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Encore Wire Corp (NASDAQ:WIRE)
Q2 2020 Earnings Call
Jul 30, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Encore Wire Reports Second Quarter Results Conference Call. My name is Adrianne, and I'll be your operator for today's call. [Operator Instructions]. Please note, this conference call is being recorded. I'll now turn the call over to Daniel Jones. Sir, you may begin.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Thank you, Adrianne, and good morning, and welcome to the Encore Wire Corporation Quarterly Conference Call. I'm Daniel Jones, President, CEO and Chairman of the Board of Encore Wire. With me this morning is Bret Eckert, our Chief Financial Officer. Thank you for joining us on the call and for your interest in Encore Wire. We appreciate your continued investment and support during these uncertain times. The health and safety of our employees and their families remains our top priority. We're following CDC guidelines and maintaining safe working conditions. We're very proud that some of the products we manufacture are being utilized to power temporary buildings and pop-up medical facilities in the fight against COVID-19. Our distributors remain very thankful that we continue to serve during this critical time.

Despite the economic challenges we are facing in this country, the strong earnings posted in the second quarter ended June 30, 2020, attest to the ability of our business model to succeed in both good times and bad. We continue to increase the strength of our balance sheet ending with over $250 million of cash on hand at June 30 to fund future growth. I'm very proud of how our employees are responding to the current crisis, allowing us to maintain and remain fully operational to serve our customers and drive value for our shareholders. In addition, our one location model allowed us the agility and flexibility to adapt to the changing market conditions during the quarter. There are some key items to note.

Copper unit volumes decreased 12.7% on a sequential quarter basis as parts of the country shut down job sites or significantly curtailed construction activity in response to the pandemic, leaving some customers unable to receive deliveries of our products during the second quarter. COMEX copper prices experienced a steady rise throughout the second quarter while copper spreads decreased 5.8% on a comparative quarter basis. Copper spreads tightened in the quarter due to the economic strain on our customers and our decision to balance volume and price. With that said, the gross profit percentage increased for both the second quarter and six months ended June 30, 2020, compared to the same periods in 2019 highlighting the strength of our business model. Aluminum wire represented 10.1% of our net sales in the second quarter of 2020.

Beginning late in the second quarter, we experienced a renewed optimism from our customers as order volumes have started to normalize and all states reopened for construction. Looking ahead, the duration and severity of the COVID-19 outbreak and its long-term impact on our business are uncertain at this time. Developments surrounding the COVID-19 global pandemic are changing daily, we've limited visibility into extent, which market demand for our products as well as sector manufacturing and distribution capacity will be impacted. We believe Encore Wire is well positioned to weather the storm and will continue to serve the markets during this critical time. As we navigate near-term challenges, we remain focused on the long-term opportunities for our business. We believe that our superior order fill rates continue to enhance our competitive position. As orders come in from electrical contractors, our distributors can continue to depend on us for quick deliveries coast to coast.

I'll now turn the call over to Bret to cover our financial results. Bret?

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Thank you, Daniel. In a minute, we will review Encore's financial results for the second quarter and six months ended June 30, 2020. After the financial review, we will take any questions you may have. Before we review the financials, let me indicate that throughout this conference call, we will be we may be making certain statements that might be considered to be forward-looking. In order to comply with certain securities legislation and instead of attempting to identify each particular statement as forward-looking, we advise you that all such statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed today. I refer each of you to the company's SEC reports and news releases for a more detailed discussion of these risks and uncertainties.

Also, reconciliations of non-GAAP financial measures discussed during this conference call to the most directly comparable financial measures presented in accordance with GAAP, including EBITDA, which we believe to be useful supplemental information for investors are posted on our website. Net sales for the second quarter ended June 30, 2020, were $253.6 million compared to $336.9 million are you there, Adrianne? Compared to $253.6 million I'll start over. Net sales for the second quarter ended June 30, 2020, were $253.6 million compared to $336.9 million for the second quarter of 2019. Copper unit volume measured in pounds of copper contained in the wire sold decreased 18.6% in the second quarter of 2020 versus the second quarter of 2019.

