Earnings Call: Q2 2021

Aug 17, 2021

Earnings release

Good day, and welcome to the Domain Builder Materials Group Limited Second Quarter 2021 Financial Results Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Ali Mudali. Please go ahead. Thank you, and good morning, everyone. Thanks again for participating in today's call. Joining me this morning are the company's Chairman and Chief Executive Officer, Omar Dohman And Chief Financial Officer, James Coe. If you have not seen this release, which was issued after the close of markets yesterday, it is available on our website as well as on SEDAR, along with our MD and A and financial statements. I would also like to remind you that a replay of this call will be accessible until midnight on August 31. Following management's presentation of the 2nd quarter results, we will conduct a Q and A session for analysts only. Instructions will be provided at that time Before we begin, you are required to provide the following statements regarding forward looking information, which is made on behalf of Government Building Materials Group Limited and all of its representatives on this call. The market answers to your questions today may contain forward looking information about future events for the company's future performance. This information is subject to risks and uncertainties that may cause actual events or results to differ materially. Any information regarding forward looking statements is made as of the date of this call, and the company does not undertake to update any forward looking statements. Please read the forward looking statements and risk factors in the MD and A as these outline the material factors, which could cause or would cause actual results to differ. The company will not provide guidance regarding future earnings during today's call, and management does not anticipate providing guidance in future quarterly or in terms of communications with investors. I'd like to now turn the call over to Amar. Thanks, Elle, and good morning, and thank you for joining us on today's call. The 2nd quarter was the busiest and best quarter in our operating history with record results stemming from continued strong pricing, which started to normalize during the quarter that were complemented by steady demand, further strengthening of the balance sheet to fuel growth and strategic transformative acquisitions. During the Q2, we continued to experience steady demand across our business segments, albeit at slightly more moderate levels when compared to very recent quarters. We also continued to benefit from strong pricing early in the quarter, which started showing signs of what I would consider anticipated easing in A return towards normalized levels. The combination of these demand and pricing dynamics resulted in record quarterly revenue and earnings for the business. With our share price and market capitalization at peak levels, we bolstered the balance sheet with approximately $400,000,000 of funds, Consisting of a private placement offering of $325,000,000 in aggregate principal, amount of 5.25% senior secured unsecured notes Pardon me, senior unsecured notes as well as an $86,200,000 mock deal equity offering at a price of $10 per common share. And additionally, we expanded our credit facility by an incremental $140,000,000 to $500,000,000 with Wells Fargo Capital Finance, which provides us with acquired added flexibility given the overall growth of the company. The combination of our corporate actions during the quarter resulted in a growth friendly balance sheet while ensuring that we are optimizing our overall cost of capital and keeping the company on its growth path. As most of you who have followed the company for a while would know, Well, a big part of our growth has always included strategic acquisitions in Canada and the U. S. With a view to further expand our footprint and offering We completed a transformative acquisition of Hixson Lumber Sales during the quarter, which significantly expands our operational footprint, Distribution network and reach into the Central U. S. By adding 19 lumber treating plants, 5 specialty sawmills and a captive trucking fleet. This is an opportunity which we have been working on for a long time and one that has us extremely excited. Our disciplined integration efforts are underway and we look forward to highlighting I am both pleased with and very proud of our financial performance during what I continue to consider a unique Market environment, where we have had to be extremely responsive while ensuring that our first class level of service remains on point. As a result of our collective efforts, revenues amounted to $757,000,000 Gross margin remained very strong at 17.3 percent $131,000,000 and adjusted EBITDA amounted to $94,000,000 Net earnings came in at $53,100,000 And lastly, we paid a quarterly dividend totaling $0.12 per share. Looking ahead, we remain excited and optimistic as we continue to manage our cost We always look for growth opportunities. We remain confident in our ability to work through these market volatilities diligently while serving our customers' needs with the highest level of service. We remain excited about our growth profile and the overall future prospects of the business. Before passing the call over to Jay, let me touch on the pricing environment. We started seeing a record correction in lumber and OSB pricing in early May, which quickly accelerated down from peak