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TopBuild Corp (NYSE:BLD)
Q2 2020 Earnings Call
Aug 4, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the TopBuild Earnings conference call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, August 4, 2020. I would now like to turn the conference over to Tabitha Zane. Please go ahead.

Tabitha Zane -- Vice President, Investor Relations

Thank you, and good morning. On the call today are Gerry Volas, Chief Executive Officer; Robert Buck, President and Chief Operating Officer; and John Peterson, Chief Financial Officer. We have posted senior management's formal remarks on the Investor Relations section of our website at topbuild.com. As shown on slide two of today's presentation, many of our remarks will include forward-looking statements concerning the company's operations and financial condition. These forward-looking statements include known and unknown risks, including those set forth in this morning's press release as well as in the company's filings with the SEC. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. Please note that other than an otherwise specifically stated, the financial measures to be discussed on this call will be on a non-GAAP basis. The non-GAAP measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliation of these financial measures to the most comparable GAAP measures in a table included in today's press release and in the presentation accompanying this call. Please turn to slide three. I will now turn the call over to Gerry Volas.

Jerry Volas -- Chief Executive Officer

Good morning, and thank you for joining us today. Let me begin by acknowledging the ongoing impact that COVID-19 is having on our employees, their families and all of our other stakeholders. We understand it's a difficult time for everyone. Here at TopBuild, we continue to manage every aspect of our operations to provide a safe environment for our employees, our supplier partners and our customers. At our branch support center in Daytona, we continue to work remotely, with technology keeping us connected and effectively supporting our broad network of branches throughout the country. At every one of our branches, we have implemented best practices in terms of sanitizing and disinfecting, and we enforce social distancing there and on job sites. As we look back on the month since our last call in early May, we've seen the resiliency of the residential new construction industry. We started the second quarter with extreme uncertainty as the country was under a national lockdown, our installation and distribution businesses were deemed nonessential in four states and unemployment reached levels not seen since the great depression. Yet as we reported to you in May, our April financial results were still relatively strong, and they continue to improve as the quarter progressed. We're also encouraged that while second quarter housing starts are lower than last year, our builder customers are reporting a steady increase in traffic and orders. This should lead to improving housing starts as the year progresses.

Historically low interest rates, very little inventory and growing desire to escape cranked urban environments are many of the key factors contributing to this quick rebound. While we recognize that there will likely be bumps in the road as our nation continues to manage through the pandemic, we remain bullish on the overall fundamentals of the U.S. housing industry. Turning to our second quarter financial results on slide four. Net sales declined 2.1%, primarily as a result of the COVID-19 pandemic. Despite this revenue drop, we continued our strong margin expansion at both TruTeam and service partners. TopBuild in total, our adjusted operating and EBITDA margins increased 130 basis point and 250 basis points, respectively, which drove adjusted EPS to $1.68. We feel very good about this performance. Which once again demonstrates the flexibility and strength of our operating model in any type of environment. Turning to slide five. On our last call, we noted that given the current level of uncertainty, we were hitting the pause button on further acquisitions. We had a full pipeline of prospects at that time, and thanks to the ongoing hard work of our M&A team, that pipeline has expanded over the past few months. With a clearer outlook of the positive trajectory of the housing industry and a strong balance sheet with almost $650 million of liquidity, we are resuming our acquisition program and should close on a number of [Technical Issues] call over to Robert, I wanted to note that in late June, we were pleased to learn that TopBuild was moving from the S&P small cap 600 to the S&P mid-cap 400, effective June 30. Some of you may remember that at the time of the spin in June 2015, our market cap was approximately $1.1 billion. Today, it is over [Technical Issues]

Robert Buck -- President and Chief Operating Officer

[Technical Issues] their families, our customers and supplier partners remains the guiding principle for all decisions. We enforced social distancing and sanitizing both in our branch operations and our job sites, and our work-from-home policy at certain operating facilities, including our Daytona branch support center, remains in place. Internal communications have become even more important, bringing our employees together [Technical Issues] including safety [Technical Issues] steps we needed to take to care for our employees, serve our customers and ensure the finance of tax. Turning to slide nine. We entered the second quarter operating in all of the four states: New York, Pennsylvania, Washington and Michigan, where residential and commercial instruction have been deemed not essential. As order, our branches stayed busy, most working on a strong backlog. In addition, our builder customers' optimism grew steadily as they sell buyer traffic and orders increase, along with consumer confidence, fueled in part by very low interest rates. Moreover, based on recent builder surveys, there appears to be a shift to buyers moving to more urban rural areas, clearly demonstrating the strength and flexibility of our business model and our focus on bottom line results. Turning to service partners on slide 11. In the second quarter, total sales grew 1.3%, and for the first half of 2020, sales increased 3%. Service Partners' adjusted operating margin for both the second [Technical Issues] slow to ramp up due to new guidelines governing the density of construction crews on site. Pre COVID-19, it was not uncommon to have 10 or 12 trades working on the job site at the same time. Obviously, that has changed with social distancing rules elongating project time lines.

