Masonite International Corporation
Q2 2015 Earnings Call Transcript

Published: 6 Aug 2015

[Operator:]

Welcome to Masonite's 2015 Second Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After management's prepared remarks, investors are invited to participate in a question-and-answer session. This conference call is being recorded. The replay may be accessed until August 20. To access the replay, please dial 877-660-6853 in the United States or 201-612-7415 for outside of the United States, enter conference ID number 13614492. I will now introduce Joanne Freiberger, Masonite's Vice President and Treasurer. Please go ahead.

[Joanne Freiberger:]

Thank you, Donna. And good morning, everyone. I'm joined in our Tampa office today by Fred Lynch, our President and Chief Executive Officer; and Chris Virostek, our Senior Vice President of Corporate Development and Strategy Implementation. The information for the webcast presentation that will accompany today's call is available on our website at www.masonite.com under the heading Investors. The earnings release and the presentations made by our executives include forward-looking statements that are based on the beliefs of the management team regarding the results of the operations of the company, as well as industry and macroeconomic conditions. These beliefs and the related forward-looking statements are subject to risks and uncertainties, which are described in greater detail in Item 1A of our Annual Report on Form 10-K, which is available on the Investors tab of our website. Actual results may vary materially from those described in the forward-looking statements. Our management uses adjusted EBITDA to measure our operating performance. Accordingly, we supplement our GAAP reporting with the non-GAAP financial measure of adjusted EBITDA. Our definition of adjusted EBITDA and our reconciliation to the GAAP measure of net income is provided in the appendix of today's presentation, which can also be found on our website. On today's call, Fred will begin with a company and industry update. Next, Chris will discuss recent events related to the M&A activity in Europe as part of our portfolio optimization strategy, followed by my review – financial review of the second quarter, after which, Fred will summarize our prepared remarks before opening the call up to a question-and-answer session. And with that, I'll now turn the call over to Fred.

[Frederick J. Lynch:]

Thanks, Joanne. Good morning and welcome everyone. The second quarter of 2015 represented our highest quarterly adjusted EBITDA in six years at $59 million with a 340 basis point expansion of adjusted EBITDA margin to 12.4%, despite significant foreign exchange headwinds that contributed to softer net sales performance. There were number of factors that contributed to these solid results that are worth mentioning. First, average unit price increased in all three reportable segments. In fact, this was the ninth consecutive quarter of AUP growth in our North American segment. Second, our business in the UK had another strong quarter with both double-digit net sales on a constant-currency basis and double-digit adjusted EBITDA growth. Third, the decision to exit the Israeli business in 2014 contributed about $2.6 million of the comparative quarterly adjusted EBITDA growth, despite the related drag on net sales. So, while delivering solid performance, our teams have also been extremely busy beyond the second quarter continuing to execute on our strategy to optimize our business portfolio. This past Monday, we announced the disposition of our door business in France. And yesterday, we announced the acquisition of National Hickman following last week's acquisition of Performance Doorset Solutions, both in the UK, a market that continues to exhibit solid fundamentals. We believe that the combination of these actions creates a stronger, more focused and more profitable European business platform for Masonite and that will – it will lead to increase long-term shareholder value. Chris Virostek will discuss these acquisitions in a little bit more detail later in the call. So again, overall, we are pleased with the results we have achieved in the second quarter. We took significant steps towards optimizing our portfolio and in the phase of a modest volume decline and despite considerable foreign exchange headwinds, we grew adjusted EBITDA by 34% in the second quarter of 2015 versus 2014. So turning to slide five, the recent data on North American housing continues to confirm what we've been observing for some time. First, the U.S. housing market continues to advance, but the recovery remains somewhat choppy. Single-family starts were up 10% year-to-date with second quarter starts up 13%. Single-family completions on the other hand have increased at a more moderate 5% rate year-to-date. Second, the Canadian market, which represents approximately 20% of our North American net sales, has struggled in 2015 with housing starts down 1% year-to-date, amidst the significantly declining currency and indications of continuing recessionary environment given deflated oil prices. The UK market, on the other hand, continues to perform extremely well. UK housing starts were up 16% year-to-date and have grown 13% annually since 2012. As depicted on the chart at the bottom right, North American door volume was up in Q1, while we experienced softer volume levels during our second quarter. We believe that the residential wholesale price increase in March triggered some pre-buying into the first quarter and that the second quarter was negatively impacted by the adverse weather conditions in Texas and the Southeast. As we continue to adjust the price progression across our product portfolio to extract appropriate value for our products and services, we also believe we've experienced some volume loss, particularly in the lower margin portion of the product portfolio and we will continue to monitor this closely in order to make sure that we maintain our customers. While volume has been choppy in the first two quarters, we believe that the overall financial results demonstrate that our strategies are working. Adjusted EBITDA performance has shown significant improvement driven by increases in average unit price, disciplined cost control and investment in our five strategic focus areas. Our trailing 12-month adjusted EBITDA grew 55% during the same time last year due to dedication and efforts of our teams and stood at $170 million at the end of the quarter. We continue to invest in our five strategic focus areas

