Q4 2022 Installed Building Products Inc Earnings Call
Greetings.
Welcome to installed building products fiscal 2022 fourth quarter financial results conference call. At this time, all participants are I know a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Darren Hicks managing director of Investor Relations. Thank you you may begin.
Good morning, and welcome to installed building products fourth quarter 2022 conference call earlier today, we issued a press release on our financial results for the fourth 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 anticipation beliefs estimates forecasts plans and prospects and 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 potential adverse impact of the ongoing COVID-19 pandemic.
General economic and industry conditions, rising home prices inflation and interest rates the material prices supply environment, the timing of the increases in our selling prices and the 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.
The 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.
Adjusted EBITDA margin adjusted net income adjusted 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 Nice longer 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.
IBP achieved another year of record net revenue net income and adjusted EBITDA.
For 2022 consolidated net revenue increased 36% to $2 $7 billion net income increased 93% to $7.74 per diluted share and adjusted EBITDA increased 54% to $439 million throughout the year, we focused on supporting our <unk>.
<unk> and commercial customers during a very complex operating environment, including navigating continued supply chain challenges and aligning our selling prices with the value we offer customers.
The record 2022 results also extend our history of revenue net income and adjusted EBIT growth to eight consecutive years every year since IBP became a public company in 2014.
I'm extremely pleased that our strong performance during 2022 allowed us to continue pursuing our growth focus capital allocation strategy. We returned a record amount of capital to shareholders in 2022 by investing $138 million to repurchase one 5 million shares of our common stock and distributing 63 million.
And cash dividends. In addition, we completed eight acquisitions, representing approximately $109 million of annual revenue during 2022.
We believe we can continue to pursue our growth focus capital allocation strategy throughout the economic cycle, and we remain focused on creating value for our shareholders.
The record results our role in creating a sustainable future through installing products to promote energy efficiency is an important component of how we define success. During 2022, we published our second annual ESG report outlining the progress we've made along our ESG journey.
Employee turnover remained significantly below industry averages, which we believe is a direct result of the investments made in our employee programs since 2017.
Since our inception, we have worked hard to promote a culture of doing what's right and we believe we can continue to make a positive impact in the lives of our employees and the communities in which we operate.
Our success in 2022 is also reflection of the resiliency of our business model, our competitive position with key G. Within key geographies and end markets the strength of our balance sheet and the experience and dedication of our senior leaders and employees throughout the company.
Since our IPO in 2014 net revenue adjusted EBITDA and net income have grown at compound annual growth rates of over 20%, 33% and 40% respectively. During this period, we have completed almost 80 acquisitions expanding our footprint across the U S and diversity is fine.
Our revenue two additional end markets and product categories. This track record of performance is a direct result of our over 10000 hard working employees across the country.
To everyone at IBP. Thank you for your commitment and a tough job always done well.
With this overview, let's look into our 2022 full year end market performance in more detail.
2022 was another excellent year of residential sales growth within our installation segment, we experienced a 29% increase in residential same branch sales from the prior year, which was driven by a 29% increase in single family same branch sales and a 31% increase in multifamily same branch revenue.
By comparison total U S residential housing completions increased by 4% in 2022.
While total housing completions growth continued to improve both sequentially and year over year. During the fourth quarter. We believe U S housing completions remain affected by extended residential construction cycle times.
Compared to the same period last year price mix improved 23% in 2022.
Consistent with the inflationary trends in the construction industry and the increasing demand for our services, our pricing efforts and a relatively stable product mix contributed to the largest annual increase in price mix, we've achieved since becoming a public company.
We continued to make any necessary adjustments to align our pricing with the value we offer our customers.
Within our commercial business same branch sales increased 7% in 2022, driven by light commercial project growth, which more closely aligns with residential activity with respect to heavy commercial bidding activity and project bid acceptance rates remained steady in the fourth quarter relative to the third quarter and we are focused on improving our operational efficiency.
While pursuing projects with favorable economics.
We continue to expand our business through acquisitions prioritizing profitable growth through targeting well run companies that installed installation and other complementary building products.
During the 2022 fourth quarter, we completed three acquisitions, including in North Carolina, and South Carolina installer of fiberglass insulation spray foam insulation and gutters into new residential projects with annual revenue of approximately $21 million.
Pennsylvania installer of spray foam and fiberglass installation into residential commercial projects that also applies fireproofing and waterproofing commercial structures with annual revenue of approximately $10 million and the Montana installer of fiberglass and spray foam insulation into residential and commercial projects with annual revenue of approximately $5 million.
Throughout 2022, we completed eight acquisitions, representing approximately $109 million of annual revenues, surpassing $100 million.
<unk> revenue target.