We've also seen some projects, [Technical Issues] and it's too early to predict whether we'll see a second cost increase this year. Labor is still high, [Technical Issues] though in certain markets, particularly those hit hard by the steep decline in oil and gas and hospitality industries, we believe there could be an increase in the available labor pool. However, this will depend in part on the federal government subsidies [Technical Issues] help bolster our robust margin expansion this quarter. To a lesser degree, the margin expansion also benefited from COVID-19 curtailed expenses, such as travel and entertainment cost, which at some point are expected to return to normalized levels. Starting on slide 14. In the second quarter, net sales decreased 2.1% to $646.1 million, primarily due to a 3.6% reduction in sales volume, driven by the impact of COVID-19, partially offset by revenue from three acquisitions, liking installation, Hunter insulation and Cooper Glass. For the first six months of 2020, net sales increased 1.6%, primarily driven by increase [Technical Issues] in first half of 2,020 to 27.8% and 27.1%, respectively, driven by increased operational efficiencies, cost reduction initiatives and lower insurance costs, partially offset by higher depreciation expense. Adjusted operating profit in the second quarter grew 9.3%, to $83.5 million with a corresponding margin improvement of 130 basis points. For the first six months, adjusted operating profit increased 13.5% to $153.8 million, with a corresponding margin improvement of 120 basis points. In addition to the items discussed in [Technical Issues] gross margin, operating margins were favorably impacted by lower travel and entertainment costs.

Adjusted EBITDA for the second quarter was $107.8 million compared to $94 million in 2019 and adjusted EBITDA margin expanded 250 basis points to 16.7%. For the first six months of 2020, adjusted EBITDA grew 16.4% to $196.1 million, and adjusted EBITDA margin was 15.1%, a 190 basis point improvement over first half 2019. Second quarter SG&A as a percentage of sales was 15.1% compared to 15% in the second quarter of 2019. The year-over-year increase was primarily the result of lower sales volume and higher restructuring expenses, offset by savings from cost reduction initiatives and lower travel and entertainment costs. Depreciation for the three months ended June 30, 2020, increased $6.1 million compared to the same period a year ago. This increase in depreciation expense was primarily related to the reduction in the carrying value of older assets that the company was no longer utilizing and an increase in expense on assets the company has purchased over the last 12 months. On a six-month basis, depreciation increased $7.8 million compared to the same period a year ago. Adjusted income for the second quarter was $55.7 million or $1.68 per diluted share compared to $49.5 million or $1.43 per diluted share. For the six months of 2020, adjusted income was $101.6 million or $3.04 per diluted share compared to $86.1 million or $2.49 per diluted share. Second quarter and first six month 2020 adjustments for $3 and $3.6 million, respectively, primarily related to restructuring costs as a result of COVID-19. Our effective tax rate for the quarter was 23.2% and 20.5% for the first six months of the year.

The 2020 effective tax rates are lower than the normalized tax rate we guide to of 26% due to a discrete tax benefit of $1.4 million and $6.9 million related to share-based compensation for the three and six months ended June 30, 2020. Interest expense in the second quarter 2020 declined from $9.6 million to $8.3 million versus prior year, primarily driven by 188 basis point decline in the average interest rate on our term loan when compared to the second quarter of 2019. Moving to slide 15. capex for the first six months of the year was $20.9 million, 1.6% of sales below our targeted long-term range of 2% to 2.5%. As we noted on our last call, with the advent of the pandemic, we carried back our planned 2020 capital spend. Working capital as a percent of sales for the trailing 12 months was 10.5% versus 11.9% a year ago. This decrease was due to improved collections and reduced past due amounts across the TruTeam portfolio, as well as lower volume in our commercial business, which tends to have longer receivable terms. As you can see on slide 16, we ended the second quarter with net leverage of 1.21 times using trailing 12 months adjusted EBITDA. Total liquidity at June 30, 2020, was $648.5 million, including cash of $258.8 million and accessible revolver of $389.6 million. Operating cash flow was $178.2 million for the six months ended June 30. Due to continued uncertainty related to the COVID-19 pandemic, we're not providing revenue and EBITDA guidance for 2020 at this time. However, as Gerry noted, we remain bullish regarding the long-term health of the residential and commercial markets we serve and are confident TopBuild's flexible business model will continue to drive our strong performance. Gerry?

