Q2 2022 Installed Building Products Inc Earnings Call
[music].
Greetings and welcome to the installed building products fiscal 2022 second quarter financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star one.
Zero on your telephone keypad.
A reminder, this conference is being recorded I would now like to turn the conference over to your host Darren Hicks managing director of Investor Relations. Please go ahead Mr right.
Okay.
Yeah.
Good morning, and welcome to installed building products second quarter 2022 conference call.
Earlier today, we issued a press release on our financial results for the second quarter, which can be found in the Investor Relations section of our website on today's call management's prepared remarks and answers to your questions may contain forward looking statements within the meaning of the federal Securities laws. These forward looking statements include statements about future expectations.
The patient beliefs estimates forecasts plans and prospects. These forward looking statements are based on management's current expectations and involve risks and uncertainties any forward looking statements made by management. During this call is not a guarantee of future performance and actual results may differ materially as a result of various factors including.
Without limitation, the adverse impact of the COVID-19 crisis general economic and industry conditions inflation and interest rates.
T Rowe price and supply environment, the timing of increases in our selling prices and factors discussed in the risk factors section of the company's annual report on Form 10-K as may be updated from time to time in our SEC filings.
Any forward looking statement speaks only as of the date hereof.
Company undertakes no duty or obligation to update any forward looking statements as a result of new information or future events, except as required by federal Securities Laws. In addition management uses certain non-GAAP performance measures on this call such as adjusted EBITDA Adjusted EBITDA margin adjusted net income adjusted net.
Net income per diluted share adjusted gross profit adjusted gross profit margin and adjusted selling and administrative expense you can find a reconciliation of such measures to their nearest GAAP equivalent in the company's earnings release and.
Additional reconciliation for adjusted EBITDA for earlier fiscal years in our Investor presentation, which are available on our website.
This mornings conference call is hosted by Jeff Edwards, Our Chairman and Chief Executive Officer, and Michael Miller, Our Chief Financial Officer, and joined by Jason Niswonger, Our chief administrative and sustainability Officer, I will now turn the call over to Jeff.
Thanks, Darren and good morning to everyone joining us on today's call as usual I will start the call with some highlights and then turn the call over to Michael who will discuss our financial results and capital position in more detail before we take your questions.
We achieved record operating and financial results during the 2022 second quarter as our team worked hard to support our customers and capitalize on strong end market demand.
The second quarter also benefited from the continued success of our local branches aligning our selling prices with the value we offer our customers as.
As a result, I am proud that we achieved quarterly record revenue net income and adjusted EBITDA, our consistent record of growth and value creation is a direct result of our strategic focus and the hard work of everyone at IBP.
The dedication of our team members is especially important in the current environment as homebuilders navigate ongoing supply chain constraints and the challenge of delivering new homes.
Ibp's value proposition resonates with our customers because of our focus on providing the highest level of service by completing jobs correctly and on schedule to everyone. At IBP. Thank you for your commitment your hard work and a tough job always done well.
Looking at our second quarter results, we experienced another quarter of strong residential sales growth for the quarter within our installation segment.
We experienced a 32, 7% increase in residential same branch sales from the prior year period, which was driven by a 33, 1% increase in single family same branch sales and a 33% increase in multifamily same branch revenue.
The comparison total U S residential completions increased by 2% during the second quarter.
We believe completions continued to be impacted by extended residential construction cycle times.
During the second quarter price mix increased 24, 9% over the prior year period.
<unk> with the inflationary trends in the construction industry and the increasing demand for our services, our pricing efforts and stabilized mix compared to the prior year have contributed to the largest quarterly increase we've achieved since becoming a public company. We continue to make prudent adjustments to align our pricing with the value we offer customers an inflationary.
<unk> trends.
The supply chain for many of the building products and materials, we install remained constrained during the second quarter, we anticipate that supply chain challenges will continue for the foreseeable future, but our national presence and deep industry experience allow us to operate from a position of strength.
While mortgage rates have increased since the beginning of the year. We believe the elevated number of permitted units that have yet to be started remains supportive of our residential business throughout 2022 and into 2023.
We closely watch our markets for changes in residential activity, but we believe IBP is better positioned than any other time in our history to manage the business throughout the U S housing cycle when.
