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GMS Inc. (GMS) Q2 2021 Earnings Call Transcript

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GMS Inc. (NYSE: GMS)
Q2 2021 Earnings Call
Dec 3, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the GMS Inc Second Quarter Fiscal 2021 Earnings Conference Call. [Operator Instructions]

I would now like to turn this conference over to your host, Ms. Leslie Kratcoski, Vice President of Investor Relations. Please go ahead.

Leslie H. Kratcoski -- Vice President, Investor Relations

Thanks, Laura.

Good morning and thank you for joining us for the GMS earnings conference call for the second quarter of fiscal 2021. I'm joined today by John Turner, President and Chief Executive Officer; and Scott Deakin, Vice President and Chief Financial Officer. In addition to the press release issued this morning, we've posted presentation slides to accompany this call in the Investors section of our website at gms.com.

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 Factors 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 reconciliation 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 2021 relate to the quarter ended October 31, 2020.

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'd now like to turn the call over to John Turner. J.T.?

John C. Turner -- President and Chief Executive Officer

Thank you, Leslie.

Good morning, and thank you for joining us today. All of us at GMS hope everyone joining this call as well as your families and colleagues are safe and well.

I'll start with a review of our operating highlights and then turn it over to Scott who will cover our financial results. I'll then share some closing thoughts before taking your questions.

Starting on slide 3. Outstanding execution by our team enabled us to achieve solid second quarter results. While the overall operating environment remained challenging throughout the period, particularly with respect to commercial construction, we realized benefits from the strong residential market in a progressively improving environment in Canada. Net sales and organic net sales on a per day basis declined 4.2% and 5% respectively year-over-year, exceeding our previous expectations. As anticipated, our gross margin of 32.6% was lower than the second quarter record of 33% last year. However, it increased 10 basis points sequentially, indicating continued discipline on both the demand and supply sides of our business amid the tight competitive environment.

Controlled alignment of our cost structure to current demand enabled us to improve SG&A and Adjusted SG&A as a percentage of sales, while ensuring a continued relentless focus on serving our customers. As a result, adjusted EBITDA margin of 10.2% marked the second consecutive quarter of exceeding 10% in a very tough market with decremental adjusted EBITDA within the outlook range provided on our first quarter call. We generated positive free cash flow, and our balance sheet and liquidity position provide us with exceptional financial flexibility.

On the health and safety front, we maintain enhanced operating protocols in compliance with public health requirements, recommendations and guidelines aimed at reducing the spread of COVID-19, and the health and safety of our employees, business partners and communities remains our top priority.

Considering the environment in which we're operating, we continued to perform very well in the second quarter. My congratulations and thanks go out to the entire GMS team who made these results possible, remaining engaged, focused and proactive as we come together in support of our customers and each other. At the same time, we offer our gratitude for the continued partnership we share with both our customers and suppliers.

With that, I'll now turn it over to Scott to provide more perspective on our financial results for the second quarter. Scott?

Scott M. Deakin -- Vice President, Chief Financial Officer

Thanks, J.T. Good morning.

Looking at slide 4. Net sales totaled $812.9 million, down 5.7% year-over-year as continued COVID-19 market pressures in the US were partially offset by higher sales in Canada. Overall, organic net sales declined 6.4%. With one less selling day year-over-year, daily net sales and organic net sales were down 4.2% and 5% respectively relative to an all-time quarterly record in the second quarter of last year. The team's continued ability to reposition and realign resources to capture demand where it is the strongest allowed us to exceed our previous expectations.

Wallboard sales of $330.5 million decreased 5.7% or 6% on an organic basis, principally due to a decline in mix driven by a shift to a greater weighting of residential wallboard. Price declined marginally, down less than 1%. On a per day basis, wallboard net sales were down 4.3%, with volumes declining only about 1%. Ceilings sales of $111.3 million decreased 9.4% year-over-year, virtually the same on an organic basis, driven by lower volume, partially offset by higher price and mix. Daily net sales of ceilings were down 8% year-over-year. Steel framing sales of $111.3 million decreased 18.3%, again, roughly the same organically year-over-year due to declines in volumes and price. On a per day basis, net sales declined 17%.

Year-over-year sales declines were more pronounced in ceilings and steel, product categories tied primarily to commercial construction which remained challenged during the quarter. Residential activity, on the other hand, was very strong, up both year-over-year and sequentially. Our complementary other product sales of $259.8 million increased 2.9% or 1.2% on an organic basis due to positive contributions from acquisitions, execution of our strategic growth initiatives as well as organic growth and favorable pricing in Canada. Daily net sales of other products were up 4.5%.