levels. It took a year to climb to the highs and less than 6 weeks to get most of it all back in Wood Products. This combined with more people traveling and not at home Has proved to reset pricing levels to near pre pandemic prices. While it doesn't seem like pricing has quite found the floor of a new home, We remain of the view that the current pricing environment remains healthy based on our business model. However, we continue to monitor pricing closely based on third party commentary. We are hopeful to see the high volatility subside and for the pricing for all categories to find a home in tighter range in late Q3 and early Q4. With that, I would like to ask Jay Code, our CFO, to take over and provide a review of the company's Q2 2021 financial results in greater detail, And then we'll open the call for analyst questions. Jay? Thank you, Amar. Good morning, everyone. Sales for the quarter ended June 30, 2021 were 700 $56,800,000 compared to $412,900,000 in the comparative period in 2020, representing an increase of $343,900,000 or 83%. The increase in sales is attributable mainly to improvements in pricing, which generally continued to increase during the Q2 2021 before beginning to decline in May and continuing to decline subsequent to quarter end. The company's sales by product group in the quarter were made up of 76% construction materials compared to 67% during the same quarter last year, with the remaining balance resulting from specialty and allied products of 21% and other revenues of 3%. Gross margin was $131,200,000 in the current quarter versus 58 $900,000 in Q2 2020, an increase of $72,300,000 Gross margin percentage was 17.3% this quarter, an increase from the 14.3% achieved in Q2 twenty The company's margins benefited from the previously discussed improvements in construction materials pricing throughout the majority The Q2 of 2021 as well as ongoing execution of the company's margin improvement strategies. Expenses for the quarter were $47,900,000 compared to $37,200,000 in the same quarter of 2020, An increase of $10,700,000 or 30.4 percent. As a percentage of sales, expenses were 6 Distribution, selling and administration expense increased by $9,800,000 or 37.6 Percent to $36,000,000 in the Q2 of 2021 from $26,100,000 in the same period for 2020, partly due to the results from the acquisitions as well as increased sales activity resulting in higher variable personnel costs. As a percentage of sales, these expenses decreased to 4.8% in the quarter, comparing favorably to 6.3% in the same quarter in 2020. Depreciation and amortization expenses increased from $11,000,000 to 11.9 1,000,000 largely as a result of the acquisitions of Island Trust in Q4 2020 And Hickson Lumber and L. A. Lumber Treating this year. Finance costs for the Q2 were $6,500,000 compared $4,200,000 in the Q2 of 2020, an increase of $2,200,000 largely reflecting The additional finance costs related to the unsecured notes issued in May 2021. EBITDA for the Q2 of 21 was $90,500,000 compared to $32,800,000 in the second in the comparative quarter of 2020, An increase of $57,600,000 EBITDA for the Q2 of 2021 included non recurring directly attributable Acquisition related costs of $3,600,000 Adjusted EBITDA before these non recurring costs was $94,000,000 compared to $32,800,000 in the same period in 2020, an increase of $61,200,000 As a result of these factors, net earnings for the quarter were 50 $3,100,000 compared to $12,700,000 in the same quarter of 2020, an increase in earnings of $40,400,000 Turning now to the statement of cash flows. The major Factors affecting the company's operating cash flows during the 1st 6 months of 2021 were significantly improved earnings as well as changes in non cash working capital. Operating activities generated $118,700,000 in cash Before non cash working capital changes compared to $42,200,000 during the same period of 2020, reflecting the substantial year over year improvement in earnings performance. During the 6 months ended June 30, 'twenty one, changes in non cash working capital items used $256,300,000 in cash compared to $16,600,000 in the same period in 2020. The increase in changes in non cash working capital was largely driven by a significant increase in the levels of trade receivables and the cost of inventory, reflecting the unprecedented increase in construction materials pricing since the comparative period ended June 30, 2020. In contrast, the prior year period included a significant reduction in inventory as the company successfully adjusted its seasonal working capital levels in response to the economic uncertainty caused by the pandemic. Notwithstanding the impact of market pricing and the pandemic, the company generally experiences higher levels of noncash working capital During the first and second quarters and decreases in non cash working capital during the 3rd and 4th quarters Due to ordinary seasonal factors relating to the company's business cycle, this year's change in working capital in the 6 month period was Comprised of an increase in trade receivables of $219,100,000 An investment in inventory of $113,100,000 a decrease in prepaid expenses of 855,000 And a net increase in trade and other payables of $75,000,000 This increase in working capital was financed through our revolving loan facility, which increased by $280,200,000 compared to $19,200,000 in the same period in 2020. The significant year over year increase in net from the revolving