Griffon Corporation

Greetings and welcome to the Griffin Corporation fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brian Harris, Senior Vice President, Chief Financial Officer. Thank you. You may begin.

Thank you, Maria. Good afternoon, everyone. With me on the call is Ron Kramer, our Chairman and Chief Executive Officer. Our call is being recorded and will be available for playback, the details of which are in our press release issued earlier today. As in the past, our comments will include forward-looking statements about the company's performance based on our views of Griffin's businesses and the environments in which they operate. Such statements are subject to inherent risks and uncertainties that can change as the world changes. Please see the cautionary statements in today's press release and in our various securities and exchange commission filings. Finally, from today's remarks, we'll adjust for those items that affect comparability between reporting periods. These items are explained in our non-GAAP reconciliations included in our press release. Now I'll turn the call over to Ron.

Thanks and good afternoon, everyone. Griffin entered this year from a position of strength, both operationally and competitively. Our 2018 pivot out of the capital-intensive, commodity-driven plastics business and continued focus on branded, domestically manufactured products set the stage for strong revenue, earnings, and cash flow growth. We've also captured additional market share as we continue to realize synergies across our businesses, innovate new products, maintain our exceptional product quality, and deliver superior service to our customers. Our businesses were performing well before the pandemic, and the performance of our product portfolio has continued to show strength throughout this unprecedented year as consumers organized their living spaces, repaired and upgraded their homes, and spent more time outdoors. Our strong fourth quarter and fiscal year results reflect these trends, as well as the actions we've taken over the last several years through our portfolio reshaping. We finished the year with revenue up 9%, adjusted EBITDA up 18%, and adjusted EPS up 50% compared to the prior year results. We also generated strong free cash flow of $88 million in 2020 compared to $69 million in 2019. We continue to see consumers investing in home projects such as closet renovations, tending to their lawns and gardens, enhancing their enjoyment of the outdoors, and upgrading the exterior of their homes, including their garage doors. We took action this year to fortify our already strong balance sheet. In August, we completed a public offering of 8.7 million shares of common stock with net proceeds of $178 million. This equity offering, coupled with extending maturities on our unsecured bonds to 2028 and our credit facility to 2025, will help us execute on our growth strategy and continue to invest in our businesses and and to reduce leverage while providing sufficient liquidity to weather any near-term effects of the pandemic or other market uncertainties. To that end, achieving a leverage ratio of 3.5 times was one of our key priorities coming into the year, and we're pleased to have executed on this target as our strong financial performance and free cash flow conversion during the year, coupled with our equity offering, brought our net debt to EBITDA leverage to 3.4 times. At the onset of the COVID-19 pandemic, ensuring the health and safety of our employees and our customers has been and continues to be our top priority. Since early March, we've proactively implemented health and safety measures across all of our global facilities. As local and national authorities have circulated additional guidelines for employee health and safety, we've incorporating those as well. We reacted immediately, decisively, and have spared no expense in dealing with the COVID-19 risk and will continue to do so. All of our facilities are currently operational. However, we continue to be mindful of elevated case counts in Europe and now in the U.S. again. In the previous shutdown, all of our U.S. facilities were deemed essential businesses, and we expect that to continue should another broad shutdown occur. Turning to the market update, our segments beginning with consumer and professional products. We saw a strong fourth quarter demand for seasonal lawn and garden products, tools, storage, and organizational solutions at major retailers and home centers across all of our geographies, U.S., Canada, Australia, U.K., and Ireland. We're excited about the progress we've made in our previously announced AIM strategic initiative. We recently broadened this strategic initiative across all of our AIMS businesses, and it will now include all the North American facilities, AIMS United Kingdom, AIMS Australasia, and our manufacturing facility in China. The expanded focus of this initiative leverages the same three key development areas being executed within our U.S. operations. First, multiple independent information systems will be unified into a single data and analytics platform. which will now serve AIMS globally. Second, certain global operations will be consolidated to optimize facilities footprint and talent. Third, strategic investments in automation and facilities expansion will be made to increase the efficiency of our manufacturing and fulfillment operations and support our growing e-commerce initiatives. Expanding the rollout of the new business platform beyond AIMS U.S. to include our global operations will extend the project by one year, with completion now expected by the end of calendar year 2023. When fully implemented, these actions will result in annual cash savings of $30 to $35 million, which is $15 million more than we planned with the original initiative, and a $30 to $35 million reduction in and inventory, which is $10 million more than we planned in the original initiative. These improvements are based on our fiscal 2020 operating results. Moving to home and building product segment, in 2020, we had strong residential section garage door demand resulting from the same drivers around investing in homes as our consumer and professional product segment. Our commercial door business also had strong demand driven by the benefits of being combined with Clopay. e-commerce warehouse construction, and demand for security products. Telephonics 2020 revenue increased over the prior year, and order demand was strong in the fourth quarter, increasing 22% compared to the prior year fourth quarter. Backlog ended the year at $380 million. We continue to have a good pipeline of opportunities, both domestically and internationally. We also announced today that Telephonics implemented an initiative to improve its operational efficiencies through streamlining its organization and consolidating facilities. Brian will discuss this more as he goes through the financial details. Finally, earlier today, our board authorized an $0.08 per share dividend payable on December 17, 2020, to shareholders of record on November 25, 2020. This marks the 37th consecutive quarterly dividend to shareholders, which has grown at an annualized compound rate of 17% since we initiated it in 2012. We're continuing to focus on managing our cost structure and improving operating efficiencies, strengthening our balance sheet and increasing value to our customers through better service and a broader branded product portfolio. We believe our 2020 results demonstrate we can do that successfully and more to come in 2021. With that, let me turn it over to Brian to take you through a little more detail. Brian?

