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spk10: Good day and thank you for standing by. Welcome to the Gerald Wendt Holding Incorporated Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. And to ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, Simply press star zero. I would now like to hand the conference over to your speaker today, Chris Tichot, Director of Investor Relations. Thank you, and please go ahead.
spk07: Thank you. Good morning, everyone. We issued our earnings press release this morning and posted a slide presentation to the Investor Relations portion of our website, which we will be referencing during this call. I'm joined today by Gary Michel, our CEO, and John Laker, our CFO. Before we begin, I would like to remind everyone that during this call, we will make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties, including those set forth in our earnings release and provided in our Forms 10-K and 10-Q filed with the SEC. Jelvin does not undertake any duty to update forward-looking statements, including the guidance we are providing with respect to certain expectations for future results or statements regarding the expected outcome of pending litigation. Additionally, during today's call, we will discuss non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their most directly comparable financial measure calculated under GAAP can be found in our earnings release and in the appendix for this presentation. I would now like to turn the call over to Gary.
spk08: Thanks, Chris. Good morning, everyone, and thank you for joining us this morning. At Shell, when we talk about our aspiration to be a great company, we define a great company as one that people want to buy from, people want to work for, investors want to invest in and that does the right thing for people, our communities and the world. We've been sharing with you our multifaceted growth strategy and how we're executing this discipline plan to accelerate growth, expand margin and deliver cash while allocating capital to optimize shareholder returns. What is really special about our progress and what is frankly unique to Gelwyn is our engaged team of associates and the values-based premier performance culture we're creating. The foundation of our strategy deployment is our business operating system, the Gelwyn Excellence Model or GEM. GEM is the systematic way that our people work within the company to deliver our strategy globally. This holistic approach is anchored in the very essence of a lean problem-solving culture, the practice of continuous improvement, development and respect for people, and the identification and elimination of waste to deliver growth. Please turn to page five. The second quarter exemplifies our accelerating progress as we yet again delivered strong, broad-based financial performance. Consolidated revenue grew 25.5%, and core revenue grew 19% in the quarter. Core revenue growth accelerated in each segment, driven by volume from share gains in key products and channels, continued price discipline, and favorable mix. Gross profit increased 33.5%, and we delivered 140 basis points of gross margin expansion from strong volume leverage priced at more than offset inflation and productivity. Our global sourcing capabilities and self-sufficiency in key manufacturing processes are competitive advantages that ensure consistent material availability and reliable delivery to our customers. This quarter is our 11th consecutive quarter of favorable price costs and our sixth consecutive quarter of gross margin expansion. And with volume growth in every segment, we extended our track record of core revenue growth as well. We expect actions currently underway to drive continued year-over-year growth and margin expansion. The strong financial performance in the quarter was broad-based across segments. In North America, core revenue grew 21% with a 60 basis point growth in core margin and 250 basis points of improvement year-to-date. We experienced strong demand from residential new construction and replace and remodel activity, and our operational excellence initiatives continued to result in industry-leading lead times that delivered share gains and margin expansions. Europe and Australasia posted exceptionally strong growth as well. In Europe, core revenue growth of 21% was driven by strong market demand for replace and remodel, as well as share gains in target markets and gem initiatives that are reducing cycle times. The European team's operational excellence is also quite strong, with eight consecutive quarters of margin expansions. Australasia core revenue grew nicely at 9% as residential new construction markets strengthened and our replace and remodel initiatives delivered results. This was Australasia's third consecutive quarter of core revenue growth, demonstrating that the housing recovery in that market is gaining momentum. Cash generation in the quarter was again strong, driven by growth, profitability, and continued strong cash conversion through efficient working capital management. We seek to compound returns on cash flow through our disciplined approach to capital deployment. At current levels, we believe our shares are undervalued and represent a great investment for us and an excellent use of our cash. Demonstrating this view, we repurchased approximately 1.2 million of our shares during the quarter and approximately 2 million shares year-to-date. At quarter end, we had approximately $113 million remaining under our current share repurchase authorization. Today, we're pleased to announce that our board of directors has increased the share repurchase authorization to $400 million. The upsides of our share repurchase program demonstrates confidence by the board and management in Gelwyn's multifaceted growth strategy and continued performance. Please turn to page six. There are a lot of things that we're doing day in and day out to better serve our customers and build momentum across Jelwin. The gem tools we deploy to solve problems drive our ability to meet customer demand through cycle time improvements, which leads to continued growth acceleration and margin expansion. As we shared during our investor day in May, there are numerous examples across the enterprise. We've identified and started the transformation process at nine of our model value streams. As we head into the second half of this year, we are in the execution phase as we complete the startup activities at these model transformation sites. Plans are in place to complete over 90 rapid improvement events or Kaizens as part of our gem value stream analysis or VSA process. and we expect to kick off the VSA process at five more sites during the second half of the year. RIEs represent real opportunities to improve throughput and effectivity, add capacity, and support accelerated growth. Let me share some representative results for already completed RIEs in our North America door prehang operations. In one of our door pre-hang sites, we have seen a 35% improvement in throughput and associated productivity as a result of operation rebalancing. Another site has seen a 15% improvement through cell creation and single piece flow discipline. And we have lined a site to a 30% improvement in overall pre-hang activities when these RIEs are complete. RIEs in our door finishing operations has led to