Gross profit of $265.1 million decreased 6.8% compared to the second quarter of fiscal 2020, primarily due to the lower sales. Gross margin of 32.6%, as expected, declined 40 basis points year-over-year, principally due to challenging mix dynamics, again, particularly in the commercial segment.

Turning to slide 5. Adjusted SG&A expense as a percentage of net sales of 22.5% improved 20 basis points despite a 40 basis point headwind from deflationary price and unfavorable mix impacts with certain products, notably steel and wallboard. Approximately 60 basis points of improvement was realized as a direct result of the continuing measures to align the Company's cost structure with the current demand environment as well as favorable business mix toward single-family residential with respect to operating costs. As a result, second quarter adjusted EBITDA of $82.5 million compared to a record $89.9 million a year ago. Adjusted EBITDA margin of 10.2% declined only 20 basis points year-over-year and represented a 15% decremental adjusted EBITDA margin, the midpoint of the outlook range of 10% to 20% provided on our first quarter call. All considered, we were pleased that our execution in the second quarter again generated an adjusted EBITDA margin in excess of 10% despite the market-related decline in sales.

Turning to slide 6. We generated free cash flow of $32.7 million or 40% of adjusted EBITDA in the second quarter. This was lower year-over-year due to changes in net working capital, driven by opportunistic inventory build in advance of manufacturer price increases and related timing of cash flows associated with certain purchasing incentive programs. We continue to generate healthy free cash flow in this environment and expect to do so in the second half of this year. Capital expenditures of $7.1 million were down $1.6 million year-over-year. Nevertheless, we maintain our estimate for cash capital expenditures in fiscal 2021 of approximately $25 million.

As of October 31, 2020, we had cash on hand of $118.2 million and $415.4 million of available liquidity under our revolving credit facilities. During the second quarter, we reduced our net debt by $27 million and net debt leverage was 3.0 times as of the end of the quarter, equal to that at the end of the first quarter of fiscal 2021 and down from the 3.5 times as of the end of the second quarter of fiscal 2020. Our balance sheet remains healthy, and, as an indication of the overall stability of our capital structure, we were pleased to receive an upgrade of our debt ratings from Moody's in October. As a reminder, the large majority of our debt is not due until 2025.

Now let me turn the call back over to J.T. before we open the line for questions.

John C. Turner -- President and Chief Executive Officer

Thanks, Scott.

Turning to slide 7. While we continue to carefully monitor and address market developments, we remain committed to our strategic growth priorities. These four initiatives and our Q2 progress are as follows. First, expanding share in core products, particularly in geographies where we are underpenetrated. In ceilings, we believe we are expanding share in both the mineral fiber and architectural specialty segments of the market as evidenced by our sales levels compared to available market data. Also, our focus over the past year on increasing our penetration in residential construction in geographies where we have historically been underrepresented has enabled us to capture demand more effectively in this strong end market.

Next, to diversify and profitably expand our product offering, we are focused on growing select other product opportunities outside of core products. Success on this front stems from multiple initiatives in both the US and Canada, resulting in higher year-over-year growth in this category for the second quarter in a row despite the difficult market. One example is one of our regions' early success in expanding its offering of waterproofing products in response to customer demand. While we are in early innings, we are beginning to extend this initiative to other regions through sharing of best practices and leveraging capabilities across our platform.

Third, we are developing our platform through accretive acquisitions and greenfield opportunities while maintaining balanced progress in debt reduction. We opened a new greenfield location in Hillsboro, Oregon, in the second quarter and are actively working a robust acquisition pipeline. At the same time, we reduced our net debt by almost $30 million.

And finally, so that we deliver a best-in-class customer experience as well as drive productivity and further profit improvement, we are leveraging our scale and employing technology and best practices. Deployment of our e-commerce platform progresses, with key adoption metrics, including quoting, customer account activation and online payments increasing across our operations. Near-term execution of these strategies equips us with not only meaningful scale and technology advantages but with balanced product, geographic and end market portfolios, all of which are serving to enhance our performance in this current environment. At the same time, these strategic growth priorities guide our long-term management of a very attractive business with significant long-term growth potential.

And finally turning to slide 8. As we look ahead, expected continued strength in residential construction is well documented, with strong housing data coupled with robust order growth and positive commentary from homebuilders. Commercial construction remains challenged although more recent forecasts, while still projecting declines, are more favorable than previous estimates. Ultimately, we believe the actual near-term trajectory for commercial will depend largely on developments in addressing COVID-19 and the impact on the broader economy.

For our fiscal third quarter, we currently expect to generate a year-over-year sales decline which will be slightly improved from the 5.7% or 4.2% on a per day basis realized in the second quarter. As was the case in Q2, there is also one less selling day in Q3 of this year versus last year. In terms of profitability, we anticipate gross margin in the third quarter to be similar to that generated in the first half of this fiscal year, which will be lower than the 33.3% realized in Q3 of last year. As a result, we currently expect to generate a decremental adjusted EBITDA margin within the range of 10% to 20% for the third quarter of fiscal 2021.