Thank you, Ant. I'll start by highlighting our fourth quarter consolidated performance. Revenue increased 15% to $661 million and adjusted EBITDA increased 8% to $63 million, both in comparison to the prior year quarter. Normalized gross profit for the quarter was $175 million, increasing 10% over the prior year quarter, while gross margin contracted 118 basis points to 26.4%. Fourth quarter normalized selling general administrative expenses were $126 million, or 19% of revenue, compared to $115 million, or 20.1% in the prior year fourth quarter. Fourth quarter gap income from continuing operations was $20.1 million, or 41 cents per share, compared to the prior year period of $16 million or $0.37 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income from continuing operations was $22 million or $0.44 per share compared to the prior year of $17 million or $0.40 per share. Turning to our full year results, consolidated revenue increased 9% to $2.4 billion and adjusted EBITDA increased 18% to $236 million, both in comparison to the prior year. Normalized gross profit for the year was $646 million, increasing 11%, while gross margin increased 41 basis points to 26.8%. 2020 normalized settlement general and administrative expenses were $474 million, or 19.7% of revenue, compared to $449 million, or 20.3% in the prior year. 2020 GAAP income from continuing operations was $53 million, or $1.19 per share compared to the prior year period of $46 million or $1.06 per share. Again, excluding items that affect comparability from both periods, 2020 adjusted net income from continuing operations with $73 million or $1.62 per share compared to the prior year of $46 million or $1.08 per share. Corporate and unallocated expenses excluding depreciation were $12 million in the fourth quarter and $47 million for the full year. Our effective tax rate, excluding items that affect comparability for the full fiscal year, was 32.2% compared to 34.3% in the prior year. Capital spending was $14 million in the fourth quarter compared to $18 million in the prior year quarter. For the full year, capital expenditures was $49 million compared to $45 million in the prior year. The current year included $7 million of capital expenditures related to the AIM strategic initiative. Depreciation and amortization totaled $15 million for the fourth quarter and $62 million for the full year. Regarding our balance sheet and liquidity, as of September 30, 2020, we had a net debt position of $825 million and debt to EBITDA leverage of 3.4x as calculated based on our debt covenants. This reflects one and a half turns of deleveraging from the prior year period. Our cash and equivalents were $218 million and total debt outstanding was $1.05 billion. Borrowing availability under the revolving credit facility was 370 million, subject to certain non-covidance. Regarding Q1 in 2021, regarding guidance, like many other companies, we withdrew our guidance in our fiscal second quarter because of uncertainties arising out of the COVID-19 pandemic. We reinstated it in our fiscal third quarter, having gained a clearer picture of the effects of the pandemic's impact through its fiscal year. Our regular practice has been to give guidance once a year and not to update that guidance during interim periods. We are returning to that practice. We are pleased that we exceeded both our revenue and adjusted EBITDA guidance. Our full year 2020 revenue guidance was approximately 2.3 billion and we achieved 2.4 billion. Our full year 2020 adjusted EBITDA before an allocated expenses guidance was 270 million plus and we achieved 283 million. It is also worth noting that our reinstated guidance in the third quarter was significantly higher than our original guidance provided back in November 2019. That guidance was 2% to 3% revenue increase compared to 2019 and adjusted EBITDA before unallocated expenses of $250 million plus. Regarding our 2021 annual guidance, providing guidance for 2021 is particularly challenging given the unprecedented events in 2020 and the continued global uncertainty we all face as we enter 2021. Nevertheless, we intend to follow our policy of providing guidance we feel is achievable at the beginning of the year and not providing updates to the guidance afterwards. We expect Griffin's overall revenue in 2021 to be approximately $2.4 billion. In terms of profitability, we expect fiscal year 2021 adjusted EBITDA to be $285 million or better, excluding both unallocated costs of $47 million and one-time charges related to the AIMS and telephonics initiatives. As Ron stated earlier, the expanded aims initiative will extend the project by one year, and we now expect completion by the end of calendar 2023. When fully implemented, these actions will result in annual cash savings of 30 to 35 million and a reduction in inventory of 30 to 35 million, both based on fiscal 2020 operating levels. The cost to implement this new business platform will include one-time charges of approximately 65 million, which increased from 35 million under the original initiative, and capital investments of approximately $65 million increased from $40 million under the original initiative. The one-time charges are comprised of $46 million of cash charges, which includes $26 million of personnel-related costs, such as training, severance, and duplicate personnel costs, as well as $20 million of facility and lease exit costs. The remaining $19 million of charges are non-cash and are primarily related to asset write-downs. During the fourth quarter, Telephonics initiated a voluntary employee retirement plan, which was followed with reduction force in order to streamline the organization and improve efficiencies. These actions will cost approximately $4.5 million, $2.1 million of which was recognized in Q4, and the remainder will be recognized in the first quarter of fiscal 21. Telephonics is also consolidating its three Long Island-based facilities into two company-owned facilities. Total costs for the facility consolidation will be approximately $4 million, which primarily consists of capital expenditures occurring in 2021. Total capital expenditures for 2021 are expected to be $65 million, which includes $15 million supporting the AIMS initiative and $4 million supporting the telethonics facilities consolidation. Depreciation and amortization is expected to be $64 million, of which $10 million is amortization. We expect to continue to generate free cash flow in excess of net income, inclusive of the capital investments and other investments we are making at AIM and telephonics. We expect net interest expense of approximately 63 million for fiscal 2021. Our expected normalized tax rate will be approximately 32%. As is always the case, geographic earnings mix and any legislative action, including new guidance on tax reform matters may impact rates. As a final comment, with our guidance for fiscal 21 attempts to factor in external variability, the potential impact from a global increase in COVID-19 cases, and the related potential shutdowns to combat the spread of the virus, as well as a challenging global macroeconomic environment and the uncertain U.S. political environment, all make providing guidance challenging. Our guidance also assumes that we will be able to offset wage and commodity inflation through a combination of cost mitigation actions and pricing, Now I'll turn the call back over to Ron.

