GMS Inc (GMS) 2017 Q2 法說會逐字稿

Good day, everyone. Welcome to the GMS fiscal second-quarter 2017 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Rodney Noseia, Investor Relations.

Good morning. Thank you for joining us today for GMS's earnings conference call for the second quarter ended October 31, 2016. I'm joined by Mike Callahan, President and CEO, and Doug Goforth, CFO. In addition to the second quarter press release issued this morning, we have posted presentation slides to accompany this call in the Investor section of our website at www.gms.com.

Turning to 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 risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to net sales, gross profit, and capital expenditures as well as non-GAAP financial measures such as adjusted EBITDA, adjusted net income, and base business sales.

In addition, statements regarding potential acquisitions and future greenfield locations are forward-looking statements as well as statements regarding the markets in which the Company operates and the potential for growth in the commercial, residential, and repair and remodeling, or R&R markets.

As a reminder, forward-looking statements represent management's current estimates. 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 definitions and reconciliations of non-GAAP measures.

Note that references on this call to FY17 relates to our year ending April 30, 2017, and references to the second quarter, or Q2, relate to the quarter ended October 31, 2016.

Now, with that, I'll turn the call over to Mike.

Good morning. Thank you, everyone, for joining us today. For the first part of the presentation, I will discuss our operating highlights and recent acquisitions. Doug will then provide details on our financial results and capital resources. After we complete our prepared remarks, we will open up the call for your questions.

Now turning to Slide number 3. Our strong track record of executing profitable growth continued into the second quarter of FY17 to produce record quarterly results. We increased net sales by 29.2% over the same quarter last fiscal year to $591.8 million. This reflects our multi-faceted approach to outpacing the market rate of growth to generate value for our shareholders. This sales growth marked our 21st straight quarter of double-digit gains in net sales.

The underlying improvement in our operations was strong, with base business net sales up 10.8%, helped by growth in each product category and one extra shipping day. In particular, we capitalized on stronger residential activity which mainly benefited wallboard and other product sales. In commercial, end market demand was healthy which drove higher ceiling and steel framing volumes with the positive impact on wallboard and other products as well.

Net income more than tripled to $17.2 million during the second quarter over the same quarter last fiscal year as our margins continued to expand. Gross margin rose 120 basis points to 32.6%, helping to drive second quarter adjusted EBITDA to $49.5 million, up 42.3% when compared to the second quarter for FY16. This very solid gross margin performance is a valuable strength in our business which I will expand on in a moment.

Acquisitions accounted for approximately two-thirds of second quarter net sales growth, mainly reflecting deals completed over the past two years. We made four strategic acquisitions in the second quarter, which represent a total of six acquisitions completed in the first half of FY17, which have added 14 branches, generating a combined $156.7 million of LTM revenue to our business.

We are especially pleased to deliver sales growth, improved margins and complete multiple acquisitions while further strengthening our balance sheet and improving our credit metrics. This progress was recognized by Moody's and Standard & Poor's, who each upgraded our corporate debt to B2 and B+ from B3 and single B during second quarter 2017.

In September 2016, we closed on the refinancing of our existing $481 million term loan which reduced our interest rates and extended our weighted average maturities. Following the close of the second quarter, we took further steps to improve our liquidity with an expansion of our ABL credit agreement to $345 million from $300 million and under more favorable terms to GMS. As a result of all of these steps, we have reduced our average cash interest rate to approximately 3.9% as of October 31.

Now turning to Slide number 4, I'd like to take a moment to discuss our acquisitions so far this year. Our acquisition success is a result of the favorable industry structure, our fine-tuned acquisition strategy, and a very strong deal pipeline to continue sourcing expansion opportunities.

During the first half of FY17, we have completed six acquisitions of distributors, adding 14 branches in Washington, Arizona, Colorado, Pennsylvania, Florida, Ohio, and Michigan, and representing combined trailing 12-month net sales of $156.7 million. These transactions include deals in both new and existing markets, further augmenting our balanced mix of business across end markets and are consistent with our acquisition strategy and our successful track record of expansion.