Earlier this month, we acquired four state insulation, a residential insulation installer servicing, Virginia, Maryland, West, Virginia, and Delaware with annual revenue of approximately $4 million looking ahead, our acquisition pipeline remains robust and includes opportunities across multiple geographies products and end markets.
As a result, we expect to acquire at least $100 million of revenue once again in 2023.
While 2023 will present market challenges there are also many opportunities.
The backlog in our growing multifamily business is longer than one year.
And then while the national backlog of single family homes is coming down the number of units under construction continues to be at and historically high level. According to the U S Census Bureau.
<unk> solid financial improvement.
In our heavy commercial business strong execution in our repair and remodel business helps drive growth of nearly 50% in Q4 2022 with incentives from the inflation reduction act of 2022 likely to support demand this year.
So with this overview I'd like to turn the call over to Michael to provide more detail on our fourth quarter financial results.
Thank you, Jeff and good morning, everyone.
Holiday that net revenue for the fourth quarter increased to a fourth quarter record of $686 million compared to $534 million for the same period last year.
29% year over year improvement in sales during the quarter was mainly driven by an improvement in price mix and the revenue contribution from recent acquisitions.
Our installation segment revenue increased 23% to $641 million driven by strong growth across ibp's residential new construction market. The other segment revenue, which includes ibp's manufacturing and distribution operations.
Kris to $48 million from $12 million driven by strong operating results as well as the December 'twenty, one 2021 acquisition of AMD distribution and the April 2022 acquisition of central aluminum on a same branch basis installation revenue improved 20% from the prior year quarter drill.
By single family same branch sales growth of 18%.
Multifamily same branch sales increased 37%, our 2022 fourth quarter residential same branch sales growth was 21% above the prior year quarter.
Same branch commercial sales increased 13% in the 'twenty to 'twenty two fourth quarter.
Adjusted gross profit margin improved 240 basis points year over year to 31, 7% in the fourth quarter, which benefited from strong price mix growth during the quarter. It is important to highlight that our segments have different gross profit profiles during the 2022 fourth quarter, our installation segment.
Gross margin was 34% compared to the other segment gross margin of 24%. We believe it is relevant to note the segment impact on our reported gross profit margin since our other segment includes our more recent acquisitions in the distribution business.
The acquisition of AMD distribution had a limited impact on the prior year fourth quarter as the deal closed in December 2021, yes.
The other segments impact gross margin in the 2022 fourth quarter was about 70 basis points.
Adjusted selling and administrative expense as a percent of fourth quarter sales improved approximately 70 basis points to 16, 7% from the prior year period.
Year over year improvements in selling and administrative expense relative to sales during the fourth quarter reflects our ability to leverage administrative costs and higher operating expense leverage at the distribution businesses.
On a GAAP basis, our fourth quarter net income per diluted share of $2 42.
Increased 144% from the prior year quarter, and our adjusted net income per diluted share grew 71% to $2.43 per diluted share.
During the 2022 fourth quarter, we realized a $15 million gain on acquisition earn outs, primarily due to the incentive structure of certain acquisitions completed in 2022, we do not expect to realize similar gains on future acquisitions.
During the 2022 and 2021 fourth quarters, we recorded amortization expenses of $10 million related to the acquisition of new businesses. This noncash adjustment impacts net income, which is why we continue to believe that adjusted EBITDA is the most useful measure of profitability.
Based on recent acquisitions, we expect first quarter 2023 amortization expense of approximately $11 $2 million and full year 2023 expense of approximately $42 $5 million. We would expect these estimates to change with any acquisitions, we closed in future periods.
Adjusted EBITDA for the fourth quarter of 2022 improved 54% to.
To a fourth quarter record of $115 million.
Adjusted EBITDA as a percent of net revenue was 16, 8% for the 2022 fourth quarter, a 200 basis 280 basis point improvement from the same period last year.
Same branch incremental adjusted EBITDA margin was 33, 6% for the fourth quarter compared to six 2% for the same period last year, we continue to target full year long term incremental.
EBITDA margins in the range of 20% to 25%.
For the 2022 fourth quarter, our effective tax rate was approximately 25, 9% and we expect an effective tax rate of 25% to 27% for the full year ending December 20 December 31 2023.
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 for the 12 months ended December 31, 2022, we generated $278 million in cash flow from operations compared to $138 million in the prior year period the.
The year over year increase in operating cash flow was primarily associated with higher net income lower net working capital requirement and proceeds from the termination of interest rate swap agreements for the 2022 full year.
[laughter] through interest rate swap agreements, we fixed the interest rate on $400 million of our existing variable rate debt until December 2028, limiting our interest rate exposure and we have no significant debt maturities until 2028 at.
At December 31, 2022, we had a net debt to adjusted.
Annual EBITDA leverage ratio of 146 times compared to 187 times at December 31, 2021, which is well below our stated target of two times.