Thanks, Brian. Griffin's 2020 total year performance is something we're proud of, considering how much has been achieved in just a few years since we began the portfolio repositioning and then adding the impact of the disruptions from the COVID-19 pandemic in 2020. We expect that the portfolio actions would provide opportunities for top line growth and margin expansion through the realization of efficiencies during the integration process of our acquired companies. Further, we expect it to become stronger competitively by providing increased value to our customers in terms of our broader product offerings, improved service levels, and enhanced efficiency. Our results for 2020 are consistent with achieving those opportunities. Total year revenues grew 9%, adjusted EBITDA increased 18%, and earnings per share increased 50%. Free cash flow totaled $88 million, and we strengthened our financial position through better cash performance and paying down debt, achieving our net debt to EBITDA leverage goal with September 30, 2020 leverage of 3.4 times. We continue to believe the diversity of our businesses, our emphasis on domestic manufacturing, and our focus on leading brands provides a strong foundation for growth and a competitive advantage. We've made progress, but we know there is still considerable opportunity for improving the performance of all of our existing businesses. In addition, we remain committed to finding strategic acquisitions that expand and strengthen our product portfolio within each of our home markets. Closing, I'd like to thank our workforce, which has shown exceptional dedication and perseverance throughout this challenging period. We appreciate the importance of their work in order to deliver these excellent results. We know we will continue to face obstacles and are monitoring any new developments on COVID-19, but we're committed to the safety and welfare of our 7,400 employees, as well as our customers and all of our communities. With that, operator, we're happy to take any questions.