loan was also driven by its use as partial financing for the Hixson acquisition and the LA Lumber acquisition. Concurrent with the Hickson acquisition, the revolving loan was amended with an increase to the loan limit from $360,000,000 to 500,000,000 on June 4, 2021. Other debt related financing activities during 2021 include the Issuance of the previously discussed unsecured notes in May 2021, generating net proceeds of $317,300,000 of cash, Scheduled repayments related to our non revolving term loan consumed $1,300,000 consistent with 2020. Net repayments of equipment loans amounted to $1,200,000 compared to $1,600,000 in 2020 And payment of lease liabilities, including interest, consumed $11,600,000 of cash compared to $12,600,000 in 2020. The company's lease obligations generally require monthly installments and these payments are all current And we note the company was not in breach of any of its lending covenants during the 6 month period ended June 30, 2021. Shares issued net of transaction costs generated $81,600,000 of cash compared to $319,000 in 2020 as a result of the public offering in May 2021. The company also returned $21,800,000 to shareholders through dividends paid during the 6 month period, consistent with 2020 amounts paid. We note the company updated its dividend policy during the Q2 of 2020, resulting in a quarterly dividend reduction from $0.14 to $0.12 beginning with the dividend paid on October 15, 2020. Additionally, on April 15, 2021, the company paid a one time special dividend of $0.04 per share. As a result of these various activities, the company generated a total of $643,100,000 of cash from financing activities in 2021 compared to using $17,800,000 in the same period in 2020. Investing activities consumed $499,900,000 of cash compared to 1 point $4,000,000 in the same period in 2020. Investing activities in 2021 include the Hixson acquisition And the L. A. Lumber acquisition with no acquisitions in the comparative 6 month period ended June 30, 2020. Cash purchases of property, plant and equipment, net of proceeds from disposition, were 1.5 $1,000,000 largely in line with $1,400,000 in 2020. This concludes our formal commentary, and we'd now be happy to open the call to any Thank you. We'll now take the first question from Yuri Lynk at Canaccord. Please go ahead. Hey, good morning guys. Good morning. Good morning, Mark. The MDMA mentions that the company expects There's a margin expansion in the first half to be offset in the second half. Just trying to figure out exactly what you're saying there. So would we expect But for the year as a whole, the gross margin would kind of be back in that 14.5%, 15% range that was typical pre pandemic. Is that the right way to interpret It's hard for us to read it ourselves, Yuri, just because of the gyrations of the market here. And it's not something that on the way up or the way down, so we're still battling through it. From what we can kind of see, we expect our margins to normalize As we head towards the fall and into the winter a little bit and then hopefully expand a little bit next year with the acquisitions that we've got and hopefully a steady lumber market instead of kind of this hurricane up and hurricane down situation that we've had here. So we're expecting it to normalize out and again pick up Next year. Okay. But before it normalizes, just given The very steep drops we're seeing this quarter, would it be fair to expect maybe a bit below normal for Q3? Yes. I think that's probably going to be the theme. I think for anybody in the business today, it's going to be a weaker margin profile just due to the Massive drop in lumber and panel price at end OSB. Yes. It's a tough market for sure. Just putting aside that pricing for a minimum market, can you talk a little bit more about the volume outlook? Because that does really sound Still favorable, although it's kind of come off the boil a little bit here. But how are you thinking about volumes In the back half of the year and into next year versus, say, in 2020, are we tracking Single digits, double digits, just anything you could provide additional color there on the volume outlook? Sure, Yuri. Great question. I think the volumes here, I'm going to use that N word a lot here, normalize. They're starting to normalize again. And What happened a couple of months ago with the intersection of COVID easing and restrictions easing 1 or 2 things. The do it yourself aisle got quiet. Lumber pricing, as we know, is in the stratosphere. A lot of people put projects on hold or just decided to travel, restaurants, All those things are emerging back in. So that intersects with stratospheric lumber pricing and of course some cricket started to form In the depot and Lowe's and other dealer areas. But what we've seen sort of since May June now is we're into mid August The volumes are picking back up in most regions now. The stores are selling through. They've reduced prices. We're reducing prices, all those things to help get this wood through the system, And it's working. So we're hoping for a little bit of an increase in volume to offset sort of the weakness we saw in kind of late May, June July Starting to come back and we're seeing reorders from stores that we haven't seen reorders for in a couple of weeks. So we're anticipating a pickup. This year's volume should be a little bit off from last year because of the big COVID surge. And then as we head into 2022, we believe