[Christopher Andrew Virostek:]

Thank you, Fred. As part of our effort to optimize our portfolio, we continuously analyze our business to determine which operations, geographies and products create the most value for our customers and acceptable returns for our shareholders. On August 3, we announced that we completed the disposition of our door business in France, Premdor S.A.S. On a trailing 12-month basis, our business in France generated approximately $110 million in net sales and negative adjusted EBITDA of $2.6 million. As part of the disposition of the business, we expect to recognize an estimated $36 million to $41 million non-cash charge in the third quarter. Including France, we have exited seven markets since 2010. In general, these markets either had poor economic outlooks, outdated facilities or equipment, unfavorable operating dynamics or they simply did not have acceptable cash conversion metrics. Turning to slide 10. On the other side of the spectrum, we seek to acquire businesses that meet our disciplined acquisition criteria. As Fred mentioned in his earlier remarks, we are very pleased with the fundamentals in the UK. Housing starts in the UK are up 16% through June 2015. In the second quarter of 2015, our UK business delivered double-digit net sales growth on a constant currency basis, strong double-digit adjusted EBITDA growth and door volume that was up 6%. To further strengthen our business in the UK, on July 27 we announced the acquisition of Performance Doorset Solutions, or PDS, for a total consideration of approximately $16 million. And on August 5, we followed that up with the acquisition of National Hickman for approximately $82 million. We believe these acquisitions strengthen our UK business and provide the opportunity to capture further operational synergies. PDS is a leading supplier of custom doors and millwork in the United Kingdom that specializes in non-standard product specifications, manufacturing both wood and composite doors in the residential and non-residential market, servicing both the public and private sector. With over $20 million of net sales and $2.6 million of adjusted EBITDA in their 2014 fiscal year, we believe this acquisition represents an attractive opportunity at an appropriate valuation to further enhance our UK product offering. National Hickman, shown on slide 12, sells processed and customized solutions directly to homebuilders. Solutions are designed and manufactured in-house to exact specifications and delivered to the construction site on a just-in-time basis. National Hickman currently sells to 17 of the top 20 homebuilders in the UK. With $110 million in sales last year, this represents one of the largest acquisitions we've done to-date and has the potential to transform Masonite's UK business. National Hickman provides Masonite with further components manufacturing capabilities, such as door jambs and trim parts. From a customer perspective, there's attractive value in delivery to the job site of a high quality, easy to install doorkit. For clarification, a doorkit is similar to a fully finished pre-hung door unit that we would sell in North America. In both instances, we remained committed to our five acquisition criterias. We believe we purchased each company at attractive valuations and both have favorable cash conversion metrics. We also believe that they further our efforts in our five strategic focus areas. Taken in combination, the acquisitions of PDS and National Hickman complete the transformation of our UK business we started last year with the acquisition of DSI. Masonite now has a full product line in the U.K. spanning interior and exterior doors across many prices points, and the ability to service multiple channels including merchants, specialists, installers and homebuilders. We can service these channels with products in every configuration from a door slab to a fully finished pre-hung exterior glazed door with hardware. We are also opening the door to non-residential market in the UK with PDS. All of this is occurring in a growing UK market. In many ways, we are catching our UK business up to the model we have in place in North America. Our full product offering, across the interior and exterior range from door slabs to full finished prehungs, giving us the flexibility to service a wide customer base with the appropriate products for each one. The UK acquisitions further strengthened our established leadership position as shown on slide 15. PDS has capabilities in residential exterior fiberglass doors and architectural wood interior doors, given its service to social housing in the UK which tends to be larger projects with customized door solutions. National Hickman augments our leadership position on the sake of interior molded doors and door components with their sales of hardware, moldings and frames. We're excited for what the future holds for the UK market. I'll now turn the call over to Joanne to discuss our second quarter financial performance. Joanne?

