Q3 2023 Installed Building Products Inc Earnings Call
Greetings and welcome to installed building products fiscal 'twenty twenty-three third quarter financial results Conference call.
At this time all participants are on a listen only mode. A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded I would now like to turn the call over to your host Darren Hicks. Thank you you may begin.
Good morning, and welcome to installed building products third quarter 2023 earnings conference call earlier today, we issued a press release on our financial results for the third 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 are based on management's current expectations and beliefs. These statements are subject to risks uncertainties and other factors that could cause actual results to differ materially from those described today. Please refer to the cautionary statements and risk factors in our SEC filings, including our most recent 10-Q and annual report on form 10.
K, we undertake no duty or obligation to update any forward looking statement as a result of new information or future events, except as required by federal Securities Laws. In addition management refers to certain non-GAAP or adjusted financial measures on this call you can find a reconciliation of such measures.
Their nearest GAAP equivalent in the company's earnings release, and additional reconciliation for EBITDA and adjusted EBITDA for earlier fiscal periods in our Investor presentation, which are available on the Investor Relations section of our website. This mornings conference call is hosted by Jeff Edwards, Our chairman and Chief 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.
<unk> produced another solid quarter of operating and financial results, achieving all time third quarter record results on several profitability and cash flow generation metrics during a volatile economic backdrop for residential and commercial construction activity.
Consolidated revenue comparisons were challenging given the over 40% growth achieved in the prior year period, but our end market product and geographic diversity helped to offset softer single-family installation activity.
Despite top line headwinds, we achieved record third quarter net income earnings per share and operating cash flow in 2023.
Our multifamily end market continues to stand out and exemplifies the benefits of appoint a centralized service oriented operation across our branches.
On a same branch basis multifamily sales on our installation segment increased 28% with growth growth driven by continued success selling ibp's installation services and markets that historically have not served multifamily customers. As a result, we were able to partially offset softer single family installation say.
Branch sales, which were down 12%.
In August we published our third annual ESG report in addition to presenting our sustainability achievements and advancements we highlight the critical position insulation installers hole and contributing to energy efficiency in homes and other buildings. Our business is in a unique position to benefit both our shareholders and the broader global environment that surrounds.
Yes.
IBP has experienced tremendous success as a public company and while the path has not always been straightforward the dedication and consistency of our team members have been the key to navigating an increasingly complex economic social and business environment to everyone. At IBP. Thank you for your commitment your hard work in a tough job always.
Done well.
We continue to expand our product offering and geographic presence through acquisitions and have acquired eight companies. So far this year with combined annual revenue of over $58 million, we expect to acquire at least $100 million of annual revenue. Each year. However, after just as timing is unpredictable and certain acquisitions may change.
From there in terms of closing dates within a given calendar year.
During the 2023 third quarter and in October we completed three acquisitions, including a Virginia based installer shower shelving and mirror products as well as fireplaces into new and existing residential and commercial construction projects with annual revenue of approximately $6 million.
Fourth Carolina based installer fiberglass spray foam cellulose insulation and fire places to residential customers with annual revenues of approximately $2 million and a north Dakota based installer of fiberglass and spray foam insulation to multifamily residential and commercial customers with annual revenue of approximately $2 million.
Overall, the residential housing market continues to be resilient as relatively low existing home inventory levels have led to a higher percentage of new construction home sales despite <unk>.
<unk> housing affordability challenges, which has been exacerbated by the rapid rise in interest rates this year.
Still we are encouraged that the publicly traded homebuilders that have reported financial results in the last two weeks have showed a combined year over year, new order volume growth rate roughly 40%.
While these orders will take time to impact our revenue single family housing starts which impact our business sooner than orders have been trending positively in the third quarter.
As for the multifamily end market our project backlog remained stable at historically high levels with activity extending beyond one year.
We believe we are well positioned to report another year of strong operational and financial performance in 2023, as we continue to focus on profitability and effective capital allocation to drive growth longer term. We believe that housing demand will continue to grow in the insulation installation industry is well positioned to benefit from demand driven.
By government legislation, including the inflation reduction act of 2022, and the bipartisan infrastructure law, which are intended to improve energy efficiency and residential homes IBP strong customer relationships experienced leadership team national scale and diverse product categories across multiple end markets will help.
Company navigate future changes in the U S housing market.
I'm proud of our continued success and excited by the prospects ahead for IBP and the broader installation and other products installation business.
Before I turn the call over to Michael I want to say, thank you to Jay Elliott Ibp's, Chief operating officer, who will be retiring at the end of the year Jay has been a valuable member of Ibp's leadership team over the past 20 years and is keen ability to resolve operational challenges combined with his industry knowledge has benefited IBP on countless occasions.