As we conclude, our focus remains on controlling what we can. We have taken and intend to continue to take the necessary actions to optimize our operations and align our business with demand. I am confident in our team's ability to continue to leverage opportunities, address challenges and execute on our strategic plan to ensure that GMS remains well positioned to generate value for our shareholders.

Operator, we are now ready to open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Mike Dahl with RBC Capital Markets. You may proceed with your question.

Michael Glaser Dahl -- RBC Capital Markets -- Analyst

Hi. Thanks for taking my questions. I wanted to start out just on the kind of third quarter commentary, and maybe it will be helpful if you could give us some perspective on how monthly trends progressed through your second quarter and then trends in November. And the second part of that question -- I think we can get a sense of resi versus non-resi by looking at some of your commercial-oriented segments, but could you just help break out for us what your -- what you think your overall resi sales did versus commercial on a year-on-year basis. Thanks.

Scott M. Deakin -- Vice President, Chief Financial Officer

I'll take the first part of your question, and J.T. can follow up on the second part. Trends progressively through the quarter were positive. Every month over the course of the quarter on a year-over-year basis improved, and I can extend that into November as well, so really for the last four months, we've been improving year-over-year every month.

John C. Turner -- President and Chief Executive Officer

And as we talked about previously, I think the rate is coming to pass and that is that residential is strengthening, and each month, as we go forward, we're beginning to shift the starts from three to six months in previous -- previous announcements. Commercial, however, has also continued to decline at fairly significant rate, and while it feels like that rate of decline is flattening we haven't completely seen that yet. And so, I think that our idea in the third quarter of being slightly better than we were in the second quarter is simply the reality of residential continuing to strengthen and commercial not getting a lot worse and that will give you the net -- net of our 55 commercial and 45 residential kind of get you to the number a little bit better than we did in the -- in the second quarter.

Michael Glaser Dahl -- RBC Capital Markets -- Analyst

Okay. Thanks. That's helpful. The second question, just as a follow-up to residential and thinking specifically I guess on wallboard. This is clearly across the industry, you're seeing a shift in terms of distribution, focus on capturing the residential demand and allocating efforts to do so more than probably in the past. There is clearly a strong backdrop for residential, so there's -- there's maybe enough to go around, but from a competitive standpoint, have you seen any major shifts in terms of the competitive dynamics and how are you thinking about kind of pricing going forward.

John C. Turner -- President and Chief Executive Officer

The good news for us is that we started from a more balanced position than some of our competitors. But also, we've been talking for 18 months, and you're probably getting tired of hearing me talk about it, but the reality is one of those strategic pillars is to gain share in our core categories, and we recognized well before the pandemic and well before this dramatic market shift that we had some opportunity in residential. So I think we have a little bit of a head start there than some of our competitors, for sure. And in residential, those discussions aren't happening every single solitary day with major builders, right? There's only a few times during the year when you're having those discussions and you're able to secure that business with the bigger builders.

Now, with smaller builders and the contractor-controlled business, sure, that's a day-by-day effort. The other thing I think we have an advantage is just we have the ability to service the entire product mix that all of those contractors and/or builders need and we have the ability to do that in every market. And there is -- we also have the scale of our ability to handle the inventory and we have the ability to get the inventory from the suppliers based upon being, for the most part, the largest player in the space. So I think we offer a lot of advantages that maybe some of our competitors don't.

All that being said, price is an issue and residential board is the most commoditized board out there in the market. We're capable of providing just about any price that is reasonable with our excellence on the operating side, we can make money. So I think we can be very competitive where we need to be. On the other hand, maybe we're getting into an environment where there are some inflationary pricing and that will -- again, we think that benefits us even more than the balance of our competitive space.

Michael Glaser Dahl -- RBC Capital Markets -- Analyst

Okay. Thanks, J.T., Scott. Good luck in the quarter.

John C. Turner -- President and Chief Executive Officer

Thank you.

Scott M. Deakin -- Vice President, Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Kevin Hocevar with Northcoast Research. You may proceed with your question.

Kevin William Hocevar -- Northcoast Research Partners -- Analyst

Hey, good morning, everybody.

John C. Turner -- President and Chief Executive Officer

Hi Kevin.

Kevin William Hocevar -- Northcoast Research Partners -- Analyst

On that last point, there was a wallboard price [Indecipherable] mid-to- late October, early November. So curious if you can comment on your expectations, if you're seeing that hold. And secondly, I know one of the manufacturers announced a January increase. So curious if you've seen anybody else follow and if you think that the market is able to accept another price increase in that time frame.