the volumes will start to look more like 2019 pattern. And that's kind of how we're basing our forecast today unless we see something change for the fall. And 2019 was a very healthy year. Very good. That's helpful. I'll turn it over. Thanks. Thanks, Yuri. Thank you. We'll now take the next question from Paul Quinn at RBC Capital Markets. Please go ahead. Mr. Quinn, we are unable to hear you at this time. Please go ahead. Kathleen, maybe we can take the next question and have Mr. Quinn join again. We'll now take the next question from Rishi Nie Lofra at CIBC Capital Markets. Please go ahead. Yes. Hi, good morning. Amar, I just wanted to follow-up on Yuri's question regarding volumes. When I look at it, when you think about organic treated volumes, is there any difference between the Canada and the U. S. For what you expect this year? We think the U. S. Will be a little bit stronger this year, not due to acquisitions, but on the organic side. The Housing market is very strong and you probably heard me say before that once you have a lot of whether it's track homes or custom homes built, the fences index come a little bit later. We're seeing lots of strong activity in the U. S. And in Canada. But just from what I can sense, the U. S. Seems like it will be Ahead of Canada on volumes. Okay. And then also like when you think about organic treated volumes, do you That's going to be above pre pandemic levels next year? I would say they're going to be near Pre pandemic levels, very hard for us to read this just what's going on with visibility in the world. It's hard because restrictions come on, they come off and Earnings are still noisy. So we're just going to base our estimates internally. If you had to ask me today, we just Kind of see 2019 levels. And again, for us with the acquisitions we have, that means a lot of growth on volume Since we've done these acquisitions this year in 2021. Fair enough. That is all I have. I will leave it there. Good luck next quarter. Thank you. Thanks, Roshan. We'll now take the next question from Paul Quinn at RBC Capital Markets. Please go ahead. Is this working now? Yes. Okay. Thanks guys. Listen, record quarter, but when I compare you to of the other guys out there, I mean, your results were in line with BlueLinx, but down from Boise and Tyga. What do you think is responsible Is that something that you expect to catch up over the next couple of quarters? Yes. I think we're going to hope to catch up carrying large inventories and a straight Elevator shaft break from the top floor, it was very difficult for us and we made some provisioning in there to try and take care of That unprecedented mess, certainly having inventory that we sell based on random lengths on the way up, very much It's giving us some nice tailwinds. And certainly, with a drop that fast, Paul, we probably because the good and bad is we're so big and treated, but See, it's way, way, way more good than bad. So certainly, being tied to those contracts in the way down STNG, our guys, we believe, are the best of getting their inventories Moved and 1st loss, best loss, move it out. And again, these are big volume contracts that are tied to print and it is what it is on the way down, but We don't expect to see a drop like that again. And we believe we're the best in getting our inventories out first and getting into market priced inventory, which we are now in a lot of different regions, a little bit more to go and certain plants have got more high priced than others. Others are clean and restocking at current levels And others are fine. And a couple of bright spots too. Hawaii has been very, very strong and our timber division, all while being small, has been very positive as well. It's just, call it, 60 days of resetting and normalizing, and then we should get back into a normal pattern. And then just on the inventory, it looks like you took a $19,000,000 inventory breakdown in the quarter. If we mark to market right now with current prices, There would be still another inventory breakdown in Q3, right? Paul, it's Jay here. Just Yes. On that write down, we're tracking as expected. We believe that's sufficient as we See the market right now. We don't see the need at this point for further provisions in Q3, if that's your question. Right. Okay. And you get closely at the Hixson transaction in early June, so you got a little can you sort of help us understand how much contribution you got from Hixson for the quarter. Yes. We're not going to break that out, but certainly, SYP got walloped And it just continued to fall. It was falling. We had agreed on our pricing mechanism for the whole buy in the inventory way earlier in the year. So it could have been either way for us, but sadly, it was going down. We're tied to contracts with a lot of customers in the Central U. S. Based on print. There is some stinging coming out of the gates on kind of the 2 inches items. Our 1 inches items and other items that are a little more healthier certainly helped To kind of wash off some of that random length pain that we saw. Okay. And just overall, I mean, we've had a Very volatile, I guess, 1.5 years or so. What's your overall expectation for the future? And Just homebuilding itself and R and R, do you expect to get higher than, say, 2019, 2018 models going forward? I think it's going to be in line as, again, this world resets and we start to get, again, people will just going back into some sort of a normal