Q1 2023 TopBuild Corp Earnings Call
One key pad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host.
Tabitha Zane Vice President Investor Relations.
Thank you Ms. Zane you may begin.
Thank you and good morning on the call today are Robert Buck, President and Chief Executive Officer, and Rob Kuhns, Chief Financial Officer.
We have posted senior management's formal remarks, and a powerpoint presentation that summarizes our comments on our website at <unk> Dot com.
Many of our remarks will include forward looking statements, which are subject to known and unknown risks and uncertainties, including those set forth in this morning's press release as well as in the company's filings with the SEC. The company assumes no obligation to update or supplement forward looking statements that become untrue because of subsequent events.
Please note that some of the financial measures to be discussed on this call will be on a non-GAAP basis. The non-GAAP measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. We have provided a reconciliation of these financial measures to the most comparable GAAP measures in a table included in today's press.
The release and in our first quarter presentation, which can also be found on our website I will now turn the call over to Robert Buck.
Morning, and thank you for joining US today, we're pleased to report that 2023 is off to a good start with a solid first quarter performance.
Revenue increased eight 2% and our adjusted EBITDA margin expanded 150 basis points to 18, 8%.
Both business segments installation and specialty distribution also expanded their adjusted operating and EBITDA margins.
Our consistently strong performance quarter after quarter is a direct result of the.
Hard work of our operations in branch support teams.
The insight and command, we have into all facets of our business.
Our focus on operational efficiency and excellence are uniquely advantaged business model with both installation and specialty distribution.
Our diversified end markets residential commercial and industrial.
Our strong partnerships with our suppliers and customers and our strategic approach to acquisitions and their integration onto our advanced ERP platform.
Our installation business is benefiting from the large backlog of single and multifamily homes under construction and we are encouraged that our builder customers continued to see improvements in terms of buyer interest.
This supports our steadfast conviction that the long term fundamentals of the housing industry are strong supported by limited supply of both new and existing homes and favorable demographic trends.
Our installation business is also benefiting from an increase in light commercial work, we've mentioned before that light commercial and residential installation are very similar in most of our branches are able to perform either type of project.
Our heavy commercial branches are also involved in numerous large and long running projects, including Salt Lake City Airport expansion, the new Microsoft and Youtube.
Corporate centers and the new Intuit, Don just to name a few.
To support and encourage both light and heavy commercial growth initiatives, we have been providing additional resources and tools for our salespeople and branch managers to help them better identify commercial opportunities and secure this work.
One of these is our proprietary lead at tube showcased at our Investor Day last May This cloud based data hub identifies an aggregate commercial construction project leads which are then pushed out to our sales force dramatically improving bid opportunities.
Sales productivity and win rates.
Direct labor remains tight within the construction industry, but as a continued strength for <unk>, we remain focused on enhancing labor and sales productivity through the sharing of best practices to use our proprietary technology tools and a highly efficient branch management process, all of which drive better financial results.
In addition, our advanced ERP system gives us the ability to monitor productivity.
In real time and share labor among our branches. This is a major differentiator and gives us a competitive advantage.
Looking at our specialty distribution business overall sales increased two 7%.
Residential distribution volume declined as our smaller contractor customers brought inventory levels down and as a mix of units under construction shifted to multifamily.
Offsetting the decline in residential distribution volume and distribute and demonstrating the strength of our diversified business model was a solid eight 7% increase in sales from our commercial and industrial channels.
Our specialty distribution teams are supporting a number of major industrial manufacturing projects, including the Tesla Giga factory in Austin, and it's Taiwan semi conductor manufacturing center in Phoenix.
Other long running projects include alternative fuel facilities for marathon and Phillips 66.
Looking ahead, we expect to continue to support these large industrial and commercial projects.
Our customer base recognizes that we are the leading supplier of mechanical installation in North America, and our 37th fabrication facilities across North America enable us to customize and engineer any type of product solutions our customers require.
In addition, with only 10% market share of this very fragmented five $5 billion market, we see great opportunities for growth, both organically and through acquisitions.
We have not seen an impact on demand in either the commercial or industrial and markets. Following the recent turmoil in the banking industry.
