GMS Inc.

Greetings, and welcome to the GMS second quarter fiscal 2022 meetings call and webcast. 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. I would now like to turn the conference over to your host, Terry Phelps, Vice President, Investor Relations for GMS. Thank you. You may begin.

Thank you, Melissa. Good morning, and thank you for joining us for the GMS Earnings Conference Call for the second quarter of fiscal 2022. I am joined today by John Turner, President and Chief Executive Officer, and Scott Deacon, Vice President and Chief Financial Officer. In addition to the press release issued this morning, we have posted PowerPoint slides to accompany this call in the Investors section of our website at www.gms.com. Turning to slide two, on today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties, many of which are beyond our control and may cause actual results to differ from those discussed today. As a reminder, Forward-looking statements represent management's current estimates and expectations. The company assumes no obligation to update any forward-looking statements in the future. Listeners are encouraged to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC, including the risk factor section in the company's 10-K and other periodic reports. Today's presentation also includes a discussion of certain non-GAAP measures. The definitions and reconciliations of these non-GAAP measures are provided in the press release and presentation slides. Please note that references on this call to the second quarter of fiscal 2022 relate to the quarter ended October 31st, 2021. Finally, once we begin the question and answer session of the call, in the interest of time, we kindly request that you limit yourself to one question and one follow-up. With that, I'll turn the call over to John Turner.

Thank you, Carrie. Good morning, and thank you all for joining us today. We're going to start on slide three. We're pleased to share with you today results from another record-setting quarter with net sales of $1.15 billion, net income of $74.4 million, and adjusted EBITDA of $149.5 million. An inflationary pricing environment and continued strength in the residential market coupled with our focus on customer service and execution, drove another quarter of strong performance and profitability. A few specific highlights from the quarter include record levels of net sales, net income, and adjusted EBITDA with sales growth in each of our four reporting product categories. All core product line sales were up at least 25%, with steel remaining a standout with a greater than 140% increase for the quarter. Gross margin was 32.3%, which was slightly higher than expected. SG&A and adjusted SG&A as a percentage of sales improved year-over-year for the sixth quarter in a row. And finally, adjusted EBITDA margin improved 280 basis points to 13% for the quarter, compared with 10.2% a year ago. Within the context of high product inflation, supply chain constraints, and strength in residential demand, Our focus on serving the needs of our customers and executing on our strategic priorities were instrumental in our ability to deliver this level of performance. I'd like to share a few examples. First, on slide four, we remain focused on expanding share in our core products as our sales force works diligently to earn a greater share of our customers' business. While many home builders pulled back their activity levels during the quarter due to supply chain concerns, Our channel checks with suppliers provide confidence that we are maintaining or growing share in each of our key product categories, with notable growth in steel framing. Second, we are growing our complementary products to continue to diversify and profitably expand our offerings. This quarter sales grew 24.8%, marking the sixth consecutive quarter of year-over-year growth for this category. And, as you saw in last night's release, We just completed our latest and largest acquisition in this product category, AIMS, the nation's foremost provider of automatic taping tools. I will discuss this acquisition in more detail momentarily. But we are excited about this margin accrued transaction and its growth potential. Regarding platform expansion, beyond the AIMS and Kimco transactions that we completed this week, during the second quarter, we completed the purchase of the EIFS division of DK&B Construction Specialties. expanding our complimentary product offerings and expertise in the greater Nebraska market. And we opened a new greenfield facility in Tennessee, enhancing our ability to service our customers in that growing market. And finally, we continue to execute against the fourth pillar of our strategic priorities to leverage our scale and employ technology and best practices across the business to drive improved productivity and profitability. Arming our team with the tools and data to make better informed decisions is helping to drive additional operational efficiency. And we are advancing our levels of customer service by working to automate our transaction processes from order through dispatch to delivery, providing online capabilities to enhance the customer experience while lowering our cost to serve. Before turning the call over to Scott, I'd like to spend a few minutes discussing our acquisition of AIM's taping tools, which is highlighted on slide five. Ames pioneered the development of automatic taping and finishing tool technology in the 1930s, dramatically improving the speed, quality, and efficiency of the professional interior finisher. Today, Ames is the premier supplier of high-quality automatic taping tools and brings to us the industry-leading ATF brand, Tape Tech, and the industry's most widely used e-commerce platform, all-wall.com. The company, which will continue to operate under its well-known brands, utilizes three channels of distribution. First, AIM's network of more than 85 stores sells products for residential and commercial interior finishing applications and provides an unparalleled fleet of 100,000 ATF tools available for rent. The second distribution channel is the sales of Tape Tech-branded ATF tools and related products through dealers and distributors. including GMS. And the third channel is online sales of drywall finishing and related products through the all-wall.com e-commerce platform. With trailing 12-month revenue of approximately $100 million and margins in excess of our company average, AIM should serve not only as a complement to our product offerings, but to our long-term profitability as well. With that, I'll now turn it over to Scott to provide more perspective on our financial results for our second quarter. Scott?