At December 31, 2022, we had $327 million and working capital, excluding cash and cash equivalents capital expenditures and total incurred finance leases for the year ended December 31, 2022 were $48 million combined which was one 8% of revenue compared to 2% for the same period last year.
With our strong liquidity position and modest financial leverage we continue to invest in our accurate position strategy and return capital to shareholders. During 2022, we returned approximately $200 million to shareholders through dividends and share repurchases IBP.
<unk> repurchased one 5 million shares of its common stock at a total cost of $138 million. During 2022, which includes nearly 300000 shares repurchased during the 2022 fourth quarter at a total cost of $25 million, including commissions.
Our board of directors recently authorized a new stock repurchase program that allows for the repurchase of up to $200 million of our outstanding common stock the new repurchase program replaces the previous program and is in effect through March one 2024.
Today, we announced that Ibp's board of directors approved the first quarter dividend of <unk> 33 per share representing a 5% increase to our most recent dividend pay out the first quarter dividend is payable on March 31, 2023 to stockholders of record on March 15th 2023.
Also as part of our established dividend policy today, we announced that our board has declared a <unk> 90 per share annual variable dividend in line with the variable dividend, we paid last year.
2023 variable dividend amount was based on the cash flow generated by our operations with consideration for planned and expected cash obligations acquisitions and other factors as determined by the board.
The fair the variable dividend will be paid concurrent with the regular quarterly dividend on March 31, 2023 to stockholders of record on March 15 2023.
We are committed to continuing to grow the company, while returning excess capital to shareholders through our dividend policy and opportunistic share repurchases.
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 all of your operator, let's open up the call for questions.
Thank you.
I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May Press Star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question is from Stephen Kim with Evercore ISI. Please proceed.
Yeah, Thanks, very much guys and thanks for all the color, but I do have some additional questions I guess the first one was that your price mix of you know it looks like it improved sequentially and you had mentioned I think that your annual mix was stable was curious are you know was there a mix impact are in.
For Q sequential move as you went from <unk> to <unk> <unk>.
And on the other side volumes were weaker than we expected.
And so I'm kind of curious if you if we if we should expect volumes to be a headwind again to sales as we head into <unk> a 23.
Hi, This is oh good morning, everybody.
Thanks for being on the call. So on the price mix question, we did have a.
Certainly more than we've had through the rest of it through the first three quarters. This year a mixed benefit in that mix benefit was a combination of both higher growth rates from our regional and local builders and also higher growth rates.
Spray foam, which has a higher average.
Job cost than fiberglass does so we did see some mix benefit, but most of the price mix improvement in the quarter and through the year was price driven on the volume side, we will always.
How you price over volume.
I would say that the quarterly comparison of our volume our volume metric disclosures compared to completions.
That's not always going to perfectly aligned.
The way that we sort of look at the volume growth is on a full year basis volumes grew five 5%, whereas completions grew about three 7%. So we feel good about where we are in terms of the number of jobs that we're doing.
As I said, we will always value price over volume.
Okay.
Okay. That's fine helpful for that helpful. Thanks for that and so a second question I had related to relates to some comments you made last quarter. I think you said that you would be quick to take any necessary staffing actions in order to protect in order to protect your incremental margin. So.
Was curious as to whether any of those kinds of actions was a contributor to the strong incrementals this quarter or was it really just a or is that not really a summer.
Something that you found it necessary to do.
It wasn't necessary is Jeff Edwards.
By the way so no we're not even close so still busy still healthy environment for us out there.
Yes.
Growth grew 20% during the quarter so right.
Great No that's and it's obviously great to hear and then last one for me is just that the builders have recently been talking are somewhat excitedly about a pretty significant pick up in January and continuing into February .
The toll brothers folks just basically said that their most recent week was the strongest <unk> seen all year. Despite the starting to tick up a backup in rates and so I was just curious if you could talk a little bit about to what degree that is.
If you're sensing any of that in your conversations and negotiations with your builder customers.
Yes.
This is Jeff again, we're hearing the same kind of positive news, which is certainly good news so.
You know as we all know we're working through a backlog, but at the same time to the extent that there are is what has been referred to as green shoots by our numbers a number of.
You folks and others and hearing it directly from builders I think we feel certainly a lot more positive about it than you would've based on their commentary within the last thing a 45 days.
I mean, obviously, it's still very early in the year or very early in the spring selling season, but a very constructive commentary that we're hearing, particularly from the private builders is very encouraging.
Okay. That's that's really helpful. Thanks, so much guys sure.
Thank you.
Our next question is from Michael Rehaut with J P. Morgan. Please proceed.
Hi, Thanks, It's Mike Rehaut I appreciate it.