quality improvements and cycle time reduction nearing 35% with more opportunity to come across all of Gelwind, demonstrating how we deliver productivity and meet accelerated market demand and grow share. In the North America windows business, our lead times remain among the best in the industry. Continued focus on operational excellence to reduce cycle time and expand capacity through the disciplined deployment of GEM allows us to meet customer needs and gain share in the current high-demand environment. In addition to these examples, we are also investing in capacity expansion to grow. Our VPI multifamily business recently commissioned new operations in Statesville, North Carolina. Statesville is producing VPI quality windows and serving customers today, and we expect it will effectively double our capacity as we better serve East Coast customers. And VPI continues to grow nationally. Associates across Europe demonstrated the commitment to GELDWIN's core values as they integrated World Safety Day into a week-long regional celebration of health, safety, and inclusion. Particularly focusing on two GELWIN core values, build businesses ethically and safely, and improve every day, all operations and functional associates participated in related activities and opportunities to make personal commitments to their own well-being. The very personal approach provided moving examples of how safety and inclusion make a difference in engagement and our premier performance culture. Please turn to page seven. In May, we published our inaugural environmental, social, and governance report that highlighted our legacy of sustainability, community involvement, and our values-driven culture. We outlined our ambition to lead more broadly on environmental, social, and governance matters across a variety of pillars that are important to our stakeholders. These ESG initiatives support the foundation of our universal strategy for growth that we outlined in our May Investor Day, our first as a public company. We highlighted the strength of our team and shared real-world examples of how Gelgwin Associates are driving positive change globally to deliver differentiated and superior customer experiences. We detailed 2025 revenue growth, margin expansion, and free cash flow conversion targets and demonstrated how our multifaceted growth platform can deliver differentiated performance through innovation, price discipline, operational excellence, and disciplined capital allocation. By all accounts, this was a significant quarter for Gelwind. Today, we announced that we have decided to begin the process of divesting the wood fiber building products business located in Tawanda, Pennsylvania. And therefore, we will not pursue an appeal of the decision by the Fourth Circuit Court of Appeals upholding the district court's original divestiture ruling. After a thorough review of our options, we have concluded that it is in the best interest of our customers, our associates, and our shareholders to begin the divestiture process and eliminate the ongoing uncertainty around this matter. A leader in wood fiber composite technology, the business at Tawanda has talented associates, a high-performance product portfolio, and attractive financial characteristics. The Tawanda facility is a unique, well-performing asset, and we believe that business will attract significant interest from buyers due to the current housing and renovation boom and strong M&A market conditions. Sheldon is well-prepared to support the continued growth of our customers post-divestiture, providing industry-leading products and services to our customers and delivering value for our shareholders. We will work with the court appointed special master to complete the sale and maximize the value of the divestiture assets. The special master has retained an investment bank to evaluate options and to ensure an orderly and fair process. Sheldon has the right to challenge the divestiture process and final order. And the fourth circuit made it clear that the district court may have to revisit its ruling. If a satisfactory buyer is not secured. Please turn to the next page. Looking ahead, we remain confident that supportive housing fundamentals in each of our segments will continue to drive demand for our products. In North America, we see a positive long-term outlook for residential new home construction due to favorable demographics, a dramatically underbuilt housing market, supportive interest rate environment, and what we believe is a more permanent shift in homebuyer attitude, which should provide a tailwind for residential new construction for the foreseeable future. In the short term, Homebuilder orders and starts have slowed as the industry absorbs demand and deals with capacity constraints. We view these developments as transient, short-term issues and continue to feel positive about long-term housing fundamentals. Replace and remodel activity in North America, particularly for larger ticket items, should also remain positive. given the tight correlation with many of the same factors, positively impacting new construction, supported interest rates, demographics, increased focus on the home, coupled with substantial home equity value creation and an increasingly aged housing stock. In Europe, we continue to anticipate solid demand due to positive fundamentals across all of our four markets. Replace and remodel activity is currently stronger than residential new construction in Europe as consumers focus on their homes and use disposable income for home improvements. Our northern and central European markets are currently showing the highest level of demand. Meanwhile, commercial construction has slowed slightly from uncertainty around demand for office space and hospitality. In Australia, which is recovering from a multi-year housing recession, record level of activity is now forecasted through 2022 in the single-family new construction market, driven by home builder incentive programs, low interest rates, and healthy economic growth. These same factors should continue to drive strong replace and remodel activity as well. An eventual reopening of borders to integration, will support recovery in the multifamily new construction market, a key driver of long-term housing demand. The housing fundamentals in each of our regions are very favorable, and we are executing on strategies to accelerate above-market growth in each segment. With a strong first half behind us and strong fundamentals and execution ahead, we are excited about the remainder of 2021. John will now provide additional detail on our financial performance. Thanks, Gary, and good morning, everyone. I will start on page 10. Our second quarter financial results demonstrate the benefits of our multifaceted growth platform and extend our consistent track record of execution with improvements in revenue, earnings, and cash flow. This strong performance is a direct result of investing in our strategic growth drivers over multiple quarters and the ongoing momentum of Jim. Second quarter net revenue increased 25.5% to $1.25 billion. The increase was driven primarily by a 19% increase in core revenue, as well as a favorable impact from foreign exchange, notably U.S. All three segments delivered core revenue growth with broad-based acceleration and volume mix and pricing showing improvements