Jerry Volas -- Chief Executive Officer

Thank you, John. Our business is strong, our team is focused and our future spray. We recognize there is still a great deal of uncertainty related to the pandemic, but we're confident we will successfully meet whatever challenges lie ahead. Many people are looking to escape crowded urban living and with historically low interest rates, now is a great time for them to pursue their dream of owning their own home. As we move through the second half of 2020, TopBuild will continue to focus on achieving operational efficiencies while keeping our employees safe. Our flexible business model, combined with our team's creativity and hard work, will remain key cornerstones of our success. Operator, we're now ready for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is coming from the line of Ken Zener with KeyBanc. Please proceed. Your line is open.

Kenneth Robinson Zener -- KeyBanc Capital -- Analyst

Good morning, everybody. Robin. What a quarter. So 70% of your costs are variable. You had up [Indecipherable] sequentially in TruTeam despite down sales? Leave. Can you talk to I recognize that you're not giving guidance that you have talked about operating leverage generally. As your business opens up again, especially in these four states, could you just comment on how we should think about incrementals, given that orders are very strong for homebuilders, a; and b, it seems like labor is going to be very tight. So that pricing on top of whatever units happen seems to be very favorable for you. I'm just trying to understand your cost actions as opposed to the underlying industry structure that enables you to get the incremental margins?

John Peterson -- Chief Financial Officer

Yes, ken. This is John. So just a couple of comments, and I'll drill down a little bit more in terms of some of the performance versus what I gave in the prepared work. So first of all, we are pleased with our margins. And again, we said it multiple times throughout the prepared comments, we think it's a great, great indication of what we've been talking about for the past five years that we've got a very flexible model that can adapt to the puts and takes in the industries we service, certainly. We did get on it pretty quickly in March when the pandemic hit, so we did take certain cost reductions I think you saw in our data that we had about $2.4 million worth of rat charges that we basically provided. So we did get some benefit from that, probably $1 million in the quarter. And on an annualized basis, roughly $5 million in terms of the cost reduction activities we took. We also did get a benefit from what I'll call COVID-19 delayed or deferred expenses or reduced expenses, and probably the best example would be travel and entertainment. So our best estimate in terms of the benefit we received in the quarter that at some point, it's going to normalize and come back would be probably roughly $4 million to $5 million worth of benefit in the quarter that we got. But again, the vast majority of the benefit we did get in the quarter was certainly operationally driven.

So when we look at that on a go-forward, we don't know how quickly that's going to normalize, those COVID-19 reduced cost. It will really depend on the pandemic and how things come back and how quickly we can get back to travel and other things that we normally do. But on a go-forward basis, we're not going to give any guidance, as you said. We're certainly confident in the long-term capability of our model. We talk about a 22% to 27%. We would certainly agree with that number in the long term. And we're just going to have to see how this plays out over the next three or four quarters two or three quarters, I should say, from the pandemic standpoint. But again, pleased with our results and, again, operationally driven by far, so.

Kenneth Robinson Zener -- KeyBanc Capital -- Analyst

I appreciate that. I guess if you as the largest installer of installations, therefore, you probably have the most data points as a company to what's happening on the builder side. Can you talk to this resurgence of orders tied inventory and mini builder selling through finished spec. Can you talk to the industry's ability to obviously, I think you can provide labor and that'll benefit your pricing. But can you talk to what you think might be constraints in the industry ramping up sequentially out of this COVID stuff? Because it seems like lumber is really high, installation prices are seemingly flat for the time being. But can you talk to what you're seeing in terms of constraints in terms of the growth that might be happening in the industry and how that might be different versus a year ago, excluding the commercial?

Robert Buck -- President and Chief Operating Officer

Yes. Ken, this is Robert. So I think if you look, it's a lot of positive news coming out from the trends from the builders. And I think everybody ramping up here very, very strong, finish to the year, especially the follow, which is always a seasonally busy time. You're right, I think we'll fare well from a labor perspective. But I'd say, given the industry as a whole, whether it be some of the new regulations on job sites, the number of trades on job sites, whether that be residential or commercial, because there's new regulations for both, I think that combination as well as the heavy order flow, we are seeing some along elongated lead times. For sure, we think the lag is extending in the industry due to some of those factors. And you're right about what you say. We do believe that labor will remain tight. There could be some influx of some employees into the industry, given some of the other industries that have been constrained. That being said, the extra unemployment benefits have probably been hindering some of that recruiting up until now. So I think that will be dependent on what we see happen relative to employment benefits going forward. I would say, from our perspective, as we look back, I think I mentioned in the prepared remarks, the COVID lead plan that we did really benefited us to bringing employees back, as well as I think that's allowed us to get some references of attracting some new folks in. So I think it will elongate the lead times, the answer is yes. I think the industry will have some struggles keeping up with that, which will just extend that backlog later into Q4 and could carry into early 2021.