On the commercial installation side, our backlog remains robust and we are already bidding projects into late 2024 and early 2025.
For specialty distribution, we see a lot of major projects being planned across several diverse industries purely the demand for mechanical insulation.
Maintenance and repair work on many commercial industrial sites has also been scheduled in this recurring revenue stream should serve as a continued stabilizing revenue driver for our specialty distribution business.
We remain very optimistic about the opportunities for growth in both the commercial and industrial end markets.
Turning to fiberglass most of you know there was an industry cost increase in December for both fast and loose fill which did have some traction.
Supply is expected to remain tight as we expect a number of production lines to be bought down for maintenance during the year.
Looking ahead.
Acquisitions remain our number one capital allocation priority and will continue to be a key component of our growth strategy.
And an important additions to our overall momentum of our business.
We completed one acquisition in the first quarter SRA holdings, which is expected to contribute approximately $62 million of annual revenue.
<unk> is a great addition to our installation segment with a strong presence in Georgia, Florida, Ohio and Michigan.
As we do with all acquisitions upon close our integration team immediately works to share best practices to streamline processes and procedures.
Incorporate the newly acquired company owned to our supply chain.
Leveraged technology and best practices to improve labor and sales productivity eliminate.
Eliminate back office and operational redundancies optimized fleet and logistics and locally empower great talent.
Our growth targets are high quality installation focused companies, both installers and specialty distributors that will enhance our scale expand our customer base and generate strong returns for our shareholders. We have a robust pipeline of prospects and expect to close some of these deals this year.
In recent meetings a number of you have asked if we have a target in terms of the mix of our business over the long term the answer quite simply is no we see opportunities to expand our presence both organically and through acquisitions in all three end markets, we serve residential commercial and industrial <unk>.
Combined they represent a total addressable market for installation of over 17 5 billion.
Of which we have a combined 20% share so plenty of white space in which to expand.
Before turning the call over to Rob I want to emphasize emphasize that driving operational excellence and great execution throughout our organization has been and remains one of our most important areas of focus and is a key component of our 940 basis points.
Adjusted EBITDA margin expansion since first quarter 2018.
We hope we empower our 400 plus business leaders to run their branches as distinct operations with full P&L responsibility.
Leaders build their teams to include local management sales and our installed at our installation branches direct labor.
At the corporate level operational efficiencies are achieved across our entire network by leveraging supply chain efficiencies sharing best practices and streamlining back office processes and procedures.
Our drive to improve cultures inherent in everything we do at top pill.
Rob Thanks, Robert and good morning, everyone as Robert noted our team continues to execute at a high level generating strong results the.
The strength of our strategically advantaged model was evident as we grew sales and expanded adjusted EBITDA margins at both installation and specialty distribution.
In addition, we saw sales growth across all of our diversified end markets.
Moving to the financials I'll start with an overview of our first quarter results update you on our balance sheet and review our 2023 outlook.
First quarter net sales increased eight 2% to $1 3 billion with sales from our installation segment, increasing 13, 4% to $767 1 million in sales from specialty distribution, increasing two 7% to $558 4 million installations.
Sales were driven by strong volume growth and higher selling prices, especially distribution sales were driven by higher selling prices offset by a decline in residential volume, which Robert discussed earlier.
Our adjusted gross margin for the first quarter was 29, 3% a 100 basis point expansion.
This was driven by operational efficiencies fixed cost leverage and our continued success in managing inflation.
First quarter adjusted EBITDA increased 18, 1% to $238 3 million and our adjusted EBITDA margin was 18, 8%, a 150 basis point improvement compared to first quarter of 2022.
First quarter incremental EBITDA margin was 38% and 43% on a same branch basis.
First quarter adjusted EBITDA margin for our installation segment was 21, 4% and 15, 8% for our specialty distribution segment, an improvement of 230 basis points and 20 basis points respectively.
Interest expense increased from 12 million to $18 million in the first quarter, primarily as a result of higher variable interest rates. Our current average cost of debt is approximately $4 six 7% with approximately 60% fixed 40% variable rates with no upcoming maturities until 2026.