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Bob Lovett with CGS Securities. Please proceed with your question.

Thank you. Good afternoon and congratulations on a nice quarter and a very strong year.

Thanks, Bob. Thanks, Bob.

Good stuff. I wanted to start with the AIMS initiative. It's exciting that you're expanding it at what looks to be strong incremental returns as well. The whole project looks really strong. Um, you talk a little bit about one of the outcomes being enhancing your e-commerce capabilities. Wondering if you could just tell us a little bit about what you're doing in that regard, where you are now and where you'll be. And is this front facing, is it all kind of on the backend and logistics or a combination of both?

Uh, let me start by saying, I think it's, uh, you know, a, our e-commerce initiative is supporting the growth of each of our individual customers. So it's our ability to build the infrastructure in order to accommodate the order entry program as well as the automated delivery of product to the end customer. It's something that we believe is going to continue to be part of the growth of people like Home Depot and Lowe's, Menards, and our ongoing support for people that are emerging like the Wayfarers and ultimately the Amazons of the world. But we really look at ourselves as a branded product manufacturer, and there's a broad ability for us to be able to distinguish the type of leading market share essential products and then to be able to interface with the evolving retailer market in e-commerce to be able to deliver those directly to the consumer. Brian, you want to give some details on some of the other pieces of Bob's question?

Yeah, I would just add to that that, you know, completing orders for e-commerce are generally different than doing it for large home centers. So you'll have just one set of products going to one individual customer. And our new automation on the distribution side, as well as the manufacturing side will help us fulfill those orders while continuing to maintain excellent service to the larger customers, such as the home centers.

Got it. Really helpful. Thank you. And then, um, shifting gears a little bit, but obviously, uh, somewhat topical given, um, what most people would say is the Biden presidency that's coming. Does that have any impact on telephonics? And can you give us an update on the international outlook for telephonics as well and how that's ramping?

Telephonics has been going through a multi-year impact. That goes back to the sequestration programs that went from the Obama administration to The turn in defense spending that really was the 2017 budget gives us visibility in that business. Clearly, the predictability of foreign military sales has happened slower than we would have liked. But in the core products that telephonics represents, intelligence, surveillance, and reconnaissance, There is no question that there is an ongoing global demand for U.S. allies. And the domestic funding for the programs that we're involved in, we continue to believe are strong. So while the five-year cycle is not something that we're at all happy with, seeing our revenues go down and profits drop, go down in the business. It's a business that we've owned for a very long time. We have an appreciation for its cyclicality, and we believe that the five-year cycle in front of us is going to get us significantly back towards the level of both revenue and profitability that we were at before we went through this sequestration cycle. So we view the ongoing political movement as being factual. The reality is we make essential products that are cost-effective, battle-proven, and for the U.S. Navy and for allies, we believe we'll continue to be a supplier.

Got it. Okay, great. And then last one for me, and I'll jump back in queue. Last year was generally a pretty weak snow season, particularly northeast in the U.S. and everything. I know you have significant market share in snow shovels and the like. Is this going to create any lumpiness in terms of inventory or anything like that going ahead, or how do you plan and work through seasonal changes like that?

Yeah, I would answer it that Snow is just a category of a very diversified, globally balanced, and it's a very different company than the aims that, you know, going all the way back 10 years that we've owned the business, that, you know, Snow is just not nearly as seasonal an impact. As it was, the company is far more diversified, far more balanced in its global, counter-cyclical, and on any given season, both spring or winter, there's an impact of incremental demand. But what we're seeing and have been seeing is we have the leading market share in every product that we sell worldwide. not just snow, but lawn and garden storage and organization. And all of those different products gives us a far different impact on being able to control the outcome of any one snow season or any one spring planting season. But we've enjoyed robust demand throughout this year and to the point that we're not the least bit concerned about any of the near-term seasonal snow issues.