When combined with a strong balance sheet, our revenue from diverse geographies products and end markets is a core advantage and a cyclical housing construction industry.
Within our heavy commercial business same branch sales were roughly flat in the 2022 second quarter with bidding activity remaining stable and project bid acceptance steady relative to 2022 first quarter. The commercial construction market continues to represent a significant long term growth opportunity for IBP.
And we remain focused on improving our operational efficiency.
Looking at our acquisition strategy in more detail, we continue to prioritize profitable growth through acquiring well run companies that install installation and complementary building products.
During the 2022 second quarter and August we acquired a new Jersey based distributor of better supplies and accessories to residential multifamily and commercial markets, primarily in existing or retrofit construction projects across the U S northeast and mid Atlantic with annual revenue of approximately $45 million.
The California based installer of fiberglass insulation spray foam insulation and acoustical ceiling installation into new residential multifamily and commercial projects in California with annual revenue of approximately $14 million and we also acquired a Missouri based installer of fiberglass installation as well as fireplaces and heating stoves with the <unk>.
Bind annual revenue of over $3 million.
As previously disclosed in April we became an early investor in energy Dot AI their platform provides actionable insight into our company's energy usage and carbon emissions using artificial intelligence and we've partnered with them to implement their solution at IBP as we work to reduce our greenhouse gas emissions are.
Acquisition pipeline remains robust and includes opportunities across multiple geographies products and end markets. As a result, we believe 2022 will be another strong year of acquisition growth and we expect to acquire at least $100 million, but revenue this year.
As we look to the remainder of 2022 and beyond we are excited by the direction in which we are headed and the compelling outlook across our residential and commercial end markets. We anticipate the effective management of our supply chain will continue to be a priority throughout this year, our purchasing logistics and warehousing teams will continue to work with our supply.
<unk> and customers to help ease these industry wide supply chain challenges with.
With access to labor, our strong position with our customers and suppliers and a healthy backlog. We believe 2022 is shaping up to be another year of profitable growth and value creation for IBP.
So with this overview I would like to turn the call over to Michael to provide more detail on our second quarter financial results.
Thank you, Jeff and good morning, everyone net sales for the second quarter increased to a quarterly record of $677 million.
Compared to $488 million for the same period last year, the 38, 7% year over year improvement in sales during the quarter was mainly driven by an increase in price mix higher volume of customer jobs completed and the revenue contribution from recent acquisitions from a segment standpoint installation revenue increased 32.
1% to $638 million driven by strong growth across ibp's residential new construction market.
Other revenue, which includes Ibp's manufacturing and distribution operations increased from $5 6 million.
To $43 million driven by strong operating results and the recent acquisitions of AMD distribution in central aluminum.
On a pro forma basis other revenue increased 16, 1% in the second quarter of 2022 compared to the 2021 second quarter.
On a same branch basis installation revenue improved 27, 4% from the prior year quarter, driven by single family same branch sales growth of 33, 1%.
Multifamily same branch sales increased 33%.
Our residential second quarter same branch sales growth of 32, 7% significantly outpaced total U S housing completions growth of 2% during the quarter.
As Jeff mentioned, we believe this is in part a result of increased residential construction cycle times, which remained extended during the second quarter relative to the prior year period.
While we experienced strong overall installation sales growth the lingering effects of the COVID-19 pandemic continued to moderate growth in our commercial end market installation same branch commercial sales increased four 7% in the 2022 second quarter, while our heavy commercial same branch sales remained roughly flat in the quarter.
Relative to the same period last year.
Adjusted gross profit margin improved 90 basis points year over year to 32% in the second quarter as we realigned our selling prices to reflect the quality of service, we provide inflationary pressure and material supply shortages.
We estimate that supply chain disruptions in the second quarter of 2022 had an impact of approximately $1 $1 million on gross profit during the quarter the impact from the supply disruptions reduced adjusted gross profit margin by approximately 20 basis points administrative.
Expenses as a percent of second quarter sales were 12, 4%, a 120 basis point improvement from the prior year period adjusted.
Adjusted SG&A as a percent of second quarter sales improved approximately 130 basis points from the prior year period to 16, 1% a.
The year over year improvements its SG&A expense relative to sales during the second quarter reflects our ability to leverage administrative costs during strong volume and price mix growth periods.