First quarter adjustments to net income were $3 7 million in related to acquisition and integration costs.
First quarter adjusted earnings per share were $4 36, a 25% increase from prior year.
Moving to our balance sheet and cash flows first quarter operating cash flow was $169 8 million compared to $89 5 million in the prior year.
This was driven by an 18, 4% increase in net income and improvements in working capital.
Working capital was 15, 6% in the quarter and as I've mentioned on previous calls we are targeting a range of 12% to 14% of sales by the end of this year.
Capex in the quarter was $15 6 million, one 2% of revenue and slightly below our long term guidance.
We did not repurchase any shares in the quarter as Robert mentioned acquisitions remain our number one capital allocation priority and we are working a robust robust pipeline of prospects.
There were no significant changes to our debt structure and our outstanding.
Outstanding short term and long term debt balances remained at just under $1 5 billion.
We ended the first quarter with net debt leverage of one five times trailing 12 months adjusted EBITDA.
Total liquidity on March 31, 2023 was $766 1 million, including cash of $333 8 million and an accessible revolver of $432 3 million.
Moving to annual guidance, we are reaffirming our outlook for 2023 provided on our fourth quarter call on February 23rd.
As a reminder, total sales are expected to be between $4 7 billion and $4 9 billion and adjusted EBITDA to be in the range of $820 million to $910 million.
We continue to expect that our residential sales will decline mid to upper single digits and single family activity to be slower the back half of the year.
Our expectation for our commercial and industrial end market is for sales to expand by low to mid single digits.
This outlook does not include any potential acquisitions or share repurchases.
We believe the long term fundamentals of the housing industry are solid and we are pleased to have heard the recent optimism expressed by many of the public builders. We're also bullish on the long term opportunities in the commercial and industrial end markets.
Our leadership team technology tools and flexible cost structure will ensure the top node will continue to outperform in any environment Robert.
We see many opportunities in the year ahead to demonstrate the unique advantages of our operating model and take advantage of our multiple avenues for growth our focus on continuous improvement in all areas of our company enables us to maximize opportunities at every point in the cycle.
The installation specialty distribution are performing well and our advanced ERP system gives us great control and real time insight into the day to day performance of each of our 400 plus branches.
Finally in our continuing drive to be the employer of choice in our industry Tocqueville participated in the National Great Places to work survey and evaluation. The gold standard of a company rankings. We are proud and excited to report that based on direct employee feedback the entire <unk> organization is recognized as a gray.
<unk> places to work organization.
The direct feedback and ratings from our chocolate employee speaks to our commitment to fostering a diverse and inclusive workforce, where everyone has the opportunity to realize their full potential.
Being recognized as a great places to work company is a positive endorsement of the Taco culture, which we strive to strengthen every day.
I. Thank all of my <unk> teammates for their hard work and dedication you are continuing to focus on working safely to deliver value quality and service to our customers every day is the key.
Our continued growth and success.
Operator, we're now ready for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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One moment, please pull for questions.
Thank you.
Our first question comes from gel as miners.
<unk> sorry.
Please proceed with your question.
Hi, This is Joe <unk> from Deutsche Bank.
Good morning, and congrats on the good results in the quarter.
Thanks, Joe.
Maybe if you could start just by talking about your decision not to raise the guidance here, given the strong quarter and with broader industry data and commentary sort of supportive of a stabilization and maybe specifically could you offer some context to the expectation for slower single family in the back half whether that be a specific single.
Family back half revenue outlook or a single family starts are completions expectation.
Yes, Joe This is Rob So I'd tell you Q1 came in right about where we expected from what we told you 10 weeks ago, when we got together.
Back half of the year still is still a lot of uncertainty out there. So we didn't feel a need to really adjust the guide there, but we're cautiously optimistic given what we're hearing from the builders a lot of optimism out there, but we are realistic to knowing that if you look at starts for single family over the last.
Last two quarters, it's significantly below where our completions have been running so that's going to work its way through the system, but you know any any meaningful uptick in starts from here will be upside to the forecast we have out there and I'll just remind you that historically as a management team we leaned to the conservative side. So like I said, we're cautiously optimistic.