[Joanne Freiberger:]

Thanks, Chris. 2015 second quarter volume went from 8.5 million to 8.4 million doors which represented a decrease of 1%. Net sales decreased 2.8% largely because of foreign exchange headwinds and softer volumes, partially offset by increases in average unit price. On a constant currency basis, net sales would have increased 2.4%. Despite slightly lower door volume and negative foreign exchange headwinds, we were able to post very strong adjusted EBITDA compared to the second quarter of 2014. Specifically, adjusted EBITDA increased from $44.1 million to $59.1 million or 34%. Excluding the negative impact of foreign exchange, adjusted EBITDA would have increased 38% versus the second quarter of 2014. On slide 18, we present a summary income statement of our 2015 second quarter results. Beyond the net sales and adjusted EBITDA numbers already cited, gross profit increased 21% to $95 million or 20% of net sales, an increase of 390 basis points versus year ago. SG&A increased $300,000 to $58.8 million. The increase was driven by a $4.7 million increase in personnel costs due to a combination of wage inflation, investments in personnel and an increase in compensation accruals compared to the prior year. Harring Doors, which we acquired in the fourth quarter of 2014, also added $200,000 of incremental SG&A and there were other increases totaling $500,000. These increases were partially offset by favorable foreign exchange impact of $2.2 million, an incremental comparative benefit of $1.7 million from the Israel market exit in 2014 and a receipt of $1.2 million of business interruption insurance proceeds in Africa. As a percent of sales, SG&A increased 40 basis points. The combination of higher gross profit and relatively flat SG&A spend resulted in a 340 basis point expansion in our adjusted EBITDA margin from 9.0% last year to 12.4% this year. Turning to slide 19, we examine the change in net sales and adjusted EBITDA for each of our three reportable business segments and the primary drivers of the year-over-year changes. Net sales in our North America segment increased 0.9% or $3.5 million. Excluding the negative impact of foreign exchange, net sales would have increased 3.9%. Average unit price increased net sales by $19.5 million. This increase was partially offset by lower unit volumes which decreased net sales by $4.7 million. As Fred mentioned earlier, we believe that the residential wholesale channel price increase in March triggered some pre-buying into the first quarter and that the second quarter was negatively impacted by the adverse weather conditions in Texas and the Southeast. As we continue to adjust our price progression throughout our product portfolio and extract appropriate value for our products and services, there has also been some volume loss at the low margin end of the product portfolio and we are carefully reviewing that. Higher average unit prices were the primary driver behind the $8.4 million increase in North America's second quarter adjusted EBITDA which was up 21% year-over-year from $39.7 million last year to $48.1 million this year. Net sales in our Europe, Asia, and Latin America segment decreased 15.5% or $16 million compared to the second quarter of 2014. On a constant currency basis, net sales would have decreased 3.1%. Average unit price increased net sales by $4.4 million compared to the prior year. This increase was offset by lower unit volumes which decreased net sales by $5.5 million. Adjusted EBITDA increased $6.4 million or 128% versus the second quarter of 2014. Strong double-digit adjusted EBITDA growth in the UK and the year-over-year comparative benefit realized from last year's decision to exit Israel were partially offset by continued weakness in France. Net sales in our South Africa segment decreased 10% or $1.4 million due primarily to the continued decline of the rand versus the U.S. dollar. Excluding the decline in the value of the rand, net sales would have increased by $500,000 or 3.6%. Adjusted EBITDA increased $300,000 compared to the second quarter of 2014. Excluding the $1.2 million partial payment related to our business interruption insurance claim received during the second quarter of 2015, adjusted EBITDA would have decreased by $900,000. Foreign exchange continues to have a pronounced impact on our business. Since 2012, we have absorbed nearly $125 million of foreign exchange headwinds related to net sales with $25.7 million of foreign exchange headwinds encountered during the second quarter of 2015, representing the biggest quarterly effect to-date. We anticipate continued foreign exchange headwinds in the second half. Given the larger negative FX impact versus our original estimates, the disposal of our business in France and the two UK acquisitions, we now believe that net sales for the full year will be roughly equal to 2014. Let's take a moment to put our second quarter results in context. At $59.1 million, this was the highest quarterly adjusted EBITDA achieved in the past six years, nearly three times the $20.5 million reported during the second quarter of 2011, or a 30% compound annual growth rate. So, again, we are encouraged by our second quarter results and believe they represent clear evidence that our balanced growth strategy and our focus on business execution is working. We would also be remiss, if we did point out as we did last year at the same time that while we believe future prospects are encouraging, the second quarter is typically the strongest quarter of the year with historically the third quarter being down on a sequential basis. On a year-to-date basis, we reported adjusted EBITDA of $96.8 million or 51.7% above the first half of 2014. Given our strong performance in the first half, the disposition of our business in France along with our two recent acquisitions and offset by the continued foreign exchange headwinds anticipated in the second half with pockets of some softer than anticipated volume, we now believe our adjusted EBITDA for the full year will be approximately 35% higher than 2014. Turning to liquidity, cash flow and balance sheet metrics. Total available liquidity at June 30, 2015 including unrestricted cash, an undrawn ABL and accounts receivable purchase agreement, totaled $278.3 million or 15.2% of Masonite's trailing 12-month net sales. Total debt and net debt to trailing 12-month adjusted EBITDA stood at 2.8 times and 2.0 times, respectively. Our trailing 12-month adjusted EBITDA interest coverage ratio was 4.3 times and our trailing 12-month fixed charge covered ratio was 3.0 times. Free cash flow increased to $120.4 million for the trailing 12 months as our accelerating adjusted EBITDA resulted in a steady increase in free cash flow generated for the business. Subsequent to the end of the quarter, we used approximately $83 million of unrestricted cash and drew $15 million on our ABL to acquire National Hickman and PDS. And with that, I'll now turn the call back over to Fred to summarize today's discussion. Fred?