This unit volume decrease was due to COVID-19 related economic strain as parts of the country shut down job sites or curtailed construction activity in response to the pandemic, leaving some customers unable to receive deliveries of our products during the quarter. This, coupled with uncertainty in the market, resulted in reduced and sporadic customer buying patterns during April, May and part of June 2020. Beginning late in the second quarter, driven by the reopening of many state and local economies, customer buying patterns began to return to more historical levels. Gross profit percentage for the second quarter of 2020 was 14.4% compared to 13.6% in the second quarter of 2019. The average selling price of wire per copper pound sold decreased 9.5% in the second quarter of 2020 versus the second quarter of 2019, while the average cost of copper per pound purchased decreased 11.4%. Net income for the second quarter of 2020 was $12.3 million versus $17.8 million in the second quarter of 2019.

Fully diluted net earnings per common share were $0.60 in the second quarter of 2020 versus $0.85 in the second quarter of 2019. Net sales for the six months ended June 30, 2020, were $556.4 million compared to $651.6 million during the same period in 2019. Copper unit volume, measured in pounds of copper contained in the wire sold, decreased 9.2% in the six months ended June 30, 2020, versus the six months ended June 30, 2019. Gross profit percentage for the six months ended June 30, 2020, was 14.8% compared to 13.4% during the same period in 2019. The average selling price of wire per copper pound sold decreased 7.4% in the six months ended June 30, 2020, versus the six months ended June 2019, while the average cost of copper per pound purchased decreased 9.6%. Net income for the six months ended June 30, 2020, was $31 million versus $31.2 million in the same period in 2019.

Fully diluted net earnings per common share were $1.50 in the six months ended June 30, 2020, versus $1.49 in the same period in 2019. Looking on a sequential quarter comparison, net sales for the second quarter of 2020 were $253.6 million versus $302.8 million during the first quarter of 2020. Sales dollars decreased due to a 12.7% unit volume decrease of copper building wires sold combined with a 5.6% decrease in the average selling price per pound of copper wires sold on a sequential quarter comparison. Gross profit percentage for the second quarter of 2020 was 14.4% compared to 15.1% in the first quarter of 2020. Copper wire sales prices decreased 5.6%, while the price of copper purchased decreased 3.9%.

Net income for the second quarter of 2020 was $12.3 million versus $18.6 million in the first quarter of 2020. Fully diluted net income per common share was $0.60 in the second quarter of 2020 versus $0.89 in the first quarter of 2020. Our balance sheet remains very strong. We have no long-term debt and our revolving line of credit is paid down to 0. In addition, we had $250.4 million in cash at quarter end, which is an increase of $43.6 million during the quarter. During the first six months of 2020, we repurchased 441,250 shares in the open market. We also declared a $0.02 cash dividend during the quarter. Our recently announced two-phase expansion plans are well under way. We reaffirm our previously announced capital expenditure ranges of $85 million to $95 million in 2020, $70 million to $90 million in 2021 and $60 million to $80 million in 2022. A strong balance sheet and ability to consistently generate high levels of operating cash flow should provide ample allowance to fund planned capital expenditures.

A replay of this conference call will be accessible in the Investors section of our website. I will now turn the floor over to Daniel for a few final remarks.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Thank you, Bret. As highlighted, Encore performed well in the second quarter and six months ended June 30, 2020. Our low-cost structure, one location model and strong balance sheet have enabled us to withstand difficult periods in the past, and they're continuing to prove valuable now. We believe we are well positioned going into the second half of 2020 as this country navigates this global pandemic. I'm very proud of how each of our employees have rallied during this process and I want to thank our employees and associates for their tremendous efforts. We also thank our stockholders for their continued support. Adrianne, we'll now take questions from our listeners.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Brent Thielman from D.A. Davidson. Your line is open.

Brent Thielman -- Analyst

Thank you. Good morning. More front,

Daniel L. Jones -- Chairman, President & Chief Executive Officer

How are you.