John C. Turner -- President and Chief Executive Officer

Well, we're right in the middle of what I would say is the execution phase of any kind of increases and what's going to hold or not hold from the October -- the October piece. We're certainly believing that the demand picture may shape up such that it does make sense to have some pricing in the market. It's not that way yet, but I think it could be relatively near-term. And as we've said before, better prices -- prices are better for everybody, quite frankly. They are better for the entire supply chain. And so hopefully calm heads prevail and maybe some of that -- some of that comes to fruition.

As far as one on top of the other, I think all of the building product space is in the middle of hearing and seeing price increases and how much of that's going to stick and how many are going to -- going to come into the market, I don't know. I think between October and January, there should be some degree of those two that sticks, you would think right now. But again, it's really, really early in that game, and we probably won't really know until we get well into this quarter and maybe even into the next one to see what's shaping up.

Kevin William Hocevar -- Northcoast Research Partners -- Analyst

Okay. And then on the -- steel prices have really moved up the past few months, and it seems kind of unique in that -- obviously, the steel side of the business is softer and the commodity has gone up quite a bit. So curious, does that have any impact -- the weekend markets, does that have any impact on your ability to push through the steel pricing there or is it just since steel prices are so well known, it's easy to pass that through regardless of the demand environment? And with that type of inflation, how do you -- how does that typically impact? Is there a timing -- the magnitude of increase we've seen -- is there a timing impact where maybe there could be a gross margin hit as you try to push those prices through? Just kind of curious your thoughts on the impact to the business from the rising steel prices.

John C. Turner -- President and Chief Executive Officer

Well, sequentially, we saw very, very slight increases in our pricing, but we didn't see dramatic, what we call the squeeze internally here, right, which is what you're kind of alluding to there. Steel, generally speaking, we're going to quote what we're buying, we're going to buy it out fairly quick. We're going to try to work -- if we have longer projects, we're going to put escalators on those longer projects. And then, we're really buying out the big projects really close to the time in which we ship them. There is a lot of back and forth there. Stock steel prices, if we pay more, we raise the price, and that's our stock steel price, right, and then ensure there's still day-to-day negotiation on that front. But you are correct that when you're looking at a market that's down significant double digits, that puts some extra -- some extra pressure on the price.

I certainly would prefer to be in the other environment with rising commodity price and rising demand. Then I think we pass it right through. But it's a -- it's a negotiation, there's no question, but I don't think you can see it in our gross margins, right. I think our gross margins are pretty good, and I think the discipline in the business is good, and we're earning -- we're earning the pricing by being -- by being the best in the space from a service perspective.

Scott M. Deakin -- Vice President, Chief Financial Officer

I'll just add, it's a very fragmented supply base too, so all of our purchases are very localized and [Indecipherable] relationships with the suppliers that we're working with to make sure we manage that tightly.

Kevin William Hocevar -- Northcoast Research Partners -- Analyst

Okay. Great. Thank you very much.

Operator

Our next question comes from the line of David Manthey with Baird. You may proceed with your question.

David John Manthey -- Robert W. Baird & Co. -- Analyst

Thank you. Good morning, everyone.

John C. Turner -- President and Chief Executive Officer

Hi David.

David John Manthey -- Robert W. Baird & Co. -- Analyst

Let me approach -- yeah, good morning. I'm hoping I can approach this wallboard pricing question from another angle. J.T., you've recently noted that wallboard production capacity is something like 10% higher than current demand, and I'm just wondering maybe from a historical perspective, has the Company been able to achieve positive pricing with this type of capacity versus demand gap?

John C. Turner -- President and Chief Executive Officer

This is as tight as I've seen it, and, of course, I've only been here about 18 months. So if you go back in history, I think when capacity tightens and demand is increasing, there has been successful periods of time in which pricing has gone up. So, I don't expect it to be any different. I just don't think we're kind of -- we're not -- we may be at an inflection point right now. It feels maybe like that, but we won't know for sure if this is the actual inflection point until we get into next year.

One, I think we have to confirm the demand, right. I think we have to confirm if the residential is going to continue to grow at the rate it's currently growing because we know commercial is not going to be very good for a period of time still. I mean, that's obvious based on starts in the ABI and everything else. So, what we don't know is residential, are we going to continue to have these great starts numbers every month throughout the winter and into the spring and is demand going to continue as kind of stimulus wears off, etc., and the economy. So that side is still I guess what I would call the unknown. But if all of that comes together from a demand picture up against an environment where there is 10%, 15% capacity left to be filled, I think you're getting tight enough there where it just makes sense that the whole industry should go up.