[Frederick J. Lynch:]

Thank you, Joanne. So we're pleased with the strong operating results from the second quarter in the face of negative foreign exchange headwinds and softer door volumes. Gross profit increased 21% and gross margins expanded 390 basis points. We achieved our highest quarter of adjusted EBITDA in six years and expanded adjusted EBITDA margins to 12.4%. We continued to leverage our establish leadership positions in all targeted product categories in North America and the UK by focusing on five areas to accelerate growth

[Operator:]

Thank you, Mr. Lynch. Our first question is coming from Bob Wetenhall of RBC Capital Markets. Please proceed with your question.

[Robert Wetenhall:]

Hi and good morning. Congratulations on a very strong quarter, especially in terms of EBITDA performance. I think this is for Fred or Joanne, I just got a couple questions. I wanted to understand how we should be thinking about volume trends into the back part of the year. I think Joanne's comment was that sales are going to be flat, but if I'm understanding what you said, then you're adjusting EBITDA guidance is rising from $178 million at the Investor Day to $188 million. And I wanted to understand how to bridge from that $178 million into $188 million and where volume fits into that in the second half?

[Frederick J. Lynch:]

This is Fred. Thanks for your question, Bob. As we look at volume in the second half, we do feel that the market, at least from a housing starts perspective, has improved and continues to improve. So we think that's encouraging. Clearly we did see some softer volume in Q2. We do believe that on the fringes there may have been some share loss, and we're looking at that closely. It's something that we want to make sure we continue to get paid appropriate value for our products. We've been very forthright with that. At the same time, our intention is to make sure that we maintain our customer base as well. So as we like to think about it, we want to have both. And so as we think about the direction of where we are going forward, we really have to take into account what's happened so far this year and we wanted to acknowledge the fact that the acquisitions that we've undertaken have a better earnings profile and will automatically add to our initial forecast for the year. So other than that, we're not significantly changing what we said at the Investor Day meeting.

[Robert Wetenhall:]

Joanne, am I correct on your change to the guidance based on 35% year-over-year to $189 million?

[Joanne Freiberger:]

That math is really closer to about $185 million.

[Frederick J. Lynch:]

I think the math is $185 million, yeah.

[Joanne Freiberger:]

We did $137 million last year.

[Frederick J. Lynch:]

And, again, the way to think about it is to say, we're maintaining what we said before, but we recognize we are getting more profitability through these acquisitions.