Brent Thielman -- Analyst

And well, thank you, Daniel, the volume's down 19%. And I was hoping you could just comment again on just how that has progressed through the quarter. When I talked to others in the construction industry, this didn't feel like a down 19% kind of volume environment in 2Q. So I'm just trying to understand what you think reflects sort of short-term project delays or true demand destruction or even any sort of competitive market share changes?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes. That was a mouthful, Brent. Yes. Answer three parts of your question. On the market share piece to go start at the last and go backwards, on the market share piece, we feel like that we made strides and actually gained in some areas without being too specific with brand names or whatever, but we definitely picked up some share in certain areas. As we disclosed in the press release, there were some areas across the country that states had shut down some of the construction sites early on in the quarter, to combine the answer for two parts of your question. Early in the quarter, we had some challenges with getting the trucks in and out the way that we would have liked.

The truckers were reluctant to go into certain areas where they were concerned about being able to stop and use public showers and they're restaurants were closed. I mean, there were just lots of issues early in the quarter and uncertainties. It picked up a little bit in the middle of the quarter and then dropped back off as far as the availability of equipment. And as we got into June, things started to kind of normalize, if you will. There were labor issues. You wouldn't think that it would be difficult to ramp back up with hiring people, but there were issues as far as getting good help in hiring was a huge issue as we started back up. The unemployment rate certainly doesn't support that, but the feedback we were getting was some of the folks that had left with whatever reason, to get those folks back, they felt that they were making enough money sitting at home to pay the bills in some fashion.

So we really had a hard time getting folks back in and back to work as June started to normalize.

Brent Thielman -- Analyst

Okay. Daniel, how much of when you look at that volume in the quarter, how much do you associate with things within the energy sector or products that might be more associated with that sector?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes. There were some shipments involved in some pretty large projects, and many projects are actually in several different phases of the construction side. And as we've stated in the past, the timing of when our product enters into that construction cycle is typically well past the financial piece. And so there were some projects put on hold. There were some phases of projects that were put on hold early in the quarter and basically turned back on with some sense of urgency in the latter part of the quarter. A significant amount of the demand for the product was pushed even outside of late June into the current month. So that specific product that goes into the energy sector was definitely pushed aside for a little bit. And then the projects, depending on what phase they were in, was ramped back up toward the end of the month.

Brent Thielman -- Analyst

Okay. But nothing material to like the upstream side, Daniel?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Nothing material that canceled. And the activity on some of those projects continues. I mean, the conversations are still continuing. We're still having the discussions about which phase is next and whatever. So it's actually moving OK. It's not great. It's really good. And again, it feels more normal. The bigger issue has been the labor piece, getting folks back to work, to get the stuff shipped out, that kind of thing was a bigger challenge in the quarter. I'm trying not to speak too much about Q3 yet, but the real issue more than anything was when the jobs turned back on, getting that stuff shipped and offloaded at the other end, that was the challenge for sure in the quarter.

Brent Thielman -- Analyst

Okay. Last one for me, and I'll get back in queue. Bigger almost kind of a bigger picture question, Daniel, which is I look at your first half sales, you're down 15% year-on-year. A lot of extraordinary things going on. But your gross margins are up like 100 basis points. So I guess I'm curious, kind of what about that do you think you've controlled from a cost perspective? I know you've got movement in commodity prices that influence all of that. But again, I'm just kind of wondering what's been within your control on managing these costs through a tough revenue environment?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes. And it's a great question. I mean, we really were there's a lot of uncertainties going into Q2. And we really focused on the cash side and making certain that if we took an order and we could ship it, they could receive it, and we were more importantly, we were going to get paid on time. As that started to kind of unfold during the quarter, we were managing the order intake in the direction to make certain that we were going to hit those key points. We wanted to be able to ship it. We wanted them to be able to receive it.