David John Manthey -- Robert W. Baird & Co. -- Analyst

Okay. Thank you for that. And the second question. Could you give us sort of a longer-term perspective on contribution margins during a recovery? I guess as I'm looking at the model and thinking about the moving pieces here, there is probably a slight downward bias to gross margin given that in a recovery we see steel and ceilings and things growing faster. Any thoughts as it relates to either the gross margin, again, one, two years plus, and contribution margins in a recovery?

John C. Turner -- President and Chief Executive Officer

Yeah, let me -- let me flip the script a little bit on the question. I don't know what the gross margin may or may not do in a recovery, but I can tell you that in the early stages of a recovery growing off of the lower cost base and the disciplined nature of our team, I would expect us to not add costs until we are confident that we're in that growth phase, right. So we should get some leveraging in the beginning phases of any recovery, for sure. Now, what happens on the gross margin side, I don't really know. Scott, any perspective?

Scott M. Deakin -- Vice President, Chief Financial Officer

I just -- look at the past history. I think if you look at a pretty good series of quarters in the past history, our gross margin differential from quarter to quarter over that kind of period doesn't move all that much. So, the business we're in is really making sure we're aligning supply with demand and trying to maintain that spread as tightly as possible regardless of the cycle. So we do that.

That said, as we continue to guide, our business is based on EBITDA to try to make sure we align the operational side of the house with the gross margins, and we'll continue to do that as well. And I guess what we just continue to guide you to is that sort of 10% to 20% kind of incremental EBITDA margin decremental kind of rate. And taking J.T.'s points in terms of how we manage the cost structure and the upside, we'll try to maintain that as well. So that's the best guidance we can give you at this point as we deal with the cycle and as we deal with mix dynamics in this -- in this market.

David John Manthey -- Robert W. Baird & Co. -- Analyst

That's helpful. Thanks for the color.

Operator

Our next question comes from the line of Keith Hughes with Truist Securities. You may proceed with your question.

Keith Brian Hughes -- SunTrust Robinson Humphrey -- Analyst

Thank you. Looking for the next quarter or two, given particularly inflation coming at wallboard, do you -- do you anticipate some of the gross margin pressure that you discussed for the quarter -- coming quarter, is that coming from the kind of lag as you push through wallboard increases onto your customers?

John C. Turner -- President and Chief Executive Officer

There is a little bit of lag, obviously, in there as well. There's also the mix shift dynamic that -- residential board has a little bit lower gross margin rate, but we've talked in the past about the operating margins being similar between the residential and commercial. But on the pure gross margin side, there is a little bit of a mix. There is always a little bit of lag and the -- but again, we are acutely -- I mean, we're looking at it, tracking it, following it, talking about it every single week with our operators out there trying to lead in the space and continue to deliver exceptional service and earn a little bit of a premium. And I think that in times like this, we're in a decent position to do that.

Scott M. Deakin -- Vice President, Chief Financial Officer

I'll just add a few -- when we talk about pressure, again, please keep in mind that Q2 and Q3 last year were particularly strong, and so if you look at it on a sequential basis, we're really expecting to do pretty similar in Q3 versus what we did in Q2. And we recognize going into Q2 and Q3 that they would be tighter, not so much because of the market, although that's a factor, but really it's a tougher compare versus prior year.

Keith Brian Hughes -- SunTrust Robinson Humphrey -- Analyst

Okay. And switching to the other products, this is a really nice growth in a tough environment, particularly the last couple quarters. Can you kind of rank order at this point what -- what are the largest products you sell in that segment?

John C. Turner -- President and Chief Executive Officer

Insulation is the largest, primarily commercial insulation, but we have a nice residential insulation business also with a -- what I would call a, for the market in Canada, pretty good -- pretty good share of that business in Canada. So we have -- insulation is our number one product category. After insulation, kind of goes down into some of the related products with wallboard, you end up with joint treatment and fasteners, things like that. But lumber is becoming more and more important to us, and there is a major focus across the business on lumber. Most of our lumber is fire-treated lumber and/or lumber used in commercial construction, not your traditional residential lumber packages or trusses or anything like that, things that our customers have to buy, so we've -- we've moved that direction.

And then you get down into tools and you get into stucco and EIFS, which is a continuing focus for us, predominantly through the south where stucco and EIFS is used more, but -- and you heard me talk about waterproofing brand new, but I do think the exterior envelope is something that we will be successful at over time, and it's in its infancy, but I think the signs are we can be -- we can be good at that as well.

Keith Brian Hughes -- SunTrust Robinson Humphrey -- Analyst

And how did Canada do versus the average revenue change in the quarter?

Scott M. Deakin -- Vice President, Chief Financial Officer

Canada was a source of strength for us. I think we've got this within the footnotes of the Q, but Canada was up about 9.3% and relative to the US being down in roughly the 8s [Phonetic].