Kenneth Robinson Zener -- KeyBanc Capital -- Analyst

Thank you.

Operator

Our next question is coming from the line of Phil Ng with Jefferies. Please proceed. Your line is open.

Philip H. Ng -- Jefferies -- Analyst

Hey, guys. Just following on that line of questioning. Orders actually have picked up pretty nicely and appreciating some of these bottlenecks that could lead to more elongation. But if you kind of think that through, when do you expect the uptick in orders kind of flowing through from a timing perspective?

John Peterson -- Chief Financial Officer

Phil, this is John. So listen, the reason we didn't provide guidance, or one of the major reasons we're not, it's not because we're not optimistic. We are about both commercial and residential. But really, two primary reasons. One is we tend to rely on lag starts following some type of normalized or seasonalized pattern. That's kind of out the window right now, certainly. So what we saw was, pre-pandemic, very, very strong starts profile, and then we had roughly three months' worth of relatively weak, started to see that recovery in June. And we certainly expect July forward to have a nice starts profile. But it's tough for us to project the backlog we had, whether it's fully depleted as an industry and then how quickly these new orders come online and we get to them at our job sites. So that's one. The other is commercial where we have and as you know, that's almost 1/4 of our business. And on the heavy commercial side, as Robert said, we've been disproportionately impacted there from a social distancing standpoint. So how quickly those job sites get back to a normalized type of cadence is something that we just can't estimate with any granularity at this point. So that's why it's difficult to kind of look forward and give a full projection from our guidance. But listen, we are as optimistic as everyone based on the conversations we're having with our customers, what we know is out there and what we know is coming.

Jerry Volas -- Chief Executive Officer

So Phil, this is Gerry. The one thing I would add to that explanation would be, we had talked about an air pocket. That's kind of a phrase that people have used here over the last several months. I guess it's fair to say that our point of view now is that if there is one, it's probably more shallow and shorter than we probably would have said 90 days ago and looking over the landscape. So to John and Robert's point, we see strength out there, and we think builders are going to be responding to consumers looking at buying homes. And I mean, we think that's all going to benefit the entire industry going forward here. So whether or not there's a bump, some quarter, maybe, but overall strength, I think that's the summary statement.

Philip H. Ng -- Jefferies -- Analyst

That's really helpful. And then your ability to kind of leverage your labor has kind of been a hallmark of TopBuild. In this surging demand backdrop, is that something you think you can be able to take advantage of even more so compared to your peers, your mom-and-pop competitors and opportunity for you to potentially take share?

Robert Buck -- President and Chief Operating Officer

Yes, Phil, this is Robert. So absolutely. I mean, I think I'll hit it from multiple angles. I mean, we're always working on the productivity side, from a labor standpoint. And we really believe and we think has shown through integrated systems, how we move labor around, equipment around and how we're able to service customers. There's the peaks of demand. And if you look at these order flows coming from the builders, there's going to be some big spikes coming in some of these the robust follow period that's coming to us. We'll be able to service that. And we think by our ability to do that, manage and leverage the labor systems, that type of thing, that we will more than gain our fair share of those orders that are coming. So yes, we have a high level of confidence there.

Philip H. Ng -- Jefferies -- Analyst

Got it. And then just one last one question for me. I mean we use broad strokes and define non res as non res, but appreciating there's pockets where it's stronger, let's say, warehouses and data centers and maybe stadiums and office is a little weaker. What's your ability to kind of flex your labor force between heavy commercial versus light commercial? And how are you kind of thinking about that outlook going to 2021, appreciating you do have some tough comps.

Jerry Volas -- Chief Executive Officer

Yes. It's a good question. So as you look at some of the commercial construction that's taken place, I mean the applications and the products are kind of merging closer. So I'll give one good example here. We're doing several Amazon facilities today, and our residential crews can do that type of work with some of the same applications, some of the same board product we would use in light commercial applications. So we're leveraging that labor today to move around to some of the commercial projects. And we think that differentiation between heavy and light commercial continues to narrow some. So it will play to our benefit to be able to leverage labor and move that around among bigger jobs.