During second quarter 2017, all of these opportunities fit within our objective to acquire leading local distributors as footholds in targeted new markets to deepen our presence in existing markets or to expand our service capabilities through strategic bolt-on acquisitions.

Now I will expand upon our two most recent acquisitions. In October, we bought Ryan Building Materials. This leading distributor solidified our position as a premier provider of specialty interior products in Michigan through the addition of three strategically located yards in the Greater Detroit area. The former owner of Ryan and his team joined GMS to support our continued expansion and together, we have already begun to build on their 50-year track record of success.

We also purchased United Building Materials, a multi-location leading supplier of drywall, metal framing, acoustical ceilings and installation to professional contractors throughout Southwestern Ohio. This acquisition made sense on multiple fronts. Their balanced product mix proved an excellent match for our business and the UBM team is committed to our vision to provide exceptional customer service. Additionally, UBM's strong brand and extensive customer base significantly strengthened our footprint in Ohio.

Now we expect acquisitions to continue to drive a considerable amount of our growth, building on robust deal activities since the start of FY17. Our ideal targets are smaller peers that represent the majority of the $11 billion industry that we serve. We believe that we are the acquirer of choice in a highly fragmented market, given our employee-centric culture and our strong reputation of the industry.

We have a finely-tuned strategy to source, purchase, and most importantly, onboard these transactions in order to quickly realize the benefits of our national scale and to retain key team members. We have a dedicated M&A team tasked with ensuring that each acquisition brings the right cultural fit and is completed within our target range of purchase price multiples.

Furthermore, we have the capital resources to access this robust acquisition pipeline that we believe will continue to supplement our strong organic growth. While several of our 2017 acquisitions were quite significant and materially increased revenue on a comparable basis, we would envision maintaining our historical pace of six to eight acquisitions per year going forward.

Now looking more broadly at our multiple growth drivers on Slide number 5. We continue to expand EBITDA through a combination of organic growth, acquisitions, and end market improvement. During the second quarter, we strengthened existing market positions through three greenfield branch openings in Arizona, Maryland, and South Carolina, which we expect to contribute favorably to our results within 12 months.

This low risk approach to opening new branch locations in familiar or adjacent markets is an attractive source of incremental earnings for our business. As I've discussed on the prior slide, acquisitions remain core to our strategy and continue to drive further top and bottom line improvement as we source, purchase, and integrate deals. Including acquisitions completed during the past two years, we have grown adjusted EBITDA on a pro forma basis to $184 million in the second quarter trailing 12-month period from $32 million in FY12. We are all extremely proud of this progress and our team is energized to further augment our profits.

Looking at our end markets, our balanced exposure to commercial and residential provides us with wider access to project activity which is driving positive results. In the second quarter, residential and commercial markets improved, though stronger residential demand continued to outpace commercial activity in many markets.

We grew faster than the market across our product portfolio. In wallboard in particular, our continued share gains are notable, with the combination of organic growth, acquisitions, along with deep relationships in residential and commercial channels, driving our share up by 130 basis points to 14.4% during the last calendar 12 months ending September 30, as compared to 13.1% in calendar 2015.

We are gaining this share without sacrificing price or margin and as we move forward, we believe we have the right strategy and team, along with a very strong capital base to continue enhancing our presence in both new and existing markets. Now with that, I will turn the call over to Doug to further discuss our growth strategy, second quarter financial results, and our capital resources. Doug?

Thanks, Mike and good morning, everyone. Beginning with the second quarter financial results on Slide 6, we significantly grew second quarter sales and profitability, helped by our multi-faceted growth strategy and the positive momentum we are experiencing in our business.

We increased net sales 29.2% year over year to $591.8 million. Base business sales were up 10.8% year over year with an increase in each product category, led by steel framing and other product revenues. We had a marginal benefit from one additional shipping day with 65 days in the second quarter of 2017, compared to 64 days in the second quarter of 2016.

Looking at a more detailed break down of our second quarter base business and total sales growth by product, we delivered strong performance across all product offerings. Our wallboard volumes increased an impressive 27.2% in second quarter compared to the second quarter of FY16, including 9.5% base business improvement. This drove wallboard revenues up 26% year over year. We experienced a modest decline in wallboard price compared to second quarter of last fiscal year but we remain optimistic on potential price gains as we head into calendar 2017.