[Robert Wetenhall:]

Well, that's a good thing. Can you talk about how the UK acquisitions kind of align with the current strategy and how we should think about this evolving on the next 12 months to 18 months as you get out of more markets and continue portfolio optimization?

[Frederick J. Lynch:]

Yeah. So I think one of the things that we've recognized and we've spoken to our investors for some time is that our European business overall and our rest of the world segment was not performing at the same level as our North American business. In fact, if we're kind of go back, I think this puts it in perspective, if you look at the first six months in 2014 our EU, Rest of the World sales were $198 million and our EBITDA margin was 4.1%. We weren't happy with that. And we recognized an opportunity to strengthen our business through M&A activity and it was in part of our optimizing our strategy, optimizing our portfolio strategy. If you were to take the current business set we've now led out, so let's look at it from pro forma perspective, excluding the France business, including PDS, including National Hickman and look at the first six month of 2015, on a pro forma basis, our sales would be roughly the same slightly lighter at about $192 million, but our EBITDA margin for that segment would be in excess of 14%. So essentially, through this strategy, we've increased and improved the profitability profile of our European/Rest of the World segment by 1,000 basis points. We think that's a pretty good move. And quite frankly I am very happy with the performance of Chris and his team because we feel that the valuations that we did that out were very respectable considering valuation that we are seeing in other parts of the world.

[Robert Wetenhall:]

You got some great – you certainly got an attractive price, is the way to think of it the growth in EBITDA from the $178 million to $185 million is really bringing on these UK purchases with PSD and National Hickman?

[Frederick J. Lynch:]

That's right.

[Robert Wetenhall:]

Great. Just a quick housekeeping question, any adjustment to cash taxes to think about?

[Joanne Freiberger:]

Hi. This is Joanne. Yeah, I think – not for 2015. In 2015, we think that cash taxes should be really similar to last year, but looking out giving – given the positive performance of the business and the fact that 75% of our business is in North America on a net sales basis, cash taxes will likely increase in 2016 and it could be fairly significant. It could be in excess of $25 million next year.

[Robert Wetenhall:]

Got it. And, Fred, final question for me, then I will pass it over. Would you say, in terms of self-help initiatives, are we in a third inning or the fifth inning or sixth inning? How much more – you've got some great margin expansion. What's left to do in your mind?

[Frederick J. Lynch:]

Yeah, well, I think the biggest opportunity we still have is – I like to remind people this all the time is we're barely above 1 million housing starts. If you look at the – in the U.S., if you look at the historical average prior to 2008, we didn't have a single year that went below 1 million housing starts. And we only had one year that was actually close to 1 million housing starts. So we think from a market recovery perspective, we're still in the very early in it. And then I'd tell you that from a strategic perspective, we are continuing to invest in those five strategic platforms. We anticipate that we will continue to invest in those and that those will bring us ample opportunity going forward. So again, if we want to stick with the baseball analogy, I still say we're in the early part of the game with regards to our strategic initiatives.

[Robert Wetenhall:]

Good stuff. Thanks for the color and good luck.

[Frederick J. Lynch:]

Thank you.

[Operator:]

Thank you. Our next question is coming from Alex Rygiel of FBR Capital Markets. Please proceed with your question.

[Alex J. Rygiel:]

Thank you. A nice quarter, Fred. First question and may be this is for Chris or Fred. What are some of the potential synergies that you think you could capture out of Doorset and National Hickman? Should we think about more as revenue synergies and opportunities or cost synergies and opportunities?

[Christopher Andrew Virostek:]

Thanks. I think there is a balance set of opportunities on both as we commented on the call, what we've really been trying to do with our UK business over the last 12 months to 18 months is to build that out into a broader platform that has all the products that are needed for all the applications. And so I think, in – both in the case of PDS and Hickman, we think there is cost synergies on the sourcing side, on the logistics side, we're servicing some of the same customers. We think there is some procurement things that we can do better as a combined organization. And on the revenue side, we've introduced some new classes of customers that now can access a much broader product portfolio across the entire business. So really what we've tried to achieve is having that full product line available to all the channels and then to deploy a lot of the tools that we've deployed in our own UK business around Lean Sigma and cost improvement across those targets as well. So we think there is quite honestly a good balance instead of opportunities on both ends of the spectrum on the revenue and on the cost side.