About the future.
Joe This is Robert just to add onto that I mean, I think the team in the field is doing a really nice job relative to the other opportunities as well like the light commercial business, what's happening on the commercial and industrial side and to Rob's point, what were seeing and hearing from builders, we're seeing more specs coming out of the ground as well. So we think theres a lot of positive signs out.
Their address.
And to Rob's point, that's only going to be upside to our guidance.
Alright, understood very encouraging and maybe could you just talk about any.
Considerations with multifamily the rest of the year I think there had been some discussion about the product mix requiring more loose fill so could you maybe just discuss the supply demand and pricing specifically for loose fill maybe relative to its about <unk> or any other multifamily considerations, we should be aware of.
Yes, I think as this is Robert again, so I think given the multifamily backlog, we definitely expect that to carry through 2023 definitely into 2024 as well we're in great shape from a product perspective relative to what's required to lose scope for multifamily construction, which does require more loose fill installation so.
We're in great shape from that perspective. The teams one thing that we have great insight into is the bidding and the backlogs as well as the bidding rates of what the teams in the field are doing so we feel really good about the multifamily work in.
In the back half and what we've.
Got bid as well as we think some good share gain that we've captured in that piece of the business.
Alright, Thanks I appreciate it.
Thank you.
Yeah.
Thank you. Our next question comes from Michael Rehaut with J P. Morgan. Please proceed with your question.
Thanks, Good morning, everyone and thanks for taking my questions.
My first one I just wanted to hit I guess.
Driving down a little bit more on the residential side and my second question will be more on the industrial mechanical side, but on the residential.
Is there a way to think about.
What your guidance reflects in terms of an outlook for starts for the year.
Rob as you referred.
So far first quarter.
Single family starts around 840, which is well below a year ago.
So is there some type of implicit.
Our expectation for starts as the year progresses and it.
We're arguing take starts let's say really accelerate in the second quarter.
Would that be more of a third or a fourth quarter event for you guys in terms of upside.
Yes, Mike This is Rob I mean, I think it's really important as we look at the data to break it down between single family and multifamily REIT. So the multifamily starts remained strong the backlog is very strong there.
We had a great quarter for multifamily we were we've been outbidding multifamily you know getting ready for the slowdown we've seen comment on the single family side, So really happy with the field work on that side of things and we expect that backlog to last us through the remainder of this year and then on the single family side like I mentioned earlier.
The starts data as it's obvious here. The last couple of quarters starts are running about 24% below where our completions were.
But we're like I said cautiously optimistic given what we're hearing from the builders more spec homes potentially more starts and an increase in starts from where we are today would be upside to what we have in our forecast right now.
So just to be clear before I hit My second question, what does your forecast reflect does it reflect.
Our remaining at current levels for the rest of the year or some type of modest improvement any color there.
I'd say, it's flattish from where we are today I mean, it could be modestly up or down.
Given the range, we have out there, but I guess that any meaningful movement in either direction is going to be upside or downside to what we have out there.
Okay great.
And then secondly.
On the commercial side or the commercial mechanical you referenced good.
Bidding activity.
And involvement in <unk>.
Various projects into 'twenty four.
How does that translate in terms of thinking about 'twenty.
2024 versus 23 would you expect.
Given the current trends would you expect.
Any level of growth or.
Any color there would be helpful as well.
And Mike Robert So.
What I would say and you can translate this is how the future looks theres just a lot of pent up work out there on the industrial mechanical side. If you think about it as we talked about 'twenty, one 'twenty 2000, little slower to recover and now we're seeing those projects come both new projects, if I think about industrial.
Rio on shoring, some things in the food and beverage space, we talked about some big projects.
Chemical side earlier, but then also on the MRO side, which is net recurring revenue, which is what we love about this business Theres a lot of.
MRO work without their schedule, we see that coming here in 'twenty, three going into 'twenty four and given.
Why we're such a big player there and while we benefit so much there is that our fabrication capabilities, how we engineer those products really four refineries or any other unique situations really allows us to capitalize on the MRO in that recurring revenue. So we have a.
You can tell from my comments, a very positive outlook.
