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Select Interior Concepts, Inc  (NASDAQ:SIC)
Q4 2018 Earnings Conference Call
March 15, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Select Interior Concepts Fourth Quarter and Full Year 2018 Earnings Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Nadeem Moiz, Chief Financial Officer. Thank you. You may begin, Mr. Moiz.

Nadeem Moiz -- Chief Financial Officer

Thank you, operator. Good morning, everyone, and welcome to our fourth quarter and full year 2018 financial results conference call. Joining me on the call today is Ty Johnson, our Chief Executive Officer. During our discussion today, we'll be referring to our earnings presentation, which is available on the Investors section of our website. I will start with Slide 2, where I would like to remind everyone that any forward-looking statements contained in this presentation or commented on today are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Actual results could differ materially because of issues and uncertainties that need to be considered in evaluating our financial outlook. We assume no obligation to update publicly any forward-looking-statements. Specific conditions, issues and unknown factors that may represent forward-looking-statements are noted in detail on the Slide. We will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA and adjusted EBITDA margins.

I would now like to turn the call over to Ty Johnson, our CEO.

Unidentified Speaker --

Thanks, Nadeem. Good morning, everyone, and thank you for joining us today. I will begin with an overview of 2018 highlights. Nadeem will follow with a review of our financials. 2018 was an exciting and transformative year for Select Interior Concepts. We dramatically expanded our network of builders and contractor customers along with our supplier network in both our installation and distribution businesses, solidifying our leadership positions in our key markets.

For the year, net sales increased 39% to $490 million, including organic growth of 9%. We continue to drive this strong growth through organic share gains as well as through acquisitions. In 2018, we completed five highly complementary acquisitions with combined annualized sales of approximately $130 million. While we experienced slightly higher operating costs and continued to invest in our integration platform and public company infrastructure costs, we were pleased to generate another year of above industry average adjusted EBITDA margin of 11.1%.

When including the annualized impact of acquisitions completed to date, our pro forma sales increased to approximately $600 million. This includes our February 2019 acquisition of Intown Design. With this addition, the Company now operates in 15 of the top 20 metropolitan areas in the country.

More importantly, we have a robust pipeline of very attractive M&A targets that we are continuing to pursue. Our balance sheet is strong and our scalable platform enables us to replicate our success across additional geographies, product categories and services.

On slide four, we describe our two fast-growing complementary business segments that service a number of exceptional markets within the U.S. These two segments are Residential Design Services or RDS and Architectural Services Group or ASG. During 2018, both businesses grew 39% year-over-year. In RDS, we are one of the leading providers in the highly fragmented U.S. design and installation services industry, where the majority of the market is comprised of small local operators. In the RDS business, builders send their buyers to our design centers to select key products, including flooring, counters, cabinets and other high-end products. The value proposition of the outsourced model for these categories is driven by product complexity, endless product combinations, or extensive supplier relationships and installation expertise. Single-family residential continues to be RDS' largest end market followed by multifamily.

While most of our markets continue to grow, the rate of growth has slowed, as affordability hurdles partly offset strong pent-up demand for housing. Builders are beginning to shift their mix to entry level in mid-priced homes. Our RDS business serves all housing segments. So, we continue to see steady volume, as we geographically diversify reducing our exposure to any single market. In 2018, we experienced a continuing trend of above-market growth. Our upsell conversions, which we define as the percent of buyers selecting optional upgrades, was at a rate of 85%, which we estimate was well ahead of the 50% to 60% rate for the industry.

In addition, our buyers, when selecting upgrades, typically generate an average of 220% more revenue per order in standard orders. This success validates the competitive advantages that we have developed via our proprietary software-enhanced customer experience and expansive product breadth of over 50,000 interior product combinations. In ASG, we are a leading nationwide distributor of natural stone, engineered stone and related products. Over the past 25 years, ASG has created a highly sophisticated importation and distribution model, including 23 strategically located design showrooms and warehouses throughout the US.

