2nd Quarter Report 2017

Hello and thanks for joining us. I'm Cameron Whitbeck, the marketing communications manager for WarmlyYours radiant heating, and today we're going to be taking a look at the Q2 industry report. Every quarter, the WarmlyYours team gets together and works on the quarterly reports which analyze the performance of radiant heating products within the larger context of the remodeling industry. Sales of electric radiant heating products like the ones we specialize in are intrinsically tied to the remodeling market. According to the most recent leading indicator of remodeling activity, a quarterly assessment released by the Joint Center for Housing Studies at Harvard University, the last two quarters actually posted some pretty impressive numbers: a 6.9% rate of change between Q1 and Q2.

That number is expected to dip slightly to 6.7% in Q3 and continue to dip slightly while remaining positive up until about mid-2018 when it's going to go back up. What this basically means is that we do expect to see an increase in remodeling activity, but not as pronounced as we have been seeing in the last couple of quarters. This is due largely to a housing shortage. The available inventory level has, for several concurrent quarters, been fairly low, and this means that housing prices have increased astronomically in various markets across the country. One of the things we'll see when that happens is more people engaging in expensive remodeling projects because the house value is higher, but we'll also see a slight decrease in sales of existing homes because of this increase in price.

Of note, in Q2 2017, WarmlyYours saw growth in several different product lines. Radiant panels grew 36%, towel warmers grew 25%, and snow melting grew 2%, which was interesting because this reversed a multi-quarter tendency for snow melting to stagnate in growth. We can actually attribute some of these sales to a recent YouTube video that went viral with over half a million views within a very short time period. This tells us that there's still work to be done in informing the public about what snow melting is, how it works, how it's installed, and answering their various questions. And that's the kind of work that we're excited to take on in the upcoming quarters.

A large portion of towel warmer growth was due to increases in e-tailer sales, which actually grew approximately 67% in this last quarter. Leading the charge were the Metropolitan and Sierra models, each with square bars and linear designs, which seem to be in keeping with some of the more contemporary bathroom design elements that we're seeing on the market now. In terms of electric floor heating sales, WarmlyYours has seen growth in several different product lines, including the Environ EasyMat, the TempZone Custom Mat, the Slab Heat Cable, and the TempZone Cable, which is often paired with the Prodeso membrane. The Prodeso membrane, when paired with the TempZone Cable, is actually very popular amongst installers and homeowners alike. Installers enjoy it because of the speedy installation.

Most of the time they're able to complete an installation within a single day, whereas previous methods of electric floor heating could take multiple days. Homeowners enjoy the long-lasting benefits of the uncoupling membrane, which allows their tile floors to last much longer. The Environ EasyMats are growing largely because we're seeing a lot more consumer interest in flooring types such as laminate flooring. That's something we get a call on almost every day.

What was of particular interest to us as we put together this report was the growth that we saw in several metro areas that had red-hot housing markets. These were Los Angeles, Chicago, Seattle, and Minneapolis. When we compared our historical performance in these metro markets with external data from real estate groups such as Zillow, Trulia, and Redfin, we saw that all of these markets had at least 10% increases in median home value prices between June of 2016 and June of 2017. This tells us that these markets are increasing in price but are still maintaining a steady level of home sales.

This also tells us that, with these significant levels of growth projected for Q3 from these various sources, we can expect to see a similar level of growth for radiant heating sales in the same time period. In Seattle, in Q2 2017, we actually saw a 66.8% increase in WarmlyYours consolidated sales. It's interesting to note the lenient permitting process in Seattle, which often leads to more construction. Another thing worth noting about Seattle is its history of providing and maintaining high-value jobs. So we expect to see about a 10% increase in projected WarmlyYours sales for Q3.

In Minneapolis, we've seen double-digit growth over the last two years. There are a lot of new construction projects ongoing because of the upcoming Super Bowl that will be hosted in Minneapolis, and with its chilly climate and plethora of existing structures, we expect to see somewhere in the neighborhood of a 7% increase in WarmlyYours sales in Q3. In Chicago and Los Angeles, two markets that have consistently year-over-year provided significant growth for us, we expect to see that trend continue with about 5% growth in Q3. For more information about these findings or to read the report in its entirety, visit our press area, which is located under the "More" section on our homepage. Thank you very much.