Got it. Okay, super. Thank you very much.

Our next question is with Julio Romero with Sedoti & Co. Please proceed with your questions.

Hey, good afternoon, everyone. On the expansion of the AIM strategic initiative, how much restructuring should we layer into our models for fiscal 21?

Sure, I'll answer that. We're expecting about 15 million of expenses, as well as 15 million of capital expenditures.

Okay, got it. And I guess, you know, could you delve a little bit deeper into some of the some of the offsets in consumer and professional products in the quarter, specifically the COVID-19 related inefficiencies. And is that kind of expected to kind of linger into the first and second quarters of this year?

Sure. So yes, you know, we have seen inefficiencies related to keeping our facilities safe and that will continue as long as the pandemic is continuing. We had some direct costs in the year of about $5 million for the CPP business and $8 million across all of our businesses. Those costs will diminish because most of the programs we put in place are in place, so we're expecting about $6 million of costs on an annualized basis, direct costs on an annualized basis to keep our protocols in place and our employees safe.

Julio, I just add to that that we were clearly doing well going into the pandemic, and we haven't been the least bit concerned about what it costs. All we've been focused on is making sure that we're able to take care of our employees, take care of our customers, and whatever that's going to impact financially, assume it's going to keep going because our view of this is that while there's a lot of very positive things on the horizon and ultimately this will be the triumph of science and being able to deliver the vaccine, until that happens, we're still in the same crisis and we treat it that way on a daily basis.

Yep, absolutely. And I guess just switching gears to the guidance, I guess when I think about what you're guiding for, I mean, you're already at your kind of targeted margin. You're exceeding your targeted margin range in the garage door business, I believe. So I guess is the implication that for 21, you might expect a little bit of a pullback on the margins in that segment, and then you might see some margin improvement in the consumer and professional products? Would that be a fair assumption? Okay.

I wish it were that easy to give guidance and be clear. We've been operating in the most extraordinary period that anyone who's ever operated a business is faced with. So when you talk about trying to give guidance, we start by saying, look, we'd always like to under-promise and over-deliver, and that's what our track record has been over all the years that we've given guidance. We have so many things going on on a daily basis that are going to impact what the next year, but we're six weeks into our fiscal year, and all the trends that were positive last year are still doing the same thing in fiscal 21. So we try to be conservative, we try to set expectations, but the broader comment that I've made over all the years that we've given guidance remains the same, which is that the earnings power of these businesses is far greater than any near-term guidance that we give. And our goal in giving guidance is to set the bar more for our credit investors and our equity holders We continue to believe that this is a compelling value story. We continue to believe that we have a lot of good things going our way and that the margin improvement story, particularly around AIMS and particularly around the recovery in telephonics, is still ahead of us. How much more of the margins in our home and building products group will be able to achieve. It's still early days on the integration of a Cornell Cookson business into Clopay. We continue to believe that the commercial door opportunity that we saw going back five years ago is going to play out. It's accelerated as a result of the change in retailing and the movement to e-commerce. And I'll remind you that every time there's a package getting shipped to your door, It's coming out of a warehouse. Those warehouses have rolling steel doors. So the growth part of our business in home and building products is going to change over the next several years. We expect that. We continue to invest in it. And the margins are clearly reflective of all the good things that have gone on by Steve Lynch and his team in that business over the last several years. We think there's plenty more to come. And so the big story for us is we said guidance, and we clearly are saying next year is going to be better than this year. And this year turned out to be a lot better than the guidance that we said a year ago.

Understood. Thanks for taking the questions.

Thank you.

Thanks. Our next question is from Josh Chan with BARG. Please proceed with your question.

Good afternoon, Ron and Brian. Congrats on a good quarter. Hello.

Thank you.

Thank you. Yeah, I wanted to ask about the strong momentum and aims and wondering if, you know, you're kind of continuing to see that momentum continuing into the current fiscal year just because, you know, you know, recognizing that it's probably getting away from the lawn garden season, but at the same time, will you have some inventory kind of refilling type of opportunities?

