwork and windows and so forth, and expanding beyond the market with your existing customer base.

Yes, there is always room to improve your share of wallet with customers, like you said. You may be selling them every product except interior trim for whatever reason. You're constantly going after that increased share of the wallet, but on the other side of things, as we have already discussed, it is still very competitive out there, and a lot of the business you do with the big builders is bid ever quarter. And so a lot of it is dictated by what happens on a competitive basis within each market as you are going through that quarterly bidding process. I would say certainly a portion of our market share gains has been our ability to increase the share of the wallet with those builders.

Great, thanks and good luck guys.

(Operator Instructions)

Robert Kelly of Sidoti.

Hi good morning everyone. A lot has been covered but one of the things I wanted to ask was a follow-on to the previous question. A lot of your growth has been coming from hitching yourself to the wagon of the larger builder. And they own a lot of price leverage against you. Could you just talk about the competition within each of your markets? Are you seeing it -- some of the lesser players either falling in line, discipline wise, or start to go away, or be shunned by the larger builder due to weaker service levels or liquidity constraints, something like that that would allow you guys to have a brighter future on the price leverage side.

I think most of the pricing leverage we are going to get in the future is as Floyd already commented on. We just need a healthier building environment. And while everything you read does indicate that bigger builders are taking market share, our mix of sales to the big builders has remained remarkably consistent the last couple of years. If you look at our top ten customers, it has been right around that 23%, 24% of sales, and if you look at the builder 100 it's been right around 33%, 34% of sales. Like I said, it has remained remarkably consistent, so it does feel like --

A lot of that, I have to point out a lot of that as Chad knows is we specifically tried to design our sales efforts towards achieving and keeping the mix that we have. We really have been very aggressive and active in going and looking for that smaller builder, and developing business with a smaller builder, whether he be a mid- zone price builder or the high custom builder. And we have been adding significantly to our new accounts on a quarterly basis. And this cumulatively has really been the reason for our ability to maintain that mix of 65/35 and that's what we are going to continue putting all efforts into doing and keeping that mix because that is needed in our business in order to be able to get the longer-term profitability that we have to have.

Right. How about on the competition side? Have you seen some competitors fall by the wayside?

Haven't really seen anyone falling by the wayside here for the last 6 months to 12 months of any note. And so I would have to say that has been pretty stable.

All right, thanks guys. Keep up the great work.

Thanks Bob.

Thank you.

Shawn Boyd of Next Mark Capital.

Hello and congrats on the quarter.

Thanks Shawn.

Thanks Shawn.

The turn in gross margin has been great. I know we've talked about it a decent amount so really I just want to look out a little bit and get away from the quarter. We've talked I think in the past about getting back to a 24% to 25% level at around $2 billion a year in revenues. Do I have that correct, or has that changed in any way?

Yes, it could take a little bit healthier environment as far as starts. Because at that level you would be talking about 850,000 starts or so. I think we will certainly see some nice margin improvement at that point, but I think to get all the way up to that 25%, 26% we are probably going to be needing somewhere closer to 1 million single-family starts.

Got it. And if we put -- it's probably a silly exercise to do it, but if we put lumber prices aside for a second, what would be the number two and number three drivers to getting to that level?

I think the main driver is just going to be the construction activity. As Floyd pointed out earlier, we are still at a very low level of housing and we just need to get back to a more normal environment.

And the continual conversion from conventional framing into used components.

Yes.

Okay. And on the comment you made earlier Floyd, regarding the wet weather we have had in the Southeast. Can you quantify how much you guys might have lost in revenues in the quarter? Not lost but --

Had delayed?

Delayed, deferred, pushed out. Because it has been quite rainy and I'm just curious as to what that might have been.

Again, you have to take it somewhat, I have to look at it in a jaundiced pace, because I'm not out there necessarily with all of our people, but if you talk with our people, they would indicate or feel that that number is probably somewhere between $10 million to $20 million of affect. I am not in a position that I can really say one way or the other how accurate that number is, but I think it is probably realistic.

Got it. Good enough. That's it for me. Great quarter gentlemen, thanks.

Thank you.

And with that, ladies and gentlemen, it does appear that we have no further questions. I would like to turn the conference back over to Mr. Sherman for any additional or closing comments.

Okay. We appreciate everyone listening in today and if you have any follow-up questions, please don't hesitate to give Chad or Marcie Hyder a call here in Dallas. Thanks, and have a good day.

With that everyone, that does conclude today's conference call. We would like to thank you again for your participation.