[Alex J. Rygiel:]

And, Fred, now that the UK is pretty much built out, is there another geographic market that you view as sort of the next area of focus to execute similar strategy?

[Frederick J. Lynch:]

I would say at this point in time, obviously, it's not something we would want to talk about publicly if we were going to go down that path, just like we didn't want to do that with the UK. But what I will tell you is that right now we want to make sure that we integrate these businesses effectively. That's our number one priority. We believe we have a strong team and capability to do so. But we'll always continue to work on optimizing our portfolio and that is both continuing to look at opportunities to add to the business. We've been very careful about sticking to our acquisition criteria. We've stayed in our wheelhouse very closely. We think that has been the right answer. And we'll continue to look at parts of our business that might not make sense and that, as Chris described, don't fit the categories or at least fit the unfortunate negative categories that we see. And to the extent that's the case, we'll also always be willing to find a different owner, if that makes sense.

[Alex J. Rygiel:]

And lastly, as it relates to the volume loss at the low end of the product offering, did that continue in the month of July? And what channel did it occur in?

[Frederick J. Lynch:]

It's the wholesale channel where we tended to see that occur, because, as you know, the retail channel tends to be a channel that maintains over a long period of time. We believe the retail channel will be positive for us going into the fourth quarter because the win that we had at Lowe's. So we are looking forward to that. It was definitely in the wholesale channel that we saw some of the share loss. And I would say as we sit here in July, we are still seeing a fairly sluggish market there. But, again, we have some major changes occurring in the industry with regards to the combination of Builders FirstSource and ProBuild, and the combination of BMC and Stock. And so those provide both opportunities as well for us to continue to gain shares, but we also have to make sure that we are leading by providing the best offering and the best service to make sure that we maintain and grow that. We have excellent positions today with both BMC and Builders FirstSource. So we're encouraged by that.

[Alex J. Rygiel:]

Thank you very much.

[Frederick J. Lynch:]

Thank you.

[Operator:]

Thank you. Our next question is coming from Mike Wood of Macquarie Group. Please proceed with your question. Mike Wood - Macquarie Capital (USA), Inc. Hi. Great job this quarter on the margin execution. First question just on the gross margin step-up that you had in the quarter. Would you say directionally the rest of year, the recent increase is sustainable? If you could just give us some color on where we expect gross margins to trend.

[Frederick J. Lynch:]

I would say that we haven't provided guidance looking forward on a gross margin basis. I think, really the only guidance we want to share at this point in time is what's happening with overall EBITDA margin. Mike Wood - Macquarie Capital (USA), Inc. Okay. And then on the lost business, could you characterize whether it was against private label or your other major competitor? And the nature, was it pricing or some other change that occurred?

[Frederick J. Lynch:]

I think it's probably a combination of a number of things. I would say that the way we think about our largest competitor and the small private label manufacturers in the interior door space is that they're just subsidiaries of our largest competitor. We think they're one and the same company, because they basically are serviced by them from a components perspective. So when we have volume loss, we always assume it just comes from our largest competitor. Mike Wood - Macquarie Capital (USA), Inc. Okay. And the price gains in North America, they were larger than we anticipated. I think your prior comments were that the spring price increase was similar to your prior increase. Was that larger or more broad-based than you had expected?

[Frederick J. Lynch:]

No. It was as we shared. Mike Wood - Macquarie Capital (USA), Inc. Great. Just my final question on National Hickman, they had a couple, I guess what seemed to be other building product sub-categories. Are you planning to continue with those businesses?

[Christopher Andrew Virostek:]

They do have a couple of other categories that they serve homebuilders with. They're a small part of the overall UK business as we think about it. And those businesses have been well run by the local management team that's very seasoned in that industry, knows those well. We still have a lot to learn about those product lines and we haven't made any decisions yet as to what we want to do, but clearly the doorkit business that they have is very well aligned with what we do on a day-in, day-out basis. Mike Wood - Macquarie Capital (USA), Inc. Great. Thank you.

[Frederick J. Lynch:]

Thank you.

[Operator:]

Thank you. Our next question is coming from Nick Coppola of Thompson Research Group. Please proceed with your question.