While Jay will act as a close advisor to the company. After this year on behalf of IBP I want to thank Jay for his commitment and wish him and his family the very best in his retirement.
IDP is fortunate to have a deep bench of experienced talent and we have tapped current regional president Brad Wheeler to BJ successor, Brad has served as one of Ibp's regional presence since 2015 and has been the president of our heavy commercial focus business Alpha since 2022, Brad is an exceptional leader and I look forward to.
It's continued contributions to IGT. So with this overview I'd like to turn the call over to Michael to provide more detail on our third quarter financial results.
Thank you, Jeff and good morning, everyone consolidated net revenue for the third quarter decreased modestly to $706 million compared to $719 million for the same period last year. The decrease in sales during the quarter was driven by lower single family sales, partially offset by higher multifamily and commercial sales within our.
<unk> segment.
As we evaluate our performance on a year over year basis, the exceptional growth of our company experienced last year that difficult comparisons for this year, but also rising interest rates and changes in residential construction industry activity had been headwinds to our revenue opportunity in 2023.
According to the U S census Bureau in the third quarter of 2023.
Housing units under construction, where the sales pipeline for our installation services showed single family units were down 16% year over year, while our single family same branch sales were down 12%.
And the multifamily end market industry units under construction were up 14% while our.
Multifamily same branch sales were up 28%.
Although the calculations behind our price mix and volume disclosure.
Have several moving parts that are difficult to forecast and quantified. The results this quarter reflect our strategy of focusing on the value of our installed services over job volume.
During the third quarter price mix increased three 5% while volumes decreased 10, 8% in part due to the continued impact of a multifamily and light commercial activity relative to our single family end market.
Our profitability centered strategy that is to achieve record results in the third quarter as measured by adjusted gross profit margin adjusted net income margin and adjusted EBITDA margin.
Our adjusted gross margin improved 350 basis points year over year.
34, 3% in the third quarter as a result of pricing stability and improved operating cost efficiencies.
Adjusted selling and administrative expense as a percent of third quarter sales was up 200 basis points to 17, 7% due to higher variable compensation related to higher gross profit and EBITDA performance from the prior year period.
Adjusted net income per diluted share improved 11% to $2.79, representing an all time record margin of 11, 2%.
EBITDA for the 2023 third quarter increased eight 6% to a record $131 million and adjusted EBITDA margin reached a record 18, 5% compared to 16, 7%.
Same period last year.
During the third quarter, our same branch adjusted EBITDA growth was positive.
Our same branch sales were lower than the prior year.
It's very strong result rendered the calculation of our same branch incremental margin, meaning less during the third quarter.
We continue to target full year long term incremental adjusted EBITDA margins in the range of 20% to 25%.
For the first nine months of 2023 total incremental adjusted EBITDA margins were 45% substantially above our target range.
Although we do not provide comprehensive financial guidance based on our recent acquisitions, we expect fourth quarter 2023 amortization expense of approximately $11 million and full year 2023 expense of approximately $44 million. We do we would expect these estimates change with any acquisitions, we claw.
Those in future periods.
Also we continue to expect an effective tax rate, 25% to 27% for the full year ended December 31, 2023 now.
Now, let's look at our liquidity position and balance sheet and capital requirements in more detail.
For the three months ended September 32023, we generated $112 million in cash flow from operations compared to $99 million in the prior year period.
The year over year increase in operating cash flow was primarily associated with higher net income and was an all time quarterly record.
Despite the recent rising interest rate environment in August we reduced the borrowing costs and a portion of our debt by 25 basis points through repricing approximately $492 $5 million of our existing term loan. Furthermore, through interest rate swap agreements, we have fixed the interest rate on 400 million.
Of our existing variable rate debt until 2028.
Limiting our interest rate exposure.
We have no significant debt maturities until 2028, our third quarter net interest expense decreased to $9 $7 million from $10 $7 million in the prior year period due to the term loan re pricing and the higher rate of interest we earned on cash and cash equivalents invested throughout the quarter.
At September 32023, we had a net debt to trailing 12 month adjusted EBITDA leverage ratio of one one times compared to one five times at December 31, 2022, which.
Which is well below our stated target of two times.
At September 32023, we had $335 million and working capital, excluding cash and cash equivalents.
Capital expenditures in total incurred finance leases.
Nine months ended September 32023 were approximately $49 million combined which was approximately 2% of revenue roughly in line with the same period last year.
With our strong liquidity position asset like business model and modest financial leverage we continue to focus on expanding through acquisition and returning capital to shareholders.