Philip H. Ng -- Jefferies -- Analyst

Okay, thanks. I appreciate the color.

Operator

Our next question is coming from the line of Reuben Garner with Benchmark. Please proceed. Your line is open.

Reuben Garner -- The Benchmark Company -- Analyst

Thank you. Good morning, everybody. So I had a little bit of static or breakup on my end during your prepared remarks, so if you said this already, I apologize. But can you just talk about what the difference was in the volume profiles in the second quarter between installation and distribution, whether it's as simple as geographical location. And then I guess, on the same point is, should we expect that the installation of pricing profile to continue to outperform distribution in the near term as you guys are selling labor increases more so than materials?

John Peterson -- Chief Financial Officer

Phil, this is John. So actually, in the quarter, TruTeam was disproportionately impacted by the impact on commercial that Robert talked back because it was primarily heavy commercial, and that's where a greater piece of our heavy commercial business is. So when you look at the residential, I'll say, just pure residential new construction, TruTeam was relatively flat, up slightly versus a year ago. On the other side of that, though, our Service Partners business was probably up close to 3.5% on the volume side from an R&C standpoint and, not near as impacted by the commercial. So residential, I think, and especially considering what happened to us in April, I think results were really strong. We had a nice May and June recovery and exited the quarter with some nice momentum certainly in that area. So on a go-forward and by the way, the other thing I'd point out is the fact that if you look at Service Partners, we all the way back to fourth quarter 2018, where we talked about the fact that we were actually modifying some of our portfolio of our customers. We took a little bit of hit on volume there, but I think the team has been doing a great job of building that volume back up, with additional customers and also getting some additional volume of the core customers we have. So I think you saw nice evidence of that in the quarter, and we'd expect that to continue.

Reuben Garner -- The Benchmark Company -- Analyst

Great. That was very helpful. And let's see. To follow-up on that commercial piece. Is it I think it's a piece of your business that most are less familiar with. Is it fair to say that because of the differences in regulation and just the differences in how the business works, that you have a longer backlog or more visibility I guess, assuming that people can get back to the job site, that you have some runway for that business, even if there is kind of limited new projects in the coming couple of quarters, that you'll be able to kind of work through what was already in the pipeline kind of coming into the pandemic. Congrats on the strong results. Yes.

Robert Buck -- President and Chief Operating Officer

Thanks, Reuben, this is Robert. So yes, longer lead times, I think it had for commercial projects. I think I mentioned here, we're bidding projects into 2022. So there's a backlog that exists in that business. Some of those projects have been pushed out or delayed. Some cancellations, but not I wouldn't call it a tremendous amount of cancellations that we've been able to offset with some new projects. So yes, there's a backlog. There's a backlog to work through. But commercial will take a little longer to ramp back up than residential. But as we said, we feel really good about the long-term growth prospects on the commercial side, both the industry as well as our ability to continue to gain some share in the commercial space.

Operator

Our next question is coming from the line of Trey Morrish with Evercore ISI. Please go ahead, your line is open.

James A. Morrish -- Evercore ISI -- Analyst

Thanks very much. And great quarter, everyone is absolutely fantastic. I want to stick on commercial. For a second. It sounds kind of like the way you're talking about that your backlog in commercial is modestly down as you're looking up. SO I was wondering if you could kind of clarify that for me. And second, on commercial you've previously talked about wanting to expand your commercial footprint a little bit further South and Southeast. Given the job site restrictions that are happening right now, does that those restrictions have you resulting going to accelerate that expansion into the South and Southeast?

Robert Buck -- President and Chief Operating Officer

Tray, this is Robert. So yes, the backlog may be down slightly from if we went back to, I'm going to say, four or five months ago, it would be down. Again, some projects canceled or delayed, pushed out, some new projects that we have been able to put into the pipeline. But I would say, one of our leading indicators is bidding activity. And I would say our bidding activity on the commercial side has been very strong, I'd say even stronger and a positive surprise from what we were thinking as we went into the pandemic. So that's a positive side. I think we do stay very bullish on the long-term piece of the commercial industry and our ability to grow there. And again, we're agnostic to the type of commercial projects. So where we may see projects such as high-rise offices or high-rise residential or convention centers, that type of thing being delayed or potentially canceled. At the same time, we're seeing things such as warehousing, manufacturing, data centers, infrastructure, healthcare, we're seeing those projects pick up, and we're bidding a lot of those projects as well. So I think we feel comfortable from that perspective, and again, positive on the long term look.