On a GAAP basis, our second quarter net income increased 61% from the prior year quarter to $59 9 million.
For $2 seven per diluted share our adjusted net income improved 52% to $71 7 million.
Or $2 48 per diluted share we.
We estimate the materials supply shortages impact second quarter earnings per share by approximately <unk> <unk> per diluted share.
During the second quarter of 2022, the acquisition of new businesses increased our recorded amortization expense to $11 3 million compared to $9 2 million for the same period last year. This noncash adjustment impacts net income, which is why we continue to believe that adjusted EBITDA.
As the most useful measure of profitability.
Just on recent acquisitions, we expect third quarter 2022 amortization expense of approximately $11 4 million and full year 2022 expense of approximately $44 $8 million. We would expect these estimates to change with any acquisitions, we closed in future periods.
Adjusted EBITDA for the second quarter of 2022 improved 53, 1% to $119 5 million.
Adjusted EBITDA as a percent of net revenue was 17, 7% for the 2022 second quarter of 170 basis point improvement from the same period last year.
Same branch incremental adjusted EBITDA margin was 25, 8% for the second quarter compared to 13, 3% for the same period last year.
For the 2022 second quarter, our effective tax rate was approximately 26, 3% and we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31 2022.
Now, let's look at our liquidity balance sheet and capital requirements in more detail.
Our business model continues to generate strong operating cash flow.
Three months ended June 32022, we generated $51 $2 million in cash flow from operations compared to $45 8 million in the prior year period.
The year over year increase in operating cash flow was primarily associated with higher net income, which offset increased working capital requirements aimed at reducing material shortages.
Fly constrained environment.
At June 32022, we had $289 million of working capital, excluding cash and cash equivalents and investments.
Capital expenditures in total incurred finance leases for the six months ended June 32022 were $25 6 million combined which was 2% of revenue at June 32022, compared to two 3% for the same period last year. There is currently nothing drawn on our $250 million ABL.
<unk>, which matures on February 17 2027.
In July 2022, we realized a $25.5 million gain through the sale of the company's existing interest rate swaps and entered into new interest rate swap agreements fixing the interest rate on $400 million of the company's existing variable variable rate debt until December of 2028 as a.
We have limited our interest rate exposure and have no significant debt maturities until 2028.
With $165 million in cash cash equivalents and investments and borrowing capacity under our ABL facility, we have in excess of $350 million in liquidity to invest in long term growth opportunities.
June 32022, we had a net debt to adjusted trailing 12 month EBITDA leverage ratio of just under two times, which remains in line with our stated target with.
With our strong liquidity liquidity position and modest leverage we continue to perform on our acquisition strategy and return capital to shareholders.
During the 2022 first half, we have returned $144 million to shareholders through dividends and share repurchases.
Through the first six months of 2022.
<unk> repurchased 1 million shares of its common stock at a total cost of $99 7 million, which includes 554000 shares repurchased during the 2022 second quarter at a total cost of $49 $8 million, including commissions.
The board of directors authorized a new stock repurchase program, which replaces our existing program.
The company has $200 million of availability under the new authorization, which expires August 10 2023.
We announced that Ibp's board of directors approved a third quarter dividend of <unk> 31, and a half cents per share which is payable on September 32022 to stockholders of record on September 15th 2022.
We are committed to continuing to grow the company, while returning excess capital to shareholders through our dividend and share repurchase programs.
With this overview I will now turn the call back to Jeff for closing remarks.
Thanks, Michael.
I'd like to conclude our prepared remarks by once again thanking IBP employees for their hard work dedication and commitment to our company. Our success over the years is made possible because of you.
Operator, let's open up the call for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment it may be necessary.
Of your handset before pressing the star keys.
One moment, please while we poll for question.
Our first question comes from Adam Baumgarten with Zelman Associates. Please proceed with your question.
Hi, This is Marty is four <unk>.
Adam Good morning.
And thank you for taking my question.
Good morning, Good morning, a quick question on price mix, obviously, 110% higher than the prior quarter. Just curious if you can give us.
Details on the split between price and mix.
So as Jeff mentioned in his.
Michael.
Jeff mentioned in his prepared remarks.
<unk>.
Mix has been fairly neutral in the past two quarters on a relative basis.