Our acquisition pipeline remains robust and our goal of acquiring $100 million in annual revenue. Each year is unchanged. However, as Jeff mentioned, the timing of ex acquisitions can move forward or backward from plan, which may influence our ability to close the specific annual revenue amount worth of deals in a given calendar year.
Currently expect that certain acquisition targets may be delayed to the first quarter.
Which would result in our acquired revenue for 2023.
$100 million.
Ipg's Board of directors approved a fourth quarter dividend of 33 per share, which is payable on December 31, 2023 to stockholders of record on December 15 2023.
Fourth quarter dividend represents a 5% increase over the prior year period.
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 you.
Operator, let's open up the call for questions.
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Our first question comes from Rubin Gardner.
With benchmark company. Please proceed with your question.
Thank you good morning, everybody.
Hey, Robyn.
I'm wondering if you could talk.
Talk about your mix between some of the bigger production builders and some of the smaller ones, but I think it's been pretty consistent.
Concern from folks that the smaller builders may struggle, a little bit in the near term with the rate environment I think.
So anyway, I'll, just I'll leave it there.
Yes, Reuben this is Michael as we've said in our previous quarterly calls this year, we do expect that the production builders will continue to gain share.
And I think youre, starting to see that in some of the forward looking metrics like orders.
Where there they are starting to gain share that really hasnt translated yet to us from an install perspective, we still saw in the third quarter a higher rate of growth. If you will within the regional and local builders than we did with the production builders in terms of their.
<unk> of overall revenue, but we feel very good about our share and mix with the production builders and still firmly believe that in 2024, particularly you will see again their share of closings.
<unk> two to increase and they will continue to gain share I mean quite frankly as I think everybody on this call probably appreciates the current operating environment within single family is heavily weighted towards production builders just in terms of their access to capital or their ability to access.
Subcontractors and they're very clearly stated commitment to continue to gain share and improve affordability of the existing new construction product that they're building.
Okay, Great and then a question about the M&A strategy a couple.
Deals are a few deals this quarter.
Correct me, if I'm wrong, but a couple of categories. I think are lifted now that maybe I didn't see before the hardware fireplaces or are these kind of new growth initiatives I know like the blind category has been one in the past or are these kind of areas you you're building off of to expand your M&A opportunities.
Future.
Hi, This is Jeff.
No we've been in those product lines.
Really a long time.
So it's not a new effort. It's just we haven't really ever I guess, specifically called them out in great detail, but it's not not part of a new strategy I don't know how many exact locations we have in fireplaces and hardware, but it's more than a handful.
Got it thanks, guys. Congrats good indicators there is no change in the M&A strategy no.
Okay, great. Congrats on the strong results guys and good luck through the rest of the year. Thank you.
Our next question comes from Stephen Kim with Evercore ISI. Please proceed with your question.
Yeah. Thanks, very much guys. Congratulations on the good result, again first question I had related to your margins you talk about the the strength of the business overall, but I was wondering is there was there a particular benefit that you experience.
And maybe the multifamily side of your business from maybe you know projects that are a little larger take.
Take a have a little bit more of a lead in in terms of your in other words, you are quoting them earlier than you might for single family jobs that boosted your margin a little bit.
This quarter.
This is a this is michael.
We've been performing our team has been performing extremely well on the multifamily side.
And I think they are really highlighting their performances highlighting our focus on.
The value of our installed services the profitability of our installed services and I'd say over volume, even though the multifamily volume has been very strong obviously in where the team has just done an excellent job executing there, but we continue to focus on that there's definitely been benefit there, but I would.
Say we are experiencing.
I'd almost normalization on the gross profit side, given the and this is across pretty much all categories. Both end markets and end products, we're benefiting from a stable pricing environment. The complete realization of the pricing actions that we have taken in 'twenty two.
And keep in mind as I think everybody on this call because 22 was an extremely volatile pricing environment from a material perspective. The fact that that has stabilized combined with our ability to improve operating efficiencies, particularly at the installer level. It helps to continue to improve gross margin.
About the course of the year and it's not just multifamily it's across the board that we're seeing that benefit.
Yeah, that's encouraging right, so really nothing special to call out here that we might want to you know adjust.
Just for on a go forward basis is what I'm hearing you say, which is great.
There was I know that early a couple a few few quarters ago. You know this is a topic of conversation about maybe.
Leaving not walking away per se, but sort of deemphasizing certain projects, where maybe you sort of felt like you didn't get the value for your services that you desired could you remind us again or is that a fair characterization that you kind of have left those were some smaller players in the industry. If you could just sort of.