Thanks, JT, and good morning. The buoyant inflationary environment and healthy demand in residential construction were the principal drivers of our solid results this quarter, serving to offset lingering relative volume weakness in commercial. Looking at slide six, net sales, which benefited from a full quarter of contribution from our Westside acquisition, increased 41.5% for the quarter to $1.15 billion. Organically, sales rose 31.2%, driven by pricing gains across many of our product lines, coupled with continued strength in the residential market. The number of selling days for the quarter was the same year over year. From an in-market perspective, both residential and commercial sales in the U.S. were up more than 35 percent organically year-over-year, again principally due to price inflation. Wallboard sales of $414.5 million increased 25.4 percent, comprised of a 22.5 percent increase in price and mix and a 2.9 percent increase in volume. Organically, wallboard sales grew 19.7%, comprised of a 20.8% increase in price and mix, partially offset by a slight 1.1% decrease in volume. Commercial volumes continue to lag the residential market, and given the supply chain issues that builders are facing in other products, new single-family residential volumes have now dropped to high single-digit growth. Given pervasive supplier pricing actions, our average realized wallboard price has increased sequentially each quarter for the past year. For the second quarter of fiscal 2022, the average realized wallboard price was $376 per thousand square feet, up 5.4% from the first quarter and up 21.9% from the second quarter of last year. While the pace of price increase is tempered late in the quarter, we anticipate further price escalation to resume in the new calendar year. Ceiling tile and grid sales of $140.9 million increased 25.6% year-over-year, comprised of a 24.6% benefit from price and mix and a 1% increase in volume. Organic sales and ceilings grew 17.4%, with 20.4% of price and mix partially offset by a 3% decline in volume. Steel framing sales of $272 million increased 144.4% as steel price and mix increased 132.2% and volume grew 12.2%. On an organic basis, steel framing was up 122.2%, comprised of a nearly 120.1% benefit from price and 2.1% on increased volume. Sales growth of our complementary products was 24.8% for the quarter, as we benefited from positive contribution from acquisitions and strong pricing in most product categories. On an organic basis, sales of complementary products were up 12.6%, with the majority of the increase coming from price. Gross profit of $371.9 million increased 40.3% over a year ago, as gross margin performed slightly better than expected, coming in at 32.3%, or 30 basis points behind last year's level. Pressures on wallboard margins due to the timing of our pass-through of supplier pricing actions moderated slightly sequentially, more partially off over year increases in ceiling steel framing and complementary products. While it typically takes three to six months to fully pass through a price increase in wallboard, our teams have made clear progress narrowing the gap and driving sequentially improved gross margins in that product category. Turning to slide seven. Adjusted SG&A expense as a percentage of net sales improved 310 basis points year-over-year to 19.4% as significant product inflation outpaced increases in operating costs. While this improved leverage was driven by the inflation that positively impacted our net sales dollars, we are pleased with the cost disciplines our teams have achieved against a backdrop of a difficult COVID-era comp and inflationary and activity-based operational increases in several areas, most notably in fuel and employee comp and benefits as driven by our higher levels of sales and profitability. All in all, second quarter adjusted EBITDA of $149.5 million was 81.2% higher than a year ago, and an adjusted EBITDA margin improved 280 basis points year-over-year to 13% for the quarter. representing an incremental margin of 19.8% at the upper end of our expectations. Slide eight references our cash flow dynamics during the quarter as well as our balance sheet and liquidity position. Given continued inflation, extended lead times, and certain instances of tight product availability, our commitment to ensure product availability for our customers across our portfolio of offerings has required a higher use of cash again this quarter, principally associated with inventory. We recorded a use of cash from operating activities and free cash of $2 million and $11.3 million, respectively. The inflationary increases we had in our revenues during the quarter also drove a use of cash related to accounts receivable. Looking at the back half of fiscal 2022, we expect to generate improved levels of free cash flow as we draw down some of our inventory levels, as is typical when we enter the winter months, and as other supply chain inefficiencies are hopefully relieved. On a longer-term basis, we continue to maintain our through-the-cycle objective of generating free cash flow in a range of 40% to 45% of adjusted EBITDA. Capital expenditures of $9.3 million compared to $7.1 million in the prior quarter – excuse me, prior year quarter. Given our recent acquisitions, we now expect full-year fiscal 2022 cash capital expenditures to be in the range of $40 to $45 million. As of October 31, 2021, we had cash on hand of $59.3 million and $302.2 million of available liquidity under our revolving credit facilities. Our net debt leverage at the end of the quarter improved to 2.4 times, down from three times a year ago. The closing of our AIMS taping tools transaction yesterday. This leverage ratio has now moved closer to 2.7 times, still within our target range of 2.5 to 3.0 times, as we continue to maintain a healthy balance sheet and liquidity position to support our strategic growth priorities. With that, now let me turn the call back over to JT before we open the line for questions.