Our global supply chain includes carefully selected quarries and factories in Vietnam, Europe, India and South America. In 2018, organic sales benefited from the strength of share gains and moderate growth in repair and remodel markets, which represents approximately 60% of segment sales. These share gains were largely driven by our superior product quality, our broad product assortment, the expertise of our sales staff, as well as our industry-leading service levels. On the acquisition front, we believe we are the only strategic acquirer in the fragmented US slab distribution space. This puts us in a very exciting position within our industry.

We estimate about a third of the US slab distribution market is comprised of small local operators, many of which can complement our expanding national distribution network. As such, we believe an excellent opportunity exists for ASG to drive meaningful growth through continued M&A activity. The U.S. slab distribution market has strong tailwinds. Since November 2018, combined U.S. anti-dumping and countervailing duties on Chinese quartz countertop imports totaled approximately 350%. Our strong global supply network, diverse end markets and superior service capabilities uniquely position us to take advantage of potential market disruptions, resulting from the recently announced Chinese tariffs.

Moving to Slide 5. As we demonstrated in 2018, we plan to continue to rapidly expand our business through new product development, penetration of adjacent channels and execution of strategic M&A. In RDS, we estimate that roughly half of homebuilders still insource their design selection service. This dynamic provides a long-term opportunity to introduce our proven and successful service model to a large number of regional and custom home builders.

In ASG, the transition away from Chinese imported material presents a favorable market backdrop to accelerate growth. In addition, we are targeting cross-selling opportunities across our locations to realize revenue synergies. Our acquisition strategy is to source appropriately sized targets in prime locations at attractive purchase price multiples. We plan to grow the acquired businesses while simultaneously executing our operational initiatives to improve overall efficiency and ultimately lower the effective purchase price multiple.

On Slide 6, our two most recent acquisitions are good examples of our diversification strategy. In December, we acquired T.A.C. Ceramic Tile, an installer of residential and light commercial flooring servicing the mid-Atlantic region. In addition to expanded scale, we now have an attractive platform to introduce additional products to national and regional homebuilder customers as we enhance T.A.C.'s legacy relationships. The completion of this deal marked our fifth acquisition of 2018.

In February, we acquired Intown Design, an installer of residential and light commercial countertops and cabinets based in the Southeast with annualized sales of roughly $20 million. Like T.A.C., we entered this market through a premier operator with a reputation built over decades, where we now have an opportunity to introduce new products and services to drive share gains. Including Intown, our pro forma sales stand at approximately $600 million, providing a stronger base for growth in 2019. Beyond these deals, we have a deep pipeline of small owner-operated businesses with targeted annual revenue of $10 million to $100 million, where we see strong complementary additions to our business. We expect acquisitions to remain an important part of our growth strategy and look forward to expanding our reach. On Slide 7, we describe expansion opportunities to cross-sell our products, which we plan to accomplish through a combination of organic efforts and M&A over time.

In the RDS segment, cabinets, doors, windows and appliances are several examples of categories that represent significant growth avenues. And in the ASG segment, sinks, tiles, porcelain slabs and backsplashes are high-end products that complement our current product offering. Combined with channel expansion such as renovation and commercial, we believe there to be quite a few long-term sustainable growth prospects for the Company.

In summary, we continue to profitably grow our Company and enhance value through strong organic growth and key acquisitions. With our scalable platform and strong balance sheet, we expect to continue consolidating our fragmented industries while further solidifying the premier market positions of our above-industry margin business.

We are on path for another siting -- another exciting year of progress and focus on improving margins on acquired revenues as we integrate our newly acquired businesses and ramp up cross-selling efforts.

Once again, thank you for joining us today. And with that, I will turn the call over to Nadeem.

Nadeem Moiz -- Chief Financial Officer

Thank you, Ty, and good morning, everyone. I'll begin on Slide 8 with a review of net sales for fourth quarter 2018. Net sales increased $32.7 million or 32.6% to $133 million compared to the prior year. Organic growth was 4.5% and added $4.5 million to the top line. We achieved organic growth in both segments, as we continue to expand share in new geographies, increased product offerings, ramped up Greenfield site and improved pricing mix. Approximately two-thirds of the organic growth came from ASG and rest came from RDS.