James A. Morrish -- Evercore ISI -- Analyst

Got it. And then just looking at your EBITDA bridge, your D&A was significantly higher this year, not only just related to last year, but also last quarter. Was there something accelerated in there? Or is this a new step function higher? Just wondering if you could clarify that for me.

John Peterson -- Chief Financial Officer

Yes. So this is John. So yes, in March, we talked a little bit about the fact that we have the majority was really driven by a reduction in carrying value of older assets that the company will utilize. And by far, the biggest driver was the fact that we basically adjusted our values on our depreciation schedule. So we put a period to date adjustment. That was about $4.5 million of the growth. The other piece was just tied to what we've seen traditionally, which is we have been adding more assets online basically. So the $6.1 million split, about $1.6 million between, just growth of our assets and the growth under depreciation of about $4.5 million tied to, I'll call it, a policy change around depreciation.

James A. Morrish -- Evercore ISI -- Analyst

Got you. Just a slight clarification, that $4.5 million, that's the acceleration, is that something that is sustainable? Is that just a onetime thing that's going to reverse next quarter.

John Peterson -- Chief Financial Officer

It's a onetime adjustment in the second quarter.

Operator

[Operator Instructions] Our next questing is coming from the line of Adam Baumgarten with Credit Suisse. Please go ahead.

Adam Baumgarten -- Credit Suisse -- Analyst

Hey, good morning. Just on the spike in orders from the homebuilders and, potentially, some tightening capacity, how should we be thinking about the potential for a price increase from the fiberglass guys, maybe later this summer or early fall?

Robert Buck -- President and Chief Operating Officer

Adam, it's Robert. So I think a little early to tell, given that spike in stuff, there could be as you probably remember I'll step back a little bit, as you remember, there were a couple of fiberglass manufacturers that pre pandemic had announced they were bringing up additional capacity late 2020, early 2021. They after the pandemic hit, they subsequently pushed that out or delayed that new capacity. So that being said, depending on that ramp-up of orders or stuff, could there be some tightness of material like in labor? Potentially, could be. And if that's the case, I would speculate, they're probably looking at that and considering could there be another material cost increase maybe later in the year.

Adam Baumgarten -- Credit Suisse -- Analyst

Okay. Got it. And then just on the acquisition front, is most of the pipeline filled with smaller tuck-in type deals? Or are there some larger opportunities out there?

Jerry Volas -- Chief Executive Officer

Gerry here. There's a couple of larger ones. I mean, there's always a variety of potential targets, both from the standpoint of residential, commercial, insulation [glass], and then size as well. So to answer your question, there are a few that are bigger, but there are a number of ones that are what we call tuck-ins that are highly effective in terms of the returns that they provide to us. So yes, hopefully, that gives you a little bit of color. I mean, we, as you well know, have been highly successful with acquisitions here since 2015. And we've deployed close to $1 billion of capital, and 2/3 of that is acquisition related. So that train continues. We've got a team here that's highly effective in terms of integrating. And yes, you can look forward to us over the next number of quarters to be back in the acquisition gain for sure.

Adam Baumgarten -- Credit Suisse -- Analyst

Great, thanks a lot.

Jerry Volas -- Chief Executive Officer

Sure.

Operator

Our next question is coming from the line of Seldon Clarke with Deutsche Bank. Please go ahead.

Seldon T. Clarke -- Deutsche Bank -- Analyst

Hey, thanks. Operator, is there any way you can give us a sense of where sales trended in June and into July, and what impact you could be seeing from pent-up demand in either of those months? And I understand, sales were down 9% organically in April and you're not giving guidance. So even if you could just give some context around how the rate of improvement changed throughout the quarter and maybe that how that compares to July?

Jerry Volas -- Chief Executive Officer

Yes, Gerry here. I'll tell you that as the second quarter progressed, it on a sales per day sort of basis, which is kind of how we look at it, is it improved. It improve from April into the May, June time frame, for sure. What we can tell you about July is that July continues at about that pace. And it's hard for us to know how we just stepped into August here, how that's going to look. But yes. It has improved from what was the trough. So I would say April was the trough, and it's gotten better from there. And as we move into Q3, it's continuing at that level.

Seldon T. Clarke -- Deutsche Bank -- Analyst

Do you mean continue to improve or continuing at the level of where June was?

Jerry Volas -- Chief Executive Officer

I would say July is looking a lot like June at this point in time.