both year over year as well as sequentially. Gross profit margin expanded 140 basis points, benefiting from price realization that more than exceeded material and freight inflation, operating leverage on increased volume, structural cost reduction programs, and productivity savings from GEM initiatives. Our commercial teams in each region have done a fantastic job enabling this margin improvement by implementing multiple pricing actions to stay ahead of rapidly accelerating inflation in all of our global markets. Reflecting this strong operational performance, adjusted EBITDA increased 17.9% year-over-year, while adjusted EBITDA margin declined 80 basis points as the gross margin improvement was offset by higher SG&X. from the non-recurrence of our second quarter 2020 COVID-19 related cost savings measures, as well as the margin dilutive impact of foreign exchange. Core adjusted EBITDA margin, which excludes the impact of recent acquisitions and the impact of foreign exchange, declined only 40 basis points. Page 11 provides detail of our revenue drivers for the second quarter. I'll highlight strong volume mixed growth of 13%, driven by North America and Europe, as well as pricing realization of 6%. Both volume mix and pricing improved sequentially from the first quarter. Please move to page 12, where I'll take you through the segment performance in more detail. Net revenue in North America for the second quarter increased 21.7%, driven by pricing, volume growth, and improvements in mix. North America's 8% price realization rate was a sequential improvement from the first quarter as we implemented additional rounds of pricing to offset accelerating inflation. North America volume mix in the quarter improved 13% as our healthy service levels allowed us to meet strong demand in all channels. Mix benefited as well as special order activity picked up in the retail channel. North America core adjusted EBITDA margin expanded 60 basis points to 15.6%, driven by price realization and excessive inflation, and operating leverage on improved volume and mix, which more than offset the non-recurrence of COVID cost savings programs implemented in 2020. The margin improvement was nicely distributed across all major product lines. While there are many examples of stellar performance in our North America segment this quarter, I'm excited to highlight the momentum in our exterior door business, which sells steel and fiberglass doors through both retail and traditional wholesale channels. Exterior door revenue growth exceeded 30% compared to prior year, which we gained share with key accounts and target markets. Demand for these exterior products is strong, and we are making additional capacity investments in this area. which will enable continued growth in future periods. Europe's revenue increased 33.7% overall and 21% excluding the impact of foreign exchange. Both pricing and volume improved versus prior year, with UK, France, and Central Europe leading the revenue growth in the segment. For the eighth consecutive quarter, Europe delivered core margin improvement with an increase of 130 basis points year over year from strong productivity and operating leverage on healthy volume. Australasia revenue in the quarter increased 27.1% overall and 9% in local currency versus prior year. Volume benefited from accelerating housing demand and the government stimulus program. The Australia housing market continues to show strong demand and fundamentals are solid for future growth, with record levels of activity for single-family new construction expected to continue through 2022. Increasing COVID restrictions implemented by governments in several countries in the Australasia segment will likely temper the pace of revenue growth in the second half of 2021. As a result of these temporary restrictions, Our Malaysia facilities have been closed for two months. Our Indonesia facilities are operating below full capacity, and construction projects have been temporarily halted in several major end markets in Australia. Australasia segment core margins declined 90 basis points in the quarter as a result of higher inflation compared to the timing of full realization of price increases, as well as a non-recurrence of COVID-related benefits realized last year. Please turn to page 13. Operating cash performance improved $2.4 million compared to prior year as higher earnings were partially offset by an increase in cash taxes and cash interest, as well as the payout of previously accrued litigation settlements. Capital expenditures were largely flat with prior year. The balance sheet remains healthy as net leverage reduced further to 2.2 times, and liquidity was strong at over $1 billion, including a cash balance of $618 billion. We are focused on deploying our cash in a disciplined, returns-focused manner and compounding the returns on that cash over time. Finally, I'll highlight our very successful recent debt refinancing that closed on July 28th. We upsized our asset-based revolving credit facility from a facility size of $400 million to $500 million to take advantage of our growing assets and borrowing base to support liquidity. Additionally, we extended the revolver maturity from 2022 to 2026 and maintained very attractive pricing and terms. We also issued a new $550 million Covenant Light Term Loan B to replace a loan of the same amount and extended the maturity from 2024 to 2028. We retained very attractive pricing and terms on the new term loan as well. As a result of these transactions, we optimized our debt maturity schedule and now have no significant debt maturities until 2025. And importantly, we continue to have no maintenance financial covenants. This debt structure gives us the flexibility to execute on our strategy while maintaining flexibility for capital allocation that drives shareholder value. With that, I'll turn it back over to Gary, who'll provide closing comments. Gary? Thanks, John. With strong momentum in the first half of the year and favorable market conditions driving demand in every segment, we're increasing our guidance for full-year revenue growth. We now expect to deliver full-year revenue growth in the range of 12% to 14% increased from the previous outlook of 8% to 11% due to foreign exchange, recently completed pricing actions, and strong volume momentum. We expect that continued operational excellence, pricing discipline, and productivity will deliver EBITDA in the range of $510 million to $535 million, an increase from the prior range of $505 million to $535 million. This updated outlook implies a slight reduction in our EBITDA margin rate for the full year due to the impact of updated assumptions for FX, as well as higher revenue from additional pricing, which continues to offset inflation. As you can see, favorable market conditions in each of our segments, in many cases, the best demand conditions we have seen in quite some time, coupled with our consistent execution are demonstrating differentiated financial performance. I am so proud of our associates around the world who are committed to delivering for our customers, our shareholders, and each other every single day. This premier performance culture centered on our core values is what separates Jelwin and ensures our success. Thank you for joining us today. John and I will now be pleased to take your questions.