Describe those for us again.
How how we should be thinking about what those kinds of business opportunities are.
Yes, I mean, we again, we continue to focus less on volume and more on value and profitability and keep in mind.
I just want to be careful because I think a lot of times, when we say profitability or value people think of that as just price and it's not I mean, there are it's really selecting and working with the best builders in the beds general contractors that allow you to be the most efficient from an install perspective and that in many.
In many respects is more important than quite frankly than price can be just because it allows you to be efficient in the way that you're scheduling and the way that you're performing your work for those for those jobs those contractors and those builders. So to the extent that we don't necessarily like to say walk away, but that we choose.
Not to do work or bid on work for a particular general contractor or a builder a lot of times, it's not really a question of price as much of it is how can we most effectively service and be the most productive with that work and that's where we're very selective.
That's really interesting.
Its fairly straightforward really coming to because I mean, we're still and we're busy enough that.
And the market is good enough to that you can be somewhat choosy on the work that you take rate so yeah.
Would you characterize that as maybe more of like a product type you know there are certain products or you know structures that that where where you have just maybe more downtime or more propensity for call backs is that what you're talking about or is it really just down to the kind of the human level certain counterparties you know just maybe arent quite as organized.
As others or is it that sort of thing.
Yeah, that's more it's more of a human level, yeah, but yeah.
Instead, it was done at the product level those are products that likely we shouldn't be.
If we can't make the kind of margins that we associate with this business and the things we install in that particular product line, we should be on it right, but to the extent that we are in it and the margins are good we just at the human level decide.
Who we might be doing work for and interestingly to that question, which was a good one is that on the product level. There is I mean, you can be in one market, where a single customer might be a great installation customer, but there are terrible gutter customers. So you don't want to do their gutter work when they do their installation work.
Gotcha, great Super interesting. Thanks, so much guys.
Sure.
Our next question comes from Joe <unk> with Deutsche Bank. Please proceed with your question.
Hey, everybody good morning, and thanks for taking the questions sure.
I'd like to revisit the gross margin quickly if we could just because just looking back over the last several years, even before COVID-19.
This is I would say your smallest sequential revenue growth <unk> versus <unk>, but it's among your best gross margin performance and so I just I want to make sure I interpret your commentary Michael that it's more of a normalization and nothing.
Particularly strong in the third quarter. So if we're looking into kind of the fourth and the first.
The third is a good indication of the strength of your margins right now.
Yeah, Thanks for asking that question and getting the clarification, so I mean.
Historically, we would say that our best margin, particularly from a gross margin quarter is going to be the third quarter and last quarter, we talked about a range of gross margin at sort of 30% to 32%. We still think that you know from an operational environment that is sort of a long term sort of normalized.
Run rate, if you will from a gross margin perspective, but.
We just wanted to highlight the fact that there wasn't necessarily anything extra ordinary.
In cost of goods sold and therefore gross margin in the quarter that we would just call out necessarily in <unk>.
Except for of course.
You had said earlier that it's been a benign inflationary environment combined with the availability of the types of material that we need to install and getting it in a timely manner has really improved significantly the efficiency of the operation on the sort of the.
Install scheduling side of the business and that is really what's flowing through through to the gross margin not just in the third quarter, but really throughout.
2023.
Yeah. It makes a lot of sense.
And then just curious if you agree with much of the commentary chaired by peers and others around a shift back to single family in 2024.
And how that dynamic might play into material tightness into next year, and perhaps be even more supportive of pricing.
So I'll do the first part of that and then Jeff can talk about the material tightness or potential material tightness I should say, but we definitely agree with the general perspective around to 2024 being its certainly an up year for single family I mean, everything that we've seen.
<unk> both from the public builders that reported so far their orders are up 40% admittedly from you know.
A very low base.
But I think both the public builders and all of the private builder surveys that we've seen combined with the conversations that we're having with our customers. We believe even after you know the disruptions that we saw in the mortgage market. In October you know surveys that have come after that have still support.
Added a environment that would be sort of a mid teens order growth in 'twenty four combined with the mid to maybe high single digit closings growth.
In 2004 for single family and we have not seen.
Or heard anything that would be contrary to that on a macro basis.
Yeah.
This is Jeff as Michael pointed out a and B notes assuming relatively.
Robust positive sales order volume.
No material is already fairly tight now some of that's due to maintenance and rebuilds Theres a surprise, we know in all talked about over the years, some a little bit of capacity coming on with a new plant from can off it's supposed to be the latter half I think the second quarter, but it's not so significant as to really put the industry in.
To anything.