Keith Brian Hughes -- SunTrust Robinson Humphrey -- Analyst

Okay. Thank you.

John C. Turner -- President and Chief Executive Officer

Thanks, Keith.

Operator

Our next question comes from the line of Matthew Bouley with Barclays. You may proceed with your question.

Matthew Adrien Bouley -- Barclays Bank -- Analyst

Good morning. Thanks for taking the question. One more on wallboard price. You talked about building inventory ahead of the manufacturer price increases. Was that -- is that a pre-buy ahead of the October price increase or the January price or both? And does it kind of signal that you do have a stronger view about the market accepting price this year relative to the past couple of years?

John C. Turner -- President and Chief Executive Officer

Let me answer the first half of your question. It's really both. Also, we are big believers in servicing our business, and so inventory is important. And in the event there is any tightness anywhere, we want to make sure we've got the inventory. But two, I don't think it signals much -- much in the -- the reality is we turn that inventory 13 times. So we're buying -- now, we don't think prices are going down. So the reality is, we can buy a little bit now, and if they do go up, then we're in good shape. If they don't go up, doesn't matter, we sell our inventory. So I wouldn't read too much into it other than we just think it's smart to put a little bit of cash over there. Again, it doesn't age out. You don't have a situation where we don't sell that inventory and turn it back into cash very, very quickly if we need to. So I think that we're just being prudent.

Matthew Adrien Bouley -- Barclays Bank -- Analyst

Okay. Got it. Second one on, back on commercial construction. J.T., you talked about sort of signs of stabilization at lower levels. I don't want to put words into your mouth, but I'm wondering with -- with your own customers, if you're kind of seeing those sort of signs of life and the forward-looking indicators that you have, whether it's quoting new jobs, and if there is any specific verticals or regions that you think maybe are kind of inflecting in the near term. Thank you.

John C. Turner -- President and Chief Executive Officer

Well, I mean, we're quoting at lower levels, right, but it's stable, and that's really the message across the board, and that makes sense to all of the macro indicators that are out there. So our pipeline reflects what I think are the macro indicators, our quoting is reflecting the macro indicators, the new product pipeline, the new construction pipeline seems to be bottomed and maybe moving up a little bit. As far as quotes go, I think people are expecting things to be better a year from now and a lot of those projects are starting to bid now. The big emphasis for us today or the big problem really today commercially is, in all regions, is tenant improvement. Tenant improvement is off in all regions, and tenant improvement is an important part of what we do. So that's -- the biggest negative in our business is the lack of tenant improvement.

Matthew Adrien Bouley -- Barclays Bank -- Analyst

Okay. Got it. Thank you.

Operator

Our next question comes from the line of Steven Ramsey with Thompson Research Group. You may proceed with your question.

Steven Ramsey -- Thompson Research Group -- Analyst

Great. Thanks. A couple of things. You guys discussed ceilings share gain. Can you share more on why this is happening? And do you feel like it's accelerating in a challenging environment and is that because your competitors are stepping back and less able to compete as effectively? And that share gain, can you discuss if that's tenant improvement related or new construction related?

John C. Turner -- President and Chief Executive Officer

Yeah, the share gain is coming from the concerted effort across our entire business to be the number one ceilings distributor in every market in which we participate. And we're fortunate to have very, very strong relationships with Armstrong and USG, the number one and number two player in ceilings. And so it made sense for us to make that commitment.

Again, as part of that first strategic pillar of growing our core products, 18 months ago, we recognized that we needed to put an effort everywhere because we had examples of being the best in major markets and it didn't make any sense not be the best everywhere. So we've been working to do that. I'm not going to say we're the best everywhere yet, but that's our goal, right. So we've added salespeople, we've added engineering capability around architectural specialties, we've had quite a bit of success with architectural specialties, and I would say that most of that is new projects and not in the TI space.

The TI space is really the acoustical tiles, right, the mineral fiber. But we have decided everywhere to participate in ceilings. And there are very, very few parts of our business today where we don't have a good ceilings line, and where we don't have a good ceilings line today, I promise you we're beaten down the doors of the manufacturers to get access to their line in those markets. So I really think that's what's happening.

Steven Ramsey -- Thompson Research Group -- Analyst

Got you. And then switching to single-family side and wallboard there. Is there an increasing lag time that's pushing back the times that your products go into the home for various reasons? It seems like we've heard of various building product companies who have seen lag times extend beyond the normal time frame. I guess what I'm getting at is, is demand better than what near-term revenue shows on single-family and maybe does that support sales in the upcoming quarters.