pattern. We're still a little bit far away from that just with what's going on. But home improvement is not going away. Lumber pricing is now coming right back Into where there could be some I don't want to use the term pent up demand, but I'm sure there's some people that said, look, dollars 35,000 debt doesn't work for me, dollars 10 it works $12 or $15 it works. Those people probably held off and they're still going to want a deck. They're still going to need your fence. We think there's going to be some demand that fell off as lumber got out of control. That will come back as we start to get more affordable lumber pricing back into the aisle. The contract and dealer yards have already moved to new pricing very quickly to adapt to the market. Everyone's taking some lumps on the way through here and taking their medicine as we Back to normal, but long term demand, Paul, I don't see any problem with. I also my personal belief is that housing We'll still be very decent for the next number of years. We're in a good cycle. I think there's still going to be good government aid, although that will back off a little bit. It's still going to be there for Quite a while. And jobs are coming back. And I think one of the biggest problems is trying to find people today and really struggling trying to hire people. So I think the backdrop is still pretty good and we'll get into the sort of 2018, 2019 pattern again and that's fine with us. We'll do real well. All right. Thanks very much. That's helpful. Thanks. We'll now take the next question from Anoop Priya at Stifel GMP. Please go ahead. Omar, good morning. Just a couple of quick questions. In the financial statements, you You indicated that for the quarter based on the closing date for Hixson, it contributed about $70,000,000 in revenue, but the earnings were an $8,000,000 loss. I was wondering, can you give me a bit of color as to why $70,000,000 in revenue results and $8,000,000 earning plus? Yes. I mean, call it 60% down in lumber pricing, it's that simple. Nothing else. Okay. Okay. So you're just taking onetime charges there marking the inventory? Yes. Just the timing, Anur, that's it. Just it is what it is. And I don't think anybody thought all four wheels of the Car would fall off a 1 ton lumber, but it did. In a sense, as industry guys, we're happy that it was hard and fast and we can try and get through here as quick as possible like we are. Instead of going down over 12 months, it took 12 months to get there and 5 weeks to go back there. So in a sense, it's good. We all knew that it wasn't sustainable. No one could predict that way up. No one could predict that way down. But that's all it was, right? Just because of market timing, the business is running just fine. Okay. And then the $19,000,000 provision that you guys took during the quarter, in terms of concentration by I mean, is it all first of all, is it all lumber? And then secondly, is there a more sort of structural Exposure there as opposed to panels. Can you just give us a bit of color as to what got exposure looked like by category? Yes. I can't break it Completely down, let's call it 60%, 65% lumber, 35% panels being plywood OSB. That would kind of be the breakdown. And as you know, panels have collapsed, OSB has collapsed, plywood has collapsed. It's just been behind lumber by about a month, And it's still having its pain. We're lighter in panels than lumber, obviously, but that's probably the breakdown of where the steam is. And heavier than 2 inches items than anything else, 2x4, 2x6 through 2x12. Okay. All right. Thanks. I appreciate that. Thanks, Neil. We'll now take the next question from Zachary Evershed at National Bank Financial. Please go ahead. Good Good morning, everyone. Thanks for taking my questions. Good morning, Jeremy. You mentioned you're having a Tough time hiring. Can you tell us more about wage pressure you're seeing and what impact you expect that to have on your margins? Yes. I don't think we're at a pain point on that. It's just more of getting people to apply in certain regions due to the government stimulus checks that are around or disappearing in certain regions and areas, but it's really on the labor side and truck drivers. It's just been It's not about the wage. It's just no one applies. And it's just very hard. And we talked to a lot of people in the They're having the same issue. Restaurants can't find people to bus. You can't find dishwashers. Like it's the whole thing is just it's been difficult. It's not at the point where It's hurting us or costing us on the margin. It's just frustrating when you want to add a shift here or do something over here or Your truck is running and you just there's just no applicants or the applicants that show up are certainly not the best candidates. Got you. Thanks. And could you tell us a little bit more about the Fonten acquisition? Sure. So that's an acquisition that Very complementary to our operation, which is a mile from it. We now have both treating plants that are in the Southern U. S. Side of California, I should say, and It doubles our capacity. We are maxed out at our Fontana facility. This one, we could take a little bit of investment, maybe a 0.5 mill or a middle in there To get our production up, and then we will be able to produce up to another, call it, 60,000,000, 65,000,000 feet there for the southern area where we just couldn't grow anymore. So we're very excited about that. It's an acquisition