Resembles anything like a loose market as it relates to material, it's going to be tight for some time I think based on the health of the degree of healthiness in the market and the capacity that's out there.
I appreciate all the thoughts good luck.
Yes.
Our next question is from Adam Baumgarten with Zelman. Please proceed with your question.
Hey, good morning, guys.
Alright.
There are certain region or even builder type I, even spec versus build to order.
Sure.
Looking away from more volume and prioritize prioritizing margins or is it pretty much across the board.
Yeah, I would say, there's it would depend upon the market and the individual customers and their market and keep in mind that even the production builders.
With very large national footprints, They act differently market to market right. So there might be an instance, where we're leaning into one builder in southern California, but we're leaning away from them in Florida, just because of the.
Our cost of serve and just the relationship that that's there.
But I would say that if you you know and I think this is consistent with what People's expectations would be is that you know.
Clearly the Western Census Bureau region has been the weakest single family housing market.
Year to date.
And you know.
Obviously, we have good presence, there and that impacts us as well.
Got it.
And then just just on margins I know the there's been a concerted effort in improving the profitability of the commercial business was that also contributing factor in the quarter.
Yes.
Yes. It was the we have made and I say, we as if you know.
It had anything to do with it but.
Our team has done an incredible job really.
Turning the ship if you will on the heavy commercial business and while it is still not at the level of profitability of the rest of the company or where we would expect it to be.
It is definitely more much more of a tailwind out then the absolute headwind. It was in 2022. So if you know going back to.
The earlier question, if I was going to call out anything that was beneficial to both gross margin and profitability in the quarter on a relative basis compared to last year. It would be the implication in the heavy commercial business, but we don't see that at this point as being transient.
Yeah got it thanks best of luck.
Our next question comes from Mike Rehaut with J P. Morgan. Please proceed with your question.
Hi, guys. Good morning, Doug work on for Mike.
Can I just referred to a few times you want to call you know a lot of things regarding price mix being dependent on the market and I'm wondering if you guys have noticed dropped the data from the past quarter or are there any particular markets or regions, where you're seeing more of an effect from price mix in particular.
No.
Not necessarily I think it's fair balance you are I mean.
There is.
Various components from quarter to quarter from region to region and also our penetration of multifamily and the size and scale of particular multifamily projects running through particular regions.
Clearly and as we pointed this out in several of our quarterly calls this year that you know the price mix calculation has been heavily influenced by particularly in multifamily jobs and commercial jobs and our share gains in multifamily have been driven primarily.
In the mid Atlantic and the South.
And that's when when you have share gains and volume gains in multifamily or commercial that's what lifts up the price mix calculation. So I would say that it really is more driven by that that demand component or volume component with the different mix components within price mix.
If that's not confusing.
Yeah.
Got it. Thank you and then regarding acquisitions. Obviously, you guys mentioned that there were a few hold ups kind of pushing back some of that revenue I'm. Just wondering if you know the kind of M&A environment and it seems to be you know across the sector and in other areas.
These acquisitions are taking longer has that had any impact on the pipeline did not has been kind of general market volatility had an impact on what you've seen the pipeline over the past few quarters.
No.
Jeff not not at all really I mean interestingly enough.
Because of our kind of.
Our cash position and our balance sheet, it's actually less so from a robust pipeline perspective, it hasn't changed but honestly.
Private equity is a little wounded in terms of kind of being a competitive bidder with this not in every case, but probably less so than normal and so in terms of the sphere of potential buyers, we actually feel better I think about the M&A side of things so at least that.
Will be fewer at the table in those instances, where we are having to get into more of a competitive bidding situation as when we talked about this many times, that's not even a condition though.
We've developed a reputation.
Hopefully I believe deserved upbeat.
That being the right people to kind of do a deal with an M. B honorable doing so and that they typically our previous owner stick with us for as long as as we'd like them to and as long as they'd like to.
Yeah.
Great. Thank you.
Yeah.
Our next question is from Susan Mcclary with Goldman Sachs. Please proceed with your question.
Thank you good morning, everyone and congrats on a great quarter, guys really well done.
Thank you Beth.
My first question is when we think about the profitability of the business. This quarter. In addition to the gross margin you're also seeing some really nice leverage on the SG&A line and as we think about some of the dynamics that you talked about that are coming through the business. This quarter and then even thinking further out in terms of.
Where single family starts are coming through today and some of the other dynamics between multi and single any thoughts on the ability to sustain some of this and where that may go over time.
Yeah. So this is Michael thanks for that question and I.
I think it's when contextually when you look at particularly G&A expenses, but let's put sterling and DNA together.
Quarter to quarter like so.