And that industrial mechanical side of the business for those reasons.
Okay. Thank you.
Thank you.
Okay.
Thank you.
Our next question comes from Adam Baumgarten with Zelman. Please proceed with your question.
Hey, Good morning, guys, just curious what youre seeing from a pricing perspective in the residential business has there been any kind of competition sprouting up.
Outside of the norm.
Yeah. Adam This is Robert Susan given the tightness of continued tightness of material and labor from that perspective.
I think things have been pretty steady relative to that I think also.
Given the given where we are in the in the chain there from a construction cycle I think the builders realize that value as well so I'd say nothing out of the ordinary from that perspective, and I think.
If you look at our results you can tell our field teams have done a great job.
Walking that balance of volume and working to get price and stuff as well again for the value that we're bringing to the to the customer.
Okay got it.
Good to hear I.
I guess just also just on the prospect of additional price increases on the fiberglass side. How are you guys thinking about that for the balance of the year.
Yes, as we said previously we expect the inflation to moderate this year. Thank you.
There are still some inflation there I think you also saw some of the previous results from that.
The other public fiberglass manufacturers they talked about price in the first quarter. So we expected that <unk> stabilized, but I think it will all depend on the demand curve what starts to look like the back half of the year I think that could drive any future action from.
The cost increase perspective.
Okay got it thanks.
Thank you.
Thank you. Our next question comes from Keith Hughes with Jewish Securities. Please proceed with your question.
Thank you.
<unk> talked in the prepared comments about commercial industrial being up low to mid single digits I believe you're talking about the year here.
Is there any differentiation between those two growth rates.
Is that the same as the business you talked about being up 8% in the first quarter.
Yeah. So Keith this is Rob so, yes, youre correct that when we talk about it being up low to mid single digits. That's what's baked into our guidance, we obviously exceeded that a little bit in the first quarter up eight 2% overall for the company on the commercial industrial front, which was strong on both the install business and on the specialty.
Distribution business. So I think it really is a testament to what we've been talking about the about the strength of our diversified model and diversified end markets. This is going to be a year, where we can really show that with the commercial and industrial side of side of the business growing.
So we're optimistic for the back half, but we're still sticking with that low to mid single digit growth for the year, but obviously had a really great first quarter as far as the segregated between the two commercial and industrial I'd say there wasn't a meaningful difference between the two in the quarter or in our outlook.
Okay. One other question on that the numbers you are referring to does that include pricing.
How much.
Yes. It includes price, but we don't break price down between residential and commercial definitely there is more price flowing through on the residential side given the higher fiberglass content on that side of things.
But we don't have the split of that.
Okay. Thank you.
Thank you. Our next question comes from Phil Eng with Jefferies. Please proceed with your question.
Hey, guys congrats on another strong quarter.
Robert really appreciate the color around these bigger projects that you highlighted earlier onshoring pet Chem all that good stuff.
Certainly there are some concerns about tighter lending conditions I Wouldnt imagine you would have much impact this year.
But looking out to 2024 and beyond curious what youre seeing on the bidding activity can you kind of help size up big versus small I would imagine some of your bigger projects bigger customers wouldn't have much problem getting capital, but maybe just smaller guys and your ability to kind of move stuff around in terms of labor if.
One part of the segment was a little stronger versus the other sorry, a lot to unpack there.
Thanks, Phil So youre right relative to our bill I'll start and their ability to move things around if we do see those fluctuations in certain parts of the country, but we think about the projects you think about some of the large projects that I spoke to I mean first let me go on the MRI MRO side the recurring piece.
A lot of that is.
Things that are planned well in the future funded well into the future and.
Some of those are actually required.
Type of MRO that has to happen. If you think about refineries that even food and beverage so as part of the positive of that MRO business and the relative to new projects.
Those large projects and if you think about where our work comes in those projects. Most of those projects are already out of the ground. Those are funded and those that's one reason we use that term long running projects. They will go well into 'twenty four into 25, even relative to the run rate of those projects. So that we haven't seen the impact I think given the <unk>.
A business that we have there and the multiple avenues I think overall, we feel good and really if you think about.