we're working on for years and finally got put to bed. And our Woodland facility up in Northern California is full And our Oregon facility, which as you know, we built out, that's running now close to full capacity as well. So this Gives us the growth opportunity we need in a very busy area being Southern California, Nevada and Arizona. That's great color. Thanks. And then last one for me. Back in May, when we were discussing the order backlogs, it sounded like everything was sold Through to July or so, but we actually saw volumes in the back half of Q2 taper off to lower than expected levels. Can you walk us through how orders evolved over the course of the quarter with customers ordering ahead and then seeing the orders fall off? And then you did mention that Asana, that's recovering in Q3, but if you could give us more color there, that would be great as well. Yes. That's a good point you bring up, Zach. And our customer base came into 2021 extremely bullish. And I think that alone helped take the lumber market up further than it should have been because everybody, including us, was building inventories And they were looking at large comps and counting on the table telling us, hey, you better be ready and you can't be out of stock and there's always left demand for 2020 and we were a little nervous. But hey, of course, we're going to take orders. That's our job. So we did. And then of course, the demand started to die kind of right around May as restrictions eased and different things started to happen. Lumber hits almost 2,000 And then it just died on the line. And customers said, hey, our stores are full, our yards are full, we're not taking any We got to sit down and talk and we're saying, hey, we kind of bought this from you guys. And there's been some difficult conversations we've had to have. And of course, They're discounting. We're discounting and everybody I think we all knew the party was going to end, Zach. We just didn't know when and how fast And abrupt, but they're difficult conversations to have. So seeing the volumes kind of slow down, certainly haven't stopped, they slowed down. They're starting to pick back up again in most regions. It starts to sell through and a lot of these retailers are discounting the materials. So they're taking some pain too As we all work through this sort of clogged cycle of inventory that we all find ourselves in, but It's definitely much better here in mid August than it was kind of late June July. That's really helpful. Thanks. And actually just one more. The Hickson acquisition, the headline EPS and free cash flow accretion Was 55% and that did bake in some normalization in lumber pricing. Given the really hard and fast pullback we've seen since then, Are you still confident in the 55% numbers? We sure are. And we're not going to talk too much out of school on the acquisition, but Certainly, the acquisition was based and negotiated on some several years of history, lumber pricing, earnings, A whole bunch of things went into the call during there to get away from the spike. Certainly, we didn't buy the acquisition on the spike. We bought it for, obviously, a long term view, and we looked back long term, and they've had a lot of great accelerated growth in volume in different plants, different States that came along in the last 3 years, so that was factored in. But lumber pricing was not the factor. Great gross margins of the business, steady for years. All the boxes that we like, great management team, great relationships. So that all worked and That number is still right intact from where we originally designed it from. That's great. Thanks. I'll turn it over. Thank you. We'll now take the next question from Steve Hansen at Raymond James. Please go ahead. Steve, you might be on mute. Yes. Hey guys, can you hear me okay? Yes. Good morning, Meyer. Just a quick one, Amar, is just any commentary around the fire situation and as well as having Yes, great question, Steve. So we've been 100% excluded from these fires here in D. C. We've certainly been nervous about it, but we went into the fire season this year extremely wet. There was so much rain in that southeast corner of BC That the fire rating didn't move up to high until just about 3, 4 weeks ago. We were damp and we were at a 2. And we have more trouble with mud. While some of the province is burning, we were still trying to get timber out. But that's normalized For us, it's a bit of rain in Cranbrook today. I looked earlier this morning. But really, we've been unscathed. And as far as the U. S. Goes, This is Gabe. We're just hoping that some of these fires would give lumber log pricing a bit of a kick, but we haven't seen a lot of evidence of that. These Buyers, they're hitting some towns and whatnot, but not mill towns, etcetera. And a lot of them are really in the middle of nowhere, just burning Although dangerous, but we've been not really affected at all, which is good news. Okay. That's great to hear. Then that's from me. Thanks, guys. Pardon me, Steve? No, that is Ramit. Appreciate the color. Okay. Thanks, Steve. We'll now take the next question from Colin Healey at Haywood Securities. Please go ahead. Hey, morning, guys. Thanks for taking my question. I just wanted to get your comments on what you're seeing on the volume versus pricing dynamic. Obviously, we saw pricing come off the peaks in May. It sounds like that the pricing, the high pricing was the first trigger to knock