We continue to see the trends in our business being strong, you know, to start this fiscal year. And, you know, and I'm going to go back and, you know, and simply make the comment that, you know, well, the at-home trend is, is clearly accelerating a lot of demand over a lot of categories. We still believe the housing recovery is ahead of us in the United States, that this is not anywhere near the levels of both consumer spending that will come out of two things that I believe are on the horizon. One is a stimulus bill, and two is an infrastructure spending bill. So we have so many people in this country that are going to get back into the workforce that the ability, you know, to have wage increases as a result of the recovery that will happen once the vaccine and once life goes into something resembling what was, you know, what was occurring before the pandemic started in March. Those are positive trends. And as the, you know, the aim side of our business is, And consumer product, again, these are essential products, and we have the leading brand, leading market share in every product that we sell. So we feel really good about the trends that were going on in our business. We don't believe that there was any magic to that, and it was all as part of what we had been positioning over a period of years and, you know, the COVID effect of accelerating people's spending in and around the house is a trend that we believe is going to continue even once we start to reengage.

All right. That's good to hear.

And then on the cost side, could you update us on sort of the phasing of the cost savings now that, you know, you're expecting kind of a higher number, but, you know, taking additional year to accomplish the other piece of this initiative?

Sure. So the original timeframe was we'd be done with the first, what we'll now call the first phase of the initiative by the end of calendar 22. and we still expect to hit that 15 to 20 million by that time with the balance of it to come in the year after. And along the way, we'll see incremental benefits.

Okay. And then I guess my last question is on the guidance. So, you know, $2.4 billion, you know, last year and $2.4 billion this year. So, I mean, I'm sure there could be rounding there, but, you know, does the guidance kind of contemplate a little bit of a tougher comp in the back half of the year. I guess, could you just walk us through kind of the revenue line, what you're thinking there in terms of the upside case and the downside case?

Sure. So, you know, we had better visibility for the first half of the year. You know, orders, as we just mentioned, are starting off in the year well, and we see good demand. When we get to, as you said, and we agree, when we get to the second half of the year, we do see tougher comps. And there's a lot of unknowns, how long the virus is going to last, how successful any vaccine may be, and the economic impacts of those items. That's great.

Thank you both for your time.

We like to be conservative.

Understood. That makes a lot of sense. Thank you.

Thank you.

Our next question is with Justin Bergner from G Research. Please proceed with your question.

Oh, good afternoon, Ron. Good afternoon, Brian. Hi, Jeff.

Hi, Jeff.

I got dropped, so I missed some of the opening prepared remarks. So apologies if I hit one or two redundancies. Could you just remind me, and there might be others that got dropped as well, in terms of what the revenue and adjusted EBITDA guides were for fiscal year 2021?

Sure. Revenue is $2.4 billion. And adjusted EBITDA excluding corporate unallocated costs is $285 million. And corporate unallocated is expected to be $47 million.

47, you said there?

Yes.

Okay. Thank you. Maybe switching to the defense business, I guess why now on this – I guess, restructuring facility consolidation program for defense electronics, and does a changing presidential administration lessen your appetite for M&A in telephonics?

Well, I think there are two parts to the question. One is getting the facilities right-sized for the level of business and to be able to capture increased margin as we expect the recovery in both revenue and then the obvious proportionate profitability that will come from a better aligned, more efficient operating footprint. And the M&A piece to it is I wish it were as easy for us to find a business as good as the one we have at a price that would make any sense for us to add. to telephonics. So we like the business. We would love to grow our defense electronics segment. Unfortunately, so would most of the primes and an unlimited amount of private equity capital. So the competition for value in that space is something that while we'd love to find opportunities, for us it's about managing the business we have increasingly better And in doing that, being able to continue to generate good returns on invested capital and incremental free cash flow.

Okay, understood. That makes sense. I'm sorry if I missed it. Did you quantify the expected savings in the restructuring and facility consolidation program, or is that going to come later? That will come later.

You could expect one or so million, one to two million on that.

Okay. And then just shifting back to the home and building products, or sorry, to the consumer and professional products business, it seems like you're spending an additional $30 million of one-time cash costs and an additional $30 million of CapEx in the new plan, and that is generating... a relatively modest level of incremental savings of sort of annual cash savings of 15 million and 10 million in reduction inventory. So, you know, it's sort of like a, I guess, three to four times sort of spend per return. Should I interpret that as you want to go forward with this, you know, extra part of the program, even though the returns aren't as great because they're still good enough? Or should I interpret that as the existing program was, you know, running a bit over time and budget, perhaps because of COVID or macro considerations?