spk10: Thank you. At this time, you would like to take any questions you might have for us today. And as a reminder, to ask a question, you will need to press star, then the number one on your telephone keypad. Again, to ask a question, please press star 1. To withdraw your request, you may press the pound or hash key. We'll pause for a moment to compile the Q&A list. We have our first question comes from the line of Truman Patterson from Wolf Research. Your line is open. Please go ahead.
spk05: Hey, good morning, guys. Thanks for taking my questions.
spk08: First, just wanted to visit your guidance. On revenue, you bumped it up, I believe, three to four points. But the top end of your EBITDA guidance was left unchanged. So I was just hoping you can walk us through what the reduced outlook for EBITDA margins are. Is it just simply greater raw material inflation and pressures versus your prior outlook? Is there anything baked in from the Tawanda divestiture? Just really hoping you can help us bridge the gap there because we've, you know, heard of some very robust pricing announcements and realization in the U.S. Yeah, that's correct. I mean, we'll still see favorable price cost in the second half of the year, but we are, you know, we're offsetting inflation that we'll see, material inflation that we'll see in the second half. So we're kind of guiding to that as we'll see kind of a bigger portion of that hitting. With the pricing actions that we've already taken, you know, price costs will continue the trend that we've seen of being favorable for us going forward. So that's really the primary difference that you're going to see in the second half. Okay. Just a quick follow-up on that. I believe you all last quarter said about two and a half points net of inflationary pressures. after some of your productivity initiatives. Could you just update that number? Yeah, Truman. Material and freight inflation in the second quarter was around 4.5% of revenue, and we're expecting that for a similar magnitude now for the full year. So that would imply that we're seeing more than 4.5% in the back half of the year on the inflation front. Okay. Okay. Thanks for that. And then a final one from me, just hoping for some more detail on the Tawanda decision. Why did you all decide not to continue with the appeals process? Any timeline for a divestiture, EBITDA, multiple potential of similar companies and
spk07: And finally, just want to understand what you all will do with the sales proceeds, primarily share buyback, et cetera.
spk08: So I can't give a whole lot of details on the process at this point. We're working with a special master, you know, on timing and the actual process. We believe after, you know, after our reviews that, you know, the time is right in the best interest of our associates, our customers, and and our stakeholders to get on with divestiture Great commercial markets. As you know, the R&R and new construction markets are very strong. M&A markets are very strong, so we think it's a good setup for us. We're very prepared for serving our customers and preserving shareholder value after any divestiture. So it just seems like the right time to move on with this. As far as timing goes, again, we'll be working together with the special master, and as the process moves forward, we'll update on that. As far as use of cash, we did announce the upsides. upsides of our share repurchase plan. We do believe that our shares right now are a really good investment for us and a good use of our cash. We continue to have great projects, high returning projects internally that we've been talking about as we deploy GEM and as we improve our capacity. They're starting to show the payoff as we're outperforming on the top line and the bottom line in gaining share. We do have a pipeline of other uses of cash as we look at, you know, the M&A markets. And, you know, we will certainly be reporting on that going forward. All right. Thank you, guys, for your time. Thank you.
spk10: Our next question comes from the line of Matthew Blew from Barclays. Your line is open. Please go ahead.
spk05: Morning. Thanks, everyone, for taking the questions. Just sticking on the same topic on Tawanda, I'm curious if you can comment at all on, I guess, what you've done to position sort of the balance of your capacity, particularly your door skin capacity, just thinking about, you know, your vertical integration. And, you know, Gary just mentioned kind of maintaining customer service levels. Just any commentary around how you've positioned that?
spk08: uh the rest of your door skin manufacturing capacity for this divestiture thank you yeah all i would say is we've had uh you know we've had time to to consider the alternative and uh we are in a really good position to uh to take care of our um our current and our future needs for door skins And, you know, we've talked about in the past all different types of alternatives. But with GEM activities, you know, we have focused on our Gorskin plants as well as on all of our plants across the enterprise. So we're in a pretty good position there. I don't want to get into too much detail as, you know, the process will unfold. There will be, you know, there will be, you know, I don't know what you want to call them, idiosyncrasies or particulars to any deal, I'm sure, and we'll need to make sure that we adhere to those. But we're in great position. We've been planning for this eventuality, and we know that we can take care of not only our current needs but our growth needs as well. Understood. Helpful caller there. Second one, back on the price-cost side, you know, obviously the strong pricing environment and you've got this, you know, fairly sizable offset from cost inflation in the near term.
spk05: My question is kind of what happens on the other side of this if we eventually see, you know, sort of abatement or even deflation in key materials.