Our ceiling sales increased by $10.8 million, or 14.5% year over year, including 6.6% on a base business basis and steel framing increased $25.8 million or 36.6% year over year, including 16.1% on a base business basis. Ceiling and steel framing sales were primarily driven by commercial construction activity, which remains below historical levels. Both of these product categories benefited from improved year-over-year volume and pricing.

This collective top line performance resulted in solid profit improvement. Our diverse geographic footprint and product categories in addition to disciplined procurement has allowed us to augment gross margin over an extended time period. Second quarter was a continuation of that long track record, with all product categories achieving higher margins.

Gross margin expanded 120 basis points to 32.6%. This improvement was primarily driven by ongoing price optimization efforts and purchasing to fully leverage our national purchasing power. Higher gross profit dollars more than offset higher operating expense in connection with investments in equipment, technology and branch talent, including other product sales specialists to support expanded opportunities in that category.

As a result, we grew adjusted EBITDA by a robust 42.3% to $49.5 million, benefiting from improved gross margins on stronger sales. Our adjusted EBITDA margin of 8.4% was up approximately 80 basis points from the prior-year period. We expect to grow our business based on our ongoing investments, which will allow us to leverage our SG&A over time to continue to drive additional EBITDA gains.

Moving to other product sales on Slide 7. In second quarter, our one stop shop solution for customers was once again a driving factor of outsized other product net sales growth of 42% year over year, or 15% on a base business basis. Our other products include joint compound, tools and fasteners, installation and various other construction products.

By supplying these products in nearly everything that our typical specialty contractor customer needs on a job site, we continue to benefit immensely from the significant pull-through force of wallboard, ceilings and steel framing sales. During the second quarter, we also benefited from improved price on certain products, added retail showrooms, acquisitions and other initiatives.

Now I'd like to elaborate more on the solid gross margin expansion on Slide 8. For more than 45 years, we've worked hard to profitably grow our Company into the largest North American specialty distributor of wallboard, ceilings, and complementary interior construction products. Our national scale, combined with our wide product offering, has provided us with a balanced mix of business across our end markets which are approximately 60% commercial and 40% residential.

This has given us more resilient demand profile across points of the cycle which has produced a very stable gross margin profile. From 2012 to last trailing 12-months second quarter of 2017, we have more than doubled our sales to $2.1 billion from $991 million. At the same time, we steadily expanded gross margin by 360 basis points to 32.6% in LTM second quarter 2017 compared to 29% in 2012. We're very pleased with this gross margin performance, which is a direct result of market share gains, accretive acquisitions, and our sharp focus on procurement costs.

Most of our wallboard suppliers have announced price increases for January 2017 and we are optimistic on the prospects to improve price based on strengthening end market conditions. That said, our ability to deliver solid gross margin performance is not dependent on wallboard price or any one product in our portfolio.

To further that point, our average wallboard price increased 41% from 2012 to 2015 and during that period, we increased margins by 150 basis points. Building on that progress, since 2015, we've expanded gross margin by an additional 210 basis points as of LTM second quarter 2017.

We accomplished that 210 basis point expansion despite our average wallboard price declining by 1% during that time. This attractive gross margin improvement clearly demonstrates our ability to steadily grow profitably through our specialty distribution market leadership, diversified mix of business and proven operating strategies.

As a leading specialty distributor, we are confident in our ability to further generate higher gross profit dollars and EBITDA leverage on rising sales. Given our position as a specialty distributor in the building products value chain, we believe we can accomplish this profitable growth in a lower risk, efficient manner as we move through 2017 and beyond.

In regards to taxes, our book effective tax rate was approximately 4% for the quarter. This was primarily the result of the tax election we made in the quarter related to a previous acquisition, which effectively results in a non-recurring reduction in our book tax expense of $6.9 million.

This reduction was reflected in the lower cash taxes that -- will be reflected in the lower cash taxes over the next 15 years as the intangibles related to this acquisition are amortized and deducted on our returns. Excluding the impact of this discrete item, our book effective tax rate would have been 42.7%.