Acquisitions were a significant contributor to our net sales growth, as they added $28.2 million or 28%. In RDS, organic volume growth was positive despite the fourth quarter softness in single-family residential construction activity across the US housing market. Our target is share gain through geographic and product expansion offset (ph), floor and market activity in the fourth quarter. RDS price mix is also positive, primarily driven by favorable shift in product and attributable to our interior designers achieving higher upgrade capture rate in key products. In ASG, organic volume looked (ph) positive as we continued to increase sales in our existing network, ramped up Greenfield locations in Boston, Phoenix and North Austin (ph), and implemented price increase in the market.

Turning to Slide 9. Fourth quarter adjusted EBITDA rose 7.2% to $14.9 million compared to prior year. Acquisitions were accretive and added $4.1 million to EBITDA and organic volume, including Greenfield and price mix added $1.2 million. Offsetting these gains were $4.3 million in costs, primarily associated with three items. Investments to finish building out SIC public company infrastructure and M&A resources to support growth, timing of expenses in RDS and ASG, and non-recurring inventory adjustments in the ASG segments.

Moving on to slide 10. Net sales for the full year 2018 improved 38.8% to $489.8 million compared to last year. Growth for both segments was roughly balanced between RDS and ASG, reflecting organic improvement of 8.1% and acquisitions. Approximately 80% of the full year net sales increase is attributable to seven acquisitions that were completed during 2017 and 2018.

Turning to Slide 11. 2018 adjusted EBITDA increased to $54.4 million, up 16% compared to last year. The increase was primarily due to incremental EBITDA from acquisitions, along with organic volume, price and mix growth. These positive increases are partially offset by investments to build SIC public company infrastructure, higher expenses in RDS and ASG to support growth initiatives, and nonrecurring inventory adjustment in the ASG segment in the fourth quarter.

Overall, 2018 results were in line with our objective to grow and diversify our business, while investing in our public company infrastructure to support the next chapter of our growth. In addition, I'm also very pleased to report that as a result of our increased focus and controls, and financial reporting, the material weakness deficiency from 2017 audit has been fully remediated by the management team and will not be an issue in the 2018 audit report.

Moving to slide 12. We closed 2018 with a strong balance sheet and liquidity position. 2018 cash flow from operating activities was positive and improved from last year. We ended the year with a solid capital position consisting of total liquidity of $59 million and net debt of $174 million. Our net debt-to-LTM pro forma adjusted EBITDA ratio was 2.6 times, putting us at a fairly conservative leverage profile with significant capital resources to invest in our growth objectives.

In summary, on Slide 13. We made good progress in our core objectives in 2018, and as we look to 2019, we see new construction growing at an overall flattish rate and repair and remodel up slightly. We expect to grow organically through share gains in both our installation and distribution businesses. And on the M&A front, we planned to maintain a robust pace of acquisition activity.

Over time, we expect to improve margins on acquired revenues as we integrate businesses and introduce new products to additional branches. We're also driving focus initiatives to improve our cost structure and SG&A as a percent of sales over time. With pro forma net sales of $600 million, we're well-suited for another year of growth and excited to capitalize on our top position as a designer, installer and distributor of in-demand interior finishing products.

Operator, we would like to open up for Q&A.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question is from Alex Rygiel with B. Riley FBR. Please proceed with your question.

Alex Rygiel -- B. Riley FBR. -- Analyst

Good morning, gentlemen. Congratulations on wrapping up your first full year.

Nadeem Moiz -- Chief Financial Officer

Good morning.

Tyrone Johnson -- Chief Executive Officer

Good morning, Alex.

Alex Rygiel -- B. Riley FBR. -- Analyst

Couple quick questions I have for you here. First, when we tear (ph) into the fourth quarter, you identified some non-reoccurring inventory adjustments. Could you quantify that in dollar value and talk to what possibly an adjusted gross margin could have looked like?

Nadeem Moiz -- Chief Financial Officer

Yeah, absolutely. Look, so the inventory adjustment is predominantly out of the ASG business. Most of the inventory at the end of fourth quarter -- when you look at the inventory is $108 million. Most of that's sitting in ASG, and this is part of the controls and alignment of policies that we've talked about. So, part of the reason -- big reason we've eliminated the material weakness or alignment of policies, physicals and all that kind of stuff we worked very hard on. So the amount from a EBITDA basis -- adjusted EBITDA basis is roughly a couple of million dollars for that.