We've seen on the difference or the growth rates between installation and the other products has been fairly similar.
And some of that price mix headwinds that we had.
Really in 'twenty, and even a little bit in 'twenty, one where we were seeing much higher growth rates from the production builders relative to the non production builders has been mitigated. So it's really the mix is fairly neutral and.
While there is some mix negative mix associated with it it's mostly price.
Got it okay. Thank you very much and another question about.
Availability.
I mean honestly the 20 basis point impact is similar to the prior quarter, but maybe can you give us a.
A bit more insight given it.
Real ability varies by region and by product, maybe some commentary on spray foam. Thank you.
Hi, This is Jeff Sprague spray foam specifically.
It's better than it's been in the past certainly.
And there's really two types of foam that we deal with.
Let's call it half pound volume in two pound fall.
Co sell an open cell and open sale has been.
Improving more more rapidly and for longer in terms of supply.
Then closed cell, but we're starting to see a little bit of movement in a positive fashion on the closed sales side of things too.
And overall, it's getting better, but we're still having particularly on fiberglass still having some issues absolutely.
And there are still some.
Yeah.
The manufacturers are still not necessarily.
Producing all of the Skus that we want when we want them.
So again it continues to be.
Despite our results not a particularly.
Efficient time to do business both.
Both from a supply side material side and from a labor side.
I don't know that you recognize that and we're doing our best to make it as efficient as we can but we're still working through those inefficiencies. So.
And as I said, congratulations to our team for dealing with this every day to be honest with you. Thank you.
And as we work through it.
It's a great tailwind for gross margin as we improve.
<unk>.
Okay.
Thank you.
Our next question comes from Stephen Kim Evercore ISI. Please proceed with your question.
Hey, guys. This is actually Trey on for Steve.
Yes, Ben.
Clear deterioration in housing starts.
By the National numbers, but also build our commentary.
About metering starts going forward that they put out.
Fairly regularly on this last quarter.
So given this weakening but also elongated cycle times.
Would you talk about what Youre seeing in your backlog with respect to anticipated demand over the next few quarters and into 2023, both on the single family multifamily and commercial aspect as well.
Trey This is Michael so it's interesting I think the when Youre looking at the residential side, given what's happened from a completions perspective.
There is somewhat of a disconnect between single family and multifamily right now as as you know single family completions year to date have been up about 4%, whereas multifamily completions have been down about 13% despite that though.
When we look at sort of the macro backlog. If you will we look at what the census Bureau reports under that's under construction. So its something thats been started but hasnt been completed yet and if you look at those numbers over the past really 13 months they've increased every single month.
For the past 13 months. So what that means is the backlog is continuing to grow. Despite the recent decline in starts and that obviously represents a continued extension or increase in cycle times, but it also gives us a lot of confidence about continuing.
<unk> growth.
Within certainly the demand for our services as we go forward something in that in the information from the census Bureau that is probably.
Worth thinking about or considering is that in June under construction single family under construction units was about 830000 or so units at the current completions right.
About 10 months worth of completions and then the authorized not started so what's been permitted but not started adds another two months to that so assuming there is no addition to the current backlog, which we all know is not practical to happen you have 12 months of backlog at the current rate.
Of completions, so we feel very good about what's there.
Another thing to consider is that while certainly orders were weak at certain of the public builders. This past quarter. The dollar value of their backlog is still up 17%. So.
And as we spoke to in the last quarterly call.
Really for our from our perspective.
The dollar value of the backlog is as relevant or more than the number of units in that backlog and all of the things that I mentioned relative to single family multifamily again.
From the census Bureau, all of that data and information is unit driven not dollar value driven which is we think pretty critical particularly when youre looking at.
So the price mix that we're getting.
Currently within the business, so we feel confident.
We believe we have every reason to feel confident about it on the commercial side. We continue to feel very good about the light commercial business. The heavy commercial business, we're still seeing very good bidding and acceptance of bids.
During the quarter that business on a same branch basis was basically flat.
But we continue to believe that long term medium term.
That is.
Very good business for us.
Yeah.
Got it. Thank you thanks very much for that quite full answer.
And then you talked about supply constraints.
As such an environment.
Think that pricing would continue to March higher.
There hasn't been any new manufacturer price increase announcements as far as we can tell.