Thank you, Scott. Turning to slide nine, we are pleased with our results this quarter and feel confident about our business as we head into the next calendar year. As Scott highlighted during his remarks, the residential market remains healthy with favorable fundamentals in both single family and multifamily to support growth and demand for our products. Recent existing home sales figures exceeded expectations and indicate continuing interest among consumers. And, while some bottlenecks in other parts of the supply chain have caused delays for builders this fall, there remains a gap between housing starts and housing completions that is expected to drive sustained levels of demand as the supply chain recovers. In commercial, the Architectural Billings Index, which is generally considered to be one of the best external leading indicators available, has remained above 50 since February, and the Dodge Momentum Index, which provides a measure of the non-residential building projects in planning, recently hit a 14-year high. Importantly, the improvement in our own bidding activity and backlog that we saw at the end of the summer has continued, and order activity has begun to slowly follow suit as projects that were previously on hold are being approved to move forward. So while it is too early to know with certainty when we will see a true commercial construction recovery, Given these positive indicators and expectations for continued year-over-year price inflation through the balance of our fiscal year, we have reason to be cautiously optimistic as we head into calendar year 2022. Given that backdrop, let me turn to our expectations for the third quarter. We currently expect to generate year-over-year organic sales growth of approximately 40%, or nearly 50% total net sales growth inclusive of acquisitions. With pressured price-cost dynamics and favorable operating expense coverage expected to continue, gross margin for the third quarter should be consistent with the prior year at 32.4%, yielding an incremental adjusted EBITDA margin of between 15% to 20%. Looking into calendar 2022 and our fiscal 2023, we are optimistic about the demand outlook for our products. We are confident that our scale and commitment to delivering outstanding customer service will continue to enable us to successfully execute our strategic priorities. Our balance sheet is strong, we have a solid pipeline of M&A opportunities, and we remain focused on driving value for all of our stakeholders. Thank you for joining us today, and with that, I will turn the call back over to Melissa to begin questions and answers.

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd 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 key. In the interest of time, we ask that you each keep to one question and one follow-up. Our first question comes from the line of Keith Hughes with . Please proceed with your question.

Thank you. Two questions. I guess first, your total revenue growth and organic revenue growth that you're talking about for the third quarter is greater than what you just reported. Is something going to be getting sequentially better? Is the volume increasing price? Any kind of guidance would be helpful.