You know first I'd love to hear your thoughts kind of more broadly on 2023, obviously theres a lot of uncertainty still out there and movement.
You know obviously, you've seen you know the sharp declines in housing starts over the last several months and.
Any kind of broad thoughts in terms of how youre thinking about the end market.
You know from a completion standpoint and in 2023.
How it might impact your business would be helpful.
This is Michael.
No doubt I mean, everyone on this call knows the AR that permits and starts have been down you know.
Pretty significantly you know.
Over the past couple of months.
We do believe that you know, particularly as the comps get easier there will be some relative stabilization. There as we also know that the homes under construction. So the backlog both single family.
<unk> to be strong on a relative basis multifamily is that you know a very high level.
Clearly, we have to get the multifamily completions down there.
Growing and bring that backlog down because it's not a very healthy situation, where it is right now.
But we believe that over the course of 'twenty three there will be improvements on the multifamily completions right.
Which is important for us because we really made a concerted effort to grow our market share on the multifamily side, which is now 13% of our total revenue. So we feel very good about the opportunity there in 'twenty three on the single family side I mean, the backlog is starting to slowly come down.
And you know given the.
The permits.
Permits and starts environment and the order numbers that the public builders have disclosed.
There should be for the industry some impact for that as we go into.
The back half of the second quarter as well as you know probably the third quarter of this year, but.
We're talking in the previous question.
You know to the extent that we have a solid spring selling season, which there are a lot of indications that that would be the case.
The cadence of completions versus permits and starts to be such that youre not going to see.
Assuming a strong spring selling season, you're not going to see that much of a delta or decline in our opinion on single family completions, because builders and many conversations that we've had with both public and private builders.
They are getting ready for this pickup in order and sales activity. So that they can quickly start getting.
Home still a lot of the front end trades, you know are not nearly as busy right now.
Yeah, I think there everyone is ready to go they unlike say during that I'm, sorry for maybe go into little bit deeper on your question, but unlike say the great recession with lots of as long as it did and you had significant contraction in capacity within the industry. We are not seeing that happen right now what we're seeing is that the industry itself.
<unk> itself has basically same size up because we're all anticipating that this.
Slowdown or a pause is not going to be extended and that you know as we go through the rest of this year, we'll get back to a more normal cadence.
I appreciate it.
Obviously.
We both said a lot so a lot of moving parts.
I guess, secondly, I'd love to hear your thoughts on price mix for the upcoming year, obviously theres been a.
You know manufacturer price increase by different you know producers in January December January .
If you could talk to the realization of that price increase.
And you know as you progressed during the year I don't know if you've had any discussions already with.
Your your builder partners about.
You know any type of a change in pricing structure or you know that that might impact margins. So it kind of a two parter. There you know first on pricing and the OEM price increase and then just thoughts around price mix for 'twenty three.
Well as Michael mentioned to the second part of that question as Michael mentioned earlier I mean, we we make sure that we get paid a fair price and is definitely geared towards an index towards pricing versus volume and so we will continue.
Our managers and salespeople like to say.
We don't work for free so ultimately I think from a pricing perspective.
As a tough job and this is a tough business right now.
Told that story before but on average that out to the house three times.
In order to collect 3500 bus, let's say on an average house and put fiberglass insulation in the wall. That's a tough thing to do right.
And so we deserve I think what we get paid when show up on time to be past inspections, and so that's kind of our attitude and we kept that to good times bad times.
And we are constantly in dialogue with both the manufacturers and our customers about price and making sure that as Jeff said that is a fair and reasonable price for everybody.
Yeah.
I would say on your comment about you know what we don't provide guidance I think you know if you just look historically our price mix. This year is at you know.
I know unprecedentedly high level.
Compared to prior years, and we certainly wouldn't expect to have.
That kind of outsized price mix growth in our 2023.
Okay.
Just the realization of the of the December January price increase if you could provide.
Provide any.
Insights into how that's going.
Well.
We buy from all four yeah, everybody most of our manufacturers we're in constant dialogue with them.
And you know, it's all it's our job to try to do as well as we can in any negotiations around that you know that topic are clearly as you pointed out there was a price increase in January and you know, we'll see it's still a tight industry in terms of especially on blow it all there's a little bit of room on that.
At least we're not having to run to supply houses and in home depot, and Lowe's et cetera, like we had talked about in previous calls. So clearly that's made our life easier as it relates to kind of running the business on a day to day basis, but believe we will.
It continues to be very tight and there's not really a clear sight into seen where that is still the case.
Yeah.
Thank you very much.
Our next question is from Susan Mcclary with Goldman Sachs. Please proceed.
Thank you good morning, everyone and congrats on a great quarter and a great year.
Thank you.