Segments within commercial industrial we're not really over saturated in one area, where everything from the onshoring to food and beverage to the industrial and you can think of.
Semiconductor space EV liquid natural gas, where kind of across the gamut. There so and a lot of those are really who required infrastructure. That's coming so we feel good about it and we'll watch it constantly obviously like everyone else is but no signs of it here, thus far and also no signs in talking with our with our bigger customers.
That's great color Robert.
And from My IRA Act standpoint, I believe there's some tax credits for the average homeowner and potentially even the builders can you kind of expand on those benefits.
Do you expect any uplift from that whether it's tissue or go into 2024.
Yes, I mean, I think there to think about the homeowners so definitely from our energy efficiency and some of the potentially rebase. There definitely are people look to maybe re insulate if you will to drive energy efficiency or some rebates will get after that business on our specialty distribution side.
And if you think about that smaller contractors that may be doing our work that doing that work that's our.
Our primary customer on the on the specialty distribution side, especially residential.
If you think about some of the other infrastructure piece.
Definitely I mentioned, the Salt Lake City Airport as an example of those types of infrastructure projects that are definitely benefit of some of the industrial commercial side hard.
You kind of quantify that but given again, we play across that entire space, we would expect to see some nice tailwind from that.
As those bills come into play.
Both again commercial and industrial.
Super.
Great job in retooling the portfolio to kind of tap into some ease of growth avenues. Thanks, a lot yes.
Yes, thanks, Phil.
Yes.
Thank you. Our next question comes from Stephen Kim with Evercore ISI. Please proceed with your question.
Thanks, very much guys I appreciate all the help and are in the guidance congrats on the quarter.
You made an interesting comment here at the beginning I think you said that.
<unk> when you were talking about the residential while your overall market or the overall sales I think you said <unk> who came in roughly in line with what you expected.
But clearly in the residential side of the business, but <unk> sales environment.
And therefore, our planning for <unk> by Homebuilders, and so forth is pretty greatly exceeded the industry's expectation. So I just wanted to confirm that you saw that two you see that and you hear that as well.
And kind of as a follow on to that one of the things that we're anticipating is that you might see a little bit more market share shifting to the larger builders because they may have the balance sheets and the open lines of credit to be able to do more of the spec building, which I think you mentioned.
Versus small privates, they may have a little bit of difficult time.
Increasing their spec activity.
Given the regional bank stress so.
Or I guess I'm wondering is it reasonable to assume that if you see this market share shift that might that that might lead to a slightly lower incremental margin in the residential install side of the business later this year.
Yes, so I'll start off Stephen this Robert on that and try to hit and I'm sure Rob will add some comments as well so I think on your <unk>.
Large production border coming up if you're exactly right I mean, what we're seeing and obviously, what the builders are saying around the spec home piece.
On the balance sheet to support that seen us come out of the ground I think youre, absolutely right about that I'll get a head of the curve here as things stabilize and that allow for some share gain piece of it I think given.
The materials situation a labor situation.
Our relationships with those production builders.
We're not we're not too concerned from a margin perspective as that shift happens or that share shift happens.
With the production builders, so no concerns from that perspective back to your Q1 comment.
And then I'll have neuropathy has got any add ons I think whenever we say in.
In line.
We saw what happened to single family. It was pretty flat multifamily was up really really healthy given given what our teams in the field have done exactly what we expected you talked about distribution volumes commercial industrial strong what we expected a little bit down on the residential distribution side, given some lowering of inventories by the smaller contractors as well as that.
And multifamily sooner we talked about came in as we thought those were some of the dynamics, we thought would play out in the quarter and they did yes, yes, Stephen I'd just add I mean, I think when we made that comp that were talking to in total right. We're about where we expect that I would say on the install side a little better from a volume perspective, the team did a great job getting out there getting a lot of multifamily.
We work and like we mentioned in the prepared remarks residential volume on especially distribution side down slightly when we saw people taking inventory out anticipating the slowdown as well as with the shift in multifamily mix some of those smaller contractors.
Let go for residential products to specialty distribution.
A little bit less share in the quarter. So those are the two things, but overall like I said right.