So from the second quarter to the third quarter really G&A does not move very much I mean, what impact the dollar value of G&A is really especially because we're in not just on the materials side, but pretty much across the board a fairly benign inflationary environment, even on the G&A side.
What impacts that really are acquisitions, obviously, because they bring their own G&A and then quite frankly for us because we have a very high variable compensation structure.
The variable comp has an impact on the absolute dollar value of administrative expenses, but it's obviously key to profitability.
So as you correctly pointed out from the second quarter to third quarter, we actually improved our SG&A leverage and actually the SG&A leverage in the third quarter was the best that it's been this year, it's still higher than it was in prior years, but we feel good about what's happening there and we always.
So feel good that we're not experiencing the inflationary pressure, particularly the wage inflationary pressure that we experienced through all of them really 'twenty, one and 'twenty two as it related to G&A expenses, but that variable component definitely is going to flex with the with profitability.
Okay. That's very helpful. Michael and then I wanted to follow up on the comment that you made around commercial.
Shifting to a a tailwind versus a headwind in there just given the macro environment around heavy commercial can you talk a bit about the backlog that you have there and how youre thinking about the forward trajectory of that business a bit.
Yeah, we feel good about it as I think we've said on previous calls.
And last year.
All about improving the profitability and not about sales.
Now that the profitability is stabilized and improving the team is doing an excellent job of bidding and bidding.
As you know and it's not again, it's not just the price they're bidding at the team has come together and it's the operational efficiency that they were experiencing is where it should be there, particularly on these large commercial jobs in our multifamily jobs, yeah price matters, but what's more important is how well you manage the crews how well you manage the GC.
C and how strong that relationship is and the team is just doing a great job of getting back to where they've been before and being operationally efficient from that perspective, the backlogs in that business.
Continue to be solid bidding continues to be solid and that business actually had a record month in October and from a sales perspective, and we feel we feel really good about where that business is headed right now.
<unk> hundred 80 degrees different from the way, we thought 12 months ago.
Okay, well, that's great to hear and thanks for all the color and good luck with everything.
Thank you.
Our next question comes from Trey Grooms with Stephens. Please proceed with your question.
Good morning, this is norm or cosco on for Trey grooms. Thanks for taking my questions. Good morning.
So first I just wanted to talk about maybe the near term outlook on single family and multifamily you know we've seen a bit of a improvement in single family starts over the last couple of months cycle times have come down. So would you expect that lift to contribute to the <unk> volume and.
And then on multifamily.
You know I think there are some concerns that it's a little piggish, there, but I imagine there is still a pretty strong backlog. So on multifamily for how long do you think that'll be a positive contributor to volume.
Yeah. So it's our belief on the multifamily side based upon our current backlog and obviously this can change, but we feel good certainly about that business through 'twenty. Four there is no doubt that there are considerable macro headwinds.
The macro multifamily environment, which I'm sure everyone on this call.
Can appreciate it on the single family side, you're absolutely right cycle times have I would say completely normalized if not even gotten a little bit better.
Than normal that should have an ability of flowing through a little bit into the Q4, but I think it's much more of a 2024 event.
In October our volume trends for October were the best they've been all.
Whole year quite frankly, and October was actually a tied for a record monthly sales for us as a company, but I would say that we would expect that typical in from Q3 to Q4, we would expect the typical seasonal.
Softness that happens in Q4, if you look back at last year that that softness from Q3 to Q4 is that mid single digits. It will probably be a little bit better than that but we would definitely expect to see that kind of softness one of the things. That's maybe too much of a nuance to talk about on the call, but Thanksgiving is.
Very early this year and construction activity slows quite a bit from Thanksgiving to the beginning of the year.
So we think that will impact fourth quarter results for all of your building products businesses.
Got it.
On the mountain this Jeff, but on the multifamily side too I mean that business still for us isn't nearly as mature in terms of our market penetration as single family business. So you know.
Regardless of what's happening with the multifamily market on a go forward basis, we will continue to let that mature for us.
<unk> gained share to some degree with the net debt market segment, Yeah, that's an excellent point.
If we look at our single family market share in the markets that we're in compare to our multifamily market share.
The markets that we're in we are 10 points lower in market share in those markets in multifamily relative to single family.
Got it that's all really helpful. Maybe shifting gears here.
The price mix side of the revenue equation.
Yeah.
Think previously as we'd looked at sort of the back half of this year, we were anticipating to negative mix impacts one on serving more production builders and two on serving more multifamily demand.
And I think.
I am Anna <unk>.
The answer to a question earlier it sounded like the potential negative mix impact from from serving more of the larger production builders hasn't really materialized, yet and so just.