My first question is when we think about the dynamics between volume and price next year or this year, obviously in 'twenty. Two it was really driven by that price mix in 'twenty. One if we saw that it was more volume.
Kind of driven a point in there how do you think about it going forward or when do you think that those two will start to converge more closely together the way that we had seen pre COVID-19.
Well again, we don't provide guidance, but you know given our commentary from the last question just about what completions might end up looking like and what the 23 looks like for the industry.
I mean, I think what that would say to you is that the likely.
Price mix and volume as being more or closer to historical averages would probably be in 'twenty four or the later half latter half of 'twenty three.
Yeah.
Okay.
And then my follow up is you obviously, you've made a lot of progress on the gross margin as well, which was really impressive for the quarter. How do you think about holding onto some of that as conditions, perhaps normalize out there and just you know more broadly sort of what is the new normal in terms of that gross margin line.
Okay.
Yeah.
Alright.
I joking about that.
I know I wasn't joking that.
Gross margins are so great, but excuse me.
I mean, we feel very good about where the gross margin is right now I mean, if you look historically over the past several years I mean, we've sort of been in a fairly tight range on.
Gross margin.
And we will continue to work hard to continue to improve gross margin to maintain gross margins and you know our most of our improvement in EBITDA margin over the past several years has really come from G&A leverage.
And not just improvement in gross margin. So you know we as Jeff said earlier, we don't work for free we wanted to get a fair price for what we do and we believe it's very appropriate given the difficulty of the the job that our stores are doing.
I was slow to chime in on mostly because I was worried that I was gonna have to give Michael a little highlight maneuver.
It didn't look good so [laughter] well those margins are impressive so.
Exactly.
Can you help me think about it.
Alright, Thank you and good luck.
Yeah.
Our next question is from Mike Dahl with RBC capital markets. Please proceed.
Good morning, Thanks for taking my questions just.
Just another follow up there if we look at the growth trajectory. The details that you provided.
In terms of the underlying dynamics between installation.
Either you know you do see more of that gap on on margins, where maybe a few years back you would've been in the high Twenty's them now.
Now you are in the 34% range. So so it seems like on a like for like basis there.
Been.
A notable step up in an unique backdrop.
Talk of kind of the builders.
And some of the excitement out there, but also what they're talking about is pushing back more on suppliers you know theres conjecture that.
You know an installer like yourselves would be the ones that would be at risk of being kind of squeezed out in the middle is kind of the Oems hold for men and the builders try to push back on trade.
Your price comments on price versus volume comment seem a little more pointed maybe I'm reading into it but you know what are you hearing in terms of kind of that pushback against the trade base as everyone's trying to drive cost out.
And are you seeing something different that's making you say like hey, maybe maybe we are going to end up giving up a little volume. This year as we look to be more disciplined on price.
Yeah, we we will favor price over volume no doubt and.
As a company that has been fairly that's been consistent historically that we would favor price over volume and you know as we go through the course of the Europe , obviously, we're going to make adjustments as necessary and we are in we're constantly communicate communicate.
Getting with both our customers and the manufacturers to make sure that our price costs are in line.
We've said before we are a very small percentage of the overall cost of the home and we are selling an installed solution. So we're not just selling material, we're adding a lot of value by providing.
Providing our installed solutions and in the case of installation you know not only does it have to pass inspection, but it also as required by code. So the builders can't be content to us and I think that you know and we're very important part to the to the cadence of the house, even though we are a very small percentage of it.
Overall costs. So we believe all of those things help us to achieve a fair balance between the cost of the products that we purchase to install and the price that we get from our customers to do that installation.
Got it Okay. That's helpful. Thank you and my second question is you made interesting comments about the the R&R side and the inflation reduction.
So clearly there's some nice incentives out there reinflate at home still a can be a pretty disruptive process, maybe just give us a little more color on what you're seeing in terms of the R&R side.
Yeah, how much of an impact or if there's any quantification you can provide on what you think the eye array has his men or it could mean to your business and in 'twenty three it would be helpful.
Yeah. This is this is Jason Hi, Mike I will say that the in place reduction Act that does provide us opportunity on the repair and remodel side, but as you pointed out it is a bit disruptive and it's more so the fact that it's a different go to market strategy that what we typically see with the majority of our business. Our installers are used to.
Go into a job site not into somebody's home. So it is something that while we do have and see opportunity from the reduction in terms of what it could mean for us in terms of providing some stability or upside opportunity. It is not necessarily a widespread or a nationwide opportunity for us.
Got it got it okay. Thank you.
I would say, though just on that is that the inflation reduction that really doesn't have a financial impact or when it's just starting to have it now because the increases in the credits that you receive that those increases went into effect January one of 'twenty three.
And you know are in the fourth quarter, the repair and remodel business as we as Jeff mentioned it in his prepared remarks. It was up almost 50% and is now almost 90% of our overall overall revenue so if.