[Nicholas Andrew Coppola:]

Hey. Good morning. Certainly a lot of helpful color on volume already. But just to dig in a bit more, I'm wondering if you're willing to share anything about volume trends through July and kind of apart from the market share commentary to which any of you have seen a pickup just as weather has improved and may be some of that pre-buy activities cleared out?

[Frederick J. Lynch:]

Yeah, I think, as I shared earlier, the question was asked earlier, July continues to kind of operate at the same level that we saw in the second quarter.

[Nicholas Andrew Coppola:]

So any color about weather improving and volumes in places like Texas?

[Frederick J. Lynch:]

Clearly, weather has improved. It hasn't improved in Tampa, we had a lot flooding going on down here, I have to tell you that, but clearly volume has improved. Starts are better. So there's indications that things will – that the market should improve in the second half of the year. With that said, the question was asked was you know from a July perspective, we are seeing the same – pretty much the same levels that we saw in the second quarter.

[Nicholas Andrew Coppola:]

Okay. And then second question, could you just talk a bit more about the raw material environment through Q2?

[Frederick J. Lynch:]

Yes, fairly benign. It's – as we have said all through the year that we didn't expect inflation to hurt us much this year whatsoever. Clearly, on the oil related products, they are doing better. Wood has its combination of – depending on the wood pieces that we are buying, whether or not wood is – had some inflation. But overall, relatively flat from a year-over-year perspective.

[Nicholas Andrew Coppola:]

Okay. Thanks for taking my questions.

[Frederick J. Lynch:]

Thank you.

[Operator:]

Thank you. Our next question is coming from Al Kaschalk of Wedbush Securities. Please proceed with your question.

[Al Kaschalk:]

Hi, Fred. Good morning.

[Frederick J. Lynch:]

Good morning.

[Al Kaschalk:]

I'll start – maybe we go with the 38th question on volume, just getting aside, can you share, are you willing to share the loss volume to what extent you may view it as targeting by your own policy as oppose to maybe a competitor getting more aggressive?

[Frederick J. Lynch:]

Yeah, I think the way that we think about it is we have had a very clear direction of trying to make sure we're getting better fair value for our products and services. And that has been our approach and we're going to continue to drive that approach. As we mentioned earlier, a competitor exists and then they have private label subsidiaries that have different approaches. So to the extent that they are taking a different approach, you have to really talk to them about it.

[Al Kaschalk:]

All right. But just from your perspective though, we should continue to think that we're in those markets where or customers that you're not getting the value, you're more of a price leader as opposed to a volume sponsor, if you will.

[Frederick J. Lynch:]

At the end of the day, it's about balance. We really believe that for Masonite, it's about offering the entire service and the entire value proposition. We have seen in the past and we continue to see that our customers are willing to pay for that value proposition and we expect that will continue to be the case going forward. And that's why we are investing in these strategic initiatives, focusing on new products, focusing on electronic enablements that make us indispensable to the customers that we believe will be the leading channel partners in the months, quarters and years ahead. And this is a long-term strategy, it's not a month-to-month strategy.

[Al Kaschalk:]

That's helpful. And then final my follow-up would be, as you look at the UK business now and may be on a pro forma basis, could you provide maybe a pie chart or the mix to that business in terms of going forward?

[Frederick J. Lynch:]

Can you repeat the question? I want to make sure we understand that.

[Al Kaschalk:]

The mix of the UK business that you have now, is it new housing, wholesale channel, just a more of a snapshot of what that business looks like?

[Frederick J. Lynch:]

Yes. I would say that, listen, the way the business model has set up today, we are in every channel and we have actually a very strong position in every single channel in that space. We have not provided publicly the data on how that breaks down. We only tend to do that on a global basis for the company.

[Al Kaschalk:]

Fair enough. Thank you.

[Frederick J. Lynch:]

Thank you.

[Operator:]

Thank you.

[Frederick J. Lynch:]

Okay. Well, if there are no further questions at this point in time, I want to thank everyone again for joining the call today and we look forward to speaking with you soon. And operator, if you don't mind, would you please provide replay instructions for our listeners?

[Operator:]

Thank you for joining the Masonite International second quarter earnings conference. This conference call has been recorded. The replay may be accessed until August 20. To access the replay, please dial 877-660-6853 in the United States or 201-612-7415 outside of the United States, enter conference ID number 13614492. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day.