Alex Rygiel -- B. Riley FBR. -- Analyst

I'm sorry, Could you repeat the number?

Nadeem Moiz -- Chief Financial Officer

$3 million.

Alex Rygiel -- B. Riley FBR. -- Analyst

$3 million?

Nadeem Moiz -- Chief Financial Officer

Approximately $3 million, yes.

Alex Rygiel -- B. Riley FBR. -- Analyst

I'm sorry, is that -- when you're calculating your adjusted EBITDA $14.8 million, is that $3 million included in the $8.4 million non-recurring costs or should we be adding that back to get to more of an adjusted EBITDA of something in the nature of $18 million?

Nadeem Moiz -- Chief Financial Officer

It's already added back, it's already added back. So I think where you're looking at is the earnings release, the gross profit, commentary and so just recognize that gross profit commentary in the earnings release for fourth quarter on an unadjusted basis. So from an adjusted EBITDA basis, it has been added back.

Alex Rygiel -- B. Riley FBR. -- Analyst

Very helpful. And then as it relates to the acquisitions that you've made year to date, is there any chance of any kind of inventory charge of any sort associated with those?

Tyrone Johnson -- Chief Executive Officer

No.

Alex Rygiel -- B. Riley FBR. -- Analyst

Very helpful. And then organic sales growth slipped a little bit in the fourth quarter. I don't think that should be a surprise to anybody given the slowdown in the housing market that we had sort of in the late summer, early fall of last year. Could you help to give us a little bit of guidance on how the pacing of organic growth could look in the quarters in 2019?

Tyrone Johnson -- Chief Executive Officer

Yeah, Alex, I'll take a shot at that. This is Ty. Again, I'm not going to give you kind of full guidance, but I can tell you that in the fourth quarter, things did slow down in the RDS business in particular, more specifically Southern California slowed down more than the majority of our other markets. But as I look into 2019, we're expecting year-over-year volume to be flattish with the previous year. So we don't expect the slowdown that we experienced in Q4 to maintain that level of degradation if you will. We think when you look at the year, full year over full year, 2019 will look lot like 2018.

Alex Rygiel -- B. Riley FBR. -- Analyst

And then on the upside, I know you're introducing some new products like cabinets into some of your new design centers. You've been doing that for a few months now. How should we think about the revenue contribution from cabinets in 2019 versus 2018?

Tyrone Johnson -- Chief Executive Officer

So, when you think about cabinets, it's a relatively new business, but was a relatively small part of our business. So on a revenue basis, Alex, it's only going to be around $25 million in 2019 thereabout. But in terms of the backlog that builds for cabinets, I couldn't be more impressed with the awards the RDS team is winning and the future business as a result of the backlog that they're building.

Alex Rygiel -- B. Riley FBR. -- Analyst

And one last question, I'll get back in the queue. Can you talk a little bit about the pacing of new Greenfield opportunities in 2019? How many -- maybe what cities and what their revenue contribution -- your sale contribution could be in 2019?

Tyrone Johnson -- Chief Executive Officer

So, the way we look at Greenfield, Alex, is for the first half of this year, we don't have any plans to stand up Greenfield locations. There are a number of attractive markets out there. Florida, you look at some of the Pacific Northwest markets, you look at even markets within, you know, kind of the Midwest. We'll look at that in the second half, we'll evaluate that for the first half. We're really focusing on operational improvement, integration work that is new.

Alex Rygiel -- B. Riley FBR. -- Analyst

Very helpful. Thank you very much.

Tyrone Johnson -- Chief Executive Officer

Welcome.

Nadeem Moiz -- Chief Financial Officer

Welcome.

Operator

Our next question is from Keith Hughes with SunTrust Robinson Humphrey. Please proceed.

Keith Hughes -- SunTrust Robinson Humphrey -- Analyst

Thank you. On the 4.5% organic growth in the fourth quarter can you kind of break out how that played out between the two divisions?