How are you thinking about pricing.
In the back half.
From both you're pushing out the customers given again that continued long backlog you talked about but also what your Manny.
The manufacturers are pushing towards the U.
This is Jeff I would just say as long as there continues to be inflationary pressure bolt on suppliers.
And therefore on us and really on builders from a myriad of other directions. Besides installation of the things we install.
I think youll continue to see price increases.
I can't comment exactly why a manufacturer hasnt.
Picked up in the last 30 days instead, its a new price increase notice, but I doubt seriously.
Some things still yes, getting straightened out a bit transportation et cetera, even still it's inflationary environment cycle, I don't anticipate and again theres not enough industry capacity at.
At these kind of volumes to really end up to where.
I wouldn't call it a glut to where there's oversupply and so I see it continuing to be tight and continues to be a constructive environment in terms of being able to raise prices.
Quite frankly, we.
We talked about this in the last quarter and I think most people.
I would echo the sentiment that a flat environment, a noninflationary environment or kind of low single digit inflationary environment is something we're all looking forward to.
From a economic perspective and from an overall company perspective.
We think that that's where we need to get to as.
As an industry and we have had more stability recently.
And then we have had over the past call it.
18 months or so.
Hey, guys, it's Steve Kim I, just wanted to jump in on one thing.
Can you talk a little bit about what you're experiencing from your end on wage inflation and.
And how that's affecting.
Affecting how that may be manifested itself in the quarter, but then also in terms of what we can expect over the next one to two quarters in terms of that portion of your cost structure.
Stephen This is.
This is Michael so.
As you know the vast majority of our installers, which is the bulk of the costs are labor costs are paid piece right our job pace of their paid based on productivity and absent the inefficiencies that Jeff was talking about earlier in the call that we're experiencing and some of that we continue to see very good.
Patiency rates within that component.
Labor cost I would say, where we're seeing a little bit of pressure is on the G&A side, which is understandable, but it's nothing that we haven't been able to manage appropriately. So it was definitely not a headwind during the quarter for us.
Great.
With that which we have seen on the direct labor side of things in terms of wage inflation has really been it's starting starting wages for kind of new hires.
Yes.
Okay, great. Thanks, very much guys.
Our next question comes from Susan Mcclary with Goldman Sachs. Please proceed with your question.
Thank you good morning, everyone and congrats on a great quarter guys.
Thank you.
My first question is one of the things that we've been hearing is that bill times have stabilized.
Stabilized to some extent it sounds like supply chain is perhaps getting a little bit better out there and builders are at least seeing some.
Some flattening of that can you talk to how you're seeing those cycle times coming through any improvement that you're expecting there and how that could help you work through this backlog.
It is definitely getting.
I think the best way to describe it is it's not getting worse, but I would say that it's not getting materially better at this point, but that in itself is extremely constructive that it is not getting worse right. So.
Okay.
Yes, okay.
My next question is.
<unk> been seeing really impressive levels of SG&A leverage, especially.
In the last several quarters or so.
Can you talk to the ability to continue to see improvements there and how we should be thinking about that as we go through the back half of this year, maybe even into 2023.
Sure I mean, clearly price mix and volume growth helped considerably, particularly on the administrative leverage.
And to the extent that we continue to have solid price mix and volume growth, we would expect to continue to get.
On some level of administrative leverage quite.
Quite honestly, though as we think through.
Getting more EBITDA margin, which we believe we will continue to do we do think that there is there is opportunity on the gross margin side and there continues to be opportunity, particularly on the administrative side, we get some leverage on selling costs, but not nearly as much as we do on the administrative side.
Okay. Thank you and good luck.
Thank you.
Our next question comes from Mike Dahl with RBC capital markets. Please proceed with your question.
Yeah.
Hey, guys. This is Ryan Frank on for Mike Dahl, Thanks for taking my question.
So the first one for me is price cost favorable.
To a larger extent this quarter are you expecting that to continue in the near future.
Well.
In the near future, yes, but as we go into the.
The back half of the year.
Comps will become more difficult given the selling price increases.
Based on the inflationary environment that we experienced or worked through in the back half of last year. So while those trends certainly continued through July .
We would expect to see moderation in price mix as we go forward through the back half of the year.