We wanted to get paid. And that may sound really simple, but that was the top three concerns that we had, along with making certain that our folks that were working here were performing in a very safe manner with the social distancing and the face covering basically from day 1. So in that respect, Brent, we were managing the heck out of every single order, every quote, everything that came through the door. We're super aggressive on the cost side, super aggressive on managing the risk side, and we wanted to make certain that those things were going to happen before we said yes.

Brent Thielman -- Analyst

Okay, thank you guys.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

I appreciate it.

Operator

Your next question comes from Julio Romero from Sidoti & Company. Your line is open.

Julio Romero -- Sidoti & Company -- Analyst

Hey, good morning. Hope you all are well are you.

Brent Thielman -- Analyst

I'm good.

Julio Romero -- Sidoti & Company -- Analyst

Thanks. So I wanted to stay on that same topic of gross profit. Your gross profit dollars held up better than I expected, given the pullback in the spread, and you did have lower volumes as well. So can you maybe talk about or give us a refresher on some of the secondary gross profit drivers in the business? And just any color into which ones may be outperforming at the moment?

Brent Thielman -- Analyst

Go ahead. I'll grab that one, Julio. I mean, we kind of touched on this. Really, this one location model, as we said, really gave us the agility and the flexibility to real-time adapt to the changing market conditions in the quarter. I think the biggest driver on that is the labor component of it, right? We run a lean organization that we flex up and down. And we were very cost-conscious as we navigated through this, given the uncertainty, the sporadic buying pattern, the sporadic nature of the sales and the volume and the purchases. And so just stay very close to the business and navigating through those costs.

I think the measure of a lot of companies coming out of this is how strong is their balance sheet and what have they learned going through this to make them better. And I think that's going to be a big measure for us as well. I think the team did a phenomenal job of being very conscious of costs and making sure that we were matching that with the volume that was going out the door.

Julio Romero -- Sidoti & Company -- Analyst

Okay. That's helpful. And on pricing, right? So COMEX kind of trended upward throughout the quarter, but it really seemed to have taken kind of an acceleration in June and through July. Can you maybe just talk about kind of pricing trends, how you're able to kind of stay ahead of that on the pricing side? And would you maybe characterize that dynamic how would you characterize that dynamic today?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes. Good question. Good point. First time in many quarters, you can see the low for the quarter was April 1, and the high was June 30. So or the end of June, June 28, I think, when it stopped trading. So if you look at the $0.52 swing from the beginning of the quarter literally to the end of the quarter, we were constantly and the industry was constantly putting price sheets, price increases out in front of the increase. One of the differences that you were able to see and showed up in our profit margin was, we're very disciplined when it comes to the pricing scenario. When you have copper on a bias or a trend, if three months is now the trend, I guess, that discipline clearly will show up and forces the industry to have discipline.

The cost of goods sold piece the copper represents, the lowest it's been is 50-some-odd percent, the highest it's been is in the mid-80s as a percent of cost of goods sold, and that fluctuates pretty widely at times. And so you might have a little gamesmanship early with people thinking that they're going to get ahead of a lack of something or a drop or they don't believe that the increase in the metal cost is real. But when it happens first of the quarter through the end of the quarter on a consistent basis, it forces discipline by all of them, everyone that we compete with. And so we saw that. We're really good at our pricing strategy, and we're really good at enforcing those price increases when they're announced and when we say we're up, we're up. And I guess that's the best way to put it.

Julio Romero -- Sidoti & Company -- Analyst

Got it. And cash flow was really strong in the quarter. Can you maybe just talk about what your crystal ball tells you about working capital trends in the second half?

Brent Thielman -- Analyst

Yes. Good question. I mean, it was very strong in the quarter. A little bit was timing with the share repurchase that occurred very late in the first quarter. But we've always had very strong operating cash flow. I don't see this year as being any different, with over $250 million on the books. You look at our capital expenditure range is $85 million to $95 million this year, $70 million to $90 million and then $60 million to $80 million in 2021. I think the trend you've seen of that cash flow generation over a historical period over the last couple of years, we're well positioned to continue that this year. So despite the spend, we'll continue to have a very strong balance sheet and strong cash balances as we come through this.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes, we were fortunate, Julio, also our the customer profile that we go after, our receivables are all current, as Bret mentioned. Our customers did a fantastic job of honoring commitments and paying on time and doing the things that they felt like they needed to do. But again, there was uncertainty going into the quarter and conservative approach here and there. But for the most part, we were focused on the service piece and the safety of our folks, and we're able to get paid on time, and I think that's a testament to the quality of the customer that we're serving.