spk08: You know, I'm curious if you could outline which categories you might be able to more so hold on to price versus you know which categories or channels do you tend to give pricing back uh in a deflationary environment thank you well we uh we have been obviously uh very focused on price costs for a long period of time even pre some of this inflationary market you know getting fair value for our product and by being a a good operator and being able to serve our customer needs We talked about it yesterday, providing a differentiated and superior customer experience certainly is valuable within the building product space and something that we do get paid for and expect to get paid for as we grow share. So some of the pricing certainly will continue as that value continues to grow. you know, continues to improve. As we look at materials, you know, clearly, you know, we've moved up and been able to stay ahead of that. You know, probably an area of, you know, where the fluctuation would be would be on freight. Freight tends to be more variable and tends to be something that rides with, you know, more closely to actual costs. Got it. Well, thanks and congrats on the results. Thank you.
spk10: Our next question comes from the line of Deepa Rangavan from Wells Fargo Securities. Your line is open. Please go ahead. Hi, good morning all.
spk02: Thanks for taking my question. So some of the builders continue to talk about back audit situations and windows and doors. Can you talk to how the situation has evolved? Has it gotten better or worse? And how are you handling and benefiting from the situation?
spk08: Well, thanks for the question. Yeah, we've... It depends by product, of course, but we've been in pretty good shape with adding capacity and throughput, you know, as we talked about earlier, through our GEM initiatives. We've been very focused on operations, being able to meet demand. You know, there have been, you know, certain constraints here and there along the way. You know, we're not immune to all of those, but in general, we have been offering lead times that are industry-leading. Well, we're probably slightly better on the door side. We're extremely better on the window side. What we've been seeing with all the improvements that we've put in, in windows in particular, we've actually been seeing industry-leading lead times out of Gelwind. And that's been turning into share gains and builders actually moving their business towards us. So that's been very favorable. On the door side, we've certainly been able to keep up. And I kind of think the bigger constraints in the industry have been, you know, other materials and builders' availability of labor to complete those starts. And, you know, certainly that will affect us some. But, you know, right now we're seeing share gain in our products pretty much across the board. And, you know, like I said, the lead times due to the GEM initiatives that we've been at for several years are paying off.
spk02: Great. That's good to hear. Quick clarification question for me on Tylander facility. I don't want to make any assumptions here. So just asking you, you know, as you work through this divestiture, should we plan for any impacts to sales and operations?
spk08: I'm not sure if I understand your question 100%, but you asked if we should expect any sales or operations impact from the divestiture to wind up?
spk02: Yeah, as in, yeah, should we plan between now and the time it's actually going to be
spk08: yeah divested should be oh no not at all not at all we continue to operate the business it's operating very very well um and you know everybody's best interested to remain that way um there's a robust market uh for uh for exterior trim and trim board which is uh the primary uh business of tawanda which is our mirror tech and exterior line that continues to be very very strong And, you know, as we know, the door businesses are very strong as well. So we expect to continue to have great performance out of Tawanda, as we do with the rest of the business.
spk02: Great. Thanks. I'll pass it on.
spk08: Thank you.
spk10: Our next question comes from the line of Phil Monk. I'm Jeffrey. Your line is open. Please go ahead.
spk03: Hey, good morning, guys. Q comps are a little noisy, obviously, from the pandemic. But when we look out to the back half of the year, should we expect normal seasonality in the business? And are you having any meaningful limitations from a supply chain and a labor standpoint? You know, particularly if you could size up the impact you called out in Australasia would be really helpful.
spk08: Yeah, so we're, you know, for the most part, let's start with that. Our plants, for the most part, are operating well. across really all around the world. Australasia is the one area where we've had some recent COVID shutdowns. In Australia itself, you know, there have been occasional outages there, which has been affecting the market a little bit. But they're still on the upward tick, you know, coming back off of the housing slowdown over the last couple of years. So we've seen some nice growth there. Our Malaysia operations and Indonesia, to a certain extent, have been affected by COVID. Malaysia has actually had some shutdowns. We expect those to start returning back to production here in the next couple of days or weeks. In Indonesia, we've been operating at less than full capacity, but we expect that as well to be returning here probably within the next week or so. as we've seen vaccinations and the like there. All in all, though, you know, occasional issues on material, you know, due to weather, COVID, demand-related, some temporary issues of availability or supply in our supply chain, but nothing that's been affecting customer deliveries except for maybe window screens. But we've been, you know, very active in resourcing and in using our own self-sufficiency, our manufacturing operations, to ensure that we don't miss any customer demands or customer needs, and that we continue to monitor that.
spk03: Yeah, that's super helpful, Gary. And when we think about mix, if I heard, John, or your prepared remark, it sounds like mix is improving a little bit on the retail side. Can you kind of expand on that? And when we think about commercial, remind us, is that mix positive, neutral, negative? Any color would be great.
spk08: Sure. So in North America specifically, I think you first started asking the question about mix, where we did see in the past a shift towards more stock demand and less special order demand in the retail channel. We're now seeing that balance improving. We're still working with our retail partners to get stock levels up to So, we're certainly not there yet. So, demand still remains strong for stock units. But I think what is now inflected is we are seeing a pickup in special order units. And so, in Q2 in North America, mixed was a tailwind to both revenue and earnings as that flowed through as we start to see that pickup. I'd say on the flip side, you mentioned sort of commercial. The only place that that's a bit of a mixed shift would be in Europe, where seeing a slowdown in some of that major project business that we do, which is tied more to hospitality and institutional demand. If we see a ramp in DIY R&R business versus some of that project business, that can be slightly margin dilutive. So we saw a little bit of that in Q2, nothing material to call out. But I'd say in general, we now feel pretty positive about MIX being a tailwind for the full year exiting 2021, and then hopefully seeing that continuing into 2022.