Moderation, but would you expect from a price cost standpoint to inflect negatively again then.
No.
Okay got it that's very helpful.
Then the second one on the M&A side.
Have you seen any changes to the M&A environment, whether it's people looking to sell more aggressively in the current time or even the flip side.
People kind of pausing given the slowdown recently.
This is Jeff I would say I mean.
Our ability to get deals done and kind of in the box are the parameters in which we placed deals hasnt changed at all I would say that the the inbound inquiries as to whether we would have an interest have ticked up a bit and are coming from a little further afield.
In terms of kind of not necessarily being right down the fairway on what we're typically looking at doing so.
I guess the.
The shorter answer your question is yes, there's a few more sellers than there were before in a broader category knocking on our door.
Yeah.
Just to follow up quickly on that would that be meaning more like they are in kind of the distribution space or just outside of typical installation.
More of the latter.
Okay got it so different product areas.
I would say that our near term pipeline is very heavily weighted toward insulation deals.
Yes.
And some of its end market different end markets too I mean, we're seeing.
Sure.
Sellers that are.
Smart enough to try to take advantage of what was a COVID-19 run up in there and their sales and convince us that it wasn't that I suppose.
Especially on.
The retro repair and remodel.
Okay.
Got it got it makes sense. Thank you very much guys sure.
Our next question is from Michael Rehaut with JP Morgan. Please proceed with your question.
Hi, Good morning, guys, Doug worldwide on for Mike.
I was wondering you could give some further insight on the acquisition pipeline right now and how it kind of has changed as market conditions has changed and obviously you guys reiterated your goals I'm. Just wondering if you could give a little bit more insight onto what youre seeing right now.
As Michael This is Jeff as Michael mentioned, we feel pretty good right now both about the number of deals but also there.
I wouldn't say highly concentrated but fairly well concentrated inside of the insulation install business.
Business.
So that's I guess somebody could argue that a couple of years ago that maybe we were in the other products in a little more heavily heavy heavy manner, but.
<unk>.
There's plenty of opportunities out there we have a number of years ago.
John started trying to avoid doing the very very small deals unless it was really strategic for us in some way. So it's also a good bit our pipeline also has a number of larger at least by our standards and larger than average deals too. So.
We feel good about Alberta.
And I would say that.
Jeffs earlier comment about the acquisitions I mean, there is.
<unk>.
A increase in inbound activity.
Non traditional sellers for us so companies that we haven't had a.
Significant relationship with them that we've been sort of nurturing if you will over time.
And.
I think thats, what youre seeing in this market right now as though those sort of inbound atypical cause for us, but as Jeff mentioned I mean, a lot of those were looking at with a very.
Jade it so to speak.
Really like the fact that the pipeline right now is a lot of installation deals on them.
I would say, we forever have tried to be.
Ethical and honest and as good or acquire as we can possibly be and probably more than ever right. Now I think the pipeline is full.
Of deals.
Have come to us as a result of either one our reputation or two as direct referrals from other companies and other owners that would be bought out previously.
Great. Thank you and then I want to touch on the heavy commercial aspect of your business and I apologize if you hit on this earlier.
Just a little bit more color on how kind of trended throughout the quarter and what the organic growth was like barrier. If you guys could break that out.
Yes, so it was basically flat during the quarter. So on a year to date basis, it's basically flat as well on a same branch basis and as we've talked in previous quarters, we do expect that business to <unk>.
Improve certainly towards the latter part of this year on a same branch basis and then also.
Particularly as we go into 'twenty three I mean, the backlogs continue to be very solid there, but just like.
It's not us.
Its almost comparable to what's going on in multifamily.
Look at the multifamily market right now.
Darts are running 70 30 or so.
And which is somewhat close to I mean, when I say 70, 30, 70% single family, 30% multifamily, which is higher than historical averages, but kind of in line, but when you look at the under construction numbers, it's basically half single family and have multifamily so that obviously means that the.
Emily.
Cycle times have gotten incredibly extended and I think youre seeing the same thing with heavy commercial that youre seeing in multifamily that because and I'm not talking necessarily about us, but the industry as a whole is that there is still a significant material and labor constraints out there and coming to our multifamily job or a commercial job.