I hearing that right that that's more of a impact potentially come.
And then I guess in the quarter was there a significant.
It makes impact for multifamily.
Yes multifamily Gabe.
Significant impact on the price mix calculation and you did hear it correctly.
And in all honesty the.
Shifts to production builders weighted towards production builders relative to the regional and local builders has not happened as quickly as we expected. It to so we think that the dynamics around production builders being negative impact or a headwind to the price mix disclosures is really a 2020.
For it that quite frankly.
Got it alright.
Alright, well, thanks for the time and good luck with the rest of the year.
Thank you.
Our next question is from Phil <unk> with Jefferies. Please proceed with your question.
Hey, guys. It's great that you guys have managed this air pocket very well with single family slowing down, but certainly it sounds like you got some favorable outlook as we look at 2024.
How does it all kind of play out I mean do you expect your volumes kind of bottom mountain <unk> and you start seeing a positive inflection by 224, because it sounds like most of your end markets you are pretty positive housing up.
Sounds pretty resilient and same thing on the multifamily side, so kind of help us contextualize.
How your volumes could kind of progressed next few quarters.
Yeah.
I would say that you know volumes are not going to be great.
For the next couple of quarters, I think it's really going to be more maybe back half of second quarter into the back half of the year and that's really at the production builders just absolutely.
Accelerate their construction pace.
So just from a context perspective.
There their backlogs are still down dramatically from where they were now that's a reflection of the order growth having declined so much now in the past few quarters, but having grown significantly and improving not just us the industry significantly improving cycle times to bring those backlogs down but.
They continue to work to build those backlogs back up and continue to build homes, which we think will again be at 24 event that should positively impact our volume disclosures.
But Michael we should expect the rate of decline to moderate in the coming quarters or its going to still take some time.
So like mid next year.
Yeah, I would say that as I said as an answer to the previous question that our our volume trends were the best in October that they've been all year.
That's helpful. And then your margins were have been very impressed with this year and your messaging has been pretty clear and value over volume.
It sounds like labor materials still very tight is that a backdrop, where you see material prices go higher and more importantly is that environment, you can raise prices and drive margins higher in 2024.
Or is the goal just kind of a hold on their price margins. Just because you know margins have been strong and obviously your customers looking to tackle affordability as well.
Yeah, I'll start that and then Jeff can finish but.
Obviously.
You know I think we've been pretty consistent in this is that we always want to value.
You know the services that we provide provides thoroughly.
And we always we do want to maintain margins, where they are but you know there is a balance we have to have a balance between our customers profitability our suppliers.
And we.
It's hard to.
Express really how important the stability that we've seen across the board in so many aspects of the business that really helped us to manage very effectively this year and deliver the kind of improvement in profitability that we have is that the team has just done an outstanding job of.
Managing the various inputs, if you will and dealing with the fact that they don't have to stress that they had last year associated with getting materials. So.
Yeah, we we will continuously work to maintain and improve margin.
But admittedly our margins have been on our gross margins have been.
Really we have been very confident with and feel very good about the results that we've had this year.
And I would say despite there being maybe some you know.
Future.
<unk> on the horizon as it relates to certain market segments being deteriorating into somebody could be still a healthy market overall I mean, let's face. It the builders are doing well, we're doing well and I can I mean I can also say for sure that we don't have a lot of costs that are coming down. So if we don't have costs coming down.
It's pretty tough to just sit there and just take.
Take it on the Chin in terms of pricing and a healthy environment.
Glenn.
I appreciate the color. Thank you.
Sure.
Yeah.
Our next question comes from Jeffrey Stevenson with loop capital markets. Please proceed with your question.
Hi, Thanks for taking my questions today, and congrats on a nice quarter.
So regarding insulation pricing it sounds like any potential realization from a car manufacturer increases will be delayed until the late fourth quarter at the earliest but that's the increase does gained modest traction are you confident that you'd be able to pass along incremental pricing.
Your builder customers if needed.
Historically, we have been able to and particularly in an environment, which we believe will exist in 'twenty, four where theres going to be growth on the single family side.
And.
You know historically that has been a very good operating environment for us to make sure that we're getting paid a fair value for our services based on the cost of materials. The cost of labor I mean, well we've talked a lot about Oh, you know the performance of our team and how things.
I've been benign and fairly stable, but the reality is is that labor continues to be very tight across the industry.
And there's.
The value of price to be paid for that labor and as Jeff Just said I mean, our costs are going down and then if our costs are going up we need to work with our customers to make sure. There's a fair balance there.
Okay, No that makes sense and then the second question was just how you're thinking about share repurchases moving forward in.