Sure. I think that we're expecting volume to be a little bit better in the quarter. We're seeing a little bit of a bounce off the bottom commercially. You saw that our steel volumes up 12% and 2% organically. That generally precedes better wallboard sales on the commercial side. Steel usually is a leading indicator of wallboard sales on the commercial side, so we're expecting a little bit of a rebound there, and continuing inflation on a year-over-year basis. So we continue to see our wallboard prices, ceilings prices, steel prices inflate somewhat, although the degree of that inflation on a sequential basis is significant. flattening out a little bit. And what happens in the first quarter, calendar quarter, with wall board pricing is really yet to be seen, although we don't see any reason for that to slide backwards for sure.

Okay. And I guess a question on inventory. Up a lot year-over-year, obviously a lot of price in there. Could you just talk about where your unit inventory is, specifically in wall board? How much is it up? And just maybe a subjective comment on how... How readily available are you able to meet customer orders here in the near term?

I mean, we've basically increased the inventory to meet the customer order, so we feel like we're in a good service position. The reality of our inventory is that as lead times have extended, that's the driver of having to carry more inventory on a unit basis. So turns have been impacted significantly. you know, if you look at on a weeks on hand basis, you know, coming into the year, steel was, you know, a one to two week type lead time extended all the way to eight to 10, in some cases 12. So you can imagine when your lead time extends by 10 weeks, that's five times the historical lead time. That's going to drive a lot of inventory requirement. Now, as Scott mentioned, as we expect the supply chain issues to kind of come back into some sort of normal range over the course of the next calendar year, we'll be bringing inventory back in line to our normal weeks on hand. So today I think we're probably at least a turn, a turn and a half lower than we were coming into this calendar year. And that's really the key driver. It's just the extended lead times. And then, of course, the higher costs of the products, obviously, makes it, you know, with price inflation every quarter, every time we add a new unit, we're adding 20%, you know, 20% more dollars in some cases. So That's an issue as well on a year-over-year basis, Keith.

Yeah, Keith, if you look at sort of where we were last year in Q2, our DIO was sort of in the 50 range. We're up to 64 in Q2, and probably a good half of that is related to the extra stocking levels on a volume basis. So the rest of it really is more driven by inflation.

And so in terms of getting supply from your manufacturer partners, is steel where you're at the longest right now, or how would you kind of rank the products?

Yeah, steel is still an extended lead time situation. It's improving for sure, but it's nowhere near where it was back prior to the pandemic or even just in the early stages of the pandemic. And wallboard has recovered as well, although wallboard fits and starts based upon what's going on with plant maintenance, what's going on with seasonality, et cetera. So wallboard is also not as easy as it was a few years ago. And that probably won't change, which I think is one of the key drivers to sustain pricing in the market is that, you know, demand is probably going to be reasonable enough to where you're going to see some situations around the country where lead times are slightly extended for wallboard as well.

Okay. Thank you very much. Thank you, Keith.

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

Hi. Good morning, guys. Good morning. Yeah, so first question, contribution margin really strong at 20% in the second quarter here. I'm just wondering as we look to the – to the third quarter, you're guiding to 15 to 20. And I'm wondering what would lead to that rather than 20% plus as volume and price accelerate sequentially. Are there January 1 resets or other SG&A items we should be considering here?

I think the reality as volume increases is there'll have to be some additional cost of delivery. So you can see right now in an environment where volume is you know, flattish to up slightly, you know, we're not really having to put a lot of extra cost into the business. We're not going to have to put a lot of extra cost into the business. We're not expecting to have, you know, 10% volume growth next quarter, but there'll be some of that cost that comes back for sure as we have to do some delivery. And then I guess on top of that, you know, we're basically kind of forecasting flat gross margins, you know, as we go forward. So versus the prior year, So that's not really going to contribute from a flow-through perspective a lot of extra.

Okay. That's helpful. Thank you. And then a second, I didn't see in the release or the slides or hear you on the monologue talk about internal sort of labor or logistics issues as the volumes pick up. Should we read that as conditions are improving or stabilizing, or are you just tired of talking about it at this point?