spk03: Got it. That's really helpful. When we think about the divestiture for Tawanda, will securing a longer-term supply agreement from your potential buyer be something you're looking to accomplish? And then do you have any flexibility in terms of bringing back any mothball capacity on the door skin side and any color on the timing of that and the process and any capital required? Thanks.
spk08: Again, as I said before, we're well positioned to take care of all of our needs currently and for growth in terms of door skins to supply our door businesses. um you know what that looks like going forward obviously will depend on on the process and who the ultimate buyer is but you know we're in position to to do you know various various things including take off from from the new buyer um utilizing capacity within uh within our business today and uh you know we talked about the ability to uh to bring on um uh additional capacity in plants that we we currently have you know again um we've been we've been uh improving our cycle time improving our throughput using our gem capabilities in all of our plants including our door skin plants so we feel like we're well positioned to uh to take care of those needs for for today and into the future um as far as timing goes that will be dependent on the special master in the process we'll report on that as we go forward
spk03: Super helpful, guys. Thanks a lot, and good luck in the quarter.
spk10: Our next question comes from the line-up. Sue McClay from Goldman Sachs. Your line is open. Please go ahead.
spk09: Thank you. Good morning, everyone. My first question is around the volumes in North America for the back half. Can you talk about how we should expect those to kind of come together, especially when you think about We obviously had a pretty considerable lift in the second quarter, partially given that comp. But how are you thinking about that part of the results coming together?
spk08: I'd say we feel quite positive about our North America core revenue potential in the back half of the year. As you called out, Q2 is a bit of an unusual quarter, just given some of the comparability to prior year. But as we think about core revenue growth and aggregate in the back half, I'd say low teens is a fair assumption in terms of what we think we can deliver on core revenue in North America, which implies both positive volume and positive pricing.
spk09: Okay, so should we expect a relative improvement on a sequential basis from where you were in the second quarter?
spk08: It's tough to call out, you know, I guess a sequential improvement because of the comparability of the prior year. But I would just say that we're, you know, we expect good trajectory and volume. North America backlogs are healthy. Our bill is solid. And we've got good visibility to delivering the revenue guidance that we delivered here this morning for the back half of the year based off the demand we're seeing.
spk09: Okay. Okay. That's helpful. My second question is around, you know, you mentioned that you're obviously continuing to move through your GEM process. You've outlined a few more locations where you'll be taking projects on. Can you give us a little bit more detail on that and how we should be thinking about the timing and some of those coming through?
spk08: Yeah, so, you know, we've been at – we've been deploying GEMs for the last several years across the enterprise. I would tell you that there's probably no place that we haven't at least hit with – you know, with the startup kit, if you will, for GEM deployment, you know, utilizing, you know, visual management, you know, focus on cycle time reduction and on delivering productivity. We have identified a number of sites that we would call model value streams. And we talked about those within our investor day. And we have deployed at nine of those sites already and have gone through what we call our value stream analysis process, which starts to set up what the next level of improvements that we can focus on. It's very coordinated in terms of process, the deployment, and the dedication of people resources. And we're looking for significant improvements in cycle time, in customer satisfaction, employee engagement, as well as productivity. So these are sites that... you know, are kind of in the advanced plan now and we'll be leading the enterprise and then ultimately we'll take those learnings to additional facilities around the globe. So I'm very excited with kind of this move. It's a bit of a maturity or realization of maturity in our GEM deployment and we'll deliver some real results going forward. I mean, I think, you know, one of the things that you're seeing is the, you know, The trend on our price cost is part of that. The productivity is being delivered. The ability to increase our cycle time through our facilities is leading to share gains in the marketplace. I think these are all great signs of how GEM is being deployed and what we still have so much more that we can do.
spk09: Okay. That's very helpful, Collar. Thank you, and good luck.
spk08: Thank you.
spk10: Our next question comes from the line of Stephen Ramsey. Your line is open. Please go ahead.
spk04: Good morning. To circle back on pricing and margin to make sure I understand, do you expect for the company to be price-cost neutral or positive in Q3 and Q4, or will there be some kind of short-term lag in there before you catch up?
spk08: No, you have it right. It will be positive in the second half, both courts.
spk04: Okay, okay, excellent. And then on Australasia, the COVID headwind there, is volume and mix still a positive driver despite that?
spk08: It's such a challenging time to kind of call what the future lockdowns are going to look like. We've got the demand in that market, so as long as our facilities are open, we will drive positive volume and positive pricing in the back half of the year in Australia. We just can't really call out exactly when things are going to reopen and in what cadence, given the uncertainty around the pandemic. But we're ready to go, and we've got the demand as soon as the governments let us operate.
spk04: Excellent. Okay. And then last one for me on the Tawanda exit. Is this overall a positive margin move once this is done? And I guess within that, is there any difference in the external sales and internal impact on margins?
spk08: We're not going to get too deep into the financials of that. Once the process begins under NDA, potential buyers will be able to see the detailed information. But we believe that the value that we'll get for Tawanda at this point will be great for shareholders, will be great for the company, and we're well prepared. Great. Thank you.