Julio Romero -- Sidoti & Company -- Analyst

Got it.

Operator

Our next question comes from John Koller from Oppenheimer. Your line is open.

John Koller -- Oppenheimer -- Analyst

Good morning. It's Oppenheimer & Close. Just two questions, quick. And these both center on a couple of years out, so it may be too far. But given the environment we're in and the outlook possibly for construction over the next couple of years, I'm wondering how you think about accelerating your capital expenditure plan if you have the opportunity? And also sort of related to that, the competitive position that you think you might be able to gain from doing that.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes. Thanks for the question. We're moving what feels like sometimes too slowly, but we're moving as fast as we can on the expansions that we can handle. The construction project and the equipment and the things that we're going through and the people to run it and the things that go on with our expansion is going along as we planned it. It's a sizable expansion that we're under right now. We've got some plans that are stacked up behind it that we haven't announced publicly out. But it's great. I hope that it's John's dog.

John Koller -- Oppenheimer -- Analyst

Yes, sorry about that.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

That's OK. Yes, we like it. And so hopefully they're a shareholder. So as we move on through the expansion, we don't want to go too quickly. I've done that in the past. I'd rather do it at the right pace, and that's where we're moving right now, but we do have that going pretty well. There is a couple of different topics that we haven't I'm just trying to be super careful with it, John, because of all who else's on the call. But you look at what we have in front of us as far as opportunities in the market that we currently serve and then some fringe ideas that still will be the same profile of customer basically where the peculiarities have been identified that we want to do business with, it's moving at the rate that we want it to.

It's kind of fallen into place. How that shakes out in exact market share number, it's hard to tell because we had 30-some-odd competitors over the years. And we're probably down to something less than 10. So as the market kind of moves, we're going to continue to expand on the property and the campus that we have here. The current plan is for us to start from scratch and build the buildings and bring the equipment in. Some of it's pretty expensive, as you can imagine. But for the most part, it's more of the same. The growth pattern is there. We feel that the market is receptive. We think we know what we're doing. We think we've got a good handle on how to get there, and it's moving along. And I hate to be that vague, but I just can't give you too many details and name names at this point.

John Koller -- Oppenheimer -- Analyst

No, that's great,

Daniel L. Jones -- Chairman, President & Chief Executive Officer

I appreciate it very much.

John Koller -- Oppenheimer -- Analyst

Yes, sir.

Operator

And our next question comes from Bill Baldwin with Baldwin Anthony.

Bill Baldwin -- Baldwin Anthony -- Analyst

Yes, thank you. Good morning, Daniel and Brett A couple of housekeeping items here to begin with. Bret, was there any LIFO impact on the quarter?

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Yes, Bill, good question. It was small, about $750,000 increase to cost of sales in the quarter. But pretty flat although.

Bill Baldwin -- Baldwin Anthony -- Analyst

Right. Okay. And secondly, when you talk about spreads changing, I believe you said 5.6%, 5.8%. Is that year-over-year? Or is that sequential? The copper spreads.

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Each one yes. Really, we've got all three in the press release. And so we'll talk about quarter-over-quarter, six months over six months and then second quarter over first quarter. So I think Daniel referred to some that I think were sequential, but we cover all three of them in the press release.

Bill Baldwin -- Baldwin Anthony -- Analyst

I didn't see it in the press release on the year-over-year spread for Q2. Did I miss it? What was that number, Bret, the year-over-year change in spread?