If we when we think about you know interesting opportunities in from a sales growth perspective in 'twenty. Three we certainly are encouraged by the strength that we've seen in both and continue to see in both repair and remodel and multifamily, which on a combined basis or over 20% of revenue.
Okay, alright, thanks for that additional color.
Okay.
Our next question is from Trey Grooms with Stephens. Please proceed.
Good morning, this is actually on for Trey and thanks for taking my questions.
Sure.
So first you know pricing really strong this past year in 'twenty. Two I was hoping you could maybe quantify something without any additional pricing actions in 'twenty three how much carryover benefit there's pricing achieved in 'twenty to contribute to growth this year.
You mean, how much carryover or is there still left to realize in twenty-three right because given the timing of price increases you know park, partially through last year, just what what at a minimum can we expect.
Well you know, we don't provide guidance and it would I would say that each quarter, it's going to come down which is an obvious statement.
You know as we're going through.
This first quarter, we are continuing to realize you know good price Smith.
Got it that's helpful and I appreciate that you don't give guidance and and thank you for all the prior commentary on price and volume as we look to 'twenty three but.
You know given that there's some risk to volume into Q3, Q, maybe even for Q still getting a little price I mean is it unreasonable to expect that you can grow overall revenue and 23.
Well again, we don't provide guidance, but.
That is really going to depend on what happens with the you know single family completions.
And.
Housing market as it unfolds and my point in saying that housing market I mean, the single family market as it unfolds during the course of the year.
You know, while we have heavily diversified our end market revenues.
60% of our revenue is still new single family. So I think the spring selling season is important this year. It's important every year, but I think it's yeah. The focus on it is going to be higher this year than probably in past years and as we said earlier we.
Think that there is very encouraging signs around a potential solid spring selling season, and I think that will benefit the whole industry is going through the course of 'twenty three.
Got it. Thank you that's helpful and good luck with the rest of the year.
Thank you.
Our next question is from Adam Baumgartner with Salmon and Associates. Please proceed.
Hey, Good morning, everyone quick question on price increases at this point do you guys expect the manufacturers the fiberglass manufacturers to announce additional price increases at some point this year.
I mean, certainly they still are.
Are experiencing inflationary.
Met.
Certain circumstances, let's just say in certain purchases from an input perspective et cetera, although there's maybe a little bit of weakening.
Weakening of certain instances of freight and some other things but.
You know, we'll see I think as I mentioned earlier below animals is tight.
Or not so much.
So.
I'm certain they will we'd like to do.
It was that way.
Got it okay. It makes sense, Italy, you know there there might be one additional price increase announcement this year, but obviously, we don't know if that's their decision.
They'll make it and I think it will completely depend upon.
How the market.
Paul.
Yep, Okay makes sense and then just switching gears to commercial I have a slide in the deck that came out this morning about three areas outside the core that you seem to be targeting expansion joined through frustration and building restoration I guess a question are you currently in those areas and if not is that you know an acquisition opportunity.
<unk> for those areas of focus.
We're just looking at different scopes of work. So it's not stuff that we're doing a lot of right now, but it's just a question of you.
Know what work as we've talked on previous calls we haven't been we've been disappointed in the financial performance of the heavy commercial operations, we expect to see pretty significant improvement in those operations over the course of 'twenty three.
And we're looking at different scopes of work that will continue to help that improvement in the heavy commercial.
Which just to level set you know given the growth that we've seen across all of the other businesses.
No the heavy commercial business is.
Like five 6% of overall revenue so not a significant component, but it's an important component and we do think that it presents some interesting long term growth opportunities for us.
Got it thank you best of luck.
Our next question is from sell in with Jefferies. Please proceed.
Hey, Good morning, this is Maggie on for Phil.
Good morning, good morning.
First I guess could you talk about your backlogs are or maybe even more broadly the industry backlogs.
And you know kind of contextualize that units under construction metric being at these historic highs in.
How that kind of translates to volumes for you and.
You know how far that carry you into 2023.
Well the I mean, I think right now when you're looking at the units under construction you definitely have to make a distinction between single family and multifamily.
My family is really at an unprecedented Italy high level right now.
It is the multifamily unit backlog is actually.
Or they're in the single family, which I don't think there are very many times in history, where that has actually happened.
So we believe that from an industry perspective.
Clogging the multifamily as.
Is multiyear at this point and as we said earlier in a previous question or an answer to a previous question. We do believe that we'll see and we think we need to see improvement in our multifamily.
Multifamily completions through the course of 'twenty three as it relates to the single family you know it still is in that sort of seven and 750000 unit range, which we think is you know.
Reasonably healthy.
You know that theoretically implies if you had a more normalized multifamily backlog.