Right in line with our expectations for the quarter.
If I could sort of follow up on that.
Comments there on the residential side within spec. This Joe I think you said that.
Well first of all would it be right to guess that the residential side of the business within spec distribution was down maybe about 4%.
If that's wrong, if you could correct me that would be great.
Then you I think attributed.
You know resi being weaker than the commercial industrial due to I think small.
Youre, a small installation your smaller customers basically others other small installers and whatnot, reducing inventory I'm wondering are those inventories in your estimation right sized from a level that was too high or maybe given what we've seen here in <unk> sales for homes could we be maybe too low now.
And then you said also multifamily mix impacted it could you talk a little bit about why and how multifamily. The mix is impacted negatively what is it about the multifamily versus the single fam that particularly affects the sales.
Yes. This is Robert so I'll try to get all of those answered here relative to the.
Talking about the specialty distribution residential, yes, low single digits, which by the way given if you look around the industry stuff, we think execution in the field and that business was fabulous. So the team did a great job in the other areas other products accessory products. Some of that so we think fabulous results from from how the team handled that shift.
On the multifamily side, so the smaller contractors, which we get after on that residential specialty distribution side theyre probably participating less.
And that multifamily work theyre more maybe the custom builder the smaller regional builder the repair remodel type work. So that's one.
That specific cost smaller contractor we go in after if you think about the multifamily right. So you've got.
And I also can't speak as to where we picked up share there on the in stock side, but if you think about the multifamily side.
A major fluctuations in the amount of material needed the amount of labor needed.
Week timeframe or something like that.
It's harder to obviously react to that and Thats why we were able to move when are we talking about moving equipment material labor around that plays well for us on the multifamily and then I'm sure as you've seen there's a lot of that multifamily work today.
Coming up but it also has a lot of it has this light commercial work with it where the first for us.
Could be.
Retail and then you've got the multifamily above it and settled with the fact of how we're playing in that light commercial land and multifamily it's allowed us to pick up some nice projects due to that.
<unk>, we have across multiple projects if you will.
Got it.
So much that's very helpful.
Thank you.
Okay.
Thank you.
Our next question comes from Carl Reichardt with <unk>. Please proceed with your question. Thanks. Good morning, Thanks for taking my question.
You talked about the TM for the business overall being $17 5 billion what percentage of that do you think is the MRO recurring revenue side.
Yes, so as we think about and you probably see what we published.
Around that commercial industrial space, we call that opportunity I'd say call. It five five.
6 billion type of total addressable market I'd say, if you look at look at our business and stuff. The MRO is about 50% on the industrial side and so we've probably done a really good job getting our fabrication capabilities of getting after that work. So I would say is that maybe a little less than 50% of the total Tam I think.
Probably I cant give you the exact number I don't know, how where kind of.
Oriented towards that end.
How we've given our capabilities fabrication, we've tried to.
Make sure to get after that opportunity to gain share in that space.
Okay. Thanks for that and then.
Bob talked about the working capital as a percentage of sales target going down to 12% to 14% what are the key drivers to get that number down at recognize there's probably some seasonality in there and then as you look beyond 'twenty three where do you think that number ultimately can go what would be your target. Thanks.
Yeah, Yeah, I would say our long term target is still in that 12% to 14% range I think the opportunity right. Now lies a little bit on the HR side, but also on the inventory side, so with things potentially slowing down here in the back half of the year definitely an opportunity to squeeze some of that working capital out.
And generate strong free cash flow is one of the great stories of our first quarter was our free cash flow, we generated $154 million of free cash flow up 117% for the year and for the full year with the numbers. We have out there we should be north of $600 million of free cash flow. So we feel really good about that and we think 12% to 14% will probably.
Be closer to the high end of that as we close out this year, but long term towards the middle of that.
Okay I appreciate the color. Thanks, a lot guys.
Okay.
There are no further questions at this time I would like to turn the floor back over to president and CEO .
Robert Buck for closing comments.
Thank you for joining us. This morning, we look forward to reporting Q2 results in early August .
This concludes today's teleconference. You may disconnect your lines at this time thank.
Thank you for your participation.