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

So if you look on a quarter-to-date to quarter-to-date basis, the so what we did, we went through, and I'll get that to you, Bill, separately. I mean what we quoted then here is the decrease in the price per copper pound sold is 7.4%.

Bill Baldwin -- Baldwin Anthony -- Analyst

Right, right. You did that, but I didn't see the spread, which is normally in the verbiage on the quarterly release. It wasn't there this time, I don't really, for Q2. So the spread numbers you did talk about was from Q1 to Q2, then, is that correct?

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

That's right. And so on a six month basis, the spread is down 2.9%.

Bill Baldwin -- Baldwin Anthony -- Analyst

Okay. Well, if you don't mind, I'll check back with you and get the quarter-to-quarter spread for the second quarter.

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Yes, definitely. The second quarter to second quarter spread is the one that was down 5.8%.

Bill Baldwin -- Baldwin Anthony -- Analyst

Well, that was year-over-year. That was year-over-year.

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Well, 5.8% was quarter-over-quarter, so for second quarter. And it was 2.9% six months 2020 to six months 2019.

Bill Baldwin -- Baldwin Anthony -- Analyst

Okay. So 5.8% was Q2 versus Q2 2020 versus Q2 2019, OK.

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Well, 5.8% was quarter-over-quarter, so for second quarter. And it was 2.9% six months 2020 to six months 2019.

Bill Baldwin -- Baldwin Anthony -- Analyst

Okay. So 5.8% was Q2 versus Q2 2020 versus Q2 2019, OK.

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Correct.

Bill Baldwin -- Baldwin Anthony -- Analyst

Daniel, can you offer any insights? Did the spreads on aluminum business, have they kind of recovered back to levels early on and when you had your aluminum operation up and running going back several years before all the import competition set in?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

They're not quite back where we want them yet, Bill, but they are better.

Bill Baldwin -- Baldwin Anthony -- Analyst

Okay. And when you talked about labor issues on hiring labor, that was third-party labor. That really wasn't your own labor at your own job there? Wasn't, Daniel?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes, sir, including ours as well. April and May...

Bill Baldwin -- Baldwin Anthony -- Analyst

Is that right?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes, sir. April and May, we were OK. But June, hiring someone in and asking them to pass the drug test and doing the basic preemployment testing procedure was quite a challenge to say the least, and getting folks to come back that had we COVID-19, we offered folks different reasons to be off. If they felt that they were at risk or whatever, we let them go, we let them go home, we let them go. We didn't we kept them. But when we called to encourage them to come back to work, they were feeling as if the money was good for them to stay home.

Bill Baldwin -- Baldwin Anthony -- Analyst

Well, does that imply then that they no longer are receiving your health insurance, that they're off the payroll then, if they don't respond and come back? How do you handle that?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

That's correct. Yes, that's correct. Yes, they're off the payroll.

Bill Baldwin -- Baldwin Anthony -- Analyst

Off the payroll. Okay. Well, did that materially, you think, affect your shipments in the second quarter?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

I think the ability to get folks hired and trained and whatever absolutely had an effect. Yes. Yes. I don't I'm not I don't know the exact percentage, but we really...

Bill Baldwin -- Baldwin Anthony -- Analyst

Right. I understand. I understand. Is that still an issue? I mean, do you perceive that as an issue going forward?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

It was better in June. The latter part of June was quite a bit better for the quarter. And it remains to be seen what happens, I guess, for Q3. But for certain, it had an effect in April and a little bit. It was better in May and it trended better in June versus May.

Bill Baldwin -- Baldwin Anthony -- Analyst

And as far as you've made comments in the past that qualitative product of comments, not quantitative, but qualitative, you had indicated the outlook for the construction spending looks pretty good, things of that nature. Has that visibility become a little bit more clearer here going forward than it was going into the second quarter? Or is it still a pretty cloudy outlook right now as far as new construction projects and activity in general in the construction area?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes, absolutely. There's a measurable difference today versus going into Q2. You can states are and everything that you see in the news has an effect. There's still a few towns cities or towns where there are some issues going on. I don't think it's any secret that Portland is on day 60 something, 63 or 64, of having their issues. But there's a reluctance for trucks to go into areas where they have to enter at night for whatever reason. But for the most part, that's behind us and things in June really cleared up. The residential starts number, I've said it publicly before. I think 1.2 million starts is the right number. We're probably something underneath that rate right now, which is makes me a little bullish. The commercial side, the folks that we see and when we getting into job sites now is a little bit easier than it was. Travel has loosened up a little bit easier than it was. So the outlook is, I think, measurably more positive today, and there is some more clarity than we had going into Q2.