Tyrone Johnson -- Chief Executive Officer

Yeah, absolutely. It's -- and we sort of talked about that -- a significant portion of that came from ASG. And in ASG, we include the Greenfield site locations, right. So that's being lumped in the organic part. So we had three locations. We were ramping up. I listed them Boston, Phoenix, North Austin, and then we had same-store sale increases, we had price increases. So quite a bit of momentum came through the ASG side and a small portion from the RDS side.

Keith Hughes -- SunTrust Robinson Humphrey -- Analyst

Okay. And within RDS, Ty, you had in answer to another question talked about kind of a flattish unit year for RDS in 2019. Would that be California down and other states up, or what do you think the composition of that would look like?

Tyrone Johnson -- Chief Executive Officer

Yeah, that's exactly how I'm thinking about it, Keith. I think parts of California, I think the Inland Empire is going to do better than the coastal city. I think we'll continue to see some pressure in (inaudible), particularly in the Bay Area and (inaudible). But when you look at the diversification of the business over the past several years and you look at our business in Phoenix, you look at the business in Austin and you look at the new business we acquired in the DC metro area. We're very much expecting those businesses to outperform. So -- and even though we're talking about flattish year-over-year. We see ourselves as share taker. So, we expect to grow at a rate that exceeds the market growth rate and I think it'll be driven by some of these new locations by and large.

Keith Hughes -- SunTrust Robinson Humphrey -- Analyst

Okay. And within RDS, say for this year, is mix going to be a negative for you given there's such a focus on affordability in new homes or I think you adopt that?

Tyrone Johnson -- Chief Executive Officer

We don't think so, Keith. We're still seeing strong upgrade rates where we're still seeing strong ASPs. Our backlog remains robust. So we think the profile of the business in terms of the margins will be very similar to previous years. There'll just be some some volume challenges in a couple of the markets.

Keith Hughes -- SunTrust Robinson Humphrey -- Analyst

Okay. And final question on the ASG inventory hit you took in the fourth quarter. Is that something you have to do periodically in that business when you get stale inventory more than you would see in a traditional flooring distributor? Is there something different about that business?

Nadeem Moiz -- Chief Financial Officer

Yeah. We maintain a reserve on our balance sheet for inventory in ASG and also RDS. It's -- most of it's on the ASG side, because that's where the inventory is. And really -- all really happened in the fourth quarter as we took our physical. So, there's a little bit of a head for that. In 2017, it's actually a positive. So, you know you've got to do the physicals at the end of the year. So that's number one. Number two is really what we did was refine our policy on inventories with all the acquisitions that we did. This is -- this was the right time at the end of the year to refine that policy. So we don't expect to see that kind of adjustment going forward.

Keith Hughes -- SunTrust Robinson Humphrey -- Analyst

Thank you.

Nadeem Moiz -- Chief Financial Officer

You're welcome.

Operator

Our next question is from Adam Wyden with ADW Capital. Please proceed.

Adam Wyden -- ADW Capital -- Analyst

Hey. Thanks, guys, for taking my question. So my questions are a little bit higher level. So, you know looking at the last few years, you know you guys have compounded revenues at 40, 50 plus percent, EBITDA the same. You know looking at the size of the market and your current acquisition pipeline and then obviously your comments around you being the only guy buying an ASG, how confident are your -- are you guys with your ability to continue growing 40% to 50% a year, you know, going forward? I mean, you guys are doing this as a private company. Now you're a public company. Your cost of capital should be less if you get your stock in the right place. I mean, how confident are you that you can continue that growth rate or something like it?

Tyrone Johnson -- Chief Executive Officer

Yeah. So, I appreciate the question, Adam. We're very confident. Given the investments we've made in 2018 in terms of the infrastructure of the business, additional M&A resources and some other capabilities we've put within the business units. We fully expect to be able to continue with that level of growth rate both on the top line and the bottom line. I would actually be disappointed, Adam, if we didn't accelerate from where we've been. So, we're pretty bullish around our ability to maintain the pace.