In the past you've taken advantage of market volatility and wondering if that could possibly be on the table in the future.
Absolutely as you know we've been opportunistic with our share repurchases and we are in an incredibly strong capital position right now.
This business generates a lot of free cash flow, which is fantastic and you know we see as the number one way we can return capital to shareholders is through share repurchases.
Great. Thank you.
Our next question comes from Ken Zenner with Seaport Research Partners. Please proceed with your question.
Good morning, everybody.
Kevin.
Well I guess gross margin say, it's good to be choosy.
I Wonder, it's obviously good not to buy product at home depot as well. So could you kind of talk about I realize there's a lot of moving parts here, but could you kind of isolate the benefit you're having from normalization of price.
Which helps you but also in terms of you know the bed you've made but also the fact that you know perhaps here.
Volume relationship with the manufacturers is also helping you is there a way to kind of focus on that delta alone of the input costs.
The material.
I mean, clearly as you've pointed out not having to buy certain material that's out of distribution.
Is is a tailwind obviously.
And it was a fairly significant headwind to the business as we pointed out.
Last year and even in the back half of 'twenty, one, but we have not quantified specifically that on these calls.
Alright.
I figured I'd ask it so.
Looking at the past and thinking about the future you know one of your.
Not your largest customer.
Our reported recently and they basically had volumes closings kind of flattish right now nothing too crazy, but it really missed a huge V. In terms of their you know start activity, which was call. It 25000 down to 13000 back up to like 22 23000 units, that's a big D, which you guys had to.
Advocates.
So two things.
The cadence and then that same customer has kind of talked about gradual increases in starts although you know avoiding seasonality so.
In the past about large customer really was meaningfully part of the market you guys had attributed a price mix issues associated with them because of the lower mix associated.
Associated with them.
You've talked in generalities already about kind of next year, but is that you know big one of the largest.
You have the best data set for next year.
Kept for perhaps another competitor about starts are you what are you seeing right now I mean to make it a little more specific around.
Production builders I mean.
They're holding price or they reduce price.
Why should we not expect a kind of price mix drag next year I guess would be my question.
We do.
But it does not.
Necessarily bad amidst stable pricing inefficiencies right in regards to your long term operating leverage.
And while our average job price with some of the large production builders is lower than it is with the regional and local builders, which makes complete sense, because they're building more efficient homes and lower square footage homes on average right. So right less relation that actually goes into them, but.
We feel.
Very good about our relationships with the biggest production builders and our ability to size up with their intentions to grow them.
Bulk orders in double digits and high single digits closings next year.
We work at the local level.
You know very closely with the production teams of those large builders to make sure that we're there for them when they need it and they expect that and we deliver that.
And then as it really.
H T. Your.
Kind of growth patterns, but also you know this internal our local skills that you have I'm looking at slide 12 on <unk>.
Your <unk> presentation, where you talk about.
Penetration in markets were developed.
Where you have a lot of well basically our take is 4400, where you're.
Stablish compared to let's say 2200, how does a slowing.
Activity or a shift.
It's more production builders traditionally effect, that's 90 or business in terms of your ability to go deeper.
With customers is there anything that you can expand on there is market volatility tends to create opportunity.
It really depends upon the customer I would say that in the developing markets.
Can tend to be larger production builder markets than some of the more established markets.
And I would say that were.
Doing a good job of trying to cross sell the other products into that production builder.
Base.
And quite frankly.
Which is a little counterintuitive to some of the things that we've said in the past relative to the other products, but as their production increases they value more our ability to provide multiple installed products for them, especially these which we've talked a lot about the small dollar valley.
These are products that are that we install so it should help too.
Improve the characteristics of a developing market with those production builders.
Thank you.
Our next question is from Keith Hughes with Truth Securities. Please proceed with your question.
Hi, This is Jonathan Bettenhausen Entre Keith Thanks for taking my question. So the 10, one installation volumes year to date, it's held up much better than the peak housing starts declines I may have missed this but I was wondering if you could give us an indication on how much of that relative outperformance as backlog supports how much of that comes from like pivoting to the commercial business.
It's a it's a combination of really all of that quite frankly.
At the end the team is doing an excellent job of performing and executing on all of the things that we've talked about previously in the call. So yeah. It's a combination of all of that.
Okay. Thank you.
Sure.
We have reached the end of the question and answer session I'd now like to turn the call back to Jeff Edwards for closing comments.
Thank you for your questions and I look forward to our next quarterly call. Thanks again.
Yes.
This concludes today's conference you may disconnect your lines at this time.
Thank you for your participation.