Turning now to our capital structure on Slide 9. We remain very focused on maintaining a prudently levered balance sheet and strong financial flexibility to pursue our growth initiatives. We have made tremendous strides to strengthen our capital position during the past several years and continue to take proactive steps to further improve leverage metrics.

In September 2016, we closed on the refinancing of our existing term loan, lowering the applicable interest rate [adder] from 375 basis points to 350 basis points. New borrowings consisted of $481 million term loan facility due in 2021. We used net proceeds and cash on hand to repay our existing first lien term loan of $381 million and to repay approximately $99 million of loans under our asset-based revolving credit facility.

At October 31, our net debt to pro forma adjusted EBITDA stood at 3.4 times, stable sequentially from fiscal first quarter and down from 4.3 times at April 30. Liquidity remains strong with $16.4 million of cash on hand and $168 million available on our credit facility as of October 31. As mentioned previously, both Moody's and S&P recently upgraded our corporate debt based on their view of growing US construction activity and our improved credit metrics.

Operating execution and these improved ratings helped us amend our existing ABL agreement on very favorable terms. It expanded the borrowing capacity to $345 million from $300 million, lowered the applicable annual rate by 25 basis points, and extended the term until November 2021. Combined, these changes give us an average interest rate of approximately 3.9% based on our October 31 leverage. We remain committed to improving and preserving our financial flexibility moving forward.

Operating cash flow is seasonal, with the first quarter typically having the highest cash outflow, followed by stronger cash generation during the balance of the year. We saw this in the second quarter as we generated $31.3 million of operating cash flow compared to $16.1 million generated in the second quarter of 2016. Year to date, operating cash inflow stands at $0.7 million versus $2.3 million outflow year-to-date 2016, largely driven by higher inventory levels. Second quarter CapEx remained below 1% of sales which we continue to expect to range from $8 million to $10 million going forward, consistent with approximately $8 million of CapEx in FY16.

In summary, our collective progress during the first half of FY17 has met or exceeded our initial expectations. As we look to the balance of FY17, we expect our effective operating strategy, expanding footprint and better macro fundamentals to drive continued improvement in sales. We plan to accomplish this while delivering solid gross margin to grow adjusted EBITDA. I'll now turn the call back over to Mike for closing remarks.

Thanks, Doug. In conclusion, and looking at Slide number 10. Again, thank you for joining us today. This is a very exciting time for GMS. Our second quarter record financial results and our recent acquisitions reflect GMS's very unique culture, strategy, and the favorable operating environment in our industry.

And as we head into the second half of FY17, we will continue to leverage our position as the number one distributor of wallboard and ceilings in North America to drive sustained growth through significant scale advantages. We expect to achieve above-market growth through our relentless focus on operational excellence.

Smart, strategic investments have strengthened our differentiated service offering and led to real competitive advantages in all of our markets, including the ability to pull multiple levers to drive our growth. A focused expansion strategy via greenfields will not only allow us to continue to penetrate new markets but will allow us to capitalize on opportunities where we already have a strong foothold. And as we've emphasized this morning, smart, targeted, and accretive acquisitions will continue to remain a key component of that growth strategy.

We fully expect our multi-faceted growth strategy to continue driving higher revenues and gross profit for the coming years. Our past and continued success is a direct result of our results-driven culture. One that drives our exceptional leaders to stay a little longer and work a little harder to deliver the industry-leading performance we are able to present to you today. With the continued dedication of our talented and highly motivated team, we believe we are firmly positioned to continue to expand our footprint and be among the best specialty distributors in the business.

We continue to believe we are in the early stages of the US construction recovery, which gives us great confidence in our bright outlook for good sales momentum, solid gross margins and our robust acquisition pipeline for years to come.

We sincerely appreciate your interest in our Company. Thank you very much. Operator, we are now ready to open up the call for questions.

(Operator Instructions)

We'll first hear from Trey Grooms of Stephens Incorporated.

Just real quick, I guess my first one would be on the organic growth. I mean you guys put up pretty solid organic growth across the board. Can you talk about how volumes progressed through the quarter or how they may have been trending also in November and thus far into December, both? If you could maybe touch on wallboard trends as well as on the ceiling side of things?