Yeah, I think they're the same. It's difficult. There are certain types of categories of labor that are very difficult to get, and it's somewhat inflationary, but no different than it was in the first quarter for us, and we don't expect it to get any more difficult. It's just difficult. So maybe your last point, we're just tired of talking about it, but the reality is it's pretty much the same. It's still difficult. and it's still somewhat inflationary, but I think we're doing a good job with it. As Scott mentioned, you know, when you get into the details of our cost structure, you know, we're doing what we think is a pretty good job in this environment of maintaining our costs.

All right. Thanks, JT. Appreciate it.

Absolutely. Thanks, David.

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

Hey, good morning. This is actually Brian Barros. I'm for Steven. Thanks for taking my questions. On the growth margins, I guess just in general, looking forward, are we kind of stuck in this 32% range until inflation passes by or until, I guess, pass-through dynamics change? And I guess, how does commercial coming back factor into growth margins, maybe stepping up going forward?

Yes, is the answer to your first question. You know, I think that The level that we're at today is probably pretty strong considering what's happening on the pricing side and the continued input costs going up and our ability to pass those through in a timely manner. With the real drag kind of still being wallboard, that's the one that takes the longest amount of time for us to push through as we've talked about ad nauseum at this point. And commercial gross margins will be a little bit stronger. But again, we're not expecting to see commercial volumes jump 10% or anything like that. We're talking about being less bad into the quarter. So if commercial volumes were in wallboard, were bottoming out in that mid-teens level of decline, maybe they'll decline 5% or 8% or 10% in the next quarter. So we're not talking about anything that would be meaningful enough yet to get excited about.

Helpful. Thank you. And then follow up, maybe just on the acquisition landscape in general. You know, you guys have done a few deals recently. Is it becoming incrementally more attractive to close deals now or maybe more challenging in the environment we're operating in? Some thoughts around that would be helpful.

I mean, our pipeline is strong. Our view of how, you know, we like to be we like to be, let's say, we're fair how we buy companies, right? And we think that that's important for our stakeholders to make sure that we buy companies intelligently. So I think there's more work that has to be done in this environment to understand exactly what the financial performance in the past means, but also what is the financial performance in the future going to look like and what is the opportunity in this environment? So I don't think there's any less pipeline activity. I just feel like we have to continue to be smarter and work harder and have a better feel for what we're doing as we go forward.

Thank you. Thank you.

Thank you. Our next question comes from the line of Kevin with North Coast Research. Please proceed with your question.

Hey, good morning, everybody. gross margin side. So, so expectation of 32.4%, you know, this upcoming in this quarter, and that's flattish year over year up 10 basis points sequentially. It seems like the biggest drag has been the price cost on a wall board. And it seems like the October price increase stalled, meaning that we'll be, you know, kind of several months removed from the last successful price increase. So given that there's some extra time in there for you guys to kind of push through pricing, You know, is it possible that, you know, you could see better improvement if, you know, you're able to continue to successfully push through price increases and narrow that gap on the price cost? Because, yeah, I'm just thinking that if there's some more time between manufacturers and planning, you know, pricing going up that, you know, you could have some time to catch up there. So I guess I'm just kind of curious your thoughts on that.

I think that's what you saw this quarter, actually. I think the $5 increase, right, that's the improvement you've seen in gross profit because things have stalled out a little bit. So our wall board margins improved slightly as we got that pricing. The timing of next year's price increases, you know, I'm hoping that it feels like a much more normal year. You know, maybe we have something early in the year and then maybe there's, you know, nothing or there's something in the middle of the year. We'll have to wait and see. If that's the case, then, you know, that gives us some time to catch up. And I think we could see a little bit of improvement. All that being said, with these input costs and these selling prices at some point in time, you bump up against an environment from a competitive perspective where there's that much gross margin dollar out there that people don't always act rationally. So I don't know where the ceiling is. I think you know, what we're doing is reasonable and obviously it's delivering reasonable results.

Yeah. Okay. And then on the, so the wallboard price increases, at least that I've seen that have been announced for January are, you know, 30%. You know, I know wallboard manufacturers tend to be, you know, around 20. So 30% seems to be a bit of a statement there. I guess I'm curious your thoughts on, you know, the potential for success there. Just because, again, it seems like the October one stalled out. You mentioned earlier that you felt that, you know, based on your channel checks, that you're maintaining share across the product categories and your volumes were down a percent in wallboard in the quarter. So curious your thoughts on, you know, again, just the ability for that to stick.

