We’re certainly — and it’s part of our culture of constant improvement to try to continue to achieve those levels. But it’s not something we’re baking into our guidance moving forward.
Stephen Kim: All right. Thanks very much guys.
Operator: Thank you. Our next question comes from the line of Joe Ahlersmeyer with Deutsche Bank. Please proceed with your question.
Joe Ahlersmeyer: Hey everybody. Congrats on the strong results and thanks for taking the questions.
Robert Buck: Thanks Joe.
Joe Ahlersmeyer: If we could just talk about the commercial business and the outlook going forward, I think there’s some leading indicators showing some potential weakness and commentary from others in the industry about certain end markets within commercial, but you held the commercial and industrial revenue guide flat. And I’m just curious if that is purely a reflection of the backlog you have now and just how you might be thinking about the sales opportunity there year-over-year into next year?
Robert Buck: Hey, good morning Joe, it’s Robert. I think it just really speaks to what we’ve built and what the teams in the field are doing. So as we mentioned, we’re agnostic to the type of projects. And as we bid our work, we’re looking at that mix of business as well as to what we’re bidding. So, it gives us a lot of bandwidth. So, I think if you look at our light commercial work — which just a reminder, the majority of our — really all of our residential branches do that work, and then our heavy commercial dedicated branches do that. So, we see that as — we’re growing share from that perspective. And quite honestly, it’s part of the — part of the business that we’re investing in. I’ll give you a couple of examples. One is sales force.
We’re continuing to add sales talent in that area across commercial, industrial, light, heavy, really across the business. And then number two, you’ve heard us talk about our Lead App tool that is really a fabulous tool for really bringing together leads across the business that exists today, and that’s being rolled out to our industrial business here in the future. So, I think it’s — we’re optimistic about the growth there, and we’re really confident of our ability to outperform in any environment based on the model that we built around commercial and industrial.
Joe Ahlersmeyer: That’s great. And then also something you said in the prepared remarks piqued my interest around the co-locating of the branches. It sounded like this is more of a sales expansion effort, not really a cost reduction or consolidation — footprint consolidation effort. I don’t think you mentioned this as part of the DI acquisition. First, do I have that right that this is sort of incremental that what you’ve talked about? And then I understand it would be difficult to quantify it certainly in advance, but can you give us a sense maybe of how extensively you’re going to pursue this strategy?
Robert Buck: Yes. So, we think there’s a great opportunity here as we look across — you’re really — you’re right, it’s incremental. And we said earlier, when we did the DI acquisition, we thought there were cross-selling opportunities, and we get after those after that first round of improvements and synergies that we delivered on. So, yes, we think it is a great opportunity where a great footprint with DI, great footprint of Service Partners, now we’re leveraging the best of the two as we look across. And early on, I’d say we’ve identified, I’m going to call it, eight, nine, 10 locations that we’ll be looking to move forward with. And hard to quantify to your point, but we think this will be great where we have existing customer bases. Now, we can serve them better, and we will grow in those areas given the footprint that we would capitalize upon.
Joe Ahlersmeyer: Good stuff. All right. Best of luck.
Robert Buck: Thank you.
Operator: Thank you. Our next question comes from the line of Ken Zener with Seaport Research Partners. Please proceed with your question.
Ken Zener: Good morning everybody.
Robert Buck: Good morning.
Ken Zener: Focusing on distribution and kind of the commercial side, can you talk to how the recurring maintenance repair piece of that business, if you could talk about like what percent that is today? As well as with the SPI acquisition, if that’s something that has been helping you guys relative to the market, whatever that end market demand is?
Robert Buck: Yes. So, as we think about it today, Ken, that’s probably about 25% of that Specialty Distribution revenue today. And then with the future of SPI, that gets up to about a third of the revenue. So, yes, we think it is a stabilizing piece of the business, and it really goes across Service Partners, DI and SPI, whether you think about recurring items such as PPE around safety or whether you think about some of the extreme conditions that some of the mechanical insulation is exposed to refineries, food and beverage, those types of things that really requires some regular repair and maintenance on those products. We think it’s a great part of the business, and it’s something that we’ll continue to build upon.
Robert Kuhns: And just one thing to point out there, Ken, on those numbers for the quarter on the commercial side for Specialty Distribution. I mean, it was 1.7% growth, but we also had one less day than prior year. As well as we were comping a pretty tough quarter. So really, the average daily sales for us in the commercial industrial side, for Specialty Distribution was a record this quarter. So, a really strong quarter there.
Ken Zener: Yes. Rob, just sticking with that, I mean, it looks like an up 6 comp last year. And then it’s been down 5, down 3, down 3. Is — does that imply that you might be going up against these easier comps? Or how should we think in terms of that perhaps next year?
Robert Kuhns: Yes, I think I’m not sure the numbers you quoted there because I think on the Specialty Distribution side, we would be up each quarter this year for sure on the commercial, industrial side. But going into the fourth quarter here, I can tell you, it’s a pretty tough comp there. We grew on a same-branch basis, around 7% last year on the Specialty Distribution side. So, a pretty tough quarter. And typically, the fourth quarter on the mechanical insulation side, things do slow down a bit. So, the activity is a little bit slower, especially in December.
Ken Zener: All right. And then I guess, just relative to the operating leverage you got, price is kind of flattening out. We don’t know what’s happening. But obviously, your labor pool, your piecemeal contracting. Can you talk about the different pressures that margin faced, relative to your material price, the labor, gas? Obviously, with the auto strikes, that’s not an issue for you guys. But you’re still indicating labor is tight, therefore, it would seem to be inflationary on that side of the business.
Robert Kuhns: Yes, Ken. So, you’re right. I mean, on the material front, definitely seeing inflation slow down on that side. The price increase that was announced in Q4 has been pushed out. And on the labor side, we do all we can to get after that with productivity. It’s really been one of the secret sauces of our success, particularly on the install side, where the majority of our workforce sits. The fact that we pay them on a piece rate allows us to align their incentives with ours, right? And the more productive we can make them, the more money they can make at the end of the week, which is what they care about. So, we’ve done a really good job of offsetting labor inflation on that side with productivity as well as price. And nobody has done a better job of that, I think, and we’ll continue to do that moving forward as well.