Seldon T. Clarke -- Deutsche Bank -- Analyst

Okay. That's helpful. And then you typically see from 2Q and 3Q a little bit of an increase in sales and higher EBITDA margin. And again, I know you're not giving guidance, but is there any way to think about how the moving parts shake out as it relates to just normal seasonality this year, given everything taking place with the elongated construction cycles, the various moving parts on the cost side and some potential cost creep showing up in the third quarter, either fourth quarter. So how do we think about or how should we think about normal seasonality this year relative to what we've seen over the past several years?

Jerry Volas -- Chief Executive Officer

Yes. I mean, we would love to give you some more specific guidance on that. But as John has said, most of the historic relationships around lag times and the building cycle, a number of things are kind of being disrupted here because of the volatility of what's happened, COVID-19 driven. So John may have some more specific comments, but my take on that would be is that we're optimistic about the sales level and what we do from a margin standpoint in whatever we have. And the reason we're not giving guidance is just because some of the tenable relationships that we use have really been taken off the table. And that's not necessarily a negative. I mean we are still going to perform really well, just based on the flexibility that we have. And Robert and his team are just outstanding when it comes to making the most of whatever environment we're stepping into. So we would expect that continue. John, I don't know if you have anything else to add to that?

John Peterson -- Chief Financial Officer

No. I think Gerry said it well. I think on the profitability side, I think we were very confident on a go-forward basis. As I said, some of the benefit we got on to a lesser degree, was driven by expenses that were down due to COVID-19, and we expect those to normalize, but that's going to happen over time. So again, very bullish about top line and bottom line on a go-forward basis. The struggle for us or the challenge is how do we look at seasonality, and how quickly do we get back on commercial job sites, as I said before, that we've been disproportionately pulled off also.

Seldon T. Clarke -- Deutsche Bank -- Analyst

Okay, that's helpful. I appreciate it, thanks.

John Peterson -- Chief Financial Officer

Yeah, sure.

Operator

Our next question is coming from the line of Ryan Gilbert with BTIG. Please go ahead.

Ryan Gilbert -- BTIG -- Analyst

Hi, thanks guys. First question on the distribution business. Just wondering how I should be thinking about volume growth going forward. It sounds like you expect to see continued increases. I think my understanding of the business, that it was a little more countercyclical than the install business. Just how we should be thinking about volume growth in distribution?

Robert Buck -- President and Chief Operating Officer

Ryan, this is Robert. So I think if we go back to the end of 2018 and through 2019, we were talking about our focus on Service Partners and growing the business there. And I think we're seeing some of the fruit of that, live through that selling more to existing customers as well as attracting some new customers as well. Although a small example, I talked about the disinfectant sanitizing product line that we're rolling out. So I think we're pretty positive about the Service Partners' growth. And then also, we'll see potentially smaller contractors come back to us that they're having a hard time taking full truckloads of shipments that plays to plays to our value proposition. And one thing that we've always focused on, and we continue to see improvement are our service levels. So really keen focus on service. And especially if you think about things ramping up the orders for builders, that type of thing, service becomes even more part of the value. So we're keenly focused on that. And we think Service partners and TruTeam both will continue to see some nice improvement.

Ryan Gilbert -- BTIG -- Analyst

Okay. And then the second question, just on the M&A pipeline. Wondering if you can talk about your preference for completing deals within the residential end market versus the commercial end market.

Jerry Volas -- Chief Executive Officer

Yes. We have both in the pipeline. I think we're a bit agnostic. We've had success on both sides of that aisle. We're really good on the residential side for sure, that's a legacy of the company, and we get huge synergies on when we do those acquisitions. But then on the commercial side, our scale is rapidly improving there. And as Robert spoke to, the future of the commercial business, there's a number of different types of projects that we think will continue to be strong in terms of starting. And we're very anxious to continue to improve our footprint. And if we can do that through acquisition, finding the right partners, we will certainly do that.

Ryan Gilbert -- BTIG -- Analyst

Okay, great. Thank you.

Jerry Volas -- Chief Executive Officer

Sure.

Operator

[Operator Instructions] Our next question is coming from the line of Justin Speer. Please go ahead.

Justin A. Speer -- Zelman & Associates -- Analyst

Hi, good morning guys. Thank you. I wanted to start on the nonresidential side. Just if you could give us a little clarity on the revenue trends to exit the quarter there. Recognizing you were down, I guess, it's like 12%, 13% in the second quarter. But as you think about the exit rate into July, how did that look?