You know, again, I think the headline number is larger than it normally would be because what happened in October didn't come to fruition. And I think everybody would like to go back and try to get that. So that's just going to be another negotiation that we all go through. It's all going to be dependent upon demand, in my opinion. I think there are some inflationary input issues now for the manufacturers. So I do think that there's some need in some respects for some pricing. I don't know the degree of that need. I doubt it's 30%, but there's certainly some input cost inflation, the manufacturers, and freight is continuing to inflate as well, so that's an issue. Availability of freight remains a problem. And there are parts of the country that are pretty tight from a supply and demand perspective already, and if the balance of the supply chain frees up a little bit and builders are putting and completing these houses faster, if the starts catch up or, excuse me, completions catch up to starts, you know, and it's a mild winter, you could see an environment in which there was certainly a demand dynamic that would support pricing. But there's still a lot of unknowns. Just put it to you that way.

Yeah. Okay. Perfect. All right. Thank you very much.

Thanks.

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

Thanks, and good morning. This is actually Noah Makowsko on for Trey.

Hi, Noah.

Hi. I was hoping we could go into a little bit more detail on the AIMS acquisition. I think you said the margins were better than GMS overall. Maybe you could give a little bit more detail there. And just will sales from that business be classified under complementary products?

Second question, yes. first question, I guess what I would give you guidance on is that from a multiples perspective, we paid a turn to a turn and a half, depending on how you look at our valuation today, less for that company, and I think we published the sell price and the revenue, so I think you can kind of back into a range of margins, but it won't be anything that we'll talk about from a public perspective in the near term. So that'll give you an idea of what the profitability was.

Yep, that's helpful. Thank you. And then just another quick one, you know, steel price inflation obviously contributing strongly to the top line here. What's baked into the 3Q guide for steel price inflation?

I'm going to let Scott get after that one.

Generally, I'd say we don't really break it out sort of component by component, but if you look at the overall increase we've talked about, I'd guide you to roughly 75% of that is driven by price. You've got the acquisition impact, and then the rest is volume.

All right. Thank you. I'll leave it there. Thank you, Noah.

Thank you. Our next question comes from the line of Matthew Boulay with Barclays. Please proceed with your question.

Hey, morning, everyone. Congrats on the results and then closing those deals last night. So back on AIMS, I'm curious to ask a little about revenue synergies. It sounds like some of their tape tech tools you're already selling through your locations. I'm just curious if you could broaden maybe any of their additional products to your own locations or perhaps take any of GMS products to their locations. How does that kind of scale up work in terms of revenue synergies and investing in growth there. Thanks.

Matthew, you're exactly right that we have the opportunity to distribute their products more aggressively than we have in the past, and we'll definitely get to that. We also have a large product offering today that we can expand into the all-wall.com e-commerce platform that's currently not being sold there. Their focus has really been on finishing and and we have a lot of products, safety and other products, and install products and fasteners and all kinds of things, that we can expand that business from a revenue perspective fairly quickly. I will tell you their business model works, and their business model is to do stores for the finisher, focused on the finisher, and be the expert in the market for finishing contractors. In some markets, that's the painter. In other markets, that's actually a drywall finisher. And so we'll continue to support that effort And they have a very nice strategic plan. It's a really good organization with smart people, long-tenured people that understand what they're doing. And we're going to be executing, continuing to execute the plan that they had in place. But certainly there's some synergies that we'll get after on an immediate basis.