So, a couple things there to unpack. The initial program is running on time, on budget, and has not been affected significantly by COVID or anything else. As far as returns, the returns aren't that much different from our original project. We look at it that we are making sort of an acquisition, but we're investing it in ourselves in a business we know very well. We have gained good insight from prior initiatives we've done both at Clopay and at Clopay's original facility in Troy and the mountaintop expansion that we did last year or ended last year. And we think this is a really good investment. Secondly, the savings that we put out there are things we can touch and are direct, things we can calculate. Beyond that, we are going to be able to service our customers better. We're going to have better data, both for ourselves as to when to manufacture, where inventory should be located, and how much of it we should have, as well as how our customers should take on inventory, having it at the right time as well. Those things are harder to know how much benefit we'll get from it, but it'll be above and beyond the benefits we've stated.

Okay, that all makes a lot of sense. Just lastly, any idea in terms of the sell-through type of demand in consumer professional products versus that, you know, staggering 29% organic growth number?

Yeah. I'm not sure exactly what you meant, but yes, point of sale has been very strong, if that's what you're asking.

Yeah, point of sale. And we continue to see that trend continuing.

Okay, so maybe not quite as high as 29, but still very strong. Yes.

Okay, one leads to the other.

Right. All right, thanks, and good luck with all the initiatives. Thank you so much.

Thanks, Justin.

Our next question is with Keith Hughes with Truist. Please proceed with your question.

Thank you. One of the big questions that I have from investors is around this good home-related business, if it's going to fall off as we go into next year. And you've seen wonderful, wonderful numbers on the top line from consumer professional products. But, you know, with this guidance, it sort of foretells something, a lot of that business retracting. I understand being conservative, but is that something you expect in consumer professional products as the year goes along?

We saw very good trends in our business going into the pandemic. We clearly have seen accelerating trends as a result of the pandemic. We're clearly telling you that we're off to a very good start for 2021. You know, the whole process for us of setting expectations is, you know, to be able to be at a level that we're comfortable that we're going to be able to meet all of the demand that's out there. And our view is that there is an ongoing recovery process. You know, the timing and the predictability of what's going to happen as a result of the unprecedented situation that we're in just makes us look at this and say we view 2021 as being better than 2020. And I'll remind you that a year ago, we went into the year, you know, looking at guidance at 250 plus million for this year. We suspended guidance in the depth of the crisis. We reinitiated in August at $270 million, and we ended the year at $283 million. And if you go back to the time when we sold the plastics business, bought ClosetMaid, bought Cornell Cooks, and we talked about being on a path – to get from, I believe at the time, was $225 million of EBITDA to $300 million over a five-year period. Well, we're two years into it, and we're going to be knocking on the door of $300 million in the not distant future. Whether that happens in 2021, that's just not how we run the business. We run the business to continue to grow both margins. build and invest around the products and the brands that we've been able to put together. And the earnings power of our business is really ahead of us. Peak earnings power of our business is really ahead of us. We've done very well during very difficult times. We truly believe that there's better times coming in the broader consumer economy. And when that happens, you'll see that in both our margins and incremental profitability.

Okay. And just another question on consumer professional products. You talked about some of the things that happened in the quarter. Even when I back out, the COVID costs and margins were still down a little bit year over year despite the strong revenue. Are those issues going to persist into the December quarter as well?

No. So in the quarter, we saw inefficiencies related to the facilities consolidations, you know, closing down one distribution center and combining with another, as well as inefficiencies related to supplying areas that were hit by natural disasters. Often what happens with those situations is you don't end up sending out full trucks because you're sending out smaller items directly to stores or to smaller areas. and that causes inefficiencies in the distribution system. So no, I would not expect those two things to occur.

Okay, that's all for me. Thank you. Thank you.

As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question is with Trey Grooms with Stevens. Please proceed with your question.

Hi, good afternoon. Thanks for taking my question. So I guess the first one for me, you mentioned picking up some share. I believe you were talking about CPP specifically there. Are there any specific products where you're seeing an outsized market share gain, or was it pretty broad-based there?