John C. Turner -- President and Chief Executive Officer

Well, I mean, we've been talking about the fact that if you looked at the strengthening sequential sales of residential for us, we're six months after those starts number started to come alive, right. So -- and we were stronger in November than we were in October. I don't necessarily have any data that would say that those lead times are extending. But of course, we are just one part of the process of building a home. So if it takes longer to get the land prepared, it's taking longer to pour the foundations and it takes longer to build the lumber out, then it's going to take a little bit longer for them to order and install the drywall and the other products that we sell into the home, and that's -- that's a fact. So if you've got data or you can see and talk to the homebuilders that instead of 90-day cycles to build houses they are at 120 days, well then yes, that's a direct impact on us.

Scott M. Deakin -- Vice President, Chief Financial Officer

To J.T.'s point, we have heard evidence of things like lumber, appliances and other products that go into a home being a little bit extended from certainly what we're seeing on our supply side, which is a factor, but it's not significant at least at this point.

Steven Ramsey -- Thompson Research Group -- Analyst

Great. Thank you.

Operator

Our next question comes from the line of Trey Grooms with Stephens. You may proceed with your question.

Trey Grooms -- Stephens -- Analyst

Hey, good morning. Thanks for taking my question.

John C. Turner -- President and Chief Executive Officer

Hi Trey.

Trey Grooms -- Stephens -- Analyst

Hey, J.T. So first one. We've spent a lot of time talking about wallboard pricing and a lot of time around that clearly still up in the air, but what about on the ceiling side, how are you thinking about ceilings pricing as we -- as we go into '21? I think there was a price increase announced recently from one of your big suppliers. So anyway, just any thoughts around the ceiling pricing as we look into next year, given the demand backdrop?

John C. Turner -- President and Chief Executive Officer

I would probably say that everywhere other than potentially the commodity mineral fiber, the market will accept the prices. I think that the architectural specialties as a continuing trend will be a larger part of ceilings going forward, and those are quoted on an individual basis. And so I think that those prices will continue to rise. And I think the higher end of the more premium mineral fiber and acoustical ceilings will bear whatever pricing the two leaders put into the space on the manufacturing side. I do think on the commodity side, it's going to continue to be a struggle because that's just a little bit more competitive there and there's just more players.

Trey Grooms -- Stephens -- Analyst

Understood. And I don't know if you can get in the weeds this much, but with your ceilings business, do you -- can you give us approximate mix of what is more commodity kind of ceilings or versus the [Indecipherable] and some of the others that you were talking about?

John C. Turner -- President and Chief Executive Officer

I don't have it. I don't have it sitting right here with me. It would just be all speculation, and I don't want to do that.

Trey Grooms -- Stephens -- Analyst

Okay. Fair enough. So my next one is a little bit higher level here looking into '21. But, I mean, it sounds like -- and correct me if I'm wrong, but it sounds like the commercial side could be bottoming. It sounds like maybe it's not getting worse. And so if that's the case, and we're looking at the res side, where clearly res has been good from a start standpoint, and you guys are definitely starting to experience some benefits from that, and I would expect that to continue as we go over the next few quarters. And so my question is really as we look a little further out, if this continues to be the case, at what point do we start to see some -- some revenue growth or volume growth in your business overall?

John C. Turner -- President and Chief Executive Officer

Again, we usually just give you that one quarter out because it's really all we can see right now -- and this is a very difficult time to be forecasting. I would tell you that November commercial was still slightly worse than October commercial, and we're talking about double digits. So I'm not all that excited about bottoming at these levels. And how long we would stay here, I don't really know. Commercial was super-strong, obviously, last year right up against COVID. So, we get into that April and then we start rolling into next year, May, June, July, those first months after COVID.

We might be able at the end of the next quarter to give you a view that says, hey, maybe that's the time. But commercial still pretty -- I mean, I don't want to be a downer [Phonetic], but it's not good, our steel sales are fairly reflective of that right and we're gaining share in ceilings. Thankfully we focused on that quite a while ago. And we also are gaining share I think residentially where we focused on that quite a while ago with our wallboard, and all of that is helping us perform a little better than we otherwise would have. But commercial is certainly not going to be a tailwind I believe until late '21.

Scott M. Deakin -- Vice President, Chief Financial Officer

You're going to -- you're going to get some natural lapping from a financial standpoint on the ceiling side, which is -- which is good, so you won't see the year-over-year declines as pronounced as we've got this year. Those will start to moderate. And you've got the strength on the residential side going forward based on the starts we're seeing that should start to give us some pretty positive indication. But we're just not in a position to be able to define exactly how that shakes out past a quarter or so at this point.

John C. Turner -- President and Chief Executive Officer

Yeah. I mean, I think we're feeling better but we're not feeling good yet.