Got it. No, thank you for that color there, JT. Second one on wallboard price. Given the tapering you're speaking to and what happened with the October increase, I'm curious if the pushback, is there any pushback coming from the commercial side? These projects are getting approved and these longer term projects and folks are thinking about their own budgeting and presumably you guys are quoting escalators and all that. Is the pushback coming from that type of situation or is it more from the smaller residential customers?

it's mostly the large residential is the biggest pushback. Now, on the commercial side, you're absolutely right. We're quoting with escalators, but at the end, and we're encouraging all of the contracting community to bid that way. But at the end of the day, those contracts aren't let until, you know, five, six weeks, seven weeks in some cases before the project. And so whatever the market price is, five, six, seven weeks before the project in many cases is what ends up being used. And there's a negotiation then between us, the subcontractor, general contractor, et cetera, as far as the original number. But there's definitely pushback. There's always pushback commercially when you're bidding out a year or two because there's just too much noise in that number regardless. And nobody understands where the market's going to be in 18 months. So for sure, you're absolutely right there. There's a lot of pushback. But the big residential customers have to rely on a number for some length of time because they're trying to sell houses. And they're trying to sell houses with a six to nine month construction cycle. So that's really the issue is we're trying to be out in front of that for them. And that's a hard thing for a builder in an inflationary environment. And you've heard them all talk about it, you know, until they're blue in the face. That's really, really difficult thing for them. So that pushback is pretty significant.

Okay. Well, understood. Thanks, everyone. Good luck and happy holidays. Hey, thanks. Appreciate it.

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

It's actually Chris Collado from Mike. Thanks for taking my questions. Just going back to the pricing comments, I know you said wall boards, you know, flattening out, but how does sequential pricing look like in your other segments?

Just want to clarify, when we say wallboard's flattening out, if you actually look at where we were end of quarter for wallboard, it was actually 382 against an average of 376. So, you know, most of what we talk about there with regard to wallboard is what we're seeing in the market and the fact that the overall inflationary dynamics from the suppliers took a bit of a pause. But actually in the quarter, our last, we ended the quarter a little bit higher than where we were on average. That's a similar dynamic to steel, which ended higher at the end of the quarter versus where we were on an average basis as well, as two key indicators of the core product lines we deal with.

Got it. Any way you could help quantify that steel sequential improvement in price?

roughly 25% sequentially up versus where it was previously.

I appreciate that. And then just my last question is going back to the steel price, trying to get a better sense of the sustainability of these gains. Obviously, a lot of it's based on commodity price fluctuations, but I know Mix was also a tail end, or at least it was last quarter, and And I guess, I mean, if you could help us parse out how much of these, you know, of the robust pricing we've seen so far this year kind of ultimately reverts in a normalized steel environment and how much is kind of more structural. Thank you.

Yeah, I wish I could give you a better answer as to what is structural. You know, depending on who you listen to, you know, there's some people that are saying the steel market has changed forever with the retirement of old technology and old furnaces and New furnaces, most of the U.S. production is using scrap metal. There's not a lot of scrap metal out there. There's not a lot of activity going on in remodel. And so scrap prices have stayed very high. And so if you've got a new production unit that uses scrap, we expect that steel to still be fairly high. Import quotas and import tariffs are still there. And so we expect that to be somewhat protective of price in the U.S., And a lot of the new capacity expansions that are coming online, they're actually not slated to come online until late 22 and 23 and beyond. So those would all say the steel should be high for some length of time. On the other hand, it is a commodity, and there's all kinds of things that can change. And we're already seeing steel flatten from a commodity perspective, decline slightly from a commodity perspective. But as it's making its way through the supply chain, and making its way to the formers and making its way to us. We haven't seen a lot of deflation yet, so we're certainly not passing on any kind of pricing declines yet into the market because we're not seeing them yet. Then there's the demand side, which everybody says, well, heck, as soon as the supply chain frees up and there's computer chips available, you're going to see the appliance companies and the car companies, auto manufacturing, all pick up and fill their backlogs. Well, those are huge steel consumers. So we don't really know. Quite frankly, we're watching the same numbers you guys watch when it comes to the commodity pricing. We don't see anything out there yet that would indicate any kind of drastic reductions. So that's kind of our view of what's happening. In the very near term, still somewhat inflationary on our selling prices in the very, very near term.

Appreciate the call. I don't know if I really helped you. But thank you.

Thank you. Thank you. Ladies and gentlemen, this concludes our Q&A session, and that's our call today. We thank you for your interest and participation. You may now disconnect your lines.