I'd say generally, Trey, the growth was pretty stable. We saw kind of a steady pace throughout the quarter, probably with the West showing the strongest growth, the far West but generally speaking, it was a pretty steady pace throughout and that's across the board, really.

And as far as any trends in November, have you seen that continued post the close of the quarter, have you seen these relatively strong trends continue into this quarter?

Again, so far this year, we've had pretty mild weather just as we did last year, so the trends have been very similar to what we've seen over the last few months.

Okay, very good. On the ceilings, can you talk -- you didn't specifically note tile volume in the quarter. Can you give us a little bit more color on specifically what was going on with tile versus grid?

Tile is essentially flat and grid, grid was actually growing a lot faster than tile which is a good sign because it's not unusual for grid to go in before tile, in some cases well before the tile gets placed in so we think that kind of bodes well for future periods.

Got it, got it. And then I guess on the pricing there in ceilings. Is that mostly coming from the grid side of things or are you also seeing some increases on the tile side as well?

It's both. The majority of our base business growth was on price and mix, so you had some tailwinds there on the grid side but you also had a price increase in ceiling tiles that came out in August.

Okay, got it. So mix did -- it is playing a role there as well?

Somewhat.

Last one for me and then I'll pass it on. Looking at SG&A, Doug, you mentioned leveraging SG&A over time. As a percent of sales, SG&A was a little bit more -- a little bit higher than what we were thinking it was going to shake out to.

Its increased year over year over the last couple of quarters but obviously, we would expect leverage going forward, as you mentioned. Just trying to think about how we shore those things up? What were some of the moving pieces in SG&A and how we should be thinking about that over the next few quarters?

Sure, Trey, it's a good question. And the way we look at it is taking out the depreciation and amortization. Overall, our SG&A was up and that was a big chunk of that, if you're including depreciation and amortization, was the amortization of the intangibles on acquisitions.

We did a lot of acquisitions the first half of this year, particularly in the second quarter, we had two larger acquisitions of the four we did. So I think our amortization was up about $2.5 million to $2.6 million over last year and the first half of last year we didn't really have any acquisitions that closed. The bulk of our acquisitions last year were closed, really in the second half of the year, so that's one thing in total.

If you take that out and you also take out the normal EBITDA adjustments, we were up about 60 basis points and as we've talked about on previous calls, we had been making investments in equipment but also on the logistics side, particularly with CDL drivers, et cetera. The cost has been pacing a little bit ahead of inflation plus we, frankly, had a lot of overtime to service our customers, and that's driven up our cost, too.

We think we're still probably about 12 months away from seeing that stabilize and that's not to say it's going to increase significantly, we don't. The good thing is that our gross margin has been growing more than 2X at that rate, expanding. So it's more than covering what we've had in the growth on the operating side. But we definitely expect it to level out and start to see some real leverage there within 12 months.

All right. Thanks. Thanks gentlemen and very helpful as always. That's all for me. Thank you.

Thanks, Trey.

Next we'll hear from Bob Wettenhall of RBC Capital Markets.

Just wanted to ask you. You got great gross margin performance. Can you call out, specifically, how much of the gross margin expansion is mix driven? And within the product line, where are you seeing this mix shift? It's obviously material and I'm trying to understand is this something that we can look forward to in 2017?

Our overall mix, at least by product category, was pretty stable. We didn't really see much of a shift there so it's really more about -- again, the guys have been working hard to optimize pricing across the board, particularly with other product categories and then obviously, from a procurement that we've talked about.

We've really been -- the team there has been knocking the ball off the cover in all of our divisions, work extremely well together and making sure we're optimizing our wallboard purchases from the seven suppliers that we're dealing with.

And with that said, going into next year, what do you think the shot is of getting a material increase in wallboard pricing and how beneficial would that be if there's wallboard inflation?

Well, Bob, this is Mike. The outlook for the price increase right now is still pretty strong. I would tell you that in virtually every market in the country right now, we actually had all of our operating VPs on the phone yesterday just kind of doing a temperature check on the various markets and we are quoting up numbers in every market that we are pretty much serving.