Bill Baldwin -- Baldwin Anthony -- Analyst

Very good. From a product mix from a profitability standpoint, Daniel, does it make any difference to you whether you're shipping to non-res products projects or residential projects? Is it pretty much the same profit profile?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

In general, the answer would be, yes, in general. If you get down specifically, you'd have to get really down in the weeds to separate the difference today. But in general, as long as we're doing what we're supposed to and selling and not getting cherry-picked for one product or the other, we like to sell it all, Bill.

Bill Baldwin -- Baldwin Anthony -- Analyst

Very good. Good job. And yes, sir. Thanks for answering the questions.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Absolutely. Thanks for the support

Operator

And our next question comes from Chris McCampbell of Hilltop Securities.

Chris McCampbell -- Hilltop Securities -- Analyst

Good morning, guys. I've been an off and on shareholder since the Vince Rego days. So I think one of the things that I've been struck by over the years is just how strong a balance sheet you'll have, how good managers you all are in the business, especially when you've had competitors from time to time that have been insane and the pricing has been ridiculous. But just from a 20,000 square foot level, what would you all say you could do with from the standpoint, you've got ample capital, you've got great cash flow, and it seems like you can finance your expansion. What can you do to maximize shareholder value here, where you've got a $0.02 dividend and a nominal buyback? Is there room to do something? Or do you just continue to see managing the business, and it really doesn't matter how big the balance sheet gets?

Brent Thielman -- Analyst

Thanks, Chris. Bret Eckert here. In the near term, and I say that in the next one to three years, I think the highest and best use is our capital expenditures and expansion. The new service center across the street, 720,000 square feet, that really opens up the bottom of the funnel, right, and allows us to expand with regard to we commit to get everything out of here in 24 hours on, 100% complete. And so having that capacity is going to help a lot. And then repurposing the existing distribution center, adding manufacturing capacity exactly where we want it, I think as you look out the next three years, 2.5 years, that really is the highest and best use of our cash that does include about $35 million to $45 million of maintenance capital on our existing facility. As we navigate through that, we'll continue to be opportunistic when we got close to book in the past, you've seen us enter the market. We did 441,000 shares of repurchase in the first quarter, which is a little over $20 million, not insignificant. But we'll assess that, I think, coming out of that expansion and the growth recapture in connection with that and then determine based on where the balance sheet sits what's the next best use.

Chris McCampbell -- Hilltop Securities -- Analyst

Okay, thanks. Steven.

Brent Thielman -- Analyst

Thank you, Chris.

Operator

And our last question comes from Brent Thielman from D.A. Davidson.

Brent Thielman -- Analyst

Hey, Daniel, Bret, I'll come work for you guys if you need me.

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Come on, man.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Perfect, we get you out of Portland.

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

You got to drive a forklift. You don't know how to drive a forklift, come on Brent.

Brent Thielman -- Analyst

I just had a quick one for you. So much talk over the last few months, as folks have been stuck at home, just on the kind of the repair/remodel environment and big box stores have been pretty busy. Can you just remind me where you're at with your big box business today? And how much of an emphasis that is for you?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes. We do very little in retail. It hovers around 0. There's a history there with we used to sell quite a bit of material to one of the large retail guys, and they were pretty quick to there's a lot of details to it, Brent. Basically, I was in a meeting with one of their brand-new buyers for our product category after doing business with them for about 20 years and doing great things. And he had some new ideas that just were not in alignment with my values and that was the end of that. And we have not reentered that market since that meeting. That's the best way to put it. But there's opportunities there, and we evaluate them on a continual basis. And the minute that we can step in and service and make money, I'm interested. What I'm not interested is getting larger and poorer. So if it's a profitable scenario for us, we're definitely interested in taking a look at it.