Trey Grooms -- Stephens -- Analyst

Understood. And I understand it was a tough question, given the uncertainty that we're sitting here looking into right now, but I appreciate the color. The last one for me, and it kind of dovetails from that one. Just kind of where we -- given where we are in the cycle and on your strategic priorities, one that you point out is the platform expansion. So I guess could you go into a little bit more color around that? I mean, your leverage has come down. You've reduced your net debt, metrics are improving. So as we look at where we are today in the cycle and then we look at opportunities that are out there, both greenfield and M&A, how are you -- and you note that you're balancing it with debt reduction priorities. But can you go into a little more detail about that, especially given where we are right now in the cycle and kind of the -- a little bit more uncertain outlook currently?

John C. Turner -- President and Chief Executive Officer

Yeah, I mean, we have five or six green fields in the pipeline that are in process, that, of course, put them on hold in the April time frame when we looked at COVID. And of course you put anything on hold and then you've got to -- you got to pull them back out of the -- out of the cans, so to speak, and get them done. It's hard to get it done, right. We've got to go get property, we got to hire people, we -- there are some things that just take a little bit of time, but -- so we're back-half loaded this year in our green fields, for sure, but we got the one open in -- up there in Oregon, which is in western Portland, and we're super excited about that because that's going to be a booming market. And we've got four or five more good ones that we'll get done, if not this fiscal year, really, very, very closely thereafter. So they'll all be kind of coming together.

The acquisition pipeline is good, and we're talking to multiple players and multiple people, and I think that we'll have some things to talk about in the next quarter or two on that front. I just -- unfortunately, today, I don't have any exciting news for you, but we got a good pipeline. And we agree with you. We have a good balance sheet and good liquidity and we should be -- we should be a good acquirer.

Trey Grooms -- Stephens -- Analyst

All right. Thanks. Thanks for all the color. I appreciate it. And good luck.

John C. Turner -- President and Chief Executive Officer

Thank you. Appreciate it.

Scott M. Deakin -- Vice President, Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Sam Darktash with Raymond James. You may proceed with your question.

Sam Darktash -- Raymond James -- Analyst

Good morning, J.T. Good morning, Scott. How are you?

John C. Turner -- President and Chief Executive Officer

Good, Sam.

Sam Darktash -- Raymond James -- Analyst

Just a couple of quick housekeeping questions with respect to capital allocation. I don't want to major in the minor but I noticed that you bought a little bit of stock in the quarter for the first time in a while. I think the last time you did so was early 2019 when the stock was half the price and the valuation was around 6 times. Anything as to the rationale or the reasoning behind that? I know you have $58 million left on the authorization and you're about to go into a heavy seasonal cash flow time of the year. Is there anything there that we should take from that activity?

Scott M. Deakin -- Vice President, Chief Financial Officer

We telegraphed that in our last quarterly call that we were going to start doing that, Sam. It's nothing more than a modest share repurchase associated with offsetting our equity compensation programs. We're issuing equity, obviously, as a part of those programs and you'll see us over time engage in some limited buyback to offset the dilutive impact of that, but it's -- at this stage, it's really nothing more than that.

Sam Darktash -- Raymond James -- Analyst

Got you. And then my last question. The typical free cash flow expectations, I think, Scott, are between 40% and 50% of EBITDA. Is that still the expectation for the fiscal year or are you looking to hold a little bit of extra inventories throughout the next couple of quarters?

Scott M. Deakin -- Vice President, Chief Financial Officer

Yeah, so it's toward the lower end of that range in this environment with EBITDA being down versus where we were, say, last year, but in that low 40s is certainly still a pretty good indicator. And then as we come back out of that, I think on a more normalized basis back to that 50% is probably a good indicator of what the business is capable of overall. But in this environment, closer to 40% is probably about right.

Sam Darktash -- Raymond James -- Analyst

Very good. Thank you, gentlemen. Stay well.

John C. Turner -- President and Chief Executive Officer

Thank you. You too.

Operator

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Ms. Leslie Kratcoski for closing remarks.

Leslie H. Kratcoski -- Vice President, Investor Relations

Thanks, everyone, for joining us this morning. A replay and transcript of our call will be available shortly on gms.com. And as always, we thank you for your interest. Good day.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Leslie H. Kratcoski -- Vice President, Investor Relations

John C. Turner -- President and Chief Executive Officer

Scott M. Deakin -- Vice President, Chief Financial Officer

Michael Glaser Dahl -- RBC Capital Markets -- Analyst

Kevin William Hocevar -- Northcoast Research Partners -- Analyst

David John Manthey -- Robert W. Baird & Co. -- Analyst

Keith Brian Hughes -- SunTrust Robinson Humphrey -- Analyst

Matthew Adrien Bouley -- Barclays Bank -- Analyst

Steven Ramsey -- Thompson Research Group -- Analyst

Trey Grooms -- Stephens -- Analyst

Sam Darktash -- Raymond James -- Analyst

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