Adam Wyden -- ADW Capital -- Analyst

Right. Yeah, I know I think you guys mentioned that your ERP systems on the ASG side went from 12% (ph) to 2% (ph). So you guys have been doing a lot of blocking -- blocking and tackling and adding resources and make sure that you can support a much larger business. So, you know, my next question is just kind of around valuation and kind of, you know, obviously your new public company. But if we look at flooring to core (ph), which I think is a reasonable comp for ASG, which I think is lower margin at the segment level and growing only slightly faster than ASG. That company trades for 18 times 2019 EBITDA. If we apply some of the multiple to ASG, which is doing, I don't know, at 2.50 to 2.75 (ph) however you want to look at it and over 40% (ph) of EBITDA. ASG would be worth almost $24 per share if you were to kind of capitalize all of your net debt and investors are getting the RDS business for free. And then when we look at RDS, you know obviously it's got best-in-class margins as was design center business. And you know obviously it's been growing organically pretty nicely. Your public players like Howard and Joinery, Topbuild, IBP, all trade around 10 times EBITDA. So if we apply the same multiple in RDS, you know that gets us another $15 per share on top of the $24. So we're getting to like almost $40 per share, assuming no real credit for additional M&A for the combined businesses. So, organic growth. So how do you guys think about that? I mean, it seems rather crazy to me. I mean, how does this make sense to you? And I guess, what initiatives are you guys taking to kind of narrow the value gap, because if you're an M&A acquirer, I think a big part of the equation is having the right cost of capital. So, I am just kind of curious you thoughts on that.

Tyrone Johnson -- Chief Executive Officer

Look, Adam. Look, we couldn't agree with your assessment more. It is unclear to me why our evaluation is what it is. But certainly Nadeem and I will be spending some time on the road. We will be out explaining what it is we're trying to build here, why we think this is a unique and attractive investment for investors. It's got to be a function of people not really understanding what we're doing here, what the addressable market is, you know for your benefit, you know we think the total addressable market here is in excess of $30 billion. We're sitting at $600 million right now. So, you know, I have no doubt in my mind that this is going to be a multibillion dollar business with probably even more attractive margin profile than what we have today. So, look, we're going to tell our story and we're going to try to help the investor base better understand what it is we're building here given where some of the peers are trading.

Adam Wyden -- ADW Capital -- Analyst

Right. And obviously, yes, it's fair to assume that if you get your multiple in the right place like the sizes of the acquisitions can grow dramatically. I suspect that there are other players out there that are, you know, you can buy that do $100 million, $200 million in sales, which would allow you to kind of accelerate the growth as you said previously.

Nadeem Moiz -- Chief Financial Officer

That's exactly right, Adam. I mean, look, this is, you know, like Ty said, part of this is getting our story out there and we've spent some time on that. This year is going to be very aggressive in terms of getting our story in conferences. And, you know, the -- clearly from our view, the valuations are very discounted today and the way you parse it makes a lot of sense, distribution business you already had. So, you know, we were obviously looking at a pipeline, we talked about the pipeline in the prepared remarks and certainly more transformational deals. And so, as the valuation gets up and we've access -- certainly more access to the capital markets, all that is under evaluation.

Adam Wyden -- ADW Capital -- Analyst

All right. So that's -- this is my last few questions. So, when I look at the entire market for Interior building product distribution, I mean there's clearly an enormous potential plus I see it expands product offering that you guys named the company, Select Interior Concepts. I mean, do your envision leveraging your platform and you've got this big G&A cost and public company investment and M&A resources and your scale with manufacturers. I mean do you think that there's a third, fourth or fifth distribution business that you can integrate into this that where there's additional cross-selling? And how do you think about expanding your kind of distribution legs beyond ASG and RDS?

Tyrone Johnson -- Chief Executive Officer

Yeah, absolutely. I've said publicly in the past that we're only beginning here with the two verticals that you have, but when you look at interiors and you look at different channels and different market segments, there are a number of areas where the Company can focus for long-term future growth, whether it's different product categories focusing more on commercial, doing more in multi-family, appliances, plumbing fixtures, lighting fixtures. I mean, all of these product categories are opportunities for us to grow. We can think about vertically integrating. We could think about geographies outside of just the US. I mean there's just no shortage of really exciting opportunities to grow this business. So, again, we're in the very early innings of what I think is going to be a phenomenal growth story, but to your point, we're not limited to just the ASG and RDS business. Although, I think both are great businesses to start with.