Probably like a one point to or so million.
Pace for completion.
And you know well that's below what most people would expect to be sort of a long term average of.
You know a million five.
It still is a very comfortable level on the single family side, you know in terms of what that backlog means for the industry.
He said again in an answer to a previous question a lot is going to depend upon the spring selling season, which is looking very encouraging right now, but given the decline that we've seen in the past.
No.
You know a couple of months even longer.
<unk> and start I think it's logical to assume that you would have an impact relative to single family completions as we go through the end of the second quarter and into the.
You know, we entered the third quarter potentially.
Then I'm going to caveat that that statement, though based on what happens with the spring selling season, and how quickly the builders, which we think is pretty quickly how quickly builders can react to what is potentially going to be a solid order growth.
Okay, great. Thanks for all of that color and then I guess on that and it's been touched on a few times on the call. So far kind of the more recent optimism from the builders.
And.
You know I think late last year coming into this year the consensus that's kind of.
We would need to see interest rates come down or are you now at least stabilize or you have.
Some progress on getting home prices at a more affordable level, where you know these mortgage rent levels.
Do you really see a rebound in housing demand, but you know we haven't really seen significant progress on either of those so you know from your conversations with customers. What's their sense you know what are they attributing on this more recent strength to and you know how sustainable do they see that.
Yeah.
I mean, I think it's more.
More indicative of the idea that you know we havent, even we never did.
Back to stabilize kind of a million five type.
Production on residential and so from that perspective, it's under built in it you know it was only only sold so long that the market could essence sit on the sidelines at least although I I've heard you know with.
A lot of what's happening is is that we there wasn't you know they have ticked up a smidge again too, but they pulled back from seven closer to six.
There's been maybe limited interest in adjustable rate mortgages. Unlike maybe in the past I've heard that but I think there's been an offer of buy downs.
You know from the builders, but many times it gets somebody in the door, but they ultimately end up not using it.
It's still go ahead and end up not only traffic unit, but as a buyer.
I know anecdotally from the fact that were sold a few things that some some buyers were clearly looking at the idea that if they can do a one year or two year or even a three year with no penalty to get out of it. They can kind of ride through this period of time here, but they've got to kind of move on with their life right and they'll they'll re by as things settle down here.
The next hopefully you know 12 to 24 months.
Yeah, I think that homebuyer as adjusted.
Accepting the new reality and I think people have come to grips. The fact that they're not going to get a 3% mortgage and but they still need some place to live and their families growing or they've got a new job and life goes on.
I mean for those of us that are pretty old I'll be 60 in June that's not pretty old, but [laughter] hold.
Bold enough I guess, 6% or in that range is pretty darn attractive historically see yeah. It's only those that are kind of them familiar with the the last 15 10, even really 10 years or less rate where their freight rates that have been less way less than that he is one of my other that'll probably four five.
That you've read so much about yep yep.
Okay got it thanks, so much and good luck on that okay. Thank.
Thank you.
Our next question is from Jeffrey Stevenson with loop.
On markets. Please proceed.
Hi, Thanks for taking my questions today.
I'm wondering if you could provide any additional color on how installation volumes trended throughout the quarter because volumes were a little lighter than anticipated I wondered if on earlier in the construction season around the holidays played any role in that or was it largely due to the tough completions comp you referenced earlier.
Yeah, it's really more just the timing of when we're doing work quite frankly in a as we said earlier.
If you're looking at it on a full year basis in terms of our volume growth of five 5% versus total completions growth of three 7% makes sense.
And you know.
We will favorite price over volumes.
And you know, we think that that is the right decision and.
We have lots of experience, where we gave up volume in the short term only to get it back because our competitors can't perform at the level that our customers want so we're happy to be patient and wait for volume.
Yeah.
No that makes sense and then my second question is just one of your primary Differentiators as your asset light model and high variable cost structure.
And I'm just wondering as we move into the spring construction season, what indicators you'll be following the determined whether you need to make any adjustments if demand improves or slows more than anticipated.
Well, Fortunately because of our cost structure, the bulk of our costs are material and install labor and they flex to the volume of jobs that we have in the job opportunities that we have.
So we will we continuously make adjustments to it.
You know the installer workforce and the amount of material that we're acquiring are purchasing.
Knowing in advance what our expected volumes are so.
I would say that the macro information that is available is.
Hopeful to inform our outlook, but the most important thing that we run the business by what's going on at the local level on a day to day basis, it's that constant communication with our customer about you know what they are expecting from a volume perspective in the jobs that.
They're on it so it's a constant situation, where we're adjusting the business now if we have which is completely unexpected or not anticipated from our perspective, but if we do have an extended you know if the spring selling season.
Bust.