Brent Thielman -- Analyst

Okay. One more comes to mind. I mean, one of the big sort of topics that seems to be coming out. As we're all worried and thinking about nonresidential construction, it occurs that not all of it is the same, and so much talk about distribution, warehouse, data center, almost like more horizontal type construction versus vertical. And as I think about your business, where I think about the needs of wiring into something like that, is there a way for us to think about it? Is there more wire in projects like that versus what we think of a traditional hotel or office tower? I'm just trying to I'm trying to think about that over the next couple of years as demand drivers change?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes. That's a great point because we literally were just discussing this on the other day in one of our meetings. When you look at and you could pick the topic, whether it's residential or nonresidential, almost every category that we currently serve, specifically needs, there's a reason for more power. Each category. And so gauges are changing for demand wise, the configurations of the wire itself. We're being asked to make products that in the past you wouldn't offer in a catalog, right? So outside the catalog material is a good way to put it. Each job that you can go in and discuss in great detail, and you can change the insulation makeup, you can change the pairing, you can change the gauges, you can change a lot of different things and almost customize the demand matchup for our product categories.

And so from that perspective, we're investing, we're spending, as you know, quite a bit of money in that service center, and it is headed toward answering those questions and providing solutions for the end user that's constantly being reconfigured and requested. And it's truly where the conversation goes from a sales perspective. And I think as the previous guy, Mr. McCampbell, was talking about when he said that he goes back to the Vince Rego days, ironically, so do I. I have been here since day 1. So in that, if you look at what's changed today versus maybe just five, six years ago, it's a hyperfocus on solutions at the end user piece. And it is horizontal versus vertical, and some of it reverts back to we haven't lost the vertical piece, but there's a huge opportunity for us when we go in and do those things versus the traditional competitive nature of some of the folks we deal with that simply runs their sales office like a trading desk and if the volume is not coming in the way they want, they cut the price.

And so those days are not as they're not totally gone. But for the most part, and I've said this many times publicly, two things sell building wire, it's price and delivery. And we're currently in a situation where price we've proven is even less important. You can't it doesn't go away, obviously, but it's certainly less important today than the delivery. There's so many other opportunities on the delivery piece and the service offering that we have. And so you're in the same vein that we're in, Brent. And we're starting to see and confirming some of our plans and opportunities are starting to hit the ground. So good question, great topic. We're excited about it.

Brent Thielman -- Analyst

Just for us to conceptualize that, Daniel, how much of the businesses has shifted from catalog to, call it, custom over the last, whatever you want to call it, five years?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Right, right. I would tell you that over half of our shipments today are nonstandard.

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Okay. And that's a big change from five years ago?

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Yes. We were doing 10%, 15%, 20% of total would be considered customer nonstandard. And today, it's well over half.

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Okay, thank you for taking the extra questions.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

I appreciate it. Development. Appreciate it. Yeah.

Operator

And this concludes our question-and-answer session. I'll turn the call back over for final remarks.

Daniel L. Jones -- Chairman, President & Chief Executive Officer

All right. Well, we appreciate the questions and the feedback and the participation today was fantastic, it looks like, on the screen. So look forward to talking to you guys next quarter. Thank you.

Operator

[Operator Closing Remarks].

Duration: 51 minutes

Call participants:

Daniel L. Jones -- Chairman, President & Chief Executive Officer

Bret J. Eckert -- Chief Financial Officer, Secretary, Treasurer & Vice President

Brent Thielman -- Analyst

Julio Romero -- Sidoti & Company -- Analyst

John Koller -- Oppenheimer -- Analyst

Bill Baldwin -- Baldwin Anthony -- Analyst

Chris McCampbell -- Hilltop Securities -- Analyst

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