down demand. And I'm just wondering what your sense is of where volumes are now versus pricing. Is order volume what you would expect to see at these prices historically? I know we're in the process of rationalizing this, but I Just wondered kind of like day to day if what you're seeing? Yes. I think we're certainly over the hump of the majority of pain, as Jay indicated. We took our medicine here. And as we start to normalize, the volumes are coming back Certain regions again, certain regions have a little more stock than others that are still working through it, but the volumes are coming back again, not towards a Frenzied level, but certainly maybe towards 2019 ish type program as we head into the fall here and A lot of the dealers obviously watch lumber pricing now and are ready to start to step in a little bit. But when you see a market collapse this hard, this Fast, which nobody has ever seen anything like this in lumber before up or down, right? It spooked everybody. So If you're a dealer right now, normally you'd maybe say you're going to buy 10 trucks, you might buy 5 just because you're kind of wounded and everyone's just in a funny mood. It's going to take some time just to heal that mindset as we fall and guys start to feel more comfortable about putting inventory in their yards. The box stores have to have stock on their shelves, so it's good to see them reordering. And again, certain parking lots were more full than others, We know the consumers out there, it's working through, lumbers being discounted to keep it moving. The good news is Certainly a customer out there is no question about that. So we'll start to normalize as we finish off the turbulent flight here as we go into the fall. That's great color. Thanks. And just on the margin discussion, you're mentioning that you could see a recovery in margins into 2022 supported by the Acquisitions, but just wondering how much like I would expect to see some support from the scale That Hixson is adding to Q3 and Q4, realizing that you had this big decline in pricing that's going to affect The distribution, but on the some of that should be replaced by Hixson. So kind of thinking about where total sales might be for Q3, Q4, I would have thought There'd be some kind of margin recovery maybe just from that acquisition earlier than you mentioned. Is there Any truth to that or is it is Q3 and Q4 going to be just tighter? Well, I think Q3 is going to be tighter. As mentioned earlier, Q4, I think we'll be more into a normal pattern depending on lumber facility and plywood and OSB and the stability there. But it's Q3 certainly there's some hangover there. The lumber was still declining, panels declining. So those things are being worked through, but as Jay mentioned, the provisions have been well thought through. Don't like having to do it, but the right thing to do. And then try to get through that now and work through this into the really the 4th quarter as we start to normalize again and get that margin back To a more normal level and then we'll start to see the proper effects of the large acquisition in Hixson And what that company is going to bring to the table, which is from what we can see already is fantastic. So we just got to work through this period here, which we will, And then we'll start to get into a better normal business pattern, which we're looking forward to. For sure. Thanks a lot. Appreciate it. Thanks, Colin. We'll now take the next question from Yuri Lynk at Canaccord. Please go ahead. Yes, thanks. Just wanted to ask Jay to modeling teams, if I could get some help. The business acquisition report has Hickson's SG and A in 2020 at about 58,000,000 I guess that's U. S. Dollars. Is that a good run rate, Jay, going forward or should we be assuming any cost synergies that Yuri, we have sort of modeled into that business acquisition report some normalizations That where we're not picking up necessarily all the costs historically that were included in Hixson's G and A, so that amount you see should be roughly in line with what we expect going forward, Already reflecting some synergies that we've worked through during due diligence to Remove from the business, shall we say, just hitting the ground running with those costs removed. That's helpful. And then how do we think about D and A, Including right of these assets, either kind of $15,000,000 $16,000,000 a quarter, is that In the ballpark? That's in the ballpark. It's a pretty late right of use asset Model with Hixson, of course, we own most of the properties there versus lease in other parts of our business. So A bit of a different profile for right of use, but for depreciation of The buildings, the moving, the rolling stock, etcetera, yes, that would be roughly Where we would expect it, yes, Yuri? The kind of $10,000,000 of amortization a quarter. That concludes today's question and answer session. Mr. Mahdavi, I'd like to turn the call back to you for any additional or closing remarks. Thank you, Catherine. On behalf of Amarje and the Ken sorry, the Dohmen Building Materials team, Thank you for joining us today. We look forward to further updates. And if you have any follow-up questions, by all means, feel free to reach out to myself, And we look forward to speaking to you on our Q3 conference call. That concludes today's call, and I'll hand it over to the operator to wrap it up. That concludes today's call. Thank you for your participation. You may now disconnect.