It was pretty broad-based. We're seeing, you know, those results are across all of our product lines.

Okay, got it. And then on the garage door business, so, you know, clearly you guys are in both, you know, residential and then some commercial. And you touched on something that I think it sounds like a big opportunity for you guys is the, you know, fulfillment centers and things like that. Is that helping you guys, or has it helped you in your fiscal 20, that kind of dynamic of build out of the fulfillment centers, or is that more on the come here as we enter 21, just your thoughts around the commercial side there?

We're predominantly a residential business, and we've always talked about the ability to build our commercial door business. That was the big strategic initiative behind the purchase of Cornell Cookson to expand our ability to do both rolling steel, sectional, commercial. That is, you know, it's still small and it's still, you know, incrementally beneficial. It's an architectural sales channel, different than the big box retailer and the dealer network that we have. But we continue to see that as being a big part of our growth opportunity for the future in both replacement cycle and new construction. The partition, the security level products that are clearly going to be part of what comes out of life after COVID, all are very good long-term drivers of incremental demand. But, no, none of that is played out meaningfully in 2020. That's really about the future.

Got it. And thanks for that. And then you mentioned in, I guess, one of your – I guess it was a response to one of the other questions, that you kind of shoot for setting expectations to be at a level where you can meet all of the demand that's out there. So I guess that got me thinking about, you know, are there any – capacity constraints or is there any concern there, whether it be on your end or from any of your suppliers? Since we have had such strong demand, getting that incremental demand or those incremental shipments, is that a concern of yours or a risk as we look into 21?

I would more call it that the challenge is always to be able to meet demand and and we see unlimited demand in our product categories, and we're working every day to make sure that we can be as efficient in manufacturing and in distributing to each of our customers. So we feel good about the environment, and the expectation part of the comment is just being level set that, you know, things change, and, you know, this year – More than ever, it shows you, you know, that things get thrown at you, you know, that are unexpected. But, you know, in the way we try to run our businesses and, you know, I know, Trey, you're new to, you know, covering us. And, you know, we really look at trying to be as open and transparent about setting the expectations for guidance. We have always always met or exceeded any levels that we've given out. And we see the world that we're in as being the most uncertain time that anyone's ever operated a business in. So we believe our earnings capability is far higher than any of our near term guidance. And over time, that'll prove itself out, but it's, you know, one quarter at a time, one year at a time. And for us setting the, uh, the bar at we expect 2021 to be a better year than 2020. But from where we're sitting, it's been an exceptional year. And if we do no worse at the EBITDA line than we did this year, we're going to generate a significant amount of free cash again. We're going to de-lever ourselves even worse than we already have. We have no debt to pay down. Our bonds have a 2028 maturity, so we're going to continue to build cash on the balance sheet. The bigger part of our story is we are aggressive buyers of businesses. And our ability to deploy capital, the substantial amount of both cash, credit, we have a $400 million revolver, and our proven ability to go and grow through acquisition is really the part of our story that over time you'll be able to see as we continue to find opportunities.

Understood. I appreciate all the color. I'll pass it on. Thank you.

Thank you.

Thank you.

Our next question is with Justin Bergner with G Research. Please proceed with your question.

Oh, thanks. Two quick follow-ups. The $1 million to $2 million in savings for the defense electronics, was that just on the restructuring spend or the restructuring and facility consolidation spend?

That was referencing the facilities. On the other side, we'll see a couple million from that as well.

Okay, great. Thanks. And then, The other question is, can you just remind us, have you articulated recently what the medium-term EBITDA margin guidance for home and building products is? Nipso, can you refresh our memory?

Sure. So we have guidance out there, 15-plus. Obviously, this year we outperformed that. We're in unusual times to say the least, and there's a lot of uncertainty in general in the macroeconomics. as well as from, you know, directly from COVID and as well as macroeconomic. So we're going to, you know, continue to work on that plus and, you know, continue to, we'd like to lap it. We haven't been there for very long, and we expect that there's still opportunity to improve the margin in that business.

Great. Thank you.

We have reached the end of our question and answer session. I would like to turn the floor back over to Ron Kramer, Chief Executive Officer, for concluding comments.

Thank you. Take care. Stay safe. Be well. We look forward to following up with you in January. Bye-bye.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.