Which we do not expect but if that's the case then we will continue to make adjustments not just to the installer workforce and material purchases, but we will make adjustments to the other variable costs in the business but.
Right now from all of the information that we have and all the feedback that we received from the field. We feel you know constructive given a very uncertain environment.
Very helpful. Thank you.
Our next question is from Dan Oppenheim with Credit Suisse. Please proceed.
Great. Thanks very much.
And thanks for the comments in terms of your expectations and sort of the long term based on sort of under building and such just wondering if you think about the acquisitions that you're looking at through dialogue with some of the smaller companies out there how does your outlook for the coming years in terms of thinking about sort of continued.
Growth and getting back to their normal construction impact to your thoughts on acquisitions does it make you look too.
Do more this year in terms of there is a short term slowdown should we expect you to then sort of think in terms of long term and and growth via acquisition here during 'twenty three I'm just wondering how you're looking.
I don't know Earle.
Well this is Jeff I mean, we continue to use we even said in our prepared comments to kind of targeted at least $100 million a year in revenue acquisition.
You know maybe straight down the fairway.
Terms of kind of what we're used to a normal in terms of products et cetera, and the acquisitions, but.
What I would say this I mean, we basically for the most part we're buying businesses, obviously off of a trailing earnings right and I don't think there's very many.
Contract yours out there at this point that are showing numbers that reflect a great deal of weakness and historically, what I would say from the last time. There was any degree of weakness there I mean chances are unless theres, a health issue or something else. None of these sellers are necessarily forced by any means to sell they almost never have any death or not.
In a tight spot and if the numbers aren't where they would like them to be in terms of kind of them, having a good profitable year, they're probably not going to be sellers. So.
I don't see us just historically speaking and thinking about what's coming to get you know us picking up a lot of targets I think it's going to be very normal in that regard.
So I mean honestly, we'd rather.
You know we like it when the buyer feels good about what went on with the seller feels good about the kind of the transaction and when we feel pretty good about.
The purchase that usually makes for kind of a more co pathetic smooth transition and to go forward and we end up with a better business ultimately so.
But I would say that M&A is our number one capital priority our balance sheet is such that if there are opportunities beyond the $100 million that Jeff referenced in terms of targeted acquired revenue we will absolutely do those acquisitions, we believe that the current environment. While there is a lot of uncertainty.
You know if we look long term because we're not buying these businesses for a quarter or a year, we're buying them for the long term, we believe fundamentally long term debt.
New residential construction market in the United States has you know.
The backdrop, the demographic backdrop, and the fact that even with the acceleration that we saw in 'twenty, one and 'twenty two we have.
<unk> more than the past 10 years under your belt how.
Housing in this country and fundamentally if we look over the medium to long term, we believe that's extremely constructive for our existing business and as well for all of the M&A that we're looking at absolutely.
Great. Thanks very much.
Sure.
Our final question is from Jonathan Dann, how soon would choose securities. Please proceed.
Hey, Thanks for taking my question I'm on for key tease this morning.
So pricing was strong in Q4, and you mentioned that you're prioritizing that over volume, but with that in mind and without giving specific guidance. I was wondering if you could kind of talk about your confidence level of that margin expansion will continue through 2023 if the volumes come down.
Well.
We don't provide guidance, but as we said in an answer to an earlier question. You know if you look on average over the past five six years I mean gross margin has.
No Ben.
Instead of in the 30% range you know high point at the 30% range and you know because we're going to have a value price over over volume. We believe that you know the historical range should be consistent as we go through the next couple of years as well.
No.
Clearly a lot of the or some of the G&A leverage that we've been getting which has been helping to improve our EBITDA margin is because of high volumes and or a price mix growth. So you know we wouldn't expect that if we were in a.
Lower volume and lower growth volume environment, lower growth price mix and environment, we would not expect to get the same G&A leverage improvements that we've been getting particularly in 'twenty, two but quite frankly, we have since the day. We went public we have always taught.
Talked about a mid teens EBITDA margins when we reach stabilization in the housing industry.
It's just that you know which call it completions of about 1516 mm, which Jeff pointed out and you answered an earlier question we even.
<unk> through 'twenty, one 'twenty two we did not get to that point, but yet we are at mid teens EBITDA margins.
We've actually been there for a couple of years now so we feel very good about our ability to sort of maintain the margin profile.
And when we say things like that we don't mean quarter to quarter, we mean on a full year basis.
We don't look at the business, although we have to report quarterly we do not look at the business not necessarily on a quarterly basis were looking and making investments for the medium and long term because that's fundamentally how we build a great business.
Yeah. That's helpful. Thank you sure.
We have reached end of our question and answer session I would like to turn the conference back over to management for closing comments.
Thank you all for all your questions and I look forward to our next quarterly call. Thanks again.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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