So we are pushing escalators on job quotes going into first/second quarter and I will tell you that based on the conversations we've had with all of the manufacturers that we're kind of in the throes of our annual planning process right now with the manufacturers. Everyone that we have talked to is very, very strong on pushing the increase so until we get other information, we're going to continue to push it forward. And of course, if the price goes up, we intend to benefit from that, just like we have in the past and we'll continue to push to keep some money in our pocket, frankly.

We're not expecting to see a compression in our gross margin percentage.

That's the thing. We're certainly supporting the price increase but as Doug alluded to on the call, I think we're -- if you look at our agility and the fact that we can kind of flex and move based on whatever happens on the price, we still have the opportunity to leverage our platform and procure product in such a way that we're going to come out on top regardless but we definitely are pushing the price increase. I think it's got some pretty positive momentum right now.

What kind of size could the price increase be just like mid-single-digit, high single-digit, any feel for that?

Well, we've heard everything from 15% to 20%. It all over the board at this point, depending on what part of the country that you are talking about but I think mid to low double digits probably is a pretty good benchmark (inaudible).

Bob, just to clarify on that. That would really be on the procurement side, so you'd be looking at a smaller number on our sales side, something more along the lines of mid-single-digits like you said.

Got it. Switching gears, you guys are really active on the greenfield side, opening three branches in the quarter. I know in the last 12 months before you only opened up four stores. Are you guys just getting an itchy trigger finger, what should we be thinking for 2017 about greenfield expansion?

That same pace of three to five a year is what we're comfortable with. We definitely expect some more of the balance of this year. We're currently looking for a facility up in the Northeast and we expect to probably have that open within the next couple of months.

Part of that too, Bob, is a catch up because we had some facility -- actually, we're kind of down the road on a greenfield or two and then we lost opportunity with the facilities we were looking at so a little bit of that is catch up. But I would agree with Doug that a three to five year pace, as we always say, this is really part of our organic growth story is just a way to expand and service adjacent markets so there's a logic to it for sure.

Got it and that makes sense. You guys have also done a great job beating numbers out of the gate. Interior product supply business sounds like they are endorsed and I was just curious; it's an adjacent category and maybe I'm getting this wrong so feel free to correct me. But are you guys looking to expand distribution into adjacent product categories like doors? Is that something we should anticipate?

Well, I guess as a general statement, we are constantly looking at ways, as I call it, to put more stuff on the truck so we're always looking at new products and new opportunities. We actually have had some door operations in the past and a lot of it has to do with just the quality of the operator of the business, but we're always going to be looking whether it's doors, whether it's protective films, whether it's [ethos], it doesn't matter. All these products, constantly we're looking at them, re-examining new opportunities and we've got 20,000 SKUs now and frankly, I would see that growing as we go forward.

Good guys. Well congratulations and good luck next year. I think your execution since going public has been phenomenal and I think you have tons of momentum; and I'm just amazed this stock is trading lower because it's one of the best quarters I've seen from any company in awhile. So good luck with everything. Thanks again.

Thanks a lot, Bob.

David Manthey of Baird.

Looking at your adjusted EBITDA contribution margin this quarter, I think it was just over 11%, which is very consistent with what you've done in recent quarters. Are you still expecting contribution margins to improve over the next 12 to 18 months based on your outlook for growth in price and if so, what would be a good level to think about it, is low to mid-teens a reasonable level?

We certainly expect that to expand in the next 12 months from the 11% to 12% that we've been running historically but we haven't -- we're really not prepared to give a specific target or guidance on that right now, David.

Okay. And based on your commentary about pricing and gross margin and the leverage you get in the model, I would assume that even in the event that pricing should not materialize that were zero, you should still be able to maintain something in the recent ranges of 11% to 12%; is that correct?

Yes.

Absolutely.

Okay and then as it relates to the markets overall, Doug, I think a couple of times in the preamble, you mentioned better fundamentals and I think you were referring to market conditions or market growth and it appears that the broader fears of commercial construction downturn have not materialized. And I'm just wondering as you look out into calendar 2017, how confident are you that the market will continue to remain solid for you to operate in?