spk10: Our next question comes from the line of Mike Paul from RBC Capital Markets. Your line is open. Please go ahead.
spk06: It's actually Chris for Mike. Thanks for taking the questions. A couple more on the Tawanda plan. I realize you guys don't want to give too much granularity, but I guess just kind of help us understand the potential financial impacts. I'm assuming the margin profile is kind of above what your current North America margins are. Is that true? And is there any way you could help us understand potential implications from the loss of vertical integration of that plant, whether it be higher skin prices or your loss of transfer pricing? I realize you're kind of limited in what you provide, but any color would be helpful.
spk08: Yeah, I don't think you should be considering that at all in terms of transfer pricing or any of that. I think we've been running the business in a way that, you know, that will be a non-event. And we're well prepared to take care of our needs. We're well prepared to support our growth going forward. So I think you should assume that we're in a good position there. The business that we're selling at Tawanda is primarily the mirror tech and exterior businesses, which are exterior trim and trim board, which are great businesses. There will be a lot of interest in that business. From a door skin standpoint, we have three other plants operating today. and plus Tawanda that supply both internal and external skins. You know, the real thing to consider here is we've laid out, you know, our multifaceted growth platform for the company. At our investor day, we put out targets for our growth. This does not affect any of that. We are well positioned to meet those targets that we put out there. This is, you know, the time has come for us to move on on the – on the litigation and to move on with the divestiture of Tawanda to take, you know, any distraction from that news away from really all the good things that we're doing to execute consistently over, you know, over several years now. And I don't think you need to read any more into it. It's a part of our business, and the door skin part of it is even a smaller part of that.
spk06: Understood. That's very helpful. Appreciate that. And just for my follow-up, any initial views on kind of what kind of the entrance of a potential third player in the U.S. door skins market, what that could do to longer-term competitive dynamics? How do you plan on that evolving in terms of timing and kind of your position within that?
spk08: Listen, I'm not going to pontificate on, because I don't know who will ultimately buy this business, but my guess will be that it's a valuable business. Somebody's going to pay for it, value that business. You know, door skins today is a relatively constrained capacity. It's something that we're trying to increase capacity on every single day. So my guess is that it will remain that way for some time to come and you know, somebody pays for a business, you would expect them to operate it in a disciplined fashion and get a return on their investment. So I'm not really concerned, you know, about the effect on the market. Understood. Appreciate the call.
spk10: Our next question comes from the line of Josh Chen from Derrick. Your line is open. Please go ahead.
spk01: Good morning, Gary, John, and Chris. Thanks for taking my questions. Circling back on the price-cost equation, recognizing that you guys expect positive price costs in both Q3 and Q4, is there anything to call out in terms of whether one quarter will have a much more narrower gap than another? And then kind of relatedly, anything to call out in terms of margin dynamics between Q3 and Q4 in terms of Do you have a tougher expense comp in one quarter than another? Just to see if you have any color on those two quarters there.
spk08: Yeah, I'd say the price cost for the full year, we're in great shape to more than exceed inflation with the pricing we've put into place. And we've done that in the first two quarters of the year, and we expect to do that in the back half of the year. The inflation is definitely weighted towards the back half of the year, and even into Q4, there's more inflation. And so I think we've got to – is that that will have an impact on any incremental benefits margin because we need the pricing that we're putting through to offset that incremental inflation so that's why you're seeing you know a margin um you know slight headwind there because the additional revenue is going through without much incremental significant corresponding um profitability so certainly um you BACK HALF A YEAR MORE INFLATION, BUT WE'RE IN GREAT SHAPE TO DELIVER PRICING TO OFFSET THAT. WE'VE TAKEN MULTIPLE ROUNDS OF PRICE IN REALLY ALL OF OUR MARKETS THAT WE OPERATE IN AND TRYING TO STAY AHEAD OF THIS CURVE AS MUCH AS WE CAN. profile dynamic. Q3 will probably look a little similar to Q2 in the fact that we would expect gross margin expansion, but still lapping some of the SG&A benefits that we had last year. So I think the EBITDA margin in the third quarter would probably be less favorable than the fourth quarter, just given that dynamic. But we expect gross margin improvement in both Q3 and Q4.
spk01: Okay. That's really helpful, Carl John. Thank you for that. And then I think, Gary, you mentioned that home builders might be slowing the pace of starts a bit. I mean, are you seeing that in your order book necessarily? I'm kind of surprised with the extended lead times in the industry. I wouldn't think that even if the starts were to moderate, you would see that in your order book for some time.
spk08: No, I actually made that comment exactly, Joshua. I said that we're not seeing that. So the Any of the news that we've seen in push-outs of completions, we believe that's transient and short-term. We are not seeing that in our demand. We have some of the best demand we've seen in recent history, and we expect that to continue. I think that's exactly the comment I made.
spk01: Okay. Okay. That's great. That's great to hear. And then lastly, you mentioned the returns-focused capital allocation more than you have in the past, I think. So can we expect share repurchases, for example, to become a bigger part of capital allocation than it has been in recent years going forward?