Youre concentrating a lot of labor and a lot of material in one place and thats much more difficult to do in this kind of environment than it is a single family, where you have two or three installers and a small amount of relative material to get that job done. So it's just it's easier to be nimble on the single family side and I.
That's why you saw completions growth in single family year to date, whereas you saw a significant decline in multifamily completions growth in the backlog is so strong from our perspective. Meanwhile, some people.
May not think that.
<unk> family is great.
Our multifamily same brand sales growth has been honestly spectacular and we're continuing to see incredible growth on that on the multifamily same branch sales growth. So in the first quarter.
23% and in the second quarter. It was 30% so and then again that's against the backdrop of a 13% decline in almost 14% decline in.
Multifamily completions.
Great. Thank you for the color guys sure sure.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from Trey Grooms with Stephens Inc. Please proceed with your question.
Good morning, guys. This is actually sidra mesh on for Trey grooms congrats on the quarter.
Thanks Seth.
My first question could you guys give us some color on inventory and how youre planning to manage inventory in a potential downturn.
Yes.
Jeff Michael Ganging up on this probably but.
Despite us being in other products to a degree to still the preponderance.
What we do.
Yes.
Pretty long shot as installations 65 ish or so percent of our of our sales in that inventory turn very very quickly.
And typically we have even less than 30 days I believe right Michael inventory on hand.
And so it moves really very quickly and its really never.
EBIT, even during the great recession inventory in the hub.
Difficulty in managing that down wasn't even present been so that's not something that in this environment, we're still more worried about it.
Can't even imagine a time, yet we're not more worried about getting what we need in a timely manner and the exact SKU that we want et cetera versus having to deal with an overabundance of inventory maybe different from what we all heard and read about recently in the retail.
We have little to no obsolescence in our inventory there is no doubt that we are carrying more inventories now than we would historically, but it really is.
Have assurance of supply as much as we can of material, but it.
It's very easy for us to stop buying and work through the existing inventory, we would expect that.
If which we're not based upon our discussion relative to the backlog that's out there even if we do see volume declines it's easy for us to just not be purchasing inventory and we quickly generate cash flow by bringing that inventory down.
Okay got it and then for my final question, how should we think about capital allocation between M&A and buybacks.
So the number one priority without a doubt is M&A.
I'd say the second priority is the.
Quarterly dividend.
And then share repurchases and then the annual variable dividend.
Okay that was helpful. Thank you and best of luck guys.
You.
Our next question comes from Ryan Gilbert with <unk>. Please proceed with your question.
Hi, Thanks, Good morning, guys.
Hi, good morning.
Hi.
I wanted to ask about.
Volume growth in the second half of the year it sounds like given.
The strength that Youre seeing in your end markets.
The demand for your product.
Combined with.
Comps getting significantly easier in <unk> do you think that you could see an acceleration in volume in the second half of the year what are the puts and takes there.
And really dependent upon the trades that come before us if they can get the houses ready and they can get the apartment units or the multifamily ready.
Then I think we will grow along with that volume growth as we have consistently but if the trades before us arent getting the work done we cannot do our work until the house is ready for us.
As we were saying in.
Earlier part of the Q&A.
We do think that cycle times are not getting worse. So to the extent that that holds we think that given the again the extended or the increased level of backlog.
It definitely is more encouraging certainly from a volume perspective for the industry.
Okay and this is something that you're seeing in your.
Your own backlogs in addition to the data that we're all looking at from the census, that's that's correct right.
Correct.
Okay.
Second question.
We're hearing at least on the land side. Some builders are either rebidding and are dropping out of contracts.
Have you noticed any changes recently.
Builder price elasticity.
Not for the services that we install again.
We talked about this in a.
In a nice way, but we install all of these low dollar value nuisance products.
That are required to be installed in chosen by the builder and not by the homeowner.
No.
Yes.
It provides.
In an environment like this a little bit.
More stickiness is not to say, we don't have to be competitive because.
Absolutely we do.
But.
I'll take that builders are getting some relief from certain other building products like lumber and other things so.
The builders are doing exactly what they shouldn't be doing that in our opinion.
Okay. Thanks.
Ladies and gentlemen, we have reached the end of the question and answer session and I would now like to turn the call back over to Jeff Edwards for closing remarks.
Thank you for your questions and I look forward to our next quarterly call. Thanks again.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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