Well, I mean, on the same call that we had yesterday, Dave, we asked the guys, all of our VPs, kind of what they are looking at in terms of backlog and quote activity and pretty much without exception both our backlog, quote activity, and outlook for 2017, for calendar 17 is very positive. So we've got a lot of business on the books and we're quoting -- one of our operations said they had done 60 quotes. They are running 60 quotes a week so that gives you a good sense.

It's a lot of activity and we're very bullish on kind of where 2017 is headed. We've talked about it before that some of the data on the commercial side was a little sketchy or hard to put your finger on but I will tell you based on our momentum and what we feel and are seeing from our fieldwork, we're pretty optimistic.

And it's pretty consistent with what the -- everybody was saying last year, all of our division VPs.

Right. Right.

Okay and then final question, just to clarify in terms of the -- how the growth builds up from here. You're saying that greenfields should be in the three to five range per year and then M&A external deals, probably six to eight, and I know we're generalizing here but that's the rule of thumb right now?

Yes. (multiple speakers)

That would be correct.

Great. All right, thanks very much.

One other thing, Dave, just highlighting when you're updating your numbers. We've got -- there will be 63 days in the third quarter and that's up from 61 last year and there will be 63 days in the fourth quarter and that's actually down from 65. That's in our Appendix material, where we've got sales by quarter and days, because that's something important as you guys are all working on your update.

Next we'll hear from Kevin Hocevar of Northcoast Research.

Wondering -- based on your commentary about pricing for next year in wallboard, just wondering how you plan on managing your inventory levels ahead of that for wallboard? Do you expect to do some type of pre-buy ahead of it or not really?

And I guess to a lesser extent on the installation side in the other category, I know there's a price increase out there for that as well in the January time frame. So wondering your thoughts there too on the ability for that price to stick and thoughts on managing inventories there ahead of that?

Well, we are trying in some areas to execute a little bit of pre-buy but I'll be honest. The way that supplies going as well as demand, it's kind of difficult to accumulate any meaningful inventory. In some parts of the country, we are on a, I would call almost a control distribution or an allocation situation with some of the manufacturers and frankly, our markets are so robust right now, that even trying to build the inventories is kind of coming in one end of the warehouse and going out the other.

So our efforts in any kind of a significant pre-buy, we're having a hard time pulling that off, so it may change a little bit into the new year, but I'm not really optimistic. We're -- the demand levels are really, really pushing the inventory out the door right now.

Got you, and then curious so ABC Supply bought L&W. They have owned it for about a month-and-a-half at this point and I know it's still very, very early on in their ownership of that but have you noticed any change in how they're behaving in the market or has it been pretty steady as she goes? And again, realizing it's very early on in that process.

No, L&W has always been a solid competitor of ours, and they continue to compete with us as they have in the past, so and I do think that it's kind of early on. I'm sure everybody is trying to figure out what the world is going to look like but we really haven't noticed any discernible change thus far.

Okay. And then just final question. So wallboard prices went down 1% from $306 to $303; however, a good chunk of the growth and I know you don't break out specifically how much is from acquisitions, but obviously a good chunk of those sales are acquisitions. So I'm curious of -- is that a pretty good gauge of what like-for-like pricing was for wallboard or did the mix of impact from the acquisitions have any impact?

Because I know there might be thicker board, longer board, what have you, so just curious if that's also a good gauge for like-for-like pricing or did mix have any impact on that price during the quarter?

Well, mix had a little bit of an impact but not mix related to acquisitions. It was mix related to, let's say, you've got a higher amount of half-inch wallboard which is primarily residential coming through and that's typically something that carries a lower price point. So that's really where mix comes into play not on the acquisition side. The acquisitions are pretty much look like us. Obviously, if it's in a different part of the country, that could have an impact but not a material impact.

I would agree.

Got you. Okay. Thank you very much.

This concludes the question-and-answer session for today. I would now like to turn the call over to Mike Callahan for any additional or closing comments.

Well, I would just like to thank everybody for joining us today on the call and we look forward to updating you on our progress in the coming quarters. Hope everyone has a happy holiday season and thanks again for your time and interest today.

That does conclude today's conference. Thank you all for your participation. You may now disconnect.