spk08: I would say that we're certainly focused on that. We recently upsized the Last week, the board upsized our allocation. We've made some bigger purchases this year. We believe that our share price, where it currently is, is a great investment for us. We've delivered a great message around our multi-passage growth platform. We have a successful track record. We've been executing and outperforming. We're gaining share in our markets, and we continue to deploy our internal programs around GEM that will continue to allow us to increase our cycle time, increase productivity, and deliver for our customers. We delivered our updated long-term revenue growth and margin targets at our investor day, which we believe in fully, and with the strong backdrop of great market conditions, and our strong operations, we believe this will continue for some time. So we believe in ourselves, and we'll continue to invest there.
spk01: That's great. Thanks for your time, and congrats on a strong quarter. Thank you. Thanks, Josh.
spk10: We have our next question. It comes from the line of Michael. We have from JP Morgan. Your line is open. Please go ahead.
spk08: Hi, thanks, Josh. Thanks. Good morning, everyone. Thanks for taking my question. First, I just wanted to get a sense from a press and modeling perspective a little bit on the magnitude of incremental pricing in the back half of the year. If you could just remind us, and if there's any sense even on a per region basis, because I believe you've said that you expect incremental pricing to come through across each of the three regions. when the incremental pricing actions are effective and any type of degree of magnitude of those pricing actions on a percentage basis, just to get a sense of how to think about the impact in the back half.
spk07: Obviously, in the second quarter, you had 8%. In North America, 3% Europe, 1% Australia. Just trying to get a sense of directionally where that could go in the back half.
spk08: Yeah, Mike, I guess starting with the revenue guide for the full year, previously our revenue guide was 8% to 11% for the full year. And now we've updated that to 12% to 14%. I'd say that our Q2 volumes came through pretty strong relative to the guidance that we gave back in April. And so part of that uplift was some strong revenue performance in Q2. But the vast majority of that increase in the revenue guide is pricing that is needed to offset the inflation that we're feeling. Those are pricing actions that we've already taken, that we've communicated to the market. These are not prospective pricing actions that we have yet to take. So this is really just a matter of the timing of what we've announced and letting that flow through. By product and by region, the timing of implementation does change. you know, does vary. I'd say that, you know, Q3, this latest round of pricing is going in during Q3. So by the time you get to Q4, you'd have sort of a full run rate impact of all the compounding effect of the pricing actions that we've taken this year. But that's the biggest driver in the updated revenue guide. Okay, I appreciate it. It's helpful. And second question, and my apologies to Beat a Dead Horse. I almost feel like not asking a question about Talanda would break a chain here. But I just want to be clear on a couple of items. Number one, Gary, you've kind of said over and over again during the call that you're well-positioned to take care of your needs, at least internally. So I just want to understand, Do we take from that that the roughly $55 million from 2020 of the internal sales, that that will be completely offset by internal productivity improvements? That's number one. And number two, if there's any sense for you to give us on the $150 million of sales to external, any type of sense of what that means from an EBITDA perspective? I'm actually not going to get into a discussion of the details of the financials for Tawanda, but I would tell you that the business itself is primarily the exterior trim and trim board products for Miratac and Xterra, so consider those external sales as well. And once we're We're in the process of talking with potential buyers to understand the magnitude of what's in that business. But, yes, I will reiterate that depending on who the buyer is, of course, and what any relationships might be with us going forward, we are well positioned for the eventualities of serving ourselves and our growth plans within our own internal capabilities.
spk07: Thank you.
spk10: We have our next question comes from the line of Stanley Elliott from Stifel. Your line is open. Please go ahead.
spk05: Good morning, everyone. Thank you all for fitting me in. Can you all talk a little bit about some of the new products you have coming into market right now? It sounds like they're getting some pretty good traction with some of the customers. And then secondly, with the supply chain challenges that's impacting everyone, is this changing your thought process on some of the 2022 new products you have coming to market? Thanks.
spk08: Yeah, so we talked a little bit about innovation and product development earlier this year through Investor Day, and we'll continue to talk about new products as we go forward. We've got really quite a lot of exciting things going on. A lot of what we've been doing kind of the last several years, obviously keeping up with styles and looking at trends, but also working on our operations and making sure that we could meet customer demand. When we look around the world, we've had a really nice focus on sustainable products, products that meet customer needs on more than one front, not only design, but also on kind of the engineering components around security, around noise. on the Windows side around energy efficiency. And, you know, we will be addressing and announcing some more interesting products in the Windows space around composites later this year. So a lot going on on the innovation front, and really in all three of our segments. So pretty exciting times for us. And with where we are operationally and where we are on the commercial side of the business, it's a real good time for us to introduce some new products that we'll have, not only are paying dividends now, but the ones that we will be launching, which will be paying dividends into 2022 and beyond. Great, thank you.
spk10: And there are no further questions. Gary, you may continue.
spk08: Well, thanks, everyone, for joining us today and for your interest in GELWIN. We had, yet again, another exciting quarter. Great performance by our people. Jim is clearly paying off for us. We keep talking about our multi-faceted growth platform and our successful track record of earnings growth and our compounding cash flow. We are very excited about the strategy that we've defined in our business operating system deployment. It's driving transformation within the company and delivering profitable organic growth. Please take a look at our long-term revenue growth margin and cash conversion targets that we set out at Investor Day with the backdrop of great markets, and strong operating execution by the company. We're very, very excited about where we are with Jelvin, and we look forward to talking to you more about our successes in the coming months. Thank you so much.
spk10: This concludes today's conference call. Thank you all for participating. You may now disconnect. Have a great day.
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