Adam Wyden -- ADW Capital -- Analyst

Sure. And so I think a lot of people on the previous conference call to have had a big focus on quarter-to-quarter margins. Now, obviously, you're a private company, you didn't have public company cost. You didn't have M&A resources, you didn't have -- you're sitting in the Anaheim corporate office. Now you have your -- within RDS, now you have your corporate office. I mean on this size of the business, you know those investments in public company costs and kind of the platform, I'm sure ERP and all the rest have weighed on margins. You know we've done some of our own work in terms of what we think the location level margins are and also obviously the ASG Greenfield investments. Can you give us a sense of what normalized margins are at the segment level for ASG and RDS? And what do you think corporate G&A looks like as a percentage of sales, as the business scales to $2 billion, $3 billion, $4 billion, $5 billion. Like how do you think that that plays out? Because obviously as the business scales, the corporate margin basically approximates the location level margin.

Nadeem Moiz -- Chief Financial Officer

Yeah, yeah. So maybe just give you a sort of summarized answer to a lot of questions in there. From a corporate G&A perspective, a typical public company is going to be anywhere from 1% to 2%. That is pretty, pretty average. And what I would say for us as we think about 2019 surfing now 1.5% range for us. And again, it's a scalable platform, right. So you don't add more tax people, more SEC people and that kind of stuff. So that's point number one.

The second point is you think about margins. We ended the year at 11.1%, EBITDA margin, we would expect to -- we'd be disappointed for an outgrowing margin 30 basis point to 40 basis points every year over the next few years.

Adam Wyden -- ADW Capital -- Analyst

Got it. Got it. Got it. Got it. Other -- last question. You know when you buy in locations and your Greenfield investments, that's obviously going to be a drag on margin, right. At the Greenfield and ASG location, it starts at margin zero. And if you buy in a location that doesn't have your buy rates or whatever, I mean in some of our channel checks, you know we've been told that a guy who's doing $30 million in sales, you acquire him, you put in the buy rates. Can you talk about kind of what effect that has in terms of a drag on margin and what the kind of the opportunity or what the timetable it is for Greenfield to kind of get up to speed or -- and'or you know an acquisition on the RDS side to kind of get the full advantage of the buy rates and kind of the other kind of savings.

Tyrone Johnson -- Chief Executive Officer

Yeah. So, look, you know, we target anywhere from six months to one year on the Greenfield to make them really breakeven. And you know obviously the market itself -- the underlying market has a lot to do with it. And 2018 to get a little bit longer because you got in the second half, the market started shifting on us. But we're looking from six months to about a year on the greenfield.

Adam Wyden -- ADW Capital -- Analyst

Got it. Got it. Got it. Well, thanks, guys, I'm super-excited. As, I guess, a new non-144 a shareholder, $600 million in sales and a $30 billion charm (ph) is super exciting. So I look forward you guys getting your cost of capital right and being able to accelerate the growth.

Nadeem Moiz -- Chief Financial Officer

Appreciate the strength, Adam.

Adam Wyden -- ADW Capital -- Analyst

Thanks a lot.

Tyrone Johnson -- Chief Executive Officer

We appreciate it.

Operator

Ladies and gentlemen, we have reached the end of our question-and-answer session. I will now turn the call back over to management for closing remarks.

Nadeem Moiz -- Chief Financial Officer

Thank you, everyone, for joining us today. We really appreciate your support of Select Interior Concepts and look forward to updating you on our progress next quarter. Thanks again.

Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.

Duration: 38 minutes

Call participants:

Nadeem Moiz -- Chief Financial Officer

Unidentified Speaker --

Alex Rygiel -- B. Riley FBR. -- Analyst

Tyrone Johnson -- Chief Executive Officer

Keith Hughes -- SunTrust Robinson Humphrey -- Analyst

Adam Wyden -- ADW Capital -- Analyst

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