Robert Buck -- President and Chief Operating Officer

Justin, this is Robert. So if you think about it, I think Gerry mentioned it as well, so we continue to see a positive trend of revenue throughout the second quarter. We saw that revenue trend continue to improve in July. We never do that comparison. So we think we're still working on backlog. We think, also, you've seen the order trends from builders. And I would say our crews are busy right now. So we're pretty positive in the trend that we've seen. And then I think previous question on Service Partners, some nice growth on Service Partners, a combination of selling more to existing customers, maybe some smaller customers that we've been targeting, coming back and seeing the value in what we do as well during this time. So I think, good trends in both.

Justin A. Speer -- Zelman & Associates -- Analyst

Okay. And then, I guess, the difference in growth between your designation I think maybe the split between heavy commercial and light commercial would be helpful, too, in terms of the differences in growth in the quarter.

John Peterson -- Chief Financial Officer

Yes, Justin, this is John. I don't have the numbers right in front of me, but I can tell you that commercial was disproportionately impacted by heavy commercial, the social distancing off of some job sites temporarily. And so certainly, that's where the majority of our decline was in the quarter, was on the heavy commercial side.

Justin A. Speer -- Zelman & Associates -- Analyst

Okay. And then it would be helpful too. I don't know if this is something that's possible. But I guess, your vertical exposure across some of these areas that are stronger, the healthcare, industrial distribution centers that you mentioned, juxtaposed to maybe some of the other areas that are obviously more pressured. I don't know if you have any clarity that you can provide there, too?

Robert Buck -- President and Chief Operating Officer

Justin, Robert. So we're pretty agnostic, quite honestly, as we look across the thing across the landscape of mix of commercial business. So you're talking high-rise residential, we're talking high-rise commercial. I'd say we are equally own healthcare facilities, distribution centers. I mean, I think I mentioned earlier, I won't give the number, but the number of distribution centers, including like Amazon facilities that we're on sites of right now is tremendous. So we're pretty agnostic of that. Main thing is we're looking at the projects. We know what the mix of projects are, the projects that we're bidding, applications are very similar, and we're obviously comfortable with those types of projects. We I talked about infrastructure projects as an example. You could say healthcare, but then also we're doing some airport projects now as well that are still got some time to go on those projects also. So I'll go back to my term, agnostic, and just say we're across the landscape and mix of commercial projects.

Justin A. Speer -- Zelman & Associates -- Analyst

Sure. And I guess I was thinking about it a little bit differently, but thinking about your actual current mix of business that is through those better growing businesses versus the verticals that may be a little bit more challenged with a little uncertainty, at least in the near term. I guess, what percentage of your business is healthcare and industrial distribution centers?

Jerry Volas -- Chief Executive Officer

Yes, I don't really have that split or that breakdown, Justin. I would just say we're not heavily weighted in a negative way toward one or the other.

Justin A. Speer -- Zelman & Associates -- Analyst

Got it. Got it. And then last question for me. The pricing stability in the quarter was a positive surprise. I guess, how should we think about that in the back half, recognizing there may be some inflationary impulse from the supply chain. But it seems like you did a lot better there. And I'm guessing, how do you think about that in the back half potentially shaping up?

John Peterson -- Chief Financial Officer

Yes. So Justin, this is John. So the pricing you saw in the second quarter was all carryover pricing, essentially, from prior periods. And I listen, we're not going to speculate in terms of third or fourth quarter. I mean, it's going to really depend on the market conditions at the time. And Robert referred to the fact that there's a potential out there as things continue to recover from material cost increase, to see how labor shapes. So really, tough for us to speculate right now. But I think one thing, and I think you've got five years of evidence of this is we're able to adapt to any environment and any inflationary type of environment pretty quickly, and we're confident of our ability to do that on a go forward.

Operator

And there are no other questions at this time.

Jerry Volas -- Chief Executive Officer

Thanks, everybody. Stay safe out there, and we look forward to our Q3 earnings call in November.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Tabitha Zane -- Vice President, Investor Relations

Jerry Volas -- Chief Executive Officer

Robert Buck -- President and Chief Operating Officer

John Peterson -- Chief Financial Officer

Kenneth Robinson Zener -- KeyBanc Capital -- Analyst

Philip H. Ng -- Jefferies -- Analyst

Reuben Garner -- The Benchmark Company -- Analyst

James A. Morrish -- Evercore ISI -- Analyst

Adam Baumgarten -- Credit Suisse -- Analyst

Seldon T. Clarke -- Deutsche Bank -- Analyst

Ryan Gilbert -- BTIG -- Analyst

Justin A. Speer -- Zelman & Associates -- Analyst

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